roundcorners - 11 November 2009 10:02 PM

Panda been urging me to sell off ALL my US equities… just got done dumping/exchanging half into cash funds…  we’ll see how we end the year…

What the ???? Does that mean if the DOW rallies up to 15k, you will no longer be my friend?

An economics professor at a local college made a statement that he had never failed a single student before, but had failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on the present administration’s plan”.

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.

As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy.

When the 3rd test rolled around, the average was an F.

The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.

Could not be any simpler than that.

awgee - 12 November 2009 02:06 AM

An economics professor at a local college made a statement that he had never failed a single student before, but had failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on the present administration’s plan”.

 

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.

 

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.

 

As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

 

The second test average was a D! No one was happy.

 

When the 3rd test rolled around, the average was an F.

 

The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

 

All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.

 

Could not be any simpler than that.

BRAVO…need to make mass copies and send out to all the 18-22 yr olds who think Obama is sooooo COOL!

U.S. CHAIN-STORE SALES BELOW PLAN

According to the Redbook survey, same-store sales were running at +1.7% YoY as of November 7th — below the target of +2.2%. Remember, the comps are very “easy” given last year’s meltdown, so +1.7% is actually quite poor.

As for any inflation pressure — it is just not there. The Redbook said “Holiday merchandise is beginning to be displayed in stores as retailers are promoting earlier than usual. Some stores are already in a rush to cut prices and extend store hours in an effort to create a “Black Friday” everyday.”

WHAT ARE U.S. EARNINGS DOING?

So far, Q3 S&P 500 operating EPS is coming in at $15.27 — still down around 2% YoY from a year ago and well below the $21.11 consensus expectation at the start of the year. Still no evidence of a turnaround in sales — deflating 10.7% YoY for what will be the fourth decline in a row. Cost cutting and productivity gains remain the dominant theme, hence operating margins are holding at a high level of 7.23% (versus the 15-year average of 6.60%).

SHORTS STILL BEING COVERED

When looking for where the buying power for U.S. equities has been coming from, there have been three primary sources.

1. Hedge funds who have had their margin lines re-established this year.

2. Equity portfolio managers taking cash ratios back down to late -2007 levels.

3. And short covering, which seems to be ongoing as short funds try and reverse at least part of the average 31.5% loss suffered this year. So what we just saw — a 3.24% plunge in short interest on the Big Board through the last half of October goes a long way towards explaining this latest move in the major averages to new post-crisis highs.

“Our analysis indicates that the sources of financial instability that triggered financial crises in emerging-market countries in recent years are just not present in Iceland, so that comparisons of Iceland with emerging-market countries are misguided.” Financial fragility was not a problem, he said. “The probability of a credit event occurring is low. [Thus], the likelihood of a financial meltdown is low.”

...“the Financial Supervisory Authority’s awareness of these risks and the fact that Iceland has high-quality governmental institutions makes it unlikely that there are serious problems with safety and soundness in the banking system.”

- Frederic Mishkin on Iceland about two months before it’s monetary collapse.

BondTrader - 12 November 2009 09:27 PM

As for any inflation pressure — it is just not there.

What, no inflation??!!!??  Say it ain’t so Joe!

no_vaseline - 13 November 2009 01:29 AM

BondTrader - 12 November 2009 09:27 PM

As for any inflation pressure — it is just not there.

What, no inflation??!!!??  Say it ain’t so Joe!

Nope, no inflation.  College tuition, medical care, medical insurance, kids sports costs, restaurants, gas, copper, water, trucking, transportation, tires, Haagen Daaz.  All gone down in price.

awgee - 13 November 2009 01:59 AM

no_vaseline - 13 November 2009 01:29 AM

BondTrader - 12 November 2009 09:27 PM

As for any inflation pressure — it is just not there.

What, no inflation??!!!?? Say it ain’t so Joe!

Nope, no inflation. College tuition, medical care, medical insurance, kids sports costs, restaurants, gas, copper, water, trucking, transportation, tires, Haagen Daaz. All gone down in price.

Our medical and dental coverage is increasing by 50% in January. Any one else experiencing this?

Mcdonna1980 - 13 November 2009 03:19 AM

awgee - 13 November 2009 01:59 AM

no_vaseline - 13 November 2009 01:29 AM

BondTrader - 12 November 2009 09:27 PM

As for any inflation pressure — it is just not there.

What, no inflation??!!!?? Say it ain’t so Joe!

Nope, no inflation. College tuition, medical care, medical insurance, kids sports costs, restaurants, gas, copper, water, trucking, transportation, tires, Haagen Daaz. All gone down in price.

