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Reinko
328 Comments
24 Fundamentals of Market Bottoms
Oh year, my beloved fundamental investors:
Needs to be replaced by:
Oh yeah, my beloved fundamental investors:
Sorry for making me a mentally handicapped all by myself...
24 Fundamentals of Market Bottoms
Good thinking on debt in tops versus downs and good stuff for the rest.
Yet David forgot to mention that the entire US financial sector has over one USA gross domestic product (size) of debt on herself.
Therefore I would like to quote from the above article from David, we turn to point 3 of 'The Investor Base Becomes Fundamentally Driven', quote:
But at the bottom, even long-term fundamental investors are questioning their sanity. Investors with short time horizons have long since left the scene, and investor with intermediate time horizons are selling. In one sense investors with short time horizons tend to predominate at tops, and investors with long time horizons dominate at bottoms.
End of quote.
Yet long term investors could have some kind of headache when they realize the US financial sector only has over one USA GDP of debt on herself.
Here is the Federal Reserve file that proofs it all, see the one before last column and scroll down until you see the 15945.7 billion US$ that they have upon herself. Link:
www.federalreserve.gov...
Oh year, my beloved fundamental investors:
Look also at the column left to it:
Total US Federal debt is just 5244.5 billion so all those Capitol Hill faggots raising the official US debt level to 10.6 trillion US$ lately are outside reality...
Have a nice time investing 'fundamentally' in the US financial sector!
How To Build a Recovery
I cannot place the next Federal Reserve link often enough, here it is once more (it is not all debt, look for example at the Federal debt that is only 5.2 trillion US$):
www.federalreserve.gov...
Just look at the one last column; Doesn't it say that the total US financial sector has over one gross domestic product in debt on herself?
You never hear those CNBC folks on details like that, they only interview some chocolate factory CEO and ask 'How is the credit crisis influencing your bottom line?'
So as long as the Americans avoid a real discussion about the size of the debt they will go from stupid detail to stupid detail and the roads will look more and more like those of the former USSR.
Well it all happened on the Dubya watch and doesn't the old saying goes like this:
Every country gets the government they deserve.
And after electing these idiots two times on a row, one thing is clear: The Amercans deserve this.
DJTA's Relentless Strength: One of the Great Index Mysteries of 2008
Corrected for other stock markets, the DOW is about 10% or 1200 points too high. But this is what you get with so many computer trading programs I just guess...
Nice stuff those computer trading programs, they work on technical indicators so you do not have to muzzle all that negative news and in thin markets they work wonderfully.
Was That THE Bottom?
But the economy that has the most troubles has fallen the least, so this is just another example of a bunch of folks fooling themselves.
According to some investment bank, family home equity lost in 2008 Q1 was 1.2 trillion. My estimation is that in Q2 it will be something like 1.5 trillion and given the fact that the US economy is a consumer economy we see:
Last week action was just a dead cat bounce, although the process of fooling oneselves can keep on for a longer time. In the end far deeper bottoms will be there.
U.S. Dollar: 5 Event Risks Not To Miss
This is good for inflation in the Eurozone and it is elementary justice: Those who created this inflation problem are the ones who need to suffer...
And that guy named Bernanke being hawkish on inflation?
If he is hawkish he could raise the stuff with 150 basispoints isn't it?????
U.S. Government Is Heading for a Slippery Slope
By the way, isn't it a famous American saying that 'There is no such thing as a free lunch'?
So why did they create mortgage companies like Freddie and Fannie in the first place? It is true that they made mortgages cheeper for many years but that only generates higher house prices and in the end you are not cheaper. But you have to pay the bill for all those extra cheap mortgage years.
And what about all those foreign investors who bought stuff like that (debt, stock and securities)? It looks like a bunch of fools with too much money and too little brains! Back in 2004 I already warned against this stupid business model and it is nice to observe my insights coming out in sharp detail.....
The 'Canary in the Coalmine' for Fannie, Freddie
If they were banks, they would have gone broke a long time ago. The absurd low reserves these companies have by law is a joke, in the past the regulaters & law makers never did foresee the present situation.
Just one more detail that proofs that the US government does not understand her own economy.
Can the Dow and S&P Last 15 Rounds?
For the first time in history (of this fiat money system) total bank credit in the USA is declining, link:
research.stlouisfed.or...
Actually this decline is more than it shows in the graph, I have seen a more recent version that shows a clear tipping point.
In the graph from the link you see total debt of the US commercial banks is about nine trillion, the US financial sector as a whole has over on gross domestic product of debt on herself. Link (see the one last column):
www.federalreserve.gov...
