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Financial Skeptic Bulletin, March 2010

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[Mar 31, 2010]  Interest rates spike up by James Hamilton

Let's hope that investors are correctly anticipating that better news lies ahead.

March 28, 2010 | Econbrowser

How scary is it?

The Wall Street Journal reports:

A sudden drop-off in investor demand for U.S. Treasury notes is raising questions about whether interest rates will finally begin a march higher-- a climb that would jack up the government's borrowing costs and spell trouble for the fragile housing market.

This week, some investors turned up their noses at three big U.S. Treasury offerings. Demand was weak for a $44 billion 2-year note auction on Tuesday, a $42 billion sale of 5-year debt on Wednesday and a $32 billion 7-year note sale Thursday.

The poor demand, especially from foreign investors, sent the bonds' prices sharply lower and yields higher.

One possibility that I think we can rule out is that recent bond moves signal renewed worries about inflation. The recent surge in yields on Treasury Inflation Protected Securities is just as dramatic.

Also, if the WSJ explanation was the right one, I would have expected the increase in interest rates to depress stock prices. But stock prices have been going up along with bond yields.

When bond yields and stock prices rise together, I would usually read that as a signal of rising investor optimism about future real economic activity. The February numbers for home sales and other indicators that we've been receiving most recently don't exactly support that thesis. Let's hope that investors are correctly anticipating that better news lies ahead.

Mark A. Sadowski :

As Krugman pointed out the rate rise that the WSJ is making so much of is an increase in 10-year rates from 3.67% on 3/22 to 3.91% on 3/25.

As DeLong points out we've had many such spikes in the past. In July 2003 for example the 10-year rate rose from 3.56% at the beginning of the month to 4.49% at the end.

There weren't a lot of stories calling that spike in rates a sign of imminent US bankruptcy back then. There were however a lot of stories about increased optimism about the economy.

One unusual result of the spike is that the spread between 10-year aaa Corporate bonds and 10-year T-Bonds went negative for the first time in history. I'm surprised the bond vigilantes haven't made more of this fact.

However, although it may be unprecedented for the 10-year swap to be negative I still don't think it has anything to do with default risk. Most research show that default risk plays very little role in determining aaa corporate bond spreads. On the other hand the spread does correlate very well with the slope of the Treasury yield curve. One rationale for this is that a steep yield curve is a optimistic sign for the economy.

The gap between the 10 year Treasury bond yield and the 3 month T-bill reached 3.67% in January on average. In the 682 months for which we have data (since 1953) that's only happened in 6 months: August and September 1982, June 1984, April and May 1992 and May 2004. So it's a "tail" event. The 10 year swap was narrow in each of those months as well. Friday the gap closed at 3.74%.

And why is the yield curve so steep right now? ZIRP. When was the last time ZIRP was effectively in place? 1941. Weird things happen in ZIRP and expect more in the months to come.


I strongly urge the deficit worrywart to put their money where their mouth is and short U.S. bonds. I know some investors that have done that for Japanese bonds 15 years ago... and lost their shirt as a result.

 David Pearson:


The question is not, "why are rates rising?" The question is, "what is the implication of higher rates?"

Even a positive rising rate dynamic -- one driven by recovery expectations -- has an adverse effect on rate-sensitive parts of the economy. The stock market incorporates a view on this. That is, equity investors essentially bet that rate volatility will be low, mostly because the yield curve is anchored on the short end by ZIRP for an "extended period". Rising stock prices tell us that a moderately strong recovery will make up for the negative effect of a slight rise in long term rates.

What equity investors will not like is a "100yr flood" in the yield curve steepness. That is, if rates rise quickly while ZIRP is still in effect -- creating a 300bp+ 2/10yr spread -- then the market will be "surprised" by a negative development. Rate-sensitive sectors of the economy may be so negatively affected as to jeopardize the overall recovery. This is a recipe for a steep equity market correction.

Given that the yield curve is already at record steepness, we are in uncharted territory. Call it "crowding out", or call it something else, but a >4% 10yr does not fit with a 0% Fed Funds rate. It raises fears that deficit financing needs are keeping real yields abnormally high, and that this problem will not go away without additional QE. Another question to ask is, "how high would the Fed allow the 10yr to rise before resuming its Treasury bond purchase program?"

Krugman and others point out that nominal yields are relatively low historically. I would ask them, how high should yields be given that the short end is at zero and will remain so for an "extended period"?

Cedric Regula:

The Chinese just reported a trade deficit for March, so there goes Timay's best customer. Unless he can get Benny and the Inkjets interested again.

But esoteric finance aside, the classic interpretation of stocks up, yields up, is a bull economy and stock market.

That is a little hard to believe from an economic standpoint, and also volume is low on Wall Street, and it is the High Frequency Trading Super Computers that are selling stock to each other.

I've got my own theory. I think that yields have to rise to a point where people think they have somewhat normalized, then they will be more willing to make a 2,5,10, or 30 year bet on Treasuries.

If you buy now you can be trapped with a paper capital loss for a long time, and if inflation does pick up you either have to sell and take the capital loss, or hold to maturity and get your inflated away face value back.

But good news for economists, this is called "raising inflationary expectations", a good thing.

Once rates are high enough, I think the Treasury market will eat the stock market, because the stock market is overvalued, certainly based on 2% forecasted GDP growth combined with the Great Bull Market PEs it sells for now.

So this way we can fund federal deficits without a lot of foreign investment. But there is a caveat, we need $9 trillion in new treasury sales over the coming decade (the thing that Krugman and DeLong are only mildly concerned about) and that would mean the stock market would be closer to DOW 3600 instead of DOW 36000. (And there goes the university endowment fund!)

Unless Benny and the Inkjets get interested in buying stocks. Could happen I guess. GLD 36000 too, most likely.

The other caveat is that maybe no one buys and holds bonds anymore, the market is all traders, and we don't know what they are thinking while trading 30 year bonds.

Unless Benny and the Inkjets .....


Odd that you don't mention the influence of Treasury's ongoing deposits into the supplementary financing account, since you're one of the few who mentioned it when it was announced.

Since late February, Treasury has been selling an additional ~$25 billion a week of Treasuries above its actual financing needs, and depositing the proceeds in the supplementary financing account. That simultaneously increases the supply of Treasuries and decreases the volume of dollars in private hands.

This monetary de-stimulus is scheduled to run for another roughly four weeks, coinciding/overlapping with the Fed's winding down of the monetary stimulus of MBS purchases. It appears that the build-up of reserves hit its peak between two and four weeks ago, and the Fed is now testing some mild tightening.

There is another way to explain why Treasury markets sold off while stock market bulls took it in stride and kept on rallying: The former are closer to the fire.


Probably some optitmism, but mostly it seems like investors see treasuries as a less safe place to park their money. If only they could feel the same way about commodities.


Investors may be raising cash to invest in the supposed spike in GSE MBS rates when the Fed stops their purchase program. Plus there is the usual end of quarter dressing the balance sheet with cash.


"Even so, whether demand will continue to be there for burgeoning U.S. debt is obviously a question of great interest."

As opposed to what, holding non-interest-bearing cash? For the private/foreign sector in aggregate, those really are the only two options. Any individual can decide to invest in stocks, corporate bonds, whatever, but whoever he buys that asset from now has a pile of USD and the same choice of cash vs. bonds. The money has already been created, when the deficit spending occurred. If its holder prefers the liquidity of cash instead of the income of a bond, that's fine by me. Or maybe, or Mark suggests, people are preferring short-term assets (of which cash is the ultimate) because they expect short-term rates to be higher in the future than now. That's a policy variable controlled by the Fed, so expectations of a rise are a reflection of optimism about the recovery. There is no "financing crisis".


Stocks and nominal interest rates rising together could also indicate rising inflation expectations.


A Picture of well monitored and efficient economies

Brian Quinn:

There are many paradoxes in the financial markets, but the one of savour " The more one borrows the more expensive it becomes" please see P50 the Debt ratio of non financial corporations and P51 the net interest rate burden of non financial corporations in Europe.

Not to worry as Inflation expectations by professionals is very low P58. It is interesting to compare the barometer of inflation perception throughout the age with the inflation as recorded by SGS.

"The credit-rating firm's annual report on risks faced by weaker companies and their investors found that 995 of the 1,300 companies Moody's rates as "junk" have debts maturing in the next five years. The debts are largely tied to the last decade's leveraged-buyout boom.

Moody's said these companies could face trouble refinancing their balance sheets and avoiding default should the economy and lending markets remain weak. The biggest maturities come between 2012 and 2014, when about $700 billion in bank and bond debt comes due, Moody's found. Maturities over the next two years are much smaller, at about $100 billion"

Everything is for the best in the best possible world,the most accurate perception will always be the tax collection if savers are still alive,and the most worthy club, the club de Paris (the club debenture is still low,no doubt it will increase) if tax payers are still alive.

The rise in stock prices thus far seems to have been warranted given the improvement in after tax corporate profits that has occurred over the past three quarters. Additionally, I think it is very difficult to argue that macroeconomic indicators have not improved since this time last year.

Many also make the mistake of simply examining the magnitude of the increase in stock prices and declaring it to be unwarranted given the rate of improvement of macroeconomic indicators. What these commentators seem to always neglect is that the S&P 500 in the mid 600s was horrifically undervalued by nearly every measure and that the implied expected future economic conditions were far far worse than what we have seen. The simple truth is that the stock market should never have declined anywhere near as much as it did.


Mr. Hamilton,

Um, I can't speak for you, of course, but I'm seeing generally deflationary pressures in the economy (total aggregate credit in the Z1 is declining) and we're also on the verge of institutional and sovereign defaults, which would add more to deflationary pressures--and we still have yet for the over expansion of credit to implode in the Canadian, Australian, Chinese, and even parts of the UK economy. On top of this the money multiplier is bottom bouncing.

Someone like Mr. Krugman's opinion you can usually throw out as it is typically politically motivated to cover up a previous bad assessment on his part--he has done good work in some of his academic work, but for whatever reason it almost always fails to translate into his editorial rabble rousing (as we're seeing with his recent support of health care and all the great benefits it would bring us--and now we see very puzzled congressmen like Mr. Waxman issuing letters to AT&T and other companies demanding that they immediately begin saving money on the reform in accordance with Congressional assessments).

Rising interest rates in the face of deflationary pressures? That doesn't sound like a rosy picture to me.

And there's investors in the stock market? The only people I see, Mr. Hamilton, are traders playing the volatility and the March bounce--people are actually withdrawing their money from the stock market.


:In 2009 there was a "flight to quality" that depressed treasury yields. In 2010 there is a "flight to equity" as people fed up with non-existent yields jump on the stock bandwagon. This may be irrational and dangerous investment behavior, but it certainly has nothing to do with inflation fears.

Cedric Regula:

Some evidence coming out that gold and silver are really paper too, so those commodity ETFs may not be such a good idea either.

Probably better to buy your cornflakes at the supermarket. If you find out the cardboard box is empty, you probably can get your money back.


I would hope that by now political partisans would stop looking at short term stock market movements to justify one-way-or-another their political views.

But the Treasury market is a much scarier place. Remember that the primary dealers *HAVE* to bid. They bid back 5 bps thinking that would get them out of the auction. That's the only reason this sorry deal didn't tail by 15bps.


Historically, inflation expectations largely determined the premiums in money market yields. Now its "crowding out". But by what calculation can we measure the increased demand for loan-funds associated with our bloated bureaucracies?

It's my discovery. Contrary to economic theory, & Nobel laureate Dr. Milton Friedman, monetary lags are not "long & variable". The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are historically, always, fixed in length. However the lag for nominal gdp (the FED's target??), varies widely.

Assuming no quick countervailing stimulus:

jan..... 0.54.... 0.25 top
feb..... 0.50.... 0.10
mar..... 0.54.... 0.08
apr..... 0.46.... 0.09 top
may..... 0.41.... 0.01 stocks fall

Should see shortly. Stock market makes a double top in Jan & Apr. Then the real-output of final goods & services falls/inverts from (9) to (1) from Apr to May.

Recent history indicates that this will be a marked, short, one month drop, in rate-of-change for real-output (-8). So stocks follow the economy down (presumably with yields moving sympathetically)

The rate-of-change in inflation should top in Mar. (e.g., CRB index). Later on this year, the inflation rate drops sharply/inverts after Sept month-end.


Mark says: "There weren't a lot of stories calling that spike in rates a sign of imminent US bankruptcy back then."

By "back then" do you mean 2003?

I am not sure of the number of stories calling for a plague of frogs but wasn't it Mr. Krugman who in 2003 said that he'd be switching to a fixed-rate mortgage because of mounting deficits and the inevitable insolvency of government?


Whereas it is true that we have had rather rapid rates of change of interest rates in the past, what has not been of concern in the past was the impact of these changes upon the valuation of interest rate swaps. This should be of concern now. (Yes, I have a propensity for understatement.)

But, truly, why be concerned? Certainly institutions are now more than sufficiently capitalized to compensate for the (potential) resulting changes in swap cash flow requirements and associated basis risk. Surely.



Optimism is increasing. I suspect that President Obama inspired confidence by passing the health care package. Paradoxical as that sounds. His obvious snub of the Israeli prime minister also helped.

The fed should confirm the recovery by raising rates a modest 25 basis points. Sooner than later.

Mattyoung :

My take:
Increasing debt over the last 20 years is shortening the leverage cycle, but the tools we use to go through these cycles is an order of magnitude more accurate. We are an older nation, also, we have all seen this before.

So we do this minor double dip, almost on schedule, as if planned. A quick inflationary spurt lasting a few months followed by the exit strategy for Congress and the Fed.

As if the "Hidden Hand" is saying, OK, I have figured this out, so now I go through my scheduled double dip and then get back on track.

Fat Man

"I strongly urge the deficit worrywart to put their money where their mouth is and short U.S. bonds."

I don't gamble with the bond money. I think that Treasuries are very high, and I expect them to move lower. I am looking for 5.5 -- 6% over the next couple of years. But, I am patient. The markets can be irrational longer than I can stay liquid.

kharris :

The question is not, "why are rates rising?" The question is, "what is the implication of higher rates?" - David Pearson

Um, not a very health rhetorical device, that. Rather like saying some intellectual puzzles are better than others. "Why" is an entirely legitimate question, right along with "what". The fact that one questions suits David better than another doesn't mean Hamilton's question is not "the" question. It is Hamilton's blog, after all.


True enough. Treasury has, at the behest of the Fed, returned to its "normal" schedule of 56-day bill auctions. The drop to a $5 bln auction size from $25 bln was done to accommodate the debt ceiling, so the Fed essentially eased a bit up to late February, then re-tightened when the debt ceiling was increased. Problem is that the big rise in ten-year rates took place took place about a month after the return of $25 bln 56-day auctions. It's not obvious why we should have a sudden rise rather than a progressive one, a month after the onset of the drain, if the drain is the culprit. Doesn't mean the re-tightening is not a factor - it makes sense - but just that the evidence is spotty.


If we saw consistency across inflation-expectation indicators, inflation expectations would make a good story, but we don't see that.

Barkley Rosser:


Tsk tsk. How dare you say that people are fleeing to equity? The all-knowing and all-seeing "Brian" has informed us that he sees "people" withdrawing their money from the stock market, with the only reason that it appears to be going up (or at least not definitely down) due to presumably non-human "traders playing the volatility and the March bounce." Get with the program, tsk tsk.

Simon van Norden:

What puzzles me is not the movement in interest rates, but the spreads.

As noted above, yields on commercial AAA 1-yr are below 10 yr treasuries. I'm also hearing that yields on t-bills are above LIBOR and above the yield on Berkshire-Hathaway notes. While I have not checked this against primary data sources, I understand that all of these are highly unusual events.

Is that what everyone else is seeing?

 Mark A. Sadowski

I just came across this perspective on the interest rate spike. Steve Randy Waldman also looks at yield curve slope but uses different terms to compute the gaps:

I crunched the numbers and it turns out the gap between 10 year and 2 year T-Notes reached an average of 2.83% in February which is a record on data going back to June 1976.

@Simon van Norden,

Thanks for the heads up on the LIBOR and Berkshire-Hathaway notes spread. I am going to investigate. I'd thought I'd seen everything when t-bills went negative in December 2008. Fascinating!

Tom Toerpe:

OK, Treasury yields are up, yield curve is steeper, and swap and AAA bond spreads are negative. It�s tempting to draw broad conclusions about "what it means" but I tend to look at it fairly mechanically.

So you focus on staying liquid and not losing any money while you consider your next move. This means lighten up on Treasuries, especially on the long end, hold cash, shift into scarce top-grade corporates, and buy MBS (also near record low spreads).. Is it any surprise that credit spreads are low (negative) and the curve is steep?

One other comment on swap spreads. To the extent they reflect counterparty risk, it makes sense they are at historic lows. Since Lehman, the industry has put a lot of focus on minimizing this risk -- liquidity, cash collateralization, faster and more efficient settlement, clearing initiatives, etc.

If the Treasury market was anticipating higher inflation, today's news on iron ore and steel prices certainly justifies that. Keep in mind there are many kinds of inflation and the official calculation of CPI is a peculiar mix of select ingredients, including a big portion of fictional "owner equivalent rent", that has been strongly negative and thus balancing out gradually accelerating positives in most of the other ingredients. The TIPS market only measures expectations of officially estimated CPI.


One would expect such big increases in the volumes of weekly Treasury sales to have a quick effect on prices, and the evidence is plenty clear that they did. As for the decrease in money supply through the SFA deposits draining reserves, that so far has been quite minor relative to total money supply and would not be expected to have much effect.


Tom says: "The Fed is ending its $1.25T purchasing program (20% of the market), but says it will start again if needed. For a 114 bp yield pickup, you can own paper with some liquidity backstop."

30 yr agencies are 4.48%. 10 year treasuries are around 3.8%. 30 year bonds are 4.76%. Yes, the agencies have duration characteristics similar to a 7-10 yr bond, that is until you have a significant interest rate move up. Then suddenly it has more in common with a 20 year bond.

Historically, the agency MBS are about 25-50bp above 20-30yr treasuries I believe. I don't know what sort of "114bp pickup" you are talking about. I see instead a 30 year MBS that needs to go to 5-5.25%. (75 bp higher than here).

[Mar 31, 2010]  Consumers Draw Down Savings For Personal Consumption

February results showed that flat income growth caused consumers to tap into their savings to finance purchases of goods and services, which were up only 0.3% MoM. This means that personal savings decreased. These are negative indicators for the economy.

According to the release by the Bureau of Economic Analysis:

Personal income increased $1.2 billion, or less than 0.1 percent, and disposable personal income (DPI) increased $1.6 billion, or less than 0.1 percent, in February ...

Personal consumption expenditures (PCE) increased $34.7 billion, or 0.3 percent.  In January, personal income increased $30.4 billion, or 0.3 percent, DPI decreased $26.0 billion, or 0.2 percent, and PCE increased $38.5 billion, or 0.4 percent, based on revised estimates.

Real disposable income [i.e., adjusted for inflation] increased less than 0.1 percent in February, in contrast to a decrease of 0.4 percent in January.  Real PCE increased 0.3 percent, compared with an increase of 0.2 percent.

Of all the economic analysts that I follow (about a half dozen) only David Rosenberg got the analysis of these numbers right, which is a roundabout way of saying that my analysis coincides with his analysis. My thesis as most of my readers know is that there are long-term trends in the economy and significant among those is increased savings as a result of financial uncertainty and the lack of sufficient savings by Boomers for retirement.

If savings are a main motivation of consumers, and because wages are flat to declining, then a reduction in savings to fund consumer purchases is not a good thing for the economy. It means that as soon as consumers feel they have sufficient income to continue to save, they will do so, and PCE (personal consumption expenditures) will remain flat for an extended period of time.

Look at what drove PCE in February. The largest component was purchases of non-durable goods which is food and clothing (up 0.9%). Without the component of food and fuel (which has been rising in price), PCE was flat. People need food and clothing. And they have to drive and heat their homes. These aren't exactly elective purchases. The fact that they are dipping into savings is not healthy organic growth of PCE.

One could say that rising savings are healthy for the economy, rather than the Keynesian "liquidity trap" scare tactics. Keynesians and most economists confuse money (fiat money in our case) with wealth. Wealth is only created from what is called "real savings" which means money derived from productive activity which is saved and not consumed. The more real savings we have, the quicker the economy will recover because real savings are the capital needed to fund future economic activity. If it were any other way, then countries like Zimbabwe would be wealthy. You can't print your way out of a recession/depression.

The fact that people must not spend in order to save allows the economy to repair itself as unprofitable businesses shed debt and bad assets or go broke, and make way for profitable businesses to lead us out of the business cycle.

Thus a decline in savings in order to buy the basics is not good for the economy. What we can look forward to is reduced PCE in H2 because there is still pressure on wages as companies remain reluctant to hire new workers until they see consumer demand pick up. At this point, it appears that companies can't squeeze much more productivity out of the system, so wages and productivity will remain stagnant.

Another thing. Look at this article from Bloomberg on the BEA release:

Consumer spending in the U.S. rose in February for a fifth consecutive month, a rebound that will require gains in employment to be sustained. ...

Purchases of non-durable goods increased 0.9 percent, the biggest gain since January 2009, as Americans stocked up on groceries and splurged on clothing. Spending on services, which account for almost 60 percent of all outlays, increased 0.3 percent. ...

This is part of the problem in trying to make sense out of these numbers. The article says "Americans stocked up on groceries and splurged on clothing." The implication is that consumers bought like crazy. They should have said: "Americans had to dip into savings to buy the necessities of life, food and clothing." Bloomberg is cheerleading instead of reporting the news.

Selected Comments


Thanks for another excellent analysis, Econophile. The high fives from the government economists remind one of the self-congratulations of the Soviets on achieving a record wheat harvest when in fact the production continued to be dismal, as usual. 

And just as the people in Russia had no voice to describe their suffering, Americans can hardly expect Bloomberg or the BEA, i.e., the government, to recognize their suffering.  The following companion piece in todays WSJ supports your argument, as does the addendum from SWRichmond.  Both appeared briefly on Frontrunning: March 30:

Low Interest Rates Are Squeezing Seniors by Charles R. Schwab

Todays historically low interest rates may be feeding banks profitability but they are financially starving our seniors.

In February 2006, when Ben Bernanke was first sworn in as chairman of the Federal Reserve, the federal-funds target rate stood at 4.5%. That same year, the average yield on a one-year certificate of deposit was 5.4%. A retiree who diligently saved for a lifetime and had amassed a nest egg of $100,000 could count on an added $5,400 in retirement income per year. That may not sound like much to the average Wall Street Journal subscriber, but for a senior on fixed incomes that extra money improved the quality of his life.

Todays average rate for an identical one-year CD is roughly 1.3%.  On the same nest egg, that retiree will now get annual payout of just $1,300a 76% decline in four years.

Some would argue that  todays low inflation rate offsets the decline.  But even at an inflation rate of zero, a 76% decline in spending power is painful.  And were already seeing signs of inflation this year.  The first two months of 2010 showed an annualized inflation rate of 2%, further exacerbating the spending power problem for retirees by eroding the value of their principal.

To be sure, the countrys recent financial crisis required unprecedented action by the Fed, including lowering rates to levels not seen in more than 50 years.  In particular, the infusion of capital into the banking system through historically low fed-fund target rates pulled may banks from the precipice of collapse.  By that measure it has been a resounding success.

Yet these unprecedented low rates have now been in place for almost 18 months.  As a result, banks have enjoyed virtually free access to money while retirees have been deprived of any meaningful yield on their fixed-income portfolios.  For a large segment of our populationpeople who worked long and hard, who followed the rules by spending less than they earned and putting the remainder away to keep themselves independent in retirementthe ultra-low interest rate is more than a hardship.  Its a potential disaster striking at core American principles of self-reliance, individual responsibility and fairness.

To put the scale of this problem in context, consider the fact that more than $7.5 trillion in American house-hold wealth is held today in short-term, interest-bearing products such as checking and savings accounts, retail money funds and CDs.  At todays low interest rates, the return on those savings is hundreds of billions less than it would have been at 2006 interest rates.  Retirees feel the consequences disporportionately, but because much of that income would have made its way into the economy, spending and job creation also suffer.

I see the pain that low interest rates have caused very directly. My company, Charles Schwab, serves millions of individual investors, many of whom are 65 and older.  These people depend on cash savings for their financial well-being.

Many in this age group are being forced to stretch for income one of three ways. 

  1. One is to take on more risk just as they are progressing through retirement. 

  2. Another is to go longer in maturity with their fixed income investments, locking them into a situation where inflation will bite further into their principal and purchasing power. 

  3. And the worst is the slow erosion of principal that is already occurring as people cash out of savings to make up for needed income.

Its not just retirees on fixed income we should be concerned about. Lets not forget that savers of all ageseven the young person opening his first savings accountneed some incentive of future reward for saving.  Today, there is none.

The large banks are well on the mend.  Profits are improving and theyre doing just fine.  Our seniors are not. Those in Washington should keep their plight in mind as they consider Fed monetary policies going forward. (emphases mine)

 Mr. Schwab is founder and chairman of the Charles Schwab Corporation.

(The Wall Street Journal - OPINION - p. A19)

With this addendum from SWRichmond:

Why didn't Schwab go just one step further?  Those hundreds of billions of dollars represented cost of borrowing to the Wall street banks.  Those now-avoided costs mean that this very real hundreds of billions of dollars have flowed, instead of to retirees as income on their hard-earned savings, directly to the bottom line of the banks.  This was enabled directly and purposefully by the banks' agent, the Federal Reserve, and its head, Ben Bernanke.  This is theft, plain and simple.  It is theft by a non-government agency and protected by the government itself.

Definition of "conversion of funds" Fraud improper use of somebody else's money the act of using money that does not belong to you for a purpose for which it is not supposed to be used.

[Mar 30, 2010]   Signs of a Top

March 29, 2010

alfred e:

I love it.

Insanity. Repeating the same behavior and expecting a different outcome. (Einstein?)

I think BRs doing his occasional baiting again.

Do I think the market will continue to rise? As long as the pumpers are using OPM, yes. The skys the limit.

Reminds me totally of when the market was 14,000. Absolutely no one had a sane explanation for that. And there was only one good reason: the traders, and the HFTs and the hedgers were making megabucks on every pump up. That bias is still there. And they can pump the market at will. And as insiders, they will be the first to bail.

What they have not yet perfected is totally controlling the MSM and the internet. But theyre working on it.

Fact: the market and the traders and the TBTFs and the HFTs and the hedgers are completely and totally severed from the realities of the American and global economies, as they have been for some time. To a level approaching unethical, immoral, anti-social. They are destroying our future for their current gain.

It will not end well.

Can I predict the market and when it bumps down? No.

Can I predict that it will destroy our nation and society? Totally.

@Manny: I suspect you were being facetious. Or I hope you were.


@alfred e: Dont get me wrong, Im not buying into this latest run up as somehow being legitimate and reflective a real recovery. Bubbles are all we have left now and politically they are going to pump this thing until they get another one going in earnest. Thats the only choice they think they have politically. I honestly think they can now pump this thing far higher than anyone believes, but, again, its not reflective of the real underlying health of our economy. If enough play along, why cant this go on for a lot longer than people think? I posted my thoughts on this on another site. Here they are:

Im kind of in the same camp. Seeing things pick up here as well. Of course, I believe its all a house of cards but Im thinking this next bubble goes until at least 11-12, maybe even 13. And just like the bubble frustrated the hell out of Bush haters on the left because they knew it was fake, this will undoubtedly frustrate many on the right who LOATHE Obama and rightfully believe that this is all a mirage.

Mish and Deningers heads may pop off in frustration, I think, as the O mans popularity increases and he wins re-election 12. The Feds are going to keep pumping this thing UNTIL they get inflation of some sort and the economy is going gangbusters again (even if the unemployment rate never gets below 7-8%). Theres simply too much at stake politically for them to stop.

These interventions will never end until something forces them to stop. When it all crashes down again, however, it will be worse than the prior two crashes combined. Too many are still looking for a crash this year. I think what happens is another fake idiot bubble born of cheap and easy money lulls most of us too sleep and on the bubble ride again and then it all comes spectacularly crashing down again well beyond the timeframe most people had predicted. Its happened twice before in recent times, peoples memories are short and quite frankly, most average people dont give a shit why their portfolios and home prices are up, or why they have a job again. It makes them feel good (and wealthier), so they dont give a rats ass HOW, until it all comes falling down again, of course. We cling to our illusions even in the face of a truck load of evidence to the contrary because thats all we have to keep us from losing our shit.


Manny Agree 100%. I look at it this way at least we have a head start with this next bubble. Wait, is that a good thing or a bad thing? How to prepare, where will money be safe?

robert d:

1. no matter what I do, I break even except for my portfolio of very high yielding MLPs which I bought a decade ago. Love those quarterly checks.

