Daily Digest

Daily Digest 8/24 - All In On Bonds, Small Investors Flee Stock Market, Egg Industry Faces Scrutiny

Tuesday, August 24, 2010, 9:42 AM
  • How Low Can We Fall This Fall?
  • Monday Market Movement – All in on Bonds!
  • U.S. Judges Sound Off on Bank Settlements
  • In Striking Shift, Small Investors Flee Stock Market
  • Goldman: "Forecasters Need To Cut GDP Estimates A Lot Further"
  • Even in China, Cheap Human Resources Are Becoming Scarce
  • Cairn Energy discovers gas in offshore Greenland
  • In the Fields of Italy, a Conflict Over Corn
  • Egg Industry Faces New Scrutiny After Outbreak

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Economy

How Low Can We Fall This Fall? (adam)

The 91-day period is useful for comparison with key quarterly metrics such as GDP. Since the consumer accounts for over two-thirds of the US economy, one would expect that a well-crafted index of consumer behavior would serve as a leading indicator. As the chart suggests, during the five-year history of the index, it has generally lived up to that expectation. Actually, the chart understates the degree to which the Growth Index leads GDP. Why? Because the advance estimates for GDP are released a month after the end of the quarter in question, so the Growth Index lead time has been substantial.

Monday Market Movement – All in on Bonds! (Ilene)

First of all, who the hell has $480Bn to do anything with in this economy? That’s where I stop reading and start pondering. Of course, not all this cash is from America but holy cow – that is A LOT of money in these troubled times. Imagine if some of that money starts going into equities. Well, don’t imagine that if you are bearish because you won’t be able to sleep at night! The cash inflows have pushed investment-grade US Corporate Debt down to a record 3.79% while Treasury Yields fell to an all-time low of 0.5%.

U.S. Judges Sound Off on Bank Settlements (jdargis)

he scoldings from the bench are a striking departure from a long tradition of judicial deference to settlements formulated by federal agencies, reflecting broad disenchantment not just with Wall Street, but with its government overseers.

It is a pattern that began last year, when Judge Jed S. Rakoff of Federal District Court in Manhattan denounced the Securities and Exchange Commission for going easy on Bank of America, which the agency had accused of misleading its shareholders.

    Crash Course DVDOwn the Crash Course Special Edition Set with Presenter’s Pack (NTSC or PAL)

In Striking Shift, Small Investors Flee Stock Market (jdargis)

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

Even in China, Cheap Human Resources Are Becoming Scarce (Johan V.)

Mr Verdoorn describes 2010 as a "nervy" year. He is already struggling with delays and foresees more trouble ahead, as staff shortages continue for factory bosses such as Mr Liu. A long-term reduction in China’s labour force due to aging is also beginning to bite. So there are fewer workers, and they are better educated and know what they’re worth: a decent wage.

Goldman: "Forecasters Need To Cut GDP Estimates A Lot Further" (jdargis)

Over the last few months, the US economic indicators have shown a broad-based slowdown. Such a slowdown around the middle of 2010 has long seemed likely given the dependence of growth over the prior year on the boost from the inventory cycle and fiscal policy. Our forecast is that real GDP will grow at a 1½% (annualized) rate in the second half of 2010 and in early 2011, and the risks to it are tilted to the downside.

Energy

Cairn Energy discovers gas in offshore Greenland (jdargis)

Profits after tax stood at 27.7 million dollars (21.0 million euros) in the six months to the end of June, which compared with a net loss of 76.1 million dollars in the same part of 2009, Cairn said in a results statement.

Cairn added that it has "encountered gas" in thin sands at its first well in Baffin Bay, offshore Greenland, with indications that there may be other hydrocarbon resources in the area.

Environment

In the Fields of Italy, a Conflict Over Corn (jdargis)

The seeds, known as MON810, are modified so that the corn produces a chemical that kills the larvae of the corn borer, a devastating pest. Yet while European Union rules allow this particular seed to be planted, Italy requires farmers to get special permission for any genetically modified, or G.M., crop — and the Agriculture Ministry never said yes.

“We had no choice but to engage in civil disobedience — these seeds are legal in Europe,” said Mr. Fidenato, who has repeatedly applied for permission, adding that he drew more inspiration from Ron Paul than Gandhi.

Egg Industry Faces New Scrutiny After Outbreak (jdargis)

The company, which has also been cited for farm-labor and animal cruelty violations in the past, said that “any concerns raised verbally during F.D.A.’s on-farm visit were immediately addressed or are in the process of being addressed.”

