the social scientist.'s Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/214869/comments http://seekingalpha.com/article/120744-looking-at-our-present-crisis-through-the-lens-of-the-fourth-turning?source=feed#comment-390831 390831
Batra's error again was categorizing past societies based on social attributes of his choosing. That is, it was all interpretive. There was no measurement of these social groupings. I have engaged in categorization of phenomena using cluster analysis. It requires good data, and no mathematical technique can tell you whether an individual observation should be in this group or that group, and how diverse the group memberships should be, and which attributes you should choose to define the group. Your classification is only meaningful if it is predictive in some way - so you have to wait.

I agree that there is plenty of energy out there, but we are near peak oil, and replacing it or substituting for it is more expensive than oil at $100 a barrel given current technologies. It's not the dollar cost of energy that is a problem, it's the energy efficiency of energy production. Ethanol produces very little net energy, if any, because of industrial agriculture that uses great amounts of energy to fertilize, plant, manage pests, and harvest corn. Then there is the energy used in conversion of the corn to alcohol.

It takes oil to build nuclear reactors. It takes oil to build synthetic fuel plants that make oil out of coal. We're talking about huge capital and energy investments to get alternative energy production started up, at a time that both cheap capital and energy are scarce.

Necessity is NOT the mother of invention. Most inventions come out of the blue and then spur a demand for them. I'm not waiting for nuclear fusion. Viagra was a side effect of testing the stuff as a cardiac drug.]]> Mon, 16 Feb 2009 14:34:28 -0500
Batra's error again was categorizing past societies based on social attributes of his choosing. That is, it was all interpretive. There was no measurement of these social groupings. I have engaged in categorization of phenomena using cluster analysis. It requires good data, and no mathematical technique can tell you whether an individual observation should be in this group or that group, and how diverse the group memberships should be, and which attributes you should choose to define the group. Your classification is only meaningful if it is predictive in some way - so you have to wait.

I agree that there is plenty of energy out there, but we are near peak oil, and replacing it or substituting for it is more expensive than oil at $100 a barrel given current technologies. It's not the dollar cost of energy that is a problem, it's the energy efficiency of energy production. Ethanol produces very little net energy, if any, because of industrial agriculture that uses great amounts of energy to fertilize, plant, manage pests, and harvest corn. Then there is the energy used in conversion of the corn to alcohol.

It takes oil to build nuclear reactors. It takes oil to build synthetic fuel plants that make oil out of coal. We're talking about huge capital and energy investments to get alternative energy production started up, at a time that both cheap capital and energy are scarce.

Necessity is NOT the mother of invention. Most inventions come out of the blue and then spur a demand for them. I'm not waiting for nuclear fusion. Viagra was a side effect of testing the stuff as a cardiac drug.]]> http://seekingalpha.com/article/120744-looking-at-our-present-crisis-through-the-lens-of-the-fourth-turning?source=feed#comment-390492 390492
Classification of the past into various sociological or psychological eras is a descriptive tool. It has no predictive value. I am a baby boomer. I do not recognize myself in the psychological attributes of the boomers. We are not a great uniformity. Besides, the psychological attributes are not predictive of future events, nor of our reactions to future events.

Cycles are also a description of the past. They are in no way predictive of cycles in the future, just as trends are not predictive of a trend continuing or discontinuing. This is an astrological mentality - that there are cyclical forces afoot, and these cycles have a regular periodicity.

We are faced with depleting oil and no cheaper alternative that can quickly be put in place to replace it (unlike oil replacing coal 75 years ago). We are faced with an aging population that would like to live a retirement at the same comfort level that they enjoyed in their working years. We are faced with a debt burden of historic proportions both at the individual and government level, and having government assume some of that private debt doesn't solve anything. For credit to flow again, for economic growth to occur again (and there are no guarantees that it must), that debt must be deleveraged.

Where are the cycles in these three headwinds? Two of them are completely new. When we deleveraged and came out of the Great Depression, resources were plentiful, and there was no immediate threat of an aging population. Quite the opposite. Things ARE different this time. Some things are always different. And things don't look good for some time to come based on historical relationships that are likely to continue. And then there are Black Swan events, some of which could have benefits to society.

The certainty of history is that no one knows the future. Thanks for wasting my time.]]> Mon, 16 Feb 2009 11:32:30 -0500
Classification of the past into various sociological or psychological eras is a descriptive tool. It has no predictive value. I am a baby boomer. I do not recognize myself in the psychological attributes of the boomers. We are not a great uniformity. Besides, the psychological attributes are not predictive of future events, nor of our reactions to future events.

Cycles are also a description of the past. They are in no way predictive of cycles in the future, just as trends are not predictive of a trend continuing or discontinuing. This is an astrological mentality - that there are cyclical forces afoot, and these cycles have a regular periodicity.

We are faced with depleting oil and no cheaper alternative that can quickly be put in place to replace it (unlike oil replacing coal 75 years ago). We are faced with an aging population that would like to live a retirement at the same comfort level that they enjoyed in their working years. We are faced with a debt burden of historic proportions both at the individual and government level, and having government assume some of that private debt doesn't solve anything. For credit to flow again, for economic growth to occur again (and there are no guarantees that it must), that debt must be deleveraged.

Where are the cycles in these three headwinds? Two of them are completely new. When we deleveraged and came out of the Great Depression, resources were plentiful, and there was no immediate threat of an aging population. Quite the opposite. Things ARE different this time. Some things are always different. And things don't look good for some time to come based on historical relationships that are likely to continue. And then there are Black Swan events, some of which could have benefits to society.

