Deere & Company: Canary in the Austerity Coal Mine [View article]
Markos, your statement "... Yes, our entitlement programs are out of control, and yes our democratic demigods have reached the limit of sane spending. But no, now is not the time to implement austerity...." is incomplete without telling us when is the time to implement fiscal and monetary sanity and return to a semblance of sound money, budget balance, and bearable deficits? Next year ? 2012 ? 2013? The excuse that "now is not the time" will be always with us.
IMHO, the time was several years ago, and we have procrastinated ever since, and the longer we procrastinate, the deeper we dig ourselves into the hole. This vicious spiral must end, and the sooner the better, because this is how great nations have bankrupted themselves into oblivion throughout history.
The Europeans have shown wisdom and courage to take the bulls by the horn before it is too late, we need to do the same.
Wall Street Breakfast: Must-Know News [View article]
So the taxpayers have to bail out Citi, so that Citi can finance the purchase of unaffordable, useless, shiny objects from Zale's.
What a brave new world. People are "entitled" to taxpayer subsidies for buying houses they could not afford, "entitled" to HELOC-financed vacations paid for by the taxpayers, and even "entitled" to posess little shiny junk, all at the expense of prudent savers and productive taxpayers.
Wall Street Breakfast: Must-Know News [View article]
The market is pricing Greek debt at what it's actually worth, ditto for Portugese, Irish, and other bankrupt nations' debts. If the Fed had not been monetising US debt in various hidden ways, the markets would have priced US debt at what it's truly worth. Indeed, when the Fed buys GSE debt from the Chinese at face value in return for the Chinese buying treasuries at face value, this is tantamount to the Chinese buying treasuries at 50-75 cents on the dollar, the value of the junk the Fed buys from them to get them to buy treasuries.
The governments in the Western countries are eager to buy, on behalf of their taxpayers, assets (such as Greek bonds) at prices that greatly exceed their market value. This is a breach of their fiduciary rsponsibility to their taxpayers. I sincerely hope that their constituents, perhaps in Germany, will put an end to this irresponsible charade.
I fully agree with you, but wish to propose an answer your last question: "... I still do not understand what made these products attractive to them ..."
The answer is that these guys and gals get a percentage of the "funds under management", not a percentage of the real, after-inflation profits they generate with their brightness. At the end of the day, it is just OPM, and as long as the Ponzi continues and all assets go up with inflation, no one notices that most of these fund managers are no smarter than the average guy or gal, and they just shuffle paper, collect a percentage, and move on.
Woe to the Financials: SEC Complaint Against Goldman Opens Pandora's Box [View article]
The scale of corruption associated with the visible bailouts, and the far greater invisble bailouts, has been truly astonishing, exceeding anything imaginable just a few years ago.
This makes it hard to forsee a scenario in which the perpetrators of the massive frauds that took place will ever be brought to account. The more likely scenario is a political side-show, highly touted by the MSM a la Madoff, designed to appease the public before the November elections. The liklely net outcome is jailing a couple of sacrificial lambs after endless Madoff-like parades on TV, and fines totalling less than 1% of the bailout loot.
Johnson and Kwak's '13 Bankers' Makes an Important Contribution to the Free Market Debate [View article]
I am constantly bemused by those who accept, without any further logical analysis, the notion of "too big to fail" or TBTF.
If "fail" means that all the employees lose their jobs, and all customers and counter parties are left holding the bag, then failure of a large institution would indeed wreak havoc, and TBTF is certainly a valid notion.
On the other hand, if "fail" means that a court receiver is appointed, top management replaced, shareholders lose their equity, and bond holders take a haircut, then failure would have no broad economic consequences beyond the banks' investors. This is economically and socially desirable in a capitalist free market system.
It is absurd and illogical that the taxpayers would bear the burden of making whole the bond-holders of any failed bank. These bond-holders failed to exercise due dilligence regarding how their capital was being misused for unpayable loans in the pursuit of fraudulent profits. As such, they are the ones who should bear the loss, not the taxpayers. It is even more absurd that the taxpayers should bear the cost of compensating the banks' equity holders, which is an affront to the principles of a free market and a free society.
