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There are interesting developments in the UK as their banking system enters into a crisis. Below is an article by Ambrose Evans-Pritchard which suggests problems on the horizon.
More problematic is information that suggests that the CDS (credit default swap) rate for RBS (Royal Bank of Scotland) after the 70% takeover is the same as the rate for UK sovereign debt. This indicates that trades regard the risk of default by the bank as equivalent to that for the UK. Both rates are high compared to historical levels. This is not reassuring.
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The slide in sterling has turned "disorderly".
We can argue over whether or not the first phase of devaluation acted as a shock-absorber for a badly mismanaged economy, providing a cushion against debt deflation and the housing crash. But the latest dive has a very malign feel.
For the first time since this crisis began eighteen months ago, I am seriously worried that British government is losing control.
The currency has fallen five cents today to $1.39 against the dollar. It is now perched precariously on a two-decade support line -- the levels tested in 2001 and 1992. If it breaks that line, traders may send it crashing down towards dollar parity.
The danger is blindingly obvious. The $4.4 trillion of foreign liabilities accumulated by UK banks are twice the size of the British economy. UK foreign reserves are virtually nothing at $60.6bn. (on this, more later in a piece I'm writing today)
If the Government is forced to nationalise RBS and perhaps Barclays with their vast exposure in dollars, euros, and yen, it risks being submerged. It is one thing for a sovereign state to let its national debt jump in a crisis -- or a war -- perhaps even to 100pc of GDP. It is another to take on foreign debts on such a scale with no reserves. Yes, the banks have foreign assets as well to match the debts. But how much are these assets really worth?
This is the moment when the "rubber hits the road" -- to borrow from American argot -- the moment when the reckless debt experiment of our economic and political leaders comes back to haunt.
We cannot even do what Iceland did to save its skin. Reykjavik refused to honour the foreign debts of its buccaneering banks. It let them default, parking the losses in Resolution Committees. Small islands can do that. Iceland has fish instead, and lots of metals.
Britain cannot follow suit. The debts are too big. If London takes such disastrous action it will set off global panic and lead to an asset death spiral, drawing the entire world into deep depression.
What have our leaders wrought? The reckless conduct of City, the fiscal incontinence of Gordon Brown (3pc deficit at the top of the cycle), and the pitiful regulation of the UK housing boom have all combined to bring the country to the brink of disaster.
England has not defaulted since the Middle Ages. There is a real risk it may do so now.
And no -- just so there is no misuderstanding -- it would not have been any better if Britain had joined the euro ten years ago. The bubble would have been just as bad, or worse, as Ireland and Spain can attest. We have our disaster. They have their disaster. When the dust has settled in five years we can make a proper judgement on the sterling-EMU issue. Not now.
The Baby Boomers have had their moment in power. The most spoilt generation in history has handled affairs with its characteristic hedonism. The results are coming in.
The blithering idiots.
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LINK to article (http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2009/01/20/seriously_alarmed)
Another item with a similar tone:
LINK (http://www.telegraph.co.uk/comment/columnists/iainmartin/4295219/Gordon-Brown-brings-Britain-to-the-edge-of-bankruptcy.html)
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They don't know what they're doing, do they? With every step taken by the Government as it tries frantically to prop up the British banking system, this central truth becomes ever more obvious.
Yesterday marked a new low for all involved, even by the standards of this crisis. Britons woke to news of the enormity of the fresh horrors in store. Despite all the sophistry and outdated boom-era terminology from experts, I think a far greater number of people than is imagined grasp at root what is happening here.
The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.
The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.
This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, travelling to the City to give speeches praising their "financial innovation".
Does the Prime Minister realise the likely implications when the country joins the dots? He has never been wild on shouldering blame, so I doubt it. But Brown is a historian. He should know that when a nation has put all its chips on red and the ball lands on black, the person who made the call is responsible. Neville Chamberlain discovered this in May 1940 with the German invasion of France.
We're some way from a similar event. But do not underestimate the gravity of the emergency and potential for disgrace.
The Government's bail-out of the banks in October with £37 billion of taxpayers' money was supposed to have "saved the world", according to the PM, but now it is clear that it has not even saved the banks. Our money kept the show on the road for only three months.
As the Liberal Democrats' Treasury spokesman Vince Cable asks: where has the £37 billion gone? The answer, as Cable knows, is that it has disappeared down the plug hole.
It is finally dawning on the Government that the liabilities of the British banks grew to be so vast in the boom years that they now eclipse the entire economy. Unfortunately, the Treasury is pledged to honour those
liabilities because it has guaranteed not to let a British bank go down. RBS has liabilities of £1.8 trillion, three times annual UK government spending, against assets of £1.9 trillion. But after the events of the past year, I wager most taxpayers will believe the true picture is worse.
Meanwhile, the assets are falling in value. This matters, because post-nationalisation these liabilities are now yours and
mine.
And they come piled on top of the rocketing national debt, charitably put at £630 billion, or 43 per cent of GDP. The true figure is much higher because the Government has used off-balance sheet accounting to hide commitments such as PFI projects.
Add to that record consumer indebtedness and Britain becomes extremely vulnerable. The markets have worked this out ahead of the politicians, as usual, and are wondering what to do next. If they decide our nation is a basket case, they will make it so.
The PM and the Chancellor , both looking a year older every day, tell us that for their next trick they will buy more bank shares, create a giant insurance scheme for bad debt, pledge to honour liabilities without limit, cross their fingers and hope it all works. The phrase "bottomless pit" springs to mind for a reason: that is what they have designed.
In this gloom, the Prime Minister has but one slender hope: that somehow, by force of personality, the new President Obama engineers a rapid American recovery restoring global confidence, energising the markets and making us all forget this bad dream.
Obama is talented but he is not a magician. Instead, Gordon Brown's nightmare, in which we are all trapped, is going to get much worse.
Notice the part about Jim Rogers - he suggests avoiding UK investments.
LINK (http://www.bloomberg.com/apps/news?pid=20601087&sid=aTZLvQ3v1.b4&refer=home)
Jan. 20 (Bloomberg) -- The pound dropped to a record low against the yen and breached $1.40 for the first time since 2001 as the U.K.’s second bank-bailout plan in three months raised concern the financial crisis is deepening.
The British currency had its biggest drop against the euro in a month after the government of Prime Minister Gordon Brown said it will spend an extra 100 billion pounds ($142 billion) to support the nation’s banks and increase its stake in Royal Bank of Scotland Group Plc. The euro weakened against the yen as a German survey showed investors remained pessimistic about the outlook for the European economy.
“Worries about the banking crisis are leading to more risk aversion,” said Antje Praefcke, a currency strategist in Frankfurt at Commerzbank AG. “The market isn’t convinced, for the moment at least, that there’ll be a light at the end of the tunnel.”
The pound slid to 125.96 yen as of 6:44 a.m. in New York, from 130.71 in London yesterday, after earlier trading at an all-time low of 125.86. It weakened to $1.3954 from $1.4420, after breaching the lowest level since June 2001. The pound was at 92.94 pence per euro, from 90.59 pence. The yen strengthened to 117.06 per euro from 118.47, and 90.26 per dollar from 90.64.
Lloyds Banking Group Plc slumped 42 percent to trade at the lowest level in at least two decades and Barclays Plc slid 9.8 percent as shares dropped after Merrill Lynch & Co. said it has too little capital and will struggle with funding and bad assets. The benchmark FTSE 100 Index lost 0.2 percent.
Rogers’ Call
Yesterday’s British government package to stabilize the financial industry followed October’s 50 billion-pound bank recapitalization program. U.K. debt may now be greater than the government forecast on Nov. 24, said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia, which cut June forecast for the pound today to $1.50 from $1.60.
“I would urge you to sell any sterling you might have,” Jim Rogers, chairman of Singapore-based Rogers Holdings, said in an interview with Bloomberg Television. “It’s finished. I hate to say it, but I would not put any money in the U.K.”
Rogers correctly predicted the start of the commodities rally in 1999. In January 2008, he advised investors to sell the U.S. currency. The Dollar Index traded on ICE futures, which tracks the greenback against six major trading partners, rose 6 percent last year.
The pound weakened versus all of the 16 most-active currencies as a government report showed the inflation rate fell in December to the lowest level since April, giving the Bank of England more room to cut interest rates. U.K. consumer prices rose 3.1 percent from a year earlier, the Office for National Statistics said today. Inflation is tumbling as the U.K.’s first recession in 17 years curbs price increases.
Brown Popularity
Worsening economic indicators have stoked concern among voters about Brown’s leadership, both as prime minister since Tony Blair stepped down in 2007 and as finance minister for a decade before. An Ipsos-Mori survey today showed the opposition Conservative Party 14 points ahead of Brown’s Labour Party. An election is due by June 2010.
“The realization that the banking sector is in an even worse state than previously thought, and the significance of that sector to the U.K. economy, is really hurting the pound,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International.
The Bank of England reduced its benchmark rate to 1.5 percent this month, the lowest in the bank’s history. Policy makers will probably cut the rate to 1 percent at their Feb. 5 meeting, according to a separate Bloomberg survey.
Surplus Currencies
At a time when interest-rates are sinking toward zero around the world, the biggest currency traders are recommending countries that have the largest trade surpluses, led by Japan, Norway and Switzerland.
