Doom and Gloomers read this ....the Real Story.
bidask
Posts: 14,014 ✭✭✭✭✭
Milton Friedman once said the main reason so many people believe The Great Depression was caused by excess speculation in the private sector, is that “the free market has no press agents. The Government has a great many press agents, and, the Federal Reserve has a great many press agents.”1 Unfortunately, this means they often have the ability to define history.
This is certainly the case with the Panic of 2008. The government wants you to believe a greedy, stupid and out-of-control free market banking system created the crisis. In reality, it was a simple, but corrosive, accounting rule, called mark-to-market accounting. This rule caused problems with subprime loans to become the first pure financial panic in over 100 years.
There is no arguing with the fact that bad loans were made. And, no one argues that bad loans shouldn’t be marked down. But, when markets froze (in large part due to the accounting rule), banks and other financial institutions were forced to mark-down cash-flowing, performing loans to artificially low prices. These marks amplified the actual losses from bad loans and, like wind on a forest fire, caused the flames to spread.
As Fed Chairman Ben Bernanke said in 2013, “the reason that many of us understated the impact of the subprime mortgage market was because the subprime mortgage market itself was quite small and if you assume that every subprime mortgage in the world went bad, the losses would still not have been in themselves that large.”
“The question, then,” he asked, “is what are the vulnerabilities that would transform what would be a relatively modest mis-valuation or move in asset [prices] into a much broader crisis.”2
Ah, yes, that is the question!
The Fed conveniently blamed it all on excess leverage and bad management. Fed Governor Kevin Warsh said in 2008 that financial institutions were threatened by “uncertain management teams, and unsustainable business models.”
Timothy Giethner’s new book tells the same tale. Every Fed speech does, too. And because the Troubled Asset Relief Plan (TARP) was pushed by Republican Treasury Secretary Hank Paulson, his book, and those who support him (including many journalists), repeat the same myth.
The only problem with this narrative of history is that it’s light on the facts. The Fed met 14 times in 2008, generated 559,000 words of transcripts, pumped a trillion dollars into the economy, and cut interest rates to virtually zero. But, the crisis went on.
In fact, after quantitative easing started and, after - after - TARP was passed, the stock market fell an additional 40%. Everyone seems to remember the day-to-day volatility of markets during Congressional votes over TARP, but the longer-term trend shows it did not save the economy. As can be seen in the chart below, the stock market continued to decline in spite of multiple and massive Fed actions. And these declines accelerated after QE started and TARP was implemented.
As Dr. Bernanke said, the problem was not the bad loans themselves. QE and TARP added more than enough liquidity to fix the problems in sub-prime, but mark-to-market accounting created a “black hole” that sucked capital out of the system. The government never could have printed enough.
Some at the Fed understood, but most ignored the bad accounting rule in favor of the narrative that banks were bad.
The Fed’s 2008 transcripts reveal that mark-to-market accounting was mentioned only 19 times. Eight of those, virtually half, were in December 2008 – the last meeting of the year.
Fed Governor, Elizabeth Duke, who, because of her banking experience, represented banks to her fellow Fed members, said at the December 15-16, 2008 meeting that:
“Every single bank [that she spoke with] was adamant about the evils of mark-to-market accounting…There is a big diversion between market losses and credit losses, so that leads to bankers who are afraid to buy securities because they are worried about further marks…But they are also unwilling to sell securities because they don’t believe that the current market price adequately reflects the potential [actual] credit losses. There is some speculation that the mark-to-market losses will absorb all of the TARP capital that was just injected…”
Private investors refused to invest in banks because mark-to-market accounting represented a threat to solvency. Short-term funding dried up because losses from marking assets down destroyed capital. The Fed took the lack of private capital as a need for more Fed action. Rather than push to change the rule, the Fed consistently decided to use more force, more liquidity, and lower rates. Group think, and possibly a desire to become more powerful, allowed a majority of Fed members to ignore the arguments of many private sector analysts and the banks themselves.
It is not a coincidence that the US economy avoided a panic or depression from 1938 to 2008. Mark-to-market accounting was ended in 1938 by FDR because of the damage it was doing. But, it came back in November 2007, partly in response to Enron and the government-led closure of Arthur Anderson. The accounting profession saw mark-to-market as a way to avoid getting blamed for making mistakes valuing assets.
But the rule itself is pro-cyclical. It causes the good times to look better than they really are, as institutions mark assets up. But it also accelerates downturns, as assets are marked down further and faster, with more uncertainty and volatility than cash-flow itself would value these assets.
