Fighting Yoda

American Austerity Is About to Begin

"Thus, foreign politicians have the same incentives as ours to keep playing the game." That is the crux of the problem everyone is playing the same bubble/Ponzi bigger fool game.

For those who don't realize China is printing a lot more money than even the US. Chinese Govt. is totally dependent on exports to the west to keep its employment and growth going. Chinese growth is a mirage – without internal consumption rising and exports falling – everything will come to a halt- as soon as the stimulus money is spent.

In the US- the consumer spending went up and savings went down - so it is the same confidence bigger fool game. There are no drivers for job growth - no jobs no income no spending and more foreclosures more losses for banks. All this is inevitable and despite all the green shoot propaganda and PPT - all roads lead downwards. US has to get back to basics – save and invest rather than borrow and consume. The individual consumers to some extent realize it – but the leadership imagines there is a easy way out.

Market going up gives a totally false signal, markets for most part are always wrong else you won't have such big bubbles and busts. Remember the markets were at their all time high a couple of months before the start of the biggest worldwide recession. I am suggesting shorting the market (have been saying the same for last 2000+ points) - hype springs eternal and markets can stay irrational for too long.

The Declining Dollar: Is There a Government Solution?

The US empire and the US$ are doomed both are on the irreversible path of destruction. US has lived beyond its means by abusing its reserve currency status. US has tried to borrow its way to prosperity- that failed, and now are trying to print our way to prosperity- the outcome will not be any different.

Fiscal responsibility is the solution, the only problem is how do we get there - gold standard is perhaps not the solution. Gold puts artificial limitations on the monetary base, and also no one strictly follows the gold standard. Even during the hey days of gold standard central banks printed a lot more money than was back by gold reserves.

In the current environment, last 20+ years, the developing world - China, India, Korea etc have been exporting deflation. So no matter how much the Fed prints inflation is kept under check. But now we almost are reaching the tipping point, but not quite there yet.

America has to get back to ECON101 - Save- Invest -Produce -Consume. Rather than the current strategy of print/borrow - consume. Abolish the Fed we will have happier days ahead.

General Growth Properties Bankruptcy: Not the End of Malls

I think the bottom line is there is too much retail space and there are too many stores. There would be store closing for all types, and likelihood of some big retailers going under after Christmas is very high. It could be Dillards, Sears, or even some small retailers. Whether we have bankruptcies or not - store closing will happen - this has huge impact on the mall traffic, rents and occupancy.

GGP is already on the brink - this Christmas is make or break for them - I think they would have come at the end of the line. But the only caveat being - bailouts. CREs are the next target of bailouts - so anything can ultimately happen.

Will FHA Fall into the Sub-Prime Trap?

FHA is following a much worse plan than even Fannie/Freddie - only 3.5% down payment. So the likelihood of failure here is much much higher, it is not likelihood anymore - it has already happened. By end of year bailout would become necessary. It is the same policies as articulated by Barney Frank - socialism, and propping up a over priced and unsustainable housing market.

There is a lot more pain still to come on the economic and jobs front - lot more foreclosures will happen. The green shoots myth and Wall Street hype will all die its usual miserable death. You simply can't borrow or print your way to prosperity. America is the only country that still believes in this Ponzi myth.

When Morgan Stanley Almost Died

Morgan Stanley etc were saved by the Fed. - all kinds of money and was poured into the system to prevent the collapse. So the deals that Mack may not at all have been significant to prevent the failure. Fed has essentially backstopped the market along with these new accounting rules, take money at zero APR and speculate. Well for now the system has been saved but the seeds have been sown for a even bigger collapse in the near future. The problem is bad debt - you can pretend it will get paid - but the reality is it can not get repaid - no one has the ability repay - CREs will come due in the near future, FHA is on the brink.

The V-Shaped Recovery Flops to an L as Unemployment Hits a New Record

As per BLS they have under reported unemloyment: "The Labor Department today also published its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. They showed the economy may have lost an additional 824,000 jobs in the 12 months ended March 2009. "

So if you take into account additional 824K we are alreday at about 10.4%. And of course there is no recovery without jobs, anything else is just a lie or an accounting gimmick. So brace for a lot more pain, meanwhile the stocks have priced in a massive V recovery - a lush garden when we don't even have any green shoots.

Ticking Prime Bomb: Fannie Mae Monthly Summary, August 2009

It all is simply a giant circular Ponzi scheme: mortgage banks sell to Fannie, Fannie in turn sells to Fed, everything is backed by the SU tax payer - so it is you and me that will be left holding the baby.

Fony and Fraudie are bankrupt many times over, they are simply piggy banks for the politicains - what else do you expect to come out of that kind of a system.