BNP Paribas SA, the best currency forecaster in a 2007 Bloomberg survey, says the yen will strengthen about 14 percent against the dollar by June. Goldman Sachs Group Inc. made Norway’s krone one of its top 2009 picks, with possible gains of 17 percent versus the dollar. Bank of America Corp., the largest U.S. lender by assets, says the Swiss franc will advance against every major currency.
“When the dollar-yen breaks 85, the Bank of Japan would be in the market to intervene” to sell the yen, Eisuke Sakakibara, a former top currency official at Japan’s Ministry of Finance, said in a Bloomberg Television interview. “This is just an indication of the fact that Japanese authorities are afraid of an abrupt appreciation of the currency at the time when the Japanese economy is in recession.”
Euro’s Drop
The euro declined to the lowest level in almost six weeks against the dollar, falling to $1.2967 from $1.3069 late in London yesterday. It touched $1.2921, the weakest level since Dec. 10. The ZEW Center for European Economic Research said its index of investor and analyst expectations was at minus 31 in January, from minus 45.2 the prior month.
Europe’s single currency declined for a second day versus the yen after the Brussels-based European Commission said yesterday the region’s economy will probably shrink 1.9 percent in 2009 and grow 0.4 percent next year.
“We still believe that these estimates are likely to be surprised on the downside,” analysts led by Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas in London, wrote in a research note yesterday. “We expect the euro to remain under pressure.”
The euro will decline to $1.20 and to 94 yen by the end of June, BNP Paribas forecast.
The euro will decline to $1.20 and to 94 yen by the end of June, BNP Paribas forecast.
According to XE.com, its at $1.29 right now. Scary stuff.
HOUSE PLANS VOTE WEDNESDAY ON STIMULUS BILL
Facing rapidly dwindling GOP support, the House plans a vote on Wednesday on their version of the stimulus bill. The Senate Finance Committee released the text for the tax portions last week calling for $275 billion in tax decreases.
The stimulus package is criticized from all sides. The GOP says there aren't enough tax cuts. Democrats want more spending and increased taxes. Some question the effect of the stimulus, especially some of the proposed spending such as funding for contraception. Economists say something big needs to be done fast. The package is almost too big to even summarize, but should Congress pass or defeat the stimulus bill?
Peregrino
01-27-2009, 14:19
Instead of printing more Monopoly Money and taxing the productive elements of the economy to shore up a "house of cards", how about giving tax PAYERS $875B of tax relief? I feel reasonably certain we can inject enough of the savings into the economy to get things moving again. I'm positive we can do it with greater impact and "justice" than the porkmeisters in Congress.
Instead of printing more Monopoly Money and taxing the productive elements of the economy to shore up a "house of cards", how about giving tax PAYERS $875B of tax relief? I feel reasonably certain we can inject enough of the savings into the economy to get things moving again. I'm positive we can do it with greater impact and "justice" than the porkmeisters in Congress.
I agree in concept, but I think the problem would be that a great deal of the tax rebates, etc would go to those who do not pay taxes in the first place. I will never understand how a person who doesn't pay them gets a tax return check at the end of the year.
I agree in concept, but I think the problem would be that a great deal of the tax rebates, etc would go to those who do not pay taxes in the first place. I will never understand how a person who doesn't pay them gets a tax return check at the end of the year.
My understanding of the underlying theory is that people in the lower economic strata, especially those at the bottom who don't pay any taxes, have the greatest likelihood of immediately spending the money, and hence providing the greatest impact on the overall economy. In contrast, those who pay taxes are more likely to save part or all of the money, resulting in less effect on the greater economy. In essence, it is a form of transfer payments (welfare) that is conceived of (at least in theory) as contributing to the greater good. I hasten to add that I am not defending or promoting the practice, but rather I'm only mentioning my understanding of the underlying theory.
There are some who question whether the stimulus package has any value whatsoever. We are not spending our own savings; instead, we are borrowing from the rest of the world, especially China, and using the debt to purchase a basket of things that will not last nearly as long as the debt. Even if we initiated tax cuts, permitting the recipients to choose how they spent their own money, the result seems unlikely to stimulate automobile purchases from the current 10 million units per year up to 12 million units per year, thus saving the automobile industry in the US. Still worse, there is little reason to suppose that housing prices would stabilize at the current level. Instead, housing prices are likely to continue to revert to the historic mean of three times average income. We seek to stop an avalanche, and risk wider destruction.
One argument is that the stimulus package will help restore confidence, but this begs the question of what we lack confidence in, and why confidence has dissolved. Our financial institutions and banks are awash in bad debt on house mortgages, commercial real estate, and credit cards. Neither banks nor individuals know, nor can know, whether other institutions are solvent or not. Unless and until the bad debt is brought into the open, priced accurately (marked to the market) and written off to the degree necessary, there is no legitimate basis for confidence. We simply cannot know whether a bank is well capitalized, on the verge of insolvency, or hopelessly bankrupt. Presumably, the goal of stimulus is to increase the value of the underlying debt instruments held by the banking institutions in order to indirectly improve their capitalization. However, the amount of bad debt dwarfs the stimulus package. It may be that the strategy is fatally flawed.
We as a nation face the risk that our deficit spending, no matter how the proceeds of the deficits are spent or invested, will reduce global confidence in the integrity of our own sovereign debt. Should that occur, suspicion would impede additional borrowing and interest rates would escalate to compensate creditors for the risk undertaken. We do not (and cannot) know where the tipping point is; however, we are engaged in an experiment that may determine it. Such an occurrence might have unpleasant consequences.
NMAP I have another question. It seems part of the stimulus package is going to be used to "buy up" bad mortgages from the banks. I don't understand what this will do, other than take it off the banks financial statement and place it somewhere else. How does that help the economy?
Team Sergeant
01-27-2009, 16:09
My understanding of the underlying theory is that people in the lower economic strata, especially those at the bottom who don't pay any taxes, have the greatest likelihood of immediately spending the money, and hence providing the greatest impact on the overall economy. In contrast, those who pay taxes are more likely to save part or all of the money, resulting in less effect on the greater economy. In essence, it is a form of transfer payments (welfare) that is conceived of (at least in theory) as contributing to the greater good. I hasten to add that I am not defending or promoting the practice, but rather I'm only mentioning my understanding of the underlying theory.
And this is exactly what the banks and lenders are currently doing, holding onto the monies the taxpayers gave them resulting in very little impact on the current economy.
As I see it the banks fell like dominos, I fear soon "countries" will fall like banks, like dominos.
NMAP I have another question. It seems part of the stimulus package is going to be used to "buy up" bad mortgages from the banks. I don't understand what this will do, other than take it off the banks financial statement and place it somewhere else. How does that help the economy?
The idea here is, as you say, to take the bad debt off of the banks' balance sheets and transfer it to the taxpayers. In theory, the public takes debt instruments that are temporarily distressed and gives the banks treasury securities or other instruments that will no longer impair their financials. With renewed capitalization, the banks will be able to lend money to individuals and businesses, confidence will be restored, and economic activity will return to its robust levels. If the impaired debt instruments actually recovered, then the scheme would work, the taxpayers would lose little or nothing, the banks would be saved, and all would be well in the world. However, such recovery implies that price distortions in the housing and other markets would continue indefinitely, and even increase. But this is in contradiction to economic history. Prices return to mean values, and distortions inevitably correct.
There is a further problematic issue. During a period of economic decline, most people prefer to decrease debt instead of increasing it. In addition, those eager to increase debt may be unable to repay it. Therefore, those who could sustain more debt may not wish to borrow at the same time that those who are not worthy of additional credit seek to borrow more. A bank faces a dilemma when it attempts to decide to fund loans that may constitute a further risk to capital. So the banks have to answer a very practical question about whether they should make the loans that the government wishes them to make. If any government continues to fund loans that are likely to default, the process is sure to end badly.
There is a saying that demographics are destiny. Right now, the baby boomers are approaching retirement age. They have just seen their stock portfolios devastated, their home values in decline, and the yield on their savings accounts reduced to nearly 0. Even a robust recovery will require years to make up the money they have lost. Predictably, their reaction will be an increase in savings rate. The problem is, when they shift money from consumption to savings, they no longer contribute to the exceptional economic growth we have enjoyed. The people who have purchased McMansions are likely to continue purchasing such large houses, thus reducing the demand and hence the market price of such structures. This means that the Federal Reserve and the U.S. Treasury are fighting a very big headwind.
And this is exactly what the banks and lenders are currently doing, holding onto the monies the taxpayers gave them resulting in very little impact on the current economy.
As I see it the banks fell like dominos, I fear soon "countries" will fall like banks, like dominos.
Team Sergeant, I believe you're right. Iceland is in the news, but a great many countries are showing signs that the quality of their debt is declining. Standard & Poor's has reduced Spain's credit rating to AA+ from the previous AAA. A great many other countries are at risk, and I have provided links below to three resources that may be of interest. Perhaps most disturbing is that the UK is being pulled down by the combination of declining real estate values and bad debt. The Royal Bank of Scotland (RBS) seems to be an evolving train wreck.
