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

To: forceOfHabit who wrote (100671)	1/14/2009 9:01:49 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 110194

I think the more fundamental problem is that we have been living beyond our means, overconsuming at a prodigious and unsustainable rate. Hmm.. well.. I can understand how that opinion might be reflected with the American consumer, especially related to subprime mortgages. But since most of that capital was provided by Chinese "savers" investing their profits back into US interest bearing instruments that facilitated that consumption, it stands to reason that there was no where else for that capital to go. And the Chinese government certainly had a vested interest in providing "manufacturer" financing to American consumers in order to fuel their own economic growth and employment. My personal belief is that this influx of excess capital to the global markets found a lack of quality investment opportunities, especially since the US Government stopped selling 30 year bonds for a period of time. To absorb that capital, we saw Rating Agencies and investment banks get "creative" with their complex RMBS instruments to the point where no one, even their own analysts, could truly understand the risks. They just relied upon unregulated CDS markets and "trust" between counterparties. The sustainability of our level of consumption can best be gauged, I suspect, by examining the rate of consumption of natural resources. Then, if I understand you correctly, 5-6 billion people cannot reasonably expect to achieve the same standard of living as the American consumer? Kind of Malthusian, isn't it? I can't subscribe to such a belief. However, I do concur that overexploitation of "wild" resources requires a concerted effort towards conservation and management. As it currently stands we have a true "tragedy of the commons" taking place regarding oceanic resources. As for oil, it has NOT been the US that was responsible for the past several years of increased global demand and speculative price hikes. US oil consumption over the past 4 years has pretty much leveled off or declined, while Chinese and Indian demand has surged. If you, like me, preferred a market neutral stance, what sector(s) would you be long, what short? I gotta be looking at the financials, and as a subset, financial insurers and re-insurers. Because if Obama's administration can't restore the confidence of the financial surety sector, it's going to fall upon the Treasury to provide that implicit financial guarantee required for investor capital to feel more secure about returning to the marketplace for commercial paper. This is going to require a solution to regulating the CDS markets. Besides, financials have always led the way out of recession. I don't see this scenario being any different. The question is whether we've seen the bottom yet. I also believe that we need to really and truly readdress the "mark to market" rule for illiquid assets that are still showing expected payouts. Having had banks be required to mark down many of their assets by 80% simply because the credit markets locked up created a tremendous feedback loop that resulted in serious de-leveraging. Btw, the US only permitted 5 IBs to lever up to 40:1 and that was as a response to European banks who had been "gearing" up to even higher ratios for some time. I still submit that Europe is the next shoe to fall later this year. They have also see tremendous growth in their real estate prices. Hawk