We did want change. Bush, his Administration and ...and Congress (let us not forget them at all e.g. Barney and Nancy) messed things up. We knew that. However, the solution to this is not Obama, and it was not that other guy McCain, either.
However, now we got Obama....we have a bigger mess happening.
I have to say...this is real change for America and the world!
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TIA Daily • March 12, 2009
1. The Obama Backlash Begins
It's still early, but this past week has seen the beginning of a backlash against Barack Obama—a backlash in the media, among the Washington establishment, and among an important segment of the public.
A revealing early skirmish was the appointment of Chas Freeman—an "Israel Lobby" conspiracy theorist, Saudi mouthpiece, and apologist of China's tyrants—to be in charge of writing America's National Intelligence Estimates.
Freeman withdrew his nomination on Tuesday when it became clear that he would face opposition even from congressional Democrats. The whole imbroglio is described below, including Freeman's departing tirade about the perfidious influence of the Jews.
I suspect that this incident will be marked as the beginning of a sharp disillusionment with Obama among many "moderates" and among a swath of the center-left that is generally pro-Israel and remembers the old-fashioned "liberal" stance of being opposed to dictatorship and political oppression—people like Marty Peretz at The New Republic.
It will get worse, as these people begin to realize that Freeman was not some aberration, not just a "failure of vetting," which implies that the administration would not have chosen him if they had only been more aware of his views. Rather, it will become clear that Obama's policies and appointments are motivated by a far-left ideology that is hostile to American interests and allies and sympathetic to dictatorship.
And remember that the public is not really paying much attention yet to Obama's foreign policy. When they start to pay attention—when some new disaster forces them to pay attention—they will begin to take the measure of the new president and how he is conducting himself in office, and I suspect they will not like what they see.
Meanwhile, in another promising foreign-policy development, it looks like Senator Leahy's "Truth Commission"—an attempt to harass and intimidate the intelligence agents who helped prevent terrorist attacks on the US for the past seven years—has fizzled.
"The Intel Czar Stumbles," Michael Isikoff and Mark Hosenball, Newsweek, March 10
Chas Freeman, the Obama administration's choice to serve in a key US intelligence post, abruptly withdrew Tuesday after House Speaker Nancy Pelosi and numerous other congressional leaders complained to the White House that he was too closely tied to Saudi and Chinese government interests.
The resignation of Freeman represents another serious "vetting" embarrassment for the White House and a personal blow to Dennis Blair, President Obama's national intelligence director. After choosing Freeman to head the National Intelligence Council, Blair had publicly defended his choice and insisted as recently as this week that he had no intention of withdrawing the selection. On Monday, Freeman himself was telling people on Capitol Hill that the more criticism was heaped on him, the more intent he was on fighting to stay at the intelligence council….
A spokeswoman for Blair said that neither Freeman nor the intelligence czar would have any comment beyond the brief written statement Blair issued Tuesday regarding Freeman's withdrawal. But in a rambling and angry e-mail obtained Tuesday night by Foreign Policy, Freeman lashed out at his accusers and seemed to blame all his troubles on unnamed members of the "Israel Lobby."
"I have concluded that the barrage of libelous distortions of my record would not cease upon my entry into office," Freeman wrote, explaining his decision to withdraw. "I do not believe the National Intelligence Council could function effectively while its chair was under constant attack by unscrupulous people with a passionate attachment to the views of a political faction in a foreign country.... The tactics of the Israel Lobby plumb the depths of dishonor and indecency and include character assassination, selective misquotation, the willful distortion of the record, the fabrication of falsehoods, and an utter disregard for the truth. The aim of this Lobby is control of the policy process through the exercise of a veto over the appointment of people who dispute the wisdom of its views, the substitution of political correctness for analysis, and the exclusion of any and all options for decision by Americans and our government other than those that it favors."…
Pelosi in particular was upset about public comments that seemed to belittle the Chinese human-rights movement—a cause she has championed for years. In 2005, for instance, Freeman was quoted as writing in a public e-mail about the Tiananmen Square massacre: "[T]he truly unforgivable mistake of the Chinese authorities was the failure to intervene on a timely basis to nip the demonstrations in the bud … In this optic, the Politburo's response to the mob scene at 'Tian'anmen' stands as a monument to overly cautious behavior on the part of the leadership, not as an example of rash action.
"I do not believe it is acceptable for any country to allow the heart of its national capital to be occupied by dissidents intent on disrupting the normal functions of government, however appealing to foreigners their propaganda may be," he added. "Such folk, whether they represent a veterans' 'Bonus Army' or a 'student uprising' on behalf of 'the goddess of democracy' should expect to be displaced with despatch [sic] from the ground they occupy."
2. How to Lose Friends and Alienate People
Some of the building backlash against the administration is directly self-inflicted.
The White House's press flacks and polemicists may have thought that they were very clever to target Rush Limbaugh; while he is popular with the conservative "base," he is apparently not well liked by moderates. But having indulged in this kind of argument ad hominem—attacking the message by attacking the messenger—they can't stop with Limbaugh.
Thus, they have decided to target any critic of the administration. The latest target: CNBC financial commentator Jim Cramer. I can't recall, by the way, previous presidents having their press secretaries single out specific media figures by name and making them the targets of personal put-downs, as Obama's people have done with Rush Limbaugh, Rick Santelli, and now Cramer.
But what makes this a completely self-inflicted injury is that Cramer is a Democrat who supported Obama during the election. Yet he is still an investor who wants his audience to prosper and grow rich—and he has instead watched their portfolios crash by another third due to Obama's bumbling.
But most of all, what emerges from Cramer's response to the White House criticisms is his sudden realization, based on statements by the president and his press secretary, that the administration doesn't give a damn about investors, they they are indifferent to the horrific losses in the stock market. This is how Obama will create many new enemies. (See also item #6 below.)
Cramer admits that he started out, in his teenage years, as a Trotskyite. Maybe this experience will help move him a little further toward the right and towards advocacy of the free market. In much the same way that the neoconservatives were famously converted from the left by the experience of being mugged, how many people like Cramer might be converted by the experience of seeing the stock market get mugged.
"My Response to the White House," Jim Cramer, TheStreet.com, March 5
The lines are drawn pretty clearly: If you can help people make money to be able to retire, enjoy life, pay for college, pay down debt, etc., you are a "good guy," so to speak. If you take the other side of the trade, you are, well, let's say, a less favored fellow. And if you gun for the gigantic investor class that is out there that includes 90 million people in one form or another, whether it be 401(k)s or individual stocks or pension plans, then you are on my enemies list….
"I'm not entirely sure what he's pointing to to make some of the statements," [White House Press Secretary Robert] Gibbs said about my point that President Obama's budget may be one of the great wealth destroyers of all time. "And you can go back and look at any number of statements he's made in the past about the economy and wonder where some of the backup for those are, too."
Look at the incredible decline in the stock market, in all indices, since the inauguration of the president, with the drop accelerating when the budget plan came to light because of the massive fear and indecision the document sowed: raising taxes on the eve of what could be a second Great Depression, destroying the profits in healthcare companies (one of the few areas still robust in the economy), tinkering with the mortgage deduction at a time when US house price depreciation is behind much of the world's morass and certainly the devastation affecting our banks, and pushing an aggressive cap and trade program that could raise the price of energy for millions of people….
Gibbs went on to say, "If you turn on a certain program, it's geared to a very small audience. No offense to my good friends or friend at CNBC, but the president has to look out for the broader economy and the broader population."
How much I wish it were true right now that stocks played less of a role in peoples' lives. But stocks, along with housing, are our principal forms of wealth in this country. Only the people who have lifetime tenure, insured solid pensions and rent homes but own no stocks personally are unaffected…. If we only want to help those who have no wealth to destroy, we are not helping the majority of Americans; we are not helping the broader population.
Obama has undeniably made things worse by creating an atmosphere of fear and panic rather than an atmosphere of calm and hope….
I believe his agenda is crushing nest eggs around the nation in loud ways, like the decline in the averages, and in soft but dangerous ways, like in the annuities that can't be paid and the insurance benefits that will be challenging to deliver on.
So I will fight the fight against that agenda. I will stand up for what I believe and for what I have always believed: Every person has a right to be rich in this country and I want to help them get there. And when they get there, if times are good, we can have them give back or pay higher taxes. Until they get there, I don't want them shackled or scared or paralyzed. That's what I see now.
If that makes me an enemy of the White House, then call me a general of an army that Obama may not even know exists -- tens of millions of people who live in fear of having no money saved when they need it and who get poorer by the day.
3. Not the Barack Obama They Knew
During last year's general election and during his presidential transition, Obama seemed to move sharply toward the political center, indicating his support for conventional policies and naming some cabinet appointees who had a reputation for being "centrists." It is now obvious that this was a feint intended to disarm Obama's critics and make them slow to respond when he unveiled his actual agenda, which is an attempt to move America much farther to the left.
But it hasn't taken long for a lot of people to realize that they have been fooled. This is beginning to happen, not just among the general public, but even among the media and political establishment in Washington and New York.
In Newsweek, Howard Fineman writes that "the establishment is beginning to mumble that the president may not have what it takes." Fineman's own comments are a mushy, toadying mess, but he offers a helpful list of the growing criticisms of Obama.
Below, Jennifer Rubin gives an overview of how a collection of media commentators who consider themselves to be "moderates" have come to realize that Obama is pursing a leftist agenda and are now complaining that they were deceived.
"'I'm Maureen Dowd, and I've Been Had'," Jennifer Rubin, Pajamas Media, March 4
They may need a support group before the month is out. They could gather in New York or Washington where many victims reside. The meetings would start: "I'm Maureen [or David]. I'm a duped Barack voter. And I'm mad."
The ranks indeed are filling with the disaffected and the disappointed—Chris Buckley, Maureen Dowd, David Brooks, David Gergen…. And then there is the very angry Marty Peretz. Their complaints are varied but expressed with equal amounts of remorse and bitterness. They all have been done wrong by Barack.
Chris Buckley is in mourning over the loss of fiscal sobriety and the sense he has enabled a spend-aholic….
Maureen Dowd has multiple complaints. She's miffed that the post-racial president's attorney general is playing the race card and she too has had it on the spending and business-as-usual fronts:… "'You know, there are times where you can afford to redecorate your house and there are times where you need to focus on rebuilding its foundation,'" he said recently about the 'hard choices' we must make. Yet he did not ask Congress to sacrifice and make hard choices; he let it do a lot of frivolous redecorating in its budget….
"Team Obama sounds hollow, chanting that 'the status quo is not acceptable,' even while conceding that the president is accepting the status quo by signing a budget festooned with pork."
Then there's David Brooks…. Looking for a moderate, he wound up with a crazed leftist….
Meanwhile, Marty Peretz, who attested to candidate Obama's pro-Israel and tough foreign policy bona fides during the campaign, now is incensed the president has put into a high level national security post Chas Freeman, the Israel-bashing toady of the Saudis who assigned responsibility "both ways" for 9/11 and bemoaned the Chinese didn't crack down on the Tiananmen Square protesters quick enough….
They and the rest of the country are figuring out the bitter truth: Obama bears little resemblance to the moderate and soothing figure who tied up John McCain in knots.
4. "A Great Pretender"
Here's another segment of the media that Obama is beginning to lose. He's losing Israel backers (see item #1), the financial press (item #2), and "moderates" (item #3). He's also losing the serious, "technocratic" types. This is the professorial type who tries to stay neutral on "ideological" issues and instead focuses on demanding honesty about the actual economic numbers behind any given political proposal.
The quintessential example of this type is economics columnist Robert Samuelson. In the article below, Samuelson assails the ruinous dishonesty of Obama's budget and concludes that Obama is just another manipulative politician who "constantly says he's doing things that he isn't, and…relies on his powerful rhetoric to obscure the difference."
"Presidential Double-Talk," Robert J. Samuelson, Newsweek, March 7
To those who believe that Barack Obama is a different kind of politician—more honest, more courageous, more upfront—please don't examine his administration's recent budget….
Barack Obama is a great pretender. He constantly says he's doing things that he isn't, and he relies on his powerful rhetoric to obscure the difference. He has made "responsibility" a personal theme, and the budget's cover line is "A New Era of Responsibility." He claims that the budget begins "making the tough choices necessary to restore fiscal discipline." It doesn't….
As a society, we should be willing to pay in taxes what it costs government to provide desired services. If benefits don't seem equal to burdens, then the spending isn't worth having (granting exceptions for deficits in wartime and economic slumps).
If Obama were "responsible," he would be leading a candid conversation about government's size and role. Who deserves support and why?...
It would also be "responsible" for Obama to acknowledge the big gamble in his budget. Defense—a.k.a. national security—has long been government's first job. In Obama's budget, defense spending drops from 20 percent of the total in 2008 to 14 percent in 2016, the smallest share since the 1930s. The decline, reflecting large savings from an Iraq troop drawdown, presumes a much safer world. If the world doesn't cooperate, Obama's deficits would grow….
Confidence (too little) and uncertainty (too much) are at the core of this crisis. All of Obama's double-talk threatens to reduce the first and raise the second. Investors and traders have surely noticed the discrepancies between Obama's words and actions.
5. All of the People All of the Time
So when will Obama begin to lose the support of the American people? The poll results reported below offer the first indication. They show that Obama is still widely popular, but that his policies, including the massive expansion of government, are not popular. Moreover, they show growing negative reactions to Obama among voters on the right and the center.
Most important, however, is the fact that the polls register growing opposition to Obama among voters who follow the news closely, particularly the financial news. These are precisely the people who have the most influence on the opinions of those who don't follow the news closely. For more on these people, and why they're turning against Obama, see item #6 below.
It's a bad position to be in, when your continued political success depends on the public not paying any attention to what you're doing.
"The Cracks In Obama's Popularity," Amy Walter, National Journal, March 10
[A]s many have noted in recent days, the latest polling shows that [Obama is] more popular than his party or his proposals….
The 31 percent of voters who say they are paying attention to the various economic plans in Washington "very closely" are the most pessimistic about Obama's economic programs, as well as Obama personally. For example, a bigger percentage of these voters who oppose Obama's $75 billion plan to help prevent foreclosures are in the "very closely" category than those who are paying attention "somewhat closely." Just 27 percent of those who give Obama a positive job approval rating are in this "very closely" category, while 42 percent of those who say they disapprove of the way he's handling his job are in this group. In other words, there's evidence that those who are the closest followers of the details are those who are more disapproving of the job Obama's doing.
It's important to note that this group of voters is wealthier, better educated and slightly more Republican. Yet, remember, Obama did very well with these voters in 2008. He split with John McCain at 49 percent among those making $100,000 or more, and carried both college educated and post-graduate voters.
Finally, voters are less supportive of more government involvement in the economy than they were just a month ago. In January, 55 percent of voters were supportive; today it's at 49 percent. Meanwhile, the number of people who say they think it's a bad idea rose 8 points from 37 percent to 45 percent.
So, how long does Obama's glow survive? No one knows for sure, though many peg the summer as make-or-break. Until then, the reality is that the more scrutiny these programs get—and the more closely the details are followed—the harder it will be for him to keep those ratings up.
6. "Obama Doesn't Get It"
The polls indicate that opposition to President Obama and his agenda is not yet a broad, popular movement. But I have already noticed a sharp shift among an important and very influential subset: the entrepreneurs, individual investors, independent professionals, and small business owners. These people are the backbone of the upper middle class, and Obama has set out to turn them into an exploited class who are to be drained dry to pay for his expansion of government.
These people see what is coming, and their panic is radiating outward, resulting in the actual, literal hoarding of gold, in response to fears of inflation and financial collapse, as well as a growing interest in the primitive, pre-money-economy expedient of barter, which helps productive people minimize their taxable cash income.
And it can also be seen in the fact that "Saturday Night Live" is now beginning to make fun of Treasury Secretary Timothy Geithner, presenting him as a gullible, empty-headed naïf going onto national television to offer $400 billion to the first person who can come up with a solution to the financial crisis.
But laughter will not be the dominant reaction to Obama's failures; the dominant reaction will be rage. Obama is taking a public accustomed to nearly three decades of prosperity, and he is about to put them through a ringer of hardship and privation. They are going to become very, very angry.
The article below is a preview, presenting the Obama economy from the perspective of real small business owner. What it makes completely clear is the fact that Obama is ignorant of and indifferent to the whole world of business and investing—which means he is out of touch with the concerns and economic requirements of most of the American middle class.
This is the sort of thing that can add a little steam to a tea party.
"When It Comes to Real-Life Experience with Stocks, Obama Doesn't Get It," Jim Prevor, The Weekly Standard, March 6
On Tuesday, March 3, 2009, President Obama made comments about the stock market…. As he spoke, I realized that three things have changed, perhaps profoundly and forever, regarding the way many people will perceive the President….
When President Obama dismissed a decline of the Dow from 9,625 on Election Day to 6,763 on March 2 as something akin to a tracking poll, the vast middle class suddenly saw how alienated their concerns were from Obama's concerns….
I realized that in the White House, Obama doesn't deal with what I do: Scared secretaries with tears in their eyes coming in to ask for advice when they see 401-K statements down by 25 percent since Election Day.
Obama seems unconcerned with a divorced woman approaching retirement age looking at her 401-K statement and realizing that her plans to retire and spend time with her church and her grandkids are gone.
I wonder how the president would answer his salesman who, after never asking for a dime in his whole life, asks for a loan, because he had promised his children that he would pay his grandkids' college tuition and he hasn't the foggiest idea how he is going to do that now….
Obama doesn't understand the implications of the stock market dive for real people....
Every stock market investor quickly learns that the math of markets is forbidding. After all, if stock prices go down by 50 percent, they have to rally by 100 percent to get one back to even.
Yet this doesn't begin to explain the problem…. If a family needs $25,000 to pay tuition and it sells stocks to raise the money, that money is not available to benefit from any future upswing in market values. So even if Obama orchestrates a miraculous rebound, countless millions of people will have been permanently hurt….
We learn that the president knows nothing about markets or business….
The notion that the president and his party are alienated from this mainstream of productive America for whom the stock market is not like a tracking poll but is real life is the kind of realization that shapes political identities.
Thursday, March 12, 2009
Quotes...
