dlaw's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/172002/comments http://seekingalpha.com/article/158422-how-phevs-and-evs-will-sabotage-america-s-drive-for-energy-independence?source=feed#comment-649492 649492
Leaving that aside and quite apart from fundamental arguments about electric vehicles, the problem with the OP's argument is that he doesn't really don't make it.

To actually make the argument, the OP has to demonstrate that marginal dollars into PHEVs and EVs WOULD OTHERWISE BE INVESTED in boosting sales and production of efficient vehicles.

Given the highly negative reaction to the CARS program in the financial media, I'd say that's a long shot. It's reasonably clear to me that the reasonable, efficient and timely alternative to inefficient, individual, combustion vehicles has to focus on investment in and rethinking of "mass transit" systems from the ground up, emphasizing - but by no means limited to - wire-electrified vehicles.

Make wire-electrified transport in particular and "mass" transit in general more efficient and you get the biggest bang for the buck. It's just the low-hanging fruit for efficient subsidy.

After that, we have to talk mileage regulations. There's no particular reason to subsidize what you can make necessary by regulation. ]]> Thu, 27 Aug 2009 16:21:52 -0400
Leaving that aside and quite apart from fundamental arguments about electric vehicles, the problem with the OP's argument is that he doesn't really don't make it.

To actually make the argument, the OP has to demonstrate that marginal dollars into PHEVs and EVs WOULD OTHERWISE BE INVESTED in boosting sales and production of efficient vehicles.

Given the highly negative reaction to the CARS program in the financial media, I'd say that's a long shot. It's reasonably clear to me that the reasonable, efficient and timely alternative to inefficient, individual, combustion vehicles has to focus on investment in and rethinking of "mass transit" systems from the ground up, emphasizing - but by no means limited to - wire-electrified vehicles.

Make wire-electrified transport in particular and "mass" transit in general more efficient and you get the biggest bang for the buck. It's just the low-hanging fruit for efficient subsidy.

After that, we have to talk mileage regulations. There's no particular reason to subsidize what you can make necessary by regulation. ]]> http://seekingalpha.com/article/152116-why-are-banks-holding-so-many-excess-reserves?source=feed#comment-610278 610278 Fri, 31 Jul 2009 17:41:24 -0400 http://seekingalpha.com/article/126751-what-will-banks-do-with-bernanke-s-money?source=feed#comment-432634 432634 Sorry to comment again here, but Mr. ConceptWizard has hit some nails very squarely.

I put it to readers that although there will be a bump - even a big one, as some pent-up demand busts out - lower mortgage rates will not increase net home home sales much and and I'm not sure they've even meant to. They help banks generate near-term refinancing fee income and reduce out-year interest load on the most-stable borrowers.

The stressed buyers are going to get crushed or the losses on their houses will become an enormous burden for the taxpayer if the "bad bank", banker welfare plan goes through - the GSE for banks.

New home starts tell me the story of developers who have lots on their hands trying to get rid of them and, in the process, loading the housing market with more supply.

Find me bankers who are looking to put securitizable volume of any size through the system - and then re-loan - and I'll believe Bernanke's tale of a housing recovery. ]]> Thu, 19 Mar 2009 14:41:12 -0400 Sorry to comment again here, but Mr. ConceptWizard has hit some nails very squarely.

I put it to readers that although there will be a bump - even a big one, as some pent-up demand busts out - lower mortgage rates will not increase net home home sales much and and I'm not sure they've even meant to. They help banks generate near-term refinancing fee income and reduce out-year interest load on the most-stable borrowers.

The stressed buyers are going to get crushed or the losses on their houses will become an enormous burden for the taxpayer if the "bad bank", banker welfare plan goes through - the GSE for banks.

New home starts tell me the story of developers who have lots on their hands trying to get rid of them and, in the process, loading the housing market with more supply.

Find me bankers who are looking to put securitizable volume of any size through the system - and then re-loan - and I'll believe Bernanke's tale of a housing recovery. ]]> http://seekingalpha.com/article/126751-what-will-banks-do-with-bernanke-s-money?source=feed#comment-432465 432465
Thanks so much for the comment.

Very concisely and coherently describing Chairman Bernanke's strategy you write:

"[Bernanke] is forcing a bottom in home prices, forcing mortgage-backed securities to reprice upward on the open market, forcing mortgage rates down to 4% for at least a month or two, and unfreezing the market in mortgage backed securities allowing banks to originate more mortgages by cycling cash,"

I can only respond this way:

Well, he *think* that's what he's doing, but it has essentially no hope of success, in my view. ]]> Thu, 19 Mar 2009 12:52:36 -0400
Thanks so much for the comment.

