Based on the Elliott Wave formula, the Dow Jones Industrial Average will drop roughly between 640 to 1780 points during September.
The Dow will reach possibly as high as 10,325* and drop to 8,700* or 9,310* (a 1,625-1,000 point drops) OR the Dow reaches 9,956* and drops to 8,178* (1,780 point drop). The smallest drop would be if the Dow reached 9,956 and fell to 9,310 (646 points).
Today, as of August 31, the Dow is at 9,463 and falling, down 81 points so far, meaning it started the day at 9,554. The Dow could also be falling right now down to hitting around 9,310* before falling further to 8,178*, which would be a drop of about 1,380 points.
In either case, the drop would serve as a correction to a bear-market rally that started last March.
*Approximate figures
Monday, August 31, 2009
Elliot 'Tidal' Wave in September
For Elliot Wave technicians--speculators and/or investors who chart the stock market--the "doom-and-gloom" scenario is upon us. These charters are not the biggest money makers in the world, but they tend to have different scenarios based on chartflow. I can't explain, I don't care to understand it, but they seem to know what they're doing.
In evilspeculator.com, I followed this for awhile last Spring. He would sometimes forecast a drop and, at other times, a rise in the market. I realized there was no particular answer but more like scenarios that determined a rise or fall--so it was difficult to say one way or another what would happen.
However, in April or May, the "evilspeculator" said he knew the stock market would reach nearly 10,000--possibly hit it over the summer--and then take an extreme fall. I've seen his current chart and although he's not exactly sure which scenario the market will take for a precipitous drop, EVERY SCENARIO SAYS THE MARKET WILL TAKE A PRECIPITOUS DROP IN SEPTEMBER. That makes one take notice and so I have.
Also, Peter Brimelow of Marketwatch.com took notice in Elliott Wave pulls plug on stocks (and Obama). I suggest reading the article.
Normally, I might say the Elliot Wave would be correct--maybe it will be. However, there is so much manipulation in the Fed funneling money, accounting changes, media spin and overall value uncertainty, that any predictions can be difficult to make on the market at this time.
That said, with commercial real estate clearly catastrophic at this time, a residential housing market that still has farther to fall, insolvent banks needing more money for reserves, many more smaller banks failing and the end to summer jobs and consumer spending (i.e. outdoor recreational activities, buying houses with tax credits, home improvements, decorating, new home furniture and/or appliances, new "cash for clunker" cars, vacations, back-to-school purchases), it is time for the country to draw back and keep spending down for the holidays--as consumers did last year.
The crash is coming--the question is when. Hopefully, the market can get to 10,000. I am by no means an investment advisor, but I do know when it hits 10,000, I don't care how much higher it's going, I'm going to get VERY CONSERVATIVE. Hopefully, I don't get too greedy waiting for it to get higher before the bottom drops out. The scenarios might tell the true picture, so it might be a good idea to keep an eye on http://www.evilspeculator.com/ at least for next month.
For now, as the song says, "See you in September."
In evilspeculator.com, I followed this for awhile last Spring. He would sometimes forecast a drop and, at other times, a rise in the market. I realized there was no particular answer but more like scenarios that determined a rise or fall--so it was difficult to say one way or another what would happen.
However, in April or May, the "evilspeculator" said he knew the stock market would reach nearly 10,000--possibly hit it over the summer--and then take an extreme fall. I've seen his current chart and although he's not exactly sure which scenario the market will take for a precipitous drop, EVERY SCENARIO SAYS THE MARKET WILL TAKE A PRECIPITOUS DROP IN SEPTEMBER. That makes one take notice and so I have.
Also, Peter Brimelow of Marketwatch.com took notice in Elliott Wave pulls plug on stocks (and Obama). I suggest reading the article.
Normally, I might say the Elliot Wave would be correct--maybe it will be. However, there is so much manipulation in the Fed funneling money, accounting changes, media spin and overall value uncertainty, that any predictions can be difficult to make on the market at this time.
That said, with commercial real estate clearly catastrophic at this time, a residential housing market that still has farther to fall, insolvent banks needing more money for reserves, many more smaller banks failing and the end to summer jobs and consumer spending (i.e. outdoor recreational activities, buying houses with tax credits, home improvements, decorating, new home furniture and/or appliances, new "cash for clunker" cars, vacations, back-to-school purchases), it is time for the country to draw back and keep spending down for the holidays--as consumers did last year.
The crash is coming--the question is when. Hopefully, the market can get to 10,000. I am by no means an investment advisor, but I do know when it hits 10,000, I don't care how much higher it's going, I'm going to get VERY CONSERVATIVE. Hopefully, I don't get too greedy waiting for it to get higher before the bottom drops out. The scenarios might tell the true picture, so it might be a good idea to keep an eye on http://www.evilspeculator.com/ at least for next month.
For now, as the song says, "See you in September."
