James Quinn

Supporting the U.S. Auto Portfolio: Cash for Clunkers

Cows for Cash is next.

theburningplatform.com...

Do You Believe Borrowing Leads to Prosperity? (Part 2)

You are right. The masses will always vote for more free stuff. Ultimately, this will collapse the whole system. An unsustainable trend can't be sustained.


On May 11 04:09 PM kurtieboy wrote:

> James, I agree with just about everything you have said. My only
> comments to your piece are:
>
> 1) I do not believe the government's true intent is evil or bad as
> you seem to imply. Faced with the situation they are in they really
> have no choice but to reinflate. Public confidence in the ponzi scheme
> is critical to an improvement in the economy. What would you have
> them do, let the banks and our financial system crash. The people
> did not vote them in to do that. The people voted them in to keep
> the system working by what ever means at their disposal. Keep the
> party going so to speak and we'll worry about the repercussions afterward.
> Realistically could you see anyone getting voting in with a platform
> of let the financial system fail, we as a country and a people need
> to take a major hit to our standard of living and start living within
> our means! Good luck! Not going to happen! Won't get voted in! In
> many ways the problem America is facing is democracy by the masses
> has the potential to lead to this type of situation and I am not
> sure we have the strength to get out.

Do You Believe Borrowing Leads to Prosperity? (Part 2)

I've been shorting the 10 Year Treasury and 30 Year Treasury for 2 months. I expect it to be greatest investment of my life thanks to Obama, Bernanke, Geithner and their merry men. 6.9% coming down the track like a freight train. It won't stop there.


On May 08 02:48 PM kennypowers09 wrote:

> And the 40 year historical average yield for the 10 year is 6.9%.
> At its current level its level even NOW after "soaring" its still
> lower than any other 10 year treasury yield in since 1/31/62 (excluding
> the period between 11/19/08 through today's date. If we will play
> with %'s here then the current rate is STILL 114% lower than the
> AVERAGE 10 year treasury yield (since 1961). Its ironic how the rates
> are "soaring" when they are currently 375.81% (1371.99% annualized)
> below the HIGHEST the 10 year ever was which was on 9/81 at almost
> 15.847%. Now given the amount of "stimulus" that will reportedly
> "destroy" the US (of which many on this website complain about and
> greater than any other period within this time frame since the 60's),
> its ironic that rates would be at such a historical low. I believe
> that is far from currentl "soaring". As stated earlier the economy
> and velocity of money will have to increase before you will see rates
> rise.

Do You Believe Borrowing Leads to Prosperity? (Part 2)

I hate to play semantics too.

The 10 Year Treasury was 2.18% on 12/26/08.

The 10 Year Treasury is 3.30% on 5/8/09.

That is a 51% increase in 5 months. I would say that an annualized increase of 122% is soaring in most people's books.

Everyone sees what they want to see.


On May 08 10:52 AM kennypowers09 wrote:

> I hate to play semantics, but you specifically stated "soaring" long
> term rates and then cited an article with a trivial increase of a
> historically low long term rate on the 10 year (which i showed are
> still well below the historical average, and at one point hit 50
> year lows). Of course long term rates will increase and likely inflation
> along with it given the amount of stimulus. that will only occur
> once the general economy begins to see gains and velocity picks up,
> which could be for some time as the current economic numbers simply
> show "stabilization" and not "growth".
>

Do You Believe Borrowing Leads to Prosperity? (Part 2)

Keep looking in the past. Don't try and look ahead. How could LT rates possibly rise when we need to issue $2 trillion of new debt? Hmm. I'm sure demand will be tremendous for 30 year debt at 4% when the country issuing it plans to continue printing and spending on Obama's social agenda and stimulus pork. Keep believing those government figures. You are just the type of citizen our government wants.


On May 07 04:52 PM kennypowers09 wrote:

> have you even looked at the yield curve? long term rates are FAR
> from "soaring" at a 4.304% yield. the 20 year average (from 12/1/80
> to 6/29/90) for the 30 year treasury is currently 10.39%.

