A Reality Check on U.S. 'Economic Recovery' 44 comments
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U.S. equities are rallying again today, and (as usual) it is a rally with no basis in reality. Most of the enthusiasm comes from another string of corporate quarterly results which “beat expectations”. I had hoped that the sheep were starting to clue-in to this silly game, however it appears there is a still a large pack of Pavlov's Dogs out there – who respond to their propaganda cues without a moment of actual thought.
The truth is that all of the companies “beating expectations” are still reporting steadily worse results year-over-year – and in many cases, much worse results. Among the few exceptions are U.S. financial corporations. However, since accounting-fraud was legalized in the United States (see “FASB strong-armed into mark-to-fantasy accounting”), their bottom-lines have had absolutely no connection to their business operations.
The obvious point here is that if expectations are set low enough, it is almost impossible not to exceed these “estimates”. The question that must be asked is this: given that all these “market experts” are claiming that the U.S. economy is “turning the corner”, why are all these same “experts” continuing to predict terrible bottom-lines for U.S. corporations – every quarter?
The other element fueling today's rally is the continuing stream of propaganda pretending that both employment and the U.S. housing sector are “stabilizing”. This aspect of U.S. propaganda is especially egregious.
The optimism in U.S. housing is built entirely on the fact that declines in U.S. home prices have not been as bad as before – when they were falling three times as fast as during the Great Depression. This is a result of several factors.
First and foremost, U.S. banks are holding millions of foreclosed properties off the market. In this case, the numbers don't lie. There were 1.9 million foreclosures in the first 6 months of 2009, and Realty Trac (an industry-friendly group) predicts at least 4 million foreclosures this year – meaning that the rate of foreclosures will continue increasing. How is this “stabilization”?
These foreclosure numbers become even more interesting when we look at the ratio of foreclosure-sales relative to total sales. With total housing sales forecast at 4.8 million (after a recent jump in sales) and (at least 4 million foreclosures this year alone), foreclosure sales would have to account for over 80% of total sales in order for U.S. banks to clear their inventory as fast as they are taking on new foreclosed properties.
In fact, foreclosure sales have never exceeded 50% of total sales, and in the last two months have only averaged 35% of total sales – meaning U.S. banks are selling much less than half of their foreclosed properties. This means that contrary to fraudulent reports that housing inventories are “moderating”, all that is taking place is that more and more properties are simply being taken off the market – unsold.
The other important point about U.S. banks holding millions of foreclosed properties off the market is that foreclosure sales are the primary force pushing down U.S. housing prices. It should be expected that with U.S. banks holding millions of foreclosed properties off the market that U.S. house prices would be (temporarily) less-bad.
As I have pointed out many times, U.S. delinquency rates are at all-time, record highs – meaning that when the dust settles at the end of this year, U.S. foreclosures will likely be well over 4 million units (meaning all the other numbers I discussed will get even worse). In addition, we are only months away from the largest wave of mortgage re-sets (see “U.S. mortgage crisis to get MUCH worse in 2010-11”) - which will last for two years.
Meanwhile, broke-and-retiring U.S. baby-boomers will have no choice but to dump $1 to $2 trillion of real estate onto the market, to make up for their under-funded retirements (see “U.S. pension crisis: the $3 trillion question”), and the HUGE cuts which must be made in government programs for seniors, to begin to reduce the $70 TRILLION (or so) in U.S. unfunded liabilities. This means at least a decade of vast amounts of new inventory being dumped onto the market. This is “stabilization”?
Then we come to U.S. employment fiction. Weekly lay-offs have “improved” (by a measly 10%), meaning there are 'only' about 2.5 million lay-offs per month, compared to a normal month where there would be less than 1 million. Lay-offs are 2 ½ times greater than normal, and this is called “stabilization”?
Fraudulent government numbers are claiming that there is only a net job loss of less than 500,000 jobs per month (which is an historically terrible number). However, the reality is that with 2.5 million lay-offs per month, there must be at least 1.5 million (net) jobs lost each month – based on those weekly numbers (see "U.S. economy to lose 20 MILLION jobs this year"). These are Great Depression-like numbers.