Thursday, August 27, 2009
The Blogosphere
Mish's Global Economic Trend Analysis, written by Mike Shedlock (an investment advisor with Sitka Pacific Capital), is one of the best economic blogs in the blogosphere, in my humble opinion (IMHO). Why? Because he's always right. He also references not only other articles but his own blogs to reemphasize his point. Isn't it nice when people's opinions are backed up by fact?
I also like the fact that, as an investment advisor, his only agenda is the truth as he sees it and if you read his blog, he's obviously a very smart guy who knows his stuff.
With that introduction, his blog Creative Destruction, gives a nice overview of our economic situation for people who are "drinking the Kool-Aid" and thinking that a recovery is on its way.
This isn't about political agendas. It's about people losing jobs, livelihoods being lost and the wealthy remaining on the wealth track while the poor get poorer...and the middle class stay put. At some point, when people need to borrow and banks are willing to lend, guess who they'll lend to? Let me tell you, it won't be to the people who really need the money.
In any case, that's my soapbox, but read Mish's article for a true view and a REAL OUTLOOK on the nation's economy. He's been saying these things for a long time, and I see no reason at this point to disagree with him.
His references are very good, as are many smart economists and/or industry experts who post on the blogosphere. It's another reason that the newspaper's paper industry is becoming defunct--which Mish also mentions in this blog.
It's not a pleasant picture, but it is the truth.
I also like the fact that, as an investment advisor, his only agenda is the truth as he sees it and if you read his blog, he's obviously a very smart guy who knows his stuff.
With that introduction, his blog Creative Destruction, gives a nice overview of our economic situation for people who are "drinking the Kool-Aid" and thinking that a recovery is on its way.
This isn't about political agendas. It's about people losing jobs, livelihoods being lost and the wealthy remaining on the wealth track while the poor get poorer...and the middle class stay put. At some point, when people need to borrow and banks are willing to lend, guess who they'll lend to? Let me tell you, it won't be to the people who really need the money.
In any case, that's my soapbox, but read Mish's article for a true view and a REAL OUTLOOK on the nation's economy. He's been saying these things for a long time, and I see no reason at this point to disagree with him.
His references are very good, as are many smart economists and/or industry experts who post on the blogosphere. It's another reason that the newspaper's paper industry is becoming defunct--which Mish also mentions in this blog.
It's not a pleasant picture, but it is the truth.
Wednesday, August 26, 2009
Washington Cronies at the Fed
I generally don't believe in conspiracies, but I do believe in Washington Cronyism, particularly between Washington, DC and Wall Street. Paul Farrell has a good article in Marketwatch.com this morning--one day after President Obama's announcement to retain Bernanke as Fed Chair.
In Dismantle Bernanke's 'Happy Conspiracy'...now!, he explains the problem of giving the Fed too much power, as the Federal Government has for the past 25 years, and future concerns with the current plan to solve the credit crisis.
Enjoy.
In Dismantle Bernanke's 'Happy Conspiracy'...now!, he explains the problem of giving the Fed too much power, as the Federal Government has for the past 25 years, and future concerns with the current plan to solve the credit crisis.
Enjoy.
Tuesday, August 25, 2009
Consumer Psychology is the Answer
Here's a good supplement to my previous post.
Minyanville is good blog that provides some common-sense thought about the economy. In Five Things: What Comes Next?, Kevin Depew educates readers on a credit expansion and a credit crunch within a fiat-based monetary system that thrived on consumer demand for the past 25 to 30 years.
One major point, Depew said, is that consumer attitudes have gone through a paradigm shift that prevents credit expansion and stalls Fed Chair Ben Bernanke and Treasury Secretary Timothy Geithner's plan for economic recovery.
On a deeper level, a major positive social mood trend, which was supportive of risk-taking and increasing risk appetites, was what created the conditions necessary for credit expansion. Unfortunately, that trend in social mood has changed, and no amount of central bank tinkering or exogenous force can reinstall it.
Looking at the general public, as mentioned in the previous post, more than one-quarter of consumers are either:
1. Unemployed (9.4 percent);
2. Employed part-time or discouraged in finding a full-time job (16.5 percent).
OTHER THREE-QUARTERS of the UNITED STATES
3. Employed full-time but scared to spend because unemployment should hit at least 10 percent;
4. Employed full time and tapped out on debt trying to pay it down;
5. Employed full time and without any children or family--living with parents or possibly empty nesters--trying to save for a home and/or the possibility of retirement after their 401K was blown up by the stock market crash last year;
5. Employed full time needing money to pay for their kids's tuition to go to college;
6. Employed full time and responsibly live within their means;
7. Employed full time and are wealthy enough to buy whatever they want without needing to take on debt for more than a month (about 1 percent of the U.S. population whose taxes will definitely increase);
8. Employed full time, confident and materialistic enough at this time that they want to take on debt to purchase a variety of items--cars, home improvement, a new home, new televisions, new computers and new clothes.
