Any while we're talking 50bps, anyone who's up for a rocket ride to a new universe of speculative ecstasy hop on board and get a good seat before the Fed cuts rates!
And I had just posted a Bloomberg story on this in the last thread.
Of course, the problem is that this money has to get into wages to save the debt deflation. And with unemployment rising...it ain't gonna get there. There was a transmission mechanism for this in the 70's. It no longer exists.
ac, I posted something like "people will change their habits with $4.50/gallon gas. I think you corrected me, telling me that it would take more than that to affect driving patterns. I heard an auto industry expert who put the number at more like $7.00/gallon where it would have a major impact on driving. How many people out there have another $30-50 a week to spend on a commodity price increase??
All that excess is going to eat the remainder of consumer spending.
The problem is that rate cuts, which I guess the banks welcome (and the banks are what Bernanke is supposed to take care of) just don't cut it (you should excuse the expression) anymore.
Look at what the yen is doing. Climbing like mad.
Leverage is dead. Deflation is here to stay.
Oil? China is not going to be demanding as much oil when it's exports to the US crater.
It's like gunning the car up to 150 mph and then having to slam on the brakes. Happened before 1979-1981. Volker slammed on the brakes and the economy crashed.
ac, I posted something like "people will change their habits with $4.50/gallon gas. I think you corrected me, telling me that it would take more than that to affect driving patterns. I heard an auto industry expert who put the number at more like $7.00/gallon where it would have a major impact on driving. How many people out there have another $30-50 a week to spend on a commodity price increase??
I don't know much about driving patterns, so it might have been someone else.
The main positive I see is that it may force us to start working on alternatives to fossil fuels more, whatever they may be.
Edit: That's not to say I'm expecting $7/gallon gas, just that any and all increases in price are going to put a damper on spending elsewhere. People aren't going to ride a bike to the mall and continue to spend.
Well, in many metro areas, most fuel is burned commuting. It's highly inelastic, as quitting the job is not an option. Maybe walking to the grocery store is an option. Maybe in certain urban centers busses are an option for work. But in SoCal, if you're not working where the central planners say you are, then expect to spend 6 hours a day getting to and from work. People will do it if they have no choice...but it will bring great pain.
I'm beginning to think that that word is going to be the catch phrase for '08. Pain.
That automobile expert also was knowlegeable regarding alternative fuels. His take was that solar, wind, et al were a drop in the bucket. They're so expensive to both purchase and operate and will not produce enough. He said nuclear power was the only substitute for the amount of fossil fuels we consume.
Misean, I had to commute in Germany for a month or so. I had thought everyone took that trains in Europe. No way. And now the gas there is more than $8/gallon.
"The Federal Reserve intends to conduct biweekly TAF auctions for as long as necessary..."
then why is it calling it a "temporary Term Auction Facility" per its initial announcement on Dec 12th?
When does temporary morph into long-term or permanent? Is this a perpetual motion machine? I mean, there will never be a liquidity crunch ever again if this becomes permanent.
Nuclear is the only solution going forward. Unfortunately the MSM has so conditioned Americans that nuclear means Death, Destruction, Disease and Decay (title of a song I wrote in the 80's LOL), it won't happen here without a lot of ...Pain.
The main positive I see is that it may force us to start working on alternatives to fossil fuels more
Canadian tarsands were allegedly economically recoverable at $30/bbl earlier this decade. Issues with water usage, and natgas consumption, and of course environmental concerns have appeared.
Plus I suspect they're finding out expending more energy than you get isn't that great economics, neither.
As for real-world impacts, I expect land values for housing near employment centers to be bouyed, and land values far from employment centers to drop. $400/mo can service $100K in mortgage debt, so saving $200/mo in worth $50K in home value or so.
I chose my apartment back in 2006 to be close to work for this reason; I fill up every month or so.
That's my point. Mass transit may get you to work, but if you have to stop at a shop on the way home, and then go to the Dr's, then the pharmacy...etc...ad nauseum...it sucks.
Stop focusing just on gasoline and focus more on diesel. It's already near $4. Every day, there's almost as much crude burned delivering goods to market in the U.S. as commuting. Count the trucks on your local turnpike. A large number are indy and even $4 diesel burns through their profit.
You say so what, we don't need so many indy truckers in a recession. Right. But they won't be there to drive the recovery.
Unfortunately the MSM has so conditioned Americans that nuclear means Death, Destruction, Disease and Decay
That and TMI. As it is, living in Japan in the 90s I got to see how human incompetence and nuclear power DO NOT go together so well.
I'm all in favor of nukes if we can get an organization of the quality of Rickover's USN to run the program, but I don't think even Buffet would want to take on insuring a new nuke industry.
Plus the lifecycle economics of 20th century nuke tech isn't that hot, either.
"Plus I suspect they're finding out expending more energy than you get isn't that great economics, neither."
Too bad the bio-fuels nut jobs don't understand this. The reason we're where we are today is that fossil fuels release more energy than is consumed in extracting them, processing them, delivering them, and burning them. That's why nuclear is the only option.
But the indicator Sebastian swears by, the Wright Model B, says there's only an 11.4% risk of recession even with current rates. Such silly people to worry and think we need another 50 bps cut. Clearly, they lack the lofty intelligence and savvy of Sebastian.
Mass transit may get you to work, but if you have to stop at a shop
Living in Tokyo we shopped at least three times a week at stores, on the way home from the station -- never buying more than we could carry home.
Far far superior to life here in the BA, but then again if I had 2-3 kids and were the typical obese American I'd prefer the door-to-door SUV approach to transport planning, hands down.
Far far superior to life here in the BA, but then again if I had 2-3 kids and were the typical obese American I'd prefer the door-to-door SUV approach to transport planning, hands down.
Ah, the real kicker. The "energy friendly" lifestyle of Japan and Europe doesn't support a birthrate above replacement rate.
The French do quite well with nuclear. As do the Germans. There are risks of course, but without energy several billion will die. The power grid in SoCal gets energy from the Hoover damn. Run a fun hundred miles of grid to central NV, or AZ, and have the plant far away from population centers.
While I support nuclear as an alternative to fossil fuel combustion, it isn't the magic bullet either.
My bet for twenty years from now is organic film solar power collection. Get a self-organizing bunch of organic polymers and put 'em in paint. Then spray paint every roof and car in the US and you have your energy source for the future. If they can increase the efficiency of current organics a few percent, this will be the future energy solution that will truly reduce our dependence on fossil-fuel combustion.
An 18-wheeler can cost $100,000 or more and a lot are leveraged with not much money down. Yes, normally it's pretty good collateral for the bank or finance company. But not when hundreds of truckers are parking it every day. Rig resale prices collapse.
Truckers are critical to the security of this country, and nobody gives a damn about helping them.
Japan is very dense in population distribution. Cities after the war were built around Mass transit, and human energy transport (bikes, walking). Here in the US, not so much.
The Bush administration, faced with a deteriorating economy and a big jump in unemployment, said Friday it was considering an economic stimulus package that might include tax cuts to ward off a recessio
"Real" Fed chairmen cut in full 100bps increments. I say bail out the speculators, banksters and idiots and take that puppy down to (-)20%. That'll re-inflate housing & the MEW ATM machine in a hurry! Can't wait til I get my (-)15% FRM and receive a nice, fat check every month from my lender. Talk about being "paid to consume" --it's the Amerikan way!
The Bush administration, faced with a deteriorating economy and a big jump in unemployment, said Friday it was considering an economic stimulus package that might include tax cuts to ward off a recession.
Send $500 dollars to everybody. Has to be "before the November elections". Rich.
There is zero chance of tax cuts or a stimulus package making it through Congress before 2009.
Who ever wins (loses)the election in 2008 will inherite one big f'n mess. Tax receipts will be down and payouts will go up... per Dick C "deficts don't matter.."
Many biofuels have a positive EROEI, just not the ones that we choose to use in the US.
Anyway, there's no reason that we couldn't have large farms that primarily worked by human labor instead of diesel tractors that produce high cost fuels. I think there will be plenty of human energy available, so long as there is food.
I haven't studied it much myself, but over at theoildrum i read that it was estimated that we would reach peak uranium by 2040.
Also nuclear take a huge amount of investment that previously was based on cheap fossil fuels. Granted we can probably do much better these days, but I don't think nuclear will be any bigger part of the solution than biofuels, solar, etc.
No it hasn't. But, unfortunately for the Germans, the Greenslime Party has an outsized presence in the ruling party's hold on power. It was one of their main demands to join the ruling coalition.
Misean:
"the Greenslime Party has an outsized presence in the ruling party's hold on power. It was one of their main demands to join the ruling coalition."
The Greens are in opposition since 2005. I'm not too fond of nuclear, but I suppose the German government will slowly push the deadline ever further into the future...
Will any amount of fed rate cutting have any affect?
It seems if banks aren't borrowing at the discount window, and the amount of cash provided through the auctions far outstripping the amount of repurchase agreements(about equal now, but won't be in a couple weeks), that lower fed rates will have zero affect on the amount of cash in the system.
Unless of course the fed buy more treasuries(permanant) to increase the money supply, but they can do that now WITHOUT lowering the fed rate, correct?
So isn't it more of a propoganda campaign than anything?
The Fed 50 bps rate cut will send more chills through the bond and currency markets and probably entice more foreign central bank at diversifying its reserves away from dollars.
Foreign countries -- particularly Japan and China but increasingly the oil-exporting states as well -- are getting sick and tired of financing America's massive current-account deficit.
As they lose more of their appetite for U.S. debt, the dollar goes into a bigger free fall and American growth stagnates even further.
Buying US assets ( like Morgan Stanley, Citibank, Merrill Lynch ) is a much better option.
Yes, I completely agree with the cascading cross defaults. I also think there is absolutely no solution to the problem, since sentiment has changed and will continue to deteriorate.
The funny thing to me is that the deflationists claim we are now in deflation, and the inflationists claim that the fed is printing like mad.
So far neither are true according to the official numbers, but BOTH are true in reality. The massive amount of defaults aren't showing up yet. The printing isn't showing up either, but then again I haven't heard anyone explain why the UK bought nearly 200 BILLION of our treasuries during the second half of last year.
I think either we are covertly monetizing, or maybe the BOE is buying our debt while we buy theres, in a strange sort of obfuscated monetization. Though I can't really see any evidence of that yet.
I'm really anxious for the next TIC release.
BTW misean, I do think that we are doomed, been planning for it for a few years now. Though I believe my planning is vastly insufficient.
Ethanol fron sugar cane has a positive ROE; from corn it is 0 to slightly negative. Yet Congress has placed high tariffs on Brazilian corn sugar ethanol because of the Iowa caucuses role in elections. Nuts, isn't it?
OTOH, the US South used to be a cane growing area and could be again.
Hmm, assuming the previous 2 auctions are paid back and the outstanding repos are rolled over, the second 30 billion dollar auction will increase the "Total Factors supplying reserve funds" by 4.5% since Dec 27.
"The TAF auctions are all about not having to cut 50bp, because the inflation numbers are telling them they can't cut. It's a de facto cut..."
But is this really the case? I've seen a good bit of analysis lately demonstrating that net-net, the Fed ain't pumping nothing new into the banking system. They're just rolling over REPO's. Hussman has been jumping all over this. Anybody disagree?
If Bush gives out another tax cut check to stimulate the economy I am going to put it under my mattress
dammit, I wasn't thinking back in '01 . . . if I had not deposited that stupid $300 check I'd still have gotten the money via the 2001 1040 refund. . . 'd'oh!
even though i believe that the monetary base has been increasing via M3, lets assume for a moment that Adler, Winter, and Hussman are correct that the money supply is not changed one bit.
my argument would be that clearly asset prices like housing have been deflating significantly and thus the money supply has to decrease at the same rate to prevent inflation. by keeping the supply steady then we are going to experience inflation overall which manifests itself in other parts of the economy other than housing, namely commodities. this is why we're seeing gold spike as well.
btw, the TAF injections look like they will be a permanent ADD to the money supply and thus inflationary since its being given out below mkt rates and contributes to keeping asset prices elevated above the normal mkt forces.
The feds inflation numbers are based on (vastly understated) price inflation. IMO, we could still have some pretty significant price inflation in the pipeline, even in the face of little monetary growth over the last couple years, defaults, and severly declining velocity.
But I just saw Cramer and he said:
1) This wouldn't have happened if the Fed had listened to Cramer.
2) The Fed isn't going to help... they don't care about the Market
3) Inflation doesn't exist, it includes food and oil (ethanol), but it doesn't include your home price. There is no inflation.
4) Listen to Uncle Kramer and he'll get you through the turmoil...
Stopped watching since my son was begging me to watch Barney or something...
Like coming off of an 8 year bender--car out of gas on the side of the road, wallet gone, foreclosure notice stuck in the back pocket, bruises all over, scrapes and scars, flashing lights from the cop car roof, and dim memories of living high.
M3 isn't a measure of the monetary base. Even M1 overstates the monetary base IMO.
I think prices will continue to rise because of fundamentals of supply vs. demand. Not because of monetary growth(though this could change VERY quickly if/when they choose to monetize treasury debt).
Overinvestment in housing meant underinvestment in energy and food.
Declining credit availability is going to serverly limit new investment in the very areas that investment is desperately needed.
Not everything is directly related to the supply of money.
Imports,
which are a subtraction in the calculation of GDP, increased.
\t
\tThe acceleration in real GDP growth in the third quarter primarily reflected accelerations in
exports, in PCE, and in private inventory investment that were partly offset by an upturn in imports, a
larger decrease in residential fixed investment, and a deceleration in nonresidential structures.
"Pain"
Misean, I always thought you had the eloquence of Clubber lang.
nemo - from the end of that transcript:
"and to assure
the American people that we will do everything we can to make sure we
remain a prosperous country.
"
oh, crap.
Why do we need American truckers anyway? Don't you know that the Mexicans can do it cheaper... our wonderful President has found a way for the trucks to keep on trucking!
The Bush administration is going ahead with a controversial pilot program giving Mexican trucks greater access to U.S. highways despite a new law by Congress against it. The decision to proceed with the four-month-old program, which allows participating Mexican trucking companies to send loads throughout the United States, comes despite language in the recently signed catchall spending bill aimed at blocking it.
The ISM Non-Manufacturing Imports Index increased in December after one month of contraction in November. The index registered 50.5 percent, 1 percentage point higher than November's index of 49.5 percent. In December, 64 percent of respondents reported that they do not use, or do not track, the use of imported materials.
"Market pressures in the fourth quarter continue to slow business and limit growth going into 2008 in the financial services sector." (Finance & Insurance)
DSG, the electronics giant that also owns PC World, said slow sales meant its full-year pre-tax profits would be up to £50 million below forecasts. About £30m of this, it said, was down to poor festive trading.
The company's shares closed down 29.25p at 78p, as some retail analysts wondered whether the performance would drive new chief executive John Browett, who took the reins in December, to cut the dividend.
The group, formerly known as Dixons, blamed slow demand for laptops and a drop in computer sales in the 11 weeks to 29 December. It said this offset better demand for iPods, games consoles and digital photo frames. Same-floorspace sales were off 10 per cent at PC World, while sales in the Italian business, UniEuro, fell 11 per cent. Currys sales were flat.
"The TAF auctions are all about not having to cut 50bp, because the inflation numbers are telling them they can't cut. It's a de facto cut..."
But is this really the case? I've seen a good bit of analysis lately demonstrating that net-net, the Fed ain't pumping nothing new into the banking system. They're just rolling over REPO's. Hussman has been jumping all over this. Anybody disagree?
winjr
They're actually pulling liquidity out of the market, but they have to use the TAF & Discount window to prevent further credit seizure, like trying to wean a junkie off heroin be lessening his dosages rather than putting him straight to methadone(rate cuts)
What I meant when I wrote of a de facto rate cut is that they'll hold rates or drop 25bp while letting inflation accelerate. This in theory forces people to put money to work instead of sitting in crappy yielding treasuries.
Now the banks have written off a lot of bad debt, but are their reserve requirements satisfied so that they can start lending again at a non usurious rate?
Criminals frequently use the Internet to recruit money mules to gain access to stolen funds gained from their use of banking Trojans, key-loggers, and phishing.
People looking for jobs on the Internet are at risk of being targeted by money launderers who use spam messages, job adverts placed on real recruitment sites and illegitimate professional websites to convince the job hunter that they are being offered a genuine employment opportunity.
As a lure, money transfer agents are usually promised a 5-10 per cent commission for processing payments through their personal bank accounts. After providing their bank details to the criminals, a major security risk in itself, money mules receive transfers of stolen money into their bank accounts. They then withdraw these funds and send them to the criminals using an anonymous money transfer service. Hypothetically, the transfer agent is forwarding the money to a software developer in a developing country. In reality they are supporting an illegal organisation.
even though i believe that the monetary base has been increasing via M3, lets assume for a moment that Adler, Winter, and Hussman are correct that the money supply is not changed one bit.
I don't think M3 sufficiently differentiates between monetary expansion and credit expansion.
Excessive monetary expansion tends to be inflationary (e.g. China today) whereas excessive credit expansion tends to be deflationary (I think this better describes the US today).
