Financial topics

[aedens]

There are some underlying assumptions in those tax projections that I question, I think congress overall will prefer to see the cuts extended to the point the US bond is degraded rather than risk losing their jobs to someone else who promises to act irresponsibly insofar as govt income is concerned. Moreover, I seriously doubt a sudden influx of raises will suddenly cause the AMT to affect millions more people, more likely are salary decreases over the next few years. At least, that's what I'm preparing for.

http://www.nytimes.com/2011/06/15/busin ... f=business

Small businesses, which employ half of the country’s private sector workers, are still struggling to break even. And if the nation’s small companies plan to further delay hiring — or, worse, return to laying off workers, as they now hint they might — there is little hope that the nation’s 14 million idle workers will find gainful employment soon.


In context to light switch comments in forums.

State and local government Michigan operating cost as a percent of GDP
20.9% to 21.9%

Given trends on its way to 25 percent. We will see and we see what way the Feds Are going. And margin's will consume small business
at a alarming rate quicker than we think....

[OLD1953]

A lot of what I see from all sides right now is simply deceptive. Federal dumps responsibilities on the states, without paying for them, so the states suffer while the Feds run about yelling they need more tax cuts. Go back a ways on the forum, I cut up the tax data and showed that 99% of what we are told about budgets and taxes relative to the rest of the world (and what other yardstick do we have?) is simply untrue.

To be utterly blunt, business as usual is no longer possible, and any further delay in changing matters is just making it worse in the end.

And the talk about Social Security is a joke. The way the funding law for SS is written, it automatically cuts itself when it runs short of money. If they take in 65% of what's promised to pay out, and there is nothing in the kitty, then they cut checks for 65%. Unless the pols act to give them more money, the cuts are built in.

It's nearly impossible to find anyone who wants to talk honestly and responsibly about the state or federal budgets now. And past impossible to find anyone who wants to discuss the actual economy as opposed to the stock market.

I wonder how many understand how things like the Pension Benefit Guaranty actually work in practice? US business has been so deeply subsidized by taxpayers that its past insane - I have to seriously question how many actually solvent companies exist in the US, when all govt giveaways are taken from the bottom line.

[OLD1953]

A lot of what I see from all sides right now is simply deceptive. Federal dumps responsibilities on the states, without paying for them, so the states suffer while the Feds run about yelling they need more tax cuts. Go back a ways on the forum, I cut up the tax data and showed that 99% of what we are told about budgets and taxes relative to the rest of the world (and what other yardstick do we have?) is simply untrue.

To be utterly blunt, business as usual is no longer possible, and any further delay in changing matters is just making it worse in the end.

And the talk about Social Security is a joke. The way the funding law for SS is written, it automatically cuts itself when it runs short of money. If they take in 65% of what's promised to pay out, and there is nothing in the kitty, then they cut checks for 65%. Unless the pols act to give them more money, the cuts are built in.

It's nearly impossible to find anyone who wants to talk honestly and responsibly about the state or federal budgets now. And past impossible to find anyone who wants to discuss the actual economy as opposed to the stock market.

I wonder how many understand how things like the Pension Benefit Guaranty actually work in practice?

http://www.moneyandmarkets.com/pension- ... ad-2-35430

US business has been so deeply subsidized by taxpayers that its past insane - I have to seriously question how many actually solvent companies exist in the US, when all govt giveaways are taken from the bottom line.

Saw this on a link, it's an excellent summing up. Bernake can either kill the real economy or prop up the stock market/commodities, but he can't do both any longer. He's going to get burned.

http://www.oftwominds.com/blogapril11/oil-USD4-11.html

LOL, everyone is on vacation. Or the kids are on the computer all day.

Still, this illustrates the trend in manufacturing moving to the US that I've been talking about.

http://www.chicagotribune.com/business/ ... 1627.story

[John]

Heard on Bloomberg TV today:

> "S&P is at the cheapest valuation in 26 years."

I really hope that at some point these people are charged with fraud,
or at least out and out stupidity.

Nonetheless, there is something going on. The P/E ratio index has
fallen to 15.63, for the first time since 1990. That's still above
the historical average of 13.91, but it's much lower than it's been.
http://online.wsj.com/mdc/public/page/2 ... nav_2_3002

The prediction is that the ratio is going to fall to around 5, which
it did three times in the last century, most recently in 1982.
Perhaps we're beginning to see some sort of "crash" in the P/E ratio
index itself. The bubbleheads will interpret this as a surge in
earnings, with the expectation of a new stock market bubble. But
there are signs that federal tax receipts are down, and a lot of talk
about an economic slowdown and a "soft patch," and a "double-dip
recession." These things all indicate that earnings are falling. If
Q2 earnings are not as high as the bubbleheaded predictions, then a
sharp fall in stock market prices will be necessary to maintain the
fall in P/E ratio.

One normally doesn't think of something like the P/E ratio as being
subject to a "crash," but perhaps it's possible.



The above graph hasn't been updated since August and needs to be
updated, but having fallen to 15.63 since then, it sure LOOKS like
it's crashing.

