Remember the film The Warriors when Cyrus, a visionary gang leader, spoke in front of all the New York City gangs saying that they can rule the city "because it's all our turf."
That was then, this is now.
In today's financial climate, that may as well be Ben Bernanke standing in front of international banking CEOs, their companies and central banks saying that they can control the entire global economy "because it's all our turf."
That's true. The world does belong to the people who have money. But, don't expect investors to necessarily follow a rigged game. Ken Denninger's article, Find the Difference: Why Ponzi Finance Fails, in Market Ticker, paints a disturbing picture of today's economy and the future outcome unless the Fed and U.S., as a whole, reigns in decades of debt.
Denninger backs up his comments with charts, mostly Fed data from the FRB Z1 release. According to Denninger, the U.S. has pushed debt to the limits without the money available to pay for it. He also makes the assumption that the Fed and Goldman Sachs manipulates the stock and bond markets with Fed-printed money and asks the question: "How long will this last?"
I recently spoke with a Wall Street insider who said the true test of the market--whether it crashes or not--will be when the economy returns to full throttle and Bernanke needs to ween the U.S. off of this "printed-cash" to prevent inflation. However, doing it too soon will prevent the proper recovery.
For Denninger, it's not a matter of "if" but "when" the economy collapses. The insider I spoke with said that very few people are able to perform the balancing act Ben Bernanke and Timothy Geithner proposed--a very small percentage.
Again, the deflation-inflation debate comes to light. Some say the problem will never even get to inflation because the country has entered a long stretch of deflation. In either case, the prospects are not necessarily good in the near term.
For anyone with a 401k not ready to retire in the next 30 years, it might not be that bad. However, without a job, how long will money be going into that 401k?
When I asked my inside Wall Street source about when I might want to go conservative on investment and when might I be more aggressive, he told me not to worry about it because there is no way to predict when the market will fall and when it will rise. That's true.
Assuming Denninger is right, there is stll no way to predict a falling market from a rising one. The best guess would be if you start to see unemployment remaining at high levels--above 10 percent--into the second half of 2010 and into 2011, or if the 10-year Treasury bond begins to rise at an extraordinary pace. In any case, it will be on some kind of "shock" or "surprise," because only an unexpected event can truly trigger a market crash.
As in The Warriors, Cyrus' vision never did come to fruition, and most members of the gang called The Warriors returned home to their own turf--Coney Island.
After a night of running--because the gang was unfairly accused of assassinating Cyrus by a complete nut-job when that nut-job actually did it--they were tired and rundown.
The leader of The Warriors looks up at their home, a rundown boardwalk on an empty beach and a broken down amusement park. He says, "We fought all that way to get back to this?"
Will bankers say that when they find consumers want to deleverage rather than spend because they can't spend anymore? Will CEOs look at their own financial institutions still filled with toxic assets that don't add up in value and say that? Will we say that to ourselves in the future, looking at vacant homes, condos, industrial buildings and retail establishments? Or, will it be a little of both? Let's hope not.
Tuesday, September 22, 2009
Tuesday, September 15, 2009
Proof in the Pudding
As usual, another blogger says it better than myself.
In the previous entry, I pointed out that math doesn't lie. Karl Denninger of The Market Ticker shows the proof in the pudding--the facts--in Bernanke "Recession is Over" (Depression Has Just Begun).
It's one thing to write about something. It's another to provide analysis. It's quite another when the facts are out there. However, when it's all three, it's just plain frightening.
In the previous entry, I pointed out that math doesn't lie. Karl Denninger of The Market Ticker shows the proof in the pudding--the facts--in Bernanke "Recession is Over" (Depression Has Just Begun).
It's one thing to write about something. It's another to provide analysis. It's quite another when the facts are out there. However, when it's all three, it's just plain frightening.
The Return of 'W'
Calm down! The former U.S. President is not returning to the White House!
When I say 'W' I'm speaking of a double-dip recession, not George W. Bush back in D.C. A double-dip recession is like two scoops of chocolate ice cream compared to hearing another Bush speech.
Still, the economy faces a 'W' rather than 'V', 'U' or 'L'-shaped recessions. Some people are calling for a square-root recession and you might just be hearing that term more often.
In the The Outlook for Recovery in the U.S. Economy, Janet Yellen, president and CEO of the San Francisco Federal Reserve Bank said she envisions a 'U-shaped' recession.
There is a key difference between politics and economics. Politics are philosophical and somewhat subjective. We grow up with certain values that factor into our politics.
But economics can be like a mathematic equation. For example, complex, interest-only loans plus unsophisticated borrowers equals destruction of the residential mortgage industry. Add structured investment vehicles, derivatives and credit default swaps to mortgages and that equals global economic collapse. See how it works?
How about this one--100 percent income minus 36 percent debt equals 64 percent income. I use 36 percent because if you have a house, that's the maximum debt-to-income ratio allowed under a Fannie Mae/Freddie Mac prime loan. It would be 41 percent under an FHA loan.
And now--33 percent income minus 36 percent debt equals absolutely no way that anyone is spending because there is more debt than income. Why do I use this equation?
Because, if I'm not mistaken, unemployment insurance--at least in Maryland--reflects a weekly maximum benefit amount of $380 per week. That would be about $20,000 per year or about 33 percent, of someone who makes $60,000 per year. If you made more money, too bad--it's $380 per week max.
Now, my guess is that unemployed persons plus debt (i.e. mortgage and/or rent, bills, insurance, etc.) equals very little discretionary income. Also, factor in a 10.2 percent unemployment rate by the middle of 2010, which most economists believe will be the peak before it falls.
Under this scenario, I expect very little spending between now and the middle of 2010. Why some economists use this "pent-up demand" scenario, I have no idea. Because, again, this is not politics--it's not philosophical or subjective. It's the facts--no money, no debt, no credit, no spend. That simple.
Now, that's just the unemployed. That said, how much debt builds when unemployed--if you even have credit? How much interest increases on those credit card bills? Remember, this all happens from now--September--to next June 2010 under conservative estimates.
Then, even if unemployment falls to 9 percent by 2011, that's still alot of unemployment--not to mention a large percentage of part-time workers, people who are frustrated and want full-time jobs, etc., which is up to 16.8 percent right now.
