Saturday, November 26, 2011
Saturday, November 12, 2011
Luckily for us David Rosenberg does take an optimistic twist at the end. Which I feel is very important as we go through tougher times. We will get through this and political/leadership change in the developed world will eventually occur and help. In addition deleveraging and time will be the most helpful. Watch it all and enjoy:
Wednesday, November 09, 2011
Thursday, November 03, 2011
Sunday, October 30, 2011
Saturday, October 29, 2011
Sunday, October 23, 2011
Saturday, October 22, 2011
Sunday, October 02, 2011
and the long version of the video:
Saturday, October 01, 2011
Michael Lewis' newest article over at Vanity Fair, California and Bust is an eye opening article and somewhat depressing. He covers quite a bit including defending Meredith Whitney, interviewing Arnold Schwarzenegger, and going to the city level where most of the pain is being felt. I implore you to read it in its entirety as it is well written and his premise is unique. My critical comments would be that he didn't go after the public sector unions and come to the conclusion that FDR had done in his presidency that they should not be allowed. On the flip side the public workers were unionized long before the most recent devolution of America/California society. Read it yourself and see what conclusions you come to.
Lewis' article inspired me to find the great work that Mish over at his Global Economic Trend Analysis has done on the subject of California. I have been meaning to post these links for sometime now. Mish's blog has done us all a wonderful service by discussing a lot of California's budget problems. Here are his solutions to budget crises in January 2008 & 2011:
Mish's California Budget Proposal
California Budget Balancer Interactive Map from LA Times Misses the Mark
"Look at this disgusting list of California Agencies.
I sorted out some but not all of the more ridiculous ones.
Does the state need a ....
- Acupuncture Department
- Office of AIDs
- Air Research Board
- 3 different agencies for alcohol and beverages
- 2 Apprenticeship Councils
- Art Council
- Asian Pacific Islander Legislative Caucus
- Bureau of Automotive repair
- Barbering board
- Biodiversity council
- Calvet Loan program
- Climate Change Portal
- Coastal Commission
- Cool California
- 4 Delta agencies
- Digital Library
- Bureau of Electronic and Appliance Repair
- Employment Training Panel
- Energy Commission
- Equalization Board
- 2 Fair Employment agencies
- Film Commission
- Flex Your Power
- Healthy Family Program
- Hearing Aid Dispensers Bureau
- Home Furnishings Bureau
- Humanities Council
- Independent Living Council
- Indoor Air Quality Program
- Economic Development Bank
- Interagency Ecological Program
- Labor and Workforce Development
- Latino Legislative Caucus
- Learn California
- Little Hoover Commission
- Maritime Academy
- Managed Risk Board
- Museum for History
- MyCali Youth Portal
- Native Heritage Association
- Natural Community Planning Program
- Naturopathic Medicine Community
- Peace Officer Standards Board
- Postsecondary Education Commission
- Prison Industry Authority
- Privacy Protection Office
- Psychology Board
- Railroad Museum
- Recovery Task Force
- Refugee Branch
- Regents of the U of C
- Save Our Water commission
- Smart Growth Caucus
- Status of Women Commission
- Take Charge California
- We Connect
- Wetlands Information System
- Workforce Investment Board
California does not need ANY of those. Moreover I assure you I missed dozens more that could be cut back if not eliminated entirely. What the heck do those cost? And how much can be saved by my suggestions above."
A great quote from Mish... Read both of the links in their entirety. They are excellent. California has had 2+ years of massive budget problems. Early this year it was at the tune of a $25 billion deficit.
My take on this is simple and sensible. People of California and the United States need to ask themselves, "what kind of Government do you want and what are you willing to do to pay for it." I don't think that California residents realize what the costs are of having a fully intrusive government that tries to be all things to all people. Californians already have some the highest taxes in the union with little to show for it. Why not have the state focus on some of the more important aspects of basic governance: education, public safety, public health, infrastructure, and certain basic safety nets. Sure those basics are in need of massive reform, but at least the effort and focus could/should be on them. However if you think that California (and the US for that matter) is too far gone like Michael Lewis hints at then it might have to get a lot worse before it gets better. As time progresses I am leaning towards the later option and holders of local/city municipal bond should be prepared on what that may look like.