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

14 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

"Aug. 23 (Bloomberg) -- California will delay paying $2.9 billion of subsidies to schools and counties in September, a month earlier than projected, to save cash amid an impasse that has left the state without a budget for 54 days.

The state’s top financial officials -- the controller, treasurer and finance director -- told lawmakers today that the 90-day deferrals need to start next month instead of October to make sure there’s enough money to pay bondholders. The amount is in addition to $3.2 billion the state pushed back in July. "

"Downgrade Looms

Standard & Poor’s, which gives the state its fourth-lowest investment-grade rating of A-, said June 8 that if the current impasse extends for as long as three or four months, it may lower that score. California had $69 billion of outstanding general-obligation debt as of May 1, S&P said. Another $41.6 billion in tax-backed debt issues has been authorized, according to Treasurer Bill Lockyer’s website.

The payment deferral was announced as lawmakers passed a bill to let recipients use state IOUs to pay fees and taxes owed to the government in Sacramento, if the warrants are issued."

"Rick Lochner showed up at the Naperville Area Chamber of Commerce Illinois is Broke luncheon Monday to find out just how dire the state's budget crisis is.

The president of RPC Leadership Associates and Literacy DuPage noted that there are different levels of being broke and wanted some context in which to put the factual data.

After listening to two speakers outline the cold, hard facts, Lochner said he had his answer. "Very bad," he said of the situation. "Scary bad.""

"Martin said the cumulative Illinois pension and health care liability was approximately $130 billion.

Recent Naperville Sun articles on the issue pointed out that this year's debt alone is projected to be $14 to $15 billion. Martin noted that about $10 billion of the debt was in pension and heath care spending. With the $130 billion in pension liabilities and $50 billion in state assets, the total unfunded liability is in the area of about $80 billion.

Or it could actually be worse, Martin noted. Some business scholars have claimed that, depending on which accounting method is employed, the real liability could be as high as $200 billion.

If those figures are not sobering enough, Martin said that when the group began studying the problem in 2006, it limited its investigation to the five pension funds that provided retirement for the state's retirees. So the figures don't include any unfunded liabilities from the city of Chicago or other municipalities throughout the state.

Naperville's unfunded liabilities for its police and fire departments alone are about $101.5 million; or 24 percent of the property tax levy, according to the recent Sun stories.

And the problem is getting worse. According to the Pew Foundation, Illinois ranked last in pension funding in 2008, being only 54 percent funded. Since then, that number has slipped to 47 percent."

"BERLIN — Germany's deficit rose sharply to 3.5 percent of economic output in the first half of 2010, putting it on track to break EU budget rules due to the costs of the global economic and financial crisis, official data showed Tuesday.

Net borrowing for the first six months of the year came in at euro42.8 billion ($54.37 billion) — more than double the euro18.7 billion a year earlier, the Federal Statistical Office said. In 2009, the agency had reported a much smaller first-half deficit of 1.5 percent.

At the current rate, Germany will this year overshoot the European Union limit for budget deficits to be no more than 3 percent of gross domestic product.

Officials in July said the country expects this year's deficit to come in at 4.5 percent of GDP but that it would be back under the 3 percent mark by 2012.

Though the country has returned to growth after the economy shrank by a painful 4.9 percent last year — easily the worst performance since World War II — it continues to feel the effects of the global downturn."

................3A) German Bond Yields Reach a New Record Low as Stiglitz Warns of Recession

"CARSON CITY, Nev. (AP) - The Republican minority leader in the Nevada Assembly suggests voters be asked to impose a statewide sales tax on food to help fill a swelling budget deficit.

Assemblyman Pete Goicoechea (Goh-gah-CHEE-ya) of Eureka said Monday on KRNV-TV's Nevada Newsmakers that he believes a proposed 2% tax on food sales should have been put to voters this fall.

Tax on food not intended for immediate consumption is banned by the state constitution. Changing the constitution requires a measure be passed by voters in two successive general elections.

Nevada is facing a projected $3 billion deficit for the 2-year budget cycle that begins July 1."

"If these now hypothetical cuts materialize, Hamilton and Martin said financial exigency, the equivalent of academic bankruptcy, will be inevitable.

