Financial topics

[Higgenbotham]

I cannot contrast your interpretation of Koo vs Bass. Because I do not follow either one. What I do know is that the real estate bubble could have been predicted by anyone seasoned in financial matters. Bass took it to them and played it and won. This does not make him a no nonsense guru. His ability to process and act on the obvious goes to the essence of this site. Knowledge. The only question that remains is the play.

My perspective on what you wrote is completely opposite. The real estate bubble was predicted by two categories of investors. The first category was those investors who were very sharp generalists. There weren't too many of those and a whole lot of seasoned financial people got caught, which defines a crisis and subsequent bailouts. The second category was those investors who understood the real estate business, i.e., specialists in the real estate industry. I was one of those, and called the top of the real estate bubble within a year and the top of the stock bubble within 5 months.

Here's what I've learned since. After making that call, I thought I was a very sharp generalist. In fact, I was not. The fact is that I understood the evolution of a real estate bubble, but not the evolution of a post bailout bubble. So when I called the top of this stock market bubble, it wasn't even close. In retrospect, I realized that I had understanding of real estate finance and its ramifications that other folks in the financial industry just didn't have. But I was nowhere near the generalists.

Now getting onto Bass, Paulson, or any of the few who cleaned Goldman's et al pockets out when the real estate bubble burst. Some of them may have had specialized knowledge in real estate, some of them may have been lucky. I read Bass and I don't think he was one of those. Paulson probably was lucky.

Koo is completely off base. To know that, see what Koo recommended for Japan and the US and see what Bass says in that article I linked that debunks that. The fact that Bass is right is pretty obvious to me because it's already happened. Koo's theories have led Japan into disaster. Of course, he can always say that he never knew a tsunami would hit and without that there would have been a recovery. But there are historical productivity and population correlations that go back a long time that have told those who observed on the basis of a simple back of the envelope calculation that Japan can't grow its debt and couldn't grow its debt and can't pay off its debt. The US was able to pay off its debt post World War II for lots of reasons that don't exist at present from the numbers I'm looking at. World population has been going up for two millenia and any theory that puts that continued assumption into play can't work. Even a leveling off isn't enough without productivity improvements that are far outside historical experience.

[biffbifford]

BAC is below its 200-day SMA. Not a good sign for fund managers who don't like to hold stocks under five bucks! The next few weeks will be interesting for Bank of America. The Chinese housing market has been under pressure for a few years as China is experiencing their version of a housing bubble. They are growing too fast, and pegging the RMB to the dollar is starting to adversley affect their economy. The Chinese housing market is terrible. A typical loan for an apartment in Bejing could take 57 years the annual salary of a chinese business man to pay-off. This does not include the interest. Commercial real estate is suffering from the same problem. This provides some opportunity to the retail investor who willing to look past the: "China is gonna rule the world hype." I remember back in the 1990s; we thought Japan would buy up the whole of the U.S. At that time they had the top ten largest banks in the world. I don't buy the hype; I see deflation down the road, and a massive housing bubble bursting in China in the coming year. Stocks that are leading me to believe this are:

RIO - Rio Tinto Below the 50 and 200 SMA Note: if this stock can break below $40 the next stop will be $20
TAO - Chia real estate below the 50 and 200 SMA
PEK - Market Vectors China ETF Some buying on very LOW VOLUME, poor technicals.
YXI - China short pro shares, is on the move north <---- just broke above the 50 SMA today
HMIN - Home Inn’s & Hotels Management Inc <--- Very weak technicals

gold is under the 200 day SMA. The technicals do not look strong for gold in the short term. if we can stay below $1600 for a few weeks we could get another nice buying opportunnity below $1400.00 early next year.

There are plenty more. These just fired off based on a scan criteria in the last few weeks.

[jdcpapa]

I cannot contrast your interpretation of Koo vs Bass. Because I do not follow either one. What I do know is that the real estate bubble could have been predicted by anyone seasoned in financial matters. Bass took it to them and played it and won. This does not make him a no nonsense guru. His ability to process and act on the obvious goes to the essence of this site. Knowledge. The only question that remains is the play.

My perspective on what you wrote is completely opposite. The real estate bubble was predicted by two categories of investors. The first category was those investors who were very sharp generalists. There weren't too many of those and a whole lot of seasoned financial people got caught, which defines a crisis and subsequent bailouts. The second category was those investors who understood the real estate business, i.e., specialists in the real estate industry. I was one of those, and called the top of the real estate bubble within a year and the top of the stock bubble within 5 months.