Monday, September 19, 2011
Wednesday, September 14, 2011
The NCAA loves to espouse academics and will parade it out or hide behind it at the first sign of trouble. Truth being told when it comes to academics the graduation rates of the "student athletes" is extremely low. Especially for the players who come from the top programs. Overall and there is some debate with the statistics, but ESPN reports grad rates at 69% for Division I football. You can see where all the schools individually rank at Scout.com. For reference this year's current college #1 ranked team, Oklahoma, is at an embarrassing 45% graduation rate. When comparing the racial divide between graduation rates of whites to blacks the numbers are even worse. 59% was the graduation rate from last years champion, Auburn. However 94% of Caucasian players graduated compared to the 48% of African Americans. That's a -46% difference! So you better hope these kids have a chance at the NFL, right?? Yeah, hmmm, well at least 90% of the 2500 Division I football players that run out of eligibility never play a single down in the NFL according to this ESPN article. The article is full of NCAA hypocrisy and is a must read. NFL has been known to stand for "Not For Long" and most players don't even make it to "full career" of 5 years. If that isn't enough information for you the Huffington Post does a good job exposing some of the questionable data that NCAA puts together in its statistics about student athlete academics.
Now that we've proven the sham of NCAA Student Athlete academics. The NCAA likes to play upon most of our fond memories of college that most of us share. They constantly talk up tradition and the spirit of history. I love history! Well guess what? The NCAA could really care less with their most recent antics. They have been turning a blind eye to conference realignment for the sake billion dollar TV contracts that the players will never see a dime of. Rose Bowl champion Texas Christian University, TCU will be playing sports in the Big East Conference?!?! Texas A&M is looking to jump ship to South East Conference, SEC. Oklahoma & Oklahoma State are contemplating a jump to the already crowded PAC-12. Why? For the TV contracts of course! Guess what if you are player in one of the big powerhouse schools if you accept any form of payment or trade you are suspended or kicked out of the league. The latest (ESPN) is the star quarterback, Terrell Pryor, from Ohio State was suspended and forced to try the NFL because he received a couple hundred dollars and some tattoos for signing his own jersey of the school he plays for! Meanwhile one injury could've ended his career and his earning potential. He would have little to show for it. However the school would have made 10s of millions on TV contracts, tickets sales, video game sales, memorabilia, etc. I don't have time to rant about the coaches who make millions in the face of their unpaid players....
The more I have looked into it, the more disenfranchised I have become of big time college sports. Worse is I hate the rank hypocrisy that is thrown in your face as a sports fan. And I am a huge sports fan. I am as big of a capitalist as any out there and don't have any problem with any coach or school making money. When you use the government and "non-profit" institutions to manipulate & oppress others so they can't get the same opportunity that's when I have a problem! One of the reasons I am a sports fan and a capitalist at heart is I love competition. However there isn't a level playing field for those that risk it all, the kids/students/players. So let's call the situation what it really is: SLAVERY. South Park doesn't pull any punches when it mocks the whole sham. Enjoy and remember careful what you support when you spend your money and time watching collegiate athletics.
Tuesday, September 13, 2011
Monday, September 12, 2011
Saturday, September 10, 2011
In my opinion this 2006 National Geographic released "Inside 9/11" documentary is one of the best out there. It tells the whole story from before and during the traumatic attack. The 10th anniversary of the attack is tomorrow and will be on everyone's mind. We should never forget about those that will do us harm, those who gave their lives that fateful day, and those who continue to protect us from terrorists. So if you haven't seen Inside 9/11 please make a point to watch it tomorrow on National Geographic Channel or buy the DVD.
Thursday, September 08, 2011
To give you a brief overview for the links I will start with the Swedish banking model. In the late 1990s Sweden had a banking crisis. Instead of kicking the can down the road by bailing them out they put them into receivership wiped out stock holders & made the bond holders take haircuts. After the banks were recapitalized they recovered in relatively short order. Completely unlike our current crisis or please see Japan as the poster child. Barry Ritholtz over at the Big Picture blog has discussed this at length. Please follow the links to learn more:
Go Swedish, part 47
How-to Guide for Fixing America's Banks
Who Bears the Costs of Post-Crisis Recovery?
The Tiny Country of Iceland did the same as Sweden to the chagrin of the international banking community. The British & Dutch governments were also upset because their countries had the bulk of deposit coverage when they failed. In short Parliament via popular sentiment defied the Prime Minister and told the investors in these ridiculously leveraged banks to pound sand. The people of Iceland came out in force to demand that no unnecessary debt burdens would be put on their shoulders. After a short painful process of inflation through the resulting currency depreciation Iceland is on the road to recovery. Real recovery not some debt induced Keynesian short term recovery. The proverbial rip the band-aid off versus slowly pulling it off.. Basically the opposite of Japan, Europe, and the United States' solution. For further information definitely follow the Wikepedia link to learn more.