Hamilton said the $48.2 million cut from Level Three would be the equivalent of eliminating eight of the University’s 14 specialized colleges. If the projections become reality, then the cuts would take place across campus, even allowing the elimination of tenured professors."

"The US housing market is in a double-dip recession, Moody’s Analytics chief economist Mark Zandi told CNBC Monday.

“Tomorrow we are going to get an existing home sales number that that I think is going to be very, very weak, closer to 4 million units, which I think would be a new low in this cycle,” said Zandi, who is also the author of forthcoming Paying the Price.

“We probably, almost assuredly, will experience more house price declines. By those two criteria, I think that would qualify as a double dip.”"

"(Reuters) - Slow economic growth and austerity measures in European Union countries may have negative rating implications for some sovereign ratings, Moody's Investors Service said on Monday.

"Given the magnitude of the fiscal challenge and the need to sustain tight fiscal policy for several years, the risks to economic growth are clearly a downside risk for sovereign ratings," Moody's said in a report."

"Last month, first-time homebuyers’ share of the housing market fell lower than it has been since 2008 when the first-time version of the homebuyer tax credit took effect.

First-time homebuyers accounted for only 39.1 percent of the home purchase market last month, down from a peak of 48.2 percent as recently as March, according to the Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions.

In 2009, first-time buyers comprised an unprecedented 47 percent of the market, most likely due to the federal tax credit and historic affordability, according to the National Association of Realtors®’ 2009 Profile of Home Buyers and Sellers. In 2008, first-timers account for 41 percent of transactions. The previous high was 44 percent in 1991.

“The end of the tax credit has clearly had an effect,” stated Thomas Popik, research director for Campbell Surveys. “First-time homebuyer participation is continuing to drop. We expect a further decline in first-time homebuyer activity, perhaps reaching as low as 30-35 percent of the market by the fall months.”"

"WASHINGTON (MarketWatch) - The sale of existing U.S. homes sank 27.2% in July - the biggest one-month drop ever - largely because of the phase-out of a federal tax credit, according to an industry trade group. The National Association of Realtors said existing-home sales fell to a seasonally adjusted annual rate of 3.83 million in July from a revised 5.26 million the month before. Sales of single-family homes fell to the lowest rate in 15 years. Inventories of unsold homes rose 2.5% to 3.98 million in July, representing a 12.5-month supply, the highest level since at least 1999. The median sales price edged up 0.7% in the past year to $182,600 in July, the NAR said."

"Aug. 24 (Bloomberg) -- The Federal Reserve will probably ease monetary policy further as the U.S. economy weakens, said Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York.

“The Fed will eventually move to additional monetary stimulus via asset purchases or other unconventional measures,” Hatzius said in a radio interview today with Tom Keene on “Bloomberg Surveillance.” Should the Fed opt for more securities purchases, he said, there is “no point in doing anything less than” $1 trillion."

  • Other news and headlines:

Texas $7.8 Billion Municipal Note Is Biggest in Six Years as Deficit Looms

S&P Downgrades $6.94 Billion Of CDOs On Worsening Credit

$578 Million Public School Opens in LA

Ontario's debt hits record $212 billion; 2009-10 deficit $19.3 billion

Moscow government to consider deficit-ridden city budget for 2011 (deficit of 100.8 billion rubles ($3.28 billion))

More physicians refusing to take new Medicare patients

Fed loses bid for review of bailout disclosure ruling

Horner lays out blueprint to close $6 billion deficit (Minnesota)

French Unions Ready Protest

Chula Vista facing years of budget deficits (California)

Colorado gov. says pot fees helping budget deficit

Denmark Steps Up Borrowing Need to Finance Deficit

California's Inland Empire Kids Sink Deeper Into Poverty

Final accounting for SC fiscal '10 paints grim financial picture

BBC pension bosses to face angry staff at 1000-strong meeting (UK)

Outsourcing police included in approved San Carlos budget (California)

County supervisor backs selling property, overhauling pensions to tame deficit (Milwaukee County)

States are out of cash, and so are their lending programs (CNN Money)

Deep holes in American pockets shock Chinese observers (Opinion)

Asia Slowdown to Have `Serious Negative Impact' on Europe, EU's Rehn Says

States May Contend With Budget Gaps Through Next Year, US Treasurers Say

GSEs' Foreclosure Pipelines Will Grow Well into 2011: S&P

Analysis: Dollar becomes funding currency as yields tumble (Reuters)

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

Existing Home Sales lowest since 1996, 12.5 months of supply (see the charts)

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

CM says that bubbles over-correct so I think we have a long way to go (barring hyperinflation). Also, this year we are in the midst of phase II of RE (Alt-a's & option arms). Phase I was 1.5 trillion, we have another 1.5 trillion unwinding and CRE is coming to shore (3.5-5 trillion).

