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Moon Kil Woong

 
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Latest comments  |  Highest rated
  • Fed Policies: Outdated Tactics, Modern Crisis [View article]
    Banks are in no financial condition to forgive debt. In fact they have a hard time remaining solvent and only do so due to the lax almost criminal accounting treatment they are afforded. Thus a strong statement can be made that a lot of them should have failed and that a lot of the too big to fail banks collapse would have resulted in debt forgiveness similar to what the author advocates (unfortunately with a lot of public money but a lot of public money was spent anyway with no forgiveness).

    What is now scaring the market is that top graph where the Federal Reserve indicating it was going to start unwinding it's overblown balance sheet seems once again to be raising it. Likewise with a Asset-to-Capital ratio of 42x the Federal Reserve now can be classified about as risky and/or defunct as Bear Stearns and that's without factoring in their theoretical losses if their assets were market to market or their backstops were treated as derivatives similar to AIGs (which they are).

    No wonder the Federal Reserve is so scared of a Congressional audit. They have trasferred trillion of dollars of liability to the public so that banks can reap windfalls of profit and rain down bonuses like it was 2008 all over again.

    Now Bernake faces a larger question. If he raises interest rates all the debt he consumed at low intereast rates instantly devalues making the assets he bought helping his friends drop. Thus, even if there is no deleveraging of the Federal Reserve, their Asset-to-Capital ratio will theoretically rise even higher since their capital decreases. Of course, the Fed dearly hopes they can hide this fact once again by claiming that they are a private bank and shouldn't be scrutinized by Congress. But then again, if they are private they should be audited like all other banks. Certainly the US Treasuries the Fed recently bought could easily be revalued at losses if interest rates rose even if their other bond values could be debated. Simply put rates would not have to rise much to "bankrupt" the Fed if audited (they would never officially go bankrupt because thay are backed by your taxes. Rather you would be bankrupted).

    Because of this Bernake undoubtedly will keep zirp rates in place. The rational claim he can make to you is that it's for your own safety. Because, the Federal Reserve under him has chosen to risk the central bank bailing out the likes of BoA and Citibank. Therefore, I doubt we can expect a Volker like rate hike anytime soon. The Fed would have to cut their risk profile and purge itself of their bad assets well in advance of such an action.
    Oct 9 04:41 AM | 1 Like Like |Link to Comment
  • Unemployment: We're Not Out of the Woods Yet [View article]
    GDP upticks mean very little when they don't oupace inflation let alone commodity bubbles. Likewise, although the trend is down all the commenters are right in that it still looks terrible. Yes, the sky is not falling, but really, does anyone want us to clap?

    Keep putting your bets on commodity bubbles and companies which export. Don't bet on long term Treasuries or that domestic consumption will save the day.
    Oct 9 01:28 AM | 1 Like Like |Link to Comment
  • Does Economic Data on Debt Support Medium-Term Bullishness? [View article]
    Thans for your rather detailed view on debt in the US. The Federal debt is just the tip of the iceberg. Under it sits the unaccounted for debt caused by social security and other underfunded US liabilities. Although this can be explained away in the fact that people believe the US will simply curtail social security medicade etc. when the liabilities occur, politically this is questionable.

    Regarding the broader economy, it is clear the US government wasn't the only one piling on unsustainable debt. A few years of austerity, although bad for GDP would go a long way at restoring some semblance of fiscal sanity to these charts.

    Edward harrison is once again right that in a recession businesses and individuals need to unwind their debt levels, otherwise the correction does wring out inefficiencies out of the system and create a firm base for growth and prosperty going forward. This clearly has not taken place in the 2001 recession. The government should stop trying to prevent it from occuring this recession as well.
    Oct 8 04:15 AM | 1 Like Like |Link to Comment
  • BofA: Who Should Be CEO? [View article]
    This is the 2nd time BoA was bailed out by the government (the first time they got a too big to fail government loan and promised never to repeat their mistakes). If they ever get a less meglomaniac CEO they should decide to shrink the bank down to something managable and focus on their core business. They should also stop making terrible deals with the government.

    The sad fact is you would probably have to pull teeth to ask any of the aforementioned people to be CEO. Why would they want to be CEO? Why would they want a position they can be publically lambasted and then sit under the thumb of government bureaucrats? They are already rich.

    In some sense it is justice what's happening to BoA and Citibank. The wrong type of justice, but still some justice. They probably would have been better up under bankruptcy court with the rest of the too big to fail clowns that play with other peoples money. I will never put my money in their bank. If everyone else did the same we wouldn't need to woory about the government bailing out too big to fail banks. They would just have to let them die.
    Oct 7 06:47 AM | 1 Like Like |Link to Comment
  • Shallow Correction Quickly Reaches Critical Levels [View article]
    This bull is being driven by US dollar depreciation, pure and simple. Whether we are better off from it is very very debatable. For every dollar we make all US assets are being devalued relative to the rest of the world by a lot more. Undoubtedly this will dampen people's spending mood, especially among the rich who stand to loose the most and will notice it the most next time they want to travel or bus something overseas.
    Oct 7 03:04 AM | 1 Like Like |Link to Comment
  • Commodities Soar - But Volatility Works Both Ways [View article]
    The only thing that seems strange is the demand for US Treasuries. Well until the Fed stops buying their own auctions it will be hard to determine real demand there. Even so we see the dollar still weakening.