Even some hard core hyperinflationists like Marc Faber argue that a period of deflation would come first.
There's enough awareness of inflation in the US, though, that I think it would be hard for the Fed to pull off an inflationary bailout. But I don't think it's impossible.
I argued that commodity prices would go up if the Fed cut rates because I believed the cuts would start a new wave of credit expansion which, again as I understand it, is better interpreted as a boost in velocity (which gives the appearance of greater money supply) than an actual increase in money supply. It's not quite that simple with the fractional reserve system though.
Greenspan said even the Fed doesn't understand what money is these days.
even though i believe that the monetary base has been increasing via M3, lets assume for a moment that Adler, Winter, and Hussman are correct that the money supply is not changed one bit.
The Federal Reserve creates base money (SOMA + cash + Repos) and Banks create M1-M3.
The Fed limits the amount of M1-M3 that the banks can create through reserve and regulatory capital requirements. In '95 reserve requirements were gutted by Greenspan and M1-M3 creation took off.
Banks created off-balance-sheet vehicles (SIVs, Conduits) to skirt regulatory capital requirements. This allowed the creation of a lot of money-that-isn't-money (let's say M4).
Now, the money-that-isn't-money market is collapsing. That's deflationary. M1-M3 is ballooning right now because people are trying very hard to turn that money-that-isn't-money into M1-M3.
That is stage one. We haven't completed (IMHO) stage one yet.
In stage two, the banks balance sheets balloon in the rush to turn M4 into M1-M3. Regulatory capital (equity) as a percentage of of the balance sheet liabilities decreases. Equity also takes a hit as bankruptcies destroy the asset side of the balance sheet. Banks decrease lending, and M1-M3 drop. That is stage two.
Stage three is debt revulsion. Businesses and households manage cash flows more tightly. Less money that could be used to pay down debts is allowed to "slosh" in cash and savings accounts. I don't think stage three has begun.
During this time, the Federal Reserve is trying to grow (or at least keep steady) base money (which represents all the regulatory capital in existence). Typically, they do this by lowering the short end of the yield curve below market rates. Since banks borrow short and lend long this increase banks profits which increases equity (regulatory capital) and increases the amount of M1-M3 they can create.
"It's like gunning the car up to 150 mph and then having to slam on the brakes. Happened before 1979-1981. Volker slammed on the brakes and the economy crashed."
To all the stagflationists out there, repeat this over and over again to yourself: "this is not the 1970's".
Look guys, there's are too many differences to even get into here, but the main ones that shoot a hole in the 1970's re-run philosophy are debt levels and income increases (or the distinctive lack thereof.)
What do you think would happen if the Fed actually pulled a "Volcker" with debt loads the way they are and the economy resting precariously on the head of a giant fraud-laden pin? KA-POOM!
BTW, good raises are nowhere to be found so inflation is passed directly into JSP decapitation plays.
...
During this time, the Federal Reserve is trying to grow (or at least keep steady) base money (which represents all the regulatory capital in existence).
Kicker
On MY timescale, i.e. since Aug, base money is coming down; and I regard that as NOT that the Fed is contracting money but at the FFR target rate the Fed wants, despite the 1% cut, the demand isn't there.
And we all agree that the Fed doesn't target money supply don't we, it sets a desired FFR rate and lets the AMB chips fall where they may.
So for me, the AMB reflects a real world contraction of desire for money going on, even at the lowered FFR target rates - since Aug anyway. Which is money DEFLATION ( but not necessarily price deflation in the things that we must have, like oil and food - if these items are going up then in my view of things other items have to come down to reflect the overall monetary reality of things - and none of this is necessarily captured by that bastardized piece of garbage - the CPI, in all its forms ).
Canute, TAF is an experiment (with an experimental cartridge of $40B/mo that was found to be inadequate, although the 28 day period was extended to 35 on that 2nd auction, possibly to accommodate perceived FF rate changes?) that appeared to have some (short-lived...and so the bump to $60B/mo?) effect on the ABCP market.
Those commercial banks in trouble buy time with this "facility" and not a solution to insolvency issues brought on by income streams that are no longer flowing from the mortgage basins. (The anonymity by itself is shouting that this is not merely "Illiquidity", IMO).
It appears that these monthly injections are additions to the money supply, but do they in fact work that way or do the commercial banks use these funds for prospective M&A and the growing case for future consolidations?
A 50% jump in the TAF suggests that there is little time for fine tuning this facility...some nervousness, yes?
Just 17 months ago (July 2006), the Dow Jones Industrial Average stood at 10,700.
Friends, don't blink...because we will find ourselves staring at a 10 handle on the DJIA in very short order...as we begin to price in the recession at hand.
The bad news however, is that the average historical correction in the US stock market thru a US recession is 30%, from top to bottom. (Which would take us to below 10,000 on the Dow...9870 on the DJIA). And this correction, because of the magnitude and buildup in debt at all levels of society...will be far from average.
"Banks created off-balance-sheet vehicles (SIVs, Conduits) to skirt regulatory capital requirements. This allowed the creation of a lot of money-that-isn't-money (let's say M4).
Now, the money-that-isn't-money market is collapsing. That's deflationary " Kicker
would u agree that there is not a 1 to 1 correspondence btwn declining asset values and your M4? the slippage coming from TAF, discount window and rate cuts? that is, asset values declining faster than M4 which increases the ratio M4/asset values which overall is INFLATIONARY?
This is just an equation for pieces of paper and digits in a computer. I don't see what that has to do (directly) with real wealth or the real economy.
It's possible to have a growing economy with deflation if there's not a lot of debt, but in that case the above GDP figure would still be falling.
sk-What, besides houses, has come down since August?
A more general question, if banks won't lend, why not open up the discount window to you and me? Pay off your old mortgage at 6, 7 or 8 % and get at new one at 4.75% (or maybe 4.25 %). Even if you limit it to good credit risks with equity in the house to limit losses, that would give tens of millions of households hundreds extra each month. End of the recession right there...
no because you just did early payoff of billions upon billions of mortgages which ruins the profit model the securities they are built from - thus you are draining profit (higher interest payments) from the banks and holders.
It is like saying nationalize credit card debt to save america: what do you think happens to citibank almost overnight if they can't charge 30% on rolling balances for their credit card holders? it would ease the load on consumers but banks would collapse.
everyone here needs to think of credit as money and money as credit in todays world. thats where sk is wrong in just looking a AMB from the Fed.
we also need to remember that the reason we're in this mess is that the Fed has kept rates at an inflationary too low level for too long. Wall St knew this which is why they borrowed ever dollar they could get their grubby little hands on up to 25x their capital and then bought every asset they could creating this massive inflation of primarily house prices.
now that turning around with decreasing house prices and the Fed is trying to prevent this by essentially increasing the money supply by overpaying for devalued collateral via TAF and the window.
sk-What, besides houses, has come down since August?
stocks, RMBS, CDOs,
A more general question, if banks won't lend, why not open up the discount window to you and me? Pay off your old mortgage at 6, 7 or 8 % and get at new one at 4.75% (or maybe 4.25 %). Even if you limit it to good credit risks with equity in the house to limit losses, that would give tens of millions of households hundreds extra each month. End of the recession right there...
Aheadofthecurve
I don't follow - there is no set up for the Fed to actually GIVE money to anybody - they always take some collateral in return - so if the money they give you pays off the "other" mortgage, which you'd have to to pledge the house as collateral - its a closed loop - nothing has been created - you just substituted one lender for another.
"no because you just did early payoff of billions upon billions of mortgages which ruins the profit model the securities they are built from"
But that has happened many times in the past, like in the 90s. Any time interest rates fall, people refi and pay off old mortgages. banks would have to develop other lending businesses. That's their problem-the well-run ones would do it.
Yes, the houses would be collateral. The problem noww is that rate cuts will not help the consumer because banks will not pass them through. So eliminate the middle man and lend directly to the consumers. They will spend what they save in interest payments.
O yeah, the fact that bank created non-Fed "money" is disappearing alright - and despite their best squealing and whimpering, so far the Fed is not replacing it with their own. That's my point. TAFs have simply been balanced by reduced slosh in the repos AND redemption of T-bills as their website has said, on each of hmmm, 4 occasions.
On MY timescale, i.e. since Aug, base money is coming down; and I regard that as NOT that the Fed is contracting money but at the FFR target rate the Fed wants, despite the 1% cut, the demand isn't there.
I agree, the Federal Reserve is chasing interest rates down at this point. The primary dealers have plenty of cash but no place to they want to put it.
Part of the collaspse of SOMA + cash is that the Fed is feeding money in through the TAF. The increase in repo's about offset the decrease in SOMA+cash.
It's possible to have a growing economy with deflation if there's not a lot of debt, but in that case the above GDP figure would still be falling.
Yeah, nominal GDP. In a deflationary environment you can have real GDP increasing even though nominal GDP is decreasing.
would u agree that there is not a 1 to 1 correspondence btwn declining asset values and your M4?
Not sure I understand you there...
I don't know of any way to relate the value of money/credit in the economy that means anything.
"The bad news however, is that the average historical correction in the US stock market thru a US recession is 30%, from top to bottom. (Which would take us to below 10,000 on the Dow...9870 on the DJIA)."
Hahverd Econ 101 | 01.04.08 - 8:22 pm
Any way to compare the total $ stock market equity run-up (from its low point in 2003) to its peak, with respect to the total $ home equity run-up during the same period.
Just might be interseting to compare potential bubbles, assuming both are just that.
Equity run-up does not necessarily imply a bubble. Divergence from historical value does. Housing diverged, stocks did not. In fact the "bull market" fom 2003 was IMO not much of one. Typical bull markets surpass the previous highpthis one did for about 15 min on the DOW, never on the S&P and not within 405 on the NASDAQ. Second bull markets are supposed to have P/E multiple expansion, yet P/e was 23 in 2003 and is 16 today. No, stocks have been in a secular bear since 2000.
sk- Something has changed insubstituting one lender for another-lower rates.
Aheadofthecurve
OK I concede that. So far this is a thought experiment - so how do you get to "end of recession" from this?
On the practical front - hmmm they'll have to demonstrate that this fits their dual mandate; then deal with the fallout from all the existing mortgage lenders and set themselves up as mortgage brokers - subcontract their job perhaps to NEW? or AHM ? of CFC ?
The problem now is that rate cuts will not help the consumer
perhaps you need to move out of Loudonville where there are less bush voters who might be talking it up at cocktail parties about how tax cuts for the rich help the kids in Troy. You think any of these moves are designed to help the "consumer"?
It always cracks me up when the market "expects" something.
The market was obviously not raised in a conservative household like my parents ran. Otherwise, the market would have been told that they can "expect" anything they want, but life is full of disappointments
You would be putting extra cash in the pockets of millions of households every single month. That would beat a one time Bush-style tax cut by a mile as an economic stimulus.
As for the other objections, you could funnel it through lenders. Give them processing fees or a rate differential. Just as long as the money was required to be passed on to the homeowners.
It has the virtue of simplicity and transparency. No M1-4, just cash in hand. Also, unlike a sub-prime bailout large numbers of poeple would benefit, since virtually everyone is paying higher than the discount rate.
I mean, mortgages are for YEARS ! I suppose you could get the Fed to staff up or subcontract to handle 30 years long discount window loans - or you could line up daily at the window to rollover your daily loan, everyday for the next 30 years, or...
But c'mon, its like - just because elephants CAN mate doesn't mean they SHOULD.. no wait..
12th That's a really stupid comment. I am by no means a bush voter and haven't been to a cocktail party in years. I know bush isn't trying to help consumers. But I am proposing something that could. And what do you do but whine and be sarcastic?
My father was a Teamster. There is no reason on God's Green Earth why we should have the long haul trucking network that we do.
Odysseus,
Are you Rip Van Winkle? Years ago, the U.S. long-haul industry shifted from employed teamsters to independent owner-operators. The people who bring the goods to market now, and for the past 30 years, are mostly small business people.
They own or lease their own rigs and pay their own expenses.
Look, I'm just really tired of hearing, "Oh, it's terrible, Nothing will work. Oh, oh,oh..." Bull! I don't accept that. Think outside the box!
Some here seem to think (hope) that a recession will lead to some wonderful political change. I don't think history supports that. Japan has been in recession for over a dfecade and they are still run by the same political party since WW II. Russia had a crisis in 98-they switched Yeltsin for Putin, which was going to happen anyway. Great! Thailand had a terrible crisis in 97-98. No revolution. Sorry, we have to deal with this within the political system that exists.
The local real estate boom is over, Laney said. The speculators expecting to flip a property quickly are gone, and those wanting to buy a place to live in are shopping more carefully. In 2006, sales of Oahu single-family homes fell 12 percent and condos fell 20 percent. If the performance in the first half of 2007 is extended to the entire year, there will be another 6 percent drop in activity.
He noted that the median price of Oahu single-family homes is still rising, but the acceleration of 2004 (a 21 percent increase) and 2005 (28 percemt) has halted. In single-family homes, 2006 saw a 7 percemt rise in the median price; the first half of 2007, a mere 1.6 percent increase.
Neighbor Islands have seen price declines So far in 2007, Maui single-family median prices are off about 12% percent, while Kauai and the Big Island have dropped about 3-4 percent.
Works. Progress. Administration. Direct funding towards mass transit, freight rail, solar energy, and environmental repair.
But first: reverse all of the Bush tax cuts except the one at the bottom of the scale, and also jack up the estate tax at the upper end of the curve to recoup some of the loot that was siphoned off over the last 7 years.
I was going to concede some genius in this lunacy - then I remembered - actually this sort of "subsidised" loans is often done in Third World countries, banana republics ( as distinct from 3rd World countries ) and socialist countries - ie. those without independent central banks - and they all ration the stuff ( 5 year waits for loans ) or/AND get high inflation; quite apart from endemic queue jumping, corruption, special categories for priority, delinquencies , EPD, FPDs, are a real problem, loan forgiveness often a solution - yeah I've seen this in action for real.
So, this is what the future holds for the USA I suppose.
The President ponders the need for fiscal stimulus. Let's hope he does not decide that invading Iran will solve all of his problems. This is getting really scary!
You're confusing credit with money. The inflation already happened in th eform of overpriced RE assets. The FED isn't really printing anything...that's not how it works here...we are not Zimbabwe.
If any of you are missing Robyn she is over at marthastewart.com telling Martha how to prepare osso buco over French lentil ragout with pancetta and red pears, and... how to make a door wreath out of her leftover dollar bills wrapped around a couple of everyday wire coat hangers spray painted green. And, Robyn told financial wizard Martha to never take financial advice from a blog. It is a good thing.
I was thinking about something, which was the idea that the MSM are slanted just because it's good business. I don't think that's all of it.
The quality of the analysts on MSM is so low, whether it's for economics, markets or politics. A lot of the analysts seem to be "captured in the moment." They can't put what's happening around them in perspective of all that has gone before or what is likely to be. Does anyone else feel this way?
I'd like to say I think CR is a good analyst because he is able to balance in equal portions what has been, what is, and what is likely to be.
The Term Auction Facility mentioned in the article does appear to be doing its job of increasing liquidity in interbank lending and getting the commercial paper market moving again. After about 4 months of the credit crunch which has crippled what was once an ordinary and vigorous trade between the banks it is high time that something worked. This process has a cost to the banks though which actually seems to be holding interest rates higher than they would otherwise be. Correct me if I'm wrong but there really hasn't been any loosening effect on credit card rates or other consumer rates that would have a demand raising effect. It seems to me that the FED has eased the credit crunch but not the overall price of credit. This process may be leading to a stalling of demand and deflationary and/or recessionary pressure.
sk- OK let's say my idea is "lunacy". Is is more lunatic than lending $ 600,000 zero-down NINJA? I say not...
Aheadofthecurve
LOL !
Ummm, when a private citizen and group of citizens ( aka company ) does it, its madness but its THEIR money and they can do what they like ! when the government or a govt. setup agency does it, its.. lunacy but its with MY money and I vehemently object.
they are told to be optimistic as Hussman and John Williams have told us. yes its good for advertising revenue but perhaps there are larger donations involved?
yes SRS to the moon! i'm getting nervous cuz my portfolios so far up but when i think about whats ahead for CRE i realize we're only in the 3rd inning of this.
K- Is the Fed's money your money? Who's money is it? Anyway it's a loan so nothing is being given away. All you're doing is cutting interest rates, like when they cut Fed Funds, but making sure the benefits go where they are needed. Rate subsidies are done with FHA loans and student loans.
OTS National Housing Forum / National Press Club, Dec. 3, 2007, D.C. (participants include: Maria Bartiromo, Robert Toll, Angelo Mozilo) http://www.ots.treas.gov/docs/4/481057.pdf
Can anybody tell me How ING bank is doing ?
I haven't heard their name mentioned. My 401k
cash is in their money market fund because thats the "safest" investment inside the fund.
ear Stearns is being clobbered today, down more than 5% to just $79 per share. And it's passed a major milestone, too. Here's its fourth-quarter earnings report:
Book value on November 30, 2007 was $84.09 per share, based on 136.2 million shares outstanding.
Next milestone to fall: at $73.41 per share, Bear will be worth less than $10 billion. Another day like today, and it'll be almost there.
