Bits Bucket For December 20, 2009
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Will the new frugality born of the recession reshape a generation?
The Washington Post ~ December 20, 2009
Helen Wilson knows thrift. In the years after the Great Depression, she raised chickens and planted vegetables at her home in Alexandria to feed her children.
Now she smirks a little when her daughter Loretta Haley, 55, describes the recession as “life-changing.”
“Absolutely I’ve changed my spending habits,” Haley said, as she and her mother came out of a Shoppers Food Warehouse with just a few bags of what she described as “healthy” groceries in a giant shopping cart. “I’m only getting essentials.”
For Wilson, 86, this new push toward frugality doesn’t compare to the habits she’s kept up for generations. She reuses wrapping paper from one Christmas to the next, depends on layaway instead of credit cards and saves plastic food containers rather than buying Tupperware. Unlike her daughter, she has steadily built her savings.
People beginning to live within their means could well be the silver lining of the recession. If people like Haley embrace change and maintain better financial habits, they will benefit in the long term, and the economy will, too.
“There will be good things that come out of this recession,” said Marcia Tillotson, a financial adviser at Wells Fargo Advisors. “Many people had not been conscious of what their lifestyle cost. Now, all of a sudden, they have become conscious of how they spend their money.”
The question is, will the panic and uncertainty of the financial crisis shape a generation and an economy in the deep mold of the Depression? Or will our pledges of prudence have all the heft of a New Year’s diet resolution?
“You have to feel the pain before you really make a change,” said Gerri Detweiler, a personal finance adviser for Credit.com. “The longer it takes for the economy to feel normal again, it is likely to have a longer-term effect on our spending habits, and the more ingrained these habits of thrift will become.”
It will be back to business as usual soon I think.The govt is doing nothing to fix the problem.They are encouraging specualtion again.We are in a boom bust cycle.
I disagree. I think our society is undergoing a sea change in values.
A good thing is the long-term, very disruptive in the short-term.
I tend to agree combo…
I disagree
I don’t think our society is undergoing a sea change in values
They are undergoing a sea change in wealth,economic security. It will require much more hardship before values change.
The sea change is the realization by government that they can never wise up the parasitic voters they need, so they are shifting into pander-squared mode… using my output.
The government’s reactions are very telling, they say a lot about our society and where it’s headed. That said, it bears reiteration that the gov’t is merely reacting to events, not shaping them.
I find it helpful to picture a kid in a theme park on a merry-go-round at closing time.
“…a kid in a theme park on a merry-go-round”
What happened to his “cotton candy”?
The government’s reactions are very telling, they say a lot about our society and where it’s headed.
Our government is reflective of the morons who elected it. IDIOCRACY, here we come.
So when does the new season of “Ow My Balls” start?
Our government is reflective of the morons who elected it. IDIOCRACY, here we come.
Wrong our government is refletive of the criminals that finance and bribe it. Let the concentration of wealth and the belief that money equals free speach reign
The “moneyed interests” that Jefferson warned the new republic about, and the military-industrial complex that Eisenhower warned of, own both of our major political parties. Both parties put up candidates of appalling caliber and with the clear agenda of serving their bankster masters, as the most recent election illustrated yet again. But this process would come to nothing if America’s zombified populace didn’t lurch into the voting booths each and every election and actually give their stamp of approval to these media-anointed Hollow Man candidates. If they voted for principled independents instead - Ron Paul comes to mind - we might finally see a government “of the people and for the people” start to emerge.
Sammy,
A lot of engaged, educated, and thoughtful people supported the obscure Barack Obama and brought him to the fore because they supported his message—just as a lot of engaged, educated and thoughtful people support Ron Paul and struggle to give voice to his leanings. I don’t believe anyone goes into public service with the idea of subverting the Constitution of the United States of America, but with a hugely diverse population and an unwieldy and antiquated system for keeping it cohesive, it’s not surprising that the monster that is our corporate governance suborns our idealistic intentions. Yours, mine, and our elected administrators’ included.
50% or more Americans don’t vote for anybody.
An odd stat shows that 50% vote one year and 2 years later 38% vote and 2 years later still, 50%. 2 more years back to 38%.
It has been steadily alternating like since 1960.
(source: Infoplease search “national voting turnout”)
A lot of engaged, educated, and thoughtful people supported the obscure Barack Obama and brought him to the fore because they supported his message
The choice in this election wasn’t the usual Bad and Worse. It was more like Ghastly (McCain) and Appalling. I never paid much attention to what Obama was saying. Rather, I looked at who he was beholden to, and it sure as hell wasn’t all those starry-eyed hope ‘n change True Believers. Sure enough, he got in office and gave the Banksters everything they asked for. Wall Street isn’t running the show from behind the scenes - they ARE the show.
I don’t think “engaged, educated, and thoughtful people” brought Obama to the fore. I think the corporate cartels and their media shills bamboozled those same people to ensure Obama’s ultimate success.
How do you think he managed to defeat the Clinton machine, Sammy?
It sure wasn’t because he had the support of the established corporate interests….
I don’t think the government has as much power over people’s thoughts as you think it does. Offering mortgages at 3.5% down doesn’t make people spend $3000 on Christmas presents. Same thing with lending money to Goldman Sachs at 0%. And the government sure as heck can’t bring it back that sort of spending once it goes out of style.
Also, I’d like to point out that while the government and the Fed could have stopped the credit bubble, being in a position to stop something is a slightly different thing than actually casuing it.
What? Do you mean to say the French didn’t start WWII?
Lots of bad loans. Whose at fault, the borrower or the lender. I would argue that in most cases the borrower is slighty guiltier. But the lender is usually a little smarter, (after all they have money to lend) and somewhat better at looking out for their own long term interest, so when the beatings commence, those are the ones we should be punishing.
What is this “long-term interest” of which you speak? My understanding is that all they want to do is hit their quarterly numbers. Oh, and collect bonuses today for money that somebody will (not!) pay back 10 years from now.
“I don’t think the government has as much power over people’s thoughts as you think it does.”
No, but MSM does.
I agree with you, dude. I don’t see any sea-change going on here. “Hardships” are not defined as having to use plastic food containers (oh, no!), keep a car 2-3 years longer, etc.
I haven’t used paper towel in about 5-6 years because of the expense. I use rags, let ‘em dry, and throw ‘em in the wash.
A hardship is eating bark off a tree to stay alive, burning furniture to stay warm, or living in a tent without utilities.
Even what’s stated in the articles in lunancy. Growing vegetables is a hardship?! Oh, the Humanity! I might break a nail or something. Sob!
I won’t cut back because I have lived below my means for a very long time already. When you have zero (or near zero) debt and diversified your investments you can navigate through the bubbles by rebalancing periodically. Rebalancing is crucial for when you get older and age discrimination sets in at work.
Proof that I live below my means. I just have to look right out my office window at my Toyota economy car parked among the Lexus driven by an engineer half my age. Actually a lot of the engineers earning much less than me drive cars that originally cost more than twice what my car cost.
Besides, Bill trusts in Jesus to see him through.
Trust in Reason.
When you hear the government and the media refer to us as an American instead of the consumer, our values have then certainly changed.
I think the un-addressed tragedy here is that people like Helen Wilson will be forced to endure this privation twice in their life. My parents are now 85, and like Mrs. Wilson, my mother still uses the same wrapping paper from year to year, buys maybe one roll of aluminum foil every decade, and has an entire room stuffed with glass and plastic containers, ancient canned goods, and buttons. (My mother is a retired pharmacist, and my father a retired MD., so they’re not exactly impecunious.)
But those lifetimes of saving and doing without will come to naught as the coming inflation eats up these oldster’s dwindling nest eggs. I know my parents lost a substantial portion of their retirement funds (heavily invested in CDO’s,) when the market tanked, and I suspect they’re not alone. The one compensation for all of this is that having done without for so long, they’re used to it, so privation is not such a shock to the system as it will be for those who have lived their lives in a throw-away culture.
“But those lifetimes of saving and doing without will come to naught as the coming inflation eats up these oldster’s dwindling nest eggs.”
Say what?! It will?
Presuming your parents became adults at Age 21, then their frugal/cheapskate/use it up-wear it out lifestyle has served them extremely well.
64 years later and they are still okay.
Unlike most other adults in this country, your parents aren’t like children with poopie in their pants.
Which is another reason I expect to work well past normal retirement age. Postponing living on a fixed income means being somewhat buffered from the ravages of inflation.
I think we may also see some homeless boomers move in with their aging parents, something that may benefit both parties. I know I could take a lower paying or part time job if I didn’t have to worry about paying rent or could simply be responsible for covering the property tax on my folks’ house. And I would love to spend more time with my folks, who live far away. My folks would benefit from having a younger driver and a live in caretaker who really cares about them.
boomers and others have been moving back in to “take care” of the parents has been happening for a long time, at least around here. Back in the day the parent moved in with the grown kids.
Have you talked to them about this, happy? Sounds like a win-win to me….
I am a couple of years or a job loss away from being ready to do this. My youngest will graduate college next year and I am still gainfully employed at a good paying job that lets me work from home most of the time.
My older brother is expecting to retire next year and move back home with them. He is single with no dependents. So he will pick up the slack in the interim. He has back trouble and may need help himself in a few years. At which point, I may be ready to step in.
Wow you mean Paris Hilton will be looked at as a loser for throwing away her money by having a different Gucci or LV bag each day?
That would be a sea change.
Commercial real estate on shaky foundation. ~ SF Chronicle
Optimism about a national economic recovery, fueled by rising stock prices and an improved residential real estate market, is tempered by the widespread belief that a raft of commercial real estate loan defaults is just around the corner.
Fears of a commercial real estate mortgage meltdown are bolstered by persistent unemployment, which has led to office and retail vacancies, rising commercial loan default rates and hundreds of bank failures - including two in the Bay Area in recent months.
A wave of commercial mortgage foreclosures would probably translate to more empty storefronts and offices, decreased municipal property tax revenue and fewer bank loans available to start and expand businesses.
But while most commercial real estate experts agree that in 2010 there will more loan defaults, scores more bank closures and limited construction lending, many observers do not believe that commercial mortgage defaults will derail the recovery.
“Things are not rosy, but the outlook for commercial real estate as the next shoe to drop after the residential mortgages just really isn’t what we see,” said Steven Buster, president and chief executive officer of Mechanics Bank.
Buster said that while there is a perception that the commercial real estate market will soon collapse in the way the residential market did, the two markets are fundamentally different.
There are so many vacant buildings here in the sacramento area.Rents are going to have to come down.It will not end well.Going to have to throw billions at this problem.
We noticed literally 100’s of vacant commercial buildings and strip centers along the eastern coast US, from the Carolina’s to Southern Florida, on our drive down to Florida this fall. One vacant complex after another, most appeared to be newer complexes. That along with the unfinished residential developments we saw we’re thinking of investing in some wrecking balls!!!!!!!
A “Wrecking Ball” initiative is seriously needed.
The business park my office is in is about 50% vacant.
Rents are going to have to come down ??
At the same time that cap rates are going up…Its a double whammy…
It will not end well. Well, except for those with the cash, courage, and chutzpah to start their own business. Lower rents are lower costs for SOMEBODY.
Yes. But this is also where I question the Fed’s deflation fears. Lower asset prices and rents represent lower basis costs for entrepreneurs thinking about starting up new businesses. The Fed’s anti-deflation campaign protects those with a stake in failing businesses to the detriment of those whose bright ideas might spark the next wave of innovation.
“…Buster said that while there is a perception that the commercial real estate market will soon collapse in the way the residential market did, the two markets are fundamentally different.”
The answer to this riddle above is “contained” in the following x4 words:
1. collapse
2. perception
3. Bust-er
4. different
Back in 2005, when I first began posting here, I used to comment from time-to-time that there were not enough customers per square foot of floor space in San Diego retail outlets — a sign of an impending crash.
Nowadays you can see the shaky foundation in commercial RE by taking a drive around San Diego in any direction. Every mall or strip mall you drive past has a prominently-displayed sign offering commercial space for lease. And residential construction, which for some bizarre reason is classified by lenders under the commercial real estate heading, is still at a virtual standstill in San Diego. In sum total, the crash is on.
mmmm… late nite post bear. The malls were packed today. Not something epoch like the boom years though.
Paid with cash for everything this year and kept expenses low.
Awaiting my turn in the flusher but still seem to be some engineering jobs available.
Still seeing what you are seeing. Store fronts available all over the place. Suspect next year will be even more. Think the Feds war with deflation turns south next year. Too many CRE losses. I suspect they’ve unloaded all their commercial portfolio. FHA should be dead by the spring. I’d also guess that one of the GSE’s will be terminated. Might also FINALLY see the bond holders take some hits.
I expect FRE will be gone in 2010.
I suspect FHA will also be in official bailout.
TARP3 will happen.
Fed will be zombie by 2011.
Losses already horrific and this isn’t half over yet.
Inflation in food prices may be getting worse than “expected”. Has anyone else on the HBB noticed that food prices at the consumer level are not experiencing any “deflation”? Does anyone else know of family farms that are closing down for good due to the recent economy? How many Americans now depend on food stamps?
Eric D. Carbonnel explains why he thinks the 2010 food price situation will be far, far worse than expected. I’ll post a link for graphs, quotes and the entire article next post. Here is a brief summary:
Thursday, December 17, 2009
*****2010 Food Crisis for Dummies*****
by Eric deCarbonnel
If you read any economic, financial, or political analysis for 2010 that doesn’t mention the food shortage looming next year, throw it in the trash, as it is worthless. There is overwhelming, undeniable evidence that the world will run out of food next year. When this happens, the resulting triple digit food inflation will lead panicking central banks around the world to dump their foreign reserves to appreciate their currencies and lower the cost of food imports, causing the collapse of the dollar, the treasury market, derivative markets, and the global financial system. The US will experience economic disintegration.