Do You Believe Borrowing Leads to Prosperity? (Part 2)

Switch will be flipped while your praising Bennie and the Jets. Nothing like soaring LT rates in the midst of a depression.

China's central bank frets over Fed bond purchases

By Laura Mandaro, MarketWatch
Last update: 2:10 p.m. EDT May 7, 2009Comments: 167SAN FRANCISCO (MarketWatch) -- Chinese bank authorities warned the Federal Reserve's programs to pump more cash into the financial system by buying $300 billion in Treasurys risked jolting bond prices and devaluing the dollar.
The overnight comments from the world's biggest holder of U.S. government debt helped depress Treasury prices in trading Thursday, said one analyst.
In a monetary report dated Wednesday and posted on the People's Bank of China's Web site, the central bank said the quantitative easing policy pursued by the Fed may help keep bond yields at low levels in the short term.
But over a longer period, higher inflation expectations, interest rates and central bank measures to take extra liquidity out of the system could cause a sharp adjustment to bond prices, the report said.
The central bank also said plans by the Fed and other central banks to drive lending rates lower by buying their own government debts risks depreciating major currencies.
The report "has been making the rounds overnight and is partially responsible for the selling pressure in Treasurys," said Ian Lyngen, interest-rate strategist at RBS Securities, in emailed comments early Thursday.
Ten-year Treasurys (UST10Y:U.S. Treasury 10 Year
News , chart , profile , more
Last: 3.15-0.01-0.19%

11:33pm 05/06/2009

Delayed quote dataAdd to portfolio
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UST10Y 3.15, -0.01, -0.2%) recently yielded 3.312%, up 11 basis points for the day, as prices sold off further after a Treasury auction. Yields and prices move in opposite directions; 1 basis point is 1/100th of a percentage point. See Bond Report.
In recent months, senior Chinese officials have expressed concern that the U.S. financial crisis and efforts by policymakers to lower lending rates by flooding the system with cash would impair the value of its massive U.S. bond holdings.
On March 18, the Fed said it would buy up to $300 billion in Treasurys and expand a previous program of buying mortgage-related debt. The move sparked a big rally in Treasurys and knocked the U.S. dollar, though Treasurys have given up those gains since then.
China has also pushed for the establishment of an alternative to the U.S. dollar as a reserve holding.
Having driven short-term interest rates near zero, the Fed and other developed economies' central banks have embarked on variations of what's known as "quantitative easing," or using tools besides interest rates to increase money supply.
On Thursday, the Bank of England expanded its program of buying government bonds to 125 billion pounds ($189 billion) from 75 billion pounds.
And the European Central Bank, which cut its interest rates to a record low of 1% Thursday, said it would buy $80 billion in covered bonds, a type of bonds backed by mortgages or public-sector loans. See full story on ECB and BOE decision.
Moves to drive yields lower can come at a cost to existing bondholders if the flood of new money eventually sparks higher inflation, which erodes the value of bond holdings.



On May 07 04:19 PM kennypowers09 wrote:

> I think the current economic numbers show we are in far from a 50%
> reduction in GDP (of which those in the Great Depression experience)
> than that of our current yoy -2.6% GDP. The Chinese are far from
> calling the shots. As you well know they are still an infant and
> are still an export driven economy, with very important ties to the
> US consumer. When they flip the switch...then maybe they will be
> calling the shots. While they are certainly the largest US debtor,
> it takes two to tango, are rely just as heavily on our ability to
> return that principal than simply "running the show". They are simply
> hedging the weak dollar by buying commodities and materials, and
> for very good reason. The fact they ARE able to make such manuever's
> is their ability to use sovreign wealth funds, of which the US is
> simply far behind the 8 ball in terms of being able to participate
> in the global rat race for resources. Of course Ron Paul would never
> allow the US to do so, which makes China's ability to "control the
> world" inevitable and your complaining useless.

Do You Believe Borrowing Leads to Prosperity? (Part 2)

Kenny Kenny Kenny

We are in the midst of a Great Depression and you don't even know it. You're mistaking a bear market rally for a recovery. Look closely at some of the charts in the article. The debt party is coming to end. The Chinese are calling the shots, not Helicopter Ben and his band of merry men. Ben is a gentleman and a scholar and an idiot. He thought we had a strong economy with a strong healthy housing market 18 months ago. What a sage he is. Read some of his comments from 2007. Continue to live in your debt induced fantasy world.