Very concisely and coherently describing Chairman Bernanke's strategy you write:

"[Bernanke] is forcing a bottom in home prices, forcing mortgage-backed securities to reprice upward on the open market, forcing mortgage rates down to 4% for at least a month or two, and unfreezing the market in mortgage backed securities allowing banks to originate more mortgages by cycling cash,"

I can only respond this way:

Well, he *think* that's what he's doing, but it has essentially no hope of success, in my view. ]]> http://seekingalpha.com/article/125914-mark-to-market-the-bogeyman-of-the-1930s-is-back?source=feed#comment-425195 425195
"Because these accounting rules force banks to write off losses before they even happen, we lose time. This happens because markets are forward looking."

So because markets look to the future value, rather than present cash flows, we lose future value.

Either markets are intrinsically superior for pricing things or they're not. Which is it?

I suggest that proper markets - markets with exchanges and regulation that trade a relatively uniform and well-audited inventory of goods ARE superior for pricing. Fake market that foster self-dealing and information asymmetry are crap.

Shakespeare wrote: "The fault, dear Brutus, lies not in our stars, but in our selves..."

I suggest that the fault lies not in our mark-to-market, but in our market itself. ]]> Fri, 13 Mar 2009 19:45:20 -0400
"Because these accounting rules force banks to write off losses before they even happen, we lose time. This happens because markets are forward looking."

So because markets look to the future value, rather than present cash flows, we lose future value.

Either markets are intrinsically superior for pricing things or they're not. Which is it?

I suggest that proper markets - markets with exchanges and regulation that trade a relatively uniform and well-audited inventory of goods ARE superior for pricing. Fake market that foster self-dealing and information asymmetry are crap.

Shakespeare wrote: "The fault, dear Brutus, lies not in our stars, but in our selves..."

I suggest that the fault lies not in our mark-to-market, but in our market itself. ]]> http://seekingalpha.com/article/124280-time-to-buy-china-copper-the-canadian-dollar-and-oil?source=feed#comment-416734 416734
This has been the trade everyone has been trying to put on since the summer and it really has not worked. Gold has kept you even, but not much better.

Theses die hard. ]]> Fri, 06 Mar 2009 19:26:54 -0500
This has been the trade everyone has been trying to put on since the summer and it really has not worked. Gold has kept you even, but not much better.

Theses die hard. ]]> http://seekingalpha.com/article/124101-buffett-closes-derivatives-contracts-goes-back-to-writing-insurance?source=feed#comment-413085 413085
The problem is that Buffett isn't making money from the float. He's investing in the wrong things. He hasn't lent money. He has bought equity in companies, making himself a junior creditor at companies, some of which are in danger of going out of business altogether.

On top of that, rather than placing a bet the market isn't aware of and can't bet against - like a *real* insurance policy - he has placed a huge, very public bet. This means that options players - particularly those who took the other side - will skew the public markets against him.

Let's look at the other side of the trade: those players paied $4.9 billion and now, unlike Buffett, have a huge assett on their balance sheet. Since they are probably leveraged institutions, that asset is saving them from having to borrow money. Relieving the burden of debt is the surest and most-profitable use of money there is.

Buffett figured that the knock-down to his balance sheet would cost him nothing, therefore they were mispricing the benefit relative to him. He wouldn't need to borrow under any circumstances. And yet there he is, whining in his letter about how it's so expensive for him to borrow money.

And, Buffett completely blew the volatility calculation.

So my question would be: which calculation did he even get right on that trade?

]]> Wed, 04 Mar 2009 14:39:18 -0500
The problem is that Buffett isn't making money from the float. He's investing in the wrong things. He hasn't lent money. He has bought equity in companies, making himself a junior creditor at companies, some of which are in danger of going out of business altogether.

On top of that, rather than placing a bet the market isn't aware of and can't bet against - like a *real* insurance policy - he has placed a huge, very public bet. This means that options players - particularly those who took the other side - will skew the public markets against him.

Let's look at the other side of the trade: those players paied $4.9 billion and now, unlike Buffett, have a huge assett on their balance sheet. Since they are probably leveraged institutions, that asset is saving them from having to borrow money. Relieving the burden of debt is the surest and most-profitable use of money there is.

Buffett figured that the knock-down to his balance sheet would cost him nothing, therefore they were mispricing the benefit relative to him. He wouldn't need to borrow under any circumstances. And yet there he is, whining in his letter about how it's so expensive for him to borrow money.

And, Buffett completely blew the volatility calculation.

So my question would be: which calculation did he even get right on that trade?

]]> http://seekingalpha.com/article/123141-the-end-of-money?source=feed#comment-409527 409527
If you look at the arguments for gold, there is no reason it should be going down. No reason it should go down in the foreseeable future. That is the stuff bubbles are made of - certainty.