You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat" --investor and Obama supporter Warren Buffett
We have rights, as individuals, to give as much of our own money as we please to charity; but as members of Congress we have no right so to appropriate a dollar of public money." --American hunter, frontiersman, soldier and politician Davy Crockett (1786-1836)
We have rights, as individuals, to give as much of our own money as we please to charity; but as members of Congress we have no right so to appropriate a dollar of public money." --American hunter, frontiersman, soldier and politician Davy Crockett (1786-1836)
Bear Rally - March 12th
Market had another good up day today, yesterday it was flat. The Dow needs to break 7300. Expecting a good rally between 10-20%
Today the Dow up 238 points - 3.4%
S&P 500 up 3.9%;
Nasdaq up 3.9%.
From the Monday lows, the markets have now gained 12%.
The bank sector has seen a 45% gain; Homebuilders up 20%.
Crude Oil for April delivery gained $4.70 (11%), to $47.03/barrel.
Today the Dow up 238 points - 3.4%
S&P 500 up 3.9%;
Nasdaq up 3.9%.
From the Monday lows, the markets have now gained 12%.
The bank sector has seen a 45% gain; Homebuilders up 20%.
Crude Oil for April delivery gained $4.70 (11%), to $47.03/barrel.
Wednesday, March 11, 2009
Quote....
The great advances of civilization, whether in architecture or painting, in science or in literature, in industry or agriculture, have never come from centralized government." --economist Milton Friedman (1912-2006)
Recession? No, It's a D-process, and It Will Be Long
AN INTERVIEW WITH RAY DALIO: This pro sees a long and painful depression.
Ray Dalio, Chief Investment Officer, Bridgewater Associates
By SANDRA WARD
Barron's - February 9, 2009
NOBODY WAS BETTER PREPARED FOR THE GLOBAL market crash than clients of Ray Dalio's Bridgewater Associates and subscribers to its Daily Observations. Dalio, the chief investment officer and all-around guiding light of the global money-management company he founded more than 30 years ago, began sounding alarms in Barron's in the spring of 2007 about the dangers of excessive financial leverage. He counts among his clients world governments and central banks, as well as pension funds and endowments.
Matthew Furman for Barron's
"The regulators have to decide how banks will operate. That means they are going to have to nationalize some in some form." -- Ray Dalio
No wonder. The Westport, Conn.-based firm, whose analyses of world markets focus on credit and currencies, has produced long-term annual returns, net of fees, averaging 15%. In the turmoil of 2008, Bridgewater's Pure Alpha 1 fund gained 8.7% net of fees and Pure Alpha 2 delivered 9.4%.
Here's what's on his mind now.
Barron's: I can't think of anyone who was earlier in describing the deleveraging and deflationary process that has been happening around the world.
Dalio: Let's call it a "D-process," which is different than a recession, and the only reason that people really don't understand this process is because it happens rarely. Everybody should, at this point, try to understand the depression process by reading about the Great Depression or the Latin American debt crisis or the Japanese experience so that it becomes part of their frame of reference. Most people didn't live through any of those experiences, and what they have gotten used to is the recession dynamic, and so they are quick to presume the recession dynamic. It is very clear to me that we are in a D-process.
Why are you hesitant to emphasize either the words depression or deflation? Why call it a D-process?
Both of those words have connotations associated with them that can confuse the fact that it is a process that people should try to understand.
You can describe a recession as an economic retraction which occurs when the Federal Reserve tightens monetary policy normally to fight inflation. The cycle continues until the economy weakens enough to bring down the inflation rate, at which time the Federal Reserve eases monetary policy and produces an expansion. We can make it more complicated, but that is a basic simple description of what recessions are and what we have experienced through the post-World War II period. What you also need is a comparable understanding of what a D-process is and why it is different.
You have made the point that only by understanding the process can you combat the problem. Are you confident that we are doing what's essential to combat deflation and a depression?
The D-process is a disease of sorts that is going to run its course.
When I first started seeing the D-process and describing it, it was before it actually started to play out this way. But now you can ask yourself, OK, when was the last time bank stocks went down so much? When was the last time the balance sheet of the Federal Reserve, or any central bank, exploded like it has? When was the last time interest rates went to zero, essentially, making monetary policy as we know it ineffective? When was the last time we had deflation?
The answers to those questions all point to times other than the U.S. post-World War II experience. This was the dynamic that occurred in Japan in the '90s, that occurred in Latin America in the '80s, and that occurred in the Great Depression in the '30s.
Basically what happens is that after a period of time, economies go through a long-term debt cycle -- a dynamic that is self-reinforcing, in which people finance their spending by borrowing and debts rise relative to incomes and, more accurately, debt-service payments rise relative to incomes. At cycle peaks, assets are bought on leverage at high-enough prices that the cash flows they produce aren't adequate to service the debt. The incomes aren't adequate to service the debt. Then begins the reversal process, and that becomes self-reinforcing, too. In the simplest sense, the country reaches the point when it needs a debt restructuring. General Motors is a metaphor for the United States.
As goes GM, so goes the nation?
The process of bankruptcy or restructuring is necessary to its viability. One way or another, General Motors has to be restructured so that it is a self-sustaining, economically viable entity that people want to lend to again.
This has happened in Latin America regularly. Emerging countries default, and then restructure. It is an essential process to get them economically healthy.
We will go through a giant debt-restructuring, because we either have to bring debt-service payments down so they are low relative to incomes -- the cash flows that are being produced to service them -- or we are going to have to raise incomes by printing a lot of money.
It isn't complicated. It is the same as all bankruptcies, but when it happens pervasively to a country, and the country has a lot of foreign debt denominated in its own currency, it is preferable to print money and devalue.
Isn't the process of restructuring under way in households and at corporations?
They are cutting costs to service the debt. But they haven't yet done much restructuring. Last year, 2008, was the year of price declines; 2009 and 2010 will be the years of bankruptcies and restructurings. Loans will be written down and assets will be sold. It will be a very difficult time. It is going to surprise a lot of people because many people figure it is bad but still expect, as in all past post-World War II periods, we will come out of it OK. A lot of difficult questions will be asked of policy makers. The government decision-making mechanism is going to be tested, because different people will have different points of view about what should be done.
What are you suggesting?
An example is the Federal Reserve, which has always been an autonomous institution with the freedom to act as it sees fit. Rep. Barney Frank [a Massachusetts Democrat and chairman of the House Financial Services Committee] is talking about examining the authority of the Federal Reserve, and that raises the specter of the government and Congress trying to run the Federal Reserve. Everybody will be second-guessing everybody else.
So where do things stand in the process of restructuring?
What the Federal Reserve has done and what the Treasury has done, by and large, is to take an existing debt and say they will own it or lend against it. But they haven't said they are going to write down the debt and cut debt payments each month. There has been little in the way of debt relief yet. Very, very few actual mortgages have been restructured. Very little corporate debt has been restructured.
The Federal Reserve, in particular, has done a number of successful things. The Federal Reserve went out and bought or lent against a lot of the debt. That has had the effect of reducing the risk of that debt defaulting, so that is good in a sense. And because the risk of default has gone down, it has forced the interest rate on the debt to go down, and that is good, too.
However, the reason it hasn't actually produced increased credit activity is because the debtors are still too indebted and not able to properly service the debt. Only when those debts are actually written down will we get to the point where we will have credit growth. There is a mortgage debt piece that will need to be restructured. There is a giant financial-sector piece -- banks and investment banks and whatever is left of the financial sector -- that will need to be restructured. There is a corporate piece that will need to be restructured, and then there is a commercial-real-estate piece that will need to be restructured.
Is a restructuring of the banks a starting point?
If you think that restructuring the banks is going to get lending going again and you don't restructure the other pieces -- the mortgage piece, the corporate piece, the real-estate piece -- you are wrong, because they need financially sound entities to lend to, and that won't happen until there are restructurings.
On the issue of the banks, ultimately we need banks because to produce credit we have to have banks. A lot of the banks aren't going to have money, and yet we can't just let them go to nothing; we have got to do something.
But the future of banking is going to be very, very different. The regulators have to decide how banks will operate. That means they will have to nationalize some in some form, but they are going to also have to decide who they protect: the bondholders or the depositors?
Nationalization is the most likely outcome?
There will be substantial nationalization of banks. It is going on now and it will continue. But the same question will be asked even after nationalization: What will happen to the pile of bad stuff?
Let's say we are going to end up with the good-bank/bad-bank concept. The government is going to put a lot of money in -- say $100 billion -- and going to get all the garbage at a leverage of, let's say, 10 to 1. They will have a trillion dollars, but a trillion dollars' worth of garbage. They still aren't marking it down. Does this give you comfort?
Then we have the remaining banks, many of which will be broke. The government will have to recapitalize them. The government will try to seek private money to go in with them, but I don't think they are going to come up with a lot of private money, not nearly the amount needed.
To the extent we are going to have nationalized banks, we will still have the question of how those banks behave. Does Congress say what they should do? Does Congress demand they lend to bad borrowers? There is a reason they aren't lending. So whose money is it, and who is protecting that money?
The biggest issue is that if you look at the borrowers, you don't want to lend to them. The basic problem is that the borrowers had too much debt when their incomes were higher and their asset values were higher. Now net worths have gone down.
Let me give you an example. Roughly speaking, most of commercial real estate and a good deal of private equity was bought on leverage of 3-to-1. Most of it is down by more than one-third, so therefore they have negative net worth. Most of them couldn't service their debt when the cash flows were up, and now the cash flows are a lot lower. If you shouldn't have lent to them before, how can you possibly lend to them now?
I guess I'm thinking of the examples of people and businesses with solid credit records who can't get banks to lend to them.
Those examples exist, but they aren't, by and large, the big picture. There are too many nonviable entities. Big pieces of the economy have to become somehow more viable. This isn't primarily about a lack of liquidity. There are certainly elements of that, but this is basically a structural issue. The '30s were very similar to this.
By the way, in the bear market from 1929 to the bottom, stocks declined 89%, with six rallies of returns of more than 20% -- and most of them produced renewed optimism. But what happened was that the economy continued to weaken with the debt problem. The Hoover administration had the equivalent of today's TARP [Troubled Asset Relief Program] in the Reconstruction Finance Corp. The stimulus program and tax cuts created more spending, and the budget deficit increased.
At the same time, countries around the world encountered a similar kind of thing. England went through then exactly what it is going through now. Just as now, countries couldn't get dollars because of the slowdown in exports, and there was a dollar shortage, as there is now. Efforts were directed at rekindling lending. But they did not rekindle lending. Eventually there were a lot of bankruptcies, which extinguished debt.
In the U.S., a Democratic administration replaced a Republican one and there was a major devaluation and reflation that marked the bottom of the Depression in March 1933.
Where is the U.S. and the rest of the world going to keep getting money to pay for these stimulus packages?
The Federal Reserve is going to have to print money. The deficits will be greater than the savings. So you will see the Federal Reserve buy long-term Treasury bonds, as it did in the Great Depression. We are in a position where that will eventually create a problem for currencies and drive assets to gold.
Are you a fan of gold?
Yes.
Have you always been?
No. Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio.
What about bonds? The conventional wisdom has it that bonds are the most overbought and most dangerous asset class right now.
Everything is timing. You print a lot of money, and then you have currency devaluation. The currency devaluation happens before bonds fall. Not much in the way of inflation is produced, because what you are doing actually is negating deflation. So, the first wave of currency depreciation will be very much like England in 1992, with its currency realignment, or the United States during the Great Depression, when they printed money and devalued the dollar a lot. Gold went up a whole lot and the bond market had a hiccup, and then long-term rates continued to decline because people still needed safety and liquidity. While the dollar is bad, it doesn't mean necessarily that the bond market is bad.
I can easily imagine at some point I'm going to hate bonds and want to be short bonds, but, for now, a portfolio that is a mixture of Treasury bonds and gold is going to be a very good portfolio, because I imagine gold could go up a whole lot and Treasury bonds won't go down a whole lot, at first.
Ideally, creditor countries that don't have dollar-debt problems are the place you want to be, like Japan. The Japanese economy will do horribly, too, but they don't have the problems that we have -- and they have surpluses. They can pull in their assets from abroad, which will support their currency, because they will want to become defensive. Other currencies will decline in relationship to the yen and in relationship to gold.
And China?
Now we have the delicate China question. That is a complicated, touchy question.
The reasons for China to hold dollar-denominated assets no longer exist, for the most part. However, the desire to have a weaker currency is everybody's desire in terms of stimulus. China recognizes that the exchange-rate peg is not as important as it was before, because the idea was to make its goods competitive in the world. Ultimately, they are going to have to go to a domestic-based economy. But they own too much in the way of dollar-denominated assets to get out, and it isn't clear exactly where they would go if they did get out. But they don't have to buy more. They are not going to continue to want to double down.
From the U.S. point of view, we want a devaluation. A devaluation gets your pricing in line. When there is a deflationary environment, you want your currency to go down. When you have a lot of foreign debt denominated in your currency, you want to create relief by having your currency go down. All major currency devaluations have triggered stock-market rallies throughout the world; one of the best ways to trigger a stock-market rally is to devalue your currency.
But there is a basic structural problem with China. Its per capita income is less than 10% of ours. We have to get our prices in line, and we are not going to do it by cutting our incomes to a level of Chinese incomes.
And they are not going to do it by having their per capita incomes coming in line with our per capita incomes. But they have to come closer together. The Chinese currency and assets are too cheap in dollar terms, so a devaluation of the dollar in relation to China's currency is likely, and will be an important step to our reflation and will make investments in China attractive.
You mentioned, too, that inflation is not as big a worry for you as it is for some. Could you elaborate?
A wave of currency devaluations and strong gold will serve to negate deflationary pressures, bringing inflation to a low, positive number rather than producing unacceptably high inflation -- and that will last for as far as I can see out, roughly about two years.
Given this outlook, what is your view on stocks?
Buying equities and taking on those risks in late 2009, or more likely 2010, will be a great move because equities will be much cheaper than now. It is going to be a buying opportunity of the century.
Thanks, Ray.
Ray Dalio, Chief Investment Officer, Bridgewater Associates
By SANDRA WARD
Barron's - February 9, 2009
NOBODY WAS BETTER PREPARED FOR THE GLOBAL market crash than clients of Ray Dalio's Bridgewater Associates and subscribers to its Daily Observations. Dalio, the chief investment officer and all-around guiding light of the global money-management company he founded more than 30 years ago, began sounding alarms in Barron's in the spring of 2007 about the dangers of excessive financial leverage. He counts among his clients world governments and central banks, as well as pension funds and endowments.
Matthew Furman for Barron's
"The regulators have to decide how banks will operate. That means they are going to have to nationalize some in some form." -- Ray Dalio
No wonder. The Westport, Conn.-based firm, whose analyses of world markets focus on credit and currencies, has produced long-term annual returns, net of fees, averaging 15%. In the turmoil of 2008, Bridgewater's Pure Alpha 1 fund gained 8.7% net of fees and Pure Alpha 2 delivered 9.4%.
Here's what's on his mind now.
Barron's: I can't think of anyone who was earlier in describing the deleveraging and deflationary process that has been happening around the world.
Dalio: Let's call it a "D-process," which is different than a recession, and the only reason that people really don't understand this process is because it happens rarely. Everybody should, at this point, try to understand the depression process by reading about the Great Depression or the Latin American debt crisis or the Japanese experience so that it becomes part of their frame of reference. Most people didn't live through any of those experiences, and what they have gotten used to is the recession dynamic, and so they are quick to presume the recession dynamic. It is very clear to me that we are in a D-process.
Why are you hesitant to emphasize either the words depression or deflation? Why call it a D-process?
Both of those words have connotations associated with them that can confuse the fact that it is a process that people should try to understand.
You can describe a recession as an economic retraction which occurs when the Federal Reserve tightens monetary policy normally to fight inflation. The cycle continues until the economy weakens enough to bring down the inflation rate, at which time the Federal Reserve eases monetary policy and produces an expansion. We can make it more complicated, but that is a basic simple description of what recessions are and what we have experienced through the post-World War II period. What you also need is a comparable understanding of what a D-process is and why it is different.
You have made the point that only by understanding the process can you combat the problem. Are you confident that we are doing what's essential to combat deflation and a depression?
The D-process is a disease of sorts that is going to run its course.
When I first started seeing the D-process and describing it, it was before it actually started to play out this way. But now you can ask yourself, OK, when was the last time bank stocks went down so much? When was the last time the balance sheet of the Federal Reserve, or any central bank, exploded like it has? When was the last time interest rates went to zero, essentially, making monetary policy as we know it ineffective? When was the last time we had deflation?
The answers to those questions all point to times other than the U.S. post-World War II experience. This was the dynamic that occurred in Japan in the '90s, that occurred in Latin America in the '80s, and that occurred in the Great Depression in the '30s.
Basically what happens is that after a period of time, economies go through a long-term debt cycle -- a dynamic that is self-reinforcing, in which people finance their spending by borrowing and debts rise relative to incomes and, more accurately, debt-service payments rise relative to incomes. At cycle peaks, assets are bought on leverage at high-enough prices that the cash flows they produce aren't adequate to service the debt. The incomes aren't adequate to service the debt. Then begins the reversal process, and that becomes self-reinforcing, too. In the simplest sense, the country reaches the point when it needs a debt restructuring. General Motors is a metaphor for the United States.
As goes GM, so goes the nation?
The process of bankruptcy or restructuring is necessary to its viability. One way or another, General Motors has to be restructured so that it is a self-sustaining, economically viable entity that people want to lend to again.
This has happened in Latin America regularly. Emerging countries default, and then restructure. It is an essential process to get them economically healthy.
We will go through a giant debt-restructuring, because we either have to bring debt-service payments down so they are low relative to incomes -- the cash flows that are being produced to service them -- or we are going to have to raise incomes by printing a lot of money.
It isn't complicated. It is the same as all bankruptcies, but when it happens pervasively to a country, and the country has a lot of foreign debt denominated in its own currency, it is preferable to print money and devalue.
Isn't the process of restructuring under way in households and at corporations?
They are cutting costs to service the debt. But they haven't yet done much restructuring. Last year, 2008, was the year of price declines; 2009 and 2010 will be the years of bankruptcies and restructurings. Loans will be written down and assets will be sold. It will be a very difficult time. It is going to surprise a lot of people because many people figure it is bad but still expect, as in all past post-World War II periods, we will come out of it OK. A lot of difficult questions will be asked of policy makers. The government decision-making mechanism is going to be tested, because different people will have different points of view about what should be done.
