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Reinko
328 Comments
15 Thoughts on the Markets
You post an awful lot of links so I only comment on a few of your 15 points.
Point 2) As a statistian I think too you cannot have enough data, with interest I read your 3% estimation on long term equity return. Lets hope your 3% is without inflation...;)
Point 3) I know the VAR risk models only very recently, to be honest I only found them when I smashed the option price mechanism that has exactly the same faults as the stupid VAR models.
As a wise man once said: You can use Value-at-Risk to point you to some risks but this does not protect you from the risk of using that model.
Point 5) Indeed the IMF firepower is a joke, only 200 billion and another 50 billion is just a joke. There is one country that is to blame the most for these far too low reserves at the IMF: that is the USA.
Not her government, those folks are braindead anyway, but the US economists that win Nobel prize after Nobel prize and started thinking they were clever...
Point 7) How do we pay back what we borrow?
This is a very new question inside US economical thinking, until now a refi was the answer to stupid questions like that.
Refinancing is deeply rooted in the USA, we in Europe think that is weird.
Point 8) Indeed there is nothing good at a zero FED rate, but all those years when stock P/E ratio's were 'historically high' were only caused by too low FED rates.
The FED simply does not have what it takes to preserve a fiat money system; inside a fiat money system the fiat money should have some kind of value and that can only be done by relatively high rates.
Point 10) Until now the US financial sector has used the mark to market rule also for writing off her own debt obligations. My estimation is that now it is over 200 billion US$.
Needless to say it is weir to write off on your own obligations; it is bad for your credit ratings but the rating agencies seem to miss that point.
Point 11) Readers of seeking alpha should also have a bookmark to the Institutional Risk Analyst. Those folks often produce good stuff.
Point 14) The FDIC and do a lot but her 'fund' is just one of those fake USA government funds. No real (fiat) money in it but only Treasuries.
Again: The FED (and the US Treasury) simply do not have what it takes to preserve and nourish a fiat money system.
All actions by the FDIC are done with tax payer money & oh oops... There is no tax payer money because the UDA has a deficit!
Oh lets sell more Treasuries to these dumb Chinese and Japanese and the mentally handicapped Europeans! It is a super safe investment anyway!
So far my short comment.
Bears Have Rallies Too
Keep on the good work please!
FOMC Statement: What It Really Says
Allowing for the monetary and the fiscal lag,U.S economy is poised for a record mega rally .
Unquote.
The whole problem with this mega rally it is only more debt that fuels it.
So lets wait and see if more debt will indeed induce a 'mega rally' because in fact mega more debt is used.
Any idiot who thinks there will be a mega rally is in fact a mega idiot...
Dollar Strength: An Illusion
In case you are interested in doing the math: Of course the USA is insovent. Any idiot that thinks otherwise needs a tree and some rope...
For the rest, I am baffled by the amount so called 'Central Banks' kept on buying GSE like Freddie Mac & Fannie Mae while in the spring of 2004 I already said this is unwise given their so called 'business model' (only picking up one sided risk).
Just do the math: The USA is insolvent.
If you have some proof otherwise, please let me know!
FOMC Statement: What It Really Says
Remember Alan Greenspan with his 'conundrum thing'?
Alan raised his short term rates but miracle miracle the long term rates in commercial spaces stayed below the utter magic from Greenspan.
Greenspan considered this 'strange' but instead of showing 'who is boss' and pump the boss stuff up to 7 or even 8%, it was only very short we did see rates at 5.25%.
It is clear and it is obvious:
At the conumdrum news already the FED had lost it from the chaos that could emerge from the free markets (the jungle so to say).
All economical data since then point to the fact that my original 'you have lost it' conumdrum insight were in fact correct.
Let me spare you the other 999 details...
When Lending Standards Really Changed
It was so lovely some years back; long term rates on the free markets were below the short term rates as declared by Alan.
Nobody sounded the alarm and at present day the main stream news follows how fast Libor stuff declines after countless billions of tax payer money is on the hook.
Not often you see a bunch of idiots having so much insight on Libor stuff...
And a more rigid explanation about why the conondrum was in fact a deadbeat is of course not observed, obese debt hugging USA fat bags do not think around items like this.
Why the CDS Market Didn't Fail
The first link in the above article goes to a Reuters file:
www.reuters.com/articl...
A quote:
In the Lehman case, the largest collateral payments would have been required in the four or five days following the bankruptcy filing in mid-September, when spreads on senior debt widened from around 700 basis points on the five-year contract to around 7,000 basis points, based on the then market view of an estimated 30 percent recovery, Hampden-Turner said.
