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Congratulations are in order! We taxpayers are cleaning house, literally. What a week!
Despite crisis, the U.S. stock market is holding up relatively well
If you put all your money into American stocks this year, congratulations. You may have lost money, but you have also done better than investors in almost any other stock market.
Woo hoo!
Congratulations, you’re now in the banking, investment and mortgage business.
You and I are now in the mortgage business with a rather limited contract of employment. We pay the bills but do not reap any potential profits. Heck of a deal!
But that’s exactly what has happened with the government’s (i.e. the taxpayers, you and I) taking over Fannie and Freddie. We are also going into the banking business as we take over, outright, or guarantee the bad debts and decisions of leading banks and investment houses. Out of the goodness of our hearts, as each private business fails, workers’ pensions go down the tubes, loyal rank-and-file employees lose jobs and homes, we reward the most senior executives who made the bad decisions by allowing them to take tens of millions of dollars and live very well indeed.
Woo hoo!
US Riding to the financial markets' rescue
"What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen," Pearlstein said.
On NBC News, Brian Williams had a different take. "Good evening and even congratulations," he said to viewers, "You are now the proud owner of a massive insurance company."
Woo hoo!
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
17 hours ago
19 comments:
Woo Hoo
Masive market intervention and the prosperity of the ilusonary wealth of inflation.
What's not to like?
Kevin
Stag,
The loss of ficticious "money" is now a side show. The loss of our fundamental rights is the main event - scary.
"We're all subprime now" has morphed into "we're all Judases now".
The things people will do for money.
I'm having a hard time believing this was an accident.
Kevin,
What's not to like?
I'm trying to be an optimist too. Heading into the Age of Heckling isn't so bad if you somewhat enjoy a good heckle.
The loss of ficticious "money" is now a side show. The loss of our fundamental rights is the main event - scary.
The right to bear arms may soon transform into the right to bare arms.
Biz Monday: Shoes: They don't fit in budgets
http://news-press.com/apps/pbcs.dll/article?AID=/20080922/BUSINESS/809220314
Valerie Adams says she can live without new slacks and skirts, jackets and blouses.
She is making do without new shoes, too, but that really hurts.
MAB,
Meant to sneak your name in before your quote in that last comment. Oops!
Stag,
I left a comment on this post this this morning. For some reason it didn't get through. You might want to peek outside and see if any black helicopters are circling. Or ellipsing.
Anyway, here was the gist of it:
I was wondering what would become of the off balance sheet assets under a bank bailout plan. I suspect they will get little scrutiny and ultimately be swept under the rug. Citi alone has over $1 trillion of off balance sheet assets - a staggering sum.
Assets are off balance sheet for various reasons. Understating leverage and passing off risk come to mind.
Schwab's prime money market fund has some questionable assets. Approximately 2.5% of its assets are admittedly illiquid per the prospectus. One entity, called "Whistle Jacket" has been in default for an extended period of time. The fund's trustees decided (some time ago) not to liquidate the assets of Whistle Jacket. Their hope was well founded as the fed is now guaranteeing money markets against losses.
I fear Enron and Worldcom are minor league players compared to our current fraudsters. The world needs to know the extent of the fraud. Sunlight is the best disinfectant.
Bigger than Elvis I tell ya.
MAB,
The world needs to know the extent of the fraud. Sunlight is the best disinfectant.
There's a few trillion candlepower hitting my TIP fund these days. Inflation expectations must truly be dead. Real yields are rising. The balancing act seems wobbly again.
Real yields were incredibly high during the Great Depression, even on buried cash.
Real yields were incredibly low during the stagflationary 1970s, especially on buried cash.
It isn't easy being a bear during periods of heightened transparency it seems. More sunblock!!
There's a few trillion candlepower hitting my TIP fund these days
I'm not a TIPS expert, but they sure seem mispriced compared to non-inflation adjusted treasuries.
Today on Bloomberg, the 5 year TIP has a 1.25% real yield. A few days ago, the real yield dropped to 0.95%. That seems stupid low in the face of the $1 trillion plus in bailouts so far. Maybe people think stocks and house prices are in the CPI. Maybe it's endless hope for a productivity miracle. More likely, it's just inappropriate market pricing.
