axelrod608

Why Solving the Credit Crunch Is Key

>> "The solution is to restart the securitization process" >> NO NO NO WAY !!

Having worked with debtors unable to service their debt I understand the process that occurs when one passes the tipping point. A decade plus of cheap, easy, unlimited credit built debt to unsustainable levels. The idea that all we have to do is increase the carrying capacity of the securitization industry is laughable when one realizes that currently personal incomes and corporate earnings are insufficient to service existing debt.

No solution is possible until and unless we understand the concept of unsustainability. Clearly, our "leaders" don't.

This mess can ONLY be resolved by reducing debt to sustainable levels. All the other tinkering, bailing, TARPing, and easing is just like rearranging the chairs on the deck of the Titanic.

Working Towards a Fiscal Constitution

>> "If the past is any guide, somewhere there is a group working on it in relative harmony, with high seriousness of purpose" >>

Undoubtedly there are some bright people doing just that, BUT, the reality of the situation is that all the king's horsemen and all the king's men belong to the two ruling parties, every congress and every administration of which has spent more than it's taken in since WW II. Fiscal integrity, fiscal accountability do not exist in DC. In DC-think, "deficits don't matter" ( Dick Cheney) and the corrolary "debt doesn't matter".

Academicians often overlook the simple basics, one of which is that every empire in world history has spent itself to death. We appear to be well on our way to imploding just as all the others have, drowning in a sea of debt. Find economic theory that says it isn't so.

Alan "Bubbles" Greenspin pushed Humpty off the wall with a decade plus of easy, cheap, unlimited credit. All the king's men are continuing that disastrous policy - keep the easy, cheap unlimited credit flowing.

Common sense tells one when you find yourself in a hole, stop digging. The Fed is bringing in bigger digging equipment. And while the theorists debate, the fed keeps digging. This will end badly no matter what the theorists determine.

Wall Street Breakfast: Must-Know News

>> "The World Bank lowered its outlook for global growth, forecasting a 2.9% contraction this year vs. a previous forecast of -1.7%. Growth in 2010 will reach 2%," >>

I sure would like to see the "improvements" that the World Bank uses to predict 2% growth in 2010. Getting worse slower is NOT a turnaround.

Back in the U.S.S.A.

When money is scarce and expensive, people don't take risks with it. When money is cheap and plentiful they do. Peter makes the point that unlimited cheap money - fed monetary policy for over a decade now - is the driver behind all the ills crushing the economy. 100% dead on target.

And all the stimili/bailouts/guara... are just rearranging the chairs on the deck of the Titanic. The folks at the helm just plain don't get it.

Here's What World Markets Are Telling Income Investors to Do

I understand that there are many investing/trading strategies, and what you've outlined here is a cautious one. Personally, I agree since my objective is capital preservation way more important than potential profit. No market has ever gone so far so fast as the current market since March. So it is logical to expect a turndown market correction in the near future.

Dividend investors clearly realize that it takes years of dividends to recoup capital losses. Your advice to take partial positions is good. I would add the requirement of tight trailing stops to defend against losses if the market heads south.

Using the March lows as buy points makes sense for dividend investors. But even if we revisit those lows, trailing stops should still be used if for no other reason than market uncertainty. While many pundits have pronounced the current rally as "a new bull market" I'm skeptical. And I don't have unlimited years left to make up for losses.

I'm up to about 80% cash now, having taken profits from the recent rally. Might I lose some upside potential ? Sure. But I'm satisfied with +30% year-to-date (and I wish I'd done the same last year).

Another good article for dividend investors, Cliif. Thanks.

Chart of the Day - Inflation Adjusted Dow

Always food for thought in what you bring to us. Hard to foretell what direction things will go or for how long, but there's no doubt we are living in what the old Chinese curse warned of - interesting times.

Wall Street Breakfast: Must-Know News

>> "Financial reforms snag non-banks." >>

Unrestrained greed with a total lack of concern for risk got us here. Will sufficient reform in regulation to fix the problems have unseen, unanticipated consequences ? Absolutely. This is not necessarily a bad thing.

The financial industry was allowed to "grow like topsy" and turned out to be an unregulated disaster. If our leaders don't fix it, it will likely have another meltdown in the future.

What we should really be doing in public policy is to debate the issue of whether an economy 70% driven by consumer spending with half of the rest coming from finance is a desirable or sustainable economy. In my estimation is is not.

As an old gearhead I like to use car analogies. For $60,000 you can restore a 1955 Chevy to new condition. For $20,000 you can buy a new Cobalt. Which do you want to drive daily ? We need an economy that serves today's needs, not an unsustainable antique designed for an era long past

We need too-big-to-fail financials like a fish needs a bicycle. Our kids and grandkids need an economy that will serve them as well as we have been served. I'd sure like to see our "leaders" get something right for a change..

Wall Street Breakfast: Must-Know News

>> "Have you ever seen anything matching Japanese or German quality come from China at any price" >> Yes.

bobbob - I bought my son a Lenovo computer several years ago. Despite the fact that he never defrag's it or does any maintenance and visits the riskiest gaming sites, it has performed flawlessly. It is made in china and is every bit as good as any other PC.

China can and does make top quality products, NONE of which you will ever find in a Walmart.

You missed the point of my earlier comment - blame the company that contracts with the chinese company to make cheap crap, which they then stock and sell here. Companies in EVERY country make products to specs provided by the company that buys them, not to a high quality spec.