These people also make the monthly mortgage payments on their home, purchased their home prior to 2005, have excellent credit ratings and little debt. In fact, they can only receive credit with this criteria.
But, with that criteria, why do they need to take on any debt?
Any debt they had was probably paid off from 2005-2009. If that's the case, the things they bought are only four years old. They probably will not need to be replaced for at least another five years.
When will consumer debt return? I don't know. How long did it take people who lived through the Great Depression to start spending frivolously? I think the answer is--NEVER. They were obsessed with saving money for years to come.
Minyanville is good blog that provides some common-sense thought about the economy. In Five Things: What Comes Next?, Kevin Depew educates readers on a credit expansion and a credit crunch within a fiat-based monetary system that thrived on consumer demand for the past 25 to 30 years.
One major point, Depew said, is that consumer attitudes have gone through a paradigm shift that prevents credit expansion and stalls Fed Chair Ben Bernanke and Treasury Secretary Timothy Geithner's plan for economic recovery.
On a deeper level, a major positive social mood trend, which was supportive of risk-taking and increasing risk appetites, was what created the conditions necessary for credit expansion. Unfortunately, that trend in social mood has changed, and no amount of central bank tinkering or exogenous force can reinstall it.
Looking at the general public, as mentioned in the previous post, more than one-quarter of consumers are either:
1. Unemployed (9.4 percent);
2. Employed part-time or discouraged in finding a full-time job (16.5 percent).
OTHER THREE-QUARTERS of the UNITED STATES
3. Employed full-time but scared to spend because unemployment should hit at least 10 percent;
4. Employed full time and tapped out on debt trying to pay it down;
5. Employed full time and without any children or family--living with parents or possibly empty nesters--trying to save for a home and/or the possibility of retirement after their 401K was blown up by the stock market crash last year;
5. Employed full time needing money to pay for their kids's tuition to go to college;
6. Employed full time and responsibly live within their means;
7. Employed full time and are wealthy enough to buy whatever they want without needing to take on debt for more than a month (about 1 percent of the U.S. population whose taxes will definitely increase);
8. Employed full time, confident and materialistic enough at this time that they want to take on debt to purchase a variety of items--cars, home improvement, a new home, new televisions, new computers and new clothes.
These people also make the monthly mortgage payments on their home, purchased their home prior to 2005, have excellent credit ratings and little debt. In fact, they can only receive credit with this criteria.
But, with that criteria, why do they need to take on any debt?
Any debt they had was probably paid off from 2005-2009. If that's the case, the things they bought are only four years old. They probably will not need to be replaced for at least another five years.
When will consumer debt return? I don't know. How long did it take people who lived through the Great Depression to start spending frivolously? I think the answer is--NEVER. They were obsessed with saving money for years to come.
Obama's Performance
My wife sent me this link showing Obama's performance on the economy from January to the present. It shows whether the decisions were a "slam dunk" or an "airball."
http://money.cnn.com/news/storysupplement/economy/obama_money_moves/
As a social liberal, fiscal conservative--like I believe most people in this country basically are--I like Obama and expected change when he came into office this past January. However, a colleague of mine said not to expect it too soon. Washington, D.C. has always been Washington, D.C. and he won't be able to change the system, my colleague said (although I'm paraphrasing).
He was right--for now. I think Matt Taibbi's Rolling Stones article about Goldman Sachs, "Inside The Great American Bubble Machine" says it all as to the economic connections from Wall Street to Washington.
This bubble really started to collapse in the summer of 2007 because the residential mortgage-backed securities market had pretty much gone dark, and the commercial mortgage-backed securities market had pretty much shut down as well--even though fundamentals were sound in commercial real estate. It was then I discovered that investors are not only greedy, they're really smart as well. They saw the writing on the wall when residential delinquencies jumped in March 2007 and, by August 2007, it was clear too much capital chased ALL PROPERTIES causing inflated prices all around.
Interest-only mortgages, Alt-A mortgages, Option Adjustable Rate Mortgages, Home Equity Lines of Credit or HELOCs, credit cards, credit derivatives, credit default swaps, trust preferred securities, RMBS, CMBS, collateralized debt obligations or CDOs, commercial real estate CDOs and a number of other "exotic" financial instruments unregulated were inflating the consumer debt bubble to the point of full implosion. But that was one year away.
Prior to that, any person with common sense watching the mortgage industry, like myself, could see that Interest Only mortgages given to unsophisticated borrowers would ruin the mortgage industry during its most productive period EVER.
Of course it did. I predicted it nearly three years before it happened, and I'm not an economist, never studied economic theory, didn't know anything about supply and demand. I only started reading the business section of the paper about five years ago.
I just knew, by common sense, that it was greedy and stupid to give these loans--meant for sophisticated financial professionals--to ordinary home borrowers. I would ruin a good thing the industry had going--which it did--and that we would have a recession like nobody ever saw because everyone was leveraged to the hilt and nobody would spend any money anymore.
