Blog

Daily Digest - Feb 23

Sunday, February 22, 2009, 5:58 PM
  • EU heads back financial clampdown (Video on page)
  • Another Banking Casualty
  • Why Not the Truth?
  • the pension disaster materializing
  • Clinton wraps Asia trip by asking China to buy US debt
  • China Pledges "Active" Use of Foreign Investment through Crisis (Hat Tip Katherine)
  • David Morgan on Silver
  • Guardsmen to conduct urban training at Arcadia in April (Hat Tip Christopher Peters)
  • More...
  • Bad News From America's Top Spy (Hat Tip Christopher Peters)
  • Risks in owning GLD (HatTip PineCarr)
  • Joseph Stiglitz
  • 'Nationalize' the Banks
  • Nouriel Roubini (Video)
  • Radical revamp splits RBS in two
  • Republican Governors Step Up Attacks on Obama Economic Policies 
  • While Rome Burns 

Economy 

EU heads back financial clampdown (Video on page)

Another Banking Casualty

To most publishers, it would've been a touch of golden luck: a manuscript
about the worst economic crisis in decades, written by a financial
insider and finished months before rivals had even a rough draft ready.
Instead, Wall Street investor Barry Ritholtz's "Bailout Nation: How
Easy Money Corrupted Wall Street and Shook the World Economy" appears
to have become a parable for the same corporate shenanigans that it
catalogs. In early 2008, McGraw-Hill paid a five-figure advance to
Ritholtz, a frequent CNBC guest and author of "The Big Picture," a
popular finance blog. When Congress passed its $700 billion bailout
bill, McGraw-Hill's contract with Ritholtz looked prescient. The
imprint started taking pre-orders and set a March release date. Then,
in early February, it dropped the book. 

Why Not the Truth? 

Those who spend their lives watching the Idiot Box do not
need the Newspeak Dictionary. Their vocabularies are automatically
attenuated. They are ready to believe that government officials can
save them. For example, they think the president can fix the country's
problems. He has the brains to accomplish miracles: to deliver us from
penury through government spending. Meanwhile, the country leaps from
the frying pan of deflation into the inflationary fire. It is called "a
stimulus package." It is the biggest white elephant ever sold, at the
dearest price. If it doesn't work, we'll do it again, and again, as
many times as it takes - or until the currency collapses. A stupefied
country listens in suspense to those fateful words: "We are from the
government, and we are here to help." Euphemism is the native language
of every bureaucrat. For them, loot is "revenue." Waste is
"progressive." Propping failed industries is "a good investment."
Stopping a market correction is "saving the economy." Every event is an
excuse to spend money. If the economy is flush, spend money. If the
economy is contracting, spend money. Do you want more golden eggs? Cook
the goose that lays them. Everything is going to be okay!  

The pension disaster materializing 

It's been an ugly little open secret for some years among the financial community that defined-benefit retirement funds, both corporate and government, were just as woefully underfunded compared to the net present value of their obligations as social security and medicare. one of the predictable results in recent seasons has been the migration of pension funds from truly safe investing to ever greater degrees of yield chasing -- up to and inclunding deep end-user involvement in the very worst aspects of the securitization market and even taking up the ass end of the capital structure in preferred and common equities. 

for a while, the rosy assumptions of high returns as a result of such yield chasing allowed pension funds to pretend that they were not in trouble. but now that the great crash of 2008 has forever demolished the securitization bubble and cut half or more out of a diversified equity portfolio, the fatal weakness of pension systems has become undeniable. zero hedge examines, as a proxy for the dying fund-of-funds industry, the deathly condition of the new york state retirement systems.

As the financial system collapses and states' budget deficits skyrocket, the lives of citizens are about to get very ugly as legislators' only options are to cut state employees (i.e. police officers, healthcare workers and educators) and raise taxes through the roof. One need look no further than California which is on the brink of collapse, as absent federal assistance, it will be unable to fund its $42 billion state deficit. New York is in no better position, and David Paterson has had numerous media appearances attempting to warn New Yorkers just how difficult lives in the state are about to become. In the meantime, public workers, current and retired, of troubled states will shortly begin receiving very disturbing news, as their pensions and benefit packages are about to be drastically reduced if not eliminated altogether. The culprit? The falling market. ...

Pension funds' calculations for actuarial purposes presume a roughly 8% annual growth in perpetuity, the result of which funnel through into the over- or under-funding estimates for a State's budget for any given period of time. The current dislocation implies that absent an approximately $50 billion injection of new capital, New York's Pension Funds are guaranteed to be unable to keep up with increasing cash outflow requirements. As we mentioned, New York is not alone in this predicament, with all major public employee reitrement funds currently down anywhere between 40% and 50%. While public anger is still focused merely on the huge deficit in the state's income statement, soon all hell will break loose when millions of current police, healthcare and educational retirees realize they will have go back to work as their pensions disappear. The speed of the market's collapse will determine how quickly that day comes. 

