prudentinvestor

Preview from Europe: Stocks Almost Back in the Black

Mole, Thanks again for the informative and entertaining report. "..Barclays (BCS) has finally sold off the family silver to keep it from taking the Queens schilling..". Very nicely said! However, if memory serves me, Austria had schillings, but HM Elizabeth Regina used to have shillings.

Preview from Europe: Profit Taking Pushes Market Down

Mole, you are quite right: "..The harsh reality remains that the economic and earnings backdrop is not improving one iota...."

I would add another harsh reality, that all the desparate, misguided and inflationary policy measures undertaken by Western countries are intended to prop up artificially oversized financial sectors that have sucked the blood out of the productive sectors of their economies. Even if successful, the resulting recovery cannot be healthy, as these multi-trillion dollar bailouts are drawing away even more resources from the remaining, dwindling productive sectors.

China is fortunate that they have not had time to develop a punitively oversized financial sector, and now they have learnt, at our expense, that they need to avoid it.

Preview from Europe: Fed Steps in with Guns Blazing

Shock and Awe indeed. Next we'll see "Mission Accomplished".

Preview from Europe: Stocks Log Worst January Ever

Mole, thanks for your succinct summary, and particularly for the great Monty Python sketch!

There was another Ponty Python (the "Village Idiot" perhaps?) in which the idiots discuss stock investments intelligently, as the pundits blather stupidly about them. If you can locate it, please consider posting it as appropriate.

Monday Outlook: Earnings - Or Lack Thereof

Congress and President Obama need to address, and possibly recover, bonuses paid by financial companies after they already knew they were insolvent and will have to be bailed out by the public. If the news reports about John Thain's actions at the end of 2007 are correct, they imply that he personally decided that he had the right to disburse billions of taxpayers' funds.

Preserving Wealth During the Global Banking Crisis

Thank you for an excellent article. I do have a couple of comments, though.

First, you ask "Would holders of US money market funds agree to buy long-dated Treasuries in order to finance the deficit at historically low interest rates?". I am not sure this would work because:

(a) No one in his right mind will buy long-dated treasuries at interest rates that are likely to be dwarfed by the eventual inflation now being contemplated by the fed.

(b) TIPS supposedly yield above inflation, but official inflation is widely believed to be lower than actual inflation. Additionally, there is a tax on interest.

(c) If all cash went from money market funds into treasuries, where will the current commercial paper borrowers of money market funds get their short-term finance?

My second comment is in regards to your statement taking exception with Paulson's statement:

"The banks need to lend. They can’t hoard capital. But I do not believe it is proper or right for politicians or the government to tell banks whom to loan to and how to lend,” highlighting Paulson’s collusion with the banking elite. "

I am no fan of Paulson, but cannot fault this particular statement. I believe the banks would like to lend, because that is how they earn money.

However, banks cannot simply continue to throw money at uncreditworthy borrowers, because that is how they got us into trouble in the first place. Unfortunately, there are very few creditworthy companies or individuals who wish to borrow today. Individuals who have managed their affairs prudently are making their mortgage and credit card payments, and have far less interest in borrowing against their home equity to go on vacation or to again remodel their kitchen. Well-run companies that did not engage in leveraged buyouts of competitors at silly prices have lots of cash on their balance sheets, and no desire to borrow as they don't wish to expand or splurge in this environment.

Thus, the reality is that after the borrowing binge of the last decade, those who have good credit have little interest in borrowing, and those who wish to borrow are likley in trouble and are poor credit risks.