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- and other less important issues from outside the diamond.
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With the help of friendly Central Banker Ben Bernanke and QEIII, this indicator tilts heavily toward Obama and seems certain to stay that way until early November.
Earlier this year, Sam Stovall, stock market historian and Chief Investment Strategist of S&P Capital IQ wrote about the above in his Standard & Poor's Stovall's Sector Watch, going on to say:
An S&P 500 price rise from July 31 through October 31 traditionally has predicted the re-election of the incumbent person or party,
a price decline during this period has pointed to a replacement.
Since 1948, this election-prognostication technique did an excellent job, in our view, recording an 88% accuracy rate in predicting the re-election of the party in power (it failed in 1968).
What's more, it recorded an 86% accuracy rate of identifying when the party in power would be replaced (it failed in 1956).
Therefore, pay attention to the market's performance in the three months leading up to the presidential election, as it will probably do a better job than the plethora of political pundits prognosticating on the presidency."
We're only 15 days into this indicator but, so far, it's pointing to the incumbent. Here's a chart of the S&P 500 since July 31.
H/T to the folks at Casey Research for this one. A brilliant presentation re: "algo trading" and "black box trading". Stock market terms that we know by name, but this puts a fascinating and frightening face on them.
Kevin Slavin Kevin Slavin navigates in the algoworld, the expanding space in our lives that’s determined and run by algorithms. Full bio and more links
About this Talk:
Kevin Slavin argues that we're living in a world designed for -- and increasingly controlled by -- algorithms. In this riveting talk from TEDGlobal, he shows how these complex computer programs determine: espionage tactics, stock prices, movie scripts, and architecture. And he warns that we are writing code we can't understand, with implications we can't control.
Interactive Transcript:
This is a photograph by the artist Michael Najjar, and it's real, in the sense that he went there to Argentina to take the photo. But it's also a fiction. There's a lot of work that went into it after that. And what he's done is he's actually reshaped, digitally, all of the contours of the mountains to follow the vicissitudes of the Dow Jones index. So what you see, that precipice, that high precipice with the valley, is the 2008 financial crisis. The photo was made when we were deep in the valley over there. I don't know where we are now. This is the Hang Seng index for Hong Kong. And similar topography. I wonder why.
And this is art. This is metaphor. But I think the point is that this is metaphor with teeth. And it's with those teeth that I want to propose today that we rethink a little bit about the role of contemporary math -- not just financial math, but math in general. That its transition from being something that we extract and derive from the world to something that actually starts to shape it -- the world around us and the world inside us. And it's specifically algorithms, which are basically the math that computers use to decide stuff. They acquire the sensibility of truth, because they repeat over and over again. And they ossify and calcify, and they become real.
And I was thinking about this, of all places, on a transatlantic flight a couple of years ago, because I happened to be seated next to a Hungarian physicist about my age and we were talking about what life was like during the Cold War for physicists in Hungary. And I said, "So what were you doing?"
And he said, "Well we were mostly breaking stealth."
And I said, "That's a good job. That's interesting. How does that work?" And to understand that, you have to understand a little bit about how stealth works. And so -- this is an over-simplification -- but basically, it's not like you can just pass a radar signal right through 156 tons of steel in the sky. It's not just going to disappear. But if you can take this big, massive thing, and you could turn it into a million little things -- something like a flock of birds -- well then the radar that's looking for that has to be able to see every flock of birds in the sky. And if you're a radar, that's a really bad job.
And he said, "Yeah." He said, "But that's if you're a radar. So we didn't use a radar; we built a black box that was looking for electrical signals, electronic communication. And whenever we saw a flock of birds that had electronic communication, we thought probably has something to do with the Americans."
And I said, "Yeah. That's good. So you've effectively negated 60 years of aeronautic research. What's your act two? What do you do when you grow up?" And he said, "Well, financial services." And I said, "Oh." Because those had been in the news lately. And I said, "How does that work?" And he said, "Well there's 2,000 physicists on Wall Street now, and I'm one of them." And I said, "What's the black box for Wall Street?"
And he said, "It's funny you ask that, because it's actually called black box trading. And it's also sometimes called algo trading, algorithmic trading." And algorithmic trading evolved in part because institutional traders have the same problems that the United State Air Force had, which is that they're moving these positions -- whether it's Proctor & Gamble or Accenture, whatever -- they're moving a million shares of something through the market. And if they do that all at once, it's like playing poker and going all in right away. You just tip your hand. And so they have to find a way -- and they use algorithms to do this -- to break up that big thing into a million little transactions. And the magic and the horror of that is that the same math that you use to break up the big thing into a million little things can be used to find a million little things and sew them back together and figure out what's actually happening in the market.
So if you need to have some image of what's happening in the stock market right now, what you can picture is a bunch of algorithms that are basically programmed to hide, and a bunch of algorithms that are programmed to go find them and act. And all of that's great, and it's fine. And that's 70 percent of the United States stock market, 70 percent of the operating system formerly known as your pension, your mortgage.
And what could go wrong? What could go wrong is that a year ago, nine percent of the entire market just disappears in five minutes, and they called it the flash crash of 2:45. All of a sudden, nine percent just goes away, and nobody to this day can even agree on what happened, because nobody ordered it, nobody asked for it. Nobody had any control over what was actually happening. All they had was just a monitor in front of them that had the numbers on it and just a red button that said, "Stop."
And that's the thing, is that we're writing things, we're writing these things that we can no longer read. And we've rendered something illegible. And we've lost the sense of what's actually happening in this world that we've made. And we're starting to make our way. There's a company in Boston called Nanex, and they use math and magic and I don't know what, and they reach in to all the market data and they find, actually sometimes, some of these algorithms. And when they find them they pull them out and they pin them to the wall like butterflies. And they do what we've always done when confronted with huge amounts of data that we don't understand -- which is that they give them a name and a story. So this is one that they found, they called the Knife, the Carnival, the Boston Shuffler, Twilight.
And the gag is that, of course, these aren't just running through the market. You can find these kinds of things wherever you look, once you learn how to look for them. You can find it here: this book about flies that you may have been looking at on Amazon. You may have noticed it when its price stared at 1.7 million dollars. It's out of print -- still ... (Laughter) If you had bought it at 1.7, it would have been a bargain. A few hours later, it had gone up to 23.6 million dollars, plus shipping and handling. And the question is: Nobody was buying or selling anything; what was happening? And you see this behavior on Amazon as surely as you see it on Wall Street. And when you see this kind of behavior, what you see is the evidence of algorithms in conflict, algorithms locked in loops with each other, without any human oversight, without any adult supervision to say, "Actually, 1.7 million is plenty."
(Laughter)
And as with Amazon, so it is with Netflix. And so Netflix has gone through several different algorithms over the years. They started with Cinematch, and they've tried a bunch of others. There's Dinosaur Planet, there's Gravity. They're using Pragmatic Chaos now. Pragmatic Chaos is, like all of Netflix algorithms, trying to do the same thing. It's trying to get a grasp on you, on the firmware inside the human skull, so that it can recommend what movie you might want to watch next -- which is a very, very difficult problem. But the difficulty of the problem and the fact that we don't really quite have it down, it doesn't take away from the effects Pragmatic Chaos has. Pragmatic Chaos, like all Netflix algorithms, determines, in the end, 60 percent of what movies end up being rented. So one piece of code with one idea about you is responsible for 60 percent of those movies.
But what if you could rate those movies before they get made? Wouldn't that be handy? Well, a few data scientists from the U.K. are in Hollywood, and they have story algorithms -- a company called Epagogix. And you can run your script through there, and they can tell you, quantifiably, that that's a 30 million dollar movie or a 200 million dollar movie. And the thing is is that this isn't Google. This isn't information. These aren't financial stats; this is culture. And what you see here, or what you don't really see normally, is that these are the physics of culture. And if these algorithms, like the algorithms on Wall Street, just crashed one day and went awry, how would we know, what would it look like?
And they're in your house. They're in your house. These are two algorithms competing for your living room. These are two different cleaning robots that have very different ideas about what clean means. And you can see it if you slow it down and attach lights to them. And they're sort of like secret architects in your bedroom. And the idea that architecture itself is somehow subject to algorithmic optimization is not far-fetched. It's super-real and it's happening around you.
