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GaltMachine

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  • Something's up in the Spanish bond market, where yields are shooting higher, the 2-year +24 bps to 3.19%, the 10-year +18 bps to 5.81%. ECB bond purchases won't begin until Spain submits to a bailout, and Spain won't submit to a bailout as long as bond yields remain contained, ergo, another peripheral bond panic almost certainly lies ahead. [View news story]
    Tack,

    English was not his first language.

    This article was interesting:

    http://bit.ly/Pqwa0f

    Replace ponzi units with "houses/stocks/precious metals" whatever you like and the quote is self-explanatory.

    Ponzi means worthless so some portion of the asset value is pure air which is exactly what the increase in house prices was prior to its implosion - the wealth evaporated because it wasn't real. Risk-free money leads to ponzi style investing regardless of the fundamentals - stability leads to instability.

    The FED is trying to make money/cash worthless so as to make other assets more attractive. I don't recall that being a part of their mandate. Stocks have solid fundamentals underlying their prices just like houses did, however, what is happening now is that a speculative/ponzi unit value is starting to be added on to that underlying value. This is what the FED believes and this is also what some market participants believe. The question is whether this is sustainable long term.

    I also don't recall Price/Earnings multiple expansion being a part of that mandate. The FED will not be able to extricate itself from this mess without significant damage in the future so we are trading stability today for instability and greater damage in the future.

    This is not our Father's economy anymore.
    Sep 14, 2012. 01:29 PM | 1 Like Like |Link to Comment
  • There's No Longer A Bernanke Put [View article]
    I think the FED has destroyed/transformed (your choice) our economic system. It has taken what was the single best wealth creator in the history of the planet and turned it into a parody of itself.

    We are no longer operating a capitalist system in which there is a price signal that is determined by the market. The "price of money" is zero which implies that future value of money is now meaningless.

    People who had an incentive to buy anything based upon the fear of rising rates will no longer have the pressure to buy anything now.

    Why buy a house now when mortgage rates are supposed to be falling in the future?

    In the quest to fight deflation, the FED has created a recipe for further deflation in my opinion.

    I don't believe that the FED has reduced risk by making everything less risky I believe what Hyman Minsky said here:

    "... over a protracted period of good times, capitalist economies tend to move from a financial structuredominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently,units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."
    -- Hyman Minsky

    So when the FED unravels itself from this Gordian Knot it has created, I don't think any asset class will be safe. In the short/medium or longer term, I believe stocks will continue to rise as the outlet for all this monetary excess/experimentation.

    I shudder to think that Marc Faber might actually prove to be right one day.
    Sep 14, 2012. 01:12 PM | 3 Likes Like |Link to Comment
  • Something's up in the Spanish bond market, where yields are shooting higher, the 2-year +24 bps to 3.19%, the 10-year +18 bps to 5.81%. ECB bond purchases won't begin until Spain submits to a bailout, and Spain won't submit to a bailout as long as bond yields remain contained, ergo, another peripheral bond panic almost certainly lies ahead. [View news story]
    Tack,

    My comment was more directed at the fact that I think the FED has destroyed/transformed (your choice) our economic system. It has taken what was the single best wealth creator in the history of the planet and turned it into a parody of itself.

    We are no longer operating a capitalist system in which there is a price signal that is determined by the market. The "price of money" is zero which implies that future value of money is now meaningless.

    People who had an incentive to buy anything based upon the fear of rising rates will no longer have the pressure to buy anything now.

    Why buy a house now when mortgage rates are supposed to be falling in the future?

    In the quest to fight deflation, the FED has created a recipe for further deflation in my opinion.

    I don't believe that the FED has reduced risk by making everything less risky I believe what Hyman Minsky said here:

    "... over a protracted period of good times, capitalist economies tend to move from a financial structuredominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently,units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."
    -- Hyman Minsky

    So when the FED unravels itself from this Gordian Knot it has created, I don't think any asset class will be safe. In the short/medium or longer term, I believe your position is correct, stocks will continue to rise as the outlet for all this monetary excess/experimentation.

    So that's what I see as having been blown up by the FED.

    Good luck.
    Sep 14, 2012. 12:20 PM | Likes Like |Link to Comment
  • Anti-Western protests continue to spread. Protesters have scaled the walls of the U.S. Embassy in Tunisia and replaced the American flag with a black flag. The Embassy is reportedly on fire. Earlier, the German and British Embassies in Sudan were rushed. The University of Texas orders its buildings be evacuated after a bomb threat from a caller claiming to be with Al-Qaeda. [View news story]
    We are expected to believe that a coordinated attack on our embassies in the Middle East on Sept 11th was a coincidence? It just happened spontaneously?

    Just imagine if they were organized (sarcasm).

    What has happened to the media in this country?
    Sep 14, 2012. 11:54 AM | 1 Like Like |Link to Comment
  • Richard Barley has a kind word for bonds (currently in the midst of a savage sell-off), saying the global growth outlook continues to be dismal despite the Fed and ECB. Could the curve get steeper still? Sure, but the date of any increase in short rates keeps getting pushed further into the future, which should help anchor the long end. [View news story]
    It is literally amazing that the policy of QEfinity whose stated purpose is to lower long-term rates has had exactly the opposite results since the announcement yesterday especially compared to a month ago. WTF?

