Financial topics

[OLD1953]

Higgs, it's the same all over. I can't tell my stories about that very much, because of working for the military, but the situation is not good.

What really worries me is that worship of "the common man" has been carried to an extreme, at every point of the political spectrum. That's a sure recipe for disaster.

When science is not debated by scientists, but is debated on the floor of congress and on CNN, not as SCIENCE but as a political football, when engineers are no longer educated in the US because "it's cheaper in India", when the whole point of politics is not to make correct decisions for the US but simply to appeal to "joe plumber" enough to get a vote, then we haven't got a prayer.

The "common man" elects common men nowadays. They don't want to hear that "fancy talk" and about "technical" issues. But those are the issues we have to deal with. Those issues involve physics and computer science and discussions of things that must be regulated that the "common man" can't even spell. Expecting good decisions out of Congress when it's full of people trying to appeal to the common men - it's just not going to happen. You can spin anything to the negative, no matter how necessary or needed. Everything is a balancing act, and if you look only at one side of any scale, you can claim it's THE END OF THE WORLD if this bill passes. Which is how the last three Democrats running for president were each "the most liberal man in congress". Funny that, eh? Of course, if you cherry pick over hundreds or thousands of votes, and pick only a few to illustrate the "liberalism" of an individual, you'll surely find 20 or 30 you can wave as "proof". The other thousand or two don't count. With that kind of "research", the sky can be proven to be red, or the moon is always full. Democrats, of course, do the same to the other side.

All of which comes back to the generational dynamics of the unravelling - the country is forgotten, it's all about winning. And whining.

And the country is forgotten until it can't be ignored any longer.

Ok, to be a little more in line with financial topics, the market is up but confidence is zero or about that. Industrial commodities are down, food is steady or up. The year ago comparisons are higher, but the start of year and monthly changes show a peak and a current dropping phase. I'd expect to see the ethanol program curtailed or eliminated, and expect to see some talk about infrastructure project costs dropping.

http://www.indexmundi.com/commodities/

Looking at Kitco gold and silver today, silver is starting down, gold shows signs of going into that "head and shoulders" top the chartists like to discuss. I'm not a chartist, (how you say "past performance is not a predictor of future prices" and then in the next breath say "look at that chart" is past me) but they are useful indicators of market directions. But gold usually follows silver, with silver leading.

(BTW, I do have a good bit of silver, which I got cheaply quite some time ago. And silver can have the least downside of any precious metal if you play it right. (Hint: 30% silver Kennedy halves can be bought, during down times, for little more than face, and they CANNOT drop below face. Find another precious metal play that can't go below a value close to the buying cost, and I'll buy you dinner if you'll tell me how you managed it. Guarantee! )

Overall, it looks to me like a long slide in the markets that's already begun, and will continue for a while. Maybe good for shorts, if you have the stomache for them.

Now's a good time to pay off debts and hoard cash, or so it seems to me. Buying opportunities will come along, but in their own good time, and it will take some time.

[aedens]

Foot prints:

http://www.zerohedge.com/article/inflat ... ry-regimes

Local reality:

A gap of $1.5 million, approximately 3%, has developed in the adopted 2009
General Fund (GF) Budget revenues due to declining receipts from the state and
from local property taxes. Projected gaps totaling $5.8 million or almost 11%
have also been identified in the projected 2010 GF Budget. Additionally, initial
estimates for the 2011 and 2012 GF Budgets indicate that real revenue growth
will likely continue to decline but certainly will not close the gaps.

[aedens]

Ping that flash crash... Define productive capital that produce Jobs in a Consumer Economy gives me a headache.

http://www.zerohedge.com/article/if-mil ... -freddie-d

[aedens]

Nightingale wonders what next. Should Dow Chemical, the owner of the Union Carbide inheritance, be pilloried by the Indian media for the Bhopal disaster? Bankrupted to boost the electoral standing of local politicians?
Let’s face it, if you were in charge of a foreign company thinking of investing in the U.S. would you do so now? You’d be just as careful as if you were investing in Russia, where the rule of law has been equally compromised.
Gartman wonders where is the defense of private property when a President can impose this upon a private corporation owned by its shareholders? What damage is he doing, and what damage shall he do, to capital that would wish to move to the U.S. but which now fears expropriation by the Executive branch?
http://blogs.wsj.com/source/2010/06/16/ ... d=yahoo_hs
===============================
Probably the most significant bill, introduced by Senator Robert Menendez (D-NJ) would spike the “maximum liability for oil companies after an oil spill from $75 million to $10 billion. he legislation has significant support from Democrats, and the White House has indicated it backs an increase in liability caps.”
===============================
A theory that explains duty doctrine will also explain strict liability doctrine, and the converse is true as well. In the end BP set aside today $20 billion to pay the victims of the massive oil spill in the Gulf, senior administration officials said Wednesday, a move made under pressure by the White House as the company copes with causing the worst environmental disaster in U.S. history since it will eliminate red tape and the premise is resolution to the marginal social benefit is just equal to the marginal social cost. The activity’s scale should not be increased further since to do so would push it to the point where the incremental social benefit is less than the incremental social cost. Thus, the optimal scale is represented by the intersection between the marginal social cost and marginal social benefit.

