Junkcharts, decodes useless charts that appear in the media every day. This guy/gal considers them works of art.Regards
TheBagwan
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Jul 18, 2010
Satisfying the inner geek
Junkcharts, decodes useless charts that appear in the media every day. This guy/gal considers them works of art.Regards
TheBagwan
Jan 2, 2010
sell the yen?
**Followup 31/01/2010, notice as soon as I say something the market moves in the opposite direction. This post will now be buried and never talked about again. If however it had moved in my direction I would have bleated loud and long and pointed often to my savvy prediction. Follow the gurus in the media, and this is exactly how they do it. Its all about quantity.
Original: "Japan unveiled a record $1 trillion budget on Dec. 25 designed to lift the spending power of households and switch the economic focus from public works spending." "Federal Reserve moved closer to withdrawing stimulus measures that helped cause the greenback to fall 4.2 percent for the year."
The Fed Reserve doesn't do anything other than swap assets and liabilities on their spreadsheet (but that's another story). The US Congress however, is primed to start getting the budget into surplus (Obama's rhetoric is along the same lines). This will mean lower growth and higher dollar, all things being equal.
Sell the yen, buy the US? (PS. My track record is pathetic only a fool would listen to anything I say about finance). Note, the market probably discounted this back in November.
Regards
TheBagwan
Apr 4, 2009
Bank Recapitalization Programme
You need to invest with a participating fund now...
http://rortybomb.wordpress.com/2009/03/25/modeling-an-fdic-robbery/
Great layman's explanation of put options at work..
A lot of smarter people than yours truly, seem to recognise this plan as a risk free handout to the financial industry, I think I agree.
This same administration (friend of the worker), however, will happily bankrupt its own car industry, go figure, how utterly perverse.
Regards
TheBagwan
http://rortybomb.wordpress.com/2009/03/25/modeling-an-fdic-robbery/
Great layman's explanation of put options at work..
A lot of smarter people than yours truly, seem to recognise this plan as a risk free handout to the financial industry, I think I agree.
This same administration (friend of the worker), however, will happily bankrupt its own car industry, go figure, how utterly perverse.
Regards
TheBagwan
Feb 22, 2009
OMG
http://www.nytimes.com/2009/02/22/us/politics/22budget.html?_r=1&hp
"WASHINGTON — After a string of costly bailout and stimulus measures, President Obama will set a goal this week to cut the annual deficit at least in half by the end of his term, administration officials said. The reduction would come in large part through Iraq troop withdrawals and higher taxes on the wealthy."
Mr Obama = One term president.
Regards
TheBagwan
"WASHINGTON — After a string of costly bailout and stimulus measures, President Obama will set a goal this week to cut the annual deficit at least in half by the end of his term, administration officials said. The reduction would come in large part through Iraq troop withdrawals and higher taxes on the wealthy."
Mr Obama = One term president.
Regards
TheBagwan
Feb 14, 2009
Fortunes lost later...
I've done well out of my non hedged $US holdings courtesy of the falling $AUD, however, I've been well and truly fleeced in the hedged and AUD equity holdings, remarkably bad investment choices by yours truly (This is why I'm not involved in the investment business). Yet more tuition fees paid.
Part of my error of judgement was to believe that the politicians and elected officials in the US would choose the correct path and both spend money (add demand) and steady the financial system. There was a firm belief in my mind that the officials such as Mr Bernanke and Mr Paulson had the experience and the political respect to be able to offer, in the end, a acceptable package to shore up the financial system in the US.
Certainly there was some naive and hopeful (read greedy), thinking on my part about the politics involved in resolving these issues and the type of economic reasoning used by politicians and officials. I certainly felt that we would scrape by at lower levels of gdp growth courtesy of the Bush handouts, but, the Lehman Brothers collapse certainly changed the landscape from that point onwards. It is always easy to see these turning points in the rear view mirror.
The broad picture that has emerged:
1: The US and consequently most of the world is now suffering from a lack of demand for goods and services as people are net saving due to unemployment and/or fear.
2: The immediate policy response has mainly been directed at shoring up the commercial banks (in the US), which has involved swapping assets and liabilities back and forth between public and private organisations.
3: The US political response has been shrill, unhelpful and populist from both sides, as well as being inadequate in terms of size and speed (I can also make this point about Australian politicians as well).
4: The European Union has not taken the necessary steps to resolve their structural issues at the macro level due to lack of political will, resulting in an unusually high level of default risk throughout the Eurozone. I think this is only just starting to be recognised.
5: The Chinese government seems to be able to make quick decisions and understands the need to get money into their system.
On point 1 and 3: As the Post Keynsian's point out, in order to get people back to work money needs to be put into the system. As government is the monopoly creator of money in a fiat currency system it must put itself into deficit up to the point where the private sector stop saving and start to spend on goods and services.
GDP= C + I + G + NX. where
C: Consumption,
I: Investment,
G: net government spending
NX: Net Exports.
The above is a simple accounting fact at the macro level and is found in every secondary school economic text book. If C, I, and NX are all falling then the only source of GDP left that is able to fill the breach is G. This ain't rocket science.