Wall Street Breakfast: Must-Know News

>> "Can you believe how bad Chinese-made stuff is?.....pure junk" >>

Don't blame the Chinese. It is Walmart, DollarTree and many, many other AMERICAN companies that are buying the crap and stocking their shelves with it. Worse, companies like Walmart keep sqeezing their suppliers - to make more profit - resulting in the makers cutting more and more corners.

This is just another piece of the American/multinational corporate greed machine that will say, do or sell anything - no matter how shoddy or fraudulent - to make a buck.

American financials solicit, buy, package and sell risky MBS's while other American companies rate them AAA. It is the financials' equivalent of soliciting cheap shoddy consumables, stocking stores with them and selling them to Americans with little or no sensibilities about what quality is.

In the American and global economies, GREED is the factor driving all the deteriorating sectors.

These days, to ignore the old Roman saying, "Let the buyer beware" is to risk getting taken. And it applies to stocks, real estate, retail and every other sector.

Wall Street Breakfast: Must-Know News

>> "Seems everyone who comments on Alpha postings has only negative things to say." >> I guess you haven't been following the Cetin rants, eh ?

Look, anyone, EVERYONE with money in the market the past three months is thrilled. There is a HUGE difference between the market and the economy. There is money to be made in EVERY market. And that sound you hear is the economy swirling in the bowl while the fed continues to flush it with more and more water (money).

Take off the rose colored glasses. We're NOT in Kansas anymore.

Confusing Unemployment Numbers

Another good article, John. Unfortunately we still measure stuff the way we did BC - before computers. One would think that since new hires submit a W-4 that is communicated to the feds, we could come up with some fairly accurate measure of job creation. And when laid-offs return to work, witholding tax begins again. But I haven't done a payroll in decades and if we still let companies report quarterly, the numbers are stale before the feds get them.

Several commenters have offered what I believe to be the current issue - that this recession isn't (going to be) like previous ones for which we have data. All sectors of America are awash in debt, unsustainable debt. Without the income or earnings to service that debt, it appears that the string of dominoes lined up is a long one and we are at or very near the beginning of the line. I hope I'm wrong. If I'm right, the length and depth of this recession will set a lot of new records.

My kids, both just starting out in adult life, deserve better.

Wall Street Breakfast: Must-Know News

>> "The old trick of moving auditors around till they are too confused to think straight has morphed into creating organizations that are so complex auditors/ regulators have no chance of truly understanding the firms they examine " >> Drew Horn has this one dead in the crosshairs.

I worked briefly as an accounting manager for one of the world's biggest companies I was told by the regional accounting manager that I would receive instructions where various amounts would be entered and how much. I replied that I would put all amounts in the categories they belonged in and if anyone up the chain wanted to change them, that was their perogative. I was categorized "does not play well with others".

Truth is, no huge multinational company is really auditable. And they put the numbers wherever they want them. The company I worked for wrote off huge losses that did not exist. The idea that these too-big-to-fail firms can be regulated is modern mythology.

Wall Street Breakfast: Must-Know News

>> " the plan will urge stronger consumer and investor protections, more power for the Federal Reserve..." >>

MORE power to the FED ??? The Fed CAUSED this mess. Talk about giving the keys and security code of the henhouse to the foxes...

I'm up to around 80% cash now. NO market ever comes this far, this fast without a selloff. Keep your powder dry or lose it folks.

Who Is Really to Blame for the Deficit?

>> "The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office." >>

Oh I don't think so. Clinton's "surplus" was just another of our government's highly massaged numbers. Go all the way back to Eisenhower building the Interstate highway system with money we didn't have and you get much closer to reality. Then consider that every administration and every congress since Eisenhower has spent more that it took in and you get a better idea of who is to blame.

In my mind, the mindset that emerged from WW II is to blame. We "learned" two things in WW II - one, we could conquer the world if we set our minds and backs to it and two, problems - no matter how huge - can be solved by throwing massive amounts of money at them. And those two "learned responses" created a mindset that has eventually crippled our economy.

American political fiscal practice has been dysfunctional for two generations. Ron Paul excepted, we now have a congress with ZERO fiscally responsible members. Same goes for this and every previous administration since WW II.

The two foundations of American poitical thought are 1) spend more and 2) cut taxes. Together they are a recipe for eventual disaster.

Or, as Pogo so correcttly observed, "We has met the enemy..... and he is us".

Who is to blame ? I have never voted for the winning President. I voted for Goldwater. People who think that national elections should be decided on borderline issues like abortion and gay rights rather than on fiscal integrity are to blame. The fiscal health of the country is absolutely THE most important national issue, if you want the country to survive. Based on a couple generations' voting results, I'd say most Americans couln't care less whether the nation lives or dies.

Ten Points, Mainly on the Debt Markets

>> "We are seeing more losses on prime loans, because slumping housing prices have even inverted prime some loans. Then, when a trouble hits (one of the 6 Ds — see point 5), and cash flow to service the mortgage falls, we get another foreclosure. Shiller makes a similar argument in the NYT." >>

Key point - cash flow to service debt. Job losses from last year, continuing into this and likely next year coupled with weak to nonexistent new job creation predict continuing default and foreclosure rates as well as drops in consumer spending. I see the term"jobless recovery" as an oxymoron. A consumer driven economy cannot recover without income to the consumers. Propping up the banks and car companies is futile if consumer wallets are empty.

Debt markets are only as sound as the debtors' ability to repay.