In contrast, quantitative easing can be expected to create a remarkably
different situation. The Fed's purchase of Treasury securities and creation of base money is occurring in an environment where fiscal deficits are already out of control, while two-thirds of the Fed's balance sheet already represents Fannie and Freddie Mac securities that need to be bailed out by the Treasury. This makes it enormously difficult to reverse the Fed's transactions - because the Fed is not simply determining whether a given stock of government liabilities will take the form of Treasury bonds or currency. It is instead effectively printing new money to finance ongoing spending for fiscal deficits and the bailout of the GSEs. At the same time, the fact that it is operating in a weak economy and a near-term deflationary environment means that nominal interest rates are being pressed down at the same time that long-term inflationary prospects are escalating.
As a side note, von Mises also cautioned against the misconception that destroying the value of a currency would have a sustainable benefit for the economy, writing "If the depreciation is desired in order to 'stimulate production' and to make exportation easier and importation more difficult in relation to other countries, then it must be borne in mind that the 'beneficial effects' on trade of the depreciation of money only last so long as the depreciation has not affected all commodities and services. Once the adjustment is completed, then these 'beneficial effects' disappear. If it is desired to retain them permanently, continual resort must be had to fresh diminutions of the purchasing power of money."
Hussman followed up the debate in his weekly today. interesting what data the bulls pull to justify the current thesis "Stocks are Cheap" but does the thesis hold any water or is it just hot air?
"A couple of weeks ago, I was in a CNBC segment discussing economic conditions. I decline the vast majority of media requests, but I thought it was important to talk about the economic risks we're observing. It was a debate-style format with another analyst who essentially recapped the same arguments that he made at the 2007 market peak. Indeed, just before the market plunged by more than half, he asserted "the fundamental underpinnings of stocks are superb." He later appeared on CNBC in January 2008 sporting a beard, asserting that all of the recession talk was overblown, and telling a reporter at TheStreet that he would not shave the beard "until the recession talk ends or housing recovers, whichever comes first." As of a couple of weeks ago, he had no beard, which was perplexing.
Now, while I have difficulty with analysts who repeatedly lead investors down the primrose path to abominable losses, my defensive approach has also left enough on the table from time to time that I don't want to throw stones. Still, one feature of his analyst's argument was different from 2007, and the more I've thought about it, the more I realize how damaging it could be to investors, so I think it's important to discuss. Specifically, instead of using forward operating earnings to assert that stocks were cheap, he based his valuation assessment this time on NIPA profits (from quarterly GDP accounting). Quoting NIPA profits in the context of market valuations struck me as odd, but the segment immediately jumped to another question. Part of the reason I don't do much TV. You can't thoughtfully discuss the financial markets in 20-second sound bites.
Here are the basics. NIPA profits (from the National Income and Product Accounts, compiled by the Bureau of Economic Analysis) are a quarterly measure of economy-wide profits, restricted to current production, less associated expenses. As economists at the Department of Commerce and the BEA have noted (Mead, Moulton and Petrick, 2004), this measure of earnings deviates substantially from S&P 500 earnings. Expenses used in the calculation of NIPA profits exclude bad debts, resource depletion, disposition of assets and liabilities, capital losses, and any deductions relating to the treatment of employee stock options. It also includes an allowance for misreporting of corporate income. Many of these calculations are only available on an annual basis, with a considerable lag, and as a result, quarterly NIPA profit estimates and revisions make significant use of interpolation and extrapolation."
Published: April 23 2010 00:04 | Last updated: April 23 2010 00:04
Goldman Sachs was both an underwriter and an investor in Lloyds Banking Group’s vast refinancing deal late last year, the FT has learned, highlighting the potential conflicts of interest at the heart of the investment bank’s business model.
According to four people involved in the capital raising, Goldman – a dealer manager on the debt portion of the £23.5bn transaction – demanded last-minute changes to the structure of a deal it was underwriting. This had the effect of benefiting its position as a bond investor.
Goldman bankers stress that its Chinese walls bar underwriters from knowing anything about the investment activity of its proprietary traders and say the exposure of the affair reveals rivals’ opportunism in besmirching its reputation.
The incident, in the final hours of UK bank Lloyds’ capital raising, the biggest in corporate history, last November, will nonetheless add fuel to critics’ suspicions that Goldman puts its own interests ahead clients’.
The revelation comes as Goldman fights fraud charges brought by the US Securities and Exchange Commission.
According to those involved in the Lloyds refinancing, Goldman on the eve of the deal’s announcement that the extra interest payable on the bonds which were to be exchanged for new ones should be increased to as much as 2.5 per cent, when a consensus of other banks was 2 per cent. The rise followed a surprise cut in the credit rating assigned to the securities, making them a riskier investment.
Goldman was also involved in discussions about the ranking in a so-called waterfall determining which bonds should be prioritised for the exchange offer. “They were dictatorial about it,” said one person involved in the deal. Goldman bankers say its role as dealer manager was subservient to senior advisers, and did not allow it to dictate the terms of the waterfall.
