The last financial crisis isn’t over, but we might as well start getting ready for the next one.
Sorry to be gloomy, but there it is.
Why? Here are 10 reasons.
1. We are learning the wrong lessons from the last one. Was the housing bubble really caused by Fannie Mae, Freddie Mac, the Community Reinvestment Act, Barney Frank, Bill Clinton, "liberals" and so on? That’s what a growing army of people now claim. There’s just one problem. If so, then how come there was a gigantic housing bubble in Spain as well? Did Barney Frank cause that, too (and while in the minority in Congress, no less!)? If so, how? And what about the giant housing bubbles in Ireland, the U.K. and Australia? All Barney Frank? And the ones across Eastern Europe, and elsewhere? I’d laugh, but tens of millions are being suckered into this piece of spin, which is being pushed in order to provide cover so the real culprits can get away. And it’s working.
2. No one has been punished. Executives like Dick Fuld at Lehman Brothers and Angelo Mozilo at Countrywide , along with many others, cashed out hundreds of millions of dollars before the ship crashed into the rocks. Predatory lenders and crooked mortgage lenders walked away with millions in ill-gotten gains. But they aren’t in jail. They aren’t even under criminal prosecution. They got away scot-free. As a general rule, the worse you behaved from 2000 to 2008, the better you’ve been treated. And so the next crowd will do it again. Guaranteed.
Former Lehman Brothers Chief Executive Officer Richard Fuld defiantly told a financial inquiry panel Wednesday his company could have survived the 2008 financial meltdown if it had only received some cash from the feds.
He told the Financial Crisis Inquiry Commission Wednesday afternoon that the company failed only because it was denied support given to its competitors, like Morgan Stanley and Goldman Sachs. He said the company made some mistakes, but those errors were also made by its competitors and by government officials.
The remarks in a Senate hearing room show that Fuld is still angry over the fact that Lehman was allowed to fail while other big banks got a government bailout.
“The big mistake that was made was that Lehman, as a sound company, was mandated to file for bankruptcy,” he said. The company had “derisked” in 2007 and 2008, he said, and added that he never received a negative assessment of the company’s amount and quality of collateral, which the Fed says was insufficient.
Once again, let’s go over it. The feds = those guys who investigate mafia murders. The Fed = those guys who murder the purchasing power of the dollar. Got it? Not the same. I know it’s really confusing since the Fed uses that whole .gov we’re government we swear crap, but come on, even my 7 year old knows Obama isn’t Ben Bernanke’s boss. Well, of course my 7 year old does, maybe he should be writing for Politico instead of this Simmi Aujla hack who doesn’t know the difference between "feds" and "the Fed"?
Yesterday’s "paper" (more in the napkin sense than as a synonym for "intellectual effort") by Mark Zandi and Alan Blinder, which was nothing more than a glorified cover letter for selected perma-Keynesian posts in the administration’s Treserve complex, was so outright bad we did not feel compelled to even remotely comment on its (lack of any) substance. A man far smarter than us, Stanford’s John Taylor (the guy who says the Fed Fund rates should be -10%, not the guy who says the EURUSD should be -10), has taken the time to disassemble what passes for analysis by the tag team of a Princeton tenurist (odd how those always end up destroying the US economy when put in positions of power), and a Moody’s economist, who is undoubtedly casting a nervous eye every few minutes on the administration’s plans for EUCs and other jobless claims criteria. Below is his slaughter of dydactic duo’s demented drivel.
Yesterday the New York Times published an article about simulations of the effects of fiscal stimulus packages and financial interventions using an old Keynesian model. The simulations were reported in an unpublished working paper by Alan Blinder and Mark Zandi. I offered a short quote for the article saying simply that the reported results were completely different from my own empirical work on the policy responses to the crisis.
I have now had a chance to read the paper and have more to say. First, I do not think the paper tells us anything about the impact of these policies. It simply runs the policies through a model (Zandi’s model) and reports what the model says would happen. It does not look at what actually happened, and it does not look at other models, only Zandi’s own model. I have explained the defects with this type of exercise many times, most recently in testimony at a July 1, 2010 House Budget Committee hearing where Zandi also appeared. I showed that the results are entirely dependent on the model: old Keynesian models (such as Zandi’s model) show large effects and new Keynesian models show small effects. So there is nothing new in the fiscal stimulus part of this paper.