Clinton wraps Asia trip by asking China to buy US debt 

Secretary of State Hillary Clinton Sunday urged China to keep buying US debt as she wrapped up her first overseas trip, during which she agreed to work closely with Beijing on the financial crisis.
Clinton made the plea shortly before leaving China, the final stop on a four-nation Asian tour that also took her to Japan, Indonesia and South Korea, where she worked the crowds to try to restore America's standing abroad. 

In Beijing, she called on authorities in Beijing to continue buying US Treasuries, saying it would help jumpstart the flagging US economy and stimulate imports of Chinese goods.

"By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together," Clinton said at the US embassy here. 

China Pledges "Active" Use of Foreign Investment through Crisis (Hat Tip Katherine) 

Vice Premier Wang Qishan has encouraged foreign investors to have faith in China's development, saying the country would "actively" use overseas investment. 

Wang made the remarks during his two-day tour on Friday and Saturday in south China's Guangdong Province, a frontier of the country's export-oriented sector.

"The 1.3-billion-populated country is accelerating its pace in industrialization and urbanization, and there is a great potential in the domestic market, which should be the source of our faith (in withstanding the financial crisis)," Wang told a gathering of senior executives from multinationals and foreign commerce associations. 

David Morgan on Silver

Guardsmen to conduct urban training at Arcadia in April (Hat Tip Christopher Peters)

The Carroll National Guard unit will train on urban military operations by holding a four-day exercise at Arcadia (Iowa)

The purpose of the April 2-5 drill will be to gather intelligence, then search for and apprehend a suspected weapons dealer, according to Sgt. Mike Kots, readiness NCO for Alpha Company.

Citizens, law enforcement, media and other supporters will participate.

Troops will spend Thursday, April 2, staging at a forward operations base at Carroll. The next day company leaders will conduct reconnaissance and begin patrolling the streets of Arcadia to identify possible locations of the weapons dealer.

Risks in owning GLD (HatTip PineCarr) 

1) GLD does not allow redemptions of its gold bullion

GLD failure to allow redemptions in gold is suspicious. In fact, only two gold ETFs worldwide allow redemptions in gold, and both of them are located in Switzerland: Gold ETF from Zurich Kantonalbank (ZKB) and Julius Baer (JBGOUA). 

Bad News From America's Top Spy (Hat Tip Christopher Peters) 

We have a remarkable ability to create our own monsters. A few decades of meddling in the Middle East with our Israeli doppelgänger and we get Hezbollah, Hamas, al-Qaida, the Iraqi resistance movement and a resurgent Taliban. Now we trash the world economy and destroy the ecosystem and sit back to watch our handiwork. Hints of our brave new world seeped out Thursday when Washington's new director of national intelligence, retired Adm. Dennis Blair, testified before the Senate Intelligence Committee. He warned that the deepening economic crisis posed perhaps our gravest threat to stability and national security. It could trigger, he said, a return to the "violent extremism" of the 1920s and 1930s. 

It turns out that Wall Street, rather than Islamic jihad, has produced our most dangerous terrorists. 

Joseph Stiglitz

'Nationalize' the Banks 

Nouriel Roubini is always dressed in black-and-white.

I have known him for nearly two years, and have seen him in a variety of situations -- en route to class at New York University's Stern Business School, where he's a professor; over a glass of wine in his boyish loft in Manhattan's Tribeca; at an academic conference, seated sagely on the dais; at a bohemian party in Greenwich Village, at . . . oh . . . 3 a.m. -- and he always, always wears a black suit with a white linen shirt.

And so, in black-and-white he was, earlier this week, when he rushed into the office of Roubini Global Economics, his consulting firm in downtown Manhattan, and offered a breathless apology to this correspondent, who'd been waiting for half an hour. "Really sorry I'm late! Charlie Rose taped for way longer than he said he would."

Mr. Roubini -- a month short of 50 -- is in huge media demand, the nearest thing to a rock-star among the economists who hold our fate in their hands these days. The peculiar thing, of course, is that he's in demand because he specializes in predictions of gloom. (He has earned himself the sobriquet of "Doctor Doom.") In person, though, he's anything but a downer. 

Nouriel Roubini (Video)

Radical revamp splits RBS in two 

The Royal Bank of Scotland (RBS) is to be split into a "good bank" and "bad bank" in a dramatic rescue restructuring in which assets worth several hundred billion pounds will be put up for sale. 

Stephen Hester, RBS chief executive, will outline the plans this week as he unveils Britain's biggest-ever corporate loss of up to £28 billion. He will cut costs by more than £1 billion a year, a move expected to lead to the loss of about 20,000 jobs, more than half of which will be in Britain.

