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]
A few years ago, if someone had told me that the govt will loot productive taxpayers to pay egregious bonuses to wealthy bankers, who are so idiotic that they cannot manage their own business on a sound basis, I would have thought they were joking.
But the bad joke has come true, and keeps getting worse, because now we appear set for an endless subsidy from productive Americans to all irresponsible consumers of houses, autos, vacations, etc, just to maintain an ecologically disastrous level of unmerited, immoral, and destructive over-consumption.
This process is endless and feeds on itself, and will snowball as more people discover that they can simply consume things without paying for them. Unless the madness is halted, and soon, the collapse in public morality and responsibility will become irreversible.
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.
Why I'm Negative on Equities Despite Good Earnings Season [View article]
David, You make many valid points in clearly written terms. You did not mention one factor, perhaps because you don't see it as a negative This is excessive govt control of the economy.
In the US, the govt has basically taken over the housing and financial sectors, and may yet take over the health care sector. It has also largely taken over the domestic automotive sector. If these were truly socialist takeovers, they would be bad enough, but in reality, these takeover are much worse than purely socialist as the losses, costs, and subsidies are being socialised, whilst the profits, lavish pay, and bonuses, remain privatised; especially for finance. This makes these quasi-socialised sectors far more costly than they would have been, had they been truly nationalised. To subsidise them, govt needs to egregiously tax the dwindling number of truly productive members of the economy, in addition to monetise debt, create inflation, and fleece savers.
In the long-term, the risk of misguided policy that decimates productivity and prudence, to subsidise bloated, inefficient and unproductive sectors is the greatest negative of all.
2010: Time to Arrest the Oil Extortionists? [View article]
If we follow the logic of this silly article, we would need to file anti-trust and gouging charges against many, if not most, of our corporations.
The author, and some commenters, are upset that the price we pay for oil greatly exceeds the cost of pulling it out of the ground at the world's cheapest wells. By this logic, how about the price we pay for cereal? Grains cost about $5 for a bushel (about 50 lbs). Most kids need to eat cereal, and their parents are forced to pay $4 for a box that contains 10 cents worth of grain. After adding some sugar, etc, the cost of the contents of a box of cereal is 20-25 cents, yet the poor consumer has to pay 15x-25x that cost. Should we haul the managements of the cereal companies off to jail?
How about clothes? People need underwear and socks, and our retailers sell them for 10x-20x what they pay the Chinese for them, so why don't we haul our retail executives off before the courts or the congress too?
How about tomato soup, or pasta, or soap, or toothpaste? Do you think the cost of ingredients in the package are commensurate with the price charged to the consumer? Should we sue their producers' executives too?
There are many other examples of necessities for which the consumers' final price greatly exceeds the basic cost of the goods or the raw material. This is natural, as there are many other components of cost, and if business cannot profit, it will not make the effort to develop a product and bring it to the consumer. However, the author's deficient logic implies that all these goods have to be subjected to price controls by the state. This is what centrally-planned (aka communist) economies have attempted, and the result was that production of all these necessities dropped, and so did their entire standard of living.
2010: Time to Arrest the Oil Extortionists? [View article]
Oil is too cheap. We waste too much of it unnecessarily, destroying our health by breathing pollution as a result. It is a finite resource, and its price will continue to trend inexorably upwards. We need to accept facts and plan accordingly, rather than bury our heads in the sand and blame cartels and manipulators.
We need to stimulate the economy by investing in jobs for energy efficiency, not by wasting money on pork. We can stimulate the auto industry by subsidizing smaller, fuel efficient cars and can create jobs building high-speed rail that reduces pollution, reduces highway and airport congestion, and reduces oil consumption. Ditto for nuclear and renewable energy.
If high oil prices are the only way to motivate us to implement such necessary changes to our economic model, then they are a blessing, even though those with limited vision are unable to see it as such.
The notion that if only the evil cartel were to pump out an extra 5m bbd then price will drop and all will be well forever is silly. This simply creates a greater crisis for our children and prevents us from implementing policies that create useful jobs that truly benefit our economy.
" ....under which Lichtenstein should by rights be on the hook for $100 million now the company has declared bankruptcy. If the senior creditors get their way and manage to take over the company, however, it seems that they’ve promised to cover all such expenses — rendering the clause largely moot as far as Lichtenstein’s net worth is concerned"
It seems that the senior creditors are more concerned about Mr. Lichtenstein's net worth than about what they can recover on behalf of their own companies and their investors.
