Financial topics

[Higgenbotham]

H, with our crew you short your are gone as it should be.

If you have a guy who wants to short, I'd let him short. If he breaks money management rules, that should be absolute, but I don't see the value of absolute directional rules. Absolute directional rules are long term directional opinions, whereas money management rules are based on hard factual rules that limit the damage of incorrect opinions.

[aedens]

http://www.veteranstoday.com/2012/10/15 ... tel-video/
http://www.youtube.com/watch?v=I4s0nzsU ... re=related

Walking away with your soul or blissful ignorance of illusion (blue) and embracing the painful truth of reality (red)
If we have any bias at all, it's that we're pro-American.

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

[Higgenbotham]

Managers who think beta, have failed so we do not need them, and after all capitalism without failure is like religion without sin — it doesn’t work so they can short on there dime which is fine.

I'm still short on my dime.

[John]

An article in Spiegel today is on Berlin in the 1920s. It adds some
information to the picture described in Garet Garrett's book "The
Bubble that Broke the World," which was written in 1931, and didn't
have the advantage of knowing what came next.

The article confirms Garrett's contemptuous description of how Germany
paid for reparations -- by borrowing money from American banks. What
it describes is a major credit and real estate bubble in 1920s Berlin.
The bubble crashed in 1929, because it was no longer possible to
borrow money from American banks.

> Heyday of Credit

> From 1924 to 1929, between the end of hyperinflation and the stock
> market crash in New York that led to the Great Depression, there
> was a short period of economic recovery in Germany that justified
> the economic connotation of the "Golden Twenties." Industrial
> production in Berlin, involving such international companies as
> Siemens, AEG and Borsig, grew by about 50 percent between 1924 and
> 1929.

> Nevertheless, owing to the high cost of war reparations, Germany
> remained dependent on massive loans from American banks. As soon
> as the flow of money from the United States ran dry, as it did in
> 1929, "the building" of the Weimar Republic had to "collapse," as
> the historian Werner Conze wrote.

> The cultural heyday of the years in which Berlin was lauded as the
> "city of 30 stages" (in fact, it had many more than that), was a
> heyday paid for on credit. Looking back on the period, playwright
> Carl Zuckmayer ("The Captain of Köpenick"), who lived in Berlin
> from 1924 to 1933, wrote: "The arts blossomed like a meadow just
> before being mowed. This explains the tragic yet brilliant charm
> that is associated with this era, often seen in the images of
> poets and artists who died prematurely."

> http://www.spiegel.de/international/ger ... 66383.html

A fascinating article. I love that line, "The arts blossomed like a
meadow just before being mowed."

[Jack Edwards]

While not a financial topic, this post is relevant to the recent post by John about Germany in the early part of the century before their financial crisis.

A fascinating article. I love that line, "The arts blossomed like a
meadow just before being mowed."

As chance would have it, I attended a German expressionist art exhibition this week featuring work from this time period. The movement included lots of color in the paintings – in a way, the colors seemed more important than the subject.
In another forum on this board, the subject of reductions in birth rates in Russia and other countries is being discussed. As I went through this exhibit, I wondered what would energize and motivate young people in a country to want to go war.

One of the sculptures that I found the most interesting in the exhibit is entitled “The Avenger”. It features a German soldier wielding a sword in motion like a projectile to conquer his enemies. The artist who created this, Ernst Barlach, was an enthusiastic supporter of World War I and made this sculpture in 1914. He believed the War would usher in a new social order. He volunteered to serve in the infantry for World War I at the age of 35. Within 3 months he was discharged for having a bad heart and became a strong pacifist. Much of his art after this time was anti-war in nature.



Interestingly, the war and upcoming financial crisis helped usher in the Nazi movement and his work along with the other expressionist art work of the time were considered “degenerate”. Much of the art work of that period was destroyed (although the Nazis did sell some confiscated paintings in Switzerland to help fund their war effort).

Regards,

Jack

[OLD1953]

When rationalization trumps rationality, then we have the proper environment for war to become popular.

China in the news today has throughly rationalized their "ownership" of everything they want or think they need.