Gold is going down. The federal government is doing all it can to inflate, but gold is going down. Down too much, the logic is destroyed and there may be panic selling. People paying $1000/oz for coins and certainty are not going to be happy at $700/oz.


On Feb 28 10:14 PM The Mad Hedge Fund Trader wrote:

> OP tf Panic buying of gold coins continues to overwhelm coins dealers
> around the world. According to the Financial Times, the US Mint sold
> 193,500 American eagles in the first seven weeks of this year, more
> than it sold in all of 2007 at prices 40% lower. Retail investors
> fleeing paper assets, like plummeting stocks and bonds, are paying
> 5% premiums over face values. The same phenomena is appearing in
> other countries were gold coins are available to the public. Does
> this have a toppy feel to it?]]> Mon, 02 Mar 2009 12:14:31 -0500
If you look at the arguments for gold, there is no reason it should be going down. No reason it should go down in the foreseeable future. That is the stuff bubbles are made of - certainty.

Gold is going down. The federal government is doing all it can to inflate, but gold is going down. Down too much, the logic is destroyed and there may be panic selling. People paying $1000/oz for coins and certainty are not going to be happy at $700/oz.


On Feb 28 10:14 PM The Mad Hedge Fund Trader wrote:

> OP tf Panic buying of gold coins continues to overwhelm coins dealers
> around the world. According to the Financial Times, the US Mint sold
> 193,500 American eagles in the first seven weeks of this year, more
> than it sold in all of 2007 at prices 40% lower. Retail investors
> fleeing paper assets, like plummeting stocks and bonds, are paying
> 5% premiums over face values. The same phenomena is appearing in
> other countries were gold coins are available to the public. Does
> this have a toppy feel to it?]]> http://seekingalpha.com/article/123141-the-end-of-money?source=feed#comment-409526 409526
If you look at the arguments for gold, there is no reason it should be going down. No reason it should go down in the foreseeable future. That is the stuff bubbles are made of - certainty.

Gold is going down. The federal government is doing all it can to inflate, but gold is going down. Down too much, the logic is destroyed and there may be panic selling. People paying $1000/oz for coins and certainty are not going to be happy at $700/oz.


On Feb 28 10:14 PM The Mad Hedge Fund Trader wrote:

> OP tf Panic buying of gold coins continues to overwhelm coins dealers
> around the world. According to the Financial Times, the US Mint sold
> 193,500 American eagles in the first seven weeks of this year, more
> than it sold in all of 2007 at prices 40% lower. Retail investors
> fleeing paper assets, like plummeting stocks and bonds, are paying
> 5% premiums over face values. The same phenomena is appearing in
> other countries were gold coins are available to the public. Does
> this have a toppy feel to it?]]> Mon, 02 Mar 2009 12:14:31 -0500
If you look at the arguments for gold, there is no reason it should be going down. No reason it should go down in the foreseeable future. That is the stuff bubbles are made of - certainty.

Gold is going down. The federal government is doing all it can to inflate, but gold is going down. Down too much, the logic is destroyed and there may be panic selling. People paying $1000/oz for coins and certainty are not going to be happy at $700/oz.


On Feb 28 10:14 PM The Mad Hedge Fund Trader wrote:

> OP tf Panic buying of gold coins continues to overwhelm coins dealers
> around the world. According to the Financial Times, the US Mint sold
> 193,500 American eagles in the first seven weeks of this year, more
> than it sold in all of 2007 at prices 40% lower. Retail investors
> fleeing paper assets, like plummeting stocks and bonds, are paying
> 5% premiums over face values. The same phenomena is appearing in
> other countries were gold coins are available to the public. Does
> this have a toppy feel to it?]]> http://seekingalpha.com/article/123298-dr-doom-responds-on-wells-fargo?source=feed#comment-407105 407105
It think Roublini's reputation is a little overblown and I think his analysis of the causes of the crisis are incomplete, but it's pretty clear to me that what he did was give Time a macro loss estimate and they simply spread it across the big banks evenly, which, of course, is not the way the losses will spread.

But the scary thing is that if we agree with Roubini's macro estimate (and they have been good) and Wells is going to take fewer losses, who will take more than their balance sheets are telling us?
]]> Sat, 28 Feb 2009 13:30:42 -0500
It think Roublini's reputation is a little overblown and I think his analysis of the causes of the crisis are incomplete, but it's pretty clear to me that what he did was give Time a macro loss estimate and they simply spread it across the big banks evenly, which, of course, is not the way the losses will spread.

But the scary thing is that if we agree with Roubini's macro estimate (and they have been good) and Wells is going to take fewer losses, who will take more than their balance sheets are telling us?
]]> http://seekingalpha.com/article/123088-the-benefits-of-this-recession?source=feed#comment-406488 406488
The "this is just the way things work" mentality is exactly what was used to sell people houses in 2005 and sell investors bogus motgage-backed securities up until the market folded and the marketers began to choke on their own fraud. This didn't happen because Alan Greenspan refused to let things "revert to the mean". This happened because people at trusted, regulated institutions used their position of trust to make trillions of dollars in bogus financial commitments for profit.