On May 07 04:03 PM kennypowers09 wrote:

> Had Ron Paul had his way, we would have already been in another Great
> Depression. Bernanke, while you may disagree with him, is one of
> the world's most foremost scholar's on the subject and the consensus
> showed that a gold standard limited the ability of the government
> to control and expand money supplies, which continued to drag the
> economy longer than neccessary. Another correlation is the fact that
> the countries that dropped the gold standard the fast, were the first
> to enter out of contractions (lastly being france I believe). If
> you want a gold standard, go ahead and ask for a 50% GDP contraction,
> and triple digit inflation along with it, b/c our economy has simply
> expanded far beyond the use and supply of the extremely maluable,
> and far less important rock that is gold. zimbabwe would be a fantastic
> place to live for gold standard advocates.

Do You Believe Borrowing Leads to Prosperity? (Part 2)

There sure is a shortage of land in the world. Let's hang our hat on our farm land.


On May 07 03:41 PM kennypowers09 wrote:

> good thing the US has all the farm land (20% of the global ariable
> to be exact) and all the food.
>
> a growing global population wont need that right?
>
> the US economy will certainly never have such a dominant role in
> the global economy going forward. you could even call such dominance
> a bubble if you will. that said, the US will still be a very important
> player.

Do You Believe Borrowing Leads to Prosperity? (Part 2)

Representative Ron Paul from Texas prior to questioning Helicopter Ben yesterday:

We have to come to the realization that there is a sea change in what’s happening. This is an end of an era and that we can’t re-inflate the bubble, just as we devised a new system of Bretton Woods in ‘44 which was doomed to fail. It failed in ‘71 and then we came up with the dollar reserve standard which was a paper standard; it was doomed to fail and we have to recognize that it has failed. And if we think we can re-inflate the bubble by artificially creating credit out of thin air and calling it capital; believe me, we don’t have a prayer of solving these problems. We have a total misunderstanding of what credit is vs. capital. Capital can’t come from the thin air creation by the Federal Reserve System; capital has to come from savings. We have to work hard, produce, live within our means and what is left over is called capital. This whole idea that we can re-capitalize markets by merely turning on the printing presses and increasing credit is a total fallacy; so the sooner we wake up to realize that a new system has to be devised, the better.

Right now I think the Central Bankers of the world realize exactly what I’m talking about and they’re planning, but they’re planning another system that goes one step further to internationalize regulations, internationalize the printing press. Give up on the dollar standard, but we have to be very much aware that that system will be no more viable. We have to have a system which encourages people to work and to save. What do we do now? We’re telling consumers to spend and continue the old process; it won’t work.

Do You Believe Borrowing Leads to Prosperity? (Part 2)

Would you like to? I think you'd fit in perfectly.


On May 07 03:38 PM kennypowers09 wrote:

> Nope
>
> On May 07 03:02 PM James Quinn wrote:

Do You Believe Borrowing Leads to Prosperity? (Part 2)

Do you work in Treasury or The Federal Reserve?


On May 07 02:42 PM kennypowers09 wrote:

> From the article:
>
> "Today, we are the biggest debtor nation in the world"
>
> Not relative to GDP, which is much more important.
>
> "The National Debt is currently $11.2 trillion or 80% of GDP for
> the 1st time since Harry Truman was President."
>
> 80% of the US ANNUAL GDP. We do not have to pay this debt down over
> one year, but assuming we did, we still have the annual cash flow
> to do it. Walmart has over 33 billion in corporate debt and the recent
> operating profit (seekingalpha.com/symbo...) was 6 billion.
> Does this mean walmart is going down the crapper? Hardly.
>
> As whats been said before...a well controlled debt structure can
> be quite beneficial to any country or company. While time will only
> tell the outcome of such, its still important to try to maintain
> as much prospective as possibile and refrain from solely looking
> at nominal values simply bc they are large.

