Reinko

U.S. Dealing with a Boatload of Debt - Moody's

There are a few remarks to make on this subject:

1) Indeed the 5.8 trillion $ mentioned is only the puclic outstanding debt as you can find for example in this FED file:

www.federalreserve.gov...

2) Lately the US Congress and/or Senate gave the new ceiling for US Federal debt: above 10 trillion $.
Although I am looking for this for a long time: It is still unknown if the two decades of so called emergency spending is in this ceiling yes or no.

It might very well be that the difference is only the combined sum as found in the Federal funds; all these funds contain Treasuries and the money is long long spend.

Example: The FDIC has a bank saving fund; but there is no money in it, all banks that need to be rescued directly come to the wallet of the taxpayers or freshly borrowed money.

3) The combined US financial sector has over 17 trillion of debt on herself, that is a manifold of the total profits and this debt still climbs double digit percent each year.
Needless to say: the financial sector is only a fraction of the US economy and the size is above one GDP. It grows faster than the GDP so this produces gigant sizes of so called 'toxic loans'.

4) As a whole the US economy has over 350% of GDP in debt, if interest rates return to a normal level, lets say 5%, then there is 17.5% of GDP needed just to cover interest expenses...

Conclusion: this will not survive!

Risks to U.S. AAA Rating Have Grown

This is a dumb article that contains major faults and mistakes.

The most important is the so called net Federal debt that is 42% of the GDP. You can find that 'net debt' for example in the next link from the FED:

www.federalreserve.gov...

It says: 5822.7 billion in Federal debt.

This is a nonsense figure; lately US Senate and Congress gave a new ceiling above 10 trillion.
Furthermore there is all kinds of hidden debt, for example the Pentagon has a budget in fiscal 2007/2008 of 700 billion;
That is 500 billion in 'real budget' and a small 200 billion in 'supplements' that do not count for the official deficit.

Just another example:
All Federal Funds do not contain money but US Treasuries, for example the Fund of the FDIC is filled with Treasuries. All insurance money laid in by the banks is long gone.
This goes for all Federal Funds, again a few trillion is added to the Federal debt. Think of the Social Security funds for example; no real money in it but only Treasuries...

In reality the 42% is a joke and debt stands far far above other AAA rated nations.

I could go on longer, but at S&P they know their stuff; as long as nobody complains they keep on doing their best for the USA.

Equity, The Blind Optimist

Until recently I was unaware of it but this old man Peter Bernstein made a simple eye opener for me:

It is strange that bonds have a higher yield compared to stock yields because stocks carry a higher risk.

It is logical that inflation is the main culprit here; but what was the main cause of all that inflation during so many decades?

__________Begin intermezzo

To Bearfund: US economical theory is the problem, please concentrate on the real long term problems that gave rise to the present situation.

For example: House prices are hefty undervalued in the consumer price index, now the USA pays a costly price for that.
All these years in the housing boom, consumer inflation was measured too low because of the weird consumer inflation statistics the US government uses.

Now you folks pay the price for that...

Blame the US economists please!

__________End intermezzo.

Mostly US (but also European) economists that argue that a small and slight inflation is 'good' for the economy.
Those economists had one thing wrong; in the basis of their thinking they thought that deflation was the reason for the long time the depression lasted.

They interchanged cause and effect; deflation was an effect of the crisis, not a cause. Ok ok. it made the crisis longer but that is not a reason to fight deflation during normal times.

On the contrary, in consumer paradise 1 or 2% deflation is like the rain that makes sure in a decade you can spend also like you do today...

For me it is strange to observe all those batallions of US economists standing outside normal economical thinking for so long. I guess this is one of the damages when you become a world power; when you start thinking rubish there is nobody to ram you back into reality.

Extreme Anxiety in the Anxious Index

Borrowing short and lending out long, wasn't that the way the investment banks got broke?

In the end 25% of their entire balances were funded by day to day borrowings in order to ensure the longer stuff.

They are all gone, these investment banks are all gone.

When you live by your borrowing capacity you will die from it, when you live on your reserves you can make it to a high age...

John Hussman: The Market Is Not in Uncharted Territory

No, it does not work.

So fill in the date (17 Nov 1998) for yourself in the box at the right lower bottom of the Yahoo S&P chart...