"Consumer spending? Who said anything about consumer spending?" Former Saints coach Jim Mora might scream. And yet, retail sales looked better in the month of August. Oh, goody...back-to-school sales picked up, we has the "cash-for-clunkers" program take off, people went on vacation, kids spent money with their lifeguard jobs and so we all had a little fun.
So, when spending suddenly drops precipitously in September through November with a sudden surge of 2 percent in December, we'll all say the economy is back on track because we wanted to buy our children some gifts for Christmas, Hannukah or Kwanzaa day.
Get real. Math doesn't lie, and economists wearing rose-colored glasses--the same economists that wanted to say there was no housing bubble--cannot really see the facts and expect consumer spending to pick up into a 'V-shaped' recovery.
Have we seen a recovery at all? Yes. For that reason, we do not have an 'L-shaped' recovery.
Now, is this a sustainable recovery? Will it be a 'U-shaped' recovery. Martin Bailey, who is on the White House Economic Council of Advisors, said a sustainable recovery is "questionable." He said it today on Bloomberg. If there is any sign of a sustainable recovery, he says "Yes." But he couldn't say it. He said it's questionable. That's like a public relations person saying he or she can't answer the question. That's a "yes" to the question--otherwise, they'd answer no. For Bailey, it's a "no," or he would have said yes. Therefore, no 'U-shaped' recovery.
That leaves us with the 'W' or 'square-root' recovery. I vote for a 'w' because banks have assets that have values that--for the reasons given above--are not coming back anytime soon.
The mathematical equation--100 percent values of housing and commercial real estate minus 30 percent of those values equals 70 percent of value. That's a conservative estimate. Okay, so banks have assets at 70 percent of value and they're holding these crappy assets. Residential foreclosures continue and commercial real estate delinquencies and defaults are just beginning.
So banks cannot lend until they build up enough capital to cover Tier One risk. Banks not lending equals businesses not hiring which approximates lower job growth. That means less consumer spending, less money for retailers and more defunct retail properties.
For example, Blockbuster Video said today it could close 960 stores in the next year to 18 months. How many jobs does that slash and how many strip malls will that affect? It's all tied together.
With fewer purchases--Best Buy reported profit losses today--less industrial output results and that leads to more defunct industrial properties. As companies struggle, more office vacancies come to fruition, including more bank branches closing down with crappy commercial real estate assets on their books.
Less discretionary spending includes more hotel deterioration. Less younger people getting jobs and multifamily vacancies increase. More crappy, lower-valued assets.
Now, the government provides capital to the banks so maybe one day they can lend even though "toxic" asset growth builds. Neil Barofsky said that capital can be $24.7 trillion at maximum. Let's be conservative and say it's one-quarter of that amount--$6 trillion provided by the Federal Government for banks to lend. We get back $1 trillion from the banks so we really spend $5 trillion.
Smaller banks hold nearly $1 trillion of commercial real estate and, including commercial mortgage-backed securities, it all totals $3.5 trillion. Residential real estate represents $11 trillion. That's not including credit card debt in default and corporate debt in default.
What's this mean? Small-to-large banks with bad assets plus CMBS defaults plus trillions lost in credit default swaps and derivatives plus ? given by the Fed in "printed" money plus trillions of dollars in Federal debt equals little debt for businesses.
How much does that leave for the average $60,000 per year worker with a couple kids who is still employed? This is someone getting paid, still pays his or her mortgage and has the usual water and electric bills. They'll push the limit for some holiday spending in addition to usual expenditures--clothes to replace the ones with holes in them, shoes, tennis shoes and, of course, food which we need to live in.
"We're very bullish on the global economy," a dumbass on Bloomberg just said. Sure. Talk is cheap, but he's hoping to get even more stupid investors to put their money with his fund.
Consumer spending? Try consumers saving...if they're even able to do that.
That's the math...don't expect consumers to bring us out of this recession (it's really a depression, but nobody's allowed to say that). Don't expect prices to drop as speculative investors invest in commodities--like corn. Don't expect business to pick up for China or other countries that want to import in the U.S. The consumer is not buying.
Don't expect those businesses, if business does not pick up, to be getting any bailouts from the banks because they're holding onto their precious capital with the amount of risk they have. Do the math. No money equals no spending equals no business equals more layoffs. More layoffs, less spending...less spending, weaker economy. Weaker economy--deflation.
And, yes, it will come back to unclogging the banks of "toxic" assets, which should have been top priority when this economic crisis started in the first place. That's not a political opinion.
From Hank Paulson--in a Republican regime--to Timothy Geithner in a Democrat regime--the math does not add up. $? capital plus -$assets +/- new tax rules = 0 liquidity.
How much capital and how much are the bad assets--we don't know for sure. We do know that financial institutions no longer need to account for those bad assets based on current market value. Why? Because if they wanted us to know, it would be good news. It's obviously not good news. Financial institutions would report major losses if they had to do mark-to-market accounting. That's a fact. And, yes, someday in a U.S. society with very little spending and debt for years to come, those property values will increase. It might take 10-15 years for 2007 values, but that's a 10-15-year recession--sometimes up, sometimes down--like a 'W'.
Even then, not all of those values will return to 100 percent.
Also, if Bernanke wanted us to know how much these "clearinghouse" financial institutions received, and continue to receive, from the infamous Treasury discount window, he would tells us because we would not be concerned about it. It would be good news. Therefore, it's not good news.
We should be concerned that he wants to keep it a secret from Bloomberg. We should be concerned that at least 500 banks are insolvent and the FDIC will have to close them in the next year. How much will that cost?
The country has huge debt and consumers have huge debt. If we as consumers save money, it still doesn't explain how to keep electricity, water and other utility prices from rising. It doesn't explain how to make insolvent banks more solvent. It doesn't explain how spending will increase.
Match the actions and a calculated gamble for consumers to spend more in this country--bringing us all out of a deep recession, and we have a bad mathematical calculation. You would expect better from the Fed Chairman and Treasury Secretary--but they're really politicians, not economists.
When I say 'W' I'm speaking of a double-dip recession, not George W. Bush back in D.C. A double-dip recession is like two scoops of chocolate ice cream compared to hearing another Bush speech.