__________
But there is about 3 to 4 hondred billion in contract obligations sold of that stuff, in the article it is only mentioned 8 billion US$.
One way or the other, there will be large payments and large write downs to be expected. With or without mark to market rules is completely irrelevant...
Why the CDS Market Didn't Fail
Example (it makes no difference if you are a buyer or a seller):
One year ago to insure 100 $ of Lehman debt was 1.50 $
A year later it is 3.50 $ and some day Lehman defaults.
All the time you can mark to market from 1.50 to 3.50 dollar, but if you sold this kind of insurance you have to pay the 100 dollar...
I mean that was the contract, I sell you insurance against a Lehman default. So if lehman defaults I pay you the contracted value. It is hard to see how mark to market would lead to contract obligations being paid before such a default is actually there.
It is not impossible but it looks not logical.
So we will wait and see what happens tomorrow.
Are Big Banks Too Big to Fail?
The FDIC 'insurance fund' has no real money in it; it is only an accountancy vehicle that measures how much 'insurance premiums' the banks have paid and how much is withdrawn from that 'fund'.
In the fund are only Treasuries, even the coupon is paid with more Treasuries. The money the banks paid over the last decades is long gone and spend on everything from military stuff to whatever what.
Each and every bank failure is paid by enlarging the US Federal deficit.
Don't forget: If you add up all those fake funds in the US government (it is so called hidden debt that brings down the official deficit) and add the official deficit you are over 100% of the US gross domestic product...
USA: The Biggest Obstacle to Global Banking Regulation
No small banks find it hard to merge because at a merger all stuff on the balances has to be marked to market value. The market value of an average bank is far below it's book value, hence mergers are difficult.
That is the reason you see so little merging going on, only when the FIDC rams in some parts of some banks are taken over. But that comes at the expense of making it to the 'failed bank' list of the FDIC.
Roubini Ups Losses Estimate to 3T - Still Smaller Than the Rescue Packages
Yet elementary calculations indicate in the entire housing crisis up to 10 trillion in family home value will get lost and this will lead to 3 to 4 trillion of so called bank assets.
But there is a little problem: The bad loans were turned into securities, the securities were sold and resold, sliced and packed together to be sold and resold. No one knows what the entire package is worth.
Beside this there are about 55 to 62 trillion CDS contract value outstanding and this is about 10% of all OTC derivates. Lets say, if you sold for 50 dollar exactly 1000 dollar of CDS on Lehman, you earned 50 dollar and now you have to pay a 1000 dollar...
There Are No Simple Paths to Prosperity
It is not that they have been lying; CNN, CNBC etc don't understand their own stuff. Just like the management of AIG, as an insurance company you would think they understand insurance...
But AIG went to the FEDs for 40 billion, 40 billion turned into 85 and now another 37.5 billion is added to the tag.
When the Lehman credit insurance has to be paid, another unknown billions have to be added too. Very likely the management of AIG does not know how much; they do not understand their business.
Same goes for the FED and the Treasury; the FED does not know how to handle a fiat money stystem because the models they use do not take into account the size of debt on the vaious sectors.
If the FED does not understand her thing, how can we expect from the mass media to grasp what is going on?
There Are No Simple Paths to Prosperity
I agree there are no simple paths to prosperity, after living so many years above the real standard it is almost impossible to debt deeper to prosparity...
__________
What the LIBOR stuff concerns; I heard today it fell a tiny tiny bit but I haven't checked the details yet. Beside this for interbank lending to set in it is far more important to obsere a shift in overnight lending to longer terms of debt.
My guess is that it won't happen for some while, even with the government guarantees on bank lendings. Most interbank lending was to feed the strange creatures on the 'off balance' balances and most of those alphabet soup beasts are (almost) dead by now.
__________
TAF extension to 900 billion US$ to help at years end:
For a long time I am looking for more proof that says that all accepted collateral is free from the 'mark to market' rule.
This big extension is only a clue that there is indeed a proof.
First Thoughts on the Fed Plan
So only a little bit of cleaning on the 'on balance' items can be done; for the off balance things there is nothing or little left.
This is no problem: the assets in the off balance shadow bank system do not count for the reserve rules anyway...
So what's the problem?
Where We Go from Here: Best and Worst Cases
Yet every crisis has it's own characteristics and it is important to take the local characteristics into account if you study only one crisis.
But the comparison with 1870 is very good, I never heard of that crisis because from the 19th century I only know a bit of math history and a bit of military history.
The next article that was quoted via via from in the above article is good reading, link:
chronicle.com/temp/rep...
The similarities are striking, but now we have fiat money and debt exponential growth that is always above GDP growth and stuff like that was also observed in the 19th century but never ever was a government tied so hard to it.