You feel it most when you're in a sealed metal box, a new-style elevator, they're called destination control elevators. These are the ones where you have to press what floor you're going to go to before you get in the elevator. And it uses what's called a bin packing algorithm. So none of this mishegas of letting everybody go into whatever car they want. Everybody who wants to go to the 10th floor goes into car two, and everybody who wants to go to the third floor goes into car five. And the problem with that is that people freak out. People panic. And you see why. You see why. It's because the elevator is missing some important instrumentation, like the buttons. (Laughter) Like the things that people use. All it has is just the number that moves up or down and that red button that says, "Stop." And this is what we're designing for. We're designing for this machine dialect. And how far can you take that? How far can you take it? You can take it really, really far.
So let me take it back to Wall Street. Because the algorithms of Wall Street are dependent on one quality above all else, which is speed. And they operate on milliseconds and microseconds. And just to give you a sense of what microseconds are, it takes you 500,000 microseconds just to click a mouse. But if you're a Wall Street algorithm and you're five microseconds behind, you're a loser. So if you were an algorithm, you'd look for an architect like the one that I met in Frankfurt who was hollowing out a skyscraper -- throwing out all the furniture, all the infrastructure for human use, and just running steel on the floors to get ready for the stacks of servers to go in -- all so an algorithm could get close to the Internet.
And you think of the Internet as this kind of distributed system. And of course, it is, but it's distributed from places. In New York, this is where it's distributed from: the Carrier Hotel located on Hudson Street. And this is really where the wires come right up into the city. And the reality is that the farther away you are from that, you're a few microseconds behind every time. These guys down on Wall Street, Marco Polo and Cherokee Nation, they're eight microseconds behind all these these guys going into the empty buildings being hollowed out up around the Carrier Hotel. And that's going to keep happening. We're going to keep hollowing them out, because you, inch for inch and pound for pound and dollar for dollar, none of you could squeeze revenue out of that space like the Boston Shuffler could.
But if you zoom out, if you zoom out, you would see an 825 mile trench between New York City and Chicago that's been built over the last few years by a company called Spread Networks. This is a fiber optic cable that was laid between those two cities to just be able to traffic one signal 37 times faster than you can click a mouse -- just for these algorithms, just for the Carnival and the Knife. And when you think about this, that we're running through the United States with dynamite and rock saws so that an algorithm can close the deal three microseconds faster, all for a communications framework that no human will ever know, that's a kind of manifest destiny and will always look for a new frontier.
Unfortunately, we have our work cut out for us. This is just theoretical. This is some mathematicians at MIT. And the truth is I don't really understand a lot of what they're talking about. It involves light cones and quantum entanglement, and I don't really understand any of that. But I can read this map. And what this map says is that, if you're trying to make money on the markets where the red dots are, that's where people are, where the cities are, you're going to have to put the servers where the blue dots are to do that most effectively. And the thing that you might have noticed about those blue dots is that a lot of them are in the middle of the ocean. So that's what we'll do, we'll build bubbles or something, or platforms. we'll actually part the water to pull money out of the air, because it's a bright future if you're an algorithm.
(Laughter)
And it's not the money that's so interesting actually. It's what the money motivates. That we're actually terraforming the Earth itself with this kind of algorithmic efficiency. And in that light, you go back and you look at Michael Najjar's photographs, and you realize that they're not metaphor, they're prophecy. They're prophecy for the kind of seismic, terrestrial effects of the math that we're making. And the landscape was always made by this sort of weird, uneasy collaboration between nature and man. But now there's this third co-evolutionary force: algorithms -- the Boston Shuffler, the Carnival. And we will have to understand those as nature. And in a way, they are.
And if so, would now be the right time to play them? The S&P downgrade should pretty much wash away the lower interest rates that the last round of QE produced. The Dow is in the process of puking up it's QE induced rise faster than an incontinent baby. (see the charts and analysis from dshort.com below) You can say the recent decline is due to other factors, but I see it as a direct result of "No Mo' POMO"
Your move Benny. I understand you have this thing called the printing press. Perhaps now would be the time to crank it up again? Definition of insanity.
All eyes on you this week Benny. Don't disappoint those "reverse Pavloivian dogs" of the financial markets and the "crisis creators" in DC. They work hand in glove, even as they appear at times -- like acts in a play -- to be at odds with each other.
"If a picture is worth a thousand words, this chart needs little additional explanation — except perhaps for those who are puzzled by the Jackson Hole callout. The reference is to Chairman Bernanke's speech at the Fed's 2010 annual symposium in Jackson Hole, Wyoming. Bernanke strongly hinted about the forthcoming Federal Reserve intervention that was subsequently initiated in November, namely, the second round of quantitative easing, aka QE2. The NY Times captured the essence of the speech here.
Will there be a round three? Do children like Disneyland?"
"Quick take: Since the end of QE2, the yield on the 10-year note has dropped 60 basis points to 2.58%. The most recent Consumer Price Index (the July reading for June) stands at 3.56%, which gives us a real 10-year yield of -0.98%. In the wake of Standard & Poor's downgrade of U.S. long-term debt, it will be especially interesting to review this metric in the weeks ahead.
Let's have a look at a long-term perspective on Treasury yields. The chart below shows the 10-Year Constant Maturity yield since 1962 along with the Federal Funds Rate (FFR) and inflation. The range has been astonishing. The stagflation that set in after the 1973 Oil Embargo was finally ended after Paul Volcker raised the FFR to 20.06%."
I remember when I was a bigger fan of Warren Buffett and Charlie Munger and read the graduation speech Munger made outlining how students should have a "latticework of mental models" I was so smitten by the brilliance and simplicity of the concept that I kept repeating the words in my head over and over.
You get an PhD. in the game of life if you can learn the concepts and models outlined in this site.
A neat illustrative story at the end demonstrates how these models blend together in how you are talking about playing bridge or playing baseball. Interesting parallels in terms of mind-set.
“The better decision maker has at his/her disposal repertoires of possible actions; checklists of things to think about before he acts; and he has mechanisms in his mind to evoke these, and bring these to his conscious attention when the situations for decision arise.”
(Herbert Simon, Nobel Laureate)
How the exceptional mind works
According to Warren Buffett, his business partner, Charlie Munger has ‘the best 30-second mind in the world. He goes from A to Z in one move. He sees the essence of everything before you even finish the sentence’ (Forbes, January 22, 1996).
How does he do it?
Well, fortunately, Mr. Munger has explained his approach in lectures and books. Essentially, he thinks by using the BIG IDEAS from disciplines as diverse as physics and psychology. He has a list of these ideas (mental models) in his mind and quickly picks the one(s) applicable to the given situation, much as a pilot automatically goes through a checklist prior to take-off.
This website, inspired by the work of Charles Munger, provides over 100 models that can be brought consciously to mind to aid the thinking process.
Each model is described by at least one distinguished user. Examples include Warren Buffett, Richard Feynman, Robert Rubin and Peter Drucker, among others.
A mental model is an explanation of someone's thought process about how something works in the real world. It is a representation of the surrounding world, the relationships between its various parts and a person's intuitive perception about their own acts and their consequences. Our mental models help shape our behaviour and define our approach to solving problems (akin to a personal algorithm) and carrying out tasks.
A mental model is a kind of internal symbol or representation of external reality, hypothesized to play a major role in cognition, reasoning and decision-making. Kenneth Craik suggested in 1943 that the mind constructs "small-scale models" of reality that it uses to anticipate events.
Excerpt from Chapter I of "Investing: The Last Liberal Art" by Robert G. Hagstrom
A Latticework of Mental Models
How does one achieve worldly wisdom? To state the matter concisely, it is an
ongoing process of, first, acquiring the significant concepts--the models--from
many areas of knowledge and then, second, learning to recognize patterns of
similarity among them. The first is a matter of educating yourself; the second
is a matter of learning to think and see differently.
He challenged the students to broaden their vision of the market, of finance, and of economics in general; to see them not as separate disciplines but as part of a larger body of knowledge, one that also incorporates psychology, engineering, mathematics, physics, and the humanities.
In this broader view, he suggested, each discipline entwines with, and in the process strengthens, every other. From each discipline the thoughtful person draws significant mental models, the key ideas that combine to produce a cohesive understanding. Those who cultivate this broad view are well on their way to achieving worldly wisdom, that solid mental foundation without which success in the market--or anywhere else--is merely a short-lived fluke.
To drive his point home, Charlie used a memorable metaphor to describe this interlocking structure of ideas: a latticework of models. "You've got to have models in your head," he explained, "and you've got to array your experience-both vicarious and direct-on this latticework of models." So immediate is this visual image that latticework has become something of a shorthand term in the investment world, a quick and easily recognized reference to Munger's approach.
