TTurk

Economic Roller Coaster May Have Reached Bottom

The roller coaster has reached "a" bottom and "is" trending upward. The recent rise from the bottom has only cost tax payers something close to $1 trillion.

When the public gets sick and tired of allowing its governments to spend good money after bad I don't think you will see the roller coaster rise to new heights. It will probably make a weak top and move lower.

Stock Price Strength Notwithstanding, Economy and the Dollar Are Still on the Skids

I share your analysis on the dollar and the economy.

I am surprised so many "economists" do not understand the potential long-term problems associated with the current course of our economy and the approach being used to avoid the inevitable pain.

Just like the tech bubble and the housing bubble, this bubble may carry on for several years before the fine line of low interest rates, high liquidity, high trade and fiscal deficits finally crashes when the world has enough of financing our country's lack of financial discipline.

How U.S. Financial Sector Could Be Downsized

Ed:

I agree with your analysis 100%.

The problem is that by exposing the undervaluation of the CDS's and other financial instruments on the bank's balance sheets, you may find that many of the top 25 banks have negative capitalization. The total value which is probably $300 billion or more.

That cost is financially and politically impossible to correct. So, we let the banks themselves value these assets at whatever value they want to use. The truth is that we don't want to know the truth, so we feed these institutions free money so that they can buy our government debt and hopefully earn enough money so that someday in our lifetime they have value again.

Using your zombie illustration, the cost of killing the zombies is considered greater than the cost of letting them wander around the countryside and slowly kill off small businesses by refusing to make loans.

Two More Indicators of a V-Shaped Recovery

I am always tickled at how people relate two things and make macro economic predictions based solely on those. "Rising stock prices signal a strong recovery." "Rising commodity prices signal a V shaped recovery." "Industrial production is rising predicting a V shaped recovery."

The destroyed wealth and credit quality of the consumer, the inability and lack of incentives for financial institutions to lend, national debt levels that will exceed those of many third world countries in the next few year mean nothing. Higher taxes by federal, state and local governments to balance budgets will not have any adverse affect on spending either.

If you ignore the fact that lack of jobs, income and an overleveraged balance sheet will not impact the consumers ability to provide a sustainable recovery, then you can believe that US comsumers will soon be buying 12 million cars a year and building a million new homes a year.

I think I can see the V coming myself.

Low Home Ownership Rate Hurting the Economy

The author's analysis outlines numerous issues concerning why housing will not contribute to an economic recovery from the current recession. Unfortunately, the author is correct and the problem is worse than simply an oversupply of homes and rental units.

Homes can no longer be purchased with zero, 5% or 10% downpayments. Over 40% of homes purchased in the past 5 years have been unconventional. Why? Because families had no savings to use to purchase a home. Now, that 27% of household wealth has been destroyed in the current recession, even fewer families can afford homes. Those who can buy up, are unable to sell their homes for the needed equity.

The result of all of this is that the lack of demand will result in home prices declining further and probably farther than currently forecasted.

Was Cash for Clunkers Worth It?

The purpose of the program was to show support for the UAW and show that the government hasn't lost its touch for giving good money for bad causes.

It was a huge success! Of course the program didn't make economic sense. Name one government program that does.

U.S. Consumer: Battered but Not Beaten

V recovery from the consumer? Help me understand how the consumer comes back when 10% of the willing work force can't find jobs.

Delinquencies on home loans, car loans and credit cards are higher than they have been in our lifetimes. Banks and credit card companies are cancelling credit lines faster than you can blink an eye. Currently 23% of home loans, not already in or facing foreclosure, are underwater and if home prices fall another 5%, as many as 35% of home loans will be underwater. People have lost a third of their 401(k) and IRA values. New home construction and auto sales are 50% below their 2006 peaks. Now they are improving by 1-3%.

US families will take another 10 years to recover the wealth that was destroyed in the past three years.

Oh, I forgot, YoverY consumer confidence is increasing. Forget the facts, everybody is going to be back to their normal spending pace by the end of the year.

Abby Joseph Cohen's Bullish Calls

I remember it like it was yesterday because when the market headed down in 2000 you didn't see her on tv for 2 1/2 yrs.

You sure didn't see her warning of the credit bubble or the housing bubble taking GDP and the market down did you. She is a one trick pony. Her trick is to say the market will go higher when economic growth is certain to go up. Once she is wrong, they put her in a stall until they feel comfortable the economy will grow again.

Strong Dollar Impact Felt Worldwide

If the financial crisis we are in was domestic instead of worldwide, the dollar would be in the toilet. The dollar's relative strength recently is only the result of many parts of the world being in worse shape than the US.