The response of policy makers in the US seems to be partly driven by a mistaken populist belief that they are still on a fixed exchange rate, hence, they are leaving some gigantic mythical debt to their children, which then leads to the conclusion that the deficit must be minimised in order to avoid this scenario. Therefore, I predict that the Obama stimulus package is probably to small which will perpetuate the myth (due to the slowdown dragging on) that the stimulus was a failure (this is also happening in Australia re the December ESS). However, the automatic stabilisers (unemployment and falling tax revenues) will slowly drag the US economy toward a deficit large enough to turn around the economy around.
US policy makers also seem clueless when it comes to the structure of their own industries. Take for example the US car industry, the huffing and puffing about bailing out the auto makers. An industry that employs one in ten Americans yet gets minimal subsidies from their own government but is failing due to lack of demand for cars, just as banks are failing due to lack of demand for loans ie: the private sector net saving (not enough G in GDP). Toyota is also posting losses due to this same lack of demand, yet they are a very heavily government subsidised organisation. The US lawmakers do not seem to grasp this detail, and demand that GM make green cars, yet the public do not want to buy green cars, other wise they would have been making them years ago. SUV's rule in the US, sorry, that is the way it is. The way they disadvantage their industries is amazing. This is the other part of the policy response that I believe is mistaken, namely that "free" markets will fix the problem with minimum government interference. Hyman Minsky has pointed out that the financial system is the weak link due to the uncertain cash flows of its borrowers. Gov's therefore need to step in to stabilise markets from time to time and to provide/re-adjust the legal framework for markets to operate.
On point 2: The setting up of TARPS and Bad Banks etc, creates paper shuffling but little else, nothing new is created, hence no problems are really solved. As one columnist noted, the politicians A: demand that banks get out and lend with their newly loaned (from the Gov) Reserves and Capital , however, do not understand that the US banking laws (enacted by politicians) make lending of capital and reserves illegal. B: do not understand that loan demand from qualified borrowers has fallen dramatically due to the private sector net saving (not enough G in the GDP).
The Giethner plan for a public/private partnership to house the toxic assets in a bad bank, seems on the face of it, to supply cheap government borrowing for the holders of the banks capital and therefore an implicit guarantee of no loss for the duration of the investment (that's my take anyway). Great if your an investor (where do I sign up), but is that good public policy (giving away cheap assets to investors, when this could all be handled by the Fed Reserve)? Again this is just asset/liability swapping. It does nothing but reward the Warren Buffets of the world, for what?
On point 4: There are massive US currency swap tenders going on at the moment. And it is suspected that the bulk of these are being used to supply $US to European industry and banks. These swaps were due to end in April but have now been extended to October I believe. It does indicate a demand/desperation for $US at the very least. The Eurozone due to politics and structure does not have a lender of last resort nor a unified Treasury. The pressure is already on in Greece, Spain, Italy and countries of Eastern Europe. I speculate that this will end up in beggar thy neighbour policies and a disintegration of the Union, maybe even worse.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4590512/European-banks-may-need-16.3-trillion-bail-out-EC-dcoument-warns.html
http://www.bloomberg.com/apps/news?pid=20601109&sid=agQXUkQlkXFk&refer=home
On point 5: The Chinese have reportedly increased lending through their Gov controlled banks, (my suspicions are that there are no arrangements available in China for immediate spending and taxation, hence the government uses its banks to get money into its system via lower/no lending standards?, this is the same as fiscal spending? according to PK'ers it is).
http://www.bloomberg.com/apps/news?pid=20601068&sid=aRULGtRt3ubU&refer=home
http://www.bloomberg.com/apps/news?pid=20601089&sid=ackHHxtWoFHc&refer=china
BHP's Marius Kloppers recently reported strengthening demand for their Iron Ore due to increasing demand from Chinese buyers. Rio Tinto has accepted a large over the top bid for part of the company from Chinalco. Maybe they are telling us they see value in Rio due to the stimulation of the Chinese economy?
Conclusion: Hey, I'm just a Telephone Sanitiser. But, we muddle through until unemployment and falling tax receipts are large enough to lift the economy out of the doldrums. The equity markets will anticipate this long before it happens, if the worst case is factored into the market it may start lift now on no offers. The mutha of all exogenous shocks remains Europe (long Pound/Dollar short Euro position?) or a piece of truly silly legislation passing the US congress ie: balance the budget, trade barriers etc.
Regards
TheBagwan
Part of my error of judgement was to believe that the politicians and elected officials in the US would choose the correct path and both spend money (add demand) and steady the financial system. There was a firm belief in my mind that the officials such as Mr Bernanke and Mr Paulson had the experience and the political respect to be able to offer, in the end, a acceptable package to shore up the financial system in the US.
Certainly there was some naive and hopeful (read greedy), thinking on my part about the politics involved in resolving these issues and the type of economic reasoning used by politicians and officials. I certainly felt that we would scrape by at lower levels of gdp growth courtesy of the Bush handouts, but, the Lehman Brothers collapse certainly changed the landscape from that point onwards. It is always easy to see these turning points in the rear view mirror.
The broad picture that has emerged:
1: The US and consequently most of the world is now suffering from a lack of demand for goods and services as people are net saving due to unemployment and/or fear.
2: The immediate policy response has mainly been directed at shoring up the commercial banks (in the US), which has involved swapping assets and liabilities back and forth between public and private organisations.