The quotes, talks, and speeches presented here are rooted in the old-fashioned Midwestern values for which Charlie has become known: lifelong learning, intellectual curiosity, sobriety, avoidance of envy and resentment, reliability, learning from the mistakes of others, perseverance, objectivity, willingness to test one’s own beliefs, and many more. But his advice comes not in the form of stentorian admonishments; instead, Charlie uses humor, inversions (following the directive of the great algebraist, Jacobi, to “Invert, always invert”), and paradox, to provide sage counsel about life’s toughest challenges.
Charlie also employs historical and business case studies to great effect. In these presentations, he makes his points with subtlety and texture, often using a story-like context instead of abstract statements of theory. He regales his audience with humorous anecdotes and poignant tales, rather than with a blizzard of facts and figures. He well knows, and wisely exploits, the traditional role of the storyteller as purveyor of complex and detailed information. As a result, his lessons hang together in a coherent “latticework” of knowledge, available for recall and use when needed.
It is clear throughout these talks and speeches that Charlie places a premium on life decisions over investment decisions. His mental models, drawn from every discipline imaginable, recur repeatedly and, in no way, focus on “business portfolio strategy” or “beta” or “Cap M.” Rather, they center on fundamental truth, human accomplishment, human foibles, and the arduous path to wisdom. Charlie once said, “I wanted to get rich so I could be independent, like Lord John Maynard Keynes.” Independence is the end that wealth serves for Charlie, not the other way around.
HANDLING LOSSES IN AN ENVIRONMENT WHERE WINNING IS IMPORTANT:
"After all is said and done, learning to handle losses will be your greatest triumph." -- Robert Prechter.
More from Prechter:
There are many denials of reality which automatically disqualify millions of people from joining the ranks of successful speculators. For instance, to moan that "pools," "manipulators," "insiders," "they," "the big boys" or "program trading" (known today as "high-frequency trading" -- Ed.) are to blame for one's losses is a common fault.
Anyone who utters such a conviction is doomed before he starts. [My] observation, after eleven years "in the business," is that the biggest obstacle to successful speculation is the failure merely even to recognize and accept the simple fact that losses are part of the game, and that they must be accommodated.
The perfect trading system does not exist. Expecting, or even hoping for, perfection is a guarantee of failure. Speculation is akin to batting in baseball. A player hitting .300 is good. A player hitting .400 is great. But even the great player fails to hit 60% of the time! He even strikes out often. But he still earns six figures a year, because although not perfect, he has approached the best that can be achieved. You don't have to be perfect to win in the markets, either; you "merely" have to be better than almost everybody else, and that's hard enough.
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I read an investment article recently from the Hussman Funds titled "Why Warren Buffet Plays Bridge" and it is especially appropriate to the craft of hitting in baseball in addition to long-term success in investing.
The reason relates to the story Buffet's mentor the legendary investor Benjamin Graham tells about the game of bridge. Focus on the process not the results.
"I recall to those of you who are bridge players the emphasis that bridge experts place on playing a hand right rather than on playing it successfully, Because as you know, if you play it right you are going to make money an d if you play it wrong you lose money - in the long run.
There is a beautiful little story about the man who was the weaker bridge player of the husband-and-wife team. It seems he bid a grand slam, and at the end he said very triumphantly to his wife 'I saw you making faces at me all the time, but you notice I not only bid this grand slam but I made it. What can you say about that?' And his wife replied very dourly, 'If you had played it right you would have lost it."
The author rightly observes that it takes restraint to play the game " the right way", with an established "discipline" or approach and let the law of averages work out in your favor. You don't try to win every hand. He describes having the right "temperament" to execute the "approach" and not deviate from it.
The same temperament and approach leads to success in baseball.
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"Anytime you and I question the schemes of the do-gooders, we're denounced as being against their humanitarian goals. They say we're always "against" things — we're never "for" anything. Well, the trouble with our liberal friends is not that they're ignorant; it's just that they know so much that isn't so." - Ronald Reagan
For some perspective on the long-term performance of the stock market, today's chart presents the Dow priced in another global currency – gold (i.e. the Dow / gold ratio). For example, it currently takes less than a mere eight ounces of gold to 'buy the Dow' which is considerably less than the 44.8 ounces it took back in 1999. Priced in gold, the Dow has been in a massive 11-year bear market. Recently, the Dow (priced in gold) stopped declining for long enough to break above its six-year, accelerated downtrend channel. However, shortly after the break out, the Dow (priced in gold) pulled back to post-crisis lows.
One positive for the stock market has been the dramatic rise in earnings since early 2009. For some long-term perspective, today’s chart illustrates inflation-adjusted, as reported S&P 500 earnings since 1900. One period that stands out is the 92% plunge from the Q3 2007 peak to the Q1 2009 low which brought inflation-adjusted earnings to near Great Depression lows. Since its Q1 2009 low, S&P 500 earnings have surged (up over eleven-fold) and are currently fast approaching credit bubble peak levels. It is interesting to note that the only time that inflation-adjusted S&P 500 earnings have been higher than current levels was a relatively brief 18-month period from late 2006 to early 2008.
A loss never troubles me after I take it. I forget it overnight. But being wrong — not taking the loss — that is what does the damage to the pocket book and to the soul. -- Jesse Livermore in Reminiscences of a Stock Operator
Obama expressed the following opinion about the flagging economy:
"What we did know was that it took nearly a decade - to dig the hole we are in."
Then the President gave himself eight years of economic leeway following the "dig the hole" comment with an "even longer to dig our way out."
After the sound system issues, garbled statements and flyover airplane interference ceased, the President continued blaming G.W. and then segued directly into pointing the finger at Senate Republicans. Never once did Obama acknowledge any personal culpability for being completely and hopelessly clueless.
Maybe someone should have raised their hand and reminded Obama that during the first six years of Bush's tenure the economy was booming. It was the last two years, after a national referendum on Iraq, that Democrats took over both houses and the economy began to falter. Adding Obama's liberal-socialistic policies to the already ailing economy turned a benign common cold into a case of full-blown pneumonia.
I propose a presidential ticket of Rick Santelli and Baseball Crank with Ron Paul as the next Federal Reserve Chairman. That would end the need for an audit of the Fed that nobody seems to want. Who's with me on this?
Three guys who are generally portrayed as kooks, loons, cranks or crack-pots by the criminally inept MSM, but I would bet that if we had heeded some of their words of advice from the past, we would not be in the economic or political predicament that we are in today. I speak specifically about Ron Paul-- who was portrayed unfairly by the MSM in the last presidential beauty pageant--CNBC commentator Rick Santelli and the writer of one of my favorite blogs Baseball Crank. Baseball Crank is a nom de plume, although his real identity is not much of a secret.
AGAIN I ASK, WHEN DO WE GET TO THIS POINT?
Some of my favorite hits from the past and present from these artists.
RICK SANTELLI - STOP SPENDING!! STOP SPENDING!! STOP SPENDING!! JUNE 28, 2010 - SANTELLI VS. LIESMAN - THE STOP SPENDING RANT!!!
RON PAUL - END THE FED FEB 27, 2008 - RON PAUL SCHOOLS BEN BERNANKE
AGAINST THE BAILOUT SEP 27, 2008 - BEWARE THE SNAKE OIL SALESMAN OF THE BAILOUT
AGAINST THE FED OCT 24, 2008 - ON GOVERNMENT (IN)EFFICIENCY
AGAINST THE STIMULUS THE ORIGINAL RANT - FEB 19, 2009 - THE GENESIS OF THE TEA PARTY
Here is Mr. Santelli unplugged, for more than a 30 second sound byte of screaming that CNBC allows and encourages. What he says makes a lot more sense this way.
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Along with much the same argument and some cool data tables to back them up is Baseball Crank. I posted the entry in it's entirety because it is so good and so important to understand. You can either read it all here or on his site, but read it and understand it you should. If I violated any fair use provisions I am quite certain that being an attorney Mr. Crank will let me know. Happy reading and understanding.
from the blog Baseball Crank
POLITICS: Deficits Are A Symptom. The Problem Is Spending.
JULY 15, 2010
The Obama Administration has been in something of a quandary lately as to whether to primarily emphasize its plans to spend more taxpayer money as "stimulus" or to paint itself as fighting against deficits. The former has the advantage of looking like the White House is doing - or trying against GOP opposition to do - something about the economy and its still-listless rates of growth and job recovery; the latter has the advantage of allaying voter fears that the Democrats have been doing too much and digging us into a fiscal hole, as well as offering at least the possibility of bipartisanship or faux bipartisanship that helps (whether Republicans accept or reject Obama's offers) blur the lines between the parties on deficits and spending. Remember that the one thing Obama has sought from Day One of his stimulus strategy, and has largely failed at, is to avoid presenting a clear contrast between the two parties on spending and the size of government, that being an argument he cannot win.
