Financial topics

[OLD1953]

The destruction of money/capital in the next iteration of this crisis will be incredible. I don't belive Bernake will be allowed to do another QE round, in fact I'll be shocked if he proposes it. He'll blather along about "all is well" and never admit it was a mistake, but he'll likely not continue on in his position, he'll bail as soon as he can gracefully exit.

And the pols still dither over who has power and act as irresponsibly as possible. With news media that won't report anything but "hot news" and then forgets everything.

Take the mess in Wisconsin - badly reported, and facts are scarce. Yes the state is in a budget crisis, AFTER passing a major tax cut. Yes, unions offered 100 million per year but the governor still is pushing to end all forms of collective bargaining with the state EXCEPT for certain groups that typically vote Republican, not everyone. The bill in question absolutely includes a portion that allows the governor to sell state property (energy plants specifically, but that depends on the lawyer reading the bill) at a price he sets, and approves, to whom he pleases without input from the legislature. Not sure if it requires public hearings or not, but the power is his so he can hold em and ignore em, doesn't matter. The Koch Bros are so entwined with the governor that they issued a statement that they are not interested in buying such utilities.

Incidentally, for purposes of politics and law, Koch Brothers is a small business. That's so strange all I can say is look it up, the legal definition of small business is contrary to common sense.

Pure politics used to force a crisis for political reasons. Irresponsible and foolish, but utterly typical of US politics in the opening of the 21st century.

[burt]

Hello, what do you think about this article?
For me too many people are pessimist, so, I do not think we could be at a top YET. (even if we are, all, in a big mess...)

http://www.thedailycrux.com/content/704 ... uffett/eml

Regards

[Higgenbotham]

Hello, what do you think about this article?
For me too many people are pessimist, so, I do not think we could be at a top YET. (even if we are, all, in a big mess...)

http://www.thedailycrux.com/content/704 ... uffett/eml

Regards

A good strategy might be to see if Buffett was selling stocks at the 2000 and 2007 highs and to see if he was buying stocks during the month of March 2009 when stocks made their last low. When did he buy the railroad and the homebuilder mentioned in the article and at what price? What was the range of prices in the year or two before and after he bought? If you check it out, let us know.

The semi book to bill hit 0.85 last month. Despite that, analysts are optimistic about the prospects for the semiconductor industry. My strategy has been to read what analysts were saying last time semiconductor billings reached their peak in 2007.

You might also want to question where Buffett got the $38 billion. I just read that Buffett dumped his entire stake in Bank of America. Going back to check on that, I see it was only $75 million worth. But he purchased Bank of America in August 2007, probably at much higher prices. I also read that there has been a blizzard of SEC filings indicating Buffett has been selling shares since last year, although from what I read that was only a few billion in stock.

Another point I'd make is that Buffett is very chummy with Goldman Sachs and he does play in the derivatives market. I read a couple weeks ago that Goldman was in the S&P pit selling "100 cars every handle up". That's a lot of selling. Why were they selling? For who? We'll never know.

That stuff doesn't make the front page of the business section.

Reference: http://tmacktrading.blogspot.com/2011/0 ... inues.html

[OLD1953]

The recovery market after the 20's crash was not brought down by internal factors. It was brought down by the massive defaults of sovereign debt, external to the US stock market. The internals point to a crash coming now, but it is very likely to follow a similar pattern of being brought down by external factors, as Higgs is saying about the periphery.

As I understand it, the potential factors are:
1. Sovereign bond defaults
2. Corporate bond defaults
3. Political upheaval internally
4. Monetary failure (either rapid deflation or inflation)
5. Political upheaval externally
6. War (civil and otherwise)
7. Price pressures on basics, food, fuel, industrial necessities via shortages or other factors
8. Panic reactions to any of these problems (signal reactions)
9. Unmanagable public or private debt
10. Acts of God (Ex. An 1811 type earthquake in the central US would certainly cause a major crash and severe depression)
11. Extreme terrorist acts leading to widespread death or panic
12. Assassination of one or more important persons
13. External market crash or crashes
(Doubtless I've missed some, can anyone add to the list? Some of those overlap, but I did pull out the extremes in a couple of cases.)

Any of these or a combination could be the external pressure that would cause a generational market/economic collapse. Like a house of cards, it is stable until some external jolt occurs that's large enough to knock it over.

[Higgenbotham]

(Doubtless I've missed some, can anyone add to the list? Some of those overlap, but I did pull out the extremes in a couple of cases.)

Any of these or a combination could be the external pressure that would cause a generational market/economic collapse. Like a house of cards, it is stable until some external jolt occurs that's large enough to knock it over.

I keep my own list and will add where you don't specifically mention something I feel is worth highlighting:

Oil production decline (greater than 2% year over year)
Systemic derivatives collapse (greater than $500 billion in losses within 90 days)
Industrial/technological accident (greater than $500 billion in losses within 90 days)
Naturally occurring pandemic
Deliberate release of lethal genetically modified biological material

The dollar amounts are a moving target and depend on the intensity of the shock (loss per unit of time). A greater loss can be absorbed over a greater period of time.

[vincecate]

The recovery market after the 20's crash was not brought down by internal factors. It was brought down by the massive defaults of sovereign debt, external to the US stock market. The internals point to a crash coming now, but it is very likely to follow a similar pattern of being brought down by external factors, as Higgs is saying about the periphery.

As I understand it, the potential factors are:

[...]
(Doubtless I've missed some, can anyone add to the list? Some of those overlap, but I did pull out the extremes in a couple of cases.)

I think that in the 30s the US paper money almost failed as people turned in paper money for gold and the Fed only had 40% of the gold needed to cover all the paper. Paper money, and the bankruptcy of the Fed, was only saved by making it illegal for people to own gold so the Fed did not have to pay people in gold.