This will likely windup being a self destroying loop. Already our national debt has hit 18 trillion with over 5 trillion not counted on the balance sheet, 3+ and 2+ trillion backstopping Freddie and Fannie. 18 trillion is 130% of GDP.

Phase II will add to this. More folks will loose their jobs, more businesses will be impacted. The debt and the deficit will climb even higher. Elizabeth Warren had a video out saying that the CRE will put 3,000 community banks in harms way, which will pose a risk to the remaining 5,600 community banks.

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

Davos,

If you don't mind sharing, are you in the inflation or deflation camp?  Or deflation until the real estate storm passes, then inflation?

Nate

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

 

                                                   The United States Is Already Done Preparing to Bomb Iran

                                                                                War Is Imminent

 

                                                            posted yesterday at this link in Forums under

'                                                        Odds of US attacking Iran in the next 24 months?'

 

                                                                                   Answer?

                                                                                      100%

                                                                  any time after Sept 10th, 2010

                                                                  2 and a half weeks from now

                       http://www.peakprosperity.com/forum/odds-us-attacking-iran-within-next-2...

 

A resolution (H.R. 1553) is winding its way through Congress that endorses an Israeli attack on Iran. Congress returns from vacation on Sept 10th. Then all it needs, of course, is Obama's signature.

I strongly urge everyone here to read this very lengthy posting.  Every bit of credible information seems to prove, without a shadow of a doubt, that the war is a "done deal."  Imminent.  Now. Soon. Very soon. This is it. Before the November elections as we all know was predicted by Dr.Martenson himself.

From the articles I posted,  it seems to me that we are going to wipe Iran right off the map in one fell swoop. The bunker-buster bombs have been in place since March,  Israel has nukes ready to go, Russia and China are extremely threatened by our recent wargames in their territories, and from what I've read, it absolutely appears as if we are truly going to start World War III.

Only Dr Martenson will be able to advise us what to do at this point from his own research and analysis of the situation.(not to mention his genius IQ.)

There's quite a bit of information I couldn't find here on the site so I believe some of it will fill in the blanks, so to speak. Or at the very least, maybe summarize the whole story for any lingering doubters out there or newcomers to the site.

IMHO, the upcoming peace talks are clearly a ruse intended to make things appear as usual- Here we go again with another round of talks. We keep hearing in the media that, "Yes.....we do have Plan B in place and will go to war if the sanctions and peace talks are unsuccessful...... the same things we've been hearing for years. But Ahmadinejad has been fully aware of how imminent this is. That's why he's been showing off his latest missiles, bombs, and weaponry for the past year. He knows we're coming, and he's ready and waiting. When it begins, it's going to make 'Shock and  Awe' or Desert Storm look like less than a single firecracker. Missiles everywhere. Incomprehensible.  Just like the movie 'War Games'......  Too hard to believe. Personally, I'm still in shock and completely numb by what I read in those articles on that posting. And those are just excerpts. Haven't slept in days. Total disbelief.

But, from a purely psychological perspective, for any doubters out there, we were "insane" enough to invade Iraq. Half of us in America were, beforehand,  fully aware of why we were basically turning an innocent country into a pile of rubble and killing tens of thousands of innocent civilians, and that there were no WMD and Iraq had nothing to do with 9/11-that it was Osama Bin Laden, and that it would turn out to be like "another Vietnam",  bankrupt our country, and only antagonize Al Quaida and increase terrorism all around the world. Exponentially.

The other half  of Americans were, and still are, unaware that mainstream media is mostly propaganda. The entire world kept telling us not to invade Iraq. If my memory serves me correctly, wasn't it even condemned by the UN?  And the Pope?

The problem is not that our leaders are insane. It's that , IMHO, most of them are megalomaniacs. Throughout history, the vast majority of world leaders were either pathological narcissists, psychopaths, or megalomaniacs.  Ahmadinejad,  Netanyahu, Kim Jong Il...... We've got Putin calling the military shots in Russia...  China has every reason on the planet not to trust us.