The 2010 Food Crisis Means Financial Armageddon
Over the last two years, the world has faced a series of unprecedented financial crises: the collapse of the housing market, the freezing of the credit markets, the failure of Wall Street brokerage firms (Bear Stearns/Lehman Brothers), the failure of Freddie Mac and Fannie Mae, the failure of AIG, Iceland’s economic collapse, the bankruptcy of the major auto manufacturers (General Motors, Ford, and Chrysler), etc… In the face of all these challenges, the demise of the dollar, derivative markets, and the modern international system of credit has been repeatedly forecasted and feared. However, all these doomsday scenarios have so far been proved false, and, despite tremendous chaos and losses, the global financial system has held together.
The 2010 Food Crisis is different. It is THE CRISIS. The one that makes all doomsday scenarios come true. The government bailouts and central bank interventions, which have held the financial world together during the last two years, will be powerless to prevent the 2010 Food Crisis from bringing the global financial system to its knees.
Financial crisis will kick into high gear
So far the crisis has been driven by the slow and steady increase in defaults on mortgages and other loans. This is about to change. What will drive the financial crisis in 2010 will be panic about food supplies and the dollar’s plunging value. Things will start moving fast.
Dynamics Behind 2010 Food Crisis
Early in 2009, the supply and demand in agricultural markets went badly out of balance. The world experienced a catastrophic fall in food production as a result of the financial crisis (low commodity prices and lack of credit) and adverse weather on a global scale. Meanwhile, China and other Asian exporters, in an effort to preserve their economic growth, were unleashing domestic consumption long constrained by inflation fears, and demand for raw materials, especially food staples, exploded as Chinese consumers worked their way towards American-style overconsumption, prodded on by a flood of cheap credit and easy loans from the government.
Normally food prices should have already shot higher months ago, leading to lower food consumption and bringing the global food supply/demand situation back into balance. This never happened because the United States Department of Agriculture (USDA), instead of adjusting production estimates down to reflect decreased production, adjusted estimates upwards to match increasing demand from china. In this way, the USDA has brought supply and demand back into balance (on paper) and temporarily delayed a rise in food prices by ensuring a catastrophe in 2010.
Overconsumption is leading to disaster.
“The 2010 Food Crisis Means Financial Armageddon.”
It’s been almost two years since it was disclosed that the world was running out of wheat and rice. Anyone here remember that?
Something happened along the way to global mass starvation then, something will happen now.
Google-up “u s corn production chart 1990 - 2009″.
Google-up “u s soybean production chart 1990 - 2009″.
I use ixquick.com for a search engine. They claim they don’t store your search history. The Spychip gal/Harvard Grad/Ph.D. does their ads, and swears by them.
If you think US soybean production is something…check out Brazil’s soybeans.
2nd post
Severe food shortage will cause the dollar to rise.
People will drastically cut their use of fuel, and manfuactured good consumption will collapse. The US is a net food exporter, so inflation in food and a collapse of fuel use and manufacturing will cuase US dollar to rise and china and middle east to collapse.
Time to load up on staples…I suppose that’s a form of over consumption…
I wonder if Eric deCarbonnel has ever heard of Thomas Malthus? Probably not.
“…exploded as Chinese consumers worked their way towards American-style overconsumption”
“Shazam-Chinese-Yuan-is-now-corn”
On his next trip to China Turbo Timmy ought to hand out samples of Mountain Dew, Cheetos, and Fruity Pebbles to the kiddies - get ‘em hooked real good!
(Hwy hopes Indians & Chinese are not “corn syrup/tobacco” intolerant…that would not help Monsanto’s stock)
Im noticing a lot of refrigerated foods being sold very close to their expiration date; meats, dairy, etc. Picked up a large amount of nearly frozen brand name chicken, in this way, for 29 cents a pund. My kitties and I will be eating it for quite a while. Same thing for name brand breakfast sausage rolls, 49 cents a pound. Not small amounts. Bought turkeys for 50 cents a pound last month. We’re not near to starvation, yet.
Yeah, Carlos, this is what I’m seeing here in Colorado Springs.
Food prices are down A LOT in all areas with the exception of produce. All dairy, meat, bread, frozen foods are dropping steadily and have since late this past summer. I gotcha beat on turkeys! Try $5.98 PER TURKEY, regardless of weight. I bought two 16-pounders. Cost me about $13.40 for both combined. Good thing I love turkey.
Now, I could spend 10-30% more on nearly every food item I buy — by frequenting a local rip-off chain called King Poopers. It’s where the uppity and status-seeking shop. Same exact product/brand names for 20% more. I hope they have some Depends on hand once they determine how much extra money they’ve blown through.
I know all this because I stick to a weekly budget, make a grocery list and write all expenditures down. THAT figures, doesn’t it? (I have five siblings, three of whom also keep budget books and have done so for 20+ years).
Not unexpectedly, none of us are in debt.
Asparagus bunches are still $3.99 and still occasionally drop to $1.99 like they have been doing for years. The large size POM I buy is $10.99 and I consider that a health necessity to buy every five days or so.
I pay less now for food and beverages now because I’m forced to comparison shop. I found that I have been making my coffee too strong for months and have cut back on consumption - besides I get free Flavia at work!
Stopping eating out is an obvious money saver for me. It saves 60% on eating.
Forced to comparison shop? This is the second or third time you’ve mentioned having to cut back. This doesn’t sound like the Bill I’m accustomed to. It’s one thing to be frugal by choice, but “forced” cutbacks seems contrary to what I’ve been reading for the past few years.
cut back on dining out, that is, and on going to clubs in the city. Otherwise, I have the same lifestyle I did before, because it was already frugal.
I had a string of four years with 200 hours to 800 hours of overtime. So I would spend some of that OT pay on gold coins and night clubs. Occassional $400 dinners. But the OT has been gone for more than a year.
I’ve been pushed into the shadows at work too. No new product lines to work on. I excel on new development. The younger ones excel on software maintenance. I’d be back on the east coast in a flash if there was a new software product line and OT. There is no cronyism at the ECO. Lots of nepotism and cronyism here in LA. I have the wrong skin color too.
What’s the ECO?
$400 dinners? Please kick me in the jimmies if I ever pull a stupid stunt like that.
eco = east coast??
Nepotism and cronyism…pushed into the shadows…yep I’ve seen in science, and with the same skin color.
Being a specialist in a narrow field is a double-edged sword. If the expertise is in demand, you’re golden. If the field fills with me-toos, or the expertise goes out of style, then suddenly you have no marketable skills. It’s good that you’re frugal; you may need that.
I once spent $300 on a dinner for two, but it was a gift to celebrate my dining companion’s recently finished Phd. I sure hope $400 dinners just for entertainment purposes are for more than two people.
East Coast Office.
These days I try to keep my lunches down to $3.00 and my dinners to less than $5.00.
You can run up a bill to $400 easily at Ruth’s Chris. Our table of four people had $800 and it was split between me and my buddy. He was trying to impress his girlfriend (an “exotic dancer) those days. That was in the year of 60 hour work weeks at $85 per hour.
There were only three dinners like that in a year. Otherwise I normally made spaghetti with marinara sauce at home!
Oxide,
I always tell myself, this year is the last year I can party like a rockstar and next year I will probably sell books at Barnes and Noble, a favorite place of mine.
This is another reason I would like to live farther out from cities. I want to be able to grow my own food.
Question,
What would happen if we americans started to sell food grown here in the U.S. to americans only? Is it possible to grow rice domestically? It really doesnt make sense to me for there to be a food shortage as big as the U.S. is. Cut down on exports and sell it here at home.
Also,
Why isnt there a flat tax? Couldnt we just tax all americans 10% and allow no deductions for anyone? That would balance the budget real quick, dont you think? I hear the “10% is alot more to the poor argument”, but I think it’s bogus. We are all americans using the same system. I think it’s not fair. I say tax us all the same and leave it at that.
I’m kind of afraid of a flat tax. The legality of the income tax is still questionable. Why we could not use the existing tax structure previous to 1913 is what we need to look into.
The other question is: Why do we have to assume we need an income tax, flat or not. Be careful of memes.
Not sure about rice, where it’s grown. There are some delta areas in parts of the south and maybe in the Sacramento delta region where it may be possible.
I think there are pockets of the great San Joaquin Valley in California where it’s still possible to have a family farm. The soil is some of the most fertile for growing food. The area itself gets a lot of brutal treatment by comedians in LA or San Francisco, but it feeds a large part of the world. Being able to grow your own food is more valuable than buying gold, IMO.
Lots of rice is grown in California. Lundberg sells organic rice in bulk at Whole Paycheck. (I’m boycotting Whole Paycheck, btw.)
Why are you boycotting Whole Foods, Oxide? They have good stuff & treat their employees well.
You rightly identified the deductions as the complexity in the tax system. Flat rates do nothing to simplify a system where most people either read their tax off a table or get it from a software package. If you have to calculate it yourself, all you have to do is a subtraction problem, a multiplication problem and an addition problem.
Getting rid of deductions and credits in general is politically impossible under our current system. The opponents include: anyone who wants real estate prices to stay approximately where they are, all providers of child care, all providers of items eligible for the energy efficiency credits, all providers of medical services, all providers of items that get included in miscellaneous business expenses, all administrators of flexible spending and health care savings accounts, all administrators of IRA’s and 401k’s, all providers of education that charge tuition, and (here’s the kicker) all charities including all churches, synagogues, etc.
And once you do this, you still have a hugely complex tax system because most of that complexity is in corporate taxes and capital gains where it is profits that are taxed, not income. Figuring out profits is way more complicated than applying a few deductions and credits.
Good luck.
The only way we’ll get a dramaticaly flatter tax, is if we back into it through the AMT. If we get to the point where oh, say 70% of Americans are paying the AMT, we just MIGHT change it so the AMT (fewer deductions) IS the standard income tax. But I don’t think it’s likely. Every little jig and jog in our complicated tax system is there because either some politically well connected and powerful lobby PUT it there, and will fight to keep it, or to fix the unintended consequences of the above.
I see Dufus to qualify “flat tax”. Sales or income?
The gop appointed a panel of actuaries, accountants to determine the feasability of a flat income tax back in 2004 or 2005. Their findings? It won’t work well enough to provide positive revenue for the level of spendingn at that time. The tax would have to be somewhere around 30% minimum.
A modified flat tax would most certainly work *if* the first $40k/yr earnings were exempted for basic human provisions like food, shelter clothing. Modeled that way, I’m on board for a flat tax so you flat taxers keep waving the flat tax flag and you’ll have plenty of supporters.
Correction: see Dufus *failed* to qualify “flat tax”.
The wealthy would never a accept a tax rate as high as 10% (for them).
I want to be able to grow my own food ??
I could grow more food than we could ever possibly eat right in my backyard of a basic city lot…Cheap food is the culprit…Take away “ALL” farm subsidies and see how fast people become city farmers…
And see how fast McDonald’s disappears, along with obesity and diabetes.
Regarding the 10% flat tax, you could make an argument that even that is unreasonable. Let’s say that two people work together at the same company and make the same salary. That would mean they would pay the exact same tax.
Now let’s say one week management gives employees an option work an extra 10 hours over the weekend. One employee chooses to work those hours and the other chooses to spend that time at home with his friends, drinking beer and watching football on TV. The guy who works instead gets a higher paycheck for that week, but the amount that he pays to Uncle Sam also increases by 25%.
Why should that be? A truly flat tax would be a flat fee. Every taxpayer would pay the exact same amount, say $10,000. That would be true fairness.
I don’t know much about growing rice except that it requires a lot of water. In the 1700’s rice was grown in the lower part of SC.
I could live on rice. Asian food is staple of my diet. And no, neither my wife nor I are Asian.
Yes! Rice can be grown in the U.S.
In addition to the coastal Carolinas (as mentioned previously by someone else), it’s very easy to grow rice in Minnesota and Wisconsin. Some places in Michigan, too, but suitable acreage there is designated primarily to the more lucrative cranberries and blueberries (they thrive on the tamarack acid that is pushed to the eastern shore of Lake Michigan via wind and current).
BTW, you can rent rowboats in northern Wisconsin and Minnesota and whack rice off plants with a cane. There are various Indian tribes there that give working tours. Seriously.
The Chippewa are your best bet.
The things you can learn on the HBB! Stunning sometimes, ain’t it?
Stpn2me,
Lots of rice plantations all over the united states.
From Wiki.
More than 100 varieties of rice are commercially produced primarily in six states (Arkansas, Texas, Louisiana, Mississippi, Missouri, and California) in the U.S.[22] According to estimates for the 2006 crop year, rice production in the U.S. is valued at $1.88 billion, approximately half of which is expected to be exported. The U.S. provides about 12% of world rice trade.[22] The majority of domestic utilization of U.S. rice is direct food use (58%), while 16 percent is used in processed foods and beer respectively. The remaining 10 percent is found in pet food.[22]
So, we have an abundance of rice. I suspect we will have a wet year and have an abundance next year as well. I thought the fields were flooded near Sacramento. Turns out those are rice fields.
Guys, we have financial problems not actual stuff problems. Only thing that is a big thorn in our sides is oil.
Houses… too many
Rice… plenty we export about half of our rice
Corn… plenty.. we supply about half of the corn in the world
Gold… we have a shitload
Uranium…. surprised we don’t all glow
Natural gas… a big fricking shitload
Coal… depends on who you ask… its either a shitload or the big mother of shitloads sequel
Brazil outproduces us but we still have plenty
Wheat.. were number three behind India and China… still we make half of what China does and we have 1/3 the people. In other words we got plenty.
