alphadominance

Greenspan Yet Again Blames Others for Housing Bubble

It was Greenspan's hubris to think that he could do away with the business cycle. He kept his foot on the gas preventing necessary corrections and inflating bubbles in all asset classes that have unleashed unprecedented destruction of wealth. We have not just a correction, but the overcorrection of all time as a result.

The Perils of Decoupling

Great piece. Those at the top are so profoundly isolated from the experience of the common American that they fail to realize that the rest of us have less and less reason to maintain our end of the social contract. If hyperinflation commences we will have no reason to continue producing so the fat-cats can steal our productivity. Even today the incentives are poor for the majority of Americans. Two income families with poorer quality of life than the one income family of the 50's. The only thing we have left to give up to the rapacious corporate masters is child labor. Doubtless they wouldn't object in the slightest.

Depression? Recession? No, It's the Great Restructuring

I see this crisis as a call to decentralize where ever possible. We are simply to dependent on monolithic institutions who have become too big to fail. Not only do we subsidize them by paying them outsized profits which are concentrated in the hands of a few, but now we are paying their bills from our depleted national coffers. Small business is the model that provides for the majority of Americans and is robust and nimble enough to remake themselves continuously in the crucible of the marketplace. I agree with the author that we need to remake education and industry in the same fashion. We now have the communication and logistical infrastructure to support distributed production of many more goods, and with rapid prototyping coming online, many more needs can be filled on demand. A return to decentralized means of production of goods and necessities like food and energy will decrease losses and increase network efficiency. It will also foster biodiversity of foodcrops, and foster responsible food production and benefit our health. It will also decrease our vulnerability to terrorist attack. Such a sea-change would also permit populations to de-concentrate alleviating the density in urban areas and the consequent pressure on real estate prices. Some value would be lost in urban areas, but gained in rural ones. We may also be able to reduce our reliance on the automobile for commuting purposes. Such changes would allow us to reap many rewards in quality of life and reduced commodity consumption. All for it.

Real Personal Income Is Actually Rising

While at its heart the principle of rising productivity equaling rising income seems sound, it contravenes the facts. Our rising productivity has been stolen for the past several decades and misstated inflation has further eroded incomes. If you think we are getting more today in real dollars than we did thirty years ago you are woefully mistaken. alphadominance.com/?p=...

Further, if as suggested, the recent figures indicate a rise in government salaries only, guess what, that's going to be coming out of the private sector's coffers. That means higher taxes and less purchasing power for the average citizen, hardly the boon it's made out to be.

U.S. Economy: We Don't Have the Right People in Charge

As we pick through the wreckage of the fallout from deregulation we are living with the consequences of the decisions made by the big boys of business. Clearly they didn't quite get it right either. This is not to say politicians are not also complicit. It's like the old adage says, power corrupts. I think we need a return to a functional balance between governance and enterprise. Business runs things better, but needs regulation to keep them honest, plain and simple. Since the pendulum swung so far to the deregulation and egregious corruption side in the last administration, it's natural that now people are calling for an overcorrection in the opposite direction because it is human nature to be reactionary, particularly when as is the case for most laypersons, you don't know what you are talking about.

Retirement Assets Drop - How Will Baby Boomers Ever Retire?

Indeed we youth must invest. Try overcoming inflation when you hold only cash instruments from 25-65 years of age. Ha. Of course we must invest. For the most part it wasn't investing that hurt our predecessors. It was not saving in the first place, racking up massive debt, living above their means and withdrawing equity from their homes like an ATM. Foolish, foolish, foolish. The median net worth of a boomer in 2004 was $172,400, which would afford $14,000 gross in annual income through retirement. It's safe to assume this figure is worse now. Those already retired or close to it should, yes, have had limited market exposure. If they did have a lot of their asset base in the market, they were greedy, plain and simple and they paid the price. This contraction of markets, though it hurts the established investor, is a boon to the savvy youth, whose paltry median income might now afford him a reasonable number of shares of decent companies. The only question is, will he learn from the folly of his elders or will he follow in their self-indulgent footsteps and pay the price on the back end? Enjoy the hole you've dug for yourselves boomers. My only regret is I'm going to have to compete with you for jobs until I myself am ready to retire due to your hubris. Hopefully the present dose of reality will encourage the youth to save and invest in himself.

Oil: What Goes Down Must Go Up?

The $150/barrel oil never had anything to do with supply and demand. It was part of a speculative commodities bubble that blew up as a result of cheap credit and vastly overleveraged investment groups like hedge funds. We are experiencing a correction in all asset prices that was overdue. While I agree that it has unfortunate impacts in driving investment in alternatives, hopefully we were shaken enough by it as a country to keep the political will together to pursue alternatives now while the pressure is not so great. It would be a tragedy for us to again become complacent only to be blindsided when supply constraint becomes a real issue. This is a wake up call and we will probably one get one. Heed it people.