4 Good Value Stocks Nearing Buy Territory [View article]
I also like oil companies, and though I own a little XOM, find it too pricey relative to RD, BP, TOT, E.
XOM pays low dividends to shareholders, and plow cash into stock buy-backs instead. The buy-backs give a paltry return to shareholders, and a super-sized return (100's of millions) to the value of their executives' stock options. Questionnable corporate governance, treating owners (aka shareholders) as second class citizens, and executives as royalty.
Less Obvious Consequences of the Massachusetts Election [View article]
The bailout strategy is "working", but only if you disregard its future costs and implications.
The patronising tone of many liberal pundits during last nights election results is similar to yours: "... ah, the poor slobs don't understand ... they're just upset about losing their jobs ... they've lost their minds because their neghbor was laid off .. etc"
The public in Massachusetts are smarter than you think, because even without economic degrees, they can see and sense the poison they're being fed about bailouts and can see the wholesale looting of future generations. This does not make them simplistic!
Fractured Wall Street Fairy Tales #3: It's a Kinder, Gentler, Chastened Wall Street [View article]
"Populist anger" appears to have been well-managed by the occasional dispatch of $600 checks to the populace. This tried and proven method, dates back to Roman and medieval times. The reigning Caesar, King, Sultan, or Prince tosses coins to the populace from a procession, leading the populace to cheer and wish long life and wealth to the generous supplier of the money, oblivious that it actually comes from their neighbors' labor.
Where Are The Markets Going? All Indicators Show Down [View article]
Great analysis and advice, and I fully agree with all you said. As an independent investor, I've done my buying spree, averaged in at around 750. I've taken some profits already at an average of around 890. Right now, I am about 50% in stocks, and awaiting the next big move up that will try to scare the bystanders into jumping in, and hope to take more profits if we go to 950-1050. I still see very poor long term fundamentals, and so expect a big move down before we return to long-term trendline, which I still see as 750 +/- 20% plus inflation.
On May 27 06:30 AM User 305589 wrote:
> " Imho the task of this bear market (sucker's) rally is to suck as > many people in as possible and for that target to achieve, it has > still a long way to march. An absence of any meaninful correction > for another 2 or 3 months and a Dow reaching 10.000 and a S&P > at 1000-1100 wouldn't surprise me at all. There are way too many > sceptics still out there (people like me) who may be well invested > but refuse to buy any more and to chase anything. As a private investor, > I 'only' have to keep my own emotions and my own greed and fear in > check. As an institutional, especially an underinvested one, you > face much more pressure to jump into this market. And a Dow at 10.000 > could and likely will exert a ton of pressure in this regard. > As for me, I will continue to scale out of long positions into any > further rise while keeping only those stocks and bonds, which I regard > as still way undervalued and/or a very attractive long term hold > even in a bad economic environment. And the environment won't improve > significantly for quite some time to come, don't kid yourself.
Preview from Europe: Markets Dismiss Stress Tests and Crack 900 [View article]
"On the latter, the aggregate sum looks easily within the bounds of the deep pockets of Uncle Sam, and thankfully so ...". Apparently, the uncle has very deep pockets for banks and pork, but not for honoring obligations to creditors.
When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.
Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.
I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.
However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.
Goldman Releases Earnings Early; Has World Gone Crazy? [View article]
Not surprising that all major banks report better than expected results this quarter. After all, accounting has never been an exact science, and is becoming even less. Additionally, government appears to have made an all-out committment to maintain the surviving big banks with various programs, some of which appear too arcane for the general public to decipher. These facts have been known for some time, and have been the source of the current rally in equities.
It now remains to be seen whether the "upside surprises" from the financial sector will add to the rally, or have already been baked in. It also remains to be seen how all this "surprisingly great news" affects the rest of the economy.
Why It's Better to Bail Out Borrowers than Banks [View article]
mathgeek,
I am not sure what makes you think the world would have ended if other mismanaged banks had failed and been taken over by the government, just like the successful resolution of failed banks in the 1980's. It would have ended up costing the public treasury less than the cost of all the tortured programs now underway, and would have kept the system fundamentally fair and transparent.