Country Default Risk (http://seekingalpha.com/article/109270-country-default-risk-rises-across-the-board)
Country Risk 2 (http://www.businessinsurance.com/cgi-bin/news.pl?post_date=2009-01-16&id=15043)
Spain (http://www.marketwatch.com/news/story/sp-cuts-spains-credit-rating/story.aspx?guid=%7B0807BB07-7690-483D-BC1E-005AD6D3D256%7D&dist=msr_4)
UK worse credit risk than McDonald's (http://www.independent.co.uk/news/business/news/britain-worse-credit-risk-than-mcdonalds-1059574.html)
frostfire
01-28-2009, 09:27
Country Default Risk (http://seekingalpha.com/article/109270-country-default-risk-rises-across-the-board)
thank you for the links, nmap. The same site put this chart
Scariest Chart (http://seekingalpha.com/article/115525-the-scariest-chart-ever?source=article_sb_popular)
hehehe, more gloom and doom :D
Well, the source of the chart, and putting it in perspective with better/more pragmatic discussion is here
http://eastcoasteconomics.wordpress.com/
GratefulCitizen
01-31-2009, 22:47
Wasn't sure which thread would be best to append.
This one seems to have the most talk about the "stimulus" package.
There seems to be a great deal of money going to deferred spending (infrastructure and such).
This delay (and various other facts) effectively undermines the whole idea of "stimulus".
So, other than a liberal pork wish list, what are they trying to do?
The "infrastructure" spending got me thinking.
Whenever the federal gov't tries to strong-arm the States in various areas outside of federal authority, what is there preferred technique?
--They withhold highway funds (or other similar funds).
The congress is setting aside a nice big piggy-bank for bribing the States into compliance.
Defender968
02-01-2009, 09:12
Wasn't sure which thread would be best to append.
This one seems to have the most talk about the "stimulus" package.
There seems to be a great deal of money going to deferred spending (infrastructure and such).
This delay (and various other facts) effectively undermines the whole idea of "stimulus".
So, other than a liberal pork wish list, what are they trying to do?
The "infrastructure" spending got me thinking.
Whenever the federal gov't tries to strong-arm the States in various areas outside of federal authority, what is there preferred technique?
--They withhold highway funds (or other similar funds).
The congress is setting aside a nice big piggy-bank for bribing the States into compliance.
Grateful if you look most of B0's so called stimulus are things he campaigned on long before anyone outside of the banking/financial sector knew there was a problem, so either the new savior is/was psychic and all knowing (and I'm sure there are many Dims who will say he is omniscient) or this bill is nothing more than a huge hock of pork meant to repay those who supported the dims and got them into office, all at you and I's expense. Leading from the center my ass, but he an Nancy are doing a great Jedi mind trick that seems to be working for the majority of the country. :mad:
The title smacks of odd little conspiracy theories, doesn't it? However...this is from MarketWatch, which is an affiliate of Dow Jones News Service.
A question they do not address is sovereignty. If a nation does not control its own currency, is it still sovereign? Perhaps the EU is suggestive; national policies are subordinated to those of a higher level of government. If that is so, what are the implications for our constitutional government?
LINK (http://www.marketwatch.com/news/story/do-we-need-north-american/story.aspx?guid={D10536AF-F929-4AF9-AD10-250B4057A907}&dist=TNMostRead)
The article suggests "See Minyanville column" several times. Here is the LINK (http://www.minyanville.com/articles/C-db-jpm-bac/index/a/14607)
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TODD HARRISON
How realistic is a North American currency?
Commentary: Uniting U.S., Canada, Mexico money could result from crisis
By Todd Harrison
Last update: 6:12 a.m. EST Jan. 28, 2009"World, hold on. Instead of messing with our future, open up inside." -- Bob Sinclair
NEW YORK (MarketWatch) -- Thomas Jefferson once said: "When you reach the end of your rope, tie a knot in it and hang on." As the global financial system pushes on a string, investors are desperately trying to hold tight.
The New World Order is upon us, full of hope, promise and a fair amount of fear. In our recent discussion regarding the direction of our country, we noted the risks of catering to conventional wisdom and the implications for the U.S. dollar. See MarketWatch column on New World Order.
The Minyanville mantra is to provide financial news you need to know before you know you need it. That's a fine line to walk, as foresight often flies in the face of mainstream acceptance.
In 2006, it seemed counterintuitive to forecast a "prolonged socioeconomic malaise entirely more depressing than a recession." See Minyanville column.
For years, the notion of an "invisible hand" was conspiracy theory until we learned that the Working Group on Financial Markets was a central policy tool. See Minyanville column.
And now, as we gaze across our historically significant horizon, we must open our minds to thoughts and ideas that may seem foreign to folks conditioned by the past and stunned by the present.
Currency crossroads
As governments take on more risk -- as they price assets on behalf of the market and transfer debt from private to public -- the common denominator, or release valve, becomes the currency.
If our economic condition is allowed to take medicine in the form of debt destruction, the greenback will appreciate, and asset classes as a whole will deflate. If we continue to inject drugs that mask symptoms rather than address the disease, the likelihood of a seismic readjustment increases in kind.
The deflationary forces in the marketplace are pervasive, and the "other side" of our current equation, hyperinflation, may be years away. Given the magnitude, breadth and pace of the global financial epidemic, however, we must explore each side of the twisted ride.
Years ago, the Federal Reserve wrote a "solution paper" regarding the need to combat zero-bound interest rates. The concern was the flight of capital from the U.S. and an option discussed was a two-tiered currency, one for U.S citizens and one for foreigners.
Canadian economist Herbert Grubel first introduced a potential manifestation of this concept in 1999. The North American Currency -- called the "Amero" in select circles -- would effectively comingle the Canadian dollar, U.S. dollar and Mexican peso.
On its face, while difficult to imagine, it makes intuitive sense. The ability to combine Canadian natural resources, American ingenuity and cheap Mexican labor would allow North America to compete better on a global stage.
Experience has taught us, however, that perceived solutions introduced by policy makers and politicians don't always have the desired effect.
Unintended consequences
I've long contended that, much like the Internet prophecy proved true -- but not before the tech crash -- so too would globalization, albeit not without painful-yet-necessary debt destruction.
To get through this, we need to go through this. If we're not allowed to go through it, foreigners will seek alternative avenues. Remember, for holders of dollar-denominated assets, seeds of discontent have been sowing under the surface for years, with the greenback off 30% since 2002.
More likely than not, global leaders will watch how our new administration attempts to tackle the financial crisis before taking drastic steps. They understand that co-dependent risk exists as a function of the derivatives that interweave our financial infrastructure. If they could disassociate from our economic ecosystem without inflicting massive damage on themselves, they would have done so long ago.
If forward policy attempts to induce more debt rather than allowing savings and obligations to align, we must respect the potential for a system shock. We may need to let a two-tier currency gain traction if the dollar meaningfully debases from current levels.
If this dynamic plays out -- and I've got no insight that it will -- the global balance of powers would fragment into four primary regions: North America, Europe, Asia and the Middle East. In such a scenario, ramifications would manifest through social unrest and geopolitical conflict.
This particular path isn't something one would wish for, but the cumulative imbalances that steadily built in our finance-based economy must be resolved one way or another. Therein lies the critical crossroads we together face as our wary world attempts to find its way.
Scary? Yes. Probable? Not so much, at least for the time being. Possible? Certainly, although I'll again offer that it could take years before the pieces of this prickly puzzle fall into place.
Effective money management dictates weighing the entire probability spectrum of potential outcomes and factoring them into our decision making process. While the notion of a seismic currency shift may seem obscure, we must respect the possibility long before it becomes front-page news.
For if we've learned anything through the last few years, proactive thought provocation is a necessary precursor to effective preparedness.
Surf n Turf
02-01-2009, 20:39
A question they do not address is sovereignty. If a nation does not control its own currency, is it still sovereign? Perhaps the EU is suggestive; national policies are subordinated to those of a higher level of government. If that is so, what are the implications for our constitutional government?
nmap,
Excellent posts, as usual, especially the links.
Disregarding conspiracy theories for a minute -:D
I would be curious if you contemplate a two-tier currency in the coming years.
I ask the question for several reasons that include your above quotation, as well as the potential effects on American trade. As I see trade as the great equalizer – for both importer and importee.
Does not the current level of imports (especially from China) make “partners” captive to each other, and the price that the seller settles upon the market index on what American currency is worth?
If the above is correct, and certain markets are captive, is it possible for any captive partner to become dominant over the Currency. Would not that make them both the lender and the borrower?
I do appreciate that if someone holds paper worth x% of your current GDP there can be mischief, but I wonder about subordination.
SnT
The Market has dropped almost 500 points since the house passed the bill.
Hmmm.
nmap,
Excellent posts, as usual, especially the links.
Disregarding conspiracy theories for a minute -:D
I would be curious if you contemplate a two-tier currency in the coming years.
I ask the question for several reasons that include your above quotation, as well as the potential effects on American trade. As I see trade as the great equalizer – for both importer and importee.
Does not the current level of imports (especially from China) make “partners” captive to each other, and the price that the seller settles upon the market index on what American currency is worth?
If the above is correct, and certain markets are captive, is it possible for any captive partner to become dominant over the Currency. Would not that make them both the lender and the borrower?
I do appreciate that if someone holds paper worth x% of your current GDP there can be mischief, but I wonder about subordination.
SnT
I don't expect to see a two-tiered currency arrangement in the foreseeable future. If it did occur, I believe it would suggest a profound modification to existing trade policy. Moreover, the change might well extend into the arena of foreign policy. The disruption to both domestic and global economy could hardly be overstated.
