Moral Hazards Amok

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    • Wed Oct 29th 19:03 PM | Rating: 0 0
      Commented on:
      Three Areas of Opportunity for the Bold
      "I collect $1,300 to pay out $930 each month while watching the value of the property more than double in coming years."

      If this current real estate crash, which we’re probably only half way through, hasn’t dramatically driven home the fallacies in that line of reasoning, then nothing I can possibly say here will.

      And yes I know that $1300 is more than $930, but that's not cash flow positive btw. After expenses and the inevitable repairs, you need a ratio that's closer to 2:1.
      gl
      View article »
    • Wed Oct 29th 18:43 PM | Rating: 0 0
      Commented on:
      Five Signs of a Market Bottom
      1. How do we know that the VIX has hit an all time high for this bear market? Maybe it has, but it’s also still in a clear uptrend. We thought that Oct 10 and Oct 16 would also be the all time VIX highs.

      4. Ok, so there’s one prominent perma-bear who flipped. We still have too many people who are now bullish looking for value plays (traps), and way too many others now calling this a bottom.

      The bottom will be in when talking heads and bloggers have stopped calling for a bottom and it will arrive quietly.
      View article »
    • Sat Oct 25th 14:58 PM | Rating: 0 0
      Commented on:
      Impending Inflation? The Global 'New Deal' All but Guarantees It
      User 270430, thanks for the link that you provided explaining how inflation work itself into a monetary system such as ours. (mises.org/story/2901)...

      However, in most ways the article actually argues in favor of deflation. Here are a couple of its more salient quotes:

      “The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion.” Ludwig von Mises – 1949

      And this one…

      “However, banks' limited equity capital wouldn't allow expanding credit and money supply any further, whatever the amount of excess reserves. Perhaps even more important, a contraction of the means of payment, accompanied by a sudden stagnation of credit supply, can be expected to exert downward pressure on money prices, production and employment.”

      At this point in the crisis, the government will attempt to rescue the banking system so lending can begin again. The first strategy is injecting peoples' tax money into banks. The second strategy is buying banks' risky assets, and the third is monetizing banks' risky assets.

      We are now, or soon will be, doing all three, but here’s the key, credit will still continue to collapse. Even after the Fed’s efforts, banks and finance companies will not be willing to lend so extremely promiscuously again. As previously pointed out, lending standards will be much tighter in the years ahead.

      Also, at least for a few years, individuals and business will not wish to borrow nearly as much again as jobs are being lost and prices for everything is in freefall. As JasonC so diplomatically puts it…

      “No, prices are not going to trend up after a brief scare.

      Earth to inflationary brainstorm clueless people, please write on a blackboard 500 times, "the demand for money is not a constant".”
      View article »
    • Fri Oct 24th 20:07 PM | Rating: 0 0
      Commented on:
      Deflationary Depression: Where Do We Go from Here?
      Seekingalpha truncated my list. Let's try this:

      DBA,DBC,DIG,GLD,VTI,
      HYG,ITB,URG,IYR,IYF,
      MOO,OIL,UNG,URE,
      HSG,XLY,XME,SLV
      View article »
    • Fri Oct 24th 20:03 PM | Rating: 0 0
      Commented on:
      Deflationary Depression: Where Do We Go from Here?
      Good explanation of the meltdown, yet I'd like offer an exception to one of your comments;

      "the central banks' inability to raise rates to combat inflationary pressure,"

      Go back to stockcharts and create a new list, add the following then view:

      DBA,DBC,DIG,GLD,HYG,IT...

      What inflationary pressures?
      View article »
    • Fri Oct 24th 18:14 PM | Rating: 0 0
      Commented on:
      Five Behaviors for Making Money Now
      Great advice, Brett, all of it. Your advice on money management is absolutely essential and your last paragraph is particularly valuable. Thanks for the nuggets.

      View article »
    • Fri Oct 24th 11:53 AM | Rating: 0 0
      Commented on:
      Impending Inflation? The Global 'New Deal' All but Guarantees It
      Very good article overall. You made the deflationary case quite well, but it seems that the inflationary case is somewhat lacking in details. It’s those details that I’m looking for and am not just finding in the arguments of the hyper-inflation proponents.