When people saved, they were saving in lies - money for nothing. When they spent at least they were getting stuff.

]]> Fri, 27 Feb 2009 17:33:25 -0500
The "this is just the way things work" mentality is exactly what was used to sell people houses in 2005 and sell investors bogus motgage-backed securities up until the market folded and the marketers began to choke on their own fraud. This didn't happen because Alan Greenspan refused to let things "revert to the mean". This happened because people at trusted, regulated institutions used their position of trust to make trillions of dollars in bogus financial commitments for profit.

When people saved, they were saving in lies - money for nothing. When they spent at least they were getting stuff.

]]> http://seekingalpha.com/article/123141-the-end-of-money?source=feed#comment-406297 406297 Fri, 27 Feb 2009 15:19:58 -0500 http://seekingalpha.com/article/122797-fed-watch-will-talf-do-the-job?source=feed#comment-405077 405077
Folks can pretend that low-grade debt is high-grade for only so long. If that's true of government debt, it's doubly (or triply, or quadruply?) true of MBS.]]> Thu, 26 Feb 2009 18:03:10 -0500
Folks can pretend that low-grade debt is high-grade for only so long. If that's true of government debt, it's doubly (or triply, or quadruply?) true of MBS.]]> http://seekingalpha.com/article/121943-rick-santelli-critic-or-p-r-man?source=feed#comment-400963 400963
I just want to reiterate the point - a point that seems to get lost somehow - that bankers are in the business of judging whether the people they lend to are good risks. That's what the business of banking is. I just cannot understand why anyone would believe the lame story that the bank losses came from borrower "lies".

When you check out a borrower, you can check his employment information on any credit reporting agency. Lenders who didn't do that did not want to know. They wanted to sell MBS. Everything the banks were doing points in one direction: securities fraud. Every result of their actions is totally consistent with securities fraud.

But I guess for some people it's always going to be the government and the little guy who are to blame.

Finally, I want to make clear that obviously I don't think Bernie Madoff has taken enough resopnsibility for what he did.

But at least he admitted it. ]]> Tue, 24 Feb 2009 02:59:50 -0500
I just want to reiterate the point - a point that seems to get lost somehow - that bankers are in the business of judging whether the people they lend to are good risks. That's what the business of banking is. I just cannot understand why anyone would believe the lame story that the bank losses came from borrower "lies".

When you check out a borrower, you can check his employment information on any credit reporting agency. Lenders who didn't do that did not want to know. They wanted to sell MBS. Everything the banks were doing points in one direction: securities fraud. Every result of their actions is totally consistent with securities fraud.

But I guess for some people it's always going to be the government and the little guy who are to blame.

Finally, I want to make clear that obviously I don't think Bernie Madoff has taken enough resopnsibility for what he did.

But at least he admitted it. ]]> http://seekingalpha.com/article/121916-non-recourse-loans-positively-counterproductive?source=feed#comment-399161 399161 This is a really excellent piece. Congratulations on the clear thinking. Let's hope public policy makers are reading. ]]> Sun, 22 Feb 2009 18:14:23 -0500 This is a really excellent piece. Congratulations on the clear thinking. Let's hope public policy makers are reading. ]]> http://seekingalpha.com/article/121479-s-p-500-earnings-the-pain-of-mean-reversion?source=feed#comment-395544 395544
Ouch.


]]> Thu, 19 Feb 2009 15:19:31 -0500
Ouch.


]]> http://seekingalpha.com/article/121448-too-big-to-bail-lehman-brothers-is-the-model-for-fixing-the-zombie-banks?source=feed#comment-395379 395379
"The definition of "systemic risk" is when markets are surprised, but these are political distinctions. Repeat after us: "there is no such thing as systemic risk," at least that can be measured scientifically."

I find this to be an absolutely remarkable statement, considering it was made by a person who is obviously so intelligent. To write such a thing, one would have to believe - in essence - that people's behavior never changes or at least that all behavior changes that are economically meaningful exist on a smooth continuum. Unable to deal with reality outside his lovely Gaussian models, he simply calls all that enormous amount of human behavior: "political" and dismisses it. It's no longer part of his world so he doesn't have to deal with it.

The very real, very well-understood *economic* fact is that when the circumstances of people's lives change - when events actually occur in their lives - their behavior changes in a quantized, discontinuoos way - no matter how much they are expecting the change. It's just a fact.