The only reason to implement such a scheme would be imposition of trade barriers to reduce imports, and hence the trade deficit. Thus, the external currency would be required to engage in transactions offshore, whereas the internal currency would only work inside the borders of the country. So the federal government would either allocate what could and couldn't be purchased, or would impose an exchange ratio between the domestic and offshore versions. I think people would correctly perceive such a policy is a de-facto tax, and would object strongly. In addition, various illicit evasions and smuggling operations would probably be spawned. Since these tend to strengthen organized crime, and through that the corruption of the society, I think the policy would be nothing less than disastrous.
In addition, if the two-tiered currency was perceived as an impediment to trade, those countries that are highly dependent on exports would surely object. China comes to mind. Now it's true that the offshore version of the currency could offer substantially higher interest rates than the domestic version, which might attract additional funds to our sovereign debt; however, nations that we injured was such a trade policy could not be depended upon to invest additional funds in our treasury bills.
You bring up the point that both the US and China are captive to each other, and I agree. If China loses exports, they lose jobs - and hence risk instability. On the other hand, since our ongoing budget deficit and current policies imply substantial increases in spending and increased debt on the order of $1 trillion, then we are in desperate need of money from any source that might provide it. I suspect this makes us vulnerable to the policy preferences of China, Saudi Arabia, and other nations that have savings. If China decided to liquidate their holdings of treasuries, they could force the price of treasuries down, and hence interest rates higher. This would directly injure efforts to restart the economy. For that matter, any nation that supplies critical resources (oil) or cash can influence our policies. On the other hand, it is certain they will also suffer political and economic pain. In a way, this is a fiscal version of the old mutually assured destruction strategy.
For now, I think the US is probably the stronger partner; however, our policies place our status at risk (in my opinion). Just as with MAD, I suspect everyone will need to walk a fine line if we are to avoid disaster. And it's possible that the tipping point has been passed, and disaster cannot be avoided.
The Market has dropped almost 500 points since the house passed the bill.
Hmmm.
One theory I've heard - although I'm not completely convinced - is that the general atmosphere of concern, coupled with the rapidly expanding availability of treasury debt, is causing a transfer of money from every source to treasury securities.
Although money supply is a very big number, it is not infinite. Right now, the treasury is borrowing at an unprecedented rate, as can be seen in Frostfire's charts. All that money for the treasury debt has to come from somewhere. In addition, it is interesting to note that gold coins are difficult to purchase, and sell at a significant premium above the spot gold price. So it appears that money is migrating into treasury debt and (perhaps) gold and migrating away from the stock market, corporate debt, and debt instruments of cities and states.
Now this is where it gets interesting. If the new stimulus package, nearly $1 trillion worth, is funded through additional treasury debt, then where will the money come from? Will it come from stock market? Will it come from debt issued by corporations and other governmental entities? If so, is it possible that the stimulus package will create a stock market crash and force the economy into even deeper recession?
All of these are rhetorical questions. The consequences are pure speculation. However, the last stimulus package seems to have had an effect opposite to what was expected. Is it possible that the upcoming package will do exactly the same thing?
If one looks at a chart of the stock market, an image that looks suspiciously like a double top can be seen. Although the verdict is not yet in, there are some who suggest that we could easily see an additional 40% decline in the securities markets. Still worse, increasing unemployment could produce further pressure on house prices, thus exacerbating the original problem. If the treasury issuance of additional debt is in fact diverting funds from other economic activities to the various demands of the federal treasury, then even my gloomy views may have been wildly optimistic compared to the future reality.
Surf n Turf
02-03-2009, 12:34
For conspiracy theories, 2012 is the Mayan doomsday date:cool:
Here is my plan for repairing the economy:
1) Give $800 billion worth of tax cuts
2) Cut the top marginal income tax rate to 28%, the corporate tax rate to 25%, and the capital gains tax rate to 10%.
3) Create jobs by creating four million new border patrol agents :cool:
4) Work for fiscal conservatism.
Broadsword,
I’m on board !!! Your plan would certainly get this country moving in the right direction, and in a much shorter time than the Dear Leader has proposed.
We do have to get it into place before 2012 – the Mayan calendar may be right :D
How do we get your plan implemented?
SnT
WOW
The DOW is down 406 with an hour to go.
Maybe the Pres should stop saying the sky is falling and Kenny should say we do have a plan.
Who said we lost our Imperialist tendencies
"On its face, while difficult to imagine, it makes intuitive sense. The ability to combine Canadian natural resources, American ingenuity and cheap Mexican labor would allow North America to compete better on a global stage."
The Reaper
02-10-2009, 15:34
Who said we lost our Imperialist tendencies
"On its face, while difficult to imagine, it makes intuitive sense. The ability to combine Canadian natural resources, American ingenuity and cheap Mexican labor would allow North America to compete better on a global stage."
Very short sighted.
You want to add 110 million people, most undereducated and poor, and a third world country with dilapidated infrastructure and poor future prospects to our social programs and retirement system?
TR
Its the authors view point, mine was the historical humor of the idea, which isn't to far from China's execution of it s goals, Cheap Labor, Large deposits of minerals and resourses, plus capitalization.
In order to compete we may have to alter boarders, we could think of it as the era of Regional expansion, much like the Louisiana purchase of the southwest northwestern territories, only this time; not ocean to ocean, but from polar cap to polar cap. Regional dominance in a four region world.
Defender968
02-10-2009, 16:50
Very short sighted.
You want to add 110 million people, most undereducated and poor, and a third world country with dilapidated infrastructure and poor future prospects to our social programs and retirement system?
TR
But TR from what I've been able to find we're getting 10 M new illegal’s here every 2 years the vast majority of whom are from Mexico, and since no one in DC cares enough to secure our borders we've only got what maybe 20 years until they are all here anyway.;) we'll be paying for them either way, why not take the country over for our troubles, I mean they do have some nice real-estate :cool:
I came across a couple items that might be worth considering. Matters are not looking good. LINK to source (http://www.ft.com/cms/s/9ebea1b8-f794-11dd-81f7-000077b07658,Authorised=false.html?_i_location=htt p%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F9ebea1b8-f794-11dd-81f7-000077b07658.html%3Fnclick_check%3D1&_i_referer=http%3A%2F%2Fwww.tickerforum.org%2Fcgi-ticker%2Fakcs-www%3Fpost%3D82638%26findnew&nclick_check=1)
Why Obama’s new Tarp will fail to rescue the banks
By Martin Wolf
Published: February 10 2009 18:06 | Last updated: February 10 2009 18:06
Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.
What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.
Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.
The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this “progeny of the troubled asset relief programme” fails, Mr Obama’s credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.
All along two contrasting views have been held on what ails the financial system. The first is that this is essentially a panic. The second is that this is a problem of insolvency.
Under the first view, the prices of a defined set of “toxic assets” have been driven below their long-run value and in some cases have become impossible to sell. The solution, many suggest, is for governments to make a market, buy assets or insure banks against losses. This was the rationale for the original Tarp and the “super-SIV (special investment vehicle)” proposed by Henry (Hank) Paulson, the previous Treasury secretary, in 2007.
Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad – on sovereign, housing and corporate debt – will surely fall on US institutions, with dire effects.
Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so. But this is not the heart of the matter. That is whether, in the presence of such uncertainty, it can be right to base policy on hoping for the best. The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government. This choice is surely a “no brainer”.
The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.
Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.
Assume that the problem is insolvency and the modest market value of US commercial banks (about $400bn) derives from government support (see charts). Assume, too, that it is impossible to raise large amounts of private capital today. Then there has to be recapitalisation in one of the two ways indicated above. Both have disadvantages: government recapitalisation is a bail-out of creditors and involves temporary state administration; debt-for-equity swaps would damage bond markets, insurance companies and pension funds. But the choice is inescapable.
If Mr Geithner or Lawrence Summers, head of the national economic council, were advising the US as a foreign country, they would point this out, brutally. Dominique Strauss-Kahn, IMF managing director, said the same thing, very gently, in Malaysia last Saturday.
The correct advice remains the one the US gave the Japanese and others during the 1990s: admit reality, restructure banks and, above all, slay zombie institutions at once. It is an important, but secondary, question whether the right answer is to create new “good banks”, leaving old bad banks to perish, as my colleague, Willem Buiter, recommends, or new “bad banks”, leaving cleansed old banks to survive. I also am inclined to the former, because the culture of the old banks seems so toxic.
By asking the wrong question, Mr Obama is taking a huge gamble. He should have resolved to cleanse these Augean banking stables. He needs to rethink, if it is not already too late.
Here's another item. It seems suggestive of a breakdown at the highest levels. LINK (http://www.huffingtonpost.com/2009/02/10/administration-officials_n_165551.html)
Administration Officials Met With Laughter At Bailout Briefing
Administration officials were greeted with sarcasm and laughter Monday night when they briefed lawmakers and congressional staff on Treasury Secretary Tim Geithner's new financial-sector bailout project, according to people who were in the room.
The laughter was at its height when Obama officials explained that the White House planned to guarantee a wide swath of toxic assets -- which they referred to as "legacy assets" -- but wouldn't be asking Congress for money. Rep. Brad Sherman (D-CA), a bailout opponent in the fall, asked the officials to give Congress the total dollar figure for which they were on the hook. The officials said that they couldn't provide a number, a response met by chuckling that was bipartisan, but tilted toward the GOP side. By guaranteeing the assets, Geithner hopes he can persuade the private sector to purchase a portion of them.