Further conveyances of our albeit situation noted was.

http://law2.fordham.edu/publications/ar ... ub7359.pdf

Anyway:

Lawrence Summers, who served as President Clinton's treasury secretary during the headiest days of free-trade enthusiasm, is now having some very public second thoughts. Writing in the Financial Times, he noted that "[e]ven as globalisation increases inequality and insecurity, it is constantly and often legitimately invoked as an argument against the viability of progressive taxation, support for labour unions, strong regulation and substantial production of public goods that mitigate its adverse impacts." But Summers argued that such an attitude was a political non-starter, particularly as globalization "encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered." In a subsequent column, he concluded that the "domestic component of a strategy to promote healthy globalisation must rely on strengthening efforts to reduce inequality and insecurity. The international component must focus on the interests of working people in all countries, in addition to the current emphasis on the priorities of global corporations."

Firm but fair seems to prevail to date.
Pari passu is a Latin phrase that literally means "equal footstep" or "equal footing."

[freddyv]

Don't know if I posted this here before but I want to recommend the book, "The Great Depression: A Diary" by Benjamin Roth. It is a very unique look at The Great Depression in that it is a real diary of a very typical man. The book really altered my view of the time line of the Depression and its effect on the average person's life. The biggest thing I took away from the book is how the author clings to hope that things will be better soon and constantly looks at missed opportunities to speculate. It was a fascinating read.

Fred
http://www.acclaiminvesting.com/

[OLD1953]

Nightingale wonders what next. Should Dow Chemical, the owner of the Union Carbide inheritance, be pilloried by the Indian media for the Bhopal disaster? Bankrupted to boost the electoral standing of local politicians?
Let’s face it, if you were in charge of a foreign company thinking of investing in the U.S. would you do so now? You’d be just as careful as if you were investing in Russia, where the rule of law has been equally compromised.
Gartman wonders where is the defense of private property when a President can impose this upon a private corporation owned by its shareholders? What damage is he doing, and what damage shall he do, to capital that would wish to move to the U.S. but which now fears expropriation by the Executive branch?
http://blogs.wsj.com/source/2010/06/16/ ... d=yahoo_hs
===============================
Probably the most significant bill, introduced by Senator Robert Menendez (D-NJ) would spike the “maximum liability for oil companies after an oil spill from $75 million to $10 billion. he legislation has significant support from Democrats, and the White House has indicated it backs an increase in liability caps.”
===============================
A theory that explains duty doctrine will also explain strict liability doctrine, and the converse is true as well. In the end BP set aside today $20 billion to pay the victims of the massive oil spill in the Gulf, senior administration officials said Wednesday, a move made under pressure by the White House as the company copes with causing the worst environmental disaster in U.S. history since it will eliminate red tape and the premise is resolution to the marginal social benefit is just equal to the marginal social cost. The activity’s scale should not be increased further since to do so would push it to the point where the incremental social benefit is less than the incremental social cost. Thus, the optimal scale is represented by the intersection between the marginal social cost and marginal social benefit.

Further conveyances of our albeit situation noted was.

http://law2.fordham.edu/publications/ar ... ub7359.pdf

Anyway:

Lawrence Summers, who served as President Clinton's treasury secretary during the headiest days of free-trade enthusiasm, is now having some very public second thoughts. Writing in the Financial Times, he noted that "[e]ven as globalisation increases inequality and insecurity, it is constantly and often legitimately invoked as an argument against the viability of progressive taxation, support for labour unions, strong regulation and substantial production of public goods that mitigate its adverse impacts." But Summers argued that such an attitude was a political non-starter, particularly as globalization "encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered." In a subsequent column, he concluded that the "domestic component of a strategy to promote healthy globalisation must rely on strengthening efforts to reduce inequality and insecurity. The international component must focus on the interests of working people in all countries, in addition to the current emphasis on the priorities of global corporations."

Firm but fair seems to prevail to date.
Pari passu is a Latin phrase that literally means "equal footstep" or "equal footing."

It fascinates me how an officer of the court (all lawyers admitted to practice before the bar are officers of the court) can so ignore justice in the pursuit of absolute legal perfection. If the law was perfect and without flaw or exception, what need would we have for either lawyers or judges? A computer could process the verdicts and clear the court dockets of the US in a single hour. Judges are to dispense justice, else no case arguing the validity of a law could ever be heard.

I do believe, this ruling came at the wrong time. Compensation will not be as limited as it was in the Valdez case, otherwise, it will become the crisis event and the courts will be hauled in by main force. That's the nature of the times and these events.

http://www.abc.net.au/news/stories/2008 ... 286105.htm

I WILL say that it is inevitable BP will attempt to legally soak the taxpayers for the entire bill. This is the wrong time for such things, and many changes in the law could well result. And many changes in Congress as well.

