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Who Is Buying Gold, And Why Is Gold Volatility So Low?
Bubbles are not just in champagne................
Who knows when we will sense the "pop", but it will be severe.........
Jun 20, 2010. 12:18 PM
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Buffett's PR Disaster
I have been writing about Warren ever since learning of the Goldman deal in September of 2008, when he purchased five billion of GS preferred, being given a 10% dividend and something like 42 million long-term warrants to purchase GS common @ $135/share.
During the panel's quizzing of Mr. Buffett, I perked up when Heather Murren begin to ask about this transaction, but, sadly, her questions turned superficial and were truncated.
I recall that just after the purchase, he went on CNBC to promote TARP (NOTE: BRK also owns piles of Wells Fargo).
The main question should have been: why did GS give him such a deal?
Mr. Buffett may be gradfatherly and a good businessman, but he is insidious (sorry Buffett lovers..., but what is...is).
Jun 4, 2010. 09:10 AM
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The Consequences of M3
Unfortunately, we lack balanced and rational leadership.
Our #1 problem is greed with 3 main branches:
1. That which has caused the massive shift of wealth from the middle class to the ultra wealthy (top 0.1% or less), beginning with John Hinckley.
2. That which has stimulated corporations to cut expenses by shifting production offshore.
A 4th branch is the cancerous and pervasive greed that, sadly, permeates our Nation.
Good examples are the lotteries and gambling facilities, which may not promote the "work ethic".
Jun 1, 2010. 04:46 PM
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Today Looks Like the Day
We, collectively, are missing the big (macro) picture.
Greece is a red herring.
Whereas Capitalism is the best economic system available, the element of greed, allowed to run unchecked, is a cancer to the concept of Capitalism.
Capitalism is not a game.
It is a concept designed to stimulate the production of the greatest amount of goods and services for the greatest amount of users.
Contrary to Michael Douglas' character in Wall Street, greed is not good.
Rational incentives are terrific.
By the way, greed is not limited to banks and other corporations, i.e., it is woven throughout the fabric of humanity. To mitigate the damage greed can cause, we must understand this cancer and establish systems and controls to minimize that damage.
May 21, 2010. 05:36 PM
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Gold Enters the 'Mania' Stage
1. Review NASDAQ chart, with special attention to the 1999-2000 run-up.
2. Review the chart of crude from 2002 to date.
3. Review the RE phenomenon during the past ten years.
4. Review the gold chart for the past ten years.
5. The "incremental" cost to produce an ounce is around $400.00.
6. All gold that has ever been mined still exists.
7. Nothing is as hoarded as is gold (by individuals, nations, corporations, etc.)
8. Is it possible that deflation will confront the world?
CONCLUSION: Do we require Phi Beta Kappas from PIMCO, KITCO, etc., or objective "thinking"?
Even Daniel should be able to form some rational conclusion (well...., maybe).
sherman oaks, ca
May 14, 2010. 01:05 PM
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America's 3-Ring Economic Circus
The desire for wealth doesn't have to be, but, sadly, it is the root of too much evil.
Beginning in 1981 (Voodoo economics, as coined by the elder Bush), the Nation's energy has been shifted to the upper 1% (actually much, much less).
Capitalism being as great as it is held out for a long time but is in the process of keeling over.
The "engine" of capitalism is a strong and healthy middle-class.
Greed caused the "leadership" to suck too much energy from the middle class to that top 1%.
The beginning of the solution (First step: The reversing of the erroneous and malfeasant Bush tax legislations on those with taxable incomes in excess of some number between $200-300 thousand and legislating a permanent tax cut for those with taxable incomes under $60,000 - arbitrary, but reasonable) will be made only after greed has been overcome.
"Shots" to stimulate the economy in the form of rebates are nonsensical facades, at best, but are consistent with that which keeps our leadership from taking the correct actions; greed.
Mar 14, 2010. 12:30 PM
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Roubini: The Recovery as a House of Cards
Sadly, our economics will continue to deteriorate, since problems cannot be adequately resolved unless they are understood.
Our "leadership" does not comprehend the provenance of our current economics.
Thus, adequate resolution is not anywhere on the horizon of rationality.
Even more frustrating, if the provenance were understood, proper actions would (should) be taken (maybe) that would turn the economy, almost immediately (yes, almost immediately).
Feb 14, 2010. 03:22 PM
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Bank Regulation: A Necessary Evil for Stock Market Growth
April 12, 2009
SYSTEMIC PROTECTION OF OUR FINANCIAL SYSTEM
My concepts are pretty simple and basic.
We should stipulate that there are massive problems within our financial (banking) system.