WaMu and Wachovia went under, their investors lost out (myself included). Yet the world did not end, and would not have ended had Citi, or others, also gone under. I made a bad choice when I bought WB stock and WaMu bonds, and took my losses as the natural consequence of making poor investment decisions. I blame no one but myself, and will be more judicious about speculative investments in mismanaged, over-leveraged banks that engage in irresponsible lending within a clearly unsustainable bubble.
This is how capitalism and free markets foster the wise allocation of capital: You make a good decision, you win, you make a bad one, you lose. Unfortunately, when government distorts the free market in non-transparent and unpredictable ways, the problem of capital misallocation grows, instead of diminishing.
On Apr 11 04:57 PM mathgeek wrote:
> Felix, while I prefer to keep the details private, I was living fairly > close to the fire in this chain of events... and it was all about > psychology. Everyone, from market participants to the media was playing > the game of "whose next?" > > While Leman was alive, the focus was there. The moment Leman fell, > the focus shifted to WaMu and Wachovia... and please remember... > WaMu was wiped out in less than two weeks not by losses... but by > panic deposit withdrawls. As soon as WaMu went under, the pressure > shifted almost instantly to Wachovia and Morgan Stanley. > > What the regulators realized they needed to do was to draw a line > underneath the financial system and say, this far, and no further. > That is why TARP funds were crammed down all of the largest banks... > the government needed to make it clear that the government would > not allow either speculative attacks nor a deposit runs to close > any more major institutions.... Period. > > And, for better or worse, it worked. Almost overnight, speculation > about who would be the next to go ended and that phase of the crisis > ended. Now, its not at all clear that WaMu or Lehman share or bondholders > were treated fairly... why let them hang while protecting Citigroup, > for example? But the decisions were not made on principle, they were > made in response to a chain of events, and by the time WaMu and Wachovia > were gone, the Fed realized that they had to stop what had basically > become a rolling bank run, and consistancy of policy was far less > important than changing the psychology... and at the point, the train > had already left the station on bailing out borrowers. The Fed needed > to credibly back the remaining financial institutions, and they did. > > > > >
Preview from Europe: Profit Taking Pushes Market Down [View article]
Mole, you are quite right: "..The harsh reality remains that the economic and earnings backdrop is not improving one iota...."
I would add another harsh reality, that all the desparate, misguided and inflationary policy measures undertaken by Western countries are intended to prop up artificially oversized financial sectors that have sucked the blood out of the productive sectors of their economies. Even if successful, the resulting recovery cannot be healthy, as these multi-trillion dollar bailouts are drawing away even more resources from the remaining, dwindling productive sectors.
China is fortunate that they have not had time to develop a punitively oversized financial sector, and now they have learnt, at our expense, that they need to avoid it.
AIG Suddenly Takes the Full Disclosure Route [View article]
Interesting how bonuses paid from taxpayers' money are defended on the basis of being contractual.
Firstly, employment contracts are voided by bankruptcy. Although AIG, ML, C, BAC, and other WS rescued institutions are not technically bankrupt, the only reason they did not file for bankruptcy is government stepping in to prop them with taxpayers' money. Claiming that they should be allowed to pay bonuses because their bankruptcy has been avoided (or delayed) by massive use of public funds is disengenious, to say the least.
Secondly, congress just passed a law that allows judges to modify legally binding contracts (aka mortgages). So, it should be possible to pass a similar law allowing judges to retroactively modify, or even recoup, egregious bonuses paid by entities which had to be bailed out by government intervention.
Deere & Company: Canary in the Austerity Coal Mine [View article]
IMHO, the time was several years ago, and we have procrastinated ever since, and the longer we procrastinate, the deeper we dig ourselves into the hole. This vicious spiral must end, and the sooner the better, because this is how great nations have bankrupted themselves into oblivion throughout history.
The Europeans have shown wisdom and courage to take the bulls by the horn before it is too late, we need to do the same.
Wall Street Breakfast: Must-Know News [View article]
What a brave new world. People are "entitled" to taxpayer subsidies for buying houses they could not afford, "entitled" to HELOC-financed vacations paid for by the taxpayers, and even "entitled" to posess little shiny junk, all at the expense of prudent savers and productive taxpayers.