Yes, We Can End Market Manipulation

Absolutely a must. Well put article. Where is one expected to invest for their future when all markets are subject to being pushed ahead of a tidal wave of hedge fund leverage. Nobody but nobody should get to play be rules that aren't available to mom and pop. That means if we have margin requirements of 50% they should. None of this 50x leverage bull. Uptick rule and investigating complaints like they so resoundingly failed to do with Bernie Madoff are other critical first steps. We went through a fit of regulation after the excesses that led to the Great Depression. Finance has evolved far enough that we are again due for such wide reaching legislation. Otherwise we stand the risk of a repeat of the Great Depression in which everyone loses all faith in the markets, banks and currency. It's not a distant prospect if we don't act soon.

Get Used to Market Lows

I agree the reach of the derivatives market is out of control. Why there could be more value in derivatives than there is in the underlying is beyond me. It's just a cat and mouse game of shuffling risk around and making money at every step. It needs to be better regulated and like so many markets, returned to its core reason for being, in this case to hedge legitimate risk like interest rate movements and the like. Too much leverage has ballooned so many markets in a speculative feeding frenzy. These hedge funds and giant pools of capital have too much influence in the market. They've destroyed it for the little guy who just wants to prudently invest for his retirement. If you take away pensions and destroy the ability to effectively save for yourself, and social security goes away, what exactly is Joe Sixpack to do to provide for himself. You have to provide a viable option of funding retirement.

Should You Buy Stocks Before the Economy Recovers?

Timing the market has been shown repeatedly to be little better than taking your nest egg to the casino. Making fixed dollar investments over time is still a very effective strategy to mitigate risk and take advantage of opportunities without betting the farm. While I agree that holding securities indefinitely may no longer be effective, there is nothing wrong with averaging in and taking money off the table on a case by case basis when you have a decent gain. The average investor lacks the time or savvy to play the speculative gain anywhere near effectively.

New Home Prices vs. Median Income Chart

I did the calculations based on the convention ratio used for lending using Seattle data for 2006 and found real estate to be 89% overvalued on the average. Since loan qualification is going back to the stringent older requirements I can't see any way but for prices to return to a rational relationship with incomes. Doesn't bode well for those who invested in real estate with the intent of making a quick buck, but great for first time homebuyers. These are the people the market ought to be serving in any case in my humble opinion.
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The Great Depression vs. Today's Economic Crisis

Nicely put, I think there are eerily similar circumstances between our present situation and the Great Depression. While it's difficult to forecast accurately, I have my doubts about a speedy recovery. I suspect at the least we will have a protracted "flat" period as earnings and intrinsic value catch up with market values. Part of the problem is that virtually everyone is broke. The government, businesses and individuals are all cash strapped. How can we have a recovery without a return to greater consumption? However it works out I sincerely hope that America learns some fiscal discipline from this and reverses our course of negative savings and ever ballooning debt.
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The Dr. Doom Space Is Getting Crowded

Every executive and Federal official who presided over this fiasco is one in my humble opinion. The hubris stretches to mars...
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2008 Was Crazy, But Predictable

What boggles my mind is that if it became evident to me that bubbles were blowing up everywhere over the past few years, how did the bigwigs miss it? Is it a factor of having too much at stack and being in denial? Is it really that our economy is a black box and nobody really can understand it, including our most vaunted officials and executives? It seems perhaps that they just don't care. Short-sightedness has become the plague of our economy and it is endemic from government, to business to individual investors. To some extent we all share in the responsibility by spending too much money we didn't have, but for those who are "in the know" it is inexcusable. I think actively managing the economy is a failed experiment because they keep hitting the gas when contraction is both necessary and good at times. We are supposed to have cycles, not ever growing asset values. To some extent our model of perpetual growth is unsustainable. In a perfect market with free information there should be no "alpha" except in new and growing markets. We need to come to terms with this and be happy with our modest 5-7% safe returns.
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The Bull Case for Hedge Funds (Yes, Hedge Funds)

As the Madoff scandal has shown, greed blinds everyone, including those who should know better. Consequently I cannot condone investing in anything which is not transparent and regulated. Even if a fund wants to keep it's investing strategies private from the public, regulators should have purview of their activities. Furthermore the extensive use of leverage, though not limited to hedge funds, is counterproductive to a stable market. Leverage accelerates declines as well as growth and I believe institutions and funds should not be permitted any greater use of leverage than are individual investors. If we use margin and can borrow no more than 50%, they should not be able to either. The extensive use of leverage has the obvious effect of inflating asset values, as it artificially creates surplus demand. While some is helpful, too much perpetuates the bubble economy we seem to have created in the past decade in America. If we want to strengthen our currency, and build the foundation for a future economy, we must take our hits from time to time and limit the inflationary pressure of expansion of the money supply.
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