Financial topics

[vincecate]

'A Bubble That Broke The World' is available for the Kindle from Amazon. Read it if you haven't.

Thanks, John.

--Fred

It is also available for free online at mises:

mises.org/books/bubbleworld.pdf

Along with John and Fred, I highly recommend it.

-- Vince

[vincecate]

California municipal bonds gave up a years worth of gains in the last 2 weeks.

I wouldn't look at a fund except as an indicator of direction. Funds do all kinds of goofy things.

Mish has better info on this.

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

[Higgenbotham]

California municipal bonds gave up a years worth of gains in the last 2 weeks.

I wouldn't look at a fund except as an indicator of direction. Funds do all kinds of goofy things.

Mish has better info on this.

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

There are different munis financed by different revenue sources. The ratings can vary depending. One of the articles he posted mentioned that the interest rate on an index of AAA rated munis was up 0.15% in a week. I'm assuming that covers various states. The particular Pimco fund could have had low rated munis in it, could have been levered, and could be a closed end fund with low liquidity and variance from NAV.

But I would agree that we should see the California munis fall apart. I've been looking for that to happen for over a year.

I found this blurb about the PIMCO fund:

PIMCO California Municipal Income Fund II operates as a closed-end management investment company. The fund primarily invests in municipal fixed-income securities. Its portfolio of investments include investments in california municipal bonds and notes, other municipal bonds and notes, call and put options written, california variable rate notes, other variable rate notes, corporate notes, california variable rate demand note, and u.s. treasury bills. Allianz Global Investors Fund Management LLC serves as an investment manager of the fund. The fund was founded in 2002 and is based in New York City.

[vincecate]

Bernanke has been wrong with every prediction he has made. Now he says:

> [...] , and I am certainly not predicting a new Depression,[...]

With this, I think there can no longer be any doubt, we are headed for a new Depression.

http://federalreserve.gov/newsevents/sp ... 01119a.htm

[mannfm11]

Freddy, I read that book when John brought it up in 2008. I found it quite interesting. The whole thing gets started under the war debt of France and Britain and the reparations of Germany. Wall Street used this debt as collateral for more debt and started financing American exports with debt to Europe. Kind of sounds like China today. But, the US was already the richest country in the world when this stuff started. It was a stable county, as countries go. China is far from that and we are in a different system.

What flies under the radar is the mess is a system of bank liabilities. That is what I brought up that vincecate started attempting to discount what I was trying to say. The banks are drawing to a hand that can't be made. The cards for a winning hand are missing. Either way, the banks are screwed. They either sit there like the ones in Japan, hoping the impossible happens or they are liquidated and resolved. Inventing government capital to prop them up isn't going to work. Buying the assets that produce income off their balance sheets isn't going to fix them. They can write good checks to other banks, but they can't earn money off their liabilities,which is what they are basically doing. If they make more loans, they create more liabilities. If they keep paying zero, the depositors will start holding cash as in currency. They are cornered, trying to draw a card that isn't in the deck to an inside straight.

The current Irish crisis is due to the fact the Irish banks can't pay their debts. Not only can they not pay, but the assets of others aren't any good. This is deflation. What is the pile of default swaps on Ireland, Portugal, Spain, Italy and Greece? Seems I recall there was $1 trillion on GM alone. These default swaps aren't only liabilities, but they are assets and expenses and income, depending on which side of the swap one is on. They aren't merely bets, but are the equivalent of income bearing amounts of face value. The amount of fake money, instruments that mimic cash and capital assets are massive and the banking system resides on top of them. LEH blew up the world not because it was an unbearable loss, but because it represented a massive amount of make believe cash in the system. So, the $31 trillion of international banking cross currency liabilities makes $600 billion of QE by Bernanke appear to be a puddle next to a large lake. These liabilities are filled, not by cash, but by derivative positions which amount o promises to indemnify or deliver if necessary. In the end you will need to real thing to hold your property, to stay in business and to remain solvent in any financial industry.

So people think it is the dollar that is going up in smoke. It will be the US government that defaults next? They might default, but they will be the last to tip, not the next. China, with its trillion in mal-investment will find itself in default prior to the US, contrary to what the public is trained to believe. How many big city skylines can a country have that for the most part is still a fraction of the business center the United States is? I have read there is enough floor space under construction in China to cover the state of Rhode Island. There is roughly 200 million square feet of office space in the DFW area. There is 33.454 billion square feet of space in an area the size of Rhode Island. Count that! I think that equates to 165 times the office floor space for the entire DFW area.

Watch how hard it is going to be to get cash next time. Last time the price of oil fell from 144 to 34 in 4 months. The price of gold fell from over $1000 to under $700 in roughly the same time frame. Silver fell in half. It is going to be who can put their banking system back together and the Euro is nothing but a bank and I doubt it can pull itself up by its bootstraps. No one is interested in going down with that ship, not even its biggest proponents.

http://ukip.org/content/video-zone/2014 ... rosceptics

[vincecate]

I have read there is enough floor space under construction in China to cover the state of Rhode Island.

