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  • Lower The Cap Rate, Not [View article]
    Excellent article. For a private business in normal times, earning a profit requires hard, smart work.

    Easy money lowers the barriers and traps societal capital, in increasingly marginal business plans.

    Some black swan event triggers an avalanche, revealing the weak businesses and we start again, apparently learning nothing.

    Third graders can look at a stock market chart of the past 75 years and see that something has changed profoundly since 1995.

    http://yhoo.it/1jy4vca;range=my;compare=;ind...


    That something is the Fed playing, "Bread and Circuses" with the economy via interest rate manipulations, all aimed at repealing the recessionary component of the normal business cycle.
    Nov 24 11:17 AM | 4 Likes Like |Link to Comment
  • People's Bank Of China Announces End Of U.S. Treasury Buying [View article]
    I don't know, and therein lies a problem: Nobody else knows either.

    One reason firms are holding high cash balances is due to the shock of discovering how close they were to not meeting the Friday payroll when short term paper went away in the wake of Lehman's collapse, and that in ostensibly 'normal' times.

    Any CFO letting that happen to him again before this mess is settled knows he'll be looking for work.

    The SEC's instructions leaving firms to more or less,"roll their own" in terms of quarterly mark to market guidelines leaves a huge cloud over financial balance sheets.

    Nov 22 10:32 PM | 3 Likes Like |Link to Comment
  • People's Bank Of China Announces End Of U.S. Treasury Buying [View article]
    Hi Econovan,

    I mean it in the context of the last financial house cleaning, the savings and loan debacle, wherein 747 thrifts went bust and were taken over at a taxpayer cost of $124 billion.

    The stage for that one was set through changed regs which allowed the S&Ls to become financial speculators versus mortgage lenders, but with the backing of FSLIC. With the taxpayers implicitly forced to "buy their put," S&L management wrecked the industry.

    Fast forward to 1999. The Glass Steagall Act, passed in 1933 to keep commercial banks out of the investment banking casino, was repealed.

    Enter Ben Bernanke lowering interest rates, concerned about Y2K liquidity issues. The big banks, by this time deemed, "TBTF" use the easy money to embark on a lending/derivative packaging spree, and are aided and abetted by Fannie Mae, Freddie Mac, Barney Frank, etc

    Suddenly one morning years later, in 2008, a banker gets antsy about accepting even overnight risk of Lehman Brother's paper. Other banks follow suit and the whole Ponzi scheme falls as the banks, understandably, don't trust each other's paper, knowing everyone's balance sheet is chock full of half million dollar mortgages backed by $30,000 secretaries.

    Enter Henry Paulson, Treasury Secretary and former Goldman Sachs banker. September 18, 2008, he goes to the taxpayer, via Congress, and demands $1 trillion or, "God help us all." Congress bickers, then caves as the Dow drops over 700 points in a single day, September 29th.

    The market continues to fall, seeking a clearing price, until FASB 157 is suspended on March 19, 2009. It has risen on a wave of cheap money ever since, presently $85B per month, compliments of Ben Bernanke.

    The house cleaning will come when the world finally reaches the puke point and demands it in the wake of the next crash.

    The first clue will be the SEC reinstating FASB 157. The message, "OK guys, we've bought you ? years of saver's capital to deal with it. The heat's on and time's up. Mark it to market. If you can't find a market by now, call it what it is, junk, and write it off."
    Nov 22 06:35 PM | 9 Likes Like |Link to Comment
  • The Other Reason To Un-Repeal Glass Steagall, Or Why QE Isn't Working [View article]
    Thanks. This is, by far, the best and most succinct overview of the mess we're in and why we're there that I've read.

    An optimist would look at the outlandish market swings since LTCM blew up and conclude that the financial authorities, reading the same charts, have a plan to end it before Armageddon.

    That same optimist might speculate that Bernanke is trying to confiscate enough saver's wealth to enable him to declare, at some point, that the shadow banking debacle is now manageable and FASB 157 is hereby reinstated, as a stop-gap measure pending reinstatement of GS..

    I'm a pessimist, I think.
    Nov 22 02:50 PM | Likes Like |Link to Comment
  • People's Bank Of China Announces End Of U.S. Treasury Buying [View article]
    Sorry, I don't see them following through on this threat; just jawboning the dollar up, or trying to.

    The currency race to the bottom has been on since Qe1. Japan has recently joined it in earnest, and China is feeling the pain.

    Bernanke/Yellen will studiously ignore this action, as every day of saver wealth confiscation brings closer the day they can finally say,"OK, we think a collapse is now manageable; re-impose FASB 157, and let's clean house."

    Foreign protests of their wealth confiscation won't deter them. It's their only plan, and, accordingly, our only hope.
    Nov 22 02:09 PM | 3 Likes Like |Link to Comment
  • Shadow Banking In The Headlines! The Future Is Here! [View article]
    JasonC,
    Your comment brings to mind an accountant making a meticulous deck chair count on the Titanic.

    I can't vouch for the stone age, but recorded human history is depressingly repetitive and predictable:

    Wealth is created peacefully and accrues disproportionately to fewer and fewer until a tipping point is reached. Then much of it is violently destroyed, and the remainder redistributed among the survivors. They begin anew and soon forget the lesson. 

    France, 1789; Mexico, 1910; Russia 1917; China, 1949.
    Nov 22 12:03 PM | Likes Like |Link to Comment
  • China Announces That It Is Going To Stop Stockpiling U.S. Dollars [View article]
    China is conflicted. Over the past twenty five years, Her cheap labor has enabled millions to move out of mud huts, but at the current cost of accepting a depreciating dollar and Euro.