Even a win in the World Cup soccer tournament won’t save Europe. Nor will the G-20 meeting in Toronto this week. With Grecian urns, Irish eyes, Spanish flies, and Portuguese waterdogs all up to their eyeballs in debt, it’s only a matter of time before the whole venture implodes. Even after an almost trillion dollar bailout across Europe, Moody’s Investors Service last week downgraded Greece’s debt from A3 to Ba1--junk bonds.
We’ve seen this movie before—in 2008, when it was banks, not countries, reeling out of economic control. Once you recognize this pattern—desperate nations behaving just as the desperate banks did—the next 12 months of news will all make sense. Here is a handy guide.
Greece is clearly Bear Stearns. They’ve taken on too much debt, used derivatives created by Goldman Sachs to put off payment well into the future, and aren’t generating enough tax revenue to pay for their bloated expenses. The cost of Greece’s debt financing is skyrocketing, now 8 percent higher than the benchmark German bund. Either Athens defaults, causing more firebombs to be tossed and even larger riots in the streets, or the European Union arranges a takeover by deep-pocketed Germany.
Germany is the JP Morgan of this story. It will provide a lowball 200 billion Euros to Greece and then end up paying 1000 billion, reminiscent of JP Morgan offering $2 and then paying $10 for Bear Stearns. Now wait a second, I can hear you complain, countries can’t merge like companies.
Of course they can, it happens all the time—though usually when tanks roll. Ask Poland. Or Hungary. In this case, Germany won’t legally own Greece, but in reality, it will absolutely be in charge of fixing Greece’s mess. My sense is the Germans will be quite good at tax collection and not so strong at dismantling the welfare state. But Greek debt will be resolved and maybe the Euro will even rally.
But it won’t be over quite yet. That’s because sadly, Spain is Lehman Brothers. With 22 percent unemployment, and loaded with debt and deteriorating real estate prices, who is going to save it? Tongues will wag that defaulting on debts will teach a lesson to countries that live beyond their means. As a huge exporter,…
In what could one day be seen by historians as a seminal speech presented before the Paul Volcker-chaired Group of Thirty’s 63rd Plenary Session in Rabat, the ECB’s Lorenzo Bini Smaghi had two messages: a prosaic, and very much expected one: of unity and cohesion, if at least in perception if not in deed, as well as an extremely unexpected one, in which the first notable discords at the very peak of the power echelons, are finally starting to leak into the public domain. It is in the latter part that Bini Smaghi takes on a very aggressive stance against not only the so-called "inflation tax", or the purported ability of central bankers to inflate their way out of any problem, but also slams the recently prevalent phenomenon of fear-mongering by the banking and political elite, which has become the goto strategy over the past two years whenever the banking class has needed to pass a policy over popular discontent. The ECB member takes a direct stab at the Fed’s perceived monetary policy inflexibility and US fiscal imprudence, and implicitly observes that while the market is focusing on Europe due to its monetary policy quandary, it should be far more obsessed with the US. Bini Smaghi also fires a warning shot that ongoing divergence between the ECB and Germany will not be tolerated. Most notably, a member of a central bank makes it very clear that he is no longer a devout believer in that fundamental, and false, central banking religion – Keynesianism.
First, a quick read through the "prosaic" sections of Bini Smaghi’s letter.
Bini Smaghi, who is a member of the executive board of the ECB, has a primary obligation to defend the ECB’s public image in this time of weakness and complete lack of credibility. And so he does. When discussing the ECB’s response to the Greek fiasco and contagion, he is steadfast that the response, although delayed and volatile, was the right one. Furthermore, he claims that the hard path Europe has set on is the right one, as it will ultimately right all the fiscal wrongs, even without the benefit of individual monetary intervention. Ultimately, the ECB is convinced that not letting Greece fail, either in the…
"We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays…
We are beginning to abandon our tolerance of the abuse of power by those who betray for profit the elementary decencies of life. In this process evil things formerly accepted will not be so easily condoned…"
Franklin D Roosevelt, Second Inaugural Address, January 1937
The hubris associated with the trading crowd is peaking, and heading for a fall that could be a terrific surprise. It seems to be reaching a peak, trading now in a kind of euphoria.
I had a conversation this morning with a trader that I have known from the 1990′s, which is a lifetime in this business. I have to admit that he is successful, moreso than any of the popular retail advisory services you might follow such as Elliott Wave, for example, which he views with contempt. He is a little bit of an insider, and knows the markets and what makes them tick.