The certainty of history is that no one knows the future. Thanks for wasting my time.]]> http://seekingalpha.com/article/116297-evidence-that-big-inflation-is-coming?source=feed#comment-365836 365836
Let's distill - the comments in particular. Inflation is a general increase in the level of prices of things that we consume. Asset price inflation refers to the change in price of productive resources (or non-productive, like collectibles) that last for some time. Residential real estate then is an asset, but it's shelter services are priced as consumption inflation. When Friedman hypothesized that inflation is a monetary phenomenon he was encapsulating a theory, that inflation is the result of an increase in the money supply. He was not redefining inflation. In his argument he of course engaged in modeling, in which we assume that a lot of other influences (causes) do not vary, and so the independent effect (by itself) of an increase in the money supply will produce inflation. That is, if nothing else changes, including no change in the production of goods and services that money buys.

Unfortunately, other things do change, and the changes in the other causal variables are all inter-related. The key variable omitted by the first author is the velocity of money. If the new money just sits locked up and is unavailable to create an increased demand for goods and services, it isn't going to engender inflation (think globally here). I'm with Mish, for the most part. The bad debt has to unravel. There won't be credit expansion until a lot of that debt is simply written off. There won't be economic growth until credit expands again, or people have saved a lot of money, and then dip into those savings. There won't be inflation until you get economic growth. Don't hold your breath waiting for it.

How does that square with stagflation - inflation with no economic growth? It's mostly a question of time lags I expect. Inflation did ease when the recessions of 1974-75, and 1982-83 bottomed. And, during those recessions, there was no destruction of asset values or credit contraction as now.

This is the 1930's, and Japan in the 1990's. Can the government and central banks save the day? Nobody knows, including them, because this experiment hasn't be tried before. Consider that the 1930's was the control group, and now we are the experimental group. So far the experiment isn't going well is it? Who knew that recapitalizing the banks was not going to improve credit availability for the consumer Who would have thought that people would not want to borrow? Actually quite a few.

When inflation returns there will be plenty of forewarning - we will have signs of economic growth, such as new unemployment claims falling. Remember though, that in the past deflation, or lack of inflation, hung around for a long time.

I do own some GLD - it's a trade. ]]> Sun, 25 Jan 2009 15:44:29 -0500
Let's distill - the comments in particular. Inflation is a general increase in the level of prices of things that we consume. Asset price inflation refers to the change in price of productive resources (or non-productive, like collectibles) that last for some time. Residential real estate then is an asset, but it's shelter services are priced as consumption inflation. When Friedman hypothesized that inflation is a monetary phenomenon he was encapsulating a theory, that inflation is the result of an increase in the money supply. He was not redefining inflation. In his argument he of course engaged in modeling, in which we assume that a lot of other influences (causes) do not vary, and so the independent effect (by itself) of an increase in the money supply will produce inflation. That is, if nothing else changes, including no change in the production of goods and services that money buys.

Unfortunately, other things do change, and the changes in the other causal variables are all inter-related. The key variable omitted by the first author is the velocity of money. If the new money just sits locked up and is unavailable to create an increased demand for goods and services, it isn't going to engender inflation (think globally here). I'm with Mish, for the most part. The bad debt has to unravel. There won't be credit expansion until a lot of that debt is simply written off. There won't be economic growth until credit expands again, or people have saved a lot of money, and then dip into those savings. There won't be inflation until you get economic growth. Don't hold your breath waiting for it.

How does that square with stagflation - inflation with no economic growth? It's mostly a question of time lags I expect. Inflation did ease when the recessions of 1974-75, and 1982-83 bottomed. And, during those recessions, there was no destruction of asset values or credit contraction as now.

This is the 1930's, and Japan in the 1990's. Can the government and central banks save the day? Nobody knows, including them, because this experiment hasn't be tried before. Consider that the 1930's was the control group, and now we are the experimental group. So far the experiment isn't going well is it? Who knew that recapitalizing the banks was not going to improve credit availability for the consumer Who would have thought that people would not want to borrow? Actually quite a few.

When inflation returns there will be plenty of forewarning - we will have signs of economic growth, such as new unemployment claims falling. Remember though, that in the past deflation, or lack of inflation, hung around for a long time.

I do own some GLD - it's a trade. ]]> http://seekingalpha.com/article/115317-deflation-is-mostly-behind-us?source=feed#comment-360159 360159
Yes, inflation will return some day, but nobody knows when. I think TIPs are a good buy, but so does everybody, which scares me. Everybody thinks municipal bonds are a great buy, and have done so for 2-3 months. So why haven't they risen? Could it be because many cities may default on this stuff? And if they do, there is no collateral - only default swaps. Can the mono-lines cover a wave of defaults?

Remember in 2007, that 'everybody' said we should diversify into uncorrelated assets like foreign stocks and commodities, especially because 'everybody' knew that the dollar had nowhere to go but down. that worked well in 2008, didn't it?

In 2000, 'everybody' thought that this time was different, and stocks would go up forever. Now in 2008 we are getting a consensus that this time things are not different, that the government and technology will save us, that economic growth will return fairly soon (God's law of capitalism), and so will inflation. The stock market will recover, because it always has. Did Rome have a stock exchange?