Here's what I've learned since. After making that call, I thought I was a very sharp generalist. In fact, I was not. The fact is that I understood the evolution of a real estate bubble, but not the evolution of a post bailout bubble. So when I called the top of this stock market bubble, it wasn't even close. In retrospect, I realized that I had understanding of real estate finance and its ramifications that other folks in the financial industry just didn't have. But I was nowhere near the generalists.

Now getting onto Bass, Paulson, or any of the few who cleaned Goldman's et al pockets out when the real estate bubble burst. Some of them may have had specialized knowledge in real estate, some of them may have been lucky. I read Bass and I don't think he was one of those. Paulson probably was lucky.

Koo is completely off base. To know that, see what Koo recommended for Japan and the US and see what Bass says in that article I linked that debunks that. The fact that Bass is right is pretty obvious to me because it's already happened. Koo's theories have led Japan into disaster. Of course, he can always say that he never knew a tsunami would hit and without that there would have been a recovery. But there are historical productivity and population correlations that go back a long time that have told those who observed on the basis of a simple back of the envelope calculation that Japan can't grow its debt and couldn't grow its debt and can't pay off its debt. The US was able to pay off its debt post World War II for lots of reasons that don't exist at present from the numbers I'm looking at. World population has been going up for two millenia and any theory that puts that continued assumption into play can't work. Even a leveling off isn't enough without productivity improvements that are far outside historical experience.

Good morning Higgy,

I prefer to remain on point: Bass's predictions do not make him a no nonsense guru. He may be seasoned or partner with those that are seasoned. A person seasoned in finance may or may not be an investor. So there is a least one other category out there. The real estate bubble popped at different times in different locations. For example in my location it peaked about 2008. I believe the official year was 2006. My point is that someone seasoned in finance (regardless of their investment agenda) could have read the proverbial tea leaves and predicted the bubble. No doubt, our perspectives of the definition of "seasoned in finance" and perhaps "influence" are different.

Respectfully,

John

[Higgenbotham]

Good morning Higgy,

I prefer to remain on point: Bass's predictions do not make him a no nonsense guru. He may be seasoned or partner with those that are seasoned. A person seasoned in finance may or may not be an investor. So there is a least one other category out there. The real estate bubble popped at different times in different locations. For example in my location it peaked about 2008. I believe the official year was 2006. My point is that someone seasoned in finance (regardless of their investment agenda) could have read the proverbial tea leaves and predicted the bubble. No doubt, our perspectives of the definition of "seasoned in finance" and perhaps "influence" are different.

Respectfully,

John

OK, let me try again to spell out the point clearly and exactly.

Koo is talking nonsense because the debt will never be paid off.
Koo: "There will be plenty of time to pay down the accumulated public debt..." Nonsense.

Bass is talking no nonsense because he says exactly why the debt will never be paid off. Bass is not a guru but he appears to have his facts straight.

Very few people seasoned in finance predicted the real estate bubble or its effects. That statement is true on its face because if they had there would not have been bankruptcies and bailouts. I am assuming those "seasoned in finance" to include the boards and managements of Bear Stearns, AIG, Lehman, Merrill, etc., (seasoned financial firms that went under) Goldman, B of A, Citi, etc., (seasoned finanical firms that lost money on real estate bets or had to be bailed out to survive), and so on.

"Seasoned in finance" and "seasoned in history" or "seasoned in whatever was required not to make the mistakes seasoned financial firms made" are different things.

[John]

This whole question of who recognized the real estate bubble is an
interesting one.

Economist Dean Baker recognized in 2002 that a real estate bubble had
begun in 1995.

** The housing bubble began in 1995.
** http://www.generationaldynamics.com/cgi ... 08#e090908

Alan Greenspan was talking about it in 2004, but he thought
it was a GOOD THING, because it gave people more money to
spend.

** Greenspan uses circular reasoning on housing bubble
** http://www.generationaldynamics.com/cgi ... 20#e041020

Bill McBridge (Calculated Risk) was all over it, starting in 2005.

As far as I know, Ben Bernanke didn't even believe bubbles exist.