3: The US political response has been shrill, unhelpful and populist from both sides, as well as being inadequate in terms of size and speed (I can also make this point about Australian politicians as well).
4: The European Union has not taken the necessary steps to resolve their structural issues at the macro level due to lack of political will, resulting in an unusually high level of default risk throughout the Eurozone. I think this is only just starting to be recognised.
5: The Chinese government seems to be able to make quick decisions and understands the need to get money into their system.
On point 1 and 3: As the Post Keynsian's point out, in order to get people back to work money needs to be put into the system. As government is the monopoly creator of money in a fiat currency system it must put itself into deficit up to the point where the private sector stop saving and start to spend on goods and services.
GDP= C + I + G + NX. where
C: Consumption,
I: Investment,
G: net government spending
NX: Net Exports.
The above is a simple accounting fact at the macro level and is found in every secondary school economic text book. If C, I, and NX are all falling then the only source of GDP left that is able to fill the breach is G. This ain't rocket science.
The response of policy makers in the US seems to be partly driven by a mistaken populist belief that they are still on a fixed exchange rate, hence, they are leaving some gigantic mythical debt to their children, which then leads to the conclusion that the deficit must be minimised in order to avoid this scenario. Therefore, I predict that the Obama stimulus package is probably to small which will perpetuate the myth (due to the slowdown dragging on) that the stimulus was a failure (this is also happening in Australia re the December ESS). However, the automatic stabilisers (unemployment and falling tax revenues) will slowly drag the US economy toward a deficit large enough to turn around the economy around.
US policy makers also seem clueless when it comes to the structure of their own industries. Take for example the US car industry, the huffing and puffing about bailing out the auto makers. An industry that employs one in ten Americans yet gets minimal subsidies from their own government but is failing due to lack of demand for cars, just as banks are failing due to lack of demand for loans ie: the private sector net saving (not enough G in GDP). Toyota is also posting losses due to this same lack of demand, yet they are a very heavily government subsidised organisation. The US lawmakers do not seem to grasp this detail, and demand that GM make green cars, yet the public do not want to buy green cars, other wise they would have been making them years ago. SUV's rule in the US, sorry, that is the way it is. The way they disadvantage their industries is amazing. This is the other part of the policy response that I believe is mistaken, namely that "free" markets will fix the problem with minimum government interference. Hyman Minsky has pointed out that the financial system is the weak link due to the uncertain cash flows of its borrowers. Gov's therefore need to step in to stabilise markets from time to time and to provide/re-adjust the legal framework for markets to operate.
On point 2: The setting up of TARPS and Bad Banks etc, creates paper shuffling but little else, nothing new is created, hence no problems are really solved. As one columnist noted, the politicians A: demand that banks get out and lend with their newly loaned (from the Gov) Reserves and Capital , however, do not understand that the US banking laws (enacted by politicians) make lending of capital and reserves illegal. B: do not understand that loan demand from qualified borrowers has fallen dramatically due to the private sector net saving (not enough G in the GDP).
The Giethner plan for a public/private partnership to house the toxic assets in a bad bank, seems on the face of it, to supply cheap government borrowing for the holders of the banks capital and therefore an implicit guarantee of no loss for the duration of the investment (that's my take anyway). Great if your an investor (where do I sign up), but is that good public policy (giving away cheap assets to investors, when this could all be handled by the Fed Reserve)? Again this is just asset/liability swapping. It does nothing but reward the Warren Buffets of the world, for what?
On point 4: There are massive US currency swap tenders going on at the moment. And it is suspected that the bulk of these are being used to supply $US to European industry and banks. These swaps were due to end in April but have now been extended to October I believe. It does indicate a demand/desperation for $US at the very least. The Eurozone due to politics and structure does not have a lender of last resort nor a unified Treasury. The pressure is already on in Greece, Spain, Italy and countries of Eastern Europe. I speculate that this will end up in beggar thy neighbour policies and a disintegration of the Union, maybe even worse.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4590512/European-banks-may-need-16.3-trillion-bail-out-EC-dcoument-warns.html
http://www.bloomberg.com/apps/news?pid=20601109&sid=agQXUkQlkXFk&refer=home
On point 5: The Chinese have reportedly increased lending through their Gov controlled banks, (my suspicions are that there are no arrangements available in China for immediate spending and taxation, hence the government uses its banks to get money into its system via lower/no lending standards?, this is the same as fiscal spending? according to PK'ers it is).
http://www.bloomberg.com/apps/news?pid=20601068&sid=aRULGtRt3ubU&refer=home
http://www.bloomberg.com/apps/news?pid=20601089&sid=ackHHxtWoFHc&refer=china
BHP's Marius Kloppers recently reported strengthening demand for their Iron Ore due to increasing demand from Chinese buyers. Rio Tinto has accepted a large over the top bid for part of the company from Chinalco. Maybe they are telling us they see value in Rio due to the stimulation of the Chinese economy?
Conclusion: Hey, I'm just a Telephone Sanitiser. But, we muddle through until unemployment and falling tax receipts are large enough to lift the economy out of the doldrums. The equity markets will anticipate this long before it happens, if the worst case is factored into the market it may start lift now on no offers. The mutha of all exogenous shocks remains Europe (long Pound/Dollar short Euro position?) or a piece of truly silly legislation passing the US congress ie: balance the budget, trade barriers etc.