It should also be stipulated that we require a functional financial system.
Thus, my concern is with maintaining a functional financial system.
I am not concerned as to the shareholders or bondholders of the respective corporations.
Since EQUITY CAPITAL is the pivotal problem, we must do what we must to enhance EC.
The first step should be to convert all debentures into common stock. This would have two effects; first, the amount of the conversion will add, dollar for dollar, to EC, AND will enhance operations, since interest on these bonds will no longer be paid. Second, all preferred stock, other than the People's preferreds, should be converted to common stock. Whereas this will not immediately affect EC, it will have a substantial effect insofar as the dividends will no longer be required to be paid.
If additional EC is required to establish a healthy institution, purchases of preferreds should be made from the People's Financial Fund at substantial parameters, such as 10% cumulative dividends, a substantial number of long-term warrant at favorable a favorable price, and a convertible feature that would be extremely favorable. Additionally, until certain conditions were met, these preferred shares would have 100% voting authority.
The rationale for the above is that they would provide the incentives for the institutions to find funding elsewhere.
We, the People, will be there to protect the system.
Jan 23, 2010. 08:01 PM
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Bank Regulation: A Necessary Evil for Stock Market Growth
Apparently, AIG has used taxpayer’s funds to make good on its obligations to Goldman Sachs, foreign institutions, and other counter-parties. Those involved should be charged with conspiracy to defraud the taxpayers.
Have we not learned from the Wall Street greed, which has been exposed?
This appears to be a continuation of that same greed. It appears that taxpayers' funds are being used to make the Wall Street gamblers as whole as possible.
An example of "pain" is seeing Goldman Sachs (as well as other bank stock such as Bank of America, Wells Fargo) stock going up.
That should indicate that something is amiss.
It is quite possible that Goldman Sachs is one of the key players to have caused our current economics.
E.g., when crude oil passed $100 per barrel, GS said that the price should rise to $150 to $200.
Did GS have an axe to grind?
Congress should cause GS to be investigated, thoroughly for, at least, since January 2007.
In essence, Chairman Bernanke may be a shill.
Lastly, as I have suggested a number of times, during the past month, if you want to keep in touch with equities...., short Puts, which provides about 20-30% protection on the downside.
Jan 23, 2010. 07:43 PM
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The U.S. Economy: Not Back to Business as Usual
Many fine comments have been posted, but they appear to have missed the target.
The "target" should be the determination as to why we are where we are.
Subsequent to condensing everything to its basic ingredient, one should sense the base cause...., "greed".
Whereas greed is indigenous with the human condition, our collective greed has developed a strain of greed that is inundating our humanity.
Incentives are good. Greed (contrary to the comment made by the Michael Douglas character in Wall Street) is insidious.
A good example: circa 1979, during the period that Carter had established the 7% price and wage limitation guidelines, the steel workers' union negotiated a 50% increase in wages and benefits over a 3-year period. Whereas we may have had in excess of a million steel workers at that time, we may have less than 80,000, now.
Another critical example: Beginning with Reagan, there has been a massive shift in wealth from the middle-class (the engine of our economy) to the top 0.1% of taxpayers. By the way, the middle-class includes the governments. The "technique" was insidiously brilliant, given that the goal was to enhance the wealth of the top 0.1%. The coup de grace was the portion of the Bush tax legislations benefiting that top 0.1%.
I invite anyone to compare the 1979 tax structure to 2009. It will not require the assistance of a Phi Beta Kappa to understand who has benefited, since the catalyst event, John Hinckley.
Almost everything that the Bush and Obama Administrations have done, since September 2008, have been non-productive (for the big picture), foolish, and, in some instances, criminal.
Our economics are worse, now, than a year and a half ago. Yes, it is valid that the panic during Q4 of 2008 and Q1 has been cured, but at a cost that infringes upon criminality.
I attended a number of "Obama" meetings in January and February of 2009, consistently suggesting that the wrong things were being done. ABC TV presented a montage of clips from various meetings throughout the country. I was included (about 4 seconds during a meeting in Santa Monica), saying "they are doing the wrong things".
The "stimulus" package includes repairing bridges and roads. Does that imply that if our economics were good that we shouldn't repair these dilapidations?
Our economics can be repaired, but nothing that has been done or is currently contemplated will accomplish this task.
The two macro main causes: the massive shift of wealth from the middle-class to the top 0.1% of taxpayers and the massive sieve of energy, in the form of jobs shifted offshore.
Capitalism is the greatest economic system, but it has its limitations. Our Nation's capitalistic 8-cylinder engine is running on 3 cylinders, and if the requisite repairs are not made, we will continue, and, perhaps, accelerate the slide.