Think independently people. The last year really has been different from the post- WWII era. It looks a lot like the 1930's and post-1990 Japan with new wrinkles that matter. The debt bubble this time was worse than the 1930's. It's global. The populations of the developed economies (and China) are aging rapidly. Oil really is running out, and there are alternatives, but this time there are no cheaper alternatives. (The beauty of oil was that it required so little human energy input to produce vast amounts of energy that we could utilize to our benefit.) Global warming cannot be stopped, and can only be slowed by the immediate cessation of fossil fuel consumption. Of course, we don't know the consequences of warming, but it will require expensive adjustments. It's the rainfall consequences that matter most, although we may lose a few coastal cities.

So, beware of conventional opinion. Entertain the possibility that economic growth is not God-given. Large areas of the world in the past have experienced economic decline (and population decline) for centuries. Sustainable economic growth in the form that we have known it is logically not possible. There are no guarantees that innovation will always provide cheaper alternatives to the resources that we have used up and can't recycle. We don't have to worry too much about innovation increasing food production to keep up with population growth, because world population growth will probably cease by the middle of the century - that's not good for economic growth either.

Humans are evolved to be optimistic by nature, because if you're not, you don't survive long enough to ensure the continuation of your pessimism genes. But look at both sides of reality, and look back further in history than the last 200 years, and you must admit to the possibility that things won't get better, at least for quite a long time. So don't buy-and-hold. Trade to survive, lower your living standards while you can make the choice, and don't expect a comfortable/wealthy retirement. Hell, have a good time now, and forget about retirement. I've been retired for 7 years, and would be content to be poor, except I still have a teenager at home, and a wife who would not be content to be poor.

]]> Mon, 19 Jan 2009 15:41:33 -0500
Yes, inflation will return some day, but nobody knows when. I think TIPs are a good buy, but so does everybody, which scares me. Everybody thinks municipal bonds are a great buy, and have done so for 2-3 months. So why haven't they risen? Could it be because many cities may default on this stuff? And if they do, there is no collateral - only default swaps. Can the mono-lines cover a wave of defaults?

Remember in 2007, that 'everybody' said we should diversify into uncorrelated assets like foreign stocks and commodities, especially because 'everybody' knew that the dollar had nowhere to go but down. that worked well in 2008, didn't it?

In 2000, 'everybody' thought that this time was different, and stocks would go up forever. Now in 2008 we are getting a consensus that this time things are not different, that the government and technology will save us, that economic growth will return fairly soon (God's law of capitalism), and so will inflation. The stock market will recover, because it always has. Did Rome have a stock exchange?

Think independently people. The last year really has been different from the post- WWII era. It looks a lot like the 1930's and post-1990 Japan with new wrinkles that matter. The debt bubble this time was worse than the 1930's. It's global. The populations of the developed economies (and China) are aging rapidly. Oil really is running out, and there are alternatives, but this time there are no cheaper alternatives. (The beauty of oil was that it required so little human energy input to produce vast amounts of energy that we could utilize to our benefit.) Global warming cannot be stopped, and can only be slowed by the immediate cessation of fossil fuel consumption. Of course, we don't know the consequences of warming, but it will require expensive adjustments. It's the rainfall consequences that matter most, although we may lose a few coastal cities.

So, beware of conventional opinion. Entertain the possibility that economic growth is not God-given. Large areas of the world in the past have experienced economic decline (and population decline) for centuries. Sustainable economic growth in the form that we have known it is logically not possible. There are no guarantees that innovation will always provide cheaper alternatives to the resources that we have used up and can't recycle. We don't have to worry too much about innovation increasing food production to keep up with population growth, because world population growth will probably cease by the middle of the century - that's not good for economic growth either.

Humans are evolved to be optimistic by nature, because if you're not, you don't survive long enough to ensure the continuation of your pessimism genes. But look at both sides of reality, and look back further in history than the last 200 years, and you must admit to the possibility that things won't get better, at least for quite a long time. So don't buy-and-hold. Trade to survive, lower your living standards while you can make the choice, and don't expect a comfortable/wealthy retirement. Hell, have a good time now, and forget about retirement. I've been retired for 7 years, and would be content to be poor, except I still have a teenager at home, and a wife who would not be content to be poor.

]]> http://seekingalpha.com/article/102010-indicator-update?source=feed#comment-292017 292017
I have calculated the indicator for myself since 2004, and it is getting close to a bull signal, although I suspect it is wise to wait until there are very few new lows.

If the 10 week average is above 5% that is a bearish signal. The Hindenburg omen seems to be a variant of Fosback's indicator. The sell signal failed at the end of 2005, but forewarned of weakness in May 2006. It issued a sell on 8/17/07 at the intermediate bottom. It has not come to signaling a buy until this month. As of Friday the 10 week average was at 1.62% and falling.]]> Mon, 27 Oct 2008 21:13:58 -0400
I have calculated the indicator for myself since 2004, and it is getting close to a bull signal, although I suspect it is wise to wait until there are very few new lows.