K- Is the Fed's money your money? Who's money is it?
...
Aheadofthecurve
Well, the Fed has NO money of its own - it creates it out of thin air as we all know ( we DO KNOW THAT, right ?); to the extent that its a bank chartered by the government, to fulfill a dual mandate and in the course of fulfilling its dual mandate its allowed to create money out of thin air then its ultimate regulator is the govt. and since this is a government of the people, by the people ( and yup I buy into motherhood and apple pie too ) then I'm its regulator and its MY money.
I'll leave the issue of whether a (NINJA) ("subsidized") loan is not giving something away for another time - for quite a another time.
Citi trades at about 1.1 times book value. That's cheaper than rival JPMorgan Chase (JPM, Fortune 500), which trades at a multiple of 1.2, and Bank of America (BAC, Fortune 500), which trades at a multiple of 1.3. Even embattled Merrill Lynch (MER, Fortune 500) trades at a multiple of 1.3.
Bear is the barometer for banking as mortgage companies are to home builders; book value falls, then they go under
At the core of a typical CDO is a Special Purpose Entity (SPE) that issues
securities to investors in several different classes, or tranches, most of which are rated by
a credit rating agency. The SPEs proceeds are used to purchase a portfolio of fixed
income assets. If some of the assets default, the most junior of the SPEs securities takes
the first loss. Payments to each tranche are governed by a stipulated priority of payments.
There are two broad categories of CDOs that are relevant to this discussion: cash
flow CDOs and synthetic CDOs. Cash flow CDOs involve the actual purchase of real
fixed income assets whose cash flows are used to pay investors in the different tranches.
Synthetic CDOs bundle the same kinds of credit risk exposure without real assets, by
selling protection on the underlying assets using CDSs. Cash flow CDOs were motivated
both by reduction in bank capital charges and potential arbitrage opportunities. Because
synthetic CDOs essentially create new instruments, instead of using assets on bank
balance sheets, they are motivated primarily by arbitrage, not regulation.57
FFDIC, a few thoughts:
- cruising marthastewart.com?
- Oh I know, your wife asked you to check something and you happened to spot Robyn
- You're bored and curious how many of us took the bait to see if it's true
I'm guessing the latter and will admit that I almost bit.
With respect to SRS, maybe the market is realizing there will be more store and warehouse closures as discussed in this article about Talbots and Pacific Sunwear.
Re; Bear S. The US attorney for the Eastern District of NY is looking into their hedge funds that imploded in July. US Attorney is investigating without the SEC which is unusual. source: cnbc rumor monger Charlie Gasperino (sp). This may explain their large drop today.
I used to think that credit was money and that we should be watching M3 and all the other credit measures to gauge monetary inflation. I have since wised up.
Sometimes I think I'm the only one who does understand the difference, though it seems more and more people are coming around these days.
Kicker said
"Banks created off-balance-sheet vehicles (SIVs, Conduits) to skirt regulatory capital requirements. This allowed the creation of a lot of money-that-isn't-money (let's say M4)."
This is confusion of money and credit. He should have said, credit-that-isn't-counted-as-credit-by-official-stats.
Creation of credit IS inflationary, because it generally increases velocity.
Destruction of credit DOES NOT destroy money, but generally does cause(or is caused by?) declining velocity, which CAN cause lower prices, but doesn't always everywhere.
The biggest fallacy that I see is when people say that the Fed cannot control the supply of money. The Fed is the only entity that has ANY control over the supply of money, and in fact they have FULL control(unless of course the government had no debt).
yes SRS to the moon! i'm getting nervous cuz my portfolios so far up but when i think about whats ahead for CRE i realize we're only in the 3rd inning of this.
Or if you've got some hair on your chest you can short URE... not that I'd ever do something like that.
But I've got this friend who's a dirty good-for-nothing speculator that, today, in an astounding display of self-discipline, covered a minority of his positions in the late afternoon simply because he promised himself he would do so (at prior date) to lock in a portion of his (hefty) gains in case the market bounced off resistance the following week and surged upward (in a bewildering and upsetting manner).
Sure, he cried like a little girl covering these shorts even as the market spiraled downward. And sure, he'll miss out if the market implodes early Monday morning.
But at least he'll respect himself in the morning because he's admitted to himeself that he can't really predict the future.
We have now confirmed the Head and Shoulders patterns in the S&P and broke the triangle in the DOW, which is basically a crash call - not instantly, but over the next few weeks to couple of months.-K Denninger
A clean downside break through 12,700 may actually open the flood gates for a major drop back toward the 11,100 zone over the next couple of months. However, we may see major support come into play at around 12,150 due to the major lower trend line in the Weekly Chart.
The Dow is clearly at a crossroad in the charts and 12,800 should be watched very closely. More overall weakness is very likely until the Dow can break back above 13,200.
The biggest fallacy that I see is when people say that the Fed cannot control the supply of money. The Fed is the only entity that has ANY control over the supply of money, and in fact they have FULL control(unless of course the government had no debt).
SweetHomeKilla | 01.04.08 - 10:58 pm | #
They still have control even if gov't debt -> zero: they could 'buy' gold and other 'precious metals'. That would result in a direct exchange taking the some of the metal out of circulation AND injecting dollars into their place. The more expensive gold got - the more 'efficient' the injection (don't have to buy and inventory as much actual metal (measured in pounds) for each dollar of 'liquidity' injected.
Could even argue it isn't even a problem since the asset the fed would be holding (gold) would have appreciated making their held collateral all the more 'valuable'.
There really are a lot of ways the fed can inflate IF they decide to AND if the 'actual' gov't allows them to do it. I do NOT believe the gov't is 'there' yet but give'em time.
i should also pt out that todays close was below the August low which is the 2nd confirmation of the original Primary Dow Theory Bear Mkt Sell Signal. we're heading lower.
Before there was long haul trucking there was the railroad, supposedly more energy efficient. We probably should be re-generating the railroads.
christofay
Don't be ridiculous. You're gonna build a railroad track up to the loading dock of every Wal-Mart and Home Depot, every government and military installation, every school and hospital?
Russell 2000 broke through major resistance of 735 today in a big way. My ultimate target for R2000 is about 550 but it may take a year or two and offer a few timing ops on the way.
This is confusion of money and credit. He should have said, credit-that-isn't-counted-as-credit-by-official- stats.
So, what exactly is the difference between money an credit?
The Federal Reserve has a balance sheet like any other bank. It's liabilities (Federal Reserve Notes + member bank deposits) balance it's assets (treasury debt, collateral, and gold).
"even though i believe that the monetary base has been increasing via M3,"
I agree that this has been the case, up until a few months ago.
"my argument would be that clearly asset prices like housing have been deflating significantly and thus the money supply has to decrease at the same rate to prevent inflation. by keeping the supply steady then we are going to experience inflation overall which manifests itself in other parts of the economy other than housing, namely commodities. this is why we're seeing gold spike as well."
Guess I see it a different way. I see "money" = "debt". Anything that creates a debt increases the supply of "money", and anything that destroys debt does just the opposite. Debt is being destroyed left and right. So, I don't see inflation as the big worry - I see deflation as the problem, instead. And the price of commodities going up - this can't be sustainable. It may be nothing more than where the hot money is going. It'll be the last bubble before everything pops, including gold (which is why I bailed out of it today).
"btw, the TAF injections look like they will be a permanent ADD to the money supply and thus inflationary since its being given out below mkt rates and contributes to keeping asset prices elevated above the normal mkt forces."
Ok, but those TAF's must be repaid, right? So the only increase in the money supply can be to the extent that the vigorish serves as the basis of creating more debt, right? (value of Market rate less actual rate times principal, difference is loaned out.)
"A more general question, if banks won't lend, why not open up the discount window to you and me? Pay off your old mortgage at 6, 7 or 8 % and get at new one at 4.75% (or maybe 4.25 %). Even if you limit it to good credit risks with equity in the house to limit losses, that would give tens of millions of households hundreds extra each month. End of the recession right there..."
Thats being done, to some extent, by liberalizing the GSE lending requirements.
"permanent TAF auctions" means infinite rollovers at below mkt rates serving to prevent the debt from fully deflating to meet asset deflation aka inflation.
They still have control even if gov't debt -> zero: they could 'buy' gold and other 'precious metals'.
Any excess interest from the Federal Reserves SOMA holdings are turned over to the Treasury at the end of the year.
In effect, the US Government gets a loan from the Federal Reserve and the Fed kicks them back the interest on the US Government paid on the loan at the end of the year. I doubt the Federal Government would ever be stupid enough to pass up that deal.
But, if for some reason the US Government was turning down free money the Federal Reserve could monetize any asset. The problem is that any asset they monetize automatically puts a "floor" under the price of the asset they monetize.
And, if the Fed puts a floor under the price of gold at say $900 an ounce who would sell the Fed their gold? There is zero risk on the downside and unlimited upside. So, the Fed would also need to put a ceiling on the price of gold. With a floor and a ceiling the US is back on the gold standard.
Most likely, if the Fed couldn't find enough government debt it would buy GSE and other "implicit" government debt or the commercial paper of large US banks.
The problem be not bank liquidity more or less than debt, personal debt, corporate debt,and federal debt.
As MISEAN says, ...the problem is that this money has to get into wages to save the debt deflation.
Term Auction Facility (TAF) should not be a substitute for a good old fashion pay raise; wouldn't that be great?
Rae cuts & TAF are slow routes to 'pay raises' for sure. That's why I think we'll eventually see 'fiscal measures' and not just tax cuts either. Do that and the effect is a straight shot into wages...
Just by increasing the subsidy to health care - say by increasing payments to providers for Medicare or Medicaid would result in an almost immediate increase in dollars to peoples pockets - first to health care providers directly and secondly to their supply chain (from bio-med devices to linens)... then secondary effects (stores near hospitals etc.)
Same with increased educational 'grants'... quickly results in more teachers and administrators (and then MORE administrators)... dollars directly into pockets, all of it.
And if done with increased deficit spending it results in a pretty significant increase in dollar velocity and supply.
And it can happen fast in a 'service based economy'... don't have to ramp up slow like Hoover Dam or Manhattan Projects in the thirties and WWII... just start paying more for services like medicine & education and all the increase immediately goes into SOMEBODIES increased income.
Like I said above - the gov't isn't there philosophically yet. So far they still trust the fed to rescue us - once that's shaken look for them to build you your own personal bridge to nowhere.
And yes it won't save those folks who are insolvent - they still go under - but it backfills the deflation hole faster than folks imagine. The MOTU only really care about the systems anyway... so what's a few failures among friends.
And all of it will be spun as trying to 'help people' (who's against health care and education???).
Before there was long haul trucking there was the railroad, supposedly more energy efficient. We probably should be re-generating the railroads.
christofay
We already are. The use of intermodal is up and will grow significantly with the increase in gas prices.
Railroads are profitable and are reinvesting, but imo we are still underinvested in rail.
Gary, I appreciate your liberal enthusiasm (but could do without your needless Bush/Cheney/Haliburton/corporations remarks).
Here in SoCal, we just completed a light rail project from nowhere to nowhere, at the cost of $500MM (original cost estimate: under $100MM).
I drive I-5 north and south between San Diego and San Clemente daily, and see (1) construction underway on carpool lanes and fly-overs while (2) traffic is markedly lighter over the past 18 months due to the exodus of Americans and illegals.
The last thing in the world that we need is more mass transit. The frigging buses in San Diego are near empty, typically.
And, activity is going to be markedly slower during the next 10 years as we move into and out of depression.
Public works excesses did not save Japan, and they will certainly not save the U.S.
Save the money for soup lines, 'cause we will have lots and lots of need for those.
I can't come up with another scenario, either deflation or inflation, that captures that last statement. My god man, ir rivals Patrick Henry. Grab that thing and save it somewhere...we're gonna need people like you in the near future, and that is statement is what is needed.
dry- how was the business trip? glad to see you around. you missed my drunken auto-depants-ing the other night. shame. i called you the tanta before there even was a tanta. lol. did you sell some sh!t?
We already are. The use of intermodal is up and will grow significantly with the increase in gas prices.
Railroads are profitable and are reinvesting, but imo we are still underinvested in rail.
Zigurrat | 01.05.08 - 12:23 am | #
Its the same problem as you see with 'the internets'... it doesn't do a lot of good to lay more high speed fiber if the last mile still goes through copper hanging from poles all covered with ice.
If I ship widgets via intermodal... I have to truck it to a pick up point (queue) onto to a rail car (queue) travel by rail to next transfer point & drop off (queue) put on truck - travel and drop off.
Frequently that means taking parts from say central Illinois - trucking a better part of a day up to Chicago, getting loaded at a large transfer point (another day or so)... traveling to say LA (another day or two) then unloading at the large transfer point there (waiting another day) to then be hauled to say a factory in Tijuana (another day).
In most cases it is MUCH faster and cheaper (even with expensive energy) to just haul direct - even if it has to be 'consolidated' first (if LTL).
When there are efficient transit stations in many more locations (say a rail transfer station near the central Illinois factory and then another right on the border near Tijuana) so the truck distance is REAL small and short and much less queue time - THEN domestic intermodal will really take off.
Currently most intermodal is container loads from offshore and they are easily 'centralized' at the ports.
Re: The first six characters are known as the "base" (or "CUSIP-6"), and uniquely identify the issuer. Issuer codes are assigned alphabetically from a series that includes deliberate built-in "gaps" for future expansion. The last two characters of the issuer code can be letters, in order to provide more room for expansion. The numbers from 990000 up are reserved, as are xxx990 and up within each group of 1000 (ie, 100990 to 1009ZZ).
Working in on it. Not looking bad either - considering all the terrible news lately (of which I agree - it looks terrible).
Funny thing is the jobs numbers came out this morning and I called a number of my clients (those I sell for) and my better customers (those I sell to) and asked "So do things look good or bad for you going forward?" Sort of my own effort at coming up with an ISM...
Answer: "Things look great - we are beating forecast and forecast was aggressive." The programs I'm supplying parts for are still going at break neck pace. Existing business (past programs) are still strong. Hmmmm.
Understand I don't do a lot of automotive and NO home building stuff.
So either these folks are clueless, lying or it isn't that bad everywhere... or not yet anyway.
I was a bit surprised that the answer came back so 'strong'. Keep you all posted.
Public works excesses did not save Japan, and they will certainly not save the U.S.
Japan IS different than the US. They save we don't. None of that make work deficit spending does much if the people you employ then SAVE those wages. That is exactly what the Japanese did (and still do).
We on the other hand couldn't save the tip jar at Starbucks if our future depended on it. Give most of us more money and we treat it like nuclear waste (not in my back pocket).
When that changes - and we see savings rate skying upward (and not just a little less negative)... THEN I think it will be time to start up the deflation parade.
great to hear it sir. and very happy to have you back. how long were you gone for? sorry for the dangling preposition but i've been simultaneously writing a new business plan and dealing with aftermath. good stuff. you missed a great light night thread last night on the Analysts: Corporate Defaults to Rise "Drastically" post. i spilled the beans and reveled in my own failure. good times!!
great group of folks here. there is a great sociological academic piece to be written about this blog.
and oopsies i posted anon earlier but i doubt anyone didnt realize it was me.
oh and back ON topic for a second. it appears as though local banks are abandoning basing lending rates on treasuries. latest quote i got was 250 bps over their 1 yr CD rates!! wtf??!
dc - I'll be in and out now for probably six months. This is my busiest time of the year - right after the New Year.
Companies budgets are 'renewed' plus the procurement & engineering managers I call on are finally done with last year's year end mop up (its hard work thinking up all those excuses - takes a lot of time & energy).
Things are still a little slow 'cause everyone is back from holiday break and are still 'retraining'... but my schedule is filling up fast. And new rfqs are coming in so I can't complain yet - however like I said above... I see the problems too, they just might not have reached me in fly over yet.
i'm so curious as to how that will REALLY play out.
i've always argued and i think that you have too that the USD decline will absorbed in many ways by the margins of importing (to the US) producers. hey, why fight the dollar when i can dig deeper into BRIC'landia for cheaper labor?
i know you're a setser disciple, so your street level understanding is key here.
anyone else here remember delong's opus on the different viewpoints of domestic economists vs international ones?
i for one have always said that import based inflation due to a dollar decline will be muted due to the wage deflation in play. the proverbial race to the bottom as elucidated frequently in the early days of globalization.
Absolutely. But not as much direct export as substitution. Parts they used to export here we are more competitive at - we make more of that here now.
As with everything it starts on the margin but it is for sure starting. Last time I saw this was right after Plaza Accord - similar situation now but less 'organized'... During Plaza the Japanese got on board early (and took their lumps)... this time its been rougher and more ad hoc.
Makes me think the dollar is already oversold against the euro but still overvalued against the RMB. It won't straighten out though until the RMB appreciates more.
And, if the Fed puts a floor under the price of gold at say $900 an ounce who would sell the Fed their gold? - Kicker
People who need cash and bought at $850 or lower would happily sell. In a deflation cash has value so the exchange makes sense.
Now in an inflationary environment then - yes - hold out. But I only see the fed buying gold in a deflationary environment to flood cash into the economy.