Our medical and dental coverage is increasing by 50% in January. Any one else experiencing this?

I’ve heard it in other areas; businesses are trying to cut costs by reducing their contribution and insurance companies are trying to prepare for financial Armageddon.

We’ll see the kind of inflation that makes the headlines, but not until the money, currently being created out of thin air, makes it out into circulation or the Fed really does deposit stimulus directly into personal bank accounts. I believe the price hikes awgee sees are the response to lower consumption: raise the price of the widgets to meet the prior level of income to maintain the same level of profit, while remaining positioned for future growth. Suppliers are getting squeezed by lower demand and oversupply as the widget makers sit on readjusted inventory levels, which is the “deflation” that no_vas keeps harping about in their constant tug-o-war. Once the banks started loaning out that money, you’ll see rapid double digit inflation and anyone holding large amounts of gold will be vindicated, provided they sell at or near the peak and don’t get wiped our by a confiscation scheme, all of which is entirely dependent on the whims of the Federal Reserve chairman, who can suck out that excess money at a moment’s notice, provided he has the fortitude to accept the blame for the recession that follows.

Bailout Tracker from CNN

http://money.cnn.com/news/storysupplement/economy/bailouttracker/index.html

Nude - 13 November 2009 03:54 AM

Once the banks started loaning out that money…..

I don’t want to speak for Awgee, but I don’t ever see us getting to that step.  Every dollar printed is sucked into a black hole known as bad debt - the banks that are holding those reserves don’t have the functional ability to loan anything.

Awgee (I think) is awaiting a currency crisis which accomplishes roughly the same thing – we never make it to that step.

Actually, America was started with the Pilgrims on socialized farming, and everyone nearly starved.  Then they went capitalist and all went well.

http://www.independent.org/newsroom/article.asp?id=1423

awgee - 12 November 2009 02:06 AM

An economics professor at a local college made a statement that he had never failed a single student before, but had failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on the present administration’s plan”.

 

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.

 

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.

 

As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

 

The second test average was a D! No one was happy.

 

When the 3rd test rolled around, the average was an F.

 

The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

 

All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.

 

Could not be any simpler than that.

Sorry I do not remember where to get the figures, but most, more than half, inflation is created by the Federal Reserve in order to buy new treasuries, (borrowed currency), from the federal government.  The federal government spends the currency.  It does not put it in banks.  This shoots newly created “money” straight into the arms of the economy.  Does that sound familiar?
It is not necessary for the member banks to transform their reserves into loans in order to create price inflation.  And it is not necessary for either to create a currency crisis.  If a few foreign central banks decide to divest themselves of USD at the same time, ..., wah lah, currency crisis.  Or if the only way for the federal government to pay the interest on its debt is to openly borrow more from the Fed, ...
I venture that the perception of the two scenarios above already exists and is getting stronger.
By the time it actually happens and is obvious to the public, it will be too late for the public to protect themselves from the consequences.  But then, isn’t that the way it always is?

A few years ago I said that the only two large banks left standing would be GS and JPM as part of a response as to why I never short GS.  Now, I will say that GS will profit immensely from a surge in gold prices.

no_vaseline - 13 November 2009 04:30 AM

Nude - 13 November 2009 03:54 AM

Once the banks started loaning out that money…..

I don’t want to speak for Awgee, but I don’t ever see us getting to that step.  Every dollar printed is sucked into a black hole known as bad debt - the banks that are holding those reserves don’t have the functional ability to loan anything.

Awgee (I think) is awaiting a currency crisis which accomplishes roughly the same thing – we never make it to that step.

This a little over a year ago:

Nude - 01 October 2008 07:04 PM

IR, I think the plan is to allow mark-to-fantasy until the Treasury can get it’s new facility up and running to purchase the toxic stuff. Then Paulson can pay just enough to ensure survival of just those banks that will cause a systemic crash if they fail. Raising the FDIC insurance limit to $250k keeps the withdrawals down and protects the smaller businesses as the rest of the insolvent banks are allowed to fail.
 
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.

It seems to me that the plan is to avoid getting “to that step” as you put it until they can control the outcome without setting off any more dominoes. I know awgee thinks a currency crisis is imminent, but I think the effort is too coordinated among major banks, central banks, and foreign governments for a currency crisis. Hank may be long gone, but Bernanke, Summers, and Geithner are there to carry on and Volcker’s been shoved into the broom closet. In other words, everyone at the table has weak pocket cards, the flop was flat, the turn was useless and every player is content to check the blinds going into the river. But at some point, that river card gets laid down; those banks will either have to lend it or return it… or fold.

