Financial topics

[OLD1953]

Lot of debt is being erased or totally restructured.

http://retailindustry.about.com/od/topu ... tail_3.htm

[vincecate]

Lot of debt is being erased or totally restructured.

http://retailindustry.about.com/od/topu ... tail_3.htm

The basic world plan seems to be to save the governments and save the banks by bankrupting mainstreet. Seems it would be much better to let the governments and banks go bankrupt and not sacrifice mainstreet.

[Higgenbotham]

The stock market continues to move past some of the possible dates I had noted where previous trends came to an end. Namely, in the past 3 years, the market has often moved about 517 calendar days from major highs to major lows within a range of 5 calendar days. Two of these moves were very emotional - the move from the 2007 high to the 2009 low (512 days) and the move from the November 2008 low to the April 2010 high (521 days).

As of today, the market is 531 days past the July 2009 low. For the past few days, it's been creeping higher under the trendlines I had calculated. Today, though, the market got even more excited and pushed over those trendlines. A couple years ago, investors panicked out of stocks and drove t-bills to negative interest rates, saying they wanted to show they had good collateral on their balance sheets. Now, just two years later, they are panicking to buy stocks at much higher prices.

[vincecate]

It seems there is a serious proposal to end the Fed and just let congress print whatever money it needs, to pay off debts or whatever. The legislator taking over control of money printing decisions from the central bank is frequently part of the path to hyperinflation.

http://globaleconomicanalysis.blogspot. ... -from.html

My guess is that they are not that desperate yet. But when interest rates go up much higher if the Fed shows any reluctance to buy all the government debt that the government wants to sell then such a proposal will seem much more necessary to the legislators. So either the Fed will print money when needed, or the people/rules will be changed so the money is printed.

[Higgenbotham]

I've been purchasing put options on the March S&P 500 over the past week. I bought 38% of the total this morning. That's all I will do. This is the first time I've bought any options since 2007. I bought some then, but not as many. I put about 0.7% of my money in these. That may not seem like a lot, but it is. If a person does this on a regular basis and the market doesn't crash, they will lose most of their money. So I'm not recommending anybody try this. The odds are that I will lose all of this money.

The market seems more stretched at this point than I've ever seen it. That's just my opinion though. The fundamental question seems to be whether the old economic models that are calling for a resumption of growth are right or not. Even Hussman's standard models show the market being overvalued, but more overvalued in 2000 and 2007 than now. My guess is the market is more overvalued now. Still, it doesn't mean investors will get the wake up call and panic any time soon or at all. The second question is whether QE2 can continue to hold up the market. Everyone seems to think so, which is one reason why I want to take a chance on the opposite side. I've never seen a market more unanimous that anything so stupid is going to work.

[Higgenbotham]

So either the Fed will print money when needed, or the people/rules will be changed so the money is printed.

This proposal is being floated because Ben is a Printaholic and some people want to get a lid on it. There is no fear anywhere in the US that Ben will ever stop printing money. In his last speech, he whined about China criticizing him and reestablished his right and duty to print as much money as he wants. He sounded like a 3 year old throwing a temper tantrum because somebody threatened to take his toy away.

Still, I can't really seem to come up with anything original. I googled for "Bernanke Printaholic" and got 4 hits. Just goes to show there is truly nothing new under the sun. But I was close. Back to the drawing board.

[OLD1953]

I've got some very good evidence that the market is topping for you.

A young airman here told me just this morning he was excited about putting his money into companies that provide things used to build houses. When I asked the obvious question of "Why", he said that housing had been down long enough and people would be building new homes. I mentioned a huge overhang in the market, that banks still haven't cleared inventories, that the title mess guarantees a steady trickle of foreclosed property on the market that will keep prices depressed for a long period, that the tax credits pulled a great deal of housing demand forward and that will make it take longer to recover - all of which was just totally ignored. He knows it's going to happen because he's decided it will happen and that's all there is to it.

When people like that are excited about markets, then you've got yourself a top. When they get in, there's nobody left to get in. So the top is close to hand.

[Higgenbotham]

The emotional reactions can be very telling.

Back at the 2007 high, I was short the market and under water. I was talking with someone in the brokerage office who was not my broker (at the time). I told him I was short and was going to stay short. I said something else I'll refrain from repeating because it might offend people. Even though he was bearish on the market, he laughed. I remembered that laugh. It was a laugh like, are you freaking crazy?

Fast forward. Late last week, I e-mailed this same person, who is now my broker, and asked him how to get quotes for puts. The old quotes from 3 years ago were gone; everything has changed. It didn't work, so I called him and said I wanted to start buying some puts. He laughed and said I thought you were kidding. I said no. Same laugh. Despite probably 200 conversations in the meantime, I hadn't heard that laugh in 3 years and had a flashback right back to that moment in 2007.

[Higgenbotham]

I skimmed through the Kucinich End the Fed proposal on his web site. Also skimmed through Mish's comments.

This is part of the debate about public versus private utilities. Banking is considered to be a utility. Currently, banking is all privately owned and mostly for profit in the US. The Fed is a private entity that exists primarily to protect private banking interests. It is not part of the government. The private banking system has spread its tentacles into government through the revolving door. There's a movement afoot in this country to privatize public utilities like highway systems, health care, public education, water systems, and so on. Mish is in favor of this and promotes it whenever he can.

Now my opinion. As a bit of background, I've worked in government and the private sector, both for Fortune 500 companies and being self-employed. I think Mish is very very wrong. Government needs to control and operate public utilities, including the part of the banking system the Fed is operating in a cloud of haze and lack of transparency. Kucinich is right. The reason is that quality of public services is of the utmost importance and private interests have no incentive to deliver quality on services that they monopolize. They only have incentive to deliver quality on items where there is competition. Private interests have only one incentive: profit. It doesn't make sense, though, to have multiple competing public utilities of various kinds in the same jurisdiction in most cases. For example, you don't need multiple highway systems around a city.

So what's the solution? As I've mentioned, it's to break the country up into regions with more central authority within the regions or states and less in Washington. Let each region or state run its own monetary system and other utilities. If a region operates more efficiently, the adjacent regions will suffer and will have to compete and become more efficient. With computers and electronic money systems, multiple competing regional currency systems operating inside the US should be fairly easy to implement.

[OLD1953]

Public utilities have to be controlled for the ultimate purpose of stability in pricing. No one would logically start any business if they believed the price of electricity or fuel would quintuple for no other reason than "we wanted to".

The trend to total deregulation seems to have reversed, and for now that is a good thing. Of course, just as the deregulation went too far, the reregulation can also go too far and strangle the life out an industry as well.

However, just to think about it for a minute, if nuclear plants had actually been regulated in the 80's as they were promised to be, we'd have a lot more of them. Proper regulation would forbid goofy suits about "there might have been an earthquake within 20 miles of that region 5 millions of years ago", just as it forbids untrained people at the controls of a reactor. Decisions need a review board that isn't in thrall to an industry, but they don't need to be dragged into the court over every decision either.