Beer…plenty
We are in a world of plenty that is being messed up by banks and bad governance.
I have seen some rising prices in groceries, not drastic and not everything. I do wonder what the lag time between oil price and food price is, and realize that we have had generally rising oil price this year. Oil price eventually finds its way to food prices.
I’m not worried at all about runaway costs, but rather surprise disruptions as economic disintegration continues. Case in point; our local grocery chain went BK this month, making it somewhat inconvenient to run for the daily supplies.
Local dairy farmesr say they are still selling milk below production costs. PBS had an interesting piece on how this caused disruptions in the milk/cheese business in Latvia.
As credit tightens I expect lots of surprise business failures, and our food delivery system is rather fragile and just in time.
I’m more annoyed at portion clipping, and the incredible mounds of sodium used to make anything in a package or box or can.
Maybe less morbid obesity in the years to come? Watched some TV program about a 700 pound man who had to eat 4 roasted chickens a day, among other foodstuffs, to sate his hunger. Who pays for all that food?
Low-income people tend to have diets with lots of starch and carbohydrates.
like rice?
OK US is a net exporter of food, so I’m not sure that a rise in prices will lead to a collapse in the dollar. I guarantee you that if food prices rocket higher you will see a collapse of demand for manufactured goods and energy. Food is a basic need, and people will cut consumption of everything else first. This of course will harm China and those that export manufactured goods plus the middle east far more than the US. I have a 3-4 mo supply of food but I view a severe shortage of food as highly deflationary for housing, energy and all manufactured goods.
> How many Americans now depend on food stamps?
I don’t know, but I’m tired of waiting in line for people trying to pay for food with handfuls of gift cards.
I’ve only been complaining about 25%+ inflation at the grocery store for… I dunno… a few months now
Link to full 2010 Food Shortage article:
http://tinyurl.com/yf66wg6
Well heck guys this is great news. A little effort on drainage and our problems are over. heck, maybe the dirt farms switch to a bit more rice.
All these problems all over the world signal a boom in US food exports. Yeah, there might be some price inflation but all in all this would be great for the US.
Number of bank failures in 2007…3. Number of bank failures in 2008…25. Number of bank failures so far this year…140.
140 banks down and plenty more worrying the FDIC. In fact, the Federal Deposit Insurance Corporation has already blown its deposit insurance fund and is $30 billion in the red right now.
Hanging over the heads of banks are some $500 billion in commercial real estate loans coming due each year. If the economic recovery stumbles watch out for more banks to be forced to close. Many more residential real estate loans are on the books as reliable assets, but as joblessness increases more borrowers will have to fold.
less Banks + less Buyers = “tiny bubbles”
less banks + less buyers = less money velocity = scarce cash
= scarce cash
Does not bode well for Billionaire “sports team” owners, imho
“imho”
Mine either. I think any business that depends solely on discretionary consumer spending is hosed.
any business that depends solely on discretionary consumer spending is hosed ??
Now add a big fat VAT onto that discretionary product that business produces.
“any business that depends solely on discretionary consumer spending is hosed”
Maybe not universally. Minature golf was a huge growth busines in the 30s.
Any business that depends on debt financing is hosed.
Yep
I think this will come to quite a shock to those who have considered themselves elite based on owning or running these businesses. The consentration of wealth will continue, eventually the only ones with wealth will be those tha control gov finance and natural resources.
“less banks + less buyers = less money velocity = scarce cash”
BINGO!
.
Don’t hold your breath that a wave of bank collapses is imminent (although this would be the best scenario to purge the system).
Government’s answer to the commercial loan problem:
1) Extend & Pretend
2) Keep loans on bank books at Par Value
3) Kick the can down the road
Problem solved.
Move along. There is nothing to see here.
Even if banks aren’t declared insolvent we’re still hosed as long as their balance sheets remain destroyed.
Destroyed balance sheets need to be made whole. Banks are trying to make them whole by keeping much of the money that flows into their coffers instead of recycling this money back into the economy in the form of new loans. This means banks are in effect subtacting money from the economy, which is a deflationary thingy.
Delay tactics do not change the outcome.
Rather than admit they’ve got non-performing loans on their hands, the banks will keep “restructuring” them into perpetuity in hopes of pushing off the bad news to the next reporting quarter, while waiting for “recovery” promised by the corporate-owned financial media shills and so-called economists.
I’m not sure government will bail banks out of commercial. There just doesn’t have the think-of-the-children appeal. Commercial RE is a business risk.
It seems like the rate of bank failures is going parabolic. The FDIC asked for and got a 56% increase in funds in next year’s budget, but something tells me that will be a drop in the bucket compared to what’s needed. I don’t have to remind you that We the Taxpayers are on the hook for all those insured-to-$250,000 personal bank accounts.
So that would be the next bubble? I wonder how you would short it.
By shorting the banks themselves. Several come to mind but do your own due diligence.
Hey, HBB, from the land of the great white north, temporarily moved to south of the Mason-Dixon Line.
I found a new apartment and put in the application on Friday. Three cheers. OK, here are a few of the details: over 1000 square feet, commercial rental bulding, older construction but very well maintained, 5 metro stops closer to work, easy walk to Metro but there is a neighborhood shuttle if you want in terrible weather, extra storage, bicycle storage, substantial building gym, across street from park and “village center,” walk to grocery stores, etc. I will have to pay for parking, but my utilities (heat, water, a/c, electricity, etc.) are included.
And how much more will I have to pay for all these benefit? If you assume that free utilities are a wash with paying for parking (not a bad assumption especially if I decide to stay a little warmer in the winter and cooler in the summer) my rent increase over my current landlord’s best offer is $9 a month. Yup. Just $9.
Oh, and I’ll have to pay for laundry, but I lived that way for years in NY and NJ, and I have the tools (professional grade laundry sorting cart) to make it easy since I can use the machines during the day when I am working from home. And the laundry rooms are on every floor which cuts down on the annoyance factor a LOT.
Also, I will be in a secure building with 24 hour staffed desk, not on the ground floor with unsecure outside doors. I’ll be able to open my windows because they will have screens on them. The walk-in closet is actually walk-in, not walk-through (to the bathroom). I’ll have a dining room (I plan to set it up as a library/dining room with most of my tall bookcases around the perimeter). Other building amenities include a rooftop pool and sun deck, yoga studio with some free classes, and a 24 hour on site maintenance.
I am delighted with my find. Yes, I could have found someplace cheaper. If I were still in private practice, that is the direction I would have gone, but that isn’t my situtaion. Not only am I closer to work, but I am closer to all the museums, and other DC stuff. This is a walking neighborhood, not a driving one. I am looking forward to getting back to that. And there is plenty of room for a party or for relatives to visit.
Biggest negative? Granite in the kitchen. Sigh. I would decline if I could, but I can’t. At least the appliances are white, not stainless.
The description is similar to where my sister lives in Fells Pt. part of Baltimore.
Rental granite is much nicer than owner granite.
But foreclosure granite is nicest of all.
Bigger than my house, if you don’t count the basement. And after spending a couple of hours shoveling, apartment living is starting to sound good.
One of the great things for me is that it is that large and still a one bedroom/one bath. I live alone, so two bathrooms would just be more stuff to clean. And I like having my office set up in the living room so I can bounce back and forth between the sofa and the desk as I choose.
I’m really looking forward to having the same amount of stuff in much more space. I expect I will need to buy a few things (a lamp or two perhaps), but that is about it. And boxes, I need boxes. And a mover. And to cancel my gas and electricity and water/sewer accounts. And move my phone and cable. So much to do. Thank goodness for vacation.
I’ve got a van for the big stuff, if you need a hand…
Polly when can we come to visit and taste your wonderful cooking?
My wonderful cooking? I think you have me confused with someone else. Olygal? Ahansen? FPSS?
I do not believe that granite counters will automatically increase my cooking skills over the granite patterned formica I currently have. The extra space, however, might help a bit.
Polly,
Your new find sounds great. Do you have the apartment or are you still waiting to hear if you got the apartment?
Waiting to hear, but I am very optimistic about it. Their minimum required salary for this size apartment is less than 2/3’s of my current salary. There is a criminal background check, but..umm…I couldn’t hold my current job if that wasn’t clean. The last time I checked my credit score it was over 750 and I haven’t been trashing it since then.
I don’t think anyone else beat me to it. I put down a deposit as well as the application fee. I hope that they would not have taken the deposit if someone else had already put one down. The checks haven’t cleared my account yet, but I expect that when they are written on Friday afternoon around 4:00. Oh, and there was a blizzard yesterday, so I don’t think anyone else would have put down an application to compete with mine.
Yikes. Now I am worried. Stop making me so nervous. When I asked about moving dates, the woman said they had to do a final walk through on the clean up Monday or Tuesday. She didn’t say anything about competition for the unit. I think this is just a formality. I am going to believe it is just a formality. If not, I am going to be very, very depressed. They gave me a layout, and I have figured out how I want my furniture arranged. I am already thinking about the new place as home.
I hope you “inherit” good neighbors! Cheers!
The guy who bought Jeffrey Dahmer’s old apartment “inherited” new roommates. Some assembly was required, however.
nice
YEEEESSS!!!!
Good for you, Polly. Happy Holidays!
Now, aren’t you glad the other one fell through?
Yes, I am very glad I didn’t take the other one. That one just didn’t feel like home, and I’m afraid I must admit that it was the mirrored closet doors that did it. I hate mirrored bifold doors. The unemotional reason was less than 2 usable feet of counter space in the kitchen, but that wasn’t the first thing that struck me as odd.
I looked at a few other places that I did not report on here extensively. One was a second floor walk up that was really cheap, but just didn’t have the space I needed. One was a condo that was horribly over renovated - bathroom sink was a textured glass bowl above the level of the cabinet, miniscule washing machine with access just 4 inches above the level of the floor, ultra deep but uselessly narrow kitchen sink, etc. One was a brand new apartment complex that had tiny, expensive apartments for people with no furniture who want to spend all their time in shared “public” spaces. I learned a lot in the process. Enough so that when I walked in the door of the right place, it was an easy decision. This place is a little boring. That is fine. I can make a boring space interesting with my books and my art and myself. I don’t need anyone else to do it for me.
Dump your car, get a bicycle, and join Zipcar. Then you can save on the parking and all the other expenses of being a car owner. I have been a happy Zipcar ( formerly Flexcar ) member for six years. If you live in the city and it has excellent public transit, which is true for DC and it’s suburbs, there is no need to own a car. If you need to get out of town for a weekend, get a rental.
Question?
I read an article a week or so ago, I believe by Weiss research, that stated their call was for a good sized sell off after the first of the year Jan. 4th of so. Due to the fact that a tax change? that allows for profit/loss’ after Jan.1st. to be carried to April 2011. Does anyone know of what I am referring to? Because I can’t find the reference, just curious.
Stocks: Bracing for volatility
20, 2009: 8:59 AM ET
NEW YORK (CNNMoney.com) — Wall Street is in for a quiet three and a half days of trading this week with many market participants on vacation and traders mostly focused on defending this year’s gains.
“There are a lot of lights out in investment management offices,” said Lawrence Creatura, a portfolio manager with Federated Clover Investment Advisors. “It’s likely to be a quiet week.”
The stock exchange will close early Thursday and will remain dark Friday for the Christmas Holiday. Many traders will take the entire week off.
And with the major indexes on track to post double-digit percentage gains for the year, those money managers who are on the clock next week will probably not be making any aggressive plays.
“Investors will have a very limited focus,” said Doug Roberts, chief investment strategist for Channel Capital Research. “For the most part, people are trying to protect gains.”
Still, traders will have to contend with a number of economic reports this week, including the final revision to third-quarter gross domestic product, data on personal income and spending, as well as weekly jobless claims numbers.
investment strategist for Channel Capital Research. “For the most part, people are trying to protect gains ??
Not just gains…They want “capital gains”…IMO, look for the stock market correction at the end of the 2nd quarter 2010…
“There are a lot of lights out in investment management offices,”
They got LED headlamps issued with their bonus, so they can run around an high five each other…in the dark!
If I sell off my biggest gains, I would incur a short term capital gain tax and thus donate money to the bailouts, socialist engineering, and so forth. No thanks, I will hold onto my equities. I’d rather sell some of my municipal bond funds.
From Ben’s article composition from yesterday:
The Marin Independent Journal. “Tamalpais Bank, which the Federal Deposit Insurance Corp. ordered in September to write down or sell many of its troubled loans, has sold $37.4 million worth of nonperforming loans, more than half of the $71 million in non-performing assets it reported at the end of the third quarter. The buyer paid $24.1 million for the loans.”
I want to better understand if a bank has 37m in non-performing loans, why would I want to buy those, even at a discount? Maybe i somehow think I have better management that can restructure the loans and get them profitable somehow?
why would I want to buy those, even at a discount?
Because the potential rates of return are off the charts…The smart money is buying loans not real estate….
The mortgagee in the deal knows the property is underwater and wants no part of actually taking the property back…The fastest exit is to sell the loan at a loss and move on…
The Mortgagor has lost all their equity cannot afford the carry because of lower rents and vacancies…
The new money buys the loan at a severe discount…The new carry on the new money is much lower than the old loan…That discount is offered to the current owner allowing them to continue to operate the complex in positive cash flow and giving that owner “some chance” way down the road of recapturing their equity…
The new money is currently getting a fair rate of return and the big payoff would come some day down the road if the face amount of the original loan was payed off…
Thats the bet….
The answer to your ? is “contained” in your quote:
“The Marin Independent Journal”
Here’s another quote:
“Marinfidels!™” …aladinsane
Well the foreclosures will be worth something, just not par. Somebody’s betting on the salvage value, but with all the craziness in the market now, that seems like a real gamble to me.