He likes to pick my brain on some topics that he understands much less, such as the currency markets and monetary developments, and sometimes weaves them into his commentary, always without attribution. He has been a dollar bull forever, and his worst trading is in the metals. He likes to short gold and silver on principle, and always seems to lose because he rarely honors his first stop loss, which is a shocking lapse in trading discipline.
His tone was ebullient. The Street has won, it owns the markets. They can take it up, and take it down, and make money on both sides, any side, of any market move. I have to admit that in the last quarter his trading results are impeccable.
We diverged into the dollar, which he typically views as unbeatable, with the US dominating the international financial system forever. He likes to ask questions about formal economic terms and relationships, or monetary systems and policy. He
Richard Fuld, the former chief executive officer of defunct Lehman Brothers Holdings Inc., said the Wall Street firm reported certain repo transactions as sales because accounting rules required it to do so.
“Lehman should not be criticized for complying with the applicable accounting standards,” Fuld said in the prepared text of testimony to be presented to Congress tomorrow.
Fuld reiterated that he had “absolutely no recollection whatsoever hearing about Repo 105 transactions while I was CEO of Lehman.”
Sergeant Schultz Defense
Do you believe Fuld did not know about Repo 105? I don’t. Moreover, Repro 105 was decidedly illegal so it is preposterous to propose "accounting rules required it to do so".
In essence Fuld is pleading incompetence. Moreover, he sounds just like Sergeant Schultz with his ridiculous attempts to exonerate himself. With any luck a smoking gun will turn up and Fuld will end up in prison where he belongs.
Lehman Brothers Holdings Inc (LEHMQ.PK) has sued the U.S. government, asking for the return of some $110 million that the bankrupt investment firm said it overpaid in taxes and penalties in 1999 and 2000.
This is like the arsonist who burns down your house and then sues you because he tripped on an uneven sidewalk out front whilst making his getaway.
I read this twice just to make sure I wasn’t hallucinating.
Hopefully, they’ll divert federal taxpayer funds away from feeding hungry school children to right this egregious wrong.
Fox Business reports that the investigation around Lehman is intensifying. Surely the SEC, now generically equated with objects that float around in sewers in formal conversation, has realized it has to do something, anything, to find at least one scapegoat for the financial collapse. Which is why we read with little surprise Gasparino’s report that "thee SEC has ramped up its inquiry into Lehman’s fall, particularly after court-appointed bankruptcy examiner Anton Valukas issued a lengthy report stating that Lehman’s top executives were “grossly negligent” in possibly hiding the risky nature of the firm’s finances during its final day." What we find much more interesting is that "yet another investigative agency, the Public Accounting Oversight Board — created under the 1992 Sarbanes-Oxley law to investigate and discipline public accounting firms — has launched an inquiry into the role of Lehman’s auditor, Ernst & Young, following the examiner’s report, which accused the big accounting firm of “professional malpractice,” for its work in approving accounting techniques Lehman used during its dying days in the summer of 2008." In the absence of any Wall Street villains, which it is now all too clear have endless diplomatic immunity from prosecution by the corrupt regulators, will the auditor, together with Dick Fuld, be made into the sacrificial lambs? Or will we continue the farce that anything even remotely related to capital markets integrity and reporting is real and valid? Judging by the nearly 60 days of no S&P downticks, the market has answered that question for us.
It was the use of one of those accounting techniques, known as Repo 105, which appears to be at the top of the list of investigators, people with knowledge of the inquiry say. The use of the accounting technique, which is designed to temporarily lower the amount of “leverage,” or borrowing a firm uses to stay afloat thus lowering its risk levels, isn’t necessarily illegal. In fact, Lehman sought and received a favorable opinion from Ernst & Young to use the technique in 2008.
But what might fall afoul of the securities laws, according to people close to the inquiry, is if Lehman turned to the gimmick in a concerted effort to hide its risk level. One person with knowledge of the inquiry say investigators
It’s Time for Reform We Can Believe In
The Fed Must Be Independent
Credit Default Swaps Threaten the System
Too Big To Fail Must Go
And This Thing About Leverage
What Happens If We Do Nothing?