Julian Robertson on Debt, Sudden Stops and More

Here is the summary of the nice inteview -
- "lot more pain to come in US" - Agree
- "interest rates can shoot up to 15-20% IF Chinese, Japanese stop buying our debt" - Agree
- "Short commodities" - Agree
- "can't have war and tax cuts at the same time (criticism of Bush)" - Agree
- "US should go through pain if it wants to solve its structural problems" - Agree
- "Short bonds" - Disagree

Imagine a 17% Unemployment Rate? We're There

Another additional tidbit came from BLS with the latest report- they have under reported unemployment: "The Labor Department today also published its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. They showed the economy may have lost an additional 824,000 jobs in the 12 months ended March 2009. "

So additional 824K losses have been estimated by BLS but for some reason the revisions will be officially announced only next Feb. That itself will contribute to .5%+ additional unemplyment.

Inflation Scorecard: Moderation in All Things

Gold price is no indication or measure of current or future inflation. It is CPI or M2 - both are falling. Also TIPS are pricing in very low inflation.

The Economic Recovery That Isn't

Interest rates should be market driven - else leads to distortions - malinvestments and bubbles etc. Easy cheap money is source of all our current problems - easier, cheaper money can't be the solution. Just throw money at the problem seems to be the voodoo economics we have been following for last abut 25+ years (since Grenspan/Reagen) - there is a huge price to pay for that.


On Oct 04 09:34 AM yellowhoard wrote:

> I'm a big fan Peter. But, I've got to agree with Vuke.
> The time for higher interest rates was five years ago.
> We're in a box now. Higher rates would result in a collapse of the
> entire system right now.
> I would be in favor of a massive downsizing of government on all
> levels though.

The Economic Recovery That Isn't

Peter as usual is totally right- politicians and Wall Street want to paint a positive spin on any thing - the general bubble mania. I don't know what shape any recovery looks like if we keep losing jobs. Any other recovery is simply an accounting gimmick aided by stimulus spending.

Consumers and investors are still in denial, this Christmas lights will definitely be a lot dimmer than last year - lots of jobs and home have been actually lost.

At this point we know the Keynesian stimulus has failed - clunkers and car sales are early sign, home sales in a couple of months (after 8K credit ends) will further confirm that. So lot of wasted money (ultimately to be repaid by higher taxes). Now far from having a lush garden, as priced in into stocks now, we don't even have any green shoots. Lot more job losses and other pain yet to come, so just brace yourself. Even Wall Street may get over its irrational exuberance.

Case-Shiller's Recent Strength: It's Not Just Seasonality

Govt is propping up the market - 85% of all mortgages are now bought by the Govt backed institutions. Fed has extended its program to buy mortgae back securities to next year, and will buy upto 1.25 Trillion worth of MBS. Despite all this loans are still hard to come by - you actually need a down payment and good credt to buy a home.

Govt support also has its limit - as ultimately who supports the Govt - it is the tax payer. So ultimately there would be a revolt - hopefully there would be one - the current policies are quickening the pace of US bankruptcy.

G20's Dominant Theme: Hypocrisy

Peter is totally and absolutely correct - it is just hypocrisy. I think it is actually more than that stupidity.

Yes - America needs to decrease consumption and increase savings but all programs are designed to do totally the opposite - zero APR is a major disincentive for savings, and it also acts as incentive for consumption. All overt consumption promoting programs exist on top of it - clunkers, home buyer credit etc, and many many more in the pipeline.

And of course Chinese cannot consume if they lend all their money to us -they have to lend even more now - as our needs have quadrupled.

So G-20 is just photo-op - hypocrisy and stupidity through and through - but that is what America represents now.

Stimuluszilla Killed Japan and Is Heading Our Way

Keynesian stimulus does not work - it did not work for us during the depression did not work for Japan in the 90s. Japan did not just have 1 lost decade it now has 2 - and running. Japan had the lost decade despite huge stimulus programs - a new one every year, they paved the entire country side in the name of infrastructure spend. Govt ran deficits 200% of GDP. Japan at least had the money- national savings, trade surplus and a strong currency, all unlike us. Most important thing Japan had going for it was world wide boom, unlike now a worldwide great recession. But alas Japan could not get out of the funk.

Keynesian stimulus is just populism - politicians appear to do something - sounds appeasing. But it all leads to misallocation of capital and Govt inefficiencies simply kill everything.

All Japanese policies were criticized by us - zombie banks and even stimulus and deficits. But that is where we are going - we are supposedly smarter - have learnt from the mistakes of past. But if have learnt why do we have the same policies, and if we are smart why do we have these catastrophic problems repeatedly. Nobody has answer to that - but we always greeted with political slogans - 'American resilience will win out'.

What is our plan - bigger stimulus with money that we don't have. Since easy cheap money and debt caused the problem - we will have even easier, cheaper money and bigger debts.

We are headed towards catastrophe - our children and grand children will be enslaved by our debt. The crooks on Wall Street once again will make out like bandits - of course they will - they are aided and abetted by the politicians - it simply is oligarchy.

Ye I fully agree: "Throw the bums out in 2010. That is our best only option."