It emerged that Goldman was a large investor in the 6.9 per cent bond that was top-ranked for the waterfall, said four people close to the deal. One person said Goldman had bought as much as half the $1bn issue. However, Goldman bankers said last night its proprietary position was “not substantial”.
Goldman’s role in the transaction – both the alleged conflict of interest and the allegation that it helped make the terms more expensive – will be politically sensitive, given that the UK government owns 41 per cent of Lloyds.
Lloyds would not comment on the advice it received but said: “The final decision on the terms and pricing of this offer was made by the group following the recommendation of the syndicate, and not any one bank.” Goldman did not comment.
The story is this: As almost everyone knows by now, the SEC filed a suit against Goldman over a program called Abacus. The suit alleges that Goldman didn't tell Abacus investors that the bonds they were essentally insuring were being picked by a firm (Paulson) which was betting that they'd fail. Remember that Twilight Zone episode called "To Serve Man," where the aliens promised to help everybody but were really just getting ready to eat them? In this story the investors are the humans and Goldman's execs are the aliens.
The slide show Goldman used to pitch Abacus is pretty damning. It starts with so many pages of fine-print "disclaimers" and "risk factors" that it seems like a Viagra ad ("call your doctor if ..."). There's a lot in there about well-respected (but at best gullible) ACA, this firm that Goldman claimed was picking the bonds. About half of the 66 slides sing ACA's praises, but there's no mention of Paulson. There are long descriptions of ACA's capabilities, their "internal" and "external data sources," and their "defensive trading" designed to "minimize real market value exposure."
To serve man. "It's a cookbook!"
Here's where it gets uncomfortable for Geithner and some executives. Remember all that criticism of the taxpayer-funded AIG bailout, and how under Tim Geithner's direction (he was running the New York Fed then) AIG paid 100 cents on the dollar to Goldman and other "counterparties" for its debts? It turns out that AIG insured seven Abacus deals, and the debts they were ordered to pay may have included payoffs on some of these deals. It turns out that AIG reportedly wanted to pay 60 cents on the dollar, but Geither's New York Fed directed them to pay the full amount.
AIG paid $13 billion from its bailout to Goldman at Geithner's direction. And now, as the Wall Street Journal reports, the SEC "is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors." And, while "It isn't known what deals the SEC is investigating," the Journal adds that "among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp."
• GDP drives economic activity.
• Local party bosses have an incentive to game the system
• Real estate speculation
• Overbuilding of industrial and commercial real estate
Let’s take these arguments one by one.
1) GDP drives economic activity
In most industrialized countries, GDP is what Chanos calls a residual: it is the result of economic activity. But in China, GDP growth is seen as sacrosanct, and Beijing sets a GDP growth target every year. Local party bosses act to ensure that they meet this target.
2) Local party bosses have an incentive to game the system
Since GDP growth is explicitly stated as a public policy, local political bosses have an incentive to make sure that they contribute to the country’s efforts to meet the GDP target growth rate. In practice, this means that local municipalities can, for example, meet revenue targets by selling off land to developers. Party bosses have an incentive to sell as much land as possible, regardless of whether doing so creates too much supply.
3) Real estate speculation
One of the main arguments advanced against Chanos’ China thesis is that real estate speculators in China have to have more equity than do their American counterparts. The implication is that China won’t suffer from a meltdown of real estate. But this argument, while possibly correct, misses Chanos’ larger point. Speculators in Beijing buy up multiple apartments, seeing them as a store of value, akin to commodities like gold or palladium.
Implicit in this practice is the notion that there is a greater fool down the line. Treating real estate as a store of value, rather than an investment that produces real or imputed monthly cash flows in the form of rent defies economic logic.
4) Overbuilding of commercial and residential real estate
Perhaps the most interesting statistic cited by Chanos is that there is 2.6 billion square meters (30 billion square feet) of non-residential construction under development across China. To put this number in context, that is enough square feet to give every person in China a 5 foot by 5 foot cubicle. The inference here is that non-residential construction supply will outstrip demand for a very long time. Basic economics says that if supply exceeds demand, prices (rents) will trend down.
The other consideration here is the annual maintenance expense for these tens of billions of square feet. Not only will rents go down over time as demand fails to meet supply, but maintenance expenses for vacant office buildings and industrial parks very quickly adds up and acts as a drag on the economy. Capital used to maintain unoccupied buildings does not grow an economy.
Goldman Sachs and other big banks aren’t just pocketing the trillions we gave them to rescue the economy – they’re re-creating the conditions for another crash
by Matt Taibbi, Rolling Stone
CON #1 THE SWOOP AND SQUAT
CON #2 THE DOLLAR STORE
CON #3 THE PIG IN THE POKE
CON #4 THE RUMANIAN BOX
CON #5 THE BIG MITT
CON #6 THE WIRE
CON #7 THE RELOAD
Con artists have a word for the inability of their victims to accept that they’ve been scammed. They call it the “True Believer Syndrome.” That’s sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn’t so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn’t matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn’t going to work, no matter what we do. Sure, mugging old ladies is against the law, but it’s also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.