      The US government isn’t going to simply print money and throw it out the windows of helicopters. As you point out in the article, the government expends the money supply by going into debt, but the much larger great credit super-bubble has popped. Will they issue enough bonds to balance the $20 trillion that has been lost? What about the next $20 trillion after that? I’m not saying that this is the end of the world, but I just don’t see hyper-inflation.

      Four factors are in motion that will make the next several trillion in losses pretty much baked in.

      1. Most asset prices are collapsing, not just real estate. Oil, precious metals, agriculture… all. Count ‘em and stack ‘em, nothing is safe and the tape doesn’t lie.
      2. Incomes all over the globe are falling, jobs are being lost, and Joe the plumber is reacting by popping handfuls of Xanax and tightly hording his savings (that he doesn’t have).
      3. Credit is much harder to obtain and will stay that way. Yes, the current credit freeze is thawing but still credit standards will be much stricter in the years ahead than they were during the last 15.
      4. The world's economy is caught in several deflationary feedback loops due points 1 through 3 above. These dynamics all feed off of each other and they are even accelerating.

      Also, will a New Deal necessarily be inflationary? It wasn’t during great depression 1, why would it be now?

      Thank you for making both sides of the argument. However I think you made a much better case for deflation rather than inflation because it’s hard to see how government’s efforts can stop the super cyclone of credit and asset destruction.
      View article »
    • Thu Oct 23rd 17:29 PM | Rating: 0 0
      Commented on:
      Rare Batman Pattern Forming in the VIX
      I'd LOVE to buy puts on the VIX but when the VIX index goes down so will the implied volatility of those puts, and hence so does much of their value.

      BAM!

      DOUBLE-WHAM!
      View article »
    • Thu Oct 23rd 17:07 PM | Rating: 0 0
      Commented on:
      The Physics of Money
      Good article explaining the affects of money in motion and its impact on inflation. This is a very important dynamic that most people don’t consider when trying to size up inflation risks.

      The problem with this current environment is that I don’t see much money in motion lately. How is it getting into the system???

      Yes, banks may have unprecedented amounts of liquidity thanks to the Fed and Treasury, but who are they lending it to? They’ve greatly tightened their lending standards for both consumers and businesses and they’re still too scared to lend and fewer entities and individuals now meet their new standards.

      Hedge funds are desperately deleveraging and liquidating their portfolios. Customer redemptions are killing them. How many will be gone by this time next year? Most?

      Assets prices are in a free-fall, especially in real estate. How many trillions of dollars have now left that particular asset class? How many trillions more will leave it in the next couple of years?

      Commodity values have collapsed with no floor yet in sight.

      With the economy being caught is several nasty feedback loops, layoffs are accelerating and the consumer has rolled into a fetal position, praying that they will still have a job in the next 12 months. How many cars and houses are they currently buying?

      Contrary to popular belief, the Fed doesn’t print bails of $100 bills and toss it out of the windows of helicopters. So I guess I’m asking the hyper-inflation proponents (Jim) and gold bugs, how exactly is inflation going to work itself into the system anytime in the foreseeable future?

      Anyone?
      View article »
    • Thu Oct 23rd 14:03 PM | Rating: 0 0
      Commented on:
      How Have Absolute Return Funds Held Up?
      “Forget them. Buy some agriculture.”

      Jim, you're probably one of the biggest proponents stating that high inflation will spill over into the general economy due to the Fed and Treasury’s dumping hundreds, or even a couple trillion into the money supply. This you believe will greatly drive up the prices of commodities and agriculture and cause overall inflation, even hyperinflation. However, I’m having trouble seeing that.

      To many of us it looks like we’re in the early states of the of the great credit bubble collapsing, and the consequences of that will be many more trillions of dollars of capital actually leaving the system. On top of that we have asset prices collapsing, credit becoming more expensive, and massive general downsizing of jobs and corporations coming our way in the next few quarters.

      Given those conditions, how is the Treasury’s money going to find its way into the system and overcome the (in my opinion) much larger deflationary collapse taking place?
      Thx.
      View article »
    • Mon Oct 13th 18:48 PM | Rating: 0 0
      Commented on:
      Are More Big Falls Ahead?
      I take it that no one here is playing this little bear market rally? You’re leaving money on the table.