Just a few "adjustments" can turn our malaise around, almost overnight (4 to 6 months).
Jan 9, 2010. 04:36 PM
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The Truth About Goldman and AIG Becomes Clearer
1. GS was probably most responsible for the run-up of the price of crude to $147 via promotion and manipulation.
2. GS was probably greatly responsible for the mortgage woes (see my thoughts following this short litany).
3. GS appears to have paid off Warren Buffet to obtain his ability to promote (see my thoughts).
4. We, the People, paid GS $13 billion through AIG. Why wasn’t this investigated?
5. GS appears to view itself as the De Beers of the securities markets.
6. Mr. Henry Paulson (Treasury Secretary, Bush Administration and ex-CEO of GS), panicked around the middle of September 2008, and “educated” Congressional leaders that we were in the middle of a financial crises.
Interestingly, after reaching a high of $250.70 on October 31, 2007, GS’s common stock fell to under $86 on September 18, 2008.
Regarding 2, above:
Billions and billions (Carl Sagan) of years ago…, well, maybe 30-40 years ago,
financial institutions would loan funds for the purchase of homes and would
collect the funds over a period of years. The concept of selling those loans
(mortgages) was developed to enable these institutions to recycle the funds for the
purpose creating more loans with the proceeds from selling the mortgages to other
institutions and investors.
Via competition, these institutions began lowering the requirements for purchasers
of residential properties, e.g., whereas the standard down payment was 20%, that
requirement was reduced through competition to 15%, to 10%, and, in some cases,
no down payment was required.
Enter the Goldman-Sachs and its collective “creativity”.
Is it possible (simplistic, but an interesting roadmap):
a. GS went to Countrywide to promote the concept of stimulating the creation of
additional mortgages that GS will package and sell as securities?
b. GS attempts to sell the packaged securities and met with a head-wind insofar as the securities were not rated.
c. GS went to the rating agencies, S&P, Moodys, etc. to obtain a rating, but were told they couldn’t receive a good rating unless the securities were “insured”.
d. GS finds an insurer (a subsidiary of AIG) to obtain “insurance” for the packaged mortgages. GS sells the idea to the insurer that GS is willing to pay a fee as a cost of doing business. Further, it may have been that GS sold the insurer to believe that defaults would be almost non-existent and that the fees were “found money” for the insurer. The insurer bought into this sales pitch based upon greed. Thus, these securities (bonds) were given investment grade ratings by S&P, Moodys, etc., and the result was a flood of sales of these bonds (CDO’s – Collateralized Debt Obligations).
e. GS, knowing that these highly rated CDO’s were risky, and after they sold these CDO’s, went out and purchased CDS’s (Credit-Default Swaps). They no longer had any insurable interest, but still expended funds to purchase these CDS’s. Why? Perhaps they knew that it was only a matter of time before the CDO’s would collapse? Those who purchased the CDO’s were the one’s who should have been advised to purchase the CDS’s. There should be a serious investigation into GS as to why it purchased these CDS’s.
f. After the collapse, the insurer did not have the funds to pay off, thus We, the People, via our President came to its aid by injecting more than a hundred billion dollars into AIG to enable the payments to GS and others.
Regarding 3, above:
In the middle of 2008, Berkshire Hathaway (Warren Buffet) purchased $5 billion
of preferred stock from GS. The dividend rate is 10%!! As a “kicker”, GS granted BRK long-term warrants to purchase 143,000,000 shares of GS @ $135.00 per share. Why would GS have made such an apparently desperate deal with Mr. Buffet?
Shortly thereafter, Mr. Buffet was constantly on CNBC, promoting TARP.
Is this good circumstantial evidence?
What would a rational reader conclude?
Where are our investigative reporters?
What should a citizen/taxpayer conclude?
Dec 13, 2009. 12:02 PM
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Capacity's Comeback Strongly Indicates Recession's End
I have glanced at a number of comments and the one that stuck out was Mike of NYC's, 09/17/09 ! 08:49am. (re-printed, following my comments)
He was spot on.
I am sure there were many others that offered good information, but his pragmatism leaped off the page.
We cannot solve a problem until and unless we understand the cause of the problem. This is so basic, it should be viewed as being redundant. I am being redundant because it appears that our "leadership" (collectively) does not understand the root cause of our economic malaise.
ROOT CAUSE: Greed. Pervasive greed.
I will address two critical macro subsets of this greed:
1) The massive shift of wealth from the middle class to the ultra wealthy (top 1/10th of 1%) during these past 27-28 years. The beginning was enabled by the March 30, 1981 event regarding John Hinckley. Prior to the attempt upon the life of President Reagan, his tax cuts were absolutely DOA.