If the 10 week average is above 5% that is a bearish signal. The Hindenburg omen seems to be a variant of Fosback's indicator. The sell signal failed at the end of 2005, but forewarned of weakness in May 2006. It issued a sell on 8/17/07 at the intermediate bottom. It has not come to signaling a buy until this month. As of Friday the 10 week average was at 1.62% and falling.]]> http://seekingalpha.com/article/102016-what-the-high-yield-corporate-bond-market-is-telling-us?source=feed#comment-291983 291983
I too have been monitoring the high yield bond funds, especially HYG. Do you know if the bonds in such funds are insured? That is, were CDS bought on them when put in the fund? Also, is a CDS good for the entire term of the bond, or do they expire after a certain period of time like puts. I read a lot, but I've never seen these questions posed or answered. If they are insured then an 18% yield is very attractive, even in the face of a possible 20%+ default rate.]]> Mon, 27 Oct 2008 20:37:03 -0400
I too have been monitoring the high yield bond funds, especially HYG. Do you know if the bonds in such funds are insured? That is, were CDS bought on them when put in the fund? Also, is a CDS good for the entire term of the bond, or do they expire after a certain period of time like puts. I read a lot, but I've never seen these questions posed or answered. If they are insured then an 18% yield is very attractive, even in the face of a possible 20%+ default rate.]]> http://seekingalpha.com/article/100212-this-recession-will-be-anything-but-deep?source=feed#comment-284662 284662
As for Peng's idea that the financial losses are not as bad as they appear because the prices of the debt instruments may go up, I would point out that US financial firms are understating their losses, because as the price of their debt drops below par, they record that price drop as profit. The accounting principle is that they can buy the debt back cheaper than they sold it for.

There are also a lot of companies with defined benefit pension plans, who assume an annual profit on those plans, even in a year like this, which are in their earning statements. And finally, the companies that are losing money, get to record future tax credits as profit now, even though they have to make a profit to collect that tax savings. Remember GM? They finally had to write those imaginary profits off, because they weren't going to make a real profit in time to collect the tax credit.

My point - the reported losses are actually much bigger than reported.]]> Fri, 17 Oct 2008 13:00:54 -0400
As for Peng's idea that the financial losses are not as bad as they appear because the prices of the debt instruments may go up, I would point out that US financial firms are understating their losses, because as the price of their debt drops below par, they record that price drop as profit. The accounting principle is that they can buy the debt back cheaper than they sold it for.

There are also a lot of companies with defined benefit pension plans, who assume an annual profit on those plans, even in a year like this, which are in their earning statements. And finally, the companies that are losing money, get to record future tax credits as profit now, even though they have to make a profit to collect that tax savings. Remember GM? They finally had to write those imaginary profits off, because they weren't going to make a real profit in time to collect the tax credit.

My point - the reported losses are actually much bigger than reported.]]> http://seekingalpha.com/article/100224-the-most-dangerous-place-to-get-investing-advice?source=feed#comment-284630 284630
May I add another wrinkle on other people's investment advice? When the conventional opinion is fairly uniform, go the other way. And this includes advice on some sound value companies. For years, Washington Mutual showed up on lists of most recommended stocks. Of course, following your advice above to avoid stocks with more than 40% debt, you would avoid all financials, right?

Another example - last year investment advisers were uniform in recommending diversification into international stocks (and commodities), probably because of the declining dollar which was destined to decline further because that was the chart trend. That worked well, didn't it?

Right now, Walmart is the most recommended stock. That would presumably mean it has a lot of support from institutional buyers, but it's not going to be a good long-term prospect. Too big to grow much, and it's a retailer, a sector like airlines. They come, they go.]]> Fri, 17 Oct 2008 12:26:57 -0400
May I add another wrinkle on other people's investment advice? When the conventional opinion is fairly uniform, go the other way. And this includes advice on some sound value companies. For years, Washington Mutual showed up on lists of most recommended stocks. Of course, following your advice above to avoid stocks with more than 40% debt, you would avoid all financials, right?

Another example - last year investment advisers were uniform in recommending diversification into international stocks (and commodities), probably because of the declining dollar which was destined to decline further because that was the chart trend. That worked well, didn't it?

Right now, Walmart is the most recommended stock. That would presumably mean it has a lot of support from institutional buyers, but it's not going to be a good long-term prospect. Too big to grow much, and it's a retailer, a sector like airlines. They come, they go.]]> http://seekingalpha.com/article/97517-on-board-the-u-s-s-titanic?source=feed#comment-265999 265999
I have seen no mention of Marx's crisis of capitalism. This is a theory, and therefore an explanation, which produces predictions. The main prediction, which caused the theory to fall into disfavor was he predicted the collapse of capitalism followed by revolution of the workers. It didn't happen in the 1930's when we had the last crisis of capitalism.

The theory is essentially quite simple. If the owners of capital don't pay their workers the fair rewards of their labor, then those workers won't be able to consume all of the production (unless you lend them the money - my addition). There is an oversupply of production. Profits then fall. The capitalists look for new profit opportunities, i.e. new markets and colonies, now called globalization. The same problems occur again. Marx never thought of raw material supplies being limited, but their scarcity is clearly adding to the cost of business and lowering profits also.

We were there in the 1930's, but there was no revolution. We are there again, and there will be no revolution, because most people, including me, are sheep. Don't separate from the mob, because you will be culled. How do you like that metaphor? Here's another, inspired by Mel Brook's History of the World - the meek shall inherit the earth - 6 feet under.

Another Depression, no matter what politicians do? Quite possible. Even if they make credit available again, those who can afford to borrow don't want to. The others who need credit can't borrow. It doesn't look good. Can China save the day? Probably not. I figured out long ago that if China and India were to emulate the western growth path, the world would quickly run into Malthusian supply constraints. If the world can resume economic growth oil prices will go through the roof. Although there are many alternatives to oil, none are cheaper than oil, and they are all take lots of capital and time to put in place. The capital is cheap, but there isn't much available. This paradox is about the only new thing under the sun in this situation.

