Financial topics

[freddyv]

A very interesting article here, http://www.cnbc.com/id/29729683, on GM titled, "Tensions Rise Between GM Bondholders, Government"

The advisors to GM's bondholders put out a statement saying their goal is a "viable and competitive GM", and that they "stand ready to do their part." Their words come in response to comments made to the Detroit Free Press by Steve Rattner, the leader of Obama's auto task force.

He told the Michigan newspaper "I think the bondholders are being quite difficult," and "I feel the UAW is behaving in a very constructive way." The UAW is the United Auto Workers union which represents GM's hourly employees.

...

The original plan suggested the bondholders accept 30 cents on the dollar in a debt for equity swap, while the UAW would receive 50 cents on the dollar, also in the form of equity. Bondholders believe the pain should be more equitable.

It seems to me that we are starting to see the financial crisis, which moved to an economic crisis, move towards a social crisis as classes begin to demand that government take care of them first.

We are also starting to see tensions heat up over trade issues as shown here,
http://www.reuters.com/article/politics ... KN20090316

I follow a number of investing and financial analysts who are all very smart and tuned in but I think that there is not a single one of them that really sees the big picture and just how much downward pressure there is on the stock market going forward. Certainly Wall Street is still in denial.

In particular I see earnings as a huge burden hanging over Wall Street that is exerting tremendous pressure and it will get worse and worse over the next few quarters as P/E ratios climb ever higher. Even very smart people like Nouriel Roubini are throwing around inaccurate P/E's and when the truth starts to become apparent there will be a decline that, IMO, will be very similar to the end of the bear market in 1931 and 1932.

Almost everyone, even the bears, seem to be expecting a bear market rally that might last for months but I just don't see it happening because of the pressures from so many directions. Even if everything else flattens out P/E ratios are not going down for at least a half year, and that's after going above 100 in Q2 & Q3, and it's much more likely that earnings will continue their drop and flatten out as cost-cutting kicks in.

Many people I respect are becoming very conservative at this point as they understand that we are at least half way to the bottom. Simply being in cash and maybe a little gold seems like a smart position that I can't argue with but I also believe that there are very clear signs from many different sources that suggest we have many thousands of points to drop on the Dow before this is over.

-Fred

[freddyv]

How can so large a fiscal gap be closed? Even under the most optimistic estimates just
provided, for the CBO baseline without the stimulus package, closing the gap would translate into a permanent reduction in non-interest spending of 22.8 percent or a permanent increase in revenues of 28.9 percent, both calculated relative to their projected trajectories. Narrower means of closing the gap would be even more Draconian – a 51.6 percent increase in income taxes, for example; and eliminating nearly all discretionary spending. Because the fiscal gap measures the size of the required immediate fiscal adjustment, the required adjustment also rises if action is delayed, and would be substantially larger when computed relative to the adjusted baseline.

There is no doubt in my mind that we will see the same type of tax rates that we saw after WWII. 70% is likely and perhaps higher. It's just a matter of time and can anyone have a doubt that Obama, Reid and Pelosi would love to do it right now? Of course they will wait until they can claim that they had to do it. Until then it's spend, spend, spend.

--Fred

[StilesBC]

Hyperinflation is Impossible

[JLak]

Hyperinflation is Impossible

This subject demands a more quantitative treatment. Unfortunately I don't have one to offer, but I can suggest some rational questions to ask. First, the quadrillion dollars or so in derivatives has a centroid (zero-value point) about a certain economic indicator, probably home prices equal to 2007 levels or so. As we approach that point, the risk will evaporate. What is this point? Secondly, with the takeovers, the Fed/Treasury is the counterparty in much of the paper trade, so there is no risk. How much of the derivative market does this represent? Thirdly, every trade has two sides. The Fed/Treasury now holds most of the downside risk. How much upside risk do the banks hold? Fourth, the risk models may have been updated, but in banking, that just means more insurance and higher interest rates. What is the interest rate at which the banks would start lending out their massive excess reserves?

Macroeconomics is more mathematics than narrative sociology. There is a very definite point at which hyperinflation will occur and a very definite point where deflation will occur. Social trends are good to consider, but the fundamentals do matter in economics just as in bridge building.

[Matt1989]

Hyperinflation is Impossible

What do you make of this?

[abs]

Hyperinflation is Impossible

What do you make of this?