The fact that job losses are “stabilizing” at Great Depression levels is not good news for anyone living in the real world. Meanwhile, the collapse in the U.S. retail sector is just beginning to to impact retail sector employment (see “The Death of the U.S. Consumer Economy”), and U.S. state governments are just beginning to make the painful budget (and employment) reductions they must make – as a response to the largest plunge in state revenues in history.
In short, the “big picture” of the U.S. economy is completely clear, it's in terrible shape and rapidly getting worse. Meanwhile, the U.S. propaganda-machine continues to fuel the U.S. fantasy-rally with nothing more than “smoke-and-mirrors”.
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Submitted by Tyler Durden on 07/30/2009 17:10 -0500
Alan Grayson Bank of America Bankruptcy Banks Ben Bernanke Bonuses Cash CEO Commercial Paper Compensation Comptroller of the Currency Credit Debt Derivatives Earnings FDIC FED Federal Deposit Insurance Corporation Federal Reserve Federal Reserve System Goldman Sachs Jamie Dimon Lehman Brothers Liquidity Merrill Lynch Money Morgan Stanley New York Times Office of the Comptroller of the Currency SEC Speculation TARP Toxic assets Trade VaR
By Nomi Prins, via Mother Jones
July 28, 2009 -- This is perhaps the most important thing I learned over my years working on Wall Street, including as a managing director at Goldman Sachs: Numbers lie. In a normal time, the fact that the numbers generated by the nation's biggest banks can't be trusted might not matter very much to the rest of us. But since the record bank profits we're now hearing about are essentially created by massive federal funding, perhaps it behooves us to dig beneath their data. On July 27, 10 congressmen, led by Rep. Alan Grayson (D-Fla.), did just that, writing a letter to Federal Reserve Chairman Ben Bernanke questioning the Fed's role in Goldman's rapid return to the top of Wall Street.
To understand this particular giveaway, look back to September 21, 2008. It was a frenzied night for Goldman Sachs and the only other remaining major investment bank, Morgan Stanley. Their three main competitors were gone. Bear Stearns had been taken over by JPMorgan Chase in March, 2008, Lehman Brothers had just declared bankruptcy due to lack of capital, and Bank of America had been pushed to acquire Merrill Lynch because the firm didn't have enough cash to survive on its own. Anxious to avoid a similar fate, hat in hand, they came to the Fed for access to desperately needed capital. All they had to do was become bank holding companies to get it. So, without so much as clearing the standard five-day antitrust waiting period for such a change, the Fed granted their wish.
Bank holding companies (which all the biggest financial firms now are) come under the regulatory purview of the Fed, the Office of the Comptroller of the Currency, and the FDIC. The capital they keep in reserve in case of emergency (like, say, toxic assets hemorrhaging on their books, or credit derivatives trades not being paid) is supposed to be greater than investment banks'. That's the trade-off. You get access to federal assistance, you pony up more capital, and you take less risk.
Goldman didn't like the last part. It makes most of its money speculating, or trading. So it asked the Fed to be exempt from what's called the Market Risk Rules that bank holding companies adhere to when computing their risk.
Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG's spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG's free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there's the $29.7 billion it's used so far out of the $35 billion it has available, backed by the FDIC's Temporary Liquidity Guarantee Program, and finally, there's the $11 billion available under the Fed's Commercial Paper Funding Facility.
Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.
On February 5, 2009, the Fed granted Goldman's request. This meant that not only was Goldman getting big federal subsidies, but also that it could keep betting big without saving aside as much capital as the other banks. Using VaR gave Goldman more leeway to, well, accentuate the positive. Yes, Goldman is a more risk-prone firm now than it was before it got to play with our money.
Which brings us back to these recent quarterly earnings. Goldman posted record profits of $3.4 billion on revenues of $13.76 billion. More than 78 precent of those revenues came from its most risky division, the one that requires the most capital to operate, Trading and Principal Investments. Of those, the Fixed Income, Currency and Commodities (FICC) area within that division brought in a record $6.8 billion in revenues. That's the division, by the way, that I worked in and that Lloyd Blankfein managed on his way up the Goldman totem pole. (It's also the division that would stand to gain the most if Waxman's cap-and-trade bill passes.)