Regards
TheBagwan
Nov 9, 2008
You're kiddin
Note the liquidity of the ABX index's on the left hand side of this website. This is the credit derivate index of the underlying Asset Backed Securities market, which allows an investor exposure to the subprime market without actually holding the ABS's. This illiquid monster is a part of the problem.
http://www.aleablog.com/abx-and-dtcc-data/
Regards
TheBagwan
http://www.aleablog.com/abx-and-dtcc-data/
Regards
TheBagwan
Limits of statistics
Nassim Taleb tells it like it is, in his normal understated manner.
http://www.edge.org/3rd_culture/taleb08/taleb08_index.html
Regards
TheBagwan
http://www.edge.org/3rd_culture/taleb08/taleb08_index.html
Regards
TheBagwan
Nov 1, 2008
Current economic myths
Interesting working paper from the Minneapolis Fed..
http://www.minneapolisfed.org/research/WP/WP666.pdf
"Abstract
The United States is indisputably undergoing a financial crisis. Here we examine four claims about the way the financial crisis is affecting the economy as a whole and argue that all four claims are myths. Conventional analyses of the financial crisis focus on interest rate spreads. We argue that such analyses may lead to mistaken inferences about the real costs of borrowing and argue that, during financial crises, variations in the levels of nominal interest rates might lead to better inferences about variations in the real costs of borrowing."
Regards
TheBagwan
http://www.minneapolisfed.org/research/WP/WP666.pdf
"Abstract
The United States is indisputably undergoing a financial crisis. Here we examine four claims about the way the financial crisis is affecting the economy as a whole and argue that all four claims are myths. Conventional analyses of the financial crisis focus on interest rate spreads. We argue that such analyses may lead to mistaken inferences about the real costs of borrowing and argue that, during financial crises, variations in the levels of nominal interest rates might lead to better inferences about variations in the real costs of borrowing."
Regards
TheBagwan
Oct 5, 2008
Yet more
Hypo Real Estate bailout in Germany has collapsed.
http://www.bloomberg.com/apps/news?pid=20601087&sid=au6SeXRVSkg8&refer=home
The Irish government came out and guaranteed all the deposits in Irish banks last week. I wonder if this will lead to money being placed in Irish institutions to the point that other countries will be forced to follow suit?
Long USD short EUR seems to be the way to play this in the market if your a mug punter like me.
Meanwhile, Europe is not united on this front.
http://www.bloomberg.com/apps/news?pid=20601087&sid=akIlMk6hiYOE&refer=home
I indicated before that there is room for shenanigans in this US bailout package. The incentive as far as I can fathom would be for Management to only use the bailout (as the costs to management are punitive) as a last resort. Therefore creating opportunities for smart operators to underbid or drive down the price of the equity in related markets and then come in with low ball bid. I note this as I believe management would act in there own interests not the shareholders? Note the developing situation in Wachovia:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaDYDblyAjTQ&refer=home
If this article is to be believed then Wachovia failed due to a "run" on the bank. Wasn't the Fed Reserve set up to stop this?
http://www.mcclatchydc.com/256/story/53361.html
I've been reading the year end report for Hunter Hall (HHV). Peter hall notes in his letter to shareholders: "We regard this environment as one that offers great opportunity to value
investors, possibly equal to that of the late 1980s and early 1990s or the banking and inflation crisis of 1973-75." Interesting to screen stocks on the US market at the moment.
Regards
TheBagwan
http://www.bloomberg.com/apps/news?pid=20601087&sid=au6SeXRVSkg8&refer=home
The Irish government came out and guaranteed all the deposits in Irish banks last week. I wonder if this will lead to money being placed in Irish institutions to the point that other countries will be forced to follow suit?
Long USD short EUR seems to be the way to play this in the market if your a mug punter like me.
Meanwhile, Europe is not united on this front.
http://www.bloomberg.com/apps/news?pid=20601087&sid=akIlMk6hiYOE&refer=home
I indicated before that there is room for shenanigans in this US bailout package. The incentive as far as I can fathom would be for Management to only use the bailout (as the costs to management are punitive) as a last resort. Therefore creating opportunities for smart operators to underbid or drive down the price of the equity in related markets and then come in with low ball bid. I note this as I believe management would act in there own interests not the shareholders? Note the developing situation in Wachovia:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaDYDblyAjTQ&refer=home
If this article is to be believed then Wachovia failed due to a "run" on the bank. Wasn't the Fed Reserve set up to stop this?
http://www.mcclatchydc.com/256/story/53361.html
I've been reading the year end report for Hunter Hall (HHV). Peter hall notes in his letter to shareholders: "We regard this environment as one that offers great opportunity to value
investors, possibly equal to that of the late 1980s and early 1990s or the banking and inflation crisis of 1973-75." Interesting to screen stocks on the US market at the moment.
Regards
TheBagwan
Oct 4, 2008
California having funding troubles..
The eighth largest economy in the world is having trouble paying its public servants.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aTpeeNyM0HuQ&refer=us
Astalavista
TheBagwan
http://www.bloomberg.com/apps/news?pid=20601103&sid=aTpeeNyM0HuQ&refer=us
Astalavista
TheBagwan
Oct 3, 2008
Bailouts, rescues, fear and greed.