This implies that the old boys club trumps fiduciary responsibilities (and legal obligations to investors) at the senior creditor banks. Hmm.... I wonder why?
Wall Street Breakfast: Must-Know News [View article]
Almost a footnote at the end of the page: "Georgia-based Southern Community Bank's closure will cost the FDIC $114M. North Carolina-based Cooperative Bank's closure will cost the FDIC $217M. Kansas-based First National Bank of Anthony's closure will cost the FDIC $32.2M."
These add up to roughly $365m, which is roughly the cost to the taxpayers of the entire real estate crash of the late 1980's.
In other words, the total cost to the taxpayers of the previous, disastrous real estate crash of twenty years ago is now treated as a minor footnote, repeated on a weekly basis, and almost unnoticed. Last time, fraudulent bankers were led in chains by the FBI, and this time they are getting bonuses. Is this the "change we can believe in" ?
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.
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. > > > > >
Exclusive: Big Banks' Recent Profitability Due to AIG Scam? [View article]
The government had to make a choice: (a) nationalise the large banks and reboot, or (b) prop them up and save their powerful managers.
They chose (b), which requires shovelling hundreds of billions, if not trillions, into private for-profit companies, at the expense of taxpayers. Since the required amounts are much larger than can be announced in a transparent way without excessive public opprobrium, it follows that hidden or disguised bailouts on a massive scale have to be implemented, so this "news" is no surprise, and likely just the tip of the iceberg.
As to your statement "...... If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day ......."; I personally doubt that the general public will have any interest in the arcane details of what is going on, and the potential fallout will be limited to academic discussions on sites such as this.
S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers [View article]
Thanks for an informative analysis. When the market was near its lows I had argued that sound stocks were by no means "cheap"; and that the low SP500 was more due to some of its constituents being demolished, rather than due to its good companies becoming "cheap". This was just an observation, now bolstered by your excellent analysis, which says that the demolished ones have stirred back to life in the ER, boosting the SP500.
I still maintain that at current levels stocks are not "cheap" except relative to the bubble era. Dividends are being slashed at astonsihing rates, and historically, companies which drastically cut dividends have restored them slowly, if at all. Thus, I expect SP500 dividends will not climb back to 2007 levels for many years, and this suggests to me that stocks will be worth less than they were in 2007 for many years as well.
How to Profit from Market Manipulation [View article]
In the long-term, fundametals win.
If the hedge funds are cooperating with the PPT to buy stocks, do you expect them to end up in a year owning vast amounts of shares priced at 40x earnings and yielding 0.5%? I doubt it.
In the short term, they can act as a damper to slow down a plunge, or as a rocket to power up a spike, but eventually, fundamentals will rule. So private investors just have to consider probable PPT actions as one more facet adding complexity to short-term price movements.
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]
But the bad joke has come true, and keeps getting worse, because now we appear set for an endless subsidy from productive Americans to all irresponsible consumers of houses, autos, vacations, etc, just to maintain an ecologically disastrous level of unmerited, immoral, and destructive over-consumption.
This process is endless and feeds on itself, and will snowball as more people discover that they can simply consume things without paying for them. Unless the madness is halted, and soon, the collapse in public morality and responsibility will become irreversible.
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.
Why I'm Negative on Equities Despite Good Earnings Season [View article]
In the US, the govt has basically taken over the housing and financial sectors, and may yet take over the health care sector. It has also largely taken over the domestic automotive sector. If these were truly socialist takeovers, they would be bad enough, but in reality, these takeover are much worse than purely socialist as the losses, costs, and subsidies are being socialised, whilst the profits, lavish pay, and bonuses, remain privatised; especially for finance. This makes these quasi-socialised sectors far more costly than they would have been, had they been truly nationalised. To subsidise them, govt needs to egregiously tax the dwindling number of truly productive members of the economy, in addition to monetise debt, create inflation, and fleece savers.
In the long-term, the risk of misguided policy that decimates productivity and prudence, to subsidise bloated, inefficient and unproductive sectors is the greatest negative of all.