That’s why the biggest gift the bankers got in the bailout was not fiscal but psychological. “The most valuable part of the bailout,” says Rep. Sherman, “was the implicit guarantee that they’re Too Big to Fail.” Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. “It’s evidence,” says Rep. Kanjorski, “that they still don’t get it.”
More to the point, the fact that we haven’t done much of anything to change the rules and behavior of Wall Street shows that we still don’t get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.
If there are 3 legs to a bull market & the third is the speculative phase where the public gets involved and the price goes higher than anyone could have imagined...this is where everyone & the mailman is an expert on gold/mining stocks (aka 1980).......If so then we are no where near the end of the run in gold
I think we are only in the 2nd stage now & there should be a shakeout between the 2nd leg & 3rd final leg.
By the Constitution the Fed is still an illegal central bank
"The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered." -Thomas Jefferson
"From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner's actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.
Needless to say, I emphatically support recent Congressional proposals to vastly rein in the power (both statutory and newly usurped) of the Federal Reserve. Starting with the Bear Stearns deal, the Fed under Ben Bernanke has made a sharp and distinct departure from its historical role, in violation of its charter. As I noted when the bondholders of Bear Stearns were rescued, “The troubling aspect of the Fed's action was not that it lent to a non-bank entity. That ability is clearly authorized by Section 13(3) of the Federal Reserve Act. The problem is that it made its “loans” as “non-recourse” funding – meaning that it would not stand to be repaid if the collateral itself was to fail.” This is still what the Fed seems determined to accomplish. "
The statistics, which are culled from TransUnion's database of 27 million consumer records, show that mortgage delinquencies remain highest in the four states where the crisis has hit the worst.
-- In Nevada, the rate reached 14.5 percent, up from 7.7 percent a year ago.
-- In Florida, the rate was 13.3 percent, up from 7.8 percent last year.
-- In Arizona, the rate hit 10.4 percent, up from 5.5 percent in 2008.
-- In California, the rate jumped to 10.2 percent, from 5.8 percent last year.
"Since June of this year, outstanding bank credit (loans and leases) has plunged at the steepest rate observed in the available post-war history, while at the same time, bank cash reserves have soared. This surge in reserves is a mirror image of the Fed's balance sheet, which has taken on over a trillion dollars in new assets – primarily mortgage backed securities. The problem here is that the underlying quality of agency paper continues to deteriorate, which means that Fannie Mae, Freddie Mac and other agencies will likely sustain major additional losses – eventually footed by the public – because they accepted a negligible fee from mortgage lenders in return for slapping the government's Good Housekeeping Seal of Approval on these garbage loans."
"The big picture is this. There is most probably a second wave of mortgage defaults in the immediate future as a result of Alt-A and Option-ARM resets. Yet our capacity to deal with these losses has already been strained by the first round that largely ended in March. The Federal Reserve has taken a massive amount of mortgage-backed securities onto a balance sheet that used to be restricted to Treasury securities. The purchase of these securities is reflected by a surge in cash reserves held by banks. Not only are the banks not lending these funds, they are contracting their loan portfolios rapidly. Ultimately, in order to unwind the Fed's position in these securities, it will have to sell them back to the public and absorb those excess reserves, so to some extent, the banking system can count on losing the deposits created by the Fed's actions, and can't make long-term loans with these funds anyway."
I guess the Holiday season has started as I surfing the channels and see that the Wizard of Oz in running (TBS)......But they should have named it the wicked wizard of Oz!
Most don"t know the reason why the book was written:
"Oz" is the abbreviation for the measuring of these precious metals: ounces.
The Gold Standard representation of the story
See also: Political interpretations of The Wonderful Wizard of Oz
Some scholars[6] have theorized that the images and characters used by Baum and Denslow closely resembled political images that were well known in the 1890s, specifically the debate of the day regarding monetary policy: the "Yellow Brick Road" represents the gold standard, the silver slippers (which were ruby slippers in the film version) represent the sixteen to one silver ratio (dancing down the road). Many other characters and story lines represent identifiable people or circumstances of the day. The wicked witches of the east and west represented the local banks and the railroad industry, respectively, both of which drove small farmers out of business. The scarecrow represents the farmers of the Populist party, who managed to get out of debt by making more silver coinage. The return to bimetalism would increase inflation, thus lowering the real value of their debts. The Tin Woodman represents the factory workers of the industrialized North, whom the Populists saw as being so hard-pressed to work grueling hours for little money that the workers had lost their human hearts and become mechanized themselves. (See Second Industrial Revolution) Toto was thought to be short for teetotaler, another word for a prohibitionist; it should be noted that William Jennings Bryan, the fiery popular candidate (possibly the Lion character) from the Populist Party, was a teetotaler himself. Bryan also fits the allegorical reference to the Cowardly Lion in that he retreated from his support of free silver after economic conditions improved in the late 1890s. However, it has also been suggested the cowardly Lion represented Wall Street investors, given the economic climate of the time. The Munchkins represented the common people (serfdom), while the emerald city represented Washington and its green-paper money delusion. The Wizard, a charlatan who tricks people into believing he wields immense power, would represent the President. The kiss from the Good Witch of the North is the electoral mandate; Dorothy must destroy the Wicked Witch of the West—the old West Coast "establishment" (money) with water (the US was suffering from drought). Moreover, "Oz" is the abbreviation for the measuring of these precious metals: ounces.