2. Its coming close to May. sell in May and go away. I sense that this year will be the
year for a long vacation.

3. I have not bought a put or a call for 20 years but am starting to look up the symbols of 3 month puts on the S&Ps.

4. I am bored still with the market. Like Chinese water torture. Too much blame game for all that has gone wrong.

5. One day David Rosenberg will be right again as he was for so long at Merrill when the bear was ferocious.

6. Barry is getting bearish/nervous. Take that as a cue.

7. As you can see, I know nothing about technical market research, so I hope you print this anyway.

Through the Looking Glass:

How about those old sayings like the market climbs a wall of worry

Where does that leave The market works in ways to make the most people wrong when it looks like the most people in the market are pushing it up?

Maybe that's the problem most of the people arent in the market so a few banks and Goldman or algorithms can push it up making the market their bitch.

Whats that make the market.? Its definitely not anything lines on charts can quantify. I stopped thinking about technicals when they were trashed back in July when SPY broke out of the 88 to 95 channel it was stuck in for months. Thank TARP for the entrance to the rabbit hole.


Bears hoping for the public to wake up and smell the ponzi are gonna get frustrated.

Unemployment has stabilized (albeit at 10%), so anything there most of the near term damage is done.

Bad earnings could be a trigger, but it looks rosy a year out . Plus, 2012 they are talking 105$ per share on SPX earnings Hello 1500. Ok maybe not, but you have to say stranger things have happened.

The dollar moving 10% either way could cause a move

Its an election year, the Dems gotta massage this thing up into november

The most hated rally in history shall cause more hate.

Patience bears

Postscript: That March 2009 SPX print of 666 is playing havoc with peoples minds. If we had bottomed at say 925, would 1150 seem as ridiculous? Just a thought.


I noticed that Hussman wrote something in his recent weekly column about the possibility of a perfect storm brewing in the stock markets that could be playing out this year.

I thought this was quite a strong wording for someone who usually makes careful probability statements regarding different scenarios. BTW: He also takes on the cash-on-the-sidelines and money flowing into stocks nonsense once more.


im with rootless. manny throwing in the towel is probably a sign of the top.

with the previous two bubbles, nasdaq and housing, at least we (our economy) produced something, computers, routers, fiber optic equipment, then houses, and housing related stuff.

This time, weve restocked inventories, and banks took free govt money to buy assets. with the housing bubble, people were able to cashout their inflated houses to consume.

With the nasdaq, people got jobs with tech companies. this time the consumer has nothing, no wealth or jobs.

I think the bears give TPTB too much credit, or power. no one is bigger than the market, to borrow the line from Todd Harrison. Japan has tried to print and reflate, if it were possible, the Nikkei would be at 38,000. i dont know when the bear will re-emerge, i just dont think its possible to print our way back to s&p 1,400.


True DL, Japan didnt go as far, but Japans debt to gdp is at 200%  that debt level didnt pump up its assets or markets. we can certainly take on more debt, print more money, but at some point, it will stop working.

this is more for the previous thread about bullishness, malaise and retail sales. Peter Atwater at Minyanville brought up an interesting point about consumer behavior, mortgage delinquencies are higher, 14%, than credit card delinquenies, 6%. if youre not paying your mortgage and banks are not foreclosing, then youre probably spending some of that money at the mall.



Hussmans weekly probabilities usually are bearish and turn out to be wrong. He did call that last swoon nicely. The best call he ever made was Oct 17, 2007 as tops are so hard to call. The tone was much different than his usual bearish posts. He is fun to read.

The really interesting thing was a link he gave for the band OK Go

If you like that, check out their treadmill video.

[Mar 30, 2010] David Rosenberg The Stars Are Aligning For Something Really Big To Happen

This was from one of David Rosenberg's daily notes earlier in the week. (Thanks to PragCap for reminding us to run it)


    A good friend, and long-time reader, was kind enough to pass along these thoughts yesterday.  Basically, the stars are starting to align for something really big to happen.

    First, the Shanghai index peaked in August 2009 and had a secondary top in December 2009 (global demand slowing?).  Many emerging markets are all negative year to date.

    Second, gold peaked in the first week of December 2009 (and now breaking down) while the U.S. dollar index (the DXY) is breaking higher (Greece has not been resolved).

    Third, TIPs (ETF) peaked the first week of December 2009 (and just broke to a new four month low).

    Fourth, commodity price speaked in the first week of January and appear to be rolling over.  Head-and-shoulders top from October 2009 peak?

    Fifth, could we be in for a March peak in equities?  The NYSE new high list peaked six trading days ago.  Recall that a market correction followed in October of last year and January of 2010 following similar peak in new highs.

    Sixth, despite signs of economic cooling in Q1 (around 2.5% growth and half the Q4 pace) and lower inflation expectations, the 10-year Treasury note yield is ratcheting up (in a destabilizing fashion) and devoid of any bearish economic data (for a range of technical/fund flow reasons as was the case in the summer of 2007 we never said at the Grants conference in New York that it was going to be a straight line down).  But in technical lingo, it does look as though the yield is breaking out from a triangle since the December 31, 2009 yield peak go back to that period in December and January, 3.85% on the 10-year Treasury- note served at least three times to be major technical support a break of that this time around would mean some serious near-term trouble (the nearby high closing level was 3.98% back on June 10,2009).

Selected comments


@fatcat: "But the VIX is still down..."

"When you feel the safest is when you are most at risk" Samurai code

@joe poncakia:

You are not alone as I plowed into double short ETFs in late Feb after seeing break out from double bottom on TWM (Russell 2k) and higher highs and lows on QID (Nasdaq) and SDS (S&P). I was WRONG and what's worse I did not put 10% stop loss. Let's just say I got my buns kicked big time...

That said, I feel blow off is near and there is no reason why Russell 2k is up 18% in March (to date). This is sign of complacency and risk taking in financials since Russell 2k holds many smaller banks saddled with commercial and construction loans.

I keep on refreshing my memory of early 2000 and Sept/Oct of 2007 when sentiment was certainly rosy. I plan to stay put with 10% loss below current level. I bought more TWM at $20.20 yesterday and plan to buy more QID next week as I liked the trading patterns of Thrs and Fri. Just don't hold these short ETFs more than month or two.

Here is free and great TA site. Been using it since 2002 and up to 8 symbols are free.

www dot stockconsultant dot com


Rosie will be vindicated sooner than later.

You know you're near the blow off when even Barron's touts the "new" bull market on the cover page last week.

So what changed in last couple of weeks?

Is it really different this time?

Feels more like March of 2000 to me when only fools did not buy and valuation didn't matter. This time slew of negative economic realities don't matter either. Small investors chose not to participate on this rally and their hesitance to join the rally is a bad omen as the Wall St needs bagholders to distribute.

Some reality and facts from Comstock Partners:

r cohn:

This rally was and is completely dependent on the the zero interest policy of the FED.This policy actually is a negative interest rate policy.It creates huge distortions in investment and is already leading to the build up of bubbles in many areas.As long as this policy remains,there probably will be a bid under the markets.But it is inevitable that sometime in the future the Feds are going to have to be rational and stop bailing out everyone, as they are currently with this policy.


So whatever happened the debt binge crisis of late 2008? Were the debts paid off, defaulted or merely pushed to the future like resetting of the time bomb?

What should have occurred is QUICK albeit painful surgery to rid of the mountains of bad debt including bank failures as debt is either paid off or defaulted. Start fresh having flushed away the bad debt overhang via orderly BK towards fresh beginning with clean balance sheets.

What occurred was Chinese water torture and spoonfuls of sugary drug by extended reflating of the liquidity by the Fed, TARP and new bank accounting rules a year ago. Debts were "re-financed" using cheap liquidity from the Fed (ultimately us the taxpayers) and merely resetted the Debt Time Bomb to the future.

Good analogy is giving sobering drunk more alcohol to delay the terrible hangover as the Fed pumped more $ via printing press and trillions of Fed deficit (and growing) to delay the day of the reckoning. We the taxpayers owe $42k EACH if you divide the Fed deficit by US population. For what? Rescue fatcat bankers and idiots who speculated on real estate, etc.

Therefore, the economy will drag on mired by another liquidity trap as Fed can print and borrow so much and shit will hit the fan once interest rate goes up as there is limited amount of debt US can sell. Rise of interest rate combined with delayed debt time bombs and slow economy results in STAGFLATION.

Welcome to the reality...


@ObaMao: better for a day trader/speculator, but bad for the nation as a whole. Same old conservaturd sociopathy.


Rather than rehashing previous errors of Rosenberg, or Kass or Blodgett (internet stocks, Anyone?), or replaying the great bullish calls that some random noise generator such as Jim Cramer has made over the past 18 months, I'd much rather focus on issues of the moment:

  1. Seasonally, in February and March the economy and stockmarket are generally boosted by tax refunds to early filers, annual bonus payments to workers and by 401k and IRA inflows.
  2. April produces seasonal drag as late filers on average have to pay taxes rather than collect refunds.
  3. The large government "stimulus" package did boost economic activity in the second half of 2009 and will probably provide some boost in 1H 2010, though the impact is diminishing.
  4. At Jan 1, 2011 the capital gains tax rises from 15% to 20% as the Bush tax cuts expire. THAT is not fresh news and should have been completely discounted long ago. But it's not a positive.
  5. At Jan 1, 2013 the capital gains tax rises from 20% to 23.8% as the Obama Medicare funding plan kicks in. THAT is new information that has to be negative, but maybe it's far enough out there that it doesn't matter, yet.
  6. In the next couple of quarters, earnings and cash flow reported by corporations will be very good - I think the top line will still suck, but the bottom line will be flush. Now, has that been completely or mostly discounted by the stock market going up all these weeks in a row and something like 9 of the past 12 or 13 days? Nobody knows.

Place your bets


@Anarchus: "6. In the next couple of quarters, earnings and cash flow reported by corporations will be very good - I think the top line will still suck, but the bottom line will be flush."

My thoughts are that the market already priced in very good Q1 numbers and good ol buy on rumour sell on news might await us in April.

Recall that most of the goosed up earnings in 2009 were result of ONE time cost cutting (reduce headcounts and inventories). Only exception were the fatcat banks who were given "get out of jail" card with accounting change a year ago and the Fed loaning them cheap money at 0.25% and they buy the Treasuries yielding 2.5% or rip off consumers with 20% credit card interest rate.

Comparison beyond Q2 might be challenging unless the companies show top line revenue and profit growth. Sure few companies will show organic growth but perhaps not in the light of possible second dip recession most economists discount (recall that same economists didn't foresee fall of 2008 and bottom of March 2009 either).

The market in last month has been "giddy" in false bravado. Russell 2k consisting of smaller and riskier companies advanced 18% in March alone and more than Dow, S&P and Nasdaq. Do I sense froth here?

Lastly, the small investors are gloomy with high unemployment and poor housing market and are leery of this rally. Sounds like many many investors chose not to chase the market. Alas as market needs fuel to go up and "dumb" money may not come in. In the mean time Wall St and pundits are screaming BUY NOW as they need to pass the hot potato to next bagholders.


@Anarchus: Interesting. Thanks.

"the bottom line will be flush"

This suggests there shouldn't be much pullback, if any, in those companies.


"It was the best advice and the earliest advice. I was working at a brokerage house one summer while in college, and one of the guys who was another runner at the firm delivering securities said, "Let me tell you all you need to know about the investment business." I said, "What's that?" He said, "Nobody knows nuthin'." That sounds cynical, but we don't know what the markets hold, certainly not in the short run. We have no idea." - John Bogle -


Clusterstock would be doing their readers a favor if every time a guru like Rosenberg made a big pronouncement they issued a scorecard of major past predictions.

Clusterstock gives a lot of attention to the latest views of Rosenberg, Faber (Faber is far, far better than Rosenberg), and a handful of other star gurus. But you never have stories on the views of, say, Nadeem Walayat or Gary Kaltbaum. Why not? They have good track records. They're not always right, of course. But they're better than Rosenberg and some of the others regularly featured on Clusterstock.

Andrew S

I agree der gekko. Same with Rhoubini. Got it right once (in a massive way) and has stayed bearish. I'd rather look at what people with money are doing (Buffett, Cummings, Gayner, Berkowitz etc). I'd like to piggy back on their great ideas over the next few decades.

We are still in the great de-leveraging period. Funamentals need to be looked at differently.

I originally read Rosie's piece on ZH and the first thing I thought of was that he has the whole China US analysis backward. We are their leading indicator, they are not ours. Europe's comparative weakness to the rest of the recovering economies is holding China back. When Europe pulls out of these issues China will rebound market wise. There is a lot of uncertainty in Europe. Instead of bailing out AIG, they bail out Greece. And you can't come up with a "Resolution Trust." All countries are 'too big to fail' in Europe. Kind of like California and New York are 'too big to fail', but we get the benefit of watching their struggles, and can hopefully learn from them. A good comparison was following Sweden's example and not Japan's.

As for the US, there are great companies that have long track records of great performance that now have most likely had their competitive landscape completely altered. EG GS JPM MS do not have Lehman or Bear to compete with. And a severely handicapped C and BAC (although I do think BAC and C possess great investment opportunities since they will create unique opportunities since there will probably be a lot of spinning off in the coming years). Game changing companies like Facebook will be going public in the coming years.

And the fact that blogs like this and SlopeofHope, ZeroHedge etc) are all totally bear also makes me bullish.

Transformations are happening everywhere: Energy, Environment ,Media, Healthcare. This will not only create new jobs but entirely new industries.

And isn't the fact that Europe is having such issues (PIIGS) keeping the dollar strong? And because of that Bernanke can stay so loose and allow our economy to recover by making borrowing cheap. Thanks Europe, you saved our currency by having problems and helped let our recovery gain foothold. And allowed our American companies to regain the competitive leverage above their European counterparts. If we start cranking out great jobs reports, we will be able to tighten without it being a huge shock to the system.


for fuck's sake! seriously - how consistently fucking wrong does some one need to be to not be taken seriously anymore????????????

Rosenberg, Shilling, Roubini, Taleb, Mauldin, Hussman, Whitney, Grantham, Prechter, Faber, Schiffer, Blodget et al.????????????????????????????????????????????????????????????????????


You Can't Trust the Experts with Your Investments Investment Experts Make You Poor

In a complex world we increasingly have to rely on experts such as lawyers, doctors and scientists to guide us. We expect them to get things right most of the time and we sue the hell out of them if they don't. In the world of investment, though, we get something different. They get it wrong most of the time, are never held accountable and generally argue that they actually didn't get it wrong anyway and, if they did, it wasn't their fault. Meanwhile people listen to these "experts", take their advice, almost hero worship them at times and mostly get poorer while they make money at our expense. Who are the smart ones in this relationship?

Political Misjudgement

Remarkably there don't seem to be any studies carried out on misjudgement by financial experts but there is a set of research covering a similar area. It's been undertaken over two decades by Philip Tetlock (1) on the subject of political misjudgement. His results demonstrate a set of pervasive human errors that won't come as any surprise to behavioural psychologists and are uncannily similar to those we see in investment circles.

Predictions in politics and investment are closely related anyway both are complex areas, with no easily predictable outcomes, and are subject to unexpected events. So, just as the pundits were predicting South African apartheid to be unassailable it collapsed. Just as investment analysts were extrapolating dotcom earnings to the stars the sky fell in. Just as the hegemony of the Soviet Union over Eastern Europe appeared unshakable the Berlin Wall came down.

Just as collateralised subprime mortgage lenders were forecasting ever rising earnings the world's financial system imploded. It's like any system with human beings as part of its wiring short-term prediction isn't so much difficult as impossible. We're the grit in the gears.

Systematically Wrong Expertise

What interested Tetlock wasn't, necessarily, that the experts got things wrong. It was that they got things wrong a lot and that they got things wrong in a systematic and predictable fashion. Do you find any of his conclusions familiar?

1. Experts weren't any better at predicting outcomes than non-experts . If anything they were worse. It turns out that a little extra knowledge might improve forecasting but lots make it worse. Back to the monkey with its dartboard.

2. The more famous the forecaster the more wrong their predictions. High profile commentators are expected to provide headlines consensus views are of no interest, so it's in their interests to be controversial rather than right.

3. Experts assessed new information differently depending on whether it supported their views or not. They were quick to accept new data that backed up their theories but applied much higher levels of proof to anything which opposed them. So not very expert at all, really.

4. Mostly, experts failed to remember their predictions they claimed, with hindsight, to predict much more successfully than they actually did. When right crow loudly, when wrong deny everything.

The experts came up with lots of explanations for why they were so bad at prediction including that they were nearly right, but for unforeseen last-minute circumstances that couldn't possibly have been predicted. Which sort of suggests that prediction is impossible and we shouldn't bother but, strangely, none of them pointed that out. Best of all they sometimes simply denied they'd got things wrong and then got very cross indeed when shown that they had.

Consistency and Commitment Tendency

Many of these mistakes were predictable. In his speech on The Psychology of Human Misjudgement to Harvard Law School in 1995 Charlie Munger covered a whole range of such issues. High on his list was bias from consistency and commitment tendency: ... the human mind is a lot like the human egg, and the human egg has a shut-off device. When one sperm gets in, it shuts down so the next one can't get in. The human mind has a big tendency of the same sort.

Applied to investment experts these traits ought to be familiar to us. They're dealing with a chaotic world in which short-term events are simply unpredictable. Just as political experts can't really know what the world will throw at them, neither can investment experts. The variables are too great, the possibilities too difficult to judge, the complexities too mindbogglingly complicated to predict.

Judgement Driven Experts Aren't Very Expert

Unfortunately we're trained to listen and believe in experts. If you've got a gut ache you go to the doctor. If you need to sue someone you go to a lawyer. And if we want to invest we go to an investment advisor. Only an investment advisor isn't a proof driven expert like a doctor or a lawyer. They're a judgement driven expert like a political advisor.

Let's simplify this. They're guessing. With our money.

Political advice is important mainly when given to politicians who, heaven help us, we hope are well enough trained to tell the difference between fact and judgement. Well, some of the time, anyway. Hopefully.

Investment advice, though, is doled out to us, the masses, who aren't trained at all. Mostly we can't tell the difference between someone who really knows what they're talking about and someone who doesn't. Usually the experts can't either.

Cautious Experts are Best but the Right Experts may be Wrong

Tetlock also showed that the best judgement was exhibited by the experts who were least certain. They drew on lots of different data sources, weighed their evidence carefully and came to cautious conclusions. Unfortunately these are likely to be the least popular experts in public circles. The media doesn't like caution, it deals in certainty and the fact that yesterday's certainty is different from today's matters not at all. So the most prominent investment commentators are the least cautious and likely to be the most wrong. Even more difficult is that experts may be wrong today and right tomorrow. Tetlock has shown that what appear at one stage to be incorrect judgements may turn out to be correct so, for example, an expert who suggested that the Soviet Union would implode by 1985 looked stupid in 1986 but brilliant in 1990. Similarly you'd have looked an idiot for recommending Amazon in 2000, but pretty smart in 2005.

In reverse, Tetlock makes the point in a historical context:

We should recall that the same Winston Churchill who, as early as 1933, was uncannily correct about Hitler's aspirations attributed almost equally malign motives to Gandhi and his independence movement. In short, good judgement may sometimes be the product of fortuitous coincidences of slowly changing preconceptions in a rapidly changing world. Or, to paraphrase, even a stopped clock is right twice a day.

Trust the Crowd Not the Expert

We can't rely on the experts who advise us on our investments. It's not that they don't know, it's that they can't know. We can't distinguish between the rare real thing who'll make us rich and the rest who won't. Meanwhile today's investment superstar may be tomorrow's subprime black hole. Almost the entire world of mass market investment is built on experts but if we can't rely on their judgements then we need to operate differently. If you stood a better than one in two chance of your doctor getting a diagnosis wrong you wouldn't take the first opinion offered. Yet as far back as 1906 Francis Galton noted that the averaged guesses of a crowd estimating the weight of an ox gave a result uncannily close to the correct one even though the majority of guesses were way off. For most of us, in the random world of investment, the wisdom of crowds may be as good as it gets.


"In every bear market I have seen, the doomsayers concoct a statistical argument that the glory days for stocks are over, because a flood of selling by brutalized investors is inevitable, and the buyers have no money.

This case always seems most compelling close to the end of the declines and is always marked by a wave of media pronouncements.

Remember Business Week's "The Death of Equities" cover in 1980?

 Recent covers from Business Week and The Economist have had similarly dire alarms. Investors are licking their wounds. The peak-to-trough decline in the Dow Jones industrial average was 42.3%, the second worst since the Depression.

The angle of descent has never been matched, and volatility as measured by the VIX index is at record levels. The Dow is 32% below its 200-day moving average, the widest spread since November 1937. The bottom of a bear market by definition has to be the point of maximum bearishness, and I think we're there. For the market to go up, the news doesn't have to be good. It just has to be less bad than what has already been discounted." Barton Biggs November 2008


"I hear the refrain that the market is ahead of itself. In reality the market is always ahead of itself. That is, after all, its job. In recoveries the negative case is always more compelling, articulate and reasonable than the positive one, because we can see and focus on the bad news. The market, meanwhile, is looking forward and over the horizon." - Laszlo Birinyi

Birinyi's market law #2: "The negative case is always more compelling, articulate, and reasonable because it looks at the present, the obvious and that which is quantifiable." The market, meanwhile, looks ahead and is focused on the future but does not necessarily share its conclusions with us.


I think Rosie is great for constantly being on the watch for the negative and the positive every day - sifting the evidence and looking for the one sign that might tip the markets - the last grain of sand that starts the avalanche that Taleb talks about.

Rosie's list above on negatives building up is great, and I see it as setting the stage.

The market is getting very jittery and volumes are the thinnest ever.

However although it could be one single grain of sand that is the trigger one day (several likely triggers have been mentioned by others here) it could also be something big like a sudden geo-political event, or a planned perfectly obvious event that we have have become blind to in all the noise, and forgotten about.

Some trigger events have a date set to them, like an election, a meeting, a UN resolution etc. But others like a sudden war, or an endogenous shock within the system like Northern Rock, Bear Stearns, Lehman etc come as a surprise to all who are not rank insiders or have been sitting analysing for a long time.

If one thinks about what caused the last crash, there were several factors that were all there under the surface. While everything was normal hardly anyone would believe they were actually a problem. You had Greenspan's low interest rates from 2001 which allowed an unprecendented expansion of credit. Then you had the bank difficulties after the sub-prime toxic assets made interbank lending impossible and the resulting weaknesses in the major banks.

Today those banks are largely owned by the government but still have toxic assets on their books. The Fed has pumped in money wildly to make up for the $30tr implosion in wealth which has in turn artificially floated the stock market.

But have the fundamental causes of the last crash been eliminated?

 Let's think about it for a moment.

So what is the trigger going to be? There could be many. We can't have advance warning of sudden geo-political events or sudden endogenous events, but there are some known events coming up, just as Roubini warned about the housing defaults coming up the first time around and no-one listened.

What is the one obvious, scheduled event that could be the big trigger and that is staring us in the face? I think it is this: Housing tax credits have been maintaining a fragile semi-stabliity on the housing market. But that program will cease in three days' time. The administration is working around the clock on proposals for writing down mortgage capital for those under water but it will be implemented way too late to take widespread effect in April.

When the housing data for April is released in mid-May and is very negative which it will be, that will be a very big trigger. People will say 'Here we go again'.

I think Friday 21May at the latest will be a killer. I intend to be completely out of the market in all sectors then. I noted last time how everything fell, even gold!

But what do you think?


You guys are trading the way you think the market *ought* to be moving, instead of the way it's *actually* moving. That's why you're losing your asses.

Remember, the market can stay irrational longer than you can stay solvent...


I think one of the major keys to making money investing is understanding that OFTEN for the short term or even a few years, market performance and the economy have nothing to do with each other.

I was long stocks april 2009 and have done very well, but I am under no illusion that the economy is healing or adding jobs, or doing anything good for the average guy or gal out there. Stocks can rally in a bad economy. Stocks have soared as unemployment went to 10%.

Right now I am very cautious and lean towards the theory that Free money from the FED is a huge driver of this, but you can whine about it, or make money on it. I choose to make money on it, while also understanding that it is a mirage created by Free money and irresponsible government spending. It will end at some point, and at that point, I AM OUT:)

[Mar 27, 2010] Not Necessarily the Greatest Fools

Financial Armageddon

As someone who has been studying markets for more than two decades and who has a natural predilection for betting against the crowd, I have some sympathy for the popular view that share prices don't hit their peak until the individual investor is "all in."

That said, the assumption that this is a necessary prerequisite for a contrarian reversal of fortunes probably owes much to the fact that we have lived through one of the greatest long-term bull markets of all time.

During that span, the percentage of Americans who own equities, either directly or indirectly, has jumped from 13 percent in 1980 to 46 percent as of 2008, a nearly three-fold increase which helps explain why the perspectives and actions of the little guy (or gal) have come to mean a lot.

But as the past three years or so has taught us, history does not just include the most recent decade or the golden era that began in the early-1980s. Before then, as Charles Hugh Smith, publisher of the Of Two Minds blog notes in "When Belief in the System Fades, Stock Market Version," there were times when individual investors were not necessarily the greatest fools of their day:

"When belief in the system fades" the Great Middle Middle Class opts out: in this case, of the fraudulent, manipulated stock market.

Astute reader John M. recently offered this commentary on the news that Americans pulled money out of stock mutual funds in 2009, despite the glorious "nascent recovery rally" engineered by the Fed and Wall Street. That item can be found in (March 19, 2010).

According to this article, How Greed and Fear Kill Returns (NY Times), American investors put an estimated $506 billion into mutual funds in the past year, of which $409 billion went into bond funds. My guess is the balance went into overseas funds, currency/FX (foreign exchange) funds or commodity (oil, gold, etc.) funds.

The writer concluded, "The point is to recognize that, in aggregate, investors tend to be very bad at timing the market." Or in other words, avoiding stocks is simple the result of "dumb money/investors" doing the opposite of what they should have done to profit handsomely.

John M. offers a historical perspective on the issue:

I enjoyed your recent article about redemptions from equity mutual funds. I thought I'd provide a couple of historical examples where Americans redeemed more from funds than they put in, and significant bear markets followed shortly afterward.

At the top of the Dow's bull market in fall 1976 (the Dow had rallied 75% from the 1974 lows), Americans were pulling money out of equity mutual funds at a record rate. This was followed by a 27% drop in the Dow in 1977-78. Here's a news article about it from '76:

archive article 1.

Here's another example, from 1972. Americans pulled more money out of equity funds in '72 than they put in, and this was followed by a 50% bear market in 1973-74:

archive article 2.

Actually, starting in 1972, there were more outflows than inflows in equity mutual funds throughout the 70s, and the Dow went nowhere between 1972 and 1982.

A counter-example would be 1988, when Americans pulled more out of equity funds than they put in due to jitters from the '87 crash, but the market continued to do well in 1989-99.

So it's not really a definitive indicator, but it's interesting that a similar pattern was developing in the early 70s with mutual fund inflows/outflows as the public slowly became disenchanted with stocks after the go-go 50s and 60s, and the market went sideways for 10 years from '72-'82.

Thank you, John, for a timely reminder about the last "Lost Decade." Maybe retail investors weren't so dumb after all.

Within the context of the Survival+ analysis, I think the investing public's distrust of the stock market is merely one manifestation of a much larger and more powerful cultural trend that I call When Belief in the System Fades (March 12, 2008):

In a way, a belief in the value, transparency, trust and reciprocity of the System is like a religious belief. The converts, the true believers, are the ones who work like crazy for the company, or the Force or the firm. And when the veil of illusion is tugged from their eyes, then the Believer does a reversal, and becomes a devout non-believer in the System. He or she drops out, moves to a lower position, or "retires" to some lower level of employment.

The belief that the stock market is trustworthy and transparent is also like a religious faith. Americans have lost that "religion"--and their faith in the trustworthiness of the entire fraudulent doomed carcass of American finance.

Hapless investors saw trillions of dollars of their hard-earned wealth destroyed in the dot-com meltdown, and they came to learn that insiders had distributed their shares during the run-up, leaving the investing public as bagholders when that bubble collapsed.

Their faith in the system was only shaken, however, and they dutifully piled back into stocks in the 2003-2007 time period, as the "smart money" bet on a collapse of the housing/credit bubble and on the fall of all the Wall Street firms which had profited from selling the fraudulent MBS and derivatives generated by the housing bubble.

Twice burned, trice shy. Now that American retail investors lost 40+% of their wealth in the 2008 stock meltdown ("global financial crisis"), they finally "get it:" Wall Street is a machine run on embezzlement, fraud, willful obscurity in service to information asymmetry, extreme leverage, predation, disinformation and malignant malinvestments in parastic speculations with no value except transactional churn.

Yes, investing in long-term bonds sure looks like a bad bet, as interest rates are sure to rise, despite the prognostications of Fed Chairman Ben Bernanke ("Away, tides! I speak for the mighty Federal Reserve!"). But "belief in the system has faded" and it won't return until the system is cleaned out of scum, fraud, obscurity and all the structural rot at the very heart of a predatory American financial system (and by extension, its political system as well).

This aligns with the public's reluctant grasp of the political and financial rot at the center of the U.S. Empire in the 1970s. Watergate was simply a bungled offshoot of an entire political and financial system built on disinformation, propaganda, manipulation, and criminal activities pursued in the name of "national security."