Large parts of the group's investment-banking business will be earmarked for sale or closed down. Its Asian operations and retail operations across central and eastern Europe will also be sold off.

All these operations will be bundled together in a "bad bank" inside the group, which will report its figures separately.

RBS will also place at least £200 billion of toxic assets into the government's asset-protection scheme, a controversial insurance scheme designed to protect banks against further losses.

Billionaire investor Wilbur Ross leads a pack of vulture funds that are talking to the bank and the government about buying some of the bad loans, although it is unlikely a deal will be agreed in time for Thursday's results. Virgin Money, Sir Richard Branson's mortgage business, is another possible buyer. 

Republican Governors Step Up Attacks on Obama Economic Policies 

Feb. 22 (Bloomberg) -- Republican governors attacked President Barack Obama's economic policies, warning that the $787 billion stimulus package will saddle states with obligations they can't afford. 

Obama's "short-term" thinking and deficit spending are "digging yet another hole for ourselves," said South Carolina Governor Mark Sanford, a Republican, on "Fox News Sunday." He said he may not accept all of the $8 billion in stimulus money designated for his state. Democrats criticized that approach as insensitive.

"This is about real people who, through no fault of their own, are laid off because of a recession, and they need to be able to put food on the table," said Democratic Governor Jennifer Granholm of Michigan, which has a 10.6 percent unemployment rate, the nation's highest. Granholm said she would accept all the stimulus money and be "first in line" to "take their dollars too" if South Carolina leaves funds unspent.

The Republican criticism may be a preview of partisan battles later this week when Obama is scheduled to release an outline of his 2010 spending plan. The president plans to cut the federal deficit to $533 billion by 2013 with higher taxes on the wealthiest Americans and an end to the war in Iraq, according to an administration official. 

While Rome Burns  

When I sit down each week to write, I essentially do what I did nine years ago when I started writing this letter. I write to you, as an individual. I don't think of a large group of people, just a simple letter to a friend. It is only half a joke that this letter is written to my one million closest friends. That is the way I think of it. 

This week's letter is likely to lose me a few friends, though. I am going to start a series on money management, portfolio construction, and money managers. It will be back to the basics for both new and long-time readers. I am not sure how long it will take (in terms of weeks), but it is likely to make a few people upset and provoke some strong disagreements. Let's just say this is not stocks for the long run.

And because many of you want some continuing analysis of the current crisis, each week I will throw in a few pages of commentary at the beginning of the letter.

But first, and quickly, I just wanted to take a moment and remind you to sign up for the Richard Russell Tribute Dinner, all set for Saturday, April 4 at the Manchester Grand Hyatt in San Diego - if you haven't already. This is sure to be an extraordinary evening honoring a great friend and associate of mine, and yours as well. I do hope that you can join us for a night of memories, laughs, and good fun with fellow admirers and long-time readers of Richard's Dow Theory Letter.

 

Endorsed Financial Adviser Endorsed Financial Adviser

Looking for a financial adviser who sees the world through a similar lens as we do? Free consultation available.

Learn More »
Read Our New Book "Prosper!"Read Our New Book

Prosper! is a "how to" guide for living well no matter what the future brings.

Learn More »

 

Related content

28 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
MarkM's picture
MarkM
Status: Platinum Member (Offline)
Joined: Jul 22 2008
Posts: 845
Re: Daily Digest - Feb 23

Hopefully, the training in Arcadia has indeed been cancelled. Nevertheless, a troubling sign that "exercises" such as this are even planned.

http://www.worldnetdaily.com/index.php?fa=PAGE.view&pageId=89527

Kots described the original operation to the Herald as set to begin on Thursday, April 2, with reconnaissance and exploratory patrols. On April 4 convoys were to be deployed from the armory in Carroll to nearby Arcadia, where soldiers would knock on doors, showing a picture of the invented "arms dealer."

"Once credible intelligence has been gathered," said Kots, "portions of the town will be road-blocked and more in-depth searches of homes and vehicles will be conducted in accordance with the residents' wishes.

"One of the techniques we use in today's political environment is cordon and knock," Kots explained. "We ask for the head of the household, get permission to search, then have them open doors and cupboards. The homeowner maintains control. We peer over their shoulder, and the soldier uses the homeowner's body language and position to protect him."

The planned drill had also included overhead supervision from a Blackhawk helicopter, crowd-control measures and simulated extraction of "injured" people, culminating in capture of the "arms dealer."

"This exercise will improve the real-life operational skills of the unit," said Kots. "And it will hopefully improve the public's understanding of military operations."