Since Goldman is trading big with our money, why not also use it to pay big bonuses? It's not like there are any strings attached. For the first half of 2009, Goldman set aside $11.4 billion for compensation—34 percent more than for the first half of 2008, keeping them on target for a record bonus year—even though they still owe the federal government $53.6 billion, a sum more than four times that bonus amount.
But capital is still key. Capital is the lifeblood that pumps through a financial organization. You can't trade without it. As of June 26, 2009, Goldman's total capital was $254 billion, but that included $191 billion in unsecured long-term borrowing (meaning money it had borrowed without putting up any collateral for it). On November 28, 2008 (4Q 2008), it had only $168 billion in unsecured long-term borrowing. Thus, its long-term unsecured debt jumped 14 percent. Though Goldman doesn't disclose exactly where all this debt comes from, given the $23 billion jump, we can only wonder whether some of it has come from government subsidies or the Fed's secret facilities.
Not only that, by virtue of how it's set up, most of Goldman's unsecured funding comes in through its parent company, Group Inc. (Think the top point of an umbrella with each spoke being a subsidiary.) This parent parcels that money out to Goldman's subsidiaries, some of which are regulated, some of which aren't. This means that even though Goldman is supposed to be regulated by the Fed and other agencies, it has unregulated elements receiving unsecured funding—just like before the crisis, but with more of our money involved.
As for JPMorgan Chase, its profit of $2.7 billion was up 36 percent for the second quarter of 2009 vs. the same quarter last year, but a lot of that also came from trading revenues, meaning its speculative endeavors are driving its profits. Over on the consumer side, the firm had to set aside nearly $30 billion in reserve for credit-related losses. Riding on its trading laurels, when its consumer business is still in deterioration mode, is not a recipe for stability, no matter how much cheering JPMorgan Chase's results got from Wall Street. Betting is betting.
Let's pause for some reflection: The bank "stars" made most of their money on speculation, got nearly $124 billion in government guarantees and subsidies between them over the past year and a half, yet saw continued losses in the credit products most affected by consumer credit problems. Both are setting aside top-dollar bonuses. JPMorgan Chase CEO Jamie Dimon mentioned that he's concerned about attracting talent, a translation for wanting to pay investment bankers big bucks—because, after all, they suffered so terribly last year, and he needs to stay competitive with his friends at Goldman. This doesn't add up to a really healthy scenario. It's more like bad déjà vu.
As a recent New York Times article (and many other publications in different words) said, "For the most part, the worst of the financial crisis seems to be over." Sure, the crisis may appear to be over because the major banks of Wall Street are speculating well with government subsidies. But that's a dangerous conclusion. It doesn't mean that finance firms could thrive without the artificial, public-funded assistance. And it certainly doesn't mean that consumers are any better off than they were before the crisis emerged. It's just that they didn't get the same generous subsidies.
Additional research by Clark Merrefield.
Article From Mother Jones, h/t amsterdamtrader
On Jul 30 03:00 PM Tom Colangelo wrote:
> WE know that pure lies and fabrications have levitated the market
> for 7 months, ever since the green shoots mirage started to appear.
>
>
> The question that GS has answered so well is "How do you make money
> in this market?"
>
> So I ask you, Jeff, what are you investing in to make money despite
> the ugly scenario you describe?
>
> I'll start the sauce. INothing fancy. 'm betting on the things we
> can't do without no matter what the economy. ENERGY, FOOD, AND PHARMA...with
> some utilities thrown in for extra dividends. Yes they may decline
> in market value until we pull out of the recession, but they will
> pay good dividends because they won;t go out of business and everyone
> needs what they sell.
>
> Now your turn.
On Jul 30 01:36 PM james cornish wrote:
> The mood on this site turns more bitter by the day. The doom-mongers
> are desperate for stocks to crash - and stocks may well do so. <br/>
>
> But why the anger, the despair, the outrage ... and the tedious conspiracy
> theories?
>
> Is it because the doom-mongers have missed out on an historic global
> rally?
>
> Is it because they want Americans to suffer more, while they profit
> from short positions?
>
> Do they fear that stocks are around fair value, after a boom and
> bust?
On Jul 30 06:16 PM ChickenLips wrote:
> My mortgage becomes variable in March and I CAN'T qualify for refinancing
> even if I wanted to, trust me I've been rejected. My payments are
> current but I don't know what's going to happen next year when my
> rate resets.