A new "improved" credit bubble took hold in 1982, and that expansionary-credit-based prosperity based on cheap oil lasted a good 25 years (1982-2007). But now the bubbles have all been blown and the bubble-blowing elixir (exponential expansion of credit) has lost its magic. To cover up the endgame, the Powers That Be are reduced to manipulation and propaganda. The public senses that the manipulations are not sustainable or credible, and so they once again reluctantly conclude that the predatory system does not serve their best interests.

Click here to read the rest.

Small Town Gal

Now there is an analysis I can believe in. A productive, market-based society needs a couple of things to thrive, at a minimum: a high level of mutual trust and a strong "rule of law" underpinning that can mediate conflicts and enforce agreements/rules when private attempts fail. The past decade has been all about undermining both -- but the breakdown of the trust component has been really achieved in the past three years.

And it's not coming back any time soon. I'm not in the market, and I'm not coming back into the market. Know your counter-parties is my new motto.


[Mar 27, 2010]   PIMCO Tells Investors To Take Advantage Of Tight Credit Spreads And Sell

Tyler Durden:

The U.S. economys recent growth has been underpinned significantly by government policy, yet this short-term cyclical support will likely fade in the second half of 2010. As a result, investors should take advantage of the tighter credit spreads and focus on de-risking their portfolios in order to prepare for the increasing long-term secular headwinds stemming from the growing deterioration in public sector balance sheets in many developed economies.

Mark Kiesel, PIMCO Managing Director

Ned Zeppelin

on Fri, 03/26/2010 - 13:52

Rates go up, bonds go down.  How hard is this? Freaking genius. Why would rates go up, even as there are no inflationary pressures from the moribund private sector? The ever-increasing debt of the sovereigns, which has to be issued and has to be rolled.  Equities? Rally is based solely on QE and stimulus.  Say night-night.

[Mar 27, 2010] Weekly Chartology zero hedge

Sounds familiar. Does GS still employ this old stupid bullish girl who was the queen of Dot com bubble, forgot her name... ?

Goldman's S&P forecast summary:

Our top-down EPS forecasts of $76 and $90 for 2010 and 2011 reflect +33% and +20% growth, respectively. Our pre-provision and write-down EPS forecasts are $81 for 2010 and $91 for 2011. Bottom-up consensus forecasts a 38% increase in 2010 to $79, and a 20% increase in 2011 to $95.

This ain't nothing. Later we will show how squid now anticipates an S&P of 2,000 courtesy of the madman's printers.

[Mar 27, 2010] On the Rise of Junk By Barry Ritholtz

Mad Hatters Tea Party in the Markets? WHO KNOWS!
March 26, 2010

From an unnamed investing buddy of Bill Fleckenstein:

A final note regarding the rise of junk recently. When junk takes off EARLY in a new uptrend, as it did back in April of LAST year, its a bullish sign, indicating a revived willingness to assume risk.

HOWEVER, when the junk takes off AFTER a well-recognized up trend, it often suggests slow learners are coming to the party trying to play catch-up. This usually accompanies a big hot-new-issue boom and THAT phase ALWAYS marks the end of all bull markets.

We dont have that new-issue fever or a rampant take-over fever suggesting a major top but there are plenty of warnings that a correction could hit at any moment and all it would take is some unanticipated news event.

Selected Comments
  1.  BlackSquirrel Says:

    I first have to say that Im a long-time reader but a first-time post:

    My husband, who does not follow the markets (other than what he sees in the headlines ) told me last night that a friend of his was recently telling him what a great buy AAPL is. None of his friends have any deep knowledge or understanding of the markets . Although AAPL is a blue chip company (not junk), I took it as a sign that possibly the greater fools theory is starting to work its magic. My husband lamented that the stock is over $200 and will never go back down (as though he missed a once-in-a-lifetime chance though I dont know how he would even made the purchase since he has never executed a trade in his life).

  2. TakBak04:

    @BlackSquirrel Says:
    March 26th, 2010 at 5:02 pm

    I first have to say that Im a long-time reader but a first-time post:

    My husband, who does not follow the markets (other than what he sees in the headlines ) told me last night that a friend of his was recently telling him what a great buy AAPL is. None of his friends have any deep knowledge or understanding of the markets . Although AAPL is a blue chip company (not junk), I took it as a sign that possibly the greater fools theory is starting to work its magic. My husband lamented that the stock is over $200 and will never go back down (as though he missed a once-in-a-lifetime chance though I dont know how he would even made the purchase since he has never executed a trade in his life).

    I remember back in early 1999 where we went out to dinner at our favorite Pizza Fiday Night family restaurant and the next table over was a familyGrandma/Grandpa and Children with the Grandchildren all there for the Fr. Night out. Suddenly a loud voice piped upfrom what appeared to be the son of the older couple thereand he went into an argument about why it was such a great time to invest and why the older folks there (assuming they were grandparents on his side or wifes of the children there) should be preparing for the future by giving HIM money to invest some big bucks in EMC the darling stock at that time and that he could make a Fortune with this stock. We were choking down our Pizza as voyeurs of the conversation at that point. (But, caveatwe are conservative investors)

    A year later and the Nasdaq High Flying went like a kite without windto the GROUND.

    APPLE! Its a good product. Who could tell you whether its over or under valued at this point. Theyve got the I-Pad coming outBUTthere are competitors. Price Range in these hard times for common folks? Who knows

    Its just amazing that the BUZZ still lives. Lots of Optimists still out thereand thats a good thing to balance us Pessimists.

  3.  dead hobo:

    BlackSquirrel Says:
    March 26th, 2010 at 5:02 pm

    My husband lamented that the stock is over $200 and will never go back down (as though he missed a once-in-a-lifetime chance though I dont know how he would even made the purchase since he has never executed a trade in his life).


    Thank you for this post!! If you are being truthful, then this is an excellent sign that Fed engineered and commissioned sales pundit fortified rally is kaput. On 3-31, the last of the Fed fuel gets used up. Now real money will be required to keep the pump alive. Fat chance.

[Mar 27, 2010] Unofficial Problem Bank List increases to 684

Thousand insolvent banks in the middle of "recovery". Hello Japan...

This is an unofficial list of Problem Banks compiled only from public sources. Changes and comments from surferdude808:

As anticipated last week, the FDIC released its enforcement actions for February, which contributed to major changes in the Unofficial Problem Bank List. The list includes 684 institutions with aggregate assets of $351.2 billion, up from 653 institutions with assets of $332 billion last week.

Additions are 35 institutions with assets of $20.3 billion while 4 institutions with assets of $1 billion were removed. Removals include the three failures this week -- Desert Hills Bank ($497 million), Unity National Bank ($301 million), and Key West Bank ($88 million), and one action termination against Citizens Bank, New Tazewell, TN ($150 million).

Most notable among the 35 additions are Citizens Bank, Flint, MI ($11.3 billion Ticker: CRBC); Mile High Banks, Longmont, CO ($1.3 billion); United Security Bank, Fresno, CA ($694 million Ticker: UBFO); First Central Savings Bank, Glen Cove, NY ($683 million); and Finance Factors, Ltd., Honolulu, HI ($654 million).

[Mar 26, 2010] JP Morgan, Lehman, UBS Alleged as Conspring to Cheat Municipalities on Investments

This was not just a happenstance gang rape by a bunch of lusty wall street perverts that can be explained away as; all had a hand in it. "

As The Fed Runs Out Of Low-Rate Options, The UST Is Likely Considering An Orchestrated Move Of Risky Asset Into Bills

Submitted by Tyler Durden on 03/24/2010 15:16 -0500

A recent detailed analysis of the composition of US Federal debt has made us question just how much dry powder the Fed has left to manipulate interest rates. We ignore all tangential issues such as what the end of QE will mean on MBS, and by implication 10 Year, rates, and focus purely on the structural composition of the curve, which leads us to some very troubling observations. In summary: the Treasury is running out of time in which to orchestrate a massive rush away from risky assets into the sweet spot for UST interest rates: risk-free Bill holdings. In other words, a stock market crash is long-overdue if the Treasury does not want to face a major spike in rates and drop in Treasury demand in the immediate future.

First, and this is no surprise to anyone, the US is on collision course with an unmitigated funding disaster. As the chart below demonstrates, the US has been issuing roughly $147 billion a month for the past 17 months, in a period in which total US Federal debt has increased from $10 trillion to $12.6 trillion. With recently passed healthcare reform, look for the red line indicating total debt to go increasingly exponential.


Like we said, nothing surprising here as we spend ourselves into bankruptcy. The only reason why this has not escalated yet has been the Fed's ability to keep rates low on the short end, translating into modest low long-end rates as well, despite the curve being at record wides. The progression over time of average interest rates by Bills, Notes and Bonds, as presented by Treasury Direct, is shown below. This should also not come as much of a surprise, as it has been well known that the Fed's only prerogative in the past two years has been to buy every yielding security in sight to keep rates low.

Now where it gets quite interesting is an analysis of the composition of the total components of the debt, on a relative basis. The chart below demonstrates the amount of various pieces of debt by tenor as well as the inclusion of non-marketable debt and trust funds held by the Treasury.

Recreating the chart above, but focusing exclusively on Marketable debt, yields the following chart:

We wrote recently that while China may or may not be bailing on US debt, one thing that is certain is that it is not rolling, and in fact may well be selling, its Bill exposure, i.e., short-term Treasuries that mature within a year.

Indeed, the recent scramble away from Bills is confirmed by the prior two charts which indicate that the portion of Bills as percentage of total marketable debt has fallen from 30.1% in February 2009 to just 21.8% in February 2010. The reason for this is that the Fed had been previously posturing that it is attempting to push the average debt maturity from 4 to 6 years and over. In order to do this the Fed needs to issue less net Bills. And therein lies the rub.

As rates have fallen, the average interest on Bills has dropped from 1.4% in October to essentially zero over the past several months (0.2% to be precise). In effect, the Treasury gets the benefit of holding $1.7 trillion in debt which pays no interest. Yet as its rolls out of Bills, its ability to take the implicit benefit of the Fed's ZIRP disappears. As the Fed's monetary policy impacts most of the the interest rate on Bills, with Bonds and Notes much more a function of medium- and long-term inflation/deflation expectations (and with the yield curve at record levels, the expectations see some less than smooth sailing down the line), as the Treasury rolls down its Bill holdings, as it has been doing, the Fed's ability to influence rates is getting progressively less and less. Couple this with an ever increasing record amount of total US debt, and you have a recipe for disaster, or as we call it, the curve Black Swan.

In fact this can be seen in the chart below: a comparison of average blended interest rates, and overall (accrued) implied monthly interest, demonstrates that even as the blended interest rate has dropped to an all time low of 2.57%, the actual annualized cash out on marketable debt (excluding the Trust Fund shell game), has returned to levels last seen in December 2008, of about $204 billion per month. The last time the annualized interest was this high, the actual interest rate was 3.2%, or 60 bps higher! Furthermore, even as rates have been declining, actual interest expense has been increasing consistently since May of 200 (and all this even as the actual blended interest rate is at an inflection point: it will likely trough in the mid 2.5% range as the low hanging Bill fruit has been plucked away).

The reason for this: 1) rates on Bills can only go 0.2% lower before hitting zero, and 2) nobody wants Bills anymore. China certainly has been selling Bills, and US citizens, balking at money market rates, are definitely not going to lock their money into Bills which yield the same if not less. The Treasury's natural response - bringing back the SFP 56-Day Cash Management Bills back. Today, the Treasury auctioned off the 5th $25 billion SFP chunk, on its way to filling up the $200 billion CMB tank full. Yet this is merely a stop-gap measure, and it is responsible for the slight bump higher in February Bill holdings compared to January. Alas, the Treasury will need to generate wholesale  interest for Bills in some way in the near future, or else it will drown itself in the vicious cycle combination of increasing interest payments pushing rates higher, etc. And what creates a scramble for Bills better than anything?

Why a massive market crash of course.

Are we predicting one will happen? Of course not; in this market what is expected to happen is that last thing that will happen. We merely point out the logic and what the empirical evidence is demonstrating. Either the Treasury will need to expand the SFP program to far beyond the $200 billion cap, or it will need to get rates on Notes and Bills even lower at a time when the broader market is already expecting a rise in Rates. And in the meantime, it will continue issuing roughly $150-200 billion in debt each and every month to fund in increasingly bankrupt government.

What we can predict with certainty, is that the Treasury is on an inevitable collision course with insolvency, courtesy of a government run amok. And absent a major shift in capital out of risky assets into risk-free equivalents, it is going to get increasingly more difficult to control the runaway beast of rabid and uncontrollable deficit spending.

by nope-1004
on Wed, 03/24/2010 - 15:33


Excellent piece, Tyler.  We need to send the fuckers to prison.  This country is being run into the ground, coverups and corporate hand holding run rampant.

Geithner and Bernanke need to go to prison.

Obama is a one term loser - and that's change I can believe in.  The ultimate irony is the passed health CARE bill will turn out to be the straw that breaks this country's back, resulting in health CHAOS.


by trav7777
on Wed, 03/24/2010 - 15:32


Can't see a market crash.

To have one now would go on over the course of the next year and be fatal to the incumbent party, Wall Street, and everybody else.

If QE ends = spike in rates and funding crisis, then QE won't end.

Look, we were dead and on our way out in late 08-09, and QE revived the corpse.  The economy, no, but the balance sheet imaginary stuff, yes.  Emphatically, yes.  These guys can't see real economics, they only understand balance sheet BS.


by Bonesetter Brown
on Wed, 03/24/2010 - 15:51


It's about the lesser of available evils.  Stock market crash much better outcome than Treasury interest rates breaking from their mooring.

On the political front, I gotta believe Obama & Rahm are hoping the Republicans take one of the two houses.  Makes it so much easier in 2012.


[Mar 23, 2010]  Waiting for the Next Inflection PointBy Barry Ritholtz

March 23, 2010

What are the pros doing?

Ive been speaking with various institutional investors, and I can tell you there is little in the way of uniformity of thought. Here we are, up 70% or so from the lows of over a year ago, and there is no consensus which is probably a good thing.

What are they thinking about? The health care bill, financial reform, the federal deficit, tax policy, a bubble in china, hyper-inflation, structural unemployment, another lost decade, and even demographics, their concerns are many and varied.

Their investment postures are even more varied. I can oversimplify them into one of five buckets

1) All In: They caught the bottom, or jumped in not much after it. They have been long and strong the whole run. They see no end in sight. Some are leveraged, some used options.  My estimate: About 10% of pros fall into this camp.

2) Not-Too-Late: They joined the party later in the rally, and are still carrying some cash (10-20%) but not excessive amounts. They are not sure why we have been going higher, but feel they must participate. (About 20% of pros)

3) Reluctantly, Partially Invested: The group that originally fought the rally, but honored their stop loss discipline to flip from short to long around June of last year (after the pullback reversed). They are a combination of Global Macro traders and Long/Short funds who hate this environment, along with Trend followers who dont want to fight the tape. They are carrying too much cash from  20% to as much as 50%. Many are looking for the next opportunity to get short. (About 30%)

4) Bought It, Sold It, Waiting for Clarity: This group had a very good 2009, but did not want to overstay their welcome. They hit the bid near year end, and took huge performance fees. They moved aggressively to cash   50%+ and have dabbled on the short side. They are waiting for the next inflection point to redeploy capital in either direction. (~20%)

5) Missed it Totally, Waiting for Vindication:  The structural economic problems and Unconscionable Federal Reserve actions have kept this group out of the markets. They are awaiting the next leg down, a retest of the lows, and then a break even lower. They are well stocked with Puts, bottled water, and MREs. This was a bigger cohort, but investor pressure and stress have reduced their numbers.  (Down to less than 5% of hedge funds)

Thats about 85%, as there are others who simply dont fall neatly into one of these buckets.

Barry Ritholtz Says:

March 23rd, 2010 at 7:39 am
There are caveats with this, of course these are only rough numbers, and do not represent a true scientific poll. These are not a valid statistical sample, etc.

And, they are only my anecdotal guesstimates, based on friends, colleagues, clients, etc.

perra Says:

March 23rd, 2010 at 7:39 am
Thank you Barry! A very enlightening article for those of us who have no clue about what institutional investors think and do.

Wall Street is very forgiving if you are allowed to belong to category #5 and still have a job / money to manage. OK, the group is small, but I still dont understand how you think if you totally missed the move from March until now. I assume these hedge funds wont survive.

perra Says:

March 23rd, 2010 at 7:43 am
Barry, this may be a naive question, but to which group(s) do the people whose opinions and past performance you respect the most belong?


BR: The trades that were right this time might not be next time using the same approaches.

So the guys whose work i respect are spread across all 5 buckets I watch their methodologies, not necessarily the short term results (though its hard to ignore those).

Andy T Says:

March 23rd, 2010 at 7:45 am
Thanks for the synopsis BR.

Theres probably another section as well.those that followed Warren B.s advice and bought stocks in Oct 2009.held long during the the last power pukefest and are now very happy to see their holdings above water.

wunsacon Says:

March 23rd, 2010 at 7:55 am
Im in group 4, am angry about not being in 1, and think group 5 is where Ill eventually be.

YY Says:

March 23rd, 2010 at 8:29 am
Great post BR, it explains somewhat the vanishing volume, since all but 10% are committed longs and they are probably leveraged to the hilt by now.

keithpiccirillo Says:

March 23rd, 2010 at 8:50 am
Hussman would clearly be a three, seems like the place to be.

cognos Says:

March 23rd, 2010 at 8:54 am
This is a good post.

Id like to see more dimensions fixed income vs equities, and then low risk versus high risk. Both the fixed-income and the equities high risk buckets did very well. With HY credit and other bonds paying 50-100% over the past year. A lot of the large institutional contacts I have were very focused on large allocations to HY/credit space 1-yr ago.

Still, its only logical that the crisis was a liquidation / raise cash event. Which means naturally large pools of risk aversion have been earning 0% on cash. Others have chosen to pay down debt real estate, leverage, etc and that has collapsed money creation some.

Gradually the recovery encourages less and less risk aversion (the grind). Also, in the next 2 quarters I think bank lending finally opens up again and starts to channel the Fed ZIRP into profitable investment projects hedge fund leverage, real estate development, energy development projects, small business lending. Thus, the recovery accelerates.

I recent saw that Ed Hyman of ISI (best wall street macroeconomist ever?) agrees, saying the research they do shows the economy having a good Q1 and accelerating into Q2. He is predicting a V-shaped recovery. Even a Barrons article came across my email last night Drop the Double Dip.

secular bear Says:

March 23rd, 2010 at 8:55 am
Hi Barry, question is, in which camp are you in? I guess #1, right?

Barry Ritholtz Says:

March 23rd, 2010 at 9:00 am
Not precisely: I have elements of 1 -3 and even 5

We got the bottom right, but did not use leverage.

I actually priced out SPX 750 and 800 Leaps last March (09) for a $10,000 flyer but that was during the final edit of Bailout Nation, and I got too distracted and never placed the order.

That trade would have netted about $5M had I followed up. (Cest la vie!)

Our managed accounts have a decent amount of cash too much in my opinion for now but that aspect might be redeemed later . . .

SteveC Says:

March 23rd, 2010 at 9:02 am
What about those that never sold, and just rode it out? I know several pros in this camp. These people are very infrequent traders.

ashpelham2 Says:

March 23rd, 2010 at 9:44 am
SteveC, I suppose that would be the TRUE buy and hold folks, wouldnt it? Anybody that bought before the big meltdown, stayed with it, and is still in it, is a firm believer in the system, and I dont fault them for their accumen. Results speak for themselves.

That would usually be people with so much money that losing some isnt a risk they feel uncomfortable with, or folks with so little money that they dont know any different!

Chief Tomahawk Says:

March 23rd, 2010 at 9:53 am
BR: I got a pop up box in the lower right-hand corner just now. The msg said The Big Picture is conducting a survey to improve the quality of the site. Is this true, or some 3rd party initiative not affiliated with TBP? Thanks.

secular bear Says:

March 23rd, 2010 at 9:56 am
Thanks for the answer Barry. I got the bottom right, and by mid March I was fully in and leveraged [got warnings from my broker], but Im mostly in cash since last December. I guess that puts me in 4.

cognos Says:

March 23rd, 2010 at 9:58 am
BR I think there is a zero missing in your post above. 800 strike 1-yr LEAPs wouldve netted about $300 and cost about $6 for a 50x trade. Not a 500x trade.

chris H Says:

March 23rd, 2010 at 10:01 am
i find it interesting to see to what extent ones current position, among those you observe, is influenced by past performance. easier to be more constructive if you have played the past rise correctly, and vica versa. shouldnt it be the reverse? more nervous with more house money, less nervous when one realizes that one has been playing a losing hand?

Rikky Says:

March 23rd, 2010 at 10:08 am
i know many buy and hold folks. they kept plowing money in believing in cost averaging, long term compounded gains. they also believe that theyre basically forced to participate in the market because they cant possibly meet their retirement goals by sitting on the sidelines early less than inflation in the limited 401k options provided through their employer. basically theyre hoping they get the 6-8% annual returns else theyll work until theyre dead. not a very thoughtful strategy.

cognos Says:

March 23rd, 2010 at 10:21 am
Rikky That strategy certainly worked in 2002, 2003 and the hard bottoms of 2008, 2009. (Oh, it also 10x worked in 1983, 84, 85, 93, 94, 95).

Dont forget also stocks pay dividends. I find it funny when people say were flat since 2005 Yeah, so the market has paid 2-3% since then. After taxes that WAY better than cash (or real estate?).

IF you bought equal amounts quarterly since the 2000 peak (awful timing!) it looks like your avg cost on SPX would be 1,200. So youd have just made the dividends. Thats not some horrible downside. (Investments DO have risk, you know?).


[Mar 23, 2010]  Is It...or Isn't It?

Larry Doyle, a long-time Wall Street veteran and publisher of the Sense on Cents blog, hosts a Sunday night show, "No Quarter Radio's Sense on Cents with Larry Doyle," on Blog Talk Radio. In this week's edition, which features an interview with Phil Davis of Phil's Stock World, Larry raises a question that a few of us, who are amazed at and unsettled by the willingness of investors to throw caution to the wind and repeat the mistakes of the past (see "Back Buying the Same Kind of Crap" for one example), have occasionally wondered about ourselves:

Is the stock market being manipulated?

I can not count the number of times I have been asked that question over the last 9 months. Rather than my offering personal opinions which market pundits may view as sour grapes or worse, I want to revisit a ten-minute segment of my interview last evening with Phil Davis.

The segment runs from 29:45 until 40:00 (audio player provided below). If you do nothing else today, please listen to this dialogue between Phil and myself. Neither of us goes into this conversation with agendas or preconceived notions in an attempt to score points. I will offer an edited version here. I think you will find the information, thoughts, and opinions offered to be enlightening.

PD: Its getting more and more likely that theres going to be an event that takes the market down and thats because of the nature of the market rally. The rally has been a very thinly traded, low participation rally.

LD: I want to pursue that.the idea that there could be or will be some sort of an event. Obviously, all of the governmental support that has come into the market, all of the quantitative easing, the easy money, the 0-.25% Fed Funds rateall sorts of other backstops. Now theyre trying to figure out how to ease some of those supports out of the market while China and India have increased their rates. Are we overextended? Have we created a little bit of an asset bubble?

PD: I think we have created a helluva asset bubble..Lets be honest. We were delusional in 2007. Those valuations were completely wrong.the earnings were fake and I want to emphasize again fake because they were fake. They were not only not real earnings but what were reported as earnings turned out to be tremendous losses. The financials were putting out fake numbersit was all fake..How did we get the market back to where it is then? How is this even possible?

LD: How much are we overvalued?

PD: Dont forget the Dow is fake also. They took out GM and Citibank from the Dow. Those are two zeros and they put in Travelers and Ciscothats 640 Dow points that were added because they swapped GM and Citi for Travelers and Cisco. Now is that real?

LD: I look at the most actively traded stocks. Almost everyday the most actively traded stock in the market is Citithis isnt real

PD: Whether Citi is real or not, I think you touch on something more important, though. The most active stock is Citi. The next most active stocks are Bank America, Wells Fargo

LD: Also AIG.

PD: Those trades are 80% of all trades in the market and the total market volume is less than half of what it was back then. In other words, youve got half the market participation of what it was and of that half, 80% of it is concentrated in less than half a dozen financial firms.

LD: What does this say about the future of Wall Street?

PD: It says that the people who are running the system are in total control of the marketplace. There is no retail participation.on a relative basis.

LD: They dont believe it.

PD: .it looks like a bunch of crooks.

So, is the market being manipulated? I would guess that depends on how one defines manipulation. That said, market volume and market depth tell us a lot. I thank Phil Davis for providing this sense on cents.

I strongly encourage you to take ten minutes and listen to this segment of No Quarter Radios Sense on Cents with Larry Doyle Welcomes Phil Davis. If time allows, listen to the entire show.

[Mar 22, 2010]   I.M.F. Warns Wealthy Nations about Debt

Mar 21, 2010| CalculatedRisk

From Sewell Chan and Keith Bradsher at the NY Times: I.M.F. Warns Wealthiest Nations About Their Debt

deep scars in the fiscal balances of the worlds advanced economies, which should begin to rein in spending next year as the recovery continues, the No.2 official at the International Monetary Fund said Sunday.
For the United States, a higher public savings rate will be required to ensure long-term fiscal sustainability, Mr. Lipsky said.
Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery, Mr. Lipsky said. ... While it makes sense for the worlds largest economies to continue stimulus spending through the end of this year, fiscal consolidation should begin in 2011, if the recovery occurs at the projected pace, Mr. Lipsky said.
The U.S. deficit can be separated into 1) a cyclical deficit that will start to decline automatically when the economy begins to recover, and 2) a structural deficit that will be very difficult to resolve. But we need a recovery first, and then we can discuss deficit reduction.

Mr. Lipsky also discussed the need for rebalancing the world economy, although he didn't criticize China's currency manipulation (he was speaking in China).


JP, I argued that Bush-Greenspan were wrong in 2001 and the proposed fiscal policies would lead to large structural deficits.

From Greenspan in 2001: FRB: Testimony, Greenspan -- Current fiscal issues -- March 2, 2001

In 2001 Greenspan talked of surpluses for the foreseeable future. Greenspan offered projections of "an on-budget surplus of almost $500 billion ... in fiscal year 2010". How did that work out?

He argued the National Debt would soon be retired and the Boomer's retirements secure and provided a projection of "an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs."

Geesh ... I knew it was nonsense when I heard it!
best to all

[Mar 22, 2010]   The Strange US Health Care System

However, I can tell you what I think is wrong with the current US system its a utter mess, and should be tossed out wholesale. Throw it out, start over, rebuild it from the ground up.

Heres what I emailed JW about what is wrong with the current system:

When it comes to health care, I will share with four factors that I find to be significant. Others have already beaten certain aspects of this to death so these may not even be the most important factors overall. But in my experience, these are things that keep coming back to me about the health care issue:

1) Most of the industrialized world has national heath insurance they (mostly) like it a lot. Speak to people from  England, Switzerland, Japan, Netherlands, Germany, France, Japan and especially Australia, they all love their natty health care. (Canadians, much less so). People in my office lived in Sydney for 10 years, swear by it. Talk to Europeans about our debate, and they will tell you Americans are insane.

2) We pay for medical care for 45 million people in the most inefficient way possible. Taking a kid with a high fever to the ER instead of the pediatrician makes a $60 office visit cost $8,000. Those parents dont pay that bill, and so the costs are passed along to everyone else. That makes no sense whatsoever. I dont know if its even possible to make medical care less efficiently priced than this arrangement if you tried.

3) Having a for-profit middle man between medical personnel and the patient is a recipe for disaster. This is an enormous inefficiency, and as as applied in the US has worked to raise costs and deny coverage. And, it make medical administration much more complex and costly than it should be. That seems like a lose/lose/lose to everyone but the insurance cos.

4) Our system is weird: I can only speak from personal experience, and I can say as a person who has been fortunate enough to be relatively healthy. Our insurance system is simply freaky. I have a quick story about this in comments . . .

Those are my views about whats wrong; I have no idea how to fix it . . .

[Mar 22, 2010]   Passage Of The Healthcare Bill Means The Double-Dip Is Coming - Market Insight From Permabull Jim Cramer Who Just Turned Bearish zero hedge



Perhaps.  Perhaps they will find better opportunities in their home countries, just when we need them the most.  There were some interesting comments under the open thread from 3/21 to the effect that the US' ability to attract and/or retain other countries' best and brightest, or the not so best and bright, is waning.  It dovetails with some anecdotal info that I have heard.  Given the current dysfunctional state of large swathes of our public educational system, I am concerned.

Shameful :

Student loans are fucking evil!!!!  It's nothing more then legalized and government approved slavery.  They offer loans, and the schools jack up rates to take advantage.  Because school gets more expensive the gov has to give out more loans.  Because their are more loans the schools jack up their costs.  This causes more loans to go out...and this process goes on until it's almost impossible to get a quality education without being mired in non dischargeable debt. I have worked like a dog and lived like a monk my whole life and I still had to take on student loans for my first year at law school even with a solid scholarship.  I'm not much in debt but I know many of my friends might as well be debt slaves.  Nothing like 150k in none dischargeable debt and next to no job options.  And I will assure you school will jack up costs because they can.  I was told this by Michael Crow at ASU, he wanted to move costs up purely because other schools were doing so, so he felt he should.  Not because they needed the money but that he wanted to maintain his position in school pricing compared to others.