Do You Believe Borrowing Leads to Prosperity? (Part 2)

I think both of your predictions will play out. The Fed will keep printing and the Chinese will slowly back away from buying our debt. LT rates will rise and inflation will become uncontrollable.

When you're in a deep hole, the 1st thing you should do is stop digging. There is absolutely no easy way out for the government or citizens. The debt must be paid down or written off. This means spending has to be curtailed dramatically. This will lead to a brutal depression. The fake American standard of living will be reduced. Americans will need to save 10% of their income. The savings would then be converted into investment. These unknown investments could relate to energy independence, nanotechnology, biotechnology or some ology that hasn't been thought of yet.

If we keep borrowing we will leave our children a smoldering ruin of a country.




On May 07 09:50 AM tunaman4u2 wrote:

> The government just turned into the american consumer by assuming
> more debt than they can service too. Another bubble...
> partying & rallying could last a long time till the government
> can't hide it anymore...
>
> Either China says we have loaned you enough or the government prints
> its way out leading to wicked stagflation. Those are my 2 outcome
> predictions, what do you see happening James to end the party? What
> will make credit to GDP return to sustainable levels?

Do You Believe Borrowing Leads to Prosperity? (Part 2)

Thanks kjm.


On May 07 09:40 AM kjm wrote:

> Another entertainingly brilliant article Jim - thanks!

Turning Japanese: The Audacity of Reality (Part 3 of 3)

I'm tired out by our dispute. Let's agree to disagree on how things will turn out. I hope for the best.


On Feb 03 10:01 PM BS Detector wrote:

> My my, you had a productive morning, didn't you? Let's sum up your
> latest assertion: because I've been wrong in the past, I'm wrong
> now. Okay - I guess we can stop listening to anybody who's ever expressed
> an opinion or made a prediction that didn't come to pass.
>
> And everybody who's lost money in the last year? You certainly can't
> believe anything they say and should pay no attention to them. Lord
> knows you can't learn anything from them.
>
> Clearly from the two articles you linked, you know something about
> banks. Also beyond dispute is that you were ahead of the curve on
> their downfall. Which begs the question - why so defensive? You took
> liberties of hyperbole and chose some words poorly - it seems much
> of this could have been dismissed as shortcut-taking in a story telling
> a fairly complex tale. Other things were assumptions you made that
> turned out to be wrong; fairly simple to yield when a little research
> reveals the error.
>
> But instead you wouldn't yield a single thing, as if every data point
> in your piece was thoroughly researched, when clearly they weren't.
> I don't think you've helped yourself much by being so defensive about
> these things that you have yet to adequately defend. Perhaps it would
> have been wiser to just take the loss and move on.
>
> But hey, what the hell do I know. I'm just another loser in the crash
> of 2008.
>
> By the way, you still haven't explained how we'll end up with a hyperinflationary
> crash.

Turning Japanese: The Audacity of Reality (Part 3 of 3)

Yes, we know auditors always get it right (ENRON). Below is some of your best analysis from July 2008 through Oct 2008. I sure wish I had bought XLF as you urged at $20.14 so I could lose 55%. GE was a great buy at $26.53, for a 56% loss. You seem particularly fond of GS. $131 on October 2 when you were so sure of its strength. $82 today. Only down 38%. One of your better picks. The blogosphere is wonderful. Your words live on in infamy.

• Goldman Says "Trust Us"
Does anybody believe that Warren Buffett wrote a $5,000,000,000 check without seeing under the GS kimono?
Oct 02 10:17 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• How Will Freddie and Fannie's Lifeline Affect US and Asian Banks?
"both Fs have had to get government support..."

Not at all. Strictly speaking, no additional support has occurred. The news is that the government is working on changes that would provide greater support IF IT'S NEEDED. It hasn't yet been needed.

"...the last mortgage “up” cycle lasted from September 1999 (when annual growth in mortgage lending contracted by 5%) until November 2005, when it peaked at an annual rate of 44%. Back of the envelope work suggests that “down” cycles last an average of three years, suggesting that the current down-cycle will last until around the middle of 2010."

