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  • IRS Form 4506: Another Reason Why Real Estate Defaults Will Explode This Year [View article]
    Covered calls out-of-the-money on leveraged ETFs aren't so great in my opinion. They require you to hold the underlying too long, and SRS and it's ilk tend to rapidly erode value and are generally poor long-term investments. Remember, they are 2x the DAILY performance, not long term, and their use of leverage has a cost.
    If you want to bet against housing, short VNQ or buy some put options.
    Feb 4, 2010. 04:48 AM | 2 Likes Like |Link to Comment
  • Devaluing Currency Is a Fool's Game [View article]
    "Devaluing one's currency is thus a fool's game, since it benefits one segment of society (exporters) but harms everyone else (consumers, who have to pay more for the imported goods they purchase)"

    I'd say that 80% of economic rhetoric in the political arena is essentially a shill for such producer-subsidy thinking. Having a strong currency is good for the US like the refrigerator was for food. Sure, it might put some ice-delivery men out of work, but the overall benefit was far greater to the general populace.
    Devaluing the currency is like offering to sell everything in the country for cheap, which would argue that China DID undervalue its currency given the actions of multinational corporations excessively (rapaciously?) exploiting Chinese labor and productive capacity. Additionally, you mention inflation in the yuan, which many analysts believe has and is still happening across China (remember to look at asset prices not just consumables). So I would argue there was some actual manipulation of the yuan relative to the dollar to devalue it artificially (though you argue well that the behavior of the Dollar amplified this perception), and it probably benefited the US and hurt China.
    I still liked the article - thanks for the insight.
    Feb 4, 2010. 04:34 AM | 3 Likes Like |Link to Comment
  • Why Sovereign Debt Is a European Union Problem [View article]
    T"he author hints that other Euro community countries would see their soveriegn debt interest rates rise but I'm not sure that's true. I understand that all Euro Zone countries have to hit deficit numbers < 3%. But that is a policy problem not a causal effect on the Euro. No one has explained the exact dynamic that will drive the Euro to parity with the dollar if Greece doesn't clean up it's act."

    This is a very good question, and one that boils down to what definition one has for money. When governments spend well beyond their means with long-dated debt, I would argue it is the equivalent in the near and medium term of essentially printing a ton of money and then spending it (with all of the same effects like inflation, wealth transfer, patronage, etc). Unlike a central bank's monetary actions, sovereign debt does not go to buying assets that can later be redeemed to take that money out of circulation. The interest and (theoretically) principal have to be raised at a later date by taxation, and the only people that can tax the Greeks is themselves (it isn't even a matter of can't, just won't). In the long term, it is of course unsustainable, but along the way the power of the EMU was weakened, the imprudent spenders will get a windfall, and the specter of a sovereign default and the resulting destabilization will loom over the entire EU. What can Germany do to influence what the Greek leadership does? Very little without the carrot of EU membership and the stick of throwing the bums out.
    Rest assured, the title of this article is correct.
    Feb 4, 2010. 04:07 AM | Likes Like |Link to Comment
  • Mish Shedlock's Inflation Scorecard: June 2009 Update [View article]
    The CPI in Japan was completely flat as Johnsson for the decade as shown, but asset values, credit, and spending were indicative of deflation. The US CPI was remarkably flat and low-single digit all throughout the Great Bubble of the '00s, but asset values, credit, and spending were all pointing to the current predicament. I personally am not using CPI, especially government computed CPI, as a measure of inflation since it does not consider assets, credit/debt, or technology.
    Jan 5, 2010. 07:47 PM | Likes Like |Link to Comment
  • Ticking Away: The Inflation Time Bomb [View article]
    Turning Milton Friedman on his head, Grice argued that “inflation is always and everywhere a fiscal phenomenon."

    Friedman's quote was "inflation is always and everywhere a monetary phenomenon"