Uncle Sugar might as well own the loans, needs to tighten those chains on the young people.  Can't wait till the IRS starts going after the poor sons of bitches that can't pay.  Good thing legal scholars have informed me that the 13th amendment does not apply to Uncle Sugar.

And back on topic this will only run up costs.  Our government is incapable of cutting costs.  The chicanery they did with taking in taxes for years and not starting the program till after the next presidential election aught to tell you something about the shit they are pulling.  Though I expect the dollar to be a joke by 2013 anyway(Would like to be wrong though).  At this point all I want is them not to spook the world for a few more years so I can save up and get the hell out of here!  A dollar crash will not be kind.

Shameful :

Most people love the lie, because it's easier then the truth.  Being told what to think is easier then thinking for oneself.  I agree that is will just be kabuki theater between the two parties till the dollar and the nation burns because there is no will to change it.  This happens to all empires.  All empires atrophy and fail.  Many of them with a similar pattern to ours.  The ship cannot be turned even if there was a will to turn it.  All that can be decided now is how hard the crash will be and how many generations it will take for America to stand back up again.

People don't want to hear that though, they want to believe everything will be ok.  Even my sister just says "It's in God's hands" like it magically excuses any kind of personal accountability.

Gen X Gen Y Hybrid :

The USA is not paying for any of this....

The rest of the world is.

I work for a global company and every brand we have, every country we are in depends a huge part on the USA sales.  I'm sure my company is not an exception.

The world cannot let the USA fail.  If they do they are only sinking their ship even more.

As an American, I have mixed feelings.  Ethically I think the Gov't spending and blatant PM manipulation is disgusting.  However if there is a method to the madness and my above statement is correct, then my salary (which is my own personal long term insurance policy for my future) should be largely protected.


Double dip implies there was a real recovery.

I'm sure Kramer will have all new medical beep props ready to go for Monday's circus act.

If the market doesn't fall from this bombshell, then you know it's bullet-proof.  If only you could short common sense...

[Mar 22, 2010] "The Misinformed Tea Party Movement"

Economist's View

Probably the simplest motivation the Tea Partyers have is the one that Howard Beale (actor Peter Finch) gave in the 1976 movie Network. "I'm mad as hell, and I'm not gonna take it any more!" he said to cheering crowds. In other words, tea parties just represent unfocused anger at current economic conditions. Those who feel this way have latched on to the Tea Party movement not because they really believe that their taxes are too high, that taxes are rising or that taxes are at the root of our economic problem. Rather,... it's the only game in town; the only organized force with at least the potential of bringing about change that might make things better.
In this sense, the tea parties are simply the latest manifestation of populism... Unfortunately for the Tea Party populists, there is no evidence in American history that populism has ever had a meaningful effect on policy. ... One reason is that the major parties co-opted populist issues and leaders, which bought time until the populist impulse burned itself out like a brush fire.
Whatever the future of the Tea Party movement in American politics, it's a bad idea for so many participants to operate on the basis of false notions about the burden of federal taxation. It only takes a little bit of time to look at one's tax return ... and compare it with what was paid last year and the year before. People may then discover that their anger is misplaced and channel it into areas where it is more likely to bring about positive change.

[Mar 21, 2010]  Danger Bumpy retirement ahead - Sep. 9, 2008

Sure, you've been steadily contributing to your 401(k) and IRA for years now. But it's still awfully hard to amass as much as the experts say you'll need. The numbers are ridiculously daunting: If you're currently in your fifties, your retirement portfolio at this point should be worth six to eight times your salary. By 60 you should have saved about 11 times your income, and by 65 the equivalent of 15 times your earnings.

And the markets aren't exactly helping matters lately. The housing slump has thwarted dreams of cashing in and retiring on the house, while lackluster stock market returns haven't provided the gains you were banking on. "For much of the past 25 years the markets did most of the work for you, but you can't expect them to carry you in the future," warns Bill Bengen, a financial adviser in El Cajon, Calif. He adds, "The only way you'll reach your retirement goal is to commit to having more money pulled out of your paycheck."

You probably have plenty of opportunity to save more in taxadvantaged plans. In a recent survey of nearly a million 401(k) accounts, retirement research firm Financial Engines found that a quarter of 401(k) investors 50 or older don't even contribute enough to qualify for the maximum employer match (typically 50% of the amount you put in, up to 6% of your salary).

And only 6% of eligible participants take full advantage of catch-up provisions that allow those 50 or older to save an extra $5,000 a year in a 401(k), for a total of $20,500 this year (you can put an additional $1,000 in an IRA, or up to $6,000 in 2008).

[Mar 21, 2010]  Retirement funds in danger for millions of Americans By Mike Bryan

March 6, 2009

For millions of Americans, the deepening recession has meant a dramatic drop in funds put aside for their retirement. While many have seen the value of these accounts slashed in half, the pensions of others have been rendered virtually worthless as their employers file for bankruptcy. For others, a layoff in the family spells disaster, and saving for retirement is out of the question.

Many older workers have been forced to cash out their 401(k)s to cover mortgages and pay credit card debt and other expenses, with the amount withdrawn sharply reduced from their original investment. For other, particularly young, workers, the prospect of putting aside anything out of their weekly paychecks is out of the question.

While there are many 401(k) plan variations, until recently an employer has commonly matched 50 percent of an employee's contributions up to 6 percent of the employee's income. These funds can be set aside tax free, and are most commonly invested in an assortment of mutual funds.

Now, more and more companies have stopped making matching contributions to these funds. Coming on top of wage cuts, this amounts to yet another reduction in real wages for millions of workers.

In an article posted on entitled "Stopping 401(k) Matches: The New No-brainer," Alan Vorchheimer of Buck Consultants is quoted as saying, "this is just so easy.... Almost every company is being forced to consider it.... Let's be candid: the CFOs of a lot of these companies are going to their benefits people and saying, Hey, can we get rid of our match?' "

According to a list compiled by the Pension Rights Center, a rapidly increasing number of companies are answering "yes" to that question. While not comprehensive, from June through December of 2008 the list contained the names of 29 companies.

In the first few months of this year the list of those cutting matching contributions has grown to more than 110. Among the most recognizable names are General Motors, Chrysler, Ford, Motorola, FedEx, UPS, Starbucks, NCR, Sears, US Steel, AMD, Reader's Digest, Macy's, Diebold, the New York Daily News, Libbey, and Hewlett-Packard.

This corporate assault on 401(k)s, and the dwindling value of these accounts with the collapse of the stock market, show how the shift over the last few decades from defined benefit plans, often referred to as pensions, to 401(k)s now threatens the retirement of millions of workers.

In a brief on "The Financial Crisis and Private Defined Benefit Plans," the Center for Retirement Research (CRR) at Boston College explains why this is the case, and why the majority of companies have moved away from defined benefit plans:

"In 401(k)s, individuals bear the risk. If the stock market collapses, they take an immediate hit to their retirement assets. And those about to retirewho on average held about two thirds of their assets in equitieswill be forced to retire on less. In defined benefit plans, however, participants are promised benefits based on years of service and earnings (typically the last five years), and these benefits must be paid regardless of what happens to the assets in the employer's pension plan. In short, participants in defined benefit plans are sheltered from the effect of the financial crisis on retirement assets."

According to a recent study by Fidelity Investments, American workers lost an average of 27 percent of their 401(k) retirement savings in 2008, and they can expect to lose even more this year.

Defined benefit plans, on the other hand, place additional responsibility on plan sponsors, and are also much more expensive to operatewhich is why companies have been moving employees out of defined benefit plans into 401(k)s, otherwise known as defined contribution plans.

In 1980, of those private sector workers with pension coverage, 60 percent had defined benefit plans only, 23 percent had both defined benefit plans and 401(k)s, and 17 percent had 401(k)s only. By 2006, these percentages had dramatically reversed: 8 percent had defined benefit plans only, 22 percent had both defined benefit plans and 401(k)s, and 70 percent had 401(k)s only.

Fewer private sector workers are covered by some type of employer-provided retirement plan than are public sector workers. In 2006, of workers age 25 to 64, only 45 percent of private sector workers had pension coverage while almost 80 percent of state and local workers had coverage. Public sector pensions are primarily defined benefit plans.

Between October 9, 2007, and October 9, 2008, equity assets in retirement plans dropped by about $4 trillion in value, according to the CRR study. State and local government defined benefit plans dropped by about $1 trillion, private employer defined benefit plans dropped by about $900 billion, private employer defined contribution plans dropped about $1.1 trillion, Individual Retirement Accounts dropped about $800 billion, and federal government thrift plans dropped about $100 billion.

These dramatic shortfalls create particular problems for private employer defined benefit plans. The Pension Protection Act of 2006 contains guidelines by which a plan sponsor must eliminate any shortfall between promised benefits and assets. The CRR study estimates that "firms are going to have to increase contributions by about $90 billion in 2009." Mercer, a global consulting firm, places the underfunding of corporate pension plans at $409 billion.

"This challenge raises the question of firms laying off workers, freezing their pensions, or going bankrupt," states the CRR study.

These shortfallsamidst the worst economic crisis since the 1930smake it a near certainty that the federal Pension Benefit Guaranty Corporation (PBGC) will be forced to take over the pension responsibilities of an increasing number of bankrupt businesses.

Created in 1974 by Congress, the PBGC is funded through premiums paid by the companies whose defined benefit plans it insures and through its investments. Since 2001, the PBGC has taken over nine of the ten largest terminated pension plans in its history, including those of United Airlines, Bethlehem Steel, and Kaiser Aluminum.

With $63 billion in assets and obligations to spend $74 billion on pension benefits in the coming years, the PBGC already has an $11 billion deficit. Taking over the pension plan of General Motors alone would more than double that deficitalthough the PBGC would also receive assets from GM's pension fund.

Workers whose pension plans have been taken over by PBGC are highly unlikely to receive the entire benefit they expected. The current maximum benefit is $54,000 per year for a person retiring at age 65. There is no cost-of-living adjustment. All of these scenarios, furthermore, are predicated on the PBGC avoiding outright collapse.

Adding to the precarious future of retirement is the fact that it is a rarity for workers to remain at one employer for their entire working life. Since the median job tenure is less than four years, most workers earn limited amounts in either a defined benefit or a defined contribution plan with any one employer.

When workers leave a company and opt to receive single sum distributions of their retirement savings from these plans, fewer than half of those under age 50 save the entire distribution for retirement, as do fewer than half receiving distributions of less than $20,000.

According to a recent Bank of America Retirement Savings Survey, 18 percent of people are pulling retirement assets from their accounts prematurelyin spite of the tax consequences. With the deepening recession, more and more workers will undoubtedly tap into any such funds they have to pay for immediate pressing needs, further endangering their retirement future.


TMF Re Retirement in danger - Retire Well on Less

I've given this some thought.

There are well over a million careworkers in this country like myself. Almost all are women, and half are single providers.

Those who work in nursing homes and the like make an average of just over $10 per hour. For this, they often are assigned 20 or more patients, which leaves no time for quality care. Still, 36% of those CNA's working in nursing homes have household incomes of under $20,000 per year.

Those employed by home care agencies generally make less, and have few or no benefits, but at least have the chance to properly do the work they love.

Most home care workers, like myself, don't have health insurance, although we know how important that is. Most don't have a prospect of retirement. I know that the way it looks now, I will never be able to stop working during my lifetime.

To some, it seems from the posts, it's our own fault for not 'advancing'. Often, that's not possible, especially if we have been working to allow our own children to get college educations. But we shouldn't forget that some of us do love our work. Also, someone has to do the work, and people in our care obviously are better off having caregivers who really want to be doing their work.... and not because they can't do better.

One reason the pay is so low, by the way, is if you break down the costs of care, to the payer, and calculate the small fraction of that the actual hands-on caregivers are receiving, there's a wide gap. There are a lot of people to be paid along the way. Actual care receivers are paying far too much, and of that, actual caregivers are receiving far too little.

There are things that health care consumers can do to help, and at the same time save some money (and also at the same time, help people like me make a living). Those with Long Term Care policies can save themselves considerable money.

See: "Stretching your LTC claim dollars" which I also posted at


[Mar 21, 2010]   Delusions of Retirement Adequacy#comments

The Big Picture


We should have the discussion about Social Security sooner rather than later, because SS is in fact most peoples only retirement program. Its also why most people dont save, and despite the self-serving rantings of the mutual fund industry that people will need some ridiculous percentage of their current income to retire, I think that most people are acting rationally. If benefits are maintained at anything near current levels, SS is actually a rather generous program, particularly if people wait until age 70.5 to retire. The problem we have today is that too many people (a majority in fact) start SS at age 62, which is a big mistake if you plan to live on it. The other big mistake is the Tea Party types desire to scrap SS, when its basically the only thing those folks have going for them as they age. This, I dont understand. Obviously, they are being misled.

Doc at the Radar Station:

SS will continue to be a 3rd rail that isnt going to get cut much at all. Look for another 1982-like fix with higher taxes if anything-just my opinion. I agree with maynardG above that the mutual fund industry (and others) oversell the amount that people need to put aside. I dont have the link, but I saw a chart of the average retirees income a few weeks ago. It was about 1/3 SS, 1/3 private/public pension, 1/3 assets of their own.

george matkov:

In the short run, people are actually acting rationally. Returns on savings are zero so any savings you have are actually losing in value.

The Feds zero interest policy into the indefinite future (do you really believe they are going to raise rates for the next 10 years?) guarantee that saving is for suckers.

I think there is a general intuition that there is massive, even complete, repudiation of debt somewhere down the road. I dont have any answers but politicians since Reagan have been elected for promising something for nothing and they will continue to do so as long as the masses continue with their magical thinking.


The Delusion of Retirement would be a better title. Its the remaining 73% who have been deluded into spending their 30s and 40s squirreling away money for a mirage of golf carts, bingo, and gated communities.

If we instead spend our time to:

(1) Find a satisfying career that so that we dont feel like running away from it at age 65. If we are happy working (even part-time) into your 70s, well need much less money to retire.

(2) Buy a house within our means in a community that we connect with and enjoy living in. We wont feel the urge to rush away to some exotic locale for 20 years with zero earnings.

(3) Form strong friendships, connect with our family and give our kids a good education, and enjoy satisfying hobbies/activities and take regular vacations.

The more fulfilling our working life, the less well need to spend in old age to make up for inadequacies at a time when we dont have an income.

then the money well need to maintain lifestyle into old age turns out to be far far less than what the retirement


and the main reason almost every one will depend on SS is simple. we have just seen an example of it. it depends on when you retire whether you have enough in savings, or even have it for very long (remember that small decline in the stock market? which is where every one that has a 401k is in? care to guess how well those who had to retire did last year?). and can you really safe enough money in an environment where 1/2 of your savings can disappear in 12 months, and recovering from that can take a decade or more, if its even possible?

if retirement is based on age (because your profession doesnt allow for those that age or near, or business doesnt want to have any one that age), you retire based on that not when you want to. and it wont matter how the stock market is doing.

while SS I am thinking can be fixed by doing nothing more than removing the loop hole for income over 106K, and might even be able to reduce the rates for all based on doing that.

depending on a 401k for retirement is a game of chance, or Russian roulette, with some one else controlling the game.


Most Americans believe God is involved in their everyday lives and concerned with their personal well-being, though the well-educated and higher earners are less likely than their counterparts to believe in such divine intervention, a new study suggests.

32 percent agreed with the statement: There is no sense in planning a lot because ultimately my fate is in Gods hands.


[Mar 20, 2010] Federated's David Tice Is Not A Fan Of Bernanke-Manufactured, Free Money Driven, Bear Market Bounces, Sees Huge Potential For Decline

zero hedge

Federated Investors' David Tice has a thing or two to say about the rally - "We've been the beneficiary of a massive credit bubble that we've not yet worked off the excesses... This secular bear market will not bottom until we get back until we get back below book value." In a portion of the interview not caught by the Bloomberg clip below, Tice says that the decline potential for the market is "huge." Don't tell that to the algos whose one and only program for the past month and a half is Buy.The.Dips.

Mark Beck
on Fri, 03/19/2010 - 18:07

Well how do we work through the injected liquidity? One manifestation of this injection is the excess bank reserves at the FED. So why don't the banks extend long term credit, even to one another?

It can be summed up in one word: TRUST.

We have reached a point where we can no longer gauge risk based on financial statements or price discover on assets. Abuse of Structured Finance, accounting games and the predesposition for fraud on all levels of fianance, private and public, have created the perfect no real growth scenario. Regardless if you subscribe to Keynes or Hayek. Both would have required that trust in a fair market place be a prerequisite, an economic cornerstone, if you will.

But the violation of trust we have today transcends markets, it can be seen in instances at all levels of government, the FED and our political system.

In addition, if you add the irresponsible fiscal and monetary policies to the mix, we get financially speaking, a world of hurt.


So on one level we see a massive transfer of bad debt from the private sector (Banks) to the Public (FED, Treasury, GSEs). Much of this debt should have been written off and not subsidized through debasement of the currency. But, the question the CBO should be looking into is what is the capacity of the "public" to finance massive bad debt? What happens when the poeple can no longer pay? When will you know? What sign posts are there along the way?

Let me repeat this; What happens when the debtor can no longer pay?

How is it that, everyone talks about the importance of education in Government, while at the same time closing schools, laying off teachers, and raising tuition beyond the reach of the average family without resporting to loans?

I would submit that this is one of those sign posts. It is a warning sign.


Perhaps Tice is looking beyond his traditional pricing process and moving more into effects caused by our macro-economic quicksand.

Mark Beck

jeff montanye:

very well done. particularly the hayek to keynes emphasis on trust in price. that is the chink (the size of the pacific) in the fed's armor. the banks can't lend to anyone outside of too big to fail (and maybe not inside either) because they know the accounting statements are lies but they don't know what's true.


Mark Beck, I appreciate your points but, I would submit we have an even longer way to go. Think of the structure of English society Charles Dickens wrote about and then bring it into the 21st century. In preserving the top of the U.S.'s economic pyramid, the U.S. will deteriorate to that societal level with the caste system of pre-20th century England where it will be impossible to rise beyond the state in which you were born for most citizens and most citizens will not be in a middle class state. In fact, I submit that like pre-20th century England, there will be no middle class to speak of. You're either up there or down there. The government, via the Federal Reserve, broke the compact of our free-market system that made movement by industrious citizens possible when they rescued the TBTF and "the system" via the taxpayer in 2008 at the expense of the free-market compact. Now, there is no turning back and the service on this ever growing "rescue" will enslave the masses and force this societal change we will deteriorate into. Simply put, The American Experiment is over. It isn't happening overnight but, it is happening and there is no turning back at this point.

fox :

It obvious this market is overvalued -- doesnt mean it will decline. It been overvalued for 20 years. "The market can stay irrational longer than you can stay solvent." - keynes

fuggetaboutit :

why does it matter that he said it at 800, 900 and 1000? book value on the S&P is around 450 last i checked and that is probably still inflated with intangible fluff that has no value but still being carried as though it does. in 2007 ppl were bearish from 1400 "all the way" to 1550, did that make it incorrect?

fed balance sheet was released ysty and it is $2.31 trillion - that is a new peak, the fed is carrying more crap around now than it was in december 2008 when they were in mad scramble mode.

I dont know who this guy tice is, maybe his argument isnt logical , but lets judge the negative case when the fed balance sheet isnt at its all time peak, shall we?

Master Bates:

Book value isn't 450. Are you on dope again?


It is if you assume a 5% dividend yield.


Tice was correct on all major points. You may question his short-term timing, however it is beyond any disputes that his understanding of macroeconomics and major secular trends is impeccable. I respect him and his opinion. I believe everyone should at least pay a close attention to his words if they dont want to get burned at the end. (for some reason my first post had bunch of formating data)


Short term timing? Are you kidding me? This guy called for Dow 3000 in 2003, right before one of the biggest rallies in market history. Tice has no timing whatsoever. When was the last time he was bullish on stocks? Never. He just repeats his 50% crash predictions all the time.


I completely understand your point. However I am convinced that the market would have reached Tice's target if the FED's would not have artificially inflated the bubble again.

Tice cannot include in his analysis the market manipulation. His analysis is based on fundamentals and free markets. All manipulations eventually end badly and all bubbles go bust. I really liked a comment once made by an independent financial analyst David Roche.

He said that the FED is very nave if it thinks that it can do anything gradually and achieve a gradual effect. He said that all bubbles burst violently and when FED says that it can gradually deflate a bubble it certainly deludes itself.

Roche said that attempting to control the bursting of a financial bubble is as ridiculous and futile as attempting to control our fart once it goes off.


When the mania subsides, the decline will eventually come. Newtons Third Law of Motion: "Every action has an equal and opposite reaction." The laws of nature haven't been repealed so far in human history. The FED will have their day. Manias always end in devaluation, deleveraging, & liquidation.


You are correct. Manias always end up very bad. All FED experts like to make smart comments when the mania is raging. But when the bubble goes bust then they publish a semi-smart paper just like Greenspan did yesterday and try to convince everyone that they did not see it coming and even if they saw - there is nothing they could do about it. These "establishment experts" are a pathetic bunch.

However Tice was telling about these problems back in 2001. Now who is smarter Greenspan or Tice? I say Tice ...

Lord Peter Pipsqueak:

David Tyce has missed one salient point in his "the market is going to crash" mantra,and that is Benny has a printing press and if the market drops a couple of hundred points he is damn well gonna use it, planned distribution by helicopters, but B52's to be used in case of extreme emergency. How does he think we have just had a 75% rally?

If they just let the market crash, the debt monkeys and banks would be done for, but by trying to "save" the market and the economy and everything else, means everyones life savings, pensions money and purchasing power is going to be destroyed. Makes the New World Order conspiracists arguments seem almost believable.

If the market does drop more than a couple of hundred points,it will be because the Wall St banks will be reminding Congress who is in charge, and they better had back off with any proposed new legislation or come up with further TARP 2,3,4,5 monies pretty damn quick.


I think you give the Fed too much credit (no pun intended!). Yes, they can push the market up indefinitely in our current extremely-low volume environment.

But currently things are looking a lot like 1987... they've already driven most of the shorts out of equities so we're not seeing the absurdly high short-squeeze driven advances that we had been seeing almost weekly just a few months ago.

Now we just have to endure the immoral daily slow melt-up of our low-volume algo-driven "market". We're at the point where, for all practical purposes, there are NO buyers out there except the manipulators.

That's the perfect set-up for an actual crash, ala 1987. So, should that occur we'd see the S&P fall around 30% (in the neighborhood of 350 points) in one or two trading days -- FAR too fast for Benny's printing presses to have any dampening effect (short-term).

Trading halts would only serve to amplify the panic. That would certainly put an end to the sickeningly monotonous bullshit that we have to endure daily at present, and might actually move the markets towards more "normal" mechanics once the panic wore off...



DH....I've just started reading " Lords of Finance " and finished reading "House of Morgan" last year.

The international scope of our present situation is eerily similar to GD I......even the bear market rally we see now orchestrated by the puppeteers.

You're right, this is not a garden variety cyclical recession.

I think sovereign defaults will finally overwhelm the system and the debt purge will then begin in earnest.


 this is not a garden variety cyclical recession.

There is absolutely NO question about this, none whatsoever.  those that think it is analogous to the last several recessions are predisposed to a rather short historical timeline.

try "this time is different" by rogoff (he's gotten alot of ink lately on the sovereign debt matter) and rinehart (sp?)...  an excellent historical take on bank crises, sovereign debt (nothing about consumer debt).   it is very, very dry reading but an astounding collection of historical data to support some of the findings.

what i find interesting and they didn't seem to mention this, is that we currently have a confluence of the major items i discussed in my post above occurring at the same time....i'm not sure this has happened previously when you throw in consumer debt, clearly at an outrageous all time high.


Excellent points one and all, DH.

The Depression had a great bear market rally. This time is no different except it is much larger in time scale.

The "crash of 1929" took 2 months. 2007-2009 crash took 16 months. The bear market rally in 1929-30 was 5 months. Then the decline began again. We're at a year in this bear rally and we may have a month or at most 2 more (May is an extreme cycle for a top).

Nice charts here:

So lets keep things in perspective. Bear market rallies have a function, no matter how they are manufactured or what you believe. They give people a much needed break from the pain. I'm more of a technician than a fundamentalist but just about every good bear out there called for Dow 10,500 last March as a target for retracement and S&P 1160. So what if we go a bit higher...but it's looking a bit tired now.

The Fed will not be able to stop the carnage.


I could not agree more Howard....the spx is just over a 50% retrace, not abnormal at all. I i've studied those charts quite a bit as well as the underlying pieces of the puzzle (i really rely on history quite a bit because humans have not changed one iota in centuries: same shit, different decade).

take a look at an spx weekly chart with a focus on july to oct 2007 when the Fed was "containing the crises"'s almost eerie..... july hit an all time high, corrected down just like we have witnessed since february, then hit a new high in Oct, and the downdraft started (looks to me like an almost perfect elliot wave 5 down). when i look at the bear market rally since march 09, all i can keep coming up with is a zig zag corrective move.

agree that the Fed can't stop or control the carnage. one thing i would add is that the US gov't has pretty much run out of ammo. i would likely never say the same about the fed cuz those pinheads might just keep printing but there are certainly reactions to those actions....gonna be interesting.


I believe that they can only manipulate in a low volume environment. Once real ;panic selliong starts they cannot control it the only thing is if they are the only main buyers who will sell to get this volume up?

thats the problem I have woth the crash scenario we all know this all smoke and mirrors every major bank is insolvent


The Fed has learned nothing from its past mistakes. I guess you would have to recognize a past mistake before you can learn from it but that is another story.

The initial response -ZIRP, QE, etc - was fine but once the system is stabilized, they need to be less predictable.

The problem is not low rates but rather, the extended period language and their obsession with transparency. It kills volatility (good during the panic stage) and encourages a unhealthy search for yield at any price (bad now).

The resulting misallocation of capital sows the seeds for the next bubble/crash/deflation.

Let the rates markets price in rate hikes and let people who speculate incorrectly lose money if they are wrong. Same is true when they are raising rates (did we not learn that earlier in the decade - think "connundrum") .

Crime of the Century:

The problem is not low rates but rather, the extended period language and their obsession with transparency

The "obsession with transparency" line was good for a coffee/nose moment. Our Fed? As far as the extended period statements, Hoenig agrees with you on that point, as he demonstrated by voting against the language. However, when your banking system is MtM insolvent, why bother trying to be coy. The banks need to hear the message loud and clear... "Make as much carry trade money as you can as fast as you can. We will keep the music playing".


Yes.. It is a wealth transfer from savers to banks and senior bank employees. That is bad enough but we are now at the stage where people can really get hurt as they buy risky assets in search for return. When REITs trade at multiples of book and dividend yields in the low 3% range you know there is a problem


Tice is absolutely correct. The current market doesn't reflect economic reality. It reflects government created liquidity, government spending, government assumption of private debts and government encouraged accounting gimmicks hiding real losses.

Until the system is emptied of the cr*p assets the downside risk is always greater and the higher the market climbs the fall will be even more dramatic.

People who don't understand this basic truth will end up losing their shirts; unless they work for one of the gubmint chosen market participants. Those people don't have anything to worry about, they have your tax dollars to cushion their fall.

A government spending spree does not equal and economic recovery. It has never worked in the past. It will not work now. It never will work in the future. Look at history. Oh I forgot it's different this time, just like housing never declines.


There are times to bunt, times to hit to the opposite field, and times to just make contact to drive in a run.

There are also times to swing for the fence. We might be about there.

A no volume rally, near record low fund cash levels, overly optimistic price levels, complacency, algo-driven trading, a winding down of the gov programs that have supported the rally, and a total failure to address any of the problems that created the collapse in the first place, suggest that one cannot rule out a 1987-style rout.

A greater than 23% one day decline is a possibility one can easily envision, given all of the afrementioned factors. Using the "history rhymes" meme, all these factors combine to match what Portfolio Insurance was in '87, which was a disaster waiting to happen.

Two weeks before the 1987 crash, I recall someone entering the option pit offering a thousand far out of the money puts at a cost of $25 per. They were so far out of the money that no risk takers lifted them. I remember having an odd feeling that it might be the best opportunity I had ever come across, but I decided not to take any of them.

Two weeks later the same options traded at a value of $25000 per.

With the VIX hovering near 17, puts today are cheap. It doesn't cost much to take a flyer. In fact, it might be well worth doing it every month for the next several. Maybe circuit breakers and a desperate Fed could cushion a fall and get in the way of a two week, 100,000% return, but the risk-reward is not too bad.


I'm with you, brother...


Ditto brother! We're gonna wake up one morning to "no bids" and we gap down hard. Then PPT and other dip buyers come on and it gets hammered over and over until they scare them away similar to what's happened with "shorts" during this entire run-up. The major distinction is the fact that a major downturn is justified for many of those reasons you mention. Tice nails it too! Load up on those cheapies because "some" of them might very well make up for all losses and net you some worth while and beneficial value.