Some biographers and scholars of Baum disagree, pointing to details of Baum's biography, his own statements and writing about the purpose of his book, the ease with which hidden meanings can be found in works not intended to contain any, and the question of why contemporary press did not discuss these perceived metaphors which logically should have been much more obvious at that time. The consensus is that the books are written mainly for the pleasure of Baum's younger readers, to give them a sense of possibility and imagination.[7][8]
The latest development in the Galleon story makes Wall Street banks
, like Morgan Stanley (MS) and Goldman Sachs (GS), look pretty bad.
Although bank policies often prohibit employees from divulging specific information about orders, executives who dealt with Galleon said it regularly received “colour” on market developments, frequently delivered in Wall Street slang. One example would be traders discussing a “page one seller” of shares – a reference to the first page of the Bloomberg list of top holders of listed companies.
One executive who dealt with Galleon said: “They wanted anything the public did not have. They got various pieces and put them together and that was their edge.” A former Goldman executive who provided services to funds including Galleon said: “They were tough and aggressive. They cared about short-term returns and cared a lot about the impact of their trading and the costs. They expected a lot of market information.”
Market “colour” has not usually figured in insider-trading enforcement. Prosecutions – including the charges in the Galleon case – have focused on leaked corporate information.
Rolfe Winkler has an interesting pair of charts (below) showing GS’s earnings. However, Rolfe seems to reach a very different conclusion than I do: Letting Goldman roll the dice
He chalks up their gains up to their “Casino” — but Goldman’s trading revenue has been remarkably consistent. They excellent information flow, and tremendous discipline.
If it were really a roll of the dice, it would be far more erratic . . .
Remember, the casino takes money from the suckers — the House usually wins:
worth reading..... especially is comments on JPM earnings yesterday
[admin note: I removed the link because we got a complaint from the copyright holder. Please be careful when posting copyrighted work. If you have to pay for it, it generally shouldn't be posted here.]
get your facts straight: I've read hussman for the past 7 years.....Q4/2008- 1Q 2009 was the most bullish he has ever been. Yes he said we can get to 400-500 on the S&P IF the marcket dropped to 1974 or 1932 valuations
his work is some of the best available. Some times the timeing is spot on some times he is way early.........but he has rarely been wrong IMHO.
"On the basis of a wide variety of evidence, my own impression is that the S&P 500 is moderately undervalued, at about the level that is likely to produce total returns on the order of 10-12% annually over the coming decade."
"So one of the casualties of easing credit fears is likely to be weakness in the U.S. dollar, and a concurrent strengthening in commodities – particularly precious metals, which serve as a currency substitute. Given the pricing of precious metals shares here, it would not be unexpected to see the XAU roughly double within the next 12 months from these levels."
"My intent here is not to encourage disciplined investors to deviate from carefully considered investment plans. But if a recession or a bear market would produce unacceptable losses or would force you to abandon your investment plan, it is best to begin altering your investment position immediately (even if not entirely at once) toward a position that you can maintain regardless of market outcomes. If your position is inappropriate, do not wait for an “ideal” opportunity to change it. Begin changing it immediately, and continue to change it in steps – larger steps when you can get favorable prices, smaller steps when you have to do it at adverse prices. The important thing is to start immediately and decide in advance to move step-by-step over a reasonably limited period of time, until your position is appropriate. "
there is a case to be made for 5 year cycles maybe (3.7 bull & 1.7 bear) in secular bull markets.........but if we started a secular bear market in 2000 it will last last 10-20years & have a zero rate of return (factor in inflation & it is ugly)
the facts are available to anyone who cares to look:
http://www.youtube.com/watch?v=XOfRLINVqcg&feature...!
is a bear market just too obvious? Maybe QE2 works & stocks go higher?
[8/23/2010 10:23:06 AM] Bill Cara: equities are linked to Dollar now
so if the dollar does fall off a cliff would stocks rise?
http://www.hussmanfunds.com/wmc/wmc100823.htm
In contrast, quantitative easing can be expected to create a remarkably
different situation. The Fed's purchase of Treasury securities and creation of base money is occurring in an environment where fiscal deficits are already out of control, while two-thirds of the Fed's balance sheet already represents Fannie and Freddie Mac securities that need to be bailed out by the Treasury. This makes it enormously difficult to reverse the Fed's transactions - because the Fed is not simply determining whether a given stock of government liabilities will take the form of Treasury bonds or currency. It is instead effectively printing new money to finance ongoing spending for fiscal deficits and the bailout of the GSEs. At the same time, the fact that it is operating in a weak economy and a near-term deflationary environment means that nominal interest rates are being pressed down at the same time that long-term inflationary prospects are escalating.
As a side note, von Mises also cautioned against the misconception that destroying the value of a currency would have a sustainable benefit for the economy, writing "If the depreciation is desired in order to 'stimulate production' and to make exportation easier and importation more difficult in relation to other countries, then it must be borne in mind that the 'beneficial effects' on trade of the depreciation of money only last so long as the depreciation has not affected all commodities and services. Once the adjustment is completed, then these 'beneficial effects' disappear. If it is desired to retain them permanently, continual resort must be had to fresh diminutions of the purchasing power of money."