One more wrinkle to the Icelandic situation and why I will put them over the top on the "model" battle. They are prosecuting those in power that let the craziness of leverage & poor lending practices prevail. Rightly so!!! We still haven't prosecuted anyone of substance for the fraud and excess that went unchecked. Here is the link please read on!
Iceland tries ex-premier over collapse
Monday, September 05, 2011
Do I use/like Amazon.com? Yes!
Do I think California taxes are too high? Yes!
Do I generally think businesses are taxed too much? Yes!
Do I think certain businesses should get special treatment? Absolutely not!
So it's unbelievable to me that Amazon would be so bold to try to "buy" a special tax deal from the state of California. Reuters is reporting that Amazon is offering up to 7,000 jobs if California drops its online sales tax for 2 years.
To me business/capitalism needs a level playing field where competition is key. The businesses are forced to compete by giving benefits to the end consumer of a better product or service. When businesses have an unfair advantage that skews the marketplace. In this instance Amazon has the ability to undercut brick & mortar businesses in California by about 9-10%. (Unbelievable state & local taxes are that high. We get so little for it too) This hurts a lot of small business too. And leads me to the point that is unseen by many. That of course is that large businesses have the unfair advantage of being able to negotiate special tax treatments or deals that small businesses just can't. They also have a vast team of accountants and lawyers that are able to expose the tax loopholes. Not withstanding a lot of the loopholes in corporate tax code is designed to be exposed by "privileged businesses" in privileged industries. The most notable example is all the special benefits and treatments for real estate & construction of late. (Not shocking a disproportional of resources & energy went to fueling that bubble) I feel strongly simplifying the tax code and yes, even reducing tax rates benefit business, job creation, and in particular small business. Many studies have proven that small business is the real driver of jobs, not larger businesses and especially not government.
A note to investors of Amazon. Be careful of the effects of these new tax laws on Amazon's bottom line. Margins are already thin and the share price is already at "explosive growth" valuation with P/E ratio of 92 based on the closing price on 9/2/11. Is Amazon an innovative company in retail & cloud computing? Yes. I will still continue to use them because I hate wasting time driving to the mall and shopping when I can do it from the friendly confines of home. This by no means is a recommendation to buy or sell AMZN. Just make sure to do your homework with this investment or other for that matter.
Thursday, September 01, 2011
Caption: "June 3, 2003: Determined to cut red tape and reduce the regulatory burden are (l-r), Office of Thrift Supervision Director James Gilleran, Jim McLaughlin of the American Bankers Association, Harry Doherty of America's Community Bankers, FDIC Vice Chairman John Reich and Ken Guenther of the Independent Community Bankers of America"
Mentioned in William Black's: The Great American Bank Robbery
Hmmm I wonder if this will end badly??? This one you can chalk up to the Bush Administration & Alan Greenspan for leading the charge to make regulators useless. Greenspan was the most egregious by favoring "competition" between the regulators where banks had the ability to choose and change the regulators on a moments notice. So "regulators" jumped over each other to try to win business by being the most lenient. Well they won but America lost.
Watch the video and spread the word about the fraud!
Wednesday, August 31, 2011
Today was the last market day of the bumpy month of August. We saw a ton of volatility in the beginning and a market rebound off the lows at the end of the month. Many have asked what are the reasons for the rebound and what is the near future outlook? Besides the traditional oversold bounce from such a violent move downward the market has been helped in my opinion by Ben Bernanke and the central bank signaling/hinting at major monetary stimulus. The minutes that came out recently and the debate during the meeting makes this more of a certainty.
Back in March I discussed my Thoughts on the End of QE2 and what would likely occur in the aftermath. It appears that my forecast has been accurate... so far. It certainly looks like there is high probability of a “QE3” or other major intervention into the markets. With those hints the markets have responded and are up 8% since Bernanke and the Fed met on August 9th. This is playing out eerily similar to what happened last year and could be beneficial to the stock markets believe it or not. However there are some factors out there that may not lead to the same repeat. Three factors that prevent me from getting out of defensive positioning at this point are: 1. that the economic numbers & 2. the European crisis are worse than this time last year. 3. The last monetary stimulus “medicine” was beginning to show some troubling side effects. Side effects like a run up on commodity prices and risky assets. The medicine didn’t prevent the weak economic numbers discussed in factor 1 that were showing up before the stimulus had been withdrawn (6/30/11). In addition I would like to see some technical breakout on the S&P 500 index to show that this August has been put behind us. Until then be careful out there because the bear doesn't look like its hibernated just yet.