Nobody spends, companies don't make money. Companies don't make money, they have to layoff people. People get laid off, they can't pay their mortgages. The industry collapses. It's not rocket science.
During the subprime craze, however, mortgage industry leaders said, "If he's doing it, I've got to do it or he'll get all the market share." Of course, the wisdom here would have been to realize it would destroy the ENTIRE INDUSTRY. Try thinking of the industry first guys and gals!
What it took other, much more intelligent economists who did study economic theory and understood ALL the machinations behind this--like Nouriel Roubini, professor of economics at NYU--it would destroy the ENTIRE GLOBAL ECONOMY. Try thinking of the rest of the world guys and gals!
But mortgage lenders were not to blame. EVERYONE WAS TO BLAME, including GREEDY BORROWERS who thought they could buy a huge house they could not afford and later blame someone else for their own greed.
But enough of this...it's all in the past. Let's fast forward to August 2008. By then, Hank Paulson already knew what was going on.
Bear, Stearns collapsed. Lehman Brothers went bankrupt, and the stock market was falling fast. Fannie Mae and Freddie Mac were placed under government control, AIG was placed under government control and Timothy Geithner, then in the NY Fed and a former Goldman player, helped Hank with the TARP $700 billion bailout.
Meanwhile, Bernanke, watched this happened when he followed Alan Greenspan who helped create this bubble. You might say he played the role of Kevin Bacon getting flattened in Animal House--"Everything is fine, don't panic!"-- is at the helm ready to start up the printing presses.
Thinking of that character, can you believe John McCain said the economy was strong in September? That might have cost him the election right there.
So, Obama was elected U.S. President in November after, as I suspected, we would be in a huge recession with Bush waving to the crowd saying, "See ya...had fun these last eight years. Thanks."
Only, the economic problem was far worse because it was a Depression. It reflected the exact same thing that happened in the 1929 Stock Market Crash, which led to the Great Depression. It lasted about a decade and ended after World War II. That's what Obama faced upon his inauguration. Literally, it was a no-win scenario for him. He would do his best to get us out of this Depression.
However, my first disappointment was Geithner's appointment--because I thought a guy who wanted change would go with a Treasury Secretary that wasn't a Wall Street alum, much less Goldman Sachs. Why couldn't it have been Nouriel Roubini, who knows exactly what's going on and said we should Nationalize the banks. I always believed--and still do--that was the best strategy to combat the no-win scenario Obama faced.
But politics got in the way. Congress still likes its Wall Street money from financial institutions and their special interest dollars. So, yes, it remained business as usual. Only, the business the government started was throwing money at the problem, hoping banks would become solvent and start lending again. We can now see the result: more bonuses, holding capital to reduce risk, going back to derivative trading at the expense of other companies and jobs. Try thinking of the middle class, guys and gals!
Nope, it's business as usual. But now Bernanke's form of "quantitative easing" place the U.S. Federal Government into a no-win scenario. Those residential and mortgage loans--and everything tied to them--have less value than when they started. They will not be paid back in full and, if they ever are, it will not be for at least six to 10 years when those values return. That's optimistic! I like to look at the glass half full!!
Don't expect consumers to be spending too much or taking on debt anytime soon--if they can get it in the first place. Would YOU TAKE ON DEBT anytime soon??? Are you confident you'll have your job long term if you still have one??? Don't you just feel like saving in the first place!! Try thinking of the bankers, guys and gals! Especially when many of them are back to making bonuses and trying to stay solvent.
If we've established that we're a deflationary period, which could last for AT LEAST six to 10 years, then at least we won't have to worry about INFLATION, which could be staggering if you knew what it did to prices in Argentina when they printed up far less amounts of money than we did. So, I wouldn't worry about inflation.
But be aware that Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program (SIGTARP), said the Federal Government bailout of banks could reach as much as $24.7 Trillion when all is said and done because of all the other FUNDS they're throwing at banks to help them become solvent. They include: TARP, the Troubled Asset Loan Facility known as TALF, the Public Private Investment Program, the Discount Window banks have for lending and a number of other programs laid out for you if you read the document. That said, even if they spent one-quarter of that, it's more than $6 Trillion.
Besides the fact that the FED currently holds nearly $2.3 Trillion in worthless assets, "the Obama administration said Tuesday that it now expects the 10-year budget deficit to reach $9 Trillion, or about $2 trillion more than it estimated earlier in the year," CNN said.
That's taxpayer money. But more than that, why is the Stock Market going up and making all of us who have 401K's and other retirement funds feel much wealthier? Well, if you remember why the stock market plummeted in the first place, it was because all of these banks had to mark-to-market the TOXIC ASSETS, meaning that their value was based on today and not SIX or 10 YEARS from now. That way, it gives a clear indication of the bank's CURRENT WEALTH.