I dare say, the Daddy State govt fostered over the last 30 years is finished. As yet, we do not know what will replace it and chart the new direction for the US in the future. But the easy days of heady corporate risk are ending, right now, as risk will be turned back on the corporations or the US will become a society where corporations will hold the position of feudal lords and the power of the rod and the axe.

On reading over the above, I'd best amplify a bit else some here will think me a wild eyed radical. Which I'm not.

The Daddy State is what I've come to call that government mindset that believes corporate risk should always be zero. All investments must pay off no matter how risky, and Daddy has to pick up the tab if they don't.

Look at the original bailout, the S&L's. What lesson was learned? Daddy will guarantee a payout. In the LTCM mess, Daddy picked up the pieces. Over and over, Daddy has bailed out his juvenile deliquent sons. And now Daddy is going broke and has mortgaged the house to make this last round of bail. And the rest of the kids are having a fit about it.

Investors and corporate officers in the USA are in the habit of believing the federal structure will NOT ALLOW THEM TO FAIL. Failure is even a good thing, as witness the improvement in the fortunes of the CEO's who run a company into the ground, bail out with a ton of cash and stock options, and then get a job that pays more! The system is broken because there is no perception of risk. And risk has to reenter the market or the market will never recover from this current state of chaos.

[John]

-- Ohmigod!!!!! The mainstream discovers Regression to the Mean!!!!

If you look at Yves Smith's Naked Capitalism links today:

http://www.nakedcapitalism.com/2010/06/links-61810.html

Then one of them points to this article:

** Now Stocks Are 48% Overvalued, Says Smithers

http://www.businessinsider.com/now-stoc ... ers-2010-6

This article describes some work by "Andrew Smithers, an excellent
economist based in London," who uses the Law of Regression to the Mean
to conclude that the fair value of the S&P 500 index is about 700.
This is similar to stuff that I've been writing about since 2003!

Now, I know that Yves Smith is aware of this web site, so you'd think
that she might have given me some credit, but it's typical of today's
nasty world that such a thing is impossible.

Smithers' discovery is encouraging, since it means some people may be
actually thinking, but it's worth pointing out that he doesn't go far
enough:

• I don't know where he got the 700 figure from, since I've computed
  a lower figure, but 700 is still good enough to make the point.
• The article says that this analysis only applies in a 7-10 year
  time frame. That's true, but it doesn't mention that the the P/E
  ratio has already been above the historical average for 15 years,
  since 1995, so that a major collapse is well overdue.
• Smithers uses "regession to the mean," which merely means that the
  stock market has to return to the mean value -- i.e., 700, according
  to his computation. But that's only part of the story, since if the
  S&P index merely falls to 700, then it will still have been well above
  average for 15 years. In order to maintain this average in the
  future, the stock price has to COMPENSATE for being above average for
  15 years, and that means being well below average for the next 15
  years -- the Law of Mean Reversion.

So I'm pleased that we at least have half a loaf, but I doubt that
anyone in today's insane world will even pay attention to that.

John

[Higgenbotham]

-- Ohmigod!!!!! The mainstream discovers Regression to the Mean!!!!
John

Somebody's comment below the article (on businessinsider.com linked in John's post above):

Severe bear markets don't revert to the mean. They revert to much lower than the mean, with p/es in the range of five and stocks selling below book value or sometimes less than their cash and receivables on the books. Not only that, but the "E" in the ratio (earnings) gets much lower, which means that the stock price goes much lower than the change in the average p/e level. So, as crazy as it sounds, we could easily see a DOW below 3000 again. Low interest rate returns on debt instruments of various sorts, much lower than real inflation, are also propping up the equity side, because people get a real negative return on cash or bonds, while paying ordinary income tax rates on the taxable interest income, which makes it worse.

That's why gold or gold mining stocks are really the least risky things to own right now, and a crash in the world economy is going to create enough oversupply and drop in price of things like fuel and other significant costs of production for gold miners to lower their costs significantly while the price of what they will sell will soar.

But, nobody wants to hear that...yet. The herd doesn't buy in before the train leaves the station. It jumps onboard when the trip is almost over and the investment train is about to turn around on the return trip. Come to think of it, when the herd DOES buy in, the trip is always over, because there are no more buyers; so the downfall is guaranteed.

[OLD1953]

The idea that markets are heading for a major and long term drop is gaining traction rapidly. When the "ever upwards, hold forever" meme is overcome, then we must see a replacement for it. This will very likely be a "markets are for crooks" mentality as was common in the US for thirty years or more after the Great Depression.

[vincecate]

The idea that markets are heading for a major and long term drop is gaining traction rapidly. When the "ever upwards, hold forever" meme is overcome, then we must see a replacement for it. This will very likely be a "markets are for crooks" mentality as was common in the US for thirty years or more after the Great Depression.

That meme certainly has plenty of supporting evidence. The other possible meme is that "public companies are fun for the benefit executives and not shareholders". Either way it does look like a generational shift in attitude is coming.

The other big problem is that US interest rates will have to go up and as they do the yield on stocks has to keep pace, but since earnings will not go up that fast the price on the stocks will have to go down to get a competitive yield. So again, "major long term drop" seems to be coming.