Tuesday, August 23, 2011
A Guest Post (Keynesian Solutions- After Total Failure- try, try again) over at Zerohedge does us all a great service with their undressing our "current" government policy wonks. Current is kinda a misnomer when you consider Keynesian economics have been of every major institution and taught in schools across America since the 1930s! The post is thorough and a must read in its entirety. These paragraphs some it up perfectly:
Please spread these posts around as hopefully more and more will demand a stop to this madness. It must be stopped.
The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do.
The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. You have to give the Keynesians credit. Despite the utter absolute failure of every scheme they have implemented, they will worship their models and theories until they successfully collapse our economic system. Then they’ll blame the Tea Party terrorists who foiled their plans.
None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead. The American people have failed to accept the consequences of their actions. And now we are going to pay a heavy price as Ludwig von Mises predicted:
“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”
Monday, August 22, 2011
Thursday, June 23, 2011
After a month long slumber from posting I have been rudely awaken by "Tiny" Tim Geithner boldly admitting to being in favor of higher taxes for small businesses. I found the link through the Drudge Report. Normally I would give the out of context quotes the benefit of the doubt. (Geithner saying taxes need to go up on the wealthy) However based on the actions of this administration and Tiny Tim, I will not give the benefit of the doubt. Mainly that they refuse to address long term structural deficits in the form of entitlements and they add to the entitlements in the form of health "reform". The Obama administration has done nothing to correct the hidden low effective tax rates born by large business. In a sense they will effectively punish the small business owners and the working (productive) wealthy. If you want to go after somebody go after the "helicopter rich" folks ($2mil+) that earn their monies through capital gains (private equity comp), stock options, and other benefits. The constant solution for Obama has been to focus on raising taxes/revenues versus taking care of the spending problems. I don't pray at the "no tax anytime" alter of most Republicans, but the vast majority of the gaping budget hole has to be filled with cuts.
My solution is level the playing field with my version of the Carrot & the Stick. The Carrot: lower corporate tax rates for all business. The Stick: eliminate all subsidies in the form of corporate welfare & simplify the tax code. Loopholes are created and exploited by the larger corporations. Small biz doesn't have the ability to employ legions of lawyers & accountants nor has the ability maneuver operations oversees. This all would be revenue neutral and in time would grow revenues as business and capital infusion will sustain new business activity.
Until there are real solutions that fix these long term structural problems business and individuals will be frozen in uncertainity and we as a country will not be able to heal from the decades of profligate spending & excess. Expect a muddle through economy at best and continued pressure on capital markets absent of temporary government & monetary intervention.
Monday, May 16, 2011
Monday, May 02, 2011
There is a ton of different takes on the news of Osama Bin Laden's death. What I will add to the mix is something others have stated before this weekend's news. Basically Bin Laden is an absolute coward confirmed with where he's been "hiding" the past 5+ years. This is not a "freedom" fighter battling in the front lines with his "troops". He was certainly not a field general living in caves in a tough environment. Nope this born into luxury pile of horse excrement ended his life in luxury before the seal team double tapped him in the dome. Living in a resort town confirms the fraud as he always was. 72 Virgins... nope there is a special place in hell for this asshole.
Sunday, April 24, 2011
President Obama ceases to amaze me with Yahoo News' report "Team to probe oil market fraud, manipulation." Talk about a red herring issue. Seriously Obama!?!? Oil market manipulation??? How about the fact your government's borrowing 40 cents on every dollar spent? The last couple years have been some of the largest deficits in the history of the United States. Or perhaps its the Federal Reserve Bank blatantly printing money over the last couple of years? Unbelievable that folks don't call him out on this chicanery. The same ol' politics as usual is one of the most disappointing issues that I have with Obama as president. He promised "change" and its been anything but when it comes to transparency and shifty politics.
Wednesday, April 13, 2011
The Bond Buyer reports on congress looking into possibly doing away with the tax exemption on new Municipal Bond offerings. This is a risk that most will hush away as an impossibility. However Investment Mercenary favorite Jeffrey Gundlach hasn't nor have I. See: Gundlach: Two Ways to Lose in Munis
Senators Ron Wyden (D) & Dan Coats (R) introduced tax-reform legislation to eliminate the tax exemption. They would institute in its place a tax credit scheme to allow certain tax advantages with the bonds. If the budget deficits continue with no realistic plan this sacred cow for high tax states & investors could be in trouble. The budget problem is dire as I outlined in the post: Budget Crises Averted??? To fix the mess nothing will be safe when it comes to cutting or raising taxes.
Here are the consequences I see initially if this was ever to pass.
- Municipalities would see their interest costs go up significantly
- At this current time it would crater an already skittish market
- Less benefit for wealthy individuals to fund municipalities
- Municipalities would be forced to compete with other debt financing in the market place
- Municipalities would be forced to compete with all other debt financing creating a level playing field
- Competition would force municipalities have the same stringent accounting as other bonds
- Lower income investors would receive a much better yield that leads to a better tax benefit
Monday, April 11, 2011
Today's news of Fukushima getting the same severity level as Chernobyl is a big deal. A very big deal. In a months time the Soviets had mobilized 500,000 troops & "volunteers" to fight the meltdown in Chernobyl. Japan has a few hundred people working on it. Oh by the way Chernobyl had one reactor meltdown versus at least 2 of the 6 reactors at Fukushima. Crazy people aren't more pissed about the lack of transparency & effort from the Japanese government. The good news is the amount of radiation released is supposedly 10% of the levels of Chernobyl. The bad news is the problem hasn't been contained in Fukushima. The silver lining to this news is that by recognizing the severity of the situation (albeit late) Japan and the world can mobilize with maximum effort.
Bloomberg is on top of it with more details.
- Posted using BlogPress from my iPad
Sunday, April 10, 2011
Arnott: Market Hyped Up on Stimulus
Saturday, April 09, 2011
My take on it is simple and is best summed up when I talk to different people about it.
Liberal Friend: "We need to not spend as much on defense and foreign wars"
Hunter: Yes you are 100% correct!
Conservative Friend: "We need to cut spending on entitlements like Medicare & Social Security"
Hunter: You're damn right we need to!
Liberal Friend: "If our country eliminated the corporate tax loop holes & corporate welfare/subsidies we could start to get this budget under control."
Hunter: Absofucklutely we should do that and create a level playing field for business! I'm looking at you General Electic!
Conservative Friend: "Our government bureaucracy has grown so large and bloated we need to eliminate programs and privatize where we can."
Hunter: You my friend are preaching to the choir!
Liberal Friend: "We are going to have to increase revenues in the forms of taxes."
Hunter: Damn, you are right. I don't like it but we are going to have to fix this mess. I say we eliminate some of the 3.8million pages of IRS tax code by getting rid of a ton of deductions and raising the effect tax rate. Taxes are going to have to go up in one form or another.
Conservative Friend: "The country/states/cities spend too much on inefficient unionized government workers that have higher pay and outrageous benefits compared to those they take from in the form taxes."
Hunter: So you're saying that we shouldn't pay somebody more in their lifetime for not working (pensions) versus working. Then not allow them to collectively bargain against the "people" where there is no alternative, but to be forced to work with the union & its demands. It sounds like there is zero competition. Well that doesn't make sense at all. Why wouldn't anybody want to curtail their power and cut where you can? That's brilliant!
Well what does this dialog sound like? It's AUSTERITY and its coming to a neighborhood near you. We can deal with our problems by easing into austerity and "lick our wounds" over time. Or we can continue to procastinate and get 100% Austerity sooner then we think when our economy & government collapses. Then we might be looking at possible a deflationary depression or a hyper-inflation crisis. Not fun.
I don't find these problems and solutions difficult to identify no matter what political side of the fence you come from. We all have to live together so let's come together and fix this mess. The sacred cows of both political parties will have to be put to the alter! People should be pissed off and demand this political charade stop!
Friday, April 08, 2011
Thursday, April 07, 2011
Gundlach: Two Ways to Lose in Munis
Wednesday, April 06, 2011
Gundlach: Stock Market Will Have Trouble Topping Bonds
Tuesday, April 05, 2011
"The Commonwealth Bank has become the latest in a long line of lenders to increase its maximum LVR. Over the weekend, the major announced it would allow all new mortgage customers to borrow up to 95 per cent of the value of a property."
"CBA’s general manager retail products Michael Cant said the decision to increase its maximum LVR was a response to growing competition for a smaller number of borrowers.