And if by chance the price went to $1000 - the fed wouldn't care. If the point is to get cash out in circulation... then $1000 is even better than $900.
See this whole 'deflation inflation' psychology thing works both ways... not just with consumer psychology. Currently the fed is worried more about inflation (having come of age in the 70s). Its what they know. If they really start worrying about deflation - and act on those worries - watch out, there are lotsa ways to inflate.
The only thing that can stop an effort on the part of a CB to inflate is if the people don't go along - like what happened in Japan. I don't see that happening in a country full of spenders and debtors (that be us).
f the US shut its borders completely (to imports) we'd still be fine. its not like we're some city-state that MUST import everything.
We'd be a lot poorer overall.
I'm not a Buy America Only type - I have no problem with imports... I just want balance. We make stuff for them & they make stuff for us. Haven't been doing enough of that for a long time. Well unless if you call worthless CDOs as making stuff.
You ask 'then what'? I think we are approaching the point where the dollar is sufficiently competitive OVERALL but the imbalance is that we are too cheap vs the euro and still too strong vs the RMB. China has to step up let their currency free and until they do we'll have 'instability' and 'volatility'. JMHO.
who the hell is buying them and WHY?!?!?!?!
dc1000 | 01.05.08 - 1:50 am | #
People who believe there will be deflation - if you are getting 3.8% but expect the economy to deflate so that cash is MORE valuable going forward (not less)... then that 3.8% is in that case actually 'higher' in real terms... think 'negative inflation' and you get the idea. I'm not in that camp but still own some bonds - diversification & all.
its the sum total of the treasury market, one of, if not THE, single deepest and most liquid market in the world. it was at one point the most reliable indicator there was. now that FCBs and other players make 'irrational' purchases in that market, the once trust worthy signals it produces are subject to skepticism.
if you'll remember years back, this was my main point of discussion with setser.
can the deepest most liquid market in the world be irrational?
if so, what does that mean for the foundations of modern finance theory?
who here thinks that inflation risk plus default risk plus roll over risk plus required rate of return equals 3.8% YTM for 10 years?
bueller? bueller?
and no, i'm not an america first type guy, i drive a german car and buy imported crap all the time. my point is that IF the domestic market was relegated on a price point basis to consume solely domestically produced goods, the import based inflation expectations predicted by international econ would be muted if not non-existent.
same argument as always - traditional models are useless right now. its like trying to to predict the future with a 1880's 8-ball.
"In most cases it is MUCH faster and cheaper (even with expensive energy) to just haul direct - even if it has to be 'consolidated' first (if LTL).
When there are efficient transit stations in many more locations (say a rail transfer station near the central Illinois factory and then another right on the border near Tijuana) so the truck distance is REAL small and short and much less queue time - THEN domestic intermodal will really take off. Currently most intermodal is container loads from offshore and they are easily 'centralized' at the ports."
It's probably unrealistic to see really significant capital spending except for the low hanging fruit. The total market cap of US Class 1 Railroads is in the $100 billion range. After today, probably less, since they got killed. We spend more on highway maintenance then total railroad revenue.
I think the key for railroads is to become "green" and reap the political benefits. The idea that railroads would be considered environmentally friendly would have been unthinkable in the past. (I'm excluding mass transit).
"who here thinks that inflation risk plus default risk plus roll over risk plus required rate of return equals 3.8% YTM for 10 years?"
No one, which makes inflated assets such as stock look a lot more attractive. Unless the ytm decreases to 3% giving you a nice capital gain. Municipal bonds actually look pretty good, since the 15% tax rate will also be history.
Does anyone ever go back and read any of the older comments? I jumped back a year and hit this one.
I was talking to an (Asian) guy having a few too many drinks, who had 2 homes 1 in Irvine not sure about the other. He just did a refi/cash-out and planned on walking, moving his money somewhere and will start a new life back home. I asked him why and he said because I can and the bank can have the property back its in good shape, they can sell it and get their money back. He said it was not illegal just a bad business deal, for the bank. I had to laugh, got me thinking though...
Mr. Potter: [to George Bailey] Look at you. You used to be so cocky. You were going to go out and conquer the world. You once called me "a warped, frustrated, old man!" What are you but a warped, frustrated young man? A miserable little clerk crawling in here on your hands and knees and begging for help. No securities, no stocks, no bonds. Nothin' but a miserable little $500 equity in a life insurance policy.
[Potter chuckles]
Mr. Potter: You're worth more dead than alive!
but my favorite Dadaist line-
Annie: I been savin' this money for a divorce, if ever I got a husband.
dc-Right now treasuries are being bought out of panic as part of a flight to safety. It's the only market liquid enough to absorb all that cash. It's hard to buy $ 100 billion in CDs, after all, even if they pay higher rates.
dryfly-I agree there is no problem getting Americans to spend. And since old credit is being destroyed, I'm not even sure it's inflationary to create an equal amount of new. just as if your house burns down and you rebuild that does not add to the housing stock. As far as the Yuan exchange rate, China is adjusting it in order to deal with internal inflation. That will chop quite a bit off their imported commodity bill.
As far as the Yuan exchange rate, China is adjusting it in order to deal with internal inflation. That will chop quite a bit off their imported commodity bill. - AotC
What it does to import/export isn't clear at all.
Yes - they will have to let the yuan APPRECIATE to head off domestic inflation.
Inflation is an increase in money supply... as USD comes in to country via trade surpluses they convert it to RMB at a managed ratio - currently about 7.5RMB:1USD. They mop up some of that dollar driven RMB growth by selling 'sterilization bonds'. But they are falling behind - inflation (evidenced by price increases) is accelerating in China.
If the ratio was lower... say 6RMB:1USD... there would be a whole lot less new RMB created and less to mop up via sterilization.
The irony is with a 'stronger' RMB the Chinese would be in a position to buy way more commodities for their own consumption but would buy less for remanufacture for export to us (since the 6:1 ratio would make many of the marginal Chinese exporters uncompetitive).
What that does to the overall Chinese import/export equation is unknowable. My guess is they export about the same in dollar value but that means a decline in tonnage (the stuff will have a higher unit cost in dollars... cost more dollars per widget). Likewise the stuff the Chinese buy for import will have a LOWER unit cost in RMB per widget.
It will make a difference but I'm not sure how it will play out overall.
I agree there is no problem getting Americans to spend.
It's been a long time since the last consumer lead recession, but it hasn't been that long.
Consumer lead recessions were pretty much the norm prior to 1990. Consumers would leverage up their balance sheets in good times (pulling consumption forward) and leverage down their balance sheets in bad times (deferring consumption).
The Government was supposed to provide counter-cyclical spending. Ramping up spending and cutting taxes when consumers were broke and ramping down spending and raising taxes when consumers were flush. Of course, it never really worked that way (even in the EU where budgets are supposed to balance over a full business cycle).
The last consumer lead recession was back in 1990. It was the last year that real PCE actually turned negative:
Since then, the only recession was the business lead (over capacity) of 2000 and consumers spent through that recession by borrowing against housing and spending down savings.
Now, how are consumers going to spend through this recession now that there are no longer any assets to borrow against or savings accounts to spend down? American's will have the desire, but will they have the means?
I'm not too sure if this qualifies as "short term market funding" but my cousin can't pay his mortgage this month so I told him about TAF and suggested that he bid 5% for the amount of his mortgage. Can anyone tell me where common folk should go to submit their bids? (This is known as a straight line in comedic circles and at this point I think the financial community fits right in.)
Consumer lead recessions were pretty much the norm prior to 1990. Consumers would leverage up their balance sheets in good times (pulling consumption forward) and leverage down their balance sheets in bad times (deferring consumption).
There is a HUGE difference between a consumer lead recession and deflation... in the first case most consumer lead recession result because consumers CAN'T spend not that they won't (the latter is a case where they won't spend even if they can).
As long as consumers have the will to consume and gov't produces policies that make that possible via easy money then they will - even if the result is itself a problem (inflation).
You won't get a consumer lead recession leading to deflation until either (1) Americans change their philosophical bias toward consumption or (2) the gov't no longer is willing to produce policies enabling consumption via easy money... Since we are still a 'democracy' (sort of) we won't see (2) until (1) happens first.
In short no deflation until society embraces deflation. I don't see that happening anytime soon regardless of the 'deflationary pressures' resulting from the RE crash.
Shylock-I suggested that last night (see above). I got called both a Communist and a Bush voter. Perhaps those are just 2 sides of the same coin though.
This is just eliminating the middleman (banks), sort of like Costco for mortgages.
As the A in TAF is nothing but auction, if you want to rollover permenently, you need to bid in every auction to roller over it. Here not only you must bid again but also you must place a winning bid to roll over. Lossing the bid here means suddenly you need get the money from somewhere else to pay it back to Fed. As demand for the TAF increases due to defaults more people are going to bid and bid with higher rate.
To alleviate this too many bids chasing too few fund, FED is doubling the TAF amount there by making sure that existing people can rebid and win while new ones also get their share.
Here is where I differ. As the default increases, it is going to force lot more people to bid for more money in addition to the existing people bidding for even more money.
So as each month proceeds, the bid rate will increase due to demand which cause the Fed to increase the TAF amount. At one point TAF amount is going to cross a critical number where everyone realizes that lot more banks are in doodo, and start widrawing money from their banks. The people wont be knowing which one is actually in doodo due to TAF annonymity. So it bank run is going to happen for all banks and going to happen simultaneously.
Hope that this doesnt cause the collapse of the fiat currency and CBs the managers of the fiat currency.
Every coin has two sides. Here I see the potential fallout side of the coin.
Banks as a system dont loan out anything. They create money when they make loans.
Money creation is not self-regulating
You cant take money out of the banking system (only the FED can)
Savings transferred through the intermediaries never leaves the CB system. The intermediaries are the customers of the CBs.
From the standpoint of the economy the banks shouldnt pay for something they already have. Payments on savings raise all interest rates, induce disintermediation among the financial intermediaries, shrink real-gdp, & lower CB profits.
Now ponder the GOSPEL.
P.S. the money supply is unknown & unknowable. Any discussion of debt/money is tripe.
I hope they're expecting $150/bbl oil too.
Any while we're talking 50bps, anyone who's up for a rocket ride to a new universe of speculative ecstasy hop on board and get a good seat before the Fed cuts rates!
Conserve your ammo, boys. You may need it later. Much, much later.
50 bps? Stagflation, anyone?
The TAF auctions are all about not having to cut 50bp, because the inflation numbers are telling them they can't cut. It's a de facto cut...
ac,
I'll take that bet and raise you this:
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
And I had just posted a Bloomberg story on this in the last thread.
Of course, the problem is that this money has to get into wages to save the debt deflation. And with unemployment rising...it ain't gonna get there. There was a transmission mechanism for this in the 70's. It no longer exists.
Cheers,
ac, I posted something like "people will change their habits with $4.50/gallon gas. I think you corrected me, telling me that it would take more than that to affect driving patterns. I heard an auto industry expert who put the number at more like $7.00/gallon where it would have a major impact on driving. How many people out there have another $30-50 a week to spend on a commodity price increase??
All that excess is going to eat the remainder of consumer spending.
The ABX index is up to its cliff diving business again.
Bernanke better lower rates 50 basis points now or else.
Has the FED ever heard the word "inflation" or has it been banished from their thoughts?
The problem is that rate cuts, which I guess the banks welcome (and the banks are what Bernanke is supposed to take care of) just don't cut it (you should excuse the expression) anymore.
Look at what the yen is doing. Climbing like mad.
Leverage is dead. Deflation is here to stay.
Oil? China is not going to be demanding as much oil when it's exports to the US crater.
We've come to expect confessions after market on Fridays.
I need my fix.
It's like gunning the car up to 150 mph and then having to slam on the brakes. Happened before 1979-1981. Volker slammed on the brakes and the economy crashed.
Motorola lays off about 1,600 employees in Q4
Honestly, look at the yen. The dollar is cratering against the yen.
No carry trade, no stock market. No stock market, no US economy.
Commodities will come down, believe me.
ac, I posted something like "people will change their habits with $4.50/gallon gas. I think you corrected me, telling me that it would take more than that to affect driving patterns. I heard an auto industry expert who put the number at more like $7.00/gallon where it would have a major impact on driving. How many people out there have another $30-50 a week to spend on a commodity price increase??
I don't know much about driving patterns, so it might have been someone else.
The main positive I see is that it may force us to start working on alternatives to fossil fuels more, whatever they may be.
Edit: That's not to say I'm expecting $7/gallon gas, just that any and all increases in price are going to put a damper on spending elsewhere. People aren't going to ride a bike to the mall and continue to spend.
Well, as long as we're all about the doom-and-gloom monetize-the-debt etc., this latest from the iTulip guy is pretty good:
<a href="http://www.itulip.com/forums/showthread.php?t=2806>How to make $315% in six years with low volatility
Golly, I hope he's wrong.
Wish I could have been a fly on the wall at that meeting today.
lama,
affect driving patterns.
Well, in many metro areas, most fuel is burned commuting. It's highly inelastic, as quitting the job is not an option. Maybe walking to the grocery store is an option. Maybe in certain urban centers busses are an option for work. But in SoCal, if you're not working where the central planners say you are, then expect to spend 6 hours a day getting to and from work. People will do it if they have no choice...but it will bring great pain.
I'm beginning to think that that word is going to be the catch phrase for '08. Pain.
Cheers,
That automobile expert also was knowlegeable regarding alternative fuels. His take was that solar, wind, et al were a drop in the bucket. They're so expensive to both purchase and operate and will not produce enough. He said nuclear power was the only substitute for the amount of fossil fuels we consume.
"Administration Considering Tax Cuts (for the wealthy)"
Expired
Nemo,
I actually bought a LOT of gold from 1999-2002.
A paraphrase from Saturday Night Live:
Gold been berry, berry good to me.
Cheers,
Misean, I had to commute in Germany for a month or so. I had thought everyone took that trains in Europe. No way. And now the gas there is more than $8/gallon.
If the Federal Reserve Board is saying:
"The Federal Reserve intends to conduct biweekly TAF auctions for as long as necessary..."
then why is it calling it a "temporary Term Auction Facility" per its initial announcement on Dec 12th?
When does temporary morph into long-term or permanent? Is this a perpetual motion machine? I mean, there will never be a liquidity crunch ever again if this becomes permanent.
What does everyone think?
I'm off. Good night.
lama,
Nuclear is the only solution going forward. Unfortunately the MSM has so conditioned Americans that nuclear means Death, Destruction, Disease and Decay (title of a song I wrote in the 80's LOL), it won't happen here without a lot of ...Pain.
Cheers,
The main positive I see is that it may force us to start working on alternatives to fossil fuels more
Canadian tarsands were allegedly economically recoverable at $30/bbl earlier this decade. Issues with water usage, and natgas consumption, and of course environmental concerns have appeared.
Plus I suspect they're finding out expending more energy than you get isn't that great economics, neither.
As for real-world impacts, I expect land values for housing near employment centers to be bouyed, and land values far from employment centers to drop. $400/mo can service $100K in mortgage debt, so saving $200/mo in worth $50K in home value or so.
I chose my apartment back in 2006 to be close to work for this reason; I fill up every month or so.
lama,
Re: Germany.
That's my point. Mass transit may get you to work, but if you have to stop at a shop on the way home, and then go to the Dr's, then the pharmacy...etc...ad nauseum...it sucks.
Cheers,
Stop focusing just on gasoline and focus more on diesel. It's already near $4. Every day, there's almost as much crude burned delivering goods to market in the U.S. as commuting. Count the trucks on your local turnpike. A large number are indy and even $4 diesel burns through their profit.
You say so what, we don't need so many indy truckers in a recession. Right. But they won't be there to drive the recovery.
Unfortunately the MSM has so conditioned Americans that nuclear means Death, Destruction, Disease and Decay
That and TMI. As it is, living in Japan in the 90s I got to see how human incompetence and nuclear power DO NOT go together so well.
I'm all in favor of nukes if we can get an organization of the quality of Rickover's USN to run the program, but I don't think even Buffet would want to take on insuring a new nuke industry.
Plus the lifecycle economics of 20th century nuke tech isn't that hot, either.
Pebble Bed FTW, if you believe the hype, I guess.
Troy,
"Plus I suspect they're finding out expending more energy than you get isn't that great economics, neither."
Too bad the bio-fuels nut jobs don't understand this. The reason we're where we are today is that fossil fuels release more energy than is consumed in extracting them, processing them, delivering them, and burning them. That's why nuclear is the only option.
Cheers,
This graph makes it perfectly clear that things are mixed up.
But the indicator Sebastian swears by, the Wright Model B, says there's only an 11.4% risk of recession even with current rates. Such silly people to worry and think we need another 50 bps cut. Clearly, they lack the lofty intelligence and savvy of Sebastian.
http://bp0.blogger.com/_5aAsxFJOeMw/R3568GSU1hI/AAAAAAAAAvQ/b-rCflZcCjo/s1600-h/recession-probability-track-2004-01-05-to-2008-01-03.JPG
rich,
Very good point. But when merchants can't get inventory, they'll pass along any price increases, or close up shop.
Cheers,
Mass transit may get you to work, but if you have to stop at a shop
Living in Tokyo we shopped at least three times a week at stores, on the way home from the station -- never buying more than we could carry home.