The US did not have mark-to-market accounting in the early 1980s when Savings & Loans, farm banks, oil lenders like Penn-Square (the Countrywide of oil loans), and Latin and South American bond markets collapsed. If mark-to-market accounting had been in existence during the early 1980s, every single money center bank in the US would have been closed.
As it was, thousands of banks still went bankrupt between 1984 and 1994. This puts the lie to the idea that without mark-to-market accounting, banks can just make up values. If a loan stops paying it should be written down. There is no argument about that here. But, in the 1980s, government leaders did not over-react, or panic. They remained patient and calm.
Under Volcker, the Fed actually held money tight – the opposite of QE. There was no Dodd-Frank. The economy recovered relatively quickly. It happened without massive liquidity additions, without TARP, without zero percent interest rates. But in 2008, in spite of all the government action, things kept getting worse and worse, and, of course, government kept blaming it on the banks and the private sector.
What finally ended the Panic of 2008 was a change in accounting rules. Barney Frank’s banking committee announced a hearing on March 9, 2009, held the hearing with the Financial Accounting Standards Board on March 12th, and demanded that overly strict mark-to-market accounting rules be changed. The rules were finally changed on April 2, 2009, but the markets already knew it was coming.
Once the rule was changed, private investment in banks started up again. Asset values rose, and the uncertainty surrounding bank failures subsided. The government has made a profit of at least $160 billion (perhaps as much as $300 billion) from TARP investments – because they were made at artificially low, mark-to-market prices.
But, it wasn’t TARP, it wasn’t QE, and it wasn’t government spending that turned the economy around. It was fixing a really bad accounting rule. Because so few people believe this, and government press agents have no incentive to spread this narrative, fear and trepidation have accompanied the current economic recovery and bull market every step of the way.
Once the accounting rule was changed, the downward spiral of make-believe accounting losses came to an end. The recovery has been resilient because it has been a real recovery, not one generated by government and Federal Reserve liquidity additions. It’s been a mild recovery because government policies have been so intrusive, but it is a recovery nonetheless.
Unfortunately, the myth of 2008 has cost many investors dearly. The belief that the bad times could return at any moment, not trusting banks, and arguing that it was all just an ephemeral “sugar high” has kept many investors from reaping the rewards of one of the biggest bull markets in history.
This is certainly the case with the Panic of 2008. The government wants you to believe a greedy, stupid and out-of-control free market banking system created the crisis. In reality, it was a simple, but corrosive, accounting rule, called mark-to-market accounting. This rule caused problems with subprime loans to become the first pure financial panic in over 100 years.
There is no arguing with the fact that bad loans were made. And, no one argues that bad loans shouldn’t be marked down. But, when markets froze (in large part due to the accounting rule), banks and other financial institutions were forced to mark-down cash-flowing, performing loans to artificially low prices. These marks amplified the actual losses from bad loans and, like wind on a forest fire, caused the flames to spread.
As Fed Chairman Ben Bernanke said in 2013, “the reason that many of us understated the impact of the subprime mortgage market was because the subprime mortgage market itself was quite small and if you assume that every subprime mortgage in the world went bad, the losses would still not have been in themselves that large.”
“The question, then,” he asked, “is what are the vulnerabilities that would transform what would be a relatively modest mis-valuation or move in asset [prices] into a much broader crisis.”2
Ah, yes, that is the question!
The Fed conveniently blamed it all on excess leverage and bad management. Fed Governor Kevin Warsh said in 2008 that financial institutions were threatened by “uncertain management teams, and unsustainable business models.”
Timothy Giethner’s new book tells the same tale. Every Fed speech does, too. And because the Troubled Asset Relief Plan (TARP) was pushed by Republican Treasury Secretary Hank Paulson, his book, and those who support him (including many journalists), repeat the same myth.
The only problem with this narrative of history is that it’s light on the facts. The Fed met 14 times in 2008, generated 559,000 words of transcripts, pumped a trillion dollars into the economy, and cut interest rates to virtually zero. But, the crisis went on.
In fact, after quantitative easing started and, after - after - TARP was passed, the stock market fell an additional 40%. Everyone seems to remember the day-to-day volatility of markets during Congressional votes over TARP, but the longer-term trend shows it did not save the economy. As can be seen in the chart below, the stock market continued to decline in spite of multiple and massive Fed actions. And these declines accelerated after QE started and TARP was implemented.
As Dr. Bernanke said, the problem was not the bad loans themselves. QE and TARP added more than enough liquidity to fix the problems in sub-prime, but mark-to-market accounting created a “black hole” that sucked capital out of the system. The government never could have printed enough.
Some at the Fed understood, but most ignored the bad accounting rule in favor of the narrative that banks were bad.