We live in interesting times.

]]> Fri, 26 Sep 2008 11:45:03 -0400
I have seen no mention of Marx's crisis of capitalism. This is a theory, and therefore an explanation, which produces predictions. The main prediction, which caused the theory to fall into disfavor was he predicted the collapse of capitalism followed by revolution of the workers. It didn't happen in the 1930's when we had the last crisis of capitalism.

The theory is essentially quite simple. If the owners of capital don't pay their workers the fair rewards of their labor, then those workers won't be able to consume all of the production (unless you lend them the money - my addition). There is an oversupply of production. Profits then fall. The capitalists look for new profit opportunities, i.e. new markets and colonies, now called globalization. The same problems occur again. Marx never thought of raw material supplies being limited, but their scarcity is clearly adding to the cost of business and lowering profits also.

We were there in the 1930's, but there was no revolution. We are there again, and there will be no revolution, because most people, including me, are sheep. Don't separate from the mob, because you will be culled. How do you like that metaphor? Here's another, inspired by Mel Brook's History of the World - the meek shall inherit the earth - 6 feet under.

Another Depression, no matter what politicians do? Quite possible. Even if they make credit available again, those who can afford to borrow don't want to. The others who need credit can't borrow. It doesn't look good. Can China save the day? Probably not. I figured out long ago that if China and India were to emulate the western growth path, the world would quickly run into Malthusian supply constraints. If the world can resume economic growth oil prices will go through the roof. Although there are many alternatives to oil, none are cheaper than oil, and they are all take lots of capital and time to put in place. The capital is cheap, but there isn't much available. This paradox is about the only new thing under the sun in this situation.

We live in interesting times.

]]> http://seekingalpha.com/article/96826-do-paulson-and-bernanke-really-understand-what-s-going-on?source=feed#comment-262655 262655
Perhaps you can clarify where credit default swaps enter into all this. Wasn't all this bad paper insured against default? Who, other than AIG sold the insurance? How is it possible that the notional value of the insurance far exceeds the total amount of debt? Does a seller of the debt keep the insurance, and then the buyer buys a new insurance on it? Or when they repackage the loans do the buyers of the loan package buy new insurance? Or? Do insurance sellers know they are selling more than one insurance coverage on a loan?

Did you see Krugman's take on Paulson's plan? Krugman says we should demand equity ownership in the institutions from which we buy the debt. Makes perfect sense. If the intent is to free up credit, by improving the equity positions of the lending institutions, then pour equity capital into them. This also does more to resolve the deleveraging paradox (where everyone is deleveraging, which deflates asset prices, which worsens everyone's debt to equity ratios).

Will rescuing the financial institutions help the housing problem? I don't see how. Those who are qualified to get home mortgages already can through Fannie Mae etc.

Did you see where Microsoft is going to borrow, using commercial paper, to help fund the purchase of $40 billion worth of their shares? That really helps the credit crunch and the economy, doesn't it? So they don't see any avenues for expansion? Worried about the value of management's stock options are they?]]> Tue, 23 Sep 2008 13:37:52 -0400
Perhaps you can clarify where credit default swaps enter into all this. Wasn't all this bad paper insured against default? Who, other than AIG sold the insurance? How is it possible that the notional value of the insurance far exceeds the total amount of debt? Does a seller of the debt keep the insurance, and then the buyer buys a new insurance on it? Or when they repackage the loans do the buyers of the loan package buy new insurance? Or? Do insurance sellers know they are selling more than one insurance coverage on a loan?

Did you see Krugman's take on Paulson's plan? Krugman says we should demand equity ownership in the institutions from which we buy the debt. Makes perfect sense. If the intent is to free up credit, by improving the equity positions of the lending institutions, then pour equity capital into them. This also does more to resolve the deleveraging paradox (where everyone is deleveraging, which deflates asset prices, which worsens everyone's debt to equity ratios).

Will rescuing the financial institutions help the housing problem? I don't see how. Those who are qualified to get home mortgages already can through Fannie Mae etc.

Did you see where Microsoft is going to borrow, using commercial paper, to help fund the purchase of $40 billion worth of their shares? That really helps the credit crunch and the economy, doesn't it? So they don't see any avenues for expansion? Worried about the value of management's stock options are they?]]> http://seekingalpha.com/article/96308-it-s-only-the-end-of-the-beginning?source=feed#comment-259754 259754
Will they succeed? They might succeed in turning a depression into a protracted recession. Prospects for growth in this economy are dim, because those that need to borrow (and I'm talking consumers) can't afford to or won't qualify, even if there is money to borrow. Even if consumption can be increased, then resource costs (oil) will rise and kill it. In 3 years time the boomers will start retiring, reducing consumption, and withdrawing money from equities and from their retirement accounts (I retired when I was 54 and have been doing exactly that). It's going to be tough to make unearned money from here on people.

So quit bitching about the morality or ideological purity of the government's actions. Bernanke and Paulson are much smarter than us. If they avert depression people will give them hell. If they fail people will give them hell. But there is no doubt in my mind that they are doing their best, and their strategy has the best chance of succeeding without nationalizing the financial institutions of this country. And again, inflation would be a good thing.