    Is the FED trying to trigger a bond selloff?
    Sep 14, 2012. 11:39 AM | Likes Like |Link to Comment
  • Something's up in the Spanish bond market, where yields are shooting higher, the 2-year +24 bps to 3.19%, the 10-year +18 bps to 5.81%. ECB bond purchases won't begin until Spain submits to a bailout, and Spain won't submit to a bailout as long as bond yields remain contained, ergo, another peripheral bond panic almost certainly lies ahead. [View news story]
    In the immortal words of Charlton Heston from "The Planet of the Apes":

    http://imdb.to/QYP6IX
    [last lines]
    George Taylor: Oh my God. I'm back. I'm home. All the time, it was... We finally really did it.
    [screaming]
    George Taylor: You Maniacs! You blew it up! Ah, damn you! God damn you all to hell!

    I miss Charlton :)
    Sep 14, 2012. 11:33 AM | Likes Like |Link to Comment
  • Something's up in the Spanish bond market, where yields are shooting higher, the 2-year +24 bps to 3.19%, the 10-year +18 bps to 5.81%. ECB bond purchases won't begin until Spain submits to a bailout, and Spain won't submit to a bailout as long as bond yields remain contained, ergo, another peripheral bond panic almost certainly lies ahead. [View news story]
    The FED has removed all risk from the world. There is nothing to see here.
    Sep 14, 2012. 11:18 AM | Likes Like |Link to Comment
  • Aug Consumer Price Index: +0.6% in-line with consensus, 0.0% prior. Core CPI +0.1% vs. +0.2% expected, +0.1% prior. [View news story]
    bbro,

    This core CPI calculation is bs.

    Anybody that shops for food or buys gas, knows that the prices of those necessities has risen precipitously over the past year and the past 4 years.

    Just take a look at a basket of staples: milk, eggs, bacon, orange juice, bread, steak, etc. The price increases are staggering and I shop at BJ's which always does it best to keep prices at the lowest possible level.

    The problem with CPI calculations based upon hedonics is that they ignore the real-world experience of the 90% people who aren't rich.

    If prices don't increase from their currently elevated levels we will have no inflation in the future according to the calculation but lo and behold everything is way more expensive than it used to be while incomes have fallen or remained stagnant. This is nonsensical.

    God forbid they fall again to their prior levels because that would be deflationary and cause the FED to go into further "panic" despite the fact the general welfare of the people would improve.

    I am not an inflationista, rather like the FED I believe deflation is still our biggest risk but what we are getting now is the worst of both worlds: rising food and energy prices combined with declining/stagnant incomes.

    Who knew the President was a big believer in trickle down economics (the "wealth effect")?

    This is in part why economics is the dismal science.
    Sep 14, 2012. 11:01 AM | 4 Likes Like |Link to Comment
  • Aug Industrial Production: -1.2% vs. -0.1% expected, +0.5% prior (revised). Capacity utilization 78.2% vs. 79.2% expected. [View news story]
    bbro,

    Not talking about recession just "softening" which is what this is showing isn't it?

    Given where we are at the present rate of growth a "pause" in manufacturing growth is not a positive for the future. I don't believe that that's an ideological statement.
    Sep 14, 2012. 10:50 AM | Likes Like |Link to Comment
  • The ECRI Weekly Leading Index rises to 124.9 for the week ended Sept 7 from 124.1 previously (revised from 123.7). The annual growth rate rises to 2.1% from 1.4%. It's the highest level since August 2011 and one wonders if Lakshman Achuthan is pulling his recession call. [View news story]
    No he hasn't which is actually quite amazing. Here's his latest defense of their call:

    http://bit.ly/SHRXXM

    "Some believe that our own Weekly Leading Index contradicts our U.S. recession call. This is not the first time that charge has been made. Recall that, a couple of years ago, people said that its movements guaranteed a double-dip recession. At the time we flatly and correctly rejected that interpretation. Today we can tell you that the Weekly Leading Index is not pointing to recovery and, more importantly, this is also the message from our full array of leading indexes."
    Sep 14, 2012. 10:46 AM | Likes Like |Link to Comment
  • The 1.2% dive in industrial production is the biggest decline since the depths of the financial crisis, though 0.3% of the fall is being attributed to Hurricane Isaac. S&P futures add a bit to gains, now +0.3% - maybe in hope the Fed will double QE to $80B/month? [View news story]
    So apparently the genius forecasters that come up with these consensus numbers which are supposed to be based upon the whole universe of data, missed the fact that there was a hurricane last month when they came up with their original forecast?

    Really. Come on.
    Sep 14, 2012. 09:55 AM | Likes Like |Link to Comment
  • Aug Industrial Production: -1.2% vs. -0.1% expected, +0.5% prior (revised). Capacity utilization 78.2% vs. 79.2% expected. [View news story]
    bbro,

    I know you like to look at the bright side but isn't this a pretty horrible report?

    With a fall of this magnitude, I suspect the revisions will be even worse. It's all blamed on the hurricane so apparently we are back to blaming weather again for these "unexpected" declines.

    Rising inventories and falling demand are not a good combination for an economy.
    Sep 14, 2012. 09:43 AM | Likes Like |Link to Comment
  • Aug Consumer Price Index: +0.6% in-line with consensus, 0.0% prior. Core CPI +0.1% vs. +0.2% expected, +0.1% prior. [View news story]
    We don't eat or drive core inflation.
    Sep 14, 2012. 08:41 AM | 2 Likes Like |Link to Comment
  • 3 Reasons The Fed Should Hold Off On QE3 This Week [View article]
    Well if there was no reason to buy a house now, there is even less reason to buy a house now if you expect interest rates to fall even further. We really are in the liquidity trap as per Irving Fisher.
    Sep 13, 2012. 03:40 PM | Likes Like |Link to Comment
  • Cliff Diving: Will Congress And The President Destroy The U.S. Economy? [View article]
    benny,

    Sorry Obamabot I thought I was communicating with a rational being :)
    Sep 13, 2012. 01:55 PM | 4 Likes Like |Link to Comment
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