[Mar 20, 2010] Calculated Risk

Right now my forecast is middle-of-the-road; no V-shaped recovery and no double-dip recession in 2010. Of the two, I think a double-dip is more likely, but I think we will avoid both. Of course the downside to sluggish growth is that unemployment will probably stay elevated for some time.

Don't get me wrong - I'd like to see 6% to 8% GDP growth and the unemployment rate dropping sharply (a "V-shaped recovery") but that seems very unlikely with the two usual engines of recovery, consumer spending and residential investment, both under pressure.

Downside Risks

There are a number of international risks that might impact the U.S. economy in 2010 such as a sovereign debt issues in Europe and elsewhere, and the escalating dispute with China over currency manipulation or a slowdown in the global economy. My guess is the impact on the U.S. this year will be minimal. And there are also long term issues - like the U.S. structural budget deficit and debt - but this will have little impact in the short term.

So I'll focus on domestic issues, and the number one risk remains housing:

Residential investment is likely to drop 17.2 percent in the first quarter and rebound for the rest of 2010, Fannie Mae economists, led by Doug Duncan, said in their outlook. Just a month ago, they expected the first quarter's residential investment would rise 2.8 percent.

For all of 2010, residential investment will grow 10 percent, slightly below the previous forecast, they said.

The other possible downside risks I mentioned last year were (these all still remain although are less likely):


The results show that, below a debt/GDP ratio of 90%, there is no observable correlation between debt/GDP ratio and growth rate. However, and this is a key point, a debt/GDP ratio greater than 90% appears to be a threshold value with negative consequences for GDP growth. As the writers point out, Surprisingly, the relationship between public debt and growth is remarkably similar across emerging markets and advanced economies.

Doc Holiday:

Re: "sluggish and choppy growth in 2010"

I think a big factor will be the micro-economic instability of American cities having debt and taxing problems -- related to a decline in tax revenues, related to unemployment and slowing sales. The links I posted on Colorado Springs budget cuts are a reminder that growth going forward will at best be very choppy and very sluggish in aggregate. Too many people and communities are connected to massive global/trillion dollar losses. Like Colorado Springs, the reality of denial will have to meet with the reality of having less and less for a longer period of time.

Maury the Credit Responsibility Panda:

Interesting that the GO muni bonds are most likely to default and generally require the municipality to make the bondholders whole. The revenue bonds have no such obligation, but they're less likely to be affected unless there's a lot more demand destruction than we've seen.


Nuke wrote:

Do the author offer an cause?

In the case of the United States, Reinhart and Rogoff show that, when the debt/GDP ratio exceeds 90%, the average GDP growth rate falls to approximately -1.8% and the median growth rate falls to approximately -.9%. Also, average inflation rises to approximately +6.1% and median inflation rises to approximately +5.6%.


Maury the Credit Responsibility Panda:

Bob Dobbs wrote:

one-two punch to the economy in the form of much-increased government layoffs, perhaps beginning this summer, and an unexpectedly-high level of small-business failures

That's how I see it around these parts. There are a lot of jobs that are dependent, in one form or another, on money from Uncle Sugar or his cousins Cali and Muni and I expect it may get ugly for them.


[Mar 20, 2010]   Oh no Bernanke is loose and those greenbacks are everywhere

billy blog

His article is a bit light on in that regard. He chooses to rehearse arguments made by Texas Republican Congressman Ron Paul who apparently understands that creating money out of thin air is only going to create massive problems. Paul tackled Bernanke at at the February 24, 2010 hearing of the House Financial Services Committee on Monetary Policy and the State of the Economy the entire video is HERE.

The exchange was quite humorous in fact.

Anyway Snyder quotes the following Paul statement:

The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit created out of thin air can provide sustainable economic growth has delivered this crisis to us. Instead of economic growth and stable prices, (The Fed) has given us a system of government and finance that now threatens the world financial and political institutions.

Pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didnt work, quadrupling it wont work either. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile.

What this statement has to do with eliminating the 10 per cent reserve requirements is beyond me and Snyder does not choose to explain. I guess he is still trying to catch up with the fact that this all went down 5 weeks ago.

[Mar 20, 2010]   Santoli- Pullback or Crash

"The money is coming from those who will consolidate their already lopsided holdings of Americas wealth members of the Corporatist cabal. The money is created by the Fed, and distributed to the banks, the military/industrial complex, and those fully vested in globalist corporations. "

Mike Santoli asks an interesting question this morning in his Barrons column.

The important question isnt whether the market retrenches a bit, but whether that retrenchment would segue into a more definitive and momentous market top.

This is a worthwhile query for exploration.

Mike calls a market pull back more likely than a top.

My own views are that this is a cyclical bull rally within a secular bear market, and that it ends with an approximate 20-30% correction, followed by a broader trading range. As of today, we see no signs that the end is imminent. However, the closer we get to the day when the market believe a Fed removal of accommodation is imminent, the closer we will be to the top.  Alternatively, once the current unwind of the armageddon trade encounters the heavier resistance of Dow 11,500k and S&P 1250, the upwards momentum is likely to wane.

Until then, the bias remains to the upside.


I am largely with you. A couple of other factors worth considering:

1. The broad market (S&P 500) has retraced 62% of the decline from May 08 to March 09, with a weekly close ever so slightly above that level. This market has shown a pattern of testing with resistance with a slight push higher that turns into a false break the first time, pulls back a tad on moderate selling (maybe profit taking) then reignites with renewed buying. The current apparent top may be another example of the same, or it may be the prelude to a more enduing turn, no way to know from a single day led by sellers.

2. Seasonality this is a mid-term election year, which often result in significant pullbacks from spring well into autumn, ending with a year low in the September-November time frame.

3. Short-term seasonality coming into earnings season, and during the rally over the past year the market tends to pullback going into earnings and then regain buyers support as earning reports unfold. A second short-term seasonal effect is that the last week of March is often negative (a lot of speculation as to why can be offered, but Ill pass).

4. While Dow 10,000 is largely meaningless (save the media) Dow 11,000 is not. More exactly, there is a S/R zone on the Dow in the range of 10,700-10,900 that has been a pretty consistent line of demarcation.

5. Market is in a zone of conflict between intermediate-long term (daily-weekly) with a strong trend up, but at stretched levels in that time-frame and what I call the very long-term in a downtrend and price having reached continuing downtrend resistance in a somewhat stretched state. Until one f those two sides capitulates its a coin toss. If we see more selling next week the key levels I am watching on the downside for the S&P are intermediate trend support in the range of 1125-1115 followed by long-term trend support in the range of 1050-1075 (theyre dynamic and subject to daily and weekly change, respectively). So long as these hold the bias is up.


My question is this. Where is the money coming from? (Both from March of last year to now, and going forward.)

Marcus Aurelius:

The End can only be seen in the rear-view mirror.


The money is coming from those who will consolidate their already lopsided holdings of Americas wealth members of the Corporatist cabal. The money is created by the Fed, and distributed to the banks, the military/industrial complex, and those fully vested in globalist corporations.

It certainly isnt coming from the middle or lower classes, and it certainly has not improved the low-velocity aspects of this recovery..


I think The Fed will never (not in our lifetimes anyway) be able to completely remove accommodation and return to the pre-bailout level (im ot even talking about going to the pre-Greenspan Put level)

The 1.25T of crap MBS bought by the Fed, the Maiden Lanes, the future similar arrangement(s) for the commercial RE how in the worlds are they going to dump all of that without major haircut?

Bernanke has yet to acknowledge that the Fed was the trigger, the major aid and a participant in the housing bubble, how in the world can they seriously contemplate about taking away all of free money, and gettign rid of the greenspan put?

And BTW, everyone is taking about what the NY Fed knew about Repo 105″ and And about the failed stress tests, and why theyve not done anything about it? Someone a the large audience has to mention that all that time Dick Fuld was on the board of FRBNY! Along with Jamie Dimon and Steven Friedman of GS fame?

Do you still wonder why nobody reigned Lehman in after the failed stress tests in 2008? Why they gifted $30B+Bear Sterns to JPM and bailed GS by giving then $13B in AIG crime?

The myth about Feds independence and honest dealing with Us, The People, has been shattered. Audit-schmodit, the Fed system needs to be totally uprooted and replaced with a genuine independent bank without ties to the industry!

Jerry 369:

I also agree with the downside bent. I seem to remember another time m&a and all the supposed stock buy-backs and all the other noise that comes with it. Oh yeah,that was at the top in2007. Most of those great buying deals,of a lifetime didnt turn out so well. I think back to a stock we owned and was taken out and is just coming out of bankruptcy, Lyondell. Magnum Hunter also comes to mind.Be careful out there

P.S. An announcement to do a buy back is not the same as buying back stock. Buy backs always seem to look best when stock is up big,why no buybacks at the lows?



[Mar 19, 2010]  Where are the real sustainable investment collaborations? by Hugh Wheelan

Responsible Investor

In addition, as Lord Turner, chairman of the UK Financial Services Authority, argued in a speech this week, politicians and regulators need to rethink the view that more lending, greater liquidity and bigger markets are always better, whilst looking at transaction taxes and higher capital charges to curb risky trading that does not stimulate real economic growth. Institutional investors need to be at the heart of these vital discussions too.

Reports from the US, and elsewhere, indicate the potential for patient credit crisis relapse: housing foreclosures remain at dangerous levels while governments take their feet off the monetary gas in a continuing febrile economic climate. Who can say with confidence that they trust all the asset valuations on banks books, or have full faith in credit lines and the ability of companies to currently refinance debt? In todays complex financial world, its worth going back to basics. Institutional investors exist to invest their customers money over the long-term. The sustainability and proper functioning of financial markets as well as the greater economic well-being of the economy and society is at the heart of their mission and their fiduciary duty to their beneficiaries.

The inter-generational savings deal is vital to their political and economic viability. Hence, the traditional view that the essential role of the financial services sector is to facilitate the allocation of capital to economically productive uses. These are useful road markers most institutions can agree on to chart a way forward in markets that have become systematically predatory and socially unpopular. Institutional investors are large, influential players in the market. And markets are not neutral. Deregulation (aka light touch regulation) created the conditions for the many bubbles we have suffered, and for moral hazard. Better regulation, based on sustainable, long-term goals can lead to more stable, prosperous economies. Today, we have the unacceptable inertia of widespread agreement on the need for substantial financial market reform countered by a handwringing consensus that banks will use their political influence to block, delay and water any changes down.

The collective muscle of institutional investors could be the dynamic that tips the balance in favour of the public good. More strategic collaboration between institutions, with a strong emphasis on educating clients and lobbying decision-makers the latter wont work without the former is needed.

Once this intent develops, the finer, more complicated points can then at least be fully debated. A few thought leaders in the field understand this. But real impact, I believe, requires a behavioral change for organizations like the United Nations Principles for Responsible Investment (UNPRI) and the International Corporate Governance Network (ICGN), from whom weve heard little or nothing through this crisis. Responsible investment and better corporate governance are weakened concepts if the broader financial system is unsustainable.

If investor responsibility cant grapple with the big issues, what is the point of these organizations? We need them to step up to the plate. The US has taken something of a lead in this regard with the appointment of an Investor Advisory Committee to the Securities and Exchange Commission (SEC). It has a mandate to represent the viewpoints of investors for recommendations to the Commission. US investors should work hard to ensure its voice is heard. And the Volcker Plan even if it doesnt go far enough is a good example of real action.

Elsewhere, we need more joint effort of this type to examine where regulation needs influencing, vested interests loosening and systemic blockages unplugging. Skeptics who argue that this is something institutional investors cant or wont do need only look at the recent furor over the EU Alternative Investment Fund Managers Directive to witness the power of collective lobbying. That saw institutional investors stand up alongside private equity and hedge fund lobbyists to target governments, leading to this weeks Directive postponement. Whatever the merits of that campaign, I would argue that the future sustainability of the financial system merits an equal, if not greater, mutual response.

[Mar 19, 2010]  The Unseen Risk Stalking Your Portfolio - Yahoo! Finance

The largest generation in U.S. history, the close to 80 million Baby Boomers are currently marching into retirement age. And with more than 50% of the value of U.S. financial market assets in their hands, according to one estimate, the pace at which boomers decide to liquidate retirement accounts could determine the overall direction of U.S. stock prices.

If that sounds dramatic, consider that equity prices, as money manger Ken Fisher has often noted, boil down not to P/E ratios or prevailing interest rates, but to market supply and investor demand.

And so I ask, who's going to step up to put a bid underneath boomers' stock sales?

U.S. birth and workforce participation rates are in decline, which creates a stiff macro headwind. Moreover, the recent financial crisis may have turned off a generation of younger stock investors. Finally, what assets have recently exited money market funds have largely sought the perceived safety of bonds. Twice bitten in the past decade, U.S. investors may remain shy.

Ultimately, while popular domestic names such as eBay (Nasdaq: EBAY - News), Wal-Mart (NYSE: WMT - News), and CVS Caremark (NYSE: CVS - News) may look cheap -- given that all three are trading at a discount to their five-year average price-to-earnings ratios -- years of marketwide selling pressure could see current valuations become 2015's trailing five-year high.

But maybe not
In 2009, the Congressional Budget Office (CBO) produced a research report on this very topic.

Its findings were notable on two accounts. One, financial assets are concentrated among the wealthiest boomers, and historically, the richest Americans rarely spend down financial assets during retirement. Two, the report argues that rising international demand, particularly from Chinese and Indian investors, is likely to prop up U.S. stock and bond prices.

Furthermore, as noted in separate studies, there's a good chance that many boomers will simply end up working longer, thus moderating asset drawdowns.

Nonetheless, I remain cautious. Current and future health-care costs, which aren't captured in previous empirical studies, could force boomers to sell assets more quickly and in larger chunks than expected.

Finally, while net purchases of U.S. equities by foreign investors have generally risen across the past decades, the questionable state of the U.S. economy may soon stamp out that trend.

Accordingly, I recommend that investors not only keep an eye on U.S. equity flows, but also make sure that their portfolios are well-exposed to companies domiciled in nations whose middle class is growing.

[Mar 18, 2010] Jim Cramer's TheStreet Is Being Investigated By The SEC zero hedge

by the grateful un...:

The reason Cramer continues on the air has more to do with the way the industry markets cable content. Mad Money is part of the CNBC package. Imagine you go to dinner at your favorite chain restaurant and the waitress brings you a Pepsi. You say, I hate Pepsi, get it out of here, she says it comes with your meal. Even if you refuse it registers as a sale. Now if you think that violates the racketeering laws you are probably correct. The difficulty is there is no feedback mechanism in place to registers viewer complaints, not that anyone would complain about free Pepsi anyway. What do you want, fewer channels maybe?

Sure the FCC should do something, but without the cover of the CNBC corporate umbrella, (how much of do they own I wonder?, his business would dry up and blow away probably. However even if his ratings slip, CNBC would just move him back into the main body of the show, which is what they do with Kudlow, and they would stuff him down your throat anyway. Their programming is an extended stock market informercial, and Cramer plays a role in the process, and will continue to do so until the bear market reasserts itself, although you must admit the CNBC people are pretty nimble at getting on the bears side when the market turns. The NBC Nightly News is just as porous. Soon they will go to custom subscriptions, and that should change a lot of things.

NGC 6888:

I totally agree w/ you and would go one further.  First, one needs to realize that the FCC, the SEC, etcetera are simple bureaucracies that can easily be exploited and do not have a grand picture of how to protect investors/viewers from all but the most obviously criminal infractions.  Second, Cramer is an entertainer (in my view a cheesy one in a land of total boors) in an industry (television programming) that does not care about the health of its viewers.  THIRD, CNBC programming is attrocious, but it is truly one of the best franchises on TV.  The reason is that there is a dependable stream of businesses that keep it running in the background with the volume turned off.  It is a singular monopoly in business programming.  Most people have never heard of Bloomberg or Fox Business.  Also, most people hate watching investments TV and don't understand it but are aware of the CNBC product so it is appropriate to air the network in a place of business on mute.

Most of the so called viewers are oblivious to the programming quality or lack thereof.  How many nursing homes or senile old timers flipping channels get counted as Mad Money viewers?

I see a total resistance to change for any outcome other than indictment and/or complete scandal (but then again we are talking about boors so that is unlikely).

the grateful un...:

you were aware that while he ran his hedge fund back in the go go late 90's that he was accused by some of his own people of using maria bartiromo to pump up shares of mister softy, in the morning, so he could sell into the rally in the afternoon. that high fives among them were common place. that he bragged about the relationship and how profitable it was.

his hedge fund was a comparative bust. his website was better, i was a subscriber for a while, and the information they gave out was solid. and he did some bylines i still remember, good stuff. he knows how rotten the system was, and still is probably, which is why his multiple personality skit is so disturbing.

i wonder does anyone know, is the karen who is on fast money, the trading goddess, his wife, he spoke about in reverential terms? sometime the history of jim cramer should be written (as a cautionary tale).

NGC 6888:

I never got into his website.  I was mentioned once, in a small blurb, on his website and still have the clipping somewhere.

Yes, he was a scammer that exploited the system in borderline illegal ways and probable fraudulent ways but was never prosecuted.  He made a gazillion dollars before his scams were busted. In a bar, he would probably admit as much.  I guess that makes him a sharp dresser, a talented opera singer and unnaturally pleasant smelling.


No wonder I saw an extra special shit-eatin-grin on his face tonight. I think this can be taken care of with an autographed copy of "Getting Back to Even".


It would be interesting to know the demographics of his audience...IQ, net worth, career, schooling, income, etc., etc.

Unbelievable that people watch him.


To give you an example of the sad state of this country, I've seen shows where he gives "advice" to crowds of students on college campuses.

NGC 6888:

There is a fresh batch of suckers at MIT or U of Michigan every year.  Cramer is smart enough to realize that.  Fact is, his long time viewers (?) are serial money losers or skeptics, critics or fans of dark humor.

My guess is there are fewer than 50,000 sane people that watch CNBC regularly for more than 5 minutes a day- unmuted- and take it seriously.


College students:  people with overconfidence and zero excess cash (and usually in debt)...  The last people who should be messing with the stock market.  They should be finding good jobs and paying off student loans and building up a healthy emergency fund of cash.  I'm not saying a few day-trading millionaires weren't made in the last bull market in dorm rooms across America's college campuses, but buy and large Cramer's buy, buy, buy, sell, sell, sell trading recommendations are not a real strategy for the average college student (or really anyone else for that matter).

Although:  zero cash + in debt + overly-self-confident = hungry market for get-rich-quick advice

[Mar 18, 2010]  Technical Analyst Charles Nenner Predicts the Market May Crash in April zero hedge

Charles has a long career that includes stints at medical school, Merrill Lynch, Rabobank, and 12 years at Goldman Sachs. He has spent three decades developing his proprietary Cycle Analysis System, which generates calls of tops and bottoms for every major market in the world. Charles developed a huge following after 2007, when he accurately nailed the top in the Dow at 14,500 and urged his clients to put on short positions when everyone else was predicting that the market would keep grinding higher. I have been following Charles daily research reports myself for two years, and found them to be uncannily accurate.

Master Bates

Yes, holding dollars and doing nothing is a big problem, because you will always lose to inflation.
My opinion though is that much of the inflation that will come in the future has already been priced into the gold market, and more.  Of course, this is where our opinions differ.

My other argument is the opportunity cost that comes with tying up money in physical assets over a large period of time.  This leaves you exposed to the market's fluctuations more than I would personally like.

Anyway, I agree with you in some ways, and disagree in others.  It doesn't mean that I don't like you though.  :)


Rates of 13% are impossible.

There is NO ACTIVITY in the US in the aggregate that can produce this profit margin.

Yields are declining and will continue to do so.  Now, the effective inflation rate may look like we should have 13% yields, but only because the Fed is buying the coupon.

An interest rate of 13% is highly deflationary...that would suck the life out of any borrowing demand in existence.  It's hard enough to move credit at 1% right now.


liquidity in banks OH what!

where are the JOBS? What are we PRODUCING?

I apologize for the evident hostility in my words.It is not directed at any of you reading this.

BTW This is not mentally or emotionally healthy

to live under these stressful conditions .

i suggest we all do something fun today as well as give ourselves a moment to be thankful for what we DO have.


Agree with everything except the time table. I believe it plays out over a longer period of time. Sorry Leo, things are getting worse, not better. I deal with thousands of different companies in the mid to semi-large size as our customers at work and they all tell me the same thing. There is no work, there is nothing to do and we are going to start laying off again....probably by the end of May. You take the otherside of that trade, but hold it for a I believe his time frame is too short.

Master Bates :

Out of all of my friends (we're all relatively young people) about half have been laid off in the last three to six months.

From my buddy who worked as a baked goods salesman, who got laid off because his company folded, to my buddy the master welder, to my buddy the master carpenter, to me, who got laid off to "cut costs." I was running the business for my owner, who spent his money all day while I handled the day to day stresses. Now, he came back to run the company to save my 60k salary, and told me "thanks, but I'm sure you'll find something else". I could go on and on with these stories.

Out of my friends who still have work, most work in a liquor distribution warehouse. This business would not be solid, except for it has a monopoly distributing many popular brands like Jack Daniels to area liquor stores without any competition.

Of my other friends who still have jobs, most are just hanging on. My other buddy who is also a master carpenter (who has been in the business for 15 years or so) says that most of the people at his company have already been laid off, and he's lucky to be working on the one project that his company has right now. When this project finishes, there is no guarantee that there will be more work.

Anybody that says that this economy is recovering clearly are not looking at the real picture.
I would estimate that unemployment for people in their mid to late 20s is probably closer to 30-40%. I could go on and on with my stories of layoffs of bright, hardworking people that never missed work. I can name at least four more people that I know directly, probably more.

The only truth is that this economy is not recovering.

Master Bates:

I'm pretty much on your level. I know that we tend to disagree about gold, but I do see deflation happening now, followed by hyper inflation when people get angry and can't stand it anymore. With that said, I'm really in agreement with you.

People WILL get pissed and riot when they have no food or viable futures, and that's when the government will really crank up the presses. Personally, I believe that this is already priced into gold, but we're not really talking about gold, so I don't want to travel down that road.

Anyway, it's a rough time in America. I'm happy that your daughter has a good job. She's not lucky, she deserves it I'm sure. Many other people deserve it too, but are unlucky. Anyway, I'd never been unhappy because somebody else is doing better than me, so good!

I'm somewhat lucky because I managed to save some money and I was already a student for a couple of years when I lost my job. If I can't get another one, I can live off the UI for a while, then exhaust my savings, then if worst comes to worst - at least I'm a proven student with a 4.0. I can probably get some student loans.

Still, I'm scared for the future. All I want is the opportunity to succeed. I'm sure most Americans are in my boat.


Future will be contained. Nothing bad will happen in near term.

Look trough the history. As long as we can feed people with the "hope" or "faith" ( anything) - we are good to prolong the agony. We will change the top and will blame on the previous one ( which is in other terms will renew the idea of hope).

And don't forget , then everything falls- we just simply will be pushing patriotism.

And pardon my spelling...

augmister :

How deflated is your 4.0 GPA? Look what that is buying you now in the marketplace?

It seems rather worthless now, doesn't it? If you do go back to paying that inflated price for an American education, make sure you study high tech or anything food/ag related. You will be able to at least, get by in the Depression. Be very afraid. The good times are over.

I can see the markets tanking from here and April is not far fetched....wait till the taxes are collected and the accounting on the collection baskets show huge shortfalls, both on Fed and local levels. Everything but the politicians throats get the knife! Deflation. The baby will be thrown out with the wash.... No jobs, hungry angry people and civil disobedience to follow. Nobody cares and everyone ready to throw the next guy under the bus. Grow a pair and get your skin thick. Think survival. Ugly, and no way around it. Leave It to Beaver will look like a wet dream.....

Master Bates

I am accounting/finance dual major. I would like to potentially attend law school after I get my bachelors (I'm a junior now.)

I would have been an electrical engineer- but I have the mind of an engineer, and the dexterity of a disabled person. (LOL) I have a great knack for working on electrical systems and analyzing problems, but I've blown a couple of circuit boards in my day because of being clumsy too! With that said, being an engineer probably isn't right for me!
As far as high tech, many of those jobs are going to India anyway, which is why I didn't pick that, although I may just get an information systems minor instead of a finance minor.

I still stand by my decision to go to school and also to get a 4.0. I still believe that luck favors those that try hard, and also that this economic mess will get better someday. The sun will come out tomorrow, even if it isn't tomorrow.


Join the club, Bates. I'm a 20-something with an identical degree profile, and living in FLA hasn't made my life any easier after being laid off over a year ago. I was able to procure contract work (thank god the world still needs auditors... for some reason) in order to fill the gap, but that doesn't mean I'm back on the horse; all the benefits have disappeared, and I'm relying on my relative youth and my COBRA extension to carry me through. Times are certainly hard, but I understand the drive behind your educational destination. Although I was quite adept in a number of subjects, few appealed to me on a holistic level like FIN/ACC. You're bright, and although I question some of your positions, they're generally thought provoking (until you start harassing the gold bugs ad infinitum :-)). Best of luck going forward; we'll all need it.

Master Bates:

Good luck to you too man. It's a shame that so many people like us want to work as hard as we can and can't. Anybody that wants to work in America should be able to.

ChevronSky :

It's not just the high-tech jobs going to India. You mentioned going to law school. Well, law firms are also outsourcing legal work to India. Indian students attend law school in the US, typically graduating in the top 20% of their class, pass a state bar exam, and return to India. There, they can perform legal research/writing (it's all done online anyway through Westlaw/Lexis), earn $35,000 USD/year, and live in a nice house with two Mercedes and all the upper-middle-class trimmings they could want. Why pay new associates 100k plus a year, when equal talent is available for a fraction of the cost?

Just another frustrating piece of the system...


Same age group as you dude. Been busting my hump since 15, finished school, bachelors, masters degrees, all while working. There is no easy route, but the one thing I can honestly say: be true to yourself.

Don't go sucking someone's ass just to get a job, 'cause you'll fuckin hate it and hate yourself. I see this all the time these days and I feel so bad for these people.

I basically pay my own wage, however, if I don't want to do that anymore, it's a bundle of cash from the safe, and a nice third world country/surf board for me (Thailand, Indonesia, Philippines, Vietnam, somewhere in South America perhaps?)

Good luck to you dude.


I agree as well. I'm a consultant in a small firm. We're chasing people for payment, people are chasing us for payment, and we're all chasing after a dwindling share of jobs to bid on. We used to compete against maybe two or three other local firms for jobs. Now we compete with ten to twenty from all across the West.

I don't know how much longer I'll be here. Have been stashing away as much money as possible to prepare for unemployment, but with a young family there isn't a lot of fat in the budget.

Anyway, looking around, listening to people, I have a very grim sense of the business climate for the remainder of this year. Layoffs starting in May sound about right to me. A very slow, hot summer.

I live in Portland, OR where we've had a ton of young people moving here. Many were underemployed even in the good times. We'll see what they do when the reality of all this really sinks in.


Taking this post and this quote from your above: "The only truth is that this economy is not recovering." While that may not be the only truth, is certainly is true.

Mostly, all you ever say is "gold is bad". So again, I'd like to invite you to lay out for us your scenario going forward. How does this debt-deflation / deleveraging resolve itself? How does the government / currency survive a self-reinforcing deflationary spiral?

Master Bates:

I think that we all know that the end to deflation will come from inflation. I'm not disagreeing with anybody here that we will need more currency to absolve the problem.

Where I deviate from the general concensus is that I believe that this has already been anticipated by the markets. Gold had a huge run up with relatively little underlying inflation. People have already placed inflation into the price of gold, I believe.

Also, I don't believe that the fix will be as bad as some people believe it to be.

While I know that inflation is coming, I just don't think that it will be as bad as people think, for one, and two, I think that it is already priced into gold.


Gold has been prices between $1050 and $1150 for about 6 months now with a couple small spikes upward in that time. A $30 move doesn't concern me at this point, in either direction. Gold is in a range and when the trend line moves clearly out of that range would be time to watch.

Having said that, I still think deflation is the next big act in the theater of the absurd. But I disagree with you in that this deflation is going to be worse than anything we've ever seen, including the Great Depression. I expect the "Great Recession" to morph into the "Greater Depression" in the next 12-24 months. There is still way, way, way too much debt outstanding that can never be collected at its current mark-to-fantasy pricing. Actual collections will run from a few cents on the dollar to maybe $0.30 on the dollar tops. And I mark that $0.30 on the dollar based on what I see happening with each bank closed by the FDIC, and other such actual market resolutions to existing debt.

The US is in a trap that the hyperinflationists miss - the US cannot inflate faster than the rest of the world or else it will lose its status as the world reserve currency. The Fed, faced with the choice between losing its source of power (the dollar as the global reserve currency) versus bankrupting the rest of America, will surely choose to bankrupt the rest of America before it gives up the levers of power. Indeed, a massive deflationary collapse further enhances Fed power over the entire world as other currencies are hyperinflated to try to "cure" the depression but then collapse in failure. This leaves the dollar as king, a sort of one-eyed man leading the blind.