What are you suggesting?
An example is the Federal Reserve, which has always been an autonomous institution with the freedom to act as it sees fit. Rep. Barney Frank [a Massachusetts Democrat and chairman of the House Financial Services Committee] is talking about examining the authority of the Federal Reserve, and that raises the specter of the government and Congress trying to run the Federal Reserve. Everybody will be second-guessing everybody else.
So where do things stand in the process of restructuring?
What the Federal Reserve has done and what the Treasury has done, by and large, is to take an existing debt and say they will own it or lend against it. But they haven't said they are going to write down the debt and cut debt payments each month. There has been little in the way of debt relief yet. Very, very few actual mortgages have been restructured. Very little corporate debt has been restructured.
The Federal Reserve, in particular, has done a number of successful things. The Federal Reserve went out and bought or lent against a lot of the debt. That has had the effect of reducing the risk of that debt defaulting, so that is good in a sense. And because the risk of default has gone down, it has forced the interest rate on the debt to go down, and that is good, too.
However, the reason it hasn't actually produced increased credit activity is because the debtors are still too indebted and not able to properly service the debt. Only when those debts are actually written down will we get to the point where we will have credit growth. There is a mortgage debt piece that will need to be restructured. There is a giant financial-sector piece -- banks and investment banks and whatever is left of the financial sector -- that will need to be restructured. There is a corporate piece that will need to be restructured, and then there is a commercial-real-estate piece that will need to be restructured.
Is a restructuring of the banks a starting point?
If you think that restructuring the banks is going to get lending going again and you don't restructure the other pieces -- the mortgage piece, the corporate piece, the real-estate piece -- you are wrong, because they need financially sound entities to lend to, and that won't happen until there are restructurings.
On the issue of the banks, ultimately we need banks because to produce credit we have to have banks. A lot of the banks aren't going to have money, and yet we can't just let them go to nothing; we have got to do something.
But the future of banking is going to be very, very different. The regulators have to decide how banks will operate. That means they will have to nationalize some in some form, but they are going to also have to decide who they protect: the bondholders or the depositors?
Nationalization is the most likely outcome?
There will be substantial nationalization of banks. It is going on now and it will continue. But the same question will be asked even after nationalization: What will happen to the pile of bad stuff?
Let's say we are going to end up with the good-bank/bad-bank concept. The government is going to put a lot of money in -- say $100 billion -- and going to get all the garbage at a leverage of, let's say, 10 to 1. They will have a trillion dollars, but a trillion dollars' worth of garbage. They still aren't marking it down. Does this give you comfort?
Then we have the remaining banks, many of which will be broke. The government will have to recapitalize them. The government will try to seek private money to go in with them, but I don't think they are going to come up with a lot of private money, not nearly the amount needed.
To the extent we are going to have nationalized banks, we will still have the question of how those banks behave. Does Congress say what they should do? Does Congress demand they lend to bad borrowers? There is a reason they aren't lending. So whose money is it, and who is protecting that money?
The biggest issue is that if you look at the borrowers, you don't want to lend to them. The basic problem is that the borrowers had too much debt when their incomes were higher and their asset values were higher. Now net worths have gone down.
Let me give you an example. Roughly speaking, most of commercial real estate and a good deal of private equity was bought on leverage of 3-to-1. Most of it is down by more than one-third, so therefore they have negative net worth. Most of them couldn't service their debt when the cash flows were up, and now the cash flows are a lot lower. If you shouldn't have lent to them before, how can you possibly lend to them now?
I guess I'm thinking of the examples of people and businesses with solid credit records who can't get banks to lend to them.
Those examples exist, but they aren't, by and large, the big picture. There are too many nonviable entities. Big pieces of the economy have to become somehow more viable. This isn't primarily about a lack of liquidity. There are certainly elements of that, but this is basically a structural issue. The '30s were very similar to this.
By the way, in the bear market from 1929 to the bottom, stocks declined 89%, with six rallies of returns of more than 20% -- and most of them produced renewed optimism. But what happened was that the economy continued to weaken with the debt problem. The Hoover administration had the equivalent of today's TARP [Troubled Asset Relief Program] in the Reconstruction Finance Corp. The stimulus program and tax cuts created more spending, and the budget deficit increased.
At the same time, countries around the world encountered a similar kind of thing. England went through then exactly what it is going through now. Just as now, countries couldn't get dollars because of the slowdown in exports, and there was a dollar shortage, as there is now. Efforts were directed at rekindling lending. But they did not rekindle lending. Eventually there were a lot of bankruptcies, which extinguished debt.
In the U.S., a Democratic administration replaced a Republican one and there was a major devaluation and reflation that marked the bottom of the Depression in March 1933.
Where is the U.S. and the rest of the world going to keep getting money to pay for these stimulus packages?
The Federal Reserve is going to have to print money. The deficits will be greater than the savings. So you will see the Federal Reserve buy long-term Treasury bonds, as it did in the Great Depression. We are in a position where that will eventually create a problem for currencies and drive assets to gold.
Are you a fan of gold?
Yes.
Have you always been?
No. Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio.
What about bonds? The conventional wisdom has it that bonds are the most overbought and most dangerous asset class right now.
Everything is timing. You print a lot of money, and then you have currency devaluation. The currency devaluation happens before bonds fall. Not much in the way of inflation is produced, because what you are doing actually is negating deflation. So, the first wave of currency depreciation will be very much like England in 1992, with its currency realignment, or the United States during the Great Depression, when they printed money and devalued the dollar a lot. Gold went up a whole lot and the bond market had a hiccup, and then long-term rates continued to decline because people still needed safety and liquidity. While the dollar is bad, it doesn't mean necessarily that the bond market is bad.
I can easily imagine at some point I'm going to hate bonds and want to be short bonds, but, for now, a portfolio that is a mixture of Treasury bonds and gold is going to be a very good portfolio, because I imagine gold could go up a whole lot and Treasury bonds won't go down a whole lot, at first.
Ideally, creditor countries that don't have dollar-debt problems are the place you want to be, like Japan. The Japanese economy will do horribly, too, but they don't have the problems that we have -- and they have surpluses. They can pull in their assets from abroad, which will support their currency, because they will want to become defensive. Other currencies will decline in relationship to the yen and in relationship to gold.
And China?
Now we have the delicate China question. That is a complicated, touchy question.
The reasons for China to hold dollar-denominated assets no longer exist, for the most part. However, the desire to have a weaker currency is everybody's desire in terms of stimulus. China recognizes that the exchange-rate peg is not as important as it was before, because the idea was to make its goods competitive in the world. Ultimately, they are going to have to go to a domestic-based economy. But they own too much in the way of dollar-denominated assets to get out, and it isn't clear exactly where they would go if they did get out. But they don't have to buy more. They are not going to continue to want to double down.
From the U.S. point of view, we want a devaluation. A devaluation gets your pricing in line. When there is a deflationary environment, you want your currency to go down. When you have a lot of foreign debt denominated in your currency, you want to create relief by having your currency go down. All major currency devaluations have triggered stock-market rallies throughout the world; one of the best ways to trigger a stock-market rally is to devalue your currency.
But there is a basic structural problem with China. Its per capita income is less than 10% of ours. We have to get our prices in line, and we are not going to do it by cutting our incomes to a level of Chinese incomes.
And they are not going to do it by having their per capita incomes coming in line with our per capita incomes. But they have to come closer together. The Chinese currency and assets are too cheap in dollar terms, so a devaluation of the dollar in relation to China's currency is likely, and will be an important step to our reflation and will make investments in China attractive.
You mentioned, too, that inflation is not as big a worry for you as it is for some. Could you elaborate?
A wave of currency devaluations and strong gold will serve to negate deflationary pressures, bringing inflation to a low, positive number rather than producing unacceptably high inflation -- and that will last for as far as I can see out, roughly about two years.
Given this outlook, what is your view on stocks?
Buying equities and taking on those risks in late 2009, or more likely 2010, will be a great move because equities will be much cheaper than now. It is going to be a buying opportunity of the century.
Thanks, Ray.
Canadian Dollar - Time to go Long?
I have to think the Canadian dollar is one of the better currencies out there. Yes Canada is having its share of problems with the down turn in its economy. However, its fiscal policies are sound and as well their banks are in much better shape.
********************
The Canadian dollar has been among the weakest currencies in the past two weeks and the downturn has run too far, according to Citigroup currency strategist Todd Elmer.
“CAD weakness has overshot fundamentals. With USD broadly trading towards the top of recent ranges we believe there is a tactical opportunity to sell USD/CAD,” he said in a note to clients.
Mr. Elmer said both the fiscal and financial sector strength in Canada provide a strong foundation even as the Bank of Canada moves toward quantitative easing. He added that a base for commodity prices and stabilization in the flow of economic data could act as an immediate catalyst for the loonie’s appreciation.
“Canada benefits from one of the strongest financial sectors in the world and is better positioned fiscally than many of its peers. While Canada is set to run deficits for the first time in a decade, it still ranks close to the top by our gauge of fiscal resilience.”
He added that weakness for the Canadian dollar is likely a knee-jerk reaction to the Bank of Canada’s hint regarding quantitative easing, while investors may have entered into long U.S. dollar positions amid the decline in risk appetite.
However, Mr. Elmer does not think a sell-off for the loonie can be sustained on the basis of the Bank of Canada’s actions alone. Citigroup’s indicator shows that investors unwound peak Canadian dollar long exposure over the course of the past two years.
“Entering 2009, positioning was close to flat, suggesting there is now limited scope for a flush-out of CAD longs,” he said. “With investors still seeking to preserve capital, a sharp build-up in CAD shorts looks unlikely.
********************
The Canadian dollar has been among the weakest currencies in the past two weeks and the downturn has run too far, according to Citigroup currency strategist Todd Elmer.
“CAD weakness has overshot fundamentals. With USD broadly trading towards the top of recent ranges we believe there is a tactical opportunity to sell USD/CAD,” he said in a note to clients.
Mr. Elmer said both the fiscal and financial sector strength in Canada provide a strong foundation even as the Bank of Canada moves toward quantitative easing. He added that a base for commodity prices and stabilization in the flow of economic data could act as an immediate catalyst for the loonie’s appreciation.
“Canada benefits from one of the strongest financial sectors in the world and is better positioned fiscally than many of its peers. While Canada is set to run deficits for the first time in a decade, it still ranks close to the top by our gauge of fiscal resilience.”
He added that weakness for the Canadian dollar is likely a knee-jerk reaction to the Bank of Canada’s hint regarding quantitative easing, while investors may have entered into long U.S. dollar positions amid the decline in risk appetite.
However, Mr. Elmer does not think a sell-off for the loonie can be sustained on the basis of the Bank of Canada’s actions alone. Citigroup’s indicator shows that investors unwound peak Canadian dollar long exposure over the course of the past two years.
“Entering 2009, positioning was close to flat, suggesting there is now limited scope for a flush-out of CAD longs,” he said. “With investors still seeking to preserve capital, a sharp build-up in CAD shorts looks unlikely.
Global recession deepening, Geithner says
Global recession deepening, Geithner says
Jennifer Loven
Wednesday, March 11, 2009
WASHINGTON — U.S. Treasury Secretary Timothy Geithner says the global recession is deepening.
He called for strong actions by all major countries to combat the economic downturn.
His comments echoed those of President Barack Obama, who asked other countries to take more aggressive steps to jump-start their economies.
Mr. Geithner says the Obama administration believes it is essential for other major countries to commit to substantial and sustained efforts to bolster their economies.
His comments highlighted a growing rift with European countries that are balking at the U.S. call for increased stimulus efforts.
European officials argue they do not want to pile up more debt to fight the downturn.
After a meeting with Mr. Geithner at the Oval Office, Mr. Obama told reporters: “We can do a really good job here at home, with a whole host of policies, but if you continue to see deterioration in the world economy, that's going to set us back.”
Mr. Geithner is headed to Britain this week for talks with the finance ministers of 20 advanced and developing countries. Those meetings are a precursor to a leaders' summit on the global financial crisis that is taking place in London early next month.
Mr. Geithner said there have been many ideas passed among the nations, and good progress made, but that the time for talk is over.
“It's time now for us to move together and to begin to act,” he said. “Everything we do in the United States will be more effective if we have the world moving with us.”
Mr. Obama said the United States has two goals for the so-called Group of 20 summit: to make sure there is “concerted action around the globe to jump-start the economy” and to achieve consensus on regulatory reform to take place in each country.
He did not directly criticize other nations, such as in Europe, which have been reluctant to adopt the kind of expensive stimulus packages for their own economies that have been approved in the United States. But his message that allies are not doing enough compared with the United States was clear.
“The United States has actually taken a significant lead on a number of these steps that are required,” he said. “As aggressive as the actions we are taking have been so far, it's very important to make sure that other countries are moving in the same direction, because the global economy is all tied together.”
Mr. Obama has met with several G20 leaders already in the lead-up to the summit, hammering home the notion that they benefit from a strong U.S. economy. The president said those talks have made him “optimistic about the prospects” for a good agreement to come out of London.
Jennifer Loven
Wednesday, March 11, 2009
WASHINGTON — U.S. Treasury Secretary Timothy Geithner says the global recession is deepening.
He called for strong actions by all major countries to combat the economic downturn.
His comments echoed those of President Barack Obama, who asked other countries to take more aggressive steps to jump-start their economies.
Mr. Geithner says the Obama administration believes it is essential for other major countries to commit to substantial and sustained efforts to bolster their economies.
His comments highlighted a growing rift with European countries that are balking at the U.S. call for increased stimulus efforts.
European officials argue they do not want to pile up more debt to fight the downturn.
After a meeting with Mr. Geithner at the Oval Office, Mr. Obama told reporters: “We can do a really good job here at home, with a whole host of policies, but if you continue to see deterioration in the world economy, that's going to set us back.”
Mr. Geithner is headed to Britain this week for talks with the finance ministers of 20 advanced and developing countries. Those meetings are a precursor to a leaders' summit on the global financial crisis that is taking place in London early next month.
Mr. Geithner said there have been many ideas passed among the nations, and good progress made, but that the time for talk is over.
“It's time now for us to move together and to begin to act,” he said. “Everything we do in the United States will be more effective if we have the world moving with us.”
Mr. Obama said the United States has two goals for the so-called Group of 20 summit: to make sure there is “concerted action around the globe to jump-start the economy” and to achieve consensus on regulatory reform to take place in each country.
He did not directly criticize other nations, such as in Europe, which have been reluctant to adopt the kind of expensive stimulus packages for their own economies that have been approved in the United States. But his message that allies are not doing enough compared with the United States was clear.
“The United States has actually taken a significant lead on a number of these steps that are required,” he said. “As aggressive as the actions we are taking have been so far, it's very important to make sure that other countries are moving in the same direction, because the global economy is all tied together.”
Mr. Obama has met with several G20 leaders already in the lead-up to the summit, hammering home the notion that they benefit from a strong U.S. economy. The president said those talks have made him “optimistic about the prospects” for a good agreement to come out of London.
Tuesday, March 10, 2009
Renewed fears rattle through credit markets
BOYD ERMAN
Tuesday, March 10, 2009
CAPITAL MARKETS REPORTER
Credit markets are lapsing into a renewed slump, stymieing central bankers who have gone to unprecedented lengths to get money flowing into the economy.
After taking some baby steps toward normalcy in the first months of 2009, the market for risky corporate debt such as junk bonds is again seizing up, pushing interest rates higher for those companies lucky enough to find financing and threatening to leave many borrowers shut out. The premium that investors are demanding to buy junk bonds has jumped to 19 percentage points above government bonds from 16 points just three weeks ago.
Investors also fear more financial institutions may fail, sending measures of the risk of bank bonds to record highs. At the same time, the rising cost of interbank lending signals bankers are again growing leery of one another. Banks are now charging 1.31 per cent interest to lend each other U.S. dollars for three months, up from a recent low of 1.09 per cent in mid-January.
About the only debt that investors will buy is the two-year U.S. Treasury, traditionally seen as the safest of all havens.
The flow of money out of risky assets into only the safest exacerbates the economic malaise by making it tough for companies to raise money to expand or even to just stay alive, forcing them to cut jobs and spending to cope.
For Canadian companies that need to refinance debt soon, such as miner Teck Cominco Ltd., the renewed troubles in the credit market are bad news.
"Against a background of worsening fundamentals, a poor fourth-quarter earnings season - thankfully drawing to a close - and the spreading of the crisis's tentacles far, wide and deep, more areas of the credit market are starting to feel the strain," said Suki Mann, a credit strategist at Société Générale in London.
The rapidly worsening recession is one reason for the latest slump in credit markets, with the World Bank yesterday saying that the global economy will shrink in 2009 for the first time since the Second World War.
But analysts say the underlying problem is that while central banks such as the U.S. Federal Reserve are pushing hard to get the economy going again with rate cuts and by printing money, the U.S. government is sabotaging those efforts by failing to lay out a clear and credible plan to deal with problem banks.
"This is really uncharted territory," said Michael Devereux, a University of British Columbia economics professor and a Bank of Canada research fellow. "Most economists would have expected that with this level of expansionary monetary policy and expansionary fiscal policy, we would have started to see some things happen."
The issue for many investors, he said, is "the critical steps to fix the banks have not been taken, and because of that there's just no possibility of a resurgence of financial confidence."
Impatient credit investors panned the announcement yesterday by the Obama administration that Treasury Secretary Tim Geithner will unveil his plans for fixing the banking system in "coming weeks."
"Perhaps the market is pushing, in a free-market manner, the government to make the decisions sooner rather than later," said Tim Backshall, chief strategist at Credit Derivatives Research, a California firm that tracks debt markets.
In the meantime, hard-won gains in confidence from late 2008 and early 2009 are bleeding away.
The Credit Derivatives Research Counterparty Risk Index, a measure of investor fears that banks will fail, rose to a record high yesterday, led by concern that Citigroup Inc. might not make it after posting $28.5-billion (U.S.) of losses since the credit crunch began.
And despite perceptions that Canada's banking system is safer than any, the cost of insuring against a default on five-year debt issued by the country's largest bank, Royal Bank of Canada, also rose to a record yesterday, according to Markit Group Ltd.
That means banks will have to pay more to raise funds, leading to higher rates for borrowers, and many companies that depend on debt will have trouble rolling over loans.
