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U.S. Reassurances of Its Creditworthiness Should Make Us Uneasy

The comments from the Chinese are made for very specific reasons - and they have nothing whatever to do with the safety and soundness of their investment in the US, or in US Treasuries. China knows that is a safe bet.

Instead, the Chinese understand that their export driven economic model & success relies on US consumers. They simply cannot achieve the 8+ percent growth necessary in their economy to stave off the rioting and chaos that has taken place in parts of their country.

As US (and UK) consumers have scaled back consumption, China, and the rest Asia, has suffered far worse than the US. The Chinese Premier knows (one only has to look to Japan) that his is a culture of thrift - not consumption - and yet there are a billion people to feed. Factories in China are closing and with them jobs that feed families.

China makes these comments for two reasons: 1) to ensure that the US does all that is necessary to restart our own engine of growth and 2) to mute the inevitable call from US officials to allow that Yaun to appreciate against the dollar. China will need a strong barganing position despite being the largest creditor to the US. They have lived off the backs, and piggy-banks, of the American consumer for 30 years post Chairman MAO. This is not sustainable (as evidenced by the large US trade and budget deficits that support our consumption, and their export-driven, addiction). A better model is necessary - one that promotes long term and balanced growth for both the US and China.

China realizes this and now must begin the task to really shape the mainland as a true ECONOMIC as well as political democracy. Consider the flawed US-supports- the-world consumption model: countries peg currency to dollar, or supress the value of their currency to the dollar. They send goods and services here - even starting businesses here. US buys these imports, financed by deficits and the sale of Treasuries. The cycle repeats. Recessions cause imbalance in the model. World suffers. US stimulates to recharge consumer. The cycle repeats. China, and all of the Asian Nations, must share the burden. The US must get its fiscal house in order. And that is what is beginning now.

China knows this all too well. They, however, need time. No doubt it will come at US expense if we let it. To suggest that US IOUs are suspect raises enough eye-brows for political gamesmenship to begin. If China were REALLY worried, the last thing they do is to go public. Instead, sales of Treasuries would have already begun.

The Yaun/US exchange rate is pegged. A strong dollar means a stronger international Yaun. That means less Chinese exports to everyone.

Bank of America: Bank on This Opportunity

Completely agree. MER and BAC look good together.

The Banking Sector Has Bottomed

I agree. SPY up from here

Bill Gross: Politicking for His Own Bailout

Interesting. While Gross sounds as if he is begging to save his own investments, one cannot argue that the asset and deleveraging cycle that he decribes, along with debt deflation, is occuring. We can all worry about moral hazzard, and about how the government cannot and should not support investor risk. Nonetheless, ONLY the government can support an orderly return of private capital to the marketplace given the scale of this problem. To leave this entirely in the hands of private investors and the marketplace has and will continue to result in financial ruin for many hard working Americans. We can all bemoan those who purchased homes they could not afford. However, the average American is wise and frugal, and had NO intention of NOT making his mortgage payments on time. If you believe that, then you must also believe the average american is a crook and therefore all investors should have no faith in our capital markets in the first place, which are based entirely on trust (if so, then our financial system would be BASED ENTIRELY ON moral hazzard). Instead, speculation by private investors (perfectly justified, btw) created an environment that priced homes out of reach for many Americans, the great majority of which simply want to live in a better neighborhood for their children. Not everyone currently facing forclosure is ignorant, or a deadbeat. Many have simply lost jobs because the same private companies that (correctly) are hoarding cash, and develering the balance sheet, are laying off workers. All bubles burst to the extreme in the opposite direction. One cannot say that poor Government supervision of Fannie and Freddie and the private market created at least part of this problem, and then at the same time suggest that the Government should again repeat that mistake and not play a coordinating role is helping the private market to solve this problem. And as with all of the bubbles past, regulation will exist to prevent a repeat of this problem. America's financial market has always created bubbles. It is our job to learn from our mistakes, not simply suggest that it is every man for himself.

Citi's Pandit: Still Going in Circles

I believe it is too early to make this call. What would you have him do...now is not the time for firesales. now is the time for deliberate action - well thoughtout, planned action.

High Likelihood of a Market Crash

This is quite interesting. On one hand, the Omen is a fairly reliable predictor of, if nothing else, a downturn in the market - near a 40% probability. However, we could be observing a fundamental shift out of an S&P index weighted heavily in Financials toward one more permenantly weighted tech and commodity for the intermediate term. If the later is the case, we could easily simply drift sideways in a range for 18 months to 3 years. my guess is that is the case - since the large cap investment banks and the Private Banks are desperately wondering where profits will come from for the next 3-5 years. Remeber, institutions drive the market, and institutional money is betting long term against financials.