Loading...
Symbols:
Get Seeking Alpha Free Stock Alerts by Email!
Get Free Stock Alerts by Email!
Transcripts
- IntegraMed America, Inc. Q3 2008 Earnings Call Transcript
- Cell Genesys, Inc. Q3 2008 Earnings Call Transcript
- Columbia Laboratories, Inc. Q3 2008 Earnings Call Transcript
- Pacific Sunwear F3Q08 (Qtr End 11/1/08) Earnings Call Transcript
- Mad Catz Interactive, Inc. F2Q09 (Qtr End 09/30/2008) Earnings Call Transcript
- Provectus Pharmaceuticals, Inc. The Wall Street Analyst Forum Call Transcript
- Point Blank Solutions, Inc. Q3 2008 (Quarter End 9/30/08) Earnings Call Transcript
- Navios Maritime Holdings Inc., Q3 2008 Earnings Call Transcript
- Gran Tierra Energy Inc. Q3 2008 (Qtr End 09/30/08) Earnings Call Transcript
- Oxygen Biotherapeutics, Inc. The Wall Street Analyst Forum Call Transcript
-
Editors' Picks
-
Most Popular
- My Reconsideration: Why Share Buybacks Are Pointless
- GM Could Benefit from Bankruptcy
- Throwing in the Towel on This Market?
- General Electric: Genuine Risk of Collapse?
- Food: Against Self-Sufficiency
- The Fed: Now the World's Largest Private Bank
- Full list of Editors' Picks »
- General Electric: Genuine Risk of Collapse? »
- Memo to Warren: AmEx Preferred at 15%, Warrants at $12 »
- Peak Oil's Bell Is Ringing »
- Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor? »
- The Pickens Plan Changes Its Strategy »
- Jim Rogers on China »
- Thornburg Mortgage, Inc. The Wall Street Analyst Call Transcript »
- The Biggest Problem Detroit's Big Three Face »
- Tech May Be a Wreck, But This Isn't 2001 »
- Wall Street Breakfast: Must-Know News »
- Precious Metals Will Depose Cash from Its Temporary Throne »
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »
Trading Center
- Free E-Newsletters
- About Seeking Alpha
- About Us
- Contact Us
- What's New
- Readers Feedback
- Advertise With Us
- Contributors
- Contribute an Article
- Feature Your Book
- Our Contributors
- Anonymous Contributions
- Dispute an Article?
- Legal
- Terms of Use
- Privacy
- Copyright
Reinko
328 Comments
Economic Stimulus Plans: The Good, the Hopeful and the Dubious
There is lots of debt in the USA (Americans are even famous for turning debt into securities) and some part of this debt is listed in the Federal Reserve flow of funds sheet. Here is the link:
www.federalreserve.gov...
If you add the relevant totals you get 46 trillion or 46 thousand billion in debt, but as stated before; there is a whole lot more debt.
For example the Federal Agency bonds fit nowhere in the flow of funds release, the Social Security funds are filled with 'AAA rated' government bonds and all Federal emergency spending is also not listed there.
So we can safely jump to the conclusion that total debt stands over 50 trillion and with a defendable interest rate of 5% there is a staggering 2500 billion US$ needed just for the interest in the year 2008.
In 2009 an estimated 2700 billion is needed and so on and so on.
So the increase in only the interest is beyond the present stumilus package, therefore it will not work.
Another way of viewing at this: At present total debt on the US economy is something like 400% of the gross domestic product. Adding one % more in Federal debt will not make much of a difference because the interest levels are far to high.
There is only one way out: Pay off the debt...
The Dow Hates Bush?
For doubling your money on a savings account in seven years you need 2^(1/7) = 1.104 thus 10.4% interest on a yearly basis.
With just five percent you get 1.05^7 = 1.407 or 40.7% more after seven years. Thus the compounded (extra) interest is only 5.7% above the 5% times 7 = 35%.
When you have low interest rates, the compounding effect isn't very much of a thing.
__________
To Eddy: 1.48% a year on the DOW isn't very much and I expect further larger declines this year so it might very well be that in a few months the whole thing needs to be written in red.
Prepare for a Multi-Year Decline in Consumer Spending
I live in Holland and in the nineties we had two years on a row of 4% more 'income' spended on behalf of your house value.