    American and European politicians will never voluntarily move to address this growing bubble until it pops on them.

    China may threaten, but a few months of closing factories will resurrect the ogre of Tiananmen Square, and they'll continue down the same path: "We'll buy your bonds and pretend to believe you when you say you want a strong dollar."

    Ours is the advantage of having the reserve currency. It always masks growing weakness in a nation until the morning it fails.

    That morning is coming for us.
    Nov 22 10:26 AM | 1 Like Like |Link to Comment
  • Treasury Yield Snapshot: New Update [View article]
    Gary's been right for more than twenty years now, and counting. He called the long bond, "The buy of a lifetime," after Volcker raised interest rates and long before it was fashionable elsewhere.

    I got out in December, 2011. It just felt more and more like picking up nickels in front of a paving machine.

    I hope I'm wrong, but I envision millions being stripped of their life savings with the next crash, having succumbed to Fed efforts driving them out the risk curve...into junk bonds and bubble stocks.
    Nov 17 10:43 AM | Likes Like |Link to Comment
  • The Lowdown On Sky High Corporate Profits [View article]
    GAAP gaming, I call it, and you're exactly right.

    The 2001-2003 and 2007-2009 recessionary periods especially provided management cover for several "kitchen sink quarters" in which poorly performing assets, excessive debt, etc. were dealt with, ostensibly, as one time events.

    In reality, these two recent purge cycles are now resulting in present GAAP overstatement of future profits for a growing number of firms, another distortion due to five years of artificially low interest rates.

    When the tide goes out next, to paraphrase Warren Buffet, a large number of firms will again be discovered to have been swimming naked, leading to more, "one time writeoffs."

    While the original intent may have been to allow management to more accurately reflect the state of the business, routinely allowing on-going one time events and kitchen sink quarters renders public statements less and less reliable as a function of time since the last recession.
    Nov 13 11:28 AM | Likes Like |Link to Comment
  • Shadow Banking In The Headlines! The Future Is Here! [View article]
    As Mark Twain observed, "There's lies, damn lies, and statistics."

    Your analysis reflects an abstract statistical view of unfunded pension liabilities, whereas the practical, tangible effects felt by pensioners will be drastically lowered living standards as reality sets in and the checks are not in the mail.

    This is not a problem that will be solved via tinkering with hurdle rates and time line rationalizations.

    Promises have been made, AND ACCEPTED, which cannot possibly be kept. It is here, now, and worsening.
    Nov 13 10:06 AM | 2 Likes Like |Link to Comment
  • Shadow Banking In The Headlines! The Future Is Here! [View article]
    Debt being owned also never qualifies it's soundness, witness LTCM, Enron, GM, Fannie Mae, Detroit, etc, etc. Stay tuned.
    Nov 12 04:31 PM | 1 Like Like |Link to Comment
  • Shadow Banking In The Headlines! The Future Is Here! [View article]
    "the whole category shrank by $3.3 trillion in the same period."

    Yes, but from a base variously estimated to exceed $100 Tillion.

    If this pace is sustained, the world could be out of danger...in the next generation.
    Nov 12 11:52 AM | Likes Like |Link to Comment
  • Shadow Banking In The Headlines! The Future Is Here! [View article]
    What an age! So, let me see if I've got this right:

    1.High quality collateral is obsolete, and smart money managers and their clients have finally learned to trust and rely on the Greenspan/Bernanke, and soon-to-be, Yellen put.

    2.Smart money managers now borrow short, leveraging this Fed put, and lend long.

    This is wonderful, and so simple!

    I think we may finally have reached that permanent plateau of high equity values and rising living standards Irving Fischer predicted...in early October, 1929.
    Nov 12 11:11 AM | Likes Like |Link to Comment
  • The Stock Market Bubble's Achilles' Heel [View article]
    Superb comment, JUDS!

    Both the content and tenor of the bullish comments on here convince me that we're as likely to see Shiller PE at 10 as 25 in the coming year.
    I was in Japan in 1991 on a US State Department junket intended to teach US businessmen how to emulate Japan Inc.
    We spent several days visiting product design and manufacturing operations of several top tier Japanese firms.
    looking at their actual numbers, from P&L, balance sheet, and cash flow and product quality data, they were nominally the same as the US.
    The huge advantage they'd had was low interest rates. It covered a multitude of sins for them then, and us now.

    And although the 18 members of the press corps along with us were still in obvious awe of the Japanese juggernaut, the bloom was already off the rose.

    No one in the group still defended the notion of the Imperial Palace grounds being more valuable than all the real estate in California, but they were unanimous in predicting an imminent resurgence of Japan Inc.

    They've been wrong now for twenty two years and two months.

    We continue to do the same things they did, but expect a different result.
    The issues being debated on here are very revealing in themselves:
    Has five years of massive monetary intervention distorted the market? Is it enough? Is unemployment really at 7.2 or 20 percent? Is HFT front running good or bad for the market?
    it's over. The only question is when, and I think sooner rather than later.

    Oct 31 11:56 PM | Likes Like |Link to Comment
  • Reality Check For Peter Schiff [View article]
    Precisely, WMARKW!
    And there's also that little issue of $50 Trillion or so in shadow banking derivatives rotting away in the back room.

    It's ironic, and telling, that the current market recovery began on the very day, March 16, 2009, that mark to market accounting was suspended for the TBTF bank derivative junk.


    Oct 31 03:26 PM | 2 Likes Like |Link to Comment
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