Still, the economy faces a 'W' rather than 'V', 'U' or 'L'-shaped recessions. Some people are calling for a square-root recession and you might just be hearing that term more often.
In the The Outlook for Recovery in the U.S. Economy, Janet Yellen, president and CEO of the San Francisco Federal Reserve Bank said she envisions a 'U-shaped' recession.
There is a key difference between politics and economics. Politics are philosophical and somewhat subjective. We grow up with certain values that factor into our politics.
But economics can be like a mathematic equation. For example, complex, interest-only loans plus unsophisticated borrowers equals destruction of the residential mortgage industry. Add structured investment vehicles, derivatives and credit default swaps to mortgages and that equals global economic collapse. See how it works?
How about this one--100 percent income minus 36 percent debt equals 64 percent income. I use 36 percent because if you have a house, that's the maximum debt-to-income ratio allowed under a Fannie Mae/Freddie Mac prime loan. It would be 41 percent under an FHA loan.
And now--33 percent income minus 36 percent debt equals absolutely no way that anyone is spending because there is more debt than income. Why do I use this equation?
Because, if I'm not mistaken, unemployment insurance--at least in Maryland--reflects a weekly maximum benefit amount of $380 per week. That would be about $20,000 per year or about 33 percent, of someone who makes $60,000 per year. If you made more money, too bad--it's $380 per week max.
Now, my guess is that unemployed persons plus debt (i.e. mortgage and/or rent, bills, insurance, etc.) equals very little discretionary income. Also, factor in a 10.2 percent unemployment rate by the middle of 2010, which most economists believe will be the peak before it falls.
Under this scenario, I expect very little spending between now and the middle of 2010. Why some economists use this "pent-up demand" scenario, I have no idea. Because, again, this is not politics--it's not philosophical or subjective. It's the facts--no money, no debt, no credit, no spend. That simple.
Now, that's just the unemployed. That said, how much debt builds when unemployed--if you even have credit? How much interest increases on those credit card bills? Remember, this all happens from now--September--to next June 2010 under conservative estimates.
Then, even if unemployment falls to 9 percent by 2011, that's still alot of unemployment--not to mention a large percentage of part-time workers, people who are frustrated and want full-time jobs, etc., which is up to 16.8 percent right now.
"Consumer spending? Who said anything about consumer spending?" Former Saints coach Jim Mora might scream. And yet, retail sales looked better in the month of August. Oh, goody...back-to-school sales picked up, we has the "cash-for-clunkers" program take off, people went on vacation, kids spent money with their lifeguard jobs and so we all had a little fun.
So, when spending suddenly drops precipitously in September through November with a sudden surge of 2 percent in December, we'll all say the economy is back on track because we wanted to buy our children some gifts for Christmas, Hannukah or Kwanzaa day.
Get real. Math doesn't lie, and economists wearing rose-colored glasses--the same economists that wanted to say there was no housing bubble--cannot really see the facts and expect consumer spending to pick up into a 'V-shaped' recovery.
Have we seen a recovery at all? Yes. For that reason, we do not have an 'L-shaped' recovery.
Now, is this a sustainable recovery? Will it be a 'U-shaped' recovery. Martin Bailey, who is on the White House Economic Council of Advisors, said a sustainable recovery is "questionable." He said it today on Bloomberg. If there is any sign of a sustainable recovery, he says "Yes." But he couldn't say it. He said it's questionable. That's like a public relations person saying he or she can't answer the question. That's a "yes" to the question--otherwise, they'd answer no. For Bailey, it's a "no," or he would have said yes. Therefore, no 'U-shaped' recovery.
That leaves us with the 'W' or 'square-root' recovery. I vote for a 'w' because banks have assets that have values that--for the reasons given above--are not coming back anytime soon.
The mathematical equation--100 percent values of housing and commercial real estate minus 30 percent of those values equals 70 percent of value. That's a conservative estimate. Okay, so banks have assets at 70 percent of value and they're holding these crappy assets. Residential foreclosures continue and commercial real estate delinquencies and defaults are just beginning.
So banks cannot lend until they build up enough capital to cover Tier One risk. Banks not lending equals businesses not hiring which approximates lower job growth. That means less consumer spending, less money for retailers and more defunct retail properties.
For example, Blockbuster Video said today it could close 960 stores in the next year to 18 months. How many jobs does that slash and how many strip malls will that affect? It's all tied together.
With fewer purchases--Best Buy reported profit losses today--less industrial output results and that leads to more defunct industrial properties. As companies struggle, more office vacancies come to fruition, including more bank branches closing down with crappy commercial real estate assets on their books.
Less discretionary spending includes more hotel deterioration. Less younger people getting jobs and multifamily vacancies increase. More crappy, lower-valued assets.
Now, the government provides capital to the banks so maybe one day they can lend even though "toxic" asset growth builds. Neil Barofsky said that capital can be $24.7 trillion at maximum. Let's be conservative and say it's one-quarter of that amount--$6 trillion provided by the Federal Government for banks to lend. We get back $1 trillion from the banks so we really spend $5 trillion.
Smaller banks hold nearly $1 trillion of commercial real estate and, including commercial mortgage-backed securities, it all totals $3.5 trillion. Residential real estate represents $11 trillion. That's not including credit card debt in default and corporate debt in default.
What's this mean? Small-to-large banks with bad assets plus CMBS defaults plus trillions lost in credit default swaps and derivatives plus ? given by the Fed in "printed" money plus trillions of dollars in Federal debt equals little debt for businesses.
How much does that leave for the average $60,000 per year worker with a couple kids who is still employed? This is someone getting paid, still pays his or her mortgage and has the usual water and electric bills. They'll push the limit for some holiday spending in addition to usual expenditures--clothes to replace the ones with holes in them, shoes, tennis shoes and, of course, food which we need to live in.
"We're very bullish on the global economy," a dumbass on Bloomberg just said. Sure. Talk is cheap, but he's hoping to get even more stupid investors to put their money with his fund.
Consumer spending? Try consumers saving...if they're even able to do that.
That's the math...don't expect consumers to bring us out of this recession (it's really a depression, but nobody's allowed to say that). Don't expect prices to drop as speculative investors invest in commodities--like corn. Don't expect business to pick up for China or other countries that want to import in the U.S. The consumer is not buying.