It took us four years to recover from that...
The Bush Fiscal Stimulus Plan: Looks Good to Me
In that case grab your pocket calculator and go to the Federal Reserve website, the 'flow of funds' sheet (some debt is collected there but not all debt)
Here is the link:
www.federalreserve.gov...
Add up the relevant totals, column one plus the one before last and arrive at the conclusion that the US economy has about 46 trillion or 46,000 billion US$ debt on herself.
Together with the lending against the Social Security funds and the Federal emergency spending we see: Total debt is over 50 trillion.
So at a reasonable interest level the US economy needs 2500 billion a year just for the interest.
Another way of looking at this: Total debt is something like 400% of the gross domestic product, adding 1% more debt will not make much of a difference...
And lets go back in time to 2006: In that year home owners took about 650 billion US$ of value out of there houses, that is about 4 to 5% of GDP yet in 2007 things went sour anyway.
Don't Buy (Sell) The Bear
For the source of my calculations go to the Federal Reserve flow of funds sheet where some debt is collected, here is the link:
www.federalreserve.gov...
During the last seven years the debt on the financial sector grew something like 82%, the gross domestic product did not grow that fast. (Just compare Q1 2001 with Q3 2007)
The same goes for mortgages, according to the flow of funds release we have 111% increase.
And what about total domestic non financial sectors?
In Q1 2001 we have 18334.7 billion US$ debt while
In Q3 2007 we have 30640.9 billion US$ debt.
That is over 12 thousand billion more debt!
And the totals are staggering: When you add the debt of the flow of funds sheet together with the Federal emergency spending (not included at that FED sheet) we are over 50 trillion of debt.
That is over 50 thousand billions!
And at an interest level of just 5% there is a need every year for 2500 billion just to pay the interest!
In conditions like this it just makes no sense to compare the present S&P with the 1999 or 2000 S&P.
Citigroup: Buy Today for a Rainy Day
The most important reason is the gigantic need for new debt, estimates indicate that for the entire US financial sector something like 2500 billion US$ is needed in this year 2008.
Don't believe me?
This is easy to proof:
Go to the Federal Reserve flow of funds sheet, here is the link:
federalreserve.gov/rel...
Go to the one before last column (total domestic financial sector debt) and scroll down until you get the last two numbers.
They say, total debt is
2007 Q2 = 14855.0
2007 Q3 = 15435.3 billions of US$.
Since 15435.3/14835 = 1.039 we have 3.9% Q on Q.
Thus a yearly estimate of 1.039^4 = 1.166 thus 16.6% Y on Y.
And 16.6% of the latest known 15435.3 billion is a rough 2500 billion US$.
Bear Gets Bullish on Bank Stocks
If you do that you arrive at the conclusion that the entire US financial sector will try to pick up debt in 2008 in the order of magnitude of 2500 billion US$.
Don't believe me?
This is easy to proof:
Go to the Federal Reserve flow of funds sheet, here is the link:
federalreserve.gov/rel...
Go to the one before last column (total domestic financial sector debt) and scroll down until you get the last two numbers.
They say, total debt is
2007 Q2 = 14855.0
2007 Q3 = 15435.3 billions of US$.
Since 15435.3/14835 = 1.039 we have 3.9% Q on Q.
Thus a yearly estimate of 1.039^4 = 1.166 thus 16.6% Y on Y.
And 16.6% of the latest known 15435.3 billion is a rough 2500 billion US$.
Thus with letting this detail out Bear Stearns is just as crazy as that Chicago school of economists that are more an advertisement agency for the US economy.
No, the likelihood of a severe crash is climbing by the month and very likely it will start with a tidal wave of bankruptcies in the US financial sector. I mean: What can possibly stop this?
Why Sovereigns Are Buying Our Financials - They're Cheap
And do you know why that is?
Because the entire US financial sector will try to pick up debt in 2008 in the order of magnitude of 2500 billion US$.
Don't believe me?
This is easy to proof:
Go to the Federal Reserve flow of funds sheet, here is the link:
www.federalreserve.gov...
Go to the one before last column (total domestic financial sector debt) and scroll down until you get the last two numbers.
They say, total debt is
2007 Q2 = 14855.0
2007 Q3 = 15435.3 billions of US$.
Since 15435.3/14835 = 1.039 we have 3.9% Q on Q.