Um, if the last up cycle ended in 11/05, and down cycles last three years, how do you get to mid-10?
Jul 14 03:50 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie Mae Trade Idea: For Aggressive Investors Only
$9.60? $8? You mean you think FNM is going DOWN? I don't think so, pal. Didn't you read the news? The fix is in!

Sheesh. You might as well say that we might want to buy Apple if it touches 150 on Monday.
Jul 14 03:36 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie and Freddie: When the GSEs Go, So Goes the Dollar
"Unemployment is increasing. Therefore real estate won't bottom until 2010-2013 because people without jobs can't buy houses."

First off, I questioned his 2012-13 timeframe; 2010-2013 as a target for the bottom is so broad as to be meaningless. I'm going to pick the World Series winner; it will be a team that plays on natural grass.

What makes you think employment will be lower in two years than it is now? Since 1960, there have been only five years when employment declined, and only twice has there been less employment than there was two years earlier (1992, 0.25% less than 1990; 2002, 0.3% less than 2000). Even the 1981-2 recession, which was far worse than either 1992 or 2002, saw employment rise in any relevant two-year timeframe.

Also, the correlation is weak. During the 1990-1992 period, housing prices declined 4.9% (by far the largest drop since 1987); however, during the 2000-2002 period, they increased 24%.
Jul 13 02:46 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie and Freddie: When the GSEs Go, So Goes the Dollar
Real estate won't bottom until 2012-2013? Why? There wasn't a spike in new housing that corresponded to the bubble; in fact, the current decline in housing starts PRECEDED the June '06 market top by a couple of months.

According to the latest Case-Shiller report, we're 20% off the market top already, two years into the decline. I expect prices to decline another 5-10% and start to recover at some point next year.

Jul 12 16:14 pm |Rating: 0 -1 |Report abuse |Link to Comment | View article
• To Have and To Hold: Why a Bailout Would Weaken the Dollar
"Further indebtedness, everything else being equal, is bad for a currency."

But it's not equal. The debt run up over the last eight years, for example, has bought us very little in terms of real assets. The $5T of debt that FNM and FRE insure (note, they insure it, they don't hold $3.5T of it) comes with something close to $5T of real property. So while nationalizing FNM and FRE would add a huge amount of gross debt, it would add a very small percentage of net debt to the "balance sheet" of the U.S.

By the way, 99% of the mortgages backed by FNM and FRE are current. So while there is $5.2T of liabilities, actual bad mortgages are exceedingly unlikely to exceed 5% of that, or $250B. And in the worst-case scenario, the underlying property will likely be worth (out of my orifice number) 60% of the mortgage value, so the MAXIMUM loss from FNM and FRE won't exceed $100B.

The national debt, including that held by trust funds, stands at $9.5T. So the worst case scenario would add just 1% to the national debt.

The sky is not falling.

• Weekend Thinking: An Agency Recapitalization Proposal
"Compare median income to median house prices for the period 1996 to 2006 (the top of the housing market). Gather the information and calculate that house prices could decline over 50% from the top from mid 2006."

Why do you think that real estate is so massively overvalued? I mean overvalued, sure - but 100% overvalued? Are you kidding? Why do you think that the previous (low) valuations were "correct"?

You also don't seem to want to include any other pertinent factors, such as increasing home size. There is no easy linear comparison.

BTW, we're 20% below the peak as of the last report, and there are indications that some areas are improving.
Jul 11 16:30 pm |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie and Freddie: When the GSEs Go, So Goes the Dollar
Agreed, bonds fall in value as rates increase. But there are two points here.

First, I think the market for MBS has overreacted. If this assertion is correct (which BAC and MS certainly think), the mark-to-market requirement has led to more write-downs than necessary, which has forced lots of unnecessary de-leveraging. Those who are able to hold these under-valued assets for long enough will see them increase as the market's valuation comes back to reality. Eventually, if a bank like BAC is able to hold all of those CFC mortgages, the current write-downs and losses will be replaced by "write-ups" and profits. Of course, it's all paper - the assets haven't changed.

But the bonds are not the underlying security; the real property is. The value of the real property, which has fallen significantly and will fall some more or be stagnant, will eventually recover and increase. Always has, always will.