I've always been a Democrat, by the way. If you want to cast blame, blame Reagan and his Keynesian economics, and blame Greenspan for compounding the problem. Remember when he told Congress it would be ok to could cut taxes?]]> Fri, 19 Sep 2008 23:14:49 -0400
Will they succeed? They might succeed in turning a depression into a protracted recession. Prospects for growth in this economy are dim, because those that need to borrow (and I'm talking consumers) can't afford to or won't qualify, even if there is money to borrow. Even if consumption can be increased, then resource costs (oil) will rise and kill it. In 3 years time the boomers will start retiring, reducing consumption, and withdrawing money from equities and from their retirement accounts (I retired when I was 54 and have been doing exactly that). It's going to be tough to make unearned money from here on people.

So quit bitching about the morality or ideological purity of the government's actions. Bernanke and Paulson are much smarter than us. If they avert depression people will give them hell. If they fail people will give them hell. But there is no doubt in my mind that they are doing their best, and their strategy has the best chance of succeeding without nationalizing the financial institutions of this country. And again, inflation would be a good thing.

I've always been a Democrat, by the way. If you want to cast blame, blame Reagan and his Keynesian economics, and blame Greenspan for compounding the problem. Remember when he told Congress it would be ok to could cut taxes?]]> http://seekingalpha.com/article/96224-rtc-creating-a-big-bad-bank?source=feed#comment-258455 258455
So would a new RTC be intended to bail out the FDIC, and take over the loans of bankrupt banks? or would it be along the lines of what Cramer suggests - that they enter the market and buy the bad paper at market rates? Either would take an Act of Congress, but they would go along. The risk then is, since since they're replacing those loans with Treasury debt, will foreigners still buy Treasury debt? And will my yuan go up or down?]]> Thu, 18 Sep 2008 19:35:49 -0400
So would a new RTC be intended to bail out the FDIC, and take over the loans of bankrupt banks? or would it be along the lines of what Cramer suggests - that they enter the market and buy the bad paper at market rates? Either would take an Act of Congress, but they would go along. The risk then is, since since they're replacing those loans with Treasury debt, will foreigners still buy Treasury debt? And will my yuan go up or down?]]> http://seekingalpha.com/article/95789-depressionary-tales?source=feed#comment-257300 257300
Prior to the last depression there was no consumer price inflation. Technology was creating productivity gains where there was actually excess production capacity in the US holding down prices. There was asset price inflation but nothing like the current housing bubble. The Feds raised interest rates in 1929 to slow the asset price inflation. That worked well. Deflation in all prices became very apparent in 1930, and was at its worst in 1931 and 1932.

The economists today figure you provide liquidity to prevent this (helicopter Ben), to make people spend (better to spend than save when interest rates are low and there is inflation), and to relieve a credit crunch. But, how do they know that it would have worked then? They don't. How do they know that it will work this time, with a fundamentally different financial structure that provides credit to the economy? We don't know if it will work. So we try it, and see if it will work this time. The fact that interest rates are so low with the CPI at 5%, and that the Fed and Treasury are doing their utmost to relieve the credit crunch by providing it to more than just the banks, is an indicator that they truly fear a Depression. On the other hand, are they really doing what it takes to provide liquidity? The interest rate on the loans to AIG are really steep, and the government gets 80% of the equity in the company. And interest rates could be reduced to zero now. Inflation is not a worry. The danger is deflation.

The politicians on both sides can do little, except to keep the stimulus coming, but the government has to borrow that money they give to us and so place further demands on credit. In turn, if we spend it, which is what they want, a lot gets spent on imports benefitting other countries. No problem - they lend it back to us. Our government increases it debt; the common folk don't decrease there's. Nothing is solved. We just stay on the treadmill, the dollar drops and there is severe inflation or there is a depression, or both. In the both scenario, the inflation precedes the deflationary depression, or has that happened already?

I don't think there is a way out, until most of this debt is unwound, by way of bankruptcies or high inflation. So root for high inflation policies. Incidentally this is all began with the Reagan administration - cut taxes on the rich; so they have the capital to lend it back to the government, to lend it to the not so rich so they can consume all that unnecessary crap, and to build factories in other countries. They invested that money really well didn't they.]]> Wed, 17 Sep 2008 16:21:26 -0400
Prior to the last depression there was no consumer price inflation. Technology was creating productivity gains where there was actually excess production capacity in the US holding down prices. There was asset price inflation but nothing like the current housing bubble. The Feds raised interest rates in 1929 to slow the asset price inflation. That worked well. Deflation in all prices became very apparent in 1930, and was at its worst in 1931 and 1932.

The economists today figure you provide liquidity to prevent this (helicopter Ben), to make people spend (better to spend than save when interest rates are low and there is inflation), and to relieve a credit crunch. But, how do they know that it would have worked then? They don't. How do they know that it will work this time, with a fundamentally different financial structure that provides credit to the economy? We don't know if it will work. So we try it, and see if it will work this time. The fact that interest rates are so low with the CPI at 5%, and that the Fed and Treasury are doing their utmost to relieve the credit crunch by providing it to more than just the banks, is an indicator that they truly fear a Depression. On the other hand, are they really doing what it takes to provide liquidity? The interest rate on the loans to AIG are really steep, and the government gets 80% of the equity in the company. And interest rates could be reduced to zero now. Inflation is not a worry. The danger is deflation.

The politicians on both sides can do little, except to keep the stimulus coming, but the government has to borrow that money they give to us and so place further demands on credit. In turn, if we spend it, which is what they want, a lot gets spent on imports benefitting other countries. No problem - they lend it back to us. Our government increases it debt; the common folk don't decrease there's. Nothing is solved. We just stay on the treadmill, the dollar drops and there is severe inflation or there is a depression, or both. In the both scenario, the inflation precedes the deflationary depression, or has that happened already?