Matt -

I think Matt Stiles in the first article had it right, at least for the US. If Eric deCarbonnel's theory is correct then the US would have seen massive inflation in the 1930's, but that didn't happen. Matt Stiles talks in his article about the US dollar acting as the reserve currency worldwide. The chances of the a widely held belief setting in that the US government risks default is very, very low. I haven't heard anyone talking about Japan defaulting despite it's debt being something like 1.5x it's GDP, the US debt is no where close to that and could deploy stimulus programs for years on end and still not reach the same debt levels as Japan. On the other hand, it would not surprise me if some smaller economies do end up seeing hyperinflation at some point a-la Eric's description . . .

Andrew

[aedens]

Hyperinflation is Impossible

This subject demands a more quantitative treatment. Unfortunately I don't have one to offer, but I can suggest some rational questions to ask. First, the quadrillion dollars or so in derivatives has a centroid (zero-value point) about a certain economic indicator, probably home prices equal to 2007 levels or so. As we approach that point, the risk will evaporate. What is this point? Secondly, with the takeovers, the Fed/Treasury is the counterparty in much of the paper trade, so there is no risk. How much of the derivative market does this represent? Thirdly, every trade has two sides. The Fed/Treasury now holds most of the downside risk. How much upside risk do the banks hold? Fourth, the risk models may have been updated, but in banking, that just means more insurance and higher interest rates. What is the interest rate at which the banks would start lending out their massive excess reserves?

Macroeconomics is more mathematics than narrative sociology. There is a very definite point at which hyperinflation will occur and a very definite point where deflation will occur. Social trends are good to consider, but the fundamentals do matter in economics just as in bridge building.

Ladder builders? Time is a function...
CNBC Tuesday, 17 Mar 2009
Pro forma re-estimate of the last year reveals that banks have been far more profitable and have much more capital than this crazy mark-to-market accounting would have us believe. AIG is acting as a conduit for taxpayer money that is being sent to dozens of derivative counterparties, including foreign banks. Ok there playing currency swaps where guy’s ? Hmm, Ge Capital Internotes Aaa/AA+ Coupon 5.5 Mat 4/15/23 Yield 8.194

http://www.federalreserve.gov/releases/ ... nt/g19.pdf

Outstanding balances of pools upon which securities have been issued; these balances are no longer carried on the balance sheets of the loan originators. Oh really….

http://www.federalreserve.gov/releases/ ... nt/g20.htm

March 16, 2009: The Federal Reserve Board plans to issue an annual revision to the index of industrial production (IP) and the related measures of capacity and capacity utilization on March 27, 2009, at 2:00 p.m..

http://www.federalreserve.gov/releases/ ... efault.htm

Your fired.
Signed,
A. Taxpayer

[aedens]

Hyperinflation is Impossible

This subject demands a more quantitative treatment. Unfortunately I don't have one to offer, but I can suggest some rational questions to ask. First, the quadrillion dollars or so in derivatives has a centroid (zero-value point) about a certain economic indicator, probably home prices equal to 2007 levels or so. As we approach that point, the risk will evaporate. What is this point? Secondly, with the takeovers, the Fed/Treasury is the counterparty in much of the paper trade, so there is no risk. How much of the derivative market does this represent? Thirdly, every trade has two sides. The Fed/Treasury now holds most of the downside risk. How much upside risk do the banks hold? Fourth, the risk models may have been updated, but in banking, that just means more insurance and higher interest rates. What is the interest rate at which the banks would start lending out their massive excess reserves?

Macroeconomics is more mathematics than narrative sociology. There is a very definite point at which hyperinflation will occur and a very definite point where deflation will occur. Social trends are good to consider, but the fundamentals do matter in economics just as in bridge building.

Ladder builders? Time is a function...
CNBC Tuesday, 17 Mar 2009
Pro forma re-estimate of the last year reveals that banks have been far more profitable and have much more capital than this crazy mark-to-market accounting would have us believe. AIG is acting as a conduit for taxpayer money that is being sent to dozens of derivative counterparties, including foreign banks. Ok there playing currency swaps where guy’s ? Hmm, Ge Capital Internotes Aaa/AA+ Coupon 5.5 Mat 4/15/23 Yield 8.194

http://www.federalreserve.gov/releases/ ... nt/g19.pdf

Outstanding balances of pools upon which securities have been issued; these balances are no longer carried on the balance sheets of the loan originators. Oh really….

http://www.federalreserve.gov/releases/ ... nt/g20.htm

March 16, 2009: The Federal Reserve Board plans to issue an annual revision to the index of industrial production (IP) and the related measures of capacity and capacity utilization on March 27, 2009, at 2:00 p.m..