Well, in April, the Financial Accounting Standards Board, pressured by Congress and by special interests, wilted and said banks can do a "mark-to-model" based on their estimates of value. In other words, when the second quarter rolled around, AIG didn't have to say they lost BILLIONS of DOLLARS. Also, BANK OF AMERICA, CITIGROUP and others did not have to see their stock prices drop to pennies on the dollar like they did in March (after the 1st Quarter) because they didn't have to show these TOXIC ASSETS LOSING BILLIONS of DOLLARS. That would have DESTROYED these large banks.
Instead, they made PROFITS (because they laid off half their staff). And they made REVENUES from people who still have jobs making deposits. Plus, they received lower DISCOUNTED RATES from the Feds. And, they had more money to stack up for TIER-RISK CAPITAL, in case--in case--they had BILLIONS of DOLLARS IN TOXIC ASSETS.
So, thanks to their accountants, investors think these banks are actually solvent. Meanwhile, the FDIC, the FEDERAL INSURANCE DEPOSIT CORP., which is slowly going broke by seizing the smaller banks and liquidating assets or forcing them into consolidations, are continuing their quest for close down those insolvent banks. Guaranty Bank and Colonial Bank, a couple of the larger ones, were recently closed because now Commercial Real Estate Mortgages are beginning to rear their ugly head, and the Bush administration slapped the hands of banks for taking advantage of capital chasing deals. Now, with credit tied up and commercial property values falling, those loans are TOXIC, too.
So here we are, on the verge of a commercial real estate collapse, more foreclosures in PRIME Residential Mortgages because homeowners are losing their jobs (the primary reason for foreclosure in normal economic times) and unemployment continuing to increase. Also, anyone with severance packages and/or unemployment insurance since getting laid off 18 months ago might have no money to pay for anything.
So do I blame Obama for this? I think if Obama stepped into office and said he was going to NATIONALIZE banks like he wants UNIVERSAL HEALTHCARE, the Republicans would be screaming the same way they're screaming now about SOCIALISM. I think Congress didn't want to Nationalize banks because they like their under-the-table money from financial institutions and special interest groups.
But, when the shit hits the fan, and the Fed has nothing left to bail out the banks when commercial mortgages cannot refinance and commercial mortgage-backed securities cannot refinance and unemployment remains high because consumers aren't spending and home foreclosures continue to stall the housing markets around most of the country, then it's crisis time. And, it will be at this crisis point that we will see Obama either rise to the occasion against Washington cronyism or take a backseat and line his pocket at the expense of his legacy.
To be continued....
http://money.cnn.com/news/storysupplement/economy/obama_money_moves/
As a social liberal, fiscal conservative--like I believe most people in this country basically are--I like Obama and expected change when he came into office this past January. However, a colleague of mine said not to expect it too soon. Washington, D.C. has always been Washington, D.C. and he won't be able to change the system, my colleague said (although I'm paraphrasing).
He was right--for now. I think Matt Taibbi's Rolling Stones article about Goldman Sachs, "Inside The Great American Bubble Machine" says it all as to the economic connections from Wall Street to Washington.
This bubble really started to collapse in the summer of 2007 because the residential mortgage-backed securities market had pretty much gone dark, and the commercial mortgage-backed securities market had pretty much shut down as well--even though fundamentals were sound in commercial real estate. It was then I discovered that investors are not only greedy, they're really smart as well. They saw the writing on the wall when residential delinquencies jumped in March 2007 and, by August 2007, it was clear too much capital chased ALL PROPERTIES causing inflated prices all around.
Interest-only mortgages, Alt-A mortgages, Option Adjustable Rate Mortgages, Home Equity Lines of Credit or HELOCs, credit cards, credit derivatives, credit default swaps, trust preferred securities, RMBS, CMBS, collateralized debt obligations or CDOs, commercial real estate CDOs and a number of other "exotic" financial instruments unregulated were inflating the consumer debt bubble to the point of full implosion. But that was one year away.
Prior to that, any person with common sense watching the mortgage industry, like myself, could see that Interest Only mortgages given to unsophisticated borrowers would ruin the mortgage industry during its most productive period EVER.
Of course it did. I predicted it nearly three years before it happened, and I'm not an economist, never studied economic theory, didn't know anything about supply and demand. I only started reading the business section of the paper about five years ago.
I just knew, by common sense, that it was greedy and stupid to give these loans--meant for sophisticated financial professionals--to ordinary home borrowers. I would ruin a good thing the industry had going--which it did--and that we would have a recession like nobody ever saw because everyone was leveraged to the hilt and nobody would spend any money anymore.
Nobody spends, companies don't make money. Companies don't make money, they have to layoff people. People get laid off, they can't pay their mortgages. The industry collapses. It's not rocket science.