 

Vanityfox451's picture
Vanityfox451
Status: Diamond Member (Offline)
Joined: Dec 28 2008
Posts: 1636
Re:Dinner Table Economics and Deflation

The latest installment of 'Cynicus Economicus' is here :-

Dinner Table Economics and Deflation

http://www.peakprosperity.com/forum/dinner-table-economics-and-deflation/13781

Paul

 

Vanityfox451's picture
Vanityfox451
Status: Diamond Member (Offline)
Joined: Dec 28 2008
Posts: 1636
Re: Daily Digest - Feb 23

...and this piece of journalistic cr#p - Someone tell me there is a single grain of truth in it (ironySurprised)

http://uk.news.yahoo.com/21/20090223/tuk-rock-chief-to-take-shackles-off-6323e80.html

Rock chief 'to take shackles off'

The head of nationalised Northern Rock says he is ready to "take the shackles off" the lender as it announced up to £14 billion extra in new mortgages. Skip related content

Related photos / videos

Northern Rock is to offer £14bn in additional mortgage lending

Chief executive Gary Hoffman ruled out loans worth 95% or more of property values but hoped to offer some mortgages at 90% to help first-time buyers.

Northern Rock - which expects losses of £1.4 billion for 2008 - has been driving away customers to pay off £26.9 billion in taxpayer loans racked up following its Bank of England rescue in 2007.

But the firm's move back into the wider market with billions more in taxpayer funds represents the Government's most direct intervention yet to tackle the current drought in mortgage financing.

Mr Hoffman said the Rock's return to "responsible" wider lending would make a "small but important contribution" to the mortgage market.

"Net new lending shrank by around £70 billion (in 2008) and Northern Rock was responsible for around half of that fall.

"Having made very good progress against our objectives last year we are taking the shackles off Northern Rock," he said.

Northern Rock will lend around £5 billion this year and up to £9 billion more in 2010, depending on demand.

Chancellor Alistair Darling earlier told the BBC: "Northern Rock is going to increase its lending but this is against a background where a lot of the foreign-based banks have withdrawn.

"So what I want to do is use Northern Rock to help fill the gap but in the rest of the banking system we still have a job of work to do to make sure we can rebuild those banks for the future."

 

suesullivan's picture
suesullivan
Status: Gold Member (Offline)
Joined: Oct 6 2008
Posts: 305
Re: Daily Digest - Feb 23

Thanks for the Ritholtz while rome burns link. The first half of it was a very clear explanation for economic neophytes like me of the European crisis, and I feel like I have a much better grasp of what's happening now!

cnbbaldwin's picture
cnbbaldwin
Status: Bronze Member (Offline)
Joined: Apr 23 2008
Posts: 59
Re: Daily Digest - Feb 23

The link to "Risks in owning GLD" certainly got my attention.  For those of us trying to "preserve" wealth in our self directed IRA's or 401K's through the purchase of gold ETF's this is a bit scary, to say the least.  Outside of liquidating these accounts, with the associated tax and penalty hits (if under 59 1/2) and then taking physical possesion of gold, the EFT's seemed like the next best thing.  I would be interested in thoughts regarding the relative safety of using  ZKB instead of GLD for this purpose.  Would ZKB provide a much greater degree of safey over GLD or should neither be thought of as a reasonable alternative to physical possesion of gold?

 

gyrogearloose's picture
gyrogearloose
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 537
Re: Daily Digest - Feb 23

 

"Mr. Roubini -- a month short of 50 -- is in huge media demand, the
nearest thing to a rock-star among the economists who hold our fate in
their hands these days. The peculiar thing, of course, is that he's in
demand because he specializes in predictions of gloom."

 I think that is wrong

He is "popular" because he is a "talking head" spouting the keynesian ideology of stimulus.

 

Cheers Hamish

andrewj's picture
andrewj
Status: Member (Offline)
Joined: Jul 28 2008
Posts: 16
Re: Daily Digest - Feb 23

This is an interesting article on money. Its long and been translated from German. Its the first time I have felt there may be some answers. I hope others enjoy it.

Andrew

 

http://www.omo.co.nz/Property%20Rights.pdf

RubberRims's picture
RubberRims
Status: Silver Member (Offline)
Joined: Nov 22 2008
Posts: 145
Re: Daily Digest - Feb 23

Just watching the curve bend over the last 12 months is outstanding.

 

Dow Jones Industrial Average 

FTSE 100 Index 

The part I liked best today was this, PM 'to ban 100% mortgages' Only now do they want to get back to good old fashioned banking. The regulators have been asleep at the wheel for the past 8 years and now they want to steer the Ship?

http://news.bbc.co.uk/1/hi/business/7904205.stm 

Carlos P's picture
Carlos P
Status: Bronze Member (Offline)
Joined: Jan 26 2009
Posts: 34
Re: Daily Digest - Feb 23