Short the 5 year treasury and go long the 5 year TIP. With leverage and other peoples money of course!
MAB,
Hundreds of billions of dollars in new debt to fund all these bailouts would flood the treasury auctions with supply. If demand for our paper products doesn't pick up, real yields should rise. It was easy to predict the death of real yields based on 1970s inflation, but now the Great Depression is apparently trying to kick in. I'm fairly confident we aren't looking for ways to spend $700 billion just to fend of a run-of-the-mill recession anyway.
TREASURIES-Curve steepens on bailout concerns, new supply
http://www.reuters.com/article/marketsNews/idUSHKG13968520080923
"We are expecting more debt supplies in future because of the rescue plans. We also see people going to the short end because of liquidity issues," said a Hong Kong based trader.
On Monday, the Treasury Department said it will auction a record $34 billion in two-year notes on Wednesday and $24 billion in 5-year debt on Thursday....
In any event, I still think paper products are the best defense in this environment. Well, toilet paper products that is. Too bad I can't put my entire portfolio in that and call it good. Since I can't, TIPS still look good to me long-term. As far as I'm concerned, it isn't about supply and demand. It is about holding something that yields a decent real yield (one that at least keeps up with inflation) until maturity AND getting my principal back. Not many investments qualify these days.
If the market determines, using hindsight, that I could have gotten an even better real yield by timing it better, I'm not exactly going to lose any sleep over it. A much bigger concern to me is that real yields fall to 1970s levels and I begin to actually salivate over 0% I-Bonds, lol.
Stag,
Hundreds of billions of dollars in new debt to fund all these bailouts would flood the treasury auctions with supply. If demand for our paper products doesn't pick up, real yields should rise.
I agree, but yields are still negative on the five year non inflationary treasury. On a relative basis, I still see a mismatch in pricing.
To me, a five year TIPS with a guaranteed real yield is a better deal than a 5 year treasury with a current negative yield and the hope of 1% inflation going forward. Maybe it's just my (mis)understanding of printing presses and helicopters.
It sure seems like a pricing gap that should close. During the Bear Stearns melt down, the five year TIP spread was negative. That was extreme, but at least the direction made sense.
As much As I dislike hedge funds, it appears the fed has made me an unwilling participant. Somehow I don't think I will be seeing big returns for my 2 & 20.
MAB,
To me, a five year TIPS with a guaranteed real yield is a better deal than a 5 year treasury with a current negative yield and the hope of 1% inflation going forward.
The deflationists would have you believe we'll be seeing the Great Depression's 1931 and 1932 style inflation going forward (about negative ten percent per year). In that environment the non-inflation bonds would look pretty darned good.
Of course, I'm not exactly betting on that environment. If I was I'd be burying fiat paper dollars in my backyard even as helicopters drop bags of the stuff from overhead. That seems like a great deal of work. Imagine having to dig holes as fast as new paper appears. Of course, I could use some of the money to hire workers to help me dig the holes though. In fact, if enough money was dropped some of my smarter hole digging workers might even invest in heavy duty construction equipment and barrels and barrels of oil. That's assuming I paid them per hole and they were looking to maximize their profits. Prosperity would seemingly be infinite! Now look what you've done. I've become an optimist!
There does seem to be one hole in my plan though. What if my workers had to dig their own holes to bury their own fiat paper dollars? Who could I find to help me dig my holes in that environment? I'd probably have to pay them more than I originally thought to entice them. Perhaps if I sent a letter to Bernanke he'd be willing to drop extra money from helicopters at my house to fund the wage increases necessary. Still trying to be an optimist!
The Deflationist's Nightmare
http://en.wikipedia.org/wiki/Ticker-tape_parade
A ticker-tape parade is a parade event held in a downtown urban setting, allowing the jettison of large amounts of shredded paper products from nearby office buildings onto the parade route, creating a triumphal effect by the snowstorm-like flurry.
