Roscat

Vikram vs. Kenny: Which CEO Will Be Ousted First?

Kenny only. Give Vikram some time.

A Graphic Depiction of Distressed Real Estate Sales

The good news is that, based on that graph, the foreclosure and trustee deed sales have peaked.

Who Will Win the Economic Battle for Ukraine?

Great article and good macro-analysis.

As you state, there will probably be no winner in the fight for Ukraine. it will continue to have Russian influences in the east and EU influences in the west. I just hope that will not become another divided Germany. The outcome would not be pretty.

It will be fantastically hard for Ukraine to manage the situation diplomatically but, they can certainly use all the help they need. Yushchenko and Tymoshenko need to understand that this issue is bigger than any of them individually.

A first step is the elimination of dependency of Russia. I am sure they understand that but, it is generally hard to implement since the vision and results are quite long-term.

I wish them the best.

On Jim Rogers and False Statements

I think one needs to understand accounting and finance a bit better, including those individuals from the Telegraph.

Here's why:

On Mar 05 06:55 PM Chester Sing wrote:

>
> How big is £12.3 trillion or $17.3 trillion? According to this (flagcounter.com/factbo...)
> source, the latest GDP of the US is $13.8 trillion. And this is just
> the exposure of banks in the EU.
>
> A portion of this amount will probably get purchased and honored
> if a fire sale is held. How much? I do not know. One thing I know,
> however, is that a fraction of this amount is big enough to wipe
> out many.

All those gains are only on paper! They rely on assets that should have never been valued at that price. They are off-balance sheet. They cannot be compared with assets on the balance sheet.


> Therefore, the argument that the unemployment increase will be marginal
> if financial institutions are allowed to fail, to me, is not believable.
>
Believe you me, it is not only about employment. It is about fixed costs of employment. These are two inter-related items.


> A number of you seem to be absolutely sure that the outcome in the
> event that financial institutions are allowed to fail would be better.
> But I have yet to see any strong proof.

Here is some proof. Housing in the CA, FL, NV, AZ markets was allowed to fail. Guess what happened? Assets were purchased at fire-sale prices, with cash money on hand. Extrapolate that.

> Is Japan’s decade-long stagnation really attributable to the rescue
> made to its financial institutions after the crash of the late 80s?
> Are you absolutely sure that is not because of other factors?

Pretty sure, just like many economists before you and I.

> Economics is not a hard science. Controlled experiments are unheard
> of in macroeconomics. Please try to keep this in mind.

Actually Economics is a hard science and extrapolation can be achieved using the right examples. If you need help with that, please let me know. See example above, and many other economies before this time.


> Now, a commentator suggested that the Great Depression could have
> been shortened if banks were allowed to fail. I have news – they
> were allowed to fail.
>
> “In the first six months of 1929, 346 US banks collapsed, and that
> was just the beginning of a series of bank runs.”
> *Source – (www.independent.co.uk/...)

Yes, but your timeframe if insufficient. If they were allowed to continue failing, the market was going to adjust itself. They were eventually bailed-out.

> It is a misconception that President Hoover acted exactly the way
> President Obama is acting now. On the contrary, President Hoover,
> probably did the opposite.

Probably? Not.

> Is there proof that the Great Depression could have been shortened
> if a Jim Rogers-like approach was taken? I am not aware of any so
> pray enlighten me.

Here's enlightenment for you. The aforementioned foreclosures, and the Sweden example. It is very similar.


> I also have yet to hear a case wherein an economy recovered as a
> direct cause of allowing failed financial institutions. Once again,
> I would like to be enlightened.

Here's how you envision this: take the profits now, but take the losses in 10-30 years. How is that for pain? Because in the end, you will still follow that curve giving you 3-5% growth. Yes, it's demographics plus advances in productivity. Baring that, you cannot get to the numbers showed recently.


> A rational human being submits to logic. Trust that I will submit
> if sufficient evidence is presented.
>
> I have the utmost respect for Jim Rogers which I thought should have
> been apparent by reading the first paragraph of my article. Please
> do not get me wrong. I am merely criticizing his position on the
> crisis.

Yes, but barely. If you read more about him, you would understand his position better.


Regards.

Another European Bank Problem: Good News for the Dollar and Inflation

There is no use to have a strong dollar right now from a US perspective because there is a lack of liquidity. With a strong dollar one can buy assets outside of US but, the problem is that there isn't enough money to go around.

It is preferred to have more money in the market, even at the risk at running a high inflation for the short term. That can always be resolved later, if managed appropriately (perhaps an improved version of the 70's and 80's cycle).

BofA, Wells Fargo: No Equity After Accounting for Bad Loans

To ChrisB
--------------
"But continuing the analogy, if the fire sale price that I could sell my house for in 1 day is $20k, but I could put it on the market and sell it within 6 mos for $150k, and perhaps 1 year for $180k, what's the house actually worth? To me, it's $150-180k, because I have no intention of giving it away at a fire sale."
-------------

The problem with your analogy is that it will take 10-30 years for the assets to raise to the same level as in 2007, not 6 month. Thiese aren't futures you are selling but, hard, tangible products.