Steve Conover has a level headed unbiased view of the bailout.. all you need to know.
http://boomerang.blogs.com/optimist/2008/09/its-not-funded.html
Ambrose Evans-Pritchard: "The European Commission's top economists warned the politicians in the 1990s that the euro might not survive a crisis, at least in its current form. There is no EU treasury or debt union to back it up. The one-size-fits-all regime of interest rates caters badly to the different needs of Club Med and the German bloc."
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3118994/Financial-Crisis-So-much-for-tirades-against-American-greed.html
Regards
TheBagwan
http://boomerang.blogs.com/optimist/2008/09/its-not-funded.html
Ambrose Evans-Pritchard: "The European Commission's top economists warned the politicians in the 1990s that the euro might not survive a crisis, at least in its current form. There is no EU treasury or debt union to back it up. The one-size-fits-all regime of interest rates caters badly to the different needs of Club Med and the German bloc."
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3118994/Financial-Crisis-So-much-for-tirades-against-American-greed.html
Regards
TheBagwan
Sep 30, 2008
Bailout again...
Wow.. from what I'm reading in the paper about this bailout, if you could call it that, it is all over the place. The Dow just sold off 8%. To many silly political clauses attached, bad policy. Appears to be a real mess. Tax cuts are needed to prop up the US economy. Give Paulsen the money, apportion the blame later.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aPdh44xQorJY&refer=economy
The pig ignorance here is amazing. But hey, I'm just a telephone sanatizer.
Regards
TheBagwan
Update:
http://online.wsj.com/article/SB122266132599384845.html
Seems from this article that Lehmann was the catalyst for the panic. Credit officers in banks don't know which banks hold the rotten assets. And Contagion spreads. I'm really surprised by the way this has rumbled along for the last year.
http://www.federalreserve.gov/newsevents/press/monetary/20080929a.htm
Fed reserve now increasing USD facilities to O/seas banks. Europe has real problems, I hope they solve them.
http://www.bloomberg.com/apps/news?pid=20601068&sid=aPdh44xQorJY&refer=economy
The pig ignorance here is amazing. But hey, I'm just a telephone sanatizer.
Regards
TheBagwan
Update:
http://online.wsj.com/article/SB122266132599384845.html
Seems from this article that Lehmann was the catalyst for the panic. Credit officers in banks don't know which banks hold the rotten assets. And Contagion spreads. I'm really surprised by the way this has rumbled along for the last year.
http://www.federalreserve.gov/newsevents/press/monetary/20080929a.htm
Fed reserve now increasing USD facilities to O/seas banks. Europe has real problems, I hope they solve them.
Sep 28, 2008
Bailouts Bailouts Bailouts
Or, I was going to title this entry as "Fear and loathing on the Central Coast.." and write a Hunter S Thompson style commentary on the disappearance of the Australian dream due to the credit crisis, alas, I'm a Telephone Sanitiser not a journalist. The thought occurred to me whilst staying in a caravan park in the Nambucca valley. As usual when I go on holidays the ocean turned into a lake, hence no surf, but there was rain. There were also a lot of people with their kids, expensive camping accessories and Collin Street tractors around... the utter depravity. All desperately clutching at the Australian dream, which seemed to me to be the same as the American dream, big car, big caravan, big house, private schools, ridiculously white teeth..
Bat country
http://au.youtube.com/watch?v=kkvsi1OeUfc
Last year I travelled down to the South Coast of NSW, on one of those Endless Summer surf trips. Zip, nada, nyet said the gods of surfing, it was the flattest the ocean had been in years, it was even discussed on message boards for its unusual proclivity for being pond like. What was a desperate surfer to do? I retired to Sydney to brood, ogle the freaks in Newtown and rediscover some old long forgotten watering holes. Naturally, the conditions improved as soon as I left. I think I'll try for bells beach next year I'm bound to induce a flat spot. The thrill of travelling down the coast to surf is the possibility that you will find a deserted break with perfect peaks. The exhilaration of discovery, still turns me into a kid, if only TheBagwan curse would be lifted by the surfing gods. I intend to offer sacrifices in the future. But I digress...
Listening to the radio and reading the papers I was imagining that the financial system had ground to a halt. It was still there last time I looked. Albeit, it has taken a little beating since I last said it was fine, but you get that in the big smoke. Seeing as a couple of investment banks and insurance companies have come to pass the market as measured by the Dow has held pretty well.
http://stockcharts.com/charts/gallery.html?$INDU
The bailout as at last check has not been finalised. Lots of hysteria by republican congressmen about the "taxpayer on the hook". Good name for a band I thought. "We are leaving a deficit for our children to payoff", "America will need to borrow from the rest of the world to pay for this", "let the market work this out". I've had the time to think about all this.
"Free markets", I've rethought my stance on free markets ever since an economist pointed out that there is no such thing as "free markets", there are competitive markets, but no "free markets" in the advanced industrialised countries. Why? Because markets only exist within the legal framework that the government provides. Why then leave the "free markets" to sort this out, when it was this ideology that got us to this point in the first place. "Free markets" will not solve this problem as they will require bankruptcy of many entities causing major deleveraging of the economy.
