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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (53553)	2/12/2006 9:20:07 AM
From: russwinter	Respond to of 110194

Are there any states that have run non-Bubble economics, or where excessive gearing has taken place? > Has NOT taken place would be correct. <input goods prices> And output goods prices.

To: russwinter who wrote (53553)	2/12/2006 10:48:55 AM
From: UncleBigs	Read Replies (1) \| Respond to of 110194

Russ...nice analysis. How do you feel the dollar fares in the credit bust vs. other major currencies? If you think non-dollar liquidity is something to investigate, what vehicles would you choose (currency futures, foreign bond mutual funds, ?).

To: russwinter who wrote (53553)	2/12/2006 1:00:17 PM
From: kris b	Read Replies (1) \| Respond to of 110194

O"k, I'm going to weigh in on the "deflation" debate. I think we are headed for one in asset prices, and the Minsky theory nails it. This is not the same as input goods prices however, and both Minsky and Fisher make a clear distintion, and so do I. I think commodities and input goods will deflate some (depends on degree of gearing and speculation), but not nearly to the degree that financial assets do." What if we have depression twice as bad as 1929-1933 (due to a lot more debt/leverage). Will commodities (with world GDP going down 50%) resist the collapse. I don't think so . Check charts of commodities in that period. The main cost component of the price input is labour. In 1929-1933 the labour rates (for those employed) were kept artificially high, preventing cost input from going down. Today we have world labour arbitrage therefore this component will go down as much as anything else, while countries are fighting for survival. "Are there any states that have run non-Bubble economics, or where excessive gearing has taken place?" Which currency do you want to hold in this scenario?

To: russwinter who wrote (53553)	2/12/2006 2:28:51 PM
From: shades	Respond to of 110194

you can be an Austrian and a liberal - but the Fed is not able to force banks to make better loans or businesses to make better investment decisions. Nor is the government able to get consumers to save money to finance productive investments. Hold up - I thought I have been reading on housingbubble blog that we let regulation of loan officers and thier counterparts and such get away from the control of the banks and regulations and regulators - and this has caused all the CORRUPTION and if we had kept the reigns in on this - things would not be NEARLY so bad? If they would change some laws and arrest some people 3 years ago - maybe things would be different. So we have people like a drug dealer giving out crack rock with no oversight and they fear no reprecussion. The family cant take NO for an answer to a new loan. thehousingbubbleblog.com But many inside and outside the mortgage industry question how much impact the banking directive will have, because so many mortgage brokers operate outside the banking system. Only those that are subsidiaries of banks would seem to be affected. ‘Banking regulators actually have fairly minimal control or even influence over a huge portion of our economy,’ said Christopher Cruise, a Washington mortgage broker. ‘I’m not saying we’re thumbing our nose at the regulators,’ he said. But ‘if I’m a street-level originator licensed by the state of Maryland generating 20,000 loans in a year, and I find rich investors to buy them, nothing the [Office of the Comptroller of the Currency] says has any impact on me.’” “Mortgage companies such as Countrywide, the biggest nonbank lender in the country, appear to be unaffected, he said. ‘I think they own a bank, I don’t think the bank owns them. They sell their mortgages to Wall Street,’ he said.” “Mr. Cruise noted that debt appears to be addictive for some consumers who simply cannot save or go without lavish things. Some will refinance their mortgage at Christmastime, for example, so they can splurge on expensive presents.” “‘I feel like a drug dealer,’ he said. ‘I’m horrified at the empire of debt we’re creating.’ Mr. Cruise said some of his customers are so intent on getting loans, they won’t take ‘no’ for an answer. ‘We’re enablers. We’re just middlemen. In a sense, we profit from their foolishness.’” “Most mortgage brokers today are in their 20s or early 30s and have not lived through a deep recession or other ‘worst-case scenario’ in their adult lives, Mr. Cruise said. ‘I’m not sure the loan officers themselves know what could happen’ if rates rise precipitously or the economy plunges, he said.” “Jack M. Guttentag, a retired professor from University of Pennsylvania’s Wharton School of Business, said it’s not clear whether the guidelines will change anything. ‘What a broker or loan officer tells a borrower is pretty much up to them, so long as they comply with the disclosure laws,’ which don’t prohibit most current practices, he said. ‘That is part of the market culture, and the regulators would have their hands full trying to change it.’” “Mortgage brokers also are right to question whether the directive applies to them, because the Federal Reserve has, at best, distant control over what the nonbank subsidiaries of bank-holding companies do, he said. ‘Many potential borrowers are shocked to discover that there is no registry of bad apples, and no system to certify good ones,’ he said.” “Some financial analysts say the banking directive will have a definite impact on banks as well as on investors who have been using interest-only loans to purchase property. David Lereah, chief economist with the NAR, says he expects the directive particularly to discourage speculators who ‘flip’ properties in transactions that require minimal down payments and liberal loan terms. ‘There will be fewer investors in the market this year,’ he said.” “Deborah Lagomarsino, a Fed spokeswoman, declined to say whether or how the Fed would ensure that its directive is followed by the many mortgage companies not directly regulated by the Fed.”

To: russwinter who wrote (53553)	2/12/2006 2:56:39 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Russ, other than your view on treasuries (I see no position taken in the article) your post is 100% compatible with my views. I have pointed out many times that there was not that much reduction in the CPI in Japan. Japanese assets got clobbered year after year after year in in the unwind of credit bubble. I will do a blog on this, but I agree with almost everything in that article, at least at first glance. Mish

To: russwinter who wrote (53553)	2/12/2006 7:02:35 PM
From: NOW	Respond to of 110194

so what is a guy to do Russ??? enquiring minds want to know

To: russwinter who wrote (53553)	2/12/2006 8:05:17 PM
From: prosperous	Respond to of 110194

Russ We have a synchronous asset price rise and I agree we are likely to see a synchronous asset price decline in years to come. In the 1930's depression Ben Graham suggested that one could avoid getting hit by investing in short term government bonds. That seems like a place to hide if one knew that the resulting asset price decline would not exceed what we saw in the 1930's, however, it is not clear since as you point out US has changed its nature from a creditor to a debtor nation. Also if the depth of the decline becomes more severe its not clear what kind of interactions would be triggered and how the govt treasuries would work in those circumstances. Hemant This is from Ben Graham/Dodd's "security Analysis" classic. On page 6 while ruminating about the 1929 equity crash and subsequent bonds crash they say: "The theory that a sound bond will be unaffected by a period of depression has suffered a rude shock. Margins of safety considered ample to withstand any probable shrinkage in earnings have proved inadequate; and enterprises once regarded as depression-proof are having difficulty in meeting their fixed charges. Hence if our judgement were based primarily on recent experience, we should have to advise against all investment in securities of limited value (excepting possibly short-term government bonds) and voice dictum that both bonds and stocks should be bought only as speculations, by people who know they are speculating and who can afford to take speculative risks" Then they go on to say that: "1927-1933 was a period of extreme laboratory test. The swing of the speculative pendulum during this period was of such unprecedented amplitude as to warrant the belief that it will not recur in similar intensity for a long time to come"