Financial topics

[MarshAviator]

On this site some people just love to talk about "maximum ruin"...

by malleni » Wed Apr 29, 2009 2:23 pm

No One really likes to talk about maximum ruin.
My argument is given all the negatives in the news, it seems strange that equities markets continue
an advance.
The only possible explanations are either investors are rallying in spite of the adversities (playing contrarily) or
more darkly that they are tying to get the last possible profit before things collapse completely.

BTW, I am not advocating buying US Treasuries either.
John has simply noted that if US Treasuries collapse, then everything else in the U.S. (and possibly the world) collapses as well and
we are left to barter (non-monetary exchange).

Timing any market takes both skill and luck, all investors should decide for themselves and use all the information at their disposal.

I agree completely that the existing system (the U.S. in particular and also Globally) is both corrupt and fraudulent,
and will soon be exposed for what it is.

Having spent most of my adult life (50 Year old) as a libertarian/objectivist, now increasing doubt the continued viability of the capitalist system.
Clearly the alternatives are even worse; socialism and communism,
but if we don't get lucky then the outcome will either be anarchy or feudalism.

If you have any really good ideas about preserving ones wealth, then by all means elucidate.
Also feel free to theorize about what form of social organization will likely follow in the future.

[umoguy]

What is with all the doom and gloom? Don't you know that this is the great swine flu rally of 09?!

[John]

Where do you put your money?

This has been a subject of repeated discussions on this website and
this forum for a long time, and the answer has to be reevaluated
frequently, as circumstances change.

In the past, I've recommended FDIC-insured bank accounts, short-term
Treasuries, and cash in your mattress.

Those who remained in the stock market over the years have lost a
very great deal of money, despite the recent rally. Those who have
been shorting the market may have lost a great deal of money in the
last couple of months. Gordo may be the only person who seems to be
able to make money no matter what happens.

Today we have a number of new uncertainties that didn't exist even a
couple of weeks ago: The danger from a swine flu pandemic, and the
increasing level of conflict in Pakistan.

It's possible that both of these things will fizzle out, at least
temporarily. But on a probabilistic basis, the chances of a
world-changing event are greater today than they were a few days ago.

In addition, the probability of a major financial crisis continues to
be high. This is analogous to high blood pressure in the sense of
being a "silent killer." We have a great deal of infrastructure in
the US to prevent a bank failure from becoming a systemic crisis, but
a bank failure in Asia or Eastern Europe could indeed lead to a
systemic crisis.

So, given these potential crises -- swine flu, Pakistan, financial --
what should you do with your money today? (Assuming that you have
any money.)

I believe that diversification is the best strategy for most people.

For the average family with a moderate amount of money available,
diversification may mean some cash hidden in the basement, some money
in the bank, and perhaps some money in a money market fund. The
theory is that if one asset class fails, then one of the others will
still be ok.

For someone with a lot of money, where to keep it safe is a real
problem.

A wealthy person may wish to keep some fraction of his money in gold.
Gold is extremely risky for ordinary people since it's not clear that
it will be possible to sell it for food in case of emergency.

I've recommended against long-term Treasuries for years, because it's
been clear for years that they would not be redeemed.

I've recommended short-term (6-12 month) Treasuries for those who
need to invest in something. If you've got a million dollars, and
you have to put it somewhere, this may be the best choice.

Some people may wish to consider investments in another currency. I
believe that the dollar has the best chance of being "left standing,"
even if the US government defaults. Some people find this illogical,
but I've explained several times why the dollar can do well
separately from the US government, since the dollar is the
international reserve currency.

The only other currency that is likely to do well is the yen, simply
because the Japanese have already had their financial crisis.

Other currencies are far less likely to survive. The euro is only
ten years old and may collapse at any time. And the Chinese yuan is
liable to experience hyperinflation, as "malleni" points out.

There are no sure things today. If law and order breaks down, you
may be at the mercy of robbers. If you become a refugee, you may
have nothing except what you can carry. All you can do is play the
probabilities -- try to understand your personal circumstances, and
guess at what solutions are likely to work best.

> What is with all the doom and gloom? Don't you know that this is
> the great swine flu rally of 09?!

Thanks! It's great to have something to laugh at!

So why is this rally lasting so long? I don't think that the answer
is very far away from the above joke.

I was really shocked when I wrote that article about P/E ratios last
week.

** Wall Street Journal and Birinyi Associates are lying about P/E ratios
** http://www.generationaldynamics.com/cgi ... 26#e090426

What shocked me is that the WSJ is apparently publishing P/E ratios
that are computed based on the "psychology of the investor."

As farcical as that is, I believe it's the key to understanding what's
going on. There is ABSOLUTELY CERTAINTY among investors that the
worst will be over later this year, or early in 2010 at the latest.
Anything that contradicts that belief is to be ignored.

Thus, a P/E ratio of 60 is clearly wrong, and so Birinyi analyzes the
psychology of the investor and decides that it's 13.09. It's perfect
circular reasoning. The worst will be over later this year.
Therefore P/E=60 is wrong. Therefore P/E=13.09. Therefore, the
worst will be over later this year.

Sincerely,

John

[freddyv]

Timing any market takes both skill and luck, all investors should decide for themselves and use all the information at their disposal.

Timing most of all takes discipline. It's really not hard to see that heading into March the decline was getting a bit long in the tooth and that now the rally has slowly been running out of steam. But an experienced, disciplined trader has to understand that the best time to sell is when everyone else is buying in a panic for fear of "missing it" and that the best time to buy is when everyone is selling for fear of "losing everything".

An investor should have a nice, balanced portfolio at all times with shifting priorities based on inflation, deflation, etc, while a trader mostly needs to be courageous enough to step away from the crowd and make the trade that his heart does not agree with but his brain knows is right. Now is a clear example of one of those times.

Most people would not make good traders but if you get excited when you see lots of people running away from something and you run TOWARDS it then you likely have the basic instincts of a trader.

--Fred

[Higgenbotham]

Obviously, John do not discuss previous question further, but never mind,... lets go little bit further.

On this site some people just love to talk about "maximum ruin"...
Fine.

I understand that John will recommend everybody to buy US Treasuries (as usual custom here), but please, take a look - it may be worth...
Because, for me, it looks very much if you listen to John advice - IT will bring you to "maximum ruin"!
But - it is up to anyone to decide...

If you just take little time through some of this articles - it will be obvious that it (Johns advice!) is a bad (a VERY bad advice!)...
(Since we are able to read about it - believe me that Chinese, Japanese, Arabs, Russians, Europeans and ALL other creditors to US - know it too...):


Treasury to auction record $71 bln next week:
http://www.marketwatch.com/news/story/t ... dist=msr_4

The Federal Reserve refrained from increasing purchases of Treasuries and mortgage securities, signaling the worst of the recession may be over:
http://www.bloomberg.com/apps/news?pid= ... refer=home

Wall Street Selling Imaginary Treasuries:
- US treasury market reaches breaking point
As attention focuses on the treasury market's ability to cope with the US's growing funding needs, Euromoney reveals the structural issue that could cause the world's market of last resort to grind to a halt in its hour of greatest need.
The problem: the settlement system for the US government bond market has broken down
http://www.euromoney.com/Article/205407 ... point.html
http://www.euromoney.com/Article/205412 ... arket.html
http://www.euromoney.com/Article/205410 ... ofits.html
http://www.euromoney.com/Article/205410 ... liver.html

BUT fraudulent, imaginary Treasuries are not only problem for investors Worldwide to the (now more than clear!) - collapsed US financial system!
There are "Imaginary shares" too...
http://www.basherbusters.com/temp/naked ... lling.html

E-mail from three senators - who are really pissed off with "imaginary shares" too:
http://ftp.sec.gov/comments/s7-12-06/lkeith3346.pdf


Once again:
If anybody on this site - believe:
1. in nonsense of survival of US fraudulent and corrupted system - I am sure that is very difficult to find some OUTSIDE US who will share this belief ...
2. in nonsense that US Treasuries (debt of corrupted and bankrupt State) - can give hope in the survival of the tsunami (theory based on what...?) - it is time to think again.
3. that this discussion is unknown for many (ALL) people (investors) around the World - please, think twice...

Thank you for understanding
Best regards

The failure to deliver US Treasuries is occurring in the dealer market. The dealer market is comprised of the primary dealers and firms who buy and sell treasuries that have already been issued by the government. When purchasing US Treasuries directly at the government auction through a Treaury Direct account, there is no need to be concerned about failures to deliver. Purchasing through Treasury Direct is the process that has been advocated on this site.

It is interesting that the US government has so far failed to take action to curb these kinds of frauds. If they do, a lot of "bad money" is going to get wiped out. According to the article, about 20% of the Treasuries cleared in this market have been failures. Therefore, there is up to $1 trillion in fraudulent "money" out there floating around in the form of Treasuries. If any crackdown on this fraud isn't highly deflationary, then I don't know what is. That's probably why the US government is avoiding that for now.

To me, this seems typical of what to expect when a deflationary episode hasn't run its course. But failure to act could at some point collapse the entire system. For now, investors can still run to short term bills purchased directly, cash, or gold. If the public loses faith in short term bills and cash and moves to gold, then I suppose the game is over. For now, that will be difficult in my estimation. It's hard to imagine seeing Wal-Mart hauling precious metal to Bentonville. Wal-Mart, etc., are still going to want payment in US dollars and so that is what people will bring to the stores. It will take a lot of time to set up the physical alternatives that would cause a rush out of dollars. It seems to me that it is more than a psychological process, but psychology does enter into it.

[Higgenbotham]

This discussion of failures to deliver in the US Treasury market reminds me of something I posted a few months ago about the Singapore Government Securities market. I had read that any purchases of Singapore Government Securities were required to be made through a list of primary dealers (in other words, these securities couldn't be purchased directly from the Singapore government). I called the Monetary Authority of Singapore to confirm this and was told this was correct and was also told that all purchases of Singapore Government Securities by a US citizen residing in the US must be made through an account with a US based primary dealer. My thought at the time after looking through the list of dealers was that I did not want to hold SGS in an account with any of those dealers due to the risk of fraud (many of which are the same dealers as those who deal in US Treasuries). Conclusion: The structure of these markets and the risk of fraud in many cases boxes an investor into holding US dollars.

[John]

Here's a joke from the Naked Capitalism blog:

> One afternoon an investment banker was riding in his limousine
> when he saw two men along the roadside eating grass. Disturbed, he
> ordered his driver to stop and he got out to investigate.

> He asked one man, "Why are you eating grass?"

> "We don't have any money for food," the poor man replied. "We have
> to eat grass."

> "Well, then, you can come with me to my house and I'll feed you,"
> the banker said.

> "But sir, I have a wife and two children with me. They are over
> there, under that tree."

> "Bring them along," the banker replied.

> Turning to the other poor man he stated, "You come with us,
> also."

> The second man, in a pitiful voice, then said, "But sir, I also
> have a wife and SIX children with me!

> "Bring them all, as well," the banker answered.

> They all entered the car, which was no easy task, even for a car
> as large as the limousine was.

> Once underway, one of the poor fellows turned to the banker and
> said, "Sir, you are too kind."

> "Thank you for taking all of us with you."

> The banker replied, "Glad to do it. You'll really love my place.

> The grass is almost a foot high."

> http://www.nakedcapitalism.com/2009/05/ ... -2009.html

[aedens]

Time is running out: It appears the cool aid drinkers have refilled there glass. For us taxpayers this is going to be a bitter time since we seen it before they wanted to and will have to linger in this condition until fair trade is a matter of fact. Meanwhile Hedge Funds are leaving to terms which will be presenting themselves in the press.
Summers made five points that reveal a great deal about his personal thinking - and the structure of thought that lies behind most of what the Administration is doing vis-a-vis the crisis. Some of this we knew or guessed at before, but it was still the clearest articulation I have seen.
All crises must end. The “self-equilibrating” nature of the economy will ultimately prevail, although that may take massive one-off government actions. Such a crisis happens only ”three or four times” per century, so taking on huge amounts of government debt is fine; implicitly, we will grow out of that debt burden.

http://baselinescenario.com/2009/04/27/ ... new-model/

Meanwhile: http://zerohedge.blogspot.com/2009/05/s ... hoots.html

The U.S. crisis reflects regulatory problems in the U.S. and innovative financial products that ignored basic economic rules,'' former Chinese central bank deputy governor Wu Xiaoling told a financial conference in Beijing recently." "The U.S. crisis today would be China's tomorrow if financial products such as securitization are introduced without proper risk-control measures.'' Chinas' cautious attitude, government banks, and regulatory framework have helped China to restrict its losses and write-downs from the credit-market crisis to less than 1 percent of the massive global total. The feasibility of bank nationalizations, closer regulation, and banning certain types of transactions, such as derivatives, which carry excessive risk are all lessons which can be learned from China. Banks, financial companies, and the wealthy should not be allowed to unload their bad debts onto ordinary workers and taxpayers. It's sheer madness to allow them to transfer a trillion dollars from workers and taxpayers to themselves.

The US has become increasingly frustrated by what it says is the gutting of its proposals to cut farm tariffs. Rich WTO members such as the EU, Japan and Switzerland, and poorer countries such as India, Indonesia and the Philippines, have sought to protect a wide range of agricultural products from tariff cuts. Susan Schwab, US trade representative, said such exemptions would defeat the object of the talks, to create trade flows. “As we went through the layers of loopholes . . . we discovered that a couple of our trading partners were more interested in loopholes than market access,” she said. Pascal Lamy, WTO director-general, said the failure would “send out a strong negative signal for the future of the world economy amidst the danger of a resurgence of protectionism.

They are moving forward... we are eating our capital base to systemic malinvestments which will "are" unfolding.
There seed money is for revenue based infrasture trades of contract. Our basis is pointless since time is a function of reality
and permagrouth has led us where. The lack of contract and transparency to capital decisions to date have told the taxpayer what to date?

The President remains adamant that South Korea should do more to admit American cars. But the momentum has clearly shifted. After North Korea carried out a missile test early in April, Max Baucus, the senior Democratic senator on trade matters, and Charles Grassley, his Republican counterpart, urged Mr Obama to move the South Korean FTA forward to help a “steadfast ally”. Doug Irwin, a trade economist at Dartmouth College, notes that the White House website’s agenda lists 24 items from civil rights to urban policy, but not trade. “They don’t have a trade policy,” says Mr Irwin. “They want the issue to go away.” And bigger tests are coming. Charles Rangel, the top Democrat on trade issues in the House of Representatives, has introduced a bill that would toughen enforcement of existing trade laws in ways that could run foul of World Trade Organisation (WTO) rulings. And the United Steelworkers’ union has asked for duties to be imposed on Chinese tire imports under a little-used law known as Section 421. This does not require proof that imports break trade laws, only that they hurt someone, and it gives the administration discretion whether or not to impose duties. It will be Mr Obama’s “most important litmus test”, says John Veroneau, a Bush trade official. Mr Bush rejected all four Section 421 petitions that reached him. In 2007, at the American Economics Association conference, economist Ramya M. Vijaya gave a paper which stated that a sample of out-of-work manufacturing laborers who enrolled in job retraining through the program ended up, on average, in positions with a lower wage than those who skipped the retraining.
Lawrence Summers, who served as President Clinton's treasury secretary during the headiest days of free-trade enthusiasm, is now having some very public second thoughts. Writing in the Financial Times, he noted that "[e]ven as globalisation increases inequality and insecurity, it is constantly and often legitimately invoked as an argument against the viability of progressive taxation, support for labour unions, strong regulation and substantial production of public goods that mitigate its adverse impacts." But Summers argued that such an attitude was a political non-starter, particularly as globalization "encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered." In a subsequent column, he concluded that the "domestic component of a strategy to promote healthy globalisation must rely on strengthening efforts to reduce inequality and insecurity. The international component must focus on the interests of working people in all countries, in addition to the current emphasis on the priorities of global corporations." Mark Thoma, an economist at the University of Oregon who runs the popular blog Economist's View. "There's a growing perception that the political will to keep markets open or open them further depends on solving some of these distributional issues, health care, all of these things. I don't think there's complete buy-in on the welfare state, but what's new is the idea that opening trade further is going to require us to deal with the problem of winners and losers, rather than just acknowledge it. It won't just solve itself, and it won't happen quickly and easily."

July 8th 2008 I wrote my Senator and it was clearly conveyed back to me.