Picture a ticker-tape parade that used $100 bills and didn't bother to shred them first. I'm thinking that might stop deflation. Just a hunch.
I'm fairly sure the government will do whatever it takes to make sure "it" doesn't happen here. I'm also 100% confident that a government can debauch a faith based currency if it so desires.
Zimbabwe's Money Worth More As eBay Novelty Than As Actual Money
http://www.huffingtonpost.com/2008/07/24/zimbabwes-money-worth-mor_n_114838.html
Notes in the millions of dollars are useful only as toilet paper and it's cheaper to light a fire with low denomination bills than with newspaper.
Toilet paper for the win!
I'm also thinking up a slogan we could put on buttons. Perhaps we could recycle the WIN buttons from the 1970s.
Whip Inflation Never
http://en.wikipedia.org/wiki/Whip_inflation_now
Toilet paper for the win!
I'm also thinking up a slogan we could put on buttons. Perhaps we could recycle the WIN buttons from the 1970s.
That sounds like a winning strategy. People love slogans, especially simple one word slogans like "change". People also love to win. Even idiots understand that if you're not a winner you're a loser. Nobody wants to be a loser.
The key to a winning slogan seems to be making everybody feel like a winner even though they are acually losers. The current treasury bailout plan is a superb (sub)prime example.
I'm thinking "Winhoo!" would be a winning slogan. Maybe eCONhoo!
Although if we were more intellectually honest, "Whineboohoo" would be more more fitting.
The more I see, the more I feel we have a phony economy. It's a big sham. Worse still, I'm starting to feel our democracy is a sham too.
The congressional "bailout" hearings are a show. The deal is done, the money will be allocated. Only the details are at issue. Warren Buffett seems to think so.
MAB,
Worse still, I'm starting to feel our democracy is a sham too.
Democracy works in theory, just like capitalism works in theory. I was watching Larry Kudlow last night defend his stance on the bailouts. It seems free market capitalism needs help every now and then from Uncle Sam. I suspect that in the coming years free market capitalism is going to require an ever increasing amount of help.
It all comes down to simple extrapolation. If free market capitalism invented a robotic device that could fully replace every human worker, free market capitalism would absolutely love it! Well, until it ran out of "paid" human workers to sell it to. Then what?
The congressional "bailout" hearings are a show. The deal is done, the money will be allocated. Only the details are at issue. Warren Buffett seems to think so.
What's the alternative? We can't let the deflationists win! I'm serious I think. Without the bailouts this could easily be much, much worse for everyone. This way it will only be much, much worse for our grandchildren.
There I go being selfish again. In the interests of full disclosure, I don't have grandchildren.
The key to a winning slogan seems to be making everybody feel like a winner even though they are acually losers.
Maybe it isn't too late to start a restaurant after all. I have this idea for a new burger. I'm calling it the McPatsy.
One no beef patty, melamine sauce, minus lettuce, cheese, pickles, onions on a calorie-free bun.
It may not sound like much, but I don't plan to sell it for very much either.
Buy one burger for 25 cents and get an extra three burgers for just a dollar!
(Fine print: 25 cents each or four for $1.25. This is the McPatsy after all.)
Stag,
Without the bailouts this could easily be much, much worse for everyone
Initially it would be worse. But longer term, I think a debt deflation via defaults would be beneficial. The current interest burden is just too large on the majority.
In any event, nothing that Paulson and Bernanke have proposed will stop the housing/credit bubbles from deflating. The only question is who will bear the losses. I say, let people eat what they killed. At least that will maintain some faith in a standard of fairness.
What can't be paid, won't be paid. Let's get it over with.
MAB,
We are so in uncharted territory. It is clear that Bernanke is terrified of a recession, and perhaps rightly so.
Bernanke Reiterates Need to Act Quickly,
Clarifies Comments on Valuing Assets
http://online.wsj.com/article/SB122226131131670949.html?mod=googlenews_wsj
"I urge the Congress to act quickly to address the grave threats to financial stability that we currently face," he said.
This is the same guy who told us that there was "no housing bubble to go bust" back in 2005.