 

about the roubini video:

nationalization of the banks is a free lunch for the bankers. even if they can clean up the balance sheets of these banks, I doubt the government can seel them back to private investors with a profit. if that was possible, someone would have come with the capital to recapitalize these same banks. if they get nationalized, taxpayers will take the losses, and the private investor would get a nice clean bank. I don´t see how it is possible for government to make some money at the end, unless they sell the banks with a huge premium on the shares. bankruptcy should be the best course of action. this way they could start for a sound base, just like jim rogers says. the fiscal stimulus could only work if ti was 100% taxcuts. instead most of the money is for more government expenses. this is not the time to rebuild roads and bridges. it´s like if I lost most of my money in a poker game, and then I go and buy a new house. it makes no sense at all. I think the media keeps bringing this guy to their shows because he is in favor of even more government and more spending. Just because he won credibility in the past, doesn´t mean he is right now. It´s funny tough that even he recognizes that this is a huge burden for future generations, and everyone is confortable with that idea. people don´t want to make any sacrifices so their children can have a better future.It says a lot about our society.

Soulmaster's picture
Soulmaster
Status: Bronze Member (Offline)
Joined: Sep 16 2008
Posts: 27
Re: Daily Digest - Feb 23

The Arcadia exercise is truly disturbing.  How long do you think people would be able to get away with conducting a 'restructure the federal government' exercise? Tongue out 

joemanc's picture
joemanc
Status: Martenson Brigade Member (Offline)
Joined: Aug 16 2008
Posts: 834
Re: Daily Digest - Feb 23

Pete Stark, D-Rep. from California: The larger the national debt, the wealthier we are! Makes me wonder if he's helping Bernanke run the printing presses.

jrf29's picture
jrf29
Status: Gold Member (Offline)
Joined: Apr 18 2008
Posts: 453
Arcadia Nat'l Guard Exercise

I think the Arcadia exercise is not nearly as distrubing as it would be if the exercise were conducted using federal troops.  It has always been the responsibility of the states to maintain law and order within their borders, and state militias (lately called the national guard) have filled this role since the days of George Washington. 

Using state troops -- drawn from the communities which they serve -- to enforce the law has been absolutely common throughout American history.  That is why they exist.  State militias served as highway patrols before the existence of professional state police forces, and well into the 20th century in some states.  When the state police have been overwhelmed, a ready and effective national guard is essential.  In Arcadia, the Iowa National Guard is preparing to do what national guards have always done.  Since the threat of Indian attack abated, large-scale law enforcement, riot control, and disaster relief are the essential reasons why guards exist.  The National Defense Act of 1916 and the recent "Abrams doctrine" are a perversion of national guards' historical role, and many states are rightly demanding that their guardsmen be returned from foreign combat.

We have seen time and again, especially in the 1960's, that poorly trained national guards are a recipe for disaster and wanton violence when circumstances force governors to use undertrained guard units (Kent State?).  If we face the risk of social disorder, then, frankly, the better trained my state national guard is, the safer I will feel. 

What is dangerous is the idea of using federal troops in this capacity.  Although the national guards have been excessively (and some might argue illegally) entangled with the federal government, weak national guards nevertheless encourage federal intervention in such things as local riot control. 

If the state national guards are not up to the tasks which will be laid before them, then there will be an irresistable demand for the federal government to step in and assume the responsibility for domestic law enforcement, using U.S. Army soldiers.  It is our responsibility to ensure that this never happens.  Part of that responsibility involves making certain that our states are prepared to handle situations themselves.

hucklejohn's picture
hucklejohn
Status: Gold Member (Offline)
Joined: Dec 13 2008
Posts: 281
Re: Daily Digest - Feb 23

I know some posters have a more comprehensive understanding of economics & money than the rest of us.  I would be interested in their comments on the long article on money above posted by

andrewj.
truenorth's picture
truenorth
Status: Member (Offline)
Joined: Feb 1 2009
Posts: 21
Re: Daily Digest - Feb 23

Regarding the spdr GLD, I came to the same conclusion a couple weeks ago - it seemed possible that, in the worst case imaginable, GLD might not have the gold at all.

I researched the possible ways of holding gold and settled on GTU and CEF.  Seems they take "holding the gold" much more seriously.

http://www.centralfund.com/

http://www.gold-trust.com/

Trustworthy Canadians as well..!

 

MarkM's picture
MarkM
Status: Platinum Member (Offline)
Joined: Jul 22 2008
Posts: 845
Re: Daily Digest - Feb 23

jrf29,

I can understand crowd control measures and you are correct about the problems with poorly trained Guard members in the past.  My biggest problem here is with the "cordon and knock" and having them "asking" to come into citizen's homes to look around.  There is no probable cause and there is no warrant.

As for me, I trust noone anymore.  Military operations in neighborhoods are, in my opinion, a ruse for desensitization.

wvj100's picture
wvj100
Status: Member (Offline)
Joined: Nov 20 2008
Posts: 4
Re: Daily Digest - Feb 23

There are companies that offer self-directed 401k plans for your own gold bullion.