** WSJ's page one story on Bernanke's Princeton 'Bubble Laboratory' is almost incoherent
** http://www.generationaldynamics.com/cgi ... 18#e080518

This reached a peak in 2007-2008, when people were even saying that
the Tulipomania bubble was a myth.

Bernanke was supposed to be an expert on the 1930s, but his theories
have now proven to be total, utter failures.

One of the most bizarre things of the 2000s was his belief that market
fundamentals could be controlled by the wording in Fed press releases.

** Bernanke / The Fed congratulates itself - again - on its jawboning policy
** http://www.generationaldynamics.com/cgi ... b#e041010b

I would consider him to be insane to believe that, if it weren't for
the fact it's still widely believed by analysts who say that the
current euro crisis is occurring because the politicians haven't
"restored confidence."

The method that I use to identify bubbles is to take a long-term trend
graph and apply the Law of Mean Reversion. As far as I know, this
method is pretty much infallible -- which is why you never hear of
anyone using it. You can't earn a million dollar bonus by such a
simple methodology, especially because its predictions are not what
people want to hear.

Analysts still make their 6-7 figure incomes by explaining why history
always begins this morning. Thus, they use short-term indicators and
draw analogies from the 1980s or 1990s. These analogies are almost
completely irrelevant. Alan Greenspan has pointed out that since
2008, all macroeconomic models across the board have been total
failures.

Thus, whether an analyst "seasoned in finance" correctly predicts a
bubble, or anything else, is largely a matter of luck -- whether the
short-term indicators that he chooses turn out to give the correct
results.

In fact, what I believes happens is the other way around: Analysts
uniformly decide what outcome will produce the most money for
themselves, and they select short-term indicators that they believe
predict that outcome. This allows them to appear on CNBC and
Bloomberg TV and continue to award themselves million dollar bonuses,
even if they're wrong quarter after quarter.

John

[shoshin]

as to who saw the bubble coming,at least 2 people put their money where their mouths were: Steve Eisman and Michael Burry. Both bought loads of CDSs and made millions. To me, that's better than going on TV or in print and opining. See Michael Lewis's book, "The Big Short" for a blow-by-blow description of the wheels coming off the CDO train.

[Higgenbotham]

Bass, Paulson, or any of the few who cleaned Goldman's et al pockets out ..

Michael Burry.

Yeah, he was another one and I'd forgotten his name. If I remember it right, all 3 of these guys got in ahead and had some losses before the bubble popped. And if I have it right, all 3 are up to their necks in gold now.

[John]

Bass, Paulson, or any of the few who cleaned Goldman's et al pockets out ..

Michael Burry.

Yeah, he was another one and I'd forgotten his name. If I remember it right, all 3 of these guys got in ahead and had some losses before the bubble popped. And if I have it right, all 3 are up to their necks in gold now.

The interesting questions are these:

1. What methodologies did Bass, Paulson and Burry use to reach their
   conclusions?
2. Why didn't other people reach the same conclusions, but instead
   went jumping off a cliff?

Does anyone know?

John

[Higgenbotham]

Repeat. I should probably read this first thing every morning.

Forecasting the Future

Rule #4: No one can predict the future.

Events in the investment markets result from the decisions of millions of different people. Investor advisors have no more ability to predict the future actions of human beings than psychics and fortune-tellers do. And so events never unfold as we were so sure they would.

Yes, there have been forecasts that came true. But the only reason we notice them is because it's so exceptional for even one to come true. We forget about all the failed predictions because they're so commonplace.

No one can reliably tell you what stocks will do next year, whether we'll have more inflation, or how the economy will perform.

Investment Advice

Rule #5: No one can move you in and out of investments consistently with precise and profitable timing.

You'll hear about many Wall Street wizards, but the investment advisor with the perfect record up to now most likely will lose his touch the moment you start acting on his advice.

Investment advisors can be very valuable. A good advisor can help you understand how to do the things you know you need to do. He can help call your attention to risks you may have overlooked. And he can make you aware of new alternatives.

But no one can guarantee to have you always in the right place at the right time. And worse, attempts to do so can sometimes be fatal to your portfolio.

http://www.harrybrowne.org/articles/InvestmentRules.htm

[shoshin]

the last I heard, Burry was buying farmland, some gold, and Canadian dollars...

this is from April, 2011...

http://pragcap.com/deep-thoughts-from-michael-burry