During the subprime craze, however, mortgage industry leaders said, "If he's doing it, I've got to do it or he'll get all the market share." Of course, the wisdom here would have been to realize it would destroy the ENTIRE INDUSTRY. Try thinking of the industry first guys and gals!
What it took other, much more intelligent economists who did study economic theory and understood ALL the machinations behind this--like Nouriel Roubini, professor of economics at NYU--it would destroy the ENTIRE GLOBAL ECONOMY. Try thinking of the rest of the world guys and gals!
But mortgage lenders were not to blame. EVERYONE WAS TO BLAME, including GREEDY BORROWERS who thought they could buy a huge house they could not afford and later blame someone else for their own greed.
But enough of this...it's all in the past. Let's fast forward to August 2008. By then, Hank Paulson already knew what was going on.
Bear, Stearns collapsed. Lehman Brothers went bankrupt, and the stock market was falling fast. Fannie Mae and Freddie Mac were placed under government control, AIG was placed under government control and Timothy Geithner, then in the NY Fed and a former Goldman player, helped Hank with the TARP $700 billion bailout.
Meanwhile, Bernanke, watched this happened when he followed Alan Greenspan who helped create this bubble. You might say he played the role of Kevin Bacon getting flattened in Animal House--"Everything is fine, don't panic!"-- is at the helm ready to start up the printing presses.
Thinking of that character, can you believe John McCain said the economy was strong in September? That might have cost him the election right there.
So, Obama was elected U.S. President in November after, as I suspected, we would be in a huge recession with Bush waving to the crowd saying, "See ya...had fun these last eight years. Thanks."
Only, the economic problem was far worse because it was a Depression. It reflected the exact same thing that happened in the 1929 Stock Market Crash, which led to the Great Depression. It lasted about a decade and ended after World War II. That's what Obama faced upon his inauguration. Literally, it was a no-win scenario for him. He would do his best to get us out of this Depression.
However, my first disappointment was Geithner's appointment--because I thought a guy who wanted change would go with a Treasury Secretary that wasn't a Wall Street alum, much less Goldman Sachs. Why couldn't it have been Nouriel Roubini, who knows exactly what's going on and said we should Nationalize the banks. I always believed--and still do--that was the best strategy to combat the no-win scenario Obama faced.
But politics got in the way. Congress still likes its Wall Street money from financial institutions and their special interest dollars. So, yes, it remained business as usual. Only, the business the government started was throwing money at the problem, hoping banks would become solvent and start lending again. We can now see the result: more bonuses, holding capital to reduce risk, going back to derivative trading at the expense of other companies and jobs. Try thinking of the middle class, guys and gals!
Nope, it's business as usual. But now Bernanke's form of "quantitative easing" place the U.S. Federal Government into a no-win scenario. Those residential and mortgage loans--and everything tied to them--have less value than when they started. They will not be paid back in full and, if they ever are, it will not be for at least six to 10 years when those values return. That's optimistic! I like to look at the glass half full!!
Don't expect consumers to be spending too much or taking on debt anytime soon--if they can get it in the first place. Would YOU TAKE ON DEBT anytime soon??? Are you confident you'll have your job long term if you still have one??? Don't you just feel like saving in the first place!! Try thinking of the bankers, guys and gals! Especially when many of them are back to making bonuses and trying to stay solvent.
If we've established that we're a deflationary period, which could last for AT LEAST six to 10 years, then at least we won't have to worry about INFLATION, which could be staggering if you knew what it did to prices in Argentina when they printed up far less amounts of money than we did. So, I wouldn't worry about inflation.
But be aware that Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program (SIGTARP), said the Federal Government bailout of banks could reach as much as $24.7 Trillion when all is said and done because of all the other FUNDS they're throwing at banks to help them become solvent. They include: TARP, the Troubled Asset Loan Facility known as TALF, the Public Private Investment Program, the Discount Window banks have for lending and a number of other programs laid out for you if you read the document. That said, even if they spent one-quarter of that, it's more than $6 Trillion.
Besides the fact that the FED currently holds nearly $2.3 Trillion in worthless assets, "the Obama administration said Tuesday that it now expects the 10-year budget deficit to reach $9 Trillion, or about $2 trillion more than it estimated earlier in the year," CNN said.
That's taxpayer money. But more than that, why is the Stock Market going up and making all of us who have 401K's and other retirement funds feel much wealthier? Well, if you remember why the stock market plummeted in the first place, it was because all of these banks had to mark-to-market the TOXIC ASSETS, meaning that their value was based on today and not SIX or 10 YEARS from now. That way, it gives a clear indication of the bank's CURRENT WEALTH.
Well, in April, the Financial Accounting Standards Board, pressured by Congress and by special interests, wilted and said banks can do a "mark-to-model" based on their estimates of value. In other words, when the second quarter rolled around, AIG didn't have to say they lost BILLIONS of DOLLARS. Also, BANK OF AMERICA, CITIGROUP and others did not have to see their stock prices drop to pennies on the dollar like they did in March (after the 1st Quarter) because they didn't have to show these TOXIC ASSETS LOSING BILLIONS of DOLLARS. That would have DESTROYED these large banks.