Tamalpais Bank, which the Federal Deposit Insurance Corp. ordered in September to write down or sell many of its troubled loans
There’s no such thing as “troubled loans.” There are only troubled FBs with bad loans and troubled lenders who can color their money gone.
Completely off-topic, but Ben invites such posts on the bit bucket.
“Nearly 1 percent of US children have autism, report indicates”
www dot boston dot com/news/nation/articles/2009/12/19/nearly_1_percent_of_us_children_have_autism_report_indicates/
I had read a while back that some school systems were suspected of going out of their way to label every disruptive kid with some kind of disability so the schools would get more Federal money. Check out the final paragraph from the excerpt.
“In the federal study, for example, children in Miami were diagnosed with autism at a rate of 4.2 per 1,000. But in Phoenix, the rate was 12.1 per 1,000.
“Does that really mean three times as many children in Arizona have autism spectrum disorders as in Florida? Not necessarily,’’ said Dr. William Barbaresi, director of the Developmental Medicine Center at Children’s Hospital Boston.
“One possible reason for the difference: In Miami, researchers had access only to medical records, while in Phoenix, medical and educational records were made available.”
Whether it’s Wall Street banksters, mortgage fraudsters, or “educators,” everyone knows how to game the system and they’re all doing it.
Got pitchforks?
everyone knows how to game the system and they’re all doing it.
the biggest game is to look for the biggest pot of money..
And it’s the taxpayer..
the biggest game is to look for the biggest pot of money ??
With all due respect to your service Stpn here is your answer;
$639,000,000,000. defense appropriation…
OTOH there is some evidence that back when autism was thought to be the direct result of profoundly neglectful parenting, the autistic were usually diagnosed as retarded or schizophrenic.
My wife works for a Wash area county sch sytem in austism. While there is some Fed money, it is limited and no where covers the additional cost a “challenged” child. Counties are bleeding over special needs students. For cost, and social/political issues, a school systems is much better off having fewer special needs children.
Yesterday I was at Walmart visiting the toy section when I saw the perfect gift for that special someone who has a richly deserved comeuppance due: a mask and snorkel.
From yesterday’s Bits Bucket, since I never saw a reply from Professor Bear to my answer to his challenge (in italics below). Any comment now, PB?
You will be hard pressed to find a historical instance where an asset which has gone up by 50 percent in one year does not soon thereafter experience a major crash.
If you can provide evidence to the contrary, I am highly interested. If you cannot find contrary evidence, I strongly suggest you diversify out of gold if you have not already done so.
Let’s see, here’s an example, with the name of the investment kept secret for the moment. The prices shown are yearly averages, with the percentages being the increase in the yearly average price from the previous yearly average price:
1971: 40.80
1972: 58.16 (42%)
1973: 97.32 (67%) Ok, here’s where one should have sold according to your analysis.
1974: 159.26 (63%) Hmm, maybe the crash is delayed a bit, but I’m sure it’s coming right up now.
1975: 161.02 (1%)
1976: 124.84 (-23%) Look at that crash; I guess one should have sold in 1975! But let’s just go ahead and see what happens next
1977: 147.71 (18%) Still below 1975, so I guess that’s it?
1978: 193.22 (31%) Oops, that 1975 sale isn’t looking so good, as we’re up 20% from then. I’m sure this is a fluke, though.
1979: 306.68 (58%) Hmm.
1980: 612.56 (100%) Here is where one actually SHOULD have sold.
1981: 460.03 (-25%) But notice this is still up 50% from two years earlier.
To recap: There are four years with more than a 50% increase in average yearly price, which I believe is a stricter criterion than the interval from the lowest price to the highest price in 12 months. The only place where one should have sold (assuming you aren’t a market timer, which I’m not) is after the 100% gain, and failing to do that for another year after the top would still leave one with a gain of over 1000% from the start.
Want to guess what this asset was?
AU.
Gold.
Yes, which makes it a bit ironic that anyone would think it was hard to find a counterexample. You would think that it would be prudent to at least check the track record of the SAME investment.
Hmmmmmm, hold on, hold on, I’m looking into my crystal ball, checking the tarot cards, talking to my psychic, checking the magic eight ball, putting on my tinfoil hat, talked to the Lone Gunmen, and talked to Gollum, a couple of 49ers, and too many others to name..
We came to conclusion its GOLD in them thar hills.
Two for two so far. I guess PB is just too busy to reply…
(A light bulb goes on in Professor Bear’s Brain…)
Aladinsane, is that you?
Nope, sorry. I would like to move to NZ, but haven’t been able to arrange that.
Do you want to repeat your analysis for the years 1998 through 2009? Please do so, then I will offer comment…
Since I doubt you will feel sufficiently motivated to respond to my request, I will offer a little assistance, with the help of this online reference. Feel free to double check these numbers with an independent source if you wish.
And enjoy your holiday Goldware™ parties. For historical context, it is documented in William Greider’s book Secrets of the Temple that gold was last trading like beanie babies in the late 1970s. In retrospect, though the gold rally was a bit long in the tooth already, there were a few more good years before the price crashed in the early 1980s.
Gold Price History
London Afternoon (PM) Gold Price Fixes
01/02/98 $288.00
01/04/99 $287.85
01/04/00 $282.05
01/02/01 $271.10
01/02/02 $278.35
01/02/03 $343.80
01/05/04 $420.60
01/04/05
Apologies if my last post on gold prices shows up — it was incomplete at the point I accidentally hit the “Add comment” button (never attempt to write a long post while your wife is feeling inquisitive!).
Here are some recent gold prices as of the beginning of each year since 1996 (London Afternoon (PM) Gold Price Fixings).
I found this data source using Google, and have no reason to suspect it is not accurate, but please offer better data if you have any.
I computed the annual YOY change in gold price between the dates shown below on a comparable percentage rate of change basis by rescaling the irregular time between the dates shown to a standardized 365.25 day year. The stylized facts are as follows:
1) The gold price was flat to falling over the years 1996 through 2001. 1998 is of particular interest, since there was an Asian currency crisis and a Russian sovereign debt crisis in progress at the time (ring any bells?). The IMF’s recommended remedy for the Asian countries whose currencies were collapsing?
From the then IMF Managing Director Michel Camdessus himself (”Doctor Knows Best?” Asiaweek, 17 July 1998, p. 46):
“To reverse (currency depreciation), countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations.”
2) The gold bubble took off in earnest in 2002 when Greenspan administered monetary shock therapy of sufficient intensity to offset the combined effects of the tech stock collapse, the 9/11 attacks and the early-2000s recession. Gold prices saw 20 percent+ gains in 2002, 2003 and 2005 with a small increase for 2004.
3) The housing bubble popped at some point between 2005-2007, depending on how you date it, while gold continued bubbling, with further twenty-percent+ gains for 2006, 2007 and 2009 and a slight increase in 2008.
4) Tentative conclusions:
a) With 20 percent+ gains in six out of the last eight years, it seems quite safe to conclude that gold has been in a bubble ever since the Fed’s liquidity flood in response to the 9/11 attacks.
b) The gold bubble has thus far outlived the housing bubble.
c) Like other bubbles, there is no way to know how long this one will last, though with economic recovery already underway and the Fed discussing options for unwinding its various forms of economic life support, I would suggest the handwriting is on the wall for its near-term demise.
Date Price Change
1/2/1996 $389.15 NA
1/2/1997 $368.10 -5.4%
1/2/1998 $288.00 -21.8%
1/4/1999 $287.85 -0.1%
1/4/2000 $282.05 -2.0%
1/2/2001 $271.10 -3.9%
1/2/2002 $278.35 2.7%
1/2/2003 $343.80 23.5%
1/5/2004 $420.60 22.2%
1/4/2005 $427.75 1.7%
1/3/2006 $530.00 24.0%
1/2/2007 $639.75 20.8%
1/2/2008 $846.75 32.4%
1/2/2009 $874.50 3.3%
12/18/2009 $1,104.50 27.6%
Potential question for Congressional auditors to ask Bernanke:
Does the Fed (or other member of the international central banking cartel) peg the gold price to go up during times of trouble?
A little Google math for ya here:
1) What was the cumulative increase in gold price from the beginning of 2002 to the present?
(1104.50/278.35-1)*100 = 297%
2) What was the average annual increase over the period?
((1104.50/278.35)^(1/8)-1)*100 = 18.8%.
3) Is this rate of increase sustainable?
Not unless this time is different.
Beat me to it. In fact gold rose back 450 only one more time during the 1980s.
“…back TO 490…” Or there abouts. I’m not going to spend all day looking for a chart that is bigger than a matchbook.
But basically, it look a big dump from it’s high. And an even bigger dump in the late 1990s. It will do so again.
So my advice to take the money and run if you’ve realized a more than 50% gain still stands. Hindsight ain’t worth a damn when it comes to investing. Rear view mirror and all that, ya know.
Actually hindsight is helpful if you study VERY long term trends and don’t use it for future expectations except in a general way. i.e. something went up past the avg long term mean and therefore must go down or certain events took place and events today look very similar to those historical events, therefore x will probably happen again.
Other than that, don’t try to be too exact or greedy. You’ll WILL get burned. (I learned that from history class)
To attempt to stay on track, I was replying to this comment of yours:
You will be hard pressed to find a historical instance where an asset which has gone up by 50 percent in one year does not soon thereafter experience a major crash.
If you can provide evidence to the contrary, I am highly interested. If you cannot find contrary evidence, I strongly suggest you diversify out of gold if you have not already done so.
I was not at all hard pressed to find such an historical instance; it took me about 30 seconds to find one and 15 minutes or so to gather the data, with which I have provided evidence to the contrary.
Now if you want to change the discussion to a different question, namely whether gold is in a “bubble” and will “crash soon” for reasons OTHER than that, fine. But you should acknowledge that I have successfully answered your original point.
“There are four years with more than a 50% increase in average yearly price, which I believe is a stricter criterion than the interval from the lowest price to the highest price in 12 months.”
My guess is that a more relevant indicator of when bubbles will collapse is duration, that is, the time from when they start inflating until when they pop. For instance, the gold bubble in your historic episode appears to have lasted from about 1971 (time when the Bretton Woods accord collapsed) through 1981 (when Volcker slammed the brakes on rampant inflation), or ten years. Analysis I posted below suggests the current gold bubble took off at year-end 2001; if the same timing as before applies, then you might enjoy further parabolic gains through 2011, before the price crashes back to earth. But be forwarned: The duration of bubbles is a random variable which nobody can predict. The gold bubble might pop sooner or later than 2011, depending on whatever else is happening in the global economy.
It might pop next year. And that’s my point as well: who knows? You make a big gain, lock that sucker in!
Right. I have nothing against gambling (in fact, I advocate it as a survival tool when the central bank is creating wave after wave of volatility), but you certainly ought to take your gains off the table from time to time if you don’t want to be the bagholder on the collapse of the latest bubble.
I’ve already said that I would have no problem locking in some gains; the problem is what to put them into. Anything relying on the value of the USD is out, due to the severe risk of purchasing power loss that I expect from such investments.
I have taken some profits and put the money into Swiss Franc annuities, but the safety of those investments depends on the prudence of the Swiss life insurance companies that issue the annuities. For this reason, I don’t feel comfortable putting too many eggs in those baskets either.
What other reasonably safe investments can anyone suggest? Everything has some risk, of course.
At some point, reverse T-bond ETFs will likely do quite well, and for a long time thereafter (like three decades or so) — I refer you to the 1950-1980 period for an example of how this might work in terms of a gradual increase in long-term interest rates off a once-in-sixty-year floor. Though we are not there yet, there is fairly little room for further declines in long-term T-bond yields, suggesting limited downside risk, provided you have a long-term time horizon.
P.S. A long-time poster here named Hoz, who I believe signed off before your time on the HBB, suggested this would be a good move a couple of years ago, maybe in early-2008 or even earlier. He was likely not wrong from a long-term standpoint, but like many who know far more about what is going on than your average J6P dude, he was very early.
How would those do in a hyperinflation? If they pay off in USD, the real return might be a lot less than the nominal return.
By contrast with gold, here is an example of an asset class which has not been in a bubble over the past decade. I can imagine Sponge Bob’s voice singing, “It’s the worst — decade — e-ver…”
For Stocks, the Worst Decade Ever
Stocks traded on the New York Stock Exchange have lost an average of 0.5% a year, making the last 10 years the worst calendar decade for stocks going all the way back to the 1820s.
——————————————————————————-
* ABREAST OF THE MARKET
* DECEMBER 20, 2009, 4:33 P.M. ET
Stocks’ ‘Nightmare’ Decade
U.S. Market’s Performance Since End of 1999 is Worst in Almost 200 Years
By TOM LAURICELLA
For many stock investors, this decade can’t end soon enough.
Even with the rebound this year, the U.S. stock market is on the verge of posting its worst performance for any calendar decade in nearly 200 years of American stock-market history.
Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.
In the process, the market has provided a lesson for ordinary Americans who used stocks as the primary way of saving for retirement.
Many investors were lured to stocks by the big bull market that began in the early 1980s and gained force through the 1990s. But coming out of the 1990s, the best calendar decade in history with a 17.6% average annual gain, stocks simply had gotten too expensive. Companies also pared dividends, cutting into investor returns. And in a time of absolute financial panic like 2008, stocks usually were the worst place to be.
With just two weeks to go in 2009, the declines since the end of 1999 make the last 10 years the worst calendar decade for stocks going all the way back to the 1820s, when reliable stock-market records began, according to data compiled by Yale University finance professor William Goetzmann.
It edges out the 0.2% decline stocks suffered during the Depression years of the 1930s, which up until now held the title of worst decade. And it is worse than other decades with financial panics, such as in 1907 and 1893.