Wall Street Breakfast: Must-Know News [View article]
The governments in the Western countries are eager to buy, on behalf of their taxpayers, assets (such as Greek bonds) at prices that greatly exceed their market value. This is a breach of their fiduciary rsponsibility to their taxpayers. I sincerely hope that their constituents, perhaps in Germany, will put an end to this irresponsible charade.
Goldman's CDO Troubles [View article]
The answer is that these guys and gals get a percentage of the "funds under management", not a percentage of the real, after-inflation profits they generate with their brightness. At the end of the day, it is just OPM, and as long as the Ponzi continues and all assets go up with inflation, no one notices that most of these fund managers are no smarter than the average guy or gal, and they just shuffle paper, collect a percentage, and move on.
Woe to the Financials: SEC Complaint Against Goldman Opens Pandora's Box [View article]
This makes it hard to forsee a scenario in which the perpetrators of the massive frauds that took place will ever be brought to account. The more likely scenario is a political side-show, highly touted by the MSM a la Madoff, designed to appease the public before the November elections. The liklely net outcome is jailing a couple of sacrificial lambs after endless Madoff-like parades on TV, and fines totalling less than 1% of the bailout loot.
Johnson and Kwak's '13 Bankers' Makes an Important Contribution to the Free Market Debate [View article]
If "fail" means that all the employees lose their jobs, and all customers and counter parties are left holding the bag, then failure of a large institution would indeed wreak havoc, and TBTF is certainly a valid notion.
On the other hand, if "fail" means that a court receiver is appointed, top management replaced, shareholders lose their equity, and bond holders take a haircut, then failure would have no broad economic consequences beyond the banks' investors. This is economically and socially desirable in a capitalist free market system.
It is absurd and illogical that the taxpayers would bear the burden of making whole the bond-holders of any failed bank. These bond-holders failed to exercise due dilligence regarding how their capital was being misused for unpayable loans in the pursuit of fraudulent profits. As such, they are the ones who should bear the loss, not the taxpayers. It is even more absurd that the taxpayers should bear the cost of compensating the banks' equity holders, which is an affront to the principles of a free market and a free society.
4 Good Value Stocks Nearing Buy Territory [View article]
XOM pays low dividends to shareholders, and plow cash into stock buy-backs instead. The buy-backs give a paltry return to shareholders, and a super-sized return (100's of millions) to the value of their executives' stock options. Questionnable corporate governance, treating owners (aka shareholders) as second class citizens, and executives as royalty.
Less Obvious Consequences of the Massachusetts Election [View article]
The patronising tone of many liberal pundits during last nights election results is similar to yours: "... ah, the poor slobs don't understand ... they're just upset about losing their jobs ... they've lost their minds because their neghbor was laid off .. etc"
The public in Massachusetts are smarter than you think, because even without economic degrees, they can see and sense the poison they're being fed about bailouts and can see the wholesale looting of future generations. This does not make them simplistic!
Fractured Wall Street Fairy Tales #3: It's a Kinder, Gentler, Chastened Wall Street [View article]
Where Are The Markets Going? All Indicators Show Down [View article]
On May 27 06:30 AM User 305589 wrote:
> " Imho the task of this bear market (sucker's) rally is to suck as
> many people in as possible and for that target to achieve, it has
> still a long way to march. An absence of any meaninful correction
> for another 2 or 3 months and a Dow reaching 10.000 and a S&P
> at 1000-1100 wouldn't surprise me at all. There are way too many
> sceptics still out there (people like me) who may be well invested
> but refuse to buy any more and to chase anything. As a private investor,
> I 'only' have to keep my own emotions and my own greed and fear in
> check. As an institutional, especially an underinvested one, you
> face much more pressure to jump into this market. And a Dow at 10.000
> could and likely will exert a ton of pressure in this regard.
> As for me, I will continue to scale out of long positions into any
> further rise while keeping only those stocks and bonds, which I regard
> as still way undervalued and/or a very attractive long term hold
> even in a bad economic environment. And the environment won't improve
> significantly for quite some time to come, don't kid yourself.