Sometimes I wonder if deflation was the goal all along. It allows those in power to grab real assets at firesale prices while at the same time strengthening the dollar, which further entrenches the banking class. Hyperinflation is just a ploy by politicians to buy more time for one more election and it destroys the currency. Deflation is a move by a master chess player who wants all the pieces for himself and his is planning his next 10 moves at the same time. Nations that have hyperinflated had direct control of their currencies. So far the US does not. In fact, the bankers themselves control the Fed which controls the currency. So which scenario makes more sense? Destroy themselves and the very thing that gives them their power (the dollar) to try to save politicians for one more election cycle? Or destroy the middle class to obtain even more long term control over the real economy?

[Mar 16, 2010]  Guest Post Broken Incentives People See What Theyre Incentivized to See. If You Pay Someone Not to See the Truth, They Wont See the Truth

March 15, 2010 | naked capitalism


good stuff George, thanks for your blogging efforts.

The claims that Wall Stret is paid to delude itself and people see what theyre incentivized to see is really rather shallow analysis as much as I enjoy Mr. Lewis writing.

People with a sense of empathy for society at large, a degree of character and dignity, and a general sense of personal responsibility will in fact see beyond what they are incentivized to see.

They will stand up and say No. This is wrong. We have to fix this. This is hurting people. We are leaders and we can lead in a different direction.

Many of the people that could have done that and said that before and during the GFC were millionaires many times over. They didnt need to keep getting paid. They didnt, in fact, need another penny and even then they would have been rich for the rest of their lives.

This is beyond incentives. It reaches into the realms of cult-like addiction, pyschopathology and the structure of invidual and group consciousness. There are no heavyweights that have the ability to analyze all this to the degree it merits. Most of the stuff written about it is shallow bullshit, little journalistic nibbles of thought, like Doritoes.


Paying bonuses in toxic assets flat out will not work.

This whole thing reminds me of the tax shelter game which went on for decates and involved nearly every major law firm, accounting firm and investment bank. It didnt stop until they started putting people in jail. They ruined some lives in the process but everyone got the word loud and clear and the activity stopped dead in its tracs.

If it were up to me I would require all compensation to be paid in cash in the year earned. If a bank fails (and a failure would include a government bailout) any compensation paid in the last 5 years in excess of $250,000 per year would be treater as a fraudulent conveyance and subject to forfeiture in favor of the creditors or stockholders if anything was left.

Additionally, if they really start putting people in jail for accounting fraud it will stop.

Evelyn Sinclair:

An acquaintance just sent me this:

If you missed 60 minutes last evening, youll want to read the transcript and optionally watch the video.;cbsCarousel

I decided to check it out. I didnt make it past the first page of the transcript and wrote him back

You believe this???

Im afraid that our culture will come to the conclusion, cause its always the easy conclusion, that everybody was just a bunch of criminals*. I think the story is much more interesting than that. I think its a story of mass delusion, Lewis said.

Lewis forte has always been discovering little-known facts and characters that change peoples perception about a story. So when he finally sat down at his computer with sacks full of research to write about this calamity, he had no interest in Treasury Secretary Hank Paulson, or Ben Bernanke, or the CEOs of Wall Streets big investment banks, who he believes had no clue what was going on while it was going on. **

He wanted to tell the story through the eyes of people who were paying attention and who knew that a financial disaster was inevitable.

There are a handful of characters who actually had seen it coming and made a fortune off of it ***. And there were so few of them, and there were so many people who had been on the other side that I thought that I kind of wondered who they were and why they got themselves into that position, Lewis said. What they saw. Almost more how they saw.

Asked how many people he thinks were in the world who understood what was going on, Lewis told Kroft, Between 10 and 20 investors **** at most and this is from the universe of tens of thousands of people who could have conceivably made that bet.


* If they arent criminals its because they got the laws changed to decriminalize their methods. But I think there is also fraud involved.

** Like Greenspan, with his Im shocked, shocked stance. They knew.

And JEEEZ if Paulson and Bernanke were such retards that they were ignorant of what was going on, why do they get to be in charge of all the money now? It has been suggested that people who were among those who saw the situation coming a long way off should be the ones put in charge, rather than the current Goldman clique.

***There were whole troops of people working for various financial institutions eagerly manufacturing subprime loans, bundling and processing them into tranched and retranched Toxic Waste to deceptively label AAA and sell. This was such a hot industry that bartenders were being drafted off the streets to become Loan Officers to feed more and more NINJA loans into the massively lucrative derivatives market.

****Between 10 and 20 people knew what was going on? Good lord.

Another Great Depression Coming Soon

Pension Pulse

Helming has had dark visions of tomorrow before. For example, when the stock market crashed in October 1987, Helming feared the worst.

Were heading for a recession we havent seen the likes of since the 1930s, he told The Star at the time.

Helming saw summer 1990 as the onset of the most serious deflationary recession weve had in over 50 years.

He declared outright in November 1992 that the nations economy had entered a depression. And July 1994 reminded him of what happened in the early 1930s.

We know now he was wrong. That doesnt keep his or others dire forecasts from attracting attention during hard times.

A depression remains in the economic forecasts of author Harry Dent Jr., and deflation figures strongly in the views of economist Gary Shilling and technical analyst Robert Prechter.

Gloom and doom never really goes away, as if in good times we want reminders not to overdo it. But predictions of a sharp depression are clearly outside the mainstream of economic forecasts today.

Talk of depression had rattled markets a year ago, for example, when Harvard economist Robert Barro put the odds at 20 percent. Recently, he set them close to zero for 2010.

Most economists expect a weak, slow recovery but a recovery all the same.

Bubbles dont burst

Helming makes his case for what he calls a modern-day depression in his 195-page, self-published book.

Well see a sustained drop in the prices of just about everything, from stocks and real estate to wages and commodities. Some of that is happening now.

Helming argues that much more lies ahead. He said decades of easy credit and increasingly widespread use of debt by governments, companies and consumers have inflated the economy and the price of nearly everything to unreasonable heights.

We borrowed our way to prosperity, and that has never in history been sustainable, Helming said.

In short, were living in an economy packed with bubbles.

But in Helmings forecast, bubbles this big dont burst. They deflate.

It will take years, difficult years, to deflate prices, unwind excessive debt and stabilize the overblown economy, he said. It will take a depression. Think of Japans lost economic decade of the 1990s, he said.

... ... ...

Eyes of the storm

As bad as the last two years have been, Helming says the most difficult stretch starts later this year.

By 2012, unemployment will climb to 12 percent from the current 9.7 percent. Add in discouraged workers or those who are underemployed and Helming sees 32 million, or 20 percent of the work force, suffering from a lousy job market.

Houses will lose half the value they had in 2006, he said, adding that theyre already down by a third.

The Dow Jones industrial average, currently above 10,600, likely falls below 4,000 and possibly as low as 1,500 or even 500, he said. Little wonder that Helmings advice is to dump all your stocks by the end of April.

Cash will be king, so youd want to own federally insured bank deposits, U.S. Treasury debts, and only the best corporate bonds and annuities.

... ... ...

Wheres the proof?

For all its numbers and graphs, Helmings book is short on proof that he is right this time.

He offered three reasons his earlier predictions fizzled.

Thats something that clearly bought more time, Helming said.

Many other economists say government support of credit markets avoided a depression. Others say debts burden can be dealt with gradually by saving more as a nation without wrecking the economy.

Those who dont expect a severe depression have the same problem Helming faces.

They cant prove we wont have one.

... ... ...

My own thoughts on this is that we have escaped the worst case scenario, but we are in for a long, tough slug ahead. The forces of deflation and inflation are playing themselves out, leaving financial markets wishy-washy. I still think stocks are the best asset class and that corporate spreads will come in further in 2010, but my buddy who trades currencies is right, this is a great environment to be selling volatility.

I am, however, less enthusiastic on private markets, especially commercial real estate which is the next bubble to burst, hammering many banks in the process. And it's not just banks. Many pension funds invested enormous sums in commercial real estate through direct equity stakes and mezzanine real estate debt. They too are going to get hammered.

So while I am cautiously optimistic and try to focus on the little good news percolating up from the global recovery, there are still many significant challenges that lie ahead. Is another Great Depression headed our way? Let's all pray and Bill Helming is wrong again.

[Mar 14, 2010] Probe Questions Driver's Account of 'Runaway Prius' - CNBC By ELLIOT SPAGAT and KEN THOMAS

Was it staged ? If so what was the motive ? To sue Toyota ?  Was he financially strapped ?

Investigators with Toyota Motor Corp. and the federal government were unable to make a Toyota Prius speed out of control as its owner said it did on a California freeway, according to a memorandum obtained Saturday by the AP that a congressional spokesman says casts doubt on the driver's story.

James Sikes, 61, called police Monday to report losing control of his Prius as the hybrid reached speeds of 94 mph (151 kph). A California Highway Patrol officer helped Sikes bring the vehicle to a safe stop on Interstate 8 near San Diego.

Federal and Toyota investigators who examined and test drove the car could not replicate the problems Sikes said he encountered, the memo said.

The findings raise questions about "the credibility of Mr. Sikes' reporting of events," said Kurt Bardella, a spokesman for California Rep. Darrell Issa, the top Republican on the House Oversight Committee that is looking into the incident.

Sikes could not be reached to comment. However, his wife, Patty Sikes, said he stands by his story.

"Everyone can just leave us alone," she said. "Jim didn't get hurt. There's no intent at all to sue Toyota. If any good can come out of this, maybe they can find out what happened so other people don't get killed."

Mrs. Sikes said the couple's lives have been turned upside down since Monday and they are getting death threats.

"We're just fed up with all of it," she said. "Our careers are ruined and life is just not good anymore."

During two hours of test drives Thursday, technicians with Toyota and the National Highway Traffic Safety Administration failed to duplicate the same experience that Sikes described, according to the memo prepared for the Oversight Committee.

"It does not appear to be feasibly possible, both electronically and mechanically that his gas pedal was stuck to the floor and he was slamming on the brake at the same time," the memo stated.

The brakes on the Prius also did not show wear consistent with having been applied at full force at high speeds for a long period, the Wall Street Journal reported Saturday, citing three people familiar with the probe, whom it did not name. The newspaper said the brakes may have been applied intermittently.

Toyota spokesman Mike Michels declined to confirm the Journal's report. He said the investigation was continuing and the company planned to release technical findings soon.

Michels said the hybrid braking system in the Prius would make the engine lose power if the brakes and accelerator were pressed at the same time.

Transportation Department spokeswoman Jill Zuckman said investigators "are still reviewing data and have not reached any conclusions."

Sikes called police from the freeway on Monday and reported that his gas pedal was stuck and he could not slow down. In two calls that spanned 23 minutes, a dispatcher repeatedly told him to throw the car into neutral and turn it off.

Sikes later said he had put down the phone to keep both hands on the wheel and was afraid the car would flip if he put it in neutral at such high speed.

The officer who eventually pulled alongside the car and told Sikes over a loudspeaker to push the brake pedal to the floor and apply the emergency brake said Sikes braking coincided with a steep incline on the freeway.

Once the car slowed to 50 mph, Sikes shut off the engine, the officer said.

The memorandum obtained by The AP said when investigators placed the Prius up on a lift, they found the driver side front wheel well was dislodged and the brake pads were worn down. "Visually checking the brake pads and rotor it was clearly visible that there was nothing left," the memo said.

Drivers of two other Toyota vehicles that crashed last week said those incidents also resulted from the vehicles accelerating suddenly.

NHTSA is sending experts to a New York City suburb where the driver of a 2005 Prius said she crashed into a stone wall Monday after the car accelerated on its own.

And in Fort Wayne, Indiana, the driver of a 2007 Lexus said it careened through a parking lot and crashed into a light pole Thursday after its accelerator suddenly dropped to the floor. That car was the subject of a floor mat recall. Driver Myrna Cook of Paulding, Ohio, said it had been repaired.

[Mar 14, 2010]  Cramers Bull Case For Banks..... I Can Smell A Top... ;-)

It's amazing how funny this Wall Street shill can be... It's even more funnier that some people consider his show as actionable advice...
March 10, 2010 | immobilienblasen

Oh boy..... After the ( even by his standarts.... ) famous "Housing & Bank Stock Shortage" call from January 2008 ( NO KIDDING > see "Ten Trillion $ Worth Of Good Calls" ) was a little bit "premature" he is predicting a bank stock shortage version 2.0.... Would at least be honest if he mentioned the "ultimate moral hazard trade" & the "Enron-esque characteristics" when it comes to accounting as the two main reasons behind the motives to own banks.... ;-)

Just for the record here are the two main ETFs tracking the financial sector.....

John Hussman Rips Apart CNBC ZH
In reflecting on why the past 15 years have been so riddled by irresponsible speculation, it is impossible to ignore the rise over that same period of widely-viewed financial programming that is equally riddled with cartoonish content that encourages short-term thinking and speculation (buy-buy-buy! sell-sell-sell! boo-yah!)
"Anti Spin" from Chris Whalen via NC ( MUST READ!!!!)
In fact, the banking system is continuing to sink under bad loans and even worse securities losses. Telling the public that the banks are fixed is irresponsible. Unfortunately this false perception is widespread, including among major media such as CNBC and also with a number of my clients in the hedge fund world.
But at least Bubblevision is a very good tool to spot sentiment......

[Mar 15, 2010]  Econbrowser The challenges ahead for world oil

Dargay and Gately conclude:

The factors most responsible for reducing demand since 1971 cannot be repeated. Almost all the low-hanging fruit has now been picked; it cannot be picked again. The OECD has already done the easy fuel-switching, away from oil used in electricity generation and space heating.

The authors' inference is not an optimistic one:

If annual per-capita oil demand growth rates to 2030 were assumed to be held zero in the OECD, 1% in the [former Soviet Union], and at its 1971-2008 historical rate (2.54% annually) in the rest of the world, total oil demand will be 138 mbd in 2030-- about 30 mbd greater than what is projected by DOE, IEA, and OPEC.

If you have a plan for how the world might produce 138 mbd, I'd like to hear it. If not, the challenges of 2007-2008 will return with a vengeance.

Transportation adjustments will be the key. Trying to make more use of natural gas as a transportation fuel should be a high priority for the United States.



Coal-To-Liquids is waiting in the wings. We'll simply have to make a choice between supplying world demand for motor fuels at affordable prices, but tolerating increased CO2 emissions, or living with crushing oil prices, with the resulting cash flows to unfriendly OPEC countries. There's also the "plug-in-hybrids" solution, but affordability there will likewise depend on increasing the supply of coal-burning electric power plants.

Question: When the option for affordable, plentiful, and domestically-produced (and domestically job-expanding) coal-to-liquids technology is presented in an political context where gas is +$4 a gallon for an extended duration, how long would any commitment to CO2 emissions control in the US survive? And in other coal-reserve nations? China? Canada? India? Russia? South Africa?

For a long-term bet, in a petroleum-constrained world, I'd have to go with higher coal utilization and higher CO2 levels.

Cedric Regula

Here's the Honda Civic GX.

A.V. Suni

There are plenty of unconventional sources left (see e.g. Rogner, 1997). Coal-to-liquids are profitable when oil price is above 30-35 USD/barrel. We'll run out of nature much before running out of oil.


This is not news to those who have followed the oil industry for years but maybe this series of papers will help educate those who believe that our energy intensive lifestyle can continue on the cheap.

[Mar 14, 2010]  Indefensible Men

March 13, 2010 | naked capitalism
From the December 2009 issue of The Baffler (no online version of this article available). For those not familiar with The Baffler, this is the revival of a magazine of business and culture edited by Thomas Frank that had previously been published from 1988 to 2007. This issue was called Margin Call and included articles by Matt Taibbi, Naomi Klein, Michael Lind. I believe readers will find this piece to be relevant. Enjoy!

Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.

Reinhold Niebuhr, Moral Man and Immoral Society

A year on from its brush with Armageddon, the financial services industry has resumed its reckless, self-serving ways It isnt hard to see why this has aroused simmering rage in normally complacent, pro-capitalist Main Street America. The budget commitments to salvaging the financial sector come to nearly $3 trillion, equivalent to more than $20,000 per federal income tax payer. To add insult to injury, the miscreants have also availed themselves of more welfare programs in the form of lending facilities and guarantees, totaling nearly $12 trillion, not all of which will prove to be money well spent.

Wall Street just looted the public on a massive scale. Having found this to be a wondrously lucrative exercise, it looks set to do it all over again.

These people above all were supposed to understand money, the value of it, the risks attendant with it. The industry broadly defined, even including once lowly commercial bank employees, profited handsomely as the debt bubble grew. Compensation per worker in the early 1980s was similar to that of all non-government employees. It started accelerating in 1983, and hit 181 percent of the level of private sector pay by 2007. The rewards at the top were rich indeed. The average employee at Goldman Sachs made $630,000 in 2007. That includes everyone, the receptionists, the guys in the mail room, the back office staff. Eight-figure bonuses for big producers became standard in the last cycle. And if the fourth quarter of 2009 proves as lucrative as the first three, Goldmans bonuses for the year will exceed bubble-peak levels.

Selected Comments

Tom Crowl:

Fantastic article and overview of the culture of Wall Street and its unfortunate evolution. Paradoxically, much of this arises as a consequence of biological altruisms dysfunction in scaled societies Which is why we need regulations and oversight

A couple of brief posts on these issues if interested:


Ina Pickle,

You say:

It seems to me that the core problem is a horrifically skewed incentive structure, amplified through a microcosm that seeks to extract everything possible out of humans like strip miners destroying a landscape. The personality traits and skill set useful to surviving the experience are not those conducive to correcting the problem, or to improving the business. The whole business becomes extractive in all its dealings.

That reminds me of this Niebuhr quote:

The spirit of capitalism is the spirit of an irreverent exploitation of nature, conceived as a treasure-house of riches which will guarantee everything which might be regarded as the good life. Man masters nature. But the social organization of capitalism at least theoretically rests upon the naive faith that nature masters man and that her pre-established harmonies will prevent the human enterprise from involving itself in any serious catastrophes (physiocratic theory).

Reinhold Niebuhr, The Nature and Destiny of Man


More excellent writing. This is a good description of the paper economy. It doesnt produce real, sustained wealth or serve any useful societal function. It is all about money chasing itself, about markets divorced from their real world underpinnings, yet which at the same time have large, distorting, destructive effects on the real world economy.

These people whether you call them MOTU or banksters are unreformable. They are gamers. They only know the game. Anything you do to control them they will game on you. This is why regulation will not work with them. There was regulation. They filled the regulatory apparatus with their people. What about the politicians? No problem, they bought them too. Then they had them deregulate the regulators.

Fraud has become an institutionalized part of the financial system. And why not? Who is going to call the banksters on it? The regulators? People who either have or will work for them? The politicians whom they own? We just went through two years of the worst financial crisis since the Great Depression and we could well have worse to come, yet what was the upshot for Wall Street? Trillions in bailouts, no strings attached, no punishment of the banksters, no prosecutions, not even any investigations, and, of course, no curbs on bonuses. And reform? Do you even need to ask? DOA. Or maybe I should say, DBA. Dead before arrival.

Because of its size, complexity, and above all culture of fraud and criminality, the only way real reform is going to work is if the system is taken over in its entirety and restructured from the ground up. Most of those now in the financial industry need to be banned for life from it. Their assets need to be RICOed, and they need to face charges. I am talking of prosecutions in the 10,000 plus range.

We should not view these people by what they say they are or how their bought stooges in government and the media defend them, but rather we should judge them by their actions. Do this and you will see they are the great financial terrorists of our times. They have done more damage to us and our country than Osama bin Laden or al Qaeda could ever dream of. I am not looking for revenge here. No Gitmos. I think simple justice fairly applied would be harsh enough. But I dont see that. I see another collapse and somewhere an explosion that will either reassert our Constitutional processes or more likely destroy them.


Calling this mindset sociopathology is spot on. Its a common disease in this country, mostly infecting the jobs involving expensive wardrobes and obscure vocabulary. One of the ways you can see this is a current example and how it relates to law.

The Lehman report reveals an act with Repos that was certainly an attempt to defraud. Yet, the report calls the deception colorable rather than unlawful, a fraud thats only a fraud against, oh, someone somewhere. Not something that would send people to jail, rather something that should be settled by civil lawsuits. Lots of civil lawsuits, requiring lots of hours of legal work by lots of highly-paid lawyers. One notes in passing this was a report by lawyers, but that may not have relevance.

The relevance is that instead of public officials defending the public, we have private individuals settling things among themselves. From honest finance being a public good, its now just a civil arrangement. You cant expect anything, since its all negotiable before and after you say yes. Hand over your money and take what they give you. Both as an individual and as the state.

The danger is that the descent from public law to civil law will keep going. Getting to private law, like the Open Carry wackos, is no longer so wacky.

[Mar 13, 2010]  Long Periods of Drought Followed by High Winds zero hedge

Nice note on potential harm of excessive financial masturbation :-)

High levels of debt, followed by extended low interest rates Are these morons serious?  This is an inviolable principle, if these economic imbeciles actually treated seriously their field of study.  Arent these central planners supposed to be adults who dress themselves, tie their own shoes in the morning, and make themselves cold cereal before they go off to work to destroy peoples lives?  What the hell are they thinking? 

This is like surgeons in the 1840s strutting around, Hey, were surgeons, and our brains are HUGE, and hand washing is stupid, because weve never heard of these things called germs!  Surgeons continued to kill over a quarter of their patients for decades, including women delivering babies in hospitals, until the 1880s when Pasteur extended Kochs germ theory of disease.  The murderers had no idea they were killing literally every one they touched, and were even so bold as to ridicule, show hostility, and discredit anyone who suggested hand washing was a good idea.  Poor Holmes.  Poor Semmelweis.

Our central planners in our central banks are religious nuts.  They show none of the attributes of professionals in a disciplined field of study, and all the attributes of brain-dead zombies performing ritualistic incantations (like the banks they pretend to manage and regulate).  Our treasury departments are equally insane.  They refuse to wash their hands as they un-invitedly break into each of our homes to devalue our currency, and ensure sovereign defaults worldwide.  They have muddy feet too.

Were economists, and our brains are HUGE, and we can have free lunches FOREVER because weve never heard of this thing called debt!  Theres no possible way to engineer a setup for more complete destruction.  Murderers.  Morons.

Being charitable:  Economists have a different world view from normal people.

Being non-charitable:  Economists are literal economic and common-sense morons.

By artificially forcing interest rates too low for an extended period, economists are literally fanning the flames of stupidity.  When deleveraging begins, the rates will rise sharply, causing a feedback loop that explodes the conflagration of debt unwind to the point where it will annihilate everything in its path.  Can this be avoided?  Not anymore, with Captain Jackass at the helm ensuring that little old ladies can no longer live on their fixed income CDs.  Weve already had our record levels of leverage and our extended period of low interest rates.

Its a good thing economists dont have any professional standards, or they would be guilty of professional incompetence.  Its a good thing they remain unaccountable to society, because their actions are criminal negligence.

When a fire science professional screws up, someone usually dies, and the professional goes to jail.  When an economist screws up, people lose everything they have spent a lifetime accumulating, people starve, nations fall, we go to war, and millions die.  Economists will then pretend to tweak their theories and go on book tours.

How hard is this to understand?  With high fuels loading, you will get a fire.  We hope and pray the acreage burns when we have high humidity and low winds, to ensure it doesnt burn too hot and too fast.  That helps ensure the destruction is not *so* complete that nothing remains.  Its silly talk to say you wont get a fire, because that immediately disqualifies you from any sensible participation in the discussion with actual adults.

With record high debt levels, you will deleverage.  We hope and pray the deleveraging occurs when you have a relatively healthy economy (ha!) and relatively high interest rates (ha!), to ensure leverage remains only for productive activities (ha!) and deleveraging starts with non-productive activities (ha!).

We are in a period of record high debt levels, followed by an extended period of record low interest rates.  Oh, CR*P!  At this point, because of the debt levels and leverage, raising interest rates is impossible (nearly all sovereigns would default instantly with even a one or two percentage point increase in interest rates).  CR*P! CR*P! CR*P!  Even today, we are held together only through accounting fraud collusion among private institutions, central banks, and sovereigns.  (Yes, were talking about go-to-jail fraud.)  CR*P! CR*P! CR*P! CR*P! CR*P! CR*P!  Still, we can be assured that defaults will inevitably happen, and interest rates will inevitably rise.  These private institutions, central banks, and sovereigns are all toast.  Pathetically, they all earned it.

The ship has sailed, and we are betrayed by the economists.  Central banks and sovereigns the world over utterly failed in their job, not that they were ever qualified to do the job they pretended to perform.  We will get a spark.  Some happy camper will be irresponsible with his adult beverage around the too-big campfire.  When the spark happens, a million acres burning across Yellowstone will look like a cute evening of nostalgic fun.

No, at this point, there is no way out.  Thanks a lot, you friggin central planning feeble-minded morons!  Unlike you, normal people can actually do the math.  Even now, you economists wont recognize your utter failure in your field of study?  You pretend to use big words, but its easy to recognize them as merely confused baby-mumblings.  Clearly nobody should have let you wear big boy pants.  In the true mark of immaturity, you wont even admit to the increasing stench from the pile of brown stuff in your underwear.  Who the hell do you think will actually have to clean up that mess?

Mammas, dont let your babies grow up to be economists.

on Fri, 03/12/2010 - 17:34

Really economics is a great profession "The government is always right! Now where is my paycheck"  they might as well hire bums and invalids to do the job.  It's not hard to parrot what Uncle Sugar is saying.  Though in your example it might also fit in that these economists are willful arsonists.  They pour gas everywhere while chain smoking, and when the fire does break out they scream for more gasoline to put the fire out.

The real painful thing is the bad ideas never leave.  Like you said they have a minor tweak and are presented to a new generation of believing suckers.  I know to many professors that have said "Oh it won't happen this time, he learned form the past". the only thing they learned fro teh past was how to cover their ass.

on Fri, 03/12/2010 - 21:27

We are nearing the next stage in this saga. Please understand that economics, at least to those on the inside, has never been confused as a science. It is merely a useful device in advancing the interests of those who play with people's lives on a global macro scale.


So sad that I agree with your statement.  We agree that economics today is merely a rationalization tool to move the sheep around.

I did not want to complicate my assertion with things like fiscal v. monetary policy, separation of the treasury from the central bank, fractional reserve lending, etc., because I want to make a very simple assertion, which is two-fold:

  1. IMHO most people have some level of respect for economists, as professionals.  I don't, and I'm calling "bullshit" in a manner that cannot be misunderstood.
  2. Economists make the world worse, never better, and are never accountable for the continual grievous harm they inflict on the rest of us.

For any economists out there, your rebuttal MUST start with the phrase, "We've shown economists made the world better by [insert your unsupported bullshit here]".

In short, I'm calling them out:  They continue to claim their "societal tweaks" will keep giving us new, good, free stuff that we wouldn't have gotten except for their HUGE brains.  I call bullshit.

And yes, IMHO the damage they do is on purpose (although lots of it is simply because they are morons).

Finally, as I allude in the article, I have respect for the concept of economics.  I just don't think that should ever be trusted to economists, who happen to be economic morons.

For example, if surgeons today never washed their hands, I could similarly say, "I have respect for the concept of surgery, I just don't think that it should ever be trusted to surgeons, who are moronic murderers."

on Fri, 03/12/2010 - 18:51

As a wildland fire professional and amateur doom economist, I couldn't agree more. When I think of the "garbage-in-garbage-out" nature of the long- and short-term fire behavior modeling I routinely do, I am simply amused by the idea of economics as a science. Milton Friedman and his followers will someday be reviled as the soulless, discompassionate killers that they really are. In other words, they'll be revealved as shills for the wealthy in the class war that's rapidly coming to a head. There does seem to be a lot of fire in Greece these days, but it's not the kind I would care to predict. Fire on the landscape, with all the nuanced effects of thermodynamics and surface winds, is far more predictable than people are. And maybe, just maybe, we will begin to reward those who DO NOT simply act in their own self-interest.

jeff montanye
on Sat, 03/13/2010 - 08:30

imo the revelation of friedman you speak of is already well begun in naomi klein's "the shock doctrine" (next real life installment coming soon to a sovereign debt market near someone).


[Mar 13, 2010]  Charlie Gasparino Owes David Einhorn (and me) an Apology

March 12th, 2010 | The Big Picture

Andrew Leonard:

Lehman Brothers: Caught cheating, again

But its not that complicated. Lots of people knew that Lehman was playing games with its numbers, even if they didnt know exactly how. What they didnt know was the chain reaction that Lehmans catastrophic failure would cause. And Dick Fuld, who was signing off on bogus quarterly statements, has no right to be aggrieved, not after pocketing hundreds of millions even as his company imploded much of which, we hope, will be squandered in an unsuccessful legal defense.

Barry Ritholtz was one of the Wall Street watchers calling bullshit on Lehman at exactly the time when the bank was cooking the books, and he was ridiculed by name for it on CNBC. Ritholtz seized upon the release of the new report as an opportunity to settle some old scores. The video is instructive if only to remind us how complicit the financial press was in the whole charade.


March 13th, 2010 at 7:46 am
A little more detail from the Examiners Report on the SECs handling of short sellers who focused on Lehman.