“The last 10 years have been a nightmare, really poor,” for U.S. stocks, said Michele Gambera, chief economist at Ibbotson Associates.
…
Past performance is not a guarantee of future results. Stocks are currently the worst investment, but I suspect gold will turn out to be worse than stocks over the next few decades. This is, admittedly, just a hunch, based on my subjective preference for mean reversion models of asset price preferences in an era of serial bubble creation over random walks. I don’t claim to have a better crystal ball than any other poster here.
…
With just two weeks to go in 2009, the declines since the end of 1999 make the last 10 years the worst calendar decade for stocks going all the way back to the 1820s, when reliable stock-market records began, according to data compiled by Yale University finance professor William Goetzmann.
It edges out the 0.2% decline stocks suffered during the Depression years of the 1930s, which up until now held the title of worst decade. And it is worse than other decades with financial panics, such as in 1907 and 1893.
…
To some degree these statistics are a quirk of the calendar based on when the 10-year period starts and finishes. The 10-year periods ending in 1937 and 1938 were worse than the most recent calendar decade because they capture the full effect of stocks hitting their peak in 1929 and the October crash of that year.
Then again, if stocks this past year hadn’t staged a rebound since March, this decade’s losses would have eclipsed even the worst of the 1930s, according to Mr. Goetzmann’s data.
From 2000 through November 2009, investors would have been far better off owning bonds, which posted gains ranging from 5.6% to more than 8%, depending on the sector, according to Ibbotson. Gold was the best-performing asset, up 15% a year this decade after losing 3% each year during the 1990s.
…
This will shut the cock sure gold bugs up really fast when and if it happens. On the other hand, if the Fed hints they will raise rates but then lose their nerve, the gold bugs will have plenty of reason to crow.
* The Wall Street Journal
* AHEAD OF THE TAPE
* DECEMBER 21, 2009
Why a Rate Increase Could Happen Sooner Rather Than Later
BY SCOTT PATTERSON
The news may not be official, but it is becoming clear that the U.S. economy emerged from its longest recession in decades some time in the past few months.
Several reports due out this week will gauge the recovery’s strength. The question for investors is whether economic growth will buoy prices—including those for stocks—enough to prompt the Federal Reserve to raise rates.
That could happen sooner than many think.
…
This [Fed raising rates] will shut the cock sure gold bugs up really fast when and if it happens. On the other hand, if the Fed hints they will raise rates but then lose their nerve, the gold bugs will have plenty of reason to crow.
I’ll believe the Fed is going to raise rates when I see it. The carnage in the banking system should be interesting if they do, don’t you think?
But let’s say they do start raising rates. That should make gold crash SOON, right?
Well, maybe not, at least if it is like the last time, i.e., 1971-1980. Here’s the fed funds rate at the beginning of each of those years (from http://research.stlouisfed.org/fred2/data/FEDFUNDS.txt):
1971-01-01 4.14
1972-01-01 3.50
1973-01-01 5.94
1974-01-01 9.65
1975-01-01 7.13
1976-01-01 4.87
1977-01-01 4.61
1978-01-01 6.70
1979-01-01 10.07
1980-01-01 13.82
In that previous example, from the low point of interest rates (in 1972, at 3.5%), it took EIGHT YEARS to reach the peak of gold prices, at the beginning of 1980.
And again, the average gold price for 1980 was up about 1400% compared to the average gold price for 1972. So selling as soon as the Fed started raising rates would be, um, suboptimal.
You are making a classic mistake of confusing nominal and real prices. Since inflation has been relatively subdued during the first decade of the new century compared to the 1970s (e.g., a bottle of Two Buck Chuck still costs the same $2 now that it cost back when I was a graduate student), the runup in nominal gold prices in the 1970s was much larger than the real increase in gold price.
Ok, using the CPI increase from 1972 to 1980, the average price of gold in 1980 was up only about 650% compared to the average price in 1972. I still think it is obvious that one should not have sold in 1972 as your original suggestion indicated.
Are you really incapable of admitting error no matter how amply it is demonstrated that you are wrong?
US pensions go bust, gold crashes, China flops, Bunds soar, predicts Saxo
America’s Social Security Trust Fund will go bankrupt; both gold and the Japanese yen will crash; and China’s currency will devalue as bad loans catch up with the over-stretched banking system – all in the course of 2010. ~By Ambrose Evans-Pritchard, International Business Editor
US pensions go bust, gold crashes, China flops, Bunds soar, predicts Saxo
Saxo Bank is predicting a stormy year ahead for the financial world ~ AP
The annual “Outrageous Predictions” of Denmark’s Saxo Bank are not for the faint-hearted, though there is good news for some.
David Karsboel, chief economist, thinks the US trade balance may go into surplus for the first time since the mid-1970s, benefiting from the delayed effects of the weak dollar.
Yields on sovereign bonds – the goods ones, not the bonds of quasi-basket cases such as Club Med, the UK, or Japan – will plummet as deflation raises its ugly head again later in 2010. The 10-year German Bund yield will fall to 2.25pc. “Bunds are the ultimate safe-haven if something goes wrong, perhaps in Greece. We may even see some safe-haven buying of US Treasuries as well, despite the irresponsible fiscal policies in the US,” he said.
The US Social Security fund will finally tip over, technically going bust. “Ever since the good years of the 1960s politicians have been taking the money and spending it instead of setting it aside for the fund, but next year it will go into deficit for the first time as US demography turns.
“The fund is going to need a bail-out, financed by higher taxes, more borrowing, or more printing.”
Gold will spiral down to $870 an ounce from its all-time high above $1,200 last month. “There is a lot of speculative hot money in the gold price right now that needs to be shaken out. In the long run we’re bullish on gold, and think it could reach $1,500 over the next five years,” he said.
“In fact, we would like to see the restoration of a gold standard to prevent the sort of excesses we have seen. The world has been in a bubble since the mid-1990s. They are still blowing new bubbles to keep it all going, but each bubble is shorter and shorter. It is frightening, and is all going to end in tears,” he said.
Saxo Bank is squarely in the camp of Sino-sceptics, noting that China’s alleged industrial and GDP growth does not tally with weak electricity use.
In any case, growth has been built on an investment bubble creating “massive spare capacity”.
It says 2010 will be the year when it becomes clear that there is not enough demand in the world to absorb all their excess production. The yuan will devalue by 5pc, defying near universal expectations of a sharp appreciation.
Any reasonable “gold bug” should see $870 as a great buying opportunity. I have not purchased any physical since the 900s. I would use $870 as an opportunity to further diversify out of USD.
Caveat: I do not view Gold as an investment; I use it as a storage of purchasing power - something that USD cash savings have failed to do for many years now.
Yes, I would consider anything below $900 a good buying opportunity. Of course, I’m pretty much “all in” at this point, but I do expect to be putting away some additional money in the next year that could go towards some extra gold if such an opportunity presents itself.
“I do not view Gold as an investment; I use it as a storage of purchasing power - something that USD cash savings have failed to do for many years now.”
And conversely, I don’t view the dollar as a store of value, but rather as an investment when all the too-clever-by-half people are using gold as a store of value (but not as an investment).
If social security is going bancrupt in a severely deflationary environment I can guarantee that it will be savecd not by increaing taxes but by the printing press. That’s a no brainer. The real problem happens if it fails with inflation present.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6835576/US-pensions-go-bust-gold-crashes-China-flops-Bunds-soar-predicts-Saxo.html
A cheery (not!) 2010 forecast from Denmark’s Saxo Bank. Better stock up on canned goods and shotgun shells.
Geez, look what the Chinese Gov’t has to look forward to as their “legal system” for 1.2 Billion people manures…
Lawsuit Over Phone Broken By Rogue Cow To Be Tried:
12/19/2009 Cattlenetwork
“A west Michigan man whose cell phone was trampled by a pregnant cow at the Kalamazoo County Fair has filed a claim for $529.
Jeff Dalman of Scotts contends the board that runs the fair should compensate him for the cost of the phone, court costs and time spent away from work.
The Kalamazoo Gazette says the cow escaped Aug. 11 from the fair’s Miracle of Birth exhibit and charged bystanders. Dalman says that means the fair board should be held responsible for his losses.
A trial before Circuit Judge Carol Husum is scheduled for June 3. The 26-year-old Dalman says he will represent himself. Attorney Gary Bartosiewicz, who represents the fair board, declined to comment.”
A pregnant cow at Burger King stepped on my foot once. Can I sue for mental distress?
Minn. Toys for Tots donations down 70 percent.
TWIN CITIES, Minn. — It’s a holiday irony heating up in the final days before Christmas: charities say they’re experiencing unprecedented demand for help at a time when donations may be at an all-time low.
The coordinators of the Minnesota Toys for Tots program say donations this year have dropped 70 percent when compared to last year. That while demand has increased by as much as 100 percent.
“Our demand has significantly increased over average, we’re just unable to meet that need at this time,” said Staff Sgt. Alan Mansager, the Assistant Coordinator of the Toys for Tots program.
Mansager says one reason for the drop in donations is the absence of major corporate giving. Several major corporate donors — including Best Buy, Walmart and Wells Fargo — have opted to not give at that level this year.
“The companies just don’t have the monies to give. Unemployment is up, [they've had] significant layoffs this year. They’re just unable to give the volume of dollars that we’ve been accustomed to in the past,” Mansager said.
KARE 11 called Best Buy, Wells Fargo and Walmart on Friday. Best Buy returned the call — saying they’ve merely shifted their holiday charitable spending to other priorities. Wells Fargo says contrary to what the Toys for Tots program says, they have never been a major corporate sponsor.
Meantime, the drop in donations to the Toys for Tots program is also taking a toll on other charitable organizations. Toys for Tots coordinators say they’ve had to turn away organizations and ask them to return later when they have more toys to meet their needs.
If you go into any thrift store you’ll see a gazillion used but perfectly serviceable toys for under a dollar. Not to sound Grinchlike, but I don’t see why kids just HAVE to have brand new toys. I rarely got them when I was a kid and Christmas was still a magic time of the year.
I can remember 3=4 real toys as a child, the rest were oat meal box drums, and homemade. My uncle would salvage parts of things an dmake toys out of them. I had a car that had medicine cap wheels, and a wheel off of a salvaged stoller that we pushed with a stick. Without even trying,most kids including my own have moutains of plastic. We inherited ours from the people who rented the house we moved into.
The demographic that we handed out toys to way back when I was there often refused to take any toy that was not new and in its unopened box; their attitude changed mine. Many were not that way, but, I understand its gotten worse. Thats why reduced cash donations reduce the number of toys that the clients will accept. Those used one dollar toys just dont cut it.
Back when I was in college I volunteered for Habitat for Humanity. It’s a good cause and a great bunch of people, but personally, I got fed up with giving up weekends and working my butt off for the benefit of ingrates who were almost always responsible for their own circumstances. I’m sure they help a lot of deserving people, but I saw very few of those.
I could never justify buying brand new toys for these toy drives when I was buying used ones for my own children.
Now that they are grown, I have quite a few toys that could be recycled to a new generation if anyone wanted them.
Some tips for all you planet killers during the holidays…
http://www.chicagonow.com/blogs/the-dirt-on-green/2009/12/worst-environmental-offenses-of-the-holidays-photos.html
CMA CGM Warns of Bankruptcy Unless Bondholders Back Debt Change.
(Bloomberg) — CMA CGM SA, the world’s third- biggest container shipping company, told bondholders it faces bankruptcy unless they approve a plan to raise more debt.
CMA CGM is asking holders of $570 million of senior bonds to change the terms of the notes to allow prospective lenders to have first claim on the company’s assets in the event of a default, said Paris-based spokeswoman Anne-France Malrieu. Otherwise CMA CGM may be “forced to commence bankruptcy proceedings” and the investors may lose their money, the company said in a Dec. 16 notice to bondholders.
Marseille-based CMA CGM is seeking changes to the terms of its bonds in dollars and euros due 2012 and 2013 as part of an effort to restructure $5.6 billion of debt and raise new money, according to the notice, which Malrieu confirmed is authentic. The company is in breach of conditions on most of its debt after suffering from a slump in world trade amid the deepest financial crisis since the 1930s.
CMA CGM needs a majority of the bondholders to agree to the proposed changes in the terms of the notes by Dec. 22, according to the notice. Otherwise it said it “may be forced to file for bankruptcy proceedings in the near term, in which case there would be no assurance that CMA CGM would be able to repay” the senior notes.
A new credit line and plans to refinance $4.5 billion in outstanding ship orders depend on CMA CGM getting the approval of its bondholders to change the debt terms, according to the notice. The so-called consent solicitation statement concerns the company’s 293.3 million euros ($420 million) of outstanding 5.5 percent bonds due May 2012 and its remaining $149.8 million of 7.25 percent notes maturing in February 2013, according to data compiled by Bloomberg.
While understand the mechanics and philosophy of more debt to service debt and operations, I will NEVER understand why this is considered good business.
Well, except for those executive bonuses and stock options…
Dammit. “I”
The companies that paid the highest salaries and bonuses some ranging in excess of million dollars bonuses in central New York were National Grid and Blue Cross. This was from the backs of people making a median income of $25,000.
Utility Bill Is One More Casualty of Recession
PROVIDENCE, R.I. — For the Cardente family, the shutoff of their electricity and gas in September was a wrenching marker in a two-year downslide.
A run of mishaps, including illness and the husband’s workplace injury, extensive structural damage from a burst water bed and the mother’s layoff from a nursing job, had already upended their middle-class lives. Then the pile of utility bills emerged as a headache to rival the past-due mortgage.
“You always try to pay your mortgage or rent to keep a roof over your head,” said Debra Cardente, the mother. “Then you ask, do you pay your electric or gas bill, pay your telephone or put food on the table?”
