Financial topics

[John]

There are many things about this whole situation that astonish me, but
possibly the most astonishing to me is that people go on CNBC or
Bloomberg and openly lie. Equally astonishing is that I've called
some of these people liars and crooks

** 5-Oct-10 News -- Goldman Sachs's Cohen gives price/earnings fantasy
** http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e101005#e101005

** 24-Aug-10 News -- Ariel's Bobrinskoy gives price/earnings fantasy
** http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e100824#e100824

and I've never heard from anyone disagreeing this characterization.

There's absolutely no doubt in my mind that Cohen and Bobrinskoy -- or
at least their PR staffs -- have seen my accusations, but they ignore
them because they know that, in fact, they really are lying.

By contrast, when I quoted David Kotok one week, and then a week later
posted an accusation by someone who claimed that Kotok had plagiarized
his work

** 24-Oct-10 News -- The mysterious case of David Kotok
** http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e101024#e101024

I DID get an e-mail message from someone on Kotok's staff correcting
me, and I posted his correction a few days later.

The situation we're in has nothing to do with who understands or
doesn't understand the economy. Both Cohen and Bobrinskoy are experts
or they wouldn't have gotten to where they are with their 7-digit
salaries. Even if perchance they have have forgotten how to compute a
P/E ratio, then they each have staffs of experts who supply the data
that they lie about.

These people know what they're doing, they know what they're saying
are lies, they know they're defrauding investors and the public,
and they don't give a shit, as long as they get their money.

John

[Higgenbotham]

http://archive.kpfk.org/parchive/mp3/kp ... s_suzi.MP3

Between 15:00 and 17:30 there's some discussion about what isn't understood by Wall Street. Toward the end (of the 30 minute segment), there's some discussion about what is understood.

Wall Street knows how to recreate a business as usual environment better than I understood their ability to do so. They know how to buy politicians. They know how to redirect money. They know how to create and promote a bubble.

Going back to the real estate bubble, if the question had been raised as to whether the toxic assets would lead to a collapse, I think the general answer would have been that it hasn't been thought about and/or who cares, it's not my job to think about stuff like that. Nobody took on that responsibility and the collapse did indeed shock Wall Street. No credit line had been pre established for that event.

While once again nobody is taking on that responsibility now, as is discussed around the 15 minute mark of the above audio, I do believe there is a general awareness on Wall Street that the second leg of the crisis is upcoming, as the interviewees state. At this point, though, I think Wall Street falsely believes a couple things. One is they can promote this bubble and once again dump the shares off on the public before the second leg of the crisis occurs. I don't think that will happen. Two is they are still in political control and can maintain their ability to feed at the public trough as they did in the aftermath of the last crisis. That probably won't happen either.

As far as the larger ramifications of a multi decade aftermath of crisis due to their actions, that is not understood either, mostly because it hasn't been considered. Too busy looting and prostitooting, I would say.

[Higgenbotham]

The current international currency system, with the dollar’s primacy in as a reserve currency and in trade is “the product of the past,” Hu also told the newspapers.

He pointed to China’s effort to expand the role of the yuan in cross-border trading and investment, while acknowledging it “will be a fairly long process” to make it a fully fledged international currency.

http://www.bloomberg.com/news/2011-01-1 ... visit.html

[burt]

When I say "understand" the financial system I'm referring to specific knowledge of how the transactions are made. For example, how bond auctions are conducted, how the Federal Reserve conducts interest rate controls, how IPO's are instituted as well as how currency swaps between central banks are made and many others. This knowledge and understanding, however, is not necessarily a knowledge of economics.

Yes I agree, but this knowledge is not enough (on my knowledge) to guess anything on the price of bonds or stocks.
What we can observe is that there is NO known relation between the economy and the price of stocks, that is why, for me, it works as a Poker Game between central nakers, funds ana the medias (which are always wrong about their interpretation).
The game is very close from divination, apart this is a game between humans (today).

I'd be glad if you could share part of your thinking (knowing the game is not enough, it is necessary to play the game to take adavntage of it)

It is an economic ignorant that somehow believes we will not have to pay these debts.

Nobody thinks that we will not have to pay, The real question is WHO is going to pay for it, the weakest, as usual...