    As far as I can tell people are increasingly moving towards the buy anything camp in light of collapsing dollar. I know someone that just bought 1,000 boxes of magic cards in exchange for US$. Apparently they have more faith in them than greenbacks. That's just sad. Across the board I am seeing asset prices go up for anything that may have the slightest whiff of appreciating as the dollar falls. Thank goodness it's not just collector comics, cards, and antiques. The odds of increased demand in these things will create enough jobs to dig us out of the recession are 0%.
    Oct 7 02:55 AM | 1 Like Like |Link to Comment
  • Market Bias Remains to the Upside [View article]
    I think China is ascribing to the following theory: What do you buy when the dollar is going down the tubes? Buy anything. It seems to be echoing in commodities and equities recently. The real question people are wondering now is does the Federal Reserve really want this type of mentality?
    Oct 7 02:43 AM | 1 Like Like |Link to Comment
  • How Far Has the Dollar Actually Fallen? [View article]
    We are good at outdoing everyone. This downturn we are outdoing the Japanese QE and outdoing Europe on how low we can push interest rates and try stimulating the economy with newly minted federal debt. It is no wonder that the dollar is sinking.

    While we watch our stock market go up are we even worried about the rest of our assets going down in value relative to the rest of the world. The Federal Reserve doesn't want you to think about it, but I'm sure wealthy and in the know people do.
    Oct 7 02:19 AM | 1 Like Like |Link to Comment
  • DeLong Sets the Table for Multiplier Measurement [View article]
    It is fascinating how little people debate how government debt and spending is taking away capital that would go to more worthy allocation of assets (just about anywhere else if you ask me). Perhaps it's because they are forstalling tax increases (until they already spent your money). Perhaps it's because they are arguing without spending on AIG, Citibank, and Freddie Mac there would be no market (a flat out lie). Or perhaps because no one realizes for every trillion dollars the Federal Reserve or government spends the dollar devaluation is in fact worse than a tax (it's essentially robbing you).

    Anyway, without a doubt, this hyper government spending is taking away from more worthy segments of the economy and robbing you blind.
    Oct 2 04:23 AM | 1 Like Like |Link to Comment
  • How Are You Liking October So Far? [View article]
    Hmmm, well at least volume picked up. I prefer a real market that drops moderately over a thinly traded one that rises but no one is sure about its real value.
    Oct 2 03:49 AM | 1 Like Like |Link to Comment
  • Will We Need More TIPS to Finance Our Growing Debt? [View article]
    The government is playing the ARM game with out long term debt obligations. They are selecting the short term maturities (ergo the teaser rate) since they can't afford the normal term. When interest rates rise on short term rates it will be painful.

    Krugman and the rest are saying we can just print and inflate when that occurs. But really, when rates rise you must offer even higher rates and face higher inflation if you want to print even more money. Economics is about hard facts, not political hat tricks.
    Sep 30 11:27 PM | 1 Like Like |Link to Comment
  • Currency Swaps, U.S. Dollar, And a Tilted Playing Field [View article]
    Chris Martenson lays out a good argument with factual evidence regarding the ever tightening relationship between government action and people who profit off of it. A large reason we try to divorce government from the free market is not only does it create distortions in the market but allows people with foresight to profit off of them. Whatever happens in washington is telegraphed to insiders long before it takes place. Everyone knows that. That's why there are so many rubbernecking lobbyists hanging around DC and why every banker is trying to cozy up to the Federal Reserve (the Federal Reserve backstopping and buying their garbage also helps).
    Sep 29 10:12 PM | 1 Like Like |Link to Comment
  • Derivatives Datapoint of the Day [View article]
    With or without losses the risk exposure exists and often must be hedged. If there is counterparty risk or other associated risk lumped into the cost aside from the zero sum derivative bets made by the origional participants then no actual loss has to occur to incur some percentage of the notional value to be lost before settlement.

    If this is a quandary for you, it is for most of us including people who bought or sold derivatives only to find out they need derivatives to hedge their derivatives or to set aside some percentage of the notional amount to account for potential defaults. It's like buying insurance and needing to buy insurance to insure yourself in case your insurer goes broke. Most of the derivatives market is totally out of control and unregulated and most people fear, if it is regulated their massive losses will be uncovered.

    Thus they all put their heads in the sand and hope it goes away as they write more derivatives to cover their bad derivatives. In fact, just like all ponzi schemes, it never ends until it ends badly.
    Sep 29 04:40 AM | 1 Like Like |Link to Comment
  • Bank Products: A Eulogy for Vanilla [View article]
    The only reason why we have a functioning mortgage market at all is because the taxpayers must suck it up and pay for the losses of Fannie Mae, Freddie Mac, and the FHA. A vanilla option would make a field where these entities are not neccesary and the public dime is not wasted.

    Essentially what happens nowadays is these entities dictate what they will buy and the rest of the market must fall into line. This is the socialized system, not the vanilla option. One the government must pay for with others money, the other the market self regulates. One of these has a future. The other one does not.
    Sep 28 06:54 AM | 1 Like Like |Link to Comment
  • Ratings Agencies Under Fire [View article]
    Reading the judges argument is quite convincing. Freedom of speech doesn't give ratings agencies the right to rob people or let others rob people. That's just about it in a nutshell.

    Bad ratings agencies and weak financial accounting are the real rot eating away at the foundations of our financial world. The corruption, derivatives nightmare, and bad banks are just the maggots and zombies that result.

    Implement Glass Stegall now and demand full disclosure. If a bank doesn't like mark to market lwet them issue a mark to dreamland side by side and lat the public decide what to believe. Don't make the accounting profession the clown.

    And do away with the off balance sheet garbage. It is a violation of shareholder's rights not to get full disclosure as well as being as shady as Al Capone's operation (even he'd be envious of the crooked dealings today).
    Sep 23 06:27 AM | 1 Like Like |Link to Comment
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