I don't think there is a way out, until most of this debt is unwound, by way of bankruptcies or high inflation. So root for high inflation policies. Incidentally this is all began with the Reagan administration - cut taxes on the rich; so they have the capital to lend it back to the government, to lend it to the not so rich so they can consume all that unnecessary crap, and to build factories in other countries. They invested that money really well didn't they.]]> http://seekingalpha.com/article/94818-too-much-fiddling-with-the-gdp?source=feed#comment-251762 251762 Thu, 11 Sep 2008 12:54:21 -0400 http://seekingalpha.com/article/94920-the-death-of-consumption?source=feed#comment-251734 251734
The markets will probably react positively to a contraction in GDP. It's the old lore, that when the recession is announced, the market looks forward to recovery. Can't see how economic recovery could occur, myself. If it does occur, oil prices will go back up, and kill it.]]> Thu, 11 Sep 2008 12:29:16 -0400
The markets will probably react positively to a contraction in GDP. It's the old lore, that when the recession is announced, the market looks forward to recovery. Can't see how economic recovery could occur, myself. If it does occur, oil prices will go back up, and kill it.]]> http://seekingalpha.com/article/92579-home-sales-true-inventory-no-good-news?source=feed#comment-239345 239345 www.census.gov/hhes/ww...

this is the web address for the second quarter estimates (2008) for vacant housing units. The number of vacant units for rent or sale is more than 6 million, a significant increase from the same quarter last year, but not huge, and subject to error in sampling. This number is a more than one year supply of existing home sales, but remember that it includes rental units.

The number of units vacant for other reasons (excluding seasonal units) is more than 7 million. What these other reasons are is not stated.

I draw no conclusions from this data, except that we got overbuilt, which is well known.]]> Tue, 26 Aug 2008 12:08:14 -0400 www.census.gov/hhes/ww...

this is the web address for the second quarter estimates (2008) for vacant housing units. The number of vacant units for rent or sale is more than 6 million, a significant increase from the same quarter last year, but not huge, and subject to error in sampling. This number is a more than one year supply of existing home sales, but remember that it includes rental units.

The number of units vacant for other reasons (excluding seasonal units) is more than 7 million. What these other reasons are is not stated.

I draw no conclusions from this data, except that we got overbuilt, which is well known.]]> http://seekingalpha.com/article/81787-a-personal-thank-you-to-momentum-investors?source=feed#comment-191854 191854
Agreed, probably no farmers operate at peak efficiency in terms of fertilizer application, and in the tropical world they use little on poor soils. As tropical farming becomes increasingly commercialized, it will need to become less labor-intensive and more energy-intensive (i.e. mechanized). This raises the cost of all other inputs (except labor), especially those in short supply (i.e. oil).

My scenario above is just modeling to illustrate that there is a limit to the price that a supplier can charge, even on a scarce resource that they control. If they charge too much, demand will go down, even for something essential. The price cannot rise faster than the price of the product that the input is producing (if production is already at peak efficiency). So their revenue growth has limits, and the intriguing question is, what sustained revenue growth rate is the price of POT's stock pricing in?

Another thought: last I knew, dryland wheat farmers use no or little fertilizer, because soil nutrients are not the limiting factor on plant growth - water is. Fertilizer does no good unless the crop is irrigated. This places another restriction on the degree to which fertilizer use can be expanded in the future.

POT is a solid company with good prospects to increase sales and profits, but surely it is long-term overpriced. I have no positions in POT, and never have or will. I just noticed that it's price to sales ratio is way out of line relative to the other fertilizer stocks, presumably because of it's potash resources, and because I know a little about agricultural economics.

A nutty stock, by the way, is the James River Coal Company. A huge run-up in stock price, but a loss over the last fiscal year. Price to sales about 3, but price-to-book at 15. Yes, coal prices are going up, but coal is NOT a scarce resource. There is plenty of competition in this endeavor.




]]> Tue, 24 Jun 2008 12:19:06 -0400
Agreed, probably no farmers operate at peak efficiency in terms of fertilizer application, and in the tropical world they use little on poor soils. As tropical farming becomes increasingly commercialized, it will need to become less labor-intensive and more energy-intensive (i.e. mechanized). This raises the cost of all other inputs (except labor), especially those in short supply (i.e. oil).

My scenario above is just modeling to illustrate that there is a limit to the price that a supplier can charge, even on a scarce resource that they control. If they charge too much, demand will go down, even for something essential. The price cannot rise faster than the price of the product that the input is producing (if production is already at peak efficiency). So their revenue growth has limits, and the intriguing question is, what sustained revenue growth rate is the price of POT's stock pricing in?

Another thought: last I knew, dryland wheat farmers use no or little fertilizer, because soil nutrients are not the limiting factor on plant growth - water is. Fertilizer does no good unless the crop is irrigated. This places another restriction on the degree to which fertilizer use can be expanded in the future.

POT is a solid company with good prospects to increase sales and profits, but surely it is long-term overpriced. I have no positions in POT, and never have or will. I just noticed that it's price to sales ratio is way out of line relative to the other fertilizer stocks, presumably because of it's potash resources, and because I know a little about agricultural economics.