I was careful to use the word "possible" to describe a potential reduction in leverage. Certainly, the government has a hefty asset base; a quick search didn't find anybody trying to value it. However, I can say that most federal land is quite low in intrinsic value.

Finally, certainly the government doesn't need to add millions of mortgages to its balance sheet. My point is that if it did so, the impact would not be nearly as large as you suggest.
Jul 10 11:11 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie and Freddie: When the GSEs Go, So Goes the Dollar
I think you're missing a huge part of the story here, and overstating the effects on the dollar.

IF the government were to assume FNM and FRE assets and liabilities, it's not like the addition of debt we've incurred over the last eight years. There are substantial underlying assets. It's quite possible that an assumption of FNM and FRE, with some $3.5T in debt would actually REDUCE the leverage of the federal government in real terms.

Look at it this way; say FRE and FNM have between them $3.5T in debt, and the underlying assets have fallen to $3.3T in value. I haven't looked, but I'm pretty sure that $200B would more than make the companies insolvent.

So the federal government would take a $200B balance sheet hit by assuming FRE and FNM. So what? That's less than half of the current annual deficit, and less than 4% of the national debt.

And it's not like those underlying assets are going to continue to decline forever. No, eventually, the mortgages held by FNM, FRE, or whoever are going to regain and then exceed their original values. So whoever holds them at the end will see a potentially huge addition to the balance sheet.

Would be a very... interesting way to reduce the national debt.



Jul 10 09:44 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Financials: Down, Down, Down
Long term, the sector's undervalued. Which firms are in better shape and which are in worse shape? I dunno.

XLF. Add to it as we go.
Jul 07 18:33 pm |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Valuing GE (It's Cheap)
g7enn wrote: "GE is virtually bankrupt. Check out it's Cash Flow..."

You might want to look up "bankrupt." Then look up "cash flow." Then, just for kicks, see what you can find on "long term." See if you can put it all together.

Here's a hint: 2007 earnings - $22.2 billion; 2006 - $20.7 billion; 2005 - $16.7 billion.

Bottom line.

"It's [sic] cash flow is coming from its borrowings."

Really? I'm looking at cash from operations, which appears to be up some 65% in the last 5 years.

"It's cash flow for 2007 was under $2M."

Right. POSITIVE cash flow. Hardly the sign of a pending failure.

"What happens to GE as the financing and credit situation worsens?"

It continues to lose money (mark-to-market) from certain investments, and continues to generate ENORMOUS amounts of cash from operations. And at the end of this credit problem, there will be some big winners - who's to say GE ends up worse than average?

"Debt/Equity ratio is 4, way too much debt."

And Goldman's is over 10. Do you also think Goldman's about to fail?

"Where is it going to get the money to finance operations? From Bernanke?"

Pay attention. Operations generate ENORMOUS amounts of cash.

"If you fail to understand the above then take a look at its stock price, going the way of Bear Stearns and why are investors buying so many puts on this company if it wasn't about to go bankrupt?"

Here's a newsflash for you: for every put buyer who thinks the company's going down, there's a put SELLER who thinks the opposite. Better question: why is short interest a measly 1.2% if so many investors thought GE was in such dire straits?
Jun 23 09:03 am |Rating: 0 -1 |Report abuse |Link to Comment | View article


On Feb 03 10:07 AM BS Detector wrote:

> While I don't have time right now to read your previous articles,
> I'll do so later.
>
> Regarding level 3 assets: you are correct that determining fair value
> for these is problematic (pretty much the definition of level 3),
> but I don't think you have any idea of how it's done (as I recall
> GS includes a discussion of the different processes for different
> types of asset in its financials), and I guess it doesn't matter
> to you that the processes and results must be approved by auditors.
> Given that the level 3 problem has been very public in the last year,
> I believe auditors are paying more attention to this area now than
> they have in the past few years.
>
> Now, are you done shifting your argument here? Have you found something
> you're comfortable with at this point? Because you still have presented
> nothing of substance to suggest that GS is insolvent. And have you
> given up on MS then?