The result is that no matter how much central bankers slash their targets for rates, the economy will struggle until credit markets are fixed because companies will cut jobs, close factories and put off expanding to hang onto what little cash they have.
Tuesday, March 10, 2009
CAPITAL MARKETS REPORTER
Credit markets are lapsing into a renewed slump, stymieing central bankers who have gone to unprecedented lengths to get money flowing into the economy.
After taking some baby steps toward normalcy in the first months of 2009, the market for risky corporate debt such as junk bonds is again seizing up, pushing interest rates higher for those companies lucky enough to find financing and threatening to leave many borrowers shut out. The premium that investors are demanding to buy junk bonds has jumped to 19 percentage points above government bonds from 16 points just three weeks ago.
Investors also fear more financial institutions may fail, sending measures of the risk of bank bonds to record highs. At the same time, the rising cost of interbank lending signals bankers are again growing leery of one another. Banks are now charging 1.31 per cent interest to lend each other U.S. dollars for three months, up from a recent low of 1.09 per cent in mid-January.
About the only debt that investors will buy is the two-year U.S. Treasury, traditionally seen as the safest of all havens.
The flow of money out of risky assets into only the safest exacerbates the economic malaise by making it tough for companies to raise money to expand or even to just stay alive, forcing them to cut jobs and spending to cope.
For Canadian companies that need to refinance debt soon, such as miner Teck Cominco Ltd., the renewed troubles in the credit market are bad news.
"Against a background of worsening fundamentals, a poor fourth-quarter earnings season - thankfully drawing to a close - and the spreading of the crisis's tentacles far, wide and deep, more areas of the credit market are starting to feel the strain," said Suki Mann, a credit strategist at Société Générale in London.
The rapidly worsening recession is one reason for the latest slump in credit markets, with the World Bank yesterday saying that the global economy will shrink in 2009 for the first time since the Second World War.
But analysts say the underlying problem is that while central banks such as the U.S. Federal Reserve are pushing hard to get the economy going again with rate cuts and by printing money, the U.S. government is sabotaging those efforts by failing to lay out a clear and credible plan to deal with problem banks.
"This is really uncharted territory," said Michael Devereux, a University of British Columbia economics professor and a Bank of Canada research fellow. "Most economists would have expected that with this level of expansionary monetary policy and expansionary fiscal policy, we would have started to see some things happen."
The issue for many investors, he said, is "the critical steps to fix the banks have not been taken, and because of that there's just no possibility of a resurgence of financial confidence."
Impatient credit investors panned the announcement yesterday by the Obama administration that Treasury Secretary Tim Geithner will unveil his plans for fixing the banking system in "coming weeks."
"Perhaps the market is pushing, in a free-market manner, the government to make the decisions sooner rather than later," said Tim Backshall, chief strategist at Credit Derivatives Research, a California firm that tracks debt markets.
In the meantime, hard-won gains in confidence from late 2008 and early 2009 are bleeding away.
The Credit Derivatives Research Counterparty Risk Index, a measure of investor fears that banks will fail, rose to a record high yesterday, led by concern that Citigroup Inc. might not make it after posting $28.5-billion (U.S.) of losses since the credit crunch began.
And despite perceptions that Canada's banking system is safer than any, the cost of insuring against a default on five-year debt issued by the country's largest bank, Royal Bank of Canada, also rose to a record yesterday, according to Markit Group Ltd.
That means banks will have to pay more to raise funds, leading to higher rates for borrowers, and many companies that depend on debt will have trouble rolling over loans.
The result is that no matter how much central bankers slash their targets for rates, the economy will struggle until credit markets are fixed because companies will cut jobs, close factories and put off expanding to hang onto what little cash they have.
Monday, March 9, 2009
Hedge funds turn to gold
Something to thing about...purchasing some Gold.
I like Peter Munk quote...regarding governments solution to the crises by printing money...."that will end in tears".
*******************
Fiancial Times
By Henny Sender in New York and Javier Blas in London
Published: March 8 2009
Hedge fund investors who made money last year by betting against investment banks are now buying gold as a way of betting against central banks.
The gold bulls include David Einhorn, founder of hedge fund Greenlight Capital, who last year came under the spotlight for his short selling of shares in Lehman Brothers, after arguing that the bank did not have enough capital to offset its exposure to falling property prices. Other funds looking at gold include Eton Park and TPG-Axon, investors said.
Their belief in bullion is being expressed even as gold prices have retreated from last month’s break above the $1,000 an ounce level. Spot gold in London closed last Friday at $939.10, after falling last week to $900.95 an ounce.
Investors such as Mr Einhorn are turning to gold because they are worried about the response of the US Federal Reserve and other central banks to the global economic crisis. A bet on gold is essentially a bet against all paper currencies.
“The size of the Fed’s balance sheet is exploding and the currency is being debased. Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed,” Mr Einhorn wrote in a recent letter to his investors. “Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself.”
Mr Einhorn’s comments – and the revelation he is buying gold itself – are in line with the views held by other large institutional investors in Europe, according to bankers in London. The head of commodity sales at one major bullion bank told the Financial Times that he had never been so busy dealing in gold for large investors in his life.
Goldman Sachs, Morgan Stanley and UBS all forecast the gold price will surge above $1,000 this year. Peter Munk, chairman of Barrick Gold, the world’s largest miner of bullion, told investors last week that all countries have embarked on policies that will favour gold.“The only option to governments is to print and print more money,” he said. “That will end in tears.”
In the past, hedge funds, which depend on absolute returns to earn high fees, had avoided gold because it does not produce any yield and costs money to store and insure. But those issues have become less important as central banks have pushed interest rates to nearly zero, reducing the yields on currencies.
I like Peter Munk quote...regarding governments solution to the crises by printing money...."that will end in tears".
*******************
Fiancial Times
By Henny Sender in New York and Javier Blas in London
Published: March 8 2009
Hedge fund investors who made money last year by betting against investment banks are now buying gold as a way of betting against central banks.
The gold bulls include David Einhorn, founder of hedge fund Greenlight Capital, who last year came under the spotlight for his short selling of shares in Lehman Brothers, after arguing that the bank did not have enough capital to offset its exposure to falling property prices. Other funds looking at gold include Eton Park and TPG-Axon, investors said.
Their belief in bullion is being expressed even as gold prices have retreated from last month’s break above the $1,000 an ounce level. Spot gold in London closed last Friday at $939.10, after falling last week to $900.95 an ounce.
Investors such as Mr Einhorn are turning to gold because they are worried about the response of the US Federal Reserve and other central banks to the global economic crisis. A bet on gold is essentially a bet against all paper currencies.
“The size of the Fed’s balance sheet is exploding and the currency is being debased. Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed,” Mr Einhorn wrote in a recent letter to his investors. “Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself.”
Mr Einhorn’s comments – and the revelation he is buying gold itself – are in line with the views held by other large institutional investors in Europe, according to bankers in London. The head of commodity sales at one major bullion bank told the Financial Times that he had never been so busy dealing in gold for large investors in his life.
Goldman Sachs, Morgan Stanley and UBS all forecast the gold price will surge above $1,000 this year. Peter Munk, chairman of Barrick Gold, the world’s largest miner of bullion, told investors last week that all countries have embarked on policies that will favour gold.“The only option to governments is to print and print more money,” he said. “That will end in tears.”
In the past, hedge funds, which depend on absolute returns to earn high fees, had avoided gold because it does not produce any yield and costs money to store and insure. But those issues have become less important as central banks have pushed interest rates to nearly zero, reducing the yields on currencies.
Buffett says economy fell off a cliff
Warren is stating the obvious! The economy is hurting. The is the debt bubble unwinding.
High risks in future is the restart of inflation.
LR
**************
Jonathan Stempel
Monday, March 09, 2009
NEW YORK — Warren Buffett said Monday that the U.S. economy had “fallen off a cliff” and eventually would recover, although a rebound could rekindle inflation worse than experienced in the late 1970s.
Speaking on CNBC television, the 78-year-old billionaire also said the economy was mere hours away from collapse in September, when credit markets seized up, Lehman Brothers Holdings Inc. went bankrupt and insurer American International Group Inc. got its first bailout. “The world almost did come to a stop,” he said.
Mr. Buffett also called on banks to “get back to banking” and said an overwhelmingly number would “earn their way out” of the recession, even if stockholders don't go along for the ride.
“A bank that's going to go broke should be allowed to go broke,” but customers should not worry about their insured deposits, he said. Mr. Buffett said there was a “paralysis of confidence” in banks, which he called “silly” because of safeguards such as deposit insurance.
Mr. Buffett spoke nine days after telling shareholders of his Omaha, Nebraska-based insurance and investment company Berkshire Hathaway Inc. that the economy was in a “shambles” likely to persist beyond 2009.
On Monday, Mr. Buffett said the economy was experiencing “close to the worst-case” scenario, with business activity declining and unemployment rising, and that the economy “can't turn around on a dime.”
He said Americans, including himself, did not predict the severity of the decline in the housing prices, which then led to problems with securitizations, complex debt and other instruments whose value depended on home prices continuing to rise, or at least not plummet.
“It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either,” Mr. Buffett said.
Maintaining his long-term optimism, Mr. Buffett said that “five years from now, I can guarantee you that the machine will be running fine,” although he hoped it would not take that long.
“We do have the greatest economic machine that man has ever created,” he said.
But he said an economic rebound could trigger higher inflation once demand rebounds. “In economics there is no free lunch,” he said. “We are going to attempt to have a lunch that to some extent we're going to pay for later.”
Mr. Buffett also urged Democrats and Republicans in Washington to work better together, and to communicate bipartisan efforts to fix the economy to voters. “You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat,” he said.
Mr. Buffett also said the ailing Citigroup Inc., which Berkshire does not own, would probably keep shrinking, but that depositors should not be worried.
High risks in future is the restart of inflation.
LR
**************
Jonathan Stempel
Monday, March 09, 2009
NEW YORK — Warren Buffett said Monday that the U.S. economy had “fallen off a cliff” and eventually would recover, although a rebound could rekindle inflation worse than experienced in the late 1970s.
Speaking on CNBC television, the 78-year-old billionaire also said the economy was mere hours away from collapse in September, when credit markets seized up, Lehman Brothers Holdings Inc. went bankrupt and insurer American International Group Inc. got its first bailout. “The world almost did come to a stop,” he said.
Mr. Buffett also called on banks to “get back to banking” and said an overwhelmingly number would “earn their way out” of the recession, even if stockholders don't go along for the ride.
“A bank that's going to go broke should be allowed to go broke,” but customers should not worry about their insured deposits, he said. Mr. Buffett said there was a “paralysis of confidence” in banks, which he called “silly” because of safeguards such as deposit insurance.
Mr. Buffett spoke nine days after telling shareholders of his Omaha, Nebraska-based insurance and investment company Berkshire Hathaway Inc. that the economy was in a “shambles” likely to persist beyond 2009.
On Monday, Mr. Buffett said the economy was experiencing “close to the worst-case” scenario, with business activity declining and unemployment rising, and that the economy “can't turn around on a dime.”
He said Americans, including himself, did not predict the severity of the decline in the housing prices, which then led to problems with securitizations, complex debt and other instruments whose value depended on home prices continuing to rise, or at least not plummet.
“It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either,” Mr. Buffett said.
Maintaining his long-term optimism, Mr. Buffett said that “five years from now, I can guarantee you that the machine will be running fine,” although he hoped it would not take that long.
“We do have the greatest economic machine that man has ever created,” he said.
But he said an economic rebound could trigger higher inflation once demand rebounds. “In economics there is no free lunch,” he said. “We are going to attempt to have a lunch that to some extent we're going to pay for later.”
Mr. Buffett also urged Democrats and Republicans in Washington to work better together, and to communicate bipartisan efforts to fix the economy to voters. “You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat,” he said.
Mr. Buffett also said the ailing Citigroup Inc., which Berkshire does not own, would probably keep shrinking, but that depositors should not be worried.
Sunday, March 8, 2009
US Banks - Insolvent
“All the major [US] banks are basically insolvent at this point. Until that changes and until credit gets flowing again, it’s hard to see how we have any real recovery.” – David P. Prokupek, chief executive of the Denver portfolio manager Geronimo Partners in Bloomberg article Thursday.
*********************
It could be years before recovery starts. It has been years for the excessive credit spending. The solution to the problem is not more credit spending that the government is promoting. This problem will not be solved overnight. It will take time. The question is how do we want to correct the problem that has been created; and the blame can be laid at Bush...he deserves it; he started it. However, I fear that Omaba is following Bush but in much bigger way, and that is not real change! Just more of the same...only faster!
*********************
It could be years before recovery starts. It has been years for the excessive credit spending. The solution to the problem is not more credit spending that the government is promoting. This problem will not be solved overnight. It will take time. The question is how do we want to correct the problem that has been created; and the blame can be laid at Bush...he deserves it; he started it. However, I fear that Omaba is following Bush but in much bigger way, and that is not real change! Just more of the same...only faster!
U.S. Bubble Collapse to Be Worse Than Japan’s,
By Patrick Rial
Feb. 23 (Bloomberg) -- The U.S. is facing a deflationary collapse more severe than the crash that hobbled Japan’s economy in the 1990s, leaving gold as the only defensive play for investors, according to CLSA Ltd.’s Christopher Wood.
The housing recession in the U.S. led to a crisis in the banking system as lenders became saddled with illiquid mortgage assets, souring the securitization industry that helped drive credit growth in recent years. The nation’s retail sales fell 10.5 percent in December as consumers became more pessimistic and scaled back purchases.
“The collapse of securitization is a much more deflationary situation in the U.S. than anything seen in Japan when the bubble collapsed in the early 1990s,” Wood, Institutional Investor’s top-ranked Asia strategist, said at a conference in Tokyo sponsored by CLSA. “What we need in the future is a more fundamentally disciplined system, even at the cost of higher levels of growth.”
Gold may be the safest haven for investors as policy makers accelerate responses to the crisis, devaluing currencies versus hard assets such as gold in the process, said Wood. Gold is likely to more than quadruple from the current level of $986 per ounce currently to $3,500 in 2010, he said.
Wood, who in 2003 predicted the U.S. housing crisis, joined New York University economist Nouriel Roubini in cautioning against investment in Europe due to the rising risk among economies in the eastern and central parts of the continent that carry current account deficits.
Moody’s Investors Service Inc. on Feb. 17 said some of Europe’s largest banks may be downgraded because of loans to eastern Europe, sending shares of lenders tumbling.
“In my view, we will have a full-scale currency collapse in central and eastern Europe,” the strategist said. “This will lead to a growing focus on the huge exposure of the European banks to these distressed economies.”
China and India remain the best bets for equity investors over the long term, Wood said.
Feb. 23 (Bloomberg) -- The U.S. is facing a deflationary collapse more severe than the crash that hobbled Japan’s economy in the 1990s, leaving gold as the only defensive play for investors, according to CLSA Ltd.’s Christopher Wood.
The housing recession in the U.S. led to a crisis in the banking system as lenders became saddled with illiquid mortgage assets, souring the securitization industry that helped drive credit growth in recent years. The nation’s retail sales fell 10.5 percent in December as consumers became more pessimistic and scaled back purchases.
“The collapse of securitization is a much more deflationary situation in the U.S. than anything seen in Japan when the bubble collapsed in the early 1990s,” Wood, Institutional Investor’s top-ranked Asia strategist, said at a conference in Tokyo sponsored by CLSA. “What we need in the future is a more fundamentally disciplined system, even at the cost of higher levels of growth.”
Gold may be the safest haven for investors as policy makers accelerate responses to the crisis, devaluing currencies versus hard assets such as gold in the process, said Wood. Gold is likely to more than quadruple from the current level of $986 per ounce currently to $3,500 in 2010, he said.
Wood, who in 2003 predicted the U.S. housing crisis, joined New York University economist Nouriel Roubini in cautioning against investment in Europe due to the rising risk among economies in the eastern and central parts of the continent that carry current account deficits.
Moody’s Investors Service Inc. on Feb. 17 said some of Europe’s largest banks may be downgraded because of loans to eastern Europe, sending shares of lenders tumbling.
“In my view, we will have a full-scale currency collapse in central and eastern Europe,” the strategist said. “This will lead to a growing focus on the huge exposure of the European banks to these distressed economies.”
China and India remain the best bets for equity investors over the long term, Wood said.
Saturday, March 7, 2009
Euro Area Risks Breakup
By Bo Nielsen
Feb. 27 (Bloomberg) -- Hayman Advisors LP, the firm that earned $500 million betting on the U.S. subprime mortgage-market collapse, says Europe’s monetary union is about to fall apart.
Richard Howard, a managing director for global markets at Dallas-based Hayman, said Germany may opt to shore up its own economy, Europe’s biggest, rather than bail out fellow euro nations such as Austria, Italy and Spain as their banks sag under the weight of bad debts. That might lead to defaults and compel Germany to renounce the euro, he said.
“People said subprime could never blow up but it did and now they’re saying the exact same thing about the eurozone,” said Howard. “There’s no stopping what is now a downward spiral.” He declined to discuss his investments.
Hayman joins a growing number of investors seeing the possibility of a breakup of the $12 trillion euro bloc, conceived more than 10 years ago to cut unemployment, tame inflation and create a rival to the dollar. Societe Generale SA said this week Germany may refuse a bailout in an election year. ABN Amro Holding NV said Feb. 17 the crisis is “Europe’s subprime.”
Euro-region bank loans to Eastern Europe topped $1.3 trillion in the third quarter last year, or about 9 percent of the bloc’s gross domestic product, ING Groep NV said Feb. 18, citing Bank for International Settlements data. Now lenders face losses after extending credit to finance everything from industrial development to domestic real estate.
Debt-Default Insurance
Irish banks and foreign banks operating in Ireland together took on debt equivalent to 11 times the nation’s gross domestic product, Dutch-bank credit reached seven times GDP and Belgium four times, according to BNP Paribas SA.
As concern intensified that the loans won’t be repaid, the cost to insure against defaults jumped six-fold to records since August. Credit-default swaps on Ireland climbed to a record 395.8 basis points, from less than 50 basis points in September, according to CMA DataVision. Austrian swaps traded at 265 basis points, compared with less than 25 points six months ago.
The breakup may occur as investors shun all but the safest government bonds, said Hayman, which in 2006 was among the first to bet against Wall Street’s rush to securitize the debt of the least creditworthy U.S. borrowers, correctly predicting a slump in home values that sparked the global credit crisis.