Congress may be able to do little more than laugh. The Federal Reserve, in extreme situations, is allowed to intervene in the financial markets in dramatic ways. The Fed jumped into the markets long before the $700 billion bailout passed through Congress by guaranteeing toxic assets held by CitiGroup and Bank of America.
The White House still has roughly $350 billion in Congress-appropriated TARP funds to use, and the officials told the group Monday night that it planned to use $50 billion for foreclosure mitigation and further amounts to shore up bank balance sheets.
The officials also said that a review of the bank's books would be undertaken to determine whether they could handle an even more severe economic downturn.
People briefed on the meeting also said that the White House proposed expanding the Temporary Asset Lending Facility (TALF) by up to one trillion dollars in order to shore up the market for credit card and auto loans. It would be a joint project of the Federal Deposit Insurance Corporation and the Treasury's TARP funds.
82ndtrooper
02-10-2009, 18:45
And then there's China.
They currently hold about $65 billion in long term U.S. treasury debt and we depend on them to purchase more. If we are going to start just printing money we are devaluing the dollar and China already has hinted that they do not want any more of our long term dept.
Who's going to purchase the debt in the future ?? :munchin
“Under the first view, the prices of a defined set of “toxic assets” have been driven below their long-run value and in some cases have become impossible to sell. The solution, many suggest, is for governments to make a market, buy assets or insure banks against losses. This was the rationale for the original Tarp and the “super-SIV (special investment vehicle)” proposed by Henry (Hank) Paulson, the previous Treasury secretary, in 2007.
Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad – on sovereign, housing and corporate debt – will surely fall on US institutions, with dire effects.
Some where between these two is this experience, which in my view exemplifies this on the micro level.
Earlier today I went to a foreclosure sale in Ocean County New Jersey, bottom feeding if you will, as I feel the housing market is still overpriced. There were about fifteen buyers in the room for some 60+ properties.
The house I was interested in had a posted sheriff sale debt structure of 44K from Provident bank for a home improvement note dated 2007.
The comps in the area are 5 times that, 220-250K for a 3-4 beds & 11/2 bath.
As I waited for the number to be called, I was also waiting for the title report I ordered the week before; and thank god I did. That house had two other bank notes, one for 187K the original mortgage and one signed December 2008 144K as a second mortgage. They were also represented, but think about that date on the 2nd mortgage for a moment.
On a good day this is a 250K house. Each bank protected their interest. I happily walked.
On the way home I thought about the banks combined position of 375K. They were not willing to let the buyers dictate the value to them. They called their opening bids at their exposure level. No one bid against them. I know this is just some little story, but in a very real way it mirrors the larger economy and the banks unwillingness to let the bad investment go and allow the market to correct itself.
but in a very real way it mirrors the larger economy and the banks unwillingness to let the bad investment go and allow the market to correct itself.
It absolutely does, Chef Penn.
Now add to this that the banks used to have a minimum capital requirement of 10%. Under Secretary Paulson, it was reduced to 3%.
A few disastrous loans like that and the bank is insolvent. And if we bail out such questionable assets? Then we attempt to use taxpayer money to keep valuations artificially high so that other taxpayers cannot purchase the properties at a fair value.
Therein lies the problem. There may not be any pleasant solution to the current situation.
Here's another item. It seems suggestive of a breakdown at the highest levels. LINK (http://www.huffingtonpost.com/2009/02/10/administration-officials_n_165551.html)
Administration Officials Met With Laughter At Bailout Briefing
Administration officials were greeted with sarcasm and laughter Monday night when they briefed lawmakers and congressional staff on Treasury Secretary Tim Geithner's new financial-sector bailout project, according to people who were in the room.
The laughter was at its height when Obama officials explained that the White House planned to guarantee a wide swath of toxic assets -- which they referred to as "legacy assets" -- but wouldn't be asking Congress for money. Rep. Brad Sherman (D-CA), a bailout opponent in the fall, asked the officials to give Congress the total dollar figure for which they were on the hook. The officials said that they couldn't provide a number, a response met by chuckling that was bipartisan, but tilted toward the GOP side. By guaranteeing the assets, Geithner hopes he can persuade the private sector to purchase a portion of them.
Congress may be able to do little more than laugh.
IMHO and FWIW, I agree with QP Dozer's comment that
...no one will have trouble remembering who stepped up to the plate and who sat on the bench talking crap. And those that just talked crap are going to get clobbered in the next election. We’re in a lot of damn trouble and we better all start pulling on the oars. We can worry about ports once we get this barge moving.
Collectively, the legislative branch really hasn't been setting the world on fire and this fact hasn't escaped public opinion (see here (http://www.pollingreport.com/CongJob.htm)).
Like his predecessor, the president needs to do a better job at shaping dominant narrative of the recovery plan. The incumbent, like his predecessor, may have done himself a disservice by speaking so broadly about being a 'transformational' chief executive.
incarcerated
02-11-2009, 14:26
Rep. Paul Kanjorski of Pennsylvania on C-SPAN:
http://www.liveleak.com/view?i=ca2_1234032281&comment_order=newest_first
Dozer523
02-11-2009, 17:43
Might I suggest that our finacial/economic situation is more like an airplane, rather than a barge. It is so big and dynamic, if enough momentum is lost, we don't merely stand still, but fall. No. You might not. 11 freakin' posts and you are going to critique my analogies?
Dozer: " No! Onions have layers! Ogres have layers. D'you get it? We both have layers!"
RT1: "Oh, you both have layers. You know not everybody like onions! Eh, cakes! Everybody loves cakes! Cakes have layers!"
Dozer: "I don't care what everyone likes! Ogres are not like cakes!"
Like a big barge that's driven into a storm because no one was in the wheelhouse and no one was watching the Weather Channel. A Big Barge that sinks with all hands, screaming and clawing for the last breath of air found only in those little bubble that dart around on the ceiling of the cabins. The BARGE dives, twisiting and groaning into the deep, dark, cold Mariana Trench -- The deepest point in the ocean. 36,201 feet below the tsunami'd surface of the storm-wracked sea. Deeper and deeper into the crushing depth sinks the Barge. So deep, that if you you placed Mount Everest (29,029 feet) into the Marianas Trench it would still be 5,162 feet (almost a mile) below the aformentioned stormy sea.
Mon back. Take your best shot with your . . . airplane. We'll play for Richard's hat.
Like a big barge that's driven into a storm because no one was in the wheelhouse and no one was watching the Weather Channel. A Big Barge that sinks with all hands, screaming and clawing for the last breath of air found only in those little bubble the dart around on the ceiling of the cabins. The BARGE dives, twisiting and groaning into the deep, dark, cold Mariana Trench -- The deepest point in the ocean. 36,201 feet below the tsunami'd surface of the storm-wracked sea. Deeper and deeper into the crushing depth sinks the Barge. So deep, that if you you placed Mount Everest (29,029 feet) into the Marianas Trench it would still be 5,162 feet (almost a mile) below the aformentioned stormy sea. Mon back. Take your best shot with your . . . airplane. We'll play for Richard's hat.
In all my years as a gloom & doomer, I have never seen more powerful verbal imagery! You have conveyed the reality of our current situation perfectly. My hat is off to you, Sir.
Dozer523
02-11-2009, 20:03
I am sorry if my statement appeared to push/critique you. I had no intention of doing that, Dozer. Not knowing exactly what each individual views as reality is difficult. I am merely trying to relate my view of this growing crisis. My apologies.
Many Americans, in my opinion, have misplaced optimism. I am not one of them. Your reply and barge analogy, clearly shows that you and I see the same conclusion. The barge analogy wins, hands down. I owe you a steak and many drinks.
Once again, I apologize.
Oh fer cryin out loud. Lighten up, have some fun. it's only the end of the world as we know it, might as well enjoy it!:p
AND as for you, friend Sig, swiping quotes from other threads. . . sheesh! :) NMAP . . . I'm stunned. High praise indeed from the prince of darkness. ;)
AND as for you, friend Sig, swiping quotes from other threads. . . sheesh! :)
No need to say something when you can quote someone saying it better.;)
Like a big barge that's driven into a storm because no one was in the wheelhouse and no one was watching the Weather Channel. A Big Barge that sinks with all hands, screaming and clawing for the last breath of air found only in those little bubble the dart around on the ceiling of the cabins. The BARGE dives, twisiting and groaning into the deep, dark, cold Mariana Trench -- The deepest point in the ocean. 36,201 feet below the tsunami'd surface of the storm-wracked sea. Deeper and deeper into the crushing depth sinks the Barge. So deep, that if you you placed Mount Everest (29,029 feet) into the Marianas Trench it would still be 5,162 feet (almost a mile) below the aformentioned stormy sea.
The barge (our huge, lumbering economy) and the dangers it faces (an 'economic typhoon' and sinking) is a pretty good analogy...but I'm a bit more optimistic about it all (cautiously optimistic at best) and would like to think of it more as the USS Caine, with Barry at the helm as CAPT Quegg and a hearing at the end of the storm to exonerate those who eventually step forward and correctly take action to keep the ol' rust bucket from sinking.
Too optimistic? We'll see. But remember..."There's always Tara!" ;)
Richard's $.02 :munchin
The barge (our huge, lumbering economy) and the dangers it faces (an 'economic typhoon' and sinking) is a pretty good analogy...but I'm a bit more optimistic about it all (cautiously optimistic at best) and would like to think of it more as the USS Caine, with Barry at the helm as CAPT Quegg and a hearing at the end of the storm to exonerate those who eventually step forward and correctly take action to keep the ship from sinking.
Too optimistic? We'll see. But remember..."There's always Tara!" ;)
Richard's $.02 :munchin
Sir--
If the economy is the Caine, then it is LT Keefer we have to worry about as much as CAPT Queeg.:eek:
(And who has the strawberries?)
Sir--
If the economy is the Caine, then it is LT Keefer we have to worry about as much as CAPT Queeg.:eek:
(And who has the strawberries?)
Not to worry...Keefer gets his, too. Any thoughts on Willy? :confused:
As for the strawberries...why the big, hungry bear, of course. :p
http://www.surlalunefairytales.com/storytime/bears/index.html
Richard's $.02 :munchin
Not to worry...Keefer gets his, too. Any thoughts on Willy? :confused:
As for the strawberries...why the big, hungry bear, of course. :p
http://www.surlalunefairytales.com/storytime/bears/index.html
Richard's $.02 :munchin
Sir--
I think there will be millions of examples of Willis Keith. Namely, well-meaning young Americans who support uncritically the president, get burned for having unrealistic expectations and then have to re-constitute their understanding of the American political system. Then, they'll go and find their own Rockwell Torrey.
Then, they'll go and find their own Rockwell Torrey.
I would argue that...Then, we'll go and find our own Rockwell Torrey. ;)
And he's out there somewhere...because this is America and it will be so. :lifter
Richard's >$.02 :munchin
(> = optimistic)
ZonieDiver
02-11-2009, 21:46
The barge (our huge, lumbering economy) and the dangers it faces (an 'economic typhoon' and sinking) is a pretty good analogy...but I'm a bit more optimistic about it all (cautiously optimistic at best) and would like to think of it more as the USS Caine, with Barry at the helm as CAPT Quegg and a hearing at the end of the storm to exonerate those who eventually step forward and correctly take action to keep the ol' rust bucket from sinking.
I don't remember ANYone like Rep. Barney Frank amongst the crew of the USS Caine (but they may have kept him below decks all the time - you know swabbies!), and we'd have to have Barney in the crew. Afterall,he is one of the ones who recommended we take our barge out over the Marianas, and then degraded the GPS, and threw the charts away... and... :D
I don't remember ANYone like Rep. Barney Frank amongst the crew of the USS Caine (but they may have kept him below decks all the time - you know swabbies!), and we'd have to have Barney in the crew. Afterall,he is one of the ones who recommended we take our barge out over the Marianas, and then degraded the GPS, and threw the charts away... and... :D
Barney claims he was busy guarding potted palms for CAPT Morton on the USS Reluctant at the time...and I believe him. :rolleyes:
Richard's $.02 :munchin
The latest from Mauldin...looks like 2009 is going to be a challenging year.
PDF attached.
25 Trillion - now that's a big number.
This appears to be the cause of a foreign currency event. The U.S. dollar is up sharply - other currencies are down strongly. The problem with this is that many East European loans are denominated in dollars; therefore, this may trigger further distress in the East European banking system. Not good.
LINK (http://www.bloomberg.com/apps/news?pid=20601080&sid=asIynTA6wD48&refer=asia)
Feb. 17 (Bloomberg) -- The cost for South Korean banks to borrow dollars in the swap market rose to a record after Woori Bank decided not to redeem $400 million in bonds and sought $1.4 billion in state funding.
Moody’s Investors Service said on Feb. 13 that the lender’s decision not to exercise an option for early repayment of 2014 debt will roil investors, who expect borrowers to repay callable securities at the first opportunity. Woori, South Korea’s second-biggest bank, plans to raise more than 2 trillion won ($1.4 billion) from a state-backed recapitalization fund.
“The actions of Woori will make it more difficult for commercial banks to access the international markets,” said Jason Rogers, credit analyst with Barclays Bank Plc in Singapore.
South Korea has as much as $160 billion of external debt maturing over the next two years, compared with national foreign-exchange reserves that shrank 23 percent in the past year to $200 billion, according to UBS AG, the world’s second- largest currency trader. Financial Services Commission Vice Chairman Rhee Chang Yong said Feb. 5 that banks still face difficulties obtaining U.S. currency.
The one-year cross-currency swap rate on the won slumped to a record minus 1.6 percent today from 1.3 percent yesterday, before trading at minus 1.1 percent. The gauge of availability of dollar funding, which averaged 3.3 percent last year before Lehman Brothers Holdings Inc. collapsed, may decline to minus 2 percent by March, said Choi Seok Won, head of research with Samsung Securities Co. A minus figure shows borrowers of dollars need to make interest payments.
“We see no sign of an end to global crisis,” Choi said. “Banks, companies and state agencies are finding it harder to get dollar funding.”
European Banks
Moody’s last week cut credit ratings for Kookmin Bank, the nation’s biggest lender, and seven other South Korean lenders, citing their dependence on the government for foreign-currency funding. Banks in Australia, Sweden and eastern Europe are also in trouble as economies in the region deteriorate, it wrote in a report released today in London.
In a cross-currency swap, investors pay or receive a variable interest rate in one currency in exchange for a fixed rate in another currency. In Korea, local banks typically pay a fixed rate in won in exchange for a floating rate in dollars.
The Bank of Korea, which has extended banks $16.35 billion of the $30 billion swap deal with the Federal Reserve, auctioned off $2 billion, using the nation’s currency reserves today, the central bank said. The outcome of the sale was announced on the bank’s Web site.
“The funding situation for longer-term borrowing is getting worse as banks are increasingly tapping swap markets to secure funds,” said Kang Soo Jong, a swap trader with Shinhan Bank in Seoul. “Loans and bonds are difficult to get.”
BAM 187 points.
The markets appear to find Porkulus Maximus a bit hard to digest.
Will we be testing 7,500 today or later this week?
Possibly today, and probably this week. Here's a chart of the Dow at 5 minute intervals:
LINK (http://stockcharts.com/h-sc/ui?s=$INDU&p=5&b=5&g=0&id=p45672123380&a=161511752)
It appears that the Russian exchanges have declined sharply and been temporarily closed. Dislocations in Eastern Europe (Hungary and Poland among others) might spread to Austrian banks, and from there damage the West European area.
I had the opportunity to watch a segment of the Davos economic world forum. The focus of this particular panel was the current crisis. The Panelist: Indra Noohi, the CEO of Pepsi, Former PM Tony Blair, Former PM of Israel Perez, Jim Wallis of Harvard and Silicon Valley. Steven Green CEO of HCSB Corp., James Schiro, CEO Zurich Financial Services.
There was comment on a variety of issues; it started off with Schiro speaking about the disappointment of trust and questioning the moral compass of the financial community. He suggested that a new process was needed to regulate the industry, but not change or threaten the capitalist system upon which it is build. He spoke at length on this concept; and at each panelist turn they each echoed a similar sentiment.
PM Perez spoke of the future; with the long view of the elder statesman’s foreseeing the future. His thoughts were squarely centered on nanotechnologies, Stem cell research and fresh water. He was not regional in his focus. However, his emphasis on fresh water and how the Israelis’, in his eyes, have learned to double their supply is a lesson for the world. He feels that the access to fresh water will be a major commodity issue in the future. He also see’s Stem cell research as the most important development in mans history and that combined with the prospects in nanotechnologies the world will change in a way that we are not ready for. I believe he tied this into the value discussion, but I am not sure. My notes are vague.
Former PM Blair was impressive, passionately stating that leadership and courage were needed to combat the lost of values to regain the public trust, but that the principals and policy philosophy of business was not the government’s responsibility. What shocked me was his statement that the G8 was no longer relevant to the crisis, that the crisis was so broad it is beyond any one group’s power to solve the problem. Steven Green CEO of HCSB stated that regulation is important, but Corp values and culture were equally important in self regulation. Indra Noohi, the CEO of Pepsi, position on this was the insightful. She stated that yes, regulation was needed, but instead of attacking the system she explained how the crisis mushroomed in the markets. The lack of oversight, in her view, was not due to a government agency or an administration that took its eyes off the ball, but rather “to the expansion of technology and innovation that was more advanced than the regulation that were in place”. What she implied without stating it, at least in my view, was this: as the market was creating new trading platforms and new instruments to create markets with, the market outpaced the oversight agency’s ability to monitor the market with new regulation. An example would be the derivatives’ market, created without regulation to guide it, as it was purely the result of computing power, and the internet. She further stated that the greed which existed in the market existed because of a lack of regulation, and that greed supplanted capital motive and caution. She went of the state that no one was out to destroy the financial markets. As there were no value judgments, that could be applied in a market, where innovation outstripping regulation. You have to remember that the internet doesn’t really take off, as least in a meaningful way until 1995; about the same time the markets, including housing, begin to explode. This interrelationship between values, innovation, technology, and regulation are the issue.
Jim Wallis continued along, saying that values were not the only culprit in the crisis, but as a result, the crisis would plunge 10 million more American into poverty that had otherwise have never experienced it before! That number, combined with the social implications of poverty on the whole of America society, just staggers me. Particularly, if you consider the number of illegal’s, or those who are not part of any census and off the radar, it has the potential for societal breakdown. If this equation is a possibility for America; it is a given in those countries which are not as well insulated, or do not have in place a social service network , which leads me to this thought: society imploding across the globe. It’s scary, and that leads me towards the foggy understanding of how policy/leadership projected the small wars conflict/concept in the 1990’s; did the NSC apparatus understand years in advance the looming financial crisis? I ask that question with this in mind: Policy positions written years into the future based on a set of events that have not occurred as of yet and that seem otherwise unrelated, are in fact, when they do come together, closely tied. As the pieces of the puzzle slip into place for me, I understand, at least I think I do, the interdependence and interrelationships that can lead to conflict.