-
—
-

awgee - 13 November 2009 07:54 AM

Sorry I do not remember where to get the figures, but most, more than half, inflation is created by the Federal Reserve in order to buy new treasuries, (borrowed currency), from the federal government.  The federal government spends the currency.  It does not put it in banks.  This shoots newly created “money” straight into the arms of the economy.  Does that sound familiar?
It is not necessary for the member banks to transform their reserves into loans in order to create price inflation.  And it is not necessary for either to create a currency crisis.  If a few foreign central banks decide to divest themselves of USD at the same time, ..., wah lah, currency crisis.  Or if the only way for the federal government to pay the interest on its debt is to openly borrow more from the Fed, ...
I venture that the perception of the two scenarios above already exists and is getting stronger.
By the time it actually happens and is obvious to the public, it will be too late for the public to protect themselves from the consequences.  But then, isn’t that the way it always is?

A few years ago I said that the only two large banks left standing would be GS and JPM as part of a response as to why I never short GS.  Now, I will say that GS will profit immensely from a surge in gold prices.

You are remarkably consistent but we’ve seen billions “shot” into the economy and there hasn’t been the rapid inflation you’ve mentioned. Prices are increasing in some areas, but Gasoline is well off it’s highs, Nat Gas is entering it’s traditional up cycle but it’s still really low, I can get fresh produce, meats, milk and cheeses for much less than last year… that’s not price inflation or currency inflation. You may not bet against GS, but you seem certain that Ben “Big Brass Balls” Bernanke doesn’t have the currency side of this handled when everything to date shows that he’s got the full cooperation of the other governments, banks, and the Treasury.

Gold may shoot up temporarily (based on public purchases by central banks), and the dollar will drop even further (both to spur export growth and as part of the overall strategy), but it’s not a collapse. I’m not saying we are out of the woods, but I certainly don’t see another free fall like 10/08-3/09. Goldman might be long gold, but I think it’s even money they hedged that by shorting gold too. I think that they have achieved the lull they needed to organize their efforts, I think they are moving forward with a plan to repair balance sheets and hibernate the dying banks, and I think that everyone who could upset the plan is part of the plan.

I mean, Goldman Sachs pays in dollars… right?

The US can’t unilaterally inflate

There are many countries that peg their currencies to the dollar in some form, but China is by far the biggest, most important, and most notorious.  But even Japan has a ceiling beyond which they won’t let the JPY rise.  These pegs are not difficult to defend because their currencies are pegged too cheap, rather than too rich.  In fact, China absorbs massive amounts of USD in their interventions to enforce that peg.  Should they ever need to fight the other way, they can sell off USD and buy CNY until the crisis has passed, and the permanent, underlying current account surplus takes care of the problem.

Japan and China do not have any lasting inflation problem either, though both caught an inflationary wave during the commodity bubble.  They have certainly both experienced deflation in the recent past.  The economies survived, with a little discomfort.  There is very strong structural deflation in both economies, with extraordinarily deep capital, and in China’s case at least, virtually limitless labor.  Deflation appears to be returning and it probably doesn’t present a severe threat to either economy.

Deflation does pose a dire threat to the US economy.  With immense debt outstanding to GDP, far higher than anything seen before, the US economy may have approached the Chandrasekhar limit of debt.  Debt-deflationary spirals are not fun.  Even worse, we have very large, persistent trade deficits and a poor NIIP.

You may not agree, but it’s worth the read.

no_vaseline - 13 November 2009 04:30 AM

Nude - 13 November 2009 03:54 AM

Once the banks started loaning out that money…..

I don’t want to speak for Awgee, but I don’t ever see us getting to that step.  Every dollar printed is sucked into a black hole known as bad debt - the banks that are holding those reserves don’t have the functional ability to loan anything.

 

Let us introduce a scenario.
You get into debt.
You owe twice what you make in a year and can no longer make the interest payments on the debt.
Your uncle Joe pays off your debts for you.  Problem solved right?  No one the worse, right?

Or,

instead of uncle Joe paying your debts, you declare bankuptcy.  Problem solved, right?  Any one the worse?

Or,

instead of the above, Uncle Joe is a counterfeiter and prints up some Cs and gives them to you and you pay off your debt.  Problem solved, right?  No one the worse, right?

awgee - 13 November 2009 03:14 PM

no_vaseline - 13 November 2009 04:30 AM

Nude - 13 November 2009 03:54 AM

Once the banks started loaning out that money…..

I don’t want to speak for Awgee, but I don’t ever see us getting to that step.  Every dollar printed is sucked into a black hole known as bad debt - the banks that are holding those reserves don’t have the functional ability to loan anything.