The Fed’s 2008 transcripts reveal that mark-to-market accounting was mentioned only 19 times. Eight of those, virtually half, were in December 2008 – the last meeting of the year.
Fed Governor, Elizabeth Duke, who, because of her banking experience, represented banks to her fellow Fed members, said at the December 15-16, 2008 meeting that:
“Every single bank [that she spoke with] was adamant about the evils of mark-to-market accounting…There is a big diversion between market losses and credit losses, so that leads to bankers who are afraid to buy securities because they are worried about further marks…But they are also unwilling to sell securities because they don’t believe that the current market price adequately reflects the potential [actual] credit losses. There is some speculation that the mark-to-market losses will absorb all of the TARP capital that was just injected…”
Private investors refused to invest in banks because mark-to-market accounting represented a threat to solvency. Short-term funding dried up because losses from marking assets down destroyed capital. The Fed took the lack of private capital as a need for more Fed action. Rather than push to change the rule, the Fed consistently decided to use more force, more liquidity, and lower rates. Group think, and possibly a desire to become more powerful, allowed a majority of Fed members to ignore the arguments of many private sector analysts and the banks themselves.
It is not a coincidence that the US economy avoided a panic or depression from 1938 to 2008. Mark-to-market accounting was ended in 1938 by FDR because of the damage it was doing. But, it came back in November 2007, partly in response to Enron and the government-led closure of Arthur Anderson. The accounting profession saw mark-to-market as a way to avoid getting blamed for making mistakes valuing assets.
But the rule itself is pro-cyclical. It causes the good times to look better than they really are, as institutions mark assets up. But it also accelerates downturns, as assets are marked down further and faster, with more uncertainty and volatility than cash-flow itself would value these assets.
The US did not have mark-to-market accounting in the early 1980s when Savings & Loans, farm banks, oil lenders like Penn-Square (the Countrywide of oil loans), and Latin and South American bond markets collapsed. If mark-to-market accounting had been in existence during the early 1980s, every single money center bank in the US would have been closed.
As it was, thousands of banks still went bankrupt between 1984 and 1994. This puts the lie to the idea that without mark-to-market accounting, banks can just make up values. If a loan stops paying it should be written down. There is no argument about that here. But, in the 1980s, government leaders did not over-react, or panic. They remained patient and calm.
Under Volcker, the Fed actually held money tight – the opposite of QE. There was no Dodd-Frank. The economy recovered relatively quickly. It happened without massive liquidity additions, without TARP, without zero percent interest rates. But in 2008, in spite of all the government action, things kept getting worse and worse, and, of course, government kept blaming it on the banks and the private sector.
What finally ended the Panic of 2008 was a change in accounting rules. Barney Frank’s banking committee announced a hearing on March 9, 2009, held the hearing with the Financial Accounting Standards Board on March 12th, and demanded that overly strict mark-to-market accounting rules be changed. The rules were finally changed on April 2, 2009, but the markets already knew it was coming.
Once the rule was changed, private investment in banks started up again. Asset values rose, and the uncertainty surrounding bank failures subsided. The government has made a profit of at least $160 billion (perhaps as much as $300 billion) from TARP investments – because they were made at artificially low, mark-to-market prices.
But, it wasn’t TARP, it wasn’t QE, and it wasn’t government spending that turned the economy around. It was fixing a really bad accounting rule. Because so few people believe this, and government press agents have no incentive to spread this narrative, fear and trepidation have accompanied the current economic recovery and bull market every step of the way.
Once the accounting rule was changed, the downward spiral of make-believe accounting losses came to an end. The recovery has been resilient because it has been a real recovery, not one generated by government and Federal Reserve liquidity additions. It’s been a mild recovery because government policies have been so intrusive, but it is a recovery nonetheless.
Unfortunately, the myth of 2008 has cost many investors dearly. The belief that the bad times could return at any moment, not trusting banks, and arguing that it was all just an ephemeral “sugar high” has kept many investors from reaping the rewards of one of the biggest bull markets in history.
I manage money. I earn money. I save money .
I give away money. I collect money.
I don’t love money . I do love the Lord God.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
0
Comments
Liberty: Parent of Science & Industry
1. Mark-to-market calls for true valuation of assets. It's a good thing. It is the same thing you are required to use when you fill out a loan application and are required to show CURRENT value of your assets (yes, that 10 year old car is no longer worth $20K). It is a standard that investors once knew would result in sound accounting practices and correct VALUATION. It is the continuity that allowed one to accurately compare this company's numbers against that company's numbers. I will agree that mark-to-market accounting does represent a threat to solvency, but only when a poor choice was made on which assets to load up on (like real estate). I for one want to know if my potential investment is going to be backed by poor performing assets.