BTV, Citi @ $1.70, Gold speculators say $3500.00 per/ounce: Is that possible? Gold @ 3k> would in my mind say that the economy was in a very deep depression.
BTV, Citi @ $1.70, Gold speculators say $3500.00 per/ounce: Is that possible? Gold @ 3k> would in my mind say that the economy was in a very deep depression.
It's very possible. If we look at gold in terms of constant dollars at the 2007 level, we get the chart at THIS LINK (http://www.inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm). Notice the high price was in 1980 at $2145 per oz.
There are a couple other factors. One is GLD - which makes it easy to trade gold without taking physical delivery. Notice that the ETF is now the number 8 holder in the world - ahead of China. LINK (http://seekingalpha.com/article/59216-wsj-report-on-gld-s-rising-gold-holdings). If gold continues up, then those seeking some refuge from the bear market could flood in. Such purchases could drive the price significantly higher.
The other factor is panic. Notice the yield on 90 day treasury bills. It's currently 0.279%, per the Wall Street Journal. One reason for such a low yield is the perception of safety. But even U.S. debt is no longer seen as perfectly safe, as measured by the cost of a credit default swap (CDS) to insure the debt. ( LINK to St. Louis Fed. Reserve (http://research.stlouisfed.org/publications/es/09/ES0908.pdf) ). So people might migrate to ownership of physical gold bullion as a safe haven. As an experiment, one can call around to coin dealers; I have found that gold bullion coins are hard to get, and have a substantial premium.
So, yes, higher prices for gold are (in my opinion) possible.
This should help the market (sarcasm)
LINK (http://www.cnbc.com/id/29353282)
American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.
Sources close to the company [AIG 0.53 -0.01 (-1.85%) ] said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.
The attached newsletter is supplied for your consideration.
Whether it is right or wrong remains to be seen; however, the ideas are, in my opinion, worthy of consideration.
OK,
My TSP account balance has been riding this market down like a drowning man holding onto an anchor!
My ongoing contributions are currently goint into one of those "lifecycle" funds (you know the funds for lazy people that re-balance automatically each year).
Is it time for me to switch my ongoing contributions 100% into the small-cap or I funds to set myself up for the eventual rebound? With the lifecycle funds, some of my $$ would be going to bonds etc.. and wouldn't fully catch the rebound.
nmap???
nmap???
Sir, one of the key attributes of a bear market is that no one knows how long they it last, or how far it will decline. According to Dow Theory, the bear market has been reconfirmed. There were some people who argued that the Dow Jones industrials were not representative of market; however, the S&P 500 has formed a similar pattern, also confirming the bear market trend.
In general, and historically, bear markets last 1/4 to 1/3 as long as the preceding bull market. In this particular case, the preceding bull market lasted 25 years. Therefore, the normal duration of the bear market would be 6 to 8 years. This implies quite a long wait for the recovery.
Another perspective is that bear markets end when stocks become exceptional values. This is defined in terms of both dividend yield and price earnings ratio. In general, an average of 6% yield on major stocks has marked the turn of markets in the past. Again, we are far from these levels. Still worse, even though price earnings ratios are still relatively high, stock analysts are revising earnings downward. This means that stocks will have to decline a great deal more, or earnings will have to increase rapidly, for us to meet this test of the end of the bear market.
An excellent book, and one I recommend highly, is Bull’s Eye Investing by John Mauldin. It does an in-depth analysis of stocks, and when they are good values as well as when they are overpriced.
Probably the wisest course of action, although a frustrating one, is to choose the G fund that focuses on short-term government securities. It's probably true that you won't catch the bottom; however, that bottom could be 3000 points on the Dow below where we are presently. The international funds have the potential to serve as a hedge against inflation, and the current level of dollar expenditures suggests that at some point that will be an important concern. At present, there appears to be a flight to safety, with the dollar representing a safer option than most other currencies. In addition, a great many international debts are denominated in dollars. Therefore, as debt liquidation continues throughout the world, an ongoing demand will exist for dollars, which should keep the US currency strong, while depressing foreign currencies. This seems likely to depress the returns on stocks in the international arena. We also have to keep in mind that an impaired US consumer means that countries around the world will face substantial reductions in their export activity.
The S fund, which emphasizes small capitalization stocks, would risk allocating money to companies that are vulnerable to further deterioration in the economy. Although Chairman Bernanke has stated his expectation that the current unpleasantness will end by 2010, like all predictions it comes with no guarantees. Similarly, the L funds depend on a resumption of growth. While they do allocate some assets to the G fund, several of the more deferred periods are strongly oriented toward continued growth in the markets. The present trend calls that assumption into question.
So at this point, my recommendation is to protect your capital and orient your investments towards the safest harbors available. From an entirely selfish perspective, I would like to see a turnaround quickly; however, the great majority of the material I see indicates we are likely to go lower.
I hope that helps.
Surf n Turf
02-24-2009, 21:28
It's very possible. If we look at gold in terms of constant dollars at the 2007 level, we get the chart at THIS LINK (http://www.inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm). Notice the high price was in 1980 at $2145 per oz.
There are a couple other factors. One is GLD - which makes it easy to trade gold without taking physical delivery. Notice that the ETF is now the number 8 holder in the world - ahead of China. LINK (http://seekingalpha.com/article/59216-wsj-report-on-gld-s-rising-gold-holdings). If gold continues up, then those seeking some refuge from the bear market could flood in. Such purchases could drive the price significantly higher.
The other factor is panic. Notice the yield on 90 day treasury bills. It's currently 0.279%, per the Wall Street Journal. One reason for such a low yield is the perception of safety. But even U.S. debt is no longer seen as perfectly safe, as measured by the cost of a credit default swap (CDS) to insure the debt. ( LINK to St. Louis Fed. Reserve (http://research.stlouisfed.org/publications/es/09/ES0908.pdf) ). So people might migrate to ownership of physical gold bullion as a safe haven. As an experiment, one can call around to coin dealers; I have found that gold bullion coins are hard to get, and have a substantial premium.
So, yes, higher prices for gold are (in my opinion) possible.
Nmap,
Careful :)
I am concerned that there may be a short term “gold bubble”.
The rapid increase of bullion price has now exceeded the increase in mining stocks. Usually, it the other way around. Gold could slide to <900. I am on the sidelines
SnT
Gold fell the most in six weeks as demand ebbed following a rally last week that sent the precious metal above $1,000 an ounce. Silver also declined.
Before sliding today, gold’s seven-day relative-strength index had topped 70 since Feb. 17, a signal that prices may drop in the short term. For the first time since Jan. 28, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, was unchanged for three straight sessions. The assets rose 4.4 percent last week to a record 1,029 metric tons.
“If the ETF inflows do not start again within a day or two, some traders may attempt to test the downside in gold,” John Reade, a metals strategist at UBS AG in London, said today in a note.
Gold futures for April delivery fell $25.50, or 2.6 percent, to $969.50 an ounce on the New York Mercantile Exchange’s Comex division, the biggest decline for a most-active contract since Jan. 12. Yesterday, the price dropped 0.7 percent.
http://www.bloomberg.com/apps/news?pid=20601081&sid=as47XS1UuEAM&refer=australia
Well;
The DOW had a good day on the 24th right before the President's talk last night.
Looks like they are not too happy right now - DOW down 163.
I guess I don't regard Presidential speeches as particularly significant. I recall Gerald Ford and his "Whip Inflation Now!" speech, along with campaign buttons printed with WIN.
Truth be told, bear markets are outside our experience. Our own bull market lasted 25 years - so anyone younger than 45 or so is unlikely to have experienced a bear.
The Japanese Nikkei index is an interesting example. The reached a high of 38915.87 on December 29, 1989; today, they closed at 7461.22. They have had rallies - but they have never hit the old high. Interestingly enough, they've tried low interest rates...and keeping banks with bad assets alive...and so far, their bear market has lasted 20 years.
Here's a long-term chart: LINK (http://stockcharts.com/h-sc/ui?s=$NIKK&p=M&yr=20&mn=6&dy=0&id=p12610504249)
Politically, it is not feasible to do nothing. But it may be that politicians cannot stop a bear market, no matter what they do.
I am concerned that there may be a short term “gold bubble”.
Absolutely possible. Everyone expects inflation - but the market loves to move in a direction that disappoints the most people.
Still, Chairman Bernanke is doing all he can to get a little inflation going again; and I am a true believer in NOT fighting the Federal Reserve! ;)
Sir, one of the key attributes of a bear market is that no one knows how long they it last, or how far it will decline. According to Dow Theory, the bear market has been reconfirmed. There were some people who argued that the Dow Jones industrials were not representative of market; however, the S&P 500 has formed a similar pattern, also confirming the bear market trend.
In general, and historically, bear markets last 1/4 to 1/3 as long as the preceding bull market. In this particular case, the preceding bull market lasted 25 years. Therefore, the normal duration of the bear market would be 6 to 8 years. This implies quite a long wait for the recovery.
