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jhooper

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  • Bonds The Biggest Bubble: The Barbell Strategy [View article]
    "I happen to be in the upper 2 percent,"

    Yeah, right.
    May 15, 2012. 08:50 AM | 1 Like Like |Link to Comment
  • Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
    Speaking of subsidy mixes

    The results when subsidies change

    http://seekingalpha.co...

    The subsidy change


    http://bit.ly/J5tVAu
    May 14, 2012. 09:45 PM | Likes Like |Link to Comment
  • Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
    And will the Germans cave, and bring online ecb consumption subsidies?
    May 14, 2012. 09:15 PM | Likes Like |Link to Comment
  • Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
    Look at the growth of Fannie and Freddie as a % of the mgt market from the 1970s forward, and then compare that to a chart of the S&P from the 70s forward. Then look at these two from the 1950s up to the 70s. You will see a sudden trend up from the normal growth in the 50s and 60s starting in the 70s.

    Federal policy was providing subsidies for people to consume real estate. This was a fiscal form of QE. We have seen the same effect with recent rounds of monetary QE. QE via monetary policy is a consumption subsidy for financial assets the way fiscal policy is for real estate assets. The result is equities up and treasury yields up. The fire glows more brightly.

    Now granted there were other forces still occuring since the 70s. The real trick is to learn to understand the subsidy mix. An interesting part of the mix during the growth of Fannie and Freddie, were the changes in China. The 70s saw China institute a number of reforms. They basically decided to join the world's economy. A big part of what they did and are doing is subsidizing their exports. To do this they became a built in bid for the US dollar, basically in the form of treasuries.

    So, look at the 10yr from the 80s forward. Instead of the QE pattern of equities up and treas yields up, what happened was equities up and treas yields tracking down. This was the result of our new built in bidder. The result was, the Fed gov found it relatively cheap to issue paper that allowed for the real estate subsidies to continue. Mgt rates track off the 10yr. A typical mbs piece of paper will last about 7 to 10 yrs.

    Then came 2006. The "wealth effect" created by this fiscal QE, had people using their house as an ATM. Suddenly the asset inflation in houses started leaking into the things that BB measures in the CPI. So BB, like the guy just looking at the elephant's tale, figures his rules require him to raise the FF rates. The subsidy mix was just drastically altered.

    Take a bunch of marbles and spread them out on a mattress. Then drop an egine block right in the middle. What happens? That's right all the marbles roll towards the engine block. The consumption subsidies (of the very type that Krugman argues for) induced everyone to make the same malinvestment, and then BB unwittingly destroys the subsidy structure and the bubble collapsed.

    The whole point of this is learn to read the subsidy mix. When the subsidies are hot, you want to be in equities. When there are signs of the subsidy mix being altered or removed, you want to move to bonds and lock in the high yields. Then when the inevitable recession moves in as a result of the capital erosion caused by the consumption subsidies, you will be sitting pretty with gains in your bonds. Then when you get a whiff that the consumption subsidies will begin again, such as QE from the CB, then sell the bonds for gains, move to cash, and then buy equities at the bottom just before the CB inflates them with consumption subsidies for financial assets.

    As long as the underlying economy isn't totally killed (like Cuba or N Korea or Greece), this wealth transfer pattern can go on for decades. It isn't really good for the economy (we would be far wealthier if gov didn't induce capital erosion via consumption subsidies - you would probably have a 10 hr work week by now), but it can be good for your personal economy if you learn to play the subsidy mix.
    May 14, 2012. 07:14 PM | Likes Like |Link to Comment
  • Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
    If you measure an economy by GDP, you are basically measuring it by expenses, or rather consumption. If you have policies that subsidize consumption the result is capital erosion. The result is only measuring a fire by high bright it burns. It can burn bright by adding fuel via a productivity increase, or it can burn bright by blowing on it. The problem with blowing on it, is you can't keep that up for very long. The fuel is expended faster, and when that happens the fire will grow colder and colder.

    Policies that favor subsidized consumption will be good for GDP and good for equities. People are buying things. Earnings goes up and our measurement of people spending goes up. The problem with subsidized consumption is that the ratio of advances in productivity to the amount of sovereign notes being generated is getting worse. Soon price increases or interest rates offset the gov supplied consumption subsidies, and nature forces a recession on the populace (a period of reduced consumption).
    May 14, 2012. 06:46 PM | Likes Like |Link to Comment
  • Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
    If you blow on a fire without adding anymore wood, the fire will burn bright during the period of increased oxygen, but then go dim again after the additional oxygen is taken away. Without additional wood added to the fire, the fire grows even colder after oxygen "stimulus" ends.
    May 14, 2012. 05:51 PM | Likes Like |Link to Comment
  • Krugman, Lack Of Demand, Lack Of Jobs And The Future Of America [View article]
    Like I said, it is up to you to change or not. It is also up to you to be upset or not.
    May 14, 2012. 03:39 PM | 1 Like Like |Link to Comment
  • European shares are at session lows as NYC opens for trading. Stoxx 50 -2.7%, Germany -2.2%. Italy is the leading decliner, -3.2%.  [View news story]
    So what if they dig in their heels and balk at the bail out terms? I guess we are talking outright default, which means they stay in the Euro, but no one would ever buy their debt again. Then how do they fund what they once wanted a bail out for?
    May 14, 2012. 02:06 PM | Likes Like |Link to Comment
  • European shares are at session lows as NYC opens for trading. Stoxx 50 -2.7%, Germany -2.2%. Italy is the leading decliner, -3.2%.  [View news story]
    Can Greece be kicked out or do they have to leave on their own?
    May 14, 2012. 01:40 PM | Likes Like |Link to Comment
  • Spain's 10-year bond yield soars 34 bps to 5.64%, the highest since late November, and nearing its all-time high. The 2-year +34 bps to 4.08%, the highest since mid-December. It has risen nearly 200 bps since the ECB's 2nd LTRO, leaving Spanish banks with massive losses on the 2-year paper they purchased with the cheap funding. Madrid -2.8%, Santander (STD) -3.5% premarket.  [View news story]
    Imagine if the ECB made them pay back their advances. Where are they going to get the funding to replace the ECB advance. They can't sell the paper for what the advance is worth, so they would have to raise deposits, which means offering higher rates. So now, on top of credit losses, their net interest income goes down as well.
    May 14, 2012. 01:34 PM | 1 Like Like |Link to Comment
  • Spain's 10-year bond yield soars 34 bps to 5.64%, the highest since late November, and nearing its all-time high. The 2-year +34 bps to 4.08%, the highest since mid-December. It has risen nearly 200 bps since the ECB's 2nd LTRO, leaving Spanish banks with massive losses on the 2-year paper they purchased with the cheap funding. Madrid -2.8%, Santander (STD) -3.5% premarket.  [View news story]
    Wouldn't that also leave the ECB with massive losses since the paper that is losing is pledged as collateral?
    May 14, 2012. 01:00 PM | 2 Likes Like |Link to Comment
  • California faces a deficit of $16B, Governor Jerry Brown said yesterday (video), not the $9B he'd estimated in January. The ballooning gap is due to tepid tax revenues and slow progress in slashing budgets, which Brown blamed on the federal government and the courts. One bit of hope is Facebook's IPO, which could bring in $2B. (see also)  [View news story]
    http://bit.ly/J4GgF7
    May 14, 2012. 12:25 PM | 2 Likes Like |Link to Comment
  • Greece And The Euro Will Live On [View article]
    If a bank lends someone, .001% of their capital, then the bank has that someone over a barrel. If the bank lends someone 50% of their capital, then that someone has the bank over a barrel.

    Here's is Germany's dilema. They can let the ECB start to print to further inefficient "growth" plans, and over the next 5 to 10 years slowly watch their standard of living erode as their purchasing power fades away, or they can leave the Euro, and have their banks suffer huge losses as the other countries default on their debt in retaliation. This would mean a huge hit to their purchasing power right now, as taxes would be needed to recapitalize their banks.

    Its the classic lender/borrower dilema. Do you suffer small bleeding over the next few years while you hope and pray that somehow, someway the client will be able to revive their business, or do you just take the losses now and try to save whats left of your capital.
    May 14, 2012. 11:21 AM | 1 Like Like |Link to Comment
  • Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
    For the mouth-foamers, you can have millions of lost jobs and high equity values. Just like now. High unemployment means low wage pressures and subsidies from a central bank mean a low cost of capital (ie borrow at 2% and pay off equity that might cost you 5%). An market is also an average of the stocks in that index. Fewer and fewer competitors can only leave a subsidized remainer that keeps the overall average up.
    May 14, 2012. 09:58 AM | Likes Like |Link to Comment
  • Why 'New York Times' Economist Paul Krugman Is Partly Right But Mostly Wrong [View article]
    Here's a hint.

    The stock market doesn't have to go up solely because of the economy.
    May 14, 2012. 09:46 AM | Likes Like |Link to Comment
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