>
> How is it beneficial to the economy and society if I foreclose on
> my home and walk away? How come the wealthy bank owners get bailouts
> but there aren't any refinancing programs to help people like me
> keep their homes and society stable?
>
> I guess the economy and the stock market CAN grow if the middle class
> is decimated. At least that's what my government is telling me.
Scenario 2: Market goes to 5000 and things are really bad, and we have all the money that we have now.
I will take the scenario 2 and stick with it. I will not regret missing the boat
On Jul 30 04:12 PM MatrixSurfer wrote:
> At the risk of appealing to your sensibilities in a reasonable manner;
> I think I can speak for those of us who are not optimistic near term
> and say I believe its more about having a decent understanding of
> how economics and economies work and less about being a doom and
> gloomer for the sake of being morose. There are simply no driving
> forces for growth needed by this economy to support the recent market
> rise. (Unless you believe green jobs will save the world I suppose).
> Once companies have fired or laid off everyone they can, where will
> the next savings come from to support profit? Most investors simply
> don't think in terms of 'shorting' as the normal way of making money,
> though of course it works. Most of us, I expect, want to make money
> from superior companies with excellent execution and terrific business
> models. We know that's how America works - we are just concerned
> that under the current adminstration and congress - there is little
> understanding or concern for the keys to what make American capitalism
> work. I'd argue we are realists, (and long-term optimistic believers
> in the American spirit). With respect.
> my discussion there. Sales numbers prove this is happening.
Jeff, your discussion in the article states that "U.S. banks are selling much less than half of their foreclosed properties." The sales and foreclosure data suggest as much. Couldn't it also be that--simply put--the banks have their foreclosure properties ON THE MARKET but they simply aren't sold yet? I don't see how the figures necessarily indicate that the properties are being "held in reserve," though that is a very good hypothesis.
> 2) Salvation-through-refi... is simply another propaganda myth. The
> facts are that U.S. banks have little motivation to refinance (for
> MANY reasons) and the actual numbers show that the total number of
> people who get "help" to refinance AND don't still default a few
> months down the road is miniscule.
I have read the data that show that those with modifications re-default in great numbers but was unaware that this was also the case with those who re-finance out of ARMs or Alt-As. Can you post the links to the re-fi data?
> 3) As for retiring baby-boomers dumping real estate to fund their
> retirements 75% of their assets are in real estate, so there is absolutely
> no guess-work involved when it comes to what they will sell to fund
> their retirements - and with an historically low level of potential
> buyers on the market.
If 75% of the Boomers' assets are in realty, then there's no question that they are going to have to liquidate their property. I don't necessarily think this will create a liquidity crisis for them, though, if they're empty nesters who have lived in the same home for 15+ years and are merely down-sizing. Then again, many Boomers took on excessive levels of consumer debt.
U.S. banks have held MILLIONS of foreclosed properties off the market. They would have to create a separate HUGE bureaucracy to become "property managers" for all those units.
On Jul 30 06:38 PM Ken P wrote:
> I read an article a few weeks ago saying they may allow banks to
> start renting out foreclosed properties. It seems to me that could
> greatly reduce the number of properties getting dumped onto the market,
> allow the banks to make up numbers about how valuable the properties
> were since they don't actually have to sell the property, allow them
> to get income, and also tend to minimize the deterioration of neighborhoods
> and property values from abandoned and vandalized properties. It
> would also tend to concentrate even more property ownership in even
> fewer hands, but what else is new?
On Jul 31 11:04 AM Carlos Lam wrote:
> > 1) As for banks keeping properties off the market, please re-read
Thanks for that very illuminating article!