Far far superior to life here in the BA, but then again if I had 2-3 kids and were the typical obese American I'd prefer the door-to-door SUV approach to transport planning, hands down.
Far far superior to life here in the BA, but then again if I had 2-3 kids and were the typical obese American I'd prefer the door-to-door SUV approach to transport planning, hands down.
Ah, the real kicker. The "energy friendly" lifestyle of Japan and Europe doesn't support a birthrate above replacement rate.
Troy,
The French do quite well with nuclear. As do the Germans. There are risks of course, but without energy several billion will die. The power grid in SoCal gets energy from the Hoover damn. Run a fun hundred miles of grid to central NV, or AZ, and have the plant far away from population centers.
It works in Sim City...LOL
Cheers,
That's why nuclear is the only option.
Solar works quite well for the Sunbelt, taking the (quite substantial) HVAC loads off the fossil flow at least.
I'm all for nukes up in Canada wastelands, BTW. They seem to have the right mix of ready freshwater and lack of settlements to irradiate.
While I support nuclear as an alternative to fossil fuel combustion, it isn't the magic bullet either.
My bet for twenty years from now is organic film solar power collection. Get a self-organizing bunch of organic polymers and put 'em in paint. Then spray paint every roof and car in the US and you have your energy source for the future. If they can increase the efficiency of current organics a few percent, this will be the future energy solution that will truly reduce our dependence on fossil-fuel combustion.
An 18-wheeler can cost $100,000 or more and a lot are leveraged with not much money down. Yes, normally it's pretty good collateral for the bank or finance company. But not when hundreds of truckers are parking it every day. Rig resale prices collapse.
Truckers are critical to the security of this country, and nobody gives a damn about helping them.
"...for as long as necessary to address elevated pressures in short-term funding markets."
Gee, I'm also having some "elevated pressures" in my "short-term funding".
Do you suppose I could get some help from the Fed? I doubt it - I haven't screwed up badly enough.
Troy,
Japan is very dense in population distribution. Cities after the war were built around Mass transit, and human energy transport (bikes, walking). Here in the US, not so much.
Cheers,
picked up from another blog
Administration considering tax cuts
The Associated Press
The Bush administration, faced with a deteriorating economy and a big jump in unemployment, said Friday it was considering an economic stimulus package that might include tax cuts to ward off a recessio
"An 18-wheeler can cost $100,000 or more"
Ah rich, that would be a used one!
The French do quite well with nuclear. As do the Germans.
I thought the Germans had a policy of shutting down all their nuclear reactors by 2020.
BBC NEWS | Science/Nature | Viewpoint: German nuclear phase-out
Has it changed?
Tax cuts, what a joke.
How about just telling the FED - NO! Lets get this mess over and not create another one, we will all be better for it.
Dick Cheney never meet a tax cut for the wealthy he did not like!
Only 50?? What wusses.
"Real" Fed chairmen cut in full 100bps increments. I say bail out the speculators, banksters and idiots and take that puppy down to (-)20%. That'll re-inflate housing & the MEW ATM machine in a hurry! Can't wait til I get my (-)15% FRM and receive a nice, fat check every month from my lender. Talk about being "paid to consume" --it's the Amerikan way!
Let just cut to the chase and have 425 bps point cut!
The Bush administration, faced with a deteriorating economy and a big jump in unemployment, said Friday it was considering an economic stimulus package that might include tax cuts to ward off a recession.
Send $500 dollars to everybody. Has to be "before the November elections". Rich.
There is zero chance of tax cuts or a stimulus package making it through Congress before 2009.
Who ever wins (loses)the election in 2008 will inherite one big f'n mess. Tax receipts will be down and payouts will go up... per Dick C "deficts don't matter.."
Misean-
Many biofuels have a positive EROEI, just not the ones that we choose to use in the US.
Anyway, there's no reason that we couldn't have large farms that primarily worked by human labor instead of diesel tractors that produce high cost fuels. I think there will be plenty of human energy available, so long as there is food.
I haven't studied it much myself, but over at theoildrum i read that it was estimated that we would reach peak uranium by 2040.
Also nuclear take a huge amount of investment that previously was based on cheap fossil fuels. Granted we can probably do much better these days, but I don't think nuclear will be any bigger part of the solution than biofuels, solar, etc.
Kicker,
No it hasn't. But, unfortunately for the Germans, the Greenslime Party has an outsized presence in the ruling party's hold on power. It was one of their main demands to join the ruling coalition.
Cheers,
It wa sad to see Ron Insane-a wine about another cut on CNBC. They should mak him the new spokesman for Klennex tissues.
F- you. Take your ass pounding and shut up
They can cutall they ant and it won't make a difference.
SweetHomeKilla,
"but I don't think nuclear will be any bigger part of the solution than biofuels, solar, etc."
If that's the case...we are doomed.
Cheers,
Misean:
"the Greenslime Party has an outsized presence in the ruling party's hold on power. It was one of their main demands to join the ruling coalition."
The Greens are in opposition since 2005. I'm not too fond of nuclear, but I suppose the German government will slowly push the deadline ever further into the future...
Will any amount of fed rate cutting have any affect?
It seems if banks aren't borrowing at the discount window, and the amount of cash provided through the auctions far outstripping the amount of repurchase agreements(about equal now, but won't be in a couple weeks), that lower fed rates will have zero affect on the amount of cash in the system.
Unless of course the fed buy more treasuries(permanant) to increase the money supply, but they can do that now WITHOUT lowering the fed rate, correct?
So isn't it more of a propoganda campaign than anything?
In addition to Tax Cuts, Bush's stimulus proposal will include a new Federal Do Not (Margin) Call List.
The Fed 50 bps rate cut will send more chills through the bond and currency markets and probably entice more foreign central bank at diversifying its reserves away from dollars.
Foreign countries -- particularly Japan and China but increasingly the oil-exporting states as well -- are getting sick and tired of financing America's massive current-account deficit.
As they lose more of their appetite for U.S. debt, the dollar goes into a bigger free fall and American growth stagnates even further.
Buying US assets ( like Morgan Stanley, Citibank, Merrill Lynch ) is a much better option.
Insana is now a paid shill for his investment company, just talking his book... Ron Insana = David Lereah, Lawrence Yun, etc...
They can cut, and they can buy all the toxic garbage at Taffy's they want.
It's not just a Solvency crisis now. It's a cascading cross default problem now.
A needs to pay B, B needs to pay C, C needs to pay D, D needs to pay A. D is the consumer and can't pay A.
FRB Testimony:
FRB: Testimony, Greenspan -- Private-sector refinancing of the large hedge fund, Long-Term Capital Management -- October 1, 1998
Good explanation:
The Limits of Central Banking by Gary North
Cheers,
my name says it all.
Yes, I completely agree with the cascading cross defaults. I also think there is absolutely no solution to the problem, since sentiment has changed and will continue to deteriorate.
The funny thing to me is that the deflationists claim we are now in deflation, and the inflationists claim that the fed is printing like mad.
So far neither are true according to the official numbers, but BOTH are true in reality. The massive amount of defaults aren't showing up yet. The printing isn't showing up either, but then again I haven't heard anyone explain why the UK bought nearly 200 BILLION of our treasuries during the second half of last year.
I think either we are covertly monetizing, or maybe the BOE is buying our debt while we buy theres, in a strange sort of obfuscated monetization. Though I can't really see any evidence of that yet.
I'm really anxious for the next TIC release.
BTW misean, I do think that we are doomed, been planning for it for a few years now. Though I believe my planning is vastly insufficient.
What could Bush possibly say in the state of the Union address?
"The Federal Reserve intends to conduct biweekly TAF auctions for as long as necessary..."
Will there be permanent US military bases in Iraq? Bush admin sez "of course not, that is crazy talk, they will just be 'enduring' military bases".
temporary auctions for as long as necessary. They should just call them "enduring auctions".
50bps. This is getting interesting.
c&c - Your thoughts on the buck vs pound/euro if 50bp cut
12th percentile, your right on. What else is he going to say that is temporary?
Heh, the temporarily enduring depression.
I'll know we're in real trouble when i stop getting my 0% interest offers.
NAR was kind enough to float me $15K for 18 months. That Yun guy isn't all bad.
Looks like AAA wants a piece of the action based on today's mail.
These people really aren't fine tuning their operations if they are willing to give 0% to people like me.
If Bush gives out another tax cut check to stimulate the economy I am going to put it under my mattress just to piss him off.
Ethanol fron sugar cane has a positive ROE; from corn it is 0 to slightly negative. Yet Congress has placed high tariffs on Brazilian corn sugar ethanol because of the Iowa caucuses role in elections. Nuts, isn't it?
OTOH, the US South used to be a cane growing area and could be again.
From 2001....
http://wanniski.com/defmonster.asp
Not DH
Woohoo!!! All hail Helicopter Ben!!!
What happens when we start getting Cash Back -10% offers, where we are paid to take out a loan?
Hmm, assuming the previous 2 auctions are paid back and the outstanding repos are rolled over, the second 30 billion dollar auction will increase the "Total Factors supplying reserve funds" by 4.5% since Dec 27.
That is a 53% annual rate of change.
Then later...
http://www.wanniski.com/showarticle.asp?articleid=3659
Not DH
Tax cut must be Paulson's idea
"What happens when we start getting Cash Back -10% offers, where we are paid to take out a loan?
Preserve"
don't kid. IIRC thats already happened with that Macklowe guy in NY getting a >100% LTV on a CRE bldg just to allow him to make initial pmts.
"The TAF auctions are all about not having to cut 50bp, because the inflation numbers are telling them they can't cut. It's a de facto cut..."
But is this really the case? I've seen a good bit of analysis lately demonstrating that net-net, the Fed ain't pumping nothing new into the banking system. They're just rolling over REPO's. Hussman has been jumping all over this. Anybody disagree?
Then.....
The Conservative Voice News and Columns
Followed by...
http://www.wanniski.com/showarticle.asp?articleid=4603
Not DH
Would sure be sweet if any tax cut money went straight into gold!
Truckers are critical to the security of this country, and nobody gives a damn about helping them.
rich | 01.04.08 - 6:19 pm |
How can a damaging symptom of historical excess be a critical resource?
My father was a Teamster. There is no reason on God's Green Earth why we should have the long haul trucking network that we do.
I saw reference to ABX cliff diving early on in the comments and it got me to thinking.
Would anyone here be interested in trading a cash settled, european style, exchange traded and OCC cleared index option based on the ABX?
If so would you be interested in one based on the On The Run AAA, AA, A or BBB index?
Or would you prefer an index of indexes equally weighting the OTR AAA,AA,A,&BBB Indexes??
Thanks in advance for those who choose to reply...
If Bush gives out another tax cut check to stimulate the economy I am going to put it under my mattress
dammit, I wasn't thinking back in '01 . . . if I had not deposited that stupid $300 check I'd still have gotten the money via the 2001 1040 refund. . . 'd'oh!
winjr,
Russ Winter & Lee Adler have been beating that drum, too. Those guys are the best for Fed following.
Odysseus,
Long Haul truck is more necessary, than the other 90% traffic that is on the road.
winjr
yes i disagree. i am a stagflationist.
even though i believe that the monetary base has been increasing via M3, lets assume for a moment that Adler, Winter, and Hussman are correct that the money supply is not changed one bit.
my argument would be that clearly asset prices like housing have been deflating significantly and thus the money supply has to decrease at the same rate to prevent inflation. by keeping the supply steady then we are going to experience inflation overall which manifests itself in other parts of the economy other than housing, namely commodities. this is why we're seeing gold spike as well.
btw, the TAF injections look like they will be a permanent ADD to the money supply and thus inflationary since its being given out below mkt rates and contributes to keeping asset prices elevated above the normal mkt forces.
winjr-
The feds inflation numbers are based on (vastly understated) price inflation. IMO, we could still have some pretty significant price inflation in the pipeline, even in the face of little monetary growth over the last couple years, defaults, and severly declining velocity.
But I just saw Cramer and he said:
1) This wouldn't have happened if the Fed had listened to Cramer.
2) The Fed isn't going to help... they don't care about the Market
3) Inflation doesn't exist, it includes food and oil (ethanol), but it doesn't include your home price. There is no inflation.
4) Listen to Uncle Kramer and he'll get you through the turmoil...
Stopped watching since my son was begging me to watch Barney or something...
Like coming off of an 8 year bender--car out of gas on the side of the road, wallet gone, foreclosure notice stuck in the back pocket, bruises all over, scrapes and scars, flashing lights from the cop car roof, and dim memories of living high.
Welcome to rehab at the county jail...
M3 isn't a measure of the monetary base. Even M1 overstates the monetary base IMO.
I think prices will continue to rise because of fundamentals of supply vs. demand. Not because of monetary growth(though this could change VERY quickly if/when they choose to monetize treasury debt).
Overinvestment in housing meant underinvestment in energy and food.
Declining credit availability is going to serverly limit new investment in the very areas that investment is desperately needed.
Not everything is directly related to the supply of money.
This is Clintons fault and the Monica thing!
Imports,
which are a subtraction in the calculation of GDP, increased.
\t
\tThe acceleration in real GDP growth in the third quarter primarily reflected accelerations in
exports, in PCE, and in private inventory investment that were partly offset by an upturn in imports, a
larger decrease in residential fixed investment, and a deceleration in nonresidential structures.
"Pain"
Misean, I always thought you had the eloquence of Clubber lang.
nemo - from the end of that transcript:
"and to assure
the American people that we will do everything we can to make sure we
remain a prosperous country.
"
oh, crap.
Why do we need American truckers anyway? Don't you know that the Mexicans can do it cheaper... our wonderful President has found a way for the trucks to keep on trucking!
The Bush administration is going ahead with a controversial pilot program giving Mexican trucks greater access to U.S. highways despite a new law by Congress against it. The decision to proceed with the four-month-old program, which allows participating Mexican trucking companies to send loads throughout the United States, comes despite language in the recently signed catchall spending bill aimed at blocking it.
Don't you all know? The last bubbles will be Oil and Gold in that order.
Man! It's getting cold outside! Somebody hand me another stack of hundred dollar bills.
Imports
The ISM Non-Manufacturing Imports Index increased in December after one month of contraction in November. The index registered 50.5 percent, 1 percentage point higher than November's index of 49.5 percent. In December, 64 percent of respondents reported that they do not use, or do not track, the use of imported materials.
"Market pressures in the fourth quarter continue to slow business and limit growth going into 2008 in the financial services sector." (Finance & Insurance)
c&c - Your thoughts on the buck vs pound/euro if 50bp cut
Barley | 01.04.08 - 6:45 pm | #
Trade in your dollars for peso's right now! And if you get the $500 check from Bush, pull a Giselle and demand it be in Euros or Yen!
DSG, the electronics giant that also owns PC World, said slow sales meant its full-year pre-tax profits would be up to £50 million below forecasts. About £30m of this, it said, was down to poor festive trading.
The company's shares closed down 29.25p at 78p, as some retail analysts wondered whether the performance would drive new chief executive John Browett, who took the reins in December, to cut the dividend.
The group, formerly known as Dixons, blamed slow demand for laptops and a drop in computer sales in the 11 weeks to 29 December. It said this offset better demand for iPods, games consoles and digital photo frames. Same-floorspace sales were off 10 per cent at PC World, while sales in the Italian business, UniEuro, fell 11 per cent. Currys sales were flat.
"The TAF auctions are all about not having to cut 50bp, because the inflation numbers are telling them they can't cut. It's a de facto cut..."
But is this really the case? I've seen a good bit of analysis lately demonstrating that net-net, the Fed ain't pumping nothing new into the banking system. They're just rolling over REPO's. Hussman has been jumping all over this. Anybody disagree?
winjr
They're actually pulling liquidity out of the market, but they have to use the TAF & Discount window to prevent further credit seizure, like trying to wean a junkie off heroin be lessening his dosages rather than putting him straight to methadone(rate cuts)
What I meant when I wrote of a de facto rate cut is that they'll hold rates or drop 25bp while letting inflation accelerate. This in theory forces people to put money to work instead of sitting in crappy yielding treasuries.
Now the banks have written off a lot of bad debt, but are their reserve requirements satisfied so that they can start lending again at a non usurious rate?
HaloScan Alert
Criminals frequently use the Internet to recruit money mules to gain access to stolen funds gained from their use of banking Trojans, key-loggers, and phishing.
People looking for jobs on the Internet are at risk of being targeted by money launderers who use spam messages, job adverts placed on real recruitment sites and illegitimate professional websites to convince the job hunter that they are being offered a genuine employment opportunity.
As a lure, money transfer agents are usually promised a 5-10 per cent commission for processing payments through their personal bank accounts. After providing their bank details to the criminals, a major security risk in itself, money mules receive transfers of stolen money into their bank accounts. They then withdraw these funds and send them to the criminals using an anonymous money transfer service. Hypothetically, the transfer agent is forwarding the money to a software developer in a developing country. In reality they are supporting an illegal organisation.
yes i disagree. i am a stagflationist.
even though i believe that the monetary base has been increasing via M3, lets assume for a moment that Adler, Winter, and Hussman are correct that the money supply is not changed one bit.