Instead, they made PROFITS (because they laid off half their staff). And they made REVENUES from people who still have jobs making deposits. Plus, they received lower DISCOUNTED RATES from the Feds. And, they had more money to stack up for TIER-RISK CAPITAL, in case--in case--they had BILLIONS of DOLLARS IN TOXIC ASSETS.
So, thanks to their accountants, investors think these banks are actually solvent. Meanwhile, the FDIC, the FEDERAL INSURANCE DEPOSIT CORP., which is slowly going broke by seizing the smaller banks and liquidating assets or forcing them into consolidations, are continuing their quest for close down those insolvent banks. Guaranty Bank and Colonial Bank, a couple of the larger ones, were recently closed because now Commercial Real Estate Mortgages are beginning to rear their ugly head, and the Bush administration slapped the hands of banks for taking advantage of capital chasing deals. Now, with credit tied up and commercial property values falling, those loans are TOXIC, too.
So here we are, on the verge of a commercial real estate collapse, more foreclosures in PRIME Residential Mortgages because homeowners are losing their jobs (the primary reason for foreclosure in normal economic times) and unemployment continuing to increase. Also, anyone with severance packages and/or unemployment insurance since getting laid off 18 months ago might have no money to pay for anything.
So do I blame Obama for this? I think if Obama stepped into office and said he was going to NATIONALIZE banks like he wants UNIVERSAL HEALTHCARE, the Republicans would be screaming the same way they're screaming now about SOCIALISM. I think Congress didn't want to Nationalize banks because they like their under-the-table money from financial institutions and special interest groups.
But, when the shit hits the fan, and the Fed has nothing left to bail out the banks when commercial mortgages cannot refinance and commercial mortgage-backed securities cannot refinance and unemployment remains high because consumers aren't spending and home foreclosures continue to stall the housing markets around most of the country, then it's crisis time. And, it will be at this crisis point that we will see Obama either rise to the occasion against Washington cronyism or take a backseat and line his pocket at the expense of his legacy.
To be continued....
Monday, August 24, 2009
Previously, on FINTRUTH...
The summer is coming to an end so it's time to start blogging agan.
Previously on FINTRUTH: After second quarter results in April and May showed how banks didn't lose billions of dollars because they have undervalued toxic assets on their books, FINTRUTH's author said this is a crock of shit and stopped blogging. The reason for these remarkable results was because the Financial Accounting Standards Board caved in to pressure from Congress (and special interests) and changed mark-to-market rules to mark-to-model.
That means, they can value the assets based on what they think they will be worth in the future and not on their current value...right now. Today. In fact, some people think they will never reach the value they have...that they will always be considerably worth less than they are.
In any case, after that, I realized the summer would be full of fantasy and fairy tales that other reputable bloggers will be writing about. Hey, I don't get paid for this so I'm not wasting my time writing for this thing when I have my real job to think about.
However, the urge hit me to start again, because we're closing in on a time frame for reality to hit again and, as the movie title states, Reality Bites. (Wasn't crazy about the movie, just for the record, but wanted to use the title).
Let me mention that the blogger, http://evilspeculator.com/, a day trader who does these charts that I cannot understand at all, says:
Fall/Winter 2009 is going to be a lot of fun for the bears - get ready.
I don't understand these charts at all, and it gives me a headache to look at them, but one thing I did understand was that the "evil.speculator" said in May that the Dow would hit 9900...possibly 10,000 by Fall...and darn if he doesn't seem to be on track in his prediction. So, that said, if his previous comment is any indication....look out.
Nouriel Roubini, professor of economics at the Stern School of Business at New York University, wrote an article in yesterday's Financial Times, August 23, The risk of a double-dip recession is rising.
I found this segment particularly interesting because it presents one reason as to why he is forecasting a double-dip recession. But he's not the only one forecasting it.
With commercial real estate's short-term bleak future, more "trickle-down" gloomy economics will take place.
Roubini here, however, points out a possible "no-win scenario" that the Fed and Treasury face.
There are also now two reasons why there is a rising risk of a double-dip W-shaped recession.
For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).
But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.
On the second point, LT government bondholders, primarily China, might punish policymakers. That's an uncertainty, but President Obama has scheduled a trip to China in the near future. What do you think they're going to talk about over a couple of beers?
Star Trek II: Wrath of Khan fans understand that Captain James T. Kirk did not believe in a "no-win scenario." He rigged the Kobyashi Maru test so he was able to defeat the "no-win scenario." If Roubini's analysis proves untrue, and Obama gets us out of this economic mess unscathed, is he also rigging the game. After all, this is reality and even Mr. Spock understands that "physical laws cannot be changed." Neither can economic laws and principles.