The Chinese are getting as much real stuff from the world as they can while this paper money still works.

In "The Bubble that Broke the World" they pointed out that after the Germans had seen their mortgages, life insurance, retirement funds, savings, bonds, debts, their paper money, etc. all go "poof" in 1923 they were much more interested in building real things like houses, factories, and office buildings. Borrowing money from America and building real things seemed OK to them since the debt might go away but the buildings would stay.

In the end the Germans were right, the debts were forgiven and the buildings stayed. In the end, I think the Chinese will be seen to have been right too.

Now it is very possible that China will see their real estate bubble pop first, before paper money crashes, and prices go down, and people lose money. But in the longer run (say during WW3) I think China will be in a stronger position because they have all this real stuff.

Foreigners are investing around $8 billion per month in China. When war starts I would expect communist China to nationalize all foreign owned assets. So it may not be the Chinese that lose on these investments.

http://abcnews.go.com/Business/wireStory?id=10895176

Just about everyone expects the Yuan to go up. But changing the value will change the value of Chinese imports and exports. If I was running China I would let the dollar go down and keep the Yuan value relative to basket of imports and exports about the same. As the dollar went down more and more people would want to invest in China as they would see the value of investments there going up. Some would worry that America will not be able to afford as much Chinese stuff, but I don't think there is any real way China can fix that problem.

[OLD1953]

Vince, I think you are dead on about foreign investment in China. There is about a 99.9% chance we'll see all those foreign holdings nationalized in the future. This will do a lot of interesting things, including bankrupting WalMart.

As far as I'm concerned, all prices for anything money/stock/bond/derivative related are random or near random right now. My investment in physical silver is (in theory) worth about 10 times what I paid for it. Which is utterly ridiculous.

[vincecate]

As far as I'm concerned, all prices for anything money/stock/bond/derivative related are random or near random right now. My investment in physical silver is (in theory) worth about 10 times what I paid for it. Which is utterly ridiculous.

There does seem to be great uncertainty in the air.

If central banks unloading their silver many years back drove the price down, and if silver is about to be important as money once again, then the price increase could well make sense. I like silver. It is doing what I thought it would. Congress and Bernanke are doing what I though they would so far (big deficits and money creation like the world has never seen). If things go the way I think, this is not going to be fun.

[Higgenbotham]

S&P 500

October 11, 2007 high 1576.09
March 6, 2009 low 666.79

512 days

1576.09-666.79 = 909.30

Slope = -1.78 points per day



November 21, 2008 low 741.02
April 26, 2010 high 1219.80

521 days

1219.8-741.02 = 478.78

slope = 0.92 points per day



March 6, 2009 low 666.79
August 9, 2009 high 1129.24

521 days

1129.24-666.79 = 462.45

slope = 0.89 points per day


1.78/2 = 0.89 points per day



July 8, 2009 low 869.32
December 10, 2010 high 1240.40

520 days

1240.40-869.32 = 371.08

slope = 0.71 points per day

1.78/2.5 = 0.71


Ideal theoretical cycle is likely to be given by the square root of 2 times 365.25 days, or 516.5 days.


March 6, 2009 low 666.79
August 9, 2009 high 1129.24

521 days from March 6, 2009 to August 9, 2009
644 days from March 6, 2009 to December 10, 2010

(1129.24-666.79)*644/521 + 666.79 = 1238.41

December 10, 2010 high = 1240.40


1930s Comparison

September 1929 high = 386.10 (Dow)
April 1930 high = 297.25 (Dow)

1576.09*(297.25/386.10) = 1213.40 theoretical high

As discussed on the other thread, the April 2010 high of 1219.80 is the cyclical equivalent of the April 1930 high.

[vincecate]

In the last month 3 year US Treasury yields have gone from 0.54% to 0.94%. Other length bonds yields are up too. When yields go up, stocks should go down. If yields keep going up then people are walking away from US debt and Bernanke will have to do his "not printing money" even faster. So far it is a short trend, but if this continues, the end is near. In any case, it does not seem that QE2 is going to reduce 3 year rates below 0.54%.

As interest rates go up the interest on the US debt of $14 trillion starts to be harder to pay and people will talk about a US sovereign debt crisis more and more. With income taxes on the order of $1 trillion, 10% interest on $14 trillion is "we are all dead" territory. My guess is if 3 year yields got to even 4%, which is not historically a high interest rate, there would be panic bond sales.

I also think that real inflation rates are or soon will be higher than 4%, so that interest rates have to go above that to be rational/sustainable. With interest rates less than inflation everyone will want to borrow money from Bernanke. So at this point I don't see any way out.

http://3.bp.blogspot.com/_nSTO-vZpSgc/T ... -12-07.png
http://finance.yahoo.com/bonds/composite_bond_rates
http://www.cnbc.com/id/40565833
http://krugman.blogs.nytimes.com/2010/1 ... invisible/
http://money.cnn.com/2010/12/08/markets ... /index.htm