"Tax payer on the hook", this statement along with the "free market" mantra is leading to situations where the equity holder is being liquidated by the US government per AIG. This is adding further risk to these investments, because we now have the ridiculous situation where, if the institution is having problems the equity holders may now be taken out by the government and not receive any compensation. Its not the equity holders fault, its a management fault. Why punish equity holders. All the Fed has to do is to lend against any assets, open its balance sheet for any assets and liquidity is restored instantly.
Deficit, "tax payer on the hook", these statements lack an understanding of how a fiat currency works. The bailout as proposed by Henry Paulsen is exactly above. The Fed opens its balance sheet and accepts any assets in return for government reserves. No deficit, all on the Feds balance sheet. Once all these reserves are in the system the banks will then try to invest the proceeds as reserves earn no interest. This will place pressure on the fed funds rate. The fed will then need to absorb the demand for interest bearing securities in order to keep the funds rate steady. This, I believe is why Paulsen needs congressional approval, to order the sale of equivalent amount of treasuries to offset the amount of excess reserves in the system. When all is said and done all that will happen is that one type of government asset will be swapped for another type of government asset, replacing the impaired assets. The taxpayer pays nothing, zip, nada, no inflation, no deleveraging, no increase in interest rates, nuttin. There is no solvency issue and the deficit is simply replaced by government payment (reserves, of which it has unlimited supply) when bonds fall due. Government debt is simply an interest rate maintenance mechanism. Future generations will pay more dearly through any lost output in the real sector of the economy than any deficit imposed by this bailout.
Any attempt by congress to claw back the bailout through higher taxes will hurt the economy at exactly the wrong time.
"remember dave, if your innocent you can do anything"
http://au.youtube.com/watch?v=Xla_xXzAIlI&feature=related
Regards
TheBagwan
Update: 29/09/2008 Bailout highlights as indicated in the Australian newspaper looks a little thrown together.
http://www.theaustralian.news.com.au/story/0,25197,24417430-20142,00.html
They are going to hurt equity holders and target management of companies looking for help. Will smart operators be able to use these to help themselves to undervalued assets? The package as I've pointed out will not add anything to US GDP just swap assets. Will the demand for credit from the private sector kick start again? I'm heartened by an Australian Government decision to start spending massively on infrastructure. I've also noted a change in Chinese foriegn exchange policy which I think is a part of an overall change in government policy toward further growth in thier domestic economy. Meanwhile NZ and Japan enter recession and elections. So in many countries changes in domestic policy are being sought. Europe is where the real structural systematic risk remains.
Bat country
http://au.youtube.com/watch?v=kkvsi1OeUfc
Last year I travelled down to the South Coast of NSW, on one of those Endless Summer surf trips. Zip, nada, nyet said the gods of surfing, it was the flattest the ocean had been in years, it was even discussed on message boards for its unusual proclivity for being pond like. What was a desperate surfer to do? I retired to Sydney to brood, ogle the freaks in Newtown and rediscover some old long forgotten watering holes. Naturally, the conditions improved as soon as I left. I think I'll try for bells beach next year I'm bound to induce a flat spot. The thrill of travelling down the coast to surf is the possibility that you will find a deserted break with perfect peaks. The exhilaration of discovery, still turns me into a kid, if only TheBagwan curse would be lifted by the surfing gods. I intend to offer sacrifices in the future. But I digress...
Listening to the radio and reading the papers I was imagining that the financial system had ground to a halt. It was still there last time I looked. Albeit, it has taken a little beating since I last said it was fine, but you get that in the big smoke. Seeing as a couple of investment banks and insurance companies have come to pass the market as measured by the Dow has held pretty well.
http://stockcharts.com/charts/gallery.html?$INDU
The bailout as at last check has not been finalised. Lots of hysteria by republican congressmen about the "taxpayer on the hook". Good name for a band I thought. "We are leaving a deficit for our children to payoff", "America will need to borrow from the rest of the world to pay for this", "let the market work this out". I've had the time to think about all this.
"Free markets", I've rethought my stance on free markets ever since an economist pointed out that there is no such thing as "free markets", there are competitive markets, but no "free markets" in the advanced industrialised countries. Why? Because markets only exist within the legal framework that the government provides. Why then leave the "free markets" to sort this out, when it was this ideology that got us to this point in the first place. "Free markets" will not solve this problem as they will require bankruptcy of many entities causing major deleveraging of the economy.
"Tax payer on the hook", this statement along with the "free market" mantra is leading to situations where the equity holder is being liquidated by the US government per AIG. This is adding further risk to these investments, because we now have the ridiculous situation where, if the institution is having problems the equity holders may now be taken out by the government and not receive any compensation. Its not the equity holders fault, its a management fault. Why punish equity holders. All the Fed has to do is to lend against any assets, open its balance sheet for any assets and liquidity is restored instantly.
Deficit, "tax payer on the hook", these statements lack an understanding of how a fiat currency works. The bailout as proposed by Henry Paulsen is exactly above. The Fed opens its balance sheet and accepts any assets in return for government reserves. No deficit, all on the Feds balance sheet. Once all these reserves are in the system the banks will then try to invest the proceeds as reserves earn no interest. This will place pressure on the fed funds rate. The fed will then need to absorb the demand for interest bearing securities in order to keep the funds rate steady. This, I believe is why Paulsen needs congressional approval, to order the sale of equivalent amount of treasuries to offset the amount of excess reserves in the system. When all is said and done all that will happen is that one type of government asset will be swapped for another type of government asset, replacing the impaired assets. The taxpayer pays nothing, zip, nada, no inflation, no deleveraging, no increase in interest rates, nuttin. There is no solvency issue and the deficit is simply replaced by government payment (reserves, of which it has unlimited supply) when bonds fall due. Government debt is simply an interest rate maintenance mechanism. Future generations will pay more dearly through any lost output in the real sector of the economy than any deficit imposed by this bailout.