Don't expect those businesses, if business does not pick up, to be getting any bailouts from the banks because they're holding onto their precious capital with the amount of risk they have. Do the math. No money equals no spending equals no business equals more layoffs. More layoffs, less spending...less spending, weaker economy. Weaker economy--deflation.
And, yes, it will come back to unclogging the banks of "toxic" assets, which should have been top priority when this economic crisis started in the first place. That's not a political opinion.
From Hank Paulson--in a Republican regime--to Timothy Geithner in a Democrat regime--the math does not add up. $? capital plus -$assets +/- new tax rules = 0 liquidity.
How much capital and how much are the bad assets--we don't know for sure. We do know that financial institutions no longer need to account for those bad assets based on current market value. Why? Because if they wanted us to know, it would be good news. It's obviously not good news. Financial institutions would report major losses if they had to do mark-to-market accounting. That's a fact. And, yes, someday in a U.S. society with very little spending and debt for years to come, those property values will increase. It might take 10-15 years for 2007 values, but that's a 10-15-year recession--sometimes up, sometimes down--like a 'W'.
Even then, not all of those values will return to 100 percent.
Also, if Bernanke wanted us to know how much these "clearinghouse" financial institutions received, and continue to receive, from the infamous Treasury discount window, he would tells us because we would not be concerned about it. It would be good news. Therefore, it's not good news.
We should be concerned that he wants to keep it a secret from Bloomberg. We should be concerned that at least 500 banks are insolvent and the FDIC will have to close them in the next year. How much will that cost?
The country has huge debt and consumers have huge debt. If we as consumers save money, it still doesn't explain how to keep electricity, water and other utility prices from rising. It doesn't explain how to make insolvent banks more solvent. It doesn't explain how spending will increase.
Match the actions and a calculated gamble for consumers to spend more in this country--bringing us all out of a deep recession, and we have a bad mathematical calculation. You would expect better from the Fed Chairman and Treasury Secretary--but they're really politicians, not economists.
Sunday, September 13, 2009
The NFL Product
I didn't want to bring the NFL into FinTruth--a.k.a. the Financial Truth--because the NFL is entertainment, a sport, and it is almost taboo to bring the NFL into our finance-related truths. But, it's also still a business.
Let me take you to a new Red Zone product provdied by the NFL Network via Verizon FIOS and Comcast. Don't get me wrong. I'm a beneficiary of the RedZone--it's the best part of NFL Sunday Ticket and I get it cheap.
You see, NFL Sunday Ticket--solely provided by Direct TV--now has its RedZone portion provided by Verizon FIOS and Comcast Cable. It provides viewers with all the scoring possessions of every NFL team in the country. I love it. For $5o, I get the RedZone channel for the entire season.
Now, if you're a Miami fan living in Washington, D.C., you still might want NFL Sunday Ticket to watch the entire Dolphin game--and all Dolphin games--throughout the year. However, Redskin fans in Washington, D.C. can watch the RedZone channel during commercials and during the games the 'Skins aren't playing in.
The problem is for those local fans, who get Direct TV just to get NFL Sunday Ticket. This year, they're sitting with a satellite dish on their roof and ripped off for the fact that they invested in Sunday Ticket, only later finding out that cable subscribers paid $50 for this benefit.
They must have paid more than $300 for NFL Sunday Ticket...we paid $50.
That said, unemployment continues to rise, the Redskins' owner--Daniel Snyder--pays way too much money for players so that he can market the team rather than put together a winner and the Redskins showed nothing in their three receivers drafted last year during the first week of the season. Frankly, Orakpo didn't show too much either against the Giants.
It's still too early to tell for the Redskins this season, but here are the facts:
The NFL wins, the NFL owners win, the NFL owners will win when they lock out players before the 2011 season and, as usual, the fans lose.
Unless, of course, your team either gets to the playoffs, wins the Super Bowl or you won in this week's pool. Also, with fantasy football, the NFL will always be the true winners for keeping fans involved in all the games. Plus, for fanatasy football players like myself, I'm a winner for paying $50 for RedZone. For my friends who already paid for their Sunday Ticket, they're the $250-$300 losers. Rip off. Yes.
But we're finding out more and more in business--and politics--that life is not necessarily fair.
That said, welcome back NFL...I love it. And, it makes me forget, for one day, about the incredible economic abyss we--as a nation--live in. Especially when the great actor Gene Hackman promotes Lowes above Home Depot as the top hardware store in the country.
Let me take you to a new Red Zone product provdied by the NFL Network via Verizon FIOS and Comcast. Don't get me wrong. I'm a beneficiary of the RedZone--it's the best part of NFL Sunday Ticket and I get it cheap.
You see, NFL Sunday Ticket--solely provided by Direct TV--now has its RedZone portion provided by Verizon FIOS and Comcast Cable. It provides viewers with all the scoring possessions of every NFL team in the country. I love it. For $5o, I get the RedZone channel for the entire season.
Now, if you're a Miami fan living in Washington, D.C., you still might want NFL Sunday Ticket to watch the entire Dolphin game--and all Dolphin games--throughout the year. However, Redskin fans in Washington, D.C. can watch the RedZone channel during commercials and during the games the 'Skins aren't playing in.
The problem is for those local fans, who get Direct TV just to get NFL Sunday Ticket. This year, they're sitting with a satellite dish on their roof and ripped off for the fact that they invested in Sunday Ticket, only later finding out that cable subscribers paid $50 for this benefit.
They must have paid more than $300 for NFL Sunday Ticket...we paid $50.
That said, unemployment continues to rise, the Redskins' owner--Daniel Snyder--pays way too much money for players so that he can market the team rather than put together a winner and the Redskins showed nothing in their three receivers drafted last year during the first week of the season. Frankly, Orakpo didn't show too much either against the Giants.
It's still too early to tell for the Redskins this season, but here are the facts:
The NFL wins, the NFL owners win, the NFL owners will win when they lock out players before the 2011 season and, as usual, the fans lose.