From a Generational Dynamics perspective ( and really, at this point, we have only Boomers and GenXers in control) I think Boomers are inclined to fantasy/denial while the GenXers simply don't care how bad this gets as long as they "get theirs". "I'll be gone, you'll be gone" is the mantra of GenX.

So when the game will be over ?... It can take decades... Do you know the game calle "cavallery" when you play at the Casinos, this is, on my point of view, exactly what the governments are doing so that there is no need to change the rules

Regards

[weak stream]

Higgenbotham writes: "Wall Street knows how to recreate a business as usual environment better than I understood their ability to do so. They know how to buy politicians. They know how to redirect money. They know how to create and promote a bubble."
This is a keen insight but I would also add that, unfortunately, this is all they know how to do. They don't know how to do proper economic analysis because that has long since become irrelevant. Same goes for the Fed. Inflation is all they know how to do. But this becomes a limiting factor. Wall St. will find it impossible to navigate the financial waters after the greater Ponzi collapses. I think that too many of us are trying to put on winning trades/business strategies too soon here. As the range of possible outcomes has become impossibly large I think it's wise to sit tight and be mindful of the fact that common sense and clear thinking will become the most valuable asset. How, when, where this ends is unknowable. Of course it is also true to say that sovereign debt/funding crisis is the most likely "ground zero". Which brings up another point and I think of it this way: The derivatives structures created over the past fifteen years or so combined with the Greenspan/Bernanke Fed had created an enormous "cesspool" into which much financial crap could be deposited. So large was the cesspool, many in the finance biz believed it was infinite. But it wasn't. I finally filled up. Now the governments around the world have assumed all this financial crap and again a false concept of infinity has been brought into play. Problem is, and John has pointed this out repeatedly, these problems are of the compounding function/exponential variety and as such can only be contained in a TRULY infinite space. This ends, therefore, in a parabolic blowoff probably sooner rather than later.

[Higgenbotham]

The post with the audio link describes it as two opposing forces. On the one hand, Wall Street is doing the same old pyramid scheme it did leading up to 2000 and 2007. In 2000, the countervailing forces against the bubble were the usual forces that break bull market bubbles. In 2007, there was the rotting mortgage debt. In 2011, there is the rotting mortgage debt plus rotting sovereign debt.

So at minute 15:30 or so the audio describes how nobody has quantitatively accounted for the rotting mortgage debt or what the risks are even now. They've just tried to wall it off on the Fed's balance sheet or through accounting trickery. At the same time, and this isn't mentioned in the same breath and should be, there is a sovereign debt crisis that is brewing.

Let's take this a few steps further though. On the one hand, the Fed and Wall Street are recreating a bubble based on Ponzi leverage. The scheme is a bit different, though, since the mechanism of lowering interest rates that Greenspan used to bloat the Ponzi has now been spent. When Greenspan bloated the last Ponzi, the debt was all pretty healthy. However, around May 2006, things started to show signs that the debt would eventually creak and groan as real estate prices topped out. The subprime Ponzi showed obvious signs of stress in February 2007 and blew apart for good when the Bear Stearns hedge funds collapsed in mid July 2007. None of that has gone away.

Now it looks like real estate prices have topped out once again in July 2010 or so. The cushion isn't now so large I would say. The first swing down in real estate prices caught the subprime borrowers with their pants down, but now 25% of the mortgages in the country are already under water. So any markets that see lower prices than the previous bottom in 2009 will see problems multiply and that is happening now. At the same time, there is the new added pressure of worldwide sovereign and US state and local debt showing obvious signs of stress.

For the first time, then, there are now two opposing forces to the Wall Street Ponzi rather than zero or one, as in 2000 and 2007. While Wall Street has created an exponential Ponzi scheme that multiplies money and leverages prices to the upside, there are now two exponential collapse functions that are deleveraging money to the downside.

I don't think it's possible to quantify how those opposing forces interact; it's only possible to put together some general ideas or analogies.

