Financial topics

[aedens]

Not being an expert on the nuances or subtleties of government finance and to those of you more astute, I have a stupid question. This relates to the deflation / inflation debate.
From what I understand, the Federal Reserve is suppose to be an independent quasi government entity. The Treasury is in charge of issuing money, collecting revenue and paying government obligations. With the rapidly increasing government debt, can or what if, the Treasury forces the Federal Reserve to monetize the national debt. What happens? inflation or deflation and how much?

IMO
I do not take the dip in bankruptcy filings as strong evidence that the end of the recession is just around the corner. First, there is the usual caution against reading too much into the ups and downs of a monthly indicator. Over the past eight months, the bankruptcy filing rate went up four time and down four times, although cumulatively the increases have been more than the decreases. (The daily filing rate is 11.7% higher than eight months ago.) Second, although the month-over-month figure is a decline, bankruptcy filings are up sharply on an annual basis. The June 2009 figure is a 32.5% increase over 2008. Over the entire year, projections show that 2009 bankruptcy filings will be 28.2% - 36.4% greater than 2008. As I discussed last month, the long-term trend is toward the same filing rate as before the 2005 bankruptcy law was adopted. Third, bankruptcy filings lag macroeconomic bad news. Yesterday's news about the jump in unemployment shows the U.S. recession is far from over, and those unemployed may show up in the bankruptcy courts much later. People do not run into bankruptcy court the day they are laid off. in our most recent empirical work from the Consumer Bankruptcy Project, more than 50% of bankruptcy filers told us they struggled for more than two years before filing bankruptcy.
Projecting forward, total 2009 U.S. bankruptcy filings will be:
1,404,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (5,593 per day) as they have averaged for the first six months of 2009
1,414,000 filings if bankruptcy filings continue at the same daily rate (5,672 per day) as they have averaged for June
1,494,000 filings if bankruptcy filings for the remaining six months of 2009 constitute the same proportion of total filings as the last six months of 2008 constituted for total filings that year (about 53.2%)
posted above by Bob Lawless
In concurrence since EBITs are core focus to 2Q posting to not annoy the herd in the wrong direction since they will do that on their own. And further “will happen” assume 2 % to 4% for F500 GeoCorporate reductions – Bones are exposed so productivity has only margin commodity to LEAN contracts to consensus. More are focused forward “punished or survived ” to settle for structures to 2015 bond issuances preemptive to adjust net working capital to relative projected revenue contracts. Consumer’s perception to path forward is limited to generation debt curve of fact. No progress to net cash flow savings given numbers sets observed. Worldwide staffing levels continue to fall but rates have eased to slope loss. Capital will go where treated best since compression attributes are not abated to market segment’s to whit. Deflation will persist until market meet’s reality. GNP to be forwarded % share to global some time tonight. Wage will meet true consumption curve later, but current tax basis has increased which will push deflation to date until IMO 2011 and beyond. The true safety valve in history is metals. I perfer none in peference but more prudent people are moving into a few to hedge value for a few more quarters.

[aedens]