On Jul 30 08:49 PM dcb wrote:
> From A Former Goldman Managing Director: How You Finance Goldman
> Sachs’ Profits
> Submitted by Tyler Durden on 07/30/2009 17:10 -0500
>
> Alan Grayson Bank of America Bankruptcy Banks Ben Bernanke Bonuses
> Cash CEO Commercial Paper Compensation Comptroller of the Currency
> Credit Debt Derivatives Earnings FDIC FED Federal Deposit Insurance
> Corporation Federal Reserve Federal Reserve System Goldman Sachs
> Jamie Dimon Lehman Brothers Liquidity Merrill Lynch Money Morgan
> Stanley New York Times Office of the Comptroller of the Currency
> SEC Speculation TARP Toxic assets Trade VaR
>
>
> By Nomi Prins, via Mother Jones
>
> July 28, 2009 -- This is perhaps the most important thing I learned
> over my years working on Wall Street, including as a managing director
> at Goldman Sachs: Numbers lie. In a normal time, the fact that the
> numbers generated by the nation's biggest banks can't be trusted
> might not matter very much to the rest of us. But since the record
> bank profits we're now hearing about are essentially created by massive
> federal funding, perhaps it behooves us to dig beneath their data.
> On July 27, 10 congressmen, led by Rep. Alan Grayson (D-Fla.), did
> just that, writing a letter to Federal Reserve Chairman Ben Bernanke
> questioning the Fed's role in Goldman's rapid return to the top of
> Wall Street.
>
> To understand this particular giveaway, look back to September 21,
> 2008. It was a frenzied night for Goldman Sachs and the only other
> remaining major investment bank, Morgan Stanley. Their three main
> competitors were gone. Bear Stearns had been taken over by JPMorgan
> Chase in March, 2008, Lehman Brothers had just declared bankruptcy
> due to lack of capital, and Bank of America had been pushed to acquire
> Merrill Lynch because the firm didn't have enough cash to survive
> on its own. Anxious to avoid a similar fate, hat in hand, they came
> to the Fed for access to desperately needed capital. All they had
> to do was become bank holding companies to get it. So, without so
> much as clearing the standard five-day antitrust waiting period for
> such a change, the Fed granted their wish.
>
> Bank holding companies (which all the biggest financial firms now
> are) come under the regulatory purview of the Fed, the Office of
> the Comptroller of the Currency, and the FDIC. The capital they keep
> in reserve in case of emergency (like, say, toxic assets hemorrhaging
> on their books, or credit derivatives trades not being paid) is supposed
> to be greater than investment banks'. That's the trade-off. You get
> access to federal assistance, you pony up more capital, and you take
> less risk.
>
> Goldman didn't like the last part. It makes most of its money speculating,
> or trading. So it asked the Fed to be exempt from what's called the
> Market Risk Rules that bank holding companies adhere to when computing
> their risk.
>
> Keep in mind that by virtue of becoming a bank holding company, Goldman
> received a total of $63.6 billion in federal subsidies (that we know
> about—probably more if the Fed were ever forced to disclose its $7.6
> trillion of borrower details). There was the $10 billion it got from
> TARP (which it repaid), the $12.9 billion it grabbed from AIG's spoils—even
> though Goldman had stated beforehand that it was protected from losses
> incurred by AIG's free fall, and if that were the case, would not
> have needed that money, let alone deserved it. Then, there's the
> $29.7 billion it's used so far out of the $35 billion it has available,
> backed by the FDIC's Temporary Liquidity Guarantee Program, and finally,
> there's the $11 billion available under the Fed's Commercial Paper
> Funding Facility.
>
> Tactically, after bagging this bounty, Goldman asked the Fed, its
> new regulator, if it could use its old risk model to determine capital
> reserves. It wanted to use the model that its old investment bank
> regulator, the SEC, was fine with, called VaR, or value at risk.
> VaR pretty much allows banks to plug in their own parameters, and
> based on these, calculate how much risk they have, and thus how much
> capital they need to hold against it. VaR was the same lax SEC-approved
> risk model that investment banks such as Bear Stearns and Lehman
> Brothers used, with the aforementioned results.
>
> On February 5, 2009, the Fed granted Goldman's request. This meant
> that not only was Goldman getting big federal subsidies, but also
> that it could keep betting big without saving aside as much capital
> as the other banks. Using VaR gave Goldman more leeway to, well,
> accentuate the positive. Yes, Goldman is a more risk-prone firm now
> than it was before it got to play with our money.
>
> Which brings us back to these recent quarterly earnings. Goldman
> posted record profits of $3.4 billion on revenues of $13.76 billion.