Mr. Whalen may pretend that this doesn't apply to him, but he's living in a fantasy world. So too are the bondholders of our major banks. When that fantasy world cracks, both Mr. Whalen and these bondholders will start to act very differently, very quickly and that will be a bewildering day for them.

]]> Thu, 19 Feb 2009 13:49:32 -0500
"The definition of "systemic risk" is when markets are surprised, but these are political distinctions. Repeat after us: "there is no such thing as systemic risk," at least that can be measured scientifically."

I find this to be an absolutely remarkable statement, considering it was made by a person who is obviously so intelligent. To write such a thing, one would have to believe - in essence - that people's behavior never changes or at least that all behavior changes that are economically meaningful exist on a smooth continuum. Unable to deal with reality outside his lovely Gaussian models, he simply calls all that enormous amount of human behavior: "political" and dismisses it. It's no longer part of his world so he doesn't have to deal with it.

The very real, very well-understood *economic* fact is that when the circumstances of people's lives change - when events actually occur in their lives - their behavior changes in a quantized, discontinuoos way - no matter how much they are expecting the change. It's just a fact.

Mr. Whalen may pretend that this doesn't apply to him, but he's living in a fantasy world. So too are the bondholders of our major banks. When that fantasy world cracks, both Mr. Whalen and these bondholders will start to act very differently, very quickly and that will be a bewildering day for them.

]]> http://seekingalpha.com/article/120545-toxic-assets-the-challenge?source=feed#comment-387556 387556
Consider: "In 3,700 mortgage securitizations he examined, Patrick found that of $1.4 trillion in Alt-A mortgages, $948 billion were current on interest and principal, while $452 billion were delinquent more than 30 days."

Please note the "A" in "Alt-A". The underlying loans were marketed as "near-prime" and I guarantee you that the securities had the vast majority of their tranches rated AA or better. Based on their performance, we can say without any fear of meaningful contradiction that these ***securitizations*** were fraudulent. There was no event which caused this incredibly high deliquency rate - a rate multiples of what the securitzer predicted and overwhelming the supposed protections structured into the securities.

Rather, the only reasonable conclusion is that these delinquency rates are, in fact, something of which any responsible financier could have made a far, far more accurate prediction, given true and meaningful information. Either this information was not made available and/or not sought - thus a deception through omission and therefore constructive fraud - or this information was altered to appear other than it was - a deception through outright fraud.

It seems to me that given the enormous disparity between the promised performance and the actual performance, a buy would have to be a lunatic not to demand a vast discount, given the burden of financial risk, potential management and legal costs and replacing fraudulent analytics with real analytics.

What's more, the exact same process which created the securities in the first place could - with government help if necessary - be used to re-analyze, re-rate and re-securitize them so that they could be booked at something much closer to their real value. What is not reasonable or even rational is to suggest that one should ignore the obvious misconduct that created these bonds and simply accept the word of the very people responsible for that misconduct as to their value.

If the market is incorrect, then banks should re-analyze the bonds and prove their value. If they are not willing to do this, the logical conclusion is that they are trying to commit the same fraud twice. ]]> Fri, 13 Feb 2009 14:27:37 -0500
Consider: "In 3,700 mortgage securitizations he examined, Patrick found that of $1.4 trillion in Alt-A mortgages, $948 billion were current on interest and principal, while $452 billion were delinquent more than 30 days."

Please note the "A" in "Alt-A". The underlying loans were marketed as "near-prime" and I guarantee you that the securities had the vast majority of their tranches rated AA or better. Based on their performance, we can say without any fear of meaningful contradiction that these ***securitizations*** were fraudulent. There was no event which caused this incredibly high deliquency rate - a rate multiples of what the securitzer predicted and overwhelming the supposed protections structured into the securities.

Rather, the only reasonable conclusion is that these delinquency rates are, in fact, something of which any responsible financier could have made a far, far more accurate prediction, given true and meaningful information. Either this information was not made available and/or not sought - thus a deception through omission and therefore constructive fraud - or this information was altered to appear other than it was - a deception through outright fraud.

It seems to me that given the enormous disparity between the promised performance and the actual performance, a buy would have to be a lunatic not to demand a vast discount, given the burden of financial risk, potential management and legal costs and replacing fraudulent analytics with real analytics.

What's more, the exact same process which created the securities in the first place could - with government help if necessary - be used to re-analyze, re-rate and re-securitize them so that they could be booked at something much closer to their real value. What is not reasonable or even rational is to suggest that one should ignore the obvious misconduct that created these bonds and simply accept the word of the very people responsible for that misconduct as to their value.

If the market is incorrect, then banks should re-analyze the bonds and prove their value. If they are not willing to do this, the logical conclusion is that they are trying to commit the same fraud twice. ]]> http://seekingalpha.com/article/120293-gold-the-long-run-value?source=feed#comment-386694 386694 Fri, 13 Feb 2009 01:23:49 -0500 http://seekingalpha.com/article/120230-why-markets-dissed-the-geithner-plan?source=feed#comment-386332 386332
My only question would be why the author feels that the "toxic" (meaning "fraudulent") assets will "have residual value".