John

[aedens]

http://online.wsj.com/article/SB1000142 ... =wsj_pokki

The NCUA has issued 986 subpoenas to companies involved in the mortgage machine, including lenders that originate loans, investment banks that sell mortgage-backed securities, mortgage servicers and credit-ratings agencies, a spokesman said.

http://www.ritholtz.com/blog/2011/06/th ... Picture%29
And, like the rest of us, the regulatory establishment fears having the banking system fall back into disarray in a political environment in which renewed taxpayer assistance to the industry is by no means a certain alternative.

No credit since they new it was coming. Bond selling was heavy today. As in forums I sold my bond latter may 27. Glad i did.
All fronts defensive but we knew that already.

On another note
http://www.athensnews.gr/portal/8/43495
http://www.athensnews.gr/category/11
https://www.tov-hazel.com/socgen-tries- ... ence-fails

No clue what is next. Grid lock on both sides of the pond for a indefinate period. John's P/E update will be interesting indeed come July.

[vincecate]

One normally doesn't think of something like the P/E ratio as being
subject to a "crash," but perhaps it's possible.

When interest rates go up the P/E ratio goes down. My bet is we see interest rates up and P/E down sometime in the next year.

[aedens]

One normally doesn't think of something like the P/E ratio as being
subject to a "crash," but perhaps it's possible.

When interest rates go up the P/E ratio goes down. My bet is we see interest rates up and P/E down sometime in the next year.

http://www.scribd.com/doc/58350277/Thir ... xed-Income

Under less debt saturated scenarios I would agree. This correlation will play out on graph.
Offsett of M1 (usually) is the M1 money multiplier. Just a factor I trust...
Back in the forums we warned of Romers folly to be on the money multiplier
in this climate of malinvestment on this brutal 4th wave.

Mon Aug 03, 2009
http://generationaldynamics.com/forum/v ... omer#p3891
Now the White House conveys if there is a hurdle call. Going to be a interesting summer indeed.

[abs]

An extremely intriguing paper by Carmen Reinhart describing "financial repression" as a mechanism for dealing with massive public debts:

http://www.imf.org/external/np/seminars ... f/crbs.pdf

John - Can you share a quick recap of which industrialized/developing countries (non-3rd world) are either 1-2 generations out from their last crisis? Put another way, which countries have a stable outlook from a Generational Dynamics perspective over the next 20-30 years? My thinking is that some of these countries may represent better markets for investment purposes.

[vincecate]

An extremely intriguing paper by Carmen Reinhart describing "financial repression" as a mechanism for dealing with massive public debts:

The idea in that paper that the current debt situation is like after WW2 is bogus. Most of the deficit spending was for the war so it was easy to make huge cuts in spending after the war and have a budget surplus. There is no easy way to cut 50% of the US government budget now. So now the debt is getting 10% bigger every year but back then it was getting smaller. This is not like then. This is much worse.

The other problem is that few people understood inflation in 1945 and many more do today. It is much harder to find enough fools to buy bonds that pay an interest rate lower than the inflation rate today. There is just no way this could go on for 30 years now.

http://howfiatdies.blogspot.com/2011/06 ... -wwii.html

[abs]

The idea in that paper that the current debt situation is like after WW2 is bogus. Most of the deficit spending was for the war so it was easy to make huge cuts in spending after the war and have a budget surplus. There is no easy way to cut 50% of the US government budget now. So now the debt is getting 10% bigger every year but back then it was getting smaller. This is not like then. This is much worse.

The other problem is that few people understood inflation in 1945 and many more do today. It is much harder to find enough fools to buy bonds that pay an interest rate lower than the inflation rate today. There is just no way this could go on for 30 years now.

http://howfiatdies.blogspot.com/2011/06 ... -wwii.html

I don't disagree with your comments with respect to WW2, however, Reinhart covers a much longer time frame than just the post war period in that she argues the US government had a sustained policy of bond yields being lower than inflation for decades on end only ending around 1980. She also does the work to analyze similar scenarios across a range of developed countries, not just the US and has identified consistencies across the countries. The point is that even though the current situation is in the US is worse now than it was after WW2, due to the "political economy" in which we currently find ourselves, that it strikes me that the politicians, the FED and the Treasury will following the easiest course of action they can find which, based on historical precedent, is most likely what Reinhardt has described.

If you think about the fact that most of the money created for QE1 and QE2 still has not flowed into the real economy but instead is locked up in Federal bonds, it would suggest that Bernanke is very much aware of the long term benefits that can be achieved by lowering bond yields as it pertains to monetizing the debt.

I'm also surprised at your response since Reinhardt is essentially arguing for a long period of sustained moderate to high inflation to help monetize the federal debts. This strikes me as quite consistent with your forecasts for coming inflation and just adds further impetus for an unspoken determination on the part of policy makers to create substantial inflation along with a weak dollar policy . . .

Bottom line, if we see a significant bout of high inflation, according to Reinhard, our politicians would view it as a very good thing. Whether or not this will happen is another question altogether.