Any attempt by congress to claw back the bailout through higher taxes will hurt the economy at exactly the wrong time.
"remember dave, if your innocent you can do anything"
http://au.youtube.com/watch?v=Xla_xXzAIlI&feature=related
Regards
TheBagwan
Update: 29/09/2008 Bailout highlights as indicated in the Australian newspaper looks a little thrown together.
http://www.theaustralian.news.com.au/story/0,25197,24417430-20142,00.html
They are going to hurt equity holders and target management of companies looking for help. Will smart operators be able to use these to help themselves to undervalued assets? The package as I've pointed out will not add anything to US GDP just swap assets. Will the demand for credit from the private sector kick start again? I'm heartened by an Australian Government decision to start spending massively on infrastructure. I've also noted a change in Chinese foriegn exchange policy which I think is a part of an overall change in government policy toward further growth in thier domestic economy. Meanwhile NZ and Japan enter recession and elections. So in many countries changes in domestic policy are being sought. Europe is where the real structural systematic risk remains.
Sep 20, 2008
US Treasury Bailout Plan
Details of this have not been released yet, or at least I can not locate the details. I note that Bloomberg news is carrying news of possible increase in the gov deficit in order to fund the bailout.
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=a.kAXACVdHTI
They're stating a deficit in the region of 500-700bn by next year. I figure on rough 2007 stats that US GDP is around 13,807bn. Making an upper estimate of the deficit around 5% of GDP.
http://www.bea.gov/national/xls/gdplev.xls
If this graph is to be believed from the St Louis Fed, that would put the deficit in the vicinity of the 1992 deficit.
http://research.stlouisfed.org/publications/net/page17.pdf
All back of the envelope calcs and nobody really knows whats going on yet. But, all very interesting, the injection of more funds could signal the start of the next upswing, if the us gov is allowed to increase its deficit.
I'm off on holidays...Happy days..
Regards
TheBagwan
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=a.kAXACVdHTI
They're stating a deficit in the region of 500-700bn by next year. I figure on rough 2007 stats that US GDP is around 13,807bn. Making an upper estimate of the deficit around 5% of GDP.
http://www.bea.gov/national/xls/gdplev.xls
If this graph is to be believed from the St Louis Fed, that would put the deficit in the vicinity of the 1992 deficit.
http://research.stlouisfed.org/publications/net/page17.pdf
All back of the envelope calcs and nobody really knows whats going on yet. But, all very interesting, the injection of more funds could signal the start of the next upswing, if the us gov is allowed to increase its deficit.
I'm off on holidays...Happy days..
Regards
TheBagwan
Sep 18, 2008
Equity?
The Federal Reserve Board is taking equity position in AIG? This could get very very ugly.
Regards
TheBagwan
Regards
TheBagwan
Sep 7, 2008
Dallas Fed again...
The US equity market dropped like a stone throughout the week.
http://stockcharts.com/charts/gallery.html?$SPX
This drop coincided with the release of the results for the 05/08/2008 FOMC meeting.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJ6dCMlGIba0
The reason why the market dropped:
"Sept. 2 (Bloomberg) -- One-quarter of the Federal Reserve's regional district banks lobbied to raise the discount rate in July, signaling rising pressure to increase borrowing costs to banks even as economic growth slows."
Fine, raising rates just means some portfolio shuffling, but why do it whilst their is still fragility within the banking system? Especially when the inflation is exogenous, related to energy. Doesn't make a whole lot of sense to me, but who am I to judge.
The lone dissenter of the decision to leave rates on hold was Richard Fisher from the Dallas Fed. I've indicated before that the Dallas Fed is an interesting place, not least for the diversity of opinion there. Fisher made a speech on 28/05/2008 talking about (panicking about) the federal deficit, here's a taste of the doom and gloom:
http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm
" Discretionary spending would have to be reduced by 97 percent not only for our generation, but for our children and their children and every generation of children to come. And similarly on the taxation side, income tax revenue would have to rise 68 percent and remain that high forever. Remember, though, I said tax revenue, not tax rates. Who knows how much individual and corporate tax rates would have to change to increase revenue by 68 percent?"
On and on it goes.... If this is what is actually believed, then pray that Dr Bernanke is a strong chairman, or else god help us all. Particularly with two Presidential nominees that want at the minimum balanced budgets.
Just released in the US is a movie that highlights the evils of deficit spending, called I.O.USA. Here is a critique of that movie:
http://boomerang.blogs.com/optimist/2008/08/movie-review-of.html
Regards
TheBagwan
http://stockcharts.com/charts/gallery.html?$SPX
This drop coincided with the release of the results for the 05/08/2008 FOMC meeting.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJ6dCMlGIba0
The reason why the market dropped:
"Sept. 2 (Bloomberg) -- One-quarter of the Federal Reserve's regional district banks lobbied to raise the discount rate in July, signaling rising pressure to increase borrowing costs to banks even as economic growth slows."