These bonds are a management nightmare. Who is going to pay for the cost of going through all this phony junk and finding out what's really going on. ]]> Thu, 12 Feb 2009 17:30:47 -0500
My only question would be why the author feels that the "toxic" (meaning "fraudulent") assets will "have residual value".

These bonds are a management nightmare. Who is going to pay for the cost of going through all this phony junk and finding out what's really going on. ]]> http://seekingalpha.com/article/119999-what-the-treasury-plan-needs-price-discovery-writedowns-and-more?source=feed#comment-384617 384617 "Price Discovery"???

How about we figure out what the heck these jokers are even trying to sell us first?]]> Wed, 11 Feb 2009 17:13:56 -0500 "Price Discovery"???

How about we figure out what the heck these jokers are even trying to sell us first?]]> http://seekingalpha.com/article/119932-the-end-of-gold-part-three?source=feed#comment-384018 384018
My view is that downturns come in four varieties - slight deflation we never notice, stagflation, deflation and hyperinflation (which invariably leads to or includes severe stagnation). Certainly for the U.S. and the world, a dollar hyperinflation would be the worst and - I think - the most unlikely. So naturally I am extremely reluctant to go with the "gold or die" thesis. By the same token, I certainly recognize the validity of it in the most extreme scenario.

I think we have a lot of deflation to go through before we get to a hyperinflation but I've written before that once rates went to zero, hyperinflation was "on the table" at least in theory. And as I've written several times, even without hyperinflation, the gold market could go back into bubble mode of its own volition and there is no question that bubbles make people LOTS of money. The only thing I have trouble imagining is stable gold prices for the rest of the year. So, place your bets, I guess.

I just feel that it's no accident someone as smart as Peter Schiff has been wrong about the dollar, bonds, etc.. I think people are really underestimating the deflationary threat. The narrative for gold buyers is totally locked in at the same time the fundamentals have crumbled, in my view. It reminds me for all the world of this summer and the Chinese oil demand narrative, but that's for next time.

Finally, several people have asked when I would get in. My view is that if gold breaks out above $1200, there will be plenty of room for it to go. I'm in no hurry. ]]> Wed, 11 Feb 2009 11:41:31 -0500
My view is that downturns come in four varieties - slight deflation we never notice, stagflation, deflation and hyperinflation (which invariably leads to or includes severe stagnation). Certainly for the U.S. and the world, a dollar hyperinflation would be the worst and - I think - the most unlikely. So naturally I am extremely reluctant to go with the "gold or die" thesis. By the same token, I certainly recognize the validity of it in the most extreme scenario.

I think we have a lot of deflation to go through before we get to a hyperinflation but I've written before that once rates went to zero, hyperinflation was "on the table" at least in theory. And as I've written several times, even without hyperinflation, the gold market could go back into bubble mode of its own volition and there is no question that bubbles make people LOTS of money. The only thing I have trouble imagining is stable gold prices for the rest of the year. So, place your bets, I guess.

I just feel that it's no accident someone as smart as Peter Schiff has been wrong about the dollar, bonds, etc.. I think people are really underestimating the deflationary threat. The narrative for gold buyers is totally locked in at the same time the fundamentals have crumbled, in my view. It reminds me for all the world of this summer and the Chinese oil demand narrative, but that's for next time.

Finally, several people have asked when I would get in. My view is that if gold breaks out above $1200, there will be plenty of room for it to go. I'm in no hurry. ]]> http://seekingalpha.com/article/118153-q4-earnings-the-future-is-here?source=feed#comment-375600 375600
But I don't see it as an Internet/Non-Internet dichotomy. I see these successful companies as businesses that have been able to successfully integrate an online presence into their businesses. For Apple, it's the app store. For RIMM it's the fact that the iPhone has finally broken that barrier to bringing the web to the phone and for Google it's just plain integrating every damned under the sun onto their site.

If the author seems a touch optimistic, it is nevertheless a good reminder for us all. ]]> Wed, 04 Feb 2009 12:04:30 -0500
But I don't see it as an Internet/Non-Internet dichotomy. I see these successful companies as businesses that have been able to successfully integrate an online presence into their businesses. For Apple, it's the app store. For RIMM it's the fact that the iPhone has finally broken that barrier to bringing the web to the phone and for Google it's just plain integrating every damned under the sun onto their site.