Hussman followed up the debate in his weekly today. interesting what data the bulls pull to justify the current thesis "Stocks are Cheap" but does the thesis hold any water or is it just hot air?
disclosure long HSGFX
http://www.msnbc.msn.com/id/21134540/vp/38028703#3...
"A couple of weeks ago, I was in a CNBC segment discussing economic conditions. I decline the vast majority of media requests, but I thought it was important to talk about the economic risks we're observing. It was a debate-style format with another analyst who essentially recapped the same arguments that he made at the 2007 market peak. Indeed, just before the market plunged by more than half, he asserted "the fundamental underpinnings of stocks are superb." He later appeared on CNBC in January 2008 sporting a beard, asserting that all of the recession talk was overblown, and telling a reporter at TheStreet that he would not shave the beard "until the recession talk ends or housing recovers, whichever comes first." As of a couple of weeks ago, he had no beard, which was perplexing.
Now, while I have difficulty with analysts who repeatedly lead investors down the primrose path to abominable losses, my defensive approach has also left enough on the table from time to time that I don't want to throw stones. Still, one feature of his analyst's argument was different from 2007, and the more I've thought about it, the more I realize how damaging it could be to investors, so I think it's important to discuss. Specifically, instead of using forward operating earnings to assert that stocks were cheap, he based his valuation assessment this time on NIPA profits (from quarterly GDP accounting). Quoting NIPA profits in the context of market valuations struck me as odd, but the segment immediately jumped to another question. Part of the reason I don't do much TV. You can't thoughtfully discuss the financial markets in 20-second sound bites.
Here are the basics. NIPA profits (from the National Income and Product Accounts, compiled by the Bureau of Economic Analysis) are a quarterly measure of economy-wide profits, restricted to current production, less associated expenses. As economists at the Department of Commerce and the BEA have noted (Mead, Moulton and Petrick, 2004), this measure of earnings deviates substantially from S&P 500 earnings. Expenses used in the calculation of NIPA profits exclude bad debts, resource depletion, disposition of assets and liabilities, capital losses, and any deductions relating to the treatment of employee stock options. It also includes an allowance for misreporting of corporate income. Many of these calculations are only available on an annual basis, with a considerable lag, and as a result, quarterly NIPA profit estimates and revisions make significant use of interpolation and extrapolation."
http://www.hussmanfunds.com/wmc/wmc100719.htm
http://www.ft.com/cms/s/0/128381e8-4e62-11df-b48d-...
Goldman roles in Lloyds deal in spotlight
By Patrick Jenkins in London
Published: April 23 2010 00:04 | Last updated: April 23 2010 00:04
Goldman Sachs was both an underwriter and an investor in Lloyds Banking Group’s vast refinancing deal late last year, the FT has learned, highlighting the potential conflicts of interest at the heart of the investment bank’s business model.
According to four people involved in the capital raising, Goldman – a dealer manager on the debt portion of the £23.5bn transaction – demanded last-minute changes to the structure of a deal it was underwriting. This had the effect of benefiting its position as a bond investor.
Goldman bankers stress that its Chinese walls bar underwriters from knowing anything about the investment activity of its proprietary traders and say the exposure of the affair reveals rivals’ opportunism in besmirching its reputation.
The incident, in the final hours of UK bank Lloyds’ capital raising, the biggest in corporate history, last November, will nonetheless add fuel to critics’ suspicions that Goldman puts its own interests ahead clients’.
The revelation comes as Goldman fights fraud charges brought by the US Securities and Exchange Commission.
According to those involved in the Lloyds refinancing, Goldman on the eve of the deal’s announcement that the extra interest payable on the bonds which were to be exchanged for new ones should be increased to as much as 2.5 per cent, when a consensus of other banks was 2 per cent. The rise followed a surprise cut in the credit rating assigned to the securities, making them a riskier investment.
Goldman was also involved in discussions about the ranking in a so-called waterfall determining which bonds should be prioritised for the exchange offer. “They were dictatorial about it,” said one person involved in the deal. Goldman bankers say its role as dealer manager was subservient to senior advisers, and did not allow it to dictate the terms of the waterfall.
It emerged that Goldman was a large investor in the 6.9 per cent bond that was top-ranked for the waterfall, said four people close to the deal. One person said Goldman had bought as much as half the $1bn issue. However, Goldman bankers said last night its proprietary position was “not substantial”.
Goldman’s role in the transaction – both the alleged conflict of interest and the allegation that it helped make the terms more expensive – will be politically sensitive, given that the UK government owns 41 per cent of Lloyds.
Lloyds would not comment on the advice it received but said: “The final decision on the terms and pricing of this offer was made by the group following the recommendation of the syndicate, and not any one bank.” Goldman did not comment.
http://www.smirkingchimp.com/thread/rj_eskow/28144...
The story is this: As almost everyone knows by now, the SEC filed a suit against Goldman over a program called Abacus. The suit alleges that Goldman didn't tell Abacus investors that the bonds they were essentally insuring were being picked by a firm (Paulson) which was betting that they'd fail. Remember that Twilight Zone episode called "To Serve Man," where the aliens promised to help everybody but were really just getting ready to eat them? In this story the investors are the humans and Goldman's execs are the aliens.
The slide show Goldman used to pitch Abacus is pretty damning. It starts with so many pages of fine-print "disclaimers" and "risk factors" that it seems like a Viagra ad ("call your doctor if ..."). There's a lot in there about well-respected (but at best gullible) ACA, this firm that Goldman claimed was picking the bonds. About half of the 66 slides sing ACA's praises, but there's no mention of Paulson. There are long descriptions of ACA's capabilities, their "internal" and "external data sources," and their "defensive trading" designed to "minimize real market value exposure."
To serve man. "It's a cookbook!"
Here's where it gets uncomfortable for Geithner and some executives. Remember all that criticism of the taxpayer-funded AIG bailout, and how under Tim Geithner's direction (he was running the New York Fed then) AIG paid 100 cents on the dollar to Goldman and other "counterparties" for its debts? It turns out that AIG insured seven Abacus deals, and the debts they were ordered to pay may have included payoffs on some of these deals. It turns out that AIG reportedly wanted to pay 60 cents on the dollar, but Geither's New York Fed directed them to pay the full amount.
AIG paid $13 billion from its bailout to Goldman at Geithner's direction. And now, as the Wall Street Journal reports, the SEC "is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors." And, while "It isn't known what deals the SEC is investigating," the Journal adds that "among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp."
http://stockcharts.com/charts/performance/perf.html?$NATGAS,ung
http://wallstcheatsheet.com/breaking-news/economy/...
There are four main parts to his argument:
• GDP drives economic activity.
• Local party bosses have an incentive to game the system
• Real estate speculation
• Overbuilding of industrial and commercial real estate
Let’s take these arguments one by one.
1) GDP drives economic activity
In most industrialized countries, GDP is what Chanos calls a residual: it is the result of economic activity. But in China, GDP growth is seen as sacrosanct, and Beijing sets a GDP growth target every year. Local party bosses act to ensure that they meet this target.
2) Local party bosses have an incentive to game the system
Since GDP growth is explicitly stated as a public policy, local political bosses have an incentive to make sure that they contribute to the country’s efforts to meet the GDP target growth rate. In practice, this means that local municipalities can, for example, meet revenue targets by selling off land to developers. Party bosses have an incentive to sell as much land as possible, regardless of whether doing so creates too much supply.
3) Real estate speculation
One of the main arguments advanced against Chanos’ China thesis is that real estate speculators in China have to have more equity than do their American counterparts. The implication is that China won’t suffer from a meltdown of real estate. But this argument, while possibly correct, misses Chanos’ larger point. Speculators in Beijing buy up multiple apartments, seeing them as a store of value, akin to commodities like gold or palladium.
Implicit in this practice is the notion that there is a greater fool down the line. Treating real estate as a store of value, rather than an investment that produces real or imputed monthly cash flows in the form of rent defies economic logic.
4) Overbuilding of commercial and residential real estate
Perhaps the most interesting statistic cited by Chanos is that there is 2.6 billion square meters (30 billion square feet) of non-residential construction under development across China. To put this number in context, that is enough square feet to give every person in China a 5 foot by 5 foot cubicle. The inference here is that non-residential construction supply will outstrip demand for a very long time. Basic economics says that if supply exceeds demand, prices (rents) will trend down.
The other consideration here is the annual maintenance expense for these tens of billions of square feet. Not only will rents go down over time as demand fails to meet supply, but maintenance expenses for vacant office buildings and industrial parks very quickly adds up and acts as a drag on the economy. Capital used to maintain unoccupied buildings does not grow an economy.
http://www.youtube.com/watch?v=99HNFCn5RP8&feature...
http://leavittbrothers.com/blog/?p=2719
Wall Street’s Bailout Hustle
by admin on February 23, 2010
Goldman Sachs and other big banks aren’t just pocketing the trillions we gave them to rescue the economy – they’re re-creating the conditions for another crash
by Matt Taibbi, Rolling Stone
CON #1 THE SWOOP AND SQUAT
CON #2 THE DOLLAR STORE
CON #3 THE PIG IN THE POKE
CON #4 THE RUMANIAN BOX
CON #5 THE BIG MITT
CON #6 THE WIRE
CON #7 THE RELOAD
Con artists have a word for the inability of their victims to accept that they’ve been scammed. They call it the “True Believer Syndrome.” That’s sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn’t so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn’t matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn’t going to work, no matter what we do. Sure, mugging old ladies is against the law, but it’s also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.
That’s why the biggest gift the bankers got in the bailout was not fiscal but psychological. “The most valuable part of the bailout,” says Rep. Sherman, “was the implicit guarantee that they’re Too Big to Fail.” Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. “It’s evidence,” says Rep. Kanjorski, “that they still don’t get it.”
More to the point, the fact that we haven’t done much of anything to change the rules and behavior of Wall Street shows that we still don’t get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.
Man offers over $1000 worth of gold for free to random people
http://www.youtube.com/watch?v=WAaVK5AkZzI&feature...
If there are 3 legs to a bull market & the third is the speculative phase where the public gets involved and the price goes higher than anyone could have imagined...this is where everyone & the mailman is an expert on gold/mining stocks (aka 1980).......If so then we are no where near the end of the run in gold
I think we are only in the 2nd stage now & there should be a shakeout between the 2nd leg & 3rd final leg.
http://www.youtube.com/watch?v=NxYSduRES1o
Funny how SNL,john Stewart, Rolling Stone all get it.... but the bought and paid for media does not.
In "the Federal Reserve Act" not constitution
By the Constitution the Fed is still an illegal central bank
"The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered." -Thomas Jefferson
http://www.phnet.fi/public/mamaa1/jefferson.htm
forgot to add this from the Hussman weekly:
"From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner's actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.
Needless to say, I emphatically support recent Congressional proposals to vastly rein in the power (both statutory and newly usurped) of the Federal Reserve. Starting with the Bear Stearns deal, the Fed under Ben Bernanke has made a sharp and distinct departure from its historical role, in violation of its charter. As I noted when the bondholders of Bear Stearns were rescued, “The troubling aspect of the Fed's action was not that it lent to a non-bank entity. That ability is clearly authorized by Section 13(3) of the Federal Reserve Act. The problem is that it made its “loans” as “non-recourse” funding – meaning that it would not stand to be repaid if the collateral itself was to fail.” This is still what the Fed seems determined to accomplish. "
How does the US recover when Bank lending has dried up and isn't going to increase anytime soon?
http://finance.yahoo.com/news/Mortgage-delinquenci...
The statistics, which are culled from TransUnion's database of 27 million consumer records, show that mortgage delinquencies remain highest in the four states where the crisis has hit the worst.
-- In Nevada, the rate reached 14.5 percent, up from 7.7 percent a year ago.
-- In Florida, the rate was 13.3 percent, up from 7.8 percent last year.
-- In Arizona, the rate hit 10.4 percent, up from 5.5 percent in 2008.
-- In California, the rate jumped to 10.2 percent, from 5.8 percent last year.
http://www.hussmanfunds.com/wmc/wmc091116.htm
"Since June of this year, outstanding bank credit (loans and leases) has plunged at the steepest rate observed in the available post-war history, while at the same time, bank cash reserves have soared. This surge in reserves is a mirror image of the Fed's balance sheet, which has taken on over a trillion dollars in new assets – primarily mortgage backed securities. The problem here is that the underlying quality of agency paper continues to deteriorate, which means that Fannie Mae, Freddie Mac and other agencies will likely sustain major additional losses – eventually footed by the public – because they accepted a negligible fee from mortgage lenders in return for slapping the government's Good Housekeeping Seal of Approval on these garbage loans."
"The big picture is this. There is most probably a second wave of mortgage defaults in the immediate future as a result of Alt-A and Option-ARM resets. Yet our capacity to deal with these losses has already been strained by the first round that largely ended in March. The Federal Reserve has taken a massive amount of mortgage-backed securities onto a balance sheet that used to be restricted to Treasury securities. The purchase of these securities is reflected by a surge in cash reserves held by banks. Not only are the banks not lending these funds, they are contracting their loan portfolios rapidly. Ultimately, in order to unwind the Fed's position in these securities, it will have to sell them back to the public and absorb those excess reserves, so to some extent, the banking system can count on losing the deposits created by the Fed's actions, and can't make long-term loans with these funds anyway."
I guess the Holiday season has started as I surfing the channels and see that the Wizard of Oz in running (TBS)......But they should have named it the wicked wizard of Oz!
Most don"t know the reason why the book was written:
"Oz" is the abbreviation for the measuring of these precious metals: ounces.
http://en.wikipedia.org/wiki/The_Wonderful_Wizard_...
The Gold Standard representation of the story
See also: Political interpretations of The Wonderful Wizard of Oz
Some scholars[6] have theorized that the images and characters used by Baum and Denslow closely resembled political images that were well known in the 1890s, specifically the debate of the day regarding monetary policy: the "Yellow Brick Road" represents the gold standard, the silver slippers (which were ruby slippers in the film version) represent the sixteen to one silver ratio (dancing down the road). Many other characters and story lines represent identifiable people or circumstances of the day. The wicked witches of the east and west represented the local banks and the railroad industry, respectively, both of which drove small farmers out of business. The scarecrow represents the farmers of the Populist party, who managed to get out of debt by making more silver coinage. The return to bimetalism would increase inflation, thus lowering the real value of their debts. The Tin Woodman represents the factory workers of the industrialized North, whom the Populists saw as being so hard-pressed to work grueling hours for little money that the workers had lost their human hearts and become mechanized themselves. (See Second Industrial Revolution) Toto was thought to be short for teetotaler, another word for a prohibitionist; it should be noted that William Jennings Bryan, the fiery popular candidate (possibly the Lion character) from the Populist Party, was a teetotaler himself. Bryan also fits the allegorical reference to the Cowardly Lion in that he retreated from his support of free silver after economic conditions improved in the late 1890s. However, it has also been suggested the cowardly Lion represented Wall Street investors, given the economic climate of the time. The Munchkins represented the common people (serfdom), while the emerald city represented Washington and its green-paper money delusion. The Wizard, a charlatan who tricks people into believing he wields immense power, would represent the President. The kiss from the Good Witch of the North is the electoral mandate; Dorothy must destroy the Wicked Witch of the West—the old West Coast "establishment" (money) with water (the US was suffering from drought). Moreover, "Oz" is the abbreviation for the measuring of these precious metals: ounces.