Fine, raising rates just means some portfolio shuffling, but why do it whilst their is still fragility within the banking system? Especially when the inflation is exogenous, related to energy. Doesn't make a whole lot of sense to me, but who am I to judge.
The lone dissenter of the decision to leave rates on hold was Richard Fisher from the Dallas Fed. I've indicated before that the Dallas Fed is an interesting place, not least for the diversity of opinion there. Fisher made a speech on 28/05/2008 talking about (panicking about) the federal deficit, here's a taste of the doom and gloom:
http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm
" Discretionary spending would have to be reduced by 97 percent not only for our generation, but for our children and their children and every generation of children to come. And similarly on the taxation side, income tax revenue would have to rise 68 percent and remain that high forever. Remember, though, I said tax revenue, not tax rates. Who knows how much individual and corporate tax rates would have to change to increase revenue by 68 percent?"
On and on it goes.... If this is what is actually believed, then pray that Dr Bernanke is a strong chairman, or else god help us all. Particularly with two Presidential nominees that want at the minimum balanced budgets.
Just released in the US is a movie that highlights the evils of deficit spending, called I.O.USA. Here is a critique of that movie:
http://boomerang.blogs.com/optimist/2008/08/movie-review-of.html
Regards
TheBagwan
Aug 31, 2008
China and Currency again..
http://article.wn.com/view/2008/08/26/Beijing_swells_dollar_reserves_through_stealth/
The chinese desperately want to hold $us. Contrary to opinion otherwise, the US do not need and, never at any stage have needed to borrow from the Chinese to fund their current account.
Regards
TheBagwan
The chinese desperately want to hold $us. Contrary to opinion otherwise, the US do not need and, never at any stage have needed to borrow from the Chinese to fund their current account.
Regards
TheBagwan
Moral Hazard
Moral hazard and the US Federal Reserve Bank. A short interview with Harvey Rosenblum of the Dallas Fed. To paraphrase Mr Rosenblum, "the US Federal Reserve Bank is in the business of creating moral hazard". An excellent level headed interview given the current conditions.
http://www.cnbc.com/id/26443217/
Interview is second from the top.
The Dallas Fed does some interesting research, as with most of Fed participants.
http://dallasfed.org/research/economists.html
Regards
TheBagwan
http://www.cnbc.com/id/26443217/
Interview is second from the top.
The Dallas Fed does some interesting research, as with most of Fed participants.
http://dallasfed.org/research/economists.html
Regards
TheBagwan
Aug 16, 2008
Size and BTM Factors in Australia
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1206542
"In summary, evidence indicates that the Australian stock market offers a strong value premium and a weak size effect."
via:
http://www.cxoadvisory.com/blog/external/blog8-12-08/
Having trained as an accountant I'm somewhat sceptical of BTM measures. The late great Jack Treynor did a famous case study on the use of accounting measures called the "Feathered Feast" introduced by the equally mercurial Bill Priest:
http://www.eipny.com/pdf/AccountingAnd8082005.pdf
The bottom line is that if you are a "finance guy" cash flows are king all else follows.
Regards
TheBagwan
"In summary, evidence indicates that the Australian stock market offers a strong value premium and a weak size effect."
via:
http://www.cxoadvisory.com/blog/external/blog8-12-08/
Having trained as an accountant I'm somewhat sceptical of BTM measures. The late great Jack Treynor did a famous case study on the use of accounting measures called the "Feathered Feast" introduced by the equally mercurial Bill Priest:
http://www.eipny.com/pdf/AccountingAnd8082005.pdf
The bottom line is that if you are a "finance guy" cash flows are king all else follows.
Regards
TheBagwan
Aug 10, 2008
U.S.A.
The bottoming process against a lot of major currencies started back in September 07. Being an impetous youth I began buying os stocks earlier than that, and have had my head handed back to me on a platter. There is always a tuition fee to life. These bottomings can take years though..
http://stockcharts.com/charts/gallery.html?$USD
The real news, that I have not read about in the mainstream media, is that China is relaxing rules requiring repatriation of domestic firms overseas currency holdings. Big stuff..watch this. It also appears they are cracking down on hot money inflows.
http://news.yahoo.com/s/ap/20080807/ap_on_bi_ge/china_currency_controls_4
"The revised regulations order government departments to simplify regulations on foreign direct investment and authorize them to crack down on illegal transactions.
At the same time, they allow trading firms to keep profits overseas instead of repatriating them."
It appears that the JK Galbraith paper I linked to earlier was spot on the money (pun?).
Regards
TheBagwan
http://stockcharts.com/charts/gallery.html?$USD
The real news, that I have not read about in the mainstream media, is that China is relaxing rules requiring repatriation of domestic firms overseas currency holdings. Big stuff..watch this. It also appears they are cracking down on hot money inflows.
http://news.yahoo.com/s/ap/20080807/ap_on_bi_ge/china_currency_controls_4
"The revised regulations order government departments to simplify regulations on foreign direct investment and authorize them to crack down on illegal transactions.
At the same time, they allow trading firms to keep profits overseas instead of repatriating them."
It appears that the JK Galbraith paper I linked to earlier was spot on the money (pun?).
Regards
TheBagwan