Investor demand for the lowest-risk securities already drove the difference in yield, or spread, between Greek, Austrian and Spanish 10-year bonds and German bunds, Europe’s benchmark government securities, to the widest since the euro’s debut.
Steinbrueck, Soros
German Finance Minister Peer Steinbrueck said Feb. 18 euro countries would “show our ability to act” should countries face difficulties paying debt. Billionaire investor George Soros said Feb. 17 he doesn’t expect a breakup of the region.
The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank will provide up to 24.5 billion euros ($31 billion) to help central and east European banks and businesses cope with the crisis.
European Central Bank officials also said solutions can be found that will ensure cohesion of the region. Executive Board Member Lorenzo Bini Smaghi said Feb. 21 that European Union rules permit the EU “as a whole” to aid states in “economic difficulty.” ECB President Jean-Claude Trichet said a day earlier “there is no weak link of the euro area.”
“The argument that the euro zone will find a solution contains some sense if the assumption is that the situation isn’t that bad,” said Howard. “But the more dire it gets, the less are the consequences of departing from the euro.”
Shrinking Economies
German GDP contracted 2.1 percent in the fourth quarter, the biggest decline since 1987, the Federal Statistics Office said on Feb. 25. The economy will shrink by 2.5 percent this year, with France contracting 1.9 percent and the euro-region 2 percent, according to an International Monetary Fund report on Jan. 28.
European governments, which committed more than 1.2 trillion euros to rescue ailing banks as the recession eroded tax revenue, will require more cash as defaults occur, Howard said. Faced with the prospect of a deepening recession, Germany and France may be reluctant to bail out euro-region members such as Spain and Italy, Howard said.
“Because of the size of this crisis and because of the linkage with Eastern Europe, I think we need to see more broad- minded thinking coming out of the big European countries, in particular Germany,” Jim O’Neill, chief economist at Goldman Sachs Group Inc., said in a Bloomberg Television interview today in London. “Germany has got to create demand for many countries in Europe that have a strong need for some help coming out of elsewhere.”
German Elections
The German government, facing elections in September, might refuse requests for help amid political pressure to spend money at home, Societe Generale said in a Feb. 24 report.
“A bailout of a debtor country from a surplus country like Germany would be like opening the box of Pandora,” former Bundesbank President Karl Otto Poehl said in London yesterday. “It’s a very dangerous course that we will enter” and “I’m very much against it, many people in Germany are against it, but the political pressure will increase,”
Feb. 27 (Bloomberg) -- Hayman Advisors LP, the firm that earned $500 million betting on the U.S. subprime mortgage-market collapse, says Europe’s monetary union is about to fall apart.
Richard Howard, a managing director for global markets at Dallas-based Hayman, said Germany may opt to shore up its own economy, Europe’s biggest, rather than bail out fellow euro nations such as Austria, Italy and Spain as their banks sag under the weight of bad debts. That might lead to defaults and compel Germany to renounce the euro, he said.
“People said subprime could never blow up but it did and now they’re saying the exact same thing about the eurozone,” said Howard. “There’s no stopping what is now a downward spiral.” He declined to discuss his investments.
Hayman joins a growing number of investors seeing the possibility of a breakup of the $12 trillion euro bloc, conceived more than 10 years ago to cut unemployment, tame inflation and create a rival to the dollar. Societe Generale SA said this week Germany may refuse a bailout in an election year. ABN Amro Holding NV said Feb. 17 the crisis is “Europe’s subprime.”
Euro-region bank loans to Eastern Europe topped $1.3 trillion in the third quarter last year, or about 9 percent of the bloc’s gross domestic product, ING Groep NV said Feb. 18, citing Bank for International Settlements data. Now lenders face losses after extending credit to finance everything from industrial development to domestic real estate.
Debt-Default Insurance
Irish banks and foreign banks operating in Ireland together took on debt equivalent to 11 times the nation’s gross domestic product, Dutch-bank credit reached seven times GDP and Belgium four times, according to BNP Paribas SA.
As concern intensified that the loans won’t be repaid, the cost to insure against defaults jumped six-fold to records since August. Credit-default swaps on Ireland climbed to a record 395.8 basis points, from less than 50 basis points in September, according to CMA DataVision. Austrian swaps traded at 265 basis points, compared with less than 25 points six months ago.
The breakup may occur as investors shun all but the safest government bonds, said Hayman, which in 2006 was among the first to bet against Wall Street’s rush to securitize the debt of the least creditworthy U.S. borrowers, correctly predicting a slump in home values that sparked the global credit crisis.
Investor demand for the lowest-risk securities already drove the difference in yield, or spread, between Greek, Austrian and Spanish 10-year bonds and German bunds, Europe’s benchmark government securities, to the widest since the euro’s debut.
Steinbrueck, Soros
German Finance Minister Peer Steinbrueck said Feb. 18 euro countries would “show our ability to act” should countries face difficulties paying debt. Billionaire investor George Soros said Feb. 17 he doesn’t expect a breakup of the region.
The World Bank, the European Bank for Reconstruction and Development and the European Investment Bank will provide up to 24.5 billion euros ($31 billion) to help central and east European banks and businesses cope with the crisis.
European Central Bank officials also said solutions can be found that will ensure cohesion of the region. Executive Board Member Lorenzo Bini Smaghi said Feb. 21 that European Union rules permit the EU “as a whole” to aid states in “economic difficulty.” ECB President Jean-Claude Trichet said a day earlier “there is no weak link of the euro area.”
“The argument that the euro zone will find a solution contains some sense if the assumption is that the situation isn’t that bad,” said Howard. “But the more dire it gets, the less are the consequences of departing from the euro.”
Shrinking Economies
German GDP contracted 2.1 percent in the fourth quarter, the biggest decline since 1987, the Federal Statistics Office said on Feb. 25. The economy will shrink by 2.5 percent this year, with France contracting 1.9 percent and the euro-region 2 percent, according to an International Monetary Fund report on Jan. 28.
European governments, which committed more than 1.2 trillion euros to rescue ailing banks as the recession eroded tax revenue, will require more cash as defaults occur, Howard said. Faced with the prospect of a deepening recession, Germany and France may be reluctant to bail out euro-region members such as Spain and Italy, Howard said.
“Because of the size of this crisis and because of the linkage with Eastern Europe, I think we need to see more broad- minded thinking coming out of the big European countries, in particular Germany,” Jim O’Neill, chief economist at Goldman Sachs Group Inc., said in a Bloomberg Television interview today in London. “Germany has got to create demand for many countries in Europe that have a strong need for some help coming out of elsewhere.”
German Elections
The German government, facing elections in September, might refuse requests for help amid political pressure to spend money at home, Societe Generale said in a Feb. 24 report.
“A bailout of a debtor country from a surplus country like Germany would be like opening the box of Pandora,” former Bundesbank President Karl Otto Poehl said in London yesterday. “It’s a very dangerous course that we will enter” and “I’m very much against it, many people in Germany are against it, but the political pressure will increase,”
COT - Update for March 9th
COT reports for next week March 9:
- S&P - has been bearish since Nov 08, moves to cash on Monday, then following week back to bearish.
- Gold - Cash
- S&P - has been bearish since Nov 08, moves to cash on Monday, then following week back to bearish.
- Gold - Cash
Bass Shorted `God I Hope You're Wrong' Wall Street
Great story of investing and checking things out by Kyle Bass of Hayman Advisors.
***********************
By Mark Pittman - Bloomberg
Dec. 19 (Bloomberg) -- J. Kyle Bass, a hedge fund manager from Dallas, strode into a New York conference room in August 2006 to pitch his theory about a looming housing market meltdown to senior executives of a Wall Street investment bank.
Home prices had been on a five-year tear, rising more than 10 percent annually. Bass conceived a hedge fund that bet on a crash for residential real estate by trading securities based on subprime mortgages to the least credit-worthy borrowers. The investment bank, which Bass declines to identify, owned billions of dollars in mortgage-backed securities.
``Interesting presentation,'' Bass says the firm's chief risk officer said into his ear, his arm draped across Bass's shoulders. ``God, I hope you're wrong.''
Within six months, Bass was right. Delinquencies of home loans made to people with poor credit reached record levels, and prices for the securities backed by these subprime mortgages plunged. The world's biggest financial institutions would write off more than $80 billion in subprime losses, while Bass, his allies and a handful of Wall Street proprietary trading desks racked up billions in profits.
Bass and investors like him saw opportunity in a range of new investment tools that banks created to sell subprime securities worldwide. These included mortgage bond derivatives, contracts whose values are derived from packages of home loans and are used to hedge risk or for speculation. The vehicles allowed hedge funds like Bass's to bet against particular pools of mortgages.
Money to Be Made
From the bankers who expanded the subprime market, to the sales companies that mass-marketed high-risk mortgages, to the ratings companies that blessed securities based on such loans with investment-grade designations, there was money to be made, and everyone charged after it.
The new subprime derivatives amplified the risks of the underlying mortgages, and now investors are reaping the consequences. An index designed to be a proxy for the lowest investment-grade subprime mortgage bonds sold in the second half of 2005, the ABX-HE-BBB- 06-01, traded as high as 102.19 cents on the dollar when it started in January 2006 and today trades at about 30 cents on the dollar.
Private Island, Racing Porsche
Bass, a former salesman for Bear Stearns Cos. and Legg Mason Inc., had struck out on his own in early 2006. He started Hayman Capital Partners, specializing in corporate turnarounds, restructurings and mortgages. Bass isn't related to the Texas billionaire Robert Bass.
Bass named Hayman for the private island off Australia where he spent his honeymoon. He drove a $200,000 500-horsepower Porsche Ruf RTurbo with a built-in racecar-style crash cage.
A former competitive diver who had put himself through Texas Christian University in Fort Worth partly on an athletic scholarship, Bass was about to take his most ambitious plunge yet: betting home values would decline for the first time since the Great Depression.
``We were saying that there were going to be $1 trillion in loans in trouble,'' Bass says. ``That had really never happened before. You had to have an imagination to believe us.''
New Tools, Deep Research
Other early converts were Mark Hart of Corriente Capital Management in Fort Worth, Texas, and Alan Fournier of Pennant Capital in Chatham, New Jersey. In his earlier sales jobs, Bass had sold securities to Fournier. Now the two joined forces to research bad loans.
On the other side of their trades would be investors chasing the high yields from securities based on subprime loans. This group included Wall Street firms, German and Japanese banks and U.S. and foreign pension funds. They were reassured by the securities' investment-grade ratings, even as foreclosures started in some parts of the U.S.
The traditional way for a speculator to wager against, or short, the housing market was to sell the stocks of major home- building companies with borrowed money and repurchase them for a lower price if the shares fell.
Bass had tried that strategy in the past and found there were limits on its effectiveness, he says. There was always a danger that a leveraged buyout firm would bid for the home- building company and cause the stock to rise, which would cost anyone shorting the stock money.
Understanding the Trades
The new, standardized mortgage bond derivative contracts created a strategy with less risk and greater profit potential.
To learn about the contracts, Bass visited Wall Street trading desks and mortgage servicers. He met with housing lenders and hedge fund analysts. He read Yale Professor Frank Fabozzi's book on mortgage-backed securities, ``Collateralized Debt Obligations: Structures and Analysis.'' Twice.
``What I didn't understand was the synthetic marketplace,'' Bass says. ``When someone explained to me that it was a synthetic CDO that takes the other side of my trade, it took me a month to understand what the hell was going on.''
Bass and Fournier hired private detectives, searched news reports, asked Wall Street underwriters which mortgage companies' loans were at risk of default and called those lenders directly. In this blizzard of research, Bass turned up the California mortgage lender Quick Loan Funding and its proprietor, Daniel Sadek.
Guy `to Bet Against'
The hedge fund traders learned from a news account that Sadek was dating a soap opera actress, Nadia Bjorlin, and using profits from his mortgage company to fund a movie about car racing, in which she starred.
``When they started catapulting Porsche Carrera GTs and he says, `What the hell, what are a couple of cars being thrown around?' I'm thinking, `That's the guy you want to bet against,''' Bass says.
Bass called Quick Loan Funding directly. He says he got on the phone with a senior loan officer, identified himself and said he was interested in the mortgage business. As Bass tells it, the conversation sealed his determination to short Quick Loan's mortgages.
For his part, Sadek says he was never told that hedge funds had asked how his firm did business. He disputes Bass's characterization of Quick Loan's mortgages.
``If my loans were so bad, why did Wall Street keep buying them to securitize?'' Sadek says.
Recruiting Investors
Armed with their understanding of the loans they wanted to short and a plan for doing so, Bass, Fournier and Hart hit the road, making pitches to potential investors that the market was about to collapse.
``My biggest fear was that it was going to happen before I could get the money,'' Bass says.
One of Bass's first investors was Aaron Kozmetsky, a Dallas investor with whom he already had a business relationship. Kozmetsky's grandfather, George Kozmetsky, was one of the founders of Teledyne Technologies Inc. While Aaron Kozmetsky had invested in almost every venture Bass had ever offered, this time Bass put a note of urgency into his pitch.
``It was the first time he's said, `Drop what you're doing. You need to meet with me on this. Make time for me,''' Kozmetsky says. Kozmetsky invested more than $1 million.
Daniel Loeb, the chief executive of Third Point LLC, a New York-based company that oversees about $5.7 billion, had put money in another of Bass's pools. He describes Bass as ``probably the most astute salesperson who covered us.'' Loeb passed on Bass's subprime fund.
``I obviously missed the boat on that one,'' Loeb says now.
Laying the Bets
Loeb still did all right. He invested in Bass's main hedge fund that specializes in turnarounds, restructurings and bankruptcies. Loeb says that fund is up 160 percent this year.
Bass and Fournier focused on single-name mortgage bond derivatives to be more certain that their bets were right. Both bought only securities rated BBB and BBB-, rather than AAA rated securities, expecting them to pay off more quickly.
Bass says he raised about $110 million and used the leveraging effect of derivatives to sell short about $1.2 billion of subprime securities. Two-thirds of it was based on BBB rated mortgage instruments, some involving Sadek's loans. One was Nomura Home Equity Loan Inc. 2006-HE2 M8, an instrument based 37 percent on loans issued by Quick Loan Funding.
The remaining third of Bass's investment involved securities rated one grade lower, BBB-, some also incorporating Quick Loan Funding mortgages.
As Bass and Fournier executed their trades in August and September 2006, foreclosures were beginning to spread across the U.S.
`Fat Pitch'
``This is the fat pitch,'' Bass says. ``This is the once-in- a-lifetime, low-risk, incredibly high-reward scenario where we're going to be right.''
In January, Bass decided he needed ``to meet the enemy'' by going to the American Securitization Forum convention in Las Vegas and listening to presentations from managers of the synthetic collateralized debt obligations that took the other side of his trades.
``I came away relieved,'' Bass says. ``They said, `We know what we're doing. We've been doing it for 10 years. Our models are robust.'''
In May, two independent researchers, Joshua Rosner of Graham Fisher & Co. and Joseph Mason, of Drexel University, concluded in an 84-page study that the U.S. ratings companies Standard & Poor's, Moody's and Fitch had been wrong to bless billions of dollars of mortgage securities with AAA and BBB ratings.
After a May 3 presentation at the Hudson Institute in Washington, Rosner stood on K Street and lit up an American Spirit cigarette.
``The ratings are just wrong,'' Rosner says. ``Completely wrong.''
For Bass and Fournier, it was validation of their trading strategy. As investors worldwide began to panic, Bass and Fournier watched the values of their short positions soar.
***********************
By Mark Pittman - Bloomberg
Dec. 19 (Bloomberg) -- J. Kyle Bass, a hedge fund manager from Dallas, strode into a New York conference room in August 2006 to pitch his theory about a looming housing market meltdown to senior executives of a Wall Street investment bank.
Home prices had been on a five-year tear, rising more than 10 percent annually. Bass conceived a hedge fund that bet on a crash for residential real estate by trading securities based on subprime mortgages to the least credit-worthy borrowers. The investment bank, which Bass declines to identify, owned billions of dollars in mortgage-backed securities.
``Interesting presentation,'' Bass says the firm's chief risk officer said into his ear, his arm draped across Bass's shoulders. ``God, I hope you're wrong.''
Within six months, Bass was right. Delinquencies of home loans made to people with poor credit reached record levels, and prices for the securities backed by these subprime mortgages plunged. The world's biggest financial institutions would write off more than $80 billion in subprime losses, while Bass, his allies and a handful of Wall Street proprietary trading desks racked up billions in profits.
Bass and investors like him saw opportunity in a range of new investment tools that banks created to sell subprime securities worldwide. These included mortgage bond derivatives, contracts whose values are derived from packages of home loans and are used to hedge risk or for speculation. The vehicles allowed hedge funds like Bass's to bet against particular pools of mortgages.
Money to Be Made
From the bankers who expanded the subprime market, to the sales companies that mass-marketed high-risk mortgages, to the ratings companies that blessed securities based on such loans with investment-grade designations, there was money to be made, and everyone charged after it.
The new subprime derivatives amplified the risks of the underlying mortgages, and now investors are reaping the consequences. An index designed to be a proxy for the lowest investment-grade subprime mortgage bonds sold in the second half of 2005, the ABX-HE-BBB- 06-01, traded as high as 102.19 cents on the dollar when it started in January 2006 and today trades at about 30 cents on the dollar.
Private Island, Racing Porsche
Bass, a former salesman for Bear Stearns Cos. and Legg Mason Inc., had struck out on his own in early 2006. He started Hayman Capital Partners, specializing in corporate turnarounds, restructurings and mortgages. Bass isn't related to the Texas billionaire Robert Bass.
Bass named Hayman for the private island off Australia where he spent his honeymoon. He drove a $200,000 500-horsepower Porsche Ruf RTurbo with a built-in racecar-style crash cage.
A former competitive diver who had put himself through Texas Christian University in Fort Worth partly on an athletic scholarship, Bass was about to take his most ambitious plunge yet: betting home values would decline for the first time since the Great Depression.
``We were saying that there were going to be $1 trillion in loans in trouble,'' Bass says. ``That had really never happened before. You had to have an imagination to believe us.''
New Tools, Deep Research
Other early converts were Mark Hart of Corriente Capital Management in Fort Worth, Texas, and Alan Fournier of Pennant Capital in Chatham, New Jersey. In his earlier sales jobs, Bass had sold securities to Fournier. Now the two joined forces to research bad loans.