 

Let us introduce a scenario.
You get into debt.
You owe twice what you make in a year and can no longer make the interest payments on the debt.
Your uncle Joe pays off your debts for you.  Problem solved right?  No one the worse, right?

Or,

instead of uncle Joe paying your debts, you declare bankuptcy.  Problem solved, right?  Any one the worse?

 

Or,

instead of the above, Uncle Joe is a counterfeiter and prints up some Cs and gives them to you and you pay off your debt.  Problem solved, right?  No one the worse, right?

And, if the Fed does what it says it’s going to do and starts draining the pool in the first quarter and taxes start going up the way everyone says they will, no one is the worse, right?

did anyone else hear this article on marketplace yesterday?  its also a NY times article… Men’s Underwear as an Economic Indicator

FED CAN’T RAISE RATES UNTIL AFTER 2011
The reason — there is a wave of mortgage refinancings coming in the housing market for one, and not only that, but in the commercial space, there are 2.7 trillion of debt coming due through 2011 and another 1.5 trillion of leveraged loans (see page 24 of Thursday’s FT). In other words, the default rate is going to rise even further and the Fed tightening policy would only aggravate that situation. In other words, the Fed is simply immobile for at least the next two years.

MA AND PA KETTLE STILL LEANING TOWARDS INCOME
Despite the fiscal help from Washington D.C., the state and local governments will still face a projected deficit of $142bln for 2011
It is becoming increasingly obvious that the household sector, burnt twice by two bubbles seven years apart, are simply not biting this time. Once again, equity funds suffered a $4.7 billion net outflow last week. At the same time, bond funds saw a $7.5 billion inflow (on top of $10.2 billion on the last week of October) and an additional $358 million went into hybrids.

State Budget Woes Continues
Fully nine states are in fiscal distress and only two have balanced budgets. States like Michigan are planning 20% budget cuts for the coming year. Indiana is planning a 10% spending cut in light of a 7.4% YoY revenue decline. How can the economy really be out of recession if government revenues are still deflating?

In the latest fiscal foray, the Administration is using taxpayer money to subsidize the homebuilders — no other sector in the economy receives so much favorable treatment and yet the industry adds so little to productivity growth.

As part of the extension of Fiscal Stimulus 1 (they don’t dare call this Fiscal Stimulus 2 for fear of losing all the independent voters):

• Jobless benefits have been extended a further 20 weeks;

• The first-time home buyer tax credit has not only been extended to April but expanded to include repeat trade-up buyers;

• And, believe it or not, the homebuilders, the folks who helped get us into the mess we are in today through their irresponsible overproduction strategies, are going to receive a massive stimulus from the federal government in the form of carry forward provisions allowing the companies to offset losses incurred in 2008 and 2009 against profits booked as far back as —get this — 2004! This is despite the fact that, as Ivy Zelman points out, the homebuilders are sitting on a ton of cash.

This is truly a fiscal policy that is trying far too hard to pursue the old ways of over-consumption, over-borrowing and over-building and it is a policy that is doomed to failure. See Home Builders (You Heard That Right) Get a Gift by Gretchen Morgenson on the front page of the Sunday NYT biz section.

THE FRUGALITY STORY JUST WON’T GO AWAY

When champagne sales are going down and prices being cut, even in the midst of a 60%+ rally in the stock market, you know that we are into a secular theme of thrift even among the well-heeled among us. Have a look at Champagne Sales are Going Flat on page B1 of the Saturday NYT. And believe me, it’s not just the high-end that is hurting still — according to the NPD Group, restaurant sales in the U.S.A. are down 3.0% since the summer, the steepest decline in decades (see What’s Eating McDonald’s on page 32 of BusinessWeek).

WASHINGTON — The Federal Reserve is striving for a strong dollar in an effort to ensure financial stability, chairman Ben Bernanke said Monday in the face of growing complaints about the sliding greenback.

“Our commitment to our dual objectives, together with the underlying strengths of the US economy, will help ensure that the dollar is strong and a source of global financial stability.”

And the USD index ends down under 75 today on B-52’s words.

Bwa-ha-ha-ha-ha-ha!

awgee - 16 November 2009 11:02 PM

WASHINGTON — The Federal Reserve is striving for a strong dollar in an effort to ensure financial stability, chairman Ben Bernanke said Monday in the face of growing complaints about the sliding greenback.

Bernanke, in a New York speech, said the central bank was closely monitoring exchange rates with the dollar having lost its gains from safe haven flows during the height of the financial crisis.

