The board will discuss aspects of the epic American credit and bond bubble and it's ramifications for investors. Emphasis will be on how to profit from (or at least survive) a bond bear market and/or a credit collapse. Basic entry prerequistes to take this lab: 1. the knowledge that bond prices move inversely to interest rates. 2. an understanding that bonds can lose value if credit conditions deteriorate.
Food for thought:
"A sound banker, alas, is not one who forsees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him".
- John Maynard Keynes