The recession has accentuated what was already a growing home-energy challenge for low-income and many middle-class households across the nation. Rising numbers have had their utilities shut off, causing desperate scrambles to pay arrears and penalties to get them restored.
http://www.nytimes.com/2009/12/20/us/20utility.html?_r=1&ref=us
This is sad. What is happening to the bread basket of the world?
SAN FRANCISCO/LOS ANGELES (Reuters) - At 11 p.m. on the last day of the month, shoppers flock to the nearest Walmart. They load their carts with food and household items and wait for the midnight hour. That’s when food stamp credits are loaded on their electronic benefits transfer cards.
“Once the clock strikes midnight and EBT cards are charged, you can see our results start to tick up,” says Tom Schoewe, Wal-Mart Stores Inc’s chief financial officer.
As food stamps become an increasingly common currency in a struggling U.S. economy, they are dictating changes in how even the biggest retailers do business.
From Costco to Wal-Mart, store chains are rethinking years of strategy as they watch prized customers lose jobs and turn to this benefit, the stigma of which is disappearing not just in society, but in corporate America.
http://www.reuters.com/article/idUSTRE5BH2C220091218
“extensive structural damage from a burst water bed ”
Yawn. Next victim please.
I bet the cable TV was the last utility to be cut off.
This is exactly what I mentioned above.
If there is massive inflation in food prices you will see deflation in housing, fuel, and manufactured goods. The US dollar will rise against all of these things.
Well some might say they just should have planned better.
I won’t mention any names.
Thank god this is only an isolated incident.
SUGuy,
That post is too much - while I feel for folks that are struggling, I just couldn’t help but laugh when I read that a part of their problems resulted from an unexpected burst water bed. Take a look at the picture of Debra Cardente. That water bed didn’t just burst - it likely exploded.
And while she was able to miss utility payments of more than $12,000.00 - she apparently didn’t miss any meals.
OK, low blow but I’m still chuckling.
How many months of missed utility payments equals $12,000?
60 months? 40 months?
How many trips to Disneyland does $12,000 buy?
Do we have answers to this fellow’s question?
Go ahead folks - tell me how we can simply ignore this.
How we can pretend that the outstanding debt does not have to come back down to reasonable levels.
That these levels are “reasonable” - and that these rates of growth are “reasonable.”
This is the “magic of compounding” writ large - and in a fashion that is going to inflict severe pain on our population - and the longer we wait to deal with it, the worse it will be.
Bernanke, who was at The Fed during Greenspan’s time there, should have used his “education” - his claimed knowledge of economics - to make a lot of noise about this and demand that interest rates NOT be lowered to further encourage more debt-based consumption.
He did exactly the opposite.
As this decade wore on he should have sounded the alarm on our debt binge in all sectors, especially in the financial and consumer sectors where the growth in indebtedness has been the highest.
He did exactly the opposite.
Since this crisis began, in fact, every single government official who has spoken on the matter has emphasized even more lending, that is, cranking the amount of debt outstanding even higher, and The Federal Government has made good on their intent by, in the last year, spending more than $1.7 trillion dollars they did not have - that is, they borrowed even more.
That “pumping” of credit is why the stock market has “recovered.”
BUT IT CANNOT AND WILL NOT STAY “recovered”, because the debt that is outstanding is unsustainable - interest costs are crushing innovation and we are now absolutely reliant on near-zero interest rates lest everything collapse.
How bad is it?
During the same time period that we essentially doubled the debt of households, businesses, the federal government and financial institutions (2000-2009) we added just 40.8% to GDP ($10.129tn to $14.266tn)
You might think it wasn’t as bad from 1990-2000 - we went from $5.846tn to $10.129tn in GDP (a 73% increase) while household debt went from 3.58tn to 6.53tn (an 82% increase) and non-financial corporate debt from 3.768tn to 6.195tn (a 64% increase.) This looks reasonable. But financial leverage during that decade went from 2.613tn to 7.521tn, a monstrous 187% increase (!) and government debt from 2.613tn to 7.521tn, also a 187% increase (!), both nearly double the GDP growth rate.
The 1980-1990 years? GDP expanded from $2.915tn to $5.846tn, a clean double. Pretty good! Consumer debt, however, went from $860 billion to $3.58 trillion, a 316% increase. Non-financial corporate leverage went from $1.387tn to $3.768tn, a 172% increase, the Federal Government went from $668 billion to 2.498tn, a 273% increase and financial leverage went from $526 billion to $2.614tn, a 396% increase.
The path we have chosen for the last 30 years in this country is clear, convincing, and impossible to continue upon.
THE MATH DOES NOT LIE.
We have not created GDP growth through final demand procured as a consequence of production - that is, people like you and I working with our hands or minds to produce something, then spending the fruits of that labor to buy the things we want and need.
Instead, we have used financial leverage to present to ourselves and the world a false belief and “visage” of prosperity that in fact did not and does not exist, with the continuation of this charade absolutely dependent on the unending ability to forever take on more and more debt compared to growth in actual economic output.
Let’s just take ONE example of this: Larry Summers, President Obama’s “chief economic advisor”, thought he could outrun the math at Harvard - where he gave approval to enter into complex derivative trades. They blew up in the school’s face:
http://market-ticker.denninger.net/archives/1752-There-Is-No-Way-Out-Of-This-Box…..html
“Let’s just take ONE example of this: Larry Summers, President Obama’s “chief economic advisor”, thought he could outrun the math at Harvard - where he gave approval to enter into complex derivative trades. They blew up in the school’s face”:
“Outrun the math” That’s it in a nut shell!
Playing with numbers, 1’s &0’s, the ’smart’ set always think they can outrun anything that disagrees with their projected calculations of their proposed outcome.
So we have now created a run for your life scenario, it’s getting interestinger &interestinger.
P.S. What was the mane of the MIT geniuses that set up a “can’t” fail hedge fund? I can’t remember, but I do know the out come.
Mane= Name
Let’s smoke em out
A Master of Disaster
Of all the architects of last year’s financial crash, John Dugan remains the most obscure, despite his stature as one of the most influential. While regulatory errors have made Larry Summers, Robert Rubin and Alan Greenspan household names, most people have never heard either of Dugan or his agency, the Office of the Comptroller of the Currency. But as the chief regulator for the largest US banks, Dugan and his staff are one of the most powerful engines of economic policy in the world.
Over the course of nearly a quarter-century, Dugan has proved himself a staunch ally of the American financial elite as a Senate staffer (1985-89), a Treasury official (1989-93) and a lobbyist (1993-2005), building a career that culminated in 2005 when George W. Bush appointed him comptroller of the currency. When the financial system finally succumbed to its own excesses in September 2008, Dugan’s fingerprints were all over the economic wreckage, but almost nobody noticed.
http://www.thenation.com/doc/20100104/carter
LTCM LONG TERM CAPITAL MANAGEMENT. BLEW UP DUE TO THE MEXICAN CRISIS.
First of many bailouts.
Merry Christmas all from a long time lurker.
Let’s just take ONE example of this: Larry Summers, President Obama’s “chief economic advisor”, thought he could outrun the math at Harvard - where he gave approval to enter into complex derivative trades. They blew up in the school’s face
BS Larry summers thought that he could steal from the Harvard Endowment. When he left that job he made millions giving short speeches to Wall Street Firms. MBS, CDO’s securitization were all used to steal money from conservative investors and institutions. If he had gone in and said look I’d like to take half our money and put t on red in Vegas the board would have kicked him to the curb. Instead he sold them on CDO’s and securitized debt that were likely worse than putting it all on red. He said look rating agencies think these things are gold and we are insured and hedged we are safe and we’ll make a killing.
Of course we can ignore it. Right up until we become a has-been world power like Great Britain.
And hell, we can keep on ignoring it even then! We have more weapons! (well, for now anyway)
Entertaining Black Swans
~(clipped from the daily reckoning)
When Dubai’s debt bubble burst a few weeks ago, few expected that it would precipitate, by itself, a complete collapse of the global economy. Even those who foresaw the mounting and crippling debt loads there weren’t that imaginative. After all, the Swarovski-clad emirate’s portfolio, packed with high-end New York retailers and Las Vegas casino projects, represented, in many ways, more super speculative hedge fund than measured, robust investment stratagem.
Likewise, when Greece, laboring under a deficit not dissimilar to that in the United States, fell prey to the ratings agencies’ wrath, few investors conjured up apocalyptic scenarios of mile-long soup lines around the world. The government there had a “poor history” of debt management, the agencies observed. What did we expect?
These two debt-addled sovereigns are far from out of the woods, of course. Abu Dhabi might have thrown its meretricious cousin a $10 billion lifeline, for instance, but the emirate’s leader must still find a way to meet up to $80 billion in additional debts and liabilities. With soaring interest rates on bonds issued by the emirate and shattered investor confidence, that won’t be easy. The Greeks face similar problems, and already their fate weighs heavily on both the Eurozone and its currency.
But in any high stakes game, it is always the weakest hands that fold first. That is to be expected.
The same casual indifference cannot, however, be indulged when one considers the possibility of a China bust-up. And with investors like Jim Chanos employing – possibly hyperbolic – descriptions like “Dubai times a thousand” to describe the Middle Kingdom’s economy, the possibility that we may see a spectacular collapse there is worth, at the very least, a moment of contemplation.
Prima facie, China appears to be nursing along the world’s nascent recovery rather well. Forecasts of GDP growth around 10-10.5% for 2010 are not infrequent and, judging by the inflow of liquidity into the Asian region as a whole, most investors expect nothing less.
According to Nomura Holdings Inc., persistently low interest rates in the US, coupled with the perception that Asian economic growth is a one-way bet, is driving a “tsunami” of capital into the region. Data compiled by the Japan-based financial group show a half-trillion dollar reversal in foreign cash flows over the past year alone as investors pile their bets on a China-led economic resurgence. In the three quarters leading up to March of 2009, widespread economic meltdowns in the west saw some $262 billion vacuumed out of Asia’s red hot “tiger” economies as beleaguered funds in The City, Wall Street and elsewhere repatriated capital to meet crushing margin calls closer to home. However, over the past six months, almost all of that cash ($241 billion) has found its way back to Asian shores.
Even in a region as populous as this one, that kind of cash does not stay inconspicuous for long. Coupled with ample stimulus spending by local governments, those funds have helped inflate prices from equities through to the local property markets.
The MSCI Asia-Pacific index (which excludes Japan) is up 62% for the year, en route to its best twelve-month performance in over a decade and a half. China’s own Shanghai CSI 300 measure is higher by more than 65% for the same period. Again, such a strong market performance one year does by no means guarantee a retracement the next, much less a total collapse. But in and of itself, a past rally does not support unbridled optimism for future rallies.
Indeed, some fissures are already starting to appear. The same Shanghai index that boasts such impressive year to date numbers slid over 4% last week, and several components of the China Stocks and ADRs Index have slipped by 10% over the same period.
Real estate prices in China are also looking rather frothy. A recent editorial that appeared in China Daily ought to inspire at least some skepticism amongst once-bitten investors:
“If there is anything more spectacular than the amazing V-shaped recovery of the Chinese economy this year,” the paper reads, “it must be the jump in its housing prices which, after dipping for a while, are breaking records in many cities.”
Statistics cited by the paper indicate prices in 70 major cities (yes, they have 70 major cities) are rising at an incredible pace, outstripping even their parabolic climb in 2008, before the last “dip.”
“It has been reported that prices for commercially built new residential units in Beijing, Shanghai and Shenzhen have jumped above 50 percent so far this year, outpacing the growth of local economies by more than 5 times,” the paper continues.
On Friday, Zhang Xin, chief executive officer of property developer SOHO China Ltd, warned that prices in the red hot real estate market may already be overheated.
“The government needs to realize how serious the asset bubble is,” Zhang told newswire, Reuters. “It cannot control the asset bubble by just saying a few words. The most fundamental solution is to tighten credit.”
“There is a bubble in every city,” Zhang added.
That’s the problem with central governments’ stimulus spending, of course: one never knows when enough is enough.
According to Forbes, “More than 1.6 trillion yuan, or about one-sixth of China’s new loans, went to the property sector in the first 11 months, including mortgage loans to home buyers and lending to developers.”
All this is not to say that China will implode, of course, only that it might. Any recovery the world may or may not be experiencing is, at best, embryonic and, therefore, extremely fragile. In an era where Nassim Taleb-style Black Swans darken the skies and “six-sigma” events seem to defy conventional mathematics, it would be foolish to expect only the expected.
Hey, maybe we can all buy Chinese mortgage-backed securities!
EDITORIAL
Reform Lending
12/21/09
While most small, community banks in Connecticut weathered the economic storm during the last year and increased their lending, many larger, regional banks did not.
Last week, President Barack Obama scolded banking institutions that received federal bailout money for not doing enough to boost lending.
According to the U.S. Treasury Department, the value of loans held by banks that received the largest amounts of government bailout support fell for the ninth consecutive month in October.
The monthly report, which monitors the top 22 recipients of support from the government’s $700 billion rescue fund, showed that their average loan balances dropped in October by $36.8 billion, or 0.9 percent. That followed a decline of 1.1 percent, or $45.9 billion, in September.
In Connecticut, lending by the state’s 55 federally-insured banks fell by nearly $1 billion over the past year, and the state’s largest, regional lenders were mostly responsible for the significant drop in loans, according to a Hartford Business Journal analysis of Federal Deposit Insurance Corp. data.
In this week’s Hartford Business Journal, reporters Gregory Seay and Greg Bordonaro write about the impact on commercial landlords of the Great Recession and lending practices.
Bordonaro reports that loans and leases held by the state’s three regional lenders — Webster Bank, People’s United Bank and NewAlliance Bank — fell 5.3 percent or $1.7 billion during the one year period.
In contrast, Connecticut’s small community banks significantly boosted lending by $800,000 during the same time period.
Obama and other federal officials are right to say that the large banks that were bailed out on the taxpayers’ dime last year should make “extraordinary” efforts to increase lending to help consumers and businesses who have been hit hard by the Great Recession.
Last year, the nation’s Congressional leaders gave the nation’s major financial institutions on the brink of financial collapse a helping hand. Their fiscal crisis was due to a number of circumstances, but mostly of their own making by approving lots of risky subprime loans, and then selling those risky loans mixed in with safer, prime loans.
What they did was much like a greedy grocer hiding bruised and rotten apples in the bottom of a bushel, with the shiny fruit resting on top. When the rotten apples began to stink — similar to when the recipients of the risky, subprime loans couldn’t make their payments — it was hard to decipher the bad apples from the good ones.
…
There is a common presumption that living in a gated community makes one safe from crime. The problem is that criminals are logical, and a perfectly logical assumption is that nobody would bother living in a gated community unless they had lots of pirate loot they were trying to protect.
Former subprime lender’s home targeted in home invasion robbery
Four gunmen forced their way into the Newport Coast home of Daniel Sadek, who founded Quick Loan Funding in 2002. Three people were injured and three suspects were arrested.
By Gerrick D. Kennedy
December 10, 2009
The home of a prominent former subprime lender was the target of a home invasion robbery in a gated Newport Beach community Tuesday night, an attack that left three people injured and police searching for two suspects.
Nine people were inside Daniel Sadek’s home when four men armed with handguns forced their way into the residence in the upscale Pelican Ridge community of Newport Coast, demanding cash and jewelry, police said. A fifth suspect, officers said, waited outside during the robbery.
…
On the other hand there are a lot of burglaries up on Palos Verdes peninsula because lots of homes are vacant weekdays while people are working. Most of those places are not gated.
Best thing to do is just live cheap, don’t own much and be forever in blue jeans. Spend excess money on vacations, women, and booze instead, but not necessarily in that order.
And waste the rest?
I am sure Bill inadvertently neglected to mention that one should always park a fair amount of dough in The Precious™.
Four out of five new housing developments are gated communities, part of the “succession of the successful” or more bluntly, middle class suburbia’s attempt to gate out the growing Third World beyond the walls. Private security firms for these soulless places are one of the fastest-growing and lucrative businesses in the U.S. But contrary to popular belief, the crime rate in these “safe” developments is only slightly better than in un-gated neighborhoods.
According to cops, in about nine out of ten home invasions the perps believe, correctly or not, that illicit drugs or bulk cash is being stashed at the property. But we in here know that that sub-prime lenders are pillars of moral virtue and would never have illegal drugs on the premises.
Yep a handfull of elite may eventually get all the money but they need to look sout of the border to see how they will be forced to live in armed compounds and won’t be able to travel without armed cars and guards. Once the social contract that gives everyone the hope of a better life if they work hard and save is broken, and once poverty sets in this type of crime will rise.
Sad but true. I lived in Panama for a time and saw what happens when a tiny elite controls everything except the festering slums they helped create.
Yeah, the gated community phenomena is hilarious, you can just drive behind any car going in, unless of course, there’s an actual guard, in a guard house, but then you’re talking big bucks. Also, maintenance on the typical auto-gates is steep, and frequent. It’s just another gimmick to give people a false sense of security.
Bored teenagers living inside these “Disturbia” developments are responsible for much of the crime there, according to a cop friend of mine.
In our affluent area these teenagers are sampling (& selling) their parent’s pharmaceuticals. No scrubby weed for this generation, it’s designer drugs!
We lived in one of those gated HOA h*lls. Your cop friend is on target. That happened in our gated nirvana.
Law and Order, China Style:
Woman, 28, sentenced to death for defrauding investors - Xinhua, China December 20, 2009
A businesswoman was sentenced to death in east China’s Zhejiang Province Friday for defrauding investors of 384 million yuan (US$56 million).
Wu Ying, 28, former owner of the Zhejiang-based Bense Holding Group, amassed the funds by promising high returns to investors between May 2005 and February 2007, according to the Intermediate People’s Court of Jinhua city.
The money was used for Wu’s personal consumption and in paying back the loans and operation costs of her company, said the court.
Born to a farmer’s family in Dongyang city, Zhejiang, Wu started from scratch by opening a beauty salon in 1997.
By 2006, she had become known around the nation for her Bense Group, which had interests ranging from hotels and department stores to Internet cafes, car sales, construction materials and dry-cleaning chains.
Wu was arrested in February 2007 and indicted September last year. She retracted her confession in April.
The really corrupt big fish are above the law in China. Wu’s sin was probably to keep too much of the loot to herself instead of sharing with her political cohorts.
Citadel Broadcasting Files for Bankruptcy Protection
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3HYN5uP1E24&pos=3
I say good riddance to these mega radio monsters (Clear Channel etc). Another example of deregulation gone too far.
Busting up these propaganda monoliths into smithereenies is long overdue.
+1000
“…Citadel said it will ask the bankruptcy court permission to continue its operations without interruption, including authorization to continue paying employee wages and salaries, and honoring certain customer contracts and programs.”
Hey Rash Limpbaughs hasn’t said a peep about Ford and those “overpaid” American assembly workers in quite some time, come to think of it neither has Shelby’s Corker McConnell. I guess the “rage” they displayed is being redirected to GoldenmanSucks. Perhaps, the auto Industry wasn’t the “root cause” of the financial meltdown after-all?
They destroyed radio. Unless you are lucky enough to have a decent college radio station in your area, it’s nothing but a wasteland these days. Talk radio, top 40, oldies, or ethnic.
New, different, radical or world music? Forget it! Specialty music? Not a chance. Real news and useful information? In are area, only on Saturdays and only on AM.
They are getting what they deserve.
I thought video killed the radio star.
Eco;
Zydeco Zydeco zydeco, on my handle….well its not ghetto so its unplayable on da raydeeOH.
Sorry man, but I don’t like zydeco. Nor country. The only time I liked zydeco was when I was dating this beautiful blond who liked to dance to zydeco… on the table.
I’m more of an obscure underground, world beat, obscure classical and even more obscure movie soundtracks and lounge kinda guy. Radio music teh suck.
Crime of the 21st Century perpetrated by the Wall Street banksters against the American people: Putting US collectively on the hook for Wall Street’s bad mortgage debt without first asking US, The American People, for our permission.
I have bad news for the perpetrators of this crime: The American Main Steet’s middle class, which has been unwillingly made the bagholder for decades of failed Demoratic social engineering programs, has been squeezed and beaten to the point where there is nothing left to give. This effort to once again turn Main Street Americans into bagholders by
dumping Wall Street’s toxic mortgage debt on their backs is going to fail spectacularly, and blow back to Wall Street and K Street from whence it originated.
4 Big Mortgage Backers Swim in Ocean of Debt
Minh Uong/The New York Times
By MARY WILLIAMS WALSH
Published: December 16, 2009
Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.
These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state.
And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them.
Though the four are not in all the same businesses, they were caught in one of the same traps: They sold mortgage guarantees — in some cases to each other. Now when homeowners default, as they are doing in record numbers, these companies are covering the losses. Essentially, taxpayer money to these companies is being used partly to protect banks and other investors who own the mortgages.
…
‘The problem is that criminals are logical, and a perfectly logical assumption is that nobody would bother living in a gated community unless they had lots of pirate loot they were trying to protect”.
PB, You are dead on!
What was the name of the bank robber?…When asked why he robbed banks?
Answer… “Because that’s where the money is”
It was Willie Sutton, but apparently he did not say that…
“I will now confess, by the fact that I never said it. The credit belongs to some enterprising reporter who apparently felt a need to fill out his copy…
“If anybody had asked me, I’d have probably said it. That’s what almost anybody would say…it couldn’t be more obvious.
“Or could it?
“Why did I rob banks? Because I enjoyed it. I loved it. I was more alive when I was inside a bank, robbing it, than at any other time in my life. I enjoyed everything about it so much that one or two weeks later I’d be out looking for the next job. But to me the money was the chips, that’s all.”
“Go where the money is…and go there often.”
The Financial Times
Sovereign debt fears spur US currency rise
By Dave Shellock
Published: December 18 2009 23:11 | Last updated: December 18 2009 23:11
The dollar proved to be the chief beneficiary of a renewed bout of nervousness this week as a number of events prompted investors to focus on what are likely to be key market themes of 2010.
High on the list were renewed concerns about escalating levels of government debt, most notably among peripheral eurozone nations such as Greece.
Uncertainty over the outlook for global central bank policy added to the hesitant mood, while worries about banks were heightened by tough new proposals from international regulators on capital requirements for the sector.
Analysts at Danske Bank said the dollar’s recent rally on the currency markets – it struck three-month highs on both a trade-weighted basis and against the euro – was potentially a big game changer for the markets.
“Whether this shift is related to year-end unwinding of short-funded carry positions or whether it reflects a more permanent shift in investor sentiment towards the dollar is probably too soon to tell,” Danske said. But it added that a long-term strengthening of the US currency “would have implications for the real economy, for investors and for policy choices down the road”.
The dollar reached its highest levels of the week after the Federal Reserve delivered a more upbeat assessment of US economic conditions and reiterated that several short-term liquidity facilities would expire in February.
That prompted some in the markets to see the Fed’s statement as its first step in a series of tightening measures – although it repeated its pledge to keep interest rates “exceptionally low” for an “extended period”.
Steve Barrow at Standard Bank suggested that the dollar might have reached an inflexion point that could keep it on an upward trend against the euro well into 2010. “The market seems to be focused much more on the bad news out of the eurozone, not the problems of the US and the dollar,” he said. “The turnround has clearly come because of the difficulties experienced by some of the fringe EMU members, especially Greece.”
…
Yep. It seems a flight to safety means a flight to U.S. dollars.
Right. One might also expect a flight-to-quality into gold, if it were not so overbought at the moment…
At least some observers have noted and commented that the main beneficiaries of mortgage modifications are banksters rather than FBs.
By my calculations, the “up to $50,000″ Baker mentions below understates the likely value of forebearance in cases where Making Home Affordable mortgage modifications are used in bubble zones to bring down monthly payments to 31 percent of household income. Dividing the stated $75 bn appropriated for this program by the number of likely beneficiaries, and making allowance for heterogeneity in the cost of different households who will receive assistance, suggests that I am correct. And it is a standard Washington ploy to underestimate the cost of a program, only to retrospectively confess that the cost was “more than expected.”
13.12.09
Monthly Review Press
FHA Troubles Are Likely to Curtail Demand
by Dean Baker
Most modification plans leave homeowners without equity and paying excessive housing costs.
The Federal Housing Authority has been taking steps over the last month to tighten its standards on the loans it guarantees, most notably by dropping several initiators who have had especially bad track records. While this is a necessary and appropriate step given its financial situation, tighter standards from the FHA will have a dampening impact on the housing market in the coming year.
Remarkably, little attention has been given to the extent to which the FHA filled the gap created by the collapse of the subprime market. At the peak of the bubble in 2006, subprime mortgages accounted for almost a quarter of all mortgages. This share fell to near zero in subsequent years. The FHA, which had been marginalized by the explosion of subprime, saw its share increase from less than 3 percent of the market in 2006 to 23 percent this year. In a context of falling house prices and double-digit unemployment, this rapid expansion virtually guaranteed that the FHA would face problems.
Now that the FHA is tightening up, its market share will presumably fall back towards its historic level in the 8-10 percent range. While some FHA borrowers will be able to find other loans, many will not. If the FHA market share drops by 10 percentage points and half of the would-be FHA borrowers cannot find mortgages elsewhere, this implies a drop in demand of 5 percent, or more than 250,000 potential buyers. This will have a substantial impact on the housing market.
The continuing decline in nominal rents is making it ever more apparent that the main beneficiaries of mortgage modification programs are likely to be banks. Under some of the proposals being discussed, the government would pay up to $50,000 to keep homeowners in their homes. In the vast majority of these situations, even after a loan has been modified, homeowners will be paying considerably more on their mortgage and other ownership costs than they would to rent the same home. In the markets that were most inflated by the bubble, this difference can be well over $1,000 a month. In other words, each month that the government keeps the family in their home as a homeowner is a further drain on their income and savings.
…
“In other words, each month that the government keeps the family in their home as a homeowner is a further drain on their income and savings.”
Yep. Sounds like a good plan to me. Keep those FB payments flowing into the bank’s coffers.
Also, FBs should be encouraged to double up on their payments whenever possible.
It’s great to be back in upstate NY. I can’t believe how fast I adjust to temps. I am a polar bear — this weather is much more comfortable to me than 90+ with high humidity.
Nobody is discussing housing, only employment now.
Anyone on here from Buffalo? Is the violence as bad as Rochester? How about Syracuse?
I don’t recall a lot of police officer shootings growing up, but there have bee a lot recently.
Police officer shootings? Are police officers the ones getting shot or are they the ones doing the shooting?
Both, but wayyy more officers being shot — 3 in recent weeks in Rochester.
Welcome to upstate NY muggy. Yes the crime rate in the city of Syracuse has increased dramatically. Lots of shootings and the local hospitals make about 150K per shooting as they take care of the victims. It is a great source of profits for the local hospitals.
Muggy its probably racial demographics. Name me any white town with drive bys and street corners with a dozen peeps selling drugs?
Clip-clop clip-clop clip-clop BANG BANG BANG clip-clop clip-clop clip-clop….
Yet another Amish drive-by shooting.
Muggy, considering how mild it’s been so far, if feels blistering cold downstate and I’m from central VT!!!
Anways, I presume the discussion are dark…. heh.
The Extreme Makeover saga continues. Check out the reader comments, they’re not buying it. Curious that in earlier versions of the story the mom died of cancer, now they say its from complications from the flu.
http://www.signonsandiego.com/news/2009/dec/18/no-eviction-home-renovating-family/
Jeebus, I gagged reading this cr@p. It’s frightening to think morons like this are representative of average Americans. Whenever I go out of the house I see hordes of vacuous looking obese, tattooed, pierced idiots and I wonder if I have been beamed to the surface of a nightmare planet. This guy is one of them. And the drooler who wrote the article seems convinced that the guy is an innocent victim.
We own the place, right? Show us our e-mails!
Spitzer and other financial fraud investigators call for AIG (which we as taxpayers own) to release their e-mails from the period leading up to their implosion and subsequent bailout.
” But we would like to see the record to find out. As fraud investigators, we would like to examine the trading patterns of A.I.G.’s financial products division, and its communications with Goldman Sachs and other bank counterparties who benefited from the bailout. We would like to understand whether the leaders of A.I.G. understood that they were approaching a financial Armageddon, and whether they alerted their counterparties, regulators and shareholders to the impending calamity.
We would like to see how A.I.G. was able to pay huge bonuses to its officers based on the short-term income they received from counterparties for selling guarantees that, lacking adequate loss reserves, the companies would never be able to honor. We would also like to know what regulators knew, and what they did with the information they had obtained.
Congress wants answers, too. This month, during hearings on Ben Bernanke’s nomination to a second term as chairman of the Federal Reserve, several senators fumed about being denied access to his A.I.G.-related documents.”
NYTimes
“This month, during hearings on Ben Bernanke’s nomination to a second term as chairman of the Federal Reserve, several senators fumed about being denied access to his A.I.G.-related documents.”
Let me guess: If Bernanke provided access to those A.I.G.-related documents, the Fed’s ability to conduct an independent monetary policy would be compromised.
Since this argument can be applied to virtually any question anyone could ever conceivably think of to ask the Fed, they basically operate above the rule of law and outside the U.S. Constitutional system of separation of powers subject to checks and balances.
We don’t need Ben, but we just need these three to show some guts.
___
“Our stake is held by something called the A.I.G. Credit Facility Trust, whose three trustees are Jill M. Considine, a former chairman of the Depository Trust Company and a former director of the Federal Reserve Bank of New York; Chester B. Feldberg, a former New York Fed official who was chairman of Barclays Americas from 2000 to 2008; and Douglas L. Foshee, chief executive of the El Paso Corporation and chairman of the Houston branch of the Federal Reserve Bank of Dallas.
Ultimately, these three trustees wield all the power at A.I.G., and have the right to vote out the 11 directors if the directors are unwilling to publish the e-mail messages. In other words, if these three people ask A.I.G.’s board to post the messages and other documents, the board will have no choice but to comply. Ms. Considine, Mr. Feldberg and Mr. Foshee have the opportunity to be among the most effective and influential investor advocates in history. Before A.I.G. escapes, they should demand the evidence.”
By AIG ‘escaping’ he means paying off TARP and thus becoming free of gov oversight and control. Here’s the link, finally:
http://www.nytimes.com/2009/12/20/opinion/20partnoy.html?_r=2&hp
Let me guess: If Bernanke provided access to those A.I.G.-related documents, the Fed’s ability to conduct an independent monetary policy would be compromised.
Since this argument can be applied to virtually any question anyone could ever conceivably think of to ask the Fed, they basically operate above the rule of law and outside the U.S. Constitutional system of separation of powers subject to checks and balances.
Exactly. Which is why their “Federal Reserve Notes” are so valuable!
This is the America I believe in..
Living in a camper, x9+ heart surgeries…
Happy Holidays!
http://www.cbsnews.com/stories/2009/12/14/assignment_america/main5979232.shtml?tag=cbsnewsTwoColUpperPromoArea
U.S. stocks have just endured their worst decade, ever. What’s even worse, unless this time is different, this bear market has at least another six years to go before PE ratios bottom out (the shortest one I can identify over the course of the twentieth century lasted sixteen years, from 1966-1982).
Try not to catch yourself a falling knife!
…
Of the 30 stocks today that comprise the Dow Jones Industrial Average, only 13 are up since the end of 1999, and just two, Caterpillar Inc. and United Technologies Corp., doubled over the 10-year span.
So what went wrong for the U.S. stock market?
For starters, it turned out that the old rules of valuation matter.
“We came into this decade horribly overpriced,” said Jeremy Grantham, co-founder of money managers GMO LLC.
In late 1999, the stocks in the S&P 500 were trading at about an all-time high of 44 times earnings, based on Yale professor Robert Shiller’s measure, which tracks prices compared with 10-year earnings and adjusts for inflation. That compares with a long-run average of about 16.
Buying at those kinds of values, “you’d better believe you’re going to get dismal returns for a considerable chunk of time,” said Mr. Grantham, whose firm predicted 10 years ago that the S&P 500 likely would lose nearly 2% a year in the 10 years through 2009.
Despite the woeful returns this decade, stocks today aren’t a steal. The S&P is trading at a price-to-earnings ratio of about 20 on Mr. Shiller’s measure.
Mr. Grantham thinks U.S. large-cap stocks are about 30% overpriced, which means returns should be about 30% less than their long-term average for the next seven years. That means returns of just 1.6% a year before adding in inflation.
Another hurdle for the stock market has been the decline in dividends that began in the late 1980s.
Over the long term, dividends have played an important role in helping stocks achieve a 9.5% average annual return since 1926. But since that year, the average yield on S&P 500 stocks was roughly 4%. This decade it has averaged about 1.8%, said North Carolina State’s Mr. Jones.
That difference “doesn’t sound like much,” said Mr. Jones, “but you’ve got to make it up through price appreciation.” Unless dividends rise back toward their long-term averages, Mr. Jones thinks investors may need to lower expectations. Rather than the nearly 10% a year that has been the historical average, stocks may be good for only about 7%.
…
Sorry the link doesn’t work. Here is where you can find the article:
http://online.wsj.com/article/SB10001424052748704786204574607993448916718.html?mod=googlenews_wsj
“…and just two, Caterpillar Inc. and United Technologies Corp., doubled over the 10-year span.”
Given that Caterpillar’s wild success was presumably linked to the collapsing real estate bubble, will the number of Dow components that doubled over ten years soon shrink to one?
Ahem…
* The Wall Street Journal
* DECEMBER 18, 2009, 12:01 P.M. ET
Caterpillar Sales Down 45% On Year In 3 Months To Nov.
By Bob Tita
Of DOW JONES NEWSWIRES
CHICAGO (Dow Jones)–Caterpillar Inc.’s(CAT) sales decline eased in November, mostly on improved sales performance in Latin America.
Caterpillar, the world’s largest manufacturer of construction machinery by sales, said Friday world-wide machinery sales declined 45% in the three-month period ended in November, compared with the same period a year earlier. Global sales were down 50% for the three months ended in October and down 52% in September.
Caterpillar has been experiencing widespread weakness in demand this year as its dealers work off large volumes of unsold equipment caused by a steep reduction in construction activity and lower prices for mined commodities amid the global recession.
The modest improvement in November sales activity from October and September suggests the company’s dealers may be starting to purchase more equipment from the company to restock depleted inventories. The improving comparisons with 2008 also likely reflect the severe unraveling in Caterpillar’s business lines that occurred late last year.
Caterpillar’s November sales in Latin American were down 27% from a year ago, a marked improvement from October when sales plunged 41%.
Three-month sales in North America were down 54% through November from a year ago. October sales from the region were off 58%. November sales in Europe, the Middle East and Africa were down 53%, the same rate of decline reported for October.
In the Asia Pacific region, which includes China, where demand for equipment is expected to be a catalyst for Caterpillar’s recovery in 2010, November sales slipped 31% slightly better than the 36% decline reported for October.
…
Life in The Messiah’s paradisiacal birth place ain’t all that any more…
Hawaii dimmed by education, election, health cuts
By MARK NIESSE (AP) – 1 day ago
HONOLULU — Hawaii public schools are closed most Fridays, rats scurry across bananas in uninspected stores and there may not be enough money to run the next election.
About the only parts of the state untouched by the foul economy are its sparkling beaches and world-class surfing.
Hawaii’s money troubles are creating a society more befitting a tropical backwater than a state celebrating its 50th anniversary and preparing to welcome President Barack Obama home for Christmas this week.
“There is community energy and outrage building up,” said James Koshiba, a co-founder of the activist organization and Web site Kanu Hawaii, speaking about the cuts to education. “The people have to play a bigger role. Folks won’t forget how this unfolds come election time.”
…
Too late for a performance of Haydn’s Farewell Symphony? It’s funny how an arts organization facing a piddling $10 million dollar deficit can look forward to bankruptcy, while a bank that lost $10s or even $100s of billions can rest assured that bailouts will come to its rescue.
Music
Honolulu Symphony files for Chapter 11
Published: Dec. 19, 2009 at 3:07 PM
HONOLULU, Dec. 19 (UPI) — The executive director for the Honolulu Symphony said the Hawaii group filed for Chapter 11 reorganization as part of its financial woes.
Symphony Executive Director Majken Mechling said the decision to officially file for bankruptcy in federal court Friday was necessary given the symphony’s debts of between $1 million to $10 million, The Honolulu Advertiser reported Saturday.
“It’s an unfortunate day but a necessary one for the organization,” Mechling said.
“For us to continue with business as usual does not bode well for our musicians and the community.”
…
Finally, a bailout proposal that a musician can love!
Eve Tahmincioglu
Posted: December 14, 2009 07:06 PM
Bail Out Money Can Save Music
Great news today. Citigroup is returning $20 billion of the federal bail out money. This follows announcements from other banks planning on doing the same.
We’ve bailed out banks, auto companies and what did we get? Some jobs were saved, but as for the greater good of society, bankers and auto makers basically fuel consumption and pollution.
If banks and the auto industry ceased to exist the world would survive. But could we survive without music?
Let’s take the money this time and bail out an industry that actually makes the world a better place — music.
…
There is something wrong with this country. We shower certain professions with gobs of cash and deny others a livable wage.
Many of the banks that are returning the bailout money are doing so because the top dogs at these financial institutions balked at having to keep their annual pay under $500,000.
I assure you, there will be no such protests if we spread some of that bailout money to the music makers struggling to survive in this economy.
Will there be such a bail out?
Hahn doesn’t seem hopeful: “There are people talking about it, there just doesn’t seem to be anybody listening.”
Please listen to this and tell me why we shouldn’t bailout musicians. It’s Hahn rendition of Auld Lang Syne.
As much as I despise TARP, I’m amazed they allowed this rule to get through. I’m even more amazed it worked!
It didn’t work. The banksters appear to have used their TARP money to generate ginormous profits this year, not to remove toxic assets from their balance sheets nor to increase lending.
Gahh, major sob story alert, 60 Minutes..more FBs…
From whence cometh Chinese property market jitters?
* The Wall Street Journal
* DECEMBER 20, 2009, 11:10 P.M. ET
UPDATE: Asian Shares Mixed; Property Market Jitters Hit China
By Shri Navaratnam and Kirsty Green
Of DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)–Asian shares were mixed Monday in subdued holiday-thinned trade with Hong Kong and China weighed by worries over further property market cooling measures, but the Australian market was rising on gains in resource stocks.
“Equity markets are moving sideways while corporate earning catch up to share prices,” said Patersons senior private client adviser Chris Blair.
Hong Kong’s Hang Seng Index was down 0.5% while China’s Shanghai Composite fell 0.6% and Taiwan’s main index was up 0.8%. Australia’s S&P/ASX 200 was 0.5% higher, Japan’s Nikkei 225 was up 0.5%, South Korea’s Kospi Composite was up 0.1% and New Zealand’s NZX-50 was down 0.1%. Dow Jones Industrial Average futures were 30 points higher in screen trade.
Hong Kong shares were slipping as concerns that the Chinese government may take further measures to cool the property market were still weighing on mainland property developers and banking stocks. This followed the Chinese government’s announcement of a new rule last week requiring property developers to make a minimum down payment of 50% on land purchases. HSBC was down 0.8%, China Overseas fell 0.3% and China Construction Bank was 0.2% lower. But ICBC International’s Ernie Hon said that the Hong Kong market was well supported; “the selling pressure is mild today and I expect the index could stage a rebound soon after its latest declines.”
China shares were also facing pressure from property sector jitters with China Vanke off 0.8% and Poly Real Estate down 1.0%. “It is still likely that Beijing may adopt further measures to curtail property price rises, especially on speculation activities,” said Guosen Securities analyst Wang Junqing.
…
Diversification is hard when a ginormous credit bubble is blowing up prices of almost everything!
Weekend Investor
Dec. 18, 2009, 4:47 p.m. EST
Kernel of truth
Commodities don’t diversify stock-market risk as much as believed
By Sam Mamudi, MarketWatch
NEW YORK (MarketWatch) — As stocks retreated and recovered over the past 15 months, commodities investments have moved in step with the U.S. market.
That wasn’t supposed to happen. Investing in commodities has been pushed as a useful way to cushion portfolio risk. In truth, the performance of commodities and stocks is now closely related, shredding the promise of diversification and strapping investors to the market’s wild rollercoaster.
“We haven’t seen the independence [in commodities returns] that you’d hope for in a diversified portfolio,” said Jay Feuerstein, chief executive of Chicago-based commodity trading adviser 2100 Xenon Group.
Commodities such as oil, corn, copper and grain crumbled as the market tanked and have climbed this year along with stocks. And the performance of commodities mutual-funds has striking parallels to the broad U.S. stock market.
…
Tentative conclusion: Printing too many dollars too fast has the effect of stratifying global asset markets into two classes: Dollars, and dollar hedges.