> More than 78 precent of those revenues came from its most risky division,
> the one that requires the most capital to operate, Trading and Principal
> Investments. Of those, the Fixed Income, Currency and Commodities
> (seekingalpha.com/symbo...) area within that division brought
> in a record $6.8 billion in revenues. That's the division, by the
> way, that I worked in and that Lloyd Blankfein managed on his way
> up the Goldman totem pole. (It's also the division that would stand
> to gain the most if Waxman's cap-and-trade bill passes.)
>
> Since Goldman is trading big with our money, why not also use it
> to pay big bonuses? It's not like there are any strings attached.
> For the first half of 2009, Goldman set aside $11.4 billion for compensation—34
> percent more than for the first half of 2008, keeping them on target
> for a record bonus year—even though they still owe the federal government
> $53.6 billion, a sum more than four times that bonus amount.
>
> But capital is still key. Capital is the lifeblood that pumps through
> a financial organization. You can't trade without it. As of June
> 26, 2009, Goldman's total capital was $254 billion, but that included
> $191 billion in unsecured long-term borrowing (meaning money it had
> borrowed without putting up any collateral for it). On November 28,
> 2008 (4Q 2008), it had only $168 billion in unsecured long-term borrowing.
> Thus, its long-term unsecured debt jumped 14 percent. Though Goldman
> doesn't disclose exactly where all this debt comes from, given the
> $23 billion jump, we can only wonder whether some of it has come
> from government subsidies or the Fed's secret facilities.
>
> Not only that, by virtue of how it's set up, most of Goldman's unsecured
> funding comes in through its parent company, Group Inc. (Think the
> top point of an umbrella with each spoke being a subsidiary.) This
> parent parcels that money out to Goldman's subsidiaries, some of
> which are regulated, some of which aren't. This means that even though
> Goldman is supposed to be regulated by the Fed and other agencies,
> it has unregulated elements receiving unsecured funding—just like
> before the crisis, but with more of our money involved.
>
> As for JPMorgan Chase, its profit of $2.7 billion was up 36 percent
> for the second quarter of 2009 vs. the same quarter last year, but
> a lot of that also came from trading revenues, meaning its speculative
> endeavors are driving its profits. Over on the consumer side, the
> firm had to set aside nearly $30 billion in reserve for credit-related
> losses. Riding on its trading laurels, when its consumer business
> is still in deterioration mode, is not a recipe for stability, no
> matter how much cheering JPMorgan Chase's results got from Wall Street.
> Betting is betting.
>
> Let's pause for some reflection: The bank "stars" made most of their
> money on speculation, got nearly $124 billion in government guarantees
> and subsidies between them over the past year and a half, yet saw
> continued losses in the credit products most affected by consumer
> credit problems. Both are setting aside top-dollar bonuses. JPMorgan
> Chase CEO Jamie Dimon mentioned that he's concerned about attracting
> talent, a translation for wanting to pay investment bankers big bucks—because,
> after all, they suffered so terribly last year, and he needs to stay
> competitive with his friends at Goldman. This doesn't add up to a
> really healthy scenario. It's more like bad déjà vu.
>
> As a recent New York Times article (and many other publications in
> different words) said, "For the most part, the worst of the financial
> crisis seems to be over." Sure, the crisis may appear to be over
> because the major banks of Wall Street are speculating well with
> government subsidies. But that's a dangerous conclusion. It doesn't
> mean that finance firms could thrive without the artificial, public-funded
> assistance. And it certainly doesn't mean that consumers are any
> better off than they were before the crisis emerged. It's just that
> they didn't get the same generous subsidies.
>
> Additional research by Clark Merrefield.
>
> Article From Mother Jones, h/t amsterdamtrader
In reality average Americans are saving very little - because they HAVE no excess dollars to save.
On Jul 30 08:38 PM conceptwizard wrote:
> If pension borrowing is going on at that level it would show up in
> the savings rate number that s currently 6.9%. The number does not
> represent savings as such but debt elinimation. I was wondering where
> people were getting the money to pay down debt, this explains a lot.
> They are robbing their retirements to pay off bills.
On Jul 31 12:29 PM Jeff Nielson wrote:
> Conceptwizard, remember that these savings-rate numbers are AGGREGATES
> not averages. I would suggest that the vast majority of what is being
> saved comes from the 20% of the U.S. population which holds 80% of
> the wealth (as a matter of basic arithmetic) - and a big chunk of
> THAT savings is from the 1% who hold 35% of all wealth.
