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Reinko
328 Comments
Pending Fed Rate Decision, Dollar Loses Steam
The rumor that the FED will do a 'surprise cut' looks not very realistic:
1) In the first place there is a long tradition of the FED sitting on her hands at this phase of the US eclection cycle.
2) All those 'providing liquidity' programs from the FED (like the money auctions or the bond auctions for the primary dealers) did nothing for the spreads. Why should a 25 basis point cut do?
__________
About the Juncker words: No Europe is right now not on the verge of recession but in the long run I have not observed one detail that clearly says we will prevent stagflation. There is so much commodity induced inflation in the pipeline at the producer/wholesale level that at the time recession sets in, inflation does to.
Hence for Europe the stagflation expectation is still dominant.
For the USA: Look at your own commodity stuff and price indexes on the import/producer/wholes... level. Beside this: The fundamentals are far more against the USA as against Europe.
Bailouts Slope: Slippery, and Expensive
www.federalreserve.gov...
Me estimations pointed to the estimation that the US financial sector needed 2.5 trillion (or 2500 billion) more debt in order to do 'business as usual'.
Of course such a mountain of fresh debt was simply not available, hence large stuff would happen.
But if you would have asked me in Oct or Nov last year why it would go so slow slow slow; I would never have believed that banks could postpone for so long the 'mark to market value'.
Don't forget: Here in Europe the write downs at the banks are far higher compared to the USA so there is a whole lot of delay in the USA banking system. That is evident!
US Dollar Remains Strong in Spite of Negative Data
1) A swift bounce back to 1.60 on the Euro/US$ pair, or
2) A slow one just like in 2005 and so.
I estimate it will be scenario 1 but you never know it on the currency markets; if the Chigaco cowboys do not like scenario 1 in that case stuff could be different.
The Untold Story of U.S. Banks, and Other Market Observations
Meanwhile, note the vicious decline in gold, as inflation themes have retreated to the back burner.
Inflation retreating to the back burner?????
As you see what is in the pipeline; producer price index, wholesale price index are all 10% or more year on year (and this for a whole lot of months now) it is hard to see inflation retreating.
For the gold retreat please read some of the other articles around gold prices on this website; massive short selling on the futures markets have driven down the spot price to such an extend that the normal relation between supply and demand has been destroyed.
Furthermore; what happens if you add up all the market cap of the banks in this sample? Rather likely it has declined in the last year... And not by a few percent!
Expect the Real Rally by Mid-2009
For example: Before long term house affordability is restored again we have to need another 7 trillion in lost family house equity. This main driver misses in the article (but also in the rest of MSM).
For example: The author bases his housing views on month to month house prices but the seasonal component is rather large: During the last 1996 to 2006 housing boom there were always month on month declines but that is not mentioned...
Given the seasonal component one should monthly figures compare to those of one year ago.
And what about HELOC? In 2005 HELOC and extra mortgages accounted for about 750 billion in consumer spending, ok ok some folks improved their house with it but most of it was bread and meat and beer pissed away.
All in all: This article is not worth much.
Distinguishing Between Out of Favor Sectors and Doomed Ones
Distinguishing Between Out of Favor Sectors and Doomed Ones
But we also have to look at Favor Countries and Doomed Ones.
Let me give you link and quote:
ft.com/cms/s/0/e30472a...
The price of credit default swaps on five-year US government debt hit a record 18 basis points in early trading, according to CMA Datavision. This means that it costs $18,000 a year to buy insurance on $10m of US government debt.
Comment: So I just had to advice to the European pension funds to buy this cheap bond insurance while the issuer still is alive.
Remember those bond insurers where USA municipals could buy AAA ratings on their issued bonds?
They are gone.
Remember Freddie and Fannie that were supposed to guarantee the mortgages?
They are bailed out...
What will happen to idiots who sell US government bond insurance at only 18 basis points or just 0.18%?????
Municipal bond insurers ==> Frannie ==> 18 basis points on five year US government bonds.
Who knows?
Bond Expert: Historic Day Wraps
Maturing Treasury coupon securities, or bonds, can only be replaced by new 'coupon securities'.
Most folks inside the USA do not understand how much house prices will decline further and so even more folks do not understand the future price tag on tax payers.
Yet replacing old bonds for new ones is well understood: If there is no other way for replacement it is called a 'Ponzi scheme'.
The USA folks are blessed because the Chinese, Japanese and Indian folks do not know what a so called 'Ponzi scheme' is.
Therefore US bonds will live forever, do you agree or disagree with me???
And what about Federal Agency debt? Will that joke seize to exist or will the Europeans cat copy that wisdom in the future decades?