The coup de grace was delivered by President Bush’s tax legislations of 2001 – 2003. The largest (2001) was set up by Alan Greenspan’s testimony before Congress in 2000; he appeared to be extremely concerned as to what we, this Nation, would do once the national debt was repaid; would the government begin to buy up common stocks, et cetera.
2) The massive shift of manufacturing to offshore sites.
As Mike from NYC pointed out, when we purchase items manufactured offshore, most of the energies go offshore, i.e., those energies are not recycled within our economy, thus do not produce the jobs that would be produced if those energies remained within our economy.
There are pragmatic solutions to both of the above.
Those interested can e-mail me @ firstname.lastname@example.org
The following are Mike from NYC’s comments:
o Mike from NYC:
o Comments (25)
"Notice on the graph that the recovery in CU after the last two recessions was much more gradual than it was in earlier recessions. This mirrors the prolonged “jobless recoveries” we had following those downturns. I suspect the same thing will happen this time around.
Note that we never fully recovered in terms of CU during the last economic expansion, and that the peak was not that much higher than the worst we saw during the 1990 recession. Still, it is nice to be headed in the right direction."
I read the responses and NO ONE has mentioned the outsourcing of industrial production, especially that of consumer products, to China and elsewhere.
The USA will never see the rise in CU as we did in years gone by prior to about the mid 90s when American companies exited the USA and marched to China and other low wage countries. When Americans go shopping, if and when the recession ends (that is, the 'real world' recession not just numbers or that on Wall Street), they won't be putting Americans to work other than in sales jobs. Buy a TV, an air conditioner, a pair of pants, a power tool, and it won't put one American factory worker to work. It won't cause the expansion or renovation of factories putting architects, engineers, construction workers, machine manufacturers and everything else that makes a factory tick, back to work.
There is a 'price' to be paid for all the cheap products we buy as there is no free ride and we will witness the full blown effects of the American companies rush into cheap wage countries. We witnessed it during the last recovery, and it will be worse during this recovery - a JOBLESS recovery.
All of you people can recite theory after theory, point to your data and charts and the historicals, but you miss the big picture - common sense and the realization that things have changed far too rapidly during the past 15 years in the USA and it hasn't yet been accounted for in the data.
Maybe I'm the one who is crazy, but so far every prediction I made has come true - that the Dot Com craze was BS pushed by Wall Street, as well as the 'get rich through real estate' bubble pushed by Wall Street and such geniuses as Trump (who by the way is at it again). Flip this house!
Why work to get rich when Wall Street can do it for you - isn't that their premise?
Sep 18, 2009. 01:52 AM
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Cash for Clunkers May Cost Up to $45,354 Per Vehicle
His article is appropriate.
The program is naive and infantile.
If we, as a Nation, want to get serious, Congress would pass an additional gas tax of $3.00 per gallon.
An income tax credit of $1,200 per year would be given to any licensed driver, who is a citizen or has a valid green card, and has insurance.
The concept is that the government should not attempt to tell the manufacturers what cars to make. The government should stimulate the specifiers to tell the manufacturers the cars they want ot purchase, i.e., high MPG cars.
There should never be any tax credits other than the one described.
Aug 1, 2009. 03:02 PM
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Regarding the author's comment, "I have to confess to being uneasy with the option repricing", this proposed action should be considered as openly stealing from the shareholders.
Did the owners (stockholders) not take a hit after buying common between $500 and $747?
If the employees are not being paid market wages, I suggest adjustments be made. My guess is that they are paid properly.
The "repricing" offers employees the incentive to allow the common price to drift lower, periodically, to enable this insidious concept.
There should be a shareholders' lawsuit and criminal actions initiated.
Ooooops! Perhaps its the "it's my company and I will do what I want" 'tude?
Jan 23, 2009. 12:10 AM
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Why Shorting Financials Is a Logical Response
One cannot resolve a problem unless one understands the problem.
PROBLEM: Financial institutions have reduced their lending.
The problem results from the impaired equity portion of the balance sheets of these institutions, with the impairment caused by write-downs of their assets (loans).
Due to the losses they have taken, these institutions, by law, have had their maximum potential lending amounts reduced.
The amount they are able to lend is contingent upon the amount of their equity capital (
), e.g., if an institution has an equity capital of one billion dollars and is able to lend up to 20 times its equity capital, it could lend up to 20 billion dollars.
After taking loan write-downs (losses) of two hundred million dollars, its EC would now be 800 million dollars, thus it would have its maximum lending authority limited to 16 billion dollars, i.e., a constriction of its legal authorization to lend.