2010: Time to Arrest the Oil Extortionists? [View article]
The author, and some commenters, are upset that the price we pay for oil greatly exceeds the cost of pulling it out of the ground at the world's cheapest wells. By this logic, how about the price we pay for cereal? Grains cost about $5 for a bushel (about 50 lbs). Most kids need to eat cereal, and their parents are forced to pay $4 for a box that contains 10 cents worth of grain. After adding some sugar, etc, the cost of the contents of a box of cereal is 20-25 cents, yet the poor consumer has to pay 15x-25x that cost. Should we haul the managements of the cereal companies off to jail?
How about clothes? People need underwear and socks, and our retailers sell them for 10x-20x what they pay the Chinese for them, so why don't we haul our retail executives off before the courts or the congress too?
How about tomato soup, or pasta, or soap, or toothpaste? Do you think the cost of ingredients in the package are commensurate with the price charged to the consumer? Should we sue their producers' executives too?
There are many other examples of necessities for which the consumers' final price greatly exceeds the basic cost of the goods or the raw material. This is natural, as there are many other components of cost, and if business cannot profit, it will not make the effort to develop a product and bring it to the consumer. However, the author's deficient logic implies that all these goods have to be subjected to price controls by the state. This is what centrally-planned (aka communist) economies have attempted, and the result was that production of all these necessities dropped, and so did their entire standard of living.
2010: Time to Arrest the Oil Extortionists? [View article]
We need to stimulate the economy by investing in jobs for energy efficiency, not by wasting money on pork. We can stimulate the auto industry by subsidizing smaller, fuel efficient cars and can create jobs building high-speed rail that reduces pollution, reduces highway and airport congestion, and reduces oil consumption. Ditto for nuclear and renewable energy.
If high oil prices are the only way to motivate us to implement such necessary changes to our economic model, then they are a blessing, even though those with limited vision are unable to see it as such.
The notion that if only the evil cartel were to pump out an extra 5m bbd then price will drop and all will be well forever is silly. This simply creates a greater crisis for our children and prevents us from implementing policies that create useful jobs that truly benefit our economy.
The Mess at Extended Stay [View article]
It seems that the senior creditors are more concerned about Mr. Lichtenstein's net worth than about what they can recover on behalf of their own companies and their investors.
This implies that the old boys club trumps fiduciary responsibilities (and legal obligations to investors) at the senior creditor banks. Hmm.... I wonder why?
Wall Street Breakfast: Must-Know News [View article]
These add up to roughly $365m, which is roughly the cost to the taxpayers of the entire real estate crash of the late 1980's.
In other words, the total cost to the taxpayers of the previous, disastrous real estate crash of twenty years ago is now treated as a minor footnote, repeated on a weekly basis, and almost unnoticed. Last time, fraudulent bankers were led in chains by the FBI, and this time they are getting bonuses. Is this the "change we can believe in" ?
The Stock Market's Illusion [View article]
I think you mean "... losing their jobs ...". This has become a very common misspelling on SA.
To SA editors: Please improve spelling checks on SA articles. Thanks.
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.
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: Market Back on the Defensive [View article]
I'd suggest that this sort of operation will continue on a massive scale in various ways, some transparent and others concealed.
Exclusive: Big Banks' Recent Profitability Due to AIG Scam? [View article]
They chose (b), which requires shovelling hundreds of billions, if not trillions, into private for-profit companies, at the expense of taxpayers. Since the required amounts are much larger than can be announced in a transparent way without excessive public opprobrium, it follows that hidden or disguised bailouts on a massive scale have to be implemented, so this "news" is no surprise, and likely just the tip of the iceberg.
As to your statement "...... If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day ......."; I personally doubt that the general public will have any interest in the arcane details of what is going on, and the potential fallout will be limited to academic discussions on sites such as this.
S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers [View article]
I still maintain that at current levels stocks are not "cheap" except relative to the bubble era. Dividends are being slashed at astonsihing rates, and historically, companies which drastically cut dividends have restored them slowly, if at all. Thus, I expect SP500 dividends will not climb back to 2007 levels for many years, and this suggests to me that stocks will be worth less than they were in 2007 for many years as well.
How to Profit from Market Manipulation [View article]
If the hedge funds are cooperating with the PPT to buy stocks, do you expect them to end up in a year owning vast amounts of shares priced at 40x earnings and yielding 0.5%? I doubt it.
In the short term, they can act as a damper to slow down a plunge, or as a rocket to power up a spike, but eventually, fundamentals will rule. So private investors just have to consider probable PPT actions as one more facet adding complexity to short-term price movements.