Andrew Butter

Saving the Global Economy: Try a Dollar Peg to the Renminbi

Re: Once we exclude the option of admitting a few million skilled, entrepreneurial young immigrants — as Israel did from Russia two decades ago — the present crisis can be solved only by opening the world to American exports and restructuring the American economy to create the necessary export capacity

Right on the button.

Question: Why not?

Bubble Spotting Isn't Hard, But Whose Job Is It?

Love the photo (particularly the bike).

I disagree with you about the housing bubble, see:

www.marketoracle.co.uk...

Plus if you're interested other articles on my Author page.

Totally agree with your sentiments about putting America back to work, see:

seekingalpha.com/artic...

seekingalpha.com/artic...

One line I was following and I might publish one day is job creation as a function of mispricing of the housing market, the way it looks to me is that when housing is mispriced high (people need more money to be able to have somewhere decent to live), job creation goes down (i.e. off-shoring goes up).

Thanks for the comment.


On Nov 15 03:56 PM vbierschwale wrote:

> There was no housing bubble.
> We've simply been making it where more and more people can't afford
> the mortgages they could before their jobs were done away.
>
> For proof, please review this article
>
> keepamericaatwork.com/...
>
> Regards,
>
> Virgil
> www.KeepAmericaAtWork.com

Bubble Spotting Isn't Hard, But Whose Job Is It?

Spotting a bubble is an investor's dream.

That's what George Soros does (apparently he feels a pain in a certain part of his back), then he goes long and helps pump it up.

Then he feels a pain in another part of his back and shorts it so it pops (very public spirited fellow).

My point is that's perhaps something regulators ought to be interested in.


On Nov 15 01:03 PM Old Trader wrote:

> "I would just summarize by saying that I think I can probably recognize
> at least 30 bubbles for every three that actually are significant."
>
>
> LOL... I'd agree, because I'm the same way. Perhaps its the skeptical
> part of my nature, but it seems that every time I find myself thinking
> "How long can this go on?", the "correct" answer, is MUCH longer
> than I thought possible!

Time for the U.S. Economy to Reindustrialize

80% of China's exports are manufactured in SEZ (free zones), by companies that are mainly owned or partnered with "foreign" (non Chinese) companies.

The basic inputs from China into that equation are (land + infrastructure + transportation capacity to bring products to market), plus cheap labor.

The studies I've done of SEZ (mainly Jebel Ali in Dubai which is more logistics (with relatively higher labor costs)), is that what adds real economic value is the trickle down, not the margin made on the labor.

I suspect that if USA had a more coherent policy on importing labor to do jobs that (a) US workers don't want to do (b) so therefore they get done outside USA; there would be a significant spin off.

The Worst Unemployment Losses Are Yet to Come

Interesting, but what's the answer?

Like what will U3 unemployment be at the turn?

Sound Lending Practices in One Simple Sentence

Karl you are right and you are wrong

Sure lending more money than the collateral that is put up is simply gambling - banks shouldn't be allowed to gamble.

But the valuation of the collateral needs top be done properly and if you knew anything about valuation you would know that mark to market is a useless way to do a valuation that encourages banks to lend more than the collateral will be worth in the event that the loan defaults.

That's why International Valuation Standards was written over ten years and finally published in 2000, and why it is accepted by every valuation institute in the world.

And that's why bankers, banking regulators, and auditors refuse to use it,

IVS stipulates that the person doing the valuation should determine if the market is in disequilibrium or not.

If it's not the mark to market is accepatble.

If it is then that fact must be flagged, and "other than market value" should be used.

Example in 2003 it was obvious to anyone who knows about valuation that house prices were in a bubble and the market was in disequilibrium.

Yet banks used "mark to market" to value assets.

In fact when banks came to liquidate those assets (because the loans defaulted), they were not worth enough to cover the loan.

That's how mark to market does not protect and that is the ruse that banks used to "gamble".

Why not say

ONE DOLLAR OF CAPITAL FOR EACH DOLLAR OF UNSECURED LENDING, VALUED STRICTLY IN ACCORDANCE WITH INTERNATIONAL VALUATION STANDARDS.

The Trouble with Clean Coal

Sounds like Nuclear which is a well proven technology and doesn't cause any environmental hazard if managed properly is the way forwards (the waste is solid).