Bernanke: There's No Housing Bubble to Go Bust
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html
We're sailing in the Bernanke now. Full speed ahead and "dam" the iceberg torpedo holes!
Titanic's Sister Ships
http://www.starway.org/Titanic/Sister_Ships.html
The Olympic was received well, but on 20th September 1911 she was involved in a collision with cruiser HMS Hawke. After limping back to Belfast she was repaired using components from her sister (Titanic) then under construction.
Her bad luck returned on 15th May 1934 when the Olympic collided with the Nantucket lightship with the loss of 7 lives.
On 8:12am on 21st November 1916 Britannic struck a mine (some still contest it was a torpedo) in the Kea Channel, Aegean Sea. Despite her improved safety features, the Britannic began to sink in a cruel copycat of her sister's end four years earlier.
Stag,
Maybe I'm just in a gambling mood, but I would rather see congress let bad banks fail and foolish investors (as well as some innocent investors) lose money.
The fictious wealth and inflation gathering disgust me to no end. The box seats at the new Yankee Stadium cost $200K/season. Those seats have a wait list - wall street firms. No joke! Do we really want to continue along this path? We've lost our way.
How can so few expect to continue to profit at the expense of so many.
In round numbers, the top 10% of wealth holders own 80% of the wealth. The top 1% own 60% of the wealth. In that light, the system is broken. Our society produced a lot of wealth. We didn't distribute the wealth well though. Rather, we overly burdened middle class families with unpayable debts.
It's time to reap what we have sown.
We are so in uncharted territory
So true.
We are at an inflection point in history. I called my Senators and congressmen the other day regarding the bailout. They said they were receiving more & more calls.
Interesting times.
MAB,
I was at Costco today. The toilet paper price moved from $20.99 to $21.89. That's ninety cents of pure profit per 45 roll pack! Woo hoo! That's a 4.3% gain and it hasn't even been a full year since the last increase if memory serves and/or assuming I can believe my own blog. That can mean only one thing. 1970s style inflation here we come!!
June 9, 2008
http://illusionofprosperity.blogspot.com/2008/06/that-stagflation-show.html
Toilet paper continues to appear on my Costco shopping list. I buy it every time I visit the store. So far it has been a decent plan. In addition to the cost of the paper itself rising 5% this year so far, the cost to transport it home continues to escalate. The fewer trips I have to do in the future the better. The employees must think I have serious digestive problems. That's somewhat true. I can't stomach where this economy is headed.
I was also at Wal-Mart though and it sure threw me for a loop. The 22.5 ounce family size Suave shampoo price is down to $1.25. It boggles my mind. My shampoo hoard is experiencing deflation it seems. I used to think $1.47 a bottle was super cheap. Bathing has somehow become optional? That can mean only one thing. Great Depression and serious deflation here we come!!
A combination of serious inflation and serious deflation? That can only mean one thing. Hyperinflationdeflation! I suddenly feel like chicken little. The sky is both falling AND rising!! We just can't see it because it isn't actually moving all that much.
I guess that's kind of what one might expect if you mix the deflationary Great Depression with the inflationary 1970s. Another thing we might expect is rising unemployment since that was common to both eras. Go figure.
I may not fully grasp the concept of "can mean only one thing." Attempting to understand and agree with all the points of the inflationist camp while simultaneously understanding and agreeing with all the points of the deflationist camp can mean only one thing though. Of that I am fairly certain. Insanity!
I recall that the people went about with pale and worried faces, and whispered warnings and prophecies which no one dared consciously repeat or acknowledge to himself that he had heard. A sense of monstrous guilt was upon the land, and out of the abysses between the stars swept chill currents that made men shiver in dark and lonely places. - H.P. Lovecraft
Hey, that reminds me that Bush will be on TV tonight discussing the economy.
Stag,
http://www.newsweek.com/id/160611/page/2
Stagflation for the Winhoo!
MAB,
From your link...
"There was widespread public rejoicing that at last the government was protecting the people," Herbert Stein, a Nixon economist, later observed.
Winhoo!!
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