http://www.federalreserve.gov/releases/ ... efault.htm

Your fired.
Signed,
A. Taxpayer

Wednesday March 18, 2:30 pm ET
By Madlen Read, AP Business Writer
Stocks rise after Federal Reserve says it will buy up to $300B in Treasurys

NEW YORK (AP) -- The Federal Reserve is keeping Wall Street's big rally alive with news that it will start buying Treasurys to help open up tight credit markets.
The central bank said it will purchase up to $300 billion of longer-term Treasury securities over the next six months.
The Fed's announcement accompanied its decision to keep interest rates at historically low levels. It also reiterated Chairman Ben Bernanke's prediction that government steps should return the economy to sustainable growth.

Keep Ben Hired tho

[umoguy]

yeah I really got boned in the market today, shouldn't this be a sign of how desperate the government is getting, buying it's own debt? Really? Not a reason to buy into a failing system.

[JLak]

Hyperinflation is Impossible

This subject demands a more quantitative treatment. Unfortunately I don't have one to offer, but I can suggest some rational questions to ask. First, the quadrillion dollars or so in derivatives has a centroid (zero-value point) about a certain economic indicator, probably home prices equal to 2007 levels or so. As we approach that point, the risk will evaporate. What is this point? Secondly, with the takeovers, the Fed/Treasury is the counterparty in much of the paper trade, so there is no risk. How much of the derivative market does this represent? Thirdly, every trade has two sides. The Fed/Treasury now holds most of the downside risk. How much upside risk do the banks hold? Fourth, the risk models may have been updated, but in banking, that just means more insurance and higher interest rates. What is the interest rate at which the banks would start lending out their massive excess reserves?

Macroeconomics is more mathematics than narrative sociology. There is a very definite point at which hyperinflation will occur and a very definite point where deflation will occur. Social trends are good to consider, but the fundamentals do matter in economics just as in bridge building.

Ladder builders? Time is a function...
CNBC Tuesday, 17 Mar 2009
Pro forma re-estimate of the last year reveals that banks have been far more profitable and have much more capital than this crazy mark-to-market accounting would have us believe. AIG is acting as a conduit for taxpayer money that is being sent to dozens of derivative counterparties, including foreign banks. Ok there playing currency swaps where guy’s ? Hmm, Ge Capital Internotes Aaa/AA+ Coupon 5.5 Mat 4/15/23 Yield 8.194

http://www.federalreserve.gov/releases/ ... nt/g19.pdf

Outstanding balances of pools upon which securities have been issued; these balances are no longer carried on the balance sheets of the loan originators. Oh really….

http://www.federalreserve.gov/releases/ ... nt/g20.htm

March 16, 2009: The Federal Reserve Board plans to issue an annual revision to the index of industrial production (IP) and the related measures of capacity and capacity utilization on March 27, 2009, at 2:00 p.m..

http://www.federalreserve.gov/releases/ ... efault.htm

Your fired.
Signed,
A. Taxpayer

Wednesday March 18, 2:30 pm ET
By Madlen Read, AP Business Writer
Stocks rise after Federal Reserve says it will buy up to $300B in Treasurys

NEW YORK (AP) -- The Federal Reserve is keeping Wall Street's big rally alive with news that it will start buying Treasurys to help open up tight credit markets.
The central bank said it will purchase up to $300 billion of longer-term Treasury securities over the next six months.
The Fed's announcement accompanied its decision to keep interest rates at historically low levels. It also reiterated Chairman Ben Bernanke's prediction that government steps should return the economy to sustainable growth.

Keep Ben Hired tho

Yet another $300B increase in excess reserves (n.b. the fed pays for treasuries by creating M0). That makes it about 700B in mandatory reserves and $1T in excess. How much excess reserves do the banks need before they start lending? Do they already have enough to hit the centroid upon release (250% inflation)? There's only a few players in the game now, so it's arguable that one bank could do so unilaterally. Then again, why would they release it now when they can pretend to be suffering (obviously those stats show they're not) and keep asking for more. After all, there are $10T potentially for sale all over the world at the slightest hint of inflation, $4T more already planned over the next two years, and our great saviors are just getting warmed up. Why not just have the Fed buy the whole thing and give us 2000% M0? By the way, the Fed doesn't care if you pay your taxes; only your debts matter to them. I say again, these guys are not dumb; they know exactly what they are doing.


UPDATE: After a few hours the $300B number has now been updated to $1T. That's 350% M0. One. Two. Three.... Infinity.