Another perspective is that bear markets end when stocks become exceptional values. This is defined in terms of both dividend yield and price earnings ratio. In general, an average of 6% yield on major stocks has marked the turn of markets in the past. Again, we are far from these levels. Still worse, even though price earnings ratios are still relatively high, stock analysts are revising earnings downward. This means that stocks will have to decline a great deal more, or earnings will have to increase rapidly, for us to meet this test of the end of the bear market.
An excellent book, and one I recommend highly, is Bull’s Eye Investing by John Mauldin. It does an in-depth analysis of stocks, and when they are good values as well as when they are overpriced.
Probably the wisest course of action, although a frustrating one, is to choose the G fund that focuses on short-term government securities. It's probably true that you won't catch the bottom; however, that bottom could be 3000 points on the Dow below where we are presently. The international funds have the potential to serve as a hedge against inflation, and the current level of dollar expenditures suggests that at some point that will be an important concern. At present, there appears to be a flight to safety, with the dollar representing a safer option than most other currencies. In addition, a great many international debts are denominated in dollars. Therefore, as debt liquidation continues throughout the world, an ongoing demand will exist for dollars, which should keep the US currency strong, while depressing foreign currencies. This seems likely to depress the returns on stocks in the international arena. We also have to keep in mind that an impaired US consumer means that countries around the world will face substantial reductions in their export activity.
The S fund, which emphasizes small capitalization stocks, would risk allocating money to companies that are vulnerable to further deterioration in the economy. Although Chairman Bernanke has stated his expectation that the current unpleasantness will end by 2010, like all predictions it comes with no guarantees. Similarly, the L funds depend on a resumption of growth. While they do allocate some assets to the G fund, several of the more deferred periods are strongly oriented toward continued growth in the markets. The present trend calls that assumption into question.
So at this point, my recommendation is to protect your capital and orient your investments towards the safest harbors available. From an entirely selfish perspective, I would like to see a turnaround quickly; however, the great majority of the material I see indicates we are likely to go lower.
I hope that helps.
Nmap,
First of all, thank you for the reply. I did not mean to put you on the spot. I apologize if I put you out...it's just that I know where my expertise lies...and it isnt' here. I recognize yours.
I am fairly risk-tolerant and have a longer-term investment horizon for my TSP account. As such, I've been riding the L2040 fund down making monthly contributions all the way... The L2040 is currently (as of January '09) allocated G-8.85%, F-9.65%, C-40.66%, S-17.30%, I-23.60%
So, what you are suggesting is that given current uncertanties and risk of further declines, future contributions would best be allocated 100% G for the time being until there are more positive indicators of a turnaround?
What do you think about the the $$ in the L2040 that has been free-falling since this whole mess started (and that I've been steadily contributing to).? Leave it, or move it? It does re-balance monthly, so in essense part of my $$ are being moved to more conservative investments every month.
Again, I appreciate your insight and fully recognize that I'm a big boy and am free to do what I want with the advice that you give.
Your posts are an edgumication.
I will order that book you recomend.
Thanks again.
Nmap,
First of all, thank you for the reply. I did not mean to put you on the spot. I apologize if I put you out...it's just that I know where my expertise lies...and it isnt' here. I recognize yours.
I am fairly risk-tolerant and have a longer-term investment horizon for my TSP account. As such, I've been riding the L2040 fund down making monthly contributions all the way... The L2040 is currently (as of January '09) allocated G-8.85%, F-9.65%, C-40.66%, S-17.30%, I-23.60%
So, what you are suggesting is that given current uncertanties and risk of further declines, future contributions would best be allocated 100% G for the time being until there are more positive indicators of a turnaround?
What do you think about the the $$ in the L2040 that has been free-falling since this whole mess started (and that I've been steadily contributing to).? Leave it, or move it? It does re-balance monthly, so in essense part of my $$ are being moved to more conservative investments every month.
Again, I appreciate your insight and fully recognize that I'm a big boy and am free to do what I want with the advice that you give.
Your posts are an edgumication.
I will order that book you recomend.
Thanks again.
You didn't put me on the spot. I enjoy talking about these things - and, in addition, these discussions help me focus my thoughts, and sometimes question my assumptions. Besides, with the voice to text software I use my responses are more like a portion of a conversation.
The problem we face - not just you and I, but the entire country - is that we are in a bear market and cannot know how long it will last. I know it may seem that I say that too much; however, attempts to pick a bottom can be very tempting. In addition, we have enjoyed 25 years of markets that go steadily up. That means that all of us have a mindset oriented toward stocks going up monthly, yearly, and perpetually. Unfortunately, that does not seem to be the environment we will experience for some time in the future.
The classic and formal approach is to exit the markets during a bear period. That approach emphasizes preservation of capital above all, with the investor not buying stocks until the bear market ends.
In my case, I believe that certain sectors and investments will outperform the rest of the market. That may be completely wrong; however, only time will tell. Therefore, in your case it seems likely that the best choice would be a 100% allocation of current contributions to the G-fund while leaving the existing amount in the L2040. This builds up your capital base with minimal risk on one side of the account, while at the same time reserving some opportunity should the market have a short-term move up. Then, when the market has a clear turn, you can shift some or all of the money from the G-fund, perhaps into the C-fund or the L2040. There is a tendency for people to choose large blue-chip corporations after bear market. Also, the I-fund might be appropriate as both a hedge against inflation and a way to profit from the recovery of areas that have experienced a severe downturn.
This means that you need a tool to determine when the market has turned. A site that I like is stockcharts.com LINK (http://stockcharts.com/), and it provides completely free service for what you need. You can chart the action of the S&P 500, which uses the symbol $SPX, then use point-and-click to change the chart from a daily chart to a weekly chart. Next, just below the chart where it says size, choose landscape. Look a little lower, and you'll see two blocks, one above the other, and each says Simple Mov. Avg. In the parameters box, choose 20 for the top block and 50 for the lower block. Then click the update button.
What you should see is a chart of prices, with a blue line and a red line superimposed. In general, when the blue line, representing the 20-week moving average, is below the red line, representing the 50-week moving average, the market is in a downtrend. The most likely direction of the market is further down. However, when you see the blue line go above the red line, that means that the market is gathering strength and the trend has moved from down to up. There is no guarantee that this will persist; however, if you go through the steps to create the chart I've mentioned, you'll notice that this method would have gotten you out of the market at a relatively high level after letting you enjoy an extended period of upward appreciation. Since you are using a weekly chart, it is not necessary to check it very often. Once a week is plenty, and even once a month would probably be fine. So under this scenario, you could accumulate money in the safe G-fund until the trend changes, and then switch half of the G-fund into a stock fund. Then, if the trend continues upward, and you thought it appropriate, you could move almost all of the G-fund money into stocks. Later, if the trend broke down, you could switch money back out of the stocks and into the G-fund. It is unlikely that you would make more than two or three changes per year. Some years would pass without any changes.
Here is how it should look: LINK (http://stockcharts.com/h-sc/ui?s=$SPX&p=W&b=5&g=0&id=p37343064321)
And of course, standard disclaimers apply. This isn't investment advice, just my opinions.
That said, I'm glad to help any way I can.
Great information! I have always been fairly good at buying stocks and watching them appreciate. Unfortunately, I have been poor at knowing when to sell. The charting you suggest may be a good indication to sell even though fundamentals of a stock are still strong.
NMAP, what software do you use to convert voice to text?
NMAP, what software do you use to convert voice to text?
Knowing when to sell is a huge challenge. Factor in hope and fear, with hope being perhaps the more dangerous of the emotions, and it becomes difficult to get rid of stocks that didn't work out.
Some people like to apply a filter of sorts to the two moving averages. To do that, they permit the 50 week moving average to go more than 1% above the value of the 20 week moving average before they act on a buy signal. Conversely, they require that the 20 week moving average decline more than 1% below the value of the 50 week moving average before they sell. It's entirely possible to get "whipsawed", where an investor buys and sells soon thereafter for small loss. But it's far better to have those small losses than to endure declines of 50% and more, such as we've just experienced.
The software is put out by company named Nuance, and is named Dragon NaturallySpeaking. Their website is LINK (http://www.nuance.com/naturallyspeaking/)
By the way, proofreading is essential. It's all too easy to say "their", and get a result of "they are"; without proofreading, the end result can be a bit disappointing. However, for getting a lot of text on paper quickly and efficiently, and getting rid of any concerns about spelling, it works wonderfully. In addition, it's very easy to program in specialized terminology, which might be of use to you.
6.8SPC_DUMP
12-14-2009, 19:13
If accurate this article is telling of the severity of the global banking crisis and the "War on Drugs" IMHO.
Antonio Maria Costa, 68 (Italian), is the Executive Director of the United Nations Office on Drugs and Crime (UNODC) and Director-General of the United Nations Office in Vienna (UNOV).
Anyone have a strong opinion on if Dr. Costa is correct in this claim? Wiki profile (http://en.wikipedia.org/wiki/Antonio_Maria_Costa#cite_note-9)
Drug money saved banks in global crisis, claims UN advisor (http://www.guardian.co.uk/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims)
Drugs and crime chief says $352bn in criminal proceeds was effectively laundered by financial institutions
Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.
Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.
This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.
Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.
"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.
"That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.
The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover.
Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.
British bankers would want to see any evidence that Costa has to back his claims. A British Bankers' Association spokesman said: "We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks."