FED gave market no candy, January look for new targeting methods for interest rates. IMO eventually they will target something that isn't related to interest rates and pin a price on something (years away potentially but think shinny stuff).
Market looking for liquidity. Few observations... Euro can't provide it because of rules and treaties. IMF will have a hard time getting money from Japan and the USA (debt ceiling didn't allow for it, needs to be added) along with the other EURO members who need to borrow for themselves. Broke Euro countries lending to broke euro banks, then broke euro banks in turn lending it back to countries takes time to work, markets are about now not then. China has no money but pretends they do, Russia status quo is changing, Brazil is going to have a consumer credit bust, Canada is to small. Did we miss anyone? Structurally something has to change and we haven't seen it yet.
Eventually liquidity will come, and that will be nice! Don't know when... My bet is from the FED first but it won't be until late spring. QExxx with $100 oil is a tough sell especially with the U-3 being adjusted down for political purposes.
The importance is one person's liability is another's asset. Equity is the residual value of assets minus liabilities. Since we are talking about debt writedowns, we in reality are discussing the write downs of equity.
This is why the dollar is going up, because the effect leverage mechanism in the system (banks) are broken. Shadow market has no trust. Eventually we can see LOC being pulled and whooopsy what do you know. What we thought could never happen just did again. The good news is this time the BASE has been lifted much higher which should help debt servicing but at this time markets have no insight for the BASE to be lifted. There is grumbling that the BASE can be lifted from currency swaps but that is akin to spraying a squirt gun at a house on fire. All it does is facility forex trade.
FYI, in the subprime asset class... at current recover rates, it will take almost four years to normalize assuming no one defaulted going forward. That is how many defaults are out there now.
Housing prices have notably bottomed in sub markets, don't confuse that with THE bottom. The bottom will be a long long process. Good cash deals out there, mulitfamily is nice too.
Cash will probably be king for a good part of 2012, mid. Eventually there will be a time to turn cash into something else.
printing money will crowd out private investment. US doesn't honor the promise to pay on foreign debt, only US treasuries and F/F securities till 2013.
IMO the agenda is not to be a the helm of the titanic when it hits the rock. The whole situation is unworkable because it is a solvency problem.
intraday gyrations are meaningless here. risk has to be respected and the consequences of the ball being fumbled are not good.
Not sure but it seems that the bread crumbs are being set down. There isn't much trust out there anymore, capital preservation is key when trust is low. We are a long long way from Print and Pay. When the bears start asking for the FED to do something, then you know something more will be coming. To many false data positives out there for them to justify such a scheme.
Keep your eyes on the credit markets. New supply which isn't investment grade is not fetching much of a bid. This year there was almost as much high yield debt issued as in 2007 (annualized). If appetite stops for that market, well fundamentals and surveys won't matter much.
Buying opportunities will present themselves but there are many dollar denominated loans taken out over the past three years and should the carry unwind. All of those dollar shorts (borrowed money) must be covered (serviced) with interest and potentially with at more expensive exchange rate. As things slow and unwind, it is self fulfilling.
see link, don't think for a minute this is one time. Ask yourselves, why is the YEN always rising even though they have a debt to gdp of a bunch. answer.... no credit accelerator. Short yen (issue loans), buy to cover by servicing debt. Debt service destroys currency.
Macroman blog called him a spade today too... quite frankly I would believe neither one of them and could care less if the the "trader" knows something or not and where he has a bloomberg account or not.
Media will do anything to keep the game going, people will say anything to talk their book. Trust no one and let your own decisions determine what to do.
IMO stay tuned to a disaster waiting to happen. You can't build a sustainable economy with over 50% of GDP coming from investment, booms lead to busts. Everything they buy today on the "cheap" will be sold cheaper eventually. It happened to the Japanese after their boom all of those assets which weren't debt were liquidated a much lower prices. Japan had the luxury of their own currency too (which freely floated), China does not. The bust will be much worse because that can't be managed, no one will demand CNY when it turns. Not if, when. If they at least held the debt, it wouldn't lose value in the bust because of the capital structure preference.
Just for an observation, watch the dollar - it may have back filled to the 200 day average and complete the flag of a bull flag. The dollar completed a three cycle low in the spring and never made a new low in the spring of 2011. The low wasn't the lowest low of the cycle, which could imply that the dollar will break out on the next cycle and may exceed the 2009 high of 89 on the index. This comment probably doesn't jive with many opinions and theories but what has jived over the last 4 years besides going long gold? Which is still nice.
a few opinions that aren't mainstream. You either like them or not as I couldn't keep quite today :)
I can take dollars and exchange them for precious metal, granted not at a bank but it is possible.
History tells us money derives its value from debt it always has as a medium of exchange. In barter we barter debt, or pledge A for B. It is simple but the modern mechanics of money have us all so confused.
Technically the FED hasn't printed a dollar in QE1 or QE2, it is an asset exchange nothing more nothing less. The zero bearing IOUS were "created" to buy existing Interest bearing IOUS (MBS, Treasuries). Since the FED buys only government guaranteed debt they can't lose on their purchase meaning they can hold till maturity (2013 for the MBS).
Now after reading that last paragraph, readers could be confused or thinking what is this person saying.
When the FED buys via the Primary Open Market Operation they us "FRNs" (zero bearing IOUS) to buy IOUs. Those IOUs are taken out of circulation and placed on the FEDs balance sheet as an asset. The institution who sold the IOU gets FRNs and is free to go as they please with those FRNs. Guess what happens to those FRNs? (In technical ivory tower speak here, nothing practical about logically looking at this) Those FRNs are returned to the FED via interest and principle payments. FED loans the system the $100 in FRNs for the $100 in IOUs, it gets back the $100 in IOUs plus interest. Zero sum game with the exception of interest. The FED is taking their interest and principle receipts and reinvesting them back into the market to have essentially have a nil effect on decreasing the supply of FRNs. This process of QE isn't designed to lower Government Interest rates, it is designed to lower spreads of credit. There is now a repurchaser of the floor for risk free assets, those who get FRNs can take up more risk.
Fractional reserve banking is stable all loans are backed by something, real or real capital. What hurts the system is unbacked lending. If we didn't have fractional reserve banking there would be no innovation in the system, where would money come from to fund expensive R&D projects. Not all of these projects are winners, many losers and without the risk of lending we wouldn't have it. No my explanation on this Fraction reserve banking isn't complete but hopefully we get the idea. If not we need to discuss that more in detail. What I am trying to explain is that as long as loans are reserved for with either capital or something real (cars, houses) then the banking is sound; we don't need gold back banking in the fashion of 100% gold backed banking. It won't work as a commodity currency won't, anything that depletes will cause chaos down the road, if you thought that inflation/deflation is bad now; you have no idea. Also a commodity currency will cause the producers to flood the market with their output of what backs the currency causing inflation.
Hyperinflation is not going to happen for a long long time, there are to many IOUs that need to be liquidated so the ratio of base money and IOUs comes down precipitously. Japan is a prime example of one who would think would experience hyper inflation by now but in fact their currency is at 30 year highs to almost everything else. Why don't we ever hear an explanation on that one? I have heard exports and other BS or high savings rate, fact flash - their savings rate is well below that of the USA. Japan has no credit accelerator, there isn't enough base money to service the mountains and mountains of YEN denominated debt since the credit creation mechanism is broken we see shortage and shortage after intervention and intervention by the JCB. It won't work, eventually the Mountains of YEN denominated debt will continue to be liquidated and the policy response by the Japanese government (Not central bank) will be to issue more debt to off set the IOU detonation. This will be when "hyper" could be a possibility, central banks buying existing government IOUs isn't inflationary in that sense.
M2 is rising but not for the reasons of economic growth, it is rising for a few factors. One is Europe money flows to the usa, also in the summer there was some sort of regulation with corporations... the regulation allows corporation to place the cash on bank balance sheets (I need to review this in more detail as I have read several reports telling us not to worry about the m2 rise). The rise is m2 isn't the healthy rise an economy needs because velocity is plummeting. The denominator doesn't have to fall as fast as the numerator rises in lower GNP. the chart gives us the latest report Q2 2011 year over year change of velocity. It has gone negative to almost 2 from last year. M3 is now going down per shadowstats as the fed stop collecting m3 in the mid 2000s.
The key for anything as steve keen has pointed out so accurately is the credit accelerator. that is what makes our system go up and own....
We know there will be a currency devaluation when the FED starts buying things that aren't denominated in debt such as real assets. that would be inflationary. should they buy corporate debt, it would probably have a government guarantee to it. if it didn't then the fed would be subjecting itself to losses which would be eventually be passed on to the tax payers via the treasury. they would need to be recapitalized by the taxing authority of this nation.
Some of these opinions might seem off the wall but they are my opinions.
Gold could be near the BTFD area... Long term seems like a great opportunity to get into a frothy market, taking ones time would be the best idea and doing so in 3rds too.
Thoughts on the economy. There have been investors flipping homes whom are savvy in the southwest for the last 4 years, market hasn't changed. Housing is near bottom in many areas but shadow supply hasn't peaked yet because of the REMIC/TRUST confusion. The process is near standstill in many areas, there are several million homes in which payments aren't being paid thus cash flows are already higher than what they should be for discretionary spending.
In following consumer credit expansion, the higher core prices seemed to trend with the revolving credit expansion reported by the FED. This observation leads me to believe that lower gas prices won't help much because the consumer is now in debt more with a job market that is, waning. Not to mention many 99 weekers are losing their transfer payments.
This all seems like spring/summer of 2008, credit expansion up along with rising core prices... Then the falling core should have lead to more demand. We live in a society who is addicted to credit and needs it to make due (this blog excluded of course. :) wink.)
The community is a dose of fresh air to read, especially compared to many other alternatives out there. Thanks for everything and everyone who speaks their mind, writes their thoughts and contributes to this blog. Very nice to read at the beginning/end of the day.
Thought it would be fitting to include this link which has an excellent 15 min video done by Prof Steve Keen from Australia, he saw the Great Financial Crash coming and he is an academic.
Oh by the way, commentary today was great albeit, it seems that there are a few misunderstandings on how monetary system is built. Either way, PMs are the way to go.
During the Clinton Admin there were a few accounting gimicks that allowed the surplus to happen, also many of the 30 year bonds that were issued during the Regan (treas sec) era were called back and the coupons were reduced.
Summers has nothing to gain from telling the truth. He is just as bad as Grahmn and he is way wrong.
Later this summer a treasury auction will be a "bust".
Media will state, move along here, nothing more to see, all is good, keep moving. The next time that won't go so well for markets.
FED gave market no candy, January look for new targeting methods for interest rates. IMO eventually they will target something that isn't related to interest rates and pin a price on something (years away potentially but think shinny stuff).
Market looking for liquidity. Few observations... Euro can't provide it because of rules and treaties. IMF will have a hard time getting money from Japan and the USA (debt ceiling didn't allow for it, needs to be added) along with the other EURO members who need to borrow for themselves. Broke Euro countries lending to broke euro banks, then broke euro banks in turn lending it back to countries takes time to work, markets are about now not then. China has no money but pretends they do, Russia status quo is changing, Brazil is going to have a consumer credit bust, Canada is to small. Did we miss anyone? Structurally something has to change and we haven't seen it yet.
Eventually liquidity will come, and that will be nice! Don't know when... My bet is from the FED first but it won't be until late spring. QExxx with $100 oil is a tough sell especially with the U-3 being adjusted down for political purposes.
duplicate
Par price, not market value for the Z1 on debt.
The importance is one person's liability is another's asset. Equity is the residual value of assets minus liabilities. Since we are talking about debt writedowns, we in reality are discussing the write downs of equity.
This is why the dollar is going up, because the effect leverage mechanism in the system (banks) are broken. Shadow market has no trust. Eventually we can see LOC being pulled and whooopsy what do you know. What we thought could never happen just did again. The good news is this time the BASE has been lifted much higher which should help debt servicing but at this time markets have no insight for the BASE to be lifted. There is grumbling that the BASE can be lifted from currency swaps but that is akin to spraying a squirt gun at a house on fire. All it does is facility forex trade.
FYI, in the subprime asset class... at current recover rates, it will take almost four years to normalize assuming no one defaulted going forward. That is how many defaults are out there now.
Housing prices have notably bottomed in sub markets, don't confuse that with THE bottom. The bottom will be a long long process. Good cash deals out there, mulitfamily is nice too.
Cash will probably be king for a good part of 2012, mid. Eventually there will be a time to turn cash into something else.
printing money will crowd out private investment. US doesn't honor the promise to pay on foreign debt, only US treasuries and F/F securities till 2013.
IMO the agenda is not to be a the helm of the titanic when it hits the rock. The whole situation is unworkable because it is a solvency problem.
intraday gyrations are meaningless here. risk has to be respected and the consequences of the ball being fumbled are not good.
Not sure but it seems that the bread crumbs are being set down. There isn't much trust out there anymore, capital preservation is key when trust is low. We are a long long way from Print and Pay. When the bears start asking for the FED to do something, then you know something more will be coming. To many false data positives out there for them to justify such a scheme.
EURECA project,
http://www.rolandberger.com/media/pdf/Roland_Berge...
maybe not just a rumor (edit).
Keep your eyes on the credit markets. New supply which isn't investment grade is not fetching much of a bid. This year there was almost as much high yield debt issued as in 2007 (annualized). If appetite stops for that market, well fundamentals and surveys won't matter much.
Buying opportunities will present themselves but there are many dollar denominated loans taken out over the past three years and should the carry unwind. All of those dollar shorts (borrowed money) must be covered (serviced) with interest and potentially with at more expensive exchange rate. As things slow and unwind, it is self fulfilling.
http://www.businessweek.com/news/2011-09-21/petrob...
see link, don't think for a minute this is one time. Ask yourselves, why is the YEN always rising even though they have a debt to gdp of a bunch. answer.... no credit accelerator. Short yen (issue loans), buy to cover by servicing debt. Debt service destroys currency.
Just a thought.
seems that the guy has been educating for over a year.
http://www.alessiorastani.com/fanpage
Check the dates of the uploads.
Macroman blog called him a spade today too... quite frankly I would believe neither one of them and could care less if the the "trader" knows something or not and where he has a bloomberg account or not.
Media will do anything to keep the game going, people will say anything to talk their book. Trust no one and let your own decisions determine what to do.
market wanted sugar from the bernanc and got nothing, no candy. twist was a muffin. now the market is acting like a 4 year throwing a fit.
Grym,
IMO stay tuned to a disaster waiting to happen. You can't build a sustainable economy with over 50% of GDP coming from investment, booms lead to busts. Everything they buy today on the "cheap" will be sold cheaper eventually. It happened to the Japanese after their boom all of those assets which weren't debt were liquidated a much lower prices. Japan had the luxury of their own currency too (which freely floated), China does not. The bust will be much worse because that can't be managed, no one will demand CNY when it turns. Not if, when. If they at least held the debt, it wouldn't lose value in the bust because of the capital structure preference.
Just for an observation, watch the dollar - it may have back filled to the 200 day average and complete the flag of a bull flag. The dollar completed a three cycle low in the spring and never made a new low in the spring of 2011. The low wasn't the lowest low of the cycle, which could imply that the dollar will break out on the next cycle and may exceed the 2009 high of 89 on the index. This comment probably doesn't jive with many opinions and theories but what has jived over the last 4 years besides going long gold? Which is still nice.
George,
excellent point, eventually the banks will be the largest holder of our debt.
a few opinions that aren't mainstream. You either like them or not as I couldn't keep quite today :)
I can take dollars and exchange them for precious metal, granted not at a bank but it is possible.
History tells us money derives its value from debt it always has as a medium of exchange. In barter we barter debt, or pledge A for B. It is simple but the modern mechanics of money have us all so confused.
Technically the FED hasn't printed a dollar in QE1 or QE2, it is an asset exchange nothing more nothing less. The zero bearing IOUS were "created" to buy existing Interest bearing IOUS (MBS, Treasuries). Since the FED buys only government guaranteed debt they can't lose on their purchase meaning they can hold till maturity (2013 for the MBS).
Now after reading that last paragraph, readers could be confused or thinking what is this person saying.
When the FED buys via the Primary Open Market Operation they us "FRNs" (zero bearing IOUS) to buy IOUs. Those IOUs are taken out of circulation and placed on the FEDs balance sheet as an asset. The institution who sold the IOU gets FRNs and is free to go as they please with those FRNs. Guess what happens to those FRNs? (In technical ivory tower speak here, nothing practical about logically looking at this) Those FRNs are returned to the FED via interest and principle payments. FED loans the system the $100 in FRNs for the $100 in IOUs, it gets back the $100 in IOUs plus interest. Zero sum game with the exception of interest. The FED is taking their interest and principle receipts and reinvesting them back into the market to have essentially have a nil effect on decreasing the supply of FRNs. This process of QE isn't designed to lower Government Interest rates, it is designed to lower spreads of credit. There is now a repurchaser of the floor for risk free assets, those who get FRNs can take up more risk.
Fractional reserve banking is stable all loans are backed by something, real or real capital. What hurts the system is unbacked lending. If we didn't have fractional reserve banking there would be no innovation in the system, where would money come from to fund expensive R&D projects. Not all of these projects are winners, many losers and without the risk of lending we wouldn't have it. No my explanation on this Fraction reserve banking isn't complete but hopefully we get the idea. If not we need to discuss that more in detail. What I am trying to explain is that as long as loans are reserved for with either capital or something real (cars, houses) then the banking is sound; we don't need gold back banking in the fashion of 100% gold backed banking. It won't work as a commodity currency won't, anything that depletes will cause chaos down the road, if you thought that inflation/deflation is bad now; you have no idea. Also a commodity currency will cause the producers to flood the market with their output of what backs the currency causing inflation.
Hyperinflation is not going to happen for a long long time, there are to many IOUs that need to be liquidated so the ratio of base money and IOUs comes down precipitously. Japan is a prime example of one who would think would experience hyper inflation by now but in fact their currency is at 30 year highs to almost everything else. Why don't we ever hear an explanation on that one? I have heard exports and other BS or high savings rate, fact flash - their savings rate is well below that of the USA. Japan has no credit accelerator, there isn't enough base money to service the mountains and mountains of YEN denominated debt since the credit creation mechanism is broken we see shortage and shortage after intervention and intervention by the JCB. It won't work, eventually the Mountains of YEN denominated debt will continue to be liquidated and the policy response by the Japanese government (Not central bank) will be to issue more debt to off set the IOU detonation. This will be when "hyper" could be a possibility, central banks buying existing government IOUs isn't inflationary in that sense.
M2 is rising but not for the reasons of economic growth, it is rising for a few factors. One is Europe money flows to the usa, also in the summer there was some sort of regulation with corporations... the regulation allows corporation to place the cash on bank balance sheets (I need to review this in more detail as I have read several reports telling us not to worry about the m2 rise). The rise is m2 isn't the healthy rise an economy needs because velocity is plummeting. The denominator doesn't have to fall as fast as the numerator rises in lower GNP. the chart gives us the latest report Q2 2011 year over year change of velocity. It has gone negative to almost 2 from last year. M3 is now going down per shadowstats as the fed stop collecting m3 in the mid 2000s.
The key for anything as steve keen has pointed out so accurately is the credit accelerator. that is what makes our system go up and own....
We know there will be a currency devaluation when the FED starts buying things that aren't denominated in debt such as real assets. that would be inflationary. should they buy corporate debt, it would probably have a government guarantee to it. if it didn't then the fed would be subjecting itself to losses which would be eventually be passed on to the tax payers via the treasury. they would need to be recapitalized by the taxing authority of this nation.
Some of these opinions might seem off the wall but they are my opinions.
crazy times we live in.
Gold could be near the BTFD area... Long term seems like a great opportunity to get into a frothy market, taking ones time would be the best idea and doing so in 3rds too.
Thoughts on the economy. There have been investors flipping homes whom are savvy in the southwest for the last 4 years, market hasn't changed. Housing is near bottom in many areas but shadow supply hasn't peaked yet because of the REMIC/TRUST confusion. The process is near standstill in many areas, there are several million homes in which payments aren't being paid thus cash flows are already higher than what they should be for discretionary spending.
In following consumer credit expansion, the higher core prices seemed to trend with the revolving credit expansion reported by the FED. This observation leads me to believe that lower gas prices won't help much because the consumer is now in debt more with a job market that is, waning. Not to mention many 99 weekers are losing their transfer payments.
This all seems like spring/summer of 2008, credit expansion up along with rising core prices... Then the falling core should have lead to more demand. We live in a society who is addicted to credit and needs it to make due (this blog excluded of course. :) wink.)
just two cents.
quick write up from MA - http://armstrongeconomics.files.wordpress.com/2011...
also read walter murphy's update, technically he says things are starting to look bad.
hopefully we see a bounce soon.
The community is a dose of fresh air to read, especially compared to many other alternatives out there. Thanks for everything and everyone who speaks their mind, writes their thoughts and contributes to this blog. Very nice to read at the beginning/end of the day.
likewise, happy birthday.
Thought it would be fitting to include this link which has an excellent 15 min video done by Prof Steve Keen from Australia, he saw the Great Financial Crash coming and he is an academic.
speaks fast so listen faster.
http://www.debtdeflation.com/blogs/2011/07/21/fina...
Oh by the way, commentary today was great albeit, it seems that there are a few misunderstandings on how monetary system is built. Either way, PMs are the way to go.
Bill
The community has value, thank you for that.
Also, your commentary on metals has been lights out, thank you for that as well.
During the Clinton Admin there were a few accounting gimicks that allowed the surplus to happen, also many of the 30 year bonds that were issued during the Regan (treas sec) era were called back and the coupons were reduced.
Kaimu is right!
Grym,
Summers has nothing to gain from telling the truth. He is just as bad as Grahmn and he is way wrong.
Later this summer a treasury auction will be a "bust".
Media will state, move along here, nothing more to see, all is good, keep moving. The next time that won't go so well for markets.
Don't worry, the USD won't crash then.