If you read some of the radicals from Israel, you'll learn about rationalizations of ownership of most of the MidEast.

If you read the radicals from the Arab countries, it's all rationalization of Israel's lack of real existence.

None of this is a bit rational, other nations have a say in their territorial boundaries, Israel isn't going to fade away and neither is Palestine nor the rest of the Arab world, nor is Iran (NOT Arab), and the idea that the USA will not intervene is utterly mistaken. And the US is simply chock full of insane rationalizations for crazy behavior, and attempts by law enforcement to protect people from their own foolishness are met with ridicule. If adults don't act like children you don't NEED a "nanny state".

And that's where the money goes. Political theater is now theater of the absurd. We have congressmen openly stating that they do not believe the US defaulting on its debt would be a bad thing. How you rationalize that I do not know, but it's certainly a factor in the Fed's actions.

Overall, the world has become more irrational than rational. So we will have war. Buy war bonds. http://www.history.com/photos/world-war ... ers/photo4

[Higgenbotham]

Perspectives on Monetary and Credit Policy
November 20, 2012
Jeffrey M. Lacker
President (Richmond Fed)

When the Fed expands reserves by buying private assets, it extends public sector credit to private borrowers. To the extent that purchases of private claims have any effect, they do so by distorting the relative cost of credit among different borrowers. Such differential effects are unlikely to be beneficial, on net, unless borrowers in the favored sector would otherwise face artificially high rates. I think it’s difficult to make this case for agency MBS, a sector that historically has benefited from heavy subsidies, which arguably contributed to dangerously high homeowner leverage. So I do not see the rationale for reducing the interest rates paid by conforming home mortgage borrowers relative to those paid by, say, small-business borrowers. Moreover, purchasing agency MBS encourages the continuation of a housing finance model based heavily on government-sponsored enterprises, at a time when the housing sector would be better served by a new model that relies less on government credit subsidies.

Independent management of their balance sheet is essential to a central bank’s ability to conduct monetary policy in a way that is relatively free of the short-term pressures associated with electoral politics. But an immediate consequence of a central bank’s independence is the capacity to use its balance sheet to direct the flow of credit toward particular market segments, circumventing the constitutional checks and balances that would otherwise apply to such fiscal initiatives. Marvin Goodfriend and my predecessor, Al Broaddus, writing in 1994, warned that central bank forays into fiscal policy would be perceived as redistributional and would risk entanglement in partisan politics. The political backlash following the Federal Reserve’s 2008 actions, I believe, validates their concerns.

One could imagine legislation that limits the Fed to a narrowly defined set of ordinary lending activities — very short-term lending to sound, solvent banks, against good collateral, at rates above interbank market rates. If the Federal Reserve cannot limit credit policy of its own accord, legislation may be the best option.

Expansive central bank lending has its supporters, and some are likely to argue that such restraints would inhibit performance of the “lender of last resort function” that is traditionally thought to be an essential central bank role. Professor Goodfriend is persuasive, I believe, in demonstrating that this is a misreading of the historical record.

http://www.richmondfed.org/press_room/s ... 121120.cfm

[John]

I never cease to find it astonishing that nothing works. This really hit
me when the ECB issued its one trillion + euro LTRO to the banks.
I had said it wouldn't work, for generational reasons, but it was still
astonishing to see it fall on its face.

As Lacker suggests, these central bank programs do no good except
to create more distortions and make things worse.

[aedens]

http://www.youtube.com/watch?v=apBTMq8lb7M

Not all electrons are equal
http://falkenblog.blogspot.com/2012/11/ ... menon.html

[OLD1953]

Yes, the traders are getting too clever for themselves, they do not discount false signals well enough, or so I suspect. One of these fine days there'll be a flash crash due to a signal they all got at the same time, and the market will be zero before you can sneeze.

A major problem is that there are only so many of these "schmat guyse" to go around. So they switch from project to project as they get better offers, and that makes all the projects pretty much the same in the end. So they all have the same weaknesses and die on the same signals.

Seems to me what Falkenstein is saying boils down to "big companies drag the market with them, little ones don't, and the little ones often fail, but when they don't fail you make more money than with the big ones".