I was looking into Gold Star Trust in Texas. I would be interested in hearing from anyone that has an account with them or any experience with them.

http://www.goldstartrust.com/

Impartial's picture
Impartial
Status: Member (Offline)
Joined: Feb 24 2009
Posts: 7
Re: Daily Digest - Feb 23
Carlos P wrote:

 

about the roubini video:

nationalization of the banks is a free lunch for the bankers. even if they can clean up the balance sheets of these banks, I doubt the government can seel them back to private investors with a profit. if that was possible, someone would have come with the capital to recapitalize these same banks. if they get nationalized, taxpayers will take the losses, and the private investor would get a nice clean bank. I don´t see how it is possible for government to make some money at the end, unless they sell the banks with a huge premium on the shares. bankruptcy should be the best course of action. this way they could start for a sound base, just like jim rogers says. the fiscal stimulus could only work if ti was 100% taxcuts. instead most of the money is for more government expenses. this is not the time to rebuild roads and bridges. it´s like if I lost most of my money in a poker game, and then I go and buy a new house. it makes no sense at all. I think the media keeps bringing this guy to their shows because he is in favor of even more government and more spending. Just because he won credibility in the past, doesn´t mean he is right now. It´s funny tough that even he recognizes that this is a huge burden for future generations, and everyone is confortable with that idea. people don´t want to make any sacrifices so their children can have a better future.It says a lot about our society.

I believe that one thing that might cause him to be popular is that he can state his opinions without antagonizing a lot of other people. In my view, what he said could be summarized as the following:

(a) The government is working in three areas: stimulus, fixing the banking system, and fixing the mortgage problems. These are the right areas to work in. Never mind that they are doing wrong things in all three areas. They are bound to do it the right (i.e. my, Roubini) way in the end. Surely it would cost more, but this is the way politics works, and no amount of angry critique will change the fact.

(b) There are only two solutions to the huge debt problem: pass it over to the future generations or inflate. I (Roubini) don't like the second one, but the choice is not mine.

I doubt the above can be classified as a speach in favour for the current governement actions, but I can be wrong.

Impartial's picture
Impartial
Status: Member (Offline)
Joined: Feb 24 2009
Posts: 7
Re: Daily Digest - Feb 23
andrewj wrote:

This is an interesting article on money. Its long and been translated from German. Its the first time I have felt there may be some answers. I hope others enjoy it.

Andrew

 

http://www.omo.co.nz/Property%20Rights.pdf

It looks like a PhD from Bremen University, where Prof. Gunnar Heinsohn is a leading figure. He is known by his unorthodox theories not only in economy, but in other areas as well, such as history and sociology. His latest theory is about demographical explanation of political conflicts. He rights in German, below, however see some related links in English:

An article in Wikipedia on him: http://en.wikipedia.org/wiki/Gunnar_Heinsohn

and some other stuff:

http://gatesofvienna.blogspot.com/2007/06/continent-of-losers.html

http://online.wsj.com/article/SB123171179743471961.html

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - Feb 23

http://www.bloomberg.com/apps/news?pid=20601213&sid=a9H6KsElR3Ag&refer=home

This just came out today (the 24th). Of note:

"At
Schwab, less than 1 percent of assets held by 1.4 million
retirement customers was shifted in September and October, when
the Standard & Poor's 500 Index fell 9 percent and 17 percent,
according to the company.
"

I must say I'm surprised that so few people responded to the markets. Did they actually believe our leaders when they said the "economy is fundamentally sound"??? 

 

 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Feb 23

Hello Mike:

Isn't that amazing? I had posted a while back a survey/chart on financial planners that were recommending their clients, sell, buy or hold. I must have filed it under something else (colorful I'm sure) but I was shocked to see less than 10% recommended selling. 

From 1996 to present I saw 2 bubbles pop, tech and housing.

The consumer is de-leveraging. There is no credit. Consumers were 70% of GDP. What white knight are these financial planners waiting for? Wave 2 (Option arms and alt a foreclosures, the commercial RE crash, retail tanking).

I may be nuts, but I don't think if they gave the stimulus to every man woman and child they could re-inflate this thing and I'm quite certain that all these dollars are doing nothing but devalue the dollar.

Take care. 

 russ.gif

capesurvivor's picture
capesurvivor
Status: Platinum Member (Offline)
Joined: Sep 12 2008
Posts: 963
Re: Daily Digest - Feb 23

From Andy Tobias 2/24/09 (maybe I have format correct finally)

"One day, energy will become almost free, as phone calls have. And maybe that will allow amazing materials breakthroughs as well. (If energy is all but free, how much can it cost to make aluminum? Or to fashion composites?)