Thus a yearly estimate of 1.039^4 = 1.166 thus 16.6% Y on Y.
And 16.6% of the latest known 15435.3 billion is a rough 2500 billion US$.
So if those foreigners would have done their homework they would have waited a few months.
I am very sorry Jeff: Try this article once more and include some easy to understand calculations from the flow of funds sheet in it.
Because now it is crap while it could have been a good article...
Good luck with it!
Percentage of Stocks Above Their 50-DMAs Finally Oversold
It would only be oversold when we were in a flat environment, but in fact stuff is going downhill.
Contrary to oversold we also have overbought, it would be nice to make a statistical eveluation in how far the concepts oversold and overbought are equaly distributed (the 50-50 hypothesis).
Want to bet that the Americans use 'oversold' much more often?
Bernanke Deserves Blame for Sell-Off in Stocks
If you subtract that extra debt from the 2006 GDP, the whole year 2006 was already a recession. So the mechanism is very easy to understand: If we subtract the extra debt from the last years, there is already a multi year recession going on.
The fact that Americans do not understand that debt driven GDP growth is a waste of money is their problem and not mine (don't forget the interest on the debt is often a multiple of de GDP growth that is generated by that fresh debt driven economical stimulus).
Thus all those plans to place a bit of money into the pockets of the tax payers will fail once more...
Recessions, depressions and defaults are Gods way to learn macro economics to the Americans.
The Oversold U.S. Market Gets Even More Oversold
More on Debt Supercycle Control
By the way, your name Schoenenberger sounds so Dutch. Translated it means Shoesmountener. do you have Dutch or Belgian forefathers?
You are right on the role of the conventional media; when you see what kind of mess for example CNN makes of the economical news you can only wonder: Why do they do it?
But here back in Holland also researchers from respected banks can tell deep footed crap, it is always easy to see if they have 'Z1 release or related' information in their head or not.
If you think the Z1 release contains big numbers, give it a try and go to the Bank for International Settlements. Where the tiny Federal reserve reports in billions, the BIS does the same in trillions...
Here is a link to some money option pdf:
www.bis.org/statistics...
It is amazing how fast those numbers climb...
But Mark, thanks for the links but I have to go now!
Foreclosures: Coming Soon to a Neighborhood Near You
Here in Europe for example even entire organizations like dentists did throw in a lot of pension money and I could talk and talk but they kept on doing it. But if academics fall in the trap, why blame the average US worker who has no clue about financial calculations and financial reasoning whatsoever?
Even Alan Greenspan still does not get it: He blames the falling prices on all those unsold new houses and says 'those will be sold at a firebrand level and that brings the prices down'.
So the Alan clown simply does not understand the relation between M3 money supply and the creation of bubbles, no wonder he alsways had to be so vague...
US Bancorp Is Whistling Through the Graveyard
Go to the Federal Reserve website Flow of Funds sheet, here is the link:
www.federalreserve.gov...
Go to the one last column (total debt domestic US financial sector) and read the Q2 and Q3 numbers:
2007 Q2 = 14855.0
2007 Q3 = 15435.3 billions of dollars
So the entire US financial sector pick up 580.3 billion US dollars in just one quarter... In the first 3 quarters the financial sector picked up a staggering 934.9 billion and if Q4 is in line with Q3 we are looking at 1.5 trillion US$ in the financial secor only.
Needless to say that 1.5 trillion is far beyond total profits of the US financial sector (although I do not have an exact number on that, yet it is very hard to imagine that it is beyond).
So as a whole the US financial sector has so called 'Ponzi status' that means that they need to borrow more just to pay the interest on the outstanding loans:
2007 Q3 = 15435.3 billion so at an interest rate of 5% they need a rough 600 billion a year just for the interest payments.
Compare this with the little billions that come from China and the Mid East and arrive at the conclusion that the Wall Street traders are standing lightyears from reality with their rallies on those small billions 'save our banks' news.
TAF: Temporary Applause for the Fed
Furthermore it has to be taken into account that the US FED only placed a few times 20 billion in the system where the ECB got atomic with 500 billion.
At the time I already suspected that the large ECB move was in fact for the USA and the European libor rates later confirmed that because right now the ECB is collecting it back.