On the other side of their trades would be investors chasing the high yields from securities based on subprime loans. This group included Wall Street firms, German and Japanese banks and U.S. and foreign pension funds. They were reassured by the securities' investment-grade ratings, even as foreclosures started in some parts of the U.S.
The traditional way for a speculator to wager against, or short, the housing market was to sell the stocks of major home- building companies with borrowed money and repurchase them for a lower price if the shares fell.
Bass had tried that strategy in the past and found there were limits on its effectiveness, he says. There was always a danger that a leveraged buyout firm would bid for the home- building company and cause the stock to rise, which would cost anyone shorting the stock money.
Understanding the Trades
The new, standardized mortgage bond derivative contracts created a strategy with less risk and greater profit potential.
To learn about the contracts, Bass visited Wall Street trading desks and mortgage servicers. He met with housing lenders and hedge fund analysts. He read Yale Professor Frank Fabozzi's book on mortgage-backed securities, ``Collateralized Debt Obligations: Structures and Analysis.'' Twice.
``What I didn't understand was the synthetic marketplace,'' Bass says. ``When someone explained to me that it was a synthetic CDO that takes the other side of my trade, it took me a month to understand what the hell was going on.''
Bass and Fournier hired private detectives, searched news reports, asked Wall Street underwriters which mortgage companies' loans were at risk of default and called those lenders directly. In this blizzard of research, Bass turned up the California mortgage lender Quick Loan Funding and its proprietor, Daniel Sadek.
Guy `to Bet Against'
The hedge fund traders learned from a news account that Sadek was dating a soap opera actress, Nadia Bjorlin, and using profits from his mortgage company to fund a movie about car racing, in which she starred.
``When they started catapulting Porsche Carrera GTs and he says, `What the hell, what are a couple of cars being thrown around?' I'm thinking, `That's the guy you want to bet against,''' Bass says.
Bass called Quick Loan Funding directly. He says he got on the phone with a senior loan officer, identified himself and said he was interested in the mortgage business. As Bass tells it, the conversation sealed his determination to short Quick Loan's mortgages.
For his part, Sadek says he was never told that hedge funds had asked how his firm did business. He disputes Bass's characterization of Quick Loan's mortgages.
``If my loans were so bad, why did Wall Street keep buying them to securitize?'' Sadek says.
Recruiting Investors
Armed with their understanding of the loans they wanted to short and a plan for doing so, Bass, Fournier and Hart hit the road, making pitches to potential investors that the market was about to collapse.
``My biggest fear was that it was going to happen before I could get the money,'' Bass says.
One of Bass's first investors was Aaron Kozmetsky, a Dallas investor with whom he already had a business relationship. Kozmetsky's grandfather, George Kozmetsky, was one of the founders of Teledyne Technologies Inc. While Aaron Kozmetsky had invested in almost every venture Bass had ever offered, this time Bass put a note of urgency into his pitch.
``It was the first time he's said, `Drop what you're doing. You need to meet with me on this. Make time for me,''' Kozmetsky says. Kozmetsky invested more than $1 million.
Daniel Loeb, the chief executive of Third Point LLC, a New York-based company that oversees about $5.7 billion, had put money in another of Bass's pools. He describes Bass as ``probably the most astute salesperson who covered us.'' Loeb passed on Bass's subprime fund.
``I obviously missed the boat on that one,'' Loeb says now.
Laying the Bets
Loeb still did all right. He invested in Bass's main hedge fund that specializes in turnarounds, restructurings and bankruptcies. Loeb says that fund is up 160 percent this year.
Bass and Fournier focused on single-name mortgage bond derivatives to be more certain that their bets were right. Both bought only securities rated BBB and BBB-, rather than AAA rated securities, expecting them to pay off more quickly.
Bass says he raised about $110 million and used the leveraging effect of derivatives to sell short about $1.2 billion of subprime securities. Two-thirds of it was based on BBB rated mortgage instruments, some involving Sadek's loans. One was Nomura Home Equity Loan Inc. 2006-HE2 M8, an instrument based 37 percent on loans issued by Quick Loan Funding.
The remaining third of Bass's investment involved securities rated one grade lower, BBB-, some also incorporating Quick Loan Funding mortgages.
As Bass and Fournier executed their trades in August and September 2006, foreclosures were beginning to spread across the U.S.
`Fat Pitch'
``This is the fat pitch,'' Bass says. ``This is the once-in- a-lifetime, low-risk, incredibly high-reward scenario where we're going to be right.''
In January, Bass decided he needed ``to meet the enemy'' by going to the American Securitization Forum convention in Las Vegas and listening to presentations from managers of the synthetic collateralized debt obligations that took the other side of his trades.
``I came away relieved,'' Bass says. ``They said, `We know what we're doing. We've been doing it for 10 years. Our models are robust.'''
In May, two independent researchers, Joshua Rosner of Graham Fisher & Co. and Joseph Mason, of Drexel University, concluded in an 84-page study that the U.S. ratings companies Standard & Poor's, Moody's and Fitch had been wrong to bless billions of dollars of mortgage securities with AAA and BBB ratings.
After a May 3 presentation at the Hudson Institute in Washington, Rosner stood on K Street and lit up an American Spirit cigarette.
``The ratings are just wrong,'' Rosner says. ``Completely wrong.''
For Bass and Fournier, it was validation of their trading strategy. As investors worldwide began to panic, Bass and Fournier watched the values of their short positions soar.
Friday, March 6, 2009
Is it Inflation or Deflation / Depression?
Is it Inflation or Deflation / Depression??
Your call
**************
Hans-Werner Sinn, president of the German Ifo Institute, said Japanese-style deflation with surging government debt is the “true danger” the world is facing and inflation fears due to central banks’ liquidity provisions are unfounded.
Your call
**************
Hans-Werner Sinn, president of the German Ifo Institute, said Japanese-style deflation with surging government debt is the “true danger” the world is facing and inflation fears due to central banks’ liquidity provisions are unfounded.
Relax ....we are looked after...if.....
Relaxing investing
***************
From now on if you listen obediently to the commandments that I am commanding you today, love God, your God, and serve him with everything you have within you, he'll take charge of sending the rain at the right time .... Deuteronomy 11:13-14 (MSG)
***************
From now on if you listen obediently to the commandments that I am commanding you today, love God, your God, and serve him with everything you have within you, he'll take charge of sending the rain at the right time .... Deuteronomy 11:13-14 (MSG)
Thursday, March 5, 2009
Obama's budget may be one of the great wealth destroyers of all time
CNBC financial analyst Jim Cramer believes Obama's budget may be one of the great wealth destroyers of all time.
When Obama Press Secretary Robert Gibbs openly criticized Cramer for publicly blasting Obama's voodoo economics, Cramer had to respond:
Obama has undeniably made things worse by creating an atmosphere of fear and panic rather than an atmosphere of calm and hope. He's done it by pushing a huge amount of change at a very perilous moment, by seeking to demonize the entire banking system and by raising taxes for those making more than $250,000 at the exact time when we need them to spend and build new businesses, and by revoking deductions for funds to charity that help eliminate the excess supply of homes.
We had a banking crisis coming into this regime, but now every area is in crisis. Each day is worse than the previous one for this miserable economy and while Obama's champions cite the stimulus plan, it's really just a hodgepodge of old Democratic pork and will not create nearly as many manufacturing or service jobs as we hoped. China's stimulus plan is the model; ours is the parody.
Sure there's going to be some mortgage relief, but the way to approach that problem is to eliminate the overhang, which a $15,000 tax credit for existing home sales could have dented if not consumed. I have offered a comprehensive plan of 4% refinanced mortgages for all by the government, not just those many considered deadbeats, to eliminate moral hazard. I have come up with a novel plan to cut the principal and spare the banks regulatory problems by offering them a certificate of equity, making them whole over time when the house appreciates in value, which will happen if demand is stoked and supply is shrunk. ...
When Obama Press Secretary Robert Gibbs openly criticized Cramer for publicly blasting Obama's voodoo economics, Cramer had to respond:
Obama has undeniably made things worse by creating an atmosphere of fear and panic rather than an atmosphere of calm and hope. He's done it by pushing a huge amount of change at a very perilous moment, by seeking to demonize the entire banking system and by raising taxes for those making more than $250,000 at the exact time when we need them to spend and build new businesses, and by revoking deductions for funds to charity that help eliminate the excess supply of homes.
We had a banking crisis coming into this regime, but now every area is in crisis. Each day is worse than the previous one for this miserable economy and while Obama's champions cite the stimulus plan, it's really just a hodgepodge of old Democratic pork and will not create nearly as many manufacturing or service jobs as we hoped. China's stimulus plan is the model; ours is the parody.
Sure there's going to be some mortgage relief, but the way to approach that problem is to eliminate the overhang, which a $15,000 tax credit for existing home sales could have dented if not consumed. I have offered a comprehensive plan of 4% refinanced mortgages for all by the government, not just those many considered deadbeats, to eliminate moral hazard. I have come up with a novel plan to cut the principal and spare the banks regulatory problems by offering them a certificate of equity, making them whole over time when the house appreciates in value, which will happen if demand is stoked and supply is shrunk. ...
Obama Declares War on Investors, Entrepreneurs, Businesses, And More
Posted By: Larry Kudlow | Anchor
cnbc.com | 27 Feb 2009 | 04:39 PM ET
Let me be very clear on the economics of President Obama’s State of the Union speech and his budget.
He is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds.
That is the meaning of his anti-growth tax-hike proposals, which make absolutely no sense at all — either for this recession or from the standpoint of expanding our economy’s long-run potential to grow.
Raising the marginal tax rate on successful earners, capital, dividends, and all the private funds is a function of Obama’s left-wing social vision, and a repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program, which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.
This is nearly double the government-spending low-point reached during the late 1990s by the Gingrich Congress and the Clinton administration. While not quite as high as spending levels in Western Europe, we regrettably will be gaining on this statist-planning approach.
Study after study over the past several decades has shown how countries that spend more produce less, while nations that tax less produce more. Obama is doing it wrong on both counts.
And as far as middle-class tax cuts are concerned, Obama’s cap-and-trade program will be a huge across-the-board tax increase on blue-collar workers, including unionized workers. Industrial production is plunging, but new carbon taxes will prevent production from ever recovering. While the country wants more fuel and power, cap-and-trade will deliver less.
The tax hikes will generate lower growth and fewer revenues. Yes, the economy will recover. But Obama’s rosy scenario of 4 percent recovery growth in the out years of his budget is not likely to occur. The combination of easy money from the Fed and below-potential economic growth is a prescription for stagflation. That’s one of the messages of the falling stock market.
Essentially, the Obama economic policies represent a major Democratic party relapse into Great Society social spending and taxing. It is a return to the LBJ/Nixon era, and a move away from the Reagan/Clinton period. House Republicans, fortunately, are 90 days sober, as they are putting up a valiant fight to stop the big-government onslaught and move the GOP back to first principles.
Noteworthy up here on Wall Street, a great many Obama supporters — especially hedge-fund types who voted for “change” — are becoming disillusioned with the performances of Obama and Treasury man Geithner.
There is a growing sense of buyer’s remorse.
Well then, do conservatives dare say: We told you so?
© 2009 CNBC, Inc. All Rights Reserved
URL: http://www.cnbc.com/id/29434104/
cnbc.com | 27 Feb 2009 | 04:39 PM ET
Let me be very clear on the economics of President Obama’s State of the Union speech and his budget.
He is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds.
That is the meaning of his anti-growth tax-hike proposals, which make absolutely no sense at all — either for this recession or from the standpoint of expanding our economy’s long-run potential to grow.
Raising the marginal tax rate on successful earners, capital, dividends, and all the private funds is a function of Obama’s left-wing social vision, and a repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program, which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.
This is nearly double the government-spending low-point reached during the late 1990s by the Gingrich Congress and the Clinton administration. While not quite as high as spending levels in Western Europe, we regrettably will be gaining on this statist-planning approach.
Study after study over the past several decades has shown how countries that spend more produce less, while nations that tax less produce more. Obama is doing it wrong on both counts.
And as far as middle-class tax cuts are concerned, Obama’s cap-and-trade program will be a huge across-the-board tax increase on blue-collar workers, including unionized workers. Industrial production is plunging, but new carbon taxes will prevent production from ever recovering. While the country wants more fuel and power, cap-and-trade will deliver less.
The tax hikes will generate lower growth and fewer revenues. Yes, the economy will recover. But Obama’s rosy scenario of 4 percent recovery growth in the out years of his budget is not likely to occur. The combination of easy money from the Fed and below-potential economic growth is a prescription for stagflation. That’s one of the messages of the falling stock market.
Essentially, the Obama economic policies represent a major Democratic party relapse into Great Society social spending and taxing. It is a return to the LBJ/Nixon era, and a move away from the Reagan/Clinton period. House Republicans, fortunately, are 90 days sober, as they are putting up a valiant fight to stop the big-government onslaught and move the GOP back to first principles.
Noteworthy up here on Wall Street, a great many Obama supporters — especially hedge-fund types who voted for “change” — are becoming disillusioned with the performances of Obama and Treasury man Geithner.
There is a growing sense of buyer’s remorse.
Well then, do conservatives dare say: We told you so?
© 2009 CNBC, Inc. All Rights Reserved
URL: http://www.cnbc.com/id/29434104/
Capital on Strike
By INVESTOR'S BUSINESS DAILY | Posted Monday, March 02, 2009 4:20 PM PT
Economy: Barack Obama won the presidency by vowing to bring "hope and change" to America. We've seen the change as the economy's deterioration accelerated. Now where's the hope?
In the three months since the election, the broadest measure of the stock market's value, the Wilshire 5000 Index, has plunged more than 30%, slicing over $3 trillion from Americans' wealth. Investors have walked away from investing, while businesses shut down factories and offices and slash jobs.
This is both highly significant and dangerous. Capital, bluntly put, has gone on strike. Those who own wealth are pushing it to the sidelines, as a young and inexperienced president tries to jam through the most sweeping economic changes in over 70 years.
The prospect of these changes becoming law has already radically altered our nation's economy. Entrepreneurs and CEOs who once created new products, new services, jobs and trillions in wealth for America's workers and retirees now find themselves vilified and punished for their success.
ABC News reported this week that many upper-income taxpayers already are planning to cut back on work and investments to stay under $250,000 in income — the point where Obama's punitive taxes kick in. No one wins from this, yet Obama seems oblivious.
This isn't the only warning sign. A new study asserts that some 100,000 highly educated, well-trained Indians now living in the U.S. will return home in the next few years. Ditto China.
Immigrant entrepreneurs are highly sensitive bellwethers of economic and social conditions. They know where the opportunities are — and where they aren't. They're voting with their feet.
The economy shrank 6.2% in the fourth quarter, worse than first expected. Home sales continue to fall, unemployment is rising sharply, and business investment is prostrate. Such an economy cries out for tax cuts, but we get none. Just punishment of those with wealth who might be able to pull us out of the slump.
An estimated $1.4 trillion in new taxes planned by the new administration over the next decade explicitly target the people President Teddy Roosevelt once derided as the "malefactors of great wealth" — those in the top 5% of the income spectrum. Yet, they're the ones who've made our economy the envy of the world.
By the way, under Obama's plan the rich won't pick up the whole tab. New energy taxes of $646 billion will hit the middle-class hard. Meanwhile, in just eight years, our national debt will double to $20 trillion, as nondefense federal spending jumps from the long-term average of 16.5% of GDP to above 23%.
You — or your children — face higher taxes for decades to come.
As our stock markets melt under a barrage of new taxes on incomes, estates, capital gains, dividends and energy, it's good to recall that more than 100 million people own stocks or mutual funds. And that the stock market is the main wealth- and growth-creating mechanism in our capitalist society.
But when taxes go up, regulations proliferate and the rule of law and private property protections are weakened, the economy will invariably suffer. This is a universal lesson of economic history, one we ignore at our peril. And yes, this is what's happening now.
No, we don't blame all our current ills on President Obama. He came in at a tough time, when many bad decisions had already been made. But he is responsible for what he's done since.
His stimulus package is little more than a down payment on a socialist economy. It raises taxes on the successful, brings back the welfare state, hands out favors and cash to friends of one political party, while imposing government control over the entire free market in ways that just a year ago would have seemed unimaginable.
Economy: Barack Obama won the presidency by vowing to bring "hope and change" to America. We've seen the change as the economy's deterioration accelerated. Now where's the hope?
In the three months since the election, the broadest measure of the stock market's value, the Wilshire 5000 Index, has plunged more than 30%, slicing over $3 trillion from Americans' wealth. Investors have walked away from investing, while businesses shut down factories and offices and slash jobs.
This is both highly significant and dangerous. Capital, bluntly put, has gone on strike. Those who own wealth are pushing it to the sidelines, as a young and inexperienced president tries to jam through the most sweeping economic changes in over 70 years.
The prospect of these changes becoming law has already radically altered our nation's economy. Entrepreneurs and CEOs who once created new products, new services, jobs and trillions in wealth for America's workers and retirees now find themselves vilified and punished for their success.
ABC News reported this week that many upper-income taxpayers already are planning to cut back on work and investments to stay under $250,000 in income — the point where Obama's punitive taxes kick in. No one wins from this, yet Obama seems oblivious.
This isn't the only warning sign. A new study asserts that some 100,000 highly educated, well-trained Indians now living in the U.S. will return home in the next few years. Ditto China.
Immigrant entrepreneurs are highly sensitive bellwethers of economic and social conditions. They know where the opportunities are — and where they aren't. They're voting with their feet.
The economy shrank 6.2% in the fourth quarter, worse than first expected. Home sales continue to fall, unemployment is rising sharply, and business investment is prostrate. Such an economy cries out for tax cuts, but we get none. Just punishment of those with wealth who might be able to pull us out of the slump.
An estimated $1.4 trillion in new taxes planned by the new administration over the next decade explicitly target the people President Teddy Roosevelt once derided as the "malefactors of great wealth" — those in the top 5% of the income spectrum. Yet, they're the ones who've made our economy the envy of the world.
By the way, under Obama's plan the rich won't pick up the whole tab. New energy taxes of $646 billion will hit the middle-class hard. Meanwhile, in just eight years, our national debt will double to $20 trillion, as nondefense federal spending jumps from the long-term average of 16.5% of GDP to above 23%.