But for now  by which I mean maybe 20 years, anyway, we're going to have to find ways to live well with less energy and l"ess bulky stuff. "

Andy has obviously taken CC and gets part of it but is way too optimistic (in rest of his post). He is a good guy but is way above all of our pay grades since he was so smart as a young dude and made his fortune  with his travel service and then "Managing Your Money". Independent wealth tends to color your perspective.

 

SG

flavian's picture
flavian
Status: Bronze Member (Offline)
Joined: Nov 20 2008
Posts: 29
Re: Daily Digest - Feb 23

"Mr. Roubini -- a month short of 50 -- is in huge media demand, the
nearest thing to a rock-star among the economists who hold our fate in
their hands these days. The peculiar thing, of course, is that he's in
demand because he specializes in predictions of gloom."


I think that is wrong


He is "popular" because he is a "talking head" spouting the keynesian ideology of stimulus.

I totally agree.

Roubini predicted the crysis but he is quite far from understanding it. He's got a wrong atitude regarding bailouts. He's also over-optimistic about UK and other things.

I really don't get it why Davos keeps postig articles with him.

He's not even close to Peter Schiff when understanding this crysis. And Chris is way better than Shiff also. So quoting Roubini is a bit more like quoting Paulson than a real "expert" on this crysis.

I think the best guys regarding predictions right now are E2020.

They predicted the september 2008 crash in february 2008: http://www.europe2020.org/spip.php?article527&lang=en

They predicted the next major step in march 2009 since december 2008: http://www.europe2020.org/spip.php?article576&lang=en

And theys last prediction from last week is here: http://www.europe2020.org/spip.php?article576&lang=en

Back in February 2006, LEAP/E2020 estimated that the global systemic
crisis would unfold in 4 main structural phases: trigger, acceleration,
impact and decanting phases. This process enabled us to properly
anticipate events until now. However our team has now come to the
conclusion that, due to the global leaders’ incapacity to fully realise
the scope of the ongoing crisis (made obvious by their determination to
cure the consequences rather than the causes of this crisis), the
global systemic crisis will enter a fifth phase in the fourth quarter
of 2009, a phase of global geopolitical dislocation.

According to LEAP/E2020, this new stage of the crisis will be shaped by two major processes happening in two parallel sequences:

A. Two major processes:

1. Disappearance of the financial base (Dollar & Debt) all over the world

2. Fragmentation of the interests of the global system’s big players and blocks

B. Two parallel sequences:

1. Quick disintegration of the current international system altogether

2. Strategic dislocation of big global players.

CB's picture
CB
Status: Gold Member (Offline)
Joined: Mar 18 2008
Posts: 365
Re: Daily Digest - Feb 23

Interesting news item: http://news.bbc.co.uk/2/hi/africa/7907177.stm

Quote:

Zimbabwe 'illegal gold sale bid' By Grant Ferrett BBC News Zimbabwe's Vice-President Joyce Mujuru tried to fund a multi-million dollar gold deal in defiance of international sanctions, the BBC has learned. The deal allegedly involved selling Congolese gold in Europe. There has been no comment from Mrs Mujuru, who was appointed five years ago by President Robert Mugabe as Zimbabwe's first female vice-president. She is one of about 200 Zimbabweans the EU has hit with sanctions, accusing them of human rights abuses. A company with offices in Europe, Firstar, says Mrs Mujuru's daughter, Nyasha del Campo, offered to sell more than three-and-a-half tonnes of gold from the Democratic Republic of Congo.

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - Feb 23

Also, I couldn't wait for today's daily digest for this:

Here's some headlines:

Bernanke Sees 2010 Economic Recovery `Only If' Markets, Banks Stabilize 

Consumer Confidence in U.S. Collapses to Record Low as Unemployment Soars 

All this while we get a solid bounce in the major indices. Is this just technical support for the previous lows, or has the PPT stepped in?

 

CB's picture
CB
Status: Gold Member (Offline)
Joined: Mar 18 2008
Posts: 365
Re: Daily Digest - Feb 23

flavian - agreed about E2020. An important thrust of their analysis is the international dimension of the situation.

There is a lot of angst expressed here and elsewhere about the Obama administration's money (debt) shovel approach to the crisis, but I am not sure what else anyone could expect. Attempts at triage begun under Bush have been continued because any attempt to fix the root causes will necessitate a complete change in the status quo and business as usual. There must be a coordinated international solution (or attempt at one) or the system will collapse in a chaotic fashion. (it seems more likely to me than not that chaos will win out due to inability of the international financial interests to reach a workable concensus) Citi, BA, and AIG are not US financial companies - they are global structures. The US govt cannot unilateraly nationalize them - or allow them to fail - without precipitating a global crisis. Gorbachov, with essentially dictatorial powers, tried to manage the collapse of the USSR and failed. The current crisis will just play out to its bitter end as the parties try to maintain order without the revolutionary change that is required. The current system - corrupt and ill-conceived as it is - has evolved over many decades. There is not an available alternative to it that can maintain the current power structures, and those in power will not willingly disenfranchise themselves - where is the historical example of this - at the required scale?