Note how the regulators are doing Lehmans bidding by calling out short sellers as manipulators. This is pretty clear evidence of how politicized the SEC has become. They too, like Gasparino, had ceased to worry about facts and apparently were more concerned with who was on the other end of the phone and who they worked for. Thomsen and Sirri of the SEC resigned in early 2009 in the wake of the Madoff revelations.

p. 713: After Bear Stearns nearly collapsed, short sellers began to focus on Lehman and other banks. On March 20, 2008, Russo [LEH's general counsel] contacted Linda Thomsen, the SECs Head of Enforcement, regarding rumors of hedge funds taking another run at Lehman. On April 1, 2008, at Lehmans prompting, Erik R. Sirri, head of the SECs CSE program, made a statement at an annual conference regarding the SECs view of the seriousness of rumors and stock manipulation in the context of short sales. At the April 15, 2008 Board meeting, Lehmans management discussed Lehmans concerns regarding short selling. On May 21, 2008, at the Ira Sohn Conference, one day after the comment period for the SECs proposed rule concluded, Einhorn gave a presentation on Lehman, analyzing Lehmans Form 10‐Q, filed April 9, 2008.2767 Einhorn announced that he was shorting Lehmans stock based on his belief that the stock was over‐valued. Before that presentation, Einhorn had corresponded with Callan in mid‐May 2008, as part of what he described as fact‐checking in advance of his presentation at the Ira Sohn Conference. Einhorn focused on four major issues in his correspondence with Callan and in his May 21, 2008 speech: (1) Lehmans disclosures regarding CDO exposure and related write‐downs; (2) the difference between the amount of Level III assets disclosed in the Form 10‐Q filed in February 2008 and during Lehmans first quarter 2008 earnings call; (3) Lehmans disclosure and valuation of its stake in KSK Energy; and (4) Lehmans write downs of its CMBS assets. On the day of Einhorns speech, Lehmans stock closed down $2.44, with its highest volume of the entire month of May 2008. Einhorns criticism of Lehman and Callan is commonly cited as the reason for Callans replacement less than three weeks later.

Highlighting the pervasiveness of the rot in the regulatory system, this excerpt from the Report indicates that the general counsel of the NY Fed concluded, after reading Einhorns book on Allied Capital, that maybe these shorts knew what they were doing. However, the institution was unable to make the leap from that insight to actually mustering up some inquiry into Lehmans solvency. So who might have quashed Baxters initiative? Most likely his boss and your current Treasury secretary, TurboTax Timmy

Following the near collapse of Bear Stearns, Einhorn published a book, Fooling Some of the People All of the Time, which focused on Allied Capital. Thomas C. Baxter, Jr., General Counsel to the FRBNY, said that reading Einhorns book made him think that the FRBNY should pay more attention to short sellers concerns. However, Baxter did not reach that conclusion for the reason that Lehman would have wanted, namely to persuade the Government to regulate short sellers, but rather because it appeared to Baxter that Einhorn may have been shorting Lehman for good cause. Baxter was unable to say, however, whether anyone at the Federal Reserve followed up on Einhorns criticism of Lehman in his speech.

[Mar 12, 2010]  The world economy has no easy way out of the mire by Martin Wolf

February 23, 2010 | FT

Anybody who looks carefully at the world economy will recognise that a degree of monetary and fiscal stimulus unprecedented in peacetime is all that is prodding it along, not only in high-income countries, but also in big emerging ones. The conventional wisdom is that it will also be possible to manage a smooth exit. Nothing seems less likely. So let us consider the endgame, instead.

The remainder of this column can be read here. Please post comments below.


[Mar 12, 2010]  FT Alphaville The genesis of Repo 105

Nice illustration of criminally negligent regulators. Should not they reopen Alcatraz specifically for white collar criminals in regulatory agencies ? In many ways it not suprizting that despite window dressing the mechanism was so transparently fraudulent.
March 13

The Real Limey:

I think I've got it worked out from reading through the appropriate parts of FAS140 and the report:

Throughout this I'm going to refer to the entity that holds the assets in the first place as the "borrower" and the entity that has the money as the "lender"
FAS140 says that a repo agreement can be booked as a sale by the borrower under the following conditions:
1) Assets are out of the control of the borrower, even in bankruptcy.
2) Assets can be re-repo'd by the lender.
3) The borrower does not maintain effective control over the transferred assets through either
a) An agreement that entitles and obligates the borrower to repurchase or redeem them before their maturity or
b) The ability to unilaterally cause the lender to return certain assets (other than in certain circumstances.

Let's take these things one by one.

1) Is the issue that appears to be the subject of the "True Sale" opinion from Linklaters. Paras 27 and 28 go in to more detail about what is required for this condition to be true:

"Derecognition of transferred assets is appropriate only if the available evidence provides reasonable assurance that the transferred assets would be beyond the reach of the powers of a bankruptcy trustee or other receiver for the transferor or any consolidated affiliate of the transferor that is not a special-purpose corporation or other entity designed to make remote the possibility that it would enter bankruptcy or other receivership (paragraph 83(c))"

In fact, it even states that "It also may include making judgments about the kind of bankruptcy or other receivership into which a transferor or SPE might be placed, whether a transfer of financial assets would likely be deemed a true sale at law.".

We know that a repo is a "true sale at law" under English law - is it under US?

2) This would be within the master agreement with each counterparty and is under the control of lender/borrower. In this case it appears obvious that such agreement could be easily arrived at.


A) The agreement that entitles and obligates the borrower to repurchase or redeem them before their maturity:

Para 47 sets out the requirements for an agreement under part A:
" The assets to be repurchased or redeemed are the same or substantially the same as those
transferred (paragraph 48).
The transferor is able to repurchase or redeem them on substantially the agreed terms, even
in the event of default by the transferee (paragraph 49).
The agreement is to repurchase or redeem them before maturity, at a fixed or determinable
The agreement is entered into concurrently with the transfer."

So all of those conditions were not met. From what I can tell Lehman's focused on the second part of this. The guidance in para 49 states "To be able to repurchase or redeem assets on substantially the agreed terms, even in the event of default by the transferee, a transferor must at all times during the contract term have obtained cash or other collateral sufficient to fund substantially all of the cost of purchasing replacement assets from others"

This is where the extra-large haircut comes in. Because of the over collateralisation, the borrower (AKA transferor) had not obtained cash sufficient to buy replacement assets from others.

This all comes down to the definition of "substantially all". Para 218 of FAS140 says this:

"Judgment is needed to interpret the term substantially all and other aspects of the criterion that the terms of a repurchase agreement do not maintain effective control over the transferred asset. However, arrangements to repurchase or lend readily obtainable securities, typically with as much as 98 percent collateralization (for entities agreeing to repurchase) or as little as 102 percent overcollateralization (for securities lenders), valued daily and adjusted up or down frequently for changes in the market price of the security transferred and with clear powers to use that collateral quickly in the event of default, typically fall clearly with in that guideline. The Board believes that other collateral arrangements typically fall well outside that guideline."

In other words, the 105% failed the substantially all test, and thus the requirements of Para 47 are met.

My (personal, non-US GAAP qualified, non lawyer) opinion:

The one line I quoted earlier from FRS5 Appendix B would stop this happening under UK GAAP.


THEY STOLE KEN LAY'S BRAIN: http://williambanz...en-lays-brain.html

What surprises is not what or about...but what has not been done about...


and this one from the same blog:


Useful link here:

Tracy Alloway:

Real Limey - they should all still be there. The other two are:


The Real Limey:

How can an investor trust any set of financial statements signed off by EY?

And didn't there used to be three posts on Repo 105?

[Mar 13, 2010]  US households absolute deleveraging

March 12  | FT Alphaville

Jim Fickett:

Felix Salmon gives a partial answer to RapidFire's question:

"Total credit-card debt outstanding dropped by $93 billion, or almost 10%, over the course of 2009. Is that cause for celebration, and evidence that U.S. households are finally getting their act together when it comes to deleveraging their personal finances? No. A fascinating spreadsheet from CardHub breaks that number down by looking at two variables: time, on the one hand, and charge-offs, on the other.

It turns out that while total debt outstanding dropped by $93 billion, charge-offs added up to $83 billion which means that only 10% of the decrease in credit card debt less than $10 billion was due to people actually paying down their balances."

See http://blogs.reute...-credit-card-debt/

[Mar 12, 2010]  Labor Unions Preparing To Take Goldman Sachs To Task, Push For Transaction Tax In Upcoming Widespread Rallies by Tyler Durden

"two weeks of protests aimed at Goldman Sachs Group Inc., the most profitable securities firm in U.S. history, and the countrys five other largest banks.

America's labor unions are finally waking up from their deep slumber and noticing the vast schism in American society between the haves and the have nots. The catalyst: Wall Street's $16.2 billion bonus pay day.

As a result Richard Trumka, head of the AFL-CIO, the nation's largest union organization, and a firm supporter of the transaction tax which was proposed in late 2009 and then promptly buried after some serious lobbying by Wall Street, will announce today "two weeks of protests aimed at Goldman Sachs Group Inc., the most profitable securities firm in U.S. history, and the countrys five other largest banks. The AFL-CIO says it plans 200 events covering all 50 states, starting March 15." Summarizing the mood of increasing populist aggression across the nation against Wall Street's uber-wealthy is labor professor at UC Berkley Harley Shaiken:

Wall Street has become a symbol of greed run amok, and what labor is doing here is seeking to demonstrate that it is speaking for working families generally, union member or non- union member.

 Strikes in Greece have already paralyzed the country. Will America soon follow?

[Mar 11, 2010]  Spike in Prius complaints may not be all it seems

Yahoo! Finance

Complaints of runaway Priuses spike, but it could have something to do with psychology

A 2005 Toyota Prius, which was in an accident, is seen at a police station in Harrison, New York, Wednesday, March 10, 2010. The driver of the Toyota Prius told police that the car accelerated on its own, then lurched down a driveway, across a road and into a stone wall.(AP Photo/Seth Wenig)

Erin Mcclam and Tom Krisher, Associated Press Writers, On Wednesday March 10, 2010, 9:25 pm

NEW YORK (AP) -- Reports of sudden acceleration in the Toyota Prius have spiked across the country. But that doesn't mean there's an epidemic of bad gas pedals in the popular hybrid.

Experts on consumer psychology say the relentless negative media attention Toyota has received since the fall makes it much more likely that drivers will mistake anything unexpected -- or even a misplaced foot -- for actual danger.

"When people expect problems, they're more likely to find them," said Lars Perner, a professor of clinical marketing at Marshall School of Business at University of Southern California.

In just the first 10 weeks of this year, 272 complaints have been filed nationwide for speed control problems with the Prius, according to an Associated Press analysis of unverified complaints received by the National Highway Traffic Safety Administration.

By comparison, only 74 complaints were filed in all of last year, and just eight the year before that.

For problems with the brakes, rather than the gas, the figures are even more stark: 1,816 filed so far this year versus just 90 in all of 2009 and fewer than 20 in every other year of the last decade. Toyota recalled 440,000 Priuses on Feb. 8 because its antilock brakes seemed to fail momentarily on bumpy roads.

It's doubtful the Priuses of the past two years suddenly became more dangerous than those made in years past. After all, Toyota's own recall for Prius floor mats that can trap gas pedals covers model years 2004 to 2009.

Earlier this week came one of the most high-profile case of any Toyota problem so far: A man driving on a Southern California freeway said his 2008 Prius sped out of control, reaching 94 mph, before a patrol officer helped him bring it to a stop.

Then, in suburban New York, the owner of a 2005 Prius said his housekeeper was driving it forward down the driveway when the car lurched forward, crossed the street and hit a stone wall.

"She appears to have all her faculties," Capt. Anthony Marraccini of the Harrison, N.Y., police said of the housekeeper Wednesday. "She didn't appear to be disoriented in any way. There's nothing at this particular time that would indicate driver error."

Investigators from the federal government and Toyota are looking at both cases, and authorities have not suggested either case is anything but legitimate.

Toyota has continually said it has found nothing wrong with its electronic throttle controls and that it is confident they work properly.

The automaker has recalled 8.5 million vehicles worldwide -- more than 6 million in the United States -- because of acceleration problems in multiple models and braking issues in the Prius. Regulators have linked 52 deaths to crashes allegedly caused by accelerator problems.

Electronics experts say the computers, sensors and wires that control the throttle can be compromised by electronic interference. Toyota insists the problems with its cars have been mechanical.

Toyota has a "quite lengthy" procedure for its specialists when they evaluate cars, including a diagnostic check, an oscilloscope to test electronics and a checklist of potential problems, spokesman Brian Lyons said.

The 2008 Prius, the model involved in the California freeway runaway, would have been equipped with a backup mechanism designed to cut power to the wheels if the gas and brake pedals are depressed at the same time, Toyota says.

The driver, James Sikes, said he jammed the brake repeatedly, even stood on it, before he was able to bring the car under control.

A Toyota spokesman, John Hanson, said Toyota engineers talked with Sikes on Tuesday, but he did not know what was said in the interview.

Toyota's engineers, as well as investigators from the National Highway Traffic Safety Administration, will check physical evidence from the Prius and compare that with what Sikes said in the interviews, Hanson said.

The government does not give statistics on how many of the reported car problems are actually confirmed. Toyota keeps its own stats -- and, perhaps not surprisingly, does not release them.

So there's no way to know how many runaway cases are for real -- even as the figures pile ever higher.

The phenomenon has plenty of parallels.

In 2003, thanks to a media blitz by the police union, New Yorkers were convinced the cops were on a ticket-writing spree, for everything from sitting on a milk crate to resting on the steps of subway station. It turned out tickets were actually on the decline.

Think of medical students who learn about all sorts of disorders and then suspect they may be stricken by them. Or muckraking journalist Lincoln Steffens, who competed for police scoops with his fellow newspapermen and once wrote: "I enjoy crime waves. I made one once."

Even the heightened number of complaints is relatively small compared with how many Priuses are on the road. Toyota sold about 750,000 of them from 2004 to 2009.

But as long as reports of Prius profile keep rolling in -- just look at the extensive coverage given to a single crash in that New York suburb, something that would have gone utterly unnoticed a year ago -- expect complaints to keep rising.

"We are basically anticipating them happening, and we may be prone to jump to conclusions," said L.J. Shrum, a marketing professor who specializes in consumer psychology at University of Texas at San Antonio.

AP Auto Writer Tom Krisher reported from Detroit. AP Auto Writer Dan Strumpf in New York and Associated Press writers Jim Fitzgerald in Harrison, N.Y., Emily Fredrix in New York and Elliot Spagat in San Diego contributed to this report.

Economic Outlook - Economy 'Far too Close' to Double Dip Roubini by Antonia Oprita

Mar 10, 2010 |

Poor economic data in the US coupled with Europe's debt crisis are contributing to an increase of the risk of the US economy going through a double-dip recession, Nouriel Roubini, who predicted the 2007 financial crisis, wrote in a research paper.

At best, the US economy is headed for a U-shaped recovery this year, Roubini said. That has been his prediction in recent months.

The US faces challenges in the second half, especially as fiscal stimulus measures fade, and "appears far too close to the tipping point of a double-dip recession," he said.

The euro zone is also facing an increased risk of a double-dip fall, because of its ongoing debt crisis, he wrote.

Even if the euro zone does not suffer a double dip, growth in demand will be even more limited and this will hurt the United States' potential for export growth, according to Roubini's paper.

The Roubini Global Economics benchmark scenario puts the risk of a double dip at 20 percent, while a slow, protracted, U-shaped recovery is given the highest probability of 60 percent.

But since the end of February new macroeconomic data from the US have come out and "they have been almost uniformly poor, if not outright awful," Roubini wrote.

Consumer confidence has "tanked", new home sales are "collapsing," existing home sales are also falling sharply, as is construction activity, while initial jobless claims remain "stubbornly high" above the 400,000 mark, he said.

Despite the fact that the growth in gross domestic product (GDP) was revised upwards to an annual rate of 5.9 percent in the fourth quarter, most of it, around 3.9 percent, was due to inventories, Roubini noted.


Roubini says U-shaped recovery 60 percent, double dip recovery 20 percent -- seems like a reasonable guess. However, the other thing I found interesting in this article was the statement:

"So, at the time of maximum policy STIMULUS (second-half of 2009), final sales were growing only at a pathetic 1.8 percent average rate," Roubini explained.

That does not bode well for a second stimulus plan that is now under discussion. Instead of throwing money at the problem, we need to refocus our nation's goals, come up with our own debt-reduction plan, and then get out of the way and let people get on with life. The economy will heal itself when it has an established direction and people can begin to make rational decisions again.


When the Fed cant back without a re-collapse, when the market chirps and rallies over the latest meaningless spin of its roulette wheel, when we realize the old is dead and further and extraordinarily expensive efforts at resuscitation continue to prove hopelesswell then know the truth about ourselves, and our countrys situation.

We wont need any pundit to guide us; well be able to see (finally) the real wreckage of our past shortsightedness, though many will still not have a clue about what needs to be done next.

Thatll take even more wrangling and expensive hand wringing.

My main hope is that this happens much sooner than later. What few resources we will have left (printed or borrowed) may not be enough to remake (not merely rebuild) no matter how strong our belief is.

Time is NOT on our side.


Consumer confidence, construction, cost of homes, creation of new jobs, and, might we add, claims of the jobless have all cast a cloud on the culture of economy of, not just the US, but of the Eurozone as well.

Asia, on the other hand, barring Japan, is relatively presenting a fairly aggressive GDP, effortlessly enhanced educational standards, and, last but not the least, a reasonable job market.
That gives all of us something to ponder about.


Why doesn't he join the club and make constructive input, instead of just armchair quarterbacking other people that have a difficult job to do.

Roubini is just a CNBC staple component in the hype machine,,, the hype machine that works for hedge fund criminals in efforts to crash the market for short selling.

In the meantime, Mad Money is already working on the next pump and dump... BUY BUY BUY,,, later it all works and we get the rug pulled out from under us!!!! as always.

This CNBC, Mad Money, Roubini, and Fast Money circuit has more effect on the market than anyone may think.


Any positive news regarding the market lately is just false hope. Hedge funds up - I wonder why - playing the downside with new money after others pulled out. Companies returning to profit or making more profit - this after cutting jobs and payroll. Real Estate turnaround - people buying more homes - most foreclosures and short sales we've seen ever. GDP up because inventories are up because people aren't spending money. If only people in the government saw this and actually did something about it.


CNBC is so predictable, it's ridiculous. In yesterday's article - US Stocks Could Rise Further; Double-Dip Less Likely: Cohen - I left a comment saying:

"Tomorrow's headline: 'Why We Should Expect a Double-Dip'"

And here we are, one day after a moron says a double-dip is unlikely we have another moron saying there's a double-dip right around the corner.

It's getting old, to say the least. Why can't we hold these "analysts" accountable for all their stupid predictions?


But besides the annoying fact that CNBC flip-flops everyday as to whether or not a double-dip is on the horizon, I do expect stocks to pull back soon..

The market is up more than 40% over the past year despite an economy that isn't improving at all, so I don't see how stocks can sustain this run for much longer.

Oil going up is about the only thing I have much confidence in right now. Everything else is just an illusion.

[Mar 6, 2010] The Empire Continues to Strike Back Team Obama Propaganda Campaign Reaches Fever Pitch

Obama administration are just neo-cons like Bush and Clinton administratios were. It is naive to expect anything from them.
naked capitalism

...But banking boosterism has succeeded all too well, allowing Team Obama to fantasize that it can get away with creating Potemkin prosperity in lieu of waging the pitched battles needed to lay the groundwork for the real thing.

Indeed, the adoption of the Theory of Positive Thinking has virtually guaranteed that nothing will change, unless there is sufficient deterioration in the real economy or the financial markets to provide compelling counter-evidence. One example is the paying back the TARP charade. As the banks continued to post improved earnings, no matter how phony they were, they argued that they were now healthy and should be allowed to pay back the TARP funding that had been crucial to their survival. The reason they were so keenly motivated to do should have been reason enough to deny their request: namely, that they wanted to escape restraints on executive compensation, virtually the only demand that the government had made. But overpaying staff and keeping too little in the way of risk reserves was precisely the behavior that led to the near collapse of the financial system. Going back to business as usual would virtually guarantee more looting of major financial firm and another series of collapses.

But the Obama administration miscalculated badly. First, it bought the financiers false promise that massive subsidies to them would kick start a economy. But economists are now estimating that it is likely to take five years to return to pre-crisis levels of unemployment. Obama took his eye off the ball. A Democratic Presidents most important responsibility is job creation. It is simply unacceptable to most Americans for Wall Street to be reaping record profits and bonuses while the rest of the country is suffering. Second, it assumed finance was too complicated to hold the attention of most citizens, and so the (non) initiatives under way now would attract comparatively little scrutiny. But as public ire remains high, the press coverage has become almost schizophrenic. Obvious public relations plants, like Ben Bernanke designation as Time Magazines Man of the Year (precisely when his confirmation is running into unexpected opposition) and stories in the New York Times that incorrectly reported some Goldman executive bonus cosmetics as meaningful concessions have co-existed with reports on the abject failure of Geithners mortgage modification program. While mainstream press coverage is still largely flattering, the desperation of the recent PR moves versus the continued public ire and recognition of where the Adminsitrationss priorities truly lie means the fissures are becoming a gaping chasm.

So with Obamas popularity falling sharply, it should be no surprise that the Administration is resorting to more concerted propaganda efforts. It may have no choice. Having ceded so much ground to the financiers, it has lost control of the battlefield. The banking lobbyists have perfected their tactics for blocking reform over the last two decades. Team Obama naively cast its lot with an industry that is vastly more skilled in the the dark art of the manufacture of consent than it is.

Selected comments


Powerful posting Yves!!!!

Thanks for that. I think about how effective their propaganda efforts would be without the internet shadow press. Overwhelming comes to mind.

Regardless of alternate perspectives on our situation, the folks in control have all the money and power at their fingertips. They are not going to let go of that control easily, if at all, ever.

To the extent that they let us craft our textual white noise and rants about their malfeasance shows their strength. They have started a preemptive war in Americas name, killed and maimed thousands in Americas name tortured many in Americas name..all in support of economic imperialism that is never discussed or even admitted to.

After dragging Americas name through the mud as they are doing, what compunction do you think they will have for not taking us out when we become too much of a problem for them?

After all, we all know it is the Dirty Fucking Hippies (DFH)fault anyway..

Bring on the evolution.

Alexandra Hamilton:

This strategy, of relying on propaganda to mask their true intent, has become inevitable, given the strategic corner the Obama Adminstration has painted itself in. And this campaign has become increasingly desperate as the inconsistency between the Adminsitrations product positioning and observable reality become increasingly evident.
The critical question here is: What will they do once this approach fails?

Ignim Brites:

What will the response be when the current approach fails? Stunned disbelief and catatonic paralysis. Does the Federal government really have the credibility to muster another 2 trillion or more for another bailout? Not likely. Consider how little it could get for another jobs bill. 15 billion. Come on. People need to begin thinking about how state governments can fill the void. And they need to start thinking about how the US Armed Fot harsh. Since nobody believe here that he would be in a political position to take a sounder position.

But you made your point convincingly. Only sound money proponents, Republicans la Ron Paul, offer some kind of support for the sort of policy you are pushing. Of course this means next to nothing.

fiscalliberal :

Excellent points to consider. I would just add that there has been no effective prosecution of the fraud in loan origination, ratings and regulaters not doing their jobs. Yes, I am suggesting that when regulaters look the other way, they should be held accountable. The Madow poster boy is meant to distract people, while the real crooks get a pass.

Got your book yesterday and starting to reading it.


Yes, that was brilliant.

Currently there are too few economist willing to question any line of argument that comes from the propaganda machines. I fear many economists have even partaken in the kool aid and cannot think for themselves anymore. But as you suggest, we are not in Oz and all the heel clicking wont get us safely home.

Thank you. Please keep at it.


Nicely done. A bit long, but then that seems to reflect the necessity of supporting what are otherwise self evident facts.

The previous administration was a failed administration prior to and upon its exit. The new administration would have 100 days to right the course of the ship of state. While change was promised, weve seen no hard a port nor hard starboard. Its been full ahead and prime the money pump.

This is a very big ship of state and it does not turn on a dime. While sentiment and the rudder may well be set to turn the ship, it will lumber on mile after mile before it even begins to shudder before initiating a turn. Knowing that, weve yet to see this administration even order a full rudder port or starboard.

The light speed flow of media eminations are capable of applying layer after layer of misinformation in a very short time. Leaks and spin that build to propaganda are what is being undertaken. It is blatant and cynical in its exercise and publication.

The thought that troubles me is that the children of light and the children of darkness are in conflict and it appears that the children of light are of insufficent number, awareness and power to prevail. The children of darkness are small in number yet wield enormous power that has been purchased with the bon mots of filthy lucre they bestow on those entrusted with the protection of the commonweal.

In far too many aspects its not about ideology, its about money grubbing and the self serving quest for power and all else be dammed.

i on the ball patriot :

Yves said;

So with Obamas popularity falling sharply, it should be no surprise that the Administration is resorting to more concerted propaganda efforts. It may have no choice. Having ceded so much ground to the financiers, it has lost control of the battlefield. The banking lobbyists have perfected their tactics for blocking reform over the last two decades. Team Obama naively cast its lot with an industry that is vastly more skilled in the the dark art of the manufacture of consent than it is.

Team Obama is team neo-con with its roots in Reagan and his mentor, commie union bashing Lemuel Boulware of GE. Team Obama is solidly in charge of the battlefield. The more concerted propaganda efforts (and spin is propaganda, there are no shades of gray) are meant to frenzify the divisiveness, easily done with so many of the marks still believing that this is about vanilla greed profit and taking such a limited domestic viewpoint. It is not, it is about pernicious greed control, global in nature, and creating a two tier global ruler and ruled world. Intentional global credit trap bombs plus intentionally over leverged counterfeit derivative bunker busting bombs, strategically dropped around the globe, have set the stage for the real battlefield of perpetual conflict that will cause the marks to struggle themselves to their own deaths.

The empire, in your title, is a global empire. The propaganda orchestration is global, and transparently similar in plan. Good summary and fire in this article, but give your gift to the globe. Broaden your viewpoint.

Deception is the strongest political force on the planet.

john c. halasz says:

Reposting a comment from another blog to save time and effort:

A slick, smooth-operating lawyer, projecting a vibrant profile after a decrepit predecessor, highly ambitious and therefore highly conformist, who accedes to power by promising to restore the status quo ante by reforming it, while struggling to hold together the center which will not hold, and all the while possessing only the dimmest operational grasp of the actual economic system he seeks to preserve/reform. Sounds a lot like Obama, no? AFAICT, aside from the contract law courses at Harvard, hes imbibed the neo-liberal brew at U. of Chi. with the slight leavening of behavioral economics/libertarian paternalism, and thats all he knows, while delegating the rest to his highly qualified advisors.

But who else does that basic description evoke? Perhaps Gorbachev? (Who attempted to revive the fortunes of the central planning system by decentralizing it, without realizing that the system had long since been a Potemkin village operation atop what amounted to an already de-centralized industrial barter system, thus decentralizing policies were actually re-centralizing and provoked an further economic decline).


A recent Rasmussen Poll indicates deep mistrust in government expressed in the sentiment that it works to serve itself and big business at the expense of the public.

With about 11 million+ unemployed, peak oil, hidden debt, and so on, we have a system creaking and straining to stay erect. This is classic unsustainability that leads to collapse.

Team Obama is solving the wrong problem: relying on Edward Bernays when it should understand M. King


This DFH will not be voting for Team Obama in 2012 unless some serious changes are made and made soon.

Luckily for Obama, (and unluckily for us) the Republic party is so chock full of nuts, that the question becomes whether or not any truly serious person could vote for more of GW Bush and friends again. With the exception of Ron Paul, I cant name another Republic that I consider serious enough to ever vote for.


Excellent Post!

But I think this point: But the Obama administration miscalculated badly. First, it bought the financiers false promise that massive subsidies to them would kick start a economy. needs further elaboration.

1) The Obama administration DID pass a stimulus plan also, so they were relying entirely on the bank bailout.

2) What they actually bought into was a bit more subtle than you express: the fear that nationalization was an unknown that could possibly do more harm than good.

The key failure was not that they didnt nationalize the banks but that they got absolutely nothing in return for their largess. Now they are forced to put lipstick on this pig (propaganda as you say) by pretending that banks are healthy (they repaid the TARP!) and pretending that they are getting tough with the banks (Obamas going to get back every dime given to the fat cat bankers).

Geithner, Summers, et al saved the banks but their closeness to the financial industry makes their actions in doing so suspect. Whether true or not, the way that bankers and the wealthy and well connected operate makes it easy to believe that Geithner, Summers, et al. 1) manipulated the debate so that the banks got much more favorable treatment than they deserved and 2) FAILED Obama by not providing a fuller picture of what the trade-offs were going forward. For his part, Obama FAILED the nation by ceding economic policymaking to the banks (in the form of Geithner, Summers, et al). It seems clear that Obama was more interested in reforming healthcare.

All in all, its a perfect political storm for Obama: he winds up owning the problems of the Bush administration (economy, war) and being much too close to the banks which are more hated now than at any time since the Great Depression.