There is a reason why houses shouldn't have been securitized. Because selling the underlying security assumes that one holds that house for 30 years. But, investment firms took the haircut immediately, vs over 30 years. Simple short-term vision.

So, if it's worth $20k now and you need to sell it, that's what you get and even if you wait a few more months you're still not gaining much. In this market, you're lucky if you get even that price.

It is all about asset protection, not about making money out of housing.

Markets are sinking. Citigroup (C) is now a penny stock, -13.2% at $0.98. DJIA -3.1% to 6660. S&P -3.6% to 687. Nasdaq -3.1% to 1312. Crude -3.3% to $43.88. Gold +1% to $916. 30-year +1.76% to 127-08.

Goodbye Citigroup!!!

U.S. Automakers’ Race to the Bottom

Innovation is always rewarded positively. Germany provided €2,000 for every buyer trading in a car older than 9 years for a new car. Hyundai provides a car buyback guarantee if you lose your job 12 months after the car purchase.

GM, F, and Chrysler should find their own innovative solutions to sell their brands.

BofA, Wells Fargo: No Equity After Accounting for Bad Loans

To Big Jack
The homes do not have a $0 value because someone will pay a fire-sale price for them even in this market. It has been proven already in CA, NV, AZ and FL.

Waiting 10-30 years to get those assets back to 2007 values is unacceptable.

Genentech's Bullish Forecasts Are Not in Line with Wall Street

No one should underestimate the power and value of the biotechs in this day and age. If I were Roche, I would try to wrestle the price a bit but, eventually pay to get Genentech at any cost.

UBS (UBS) refuses to provide the U.S. government with the details of 52,000 clients as part of a tax evasion probe, arguing that doing so would violate Swiss law. Bank execs say the dispute should be settled diplomatically, not through a legal suit.

Don't provide the list but, if you have broken the law, you are no longer allowed to provide Wealth Management services in the US. Very simple. Similarly was done to Citi in Japan. There is nothing new about the solution.

On Jim Rogers and False Statements

Your article is wrong on several points and here is why:

1. It is not half the population that made these irresponsible investments in housing. The percentage touches 10%, as previously stated elsewhere, from which many were just pure investors.

2. If you save the 10% at the expense of the 90%, you have just entered Socialism and disregarded all the tried and true bankruptcy laws, older than many of us, implemented by our forefathers with a view to re-inventing oneself.

3. Bankruptcies do not imply massive layoffs beyond what have already taken place and what is coming anyway. In bankruptcy, Ch 11 - a la Lehman, the assets are being sold at fire-sale prices to the higher bidder. The operations continue the next day.

4. If we take example from other economies (So, Korea), wage reduction should be applied, not layoffs. A company needs to reduce the fixed cost and be flexible; unlike UBS that just increased base wages to make up for bonus losses.

5. The underlying obligations that banks claim should not be written off at market-rates will need 10-20 years to recover. Thus, it is more than just paper money, it is as if it doesn't matter anyway.

6. There are several manufacturers, banks and other industry companies that would love to pick up assets at reduced prices. These will continue running the businesses and the concentration of power will spread just like diversifying a portfolio.

7. Jim sees more blades of grass on his farm because he has seen both farms in person, and probably many more farms than many of us will see in a lifetime (read more about him).

We should all be lucky like that.

Regards.

A.F.L.-C.I.O, a lobby powerhouse that represents 10M workers, will call today on Pres. Obama to speed nationalization of U.S. banks. "We believe the debate over nationalization is delaying the inevitable bank restructuring, which is something our economy cannot afford."

My advice is not to pick-up the call.

Japan's mistake was not acting quickly enough or aggressively enough, Bernanke says when asked how we'll know when U.S. is becoming another Japan. "I don't think we're making that mistake."

Not true. Japan's mistake was propping up the failed banks. The US is making the same mistake.

There are sufficient banks with strong balance sheets that would love to take over failed businesses and make it their own. Give them the chance.

Jim Rogers: It's Better To Let Financials Fail

I think Jim Rogers has good points. The failures in the financial services system should be exposed by allowing the companies to go bankrupt.

It seems to me that the government is looking to replace the bankruptcy courts when the best job is instead done by filing Chapter 11, re-org.

For the government plan to work, the values of the bubbled assets need to be revived. Does that mean 10, 20, 30 years? Surely the same government will not even be around by that time to realize that this choice was not feasible.

Unfortunately, most us will be around and we will only have us to blame if we don't ask for these companies to go bankrupt now. Take the medicine now - it tastes bad, but the downside if it's not taken, is that the virus could mutate in a worse shape.