Inflation: Bottom line is Civilization by the inability of ALL Governments no matter the form it assumes in every state in history has fallen into a Debt crises that has always caused taxes to be higher and lead to a waterfall effect whereby the state became so weak it failed itself since taxation destroyed the civilization and capitalism. History always provides changes takes place in the shortest amount of time. Will western society listen before it’s too late? The last bubble caused dead capital in housing over investments and no national wealth at all and we all knew it as did they. Phase one was allowing Marxism to fade away and our battle to stop taxes dead in its tracks to reverse capital consumption loss by the Government to date. Given the onslaught of housing resets oncoming and the nonproductive capital loss it enables we are still dead in our tracks to date. As for the comment (for production or consumption), or consume, then you are contributing to the economy is the problem which who is taking and depriving funds out the true economy in the first place in a proper context? The implosion sending interest rates higher may be the mortgage resets upcoming I feel, and furthering the stall to restart is capital locked in Government bonds “IOS” rather than real investments which the consumer cannot control in since he should decide who produces what in the first place totally obscured in a mixed market. According also to Moscow- we have copy of Detroit now btw.
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Fiat announces plan to increase output, while an Italian tariff of 100% on autos is proposed. Market not sure what to make of it; no shares traded on the Curb Exchange.. “There has been talk from time to time that a big American automobile company was seeking control of Fiat.”
Friday, July 4, 1930: Dow 222.46 -2.79 (1.2%) Irony
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http://www.levy.org/pubs/wp_569.pdf Cannot stabilize unless the hole is plugged.
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We see malinvestment's which the public in a classical view blames everyone else but the person they see in the mirror every morning like it or not to the scope of spending on the Hill. There policy is to hire. The Government will always blame the private sector and never admit out of self interest that it will hunt down those in the private sector to sacrifice since it is always that way. The more rulers cannot cover its debt the more it will push its people to serfdom since the power does belong to them until true economic gravity asserts itself again. Natural regional interest rates would have allowed Capital to go where it was needed the most instead of exploding into an effect we see today and we know who and why but cannot starve these non essential costs socialist costs. Most would posit hind sight is 20/20 so what your point? How many more F-22’s are needed? I feel Mr. Gates was correct, not the Senate spending our money to build more of them since the F-35 is better anyway. How many F-35 and support craft we really need so ask Mr. Gates and fulfill forward needed supply Balance Sheet with true growth segments since he has my safety in mind as our grandchildren’s it appears since the Senate has lost core focus. They spent more than their ability warrants and will not admit that State per capita spending only will stop the decline to the hyper inflation that will ensue unless they desist and really I feel now it is late given their inclination since even the so called blue dogs rolled over.
http://www.jsf.mil/
For a fuller treatment, and a discussion of who is being robbed by whom, see Murray N. Rothbard, Power and Market: Government and the Economy, 2nd ed. (Kansas City: Sheed Andrews & McMeel, 1977), pp. 120–21.
Higgy is correct,
Higgenbotham: The Fed can't guarantee any of this mess. Once investors get nervous about what the Fed can and can't do, at some point the credit and stock markets will panic. I'm guessing August on that, but who knows.
History conveys: Syndicalism stays veiled from public discernment and will be rendered later for the purpose of Capital and Labor Responsibilities systemic misnomers. The Austrian’s call it the master builder dilemma and I agree to what I found to be painfully true in any context to date. To many items we do not need from market “global” saturation points and the loss of core sanity hinging on energy petro dollars losses which will sponge out base monetary supports as we have seen given the markets true exchanges noted to date. Basically the vanilla investors have wised up and moved elsewhere from equity it appears as such.
Tuesday, July 1, 1930: Dow 226.34 +7.22 (3.3%) Labor Secretary Davis says business is definitely turning up in the East, predicts reasonable prosperity within the next year. “People have learned once again that only work produces wealth.”
Investor should hold banks in suspicion or downright contempt anyway. As always whose money did they seize and why be surprised by now. I agree with Higgy to date and he has a very sharp eye and listen to his insights on posts to safer capital allocations to date.
Further reading: Consider proper water management crucial first and go from there to consider other.
http://www.dni.gov/nic/PDF_2025/2025_Gl ... Report.pdf
http://www.dni.gov/nic/NIC_2020_project.html
Read that we are a decade away or more to stable enablement for energy self sustenance. Even when it was obvious in the 1970’s no one moved from the status quo or where allowed. I do not agree with it all but who listen to it first and observed second, not many.
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Chrysler announces 10% cut in salaries. Cut is being made to share the burden with hourly labor, which has already suffered a substantial reduction in working hours. Cut is being applied uniformly to all salaried employees from Mr. Chrysler on down. http://newsfrom1930.blogspot.com/
"National economic policy" in an era of globalization of trade and finance is fast becoming an oxymoron.
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[aedens]

Sudden stops do hurt but it only hurts when you hit the ground.

http://zerohedge.blogspot.com/

http://www.zerohedge.com/sites/default/ ... ynikov.pdf

Wed May 13, 2009 7:43 am

As for the 500 or so websites that fervently and automatically repost and redistribute ZH content, well, those we have no control over.

Ghost's in the machine. We do not exist. We are aware. We know where this is going.

Thu Apr 23, 2009 12:48 am
http://rick.bookstaber.com/2009/04/arms ... ading.html

[StilesBC]

Interesting, but all the talk above about money market funds is essentially no different than a discussion on fractional reserve lending. Stability rests solely on depositor's belief that 'availability' (the buck) is guaranteed - even though it is legally impossible to have the same asset available to two parties simultaneously.

So all that remains is the promise, in this case of the Fed, to make good, and make good immediately, on convertibility at 1.0000. Any deviation from that promise will cause a terrifying collapse. And there is no possibility that the promise can be kept, just like that of fractional reserve banks, either in immediate convertibility, or in purchasing power. The collapse is inherently inevitable.

It is so because the depositor knows (or should know) that their money is being lent out to others at a factor of 10x or greater what they and all other depositors have left. Both the depositor and the MMMF manager believe that the money is theirs. The former believes so rationally, the latter believes so on the basis of twisted legal principles that have skewed the meaning of "deposit" from being a duty of safekeeping to being a loan. Once the depositors learn who their money has been lent to at 10x leverage (California munis, for example) they will eventually choose to rapidly demand their money. If managers decide to suspend redemptions, depositors will look to other means of hedging that risk (shorting the underlying, buying CDS, or selling something else - stocks for example). Money market funds will be trading at .60 within days. Bernanke won't even have time to get dressed before this happens.

Fractional reserve is a house of cards. It must fail, because failure is carried in its very genes. The only reason many of the debtors (let's use Cali munis again) were able to obtain financing is because fractional reserve created money out of nothing and offered it at a rate of interest lower than what the market would have otherwise provided. If a borrower is given money at a rate lower than the "natural rate" of interest, they will embark upon projects that they cannot complete (paying firefighters $80,000 pensions, etc). When the flow of below-market level funds stops, or even stops expanding at an ever-increasing rate, the game is over.

That has already happened.

[aedens]

The Centre for Labour Market Studies (CLMS) in Boston says US unemployment is now 18.2 %, counting the old-fashioned way. The reason why this does not "feel" like the 1930s is that we tend to compress the chronology of the Depression. It takes time for people to deplete their savings and sink into destitution. Perhaps our greater cushion of wealth today will prevent another Grapes of Wrath, but 20m US homeowners are already in negative equity (zillow.com data). Evictions are running at a terrifying pace.

http://generationaldynamics.com/forum/v ... tent#p3378

Skilled wages in China are 80% of those in France.
(As per AEP's article on Airbus recently)

The difference, again, from the airbus article, is the government interferance.
9 months from buying a site in China, Airbus rolled its first passenger jet off the production line.

It can take longer than that to get planning permission for a house extention in the UK

California is bankrupt, and the State of California is technically insolvent right now. It is going to get very ugly, and folks will need to be able to defend themselves, as police forces are having personnel cut. Vallejo already doesn't even take paper on property crimes; much less do an investigation on same. We're on our own, and general disorder is not far behind. I'm very, very worried.

[Higgenbotham]

Let's consider a comment from Fitch about the money markets again:

These investment vehicles also have proven to be confidence-​sensitive and exposed to contagion risk by offering same-​day liquidity to shareholders which can lead to '​runs' as a result of industry or sponsor concerns.

What the "industry" consists of since the gutting of Glass-Steagall is often a bank, a brokerage, and a family of money market funds all in one.

if money market funds break the buck, that should lead to further panic reactions. I don't know how brokerages who settle stock transactions with money market funds will be able to conduct business if money market values are variable or if the funds are locked up due to lack of bids. The New York Post article from last September reported that financial industry insiders estimated the Dow would have opened 2000 points lower had the Fed not stepped in with a $105 billion infusion into the money markets the morning that the Reserve Fund broke the buck. Also, I can't see people not panicking when they look at their bank statements and, sure enough, it says "money market" on the statement. Even though it's not the same type of fund, I predict there will be runs on the banks themselves.

Overall, it's my guess that the money market funds are the weak link in the chain, the tip of the iceberg so to speak, and it will be the money market funds that set off the chain reaction of panic.

[freddyv]

I would suggest that we call this the Bubble Algorithm.

A web site reader questioned this concept as follows:


"If there are computer programs all buying millions of shares in microseconds, who is selling all these shares. There has to be a buyer for every seller. The total amount of stock is constant at any moment. If we had insight into both sides of the transaction, we would understand better what is happening here. I thought all transactions had to go through exchanges and specialists."

It seems clear to me that part of "the plan" was for banks to issue more shares once all the "green shoots" BS had taken hold so that foolish investors could provide the needed capital to shore up the banks. Those investors not only provided capital to mismanaged banks but dilluted the value of their shares as they did so. This will cause stocks to ultimately fall even further.

While many see "green shoots" and recovery, more and more I see the likelyhood that the Dow will eventually fall below the 2,000 level before bottoming. I base this on trend average, earnings, P/E ratios reaching normal historic, bear market lows. All of this is based on an expected very slow recovery with periods of decline along the way.

$20 earnings for S&P 500 x 5 = 100 (S&P 500) (worst case senario for 2009 and/or 2010)

$80 peak earnings x 3 (historic low for peak earnings) = 240 (S&P 500)

DJIA likely to fall well below the trend average of 6,000, probably to less than 50% of the trend average.

Given these basic, worst case scenarios and given that we are obviously in a worst case scenario I see it as highly likely that the Dow will fall below 3,000 and the S&P will likely drop below 400.

This is not an end-of-the-world prediction. Once we reach these levels, and probably well before, I plan on implementing a long strategy to take advantage of the (hopefully) long period of growth that I expect to follow. Let's not forget that the greatest period of growth in GDP and stocks was during the mid-thirties.

--Fred

[freddyv]

...herd behavior increases systemic risk. Most theories about the market assume that each investor is acting completely independently, making independent decisions, so that one person's bad decision is canceled out by another person's good decision. But if all investors are acting in unison, then a mistake or bad decision by one becomes a mistake by all.

To me, this is the most basic understanding an investor should have to be succesfull.

More and more, as I have become wiser and more aware of historic trends I see clearly that long periods of "growth" or "decline" are really only "the herd" moving about, forced to leave overgrazed pastures for greener ones. Soon enough the overgrazed "pasture", whether it be real estate, stocks, commodities, etc, will come back into favor and those who can master the simplest of investing advice, "buy low and sell high", will profit.

All of the smartest investors I listen to use the basic forces generated by Generational Dynamics, though they may not have a clue about GD itself.

--Fred

[MarshAviator]

Let's not forget that the greatest period of growth in GDP and stocks was during the mid-thirties.

Let's hope your right.

At present there are a lot of reasons to expect future growth to be low after this business cycle.
In 1930 a lot of basic fundamentals were favorable:
Abundant source of energy (oil and gas), plenty of raw materials, plenty of workers, good worker to retiree ratio.
Now we have used up our internal legacy of oil and gas (the U.S. more than others) , limited raw materials, environmental concerns, retiree ratio stinks and will become 3 to 1.
Lastly for many other non-financial Generational reasons, this crash could leave us in either a major world war or social collapse.

Maybe we will get lucky too, anyway you are right money can be made in either direction (bull or bear), provided money means anything when we are done.

[Higgenbotham]

This is hilarious. A Russian has stolen Goldman Sachs' automated trading algorithms and the FBI is in a panic.

http://zerohedge.blogspot.com/2009/07/i ... trial.html

http://market-ticker.denninger.net/arch ... Pwned.html