Unless, of course, your team either gets to the playoffs, wins the Super Bowl or you won in this week's pool. Also, with fantasy football, the NFL will always be the true winners for keeping fans involved in all the games. Plus, for fanatasy football players like myself, I'm a winner for paying $50 for RedZone. For my friends who already paid for their Sunday Ticket, they're the $250-$300 losers. Rip off. Yes.
But we're finding out more and more in business--and politics--that life is not necessarily fair.
That said, welcome back NFL...I love it. And, it makes me forget, for one day, about the incredible economic abyss we--as a nation--live in. Especially when the great actor Gene Hackman promotes Lowes above Home Depot as the top hardware store in the country.
Friday, September 11, 2009
Mucking the Stock Market
My problem with the Elliott Wave Principle, as it was last Spring, is its tenacity for muckraking. When things don't turn out as forecasted, they're not necessarily wrong in their projections...just delayed.
The "evil speculator" at www.evilspeculator.com has little doubt that this is still a bear market, but now the forecast for the market to crash is delayed until October. Based on the earlier charts, all three scenarios said September. However, a new analysis now pushes that crash out further despite three separate analyses that said otherwise. Not only is this frustrating and drudging, but it really seems to be meant for day traders. Just my opinion.
In the long term, the evil speculator could be absolutely right--we're in a bear market rally still and it's going to crash sometime soon. However, when is soon?
It's like making a long-term bet that a good football team is not going to the Super Bowl. Only, there are side bets as to whether the team will score more points than the other team in the first quarter of a game. Then, the second quarter. Then, the third quarter. That team may or may not keep scoring more points. They may even win the game. Or a few games. So--you made some money. But you're not going to know you're long-term projection until that team has lost enough games that it can't make it into the playoffs. Or, that team could make it into the playoffs but lose the championship game and not make it into the Super Bowl. Great. You were right long term, but look how long it took to find that out.
In this case, a crash might happen in the fourth quarter as companies report poor third quarter earnings based on overzealous analyst opinions. Fact is, many companies reported second quarter profits only because they cut overhead through layoffs. Really, the P/E (profit/earnings) scenarios are not matching up.
However, that doesn't necessarily mean a market crash if investors are focused on the banks, and the Federal Government continues to prop up banks through accounting rule changes and cash input. Investors may also be watching unemployment closely to determine whether this is a deflationary economic cycle and whether consumers will start spending soon.
Personally, I think it's deflation because there's no telling how long banks will be able to provide debt to businesses with all the "toxic" debt they're holding. When unemployment doesn't fall as expected in the 3rd quarter of 2010, the market could crash then and there because most economists expect unemployment to begin to decline at that time.
If that's the case, then the supposed crash was not in September or October 2009 but maybe sometime late in the month of September 2010--next year at this time--when the U.S. starts to unexpectedly see the unemployment rate remain steady or increase. It's the unexpected that swings the market to extreme ups or downs.
That said, judging the stock market today is difficult because many of the same rules do not apply. I'll once again refer you to Mike "Mish" Shedlock who provides some historical perspective on corporate bonds and treasuries. First, it's easier to follow if you read it a couple of times and, second, it's a pattern likely to not suddenly change.
Here's the link to Junk Bond Defaults Worst Since the Great Depression. So Why Is the Market Rallying?
Personally, I just watch for a market peak--probably 10,000 but 11,000 at most, and go conservative on mutual funds. Unless you're an expert, many who are experts say now is not a good time to start playing the stock market.
The "evil speculator" at www.evilspeculator.com has little doubt that this is still a bear market, but now the forecast for the market to crash is delayed until October. Based on the earlier charts, all three scenarios said September. However, a new analysis now pushes that crash out further despite three separate analyses that said otherwise. Not only is this frustrating and drudging, but it really seems to be meant for day traders. Just my opinion.
In the long term, the evil speculator could be absolutely right--we're in a bear market rally still and it's going to crash sometime soon. However, when is soon?
It's like making a long-term bet that a good football team is not going to the Super Bowl. Only, there are side bets as to whether the team will score more points than the other team in the first quarter of a game. Then, the second quarter. Then, the third quarter. That team may or may not keep scoring more points. They may even win the game. Or a few games. So--you made some money. But you're not going to know you're long-term projection until that team has lost enough games that it can't make it into the playoffs. Or, that team could make it into the playoffs but lose the championship game and not make it into the Super Bowl. Great. You were right long term, but look how long it took to find that out.
In this case, a crash might happen in the fourth quarter as companies report poor third quarter earnings based on overzealous analyst opinions. Fact is, many companies reported second quarter profits only because they cut overhead through layoffs. Really, the P/E (profit/earnings) scenarios are not matching up.
However, that doesn't necessarily mean a market crash if investors are focused on the banks, and the Federal Government continues to prop up banks through accounting rule changes and cash input. Investors may also be watching unemployment closely to determine whether this is a deflationary economic cycle and whether consumers will start spending soon.
Personally, I think it's deflation because there's no telling how long banks will be able to provide debt to businesses with all the "toxic" debt they're holding. When unemployment doesn't fall as expected in the 3rd quarter of 2010, the market could crash then and there because most economists expect unemployment to begin to decline at that time.
If that's the case, then the supposed crash was not in September or October 2009 but maybe sometime late in the month of September 2010--next year at this time--when the U.S. starts to unexpectedly see the unemployment rate remain steady or increase. It's the unexpected that swings the market to extreme ups or downs.
That said, judging the stock market today is difficult because many of the same rules do not apply. I'll once again refer you to Mike "Mish" Shedlock who provides some historical perspective on corporate bonds and treasuries. First, it's easier to follow if you read it a couple of times and, second, it's a pattern likely to not suddenly change.
Here's the link to Junk Bond Defaults Worst Since the Great Depression. So Why Is the Market Rallying?
Personally, I just watch for a market peak--probably 10,000 but 11,000 at most, and go conservative on mutual funds. Unless you're an expert, many who are experts say now is not a good time to start playing the stock market.
Sunday, September 6, 2009
I was at a "Balance the Bucks" rally today and read the following poem. Lots of great acts by extrememly talented musicians saying it's time for the people to take back their country.
The Best Money Can Buy
by Robert Michaels
Hear my story, all this is true,
It's not meant to make you feel sad or blue,
When you know the truth, you might find it quite funny,
That the entire world is actually based on money.
China owns more than half of U.S. debt,
But how much money will that country really get
When the Fed prints money by the hour
The dollar loses all its power,
It's a theory Fed Chair Ben Bernanke does not seem to get.
The members of the Federal Reserve, this is great, they disagree,
That doesn't bode well for you and me,
Will the economy inflate or deflate, do we buy gold bullion?
the Kansas City Fed President said the biggest banks are still overleveraged by about $5 trillion--(that's dollars).
California paid China in its IOUs
‘Cause JP Morgan Chase, Bank of America and Wells Fargo took care of their dues,
So these overleveraged banks now own the golden state,
Wonderful--too little, too late.
But, for some,
this might be good news,
California is thinking of making marijuana legal
That would cure the state's blues,
For that matter, make it legal across the country,
so the federal government can tax it as they choose.
After all, don’t you feel we are all just the best money can buy?
America’s bought and sold on one big lie,
The U.S. can’t seem to make a car and—
We won’t go very far,
‘Cause--we’ll have loads of debt
No matter how hard we try.
Now, did you hear about those toxic loans?
I know you did--we still have them--I hear all the groans.
Foreclosures are in the millions
Government programs costing trillions
And our Treasury Secretary, Tim Geithner’s on the phone to Ben,
To print more money for the banks (and his buddies) to lend
Yeah, right. I'm sure a lot of businesses will see those loans.
Let’s face it, we have a role in this.
You and I bought lots of merchandise,
And for all that debt, we need to compromise,
So now let’s stop the debt,
And let’s all make a bet,
That without material things, we can still feel alive and well,
And tell all those frickin' banks they can to go to hell.
Because, as long as bankers have all the dough,
They won't let the rest of us know,
The truth about the government,
And how our tax money is spent
By politicians who are on the take.
Just how much money do all these power-mongers make?
That really is, my country ‘tis of thee
Our sweet land of liberty,
But they raise the cost for you and me,
And pocket the proceeds don't you see.
Don't let the government tell you to start spending,
So they can act like the banks will start lending.
Then we remain slaves to debt,
Adding to credit card payments we never met.
I'm talking about interest rates we never knew were there,
Let me ask you, is that really fair?
And, when that credit card legislation went through
That one that would lower interest rates, too.
Oh, that's right, it's happening next year,
A little too late, indeed, I fear.
So that's my tale, hope it wasn't too long,
But how much longer can this charade go on?
Our expenses are bad--that much is true,
But behave and save, and who knows what you can do?
And, here's the bright spot, this part is really quite funny,
You and I just don't need a lot of money.
For example, love is free for you and me,
Love yourself, keep the faith in this land of liberty,
Appreciate the world, the people, the land and sea,
And you'll understand inside what each of us can and will always be.
Otherwise, you'll just feel we are the best money can buy,
America bought and sold on one big lie,
In a global economy, the U.S. can’t seem to make a car and—
Without universal healthcare our future entrepreneurs won’t go very far,
Because we'll be on the path we're taking right now,
with loads of debt to pay off,
and who in the world knows how?
The biggest concern of the weekend is that when two Federal Reserve presidents disagree on the outlook for inflation and deflation, this is not a good signal that anyone there knows what's going to happen. In fact, they don't.
The Best Money Can Buy
by Robert Michaels
Hear my story, all this is true,
It's not meant to make you feel sad or blue,
When you know the truth, you might find it quite funny,
That the entire world is actually based on money.
China owns more than half of U.S. debt,
But how much money will that country really get
When the Fed prints money by the hour
The dollar loses all its power,
It's a theory Fed Chair Ben Bernanke does not seem to get.
The members of the Federal Reserve, this is great, they disagree,
That doesn't bode well for you and me,
Will the economy inflate or deflate, do we buy gold bullion?
the Kansas City Fed President said the biggest banks are still overleveraged by about $5 trillion--(that's dollars).
California paid China in its IOUs
‘Cause JP Morgan Chase, Bank of America and Wells Fargo took care of their dues,
So these overleveraged banks now own the golden state,
Wonderful--too little, too late.
But, for some,
this might be good news,
California is thinking of making marijuana legal
That would cure the state's blues,
For that matter, make it legal across the country,
so the federal government can tax it as they choose.
After all, don’t you feel we are all just the best money can buy?
America’s bought and sold on one big lie,
The U.S. can’t seem to make a car and—
We won’t go very far,
‘Cause--we’ll have loads of debt
No matter how hard we try.
Now, did you hear about those toxic loans?
I know you did--we still have them--I hear all the groans.
Foreclosures are in the millions
Government programs costing trillions
And our Treasury Secretary, Tim Geithner’s on the phone to Ben,
To print more money for the banks (and his buddies) to lend
Yeah, right. I'm sure a lot of businesses will see those loans.
Let’s face it, we have a role in this.
You and I bought lots of merchandise,
And for all that debt, we need to compromise,
So now let’s stop the debt,
And let’s all make a bet,
That without material things, we can still feel alive and well,
And tell all those frickin' banks they can to go to hell.
Because, as long as bankers have all the dough,
They won't let the rest of us know,
The truth about the government,
And how our tax money is spent
By politicians who are on the take.
Just how much money do all these power-mongers make?
That really is, my country ‘tis of thee
Our sweet land of liberty,
But they raise the cost for you and me,
And pocket the proceeds don't you see.
Don't let the government tell you to start spending,
So they can act like the banks will start lending.
Then we remain slaves to debt,
Adding to credit card payments we never met.
I'm talking about interest rates we never knew were there,
Let me ask you, is that really fair?
And, when that credit card legislation went through
That one that would lower interest rates, too.
Oh, that's right, it's happening next year,
A little too late, indeed, I fear.
So that's my tale, hope it wasn't too long,
But how much longer can this charade go on?
Our expenses are bad--that much is true,
But behave and save, and who knows what you can do?
And, here's the bright spot, this part is really quite funny,
You and I just don't need a lot of money.
For example, love is free for you and me,
Love yourself, keep the faith in this land of liberty,
Appreciate the world, the people, the land and sea,
And you'll understand inside what each of us can and will always be.
Otherwise, you'll just feel we are the best money can buy,
America bought and sold on one big lie,
In a global economy, the U.S. can’t seem to make a car and—
Without universal healthcare our future entrepreneurs won’t go very far,
Because we'll be on the path we're taking right now,
with loads of debt to pay off,
and who in the world knows how?
The biggest concern of the weekend is that when two Federal Reserve presidents disagree on the outlook for inflation and deflation, this is not a good signal that anyone there knows what's going to happen. In fact, they don't.
Wednesday, September 2, 2009
30 Years of Debt Down the Drain
Let me refer you, once again, to Karl Denninger's The Market Ticker and his article on the current debt crisis created with the help of greedy consumers and financial institutions. We all want to at least appear wealthy, but money outside of your normal income comes at a price...unless, of course, you're talking about the U.S. dollar's future, which will soon have no value at all. Fact is, those times we once called "prosperity" in the 1980s and 1990s...and the outrageous behavior of the past decade show up in The Foolishness of CNBC's Economic Analysis. Being the fiscal conservative I am, I appreciate the article.
However, in another one of Denninger's rants, McStupid: Mortgage Bankers Association, I disagree with his argument that a 20 percent downpayment on a house is the only way to assure housing does not get into a bubble. That's ultra fiscal conservative and can do harm to the overall economy.
Granted, some people should not be in homes and, yes, many borrowers should not have been homeowners in this crisis, but some people just don't have 20 percent downpayments lying around.
In some instances, fiscally responsible people can invest in a home, make payments and increase their equity by putting 5 percent down. The key is that they show character, capacity and capability to repay their loan. Usually, that's found in credit reports with high scores.
The other fault Denninger has, as does Suze Orman, is that the 15-year loan might have a lower interest rate, pay off the mortgage faster and increase equity 50 percent quicker, but it also does not leave much room for emergencies (i.e. car breakdowns, broken water heaters, broken air conditioners, etc).
Here's a fact--ONE EXTRA MORTGAGE PAYMENT per YEAR, APPLIED TO PRINCIPAL = an 18-YEAR PAYOFF on a 30-YEAR MORTGAGE. That way, you can pay it off when you have the resources or use those funds in case of an emergency. Why are you going to strap yourself into payments that, indeed, you may not be able to afford.
It may not seem this way right now, but homeownership does and will have future advantages. Owning as an investment, for the right reasons, will always be more advantageous than throwing away money each month. And, the right reasons include living in house and making it a home. Not treating a house like it's a stock certificate to be flipped or traded.
Everyone is to blame in this credit crisis, including the borrowers and consumers who, like the wizards of Wall Street, have a human propensity for greed. It's in our nature to want what we can't have and when we can have it, it comes at a cost. And, as Denninger's article and chart point out, we are now deleveraging and paying the price.
However, in another one of Denninger's rants, McStupid: Mortgage Bankers Association, I disagree with his argument that a 20 percent downpayment on a house is the only way to assure housing does not get into a bubble. That's ultra fiscal conservative and can do harm to the overall economy.
Granted, some people should not be in homes and, yes, many borrowers should not have been homeowners in this crisis, but some people just don't have 20 percent downpayments lying around.
In some instances, fiscally responsible people can invest in a home, make payments and increase their equity by putting 5 percent down. The key is that they show character, capacity and capability to repay their loan. Usually, that's found in credit reports with high scores.
The other fault Denninger has, as does Suze Orman, is that the 15-year loan might have a lower interest rate, pay off the mortgage faster and increase equity 50 percent quicker, but it also does not leave much room for emergencies (i.e. car breakdowns, broken water heaters, broken air conditioners, etc).
Here's a fact--ONE EXTRA MORTGAGE PAYMENT per YEAR, APPLIED TO PRINCIPAL = an 18-YEAR PAYOFF on a 30-YEAR MORTGAGE. That way, you can pay it off when you have the resources or use those funds in case of an emergency. Why are you going to strap yourself into payments that, indeed, you may not be able to afford.
It may not seem this way right now, but homeownership does and will have future advantages. Owning as an investment, for the right reasons, will always be more advantageous than throwing away money each month. And, the right reasons include living in house and making it a home. Not treating a house like it's a stock certificate to be flipped or traded.
Everyone is to blame in this credit crisis, including the borrowers and consumers who, like the wizards of Wall Street, have a human propensity for greed. It's in our nature to want what we can't have and when we can have it, it comes at a cost. And, as Denninger's article and chart point out, we are now deleveraging and paying the price.
Tuesday, September 1, 2009
U.S. Bought and Sold
Here's a real good article today from Paul Farrell of Marketwatch.com titled "Democracy is dead ... lobbyists rule America."
http://www.marketwatch.com/story/16-credos-for-our-new-lobbyist-nation-2009-09-01
It's so true, too. After all, everyone at this point knows the change in Financial Accounting Standards Board rules now make insolvent banks look solvent. Plus, if there were mark-to-market rules still, I was told by one of my sources close to the situation that 3,000 banks would fail right now. That's right--3,000 BANKS out of 8,000 would fail right now based on assets that are worth far less because property values dropped.
So, when you hear that Shittybank turned a profit or made any sort of revenue, look up FAS 157 in the accounting books to see how they were able to make loan losses into gains. This is a joke. 3,000 banks are insolvent, we'll find out that unemployment increased considerably last month, the stock market is on the verge of another downfall by about 1,000 points--at least--and there are no new jobs out there.
On top of that, consumer spending was not as good as thought. August month-over-month spending declined and year-over-year fell as well. From Ken Denninger's Market Ticker today:
ICSC-Goldman Store Sales
Released on 9/1/2009 7:45:00 AM For wk8/29, 2009
Prior
Actual
Store Sales - W/W change
0.6 %
-0.5 %
Store Sales - Y/Y
-0.2 %
-0.7 %
HighlightsAugust chain-store sales ended up being a disappointment, according to ICSC-Goldman's same-store tally which fell 0.5 percent in the Aug. 29 week for a minus 0.7 percent year-on-year rate.
The report down plays the impact of back-to-school calendar shifts and stresses the overall trend which it said is not improving. The report isn't making a call for month-to-month sales. Redbook is up next.
Definition: This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales. Why Investors Care
As Denninger said: What back-to-school sales?