“We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability,” the Federal Reserve chief told the Economic Club of New York.

“Our commitment to our dual objectives, together with the underlying strengths of the US economy, will help ensure that the dollar is strong and a source of global financial stability.”

This is one of two funny things I found today, right after Bernanke tried to assure that Fed will keep an eye on sliding dollar, $ started cratering….

The weakest sector today was retailers. Because we had a “surprising” increase in retail sales in October. Oooooooookie….....

And the USD index ends down under 75 today on B-52’s words.

Bwa-ha-ha-ha-ha-ha!

BondTrader - 17 November 2009 12:42 AM

awgee - 16 November 2009 11:02 PM

WASHINGTON — The Federal Reserve is striving for a strong dollar in an effort to ensure financial stability, chairman Ben Bernanke said Monday in the face of growing complaints about the sliding greenback.

Bernanke, in a New York speech, said the central bank was closely monitoring exchange rates with the dollar having lost its gains from safe haven flows during the height of the financial crisis.

“We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability,” the Federal Reserve chief told the Economic Club of New York.

“Our commitment to our dual objectives, together with the underlying strengths of the US economy, will help ensure that the dollar is strong and a source of global financial stability.”

This is one of two funny things I found today, right after Bernanke tried to assure that Fed will keep an eye on sliding dollar, $ started cratering….

The weakest sector today was retailers. Because we had a “surprising” increase in retail sales in October. Oooooooookie….....

And the USD index ends down under 75 today on B-52’s words.

Bwa-ha-ha-ha-ha-ha!

It would appear his credibility is zero.  I was not watching at the time, but I heard that the USD index and oil responded to his words for about 10 seconds, and then went right back to where they were before he started jawboning.  USD closed under 75 and is still moving slightly down after hours.

awgee - 13 November 2009 03:14 PM

no_vaseline - 13 November 2009 04:30 AM

Nude - 13 November 2009 03:54 AM

Once the banks started loaning out that money…..

I don’t want to speak for Awgee, but I don’t ever see us getting to that step.  Every dollar printed is sucked into a black hole known as bad debt - the banks that are holding those reserves don’t have the functional ability to loan anything.

 

Let us introduce a scenario.
You get into debt.
You owe twice what you make in a year and can no longer make the interest payments on the debt.
Your uncle Joe pays off your debts for you.  Problem solved right?  No one the worse, right?

Or,

instead of uncle Joe paying your debts, you declare bankuptcy.  Problem solved, right?  Any one the worse?

 

Or,

instead of the above, Uncle Joe is a counterfeiter and prints up some Cs and gives them to you and you pay off your debt.  Problem solved, right?  No one the worse, right?

You are right awgee, if they try to make it any more confusing it’s for a reason.

matt138 - 17 November 2009 11:20 PM

awgee - 13 November 2009 03:14 PM

no_vaseline - 13 November 2009 04:30 AM

Nude - 13 November 2009 03:54 AM

Once the banks started loaning out that money…..

I don’t want to speak for Awgee, but I don’t ever see us getting to that step.  Every dollar printed is sucked into a black hole known as bad debt - the banks that are holding those reserves don’t have the functional ability to loan anything.

 

Let us introduce a scenario.
You get into debt.
You owe twice what you make in a year and can no longer make the interest payments on the debt.
Your uncle Joe pays off your debts for you.  Problem solved right?  No one the worse, right?

Or,

instead of uncle Joe paying your debts, you declare bankuptcy.  Problem solved, right?  Any one the worse?

 

Or,

instead of the above, Uncle Joe is a counterfeiter and prints up some Cs and gives them to you and you pay off your debt.  Problem solved, right?  No one the worse, right?

You are right awgee, if they try to make it any more confusing it’s for a reason.

My point was that the resolution that comes closest to a zero sum gain is the scenario where the uncle pays for the debt out of his savings.  And even this is not a zero sum gain where paying for the debt has no economic consequences.  The removal of capital to pay for the debt is a removal of capital from the investment community and a removal of capital from capital utilization.

The consequences of the other scenarios is dire.  Printing money to pay for the debt is removing capital from all users of the currency as the currency is devalued.

It is a fallacy to think that the government can somehow make up for losses and debt incurred by subsidizing, bailing, tax crediting, monetizing, or any other ing.  The printed money is not sucked into a black home known as debt.  The debt can not paid by printed money.  Debt must be paid in productivity, an activity of which the government is incapable.  Some folks think deflation, (credit destruction), can be compensated for with a printing press.  Those people do not understand what real money is.  The debt will still exist and the consequences of devalued currency will be added to the consequences of deflation.