The sad thing is: 1) so many hoped for so much better, and 2) the repubs would likely be much worse.

The best solution: take money out of politics:

Independent Accountant:

The same Wall Street crowd which owned Bush owns Obama. Ive said the stress tests were a sham and so have you. I am bored with this. The public will make no money from TARP. You have commented on poor TARP accounting. What more can I say? Kill the Fed.


Under the spreading chestnut tree
I sold you and you sold me

jake chase:


Mainstream media financial and business and economic reporting has been propaganda and nothing else since at least 1960. Before that I was too young to pay attention, although the 1913 Federal Reserve Act was certainly a triumph of manipulation and propaganda orchestrated by the insertion of Teddy Roosevelt into the 1912 presidential election as a third party candidate, which ousted the conservative, Taft, and installed the Morgan stooge, Woodrow Wilson, in the White House and made the Wall Street capture of money complete.

lambert strether:

Why do you think Obamas naive? He was the banksters Manchurian candidate from the start, and so far, hes exceeded the expectations his owners had for him.


Obamas critics are stuck between a rock and a hard place theyll be accused of racism whether they criticize him for being naive to fall for the banksters or for tricking the American people into believing that he would stand up against the banksters. This makes him above criticism. Which is why the banksters helped groom him for the presidency.

Stelios Theoharidis :

The problem of political capture has become largely intractable in US politics. Nothing short of a constitutional convention for competitive redistricting of congressional districts, reorganization of the senate to make it more democratic, campaign finance reform, a windfall profit tax on lobbyists, reform to the PAC system, and a universal day off for voting in the USA is going to give us the possibility of real reform and responsiveness.

If the root issue is that the political system is broken it really doesnt matter who enters into political office and what types of fantastic policy prescriptions you have for them. The latter is certainly worth talking about. But the issues of the day are symptoms of a larger disease. Until you begin to resolve the system you are not going to see legislation that doesnt simply work to perpetuate the interests of a narrow section of the US population, the concentrated groups that are protecting their privileges.


[Mar 9, 2010]  Happy Anniversary: Top and Bottom!By Barry Ritholtz

March 9th, 2010 | The Big Picture

By one of those oddly serendipitous coincidences, this week marks not one but two major Wall Street anniversaries:

Happy Bottoms: The 12 year low was set one year ago this week. On March 6, 2009, the markets made their Devil bottom: The S&P500 hit 666.79, down 57.69% from October 11, 2007 high of 1576.09. The Dow Jones Industrials peaked the same day at 14,198.10, and fell to 6,469.95. The Nasdaq peaked on October 31, 2007 at 2,861.51 far below the 2,000 peak (more on that later). It plummeted to a March 9th low last year at 1595.99.

Over that 18 month period from October 2007 to March 2009, the Dow lost 54.43% a drop of 7728.15 points. The SPX fell 57.69%, or 909.30 points. The Nazz also fell 55.77%, or in total points, 1595.99.

From the lows, the Dow is now up 63.31%, while the S&P500 has gained 70.77%, and the Nasdaq has added a fiery 83.83.%.

As I have discussed since 2003, we are in a decade plus long secular bear market that began with thee popping of the dot com bubble. The evidence strongly suggests that the current up move is a cyclical bull market rally within the context of this secular bear market and not the start of a new multi-decade bull move like 1982-2000 or 1946-1966. I expect this rally to end sometime over the next 12 months or so longer if the Fed keeps the accommodation on, shorter if they retire the printing presses earlier. If history holds, markets should encounter a 25%, or so correction at that future date, lasting about 13 months. What follows that correction is a broad trading range for several years.

To put this into context, we are now somewhere mid 1975, with the start of the next secular bull (i.e., 1982) a few years off in the future. Note these dates are only used for the broadest of context, not precise timing.

Unhappy Tops: The other big date is the anniversary of the dot com, telecom and tech bubble. That peaked on March 10, 2,000 at 5,132.52. Nasdaq bottomed 31 months later at 1,108.49 on October 10, 2002, it had lost 78% of its 2000 peak value. At 2,326 today, the index remains 54% off that record high even after an 84% rally from a year ago.

That was the start of the secular bear market. The strength of the rally from the rally from 2003 Iraq war beginning to the 2007 peak was driven by extra-ordinary Fed rates at generational lows, a financial sector that ignored risk, and massive deficit spending in the way of unfunded tax cuts and huge spending increases. Perhaps the best way to describe the 2003-07 rally is illusory.

We will see if history renders a similar verdict on the current move off of the March 2009 lows . . .

[Mar 9, 2010]  ECB's Jrgen Stark: Lost Decade Possible

3/08/2010 | CalculatedRisk

Jrgen Stark, Member of the Executive Board, European Central Bank, spoke at the NABE Economic Policy Conference that is being held in Arlington, Va. Stark's talk was titled: "Is the Global Economy Headed for a Lost Decade? A European Perspective".

From MarketWatch: 'Lost decade' possible for global economy, ECB's Stark says

"The failure to address long-overdue reform challenges promptly might result in a 'lost decade' for the global economy," Stark warned Monday ... "Only partial progress has been made so far, and the distortions that led to global imbalances are still present."
Despite some stability, "substantial fragilities remain and the outlook is fraught with risks," Stark said.
Stark apparently discussed the need for reform of financial oversight, flexible exchange rates (China), and more balanced trade.

Stark is also concerned about global stagflation.

And more from Reuters: ECB's Stark rebuffs European rescue fund idea

My view is another lost decade in the U.S. is unlikely, and I'm more concerned with deflationary pressures in the short term (next year or so) than stagflation.

Note: As I mentioned in the weekly schedule, Brian Sack, Executive Vice President, Federal Reserve Bank of New York will speak tonight (5 PM ET) on the Fed's Balance Sheet Policies. That is of more immediate interest!

pavel.chichikov :

No one will be able to predict the course of events of the next decade.


which means domestic demand must rise to replace the retrenchment playing out in the United States. Currency exchange rates must become more flexible.

There will be no rise in demand if the purchasing power of income continues to fall.

mock turtle:

 i have a prediction for the next decade

pain, ....plenty of pain,..... and lots of it

weve raped the constitution and destroyed any notion of privacy

weve raped our economic system and sold it as a sex slave to the puppet masters

and weve raped the ocean with garbage islands the size of small states floating in the atlantic and pacific

weve raped the environment with cancerous chemicals and a huge species mass extinction

usa, usa, usa, usa, usa

shill :

US Fiscal Path Unsustainable- Senior Budget Analyst - CNBC


If the most recent article on fusion power in Scientific American is correct, there will be no commercially significant breakthrough in fusion for the foreseeable future.

I believe it. Where is the money going to come from for the massive R/D and capital investment necessary to make such a technological leap? There's a reason why technology has advanced at such a breakneck pace in the past fifty years or so - because we've used so much future money to do so. Well, you can forget about that for the next few decades.


I'm more concerned with deflationary pressures in the short term (next year or so) than stagflation.

CR is joining my support group.


Stagflation is the process of stealing money through inflation from loans with static interest rates
it only works for a short while, and then everyone expects/plans/hedges against inflation such that there are no more exposed debts for the government to skim (I say government in a general sense, all debtors profit, and even if the government doesn't collect directly you can consider it a stimulus measure that doesn't impinge government's finances)

Even if this hypothetical stagflation were socially bearable, I wonder for how long do the benefits continue before the financial system adjusts and then what happens when that net boost to the economy disappears

The stagflation of 1970s USA -- which ended up with just a pure inflationary cycle providing no more benefits to debtors -- was ended by massive credit growth, spurned on from the federal level by deregulation and deficit spending. It would appear that this hypothetical period of stagflation could not end in the same way. If that is the case, then this hypothetical stagflation period just ends in a round trip back to square one.

I think that any path forward must ultimately deal with the big piles of debt, those who have to be rescued if they experience an unplanned loss of capital, and international relations in political, commercial, and cultural dimensions.



MLM wrote:

Tim Duy digging a little deeper into something CR brought up a few days ago:
Tim Duy's Fed Watch: Real Personal Income Less Transfer Payments

Love this chestnut from Tim:

Remember how we used to think the next financial crisis would be too little Treasury debt? Good times.


REBear wrote:

Were there any sectors (excluding commodities) that did well during the 70s?

The sunbelt as jobs were 'outsourced' from New England & Great Lakes south & west. Same going on today but the new 'south and west' lies outside the US. The US south and west is now just a hot rust belt.


 EvilHenryPaulson wrote:

I think that any path forward must ultimately deal with the big piles of debt, those who have to be rescued if they experience an unplanned loss of capital, and international relations in political, commercial, and cultural dimensions.

I'm with you. IMO in the present global economic climate, real wage increases are highly unlikely and therefore private debt repayment is basically impossible. As a result private debt cannot be relieved unless it is first passed to the public and then defaulted on either under a globally agreed upon mechanism or otherwise in less pleasant fashion, in slow motion, country by country.


 U.S. energy production has seen little increase in 30 years domestically with the increase in use being enabled by importing fossil fuels.

Unfortunately, we really haven't increased our renewable production or nuclear energy production much despite the hype (see the doe tables). We are competing for imported energy now so we have to produce our own domestic energy whether that be fossil or renewable or nuclear. I vote for all three.
Table 1.1 Primary Energy Overview, 1949-2008 (Quadrillion Btu)



[Mar 6, 2010]  ECONned How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism   by Yves Smith

Two major themes:
Price:$20.45 & eligible for FREE Super Saver Shipping

Why are we in such a financial mess today?  There are lots of proximate causes: over-leverage, global imbalances, bad financial technology that lead to widespread underestimation of risk.

But these are all symptoms. Until we isolate and tackle fundamental causes, we will fail to extirpate the disease.  ECONned is the first book to examine the unquestioned role of economists as policy-makers, and how they helped create an unmitigated economic disaster.

Here, Yves Smith looks at how economists in key policy positions put doctrine before hard evidence, ignoring the deteriorating conditions and rising dangers that eventually led them, and us, off the cliff and into financial meltdown.  Intelligently written for the layman, Smith takes us on a terrifying investigation of the financial realm over the last twenty-five years of misrepresentations, naive interpretations of economic conditions, rationalizations of bad outcomes, and rejection of clear signs of growing instability.

In eConned, author Yves Smith reveals:

Great Faulkner's Ghost

I have been a huge fan of author Yves Smith's Naked Capitalism blog for years now, and this book is a major triumph, putting in one place and fully developing the major themes that Smith has explored on her blog over the course of the recent financial crisis. While this might appear to be well-plowed territory, Smith tells it as an economics story that is really a story of a failed democracy.

The linchpin of her work is the ascendant power of Wall Street over Main Street during the Greenspan era and now the Bernanke era. Complicit with politicians, financial regulators, and the revolving door of government service, the big Wall Street firms and banks have, according to Smith, seized the political process to serve their narrow, financial interests instead of those interests that serve a well-functioning polity.

However, despite the seemingly inflammatory thesis, this book is no rant.  Smith, an industry insider, is one of the smartest and expert observers of the flawed process that we now have, and the book is loaded with incisive explanations that pull it all together for the average reader in clear and at times thrilling language.

In the broadest sense, this is a moral tract as much as an economics and political one. The moral outrage, while controlled and polite, is palpable on every page. In essence, this is a deeply informed book that does what economics and political tracts almost never do: it tugs at the heart as well as at the mind.

[Mar 6, 2010]  Employment Report- 36K Jobs Lost, 9.7% Unemployment Rate


Cinco-X wrote:

A Tale Of Two Great Depressions -


"Threatened with the exhaustion of its gold supply," Frum said, "the government felt it had no choice: It had to close the budget deficit. So, in the throes of a severe downturn, the U.S. government did exactly the opposite of what economists would otherwise advise: It cut spending and raised taxes capsizing the economy even deeper into depression."

But as the table below shows, that version of the history of the Great Depression is entirely fictional.

During every year of Hoover's administration, from 1929 to 1932, federal expenditure increased.

Also conveniently left out by the economics profession is the rate cuts in 1927 in order to "fix" the economy that lead to the 1928-1929 bubble blastoff.


black dog wrote:

"The average workweek for all employees on private nonfarm payrolls declined by 0.1 hour to 33.8 hours in February.

In other words, America is barely working full time now; 2 hours fewer, and we'll be a part-time nation....


ac wrote:

Also conveniently left out by the economics profession is the rate cuts in 1927 in order to "fix" the economy that lead to the 1928-1929 bubble blastoff.

Damn that sounds familiar! Has "easy money" ever been a problem since then?
.sam.2 (profile) wrote on Fri, 3/5/2010 - 6:11 am U-6 increased from 16.5 to 16.8 Jan>Feb

Also, census hires is masking underlying trend

Guess it doesn't matter anyway, the pom poms are out!


ac wrote:

Also conveniently left out by the economics profession is the rate cuts in 1927 in order to "fix" the economy that lead to the 1928-1929 bubble blastoff.

One man's speculative bubble is another's economic recovery plan Life is good for the bubblemakers.

Rob Dawg:

Interesting BLS methodology. 6.5m un/underemployed because of weather were counted as employed. Gross at Pimpco pointed out that 200k is needed to hold steady so -- 36k is still far from recovery.

Morgan Stanley - Global Economic Forum

The Greek crisis likely marked the beginning of a wider sovereign risk crisis.
March 05, 2010

By Spyros Andreopoulos, Joachim Fels & Manoj Pradhan | London

The Greek crisis has brought sovereign debt to the forefront, capturing markets' attention. We think another dimension of the sovereign issue, the inflation risks inherent in high levels of public debt for economies that can print their own currency, is being overlooked by the markets. High levels of public debt in many advanced economies raise the spectre of inflation, in our view: if high debt is deemed undesirable, but the political will for higher taxes and lower spending is lacking, then soft default' through inflation becomes a possibility.

Recently, we have tried to put some numbers on the inflation risks inherent in the current and prospective US fiscal position (see The Return of Debtflation? February 10, 2010). We looked at a hypothetical scenario whereby policymakers attempt to stabilise debt to GDP at the current 60% level over the next ten years. The thought experiment assumes the debt is dealt with in exactly the same way now as in the post-war period (1946-2003). That is, if the same weight is given to inflation and real GDP growth as factors behind the erosion of the debt, we are able to back out the required inflation rates (for any given level of the deficit). We calculate that, over the next ten years, on average,

Scary stuff.

Clients and colleagues have questioned both our assumptions and our conclusions (see US Economics: We Can't Inflate Our Way Out, February 19, 2010). This is our response.

I. Our Assumptions, or: Why Debtflation Is Possible

For simplicity, we have assumed that interest payments, as a share of GDP, remain constant. True, this is a strong assumption. But even if interest to GDP increases with inflation, we don't think it will be by enough to prevent substantial debt erosion - at least for some time. Here's why.

What matters most for successful debtflation, our colleagues rightly point out, is whether the (effective, i.e., maturity-weighted) nominal interest rate on the debt can be pushed below the rate of growth of nominal GDP. Put another way, the question is whether, and for how long, inflation can lower the effective real interest rate on the debt. We believe that's possible for a sustained period: debt does not roll instantaneously; and bond yields are slow to incorporate changes in inflation. These two factors can be thought of as the crucial frictions that allow for debt erosion.

1. Debt maturities

The fact that the whole stock of debt does not roll every period means that the effective nominal interest rate on the debt is slow to respond to an increase in market yields. For the US, average maturity on Treasury debt is poised to exceed the postwar average of about 5 years by the end of fiscal 2012 (September), on our forecasts. The implication is that even if market yields were to adjust instantaneously to the higher inflation regime, effective nominal interest rates on the debt would respond only partially. So there is a debt erosion effect even if inflation were to be perfectly anticipated.

2. Yields are slow to adjust to a new inflation regime

Inflation - especially a change in the inflation regime - is rarely, if ever, perfectly anticipated. Inflation expectations lag behind actual inflation. In turn, bond yields lag behind inflation expectations. Evidence is abundant:

In short, inflation lowers the real effective interest rate the government pays on the debt through reducing a) the nominal effective interest rate, and b) real market yields. Moreover, the evidence suggests that these mechanisms work over a sustained period of time - allowing substantial debt erosion.

And there are additional reasons that make inflation relevant today. The evidence strongly suggests that, for the US as well as internationally, high debt has historically come hand in hand with lower growth as well as higher inflation (see Carmen Reinhart and Kenneth Rogoff, Growth in Times of Debt, NBER Working Paper 15639). For the US, they show that debt to GDP ratios in excess of 90% have meant materially higher inflation and lower growth. Indeed, we expect trend growth to be lower across developed economies over the next five years. But sluggish real growth leaves fewer options of dealing with the debt.

II. The Road to Debtflation, or: Global Inflation Risks Intensifying

Yet inflation is low almost everywhere. And with yawning output gaps, surely inflation is nothing to worry about. Policymakers, some say, couldn't inflate even if they wanted to.

Not quite. It is true that inflation will remain subdued for some time to come. But inflation risks are visible on the horizon. Our US team expects the inflation picture to turn at around the middle of the year, as import prices pick up and the output gap narrows (see US Economics, Mind the Gap: Even Record Slack in the Economy Won't Crush Inflation, January 29, 2010).

But there are further reasons to worry about inflation (see Global QE, Global Inflation, July 1, 2009).

III. Our Conclusions, or: Inflation Targeting in Times of Debt

Some clients and colleagues also disagree with our view of central banks (CB). Surely, a DM CB would never monetise public debt? In a nutshell, we think that in the game of chicken between the fiscal authority and the CB, it may well be the CB that swerves: it could be preferable for a rational CB to create some controlled inflation now to ease public and private sectors with their debt burden, than risk the debt creating greater problems down the line. We think that CBs are likely to continue to pay lip service to existing inflation targets, while more often than not overshooting them. Cynical? But this would only be a repeat of what happened over the last ten years or so (see From Inflation Targeting to Price Level Targeting? July 15, 2009).

Note also that when public - and private - debt is high, a CB that is being consistent on its inflation targeting (IT) could do serious damage to the economy. Recall that IT works if the CB responds to deviations of inflation from the target by increasing the nominal interest rate by more than one for one with inflation. In other words, IT does by design what is worst for highly indebted public and private sectors: increase the real interest rate on the debt.

In short, public and private leverage imply substantial constraints on monetary policy. At best, the risks are soft' IT and creeping inflation. At worst, (continued) monetisation of public debt and a new regime of high inflation.

Finally, consider this scenario. Suppose inflation jumps higher because any of the risks the Fed itself recognises materialise - even against the Fed's best intentions. Would the Fed then push the economy into recession to squeeze inflation out of the system, or acquiesce and accept higher inflation, at least temporarily? We leave the answer to investors' own judgement.

Bottom Line

The Greek crisis likely marked the beginning of a wider sovereign risk crisis. We think this crisis may well engulf central banks too, as high levels of public and private debt will test monetary authorities' resolve - and ability - to deliver price stability going forward. Meanwhile, we think investors should hedge against inflation risks.

[Mar 6, 2010]  Double dip unlikely but there's definite risk in u.s. economy robert shiller says

If you discard Sheller idealism (psychology drives events)  the statement that crisis is not over and turn down of houses prices is possible (double dip in house prices).  Stories and sentiment is a feedback look but only a feedback loop. Real event still are of primary importance. The Greek story resembles our story...
Tech Ticker, Yahoo! Finance
Just when we thought the recession was behind us, recent cracks have emerged in America's recovery: Home sales are down, consumer confidence fell sharply last month and the stock market has gone sideways since peaking in mid-January

February jobs report better than forecast. The Labor Dept. Friday morning reported U.S. employers cut 36,000 jobs last month, with the unemployment rate holding steady at 9.7 percent. The consensus had called for a bigger loss, about 60,000 jobs cut (revised up after this week's ADP report and jobless claims data) and unemployment ticking up to 9.8 percent.

While the figures are better-than-feared, overall job weakness remains, as fears of a "double-dip" recession have resurfaced in recent weeks. 

"The more plausible, bad scenario is not a double dip but just a very slow recovery... [where] the unemployment rate comes down but only over years," says Robert Shiller of Yale University.

Fallout of rising debt. Unlike past downturns and recoveries, Shiller argues a powerful psychological force is impacting the wealth and confidence of nations. Debt crises in Dubai and Greece, and America's own spending binge have a "gnawing" effectworries is America's nascent housing recovery.  Housing is in a "precarious state," Shiller says, expressing concern about the emerging trend of Americans walking away from their mortgages.  

"I think there is a definite risk of a turn down again in home prices," says Shiller, who co-created the Case-Shiller Home Price index, a widely-used measure of the housing market. "If home prices decline 10% or 20% more, we are in big trouble."


A double dip is impossible, as there has been no recovery.

The only reason I even watch these "markets" anymore is that the rally in stocks over the last year, coupled with the illusions of recovery fomented by the propaganda press, have rendered the paper markets very vulnerable to another crash.

Such a crash would probably drag gold down with everything else, if only temporarily, which would create what may be the last good buying opportunity for gold before the next major currency crisis.

If it happens that way, I will put half of my remaining cash into gold, retaining only enough for a couple of years' living expenses. Once broken, some things cannot be fixed, and the American financial system is now totally broke-n.

[Mar 3, 2010] Coming soon $1,000bn resetting, recasting US ARMs

March 2 | FT Alphaville

Jim Fickett

Thanks for the pointer to the latest update of the famous chart.

Almost all discussion around this chart confuses (1) interest rate resets with (2) recasts from non-amortizing to amortizing payments. The latter are far more important as long as interest rates remain low. The chart apparently covers both (see the fine print at the bottom).

Coming tsunami of recasts or not, it is certainly interesting that the low point in the original chart (no longer shown in the current one) coincides very closely with the recent (temporary?) improvement in house prices.


Thanks Stacy-Marie,

I didn't realize you linked directly to my post. I thought the links at the bottom were a Wiki Invest plug-in (like I have on my site) and just picking up keywords like "Option-ARM".

From my perspective the Option-ARMs are still a major problem. While Bhattacharya is correct they are a regional issue, for banks like Wells with such high balance sheet exposure to California and with tens of billions of Option-ARMs still carried at face value, we're definitely not out of the woods. Anecdotally, I'm seeing these loans continue to default locally and I believe this is just scratching the surface.

I still think CS should address the 10 year recast issue in their chart. It was interesting that after Calculated Risk started following the issue Wells made a point of highlighting the 10 year recasts in their next quarterly earnings release saying they had more time to work with these loans. They are obviously trying to outrun the problem, building up capital between now and the recasts. We'll see if short rates continue to cooperate enabling them to earn money hand over fist.

Finally, one pet peeve, I don't know if Bhattacharya was misquoted but he seems to be confusing "reset" and "recast". He says "Option ARM resets are still pending Nothing much has happened yet because rates were so low that resets were pushed back".

But Option-ARMs don't reset in the traditional sense. The minimum payment increases by 7.5% per year regardless of the interest rate. What low rates do is slow the rate of negative amoritization. As the minimum payment increases, if rates stay low enough the borrowers actually begin to pay down principal.

The only way higher rates lead to a payment jump greater than the 7.5% before the recast date is if they trigger a recast due to neg-am hitting 125%. (see the table in my post for more details).

Thanks again for the post. I'm glad reporters are still following the Option-ARM story.

[Mar 3, 2010]  ABI: Personal Bankruptcy Filings Up 14% from February 2009

Change I Can Believe In...

2010-03-02 | CalculatedRisk

From the American Bankruptcy Institute: February Consumer Bankruptcy Filings up 14 Percent over Last Year

The 111,693 consumer bankruptcies filed in February represented a 14 percent increase nationwide over the 98,344 filings recorded in February 2009, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). NBKRCs data also showed that the February 2010 consumer filings represented a 9 percent increase over the 102,254 consumer filings recorded in January 2010. ...

While Congress and the Obama administration continue to consider measures to reduce high unemployment and mortgage burdens, families with increasing debt loads have little choice but to continue to turn to bankruptcy for financial relief, said ABI Executive Director Samuel J. Gerdano. Consumer filings this year will likely surpass 1.5 million filings, or the same number of annual filings averaged in the years leading up to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

[Mar 3, 2010]  15 Years Ago, the Combined Assets of the 6 Biggest Banks Totaled 17% of GDP... By 2006, 55% ... Now, 63% by George Washington

This economic mess begs for a Financial Products Administration with armed agents trained in Federal Drug Administration.
Mar 2, 2010 |

The big boys have gotten a LOT bigger

But Simon Johnson gives an even broader perspective on how big the too big to fails have gotten:

Fifteen years ago, the combined assets of our six biggest banks totaled 17 percent of our GDP. By 2006, that number was 55 percent. Right now, it stands at 63 percent.

Johnson also points out that:


The big four have half of the market for mortgages and two-thirds of the market for credit cards. Five banks have over 95 percent of the market for over-the-counter derivatives. Three U.S. banks have over 40 percent of the global market for stock underwriting.

As I've previously noted, the government created the mega-giants (they are not the product of free market competition), and their very size destroys the real economy like a massive black hole destroys the matter around it.

And as Johnson and many others have pointed out, the very size of the giant banks enables them to  easily capture politicians ... about as easily as the Great Attractor captures galaxies.

by Anonymous
on Tue, 03/02/2010 - 09:17

The problem is likely a comparison of nominal balance sheet versus inflation-adj GDP.

It tends to be hard to find pure "nominal GDP" numbers.

Given that nominal GDP growth is 5-7% annually... 15 years ago it was 35-50% of today. Or 5-6T. So the "top 6 banks" only had $1T in assets in 1995? Hmm.

on Tue, 03/02/2010 - 12:23

The article got my attention, on the promise that the too big to fail banks were created.

After reading the various references, nothing is advanced to support that point.

Got my attention because it is known the too big to fail status is achieved through competition: anyone reaching a certain plateau in terms of competitiveness tries to convert this competitiveness into a more durable competitive edge. So a claim of the opposite might be worth reviewing.

Done on a daily basis by many people around the world.

Too big to fail is not a product of the government. Simply some banks have grown big (competitive) enough to play ball with the government and graving that into the stone.

The government failed to resist this process.

That government woman is delusional: the government did not make the banks. The fact is the government could not resist the banks.
Governments all around the world are in game theory cartels. Banks know how to deal with cartels. At least, the one who achieved the critical mass needed to treat governments as cartels.

The article failed.

[Mar 02, 2010] January Personal Income Flat, Spending Increases

"the black/grey/underground economy is growing. "

Mar 01, 2010 | CalculatedRisk

From the BEA: Personal Income and Outlays, January 2010
Personal income increased $11.4 billion, or 0.1 percent, and disposable personal income (DPI) decreased $47.6 billion, or 0.4 percent, in January, according to the Bureau of Economic Analysis. ... Personal consumption expenditures (PCE) increased $52.4 billion, or 0.5 percent.


 Or, the black/grey/underground economy is growing.

Eric K.:

I personally don't trust these numbers - at all. They don't foot with actual sales tax receipts - at all. I'd like to see a good explanation of that.

Otherwise, I'm believing somebody's cooking the books... OR ... these numbers include silly things like revolving credit interest paid as "consumer spending"... which would make sense after recent card rate hikes.

dum luk:

Consumers are back spending more than they made...Glad to see a return to the good old days.

from: - TransUnion- National Auto Loan Delinquency Rates Remain Flat in Fourth Quarter 2009

Overview of U.S. Consumer Credit Status - Fourth quarter 2009

Average credit card borrower debt (defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower) drifted downward nationally by 3.18 percent to $5,434 from the previous quarter's $5,612, and down 5.15 percent compared to the fourth quarter of 2008 ($5,729).


 Adding to what Eric K said, do UE benefits count towards this personal income stat?


See Mish. Excellent, logical explanation.


As more people go into strategic default, they're probably spending that extra cash instead of saving it. I wonder how much this is contributing to the uptick in spending.

dum luk:

 From: Economic Calendar
[You have to click on the "personal income" hyperlink to get this]:

Personal income measures income from all sources. The largest component of total income is wages and salaries, a figure which can be estimated using payrolls and earnings data from the employment report. Beyond that, there are many other categories of income, including rental income, government subsidy payments, interest income, and dividend income.


So FRBNY is taking $8.5B and buying $8.5B worth of AIG debt so that AIG can repay $8.5B of debt.

Someone still needs to write the book on how FRB totally pw3ned themselves with AIG.
Do you want to know why?

With their $85B essentially "secured by company" loan to AIG I'm pretty sure FRBNY became the largest un-hedged counterparty to AIG.

So if we had put AIG in bankruptcy like we should've, it would result in an immediate loss of $85B to the NYFRB.

The other counterparties were aware of this, hence FRBNY's truly week position.
"Oh, you want to default on those contracts... well you can do it if you go through bankruptcy, but you're not going to since you just pissed away $85B"

I mean, I guess all we've done since then is make the taxpayer loss $120B, and funneled money to their counterparties.

Geithner is such a tool, and an idiot. Of course, that was obvious when he was caught cheating on his taxes... in fact his defense at the time was "I'm an idiot who didn't pay attention to my taxes..." yes... and now we have this idiot running our Treasury.


It would be great if CR did an explanation of PCE. With sales taxes continuing to retreat, the increase must be coming from Uncle Sam.



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