One analogy I might make is that of a bungee jump. A log chart of the Dow Jones from 1929 or so to the present would illustrate this. From a very high level in 2007, as the market was boosted by Greenspan's Ponzi, yet creaked and groaned under the weight of the gathering subprime implosion, the Dow Jones bungee jumped straight down through all kinds of support levels and upward sloping trendlines. It then bounced up hard and while it is still making higher highs as it bounces, the weight of the two opposing forces of mortgage and sovereign debt have slowed the ascent. So for that reason, I don't expect this to end in a straight up blowoff like was seen going into the 2000 high. At the same time, there won't be the smooth ascent and descent of a bungee jump either. It'll probably be more like giving the bungee cord one last jerk from above and then cutting it. Whether that one last jerk from above was QE2, we can't predict. Whether the trigger or cut was this morning's announcement of Steve Jobs going on medical leave we can't predict either, but probably not. But it probably will be something that comes out of nowhere.

[Higgenbotham]

Someone else created this (not sure who to give credit to) and it only goes up to April of last year, but it's the best illustration I can find.


http://oi54.tinypic.com/14np73p.jpg

[Higgenbotham]

Fact Checks:

While the composite housing prices are still above their spring 2009 lows, six markets – Atlanta, Charlotte, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices started to fall in 2006 and 2007, meaning that average home prices in those markets have fallen beyond the recent lows seen in most other markets in the spring of 2009.

http://www.standardandpoors.com/servlet ... cache=true

This is October data released at the end of December.

http://www.standardandpoors.com/indices ... --p-us----

Links to spreadsheets of Home Price Index Levels.

About 10.8 million homes, or 22.5 percent of those with mortgages, were “underwater” as of Sept. 30, the Santa Ana, California-based real estate information company said in a report today. That was down from 11 million, or 23 percent, at the end of June, the third straight quarterly decline.

http://www.bloomberg.com/news/2010-12-1 ... -rose.html

This percentage will start to rise again as house prices have fallen since Sept. 30.

Nearly half – 48 percent – of Americans would consider a strategic default on their home if they were under water on their mortgage, a number that grew from 41 percent when the same question was asked in May, according to the survey conducted last month on behalf of real estate website companies RealtyTrac Inc. and Trulia Inc.

“This is nearly a 20 percent increase in people's willingness to walk away in just six months,” Trulia CEO Pete Flint said Tuesday. “If this continues, we'll see an epidemic of strategic defaults. The stigma against losing a home has decreased.”

http://www.mlive.com/business/west-mich ... ers_w.html

[vincecate]

I am confused on the latest treasury numbers for Foreign Holders. The grand total seems to have gone up almost $40 billion but the total of the broken out numbers seems to show going down about $40 billion. Can anyone explain this? How come the Grand total does not equal the total of the breakout numbers? What is going on? Are they buying bonds or not? I think TSHTF is when they stop buying bonds.

Nov Oct Sept Aug
Grand Total 4346.8 4307.3 4257.1 4204.7
Change 39.5 50.2 52.4

Of which:
For. Official 2824.9 2845.9 2811.0 2763.0
Treasury Bills 499.2 531.3 495.4 486.9
T-Bonds & Notes 2325.7 2314.6 2315.6 2276.1
Totals 5649.8 5691.8 5622 5526
Change -42 69.8 96

http://www.treasury.gov/resource-center ... ts/mfh.txt

[Higgenbotham]

I am confused on the latest treasury numbers for Foreign Holders. The grand total seems to have gone up almost $40 billion but the total of the broken out numbers seems to show going down about $40 billion. Can anyone explain this? How come the Grand total does not equal the total of the breakout numbers? What is going on? Are they buying bonds or not? I think TSHTF is when they stop buying bonds.

Nov Oct Sept Aug
Grand Total 4346.8 4307.3 4257.1 4204.7
Change 39.5 50.2 52.4

Of which:
For. Official 2824.9 2845.9 2811.0 2763.0
Treasury Bills 499.2 531.3 495.4 486.9
T-Bonds & Notes 2325.7 2314.6 2315.6 2276.1
Totals 5649.8 5691.8 5622 5526
Change -42 69.8 96

http://www.treasury.gov/resource-center ... ts/mfh.txt

I believe the breakout numbers at the bottom are the official holdings of foreign central banks and the other numbers are all holdings within each country. I am not absolutely certain of that, but that's what I've always understood it to mean.