If the author seems a touch optimistic, it is nevertheless a good reminder for us all. ]]> http://seekingalpha.com/article/118103-u-s-debt-default-dollar-collapse-altogether-likely?source=feed#comment-374870 374870 Tue, 03 Feb 2009 17:42:49 -0500 http://seekingalpha.com/article/117583-global-sovereign-bond-watch-overstuffed-supply?source=feed#comment-372924 372924
The demand for Treasuries has been extraordinary and shows essentially no sign of diminishing. ]]> Sun, 01 Feb 2009 23:58:28 -0500
The demand for Treasuries has been extraordinary and shows essentially no sign of diminishing. ]]> http://seekingalpha.com/article/117775-the-end-of-gold-part-two?source=feed#comment-372620 372620
In my view, fiat money is *always* inflationary - and for a very good, sound, economic reason. More on that my next post.

Again, good luck. ]]> Sun, 01 Feb 2009 14:16:16 -0500
In my view, fiat money is *always* inflationary - and for a very good, sound, economic reason. More on that my next post.

Again, good luck. ]]> http://seekingalpha.com/article/117775-the-end-of-gold-part-two?source=feed#comment-372610 372610
The point of my missive was to emphasize the fact that while inflationary monetary and fiscal policies are being pursued with amazing, record-breaking vigor, a deflationary mindset has nonetheless taken hold.

We are in a battle. Strangely, the usually anti-government goldbugs are betting that the government will succeed in its quest to create inflation. I am not so hopeful. The private sector is a LOT bigger than the public sector and in the private sector, deflationary behavior and tendencies are now the rule.

But in the gold market, this is crunch time. I wrote this exactly because gold is pushing against those "breakout" price levels - exactly because the market is deciding whether these spikes in the gold price are a top or a breakout. The shorts are filled with fear. The longs have all the popular arguments on their side (if not the actual fundamentals). A bubble in gold is a distinct possibility, I just don't think the liquidity is out there to make it happen. All you hear about the gold market comes from perma-bulls, so I think it's important for people to hear another view.

While I would agree that zero interest rates and the massive government spending, lending and huge slush funds for the banks crippled by their own fraudulent lending have put dollar hyperinflation "on the table" as a real-but-extremely-rem... possibility, the idea that gold will somehow replace legal/accounting "fiat" money is, I think, so wrong that it's hard to deal with as a serious idea.

Nevertheless, I will deal with it in my final posting.

Good luck, short and long. ]]> Sun, 01 Feb 2009 13:59:39 -0500
The point of my missive was to emphasize the fact that while inflationary monetary and fiscal policies are being pursued with amazing, record-breaking vigor, a deflationary mindset has nonetheless taken hold.

We are in a battle. Strangely, the usually anti-government goldbugs are betting that the government will succeed in its quest to create inflation. I am not so hopeful. The private sector is a LOT bigger than the public sector and in the private sector, deflationary behavior and tendencies are now the rule.

But in the gold market, this is crunch time. I wrote this exactly because gold is pushing against those "breakout" price levels - exactly because the market is deciding whether these spikes in the gold price are a top or a breakout. The shorts are filled with fear. The longs have all the popular arguments on their side (if not the actual fundamentals). A bubble in gold is a distinct possibility, I just don't think the liquidity is out there to make it happen. All you hear about the gold market comes from perma-bulls, so I think it's important for people to hear another view.

While I would agree that zero interest rates and the massive government spending, lending and huge slush funds for the banks crippled by their own fraudulent lending have put dollar hyperinflation "on the table" as a real-but-extremely-rem... possibility, the idea that gold will somehow replace legal/accounting "fiat" money is, I think, so wrong that it's hard to deal with as a serious idea.

Nevertheless, I will deal with it in my final posting.

Good luck, short and long. ]]> http://seekingalpha.com/article/117419-gross-stop-the-asset-price-decline?source=feed#comment-370362 370362
After years of snickering at the government for going "long volatility" and thereby giving him a profit edge he thought was near-permanent, Gross is now directly ripping off the taxpayer.

What a shameful person he is. ]]> Thu, 29 Jan 2009 16:28:20 -0500
After years of snickering at the government for going "long volatility" and thereby giving him a profit edge he thought was near-permanent, Gross is now directly ripping off the taxpayer.

What a shameful person he is. ]]> http://seekingalpha.com/article/116404-the-end-of-gold?source=feed#comment-366219 366219
Mr. "Socrateazz"'s suggested to me that it might be useful to explore the deflationary attitude that has taken hold in America. I will do so in a follow-up to this piece.

Clearly, there are many people who think that deflation is unlikely or unlikely to be of any duration. I would simply suggest that whether or not he believes there will be significant deflation, a wise investor would nevertheless have a deflation game plan, given the present economic circumstances. So far I have not read of a better deflation play than going short gold, although I'm sure they exist. If you think of one, make it. Oh, and then please write about it.