And regarding our own past and current leaders, please read the following article--- entitled 'Two Psychiatrists Look at the Bush Administration'--- for a professional psychiatric analysis of George W. It might just ring a bell about everyone who's currently running the United States. Pretty much, all of them.

http://www.squadron13.com/JackDresser/psychoanalysis.htm

IMHO, Obama is nothing more than a neocon in disguise. He's connected with the same DC clique of financially elite oligarchs  (Remember Matt Taibi's now infamous article?)  And anyone who's read the list of PNAC members and their  "Statement of Principles".....

http://www.newamericancentury.org/statementofprinciples.htm

.....would understand what group the Clintons belong to and why Hillary might come to mind in the above article on Bush and Cheney as megalomaniacs. ( Bill would come in at the pathological narcissism level)  IMHO, of course.

"The best predictor of future behavior is past behavior"  (Thanks, Dr. Phil.  That's one of my favorites.Laughing)

I watched Obama on Jay Leno shortly after he was inaugurated. When Jay asked him if he'd gotten the puppy he promised his daughters if he won the election, Obama responded in a split second, with a huge hearty laugh, "Oh, that was just a campaign promise. Ha ha ha ha ha"   That was the exact moment I KNEW FOR SURE we were doomed.  Titanic. Man the lifeboats now. Learn how to swim. (Sorry, didn't mean to shout there.... I just get so emotional about all this.)

Sorry if I've repeated things that Chris and others here have already mentioned..... I haven't been able to keep up with the site due to 3 hospitilizations for IVIG infusions for ITP since I "left."  I'm cured now by a new drug called Promacta. And all the other medical problems I had were treated as well. Just catching up with news and current events now.

Many thanks to you, Dr M for your series on Resilience. And especially your product recommendations as an added bonus. I have already emailed the entire series of articles (copied and pasted to a single page email) to a long list of people who didn't "want to hear about it" because it was "too stressful."   They're all listening now.  Best of luck with your book.

Regards to all

Melissa

 

 

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Davos
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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...
Nate wrote:

Davos,

If you don't mind sharing, are you in the inflation or deflation camp?  Or deflation until the real estate storm passes, then inflation?

Nate

Inflation.

Both feet are firmly in this camp.

In fact, I think pigs will fly before we see deflation. I don't think we are seeing real estate deflation.

I think inflation is the amount of dollars created. We saw 1.5 trillion in subprimes blow up. The Fed injected money @ss backwards into the economy and as a result of an @ss-backwards bailout it cost them a heck of a lot more. In other words: If you are going to do a bailout then bailout the folks paying mortgages who should have remained renters, not the major knuckle heads who blew up the economy with @ssinine loans packaged and offed as investments. I say this because doing it the other way around costs more and there is more fallout to the economy.

A lot of folks think there was deflation in real estate. I see asset price destruction. But the collateral damage was upwards of another 1.5 trillion in prime loans. Yet the Fed is backstopping the GSE's for 5+ trillion. So 3 trillion went bad and the Fed is backstopping the GSE's for 5? Worse the bailout costs more than 700 billion. I've seen figures from 10-upwards of 24 trillion.

So where is the deflation? 3 trillion goes bad and 5+ trillion is created to replace it. Housing market lost 7 trillion and the bailouts were 10+ trillion.

And where did the trillions come from? Surplus? No. Investors? Not all. Taxes? Not all. QE? A large part of it was printed, yes. Is that deflationary? No.

Yes, I'd agree there was deflation if the Fed wasn't carrying 5+ trillion of debt but that isn't what happened. That debt is off balance. Our national debt with that is 18.some trillion or 130% of GDP. Add the off balance sheet liabilities and 130% looks tame.

We don't have deflation, we don't have capitalism, we have mad money printers and corportocracy. These morons will dump money out of helicopters before there is ever a whiff of deflation.

Some people look at the dollar and say it is getting stronger. BS. These morons have debased the dollar by 95% since their inception - cripes, it took the Romans 300 years to screw it up that bad. Look at Uncle Buck to gold, not Uncle Buck to the other currencies circling the drain.

A dollar sliding to a value of 0 means one thing and one thing only - hyperinflation.

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

A resolution (H.R. 1553) is winding its way through Congress that endorses an Israeli attack on Iran. Congress returns from vacation on Sept 10th. Then all it needs, of course, is Obama's signature.