Prior to Barney Frank's circus, investors knew that valuation was correct because mandated accounting regulations required it to be so. Following the 2008 crisis, rule changes forced on the FASB allowed false valuation of assets in order to keep banks afloat. It currently has assigned fictitous and misleading valuation to many bank assets (mostly depressed real estate) - in all cases it highly overvalues their assets keeping many of them solvent ON PAPER. Barney Frank arranged it so that banks could LIE about the true value of their holdings. I want to know their actual value, not their make believe value.
2. Under Volcker there was a Glass Steagal Act that built a brick wall between banking institutions and investment firms. This made all the difference. It kept banks from gambling with other people's money and becoming too big to fail. Under Volker the FED held money tight by raising interest rates - the short term pain prevented the long term illness.
3. Dr. Bernanke is misguided; the problem was BAD loans and continues to be bad loans. He and his predecessor, among others, were very responsible for facilitating and enabling them.
4. To claim that removal of mark to market accounting practices (true valuation) resulted in a recovery is nothing short of stating that the recovery is based on lies.
The ultimate goal of the banking industry is to create massive profit by enabling and servicing massive debt. The only reason they accept deposits into your checking and savings accounts is so that they can loan that money out (often at a rate of more than $20 to one) to someone else. The 2008 crisis was the result of these banks pushing their greed to the limit and at the same time believing real estate could never go down (where were the highly paid risk managers?). The "recovery" is nothing more than a delay (due to taxpayer funded cash infusions and changes in valueing bank assets) to a very painful correction. A Volcker method of quick, firm action would have fixed the problem, not pushed it down the road. Contrary to what you read, we are still on that road.
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
Seriously?
Is all the silver that I didn't sell at the top still worth $49 ?
<< <i>The only reason they accept deposits into your checking and savings accounts is so that they can loan that money out >>
Anyone ever look at your "deposit" slip. If you havent, take a look. There is a reason why your account has been credited.
If you dont understand basic accounting, you might not understand what im talking about.
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
<< <i>
<< <i>The only reason they accept deposits into your checking and savings accounts is so that they can loan that money out >>
Anyone ever look at your "deposit" slip. If you havent, take a look. There is a reason why your account has been credited.
If you dont understand basic accounting, you might not understand what im talking about. >>
Your "credit" is nothing more than an increase in your loan to them and nothing more than a promise from them that you can have it back. Your deposits are "loans" to the bank and the bank is free to do with them as they see fit (within banking regulations). Notice how the lettering on your deposit slip is a lot larger than the lettering on the agreement you made with them when you opened the account. Guess what would happen if 10% of depositers all showed up at the same time to empty their "credited" accounts - the money ain't there, it has been loaned out or now, thanks to repeal of Glass Steagal, invested in Wall St.
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
Banking laws were very strict in the 20's and 30's - No branching across state lines, no interest on checking accounts and interest ceilings on savings, separation of banks from non bank activities such as investment banking, insurance and stock brokerage. This was a result of the banking crisis and great depression/market crash.
Starting in 1956 with the bank holding company act, DIDMCA in 1980, Garn St. Germain in 1982, FIRREA in 1989, Riegle Neal in 1994, and Gramm Leach Bliley in 1999 the industry peeled away most of the restrictions that had been created during the great depression. Over time, banks were allowed to invest in areas that had been strictly forbidden in the past. Interstate mergers, huge bank holding companies, blurred lines between commercial banking and investment banking/insurance/investments. It became a free for all with little to no sound oversight and the party finally got busted. In addition, the creation and overuse of mortgage backed securities was out of control.
All mark to market accounting (FAS 157) did was to shine a bright spotlight on the severe under capitalization of an industry gone wild. Banks made bad loans to risky folks and got caught with their pants down. Investment banks have no business in commercial banking and vice versa. Ask any small town commercial bank if mark to market accounting is the real problem and they would probably laugh (Most of them don't buy and sell mortgage backed securities at a level that could bring the bank down). The problem with the banking system is that the largest commercial and investment banks went too far with poor lending and derivatives and needed the government to bail them out. The government actually encouraged these less restrictive lending practices through deregulation AND forcing banks to lend to lower credit borrowers (FANNIE, FREDDIE, GNMA etc....) In addition, the use of risky mortgage backed securities by the largest banks was the problem, not marking them to market. The largest banks took too great a risk and got caught. Mark to market just allowed the public to see how overboard the largest banks really had gone.
Mark to market was a standard FASB Accounting rule for decades. Glass-Stegall worked fine also, until Jim Leach et al managed to get it repealed for his banking crony buddies. Look back at the biggest crises in the past 35 years and you will see the banking system's fingerprints all over every one of them. Including Neil Bush's and John McCain's.
I knew it would happen.
The marked to model of $1.1 QUAD in otc derivatives is still out there. They will someday soon have to be marked to market again. Lehman learned that lesson. This is our "Emperor's new clothes." No matter how well dressed you say the emperor is, the common man can see that he is naked. Burying one's head in the sand doesn't make the problem go away. The big US banks are leveraged 30-1 to 50-1 on their derivatives of $300 TRILL. As long as they have the FED and Treasury ready to pay off their losses, the system will continue. $10-$20 TRILL In losses were paid off last time around. I suspect the next time it will be multiples of that. It will take only a single shot to stampede the bankers out of those positions
Knowledge is the enemy of fear
<< <i>I skimmed the article quickly and saw the names of Friedman, Bernanke, Geithner, Duke, etc.....figured this would be a Treasury/FED-centric view (ie not reality). They wear their own style of tin-foil hats - USG approved of course. >>
Tin foil hats.
Damn, you nailed it!
<< <i>So why did all the gold bugs stay out of stocks and miss one of the greatest rallies in their lifetimes? >>
They expected markets to be normal.
Besides, I do believe gold did also show a remarkable rally. Only difference is that it was allowed to correct before stocks. stay tuned.
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
<< <i>So why did all the gold bugs stay out of stocks and miss one of the greatest rallies in their lifetimes? >>
Speaking for myself, it is a matter of valuation. Same reason that I did not invest in a spec home for $300,000 a decade ago when the builders could replicate the place for $175k. Oh yes, I know that it is different this time. Isn't it always?
Overpaying for any asset is always a sucker game, unless of course you are an insider which I doubt many of us are.
Menomonee Falls Wisconsin USA
http://www.pcgs.com/SetRegistr...dset.aspx?s=68269&ac=1">Musky 1861 Mint Set
<< <i>Banksters. Remind me again how many have gone to jail since 2009? >>
My bank is a division of France's BNP Paribas. They just got slammed for a $12,000,000,000 penalty for trading with the Iranians.
Meanwhile, they grilled me ten years ago for pulling out cash to handle a large purchase. What a bunch of gonifs.
These are all criminal penalties yet not one of these shylocks has seen the inside of a jail.
<< <i>Safe invest now before the bubble bursts... It will not be like 2008.. It will be worse >>
Maybe but I'm not so sure we won't keep doing the same things we've been doing for the last 6 years and run our debt/QE to $50 trillion by 2025 to keep things rolling. I believe those in charge couldn't care less about future generations and only desire instant gratification that more USD provide them. By 2030 at the latest, "It will be much worse".
.....and a short on Ebay at $50.22
Yes, of course. But in 2009 many sticks were trading at 15-20 year lows. Why shun these prices in favor of PMs?
Knowledge is the enemy of fear
<< <i>Overpaying for any asset is always a sucker gam
Yes, of course. But in 2009 many sticks were trading at 15-20 year lows. Why shun these prices in favor of PMs? >>
How true...that was a once in a life time opportunity for some of us. Purchased several thousand shares in 2009 of our host's stock @ around $3.00 (now at $20.00+), Citigroup, GE & Ford at around the same price or less per share, all sold except for CLCT at a healthy profits. Purchasing PM's in 2009, especially Palladium, was a no brainer. But as the Kenny Rogers song goes:
You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run
<< <i>Overpaying for any asset is always a sucker gam
Yes, of course. But in 2009 many sticks were trading at 15-20 year lows. Why shun these prices in favor of PMs? >>
Because 2009 PM buyers foresaw the coming gain of over 215% in gold and over 430% in silver over the next two years while the DJIA rose just under 200% in the same period. Sure, correctly picking the RIGHT stocks in 2009 could have paid off very well, but what are the odds of correctly picking those stocks? And unless you picked all winners, the losers cut into your gains.
With all assets there is a time to buy and there is a time to sell. PMs were a great buy in 2009 just as they were a great sell in 2011. However those that still hold their 2009 PM purchases are still in the green.
How much of the sell off in PMs in 2011 funded further equity gains? Are equities different than real estate when it comes to risk? Keep your eye on interest rates, their rise will reward those that did not sell PMs in 2011 and punish those that continue to hold their 2009 equity purchases.
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
<< <i>Overpaying for any asset is always a sucker gam
Yes, of course. But in 2009 many sticks were trading at 15-20 year lows. Why shun these prices in favor of PMs? >>
At Dow 6600 stocks were a bargain. One would have certainly done well buying at those levels. Gold dropped to the $800 range and Silver was about $10.
Certainly many good opportunities to go around.
<< <i>So, from all this information, I understand that a major crash is coming, but no one knows when.... and speculation is, the financial wizards may keep the bal in the air for many more years. The only thing everyone seems to agree on is that it will eventually crash big time. One wonders what will happen to gold and silver when that happens. Cheers, RickO >>
I'm not so sure of your "major crash" forecast, however, a correction of 15%-25% is overdue and if history repeats itself, those losses will be made up within a 2 year period.
<< <i>Because 2009 PM buyers foresaw the coming gain of over 215% in gold and over 430% in silver over the next two years while the DJIA rose just under 200% in the same period. Sure, correctly picking the RIGHT stocks in 2009 could have paid off very well, but what are the odds of correctly picking those stocks? And unless you picked all winners, the losers cut into your gains. >>
So I bought gold when it was around $800-900, then sold almost everything in the 1650-1700 range, when it was obvious to anyone it was in a bubble universe.
Picking good stocks in 2009 was easy, Chevron in the 60's and yielding almost 5%, Total in the 40's and yielding over 6%, Intel in the teens and yielding over 4%, GE under 8, with no yield at the time but still... and many other examples of people planning for the end of the world and driving equities to stupid low prices. No I didn't buy any bank stocks and still wont. And I'm not smarter than anyone else, just lucky enough to understand herd mentality.
But back to the OP, I disagree with the article since I do firmly believe this was primarily caused by lack of regulation, along with the greed and corruption that had been allowed to build up in the financial markets. I for one do not think companies should be allowed to determine what their regulatory requirements will be. I don't want the Goldman Sack or the JP Morgue deciding what the financial rules will be, just like I don't want BP deciding what the safety and environmental regulations should be. Companies aren't people and they don't have rights, they are artificial constructs that society allows to exist and that they have obligations to that society.
If that makes me a communist I'm ok with that.
World Collection
British Collection
German States Collection
Yep, there is plenty of opportunity to go around and it has been there for the last 6 or 8 years. F share at the price of a bottle of two buk Chuck was a buy of a lifetime (and you get dividends), just like gold at $600 and S at $4 wasn't such a bad deal at all. There are always opportunities. One of the more amazing phenomenon to be witnessed in the '08-present was the RE. We all know the story but with the paper on those houses getting sliced and diced into cute little AAA investment vehicles and repackaged to anyone in the world that had above average greed was such a sucker deal. It makes one wonder how so many of our best and brightest investment houses across the world sucked that boghhhus investment paper down like a starving coyote eating cyanide laced baits. That should be a clue.
Go F!
<< <i>
<< <i>So, from all this information, I understand that a major crash is coming, but no one knows when.... and speculation is, the financial wizards may keep the bal in the air for many more years. The only thing everyone seems to agree on is that it will eventually crash big time. One wonders what will happen to gold and silver when that happens. Cheers, RickO >>
I'm not so sure of your "major crash" forecast, however, a correction of 15%-25% is overdue and if history repeats itself, those losses will be made up within a 2 year period. >>
We have been lulled into market lullaby of no problem the fed can fix any problem and the market will always come back. Japan is a good example of a massive fail in that department. 25 years after the late 80's the market is still 60% off of its peak. This is a first world nation which was the second largest economy on the planet until China grabbed that position.
Lots of talk here about momentum and market sentiment, but little discussion of what is a company really worth and what is the value of the dividend. Seems like all of that goes out the window in a bull market and truly creates situations of massive overvaluation.
The fed and the wall street minions will keep the game going as long as possible. But as with all top heavy markets, the fed will eventually get overwhelmed as they did with the housing market and we will have a few more rounds of taxpayer financed bailouts.
Problem is, the free money, low interest scenario will eventually go bust with formerly obsequious investors disenchanted by well under market interest rates. Public debt service costs will soar. How does on stimulate the economy at that juncture with inflation at say 8 or 10% and 10 year notes at perhaps 7%.
Yes I am a doom and gloomer by forum definition.
I wish tough that our economy was truly growing and our debt was at a manageable level, but growth is in a 7 year stall and debt is still out of control.
Metals are still an excellent default play.
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
<< <i>recent overnight negative rate decision by the ECB will have major repercussions on the future of US markets. Look for the FED to follow suit in its effort to stir a "little" inflation. >>
Or it may create a boom in the bank vault business as the institutions store their own gelt.
<< <i>Or it may create a boom in the bank vault business as the institutions store their own gelt. >>
banks don't want full, idle vaults. As I have said many times they are in the business of profiting heavily from the debt of others. Look for any bank money no longer on deposit with the FED (when the FED does enforce negative reserve deposit rates) to find it's way to the street where it will earn a positive return. This is the reason for a central bank's negative rates. Inflation anyone?
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
No inflation in Europe or US according to the assorted fed heads.
Germany yield .....1.42%
USA....................2.58%
Italy................... 3.05%
So Italy with a huge debt load and shaky economy not to mention an added Putin risk that is shared with the rest of Europe has a yield only 67 points above the US. A nonsensical 1.42% for Germany.
Not that the US paper is a bargain, but they sure have the European note holders pinned to the wall.
One could argue that in fact those investors are severely behind as their investment has not outpaced other assets such as equities and real estate and may not even have kept pace with general consumer inflation--which was exactly the reason why it was purchased in the first place.
Imagine 3 buddies, each with $1 million in cash on the golf course in Florida in 2009, debating where to invest. One goes to gold, one to real estate and the other in stocks. I am sure the one who bought gold is "green"--with envy.
Knowledge is the enemy of fear
<< <i>Imagine 3 buddies, each with $1 million in cash on the golf course in Florida in 2009, debating where to invest. One goes to gold, one to real estate and the other in stocks. I am sure the one who bought gold is "green"--with envy. >>
Assuming that all were still in the markets of their 2009 choice, it is fairly clear that the envy has bounced around over the last 5 years like a shag golf ball off a dogwood tree.
...and go a little further. You have to assume that the stock investor was broadly invested, though it would have been difficult to lose money in the 5 years, it is possible, or more likely that an individual investor underperformed the market.
Real estate is even more volatile. A close friend bought an expensive home in town in 2009. 5 years later, maybe, maybe he is close to a breakeven. Deduct the transaction cost and he is still at least 10% underwater.
<< <i>Imagine 3 buddies, each with $1 million in cash on the golf course in Florida in 2009, debating where to invest. One goes to gold, one to real estate and the other in stocks. I am sure the one who bought gold is "green"--with envy. >>
But he is not red from the losses that some here would lead others to believe have occurred.
Imagine 3 buddies, each with $1 million in cash on the golf course in Florida in 2005, debating where to invest. Gold, real estate or stocks? Timing changes everything. As I said earlier there is a time to buy and a time to sell, regardless of the asset.
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
<< <i>Imagine 3 buddies, each with $1 million in cash on the golf course in Florida in 2005, debating where to invest. >>
1999 was even better!
<< <i>Interesting to examine the world yields on the 10 year bonds.
No inflation in Europe or US according to the assorted fed heads.
Germany yield .....1.42%
USA....................2.58%
Italy................... 3.05%
So Italy with a huge debt load and shaky economy not to mention an added Putin risk that is shared with the rest of Europe has a yield only 67 points above the US. A nonsensical 1.42% for Germany.
Not that the US paper is a bargain, but they sure have the European note holders pinned to the wall. >>
So tell me why rates in the US are going higher anytime soon?
Knowledge is the enemy of fear
Yeah, bubbles suck. Not unlike the fact that silver is 60% below its peak hit 34 years ago. This despite the notion that silver supply is declining and it is considered "money" and it "precious" and is an inflation hedge.
Yup bubbles suck.
The "game" of investing is not very difficult if one uses relative valuation methods, does not marry an investment class and ignores paranoid conspiracy and manipulation babble.
Knowledge is the enemy of fear
<< <i>
<< <i>Imagine 3 buddies, each with $1 million in cash on the golf course in Florida in 2005, debating where to invest. >>
1999 was even better! >>
Or 1980.
Eventually you guys will realize that EVERY investment class will have similar returns over the long (lifetime) term.
Knowledge is the enemy of fear
"""So tell me why rates in the US are going higher anytime soon?"""
The Europeans seem to have a tighter noose on 10 year rates then the US Fed.
I recall Bernanke being unable to answer a reporters question about a year ago as to why the longer rates were rising. He was baffled as anyone.
Japan has the most stringent control and they continue to maintain a stranglehold .60% on domestic ten year paper, which is needed as their national debt is over twice that of the US on a per capita basis.
Getting back to your question, I do not think that rates will rise gradually, but with a hard pop. It will most likely require an event outside of the bailiwick of the Fed. Real hot or trade war between Europe and Russia or a F*kushima type disaster, or China finally realizing that they are well beyond over leveraged and a dump of US Treasuries on the market. Or less dramatic, a continuation and increase of the 6-7% CPI rate that we are enduring. If any real portion of the bond and equity windfall spills over into the commodity pits, we will see some sharp spikes in the marketplace that will make 2.6% yields look puny.
<< <i>
<< <i>
<< <i>Imagine 3 buddies, each with $1 million in cash on the golf course in Florida in 2005, debating where to invest. >>
1999 was even better! >>
Or 1980.
Eventually you guys will realize that EVERY investment class will have similar returns over the long (lifetime) term. >>
Against the advice of my finance prof in the late 70's, I disregarded near $900 gold and invested all I could scrape together and bought the sub 1000 Dow Jones.
I am no more married to precious metals than I am to Demi Moore.
I knew it would happen.
<< <i>Churn, churn, churn. The taxes will eat you right up. >>
Not to mention the transaction fees.
<< <i> However those that still hold their 2009 PM purchases are still in the green
One could argue that in fact those investors are severely behind as their investment has not outpaced other assets such as equities and real estate and may not even have kept pace with general consumer inflation--which was exactly the reason why it was purchased in the first place.
Imagine 3 buddies, each with $1 million in cash on the golf course in Florida in 2009, debating where to invest. One goes to gold, one to real estate and the other in stocks. I am sure the one who bought gold is "green"--with envy. >>
You are now talking about opportunity cost. The argument is that you didn't make enough if you purchased in 2009 vs buying the sp500? Making 9% vs 15% yearly, you are correct.
<< <i>and may not even have kept pace with general consumer inflation >>
But then are you saying that inflation is over 9% annually?
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Knowledge is the enemy of fear
<< <i>Some on this board think inflation is greater than 9%. >>
Is it?
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<< <i>
<< <i>Some on this board think inflation is greater than 9%. >>
Is it? >>
It is at the grocery store, especially when you consider smaller portions/packages. Inflation rates vary and even become negative (defaltion) depending on what you are looking at. Electronics are generally in negative inflation territory. The CPI is strictly an average (index) of varied consumer expense areas. As an index it is susceptable to manipulation by those who calculate it. What matters to consumers is the rate of price increase on necessities such as food, shelter and energy.
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
<< <i>
<< <i>Churn, churn, churn. The taxes will eat you right up. >>
Not to mention the transaction fees. >>
you guys are really scraping the bottom of the barrel.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
A lot of people think that "inflation" is the only economic force capable of causing prices to change.
Liberty: Parent of Science & Industry
<< <i>A lot of people think that "inflation" is the only economic force capable of causing prices to change. >>
As a wise old man here on the forum once said (maybe more than once) prices change because they can. When they need to rise (due to production costs) and they can't without harming demand, then portions/quantity of the product change ("inflatio congnito").
Price inflation and an increase in prices may appear to be the same thing but they are the result of different forces. Price inflation is a result of an increase of the money supply and the resulting dillution of a currency's purchasing power. It works it's way througout the entire supply chain affecting the cost of labor, production or delivery of the product.
On the other hand "price increases" are normally voluntary and a business decision driven by supply and/or demand forces or even a desire for a higher profit margin.
Price inflation is different because it is completely beyond the control of the producer. Both producers and consumers suffer from the affects of price inflation. The benefactor of price inflation is tax revenue and those who owe great debt.
"Who needs risk management when you’ve got guaranteed bailouts? - Jesse Felder
<< <i>As an index it is susceptable to manipulation by those who calculate it. >>
Janet Yellen on one hand discounts the unemployment rate number as non accurate and then preaches the bogus CPI figure as gospel.
Not unexpected given the history of the administration.
Thankfully though, I have no kids and grand kids that will have to clean up this mess.
You guys have a nice weekend. I am heading up to my place on Mt. Lemmon.
1998 Russia collapse
1999 Low for gold and oil
2000 Technology bubble
2002 Bottom of the US stock market
2007 Real Estate bubble / oil hits $100
2009 Sovereign debt crisis
2011-2015 Japanese economic crisis / Euro begins to crack due to debt crisis
2015 Fall - Sovereign Debt Big Bang
MA was pretty close on these so far, only 1-2 years off on the "first" Sov debt crisis. He is predicting a Bigger Bang in 2015 as his 8.6 year Economic Confidence cycle model hits a peak in Sept 2015.
Apparently, he's one that thinks that $300 TRILL in TBTF US bank derivatives do mean something. In other words the first banking crisis generally papered over the real issues. His model also shows real estate in
decline from 2007-2033. Guess he's a doom and gloomer by those predictions. One thing he didn't see was the ability of the US Fed to reinflate out of each hole. While his ECM model is not precisely
correlated with the stock market, they are somewhat close (from 0-6 months difference).