Thank you . . for contacting me about the impact of free trade agreements on our country. I share your deep concerns about our current trade policies and am leading the fight to change course. Last year, I voted against the Peru Free Trade Agreement, and I intend to lead the opposition to trade agreements with Columbia and South Korea that are being pushed by the Bush Administration. We live in a global economy that continues to grow and expand. Over the last century, we have consistently proven that Michigan businesses and workers can successfully compete with anyone in the world when the playing field is level. Unfortunately, persistent unfair trade practices by other countries are costing us jobs every day. Lack of trade enforcement has made it harder than ever for Michigan companies and workers to compete. We have 230 trade agreements on the books to enforce, but the United States still has the smallest trade enforcement agency of any industrialized nation. I have consistently pushed the Bush Administration to bring trade enforcement actions against countries who break the law, and I was pleased with the World Trade Organization's recent finding that China's policy of charging a higher tax on American-made auto parts violates WTO rules. However, while our workers and businesses waited for this ruling, six of our nation's largest auto suppliers declared bankruptcy, we lost 3.4 million manufacturing jobs, and our trade deficit with China grew to a record $1.1 trillion dollars - all while our state's unemployment rate remains the highest in the nation. Of course, China is not the only country refusing to play by the rules. South Korea is blocking American products from entering its economy by doing everything from instituting excessively rigorous testing on American appliances to placing higher insurance premiums on American cars, many of which are made here in Michigan. The results have been telling. For example, last year U.S. automakers sold only 9,723 vehicles in Korea, but Korean automakers sold nearly 773,000 vehicles in the United States. That's why I have joined with Senator Lindsey Graham of South Carolina to lead the fight to establish an office of Trade Enforcement to investigate other countries' illegal trade practices and take enforcement action on behalf of American businesses.
Additionally, countries like Japan and China are manipulating their currencies to make their products artificially cheaper. For example, this practice provides a $2,100 to $6,300 per car subsidy to Japanese automakers. That's why I have joined with Senator Bunning of Kentucky to author legislation to provide U.S. manufacturers with the legal means to fight back against what amounts to an illegal trade subsidy. Recently, I brought together Michigan manufacturers from across our state and the nation's top trade enforcement official, Christopher Padilla, who serves as Undersecretary of Commerce for International Trade. This meeting provided an open venue to discuss our current trade enforcement system and the unfair trade practices that are hurting companies and workers across the nation. We discussed issues ranging from the stealing of patents to illegal subsidies. The outcome of the meeting was clear. No one is looking for a free ride. Our businesses are simply looking for a level playing field, so we can keep jobs in America. You can count on me to continue fighting for a comprehensive trade policy in this country that enforces our trade laws, provides real assistance to workers and communities who are hurt by trade, improves product safety, and most importantly, puts Michigan workers and business first. Thank you again for contacting me. Please continue to keep me informed about issues of concern to you and your family.

Sincerely,
Debbie Stabenow
United States Senator

[freddyv]

http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS

341 issues (76.15% mkt val) rptd: initial good reports fading, actuals are 2% behind of estimates, and -36.1% behind last year...

Sales down 12.8 with 89 beating last year and 246 falling short

As Rpt EPS for 12 Mo Sep,'09 estimated to be negative ($-1.83 EPS) - first time in index history

This confirms what I had been noticing as earnings were being reported; revenues were down by massive amounts (typically 20%) as were earnings but the fact that analysts had finally gotten the earnings estimates close was being used as good news by the pollyannas.

This is a(nother) tought time to remain bearish as some LEI's seem to be suggesting we are coming out of the recession but there is simply no way that we are through the tough times given that housing has yet to bottom, the consumer is far from delevaeraged, the banks are far from deleveraged, our government is in debt up to its corrupt eardrums, and the stock market is still overpriced.

From my POV, however, I see this as one sure thing. The market is overbought and weakening, as we have seen before and all the wise old owls I listen to say that experience (along with Dow Theory) tells them that there is more correction to come from the stock market. The young, brash pollyanna's are excited and buy more and more each day, almost as if it were 2000 all over again. Yes, we are coming closer to a great buying opportunity on the long side (hopefully) but that is likely a ways off as new dark clouds begin to become visible on the horizon.

--Fred

[John]

Dear Fred,

From my POV, however, I see this as one sure thing. The market is overbought and weakening, as we have seen before and all the wise old owls I listen to say that experience (along with Dow Theory) tells them that there is more correction to come from the stock market. The young, brash pollyanna's are excited and buy more and more each day, almost as if it were 2000 all over again. Yes, we are coming closer to a great buying opportunity on the long side (hopefully) but that is likely a ways off as new dark clouds begin to become visible on the horizon.

I've been hearing "analysts" for the last month say that the market is overbought,
but it never seems to matter, does it?

Sincerely,

John