I strongly urge everyone here to read this very lengthy posting.  Every bit of credible information seems to prove, without a shadow of a doubt, that the war is a "done deal."  Imminent.  Now. Soon. Very soon. This is it. Before the November elections as we all know was predicted by Dr.Martenson himself.

While questioning Dr. Martenson is both a thankless and also generally ill-advised thing to do, there is diminishing likelihood of a U.S. war with Iran, whatever "war" means.  We have been moving troops out of a bordering country, creating rather than solving barriers to invasion.  We have sat by while a reactor was brought on line, creating risk of radioactive fallout if we bomb the facility now.  We have obtained significant new sanctions with broad consensus.  No doubt there was quite a bit of arm twisting behind closed doors between the U.S., with no interest in a war, and Isreal, with extreme interest in nipping the Iranian nuclear program in the bud.  It seems clear the U.S. point of view prevailed. 

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

In fact, I think pigs will fly before we see deflation. I don't think we are seeing real estate deflation.

I think inflation is the amount of dollars created. We saw 1.5 trillion in subprimes blow up. The Fed injected money @ss backwards into the economy and as a result of an @ss-backwards bailout it cost them a heck of a lot more. In other words: If you are going to do a bailout then bailout the folks paying mortgages who should have remained renters, not the major knuckle heads who blew up the economy with @ssinine loans packaged and offed as investments. I say this because doing it the other way around costs more and there is more fallout to the economy.

A lot of folks think there was deflation in real estate. I see asset price destruction.

I wade in with some hesitation here, knowing you have firm convictions on the matter.  But asset price destruction in real estate is the result of deflation, meaning a contraction in purchasing power and access to credit relative to the purchase of housing.  The fact that extra dollars may exist in paper or electronic form is not, in itself, inflationary, just as all examples of asset price destruction are not, in themselves, examples of deflation.  

I am not stating that both deflation and inflation cannot co-exist. They can.  So your larger thesis is safe enough from the likes of me. 

 

 

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...
dave s wrote:

But asset price destruction in real estate is the result of deflation, meaning a contraction in purchasing power and access to credit relative to the purchase of housing.  

I know of cases where someone overbought, or over leveraged and are now upside down. One person was telling me how a few neighbors (and this is in a harder hit state than where I live) are in foreclosure. She is into her home for about 225, before the foreclosures she was underwater by about 50k. The neighbors are being sold at auction for under 100k. Theses distressed sales are tanking everyones values. Asset destruction at it's finest.

I have realtors who are clients - your talking about an office that has had salespeople sell one house in a year. Unemployment at 22% doesn't afford them a lot of buyers and sure gives them a lot of inventory.

The collateral damage from the stupidity of offering loans to folks struggling and then blowing up their interest rates was insurance that we'd see disaster.

The talking heads on CNBBS and MSNBBS fail to realize that in 2006 30% of all originators were Subprime. They don’t get that those buyers, some 7-10 million of them created a false never been seen before demand. They were the bubbles air. And here is the biggie: They aren’t coming back. Ever! Worse, soon after the bubble popped, in 2008 Prime Borrowers got taken out by this collateral damage that our financial terrorist created. There are just not enough buyers, housing is done, stick a fork in it.

Link

So no. I don't think the market tanked because of a contraction in the purchasing power or access to credit. Why did prices go up in the first place? I think that is the question. It's like the depression of the 1930's - it was attributed to Geneoa Italy in 1922 when the morons at large then decided to count gold and the dollars backed by it as the size of the money supply - 

dave s wrote:

The fact that extra dollars may exist in paper or electronic form 

 

We work from January to about September to pay for dollars that may exist on paper or electronic form and the rest of the stupidity and waste our bloated government creates. Do I think consumers would be pumping more into the economy if 55% or more didn't go to taxes and @ssinine multi trillion dollar bailouts? Yes. Is it inflationary when the create money using QE? I personally think so, and without it they couldn't do these dollars that may exist on paper or electronic form.

Just my take, I could be wrong!

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

 

 "there is diminishing likelihood of a U.S. war with Iran"

          Hi Dave S,

  If the situation has improved that significantly since Dr M's post, then I am incredibly relieved. Thanks for the news update. I need some sleep.