For that reason, I'll go with a double-dip recession. Fact is, you can't keep printing money and expect China to keep buying bonds forever.
Andy Xie, an over-the-top economist but a smart MIT grad, says in Boom and burst: Don’t be fooled by false signs of economic recovery. It’s just the lull before the storm:
The final crash will come when the Fed raises the interest rate to 5 per cent or more. Most think that when the Fed does this, the global economy will be strong and, hence, exports would do well and bring in money to keep up asset markets. Unfortunately, this is not how our story will end this time. The growth model of the past two decades - Americans borrow and spend; Chinese lend and export - is broken for good.
Whether it's broken or not depends on the U.S. consumer--unemployed--9.4 percent; part-time or discouraged person not looking for full-time work--16 percent; or worried about becoming unemployed and spending within their means while paying off debt--everyone else.
How long does that last? I don't know. How long will banks stay insolvent? How long until their toxic assets increase to their appropriate value. My guess is six to 10 years. Next question: will this model continue for the next six to 10 years? Will China continue to produce for a U.S. that is not buying its products for another five years?
Let's hope Obama brings the Heinekin. He'll need it.
Previously on FINTRUTH: After second quarter results in April and May showed how banks didn't lose billions of dollars because they have undervalued toxic assets on their books, FINTRUTH's author said this is a crock of shit and stopped blogging. The reason for these remarkable results was because the Financial Accounting Standards Board caved in to pressure from Congress (and special interests) and changed mark-to-market rules to mark-to-model.
That means, they can value the assets based on what they think they will be worth in the future and not on their current value...right now. Today. In fact, some people think they will never reach the value they have...that they will always be considerably worth less than they are.
In any case, after that, I realized the summer would be full of fantasy and fairy tales that other reputable bloggers will be writing about. Hey, I don't get paid for this so I'm not wasting my time writing for this thing when I have my real job to think about.
However, the urge hit me to start again, because we're closing in on a time frame for reality to hit again and, as the movie title states, Reality Bites. (Wasn't crazy about the movie, just for the record, but wanted to use the title).
Let me mention that the blogger, http://evilspeculator.com/, a day trader who does these charts that I cannot understand at all, says:
Fall/Winter 2009 is going to be a lot of fun for the bears - get ready.
I don't understand these charts at all, and it gives me a headache to look at them, but one thing I did understand was that the "evil.speculator" said in May that the Dow would hit 9900...possibly 10,000 by Fall...and darn if he doesn't seem to be on track in his prediction. So, that said, if his previous comment is any indication....look out.
Nouriel Roubini, professor of economics at the Stern School of Business at New York University, wrote an article in yesterday's Financial Times, August 23, The risk of a double-dip recession is rising.
I found this segment particularly interesting because it presents one reason as to why he is forecasting a double-dip recession. But he's not the only one forecasting it.
With commercial real estate's short-term bleak future, more "trickle-down" gloomy economics will take place.
Roubini here, however, points out a possible "no-win scenario" that the Fed and Treasury face.
There are also now two reasons why there is a rising risk of a double-dip W-shaped recession.
For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).
But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.
On the second point, LT government bondholders, primarily China, might punish policymakers. That's an uncertainty, but President Obama has scheduled a trip to China in the near future. What do you think they're going to talk about over a couple of beers?
Star Trek II: Wrath of Khan fans understand that Captain James T. Kirk did not believe in a "no-win scenario." He rigged the Kobyashi Maru test so he was able to defeat the "no-win scenario." If Roubini's analysis proves untrue, and Obama gets us out of this economic mess unscathed, is he also rigging the game. After all, this is reality and even Mr. Spock understands that "physical laws cannot be changed." Neither can economic laws and principles.
For that reason, I'll go with a double-dip recession. Fact is, you can't keep printing money and expect China to keep buying bonds forever.
Andy Xie, an over-the-top economist but a smart MIT grad, says in Boom and burst: Don’t be fooled by false signs of economic recovery. It’s just the lull before the storm:
The final crash will come when the Fed raises the interest rate to 5 per cent or more. Most think that when the Fed does this, the global economy will be strong and, hence, exports would do well and bring in money to keep up asset markets. Unfortunately, this is not how our story will end this time. The growth model of the past two decades - Americans borrow and spend; Chinese lend and export - is broken for good.
Whether it's broken or not depends on the U.S. consumer--unemployed--9.4 percent; part-time or discouraged person not looking for full-time work--16 percent; or worried about becoming unemployed and spending within their means while paying off debt--everyone else.
How long does that last? I don't know. How long will banks stay insolvent? How long until their toxic assets increase to their appropriate value. My guess is six to 10 years. Next question: will this model continue for the next six to 10 years? Will China continue to produce for a U.S. that is not buying its products for another five years?
Let's hope Obama brings the Heinekin. He'll need it.
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