John Hussman: The Market Is Not in Uncharted Territory

I hope the next link to the Yahoo S&P 500 for a decade works, if not try to find it yourself:

finance.yahoo.com/echa...=^gspc;range=19981117,...

John Hussman: The Market Is Not in Uncharted Territory

Very interesting of looking at the declining stuff:

You can also argue that you can sell on the lows only to wait some time longer to buy stock back at far lower levels and wait for another low trigger in order to sell.

And after that waiting a long time to buy stuff back far more cheaply...

But living day to day we do not know if we are at a bottom... We do not have fancy 1929 charts, all we know stuff is declining.

Come on face the facts and abandon all this fancy technical analysis:

For the first time in history the S&P 500 is negative on a 10 year scale, it has never ever happened before that an investment in the S&P 500 was negative.

Beside being negative, you have a full fist of inflation in your face so in fact it is far worse than 'only being negative on a 10 year scale'.

I don't know what a full decade of the last inflation was but we can safely conlude that 100 US$ invested a decade ago in the S&P 500 is now below 70$... (in 1998 US$ of course).

Four Reasons Stock Market Hope Will Overcome Despair

To ArtFulDodger:

You write, quote:

"This site is filled with market followers. When one is going down, they think it's never going to stop. When up, the opposite."

But on this website there were a long long time good looking females commenting upon the strength of the US dollar.

These chicks are gone but dollar strength is still there....

I would like the chicks back, where have they gone???

Friday Market Preview: Was Dow 8,000 the Bottom?

To Patio:

The figures I have on this are not very reliable, but it was reported that our P/E ratio's were about 5.7 compared to DOW Jones of about 15.

In the previous market crash there were similar figures; our Amsterdam AEX declined about 70% from the top, the DOW only 35%.

There are various reasons for this:

1) Plunge Protection Team (if that exists for real, statistical evidence supports the hypothesis of such a weird team).

2) The large cap / small cap effect combined with the large stock market / small stock market effect. That means during declines small caps always got hit harder because people trust large caps more to survive compared to a small cap.
A similar effect is there for large stock markets compared to smaller stock markets; our stock market simply is rather small since we are only with 16 million folks.

Friday Market Preview: Was Dow 8,000 the Bottom?

To Busun J:

Here in Holland even the main stream media said it had to be the Plunge Protection Team and that looks like a realistic hypothesis since in the USA P/E ratio's are about triple compared to the Amsterdam AEX.

These are only bottom fishers?

Please get real and follow the one and only measure for pricing stocks: The P/E ratio...

Bears Have Rallies Too

Fantastic graphs!

Keep on the good work please!

Fear and Value: Together Again

DOW at 8639.88 and eight minutes to go into this trading day.

It's going fast and furious but as usual invest only on P/E ratio's although you must carefully study the expected future earnings...

How Bad Is the Fed's Balance Sheet?

The first table above (the one in the green) has to be 'millions of US$' and not billions of US$.

Just a factor 1000 to large.

I sometimes wonder what kind of math is teached at the US high schools...

Asset Securitization Crisis: The Butterfly Effect

To mntrading:

On 12 Nov 2007 I predicted 7000 on the DOW or about a 50% decline from the 14 thousand level.
Today the IMF came with a big study where a staggering 124 housing bubbles and credit crisis were bundled together.
The most simple results were as follows:
On average 30% correction in housing value &
On average 50% decline in the stock markets.

Given the fact that from the 2006 top of US housing prices, declines could be as large as 50% before century long house affordabbility is restored again; you could be right and the DOW stuff will even go below the 7000 level...

My compliments for your insight!

Asset Securitization Crisis: The Butterfly Effect

To Vancan:

No it are not unstable systems but systems that are vulnerable to very small changes in the initial value of some of the parameters.
The weather is just one of those examples; because there is extreme sensitivity to very small changes it is not possible to calculate the weather beyond a few days. No matter how much computer power you throw at it.

The butterfly has to be at the right spot to make a significant difference, let me give you and example of such a butterfly from lately:

Last week suddenly money market savings accounts got insurance, this caused a relatively small swap of 12 billion from the commercial banks to money market accounts.

But given the 8% reserve rule for the commercial banks, the banks need to take out about 10 times the 12 billion from their assets and sell these on illiquid markets.

The butterfly is in this case Secretary Paulson, about 4 hours of salary is a small amount of money. The effect is about 120 billion US$ for the US commercial banks.