    The monetary policy of the US is controlled by the Federal Reserve.
    The fiscal policy is controlled by the Congress.
    Bankers control the Fed, and more recently, Congress.
    Thus, inflation is a banking phenomenon that just happens to be able to finance fiscal deficits. There was still plenty of inflation during the most fiscally hawkish periods of the 20th century, even with huge federal surpluses.
    Nov 10, 2009. 06:33 PM | 3 Likes Like |Link to Comment
  • Commercial Real Estate Resumes Its Descent [View article]
    With the huge inventory of CRE that will sit idle for years if not decades, now would be the time for the debtholders to agree to a short sale and get what they can now. Refusing to realize the loss does not make it go away, and in some ways the recent improvements in the stock and debt markets offer a chance to get some reasonable losses given the putative nightmare soon to occur. Anyone not taking a market offer on their property now is basically just praying for another bailout.
    Sep 25, 2009. 05:14 PM | Likes Like |Link to Comment
  • Ending the Off-Balance Sheet Charade [View article]
    Tiny slice of equity and a pile of debt is a recipe for disaster. The biggest mistake by the government is not letting bank bondholders suffer the consequences for management's actions. Add in the moral hazard of guarantees and underfunded FDIC insurance, and the incentives are clear to anyone that banks will lever up and juice returns as much as they can - there is no downside to management or creditors.
    Sep 18, 2009. 03:15 AM | Likes Like |Link to Comment
  • Money Supply: The Myth of Hyperinflation [View article]
    Mark,
    I'm with you on the deflation argument, and you made some very good points. I'm not ready to give the Fed the vote of confidence that you are, but it is clear that the net effect of the Fed's policies is not currently inflationary. I think the missing ingredient here for understanding how deflationary things are is credit - and credit is contracting at a rapid pace. Money in our economy is both credit and currency, and whatever effect that printing money is having is being balanced out by a large net decrease in outstanding credit. As we discussed earlier, the complete collapse of the securitization market is putting the squeeze on companies and individuals that want to borrow. Many of the indicators out there are still deflationary (seekingalpha.com/artic...), and until credit turns around, we will be in deflation. Japan did it for decades, and so can we.
    Sep 3, 2009. 03:08 PM | 11 Likes Like |Link to Comment
  • The Fed Believes Secrecy is in Our Best Interests. Here are Some of the Secrets [View instapost]
    I don't know why the idea of the Fed secretly loaning billions of dollars does not cause more outrage. And the argument against transparency seems to be the exact opposite of common sense ("telling you who is weak and needs money will make lies and unfounded rumors swirl that perfectly solvent banks are in fact weak."). Shelia Blair needs to use some FDIC authority and audit the recipients and then disclose the info if the Fed won't budge.
    Aug 28, 2009. 05:39 PM | 2 Likes Like |Link to Comment
  • Larry Summers's Billion-Dollar Harvard Gamble [View article]
    Even if it was a reasonable hedge, it magnitude of the trade was too much. If Harvard was going to issue $10B of debt (more than the endowment of most schools) than interest payments would be ~$500M a year at 5%. Even a move in rates to 7% would involve only an extra $200M a year in interest, yet he is hedging over $1B. A good hedge is one that ends up worthless with the primary investment going up more - in this case Harvard would save $200M from rates going from 5% to 3%, but lost over $1B. This hedge would be more appropriate for $25-$100B in debt, an amount that Harvard would never consider doing.
    Jul 24, 2009. 02:47 PM | 2 Likes Like |Link to Comment
  • Options Trader Weekend Update: Charts, Art and Market Manipulation [View article]
    Sites like SA are the check on the consolidation of media power - the internet has made it far harder to control the message the public gets consistently. Of course, the internet also makes it easier to hear what you want to hear and ignore anything to the contrary. If you see everyone agreeing on one thing, go somewhere else for your information.
    Jul 21, 2009. 05:02 PM | 1 Like Like |Link to Comment
  • Small Business Lending: Why the Programs Need to Change [View article]
    I like the later of the proposals, but I disagree with your first bullet. A GSE for bond insurance would be a poor idea, basically taking the Fannie Mae and Freddie Mac business model and expanding it to an even more challenging arena. I consider fully securitized home mortgages to be a vanilla product, yet the GSEs completely mismanged their risk and used their implicit government backing (now explicit) to over leverage and profit in the good times and leave the taxpayer holding the pieces in the downturn. A bond insurance GSE would have similar incentives to under price tail risk, juice profits with taxpayer-backed leverage, and tunnel the money to the executives and the small equity slice before the whole thing blows up. Bond insurance is an incredibly complex business, and, as the CDS market has shown, can be easily mismanaged. This completely ignores that fact that a powerful GSE will be used as a political tool as well, making it unlikely that any meaningful regulation or oversight will prevent the scenario I outlined above.
    Jul 20, 2009. 06:10 PM | Likes Like |Link to Comment
  • The Rise and Rise of Jamie Dimon [View article]
    The most genius PR campaign ever - the only way to save the US economy (which still went in the crapper anyway) is to give the largest banks trillions of dollars in cheap loans, guarantees, and just plain old free money.


    On Jul 20 12:27 PM infp wrote:

    > So the only way to rescue the country from another Great Depression
    > was to ensure that the banks that had caused the crisis would become
    > wealthier and more powerful?
    Jul 20, 2009. 05:56 PM | Likes Like |Link to Comment
  • Jamie Dimon vs. Larry Summers [View article]
    "Why doesn’t Dimon instead seize on greater consumer protection as a way to rebuld legitimacy for finance – and to shape the new rules so as to create barriers to entry and growth for future rivals?"

    Essentially the "too big to fail" bailouts and government assistance has created that barrier to entry, whereby large banks get cheap cost of capital and make outsized profits that smaller institutions with no government backing can make. Why should Dimon allow regulations that might reduce the number of rubes for the next financial innovation that large I-banks will create? Big finance buys influence with money, not by protecting consumers.
    Jul 20, 2009. 05:03 PM | 1 Like Like |Link to Comment
  • CIT's 5-Step Road to Too Big to Fail [View article]
    A key step in getting "too big to fail" would be for CIT to extend hundreds of millions in loans and lines of credit to politically connected companies at below market rates. That way they can credibly argue that a bankruptcy would cause the failure of many other businesses. With only $75B if assets, it isn't getting the attention of the treasury. Lever that up a few times, and we could have some significant systematic disruption if they failed. Maybe sell a few hundred billion notional in CDS, hopefully choosing GS, BofA, Citi, and JPM as the counterparties. News sites reporting today the bailout has the US on the hook for $13T, so what is another $10B or so?
    Jul 20, 2009. 02:31 PM | Likes Like |Link to Comment
COMMENTS STATS
153 Comments
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