That's right. Can you say "deflation"? Knew you could. How about this one: "Japan's Lost Decade." See what happened there earlier this week? A major political overhaul. Let's face it, the Japanese are getting tired of living through a 20-year recession. Well, guess what our future is going to be?
You see, the person very close to what is going on not only told me that 3,000 banks would fail under normal FASB mark-to-market rules but he also said that changing the accounting rules and trying to hide all the bad loans is exactly what Japan did when the same thing happened to them in the late 1980s. It is the same thing we are doing now.
Get ready for a lost decade--possibly more--unless something can be done about these useless assets that, in some cases, may never get back to their original value. Another source very close to the action said he sees property values not returning to 2007 levels until 10-15 years down the road. Just how long can we go without businesses getting loans so that they can employ people with borrowed money?
On the bright side, my source said Neil Barofsky's report on the $24.7 trillion the Fed could spend on this crisis would mean that everyone of these crappy assets were worth zero and that just is not the case. Still, one-fourth of that amount, 25 percent, is more than $6.1 trillion. If assets will not return to 2007 value until 2019-2024, what are these banks going to do? What is the federal government going to do?
However, my source did say the Congressional Oversight Panel's August report on the Risk of Continued Troubled Assets is worth the reading. Elizabeth Warren, who I very much admire as does my source, and her group hit the nail on the head--something needs to be done about these assets or else. How did that song go? I think I'm turning Japanese, I think I'm turning Japanese--I really think so. Very prophetic.
So, how does this relate to Paul Farrell's article. The guys who created these toxic assets, the ones now holding these assets, are not only bailed out to do the same thing, but they're getting rewarded for screwing up the entire economy. They not only still have jobs while millions of others don't, they're getting bonuses.
As for the future of this country, so far, it business as usual in D.C.
If you're an executive still trading derivatives or the ones who packaged crappy loans on Wall Street, or a government executive running the country, way to go--you'll still have an abundance of wealth even though you helped completely screw up the economy. But, of course, you understand it, so we need you to fix it. Right.
In this greedy bizarro world called the U.S., failure is success for the entitled class.
Meanwhile, you can yell at your kids' teachers, who won't make near the amount of money you're making, use your money and influence to get your kid an A when they really deserved an F. After all, you're entitled. You got the same deal from the Treasury and Federal Reserve.
http://www.marketwatch.com/story/16-credos-for-our-new-lobbyist-nation-2009-09-01
It's so true, too. After all, everyone at this point knows the change in Financial Accounting Standards Board rules now make insolvent banks look solvent. Plus, if there were mark-to-market rules still, I was told by one of my sources close to the situation that 3,000 banks would fail right now. That's right--3,000 BANKS out of 8,000 would fail right now based on assets that are worth far less because property values dropped.
So, when you hear that Shittybank turned a profit or made any sort of revenue, look up FAS 157 in the accounting books to see how they were able to make loan losses into gains. This is a joke. 3,000 banks are insolvent, we'll find out that unemployment increased considerably last month, the stock market is on the verge of another downfall by about 1,000 points--at least--and there are no new jobs out there.
On top of that, consumer spending was not as good as thought. August month-over-month spending declined and year-over-year fell as well. From Ken Denninger's Market Ticker today:
ICSC-Goldman Store Sales
Released on 9/1/2009 7:45:00 AM For wk8/29, 2009
Prior
Actual
Store Sales - W/W change
0.6 %
-0.5 %
Store Sales - Y/Y
-0.2 %
-0.7 %
HighlightsAugust chain-store sales ended up being a disappointment, according to ICSC-Goldman's same-store tally which fell 0.5 percent in the Aug. 29 week for a minus 0.7 percent year-on-year rate.
The report down plays the impact of back-to-school calendar shifts and stresses the overall trend which it said is not improving. The report isn't making a call for month-to-month sales. Redbook is up next.
Definition: This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales. Why Investors Care
As Denninger said: What back-to-school sales?
That's right. Can you say "deflation"? Knew you could. How about this one: "Japan's Lost Decade." See what happened there earlier this week? A major political overhaul. Let's face it, the Japanese are getting tired of living through a 20-year recession. Well, guess what our future is going to be?
You see, the person very close to what is going on not only told me that 3,000 banks would fail under normal FASB mark-to-market rules but he also said that changing the accounting rules and trying to hide all the bad loans is exactly what Japan did when the same thing happened to them in the late 1980s. It is the same thing we are doing now.
Get ready for a lost decade--possibly more--unless something can be done about these useless assets that, in some cases, may never get back to their original value. Another source very close to the action said he sees property values not returning to 2007 levels until 10-15 years down the road. Just how long can we go without businesses getting loans so that they can employ people with borrowed money?
On the bright side, my source said Neil Barofsky's report on the $24.7 trillion the Fed could spend on this crisis would mean that everyone of these crappy assets were worth zero and that just is not the case. Still, one-fourth of that amount, 25 percent, is more than $6.1 trillion. If assets will not return to 2007 value until 2019-2024, what are these banks going to do? What is the federal government going to do?
However, my source did say the Congressional Oversight Panel's August report on the Risk of Continued Troubled Assets is worth the reading. Elizabeth Warren, who I very much admire as does my source, and her group hit the nail on the head--something needs to be done about these assets or else. How did that song go? I think I'm turning Japanese, I think I'm turning Japanese--I really think so. Very prophetic.
So, how does this relate to Paul Farrell's article. The guys who created these toxic assets, the ones now holding these assets, are not only bailed out to do the same thing, but they're getting rewarded for screwing up the entire economy. They not only still have jobs while millions of others don't, they're getting bonuses.
As for the future of this country, so far, it business as usual in D.C.
If you're an executive still trading derivatives or the ones who packaged crappy loans on Wall Street, or a government executive running the country, way to go--you'll still have an abundance of wealth even though you helped completely screw up the economy. But, of course, you understand it, so we need you to fix it. Right.
In this greedy bizarro world called the U.S., failure is success for the entitled class.
Meanwhile, you can yell at your kids' teachers, who won't make near the amount of money you're making, use your money and influence to get your kid an A when they really deserved an F. After all, you're entitled. You got the same deal from the Treasury and Federal Reserve.
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