Oil Drops - But OPEC Looms
When oil is not between 20 to 30 US$ a barrel, the world economy will get destroyed!
The OPEC bowed for years for wisdom like that, but they to have studied the way the world economy behaves when the Chicago folks are proven to be telling crap.
And beside delivering to the two Western oil markets, they could be delivering stuff at reasonable prices to other countries...
The low price deliverance to poor countries could be financed by maxing out some obese Americans or some stupid Europeans.
This all could be, yet if I would be OPEC I would not advice oil below 100 US$ because otherwise the Chicago folks would not understand where the wind is blowing from...
Good luck my dear OPEC!
Fannie/Freddie Bailout 'Disastrous Fiasco'
But in the present days this US government thinks it is important to keep up with 'cheap mortgages'.
Yet elementary economy says that when mortgages are 10% cheaper, house prices will rise 11% because people, by definition, will max out their mortgages.
For me, since I want to destroy the US military power, this could not have been more perfect. It is hard to say how costly it will be to the US tax payer but the US military has to suck from that same tax pool and this was the most perfect financial weekend in years...
I can tell you that with grace my beloved Grace!
And the financials going up big time around the world? In the first place I laugh about their sheepish reaction and in the second place we will have 'lower lows' for financials in the future.
By the way; I love it you are mad at this deal. It proofs you have brains!
Don't Believe the Gold Bears' Hype
First I post the link, after that the quote:
Link:
www.investmentrarities...
And the quote related to the futures markets says it all:
The recent revelations in the CFTC’s Bank Participation Report for August provided stunning proof of concentration and manipulation in the COMEX silver and gold futures markets. Two U.S. banks held a short position in COMEX silver futures, as of August 5, of 33,805 contracts, or almost 170 million ounces, an increase of 138 million ounces in one month. That increase is equal to 20% of the world mine production. If one or two entities bought or sold 20% of the annual world production of oil or wheat in a month, it would bring about a congressional feeding frenzy.
In gold, no more than 3 U.S. banks sold short in one month more than 10% of world annual mine production. This was the largest short position in gold and silver ever recorded by U.S. banks. After the massive and concentrated silver and gold short position was established by these U.S. banks, the markets experienced a historic decline in price. It all took place during the first widespread retail silver shortage in history. It is completely at odds how the law of supply and demand works.
Comment: Wow, going short like this explains a lot Joey!
By the way: I am from the Netherlands too...
Payroll Numbers Are Ugly Indeed
Payroll Numbers Are Ugly Indeed
I don't yell 'fraud' or 'conspiracy', a more down to earth explanation is that the NFP numbers are published to early because a lot of them are still in the pipeline before they are processed properly.
Housing Prices: Bottom or Temporary Bear Break?
It is nonsense to look at month on month figures and say 'hey it is improving' because you are only looking at a seasonal component while the trend simply goes down further...
For the rest: Nice article.
Equities: In the Eye of the Storm
That means that countrywide in the USA another 7 trillion of family houshold equity will be wiped out; somehow the Wall Street traders refuse to understand such simple insights. Why they don't want to understand this is unknown to me: having a realistic view on economical affairs always makes more money in the long run.
So not for these Wall Street warriors...
Where Are the Bank Failures in This Financial Crisis?
1) That accountancy rule 157 that made banks write down on their own debt obligation by the song of over 160 billion. (By the way, here in Europe that is not allowed and this explains also why European banks have reported far more down writings compared to their USA peers.)
2) Level 3 assets are still climbing.
3) When measuring bank reserves under the present Basel rules, the so called 'off balance' items are not counted. The 'off balance' items are similar in size compared to the 'on balance' items. (Guess where the biggest losses are parked...)
4) The FDIC only comes in action when bank reserves have declined to about 3%, this gives some time delay of course.
5) Banks have two kinds of books: Banking books and market books, market books are often remarked in the 'mark to market' process while on banking books there is again a large time delay.
6) The public does not understand how severe the crisis could get because every time they buy new stock to the song of countless billions.
7) The amount of outstanding TAF auction money and the other programs there to 'provide liquidity' is now four times the total combined bank reserves.
See: www.federalreserve.gov.../ (look in the third column, the 'non borrowed' reserves are the real reserves, they are negative because the US commercial banks live on borrowed reserves...)
The offered colateral undergoes only a haircut of a few percent while in practice this should be about 30% (thus wiping out all combined reserves of the US commercial banks).
The last is also a problem here in Europe; the ECB tries to get a hold on the fraud that is commited.
8) Think for yourself and find a few reasons more!
All in all: This was a lousy article with almost no homework being done.