A nutty stock, by the way, is the James River Coal Company. A huge run-up in stock price, but a loss over the last fiscal year. Price to sales about 3, but price-to-book at 15. Yes, coal prices are going up, but coal is NOT a scarce resource. There is plenty of competition in this endeavor.




]]> http://seekingalpha.com/article/81787-a-personal-thank-you-to-momentum-investors?source=feed#comment-191459 191459
lets say that all other things being equal, an extra 0.1 ton of potash costing $20 produces an extra yield of 10 bushels worth $20 (at $2 per bushel). This is the ideal production level for the farmer, because if he/she increases potash by another 0.1 tons the yield increase may be only 7 bushels worth an extra $14, and resulting in a $6 loss on the extra fertilizer.

Are farmers aware of this? Probably not, but after one year of using extra fertilizer and seeing their farm income decrease, they are obliged to cut back on fertilizer use.

So now let's raise the crop price to $7 per bushel. At the fertilizer levels of before, the extra $20 of fertilizer per acre produces an extra $70 of output (10 bu. x $7). And another 0.1 tons at $20 produces another 7 bushels worth $49 = a marginal profit of $29. So the farmer pours on the fertilizer.

But, potash being a scarce resource quickly soars in price. If it goes to $70 for 0.1 tons, and the farmer gets 10 extra bushels worth $7 per bushel, that's $70, and there is no gain in increasing fertilizer applications and yields.

If you think about it, if the percentage increase in fertilizer price equals the percentage increase in crop price, there is no gain to the farmer from increasing fertilizer applications, in which case fertilizer demand does not increase, and the price for the fertilizer comes down.

Has the price of potash risen as fast as the price of corn? - no, but what future price for potash have speculators (they're not investors) discounted in the price for POT? Inane prices. For those of you who have never heard of Scott Neely of Sun Microsystem, I suggest you look up his statement about the price people were paying for Sun at one time (in 2000). It was more than 10 times sales revenue. POT is selling for 14 times trailing revenues. Those revenues are growing rapidly because of price increases, but do you see a 7-fold increase in revenues in the next few years to bring the stock price back to a reasonable level?

Neely said, if there was no cost to making our product, so that all our revenue was profit and we engaged in no research, but still managed to maintain our revenue, and we distributed ALL of that revenue to you the stockholders, it would take 10 years to return your investment. What were you people thinking?

Well, windinmyface, like you they weren't thinking. If you can follow my economics, you must realize that you take your profits now, and don't worry about the stock going to $500. It might, but it's going to go way below it's current price at some time. If you don't follow my economics, why are you betting real money in the stock market. You're up against some very good players. I suggest you read stuff on trading psychology - you evince all the traits of a gambler in denial. And POT is a trading momentum stock, you don't buy and hold it, and you only buy dips with tight stop-losses, which means you don't hold it overnight.


It will crash like Taser. don't know when or from what height, but it will, and a few like Toro will smile, and say thank you suckers.]]> Mon, 23 Jun 2008 22:41:03 -0400
lets say that all other things being equal, an extra 0.1 ton of potash costing $20 produces an extra yield of 10 bushels worth $20 (at $2 per bushel). This is the ideal production level for the farmer, because if he/she increases potash by another 0.1 tons the yield increase may be only 7 bushels worth an extra $14, and resulting in a $6 loss on the extra fertilizer.

Are farmers aware of this? Probably not, but after one year of using extra fertilizer and seeing their farm income decrease, they are obliged to cut back on fertilizer use.

So now let's raise the crop price to $7 per bushel. At the fertilizer levels of before, the extra $20 of fertilizer per acre produces an extra $70 of output (10 bu. x $7). And another 0.1 tons at $20 produces another 7 bushels worth $49 = a marginal profit of $29. So the farmer pours on the fertilizer.

But, potash being a scarce resource quickly soars in price. If it goes to $70 for 0.1 tons, and the farmer gets 10 extra bushels worth $7 per bushel, that's $70, and there is no gain in increasing fertilizer applications and yields.

If you think about it, if the percentage increase in fertilizer price equals the percentage increase in crop price, there is no gain to the farmer from increasing fertilizer applications, in which case fertilizer demand does not increase, and the price for the fertilizer comes down.

Has the price of potash risen as fast as the price of corn? - no, but what future price for potash have speculators (they're not investors) discounted in the price for POT? Inane prices. For those of you who have never heard of Scott Neely of Sun Microsystem, I suggest you look up his statement about the price people were paying for Sun at one time (in 2000). It was more than 10 times sales revenue. POT is selling for 14 times trailing revenues. Those revenues are growing rapidly because of price increases, but do you see a 7-fold increase in revenues in the next few years to bring the stock price back to a reasonable level?

Neely said, if there was no cost to making our product, so that all our revenue was profit and we engaged in no research, but still managed to maintain our revenue, and we distributed ALL of that revenue to you the stockholders, it would take 10 years to return your investment. What were you people thinking?

Well, windinmyface, like you they weren't thinking. If you can follow my economics, you must realize that you take your profits now, and don't worry about the stock going to $500. It might, but it's going to go way below it's current price at some time. If you don't follow my economics, why are you betting real money in the stock market. You're up against some very good players. I suggest you read stuff on trading psychology - you evince all the traits of a gambler in denial. And POT is a trading momentum stock, you don't buy and hold it, and you only buy dips with tight stop-losses, which means you don't hold it overnight.


It will crash like Taser. don't know when or from what height, but it will, and a few like Toro will smile, and say thank you suckers.]]>