The key issue there is the capex; perhaps instead to throwing money at banks, throw it at building nuclear, if there were economies of scale and the environmentalists could agree that the unlikely risk of a nuclear disaster was less of a risk than CO2, capex could come down.

Regulation Watch: 'Just So Stories' Surrounding Derivatives Are a Puzzle

Very nicely argued, but here is a question for you:

How come the US Government felt it necessary to go out and pay off CDS contracts written by AIG at 100 cents on the dollar?

The logic there was that the financial system would implode like a chain reaction if they didn't. Likewise a big part of the uncertainty and fear generated by the Lehman collapse was what would happen to their derivatives.

Good regulation makes sure, for example, that players don't offer up the same collateral to ten or twenty different people, that's fraud and that how as Tom Amistead points out, there is something very fishy in the way those are accounted for.

If the government or the taxpayer is exposed to this type of fraud they have a legitimate place ensuring that it doesn't happen.

Are Stocks Making a Major Top?

Good argument and I think you are broadly right (and i don't think this market is driven by credit provided by the Fed, it's driven by (a) people who are already in who don't want to sell (b) people with cash on the sidelines).

But I think your reference to tops back to 2000 might be a bit short sighted, what just happened was a massive reversal (last September all the way up to March ), that was driven by a massive re-think of valuations.

My view as you probably know is that the US stock market is under-priced now, and the dynamics of reversals there are different from when it was over-priced (i.e. in 2000 and 2007); historically the potential for large reversals is much less in such circumstances (although don't rule out 20% peak to trough). By my calculation there is ONE of those due over the next two years.

Isn't the Fed Monetizing Housing Debt?

I wouldn't be surprised if they are "valuing" then at face or somewhere around that.

By way of example try having a look at the "valuation" of MBS held by FDIC insured banks (www2.fdic.gov/qbp/inde...), in July 2008 those "assets" were "worth" $1.3 trillion, in July 2009 they were also "worth" $1.3 trillion.

Err...didn't something happen between July 2008 and July 2009 that made some people suspect that what they were worth then they are not worth now?

Mmm..I can't quite put my finger on it, something to do with Hank Paulson's declaration back then that "The US Banking System Is Safe and Sound"?


On Nov 12 03:56 PM User 493781 wrote:

> "What is the true value of these mortgage backed securities?
>
> In theory, we'll find out early next year when the Fed stops buying
> them, but, like the homebuyer tax credit, don't be surprised if this
> wildly popular program is extended, perhaps indefinitely as waves
> of foreclosures come ashore in 2010 and 2011."
>
> Great article. But will we really know the true price only when they
> STOP buying MBS? Won't we know the ture price ONLY when the real
> market buys them back. Right?

Stock Prices and Unemployment Peaks

Another way (and possibly a more logical way) to interpret that data is that stock prices going up drives unemployment down with a lag of 9 to 14 months.

An explanation for that is once companies can start to raise equity more easily they are more inclined to hire.

By that logic, if the bottom in the S&P 500 was March (which is my position) then unemployment should peak somewhere between December 2009 and June 2010

That was my theory anyway a month ago seekingalpha.com/artic... updated recently on an Interblog: seekingalpha.com/autho...

Saudi Oil Pricing Paradigm Shift: WTI Index Out, ASCI Index In

Excellent Article

Deflation Looms and Doubts About Growth

The Magic Powder is to fix securitization; that was the driver of credit in USA until 2008 ($20 trillion worth).

Right now that market is completely locked up because nothing has been done to fix the flaw that ended up causing it to lock up.

The Administration is doing nothing about that, it's just pretending the problem does not exist, like an ostrich with it's head in the sand.

Until that unlocks, America is heading down, down, down.

The Fed: Backed into a Corner?

That's what you call a bubble - and it's cooking.

Wal-Mart Does Not Save Families $3,100 a Year

Interesting that in Holland which is one of the countries that largely escaped the current debacle, they don't allow WalMart type operations, and in France which was hit worse than most they restrict them.

The economic cost needs to cover (a) the cost of petrol by individuals driving to WalMart (b) the cost of peoples time being forced to shop there (c) the cost to communities of not having local shops (i.e. (c) the loss of jobs providing that service.