With a deficit commission working on proposals that will be delivered after the fall election, some liberal pundits/activists like Ezra Klein of the Washington Post and Matthew Yglesias of ThinkProgress are trying to keep both options open by arguing that conservatives are somehow hypocritical for complaining about massive deficits under Obama and the Democratic Congress while promoting tax cuts to help with the lack of economic growth. But read their work and notice, as with Obama, what's missing: they talk only about deficits, not about spending - you will search Klein's column in vain for any indication that anyone should care how obese government gets, as long as it's feasting on current tax revenues instead of on deficit financing. And naturally, when and if Obama tries to do something about the deficit, he too will view it mainly as a revenue problem, not a problem with spending and the size of government. Indeed, history shows that even Beltway Republicans have tended to fall into the trap of assuming that the problem is mainly one of raising revenue, or at least that any deal to fix the deficit can only attract Democratic support if it includes Democrats' beloved tax hikes.
This is going about the question all wrong. Would you rather have a federal government that spends 15 cents of every dollar earned in this country, while taxing 12 and making up the difference by issuing debt - or a federal government that takes in and spends 30 cents of every dollar? I'd much prefer the former. The Democrats don't want to have that conversation at all.
Either way the spending is financed, the amount spent by government is a portion of the economy that cannot produce meaningful growth. Yes, wise government can play a role in a better growth environment, and yes, at times the government produces a little growth on its own, e.g., government scientists invent things that can help the economy grow. But by and large, a dollar invested in the public sector is a dollar that will never bear more than a dollar in fruit, and next year the government comes looking for another dollar, while a dollar left in the private sector can grow and be used later in either private or public hands. (In Biblical terms, the dollar in the public sector is like the servant who buried his master's money in the back yard) All of the growth we take for granted as producing increasing wealth over time comes from the portion of the economy that is not consumed by government. So, using our oversimplified example, which obviously excludes the state and local public sector, you have one economy in which 70 cents of every dollar goes back to the private sector to grow, and one in which 85 cents does. Which economy do you think will have more money after a couple of generations of this? Even at a paltry private-sector growth rate of 2% per year, the first economy has produced $1.59 at the end of three years for every dollar, and the second has produced $2.27. As I said, this is a vast oversimplification, but there's simply no way for the first economy to grow faster unless you believe - contrary to the most fundamental tenets of economics and history - that the public sector can produce economic growth at a rate comparable to the private sector.
Moreover, within reason, running a modest deficit can make sense, for reasons somewhat analogous to why a corporation issues bonds as well as stock to raise capital, or why even well-off families (especially under the present tax code) may take out a mortgage: sometimes, debt is cost-effective. As long as it is a safe bet to repay its debts, the US federal government can borrow funds more cheaply than any other entity on earth, and while debt requires us to pay interest, which means mandated spending, if the money not taxed is growing in the private sector at a faster rate than the interest rate paid by the government, then deficit spending makes sense for the same reason why you might buy stocks instead of paying down your mortgage - the rate of return is better. Also, the federal government should never run a surplus, since if the government is collecting, say, 20% in taxes and spending 18%, it's the 20% figure that represents the bite taken out of the private sector. So, the target for revenue should always aim for a little below spending.
But the fact that deficits can make economic sense under the right conditions does not mean that all deficits do - the bigger the debt, the more interest is paid on it (thus, more spending), and the higher rates must be paid (because too-large debt makes bond markets worry about credit risk); and the higher proportion of government spending that's financed by deficits, the worse are your odds that the money left in private hands will grow faster than the interest rate. At some point, deficit financing becomes a very bad bet. And of course, there are situations where the government may need to run a surplus if it needs to use the difference to pay down enough debt to get back to its usual position of running a manageable deficit, a strategy used in the past after the federal government took on excessive debts in a short stretch to fight wars.
So, why are conservatives up in arms now over deficits? Two reasons. One - which the Democrats seem determined to ignore - is that public concern about deficits is often linked to concern about spending and the size of government. Huge deficits can be a major symptom of overspending. But they're the symptom, not the disease. I have a chart below the fold showing federal revenue, spending, deficits, debt and interest as a percentage of GDP, as well as deficits and interest as a percentage of spending (the Def% and Int % columns) and partisan control of the White House, House and Senate from 1947 through 2011.
Until the 2006 elections, we hadn't been over spending 21% of GDP since the 1994 GOP takeover of Congress, and hadn't been over spending 23.5% of GDP in the postwar period. But the first year of the new Democratic Congress took us to 20.7%, then 24.7%, with spending projected to crack 25% for 2010 and 2011 for the first time, as the deficit - never above 6% before, below 4% since 1993 and often below 2% during the era of GOP control of Congress - soars to 9.9% in 2009 and projected 10.6% in 2010. This is simply more spending than the economy can bear, and the deficit is a symptom of that problem.
And two, we're in a situation now where the proportion of deficit spending is itself out of hand. Check the Def% column in the chart - in fiscal years 2009 and (projected) 2010, we're paying for over 40% of government spending by issuing debt, while it had topped out at 18.1% during the years the GOP controlled Congress and 25.5% as the postwar high. It's not at all unreasonable to be unconcerned when you're borrowing 10% or 15% of your budget - when you're borrowing 40%, you're living beyond your means. And anybody who thinks you can fix that by collecting a quarter of GDP in federal taxes is insane.
Spending has to come down. That's the only way to fix the deficit problem and the growth problem.
Here's the chart:
Yr Rev Spend Defc Def% Debt Int Int% WH H S
1947 16.5 14.8 1.7 11.49 110.3 1.8 12.16 D D D
1948 16.2 11.6 4.6 39.66 98.4 1.7 14.66 D R R
1949 14.5 14.3 0.2 1.40 93.2 1.7 11.89 D R R
1950 14.4 15.6 -1.1 -7.05 94.1 1.8 11.54 D D D
1951 16.1 14.2 1.9 13.38 79.6 1.5 10.56 D D D
1952 19 19.4 -0.4 -2.06 74.3 1.3 6.70 D D D
1953 18.7 20.4 -1.7 -8.33 71.3 1.4 6.86 D D D
1954 18.5 18.8 -0.3 -1.60 71.8 1.3 6.91 R R R
1955 16.6 17.3 -0.8 -4.62 69.5 1.2 6.94 R R R
1956 17.5 16.5 0.9 5.45 63.8 1.2 7.27 R D D
1957 17.8 17 0.8 4.71 60.5 1.2 7.06 R D D
1958 17.3 17.9 -0.6 -3.35 60.7 1.2 6.70 R D D
1959 16.1 18.7 -2.6 -13.90 58.5 1.2 6.42 R D D
1960 17.9 17.8 0.1 0.56 56.1 1.3 7.30 R D D
1961 17.8 18.4 -0.6 -3.26 55.1 1.3 7.07 R D D
1962 17.6 18.8 -1.3 -6.91 53.4 1.2 6.38 D D D
1963 17.8 18.6 -0.8 -4.30 51.8 1.3 6.99 D D D
1964 17.6 18.5 -0.9 -4.86 49.4 1.3 7.03 D D D
1965 17 17.2 -0.2 -1.16 46.9 1.3 7.56 D D D
1966 17.4 17.9 -0.5 -2.79 43.6 1.2 6.70 D D D
1967 18.3 19.4 -1.1 -5.67 41.9 1.3 6.70 D D D
1968 17.7 20.6 -2.9 -14.08 42.5 1.3 6.31 D D D
1969 19.7 19.4 0.3 1.55 38.6 1.3 6.70 D D D
1970 19 19.3 -0.3 -1.55 37.6 1.4 7.25 R D D
1971 17.3 19.5 -2.1 -10.77 37.8 1.4 7.18 R D D
1972 17.6 19.6 -2 -10.20 37 1.3 6.63 R D D
1973 17.7 18.8 -1.1 -5.85 35.7 1.3 6.91 R D D
1974 18.3 18.7 -0.4 -2.14 33.6 1.5 8.02 R D D
1975 17.9 21.3 -3.4 -15.96 34.7 1.5 7.04 R D D
1976 17.2 21.4 -4.2 -19.63 36.2 1.5 7.01 R D D
TQ76 17.8 21 -3.2 -15.24 35.2 1.5 7.14 R D D
1977 18 20.7 -2.7 -13.04 35.8 1.5 7.25 R D D
1978 18 20.7 -2.7 -13.04 35 1.6 7.73 D D D
1979 18.5 20.2 -1.6 -7.92 33.2 1.7 8.42 D D D
1980 19 21.7 -2.7 -12.44 33.3 1.9 8.76 D D D
1981 19.6 22.2 -2.6 -11.71 32.6 2.3 10.36 D D D
1982 19.1 23.1 -4 -17.32 35.2 2.6 11.26 R D R
1983 17.5 23.5 -6 -25.53 39.9 2.6 11.06 R D R
1984 17.4 22.2 -4.8 -21.62 40.7 2.9 13.06 R D R
1985 17.7 22.9 -5.1 -22.27 43.9 3.1 13.54 R D R
1986 17.4 22.4 -5 -22.32 48.1 3.1 13.84 R D R
1987 18.4 21.6 -3.2 -14.81 50.5 3 13.89 R D R
1988 18.2 21.3 -3.1 -14.55 51.9 3 14.08 R D D
1989 18.4 21.2 -2.8 -13.21 53.1 3.1 14.62 R D D
1990 18 21.8 -3.9 -17.89 55.9 3.2 14.68 R D D
1991 17.8 22.3 -4.5 -20.18 60.6 3.3 14.80 R D D
1992 17.5 22.1 -4.7 -21.27 64.1 3.2 14.48 R D D
1993 17.6 21.4 -3.9 -18.22 66.2 3 14.02 R D D
1994 18.1 21 -2.9 -13.81 66.7 2.9 13.81 D D D
1995 18.5 20.7 -2.2 -10.63 67.2 3.2 15.46 D D D
1996 18.9 20.3 -1.4 -6.90 67.3 3.1 15.27 D R R
1997 19.3 19.6 -0.3 -1.53 65.6 3 15.31 D R R
1998 20 19.2 0.8 4.17 63.5 2.8 14.58 D R R
1999 20 18.7 1.4 7.49 61.4 2.5 13.37 D R R
2000 20.9 18.4 2.4 13.04 58 2.3 12.50 D R R
2001 19.8 18.5 1.3 7.03 57.4 2 10.81 D R R
2002 17.9 19.4 -1.5 -7.73 59.7 1.6 8.25 R R D
2003 16.5 20 -3.5 -17.50 62.5 1.4 7.00 R R D
2004 16.4 19.9 -3.6 -18.09 64 1.4 7.04 R R R
2005 17.6 20.2 -2.6 -12.87 64.6 1.5 7.43 R R R
2006 18.5 20.4 -1.9 -9.31 64.9 1.7 8.33 R R R
2007 18.8 20 -1.2 -6.00 65.5 1.7 8.50 R R R
2008 17.5 20.7 -3.2 -15.46 69.2 1.8 8.70 R D D
2009 14.8 24.7 -9.9 -40.08 83.4 1.3 5.26 R D D
2010* 14.8 25.4 -10.6 -41.73 94.3 1.3 5.12 D D D
2011* 16.8 25.1 -8.3 -33.07 99 1.6 6.37 D D D
Sources here, here and here, from the master budget-history site which has now been moved to the White House website. House/Senate historical partisan breakdowns here and here, including this note on fiscal years:
The Federal fiscal year begins on October 1 and ends on the subsequent September 30. It is designated by the year in which it ends; for example, fiscal year 2007 began on October 1, 2006, and ended on September 30, 2007. Prior to fiscal year 1977 the Federal fiscal years began on July 1 and ended on June 30. In calendar year 1976 the July-September period was a separate accounting period (known as the transition quarter or TQ) to bridge the period required to shift to the new fiscal year.
As with the prior iteration of this chart, I use 1947 as a starting point, as it's the first year after full demobilization from World War II; the war budgets were colossal - in Fiscal Year 1943, the deficit was over 30% of GDP. And before the New Deal, federal spending was generally less than 10% of GDP. The OMB site has projections beyond 2011, but since we don't even have a 2011 budget yet, much less the Congress that will vote on the 2012 budget, the projections further out than that are useless even if you assume that the federal budget forecasters have perfect clairvoyance about the state of the economy two or more years out (hint: I don't).
According to Sports Illustrated, if you invested $25 in a US treasury EE bond on January 1, 2000, it would now be worth $36.10. If you plunked that money in the S&P, it would be worth $22.45. Had you invested in an index fund that tracked the value of professional sports franchises, it would have doubled or tripled.
As the Age of Austerity permeates, look for attendance at sporting events to decline as consumers curtail discretionary spending. This should manifest through regional blackouts and the contraction of major league franchises. While there will be relative winners -- soccer should benefit with the arrival of the 2010 FIFA World Cup -- we'll likely see "status backlash" against high profile professional athletes.
Update: Status backlash indeed; while Tiger Woods and Michael Vick set this trend in motion, Ben Roethlisberger, Lawrence Taylor and Jamarcus Russell, for this self-loathing Raider fan, proved yet again that money can buy many things but public opinion isn't for sale. (See: The Short Sale of American Icons)
Structurally, we've yet to see contraction on the professional level but the realignment of college conferences -- and the raid on the Big 12 -- is likely the first step towards major restructuring. Overall annual revenue for college athletics programs is estimated at about $10.6 billion, according to the NCAA. Look for institutions of higher learning -- and perhaps the student-athletes -- to jockey for a bigger slice of that pie.
Your tax dollars at work, hypocrisy in action. The same thing they accuse Goldman Sachs for doing, they are doing as individuals. GREAT!! And if you want to say, NO, SLAV, Goldman Sachs is accused of fraud, well there's plenty of fraud in D.C., correct?
Remember all that scorn in Congress about evil shortsellers betting against America and bringing the country down?
Well, it turns out Congress-people did it, too. And they used derivatives to do it, which they now say they abhor.
(For the record, we have no problem with shortselling or derivatives, and we find the routine scapegoating of both after market crashes ludicrous. But if you're going to complain about how awful shortselling is and how evil and venal people are for doing it, you should probably abstain from the practice yourself.
And, yes, most of the folks here were just betting against stocks, not actually selling stocks short. But it's the same idea. To use their own tortured, populist logic, they were betting against the country and their 401k-holding constituents!)
Jason Zweig, Tom McGinty, and Brody Mullins in the WSJ:
Some members of Congress made risky bets with their own money that U.S. stocks or bonds would fall during the financial crisis, a Wall Street Journal analysis of congressional disclosures shows.
Senators have criticized Goldman Sachs Group Inc. for profiting from the housing collapse. And Congress is considering legislation to curb Wall Street risk-taking, including the use of financial instruments known as derivatives and of leverage, or methods that amplify returns.
According to The Journal's analysis of congressional disclosures, investment accounts of 13 members of Congress or their spouses show bearish bets made in 2008 via exchange-traded funds—portfolios that trade like stocks and mirror an index. These funds were leveraged; they used derivatives and other techniques to magnify the daily moves of the index they track.
And what were the regulators doing while the financial crisis brewed and bubbled. Well, they missed the Madoff scandal, they missed the Sanford scandal, they missed the sub-prime debacle.. WHY, YOU ASK?. Maybe this explains it.
According to CNN report:
Report: SEC staffers watched porn as economy crashed
April 23, 2010 12:31 p.m. EDT
So just like the health care reform debacle--which does nothing to contain costs by ignoring tort reform--we will get financial reform, that does nothing to address the REAL underlying problems that got is here--GOVERNMENT MEDDLING AND INCOMPETENCE.
And what will come next, no doubt, is REFORM of the energy industry. So we'll have more central planning of huge chunks of our economy by government bureaucrats. Great, ask Greece how that's working out for them. What's happening in Greece is a preview of coming attractions over here in the good old U.S.A. given the track we seem to be taking.
Three key economic levels have been reached recently that have led us to the economic crisis we face today and may face in the near future.
1) Governments spending beyond their means producing unsustainable levels of debt.
2) Household or consumer spending rose beyond levels that can be reasonably sustained.
3) Levels of home ownership were propelled to levels that could not be sustained by consumers, banks and mortgage lenders.
In example one, government is guilty of being greedy and somewhat less than prudent. In the second example, consumers got carried away and borrowed beyond their means. In example three, the guilt should be shared by GOVERNMENT AND CONSUMERS as well as financial firms. All acted in their own SELF-INTEREST and all got caught playing too close to the fire and got burned.
It's time for ALL parties to take ownership of their part in development of the crisis, instead of just demonizing one party or group. (does that sound familiar?)
Recent economic figures show that consumers are taking reasonable and prudent measures to recover. Unfortunately, banks and financial firms are doing the same, which is furthering the pain. It's time for government to take the necessary steps to tighten their belts and spend more intelligently.
--------- When Government deficits exceed 40% of expenditures - historically the tipping point for hyperinflation has been breached.
"There have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz (Professor Emeritus of Economics in the Center for Economics and Business (WWZ) at the University of Basel, Switzerland) has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz analyzes the 12 largest episodes of hyperinflations - all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government's deficit exceed 40% of its expenditures.
"According to the current Office of Management and Budget (OMB) projections, US federal expenditures are projected to be $3.653 trillion in FY 2009 and $3.766 trillion in FY 2010, with unified deficits of $1.580 trillion and $1.502 trillion, respectively. These projections imply that the US will run deficits equal to 43.3% and 39.9% of expenditures in 2009 and 2010, respectively. To put it simply, roughly 40% of what our government is spending has to be borrowed. [Emphasis mine]
"One has to ask whether the US reached the critical tipping point. Beyond the quantitative measurements associated with government deficits and money creation, there exists a qualitative aspect to such a scenario that may be far more important.
The qualitative perceptions of fiscal and monetary policies are impossible to control once confidence is lost. In fact, recent price action in metals, the dollar and commodities suggests that the market is already anticipating the future."
Let me point out that the deficits for 2010 assume a rather robust recovery, and so they could turn out to be much worse, especially if unemployment continues to rise and Congress decides (rightly) to extend unemployment benefits.
------
When aggregate household consumption grows to over 70% of GDP, it is a level that historically is unsustainable
The U.S. Economic Crisis: Root Causes and the Road to Recovery
Return to prosperity requires reversal of excessive consumption, low savings trends.
BY GREGORY W. BROWN, PH.D. AND CHRISTIAN LUNDBLAD, PH.D.
OCTOBER 2009
At the broadest level, we have witnessed a consumption boom over the last two decades, where U.S. aggregate household consumption grew to represent more than 70% of gross domestic product (GDP), a historically and unsustainable high level
Homeownership rates expected to drop with housing market
By Allison Bruce
Posted September 9, 2009 at 12:01 a.m.
“Maybe not everybody should own a home,” said Bill Watkins, executive director of the Center for Economic Research and Forecasting at California Lutheran University.
Though homeownership is often talked about as the crowning achievement of the American Dream, high homeownership rates have led to the economic troubles now facing the nation.
Not everyone in the country was meant to own a home. We stretched the system a little too far to give everyone who wanted to own a home the chance to own one BEFORE THEY WERE READY.
Even though it’s easy to say that there should be a balance of homeowners to renters, finding that ratio is difficult. There’s no theory for the right rate, so it comes down to looking at the data, Watkins said.
For the U.S., it seems the right rate is about 64 percent to 65 percent homeownership. Build it up higher and you run into people getting loans by lying, unscrupulous lending and eventual collapse of the financial system, Watkins said.
Socialism is not in the least what it pretends to be. It is not the pioneer of a better and finer world, but the spoiler of what thousands of years of civilization have created. It does not build; it destroys. For destruction is the essence of it. It produces nothing, it only consumes what the social order based on private ownership in the means of production has created - Ludwig von Mises
All of which leaves true capitalism – a product of the voluntary society and the sum total of all the exchanges and cooperative acts of people all over the world – with few actual intellectual defenders. They are growing, but the educational work we need to do is daunting, and we are facing the most powerful forces in the world. There is nothing new in this. In the history of the world, freedom is the exception, not the rule. It must be fought for anew in every generation. Its enemies are everywhere, but the leading enemy is ignorance. For this reason, the main weapon we have at our disposal is education. - Lew Rockwell
Yet traders who rely on technical analysis were focused on a different number and index. Specifically, 1,121 on the S&P 500 (SPX 1,088, +14.37, +1.34%) , another popular benchmark to take the market's pulse. Chart watchers have marked 1,121 for the S&P 500 as a crucial point because it represents a 50% retracement of the epic market crash that played out between October 2007 and March 2009. The 50% level is a favorite among traders because stocks have historically tended to move even higher once they clear that hurdle. Retracements of 38.2% and 61.8% are other key points, based on the Fibonacci series. 'Important level' The 50% retracement level of 1,121 is the midpoint between the S&P 500's all-time high of 1,576 in October 2007, and the bear-market low of about 666 in early March.
In regard to the lingering Moneyball debate of employing statistical analysis vs. old-school scouting of physical tools to evaluate players, I do see a bit of a parallel. The stock market has its own philosophical divide in the battle between those who employ fundamental analysis and those who believe in technical analysis to guide their evaluation of the market and how to trade.
And why not? Michael Lewis, the author of Moneyball, previously wrote "Liar's Poker" which was about the financial industry and the big money players on Wall Street.
I think one of the lessons that baseball should have been learned from Moneyball was not to rely on just one method or the other, but an intelligent blending of the most effective information obtained from both methodologies. They complement rather than compete with one another.
One of the lessons learned the hard and expensive way from the recent market collapse was being blind or ignorant to the signals given by one methodology that are not looked at through adherence to the other can lead to repeated errors and frustration.
For what it's worth, my predictions for the market:
The DOW reaches 11,300
The S&P500 reached 1,295
mainly because,
The Dollar Index continues its slow death spiral and moves from $75 to $65. But hopefully, it does so in an orderly fashion.Doesn't that sound like how one would exit a burning building?
"The dollar worth less (two words) on the road to worthless (one word)"
The Treasuries are about to get their come-uppance with
The 30 year rising from 4.25% to 4.75% or higher shortly. Get your refi or your mortgage now, people.
which dovetails to,
Oil rising from $75 to $95 on the road back to triple digits.
Gold marches from $1,050 to $1,300--but it is....
Silver that shines brightest moving from $17.50 to $25
Ag Prices will rise with the Goldman Sachs Ag Index rising from 325 to 400
The CRB index rises from 270 to 320
So if you eat it, fuel your vehicle with it, produce anything with petroleum products, or use dollars to buy it, it will be more expensive in the future.
And tell your damn CPI to shut the heck up.
If the frauds in government had not criminally manipulated that statistic to rip off grandma and grandpa's Social Security cost of living adjustments, then we wouldn't be offering them $250 dollar "guilt" checks after the fact now would we?
These can't be any worse than my baseball predictions, can they?
Enjoy DOW 10K while you can folks, because we will ALL surely pay for it in the future. Let the great shell game of life continue.
We may not be collectively singing "Happy Days are here Again" but don't look now-- according to the forward looking stock market--maybe we should at least begin humming a few bars.
The Dow has crossed 9,000 to go positive for the year, finally.
The S&P 500 is @ 975 and looking to cross 1,000.
The tech-laden NASDAQ is sniffing the 2,000 level.
POSITIVE SIGNS FOR CONTINUED OPTIMISM:
TED Spread is 0.33 and going lower (0.20 in the pre-collapse days)
Barron's Confidence Index is ~70 and improving (70+ pre-collapse)
Fed Discount Rate Model is accommodative (bullish for stocks)
Yield Curve Spread is > 3.5% and upward sloping (bullish for financials and economy overall
VIX < 30 (15-20 pre-collapse)
NEGATIVE SIGNS THAT COULD RUIN THE PARTY:
Continued rising unemployment approaching 10%
Home prices that may be bottoming, but haven't clearly turned back upward
Does stimulus help or hurt
---------
Brian Wesbury, First Trust Advisors
As he writes in his latest Forbes commentary: "To determine
fair value for the stock market we use historical norms for
the relationship between stock prices, interest rates and
corporate profits. These norms suggest that with interest
rates at current levels and corporate profits where they
were in the first quarter of 2009, stocks today are at no
more than 50% of fair value. Yes, that's right, stocks would
have to roughly double from here to get to fair value."
--------
Treasury Secretary Timothy Geithner said during a visit to Beijing on June 2 that Chinese officials expressed "justifiable confidence" in the strength of the American economy [They also laughed at him when he told them China’s investment in US assets were safe]. China expects the greenback to maintain its role for "many years to come," Deputy Foreign Minister He Yafei told reporters in Rome on July 5.
---------
There are considerable challenges in the short-term. The adminsitration and Congress has to do a better job helping to revive employment and housing. The Fed has done all it can do to help. If Bernake is wrong about QE and the Congress/Administration/Treasury screws up on the policy front, we'll be back to gold,guns and Campbell Soup.
Question?? Why when oil goes up, it's due to greedy speculation. But when it goes down, there is no question about speculation driving the price south? One of the biggest driver of price of any commodity is the monetary policy of the biggest speculators in the world, the Reserve Banks. Their speculation moves the price of oil, agriculture, gold, silver, copper and other basic materials. Just asking.
Rick Santelli hit the nail on the head with this analysis of the Administration's foreclosure mitigation plans.
A Chicago Tea Party in July. I'M THERE. They should throw some of these idiot politicians in Lake Michigan instead of tea though.
Santelli is a straight shooter who doesn't sugarcoat it.
We the people, are subsidizing the banks, the auto companies and now the morons who got in over their heads to own a home and should have remained renters.
This isn't T-Ball people, we keep score and there are winners and losers in life.
This middle class that Obama/Biden seemed so concerned about during the campaign is getting no relief from any of these packages and will instead be asked to pay the bill.
People are getting fed up with bailing out all these losers. It's way past time that Washington gets their finger on the true pulse of the American public.
I'm getting the same feeling about this stock market situation as I did when 9/11 occurred. At the time I felt like, "Wow, this must be what it felt like when Pearl Harbor was attacked". You knew that you were experiencing an event that would be in the history books of the future.
The same type of event continues in the stock market today. We experienced this as a nation in 1929 and 1987. The 1929 event was cataclysmic and changed this nation forever with the subsequent Depression and the ushering in of the New deal policies of FDR.
We will apparently go through similar changes today, which will cause government to bring about policy changes that will change our lives, and our children's lives forever.
Luckily, this time we have Federal Reserve Chairman Ben Bernanke, an acknowledged student of the Depression, to guide us. In fact, one of his famous quotes is that we learned the lessons of the Crash of 1929 and won't repeat the mistakes that were made then which drove the nation into depression.
------------------- http://www.irishtimes.com/newspaper/innovation/2008/1006/1222959318754.html
ON THE occasion of the 90th birthday of the Nobel-prize-winning economist Milton Friedman - celebrated at a symposium at the University of Chicago, in November 2002 - Ben S Bernanke, then governor of the US Federal Reserve Board, lauded Friedman and his longtime collaborator, Anna J Schwartz, for their seminal work, A Monetary History of the United States 1867-1960.
In this classic tome of American economic history, Friedman and Schwartz lay the blame for the Great Depression squarely at the doorstep of the Federal Reserve by arguing that, at the point of acute crisis, its tight policies caused the failure of more than 40 per cent of banks in the US and led to massive deflation.
At the very moment when capital should have flowed into the economy, they argue, the Fed staunched it and by its policies unleashed instead the pervasive suffering that followed.
Friedman's and Schwartz's insights about the role of the Fed contradicted the conventional wisdom at the time, but have stood up well. "This achievement is nothing less than to provide what has become the leading and most persuasive explanation of the worst economic disaster in American history," Bernanke said in his speech. He praised the book for its "development of historical detail" and for its "previously untapped" use of primary resources to craft its argument. "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve," Bernanke said. "I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
-------------------
Unfortunately, Bennie Boy, that doesn't preclude you as the Fed Chairman and some combination of the Treasury Department and the Congress from making new and improved mistakes that will change this nation forever.
At the rate old "Helicopter" Ben is dropping money on the financial system, he's clearly due for a nickname upgrade along the lines of "C-130 Cargo Plane" Ben.
In seeking to steer the nations monetary policy since he took over from the equally incompetent Alan Greenspan, Bernanke has shown all the skills of a hallucinogenic, teenage diver would exhibit in his first foray down the highway in a high performance sports car.
All of these clowns were only too happy to sit back and watch the Greenspan "housing bubble" deflate when the only apparent losers were homeowners. Now that the blood has splattered closer to home, and by home I mean on the pin-striped suits of the bankers they serve, the crisis reached proportions requiring emergency actions.
And by emergency actions, I mean grabbing for the taxpayers wallet and the savings of middle-class Americans, as well as their children and grand-children.
All of these destructive events happened under the Fed's watch:
- The Great Depression, through monetary expansion of the 20's which burst in the 30's (sound familiar)
- The S&L crisis (sound familiar)
- Long Term Capital Management (a hedge fund, sound familiar) failure of 1998 almost crippled the financial system
- The dot.com bubble burst in the 90's
- The 90's easy money era under Greenspan, brought about the housing current housing bubble that just burst and is spilling blood all over the street
And as we can see, some of the events are clearly repeating. Maybe we should treat the Fed like a dog that continually pees on the carpet. Nah, too good for them.
The first responsibility the Fed has, and the only one the European central banks concentrate on, is inflation, Why is this?: BECAUSE INFLATION IS A THIEF. BUT WAIT THERE'S MORE.
- Inflation destroys savings making it impossible to save funds for life purchases like a home, college for he kids and retirement
- Inflation moves wealth from the poor and middle-class to the rich.
- Inflation distorts the economy by providing "easy money" to those who haven't earned it and since it is not "their own" money, they waste it on bad investments.
Think of people who were "flipping" houses and condos because of easy monetary policy. Where are those "flippers" now? Probably hanging out with the "day-traders" from the 1980's in some bar talking about the fortunes they made and lost.
- This economic distortion leads to subsequent unemployment, which affects the middle-class and poor disproportionately. Countries that have low inflation and solid economic policy tend to have very low unemployment (think Switzerland).
- Inflation allows governments to deficit spend. Borrow first, then print money out of thin air to attempt to eliminate or pay-back the borrowed dollars with cheaper dollars down the road.
- Inflation is a hidden tax on future purchasing power and the government spends the money in advance.
I don't even want to get into how the government distorts (hell, why don't I just say it - LIES ABOUT) the CPI figures released to the public. Why would they do this? To keep the public docile and many government payments are tied to the CPI. Think Social Security payment to grandma and grandpa.
It just seems like we get into some of the problems because the Fed also worries itself about economic growth as well. If someone can't handle one task very well, asking them to do two tasks simultaneously seems to be a stretch, right?
FROM THE NEW YORK TIMES, SEPTEMBER 30,1999: In a move to help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action will...encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.
This step by the Clinton Administration, along with groups like ACORN and armed with provisions of the Community Reinvestment Act (CRIA), openly badgered and threatened banks with lawsuits (charging red-lining or racial discrimination) and with threats to block any future mergers the bank might entertain if they did not allow this type of lending to explode.
Combine this with the repeal of Glass-Stegall and the Graham-Leach-Blilley Act that the Republicans in Congress promoted allowed banks and Wall Street firms to run wild. They promoted the "casino" mind-set that we see in the market today that is dominated by short-sellers, hedge funds and other speculators.
The SEC under Chairman Christopher Cox has been almost as incompetent and possibly corrupt as the Federal Reserve. To allow short-selling with little or no restriction (no uptick rule), much less-naked short-selling (you don't even have to borrow the stock anymore) has allowed wanton speculation and wild, irrational trading that we still see daily. There are margin requirements to actually BUY a stock, but no requirements on the short-side. This is completely irrational.
Equally irrational and throwing more gasoline on the growing fire the SEC allowed investment banks to increase their profits by taking on more leverage (risk). We're suffering the consequences of that unwinding of leverage today.
I don't even want to scratch underneath the Federal Reserve and the SEC and get down the Federal Accounting Standards Board (FASB) and the mark to market rules that exacerbated the problem. If the above failure do not occur, then mark to market is not even an issue, in fact it's a positive.
So to review, we had:
- The GSE's (Fannie and Freddie) running wild
- The Federal Reserve provide the elixir of easy money
- Wall Street unshackled from regulators
- Government blessing provided by CRIA and the destruction of the regulatory walls provided by Glass-Stegall.
- Lowered mortgage underwriting standards
- Corrupt credit rating agencies violating the public interest
- Predatory borrowers AND lenders
And from our leaders we get finger-pointing, with neither side willing to look in the mirror and point the finger at themselves.
And then we wonder why Congress has a lower approval rating then the President.
From the fiasco of the first Hank Paulson-Ben Bernanke "rescue bill", to the subsequent new-and-improved Pelosi-Frank-Dodd-Paulson bill to the G-7 or 8 or however many clowns-stuffed-into-small-car measures there were, we've seen the market spit all measures back into the bureaucrats collective faces like a colicky new-born.
Is there any wonder why I think the following video would be an accurate depiction of the effectiveness of our leaders fiscal problem-solving abilities?
Nobody is arguing that some of these steps were taken with the best of intentions. Who doesn't want to own a home? In hindsight, now I know how I was able to qualify for a mortgage when--at the the time I applied--using some of the old-school underwriting standards, I was probably not the best candidate for mortgage approval.
But we didn't go for any of those exotic mortgages, using the rationale that if the terms sound to good to be true they probably aren't, we went for a traditional 30-year mortgage with a 10-15% down payment. So, we had some equity stake in the house. It wasn't given to us freely or too easily. People don't value things that are given to them as much as things they have to earn.
The unintended consequence was they devalued the American Dream of home ownership for everyone by turning it into something that was almost as easy to achieve as the prize at the bottom of a Cracker Jacks box. Thanks again, leaders.
NO MONEY DOWN, INTEREST ONLY PAYMENTS, NO INCOME VERIFICATION, NO JOB, NO PROBLEM--HECK, WE DON'T EVEN CARE IF YOU PAY THE MORTGAGE--WE'RE GOING TO PACKAGE IT AND SELL IT ANYWAY.
That's what some of the radio ads sounded like from some of these fly-by-night mortgage companies, and where was the Fed or any of the regulatory bodies when these spiels were flying around the airwaves. I know I thought, "How the heck are these guys going to stay in business?" Now we know, on the backs of Uncle Sam and his seemingly bottomless pit - the taxpayers wallet.
They've all collectively pissed on the American Dream of home ownership.
They've all collectively and continuously pissed on the faith and confidence of the public in our JUSTICE SYSTEM, OUR FINANCIAL SYSTEM, AND FINALLY, OUR ENTIRE SYSTEM OF GOVERNMENT.
My only question is when are we a nation going to say - NO MAS, NO MORE?
There's an election coming up, we have a chance to put our money (what's left of it) where our mouth is, so to speak.
I have to say, under the circumstances--if any incumbent gets re-elected to go back and FINISH THE JOB--then we do deserve the government we continue to get.
My advice to guys like Bush, Greenspan, Bernanke, Paulson, Cox and their newest best-est buddies in the Congress Pelosi, Reid, Dodd, Frank and others I'm sure I am leaving out should just quietly leave D.C., quietly go home and retire.
Don't write any books documenting your sorry-ass legacies.
Don't go out on any public-speaking tours, telling lies about what you did. We can see and feel the results better than you. We have to live with the consequences.
For all those guys, my enduring thoughts regarding their legacy can be summed up by former Tampa Bay Bucs coach John McKay's famous quote.
When asked about his team's execution during one of their many consecutive losses during their initial season, McKay replied, "I think it's a good idea".
SAME HERE.
I just have one simple question, just one. When do we get to this point, are we there yet?:
Washington (AP)- Treasury Secretary Henry Paulson on Thursday expressed regret for the many errors made that led to the biggest financial crisis in seven decades, but he insisted the administration is pursuing the correct course now to end the debacle.
"We're not proud of all the mistakes that were made by many different people, different parties, failures of our regulatory system, failures of market discipline that got us here," Paulson said in an interview on Fox Business Network.
Well, at least we have that. I'll give him credit, he's the first one I've heard take some sort of ownership of the crisis. Of course he should. When he was in charge at Goldman Sachs, he advocated heavily for the SEC to loosen the purse strings on the leverage restrictions under the guise of keeping our financial system competitive with international markets. To which of course is the "Mom's Wisdom" logic: "If everyone else was jumping off a bridge would you? Do the right thing, NOT what everyone else is doing"
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Can somebody tell me what is wrong with McCain? Is the Republican strategy to NOT WIN the election?
It seemed in last nights debate as if somebody had to tell him he should be angry and had to coach him up as to what he needed to be angry about. Something like this:
Campaign Flukie: John, tonight we need you to show some anger, some passion about this economic situation we're in. The markets are tanking, people's 401K's are melting away faster then the polar icecaps.
John McCain: That's OK, my friend. That just means they'll need more beer. Did I tell you my wife Cindy is a beer magnate. And she's pretty hot too. ;) ;)
Campaign Flunkie: JOHN, THIS IS SERIOUS. PEOPLE ARE CONCERNED ABOUT LOSING THEIR HOMES.
John McCain: Well my friend, I'll just explain to them that maybe they should have 7 or 8 homes like me and they wouldn't be so worried. In any event there's still lot's of beer. That should appeal to Joe Six-Pack. It shows I'm a regular guy, except for the glut of homes.
I think he has demonstrated that he's not much more than Bob Dole with a better personal story. And if it wasn't for Sarah Palin, he would have been down by 20 points and this election would have been over a long time ago. Good luck back in the Senate John.
------------------ SPEAKING OF MOM'S WISDOM: YOU'RE JUDGED BY THE COMPANY YOU KEEP. CHOOSE YOUR FRIENDS WISELY
1. Joey Bart 6-2, 215 C Power arm and a power bat, playing a premium defensive position. Good catch and throw skills.
2. Heliot Ramos 6-2, 185 OF Potential high-ceiling player the Giants have been looking for. Great bat speed, early returns were impressive.
3. Chris Shaw 6-3. 230 1B Lefty power bat, limited defensively to 1B, Matt Adams comp?
4. Tyler Beede 6-4, 215 RHP from Vanderbilt projects as top of the rotation starter when he works out his command/control issues. When he misses, he misses by a bunch.
5. Stephen Duggar 6-1, 170 CF Another toolsy, under-achieving OF in the Gary Brown mold, hoping for better results.
6. Sandro Fabian 6-0, 180 OF Dominican signee from 2014, shows some pop in his bat. Below average arm and lack of speed should push him towards LF.
7. Aramis Garcia 6-2, 220 C from Florida INTL projects as a good bat behind the dish with enough defensive skill to play there long-term
8. Heath Quinn 6-2, 190 OF Strong hitter, makes contact with improving approach at the plate. Returns from hamate bone injury.
9. Garrett Williams 6-1, 205 LHP Former Oklahoma standout, Giants prototype, low-ceiling, high-floor prospect.
10. Shaun Anderson 6-4, 225 RHP Large frame, 3.36 K/BB rate. Can start or relieve
11. Jacob Gonzalez 6-3, 190 3B Good pedigree, impressive bat for HS prospect.
12. Seth Corry 6-2 195 LHP Highly regard HS pick. Was mentioned as possible chip in high profile trades.
13. C.J. Hinojosa 5-10, 175 SS Scrappy IF prospect in the mold of Kelby Tomlinson, just gets it done.
14. Garett Cave 6-4, 200 RHP He misses a lot of bats and at times, the plate. 13 K/9 an 5 B/9. Wild thing.
2019 MLB Draft - Top HS Draft Prospects
1. Bobby Witt, Jr. 6-1,185 SS Colleyville Heritage HS (TX) Oklahoma commit. Outstanding defensive SS who can hit. 6.4 speed in 60 yd. Touched 97 on mound. Son of former major leaguer. Five tool potential.
2. Riley Greene 6-2, 190 OF Haggerty HS (FL) Florida commit.Best HS hitting prospect. LH bat with good eye, plate discipline and developing power.
3. C.J. Abrams 6-2, 180 SS Blessed Trinity HS (GA) High-ceiling athlete. 70 speed with plus arm. Hitting needs to develop as he matures. Alabama commit.
4. Reece Hinds 6-4, 210 SS Niceville HS (FL) Power bat, committed to LSU. Plus arm, solid enough bat to move to 3B down the road. 98MPH arm.
5. Daniel Espino 6-3, 200 RHP Georgia Premier Academy (GA) LSU commit. Touches 98 on FB with wipe out SL.
2019 MLB Draft - Top College Draft Prospects
1. Adley Rutschman C Oregon State Plus defender with great arm. Excellent receiver plus a switch hitter with some pop in the bat.
2. Shea Langliers C Baylor Excelent throw and catch skills with good pop time. Quick bat, uses all fields approach with some pop.
3. Zack Thompson 6-2 LHP Kentucky Missed time with an elbow issue. FB up to 95 with plenty of secondary stuff.
4. Matt Wallner 6-5 OF Southern Miss Run producing bat plus mid to upper 90's FB closer. Power bat from the left side, athletic for size.
5. Nick Lodolo LHP TCU Tall LHP, 95MPH FB and solid breaking stuff.