Preview from Europe: Markets Dismiss Stress Tests and Crack 900 [View article]
When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.
Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.
I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.
However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.
Goldman Releases Earnings Early; Has World Gone Crazy? [View article]
It now remains to be seen whether the "upside surprises" from the financial sector will add to the rally, or have already been baked in. It also remains to be seen how all this "surprisingly great news" affects the rest of the economy.
Why It's Better to Bail Out Borrowers than Banks [View article]
I am not sure what makes you think the world would have ended if other mismanaged banks had failed and been taken over by the government, just like the successful resolution of failed banks in the 1980's. It would have ended up costing the public treasury less than the cost of all the tortured programs now underway, and would have kept the system fundamentally fair and transparent.
WaMu and Wachovia went under, their investors lost out (myself included). Yet the world did not end, and would not have ended had Citi, or others, also gone under. I made a bad choice when I bought WB stock and WaMu bonds, and took my losses as the natural consequence of making poor investment decisions. I blame no one but myself, and will be more judicious about speculative investments in mismanaged, over-leveraged banks that engage in irresponsible lending within a clearly unsustainable bubble.
This is how capitalism and free markets foster the wise allocation of capital: You make a good decision, you win, you make a bad one, you lose. Unfortunately, when government distorts the free market in non-transparent and unpredictable ways, the problem of capital misallocation grows, instead of diminishing.
On Apr 11 04:57 PM mathgeek wrote:
> Felix, while I prefer to keep the details private, I was living fairly
> close to the fire in this chain of events... and it was all about
> psychology. Everyone, from market participants to the media was playing
> the game of "whose next?"
>
> While Leman was alive, the focus was there. The moment Leman fell,
> the focus shifted to WaMu and Wachovia... and please remember...
> WaMu was wiped out in less than two weeks not by losses... but by
> panic deposit withdrawls. As soon as WaMu went under, the pressure
> shifted almost instantly to Wachovia and Morgan Stanley.
>
> What the regulators realized they needed to do was to draw a line
> underneath the financial system and say, this far, and no further.
> That is why TARP funds were crammed down all of the largest banks...
> the government needed to make it clear that the government would
> not allow either speculative attacks nor a deposit runs to close
> any more major institutions.... Period.
>
> And, for better or worse, it worked. Almost overnight, speculation
> about who would be the next to go ended and that phase of the crisis
> ended. Now, its not at all clear that WaMu or Lehman share or bondholders
> were treated fairly... why let them hang while protecting Citigroup,
> for example? But the decisions were not made on principle, they were
> made in response to a chain of events, and by the time WaMu and Wachovia
> were gone, the Fed realized that they had to stop what had basically
> become a rolling bank run, and consistancy of policy was far less
> important than changing the psychology... and at the point, the train
> had already left the station on bailing out borrowers. The Fed needed
> to credibly back the remaining financial institutions, and they did.
>
>
>
>
>
Preview from Europe: Profit Taking Pushes Market Down [View article]
I would add another harsh reality, that all the desparate, misguided and inflationary policy measures undertaken by Western countries are intended to prop up artificially oversized financial sectors that have sucked the blood out of the productive sectors of their economies. Even if successful, the resulting recovery cannot be healthy, as these multi-trillion dollar bailouts are drawing away even more resources from the remaining, dwindling productive sectors.
China is fortunate that they have not had time to develop a punitively oversized financial sector, and now they have learnt, at our expense, that they need to avoid it.
AIG Suddenly Takes the Full Disclosure Route [View article]
Firstly, employment contracts are voided by bankruptcy. Although AIG, ML, C, BAC, and other WS rescued institutions are not technically bankrupt, the only reason they did not file for bankruptcy is government stepping in to prop them with taxpayers' money. Claiming that they should be allowed to pay bonuses because their bankruptcy has been avoided (or delayed) by massive use of public funds is disengenious, to say the least.
Secondly, congress just passed a law that allows judges to modify legally binding contracts (aka mortgages). So, it should be possible to pass a similar law allowing judges to retroactively modify, or even recoup, egregious bonuses paid by entities which had to be bailed out by government intervention.