Generational Dynamics Forum - New Site

Revisiting the Principle of Maximum Ruin:



Well known stock-pickers have had disastrous results so far
this year. Fund results:

Bruce Berkowitz, down 12%
Kenneth Heebner, down 12%
Bill Miller, down 11%

According to Bloomberg TV this morning, they all bet on an economic
recovery, and they all lost big.

Hey kids, what time is it?

It's time to re-post the following, that I've posted many times:

John Kenneth Galbraith in The Great Crash - 1929 wrote: > "A common feature of all these earlier troubles [previous panics]
> was that having happened they were over. The worst was
> reasonably recognizable as such. The singular feature of the
> great crash of 1929 was that the worst continued to worsen. What
> looked one day like the end proved on the next day to have been
> only the beginning. Nothing could have been more ingeniously
> designed to maximize the suffering, and also to insure that as few
> as possible escaped the common misfortune.

> The fortunate speculator who had funds to answer the first margin
> call presently got another and equally urgent one, and if he met
> that there would still be another. In the end all the money he
> had was extracted from him and lost. The man with the smart
> money, who was safely out of the market when the first crash
> came, naturally went back in to pick up bargains. ... The
> bargains then suffered a ruinous fall. Even the man who waited
> out all of October and all of November, who saw the volume of
> trading return to normal and saw Wall Street become as placid as
> a produce market, and who then bought common stocks would see
> their value drop to a third or fourth of the purchase price in the
> next twenty-four months. ... The ruthlessness of [the stock
> market was] remarkable." (p. 108)"

This is what I call the Principle of Maximum Ruin. During a
generational crash following the implosion of a credit bubble, the
markets act in an incredibly ingenious manner, to ruin the maximum
number of people to the maximum extent possible.

John

We are seeing light switch actions we mentioned. Today a rather large chain restaurant had chains on the doors this morning.
Employee's had no clue so expect more not less of the light switch effect we conveyed in the forums. Is it a outlier effect.
NO it is not since noted a few months ago cost tranfer's through the supply chain mount and I assume they said no more
can be tranfered to retail. They said NO. They will not pretend to pass cost. It is over and the local payroll is over.
Poof, Light switch off. I would assume 1/2 model gone but will follow up when I get time.

Update:
The bankruptcy will wipe out the investment of private equity firm Castle Harlan Inc.,
in the Perkins chain purchased in 2005 for $245 million.

Update:
The owner of the Perkins and Marie Callender's restaurant chains filed for bankruptcy Monday with plans to close 65 of its 600 locations and cut 2500 jobs, according to court documents.

Unsure how much of Perkins will be salvaged.
Tuesday, June 14, 2011 1:28 AM MDT
BULLHEAD CITY — Perkins & Marie Callender’s Inc. filed for Chapter 11 bankruptcy protection Monday and announced the closure of 58 stores as the company tries to reorganize to stave off further financial damage.
http://www.mohavedailynews.com/articles ... 541761.txt

Castle Harlan Inc. is a large Global Investor Group. Alot of different figures but it appears they will scale back and see what they
provide in regional context.
Further: In 2000, Australian Mezzanine Investments Pty Limited (AMIL) and Castle Harlan, Inc
(CHI) in the USA, formed the jointly owned management company CHAMP. The CHAMP I Funds raised A$500 million dedicated to MBOs.
In 2005 the firm raised the CHAMP II Fund, an A$950 million dedicated MBO fund. The Funds are focused on acquiring enterprises worth
between A$100 million to A$1 billion. The firm brings together the respective corporate histories of AMIL and Castle Harlan, both of which were
founded in 1987. In doing so, it combines the extensive private equity experience of their founders.
http://www.champequity.com.au/home/w1/i2/

aedens wrote:We are seeing light switch actions we mentioned. Today a rather large chain restaurant had chains on the doors this morning.
Employess had no clue so expect more not less of the light switch effect we conveyed in the forums. Is it a outlier effect.
NO it is not since noted a few months ago cost tranfer's through the supply chain mount and i assume they said no more
can be tranfered to retail. They said NO. They will not pretend to pass cost. It is over and took the money in the bank
and dissolved after last payroll. Poof, Light switch off. I would assume 1/2 model gone but will follow up when I get time.

Up date:
The bankruptcy will wipe out the investment of private equity firm Castle Harlan Inc.,
which acquired the Perkins chain in 2005 for $245 million.

Gee, there was once a time when I used to eat Marie Callender TV dinners almost every
day.

John

John wrote:

OLD1953 wrote: > Been traveling and reading bits from John's dailies to various
> military I'm with. Mostly approving nods, occasional surprise.

> General agreement though is that we are in for a helluva time.

Did anyone say anything along the lines of, "What he said there
is completely wrong"?

John

No, the military in general is pretty convinced we are heading for some major wars and upheaval. The "Arab Spring" has everyone convinced some major action is just around the corner.

The Perkins bankruptcy will certainly be obvious to me, given I live just outside Memphis, and that's the headquarters location. Going to be a lot of empty storefronts.

It seems odd to me that it's so popular to some (Bill Gross) to add debt values for the computation of social security future costs, but add zero for future income. Whatever the US economy drops to, it's not going to zero. By that means of figuring net asset value, all insurance companies are bankrupt, and always have been. It's functionally equivalent to summing the future maturity value of life inurance contracts, without discounting by the future value of premiums on that contract.

Three arrested, accused of illegally feeding homeless
Orlando police say they violated a city ordinance restricting the feedings.

http://www.orlandosentinel.com/news/loc ... 6362.story

I have no words....
"They basically carted them off to jail for feeding hungry people," said Coleman, who was not present. "For them to regulate a time and place for free speech and to share food, that is unacceptable."

Orlando Food Not Bombs has been feeding the homeless breakfast on Mondays for several years and dinner on Wednesdays for five years.

It's Florida, what can I say? Florida has become the "state of the weird". From the tone of the article, they want all food for the homeless dispensed far away from city hall.

Drug shortages:
http://www.fda.gov/drugs/drugsafety/dru ... 050792.htm

Reminds me of the every summer since I can remember gas price increase which is always due "to unanticipated demand". Now, come on, virtually EVERY YEAR FOR MORE THAN FORTY YEARS? Even a complete idiot would get a clue after that amount of time! How about changing that tired statement to "we don't intend to properly anticipate demand because if we consistently underestimate demand we get more money"?

Italy turns out their center right, and the Air Canada workers are striking.

http://www.google.com/hostednews/ap/art ... 3e8bb77458
Final results showed overwhelming majorities of those casting ballots chose to throw out two laws to privatize the water supply, kill a law reviving nuclear energy and undo the so-called "legitimate impediment" law offering the Italian leader a partial legal shield in criminal prosecutions. Each referendum passed with around 95 percent.

In what amounted to a concession speech, Berlusconi said in a statement that "the high turnout for the referendums demonstrates that the desire of citizens to participate in the decisions about our future cannot be ignored."
***
One can wager the press will totally miss the point, that people want HONEST government without corruption or constant favors to big political donors.

http://www.thestar.com/news/transportat ... trike?bn=1

Some of those folks are just down the street from me right now, my wife says she can see them from where our car is parked.

For those who remember effective tax rates and growth with pain beyond words in Economics of the 70's and 80's.
http://www.cbo.gov/ftpdocs/62xx/doc6208 ... Entire.pdf
My point is 20 percent effective rate and the Government "Federal and State" leaves us alone period. It is not our fault they are incompetant.
Revenues as a share of GNP rose from 17.6 percent in 1976 to a peak of 20.1 percent in 1981. Because of tax cutting legislation passed in 1981 and the recession that began in the fourth quarter of that year, the percentage dropped to 18.1 in 1983. Subsequent legislation and growth in real incomes will raise the percentage to 19.3 in 1987
Page 34
Page 44

The years chosen for analysis were 1977, 1984, and 1988. The two historical years were years of relatively high growth in gross national product, declining unemployment rates, and rising but relatively modest rates of inflation. The years chosen are separated by important changes in federal tax
laws. In 1977, the Tax Reform Act of 1978 and the Economic Recovery Tax Act of 1981 had not yet been enacted. By 1984, those changes were in place, but payroll tax increases enacted in 1983 and the Tax Reform Act of 1986 were yet to come. By 1988, most changes from the 1986 act will be in place. Between 1977 and 1984, the distribution of total federal taxes became less progressive. This change primarily reflected a shift in the tax burden at both extremes of the income distribution. Effective tax rates (the ratio of taxes to family income) rose for the 10 percent of families at the lowest end of the distribution and fell for the 10 percent of families at the highest. Between 1984 and 1988, the distribution of taxes is expected to become more progressive but to remain less progressive than in 1977.

We made things work and the 1980's as tough as they were and onward we seen the expansion of the global economy at the taxpayers expense from there on. If Corporate does not want to fly a flag and the .gov balance sanity in a few more very short years it will not matter...
As we witness the changes over the decades one thing is certain. The free lunch has been over and the TBTF will not cease there model.
Ask your neighbor, I think he will also admit they are walking away. Why work more when they will not, but take more than they should get as
history records the consequences of the fatal deciet. Inflation is theft as is Debt models.

http://www.cbo.gov/doc.cfm?index=5746&t ... uence=1#t4
Effective Tax Rates in Future Years Under Current Tax LawUnder current law--and the assumption that incomes grow at a constant rate between 2001 and 2014--the total effective federal tax rate for all taxpayers drops from 21.5 percent in 2001 to 19.6 percent in 2004 before reversing course and climbing over the next decade (see the top panel in Table 2). From the 2004 low of 19.6 percent, the overall effective tax rate jumps to 21.4 percent in 2005 as most features of JGTRRA and JCWAA disappear--decreasing the child credit, lessening the relief from marriage penalties, and raising the AMT. The effective rate climbs slowly over the next five years, to 22.1 percent in 2010, primarily because the unindexed AMT affects more and more people and the growth of real incomes pushes taxpayers into higher tax brackets. The effective tax rate takes another jump to 23.6 percent in 2011 after EGTRRA sunsets and thereafter resumes its slow climb driven by continued real income growth and the widening reach of the AMT (by 2014, nearly 22 million taxpayers will be subject to the alternative tax). Overall, then, under current law, the effective federal tax rate will increase from 21.5 percent in 2001 to 24.1 percent in 2014.
http://www.newyorkfed.org/aboutthefed/f ... fed18.html <--------- to pay for this.
http://www.bloomberg.com/news/2011-03-3 ... -2008.html
Before the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law on July 21, 2010, under unusual and exigent circumstances, a Reserve Bank had legal authority to advance credit to individuals, partnerships and corporations that are not depository institutions, after consultation with the Board of Governors of the Federal Reserve System. To do so, the Reserve Bank must have determined that credit was not available from other sources and that failure to provide the credit would have adversely affected the economy.

They are still not interesting in change because they discount/ignore the light switch events will/may transpire quicker than there latency of fact's that they wish unfunded revenue programs in context that structual facts do not matter to them, and unfunded liabilities can be done by another 10 year program of paper inflated stealth tax measures. Given the mindset the taxpayer is not in a viable position to maintain the republic for spikes which data says should not be the case. The cost will go up but they appear not to be concerned.
http://www.eia.gov/emeu/steo/pub/gifs/Fig23.gif

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.

"underlying assumptions in those tax projections " History notes otherwise, but I respect your opinion...

extended to the point the US bond is degraded rather than risk losing their jobs to someone else who promises to act irresponsibly Operation twist is commencing on bonds.
“During the Operation Twist of the 1960s, an attempt was made to raise short-term yields and lower long-term yields simultaneously by selling short-end and buying in the long-end. “To flatten the yield curve – helping the housing market while supporting the US dollar - you only need to replace a falling US dollar with commodities,” Garanteed Commodity spikes unless they totaly have a gun to the CME head.
The US Federal Reserve has already spent more than $2 trillion on two rounds of quantitative easing, by buying government bonds in an effort to drive down long-term interest rates.

meanwhile the timocracy:
(AP)Republicans have quietly maneuvered to prevent a House spending bill from chipping away at federal farm subsidies, instead forging ahead with much larger cuts to domestic and international food aid. The GOP move will probably prevent up to $167 million in cuts in direct payments to farmers, including some of the nation's wealthiest. The maneuver, along with the Senate's refusal Tuesday to end a $5 billion annual tax subsidy for ethanol-gasoline blends, illustrates just how difficult it will be for Congress to come up with even a fraction of the trillions in budget savings over the next decade that Republicans have promised.

And they expect the taxpayers to have any respect?

John's maximum ruin is firmly on task.

The yield on Greek government debt is blowing out this morning, yielding almost 27.5% on a 2-year Greek government note!

http://www.dailymotion.com/News247#videoId=xj6mp1