           Melissa

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Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

the way i understand the inflation/deflation quagmire is that while we're in debt collapse money supply will fall faster then the fed can print.  most of that money is digital anyway so except for "wealth" destruction most of us little people will only notice by lost jobs, forclosure sales etc...  stagflation.  unless your effected directly not much will change till the bottom falls out and corporations begin to collapse.  commerce as we know it will "change".  but it seems the fed and congress will styme this process and "prevent" it from happening (read 'only slow it down/drag it out)  which may be a good thing...

but after some fair chunk of the debt has collapsed the gov't will be faced with entitlements.  unemployment insurance for... life?  food stamps for 40 million and maybe 40 million more.  states bankrupt and needing medicaid funds and other gov't mandated welfare programs and so on.  without  a debt market to run the federal government on the fed will have to provide the dollars. 

the gov't is overspending so much already  that this increased load will cost more and more.  over some time the still productive people will wake up to the fact that this is not going away anytime soon and start to lose faith.  that's when the threat of hyper-inflation goes critical.

so i believe we have a ways to go before complete collapse. the entitlement receiving masses will not lose faith in the money they are being given until the vendors of goods and services (small businesses) do.

then we go to a barter system.  the problem i see there is what do the masses have to barter with?  i won't be wanting their i-pod or vcr or whatever.  i might take labor but only good honest hard labor and i don't believe most of the masses have that to give.

the fed and gov't can probably contain the masses with these handouts all the way to the end. black swans not considered.  there are a million of them now so good luck not seeing one sooner then not. 

how much can the fed print before we see hyper-inflation 10 trillion seems small anymore ...  so 100 trillion?  a thousand?

it's an interesting topic to ponder for sure....

dave s's picture
dave s
Status: Bronze Member (Offline)
Joined: Feb 20 2009
Posts: 56
Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

The collateral damage from the stupidity of offering loans to folks struggling and then blowing up their interest rates was insurance that we'd see disaster.

The talking heads on CNBBS and MSNBBS fail to realize that in 2006 30% of all originators were Subprime. They don’t get that those buyers, some 7-10 million of them created a false never been seen before demand. They were the bubbles air. And here is the biggie: They aren’t coming back. Ever! Worse, soon after the bubble popped, in 2008 Prime Borrowers got taken out by this collateral damage that our financial terrorist created. There are just not enough buyers, housing is done, stick a fork in it.

Link

So no. I don't think the market tanked because of a contraction in the purchasing power or access to credit. Why did prices go up in the first place? I think that is the question. 

Well, my feeling is that the root of the real estate market run up and crash is fairly easily traced and you are well aware of it, just thinking of it without labeling it as deflation.  As an oversimplification, exotic mortgage instruments and loose Fed policy resulted in inflation.  Not just asset price inflation, but true inflation as a monetary phenomenon (so long as you agree with me that cash and credit are interchangeable for this discussion).  Tightened Fed policy has resulted in deflation, not just asset price deflation but true deflation as a monetary phenomenon.  Deflation has now taken hold to the extent that a return to looser policies has been unable to reinflate for reasons we both could list with little reflection.  

But it appears to be the case, without question, that new dollars have been parked at the Fed and elsewhere rather than circulating into the economy at large and have absolutely failed to meaningfully reverse real estate deflation.  And today's news appears to support the real estate bears' arguments now that the political will to support reinflation has (at least temporarily) expired.  Whether real estate deflation can spread to the entire economy is where you and Stoneleigh (for instance) part company in my book.  I'm fairly agnostic, since either way everything costs more on a relative basis regardless, although personally I lean more toward mid-term deflation because I believe the crisis will occur while the U.S. remains generally perceived as the least worst place to put your money.  Thereby mitigating the danger of a sovereign currency crisis.

I wonder if you watched the Kyle Bass video from a few days ago?  I think you would like it.  

http://www.zerohedge.com/article/must-watch-kyle-bass-interview-there-no...

 

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...

Wow!  Wonder how many other pension funds are or soon will be in the same (capsizing) boat.  As I am sure is abundantly obvious to all (except maybe to those running the Illinois Teacher's Retirement System), this is a ticking time bomb sitting on top of a  tinderbox attached to a wick, run into a pyromaniac's garage, guarded by fire-swallowing morons (thank you Davos) who just bathed in gasoline. 

http://www.zerohedge.com/article/has-illinois-teachers-fund-entered-deat...