The big danger I see coming is that the periphery will no longer support the US by buying bonds and in fact reduces their bond holdings as bonds come due. The Fed will buy more and more bonds and print more and more money (to help the government with the deficit and to purchase bonds about to come due), leading to hyperinflation and the failure of US paper money.

It may be with high food and energy prices the periphery is not able to buy more US bonds and needs the money from existing ones as they come due, or it may be that they understand US bonds are a bad investment (with inflation, dollar dropping in value, and tiny interest rate on US bonds) and they are better off to buy food than bonds.

[vincecate]

Mish is a deflationist, but look at what he says:

... it's also important to know the existing global currency hegemony will eventually collapse because the current model is unsustainable.

Countries cannot run massive deficits forever.

However, a global currency crisis does not necessarily start with the US dollar, nor does a crisis necessarily happen any time soon. A major crisis starting with the Euro, the Yen, the British Pound, or the Yuan is at least as likely, and the timeframe can be months or years away.

Whenever it happens, don't be caught without gold.

http://globaleconomicanalysis.blogspot. ... nalysis%29

[John]

Mish is a deflationist, but look at what he says:
"Whenever it happens, don't be caught without gold."

Mish is a gold salesman, Vince.

If you're a real estate broker, then the solution to anyone's problems
is to buy a house.

If you're a stock broker, then the solution to anyone's problems is to
buy stocks.

If you're a clothing salesman, then the solution to anyone's problems
is to buy a new suit.

If you're a gold salesman, whether you're an "inflationist" or a
"deflationist", then the solution to anyone's problems is to buy gold.

John

[vincecate]

Mish is a gold salesman, Vince.
[...]
If you're a gold salesman, whether you're an "inflationist" or a
"deflationist", then the solution to anyone's problems is to buy gold.

As a gold salesman, I can tell you I buy almost exactly as much as I sell.

Mish is a smart guy who has researched and thought about this stuff plenty. I think it is wrong to just dismiss him. The basic logic seems very sound to me. When the whole world is screwing with paper money, sound money is where you want to be. Gold and silver are the only money that can not be printed like crazy, so when all the paper money is being printed like crazy it is good to have gold and silver. It is simple logic and has worked well in any other country that printed money like crazy. So both logic and history support the idea. And it sure has worked well so far. Silver has gone from $12 to $34 in less than 2 years that I have been in. Silver up 2% today and options up more than that. People getting 1% per year on treasuries are missing all the fun.

Commodity prices are stable when measured in gold and going up in all paper currencies. It seems clear that at this time in history holding gold is better than holding any paper money.

http://howfiatdies.blogspot.com/2011/02 ... -gold.html

[John]

Dear Vince,

> As a gold salesman, I can tell you I buy almost exactly as much as
> I sell.

> Mish is a smart guy who has researched and thought about this
> stuff plenty. I think it is wrong to just dismiss him. The basic
> logic seems very sound to me. When the whole world is screwing
> with paper money, sound money is where you want to be. Gold and
> silver are the only money that can not be printed like crazy, so
> when all the paper money is being printed like crazy it is good to
> have gold and silver. It is simple logic and has worked well in
> any other country that printed money like crazy. So both logic and
> history support the idea. And it sure has worked well so
> far. Silver has gone from $12 to $34 in less than 2 years that I
> have been in. Silver up 2% today and options up more than
> that. People getting 1% per year on treasuries are missing all the
> fun.

> Commodity prices are stable when measured in gold and going up in
> all paper currencies. It seems clear that at this time in history
> holding gold is better than holding any paper money.

> http://howfiatdies.blogspot.com/2011/02 ... -gold.html

As you're aware, I'm not very kind to many of the people selling
stocks that I see on CNBC and Bloomberg tv, so it shouldn't be
surprising to anyone that I get as bitchy and crabby when talking
about gold.

Just as stock salesmen lie about stock valuations, gold salesmen fail
to mention the high risks associated with gold.

Here's a graph that I posted last November:



http://www.fool.com/investing/etf/2010/ ... w-500.aspx

What this graph says to me is that gold is in a huge bubble, and that
its price is going to fall well below $400 per ounce, by the Law of
Mean Reversion. This represents an enormous risk for someone
investing in gold, but this is never mentioned by people selling gold.

If Mish is really a "deflationist," then he's out and out lying by
advising people to buy gold, since gold is sure to be killed in a
deflationary environment.

As for the "inflationist" view, I've written about this many times,
but I'll repeat some things here.

The "inflationist" view is pushed by the same stock brokers who lie
about stock valuations to sell stocks. The message is, "Stocks are
underpriced, so they're a good deal anyway, and by the way there's
going to be massive inflation, and stocks will only go up in an
inflationary environment."

By the way, I often like to point out that I'm not invested in
anything, and I'm not selling anything, so I have nothing on the line
except my own credibility. If I believed that we were headed for
hyperinflation, I would say so immediately, rather than risk being
proved wrong later. However, as you know, I've been saying since 2003
that we're in a deflationary environment, and there's been no
appreciable inflation since then, even though interest rates have been
close to zero for years, and the Fed has been flooding the market with
QE. By any reasonable yardstick, the inflationary case has already
been disproven.

Now, having been disproved, the "inflationists" have switched to a new
argument -- that a US government default would provoke more QE that
would cause hyperinflation. But that's already been disproven by the
existing QE, and now we have a new counter-argument -- that the tide
of public opinion has turned against more QE.

As far as I'm concerned, the "inflationist" view is part of the same
fabric of denial, self-denial, and deception that's causing the stock
market bubble.

John