This is the crux of the problem.
The institutions have funds, i.e., liquidity. But, without the legal authority to increase lending, they are sitting in stagnant water.
Those who say that one going to one’s ATM for a withdrawal may find a closed sign are, absolutely, lying or ignorant.
If one is a Representative or Senator and is lying, he or she should be Impeached and removed from Office.
Likewise, if that Representative or Senator is ignorant, he or she, apparently, is not, adequately, accepting his or her fiduciary responsibility of understanding a subject prior to advocating or voting for it, thus he or she should also be Impeached and removed from Office.
PAULSON PLAN: Purchase impaired mortgages from financial institutions with taxpayer funds.
Indeed, this would positively affect an institution’s EC, because the impairment (loss) would have been transferred to the taxpayers. This reversal of loss would be achieved by paying face price rather than market price, since if the market price were paid, there would be no effect upon EC.
This contemplated action is anti-capitalistic, immoral, and a method of stealing from taxpayers.
The taxpayers did not cause the capital impairment (this IS the problem, i.e., “It’s the balance sheet, stupid”).
Anyone involved with designing this scheme and voting for it should be incarcerated as co-conspirators to steal from the citizenry.
The scheme’s authors and those who advocate for it would be precipitating an admission that capitalism doesn't work, which is a lie.
Capitalism is the best economic tool ever devised, but as with any tool, it can be and has been abused.
Congress should accept most of the responsibility for creating the economic atmospheric conditions that enabled the abuse.
Further, any resolution of this financial phenomenon will not abate the underlying problems of the economy.
It is not the lack of lending that has damaged the economy. It is the economy, affected by greed, that has damaged the lending, but, of course, if appropriate corrective actions are not taken in regards to this financial phenomenon, our weak economics will be adversely affected.
If the Paulson plan were adopted, it would be the most massive SPE by multiples, the dollar would weaken, interest rates would go up, thus the decline in home prices would be exacerbated, and the EC would require further resuscitations.
BEST PLAN (Recapitalization):
1) Allow some institutions to go the route of Countrywide, Bear Stearns, IndyMac, and Washington Mutual. I, also, like the AIG model.
2) Most rational institutions will do what UBS, Merrill Lynch, Goldman Sachs (just recently with Warren Buffett) have done, i.e., they have raised additional EC, usually by selling preferred stocks.
Months ago, when Merrill sold 6 billion (as I recall the amount) dollars of preferreds paying 9%, I knew they were desperate, and that this was just an early domino.
Goldman Sachs, from what I have heard, is paying Buffett 10% for the preferreds. Keep in mind; this is after-tax money. The only reason for Goldman Sachs to take a desperate (GS also gave Mr. Buffett 43,000,000 warrants to purchases GS common @ $115 per share) action was because it knew it was experiencing an EC impairment and needed to raise additional EC.
Please keep in mind that pain is not all bad. It is a signal that something is wrong and indicates that the source of the pain (problem) must be determined, analyzed, understood, and finally the best alternative action must be taken.
We are experiencing pain regarding this financial phenomenon.
3) As a last resort, it would be appropriate for the government to establish a fund (call it the RTC 2.0 AKA Peoples' Financial Fund) and use those funds to purchase (just as have Mr. Buffett and others) preferred stock from institutions. The fund should follow Mr. Buffett’s lead and demand additional potential remuneration in the form of long-term warrants.
The stock would receive dividends and would have a convertible feature to convert to common stock, at the option of the fund.
Further, until certain parameters were met, the preferred ownership would assume voting control, thus the matter of executive compensation would be moot.
We either believe in capitalism or we don’t.
We will have displayed a pragmatic solution well within the parameters of capitalism.
The U.S. dollar will strengthen.
The next step would be to address the underlying economics with the basic problem being unbridled greed.
We should not have a "shot" stimulant as we did earlier.
We need to eliminate the largess given to the very wealthy, in error, by the Bush tax cuts, and to reduce taxes on the middle-class on a permanent basis.
This will have an immediate positive effect upon our economics and we will be on the path to a rational economy.
Sherman Oaks, Ca.
Concept: These institutions should have gone out and should be going out raising equity capital via common and preferred stock.
Taxpayers' Role: The taxpayers (a taxpayers' mutual fund) should offer funds by offering to purchase preferred stock with favorable conversation features, but with a reasonable buy-back, and substantial warrants to purchase common. These parameters should be more costly to the institutions than the "marketplace" to entice the institutions to raise the requisite funds from private sources, rather than the taxpayers, but the taxpayers would be there as a backstop.
Nov 19, 2008. 03:32 PM
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