New York, Media, and La Jolla
Casey Stengel, manager of the hapless 1962 New York Mets, once famously asked, after an especially dismal outing, "Can’t anybody here play this game?" This week I ask, after months of worse than no progress, "Can’t anybody here even spell financial reform, let alone get it done?" We are in danger of experiencing another credit crisis, but one that could be even worse, as the tools to fight it may be lacking when we need them. With attacks on the independence of the Fed, no regulation of derivatives, and allowing banks to be too big to fail, we risk a repeat of the credit crisis. The bank lobbyists are winning and it’s time for those of us in the cheap seats to get outraged. (And while this letter focuses on the US and financial reform, the principles are the same in Europe and elsewhere, as I will note at the end. We are risking way too much in the name of allowing large private profits.) And with no "but first," let’s jump right in.
Last Monday I had lunch with Richard Fisher, president of the Federal Reserve Bank of Dallas. Mr. Fisher is a remarkably nice guy and is very clear about where he stands on the issues. My pressing question was whether the Fed would actually accommodate the federal government if it continued to run massive deficits and turn on the printing press. Fisher was clear that such a move would be a mistake, and he thought there would be little sentiment among the various branch presidents to become the enabler of a dysfunctional Congress.
But that brought up a topic that he was quite passionate about, and that is what he sees as an attack on the independence of the Fed. There are bills in Congress that would take away or threaten the current independence of the Fed.
I recognize that the Fed is not completely independent. Even Greenspan said so this past week: "There’s a presumption that …
Russ Certo of Brean Capital has penned a superb research note (PDF here). Readers may note that this is a technical essay and it is thought provoking for the professional in the money management and/or for those skilled in the monetary policy arena. We thank Russ and his colleague, Peter Tchir, for allowing us to share their effort with our clients, friends and readers worldwide. Ple...
Question: Do price waves answer the Continuation or Reversal question?More from RTT TvAnswer: Yes when you understand Wyckoff logic, more so if you understand Richard Wyckoff law off 'Effort vs Results' and how it supports the Richard Wyckoff law of 'Supply and Demand'.AMZN price chart with waves colored (the daily price waves are the same formula as PnF wave/bar calculation below, allows sync of price action).
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In Shenzhen's famous Huaqiangbei electronics shopping district, you won't need to stand in any lines or make an appointment for these smartwatches.
At 299 yuan—that's less than $50—you can pick up a smartwatch that looks quite similar to Apple's own creation, complete with replica Digital Crown and touch screen. Like the Cupertino original that went on sale today for seven times the price, the generic offering spotted in this bustling Chinese city features an activity tracker, chat apps, Web browser, and Bluetooth connectivity. A brief demo unveiled shortcomings in the browser with only the text loading on screen.
King Dollar has been on a role since last summer, up over 20% in less than a year. When looking back on the US$, the rally has been rare and nearly historic. Majority of the rally took place inside the steep rising channel above. Over the past month the US$ might have put in a double top. Over the past few days, the US$ has slipped a little below rising support at red arrow above.
Here's an interesting argument by Felix Salmon, although I think he is taking two correct observations and mistakenly attributing a cause-and-effect relationship to them: Bitcoin is going nowhere because women are not involved.
More likely, in my opinion, women are not involved in bitcoin because bitcoin is going nowhere (and they know it). Or maybe, simply, bitcoin is going nowhere and women are not involved.
Nathaniel Popper’s new book, Digital Gold, is as close as you can get to being the definitive account of the history of Bitcoin. As its subtitle proclaims, the book tells the story of the “misfits” (the first generation of hacker-l...
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As we get into the heart of earnings season and anticipate the GDP report for Q1, the investor spotlight has been taken off the Federal Reserve and timing of its first interest rate hike, at least temporarily. Even though Q1 economic growth will undoubtedly look weak, the future remains bright for the U.S economy – even though many multinationals will struggle with top-line growth due to the strong dollar – and any near-term selloff resulting from weak economic or earnings news should be bought yet again in expectation of better results for the balance of the year. High sector correlations remain a concern, reflectin...
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
In my last post (Part 1 of this article), I looked at alternative ETFs that could be used as hedges against the corrections that we have seen during that long 2 year bull run. Looking at the results, it seems that for short (less than a month) corrections, a VIX ETF like VXX could actually be a viable candidate to hedge or speculate on the way down. Another alternative ETF was TMF, a long Treasuries ETF which banks on the fact that when markets go down, money tends to pack into treasuries viewed as safe instruments. In some cases, TMF even outperformed the usual hedging instruments like leveraged ETFs. There could of course be other factors at play since some of 2014 corrections were related to geopolitical events which are certain...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
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Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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