>
> In reality average Americans are saving very little - because they
> HAVE no excess dollars to save.
Jeff, I agree that there's a lot of puffery out there about the economy, particularly from the financial press, which never misses a chance to trumpet a "still-bad" data point as somehow representing a monumental economic achievement.
My question, however, is thus: when do you estimate that the market will begin to reflect the "situation on the ground" as it were instead of the situation peddled by the financial press? If you do not believe that the market will ever reflect the realistic situation, then there really is no need to shy away from long positions.
Jeff how’s that Gold trade going? Just can't seem to get it above that $980 huh. Ever wonder why?
There is smart money and there is dumb money. If you don't know which one you are not how do you know whcih one you are.
One is: when might the propaganda-machine talk the market DOWN rather than up. I've already written that I think the U.S. government fears a bond meltdown more than a stock meltdown.
If (when) the 10-year Treasuries move over 4% again, I expect you'll see the 'machine' frighten people back into Treasuries (and out of stocks).
The separate issue is when do the masses finally see through (and reject) the propaganda? I'm probably the last person to ask here since I never expected such transparent fictions to be able to endure this long.
However, the two scenarios where that is more likely to occur is either a) a strong decoupling between the U.S. economy and most of the other global economies. That decoupling could/should be extremely self-evident no later than early in 2010.
Or b) the statistical lies could simply get so large that even the less observant members of society lose faith in what they are told. I would have thought this boundary had been crossed already. However, it might require severe social unrest (i.e. rioting) before that realization begins to sink in.
On Jul 31 01:13 PM Carlos Lam wrote:
> "In short, the 'big picture' of the U.S. economy is completely clear,
> it's in terrible shape and rapidly getting worse. Meanwhile, the
> U.S. propaganda-machine continues to fuel the U.S. fantasy-rally
> with nothing more than 'smoke-and-mirrors.'"
>
> Jeff, I agree that there's a lot of puffery out there about the economy,
> particularly from the financial press, which never misses a chance
> to trumpet a "still-bad" data point as somehow representing a monumental
> economic achievement.
>
> My question, however, is thus: when do you estimate that the market
> will begin to reflect the "situation on the ground" as it were instead
> of the situation peddled by the financial press? If you do not believe
> that the market will ever reflect the realistic situation, then there
> really is no need to shy away from long positions.
As far as unrest , it's starting to happen . I read on Windstreams home page today " that some townhall meetings polititians were having with their constituants were becoming unruly " In fact in one instance the congressman had to " be escorted to his car by police ". He then cancelled his next meeting stating " if they are soo angry what's the sense in talking to them ".The article stated the majority of these folks have lost jobs , homes + dimished their savings trying to stay afloat . The private prisons are the governments answer to these folks .
Please excuse my typing , my fingers are getting stiffer . My brain STILL works
Under your scenario, how do you justify mining (minerals or metals I'm assuming) assets? Won't they fade if the economy weakens as you describe?
The gold is pretty standard response to a negatricve forecast, but the mining is hard for me to rationalize.
On Jul 30 04:34 PM Jeff Nielson wrote:
> Hi Tom.
>
> Last fall, when I had more time I actually swing-traded the market,
> since it was pretty obvious that while people were in panic-mode
> there would be excessive back-and-forth reactions in the market.
>
>
> Personally, I find CURRENT markets much more terrifying, because
> there is still virtually no buying and selling being done on fundamentals.
> The same propaganda-machine and Plunge Protection Team which conspire
> to push markets higher TODAY could make a 180-degree turn TOMORROW
> - for example, when they need to try to semi-inflate the bond-bubble
> - which has now burst (like using a bicycle pump on a tire with a
> slow leak).
>
> Also, because I now have less time, that makes trying to trade through
> this even more perilous. I
>
> I've got my holdings in quality, Canadian mining companies, and a
> portion still stuck in some questionable juniors, which I won't exit
> at current prices.
>
> The rest of my "excess dollars" go into bullion.
Lastly, the U.S.-created take-down of the entire world of commodities essentially shut-down development of most new projects. This means that the mining industry will be totally incapable of responding to rising demand for at least 3 or 4 years.