You — or your children — face higher taxes for decades to come.
As our stock markets melt under a barrage of new taxes on incomes, estates, capital gains, dividends and energy, it's good to recall that more than 100 million people own stocks or mutual funds. And that the stock market is the main wealth- and growth-creating mechanism in our capitalist society.
But when taxes go up, regulations proliferate and the rule of law and private property protections are weakened, the economy will invariably suffer. This is a universal lesson of economic history, one we ignore at our peril. And yes, this is what's happening now.
No, we don't blame all our current ills on President Obama. He came in at a tough time, when many bad decisions had already been made. But he is responsible for what he's done since.
His stimulus package is little more than a down payment on a socialist economy. It raises taxes on the successful, brings back the welfare state, hands out favors and cash to friends of one political party, while imposing government control over the entire free market in ways that just a year ago would have seemed unimaginable.
Wednesday, March 4, 2009
Stocks bear market has years to run: Prechter
Stocks bear market has years to run: Prechter
Fri Feb 27, 2009 12:28pm EST
By John Parry
NEW YORK (Reuters) - U.S. stocks will remain in a bear market for years as company earnings shrink further, and the S&P 500 could fall by half from current levels even though there could be a sharp short-term rally soon, Robert Prechter, who had forecast the 1987 market crash, said on Friday.
"My long term opinion is that the bear market has several years left to run, and stock prices will go a lot lower," Prechter, chief executive officer at research company Elliott Wave International, said in a telephone interview. "So any rally that happens is going to be a bear market rally."
The S&P this week broke below 745 points -- 19 months after Gainesville, Georgia-based Elliott Wave International had recommended shorting the benchmark index down to that level.
Now, Prechter said, the S&P index could fall by half from these levels over the long term, although he declined to give a specific forecast.
"We are less than halfway through it price-wise," he said. "The market is still overvalued, one reason being that companies continue to lower earnings."
But near term, the risk of a kneejerk rebound in stock prices has risen.
This week Prechter recommended closing out the short position recommended on the S&P 500 back in 2007, because too many investors are now betting that prices will drop.
"The bear side has gotten a bit crowded in the stock market," Prechter said, but said this is a short term strategic view only.
On Friday morning, the S&P 500 fell to a 12-year low around 735 points, mauled by deepening worries about the banking system and government data showing the deepest quarterly contraction in the U.S. economy since the early 1980s.
NO GLITTER IN GOLD
Prechter now advocates betting on a decline in precious metals, after investors fearful about the safety of their money amid the biggest global financial crisis since the Great Depression have piled into the classic safe haven of gold in recent weeks, boosting its price.
On Monday, Prechter forecast that gold had just peaked, at $1,000 an ounce.
"Gold and silver should go significantly lower," he said. "Too many people now think owning them is a good idea. Remember when everybody thought owning real estate and stocks was a good idea?"
Gold, which briefly topped the $1,000 mark last week on escalating fears about the deeply impaired state of debt-burdened banks, has since slipped to about $950. Gold hit "an important intermediate term peak," at $1,000, Prechter said.
"Again, nothing is certain, but I like betting against crowds. And we have had so many to bet against in recent years: real estate, stocks, subprime mortgages, The New Economy, oil, collectibles, commodities, baseball salaries, and now silver and bonds. It's been a smorgasbord of opportunity," Prechter said.
In addition, Prechter has a pessimistic outlook on U.S. government bonds.
"Treasury bonds have started a bear market," over the longer term, he said.
"Several scenarios could unfold to explain why: one of them is that government borrowing demands could go up and up and creditors could demand higher yields," he said. The U.S. government is expected to issue some $2 trillion of debt this year.
Fixed-income analysts have been stepping up warnings that over recent months that gargantuan government bond issuance to pay for financial rescue efforts may push yields, which move inversely to prices, steeply higher. The 10-year yield traded one percentage point its five-decade trough on Friday, at 3.04 percent.
But Prechter, as he originally urged in his 2002 book "Conquer the Crash," which warned of the dangers of a U.S. debt bubble and deflationary depression, continues to favor safer cash proxies such as Treasury bills.
"It's a deflationary environment. Safe cash equivalents are still where you want to be," he said. "I am still in favor of (U.S.) T-bills," he said. "The dollar bull market has more to run. That is one reason to hold them."
Fri Feb 27, 2009 12:28pm EST
By John Parry
NEW YORK (Reuters) - U.S. stocks will remain in a bear market for years as company earnings shrink further, and the S&P 500 could fall by half from current levels even though there could be a sharp short-term rally soon, Robert Prechter, who had forecast the 1987 market crash, said on Friday.
"My long term opinion is that the bear market has several years left to run, and stock prices will go a lot lower," Prechter, chief executive officer at research company Elliott Wave International, said in a telephone interview. "So any rally that happens is going to be a bear market rally."
The S&P this week broke below 745 points -- 19 months after Gainesville, Georgia-based Elliott Wave International had recommended shorting the benchmark index down to that level.
Now, Prechter said, the S&P index could fall by half from these levels over the long term, although he declined to give a specific forecast.
"We are less than halfway through it price-wise," he said. "The market is still overvalued, one reason being that companies continue to lower earnings."
But near term, the risk of a kneejerk rebound in stock prices has risen.
This week Prechter recommended closing out the short position recommended on the S&P 500 back in 2007, because too many investors are now betting that prices will drop.
"The bear side has gotten a bit crowded in the stock market," Prechter said, but said this is a short term strategic view only.
On Friday morning, the S&P 500 fell to a 12-year low around 735 points, mauled by deepening worries about the banking system and government data showing the deepest quarterly contraction in the U.S. economy since the early 1980s.
NO GLITTER IN GOLD
Prechter now advocates betting on a decline in precious metals, after investors fearful about the safety of their money amid the biggest global financial crisis since the Great Depression have piled into the classic safe haven of gold in recent weeks, boosting its price.
On Monday, Prechter forecast that gold had just peaked, at $1,000 an ounce.
"Gold and silver should go significantly lower," he said. "Too many people now think owning them is a good idea. Remember when everybody thought owning real estate and stocks was a good idea?"
Gold, which briefly topped the $1,000 mark last week on escalating fears about the deeply impaired state of debt-burdened banks, has since slipped to about $950. Gold hit "an important intermediate term peak," at $1,000, Prechter said.
"Again, nothing is certain, but I like betting against crowds. And we have had so many to bet against in recent years: real estate, stocks, subprime mortgages, The New Economy, oil, collectibles, commodities, baseball salaries, and now silver and bonds. It's been a smorgasbord of opportunity," Prechter said.
In addition, Prechter has a pessimistic outlook on U.S. government bonds.
"Treasury bonds have started a bear market," over the longer term, he said.
"Several scenarios could unfold to explain why: one of them is that government borrowing demands could go up and up and creditors could demand higher yields," he said. The U.S. government is expected to issue some $2 trillion of debt this year.
Fixed-income analysts have been stepping up warnings that over recent months that gargantuan government bond issuance to pay for financial rescue efforts may push yields, which move inversely to prices, steeply higher. The 10-year yield traded one percentage point its five-decade trough on Friday, at 3.04 percent.
But Prechter, as he originally urged in his 2002 book "Conquer the Crash," which warned of the dangers of a U.S. debt bubble and deflationary depression, continues to favor safer cash proxies such as Treasury bills.
"It's a deflationary environment. Safe cash equivalents are still where you want to be," he said. "I am still in favor of (U.S.) T-bills," he said. "The dollar bull market has more to run. That is one reason to hold them."
Median Price of Home Sold in Detroit $7,500 (not typo)
Detroit's outlook falls along with home prices
Motor City on the brink of bankruptcy, but still 15 people want to be mayor
By Tim Jones | Tribune correspondent
January 29, 2009
DETROIT — It may be tough to get financing for a new car these days, but in Detroit you can buy a house with a credit card.
The median price of a home sold in Detroit in December was $7,500, according to Realcomp, a listing service.
Not $75,000. Remove a zero—it's seven thousand five hundred dollars, substantially less than the lowest-price car on the new-car market.
Among the many dispiriting numbers that bleakly depict the decrepitude of this onetime industrial behemoth, the steep slide of housing values helps define the daunting challenge to anyone who wants to lead this shrinking, poverty-pocked city of about 800,000 people.
"We're always fighting ourselves out of a hole," said Wayne County Sheriff Warren Evans.
Despite the depth of the hole, Evans is running for mayor. In fact, he is one of 15 people who have raised their hands to be mayor of Detroit and fill the remaining months in office of the former mayor who now wears a green jumpsuit and resides in Evans' spartan house of justice, the Wayne County Jail.
Detroit has long been the snide remark and punch line to derogatory urban humor, and the conviction last fall of two-term Mayor Kwame Kilpatrick for lying about an extramarital affair with his chief of staff reinforced suspicions that Detroit is beyond help, let alone self-governance. But as the domestic auto industry, the city's principal private-sector employer and founding corporate father, seeks a financial bailout from Washington, formerly whispered remarks about the prospect of the nation's 11th-largest city being the first major American city to go bankrupt are now publicly discussed.
If the Obama administration is looking for a city to test new ideas for chronic urban problems, it can look to Detroit, a northern New Orleans without the French Quarter. While bedrock poverty in the Crescent City was violently laid bare by Hurricane Katrina in 2005, Detroit has been quietly slipping into social and economic crisis for 40 years. One-third of the population lives in poverty, and almost 50 percent of children are in poverty, according to data from the Detroit-Area Community Indicators System. Median household income has dropped 24 percent since 2000, according to the Census Bureau.
New York bond-rating houses this month lowered the city's bond rating to junk status, a lowly assessment shared by New Orleans and few others.
On a positive note, Detroit's homicide rate dropped 14 percent last year. That prompted mayoral candidate Stanley Christmas to tell the Detroit News recently, "I don't mean to be sarcastic, but there just isn't anyone left to kill."
Detroit voters will choose two candidates in a Feb. 24 primary who will face off in May. In the meantime, the city faces a projected budget deficit of at least $300 million, with no clear view on how to erase it. "If we don't get it right, we could be headed for a state takeover or receivership," warned Dave Bing, a mayoral candidate best known for draining jump shots for the Detroit Pistons back in the 1960s and '70s. At 64, Bing, a successful businessman, is running as the candidate of integrity in a city that, under Kilpatrick, had little.
Mayor Ken Cockrel Jr., who assumed the mayor's office by virtue of his being president of the City Council, promised he is "not going to let [receivership] happen."
Detroit, which has lost half its population in the past 50 years, is deceptively large, covering 139 square miles. Manhattan, San Francisco and Boston could, as a group, fit inside the city's boundaries. There is no major grocery chain in the city, and only two movie theaters. Much of the neighborhood economy revolves around rib joints, hot dog stands and liquor stores. The candidates travel around this sprawling city, some invoking the nostalgic era of Big Three dominance and vowing that Detroit can be great again.
Groups of them attend nearly unworkable faux debate forums about how they will solve the city's troubles, with responses to last no more than 60 seconds. Given the complexity of problems that defy sound-bite answers, their proposed solutions range from the predictable to the wacky:
More cops on the street.
Make high school graduation mandatory.
Grow your own food.
Bulldoze large stretches of the city and turn them into wind farms.
Procreate like there's no tomorrow.
Kilpatrick's election in 2001 lured Henry Hassan back to Detroit from Minnesota. Hassan, who opened a restaurant on the city's northwest side, said he was quickly disillusioned.
"You remember the riots in '67?" Hassan said, referring to the cataclysmic five days that left 43 dead and more than 2,000 buildings burned down. "It's a little worse than that right now. ... We need somebody to come in and care for the city more than they care for themselves."
The problem is more than a $300 million budget shortfall, said John Mogk, a professor at Wayne State University Law School.
"A thousand people are leaving the city every month," Mogk said, "and the city does not have the financial resources and the economic base to solve its own problems."
To be sure, progress has been made downtown: two new sports stadiums, a reinvigorated neighborhood around Wayne State and new lofts and casinos. But unlike Pittsburgh, which successfully reinvented itself after the decline of Big Steel, Detroit displays only islands of prosperity amid a dismal landscape. Neighborhoods have suffered, and foreclosures have aggravated the long-festering ill of abandoned homes.
"A lack of vision has held us back," said Nicholas Hood III, another mayoral candidate. "The auto industry was so dominant—too dominant—and we never prodded ourselves and the business community to a more expansive vision."
To the surprise of many in this overwhelmingly black city (82 percent), only 53 percent of registered voters turned out for November's presidential election, which featured the first African-American nominee. It wasn't long ago that a Democrat couldn't carry Michigan without a big turnout in Detroit. As it turned out, Detroit's votes didn't matter in the election.
"Detroit will never be the great industrial center again," said Kevin Boyle, a Detroit native and author of "Arc of Justice: A Saga of Race, Civil Rights and Murder in the Jazz Age."
"What will it look like?" Boyle said. "I don't know."
Motor City on the brink of bankruptcy, but still 15 people want to be mayor
By Tim Jones | Tribune correspondent
January 29, 2009
DETROIT — It may be tough to get financing for a new car these days, but in Detroit you can buy a house with a credit card.
The median price of a home sold in Detroit in December was $7,500, according to Realcomp, a listing service.
Not $75,000. Remove a zero—it's seven thousand five hundred dollars, substantially less than the lowest-price car on the new-car market.
Among the many dispiriting numbers that bleakly depict the decrepitude of this onetime industrial behemoth, the steep slide of housing values helps define the daunting challenge to anyone who wants to lead this shrinking, poverty-pocked city of about 800,000 people.
"We're always fighting ourselves out of a hole," said Wayne County Sheriff Warren Evans.
Despite the depth of the hole, Evans is running for mayor. In fact, he is one of 15 people who have raised their hands to be mayor of Detroit and fill the remaining months in office of the former mayor who now wears a green jumpsuit and resides in Evans' spartan house of justice, the Wayne County Jail.
Detroit has long been the snide remark and punch line to derogatory urban humor, and the conviction last fall of two-term Mayor Kwame Kilpatrick for lying about an extramarital affair with his chief of staff reinforced suspicions that Detroit is beyond help, let alone self-governance. But as the domestic auto industry, the city's principal private-sector employer and founding corporate father, seeks a financial bailout from Washington, formerly whispered remarks about the prospect of the nation's 11th-largest city being the first major American city to go bankrupt are now publicly discussed.
If the Obama administration is looking for a city to test new ideas for chronic urban problems, it can look to Detroit, a northern New Orleans without the French Quarter. While bedrock poverty in the Crescent City was violently laid bare by Hurricane Katrina in 2005, Detroit has been quietly slipping into social and economic crisis for 40 years. One-third of the population lives in poverty, and almost 50 percent of children are in poverty, according to data from the Detroit-Area Community Indicators System. Median household income has dropped 24 percent since 2000, according to the Census Bureau.
New York bond-rating houses this month lowered the city's bond rating to junk status, a lowly assessment shared by New Orleans and few others.
On a positive note, Detroit's homicide rate dropped 14 percent last year. That prompted mayoral candidate Stanley Christmas to tell the Detroit News recently, "I don't mean to be sarcastic, but there just isn't anyone left to kill."
Detroit voters will choose two candidates in a Feb. 24 primary who will face off in May. In the meantime, the city faces a projected budget deficit of at least $300 million, with no clear view on how to erase it. "If we don't get it right, we could be headed for a state takeover or receivership," warned Dave Bing, a mayoral candidate best known for draining jump shots for the Detroit Pistons back in the 1960s and '70s. At 64, Bing, a successful businessman, is running as the candidate of integrity in a city that, under Kilpatrick, had little.
Mayor Ken Cockrel Jr., who assumed the mayor's office by virtue of his being president of the City Council, promised he is "not going to let [receivership] happen."
Detroit, which has lost half its population in the past 50 years, is deceptively large, covering 139 square miles. Manhattan, San Francisco and Boston could, as a group, fit inside the city's boundaries. There is no major grocery chain in the city, and only two movie theaters. Much of the neighborhood economy revolves around rib joints, hot dog stands and liquor stores. The candidates travel around this sprawling city, some invoking the nostalgic era of Big Three dominance and vowing that Detroit can be great again.
Groups of them attend nearly unworkable faux debate forums about how they will solve the city's troubles, with responses to last no more than 60 seconds. Given the complexity of problems that defy sound-bite answers, their proposed solutions range from the predictable to the wacky:
More cops on the street.
Make high school graduation mandatory.
Grow your own food.
Bulldoze large stretches of the city and turn them into wind farms.
Procreate like there's no tomorrow.
Kilpatrick's election in 2001 lured Henry Hassan back to Detroit from Minnesota. Hassan, who opened a restaurant on the city's northwest side, said he was quickly disillusioned.
"You remember the riots in '67?" Hassan said, referring to the cataclysmic five days that left 43 dead and more than 2,000 buildings burned down. "It's a little worse than that right now. ... We need somebody to come in and care for the city more than they care for themselves."
The problem is more than a $300 million budget shortfall, said John Mogk, a professor at Wayne State University Law School.
"A thousand people are leaving the city every month," Mogk said, "and the city does not have the financial resources and the economic base to solve its own problems."
To be sure, progress has been made downtown: two new sports stadiums, a reinvigorated neighborhood around Wayne State and new lofts and casinos. But unlike Pittsburgh, which successfully reinvented itself after the decline of Big Steel, Detroit displays only islands of prosperity amid a dismal landscape. Neighborhoods have suffered, and foreclosures have aggravated the long-festering ill of abandoned homes.
"A lack of vision has held us back," said Nicholas Hood III, another mayoral candidate. "The auto industry was so dominant—too dominant—and we never prodded ourselves and the business community to a more expansive vision."
To the surprise of many in this overwhelmingly black city (82 percent), only 53 percent of registered voters turned out for November's presidential election, which featured the first African-American nominee. It wasn't long ago that a Democrat couldn't carry Michigan without a big turnout in Detroit. As it turned out, Detroit's votes didn't matter in the election.
"Detroit will never be the great industrial center again," said Kevin Boyle, a Detroit native and author of "Arc of Justice: A Saga of Race, Civil Rights and Murder in the Jazz Age."
"What will it look like?" Boyle said. "I don't know."
Short Fund is Going Long -
I hope Steve is right...but doubt it.
I am still looking for that good rally up in which everyone will begin to think things are ok again. I'm cashing out.
The economy is real sick and Omaba and friends are making it worst.
I'm not sure when Steve thinks things were much worse and scary. He does not say when. Maybe he thinks Obama has it all figured out and that higher taxes and government deficit spending will fix the problems. I do not believe that!
The only possible change to the depression situation is to create high inflationary environment. However, that is going from one mess to another, in which it just becomes all very messy.
A real bailout solution is to the people (not to business) ...say a 50% refund of all of the taxes paid for past say 4 years. The is a real bail out....which will bail out the banks.
********************
Steve Leuthold, whose Grizzly Short Fund returned 74 percent last year betting against U.S. stocks, said now is the time to buy equities because investors are too fearful about the economy. “These comparisons people make with the Great Depression are totally out of touch with reality, and pretty stupid,” he told Bloomberg Television in an interview today. “We’ve been in much worse, much more panicked and more scary situations in the U.S.” The economy isn’t as bad as it was in 1974, when stocks began rebounding, said Minneapolis-based Leuthold. He predicted the Standard & Poor’s 500 Index will surge to at least 1,000 in 2009, representing a gain of 44 percent from yesterday’s 12-year low of 696.33. Because a rally is likely, Leuthold said investors shouldn’t buy his Grizzly Short Fund. It has returned 26 percent in 2009. The Leuthold Core Investment Fund, which bets on stock gains, is most concentrated in biotechnology companies, automotive retailers and education providers, he said
I am still looking for that good rally up in which everyone will begin to think things are ok again. I'm cashing out.
The economy is real sick and Omaba and friends are making it worst.
I'm not sure when Steve thinks things were much worse and scary. He does not say when. Maybe he thinks Obama has it all figured out and that higher taxes and government deficit spending will fix the problems. I do not believe that!
The only possible change to the depression situation is to create high inflationary environment. However, that is going from one mess to another, in which it just becomes all very messy.
A real bailout solution is to the people (not to business) ...say a 50% refund of all of the taxes paid for past say 4 years. The is a real bail out....which will bail out the banks.
********************
Steve Leuthold, whose Grizzly Short Fund returned 74 percent last year betting against U.S. stocks, said now is the time to buy equities because investors are too fearful about the economy. “These comparisons people make with the Great Depression are totally out of touch with reality, and pretty stupid,” he told Bloomberg Television in an interview today. “We’ve been in much worse, much more panicked and more scary situations in the U.S.” The economy isn’t as bad as it was in 1974, when stocks began rebounding, said Minneapolis-based Leuthold. He predicted the Standard & Poor’s 500 Index will surge to at least 1,000 in 2009, representing a gain of 44 percent from yesterday’s 12-year low of 696.33. Because a rally is likely, Leuthold said investors shouldn’t buy his Grizzly Short Fund. It has returned 26 percent in 2009. The Leuthold Core Investment Fund, which bets on stock gains, is most concentrated in biotechnology companies, automotive retailers and education providers, he said
Omaba is having an effect
As 2009 opened, three weeks before Barack Obama took office, the Dow Jones Industrial Average closed at 9034 on January 2, its highest level since the autumn panic. [Monday] the Dow fell another 4.24% to 6763, for an overall decline of 25% in two months and to its lowest level since 1997. The dismaying message here is that President Obama's policies have become part of the economy's problem. ...[O]ne negative revelation has been the way he has chosen to spend his scarce resources on income transfers rather than growth promotion. Most of his 'stimulus' spending was devoted to social programs, rather than public works, and nearly all of the tax cuts were devoted to income maintenance rather than to improving incentives to work or invest. His Treasury has been making a similar mistake with its financial bailout plans. The banking system needs to work through its losses, and one necessary use of public capital is to assist in burning down those bad assets as fast as possible. Yet most of Team Obama's ministrations so far have gone toward triage and life support, rather than repair and recovery. ... The market has notably plunged since Mr. Obama introduced his budget last week, and that should be no surprise. The document was a declaration of hostility toward capitalists across the economy. Health-care stocks have dived on fears of new government mandates and price controls. Private lenders to students have been told they're no longer wanted. Anyone who uses carbon energy has been warned to expect a huge tax increase from cap and trade. And every risk-taker and investor now knows that another tax increase will slam the economy in 2011, unless Mr. Obama lets Speaker Nancy Pelosi impose one even earlier. Meanwhile, Congress demands more bank lending even as it assails lenders and threatens to let judges rewrite mortgage contracts. The powers in Congress -- unrebuked by Mr. Obama -- are ridiculing and punishing the very capitalists who are essential to a sustainable recovery. The result has been a capital strike, and the return of the fear from last year that we could face a far deeper downturn. This is no way to nurture a wounded economy back to health." --The Wall Street Journal
Tuesday, March 3, 2009
Melt Down is Coming....no...it is Happening
The markets continue the melt down today, after yesterday 12 year lows which saw the Down drop by 4%. Today the Dow dropped again with the after hours market dropping another 100 points!
Since Feb 10th, when the technical indicators all lined up for a sell, the Dow has dropped almost 20%!
Extreme caution in going long in these markets.
Investors have lost confidence; lost confidence in the banks, in business and the government. The market will not climb when there is no confidence.
I have been hoping for a rally, but continue to be disappointed. Hoping is not the way to invest.
On the next rally, whenever it does occur, raise cash. This thing is far from being over.
Since Feb 10th, when the technical indicators all lined up for a sell, the Dow has dropped almost 20%!
Extreme caution in going long in these markets.
Investors have lost confidence; lost confidence in the banks, in business and the government. The market will not climb when there is no confidence.
I have been hoping for a rally, but continue to be disappointed. Hoping is not the way to invest.
On the next rally, whenever it does occur, raise cash. This thing is far from being over.
WSJ - Heard on the street
Forget gold bugs. True doom-mongers buy shares in Smith & Wesson Holding, maker of Dirty Harry's favored firearm. Despite Monday's market rout, the stock is up 30% since Feb. 19, compared with a 10% drop in the S&P 500. (Even gold is down 5%.)
Some bulls cite fears of slump-inspired social unrest. More likely, the risk of tighter gun controls in the future has fueled sales, with retail investors then jumping on the bandwagon.
And don't forget, S&W's stock is down more than half since last May. True, reports of looting might boost it further. But would that really make your day?
Some bulls cite fears of slump-inspired social unrest. More likely, the risk of tighter gun controls in the future has fueled sales, with retail investors then jumping on the bandwagon.
And don't forget, S&W's stock is down more than half since last May. True, reports of looting might boost it further. But would that really make your day?
Monday, March 2, 2009
'Atlas Shrugged': From Fiction to Fact in 52 Years
By STEPHEN MOORE
Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.
Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.
Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated "Atlas" as the second-most influential book in their lives, behind only the Bible.
For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.
In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?
These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.
The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."
When Rand was writing in the 1950s, one of the pillars of American industrial might was the railroads. In her novel the railroad owner, Dagny Taggart, an enterprising industrialist, has a FedEx-like vision for expansion and first-rate service by rail. But she is continuously badgered, cajoled, taxed, ruled and regulated -- always in the public interest -- into bankruptcy. Sound far-fetched? On the day I sat down to write this ode to "Atlas," a Wall Street Journal headline blared: "Rail Shippers Ask Congress to Regulate Freight Prices."
In one chapter of the book, an entrepreneur invents a new miracle metal -- stronger but lighter than steel. The government immediately appropriates the invention in "the public good." The politicians demand that the metal inventor come to Washington and sign over ownership of his invention or lose everything.
The scene is eerily similar to an event late last year when six bank presidents were summoned by Treasury Secretary Hank Paulson to Washington, and then shuttled into a conference room and told, in effect, that they could not leave until they collectively signed a document handing over percentages of their future profits to the government. The Treasury folks insisted that this shakedown, too, was all in "the public interest."
Ultimately, "Atlas Shrugged" is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand's political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear -- leaving everyone the poorer.
Mr. Moore is senior economics writer for The Wall Street Journal editorial page.
Sunday, March 1, 2009
Market Comments....from Butch Cooley
I think Butch has some good insights.
Why are we paying companies moneys (bailouts to GM and Chrysler(a private company) to continue to produce vehicles that no one is buying?
Come on! Let's get real. This sort of behaviour by govts can not last without reducing the people's standard of living.
However, we need to note that it does enrich certain businesses, business leaders and govt officals.
So there are some very powerful influences to manage the the economy, which I say is not for the great good, not for the people, but only for those that control. And in the process, hurts the people.
**************
It was another week full of news items, and many had a definitive effect on the stock markets. First was Presidents Obama's tax cuts, $400 for individuals and $800 for couples. Supposedly we will "feel the effects" of these cuts by April 1. That may be, but the markets and I most definitely have doubts. The average family in the US will have $13 a week more in their pay checks in 2009 and less than $8 in 2010. Hard to find that very stimulating. It's "Burger King" money!! "Chump Change", and hardly stimulating.
Then President Obama's Auto Industry Task Force basically said the industry needs an overhaul. That is just not news!! The real question is how much money is this Administration willing to continue to give GM and Chrysler and for how long, and what terms and at what price now and at what price later. We don't know the answer to that yet. And the markets do not like conjecture for very long. Rumors are fine though!! This is no longer a rumor, this is trouble down the road.
Then we had a ton of news regarding the banks, and how much money we might be willing to hand over to them. I do believe all this talk is meant to put some stability in the stock markets, particularly the financial sector. But it's still a nothing plan. It's not even vague at this point, it is simply a lot of talk. Even the so called "Stress Test" for banks is vague and ambiguous. Discussion about how it works.....I have no clue yet. Terms like "extra cushions", "well capitalized", and "consistent, forward looking and conservative." What the heck does any of this mean?? We, as a nation, are buying stock in banks, and I think we as taxpayers now own some 36% to 40% of Citibank. The fear in the markets is "nationalization" of these banks. Treasury says no, the Fed says no way, the White House isn't considering this as an option. But that seems to me to be exactly where we are headed. And the markets do not like that idea. But I honestly believe it's the only option open to the Treasury and Fed to keep a lid on just how much money is "debt" or "toxic waste" in these banks. Anyway I look at it, it's a bad deal.
And hidden away in the 1071 pages of "stimulus" is a $4 billion plan for the Department of Housing and Urban Development to give grants to all 50 states to be divided up by different cities to buy foreclosed homes. But again, we have a government equation as to how the money is given out. California has twice as many foreclosures as Florida, but will get the same amount of money, about $500 million. It will help local communities for sure, but it's just not enough money to amount to anything substantial. On the other hand, Vermont will be getting $20 million, but claims only 150 foreclosed homes in the entire State. None of it makes sense. It all makes good headlines, but when the numbers get crunched, nothing makes sense. If this is any indication of how the stimulus is going to work, we are in serious trouble. We are anyway.
Bernanke boosted things a little with his statements that banks would not be nationalized. But it was short lived. But Bernanke has been making statements regarding this economy and banking issues and money for 2 years, and very little of what he has to project comes to be reality. So the boost he gave the markets just didn't last long. Lifting my spirits is ok, but if I can't make money, my spirits don't remain lifted for long!!
President Obama promised the nation on Tuesday night that he would lead it from a dire "day of reckoning" to a brighter future, summoning politicians and public alike to shoulder responsibility for hard choices and shared sacrifice. "The time to take charge of our future is here." Nice speech, but just rhetoric. No substance. He claims he is going to stimulate the economy, put up to 4 million people back to work, by spending $787 billion over a 3 or 4 year period. He proposes a budget nearly 4 times that of President Bush's last budget, $1.75 trillion, but he is going to cut the deficit, and cut spending. It is not exactly a contradiction, but there is no plan, no understanding of just how this going to work. All this talk lacks detail, and it may make the average Joe in America a little less worried, but the stock markets are not buying it. To say the very least, his budget proposals are daring and bold. But as long as there are lobbyists, health care is going to stay health care as we know it. He plans to cut Medicare and Medicaid. There are an awful lot of Congressmen and women who are up for re-election. This is not going to be an easy path. He wants to raise taxes on the richest 5% of America. I don't know, but my guess would be those are some of the very people who pay the lobbyists.
I do believe some of this budget will get passed in some fashion. This is a Democratic Congress and a Democratic Administration and a country that is just a little bit anti Republican right now, and holding on to a lot of hope. But the rich don't pay. Middle class America pays. And if they aren't working...good luck. Oh yeah, more bad news on the unemployment line this week too. I made the statement before the elections that Presidents don't make laws, Congress does. Maybe Nancy Pelosi and Senator Reid are going to vote for this type of stuff, but it's going to be a real fight with the rest of our Congressmen and women. And the stock markets are not liking any of it. Hence a close on Friday on the Dow of 7063, and S&P of 735. The Dow was just off it's lows of the week, but the S&P closed at its lows. Question now is can we hold these lows? Or are we going lower? I have to say it, I'm betting we go lower. 6,500 to 6,800 on the Dow. I don't see how we can't go there. But then question #2 is will we hold that? Jury is still out. There is still much of bad news out there people. And there are way too many "zeros" being thrown around.
Butch Cooley Market Comments (Butch is founder of Leg Up House and the Butch Cooley Worldwide Hunting and Fishing . He has been an active trader for decades.)
Why are we paying companies moneys (bailouts to GM and Chrysler(a private company) to continue to produce vehicles that no one is buying?
Come on! Let's get real. This sort of behaviour by govts can not last without reducing the people's standard of living.
However, we need to note that it does enrich certain businesses, business leaders and govt officals.
So there are some very powerful influences to manage the the economy, which I say is not for the great good, not for the people, but only for those that control. And in the process, hurts the people.
**************
It was another week full of news items, and many had a definitive effect on the stock markets. First was Presidents Obama's tax cuts, $400 for individuals and $800 for couples. Supposedly we will "feel the effects" of these cuts by April 1. That may be, but the markets and I most definitely have doubts. The average family in the US will have $13 a week more in their pay checks in 2009 and less than $8 in 2010. Hard to find that very stimulating. It's "Burger King" money!! "Chump Change", and hardly stimulating.
Then President Obama's Auto Industry Task Force basically said the industry needs an overhaul. That is just not news!! The real question is how much money is this Administration willing to continue to give GM and Chrysler and for how long, and what terms and at what price now and at what price later. We don't know the answer to that yet. And the markets do not like conjecture for very long. Rumors are fine though!! This is no longer a rumor, this is trouble down the road.
Then we had a ton of news regarding the banks, and how much money we might be willing to hand over to them. I do believe all this talk is meant to put some stability in the stock markets, particularly the financial sector. But it's still a nothing plan. It's not even vague at this point, it is simply a lot of talk. Even the so called "Stress Test" for banks is vague and ambiguous. Discussion about how it works.....I have no clue yet. Terms like "extra cushions", "well capitalized", and "consistent, forward looking and conservative." What the heck does any of this mean?? We, as a nation, are buying stock in banks, and I think we as taxpayers now own some 36% to 40% of Citibank. The fear in the markets is "nationalization" of these banks. Treasury says no, the Fed says no way, the White House isn't considering this as an option. But that seems to me to be exactly where we are headed. And the markets do not like that idea. But I honestly believe it's the only option open to the Treasury and Fed to keep a lid on just how much money is "debt" or "toxic waste" in these banks. Anyway I look at it, it's a bad deal.
And hidden away in the 1071 pages of "stimulus" is a $4 billion plan for the Department of Housing and Urban Development to give grants to all 50 states to be divided up by different cities to buy foreclosed homes. But again, we have a government equation as to how the money is given out. California has twice as many foreclosures as Florida, but will get the same amount of money, about $500 million. It will help local communities for sure, but it's just not enough money to amount to anything substantial. On the other hand, Vermont will be getting $20 million, but claims only 150 foreclosed homes in the entire State. None of it makes sense. It all makes good headlines, but when the numbers get crunched, nothing makes sense. If this is any indication of how the stimulus is going to work, we are in serious trouble. We are anyway.
Bernanke boosted things a little with his statements that banks would not be nationalized. But it was short lived. But Bernanke has been making statements regarding this economy and banking issues and money for 2 years, and very little of what he has to project comes to be reality. So the boost he gave the markets just didn't last long. Lifting my spirits is ok, but if I can't make money, my spirits don't remain lifted for long!!
President Obama promised the nation on Tuesday night that he would lead it from a dire "day of reckoning" to a brighter future, summoning politicians and public alike to shoulder responsibility for hard choices and shared sacrifice. "The time to take charge of our future is here." Nice speech, but just rhetoric. No substance. He claims he is going to stimulate the economy, put up to 4 million people back to work, by spending $787 billion over a 3 or 4 year period. He proposes a budget nearly 4 times that of President Bush's last budget, $1.75 trillion, but he is going to cut the deficit, and cut spending. It is not exactly a contradiction, but there is no plan, no understanding of just how this going to work. All this talk lacks detail, and it may make the average Joe in America a little less worried, but the stock markets are not buying it. To say the very least, his budget proposals are daring and bold. But as long as there are lobbyists, health care is going to stay health care as we know it. He plans to cut Medicare and Medicaid. There are an awful lot of Congressmen and women who are up for re-election. This is not going to be an easy path. He wants to raise taxes on the richest 5% of America. I don't know, but my guess would be those are some of the very people who pay the lobbyists.
I do believe some of this budget will get passed in some fashion. This is a Democratic Congress and a Democratic Administration and a country that is just a little bit anti Republican right now, and holding on to a lot of hope. But the rich don't pay. Middle class America pays. And if they aren't working...good luck. Oh yeah, more bad news on the unemployment line this week too. I made the statement before the elections that Presidents don't make laws, Congress does. Maybe Nancy Pelosi and Senator Reid are going to vote for this type of stuff, but it's going to be a real fight with the rest of our Congressmen and women. And the stock markets are not liking any of it. Hence a close on Friday on the Dow of 7063, and S&P of 735. The Dow was just off it's lows of the week, but the S&P closed at its lows. Question now is can we hold these lows? Or are we going lower? I have to say it, I'm betting we go lower. 6,500 to 6,800 on the Dow. I don't see how we can't go there. But then question #2 is will we hold that? Jury is still out. There is still much of bad news out there people. And there are way too many "zeros" being thrown around.
Butch Cooley Market Comments (Butch is founder of Leg Up House and the Butch Cooley Worldwide Hunting and Fishing . He has been an active trader for decades.)
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