Illinois Teachers' Retirement System Enters The Death Spiral: AIG Wannabe's Go-For-Broke Strategy Fails As Pension Fund Begins Liquidations

Two few months ago we disclosed how the Illinois Teachers' Retirement System (TRS) was doing all it can to become the next AIG. In addition to, or maybe precisely due to, its deplorable fundamental condition, which can be summarized as being 61% underfunded on its  $33.7 billion in assets, with a performance record of down $4.4 billion in 2009 and 5% in 2008, the fund, courtesy of a detailed analysis by Alexandra Harris of the Medill Journalism school at Northwestern, was found to be on its way to trying to become a veritable self-made TBTF: as was described then, "TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default." In other words, TRS was selling substantial amounts of derivatives, which held the fund's other assets as hostage in case the collateral calls started coming in, as should the market broadly decline, the value of the downside derivatives would "increase" and the seller (in this case TRS) would need to pledge ever more collateral against these wrong way bets. Not only that, but the Fund is currently getting annihilated on its curve exposure: "TRS appears to be betting that long-term Treasury yields will greatly increase" we wrote back then. So as a result of i) its massive underfunded fundamentals and ii) a bet that the market would turn bullish, i.e., spreads would drop (they are rising), and treasuries would plunge (we all know where they are today), which was supposed to happen by now but isn't as the economy is now officially double dipping, the fund has basically thrown in the towel and is proceeding with liquidations. The problem there is that due to its derivative exposure, liquidations now become self-reinforcing, as more cash needs to be pledged as collateral in a declining market, and the AIG death spiral we all know and love, follows. The only thing missing is for Goldman to raise its overnight variation margin requirements and it's game over, as we get a brand new AIG on our hands. And since Goldman is among the 60 or so asset managers that actually decide how the fund invests its meager assets, it is fully aware of its precarious position, and it is a sure bet that Goldman is currently deciding when to pull the plug on the TRS life support.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest 8/24 - All In On Bonds, Small Investors ...
dave s wrote:

Tightened Fed policy has resulted in deflation, not just asset price deflation but true deflation as a monetary phenomenon.  Deflation has now taken hold to the extent that a return to looser policies has been unable to reinflate for reasons we both could list with little reflection.  

But it appears to be the case, without question, that new dollars have been parked at the Fed and elsewhere rather than circulating into the economy at large and have absolutely failed to meaningfully reverse real estate deflation.  And today's news appears to support the real estate bears' arguments now that the political will to support reinflation has (at least temporarily) expired.  Whether real estate deflation can spread to the entire economy is where you and Stoneleigh (for instance) part company in my book.  I'm fairly agnostic, since either way everything costs more on a relative basis regardless, although personally I lean more toward mid-term deflation because I believe the crisis will occur while the U.S. remains generally perceived as the least worst place to put your money.  Thereby mitigating the danger of a sovereign currency crisis.

I wonder if you watched the Kyle Bass video from a few days ago?  I think you would like it.  

http://www.zerohedge.com/article/must-watch-kyle-bass-interview-there-no...

 

Hey Dave: 

I respect your take on it, don't think we see things quite the same, time shall tell - or maybe surprise both of us, lol.

Yeah, I don't think it was tightened Fed policy that led to real estate deflation.

I think it was they blew up the real estate market by adding 33% more buyers than it had ever seen, that caused more units to be created. Then to ice the cake they blew up the marginally qualified buyers and the collateral damage from the 33% dropping took out an equal number of prime buyers. Then they gave the money to the morons who created toxic fraud instead of giving it to the investment challenged who would have then given it to the morons who created the toxic fraud.

That scenario is not deflation or a tightened Fed policy.

In fact, HAMP, backstopping GSE's, bailouts and the rest is indicative of Fed loosening. 

Parking money doesn't stop it from debasing our currency SINCE that money isn't coming from a surplus, tax revenues or being borrowed from China et al. Every time they use QE we are robbed. If we have 10,000 bucks in our bank and they devalue Uncle Buck by 10% we lost a grand. Worse, these trillions are added to our debt since they are borrowed from us. Debasing, when it reaches a value of 0 will mean hyperinflation.

I think Stoneleigh and her gang do a super job on the prep side, when it comes to deflation there is no kind way to say what I think.

Also, Peak Oil wasn't even a word until the 1970s and then was ignored. I love to see how we are going to have 10 dollar a barrel oil again. And trust me, we'd need a strong dollar to get that, or we need some new energy that was miraculously implemented overnight. But think about it: Oil is in EVERYTHING, with oil at 80 a barrel how are all prices going to deflate? The only way I can see that happening is if unemployment triples and everything winds up in the repo lot next to houses.

Take care, 

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