http://blog.atimes.net/?p=634 

Quote:

No nationalizers in the trenches

February 22nd, 2009
By
David Goldman

As a chain reaction threatened to bring down all world markets, governments appear to be taking two kinds of action to prevent a collapse:

1) Multilateral efforts to support weaker sovereigns, including a $120 billion Asia currency reserve fund and a European proposal to double the resources of the IMF, and

2) A number of plans to buttress the private banking system without nationalization, most prominent among which is Citigroup’s proposal to convert government- and sovereign fund-owned preferred shares into common equity. The Citigroup plan reversed a initial 1% fall in Asian markets overnight.

Private equity types and finance professors have advocated bank nationalization without considering the knock-on effects of wiping out $800 billion of bank capital securities — the equivalent of another subprime disaster hitting the world financial system, with particularly devastating consequences for the insurers. It simply isn’t possible to haircut preferred stock, hybrid security, and subordinated bondholders without collapsing confidence in the banking system. As I observed on Friday, the sharp fall in Wells Fargo’s stock price put paid to the illusion that the government might nationalize a couple of weaker institutions (C and BAC) while leaving WFC and JPM unscathed. If one of the big ones goes down, all of them will go down. And the chain reaction will continue.

The comments posted to the above blog are worth reading too.

A wild card that I don't see being discussed is US military power - the most powerful such instrument ever constructed in history. If you consider 9-11, where the notion that a few yahoos from a 3rd world backwater could defeat - in slow motion - the most sophisticated air defense system on the planet by hijacking civilian airliners, flying one of them into restricted air space defended by military radar, missle defenses, and hair trigger air intercept capability, then one has to wonder what else is in the offing. This military structure is not under international authority, but under control of a single player in the collective crisis.

Soulmaster's picture
Soulmaster
Status: Bronze Member (Offline)
Joined: Sep 16 2008
Posts: 27
Re: Daily Digest - Feb 23
Mike Pilat wrote:

http://www.bloomberg.com/apps/news?pid=20601213&sid=a9H6KsElR3Ag&refer=home

This just came out today (the 24th). Of note:

"At
Schwab, less than 1 percent of assets held by 1.4 million
retirement customers was shifted in September and October, when
the Standard & Poor's 500 Index fell 9 percent and 17 percent,
according to the company.
"

I must say I'm surprised that so few people responded to the markets. Did they actually believe our leaders when they said the "economy is fundamentally sound"??? 

 

Around August last year, some representatives from ML were at my place of employment.  I noticed that they kept using different words to say essentially the same thing--and they were pretty much ramming it down our throats--buy, buy, buy stocks (not bonds) and hold; that is the way to long-term wealth.  I questioned that theory and the rep. made it a point to shoot me down in front of the entire company--he used some market jargon that I really didn't understand, but I just had to throw my point out there: The baby boomers (my parent's generation) were told the same thing, buy and hold, and we can see right now that strategy didn't exactly work out for the vast majority of the population, in stocks OR in housing.  I have met few people who tell me that they were able to make a boatload of money with their 401k plan.  Also, in the upstate NY area anyway, it seems like people's homes are being reassessed at higher values meaning higher property taxes, but the actual value of their home has plummeted.  

 

To some, this might say it all: 

When I graduated high school, I was given a gold bullion coin for a graduation present.  At the time it wasn't worth much, maybe 300 bucks.  Now it is worth around $1000 (maybe it takes $1000 of today's dollars to equal $300 dollars from 10 years ago).  Around the same time, if you bought virtually any stock, it would definitely be worth less today than what you paid for it.  And this agrees with Chris' podcast from the beginning of the year, if 10 years was long term to you in the stock market, then you probably lost a lot of money 'long term' in stocks over the last 10 years.

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Daily Digest - Feb 23

Soulmaster: I am envious of you for two reasons.

I wish that I received a gold coin many years ago...but I can't really complain about the graduation gifts and many opportunities that have been available to me. I'm truly indebted to others in so many ways.

And I'm envious that you had the opportunity to engage with a financial representative in front of your company. I have not had this opportunity in quite some time, but frankly, I'd love to engage one of these fellows right about now. I think I might be able to make myself:

A) very unpopular amongst the financial services representatives

B) perhaps better respected in front of my coworkers

I've always been told to prepare an "elevator speech" for those special 30 second periods when your words can have a big impact...My father was once in an elevator with Alan Greenspan and he now greatly regrets that he didn't speak with his foot and trip the crook...Back on track, I think it's long overdue for me to organize a short spiel for myself to present to other business-folk / financial service representatives...you have inspired me to get on this!

Mike

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments