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Wall Street Journal: US Stocks Fall On Fear Of Higher Interest Rates, Greece Downgrade
Fears of higher interest rates in the U.S. and a credit downgrade of Greece sent stocks tumbling and roiled other markets Thursday. The dollar soared, commodity prices sank, and Treasury prices climbed as investors sought safety.
Treasury prices climbed on fears of higher interest rates? Seriously? Let's simplify the claim into something that means exactly the same thing.
Rates fell on fears of higher rates.
Here's the list of US Treasuries with higher interest rates today.
Bloomberg: Interest Rates
1. The 3 Month Treasury Bill (now yields 0.04%).
That's it. That's today's entire list.
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
-
At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
11 hours ago
49 comments:
Mark,
sorry for almost crossing the line of decency, I know this is a family blog especially with all the Halo 3 players checking in.
GYSC,
The line held. There were a few tense moments though.
http://www.youtube.com/watch?v=vosq85B_lMk
I will tempt fates once again:
http://www.youtube.com/watch?v=zhyCL-ELRxg
Nice.
You may like my Citi themed post which is in progress.
Now you wouldn't be suggesting that the reporting over at the WSJ has deteriorated would you?
Here's some folks that would agree...
Marino Adds Furniture, Football to Home Offer
"The editing of the WSJ has suffered under new ownership."
...
"You have to remember that the Wall Street Journal is not American owned. The American reporters were fired and the jobs outsourced overseas by Rupert Murdoch.
I also have noticed the decline in the quality of reporting in the WSJ since the ownership change and I am looking for alternatives."
Word Verification: comin
Yeah, it's comin' all right, and it's Ben's black helicopter runnin' outta gas fast.
Did anyone else hear Krudlow bashing Ben during the second term vote today? Scathing.
Calculated Risk says the FED is all done because they said so. Who can argue with that?
G.H. (& GYSC),
Now you wouldn't be suggesting that the reporting over at the WSJ has deteriorated would you?
Absolutely not. I'm a complete believer in the "rates fell on fears of higher rates" theory. Oops. The sarcasm light is still flashing red.
"Yeah, it's comin' all right, and it's Ben's black helicopter runnin' outta gas fast."
Hadn't you heard? We're cured! We're back on the wagon and doing fine.
http://alcoholism.about.com/cs/info2/a/aa050797.htm
As the disease progresses and his drinking [helicopter dropping] begins to cause real problems in his life, remarkably the denial likewise increases. Even though his sprees have gotten him into some real trouble, he denies it has anything to do with his drinking [helicopter dropping]. Some say this is purely a defense mechanism.
Oops. The sarcasm toggle switch seems to be stuck in the on position.
It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system. - Ben Bernanke, November 16, 2009
That brings me great comfort.
Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve. - October 27, 2005 (as reported by The Washington Post)
Fantastic news. No housing bubble either. The sarcasm switch really needs to be repaired. It just broke off in my hand.
Nearly half of Detroit's workers are unemployed
http://www.detnews.com/article/20091216/METRO01/912160374/1409/METRO/Nearly-half-of-Detroit-s-workers-are-unemployed
For many, that will mean work in health care fields as an aging population requires more care.
Just think how prosperous Detriot will be once every other person is a doctor or nurse. My girlfriend is currently retraining to work in the healthcare industry. It's not like I can offer a better alternative.
I'm reminded of this passage from A Random Walk Down Wall Street.
"There are reports of Palm Beach land bought for $800,000 in 1923, subdivided, and resold in 1924 for $1.5 million. By the following year the same land sold at $4 million. At the top of the boom there were 75,000 real estate agents in Miami, one-third of the entire population of the city."
It then goes on to talk about the collapse. Go figure.
I couldn't make this stuff up:
http://www.newyorkfed.org/publications/result.cfm?comics=1
Story of the Federal Reserve System, The
Describes the major functions of the Federal Reserve System, the tools of monetary policy and how they work, and the other ways in which the Fed helps the U.S. economy and financial system to function. (Comic, Comics, Comic book, Comic books, Comicbook, Comicbooks) Maximum 35 copies. 24 pp.
New York - District 2
04/01/2009
What? Nothing about the banking cartel? Shocking.
"At the top of the boom there were 75,000 real estate agents in Miami, one-third of the entire population of the city."
How 'bout this one...
"How Miami grew! In 1920 its population had been only 30,000. According to the state census of 1925 it had jumped to 75,000-and probably if one had counted the newcomers of the succeeding months and Miami's share of the visitors who swarmed down to Florida from the North in one of the mightiest popular migrations of all time, the figure would have been nearer 150,000."
If you've never seen this page it's a must read, I think you'll like it:
Only Yesterday: An Informal History of the 1920's
Click on XI. Home, Sweet Florida.
For anyone who lived in Florida during the recent RE boom and bust they'll find the similarities between this story from the '20's and today stunning.
G.H.,
I wonder if the comic books describe the Fed's super powers in detail?
Or are we simply left to infer them based on their amazing ability to create low inflation and low unemployment simultaneously using nothing more than a nearly infinite supply of paper, a nearly infinite supply of green ink, and a modern printing press?
"At the top of the boom there were 75,000 real estate agents in Miami, one-third of the entire population of the city."
This is why you have to
Always
Be
Closing!
Else you get a set of steak knifes or worse.
Rates fell on fears of higher rates.
Stag,
It's nothing new! Rates have been falling on fears of higher rates for three decades.
The trend for rates is down. More debt assures that trend will continue. An engine with too much oil can't run efficiently - it gets bogged down. We're not Weimar Germany, Argentina or Zimbabwe.
The outdated notion of too much money chasing too few goods just won't die.
Stag,
Here's a great article related to rates falling on fears of higher rates:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHQ2Xh55jI.Q
The myths of what cause inflation just won't die. The "smart" guys suffer from a lifetime of eCONomic education founded on bogus and outdated CONcepts.
How could the Harvard financial elite miss the biggest warning sign of all - the inverted yield curve?
The majority are so screwed. Today's accepted economic and investing principles are based on the past. A past that is very likely not indicative of the future!
mab,
From your link...
‹i›“We shouldn’t be in the banking business, we should be in the education business,” Botstein said in a telephone interview.‹/i›
I think the value of a Harvard MBA just got poned.
we should be in the education business,
Stag,
An MBA from Harvard is an indoctrination more than an education. Almost all of today's junk eCONomic theories and financial shams have Harvard DNA.
Absent the Fed and the Government bailouts, most Harvard MBAs would be broke, unemployed and in soup lines right now.
Somehow, I don't think paying princely sums to Harvard MBAs to paper over their past frauds is going to suddenly bring prosperity to the majority.
It's a matter of who gets the bill for all the past financial fraud. The past fraud distribution process CONtinues.
mab,
My forehead is sore this week. Lots of desk contact.
The "we all know" theories are flying fast and furious lately. Here's a sampling.
1. The euro only goes up and the dollar only goes down.
2. Nothing can stop China.
3. The CPI doesn't include food and energy.
4. The CPI always understates inflation.
5. The worst is behind us. Crisis averted.
Here's my personal favorite, since I love a good paradox.
6. We all know that interest rates will rise sooner than we all expect.
Stag,
Great list. Item six ranks right up there with "I don't think the fundamentals matter".
Here's another one: We all know that China has $2 trillion in foreign reserves and that they will use the reserves to prevent an asset deflation (specifically a real estate deflation).
That one bugs me.
Arguably, China would be better off enduring a massive, sharp and short bust rather than keeping prices high and beyond the reach of its citizens. Why support excessive and non-productive debt?
In order to re-align incomes and property values, investors are going to have to take huge losses. We'll have to see if money interests in China have the same political clout that they have elsewhere.
Political clout = anti free market.
#7:
Bernanke says the dollar carry trade will only be a problem IF the economy turns down again. The FED does not expect that to happen
I feel better already.
Midnight in the food-stamp economy
On the last day of every month, shoppers at Walmart load their carts with food and household items and wait for the midnight hour. Is this the new normal in America?
http://www.reuters.com/article/idUSTRE5BH2C220091218
YUP
Kevin
mab,
$2 trillion divided by 1.3 billion people is just $1500 each.
I'd worry more about inflation if the reserves were divided up equally. Dividing up this planet's resources evenly is something rarely done though. I'd say this is especially true in China.
http://www.infoplease.com/world/statistics/most-corrupt-countries-2009.html
A score of 5.0 is the number Transparency International considers the borderline figure distinguishing countries that do and do not have a serious corruption problem.
New Zealand: 9.5
USA: 7.5
-- "Serious corruption problem" --
Saudi Arabia: 4.3
Greece: 3.8
China: 3.6
Zimbabwe: 2.2
Somalia: 1.1
GYSC,
I feel better already.
#8: We all know you feel better already. ;)
Kevin,
Is this the new normal in America?
It's different this time.
A new Great Depression? It's different this time
http://www.latimes.com/business/la-fi-depression20mar20,0,3709200.story
Fear is spreading with the financial system in disarray. But the global boom is ongoing, unemployment is low and the government has new tools to address the downturn.
What? Something seems wrong. Unemployment is low?
But there are vast differences between the 1930s and today. U.S. unemployment reached 25% during the Depression; last month it was reported at 4.8%. The international industrial economy was a shambles in the '30s. Today it is coming off a global boom.
Oops. That was written in March, 2008. Now I see my mistake. Sorry about that.
#8: We all know you feel better already. ;)
What do you mean!?
US food stamp chief wants California to boost use
LOS ANGELES, Dec 18 (Reuters) - Kevin Concannon runs all 15 food and nutrition programs for the U.S. government and wants states like California and Texas to do a better job of getting food stamps into the hands of people who have fallen on hard times and don't know where to turn.
In August, there were nearly 2.9 million Californians getting benefits under the federal food stamp program.
If the Golden State were to sign up the additional 2.9 million people whose income would make them eligible for SNAP, it would receive an estimated $3.7 billion in additional federal benefits each year, which could in turn generate $6.9 billion in statewide economic activity, Shimada wrote in a CFPA report called "Lost Dollars, Empty Plates."
http://www.iii.co.uk/news/?type=afxnews&articleid=7678644&action=article
SNAP
Somthings going to SNAP alright me thinks.
LOL
Kevin
GYSC,
What? You don't feel better already? You mean you were being sarcastic?
I guess we only thought we knew you felt better already. Oops!
Well, there are 36.7 million other things that "we all know" and 12,481 news stories too. All you need to do is search for them in Google. Most of them seem related to football. But we all knew that! ;)
Kevin,
We just need more government support and more quasi-government agencies.
The Deptartment of FUBAR and the Department of ROFLMAO can study the risks, a SNAFU Agency can take needed action to protect those in power, and a HYUNDAI comic book agency can explain what's going on.
FUBAR - Federal Unemployment Brings Asset Risks
ROFLMAO - Risky Obligations, Frozen Lending, Means Assets Overbought
SNAFU - Sell National Assets, F**k Unemployment!!
HYUNDAI- Hope You Understand that Necessary Debts Aren't Inflated away
The HYUNDAI comic book will have a customized popup picture of the reader's house, car, and credit card bills once the necessary technology has been developed in China.
http://www.kitcometals.com/charts/copper_historical_large.html#5years
Copper says we're 100% back to normal. Nothing to see here. Please move along.
http://economictimes.indiatimes.com/Markets/Rising-food-prices-Green-signal-or-smokescreen/articleshow/5332110.cms
With producers eager to try their luck, supply is expanding. Mining group Xstrata, the world’s fourth-biggest producer of mined copper and third largest in refined copper, for instance, will boost capital spending by 89% to expand output by 50% in three years. New nickel projects are coming on stream. Lead and zinc factories will re-open in 2010. Indian aluminum production has jumped 16% this year. High cost is increasing risk. Global mining companies raised $180 billion this year to clear debts. IPOs worth $20-30 billion are in the pipeline.
All will be well if the bets turn out good. If not, the metals industry may have a bloodbath. Companies will be desperate to sell or export extra supply, leading to price wars, tariff wars, and trade wars that create political tension and disrupt supply chains.
All that copper is in Chinese farmer stashes, see Mish for details.
Mark,
I posted a link to a Google search for "gold bubble" vs other bubbles that you may find interesting.
GYSC,
One problem with searching for "gold bubble" becomes clear when you look at the actual search results individually. Take this one from 1988.
Its latest reading shows no enthusiasm for gold. "The inflationary bubble that persisted through most of 1987 has dissipated...
It's just a history lesson.
GYSC,
I just checked out Mish's take on China.
I don't think I've ever agreed with him more. Why do so many investors think China is a sure thing? That's the last place I'd invest right now.
Stag, GYSC,
If you're looking for bubbles, I'd recommend stepping back and taking a holistic view of the the U.S. (or global) eCONomy. What I see is a giant credit bubble that has NOT popped.
Individual manifestations of the bubble have popped, but the massive debt load of mal-investment remains.
At times I think the system is more unstable now than ever as we have CONtinued to add more debt to the system than output. It's a fragile stabilization at best.
CONsider housing in the CONtext of the latest Flow of Funds release. Even though the bubble has supposedly popped, almost all of the poisonous debt remains. Prices have crashed but the value of the debt outstanding hasn't.
We've lost ~ $6 trillion in residential housing value, but the vast majority of the associated debt outstanding has not been marked down or written off. Same scenario with the trillions in non-residential real estate and private (in)equity debt.
Lower aggregate interest rates are a big help, but going that route augers a Japanese outcome imo. Years and years of future work will pay for past financial stupidity.
Wall St. shams and junk eCONomic theories f..ked up the system but good.
Imo, the fallout from the biggest credit bubble in history is just beginning. It will be widespread, long lasting and painful for the majority. Averting a crash does not eliminate the losses, it only post-PONES them.
Bernanke and Greensham allowed venal, bonus seeking Wall St. bankers to poison our credit system. The system of intermediating "savings" into "investment" became a giant fraudulent skimming operation.
Bernanke should be fired immediately and never allowed to manage banks or credit again!
mab I enjoyed your 6:29 comment, I'm not to sharp on this financial stuff but you have a way of putting your thoughts down that's easy to digest.
KD had a somewhat unnerving post last evening.
I've heard before that KD sometimes goes a little overboard and I can see that but the chart he provides does look pretty scary:
There Is No Way Out Of This Box...
"The path we have chosen for the last 30 years in this country is clear, convincing, and impossible to continue upon."
KD also provides facts and figures in addition to the graph.
http://tinyurl.com/ytn8ru
mab (& watchtower & GYSC),
I completely agree with your analysis.
I turned bearish in 2004 based on debt. It had nothing at all to do with oil. I felt that we were simply trying to postpone the needed correction by "borrowing" our recovery.
Using that as a guide for how I should feel now, that can only mean that I should be MUCH more bearish now.
I can't think of one metric that is better now than it was when I first turned bearish. Let's list them off.
1. Credit? Worse.
2. Oil? Worse.
3. Unemployment? Worse.
4. Housing? Worse.
5. Stock market? Worse (adjusted for inflation).
I also want to offer some comments on the Roth IRA. People keep talking about how tax rates will be higher in the future and that's the reason to pay the taxes now.
Here's my take. That math only works for me if I expect to be richer in the future. I don't. I expect to be poorer then as I spend my savings to live. All things being equal, poorer people are in lower tax brackets.
As a cheapskate, I do everything I can to postpone my taxes. I generally have no great desire to prepay them.
Revival of the Managed Payout
http://online.wsj.com/article/SB20001424052748704247504574604072539106210.html
When workers are young, they accumulate assets in a target-date fund. But several years before retirement, they can pay an additional annual fee of about 1%, on top of investment-management fees of 0.95% and 1.10%, to lock in a guaranteed future level of lifetime retirement income.
What's 2% per year in fees? It's not like 20 years of that would take 1/3rd of a nest egg.
0.98^20 = 0.667
Oops. My bad. I guess it would.
Mark,
you need to learn how to hide stuff from the tax man!
Saints lose tonight, but the Cowboys looked great so I am not too upset. You gotta lose one.
OMG my verification word is:
mitskew
weird.
GYSC,
I don't willingly hide anything from the tax man. It's just not worth it to me. That's how they got Capone, lol.
Tax Amnesty Program Ends with Calls for Stricter Legislation
http://www.ombwatch.org/node/10479
The program, which began in March after the IRS stepped up enforcement efforts, encouraged tax cheats to come clean by offering a streamlined, uniform penalty. Though participants will receive amnesty from criminal prosecution, they will still have to pay stiff fines and back taxes on all of the hidden monies.
No hidden offshore bank accounts here. What you see is what you get. I also paid tax on every single gold and silver coin I bought in 2004 and sold in 2006. It hurt.
Stag,
Sadly, this quote mirrors our society today:
Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot. -- Francisco d'Anconia
"There Is No Way Out Of This Box..."
watchtower,
I guess Harvard is not "To Big to Fail" LOL!
"In 2004, Harvard used swaps for $2.3 billion it planned to start borrowing four years later. The AAA-rated school would have paid an annual average rate of 4.72 percent if it had borrowed all the money for 30 years in December 2004..."
For Pete's sake, would 4.7 have been all that bad! No, Harvard had to go and act like a hedge fund.
"...for Harvard was fortunate to have many deeply loyal friends..."
Unfortunately, none of those friends went by the name of Paulson or Bernanke.
This sort of crap really pisses me off:
"You find a central banker that will kneel before Congress whenever the members drop their drawers by pumping so much liquidity into the system that real rates are in fact NEGATIVE, thereby LITERALLY paying people to borrow."
I'll tell you what pisses me off: earning zero interest on money market funds and on the order of 1.5% or less on CDs so I can protect my cash.
Who am I helping here? Myself or the banking cartel?
I am getting closer and closer to starting a systematic drawdown of all my cash assets, literally walking out of the bank with cash money, and placing it in my home safe. I'd rather earn nothing than earn very little while the cartel can use my money.
I know, I know, my little scheme won't hurt the banking system, I'm just a drop in the bucket. But I'm not doing it to hurt the banking system. I'm doing it to help me.
It's kind of like not watching golf tournaments with Tiger Woods playing in them. Sure, I'm not going to hurt TW. But I'm not doing it to hurt TW, I'm doing it to help me.
mab,
Mirror's writing on the wall, where's the fairness of it all?
And since you've been so good to poor old Granny, I'll share a secret with you. This is no ordinary apple. It's a magic wishing apple. - Queen, Snow White and the Seven Dwarfs (1937)
G.H.,
I am getting closer and closer to starting a systematic drawdown of all my cash assets, literally walking out of the bank with cash money, and placing it in my home safe. I'd rather earn nothing than earn very little while the cartel can use my money.
I think that every time I buy I-Bonds.
I-Bonds purchased today have a lousy rate (just 0.3% over inflation), but they still beat cash. As much as it disgusts me to buy them at such a wimpy rate, I'll be making yet another purchase in 2010. I'll take what I'm given. 0.3% is looking more likely by the day.
In deflation, they are just as good as cash since they cannot earn negative interest.
In inflation, they are much better than cash.
They could sit in your safe relatively "safely" for 30 years tax deferred. Any and all price appreciation and interest won't appear until you cash them out.
The only downside compared to cash is that you must hold them at least one year. From where I sit, that's not much of a downside though. I've been bearish for 5 years so far. I doubt anything comes along in my lifetime to turn me more optimistic. The only exception might be Mr. Fusion, lol.
Mr. Fusion is key unless you have access to plutonium!
GYSC,
If you don't eat yer meat, you can't have any plutonium. How can you have any plutonium if you don't eat yer meat?
Oops. I had a Pink Floyd moment. Sorry. That song haunts me.
"No dark sarcasm in the classroom"
What kind of life would that be?
Sarcasm is the medium on which I do my art work! Keep the Sarcasm!
"As much as it disgusts me to buy them at such a wimpy rate, I'll be making yet another purchase in 2010."
They say the only stupid questions are the ones not asked.
I searched the blog and found that you use TD.
Where can you get paper form? Does it matter materially, that is, paper or electronic?
What's with the 5K/yr. limit?
G.H.,
You can buy $5k in paper I-Bonds through most banks. I use US Bank. It's a one page form and there are no fees to buy them. I-Bonds show up in the mail.
You can buy an additional $5k electronically through Treasury Direct. You won't get anything in the mail when you do this though. (This is also where I buy TIPS.)
I do both each year.
The fixed rate is reset May 1st and November 1st each year and is good for the life of the bond. You might consider waiting until April before deciding to lock it in. Real rates may go higher. Each 0.1% gives you 3% more in 30 years, should you hold until maturity.
Thanks to our recent defationary event, all my I-Bonds are paying 0% right now. That even includes my 3.4% ones (interest is determined twice a year based on half the fixed rate plus rear view mirror inflation). In other words, they are all just like cash. That will change shortly. Inflation is once again running warm. That said, I'm not at all convinced warm inflation will last much longer though. Who knows?
Stag,
Thanks for the answers, and April might work better anyway because I'm having second thoughts about enabling the other half of the cartel:
(Banksters + .gov = sum of disgust)
I'm halfway through Ron Paul's "End The Fed" and just finished the chapter on "Conversations with Greenspan." Scathing.
"History will show that Greenspan, during his years as Fed chairman (1987-2006), planted all the seeds of the financial calamity that erupted in 2007 and 2008. For the same reason a disease cannot be cured by more of the germ that caused it, the inflation and debt accumulation of the Obama years will not inflate our way out of it. This depression will likely last and last."
G.H.,
Just to show you how naive I once was (and probably still am), I thought Greenspan was holding this economy up rather nicely at the time.
It was all just an illusion though. Fortunately, I figured that out to some degree before the dotcom bubble popped and definitely before the real estate bubble popped. Whew!
http://en.wikipedia.org/wiki/Extraordinary_Popular_Delusions_and_the_Madness_of_Crowds
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
"Just to show you how naive I once was (and probably still am), I thought Greenspan was holding this economy up rather nicely at the time."
Naive - deficient in worldly wisdom or informed judgment.
Dude, you ain't that!
But what if you are simply too naive to realize that you're not naive? Let's see if we can construct a categorical syllogism to describe this, of this form:
All Mi are Ma
Mt is Mi
Therefore Mt is Ma
All naive persons (Mi) are unaware of their degree of naivety (Ma).
Stag (Mt) is a naive person (Mi).
Therefore, Stag (Mt) is unaware of his degree of naivety (Ma).
You see, you think you are "probably" naive, and I think you "ain't". But it appears that you're right :-)
Hmmmm....did I spell naivety right.....let's see....naivety, or is it naivete....or is it....oh well....
G.H.,
It seems to me that it would be better if I disagree with you. I don't want to risk thinking I am less naive than I really am! ;)
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