Some biographers and scholars of Baum disagree, pointing to details of Baum's biography, his own statements and writing about the purpose of his book, the ease with which hidden meanings can be found in works not intended to contain any, and the question of why contemporary press did not discuss these perceived metaphors which logically should have been much more obvious at that time. The consensus is that the books are written mainly for the pleasure of Baum's younger readers, to give them a sense of possibility and imagination.[7][8]
http://www.businessinsider.com/galleon-paid-banker...
The latest development in the Galleon story makes Wall Street banks
, like Morgan Stanley (MS) and Goldman Sachs (GS), look pretty bad.
Although bank policies often prohibit employees from divulging specific information about orders, executives who dealt with Galleon said it regularly received “colour” on market developments, frequently delivered in Wall Street slang. One example would be traders discussing a “page one seller” of shares – a reference to the first page of the Bloomberg list of top holders of listed companies.
One executive who dealt with Galleon said: “They wanted anything the public did not have. They got various pieces and put them together and that was their edge.” A former Goldman executive who provided services to funds including Galleon said: “They were tough and aggressive. They cared about short-term returns and cared a lot about the impact of their trading and the costs. They expected a lot of market information.”
Market “colour” has not usually figured in insider-trading enforcement. Prosecutions – including the charges in the Galleon case – have focused on leaked corporate information.
http://www.ritholtz.com/blog/2009/10/understanding...
Rolfe Winkler has an interesting pair of charts (below) showing GS’s earnings. However, Rolfe seems to reach a very different conclusion than I do: Letting Goldman roll the dice
He chalks up their gains up to their “Casino” — but Goldman’s trading revenue has been remarkably consistent. They excellent information flow, and tremendous discipline.
If it were really a roll of the dice, it would be far more erratic . . .
Remember, the casino takes money from the suckers — the House usually wins:
worth reading..... especially is comments on JPM earnings yesterday
[admin note: I removed the link because we got a complaint from the copyright holder. Please be careful when posting copyrighted work. If you have to pay for it, it generally shouldn't be posted here.]
TF
get your facts straight: I've read hussman for the past 7 years.....Q4/2008- 1Q 2009 was the most bullish he has ever been. Yes he said we can get to 400-500 on the S&P IF the marcket dropped to 1974 or 1932 valuations
his work is some of the best available. Some times the timeing is spot on some times he is way early.........but he has rarely been wrong IMHO.
http://www.hussmanfunds.com/wmc/wmc090316.htm
March 16, 2009
"On the basis of a wide variety of evidence, my own impression is that the S&P 500 is moderately undervalued, at about the level that is likely to produce total returns on the order of 10-12% annually over the coming decade."
http://www.hussmanfunds.com/wmc/wmc081027.htm
October 27, 2008
Risk Management and Hooke's Law
"So one of the casualties of easing credit fears is likely to be weakness in the U.S. dollar, and a concurrent strengthening in commodities – particularly precious metals, which serve as a currency substitute. Given the pricing of precious metals shares here, it would not be unexpected to see the XAU roughly double within the next 12 months from these levels."
http://www.hussmanfunds.com/wmc/wmc071112.htm
November 12, 2007
Expecting A Recession
"My intent here is not to encourage disciplined investors to deviate from carefully considered investment plans. But if a recession or a bear market would produce unacceptable losses or would force you to abandon your investment plan, it is best to begin altering your investment position immediately (even if not entirely at once) toward a position that you can maintain regardless of market outcomes. If your position is inappropriate, do not wait for an “ideal” opportunity to change it. Begin changing it immediately, and continue to change it in steps – larger steps when you can get favorable prices, smaller steps when you have to do it at adverse prices. The important thing is to start immediately and decide in advance to move step-by-step over a reasonably limited period of time, until your position is appropriate. "
Q. The president's progress with the battered economy has been both praised and criticized. How well are his efforts measuring up with you?
http://js.polls.yahoo.com/quiz/quiziframe.php?poll...
3351930 votes
Did this guy ever look at any stock history charts or data?
http://finance.yahoo.com/tech-ticker/article/34688...
there is a case to be made for 5 year cycles maybe (3.7 bull & 1.7 bear) in secular bull markets.........but if we started a secular bear market in 2000 it will last last 10-20years & have a zero rate of return (factor in inflation & it is ugly)
the facts are available to anyone who cares to look:
http://www.crestmontresearch.com/pdfs/Stock%20Secu...