I don't think M3 sufficiently differentiates between monetary expansion and credit expansion.
Excessive monetary expansion tends to be inflationary (e.g. China today) whereas excessive credit expansion tends to be deflationary (I think this better describes the US today).
Even some hard core hyperinflationists like Marc Faber argue that a period of deflation would come first.
There's enough awareness of inflation in the US, though, that I think it would be hard for the Fed to pull off an inflationary bailout. But I don't think it's impossible.
I argued that commodity prices would go up if the Fed cut rates because I believed the cuts would start a new wave of credit expansion which, again as I understand it, is better interpreted as a boost in velocity (which gives the appearance of greater money supply) than an actual increase in money supply. It's not quite that simple with the fractional reserve system though.
Greenspan said even the Fed doesn't understand what money is these days.
even though i believe that the monetary base has been increasing via M3, lets assume for a moment that Adler, Winter, and Hussman are correct that the money supply is not changed one bit.
The Federal Reserve creates base money (SOMA + cash + Repos) and Banks create M1-M3.
The Fed limits the amount of M1-M3 that the banks can create through reserve and regulatory capital requirements. In '95 reserve requirements were gutted by Greenspan and M1-M3 creation took off.
Banks created off-balance-sheet vehicles (SIVs, Conduits) to skirt regulatory capital requirements. This allowed the creation of a lot of money-that-isn't-money (let's say M4).
Now, the money-that-isn't-money market is collapsing. That's deflationary. M1-M3 is ballooning right now because people are trying very hard to turn that money-that-isn't-money into M1-M3.
That is stage one. We haven't completed (IMHO) stage one yet.
In stage two, the banks balance sheets balloon in the rush to turn M4 into M1-M3. Regulatory capital (equity) as a percentage of of the balance sheet liabilities decreases. Equity also takes a hit as bankruptcies destroy the asset side of the balance sheet. Banks decrease lending, and M1-M3 drop. That is stage two.
Stage three is debt revulsion. Businesses and households manage cash flows more tightly. Less money that could be used to pay down debts is allowed to "slosh" in cash and savings accounts. I don't think stage three has begun.
During this time, the Federal Reserve is trying to grow (or at least keep steady) base money (which represents all the regulatory capital in existence). Typically, they do this by lowering the short end of the yield curve below market rates. Since banks borrow short and lend long this increase banks profits which increases equity (regulatory capital) and increases the amount of M1-M3 they can create.
WTF?
CR, can you delete these spam posts, s'il vous plait?
I suppose the Mexican trucks will at least try to drive on US highways. Until the first dozen or so 200-300 car pile-ups they are involved in.
I'd love to see them trying to navigate thru the NJ turnpike traffic. Or I-95 south of DC. Fun time.
"It's like gunning the car up to 150 mph and then having to slam on the brakes. Happened before 1979-1981. Volker slammed on the brakes and the economy crashed."
To all the stagflationists out there, repeat this over and over again to yourself: "this is not the 1970's".
Look guys, there's are too many differences to even get into here, but the main ones that shoot a hole in the 1970's re-run philosophy are debt levels and income increases (or the distinctive lack thereof.)
What do you think would happen if the Fed actually pulled a "Volcker" with debt loads the way they are and the economy resting precariously on the head of a giant fraud-laden pin? KA-POOM!
BTW, good raises are nowhere to be found so inflation is passed directly into JSP decapitation plays.
No, this is not the 1970's, this is 1929.
Oh, while we're on money trivia....
Total Money * Velocity = GDP
Not much the Federal Reserve can do to increase velocity of money if people aren't willing to spend it.
Bear Stearns Executive VP Sells Shares
Business Week Online > File Not Found
Sadly, I'm with Darth Toll. This recession may well be a depression.
...
During this time, the Federal Reserve is trying to grow (or at least keep steady) base money (which represents all the regulatory capital in existence).
Kicker
I think like you do on most things you said apart from the above.. You must have looked at the AMB
http://research.stlouisfed.org/publications/usfd/page3.pdf
On MY timescale, i.e. since Aug, base money is coming down; and I regard that as NOT that the Fed is contracting money but at the FFR target rate the Fed wants, despite the 1% cut, the demand isn't there.
And we all agree that the Fed doesn't target money supply don't we, it sets a desired FFR rate and lets the AMB chips fall where they may.
So for me, the AMB reflects a real world contraction of desire for money going on, even at the lowered FFR target rates - since Aug anyway. Which is money DEFLATION ( but not necessarily price deflation in the things that we must have, like oil and food - if these items are going up then in my view of things other items have to come down to reflect the overall monetary reality of things - and none of this is necessarily captured by that bastardized piece of garbage - the CPI, in all its forms ).
-K
Canute, TAF is an experiment (with an experimental cartridge of $40B/mo that was found to be inadequate, although the 28 day period was extended to 35 on that 2nd auction, possibly to accommodate perceived FF rate changes?) that appeared to have some (short-lived...and so the bump to $60B/mo?) effect on the ABCP market.
Those commercial banks in trouble buy time with this "facility" and not a solution to insolvency issues brought on by income streams that are no longer flowing from the mortgage basins. (The anonymity by itself is shouting that this is not merely "Illiquidity", IMO).
It appears that these monthly injections are additions to the money supply, but do they in fact work that way or do the commercial banks use these funds for prospective M&A and the growing case for future consolidations?
A 50% jump in the TAF suggests that there is little time for fine tuning this facility...some nervousness, yes?
Dead Hedge-Funder's Former Aide Claims Widow Fatally Drugged His Pasta
Dead Hedge-Funder's Former Aide Claims Widow Fatally Drugged His Pasta
Just 17 months ago (July 2006), the Dow Jones Industrial Average stood at 10,700.
Friends, don't blink...because we will find ourselves staring at a 10 handle on the DJIA in very short order...as we begin to price in the recession at hand.
The bad news however, is that the average historical correction in the US stock market thru a US recession is 30%, from top to bottom. (Which would take us to below 10,000 on the Dow...9870 on the DJIA). And this correction, because of the magnitude and buildup in debt at all levels of society...will be far from average.
Buckle up...and run, don't walk.
IMO.
"Banks created off-balance-sheet vehicles (SIVs, Conduits) to skirt regulatory capital requirements. This allowed the creation of a lot of money-that-isn't-money (let's say M4).
Now, the money-that-isn't-money market is collapsing. That's deflationary " Kicker
would u agree that there is not a 1 to 1 correspondence btwn declining asset values and your M4? the slippage coming from TAF, discount window and rate cuts? that is, asset values declining faster than M4 which increases the ratio M4/asset values which overall is INFLATIONARY?
Total Money * Velocity = GDP
I take it you mean nominal GDP right?
This is just an equation for pieces of paper and digits in a computer. I don't see what that has to do (directly) with real wealth or the real economy.
It's possible to have a growing economy with deflation if there's not a lot of debt, but in that case the above GDP figure would still be falling.
sk-What, besides houses, has come down since August?
A more general question, if banks won't lend, why not open up the discount window to you and me? Pay off your old mortgage at 6, 7 or 8 % and get at new one at 4.75% (or maybe 4.25 %). Even if you limit it to good credit risks with equity in the house to limit losses, that would give tens of millions of households hundreds extra each month. End of the recession right there...
"End of the recession right there..."
no because you just did early payoff of billions upon billions of mortgages which ruins the profit model the securities they are built from - thus you are draining profit (higher interest payments) from the banks and holders.
It is like saying nationalize credit card debt to save america: what do you think happens to citibank almost overnight if they can't charge 30% on rolling balances for their credit card holders? it would ease the load on consumers but banks would collapse.
everyone here needs to think of credit as money and money as credit in todays world. thats where sk is wrong in just looking a AMB from the Fed.
we also need to remember that the reason we're in this mess is that the Fed has kept rates at an inflationary too low level for too long. Wall St knew this which is why they borrowed ever dollar they could get their grubby little hands on up to 25x their capital and then bought every asset they could creating this massive inflation of primarily house prices.
now that turning around with decreasing house prices and the Fed is trying to prevent this by essentially increasing the money supply by overpaying for devalued collateral via TAF and the window.
sk-What, besides houses, has come down since August?
stocks, RMBS, CDOs,
A more general question, if banks won't lend, why not open up the discount window to you and me? Pay off your old mortgage at 6, 7 or 8 % and get at new one at 4.75% (or maybe 4.25 %). Even if you limit it to good credit risks with equity in the house to limit losses, that would give tens of millions of households hundreds extra each month. End of the recession right there...
Aheadofthecurve
I don't follow - there is no set up for the Fed to actually GIVE money to anybody - they always take some collateral in return - so if the money they give you pays off the "other" mortgage, which you'd have to to pledge the house as collateral - its a closed loop - nothing has been created - you just substituted one lender for another.
-K
re: idoc
I give up - lets leave it at o nooooo they don't, o yesssss they do, o no they don't, o yesssss they DO..
Sigh.
-K
"no because you just did early payoff of billions upon billions of mortgages which ruins the profit model the securities they are built from"
But that has happened many times in the past, like in the 90s. Any time interest rates fall, people refi and pay off old mortgages. banks would have to develop other lending businesses. That's their problem-the well-run ones would do it.
Yes, the houses would be collateral. The problem noww is that rate cuts will not help the consumer because banks will not pass them through. So eliminate the middle man and lend directly to the consumers. They will spend what they save in interest payments.
sk- Something has changed insubstituting one lender for another-lower rates.
O yeah, the fact that bank created non-Fed "money" is disappearing alright - and despite their best squealing and whimpering, so far the Fed is not replacing it with their own. That's my point. TAFs have simply been balanced by reduced slosh in the repos AND redemption of T-bills as their website has said, on each of hmmm, 4 occasions.
-K
On MY timescale, i.e. since Aug, base money is coming down; and I regard that as NOT that the Fed is contracting money but at the FFR target rate the Fed wants, despite the 1% cut, the demand isn't there.
I agree, the Federal Reserve is chasing interest rates down at this point. The primary dealers have plenty of cash but no place to they want to put it.
Part of the collaspse of SOMA + cash is that the Fed is feeding money in through the TAF. The increase in repo's about offset the decrease in SOMA+cash.
It's possible to have a growing economy with deflation if there's not a lot of debt, but in that case the above GDP figure would still be falling.
Yeah, nominal GDP. In a deflationary environment you can have real GDP increasing even though nominal GDP is decreasing.
would u agree that there is not a 1 to 1 correspondence btwn declining asset values and your M4?
Not sure I understand you there...
I don't know of any way to relate the value of money/credit in the economy that means anything.
"The bad news however, is that the average historical correction in the US stock market thru a US recession is 30%, from top to bottom. (Which would take us to below 10,000 on the Dow...9870 on the DJIA)."
Hahverd Econ 101 | 01.04.08 - 8:22 pm
Any way to compare the total $ stock market equity run-up (from its low point in 2003) to its peak, with respect to the total $ home equity run-up during the same period.
Just might be interseting to compare potential bubbles, assuming both are just that.
Not DH
Equity run-up does not necessarily imply a bubble. Divergence from historical value does. Housing diverged, stocks did not. In fact the "bull market" fom 2003 was IMO not much of one. Typical bull markets surpass the previous highpthis one did for about 15 min on the DOW, never on the S&P and not within 405 on the NASDAQ. Second bull markets are supposed to have P/E multiple expansion, yet P/e was 23 in 2003 and is 16 today. No, stocks have been in a secular bear since 2000.
sk- Something has changed insubstituting one lender for another-lower rates.
Aheadofthecurve
OK I concede that. So far this is a thought experiment - so how do you get to "end of recession" from this?
On the practical front - hmmm they'll have to demonstrate that this fits their dual mandate; then deal with the fallout from all the existing mortgage lenders and set themselves up as mortgage brokers - subcontract their job perhaps to NEW? or AHM ? of CFC ?
-K
AHOTC
The problem now is that rate cuts will not help the consumer
perhaps you need to move out of Loudonville where there are less bush voters who might be talking it up at cocktail parties about how tax cuts for the rich help the kids in Troy. You think any of these moves are designed to help the "consumer"?
think, again.
Kicker
if housing values drop 1T but money supply only drops 500B b/c of partial Fed monetization via TAF then in effect u have inflation vs. deflation.
It always cracks me up when the market "expects" something.
The market was obviously not raised in a conservative household like my parents ran. Otherwise, the market would have been told that they can "expect" anything they want, but life is full of disappointments
You would be putting extra cash in the pockets of millions of households every single month. That would beat a one time Bush-style tax cut by a mile as an economic stimulus.
As for the other objections, you could funnel it through lenders. Give them processing fees or a rate differential. Just as long as the money was required to be passed on to the homeowners.
It has the virtue of simplicity and transparency. No M1-4, just cash in hand. Also, unlike a sub-prime bailout large numbers of poeple would benefit, since virtually everyone is paying higher than the discount rate.
re: Aheadofthecurve and consumer discount window operations
Normally, discount window operations are loans for days(used to be 1 day but they've got a bit lax recently) - there is a haircut on the collateral (no 100% or underwater loans );
The Federal Reserve Bank Discount Window & Payment System Risk Website
I mean, mortgages are for YEARS ! I suppose you could get the Fed to staff up or subcontract to handle 30 years long discount window loans - or you could line up daily at the window to rollover your daily loan, everyday for the next 30 years, or...
But c'mon, its like - just because elephants CAN mate doesn't mean they SHOULD.. no wait..
-K
12th That's a really stupid comment. I am by no means a bush voter and haven't been to a cocktail party in years. I know bush isn't trying to help consumers. But I am proposing something that could. And what do you do but whine and be sarcastic?
Odysseus,
Are you Rip Van Winkle? Years ago, the U.S. long-haul industry shifted from employed teamsters to independent owner-operators. The people who bring the goods to market now, and for the past 30 years, are mostly small business people.
They own or lease their own rigs and pay their own expenses.
Well if they don't, no more elephants.
Look, I'm just really tired of hearing, "Oh, it's terrible, Nothing will work. Oh, oh,oh..." Bull! I don't accept that. Think outside the box!
Some here seem to think (hope) that a recession will lead to some wonderful political change. I don't think history supports that. Japan has been in recession for over a dfecade and they are still run by the same political party since WW II. Russia had a crisis in 98-they switched Yeltsin for Putin, which was going to happen anyway. Great! Thailand had a terrible crisis in 97-98. No revolution. Sorry, we have to deal with this within the political system that exists.
Real Estate Boom Is Over'
The local real estate boom is over, Laney said. The speculators expecting to flip a property quickly are gone, and those wanting to buy a place to live in are shopping more carefully. In 2006, sales of Oahu single-family homes fell 12 percent and condos fell 20 percent. If the performance in the first half of 2007 is extended to the entire year, there will be another 6 percent drop in activity.
He noted that the median price of Oahu single-family homes is still rising, but the acceleration of 2004 (a 21 percent increase) and 2005 (28 percemt) has halted. In single-family homes, 2006 saw a 7 percemt rise in the median price; the first half of 2007, a mere 1.6 percent increase.
Neighbor Islands have seen price declines So far in 2007, Maui single-family median prices are off about 12% percent, while Kauai and the Big Island have dropped about 3-4 percent.
Hawaii better deal with 30% drop
Seth Tobias is Dead?
Works. Progress. Administration. Direct funding towards mass transit, freight rail, solar energy, and environmental repair.
But first: reverse all of the Bush tax cuts except the one at the bottom of the scale, and also jack up the estate tax at the upper end of the curve to recoup some of the loot that was siphoned off over the last 7 years.
How about those solutions?
re: Aheadofthecurve
I was going to concede some genius in this lunacy - then I remembered - actually this sort of "subsidised" loans is often done in Third World countries, banana republics ( as distinct from 3rd World countries ) and socialist countries - ie. those without independent central banks - and they all ration the stuff ( 5 year waits for loans ) or/AND get high inflation; quite apart from endemic queue jumping, corruption, special categories for priority, delinquencies , EPD, FPDs, are a real problem, loan forgiveness often a solution - yeah I've seen this in action for real.
So, this is what the future holds for the USA I suppose.
-K
gary- Agree with you 100%
The President ponders the need for fiscal stimulus. Let's hope he does not decide that invading Iran will solve all of his problems. This is getting really scary!
K-We might get some of that stuff anyway.
SweetHomeKilla,
You're confusing credit with money. The inflation already happened in th eform of overpriced RE assets. The FED isn't really printing anything...that's not how it works here...we are not Zimbabwe.
If any of you are missing Robyn she is over at marthastewart.com telling Martha how to prepare osso buco over French lentil ragout with pancetta and red pears, and... how to make a door wreath out of her leftover dollar bills wrapped around a couple of everyday wire coat hangers spray painted green. And, Robyn told financial wizard Martha to never take financial advice from a blog. It is a good thing.
sk-What, besides houses, has come down since August?
REITs. Go SRS!
I was thinking about something, which was the idea that the MSM are slanted just because it's good business. I don't think that's all of it.
The quality of the analysts on MSM is so low, whether it's for economics, markets or politics. A lot of the analysts seem to be "captured in the moment." They can't put what's happening around them in perspective of all that has gone before or what is likely to be. Does anyone else feel this way?
I'd like to say I think CR is a good analyst because he is able to balance in equal portions what has been, what is, and what is likely to be.
rich- Yes, in many cases that is true. But then does their audience ask for more?
As for what has gone down in price, I meant goods and services. Asset prices are not included in inflation.
sk- OK let's say my idea is "lunacy". Is is more lunatic than lending $ 600,000 zero-down NINJA? I say not...
The Term Auction Facility mentioned in the article does appear to be doing its job of increasing liquidity in interbank lending and getting the commercial paper market moving again. After about 4 months of the credit crunch which has crippled what was once an ordinary and vigorous trade between the banks it is high time that something worked. This process has a cost to the banks though which actually seems to be holding interest rates higher than they would otherwise be. Correct me if I'm wrong but there really hasn't been any loosening effect on credit card rates or other consumer rates that would have a demand raising effect. It seems to me that the FED has eased the credit crunch but not the overall price of credit. This process may be leading to a stalling of demand and deflationary and/or recessionary pressure.
sk- OK let's say my idea is "lunacy". Is is more lunatic than lending $ 600,000 zero-down NINJA? I say not...
Aheadofthecurve
LOL !
Ummm, when a private citizen and group of citizens ( aka company ) does it, its madness but its THEIR money and they can do what they like ! when the government or a govt. setup agency does it, its.. lunacy but its with MY money and I vehemently object.
-K
rich
they are told to be optimistic as Hussman and John Williams have told us. yes its good for advertising revenue but perhaps there are larger donations involved?
yes SRS to the moon! i'm getting nervous cuz my portfolios so far up but when i think about whats ahead for CRE i realize we're only in the 3rd inning of this.
turns out that we in fact have a confirmed head and shoulders top in the major indices.
K- Is the Fed's money your money? Who's money is it? Anyway it's a loan so nothing is being given away. All you're doing is cutting interest rates, like when they cut Fed Funds, but making sure the benefits go where they are needed. Rate subsidies are done with FHA loans and student loans.
OTS National Housing Forum / National Press Club, Dec. 3, 2007, D.C. (participants include: Maria Bartiromo, Robert Toll, Angelo Mozilo)
http://www.ots.treas.gov/docs/4/481057.pdf
Can anybody tell me How ING bank is doing ?
I haven't heard their name mentioned. My 401k
cash is in their money market fund because thats the "safest" investment inside the fund.
idoc,
Source? Link?? Who's making the call?
ear Stearns is being clobbered today, down more than 5% to just $79 per share. And it's passed a major milestone, too. Here's its fourth-quarter earnings report:
Book value on November 30, 2007 was $84.09 per share, based on 136.2 million shares outstanding.
Next milestone to fall: at $73.41 per share, Bear will be worth less than $10 billion. Another day like today, and it'll be almost there.
K- Is the Fed's money your money? Who's money is it?
...
Aheadofthecurve
Well, the Fed has NO money of its own - it creates it out of thin air as we all know ( we DO KNOW THAT, right ?); to the extent that its a bank chartered by the government, to fulfill a dual mandate and in the course of fulfilling its dual mandate its allowed to create money out of thin air then its ultimate regulator is the govt. and since this is a government of the people, by the people ( and yup I buy into motherhood and apple pie too ) then I'm its regulator and its MY money.
I'll leave the issue of whether a (NINJA) ("subsidized") loan is not giving something away for another time - for quite a another time.
-K
Citi trades at about 1.1 times book value. That's cheaper than rival JPMorgan Chase (JPM, Fortune 500), which trades at a multiple of 1.2, and Bank of America (BAC, Fortune 500), which trades at a multiple of 1.3. Even embattled Merrill Lynch (MER, Fortune 500) trades at a multiple of 1.3.
Bear is the barometer for banking as mortgage companies are to home builders; book value falls, then they go under
At the core of a typical CDO is a Special Purpose Entity (SPE) that issues
securities to investors in several different classes, or tranches, most of which are rated by
a credit rating agency. The SPEs proceeds are used to purchase a portfolio of fixed
income assets. If some of the assets default, the most junior of the SPEs securities takes
the first loss. Payments to each tranche are governed by a stipulated priority of payments.
There are two broad categories of CDOs that are relevant to this discussion: cash
flow CDOs and synthetic CDOs. Cash flow CDOs involve the actual purchase of real
fixed income assets whose cash flows are used to pay investors in the different tranches.
Synthetic CDOs bundle the same kinds of credit risk exposure without real assets, by
selling protection on the underlying assets using CDSs. Cash flow CDOs were motivated
both by reduction in bank capital charges and potential arbitrage opportunities. Because
synthetic CDOs essentially create new instruments, instead of using assets on bank
balance sheets, they are motivated primarily by arbitrage, not regulation.57
"missing Robyn she is over at marthastewart.com"
FFDIC, a few thoughts:
- cruising marthastewart.com?
- Oh I know, your wife asked you to check something and you happened to spot Robyn
- You're bored and curious how many of us took the bait to see if it's true
I'm guessing the latter and will admit that I almost bit.
Best,
Before there was long haul trucking there was the railroad, supposedly more energy efficient. We probably should be re-generating the railroads.
idoc,
With respect to SRS, maybe the market is realizing there will be more store and warehouse closures as discussed in this article about Talbots and Pacific Sunwear.
Talbots, Pacific dive on plans to shutter chains - MarketWatch
Re; Bear S. The US attorney for the Eastern District of NY is looking into their hedge funds that imploded in July. US Attorney is investigating without the SEC which is unusual. source: cnbc rumor monger Charlie Gasperino (sp). This may explain their large drop today.
"Citi trades at about 1.1 times book value"
This is good value - unless the offices have cockroaches which have yet to surface under Basel and if the ratios are solid.
I'll pass, thank you very much.
Jwm In SD-
Where did I confuse money with credit?
I used to think that credit was money and that we should be watching M3 and all the other credit measures to gauge monetary inflation. I have since wised up.
Sometimes I think I'm the only one who does understand the difference, though it seems more and more people are coming around these days.
Kicker said
"Banks created off-balance-sheet vehicles (SIVs, Conduits) to skirt regulatory capital requirements. This allowed the creation of a lot of money-that-isn't-money (let's say M4)."
This is confusion of money and credit. He should have said, credit-that-isn't-counted-as-credit-by-official-stats.
Creation of credit IS inflationary, because it generally increases velocity.
Destruction of credit DOES NOT destroy money, but generally does cause(or is caused by?) declining velocity, which CAN cause lower prices, but doesn't always everywhere.
The biggest fallacy that I see is when people say that the Fed cannot control the supply of money. The Fed is the only entity that has ANY control over the supply of money, and in fact they have FULL control(unless of course the government had no debt).
yes SRS to the moon! i'm getting nervous cuz my portfolios so far up but when i think about whats ahead for CRE i realize we're only in the 3rd inning of this.
Or if you've got some hair on your chest you can short URE... not that I'd ever do something like that.
But I've got this friend who's a dirty good-for-nothing speculator that, today, in an astounding display of self-discipline, covered a minority of his positions in the late afternoon simply because he promised himself he would do so (at prior date) to lock in a portion of his (hefty) gains in case the market bounced off resistance the following week and surged upward (in a bewildering and upsetting manner).
Sure, he cried like a little girl covering these shorts even as the market spiraled downward. And sure, he'll miss out if the market implodes early Monday morning.
But at least he'll respect himself in the morning because he's admitted to himeself that he can't really predict the future.
Just sayin'
TJ
We have now confirmed the Head and Shoulders patterns in the S&P and broke the triangle in the DOW, which is basically a crash call - not instantly, but over the next few weeks to couple of months.-K Denninger
The Market Ticker
OUI!!!
A clean downside break through 12,700 may actually open the flood gates for a major drop back toward the 11,100 zone over the next couple of months. However, we may see major support come into play at around 12,150 due to the major lower trend line in the Weekly Chart.
The Dow is clearly at a crossroad in the charts and 12,800 should be watched very closely. More overall weakness is very likely until the Dow can break back above 13,200.
The biggest fallacy that I see is when people say that the Fed cannot control the supply of money. The Fed is the only entity that has ANY control over the supply of money, and in fact they have FULL control(unless of course the government had no debt).
SweetHomeKilla | 01.04.08 - 10:58 pm | #
They still have control even if gov't debt -> zero: they could 'buy' gold and other 'precious metals'. That would result in a direct exchange taking the some of the metal out of circulation AND injecting dollars into their place. The more expensive gold got - the more 'efficient' the injection (don't have to buy and inventory as much actual metal (measured in pounds) for each dollar of 'liquidity' injected.
Could even argue it isn't even a problem since the asset the fed would be holding (gold) would have appreciated making their held collateral all the more 'valuable'.
There really are a lot of ways the fed can inflate IF they decide to AND if the 'actual' gov't allows them to do it. I do NOT believe the gov't is 'there' yet but give'em time.
i should also pt out that todays close was below the August low which is the 2nd confirmation of the original Primary Dow Theory Bear Mkt Sell Signal. we're heading lower.
The problem be not bank liquidity more or less than debt, personal debt, corporate debt,and federal debt.
As MISEAN says, ...the problem is that this money has to get into wages to save the debt deflation.
Term Auction Facility (TAF) should not be a substitute for a good old fashion pay raise; wouldn't that be great?
Hoping for Change,
Johnny
Don't be ridiculous. You're gonna build a railroad track up to the loading dock of every Wal-Mart and Home Depot, every government and military installation, every school and hospital?
If it got there, a trucker brought it.
Russell 2000 broke through major resistance of 735 today in a big way. My ultimate target for R2000 is about 550 but it may take a year or two and offer a few timing ops on the way.
This is confusion of money and credit. He should have said, credit-that-isn't-counted-as-credit-by-official- stats.
So, what exactly is the difference between money an credit?
The Federal Reserve has a balance sheet like any other bank. It's liabilities (Federal Reserve Notes + member bank deposits) balance it's assets (treasury debt, collateral, and gold).
Gary,
Clubber lang.
I'll take it...
YouTube - World of Warcraft Mr. T Commercial TV ad
And sheesh...this post is long and bouncing...It's amusing to me to watch how conversation move around.
I've been on the phone for hours...thanks johnny for seeing my post...
But the deflationist camp is where I'm staying.
Cheers,
Troy | 01.04.08 - 6:18 pm |
"I'm all for nukes up in Canada wastelands, BTW. They seem to have the right mix of ready freshwater and lack of settlements to irradiate."
Stick 'em in your own country....jackass
This is the end of Dire Straights. Ya'll know the tune:
YouTube -
Cheers,
Idoc -
Sorry I couldn't respond sooner ..
"even though i believe that the monetary base has been increasing via M3,"
I agree that this has been the case, up until a few months ago.
"my argument would be that clearly asset prices like housing have been deflating significantly and thus the money supply has to decrease at the same rate to prevent inflation. by keeping the supply steady then we are going to experience inflation overall which manifests itself in other parts of the economy other than housing, namely commodities. this is why we're seeing gold spike as well."
Guess I see it a different way. I see "money" = "debt". Anything that creates a debt increases the supply of "money", and anything that destroys debt does just the opposite. Debt is being destroyed left and right. So, I don't see inflation as the big worry - I see deflation as the problem, instead. And the price of commodities going up - this can't be sustainable. It may be nothing more than where the hot money is going. It'll be the last bubble before everything pops, including gold (which is why I bailed out of it today).
"btw, the TAF injections look like they will be a permanent ADD to the money supply and thus inflationary since its being given out below mkt rates and contributes to keeping asset prices elevated above the normal mkt forces."
Ok, but those TAF's must be repaid, right? So the only increase in the money supply can be to the extent that the vigorish serves as the basis of creating more debt, right? (value of Market rate less actual rate times principal, difference is loaned out.)
Or am I completely screwed up?
"A more general question, if banks won't lend, why not open up the discount window to you and me? Pay off your old mortgage at 6, 7 or 8 % and get at new one at 4.75% (or maybe 4.25 %). Even if you limit it to good credit risks with equity in the house to limit losses, that would give tens of millions of households hundreds extra each month. End of the recession right there..."
Thats being done, to some extent, by liberalizing the GSE lending requirements.
winjr,
Repost:
"They can cut, and they can buy all the toxic garbage at Taffy's they want.
It's not just a Solvency crisis now. It's a cascading cross default problem now.
A needs to pay B, B needs to pay C, C needs to pay D, D needs to pay A. D is the consumer and can't pay A.
FRB Testimony:
FRB: Federal Reserve Board: Error Page 19981001.htm
Good explanation:
404 Not Found north282.html"
Try that,
Cheers,
winjr
"permanent TAF auctions" means infinite rollovers at below mkt rates serving to prevent the debt from fully deflating to meet asset deflation aka inflation.
They still have control even if gov't debt -> zero: they could 'buy' gold and other 'precious metals'.
Any excess interest from the Federal Reserves SOMA holdings are turned over to the Treasury at the end of the year.
In effect, the US Government gets a loan from the Federal Reserve and the Fed kicks them back the interest on the US Government paid on the loan at the end of the year. I doubt the Federal Government would ever be stupid enough to pass up that deal.
But, if for some reason the US Government was turning down free money the Federal Reserve could monetize any asset. The problem is that any asset they monetize automatically puts a "floor" under the price of the asset they monetize.
And, if the Fed puts a floor under the price of gold at say $900 an ounce who would sell the Fed their gold? There is zero risk on the downside and unlimited upside. So, the Fed would also need to put a ceiling on the price of gold. With a floor and a ceiling the US is back on the gold standard.
Most likely, if the Fed couldn't find enough government debt it would buy GSE and other "implicit" government debt or the commercial paper of large US banks.
idoc,
"infinite rollovers at below mkt rates serving to prevent the debt from fully deflating to meet asset deflation aka inflation."
How do you loose the base of the chain in your analysis? If J6P stops paying what do you have? Either the Fed is monetizing, or it is covering up.
YouTube -
Cheers,
idoc,
Thanks. I think the drops will come a lot quicker and go farther than most expect, now that the psyche is changing. Good for my LEAP puts!!!
The problem be not bank liquidity more or less than debt, personal debt, corporate debt,and federal debt.
As MISEAN says, ...the problem is that this money has to get into wages to save the debt deflation.
Term Auction Facility (TAF) should not be a substitute for a good old fashion pay raise; wouldn't that be great?
Rae cuts & TAF are slow routes to 'pay raises' for sure. That's why I think we'll eventually see 'fiscal measures' and not just tax cuts either. Do that and the effect is a straight shot into wages...
Just by increasing the subsidy to health care - say by increasing payments to providers for Medicare or Medicaid would result in an almost immediate increase in dollars to peoples pockets - first to health care providers directly and secondly to their supply chain (from bio-med devices to linens)... then secondary effects (stores near hospitals etc.)
Same with increased educational 'grants'... quickly results in more teachers and administrators (and then MORE administrators)... dollars directly into pockets, all of it.
And if done with increased deficit spending it results in a pretty significant increase in dollar velocity and supply.
And it can happen fast in a 'service based economy'... don't have to ramp up slow like Hoover Dam or Manhattan Projects in the thirties and WWII... just start paying more for services like medicine & education and all the increase immediately goes into SOMEBODIES increased income.
Like I said above - the gov't isn't there philosophically yet. So far they still trust the fed to rescue us - once that's shaken look for them to build you your own personal bridge to nowhere.
And yes it won't save those folks who are insolvent - they still go under - but it backfills the deflation hole faster than folks imagine. The MOTU only really care about the systems anyway... so what's a few failures among friends.
And all of it will be spun as trying to 'help people' (who's against health care and education???).
We already are. The use of intermodal is up and will grow significantly with the increase in gas prices.
Railroads are profitable and are reinvesting, but imo we are still underinvested in rail.
dryfly,
I'm in the need of another drink...your analysis is interesting...
Back in a few.
Cheers,
Gary, I appreciate your liberal enthusiasm (but could do without your needless Bush/Cheney/Haliburton/corporations remarks).
Here in SoCal, we just completed a light rail project from nowhere to nowhere, at the cost of $500MM (original cost estimate: under $100MM).
I drive I-5 north and south between San Diego and San Clemente daily, and see (1) construction underway on carpool lanes and fly-overs while (2) traffic is markedly lighter over the past 18 months due to the exodus of Americans and illegals.
The last thing in the world that we need is more mass transit. The frigging buses in San Diego are near empty, typically.
And, activity is going to be markedly slower during the next 10 years as we move into and out of depression.
Public works excesses did not save Japan, and they will certainly not save the U.S.
Save the money for soup lines, 'cause we will have lots and lots of need for those.
dryfly,
I can't come up with another scenario, either deflation or inflation, that captures that last statement. My god man, ir rivals Patrick Henry. Grab that thing and save it somewhere...we're gonna need people like you in the near future, and that is statement is what is needed.
Cheers,
dry- how was the business trip? glad to see you around. you missed my drunken auto-depants-ing the other night. shame. i called you the tanta before there even was a tanta. lol. did you sell some sh!t?
We already are. The use of intermodal is up and will grow significantly with the increase in gas prices.
Railroads are profitable and are reinvesting, but imo we are still underinvested in rail.
Zigurrat | 01.05.08 - 12:23 am | #
Its the same problem as you see with 'the internets'... it doesn't do a lot of good to lay more high speed fiber if the last mile still goes through copper hanging from poles all covered with ice.
If I ship widgets via intermodal... I have to truck it to a pick up point (queue) onto to a rail car (queue) travel by rail to next transfer point & drop off (queue) put on truck - travel and drop off.
Frequently that means taking parts from say central Illinois - trucking a better part of a day up to Chicago, getting loaded at a large transfer point (another day or so)... traveling to say LA (another day or two) then unloading at the large transfer point there (waiting another day) to then be hauled to say a factory in Tijuana (another day).
In most cases it is MUCH faster and cheaper (even with expensive energy) to just haul direct - even if it has to be 'consolidated' first (if LTL).
When there are efficient transit stations in many more locations (say a rail transfer station near the central Illinois factory and then another right on the border near Tijuana) so the truck distance is REAL small and short and much less queue time - THEN domestic intermodal will really take off.
Currently most intermodal is container loads from offshore and they are easily 'centralized' at the ports.
Now
Very busy weekend ahead, oui!
Re: The first six characters are known as the "base" (or "CUSIP-6"), and uniquely identify the issuer. Issuer codes are assigned alphabetically from a series that includes deliberate built-in "gaps" for future expansion. The last two characters of the issuer code can be letters, in order to provide more room for expansion. The numbers from 990000 up are reserved, as are xxx990 and up within each group of 1000 (ie, 100990 to 1009ZZ).
Time is burning like cash! Oui!
DH
did you sell some sh!t?
Working in on it. Not looking bad either - considering all the terrible news lately (of which I agree - it looks terrible).
Funny thing is the jobs numbers came out this morning and I called a number of my clients (those I sell for) and my better customers (those I sell to) and asked "So do things look good or bad for you going forward?" Sort of my own effort at coming up with an ISM...
Answer: "Things look great - we are beating forecast and forecast was aggressive." The programs I'm supplying parts for are still going at break neck pace. Existing business (past programs) are still strong. Hmmmm.
Understand I don't do a lot of automotive and NO home building stuff.
So either these folks are clueless, lying or it isn't that bad everywhere... or not yet anyway.
I was a bit surprised that the answer came back so 'strong'. Keep you all posted.
Public works excesses did not save Japan, and they will certainly not save the U.S.
Japan IS different than the US. They save we don't. None of that make work deficit spending does much if the people you employ then SAVE those wages. That is exactly what the Japanese did (and still do).
We on the other hand couldn't save the tip jar at Starbucks if our future depended on it. Give most of us more money and we treat it like nuclear waste (not in my back pocket).
When that changes - and we see savings rate skying upward (and not just a little less negative)... THEN I think it will be time to start up the deflation parade.
great to hear it sir. and very happy to have you back. how long were you gone for? sorry for the dangling preposition but i've been simultaneously writing a new business plan and dealing with aftermath. good stuff. you missed a great light night thread last night on the Analysts: Corporate Defaults to Rise "Drastically" post. i spilled the beans and reveled in my own failure. good times!!
great group of folks here. there is a great sociological academic piece to be written about this blog.
and oopsies i posted anon earlier but i doubt anyone didnt realize it was me.
for better or worse.
oops did it again. damn mozilla!
oh and back ON topic for a second. it appears as though local banks are abandoning basing lending rates on treasuries. latest quote i got was 250 bps over their 1 yr CD rates!! wtf??!
dc - I'll be in and out now for probably six months. This is my busiest time of the year - right after the New Year.
Companies budgets are 'renewed' plus the procurement & engineering managers I call on are finally done with last year's year end mop up (its hard work thinking up all those excuses - takes a lot of time & energy).
Things are still a little slow 'cause everyone is back from holiday break and are still 'retraining'... but my schedule is filling up fast. And new rfqs are coming in so I can't complain yet - however like I said above... I see the problems too, they just might not have reached me in fly over yet.
We'll see.
are you seeing much impact from the USD decline?
i'm so curious as to how that will REALLY play out.
i've always argued and i think that you have too that the USD decline will absorbed in many ways by the margins of importing (to the US) producers. hey, why fight the dollar when i can dig deeper into BRIC'landia for cheaper labor?
i know you're a setser disciple, so your street level understanding is key here.
anyone else here remember delong's opus on the different viewpoints of domestic economists vs international ones?
i for one have always said that import based inflation due to a dollar decline will be muted due to the wage deflation in play. the proverbial race to the bottom as elucidated frequently in the early days of globalization.
Hi everyone! Happy New Year!
Sorry I haven't been around, too much traveling, still. Missing the interesting times here. But needless to say:
"This is not good Mav...NOT GOOD!"
"Don't you all know? The last bubbles will be Oil and Gold in that order.
w | 01.04.08 - 7:32 pm | # "
wrong - the last bubble will be the Population bubble!
how many people do you think the earth can sustain?
are you seeing much impact from the USD decline?
Absolutely. But not as much direct export as substitution. Parts they used to export here we are more competitive at - we make more of that here now.
As with everything it starts on the margin but it is for sure starting. Last time I saw this was right after Plaza Accord - similar situation now but less 'organized'... During Plaza the Japanese got on board early (and took their lumps)... this time its been rougher and more ad hoc.
Makes me think the dollar is already oversold against the euro but still overvalued against the RMB. It won't straighten out though until the RMB appreciates more.
As before - we'll see.
holy crap a banker and dryfly reunion thread!
dry - the substitution effect will be powerful as well.
if the US shut its borders completely (to imports) we'd still be fine. its not like we're some city-state that MUST import everything.
so between substitution and BRIC wage deflation, the expected import price based inflation may not rear its ugly head except in that pesky oil market
ODD
seems to me that for the last 5-7 years, standard international econ theory has been completely shreaded.
makes for tough times predicting anything.
wish we knew BBB's take on USD declines on core inflation - but i guess actions tell all
so USD in the shitter. treasury based interest rates in the cellar. consumption shifting to domestic vs import. all lead to..........
what?
And, if the Fed puts a floor under the price of gold at say $900 an ounce who would sell the Fed their gold? - Kicker
People who need cash and bought at $850 or lower would happily sell. In a deflation cash has value so the exchange makes sense.
Now in an inflationary environment then - yes - hold out. But I only see the fed buying gold in a deflationary environment to flood cash into the economy.
And if by chance the price went to $1000 - the fed wouldn't care. If the point is to get cash out in circulation... then $1000 is even better than $900.
See this whole 'deflation inflation' psychology thing works both ways... not just with consumer psychology. Currently the fed is worried more about inflation (having come of age in the 70s). Its what they know. If they really start worrying about deflation - and act on those worries - watch out, there are lotsa ways to inflate.
The only thing that can stop an effort on the part of a CB to inflate is if the people don't go along - like what happened in Japan. I don't see that happening in a country full of spenders and debtors (that be us).
btw, i just bought a 37 inch LCD HDTV for $600 bucks. someone tell me there is no deflation in that sales price point.
but tuition at my local state U has doubled since i graduated.
and there are no unions pushing through price indexed wage increases.
someone please tell me whats really going on?
who buys ten year treasuries at 3.8% taking into account inflation risk (and default risk LOL) when we know that there is also currency risk as well?
who the hell is buying them and WHY?!?!?!?!
f the US shut its borders completely (to imports) we'd still be fine. its not like we're some city-state that MUST import everything.
We'd be a lot poorer overall.
I'm not a Buy America Only type - I have no problem with imports... I just want balance. We make stuff for them & they make stuff for us. Haven't been doing enough of that for a long time. Well unless if you call worthless CDOs as making stuff.
You ask 'then what'? I think we are approaching the point where the dollar is sufficiently competitive OVERALL but the imbalance is that we are too cheap vs the euro and still too strong vs the RMB. China has to step up let their currency free and until they do we'll have 'instability' and 'volatility'. JMHO.
who the hell is buying them and WHY?!?!?!?!
dc1000 | 01.05.08 - 1:50 am | #
People who believe there will be deflation - if you are getting 3.8% but expect the economy to deflate so that cash is MORE valuable going forward (not less)... then that 3.8% is in that case actually 'higher' in real terms... think 'negative inflation' and you get the idea. I'm not in that camp but still own some bonds - diversification & all.
yeah but its not just 'some people'
its the sum total of the treasury market, one of, if not THE, single deepest and most liquid market in the world. it was at one point the most reliable indicator there was. now that FCBs and other players make 'irrational' purchases in that market, the once trust worthy signals it produces are subject to skepticism.
if you'll remember years back, this was my main point of discussion with setser.
can the deepest most liquid market in the world be irrational?
if so, what does that mean for the foundations of modern finance theory?
who here thinks that inflation risk plus default risk plus roll over risk plus required rate of return equals 3.8% YTM for 10 years?
bueller? bueller?
and no, i'm not an america first type guy, i drive a german car and buy imported crap all the time. my point is that IF the domestic market was relegated on a price point basis to consume solely domestically produced goods, the import based inflation expectations predicted by international econ would be muted if not non-existent.
same argument as always - traditional models are useless right now. its like trying to to predict the future with a 1880's 8-ball.
dry- you should check this out for some giggles
HaloScan.com - Comments
anyone else just get Mauldin's newsletter?
seems like he's been reading CR like the rest of us
"In most cases it is MUCH faster and cheaper (even with expensive energy) to just haul direct - even if it has to be 'consolidated' first (if LTL).
When there are efficient transit stations in many more locations (say a rail transfer station near the central Illinois factory and then another right on the border near Tijuana) so the truck distance is REAL small and short and much less queue time - THEN domestic intermodal will really take off. Currently most intermodal is container loads from offshore and they are easily 'centralized' at the ports."
It's probably unrealistic to see really significant capital spending except for the low hanging fruit. The total market cap of US Class 1 Railroads is in the $100 billion range. After today, probably less, since they got killed. We spend more on highway maintenance then total railroad revenue.
I think the key for railroads is to become "green" and reap the political benefits. The idea that railroads would be considered environmentally friendly would have been unthinkable in the past. (I'm excluding mass transit).
"who here thinks that inflation risk plus default risk plus roll over risk plus required rate of return equals 3.8% YTM for 10 years?"
No one, which makes inflated assets such as stock look a lot more attractive. Unless the ytm decreases to 3% giving you a nice capital gain. Municipal bonds actually look pretty good, since the 15% tax rate will also be history.
Does anyone ever go back and read any of the older comments? I jumped back a year and hit this one.
I was talking to an (Asian) guy having a few too many drinks, who had 2 homes 1 in Irvine not sure about the other. He just did a refi/cash-out and planned on walking, moving his money somewhere and will start a new life back home. I asked him why and he said because I can and the bank can have the property back its in good shape, they can sell it and get their money back. He said it was not illegal just a bad business deal, for the bank. I had to laugh, got me thinking though...
Nice post from Mike Larson at Interest Rate Roundup on regional banking meltdown...
Interest Rate Roundup: Regional banking sector meltdown
Mr. Potter: [to George Bailey] Look at you. You used to be so cocky. You were going to go out and conquer the world. You once called me "a warped, frustrated, old man!" What are you but a warped, frustrated young man? A miserable little clerk crawling in here on your hands and knees and begging for help. No securities, no stocks, no bonds. Nothin' but a miserable little $500 equity in a life insurance policy.
[Potter chuckles]
Mr. Potter: You're worth more dead than alive!
but my favorite Dadaist line-
Annie: I been savin' this money for a divorce, if ever I got a husband.
dc-Right now treasuries are being bought out of panic as part of a flight to safety. It's the only market liquid enough to absorb all that cash. It's hard to buy $ 100 billion in CDs, after all, even if they pay higher rates.
dryfly-I agree there is no problem getting Americans to spend. And since old credit is being destroyed, I'm not even sure it's inflationary to create an equal amount of new. just as if your house burns down and you rebuild that does not add to the housing stock. As far as the Yuan exchange rate, China is adjusting it in order to deal with internal inflation. That will chop quite a bit off their imported commodity bill.
As far as the Yuan exchange rate, China is adjusting it in order to deal with internal inflation. That will chop quite a bit off their imported commodity bill. - AotC
What it does to import/export isn't clear at all.
Yes - they will have to let the yuan APPRECIATE to head off domestic inflation.
Inflation is an increase in money supply... as USD comes in to country via trade surpluses they convert it to RMB at a managed ratio - currently about 7.5RMB:1USD. They mop up some of that dollar driven RMB growth by selling 'sterilization bonds'. But they are falling behind - inflation (evidenced by price increases) is accelerating in China.
If the ratio was lower... say 6RMB:1USD... there would be a whole lot less new RMB created and less to mop up via sterilization.
The irony is with a 'stronger' RMB the Chinese would be in a position to buy way more commodities for their own consumption but would buy less for remanufacture for export to us (since the 6:1 ratio would make many of the marginal Chinese exporters uncompetitive).
What that does to the overall Chinese import/export equation is unknowable. My guess is they export about the same in dollar value but that means a decline in tonnage (the stuff will have a higher unit cost in dollars... cost more dollars per widget). Likewise the stuff the Chinese buy for import will have a LOWER unit cost in RMB per widget.
It will make a difference but I'm not sure how it will play out overall.
Just my .15 yuan (two cents)...
I agree there is no problem getting Americans to spend.
It's been a long time since the last consumer lead recession, but it hasn't been that long.
Consumer lead recessions were pretty much the norm prior to 1990. Consumers would leverage up their balance sheets in good times (pulling consumption forward) and leverage down their balance sheets in bad times (deferring consumption).
The Government was supposed to provide counter-cyclical spending. Ramping up spending and cutting taxes when consumers were broke and ramping down spending and raising taxes when consumers were flush. Of course, it never really worked that way (even in the EU where budgets are supposed to balance over a full business cycle).
The last consumer lead recession was back in 1990. It was the last year that real PCE actually turned negative:
http://static.seekingalpha.com/wp-content/seekingalpha/images/Taylorchart2.jpg
Since then, the only recession was the business lead (over capacity) of 2000 and consumers spent through that recession by borrowing against housing and spending down savings.
Now, how are consumers going to spend through this recession now that there are no longer any assets to borrow against or savings accounts to spend down? American's will have the desire, but will they have the means?
I'm not too sure if this qualifies as "short term market funding" but my cousin can't pay his mortgage this month so I told him about TAF and suggested that he bid 5% for the amount of his mortgage. Can anyone tell me where common folk should go to submit their bids? (This is known as a straight line in comedic circles and at this point I think the financial community fits right in.)
Consumer lead recessions were pretty much the norm prior to 1990. Consumers would leverage up their balance sheets in good times (pulling consumption forward) and leverage down their balance sheets in bad times (deferring consumption).
There is a HUGE difference between a consumer lead recession and deflation... in the first case most consumer lead recession result because consumers CAN'T spend not that they won't (the latter is a case where they won't spend even if they can).
As long as consumers have the will to consume and gov't produces policies that make that possible via easy money then they will - even if the result is itself a problem (inflation).
You won't get a consumer lead recession leading to deflation until either (1) Americans change their philosophical bias toward consumption or (2) the gov't no longer is willing to produce policies enabling consumption via easy money... Since we are still a 'democracy' (sort of) we won't see (2) until (1) happens first.
In short no deflation until society embraces deflation. I don't see that happening anytime soon regardless of the 'deflationary pressures' resulting from the RE crash.
Shylock-I suggested that last night (see above). I got called both a Communist and a Bush voter. Perhaps those are just 2 sides of the same coin though.
This is just eliminating the middleman (banks), sort of like Costco for mortgages.
idoc,
As the A in TAF is nothing but auction, if you want to rollover permenently, you need to bid in every auction to roller over it. Here not only you must bid again but also you must place a winning bid to roll over. Lossing the bid here means suddenly you need get the money from somewhere else to pay it back to Fed. As demand for the TAF increases due to defaults more people are going to bid and bid with higher rate.
To alleviate this too many bids chasing too few fund, FED is doubling the TAF amount there by making sure that existing people can rebid and win while new ones also get their share.
Here is where I differ. As the default increases, it is going to force lot more people to bid for more money in addition to the existing people bidding for even more money.
So as each month proceeds, the bid rate will increase due to demand which cause the Fed to increase the TAF amount. At one point TAF amount is going to cross a critical number where everyone realizes that lot more banks are in doodo, and start widrawing money from their banks. The people wont be knowing which one is actually in doodo due to TAF annonymity. So it bank run is going to happen for all banks and going to happen simultaneously.
Hope that this doesnt cause the collapse of the fiat currency and CBs the managers of the fiat currency.
Every coin has two sides. Here I see the potential fallout side of the coin.
Tell why shouldn't I see this side.
Banks as a system dont loan out anything. They create money when they make loans.
Money creation is not self-regulating
You cant take money out of the banking system (only the FED can)
Savings transferred through the intermediaries never leaves the CB system. The intermediaries are the customers of the CBs.
From the standpoint of the economy the banks shouldnt pay for something they already have. Payments on savings raise all interest rates, induce disintermediation among the financial intermediaries, shrink real-gdp, & lower CB profits.
Now ponder the GOSPEL.
P.S. the money supply is unknown & unknowable. Any discussion of debt/money is tripe.