Actually it says 15945.7 billion US$ or 16 trillion and thus more than one GDP. When people start thinking about how this mountain of debt is going to be paid for, there is plenty of room for the stock indices to decline much further.
Just a little experiment of thought: Suppose there is a 5% interest level on this 16 trillion, that means yearly interest paid is 800 billion US$.
Of course a lot of that interest is from the fin sector to the fin sector, but in the end these interest payments work as a big tax on the entire sector.
What Kind of Government Support Will Fannie and Freddie Get?
Freddie is leveraged above 50 if you define leverage in the next way:
X = total amount of what Freddie is responsible for,
Y = total market cap.
Suppose X/Y = 50, in that case a decline of just 2% in X wipes out all market cap Y. Of course you can delay a bit with derivatives or other tricks but in the end every 2% decline in X wipes out one Y.
Furthermore, the last 16 months did see ever increasing decreases of house values so we are not even halfway with house price declines.
And if you compare median family income to median house prices over the period 1996 to 2006 (the top of the housing market) you arrive at the conclusion that house prices could decline over 50% of the top prices from mid 2006.
In order to ensure that the beloved FED, lender of last resort, simply had no clue what was going on in 2006, at the end of 2006 FED chairman Bernanke stated that 'house prices are just a reflection of a strong US economy'. This implies they did not understand the historical relation between median income and median house prices was broken for a long time.
Just read some old minutes from the FED from a few years back, it is very refreshing stuff to read: they muzzle around completely irrelevant details and the big stuff is never mentioned.
How Low Can This Market Go? The 40 Percent Solution
But it has a large thing to do with the USA understanding what this 'credit crisis' actually is. Right now the US economy is tanking something like 20 to 30% of the GDP size in new debt.
The US economy uses this 20 to 30% of more debt to create a lousy 1% of GDP growth. This is a horrible debt to GDP growth leverage but the Americans are unaware of this.
Yet in some parts wisdom can be found, look at the next Federal Reserve G19 release about consumer credit, scroll down to where you see the auto loans rows.
You observe a miracle: Total car debt is declining... Link:
www.federalreserve.gov.../
In order to ensure you folks will not view me as another one yard wide idiot spelling his hobby's out, you can check my 20 to 30% of GDP needed for just 1% GDP growth at my favorite file, the Federal Reserve Z1 release detail, link:
www.federalreserve.gov...
Add up the relevant columns and observe that in the USA debt always grows much faster compared to the gross domestic product.
Litttle problem: The debt needs to be paid for and this goes via the gross domestic product.....
It looks like this system of more and more debt and always growing faster than the GDP is what in fact is the real credit crisis. Most folks think it is only some sub prime thingeling.
5 Steps For Saving Fannie
Weekend Thinking: An Agency Recapitalization Proposal
It beats me why foreign central banks would do such a thing, back in the Spring of 2004 I already explained that companies like this only pick up a very special kind of risk and accumulate it beyond belief.
It is true that Freddie & Fanny have taken care of lower mortgage costs for a number of years but this was done at the price of larger systematic risk. This is obvious when you study the absurd leverages they have.
At a leverage of 50 there is only a 2% decline in the borrowed assets needed to wipe out all market cap. And this is happening right now: They need new capital similar to their market cap.
And after that it is only waiting for a new market cap in refi; and so on and so on.
It beats me that foreign central bankers cannot make such easy calcualtions for themselves... Let alone other banks and/or financial institutions.
__________
And what about the next easy calculation? Find the details for yourself on our beloved internet:
Compare median income to median house prices for the period 1996 to 2006 (the top of the housing market). Gather the information and calculate that house prices could decline over 50% from the top from mid 2006. Use the Case Shiller index because the government info is not completely reliable...
I still do not understand why this easy to understand calculation never pops up in the media files, the UK people are far better in this detail strange enough.
To Have and To Hold: Why a Bailout Would Weaken the Dollar
Did you know that the US Federal Reserve stopped publishing the M3 money growth? Here is the link in the H6 release:
www.federalreserve.gov.../
It is always funny to observe that when the ECB publishes her M3 money growth, there are always some Americans shouting that the dollar should go up because the Europeans have such tremendous large M3 money growth.
To understand how terribly far the Federal Reserve has gone from just normal economical reasoning let me quote the reason for stopping M3 money growth publications, quote from the link above:
M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.
Needless to say: This was under the Alan Greenspan watch of the FED... Ever in your life seen such a bunch of fools?
Risk of Falling House Prices Declines [Housing Tracker]
For sixteen months on a row the Case Schiller index only reports increasing year on year declines and from Judy we have this wonderfull declining news.
It is not difficult to understand why almost nobody makes any comment on Judy's writings:
She is a nice female trying to keep the family together.
Lets leave it with that.