“We are certainly looking to grow our lending to the home loan market,” he said."
The money part of the quote: "...was a response to growing competition for a smaller number of borrowers." Umm that sure sounds like a ponzi scheme to me! They seem to be running out of greater fools and they need to ratchet up the risk another notch to keep this thing afloat.
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Follow the link from the Big Picture blog to get an idea of radiation dosage. I have been meaning to post this for some time...
It puts these posts into prospective and is a good guideline for what's going on in Fukushima
-Footage of the Highway to Fukushima
-Best/Scariest Chernobyl Documentary: Battle for Chernobyl
Monday, April 04, 2011
I find it unbelievable that after what the US & Europe have been through over the last 4+ years with the housing bust that folks around the world would be more vigilant to preventing it from occurring. Well at least temporarily from occurring. History teaches us that humans are bound to repeat similar mistakes. Mark Twain's quote says it best, "history doesn't often repeat itself but it sure does rhyme". Anytime I can quote Twain I take that opportunity! Well the shocker in all of this is Australia hasn't learned 1 bit from the suffering of Europe and the US. Their major banks have all the greatest hits from the housing bubble. I am going to pick on one of their banks but most of them are doing similar irresponsible lending practices. Hell they are trying to out compete each other in the quest of market share without regard to the consequences.
I am going to feature Westpac Bank Corp one of the larger Aussie & New Zealand banks out there. All of this information I will be commenting on is in plain sight and can be gathered on Westpac's website. First I will rattle off some of the terminology like the Rocket & Flexi First Option Loans. Interest Only up to 10 years with Low Doc loan Applications: "If you're self-employed and don't have documentation proof, we can still help." Combination loans that combine a fixed and variable component to the loan. 100% offset loan accounts that act like a margin account. Then a laundry list of different options of: Top-up, Redraw, Portability, Repayment Holiday, Parental Leave, Reduced Repayment, Progress draws for Construction, Smart Pay, and Funds Access. Wow! That my friend is a lot of financial innovation. Now granted some of the options can be useful and are nice. You can put lipstick on the pig, but a pig is a pig. Guess what? Debt is still debt no matter how you dress it up too.
I am in debate with a leading Australian bank analyst and he has passed on some of his reports countering my belief that Housing Bubble in Australia is a major danger. After I look through it I will pass on some of the findings.
*Disclosure: No position in Westpac Bank corp as of the date of this post
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Saturday, March 19, 2011
Monday, March 14, 2011
It’s going to get real interesting this summer as QE 2 is schedule to stop. The markets more than ever are being driven by government policy. As a market purist I am not too comfortable with that, but it is what it is. The $100+ billion/mo of “jet fuel” being added to the system through QE 2/POMO is a potent medicine and it has worked thus far. Asset prices are up and company balance sheets are better than they have been in awhile. The wealth effect is beginning to work as “retail” has started the inflows into Equity Mutual Funds. This could carry the market beyond June, but any speed bump (like the Greece crisis after QE 1 or the current middle east turmoil) could scare retail out again. Some research speculate that with the state of the current US deficits it is impossible for the Fed not to start up QE 3. All of these factors can be viewed as positive.
The flip-side is that there is more and more political/international pressure against continuing that policy. The Fed is not getting the desired “good inflation” in housing. Plus the side effects of the medicine are starting to show up in spots that the Fed can’t be too happy with (food, energy, precious metals, etc.). This should have a detrimental effect on an already over levered consumer. Will companies be able to push that commodity inflation on to the consumer without any ill effects? Pricing power has been weak thus far and that has to be concerning to margins. Leverage is still prevalent in the system and deleveraging hasn’t or (better yet) allowed to take its course. I see more cons than pros.Right now I am bubblish and will hunker down May/June to see how things play out. For fun… my “crystal ball” says that June/July we see the S&P 500 meet a lot of the economist 2011 year end predictions. However by late summer we should see a correction of about 15% and the bearded one institutes QE 3 with an initial market reversal to the positive side. (I don’t think Bernanke will institute QE 3 without a little pain to back him up.) My grand fear is this time it doesn’t work because of the previously outlined bad inflation, margin collapse, higher rates, asset price exhaustion, etc. Plus most of stimulus 2.0 will wear off in 2012 and then we are back to the feared potential tax hikes in 2013. I don’t see what bullets the Fed has to use at that point and we see another bear market with downside of around 30%. 2012 will be a tough year indeed.