Thanks again.]]> Mon, 26 Jan 2009 07:17:32 -0500
Mr. "Socrateazz"'s suggested to me that it might be useful to explore the deflationary attitude that has taken hold in America. I will do so in a follow-up to this piece.

Clearly, there are many people who think that deflation is unlikely or unlikely to be of any duration. I would simply suggest that whether or not he believes there will be significant deflation, a wise investor would nevertheless have a deflation game plan, given the present economic circumstances. So far I have not read of a better deflation play than going short gold, although I'm sure they exist. If you think of one, make it. Oh, and then please write about it.

Thanks again.]]> http://seekingalpha.com/article/116244-annals-of-cds-demonization-michael-lewis-edition?source=feed#comment-366190 366190 back into credit default swaps. Right now they are swaps in name only. I think an easy way to start would be to move these trades to an exchange and give insurance buyers the right to settle in cash or in an actual asset swap of a standard bond. This would force insurance writers to create an inventory of bonds against which some portion of trades might be settled. The exchange could manage the inventory of reference bonds much as they manage the inventory of commodities against which futures are traded. Insurance writers would have to prove to the exchange that they were adequately capitalized to settle claims and insurance buyers could be assured of standardized terms and easily-comparable prices

We have gone from AIG selling billions in fraudulent CDS on which it could never have made good without a government bailout to the bizarre situation Mr. Salmon writes about in another column in which CDS insurance buyers are forced to put up collateral for the "privilege" of buying insurance (and they *still* can't even be sure the insurance seller is good for the money). The market has gone from AIG preying (criminally, in my view) on excessive trust to insurance writers now preying on excessive fear.

With proper collateralization, terms and clearing, CDS are a perfectly fine instrument. But defaults are cyclical (by definition) and CDS result in pro-cyclical demands on cash and balance sheets. Large and *seemingly* unlikely promises to pay are made in exchange for cyclically small amounts of cash when times are good and then very large amounts of now-scarce cash are suddenly demanded when times are bad. Pro-cyclical instruments are okay, so long as there is someone making sure that collateral is put aside in good times and that liquidity is adequate in bad times so that fearful, cash-strapped people are not getting ripped off.


On Jan 25 05:06 AM donzelion wrote:

> Dlaw - "intentional information asymmetry" seems an apt description
> of CDSes as utilized, rather than as CDSes are envisioned. They
> have a perfectly legitimate purpose, but as with many legitimate
> transactions, they can have wholly illegitimate applications - and
> they always facilitate a profound information asymmetry.
>
> Problem is, rectifying information asymmetries is extremely difficult.
> To guard against management abusing shareholders by siphoning off
> the profits, we created modern corporate accounting. How shall we
> guard against management abusing shareholders by burying the risks
> they've assumed?]]> Mon, 26 Jan 2009 05:47:32 -0500 back into credit default swaps. Right now they are swaps in name only. I think an easy way to start would be to move these trades to an exchange and give insurance buyers the right to settle in cash or in an actual asset swap of a standard bond. This would force insurance writers to create an inventory of bonds against which some portion of trades might be settled. The exchange could manage the inventory of reference bonds much as they manage the inventory of commodities against which futures are traded. Insurance writers would have to prove to the exchange that they were adequately capitalized to settle claims and insurance buyers could be assured of standardized terms and easily-comparable prices

We have gone from AIG selling billions in fraudulent CDS on which it could never have made good without a government bailout to the bizarre situation Mr. Salmon writes about in another column in which CDS insurance buyers are forced to put up collateral for the "privilege" of buying insurance (and they *still* can't even be sure the insurance seller is good for the money). The market has gone from AIG preying (criminally, in my view) on excessive trust to insurance writers now preying on excessive fear.

With proper collateralization, terms and clearing, CDS are a perfectly fine instrument. But defaults are cyclical (by definition) and CDS result in pro-cyclical demands on cash and balance sheets. Large and *seemingly* unlikely promises to pay are made in exchange for cyclically small amounts of cash when times are good and then very large amounts of now-scarce cash are suddenly demanded when times are bad. Pro-cyclical instruments are okay, so long as there is someone making sure that collateral is put aside in good times and that liquidity is adequate in bad times so that fearful, cash-strapped people are not getting ripped off.


On Jan 25 05:06 AM donzelion wrote:

> Dlaw - "intentional information asymmetry" seems an apt description
> of CDSes as utilized, rather than as CDSes are envisioned. They
> have a perfectly legitimate purpose, but as with many legitimate
> transactions, they can have wholly illegitimate applications - and
> they always facilitate a profound information asymmetry.
>
> Problem is, rectifying information asymmetries is extremely difficult.
> To guard against management abusing shareholders by siphoning off
> the profits, we created modern corporate accounting. How shall we
> guard against management abusing shareholders by burying the risks
> they've assumed?]]>