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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (67359)	10/19/2010 6:42:32 PM
From: carranza2	Read Replies (1) \| Respond to of 218068

A bunch of black swans are flapping their wings, IMO, as evidenced by BlackRock and the NY Fed's suit against BofA for the foreclosure mess and other misdeeds related to the selling of toxic subprime sludge. ftalphaville.ft.com My take on that here: Message 26899954

To: TobagoJack who wrote (67359)	10/19/2010 8:12:02 PM
From: pogohere	1 Recommendation Respond to of 218068

Hussman Funds - Weekly Market Comment: The Recklessness of Quantitative Easing With continuing weakness in the U.S. job market, Ben Bernanke confirmed last week what investors have been pricing into the markets for months - the Federal Reserve will launch a new program of "quantitative easing" (QE), probably as early as November. Analysts expect that the Fed could purchase $1 trillion or more of U.S. Treasury securities, flooding the financial system with additional bank reserves. A second round of QE presumably has two operating targets. One is to directly lower long-term interest rates, possibly driving real interest rates to negative levels in hopes of stimulating loan demand and discouraging saving. The other is to directly increase the supply of lendable reserves in the banking system. The hope is that these changes will advance the ultimate objective of increasing U.S. output and employment. Economics is essentially the study of how scarce resources are allocated. To that end, one of the main analytical tools used by economists is "constrained optimization" - we study how consumers maximize their welfare subject to budget constraints, how investors maximize their expected returns subject to a various levels of risk, how companies minimize their costs at various levels of output, and so forth. To assess whether QE is likely to achieve its intended objectives, it would be helpful for the Fed's governors to remember the first rule of constrained optimization - relaxing a constraint only improves an outcome if the constraint is binding. In other words, removing a barrier allows you to move forward only if that particular barrier is the one that is holding you back. . . . [On the demand side,] Broadly speaking, neither businesses nor consumers are finding attractive borrowing opportunities, or have sufficient confidence that they will be able to repay the loans and end up better off. . . . On the supply side, the objective of quantitative easing is to increase the amount of lendable reserves in the banking system. Again, however, this is not a constraint that is binding. The liquidity to make new loans is already present. U.S. commercial banks already hold $1.066 trillion of reserves with the Fed, and another $1.626 trillion in Treasury and agency securities (thanks to Greg Weldon for the graph below). Many banks may very well be insolvent in the sense that their liabilities would exceed their assets if the remaining assets were booked at levels properly reflecting their fair market value, but bank liquidity is not a binding constraint on the U.S. economy here. Meanwhile, the corporate sector is already holding large precautionary balances in cash and marketable securities. Yet aside from predictable upgrades of information technology, the use of this liquidity has been limited to acquisitions, which simply transfer the ownership of existing assets, do nothing to increase output, and may even result in reduced employment. In short, further attempts at QE are likely to have little effect in provoking increased economic activity or employment. This is not because QE would fail to affect interest rates and reserves. Rather, this policy will be ineffective because it will relax constraints that are not binding in the first place. . . . Meanwhile, the best course for the Federal Reserve is to identify specific constraints within the U.S. banking system that create barriers to sound lending, and to formulate specific policies to relieve those constraints. Throwing a trillion U.S. dollars against the wall to see what sticks is not sound monetary policy. By pursuing a policy that relaxes constraints that are not even binding, depresses the U.S. dollar, threatens to destabilize international economic activity, encourages a "boom-bust" cycle, provokes commodity hoarding, and pops off the Fed's last round of ammunition absent an immediate crisis, the Fed threatens to damage not only the U.S. economy, but its own credibility. hussmanfunds.com

To: TobagoJack who wrote (67359)	10/19/2010 11:27:37 PM
From: prosperous	Respond to of 218068

One unintended consequence of the current housing mess with lack of ownership authenticity is that people who want to buy a house until the mess is settled would prefer a new house where ownership title would be clearer over a old house. This could, in short term, encourage builders to build more new houses than what prevailing inventory would dictate; however, in the long run they will be adding to already excess inventory making housing problem even worse due to overbuilding and overcapacity which in fact, we should target at getting rid of instead of adding to if we wanted to deleverage