The US situation is tenative at best. If consumers and businesses seriously resist the government's temptation to increase borrowing to increase consumption, we may be in for a long period of stagnant growth. The gov't will be resistant to reducing the money supply growth that has been provided and ultimately inflation will be our plague and the dollar will slide.

On the other hand, if low interest rates entice enough households and businesses to resume their habit of borrowing to spend, all will be well and as the economy grows, the Fed will be able to sell bonds, reduce the money supply and control prices.

Geithner to Citi?

Unfortunately, for all of us, Tim's slow job of hiring key deputy secretaries for the Treasury and his overselling of the Treasury's activities to stabilize the banking system probably limit his chances of ever getting a management job in the private sector. I think we are stuck with him in the government, where he now has to pay his taxes every year on-time.

The Current Stagnation of Natural Gas Vehicles in America

I applaud you on the work you have done studying the issue.

Most energy analysts state that the conversion from foreign oil to green energy cannot take place solely through new solar and wind generation systems. Our countries energy demands will likely increase at a faster rate than these green power sources can provide for the next 3-5 years.

To reduce imported oil, analysts advocate a fuel tax on importer oil to reduce comsumption or conversion to transitional energy sources such as natural gas and nuclear power. Conversion to natural gas is considered to be the best means to reduce oil imports and reduce emissions.

Unfortunately, as you found out no one in the government, even Obama's, is willing to listen to conventional wisdom. In fact Obama's budget calls for increased taxes on companies involved in the domestic production and transmission of natural gas. Obama's Treasury Secretary Tim Geithner testified to Congress that Obama's plans are to tax all fossil fuel production and transmission because they pollute the environment. Neither he nor the President obviously understand what natural gas is or how beneficial it would be to the environment if it were used as a substitute for oil. I am also especially fond of the fact that they have decided to tax domestic production and transmission but chose not to put a tax on imported oil.

In my opinion, this administration will be as inept as all of the others we have had for the past 20 years. The only difference is this administration is more skilled in the art of preaching class warfare, rich against poor, wall street against main street, to the American people. This is a technique that has been very successful for many socialist leaders in the past century. It really seems to be working in America now as well.

Berkshire Hathaway: Proof That the CDS Market Is Irrational

It is not irrational if you are a large trader like a hedge fund and you first take a major short position in a company's bonds, preferred stock or even common stock. Then with a relatively small amount of money buy CDS's. Since the CDS market is relatively thin, a relatively small purchase will move prices higher. As the CDS premium's rise, guess which way the bond and stock prices will go as more traders notice the CDS premium rise?

The trade is very rational and doesn't take very long to become profitable. In a short time both postions become profitable as more traders pile on.

Eight Reasons Bank of America Is Going to $20

I am confused about why you would buy 2001 calls at a $5 strike when you could buy the stock for about the same cost on Friday. Doesn't sound like a smart move to me no matter what the stock does.

If you can predict 2009 and 2010 earnings for banks, you are supernatural. If you can't, then you really can't predict the stock price going to $20 per share.

Good Luck

Geithner's Complex Plan Won't Fix the Problem

I agree with your comment that a valuation of the assets, liabilities and equity fo the banks needs to be performed. But I doubt seriously anyone in the Fed or Treasury is capable. The CDO's represent 1000's of individual financial instruments that are in no way homogeneous. No 2 CDO's are alike. To make matters worse the valuation today is meaningless since foreclosures and real estate values will continue to worsen for at least the next 12 months. How do you factor in those potential losses today?

Then it is save to assume that probably 10 of the top 15 banks in America will have negative equity. Now what do you do? The only prudent thing to do, is take for the FDIC to take the bank over, remove the impaired assets, separate the commercial side of the business from the investment banking side of the business and then sell the two businesses. Is there enough private capital in the market willing to buy clean financial companies? Then the problem that remains is will the proceeds from the sale of the business be anywhere near the potential losses the goverment will face on the impaired assets they keep.

And where does it end. How many failed banks can the government process without injecting total fear into board rooms of every financial institution and their investors.

U.S. Debt Default, Dollar Collapse Altogether Likely

How can you take the outcome of one Treasury auction and a rise in interest rates of 50 basis points from their ALL TIME LOW and extrapolate that into US gov't default and USD devaluation 10 fold?

Maybe it is because you have a strong bias for higher prices in gold and you want to make your dream come true.

The current US and world economic problems will cause others in the future which may include inflation and a falling dollar. These problems may cause a capital flight to a reserve currency like gold. But default and a 10 fold devaluation of the dollar are not even conceivable at this point.