Ross Snyder

Is Buffett Backing Away from Stocks?

My recollection of the GS bailout was that the US government had to artificially give itself a worse deal in order to reinstill investor confidence in GS and the entire banking sector. After all, it wouldn't be a "bailout" if the taxpayers got a sweetened deal.

Investor reaction, at the time, was backwards. Buffett's deal, which diluted shareholder value, was cheered. The government bailout, which should have put a floor under the share price, caused investors to rethink GS's solvency.

'Mr. Mortgage' on how to identify false bottoms in real estate.

excellent and well-researched analysis - wow

So, the next big drop in home prices depends on the coming wave of forclosures hitting the market. The government is already subsidizing low-end home sales via the first-time buyer tax credit ending in December. I think it's safe to assume some kind of preemptive government response.

The question is, what? The government is already using AIG to shelter toxic mortgage-backed securities. What government-majority-owned bank might ultimately own half the housing inventory? Will price controls be imposed? and homes failing to sell get bought by this stooge bank? Will the tax credit simply be renewed for another year, at $16k instead of $8k?

I suppose if the growth of federal housing stimulus does not exceed the inverse decline of the dollar, then call the housing solution simple quantitative easing.

But I fear that the coming bailout of commercial real estate will limit government's tools without totally trashing the dollar.

The whole industrialized world is gaming just how fast they devalue their currencies - to maximize stimulus but to minimize inflation (especially in commodities). Meanwhile, China and perhaps India hold all the cards. The US can beat the EU and Japan at this game of poker. But ultimately, China wins this hand. Is there an advantage to holding our cards and staying in the game?

Design A Country Rescue Package Here (Comment Competition)

The California problem is a real *national* problem. You cannot allow a government that large to default without some impact on its currency. Unfortunately for the rest of us, we share their currency but not their debt.

An amendment to the U.S. Constitution might help solve the issue. When a state defaults on a loan payment, the U.S. Treasury steps in to assume the obligation. In turn, the Treasury assesses a special tax on every citizen of that state proportionally according to recent tax returns.

How Congress Can Solve the Recession, Outsourcing and Social Security

Thanks for the comments - I wish to clarify a few of my points, just in case anyone reacted with their knees and not their heads ...

Abolishing Social Security can be done by *phasing out* benefits. Any FICA taxes you've paid through 2009 can be given back as benefits as though no law changes ever occurred. The real crunch to the system will occur in 2017 (or earlier) when outlays exceed receipts ... so if we change the law before then, presumably the trust fund can still fund benefits the way they were intended.

I would propose that the scope of taxes on capital gains and dividends remain unchanged ... only change the percentages. So some pensions and retirement plans might be affected when funds are withdrawn. But really - we should all have Roth IRA's so that these questions are irrelevant.

Requiring all employers to supply a 401(k) plan is meant to replace the mandatory aspect of Social Security. The cost should be either neutral or positive for employers, depending on the match percentage and on participation levels. To put it bluntly: conservatives believe that most people are smart and can take care of themselves, and liberals believe that enough people are stupid that we need government programs to protect ourselves from the damage stupid people can cause. Eliminating Social Security without another safety net puts a lot of manics and spendthrifts out on the streets.

I agree with the user "Socialism cannot compete!", that focusing on pollutants other than carbon makes more sense in the near-term. Just one example of how EPA could monitor: It would be pretty simple to tally at a coal energy station the amount of coal going in, and the amount of mercury trapped before going out the smokestacks. Have a formula for how much mercury would be expected to be used, and tax the difference. ... My proposal is meant as a way to continue taxing corporations, not for their positive impacts (making money), but for the negative (pollution). Cap-and-trade is better than what we have now, but it's subject to market distortions - just look at how Russia makes out under Kyoto protocol, thanks to their 1990's recession.

Why a Psychological Bottom Will Lag Any Real Recovery

I was glad to see PrudentMan steer the conversation to Social Security. For the bottom 2/3 of American wage earners, Social Security is their last defense against eating ramen and working at Wal-Mart past age 80. If IRA's and 401(k)'s are truly underwater for folks 20 years or less away from retirement, the system will change. Sure, the money will run out. But politically, until we start electing congressmen willing to lose elections in order to help the country, benefits will not go away.

Nevertheless, this credit crisis is making it easier for folks to consider change. I'm working on another article on tax code changes, and Social Security is Ground Zero for a needed change.

For those responding to my personal basket of oil and gold double long ETFs: I can't imagine holding a commodity other than gold more than a month in this market. It's too volatile. I'm in oil while expecting shorts to cover and supply cuts to finally register with folks. (People discounting peak oil theory reminds me of people discounting global warming.) And yes, gold is a commodity, and I've certainly been burned by the overall monetary deflation. But the short interest is immense, individual demand will be strong for years, and at some level it will function as a currency vis a vis exchange rates.