      Can’t you just hear the drum beat of clueless commentators stating that the market in undervalued, there’s an incredible amount of cash sitting on the sidelines just waiting to get in, that the Fed’s printing presses are running red hot and so we’re now set up for the biggest bull run ever, etc, etc, …

      All this should make for quite a significant bounce. After it sucks in the masses and tops out, then go short.
      View article »
    • Sun Oct 12th 21:54 PM | Rating: 0 0
      Commented on:
      The Crash of 2008
      This article seemed to generalize what’s going around in much of the popular media. More meaningful specifics would have been useful. I’d also like to empathically agree with what ddtuttle said and expand a little there.

      3. imho, we have had far too few meltdowns of this severity to reasonably game where this current one will end and a new bull leg will begin, or how high the rally will go. I would think that we would need at least a couple hundred meltdowns to gather statically meaningful trends. Too many people from Cramer to Roubini compare this crisis to 1987 or 1929. Today’s crisis is neither because important dynamics are so different. Sorry to use the overused cliché, but we really are in uncharted waters. Throw away the book on those past episodes when it comes to predicting the current market. They don't apply, imho.

      4. It would have been nice to know what specific measures the author was referring to. VIX, Put/Call ratio, magazine covers, newsletter authors, men’s beards? Not all of these indicators are yet at pessimistic extremes. Also, how do we quantify “maximum pessimism”? I would be willing to bet that at the bottom of every economic crisis the population believed that things indeed could get much worse, and guess what, they were right. So how do we know when we’re really at a bottom?

      That being said, my technical indicators suggest that we may indeed at a short-term bottom and ready for a good bounce, so late Friday I stuck my toe in the water and bought calls in ABK and IDEV. But I used specific (albeit rule of thumb) quantifiable indicators. We shall see.
      View article »
    • Sun Oct 12th 14:00 PM | Rating: 0 0
      Commented on:
      What Would Jim Rogers Do?
      Jim’s simplistic argument is that Bernanke and Paulsen are incompetent and the Fed’s printing presses are out of control which will lead to hyperinflation down the road. At time he sounds almost hysterical, leading me to believe that he’s on the wrong side of quite a few investments.

      For people like Jim, I’ve yet to see any of them even acknowledge the other side of the monetary dynamic, which is that the great credit superbubble has burst. How can we have hyperinflation when trillions of dollars in asset classes are being destroyed and trillions more in credit is being unwound? Yes, there currently is a ridicules amount of liquidity, but even so ,who’s lending, who’s borrowing, and how many businesses are even expanding? Not many. I’ve yet to see people like Jim even acknowledge that this counter-dynamic even exists.
      View article »
    • Sat Oct 11th 12:28 PM | Rating: 0 0
      Commented on:
      The Devastating Week That Was
      Excellent insight and commentary, Whidbey. Some of the best I’ve ever seen.

      But it’s much more fun just to do a populist tribal dance around the camp fire with our spirit masks and spears and blame all this on Jim Cramer.
      View article »
    • Fri Oct 3rd 15:33 PM | Rating: 0 0
      Commented on:
      Three Stocks We're Long With High Conviction
      leh, I will not go away just because you think I’m being rude. Please read my message again because this advice is coming from an investor who has learned to successfully navigate the shark and piranha infested waters of stock trading. My message above contains the seeds of a couple of *very*important truths that the retail investor needs to know to stop losing so much money, and perhaps even start making money.

      Yes, it’s certainly possible that Delia could go up to $11 or even $30 in the next 12 months, but you’ve got to learn to stop thinking like that if you’re going to be a long term successful trader. If I go to my favorite casino, the Bellagio, and put $5000 down at the roulette wheel’s number 12, it’s also possible that 30 seconds later I will have won $175,000. But is it a good investment decision?

      Like, Jerland, I don’t necessarily share a great admiration for Warren Buffet. Haven’t you ever noticed that he divulges the companies he’s invested in *after* he’s accumulated shares? Now in this article we learn of the author’s significant position in Delia, again *after* he has quietly accumulated his shares. I wish him the best of luck and do appreciate that he's written some excellent articles, but maybe he’s trying to stack the odds in his favor here.

      What I said was honest, spoken from the heart, trying to help people, and coming form someone who absolutely has no financial axe grind in any of the companies mentioned. I could be wrong but I would not be an investor in any of them at this point in time.
      View article »
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