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Tom Armistead
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I'm a well-informed retail investor and formerly posted on SA in order to expose my thought process to critical examination and comment from readers. It made me a better investor. I'm particularly proud of bullish macro articles posted in 2009 and later, in which I presented ideas that... More
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  • Geithner's Advice Dismissed in Europe

    Thinking about the EU situation, I've been trying to understand their thinking as a group, and wondering if as an American living in a culture of Wild West Financialism I can fully understand how they are thinking about the Greek debt issue and how it might play out. I'm used to a system that goes from crisis to crisis, driven by financialism, with ad hoc solutions provided by emissaries of the financial/government elite.

    Geithner's Act Bombs in Wroclaw

    European finmins at Wroclaw responded poorly to Geithner riding into town with a silver bullet in the form of advice. He took a limo alone, they rode the bus together, per Felix. Most Euroean countries have multi-party governments, subscribe to socialism in the sense they are more prepared to accept greater income equality and the cost of safety nets, and are subscribing to concepts of austerity and monetary stability as a resolution to the GFC. A bureaucrat may be willing to remain a bureaucrat, and leave the pinnacles of finance to others.

    Investing in the Creation of a Greater Whole

    Germans have developed a concept of investing in the development of an important role in a greater whole, as a means of advancing their own welfare, and that of those with whom they co-operate. The cost of German reunification, pulling East Germany out of what the Russians created there. Of course they have nationalists, the same as anywhere else. Very possibly other EU nations subscribe to these ideas, with cultural differences arising from the extent to which they have permitted the excesses of taking more out of government systems in the form of benefits than is put in in the form of taxes.

    Greece is culturally adapted to shaky government finances. The normal form of wealth accumulation is property, since it retains its value (as rents) with currency crashes or changes. Taxes for a majority of citizens are deducted at source and can only be evaded by operating under the table. Professionals and corporations evade taxes as a routine matter.

    Socialism - the Antithesis of Individuality

    Collectively the Europeans are not going to pursue socialism until they run out of other people's money. They will apply ample pressure and patience in an attempt to bring Greece into this framework. If at some point Greek debt has to be restructured, it will be done when sufficient assurances are in place that the Greeks will thereafter balance their budget.

    There was the bit with the transaction tax as a litmus test for co-operation. The transaction tax is pointed at financialism of which the Europeans have an understanding, whether they label it as such or not. So Geithner raises his hand and says nyet.

    An Aside on Financialism

    Financialism is an economic system where the primary activity consists of creating and manipulating financial instruments. Financial instruments – loans, mortgages, stocks, bonds, etc. - are in their original form firmly linked to economic reality: the mortgage finances home ownership; the stock certificate represents ownership of a company that owns physical assets, the bond secures debt incurred to build a factory.

    However, when financialism sets in, financial instruments become progressively further removed from their role in supporting commerce in the real world and develop a life of their own, a weird shadow dimension, a hall of mirrors, a distorted alternate reality that intersects and reacts with the real economy in unpredictable and destructive ways. George Soros described this phenomenon as “reflexivity.” Derivatives have a lot to do with it. Leverage and the abuse of easy credit are contributing causes. The shadow banking system is a symptom.
    Back to the EU

    As an American I have difficulty getting it. Geithner the ambassodor of Wild West Financialism rides into Wroclaw, Europe with a silver bullet, and the citizens dismiss him. Their goal, or project as they might term it, can be met or succeed with or without Greece. Greek citizens collectively have a decision to make, when it is made, the EU will continue with their project.

    When this becomes clear, markets will decompress.

    Sep 17 7:06 AM | Link | 6 Comments
  • Green River
    Dr. Greenspan, long ago, made the diagnosis. It was some kind of an addiction, which started with prescription rate cuts and progressed over time.  Whatever was wrong with Mr. Market, it could be cured by Green River. Simply apply as much of the sovereign remedy as was required, and Mr. Market would perk up and perform his appointed duties. 

    Dr. Bernanke confirmed the diagnosis, and when Mr. Market took a turn for the worse, he upped the dosage. Using a fire hose, he squirted Green River up Mr. Market's ass untill it came out his ears. Eventually the patient sat up and was able to take nourishment. 

    However, John Q. Public started showing signs consistent with a similar diagnosis, and it has been left to Congress and the President to apply the sovereign remedy. They argue interminably, whether to use an eye dropper or a bulb baster, or whether to make John Q. go cold turkey.

    I don't have a clue how this ends.  
    Sep 09 11:10 AM | Link | 1 Comment
  • Are We at the Bottom Yet?
    Back on 3/5/2009, I made the following note in my market diary:

    With the S&P at 687.88, I experienced a wierd sense of tranquility and serenity, complete peace...It was like the addict or the alcoholic at the bottom, peace and serenity...

    Usually I just make brief notes about the trades for the day, bought to open 10 of this, sell to close 10 of that, thought it was a good buy at xx.xx, upgraded by FBR, from hold to buy, on valuation, etc.

    Somehow today I kind of feel the same.  I'm pretty much out of dry powder, there is nothing to do, I believe I can stay solvent longer than Mr. Market can stay crazy.

    Very soon after the market opened, my account went negative to the tune of $9 million.  It seems I sold some covered calls, but the market maker wasn't there anymore, the ask was 9,999...Of course there were some messages in red, about a potential margin call.  Never a dull moment.

    Sep 06 2:33 PM | Link | Comment!
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