It's hard to say that gold supply will decrease (due to increased sovereign reserves and greater individual holdings), monetary supply will increase, but gold prices won't rise. In the event of deflation, all of this central bank monopoly money has to go somewhere. In the event of inflation, gold should rise as a traditional hedge against it.

2009 Economic Forecasts Ignore Demographic Shift

Statistics will be almost meaningless in 2009. The year should be an *inflection point* between hyper-deflation and hyper-inflation. If commodities bounce back to 2005-2006 levels by next December, but groceries are 15% cheaper and electronics 30% cheaper, how do you measure GDP?

Major currencies will continue to swing 10-50% in a few months' time. How does that throw import/export data for a loop?

I'd look at statistics more meaningful to Joe Q. Public. By December 2009:
- Unemployment will be between 11-15%;
- Depending on when and which commodities are included, deflation will exceed 5%;
- Those with jobs will enjoy their growth in purchasing power.

But as global trade dries up (tight credit, wild currency swings, sovereign defaults), any rise in consumption by the top 50% of Americans will kick-start hyperinflation. Global markets are too tight, all the players are placing their bets in the same directions.

Shortages and low prices at times will coincide. Volatility in 2009 will be studied in ECON 101 for centuries to come.

AIG Now Fed's Vehicle for Buying Toxic Assets

Ten minutes of googling finds no news on the Bloomberg lawsuit since December 12.

The lawsuit is on the docket as 08-CV-9595 in the Southern District of New York circuit.


On Dec 27 03:56 PM countrybanker wrote:

> Great article. Whats status of Bloomberg lawsuit?

The Economic Meltdown: Dismantling, Yes; Doom, No

RCA had a nice reply to the original article. I think the author's point, though, is not that Fred Wilson's changes will come only to American companies, but that international companies are better equipped to survive such universal changes.

Consider- the USD will weaken v. other currencies. While US companies like KO with established overseas markets should do ok, other US companies needing to pay for overseas supply chains in USD will suffer.

Consider- the P/E of Vanguard Total Stock Market Index (VTSMX) is 15.46. The P/E of Vanguard Total International Index (VGTSX) is 11.97. In the private sector, there is more capital and less debt outside US borders. (Markets are just starting to price this!)

Consider- the US has the largest energy import/export deficit in the world (almost 700m tons oil equivalent in 2004, source: The Economist).

Consider- the US ranks 15th worldwide in broadband speed, access and price (source: ITIF).

AIG Now Fed's Vehicle for Buying Toxic Assets

Excuse me, the credit default risk on US sovereign debt is now 0.7% (not 7%).

AIG Now Fed's Vehicle for Buying Toxic Assets

Thanks for the update on CDOs. This resembles what Bloomberg was sniffing out with their (so far denied) FIOA request.

If we the taxpayers knew the toxicity of these assets today, the markets would say, "No thanks!" and crash. But devalue the dollar through these billions of dollars of transactions, and when we finally know what's been going on in a few months or years, we may just shrug.

All the government's answers to fix these massive toxicity problems resemble eating the cost tomorrow and not today. We'll pay for these AIG deals with inflation tomorrow. We'll pay for these massive Wachovia-etc. mergers with lost tax revenue as the parent companies retain profit while the subsidiary holding companies go bankrupt, thanks to an obscure IRS ruling conveniently made in September. (The Washington Post had a good series on that issue a couple months ago ... sorry, no link here.)

Just wait about 2-5 years, and 20-year bonds might be going at 19%. (30-year? Forget it, the government won't be selling them.) And the credit default risk on US sovereign debt? Now about 7%, in the next 5 years, who knows where it will be ...

Credit Crisis Watch: Signs of Progress?

Even if the credit thaw plays out positively, the velocity of money has slowed down so much that permanent damage will continue to occur for more than a year.

Entire industry sectors are unable to secure financing. Nonprofits are locked out of the credit market. Capital spending freezes are not just institutional - they're industry standard.

Deflation should be enormous for a year or so. Raw materials are sitting in harbors unbought - their production prices far exceed their spot prices. Whoever owns that deadweight midstream in supply channels will be dumping not at fire-sale prices, but at fire-storm prices.

I think world economies are in trouble for years to come, no matter when credit markets thaw. Especially as industries heat up one-by-one (it will take quarters and years for these frozen sectors to spend again), there will be too much quantity of money chasing too few assets. By the time more industries heat up, the inflationary damage will have been done.

The banks should be the first players to thaw. Where they put their money should start the inflationary pressures. Will they be believers and unleash credit, or will they shut down for doomsday and boost gold reserves?

T-Bills: Bubble, Bubble, Toil and Trouble

Where do you get the 1/3 probability of an inflation blow-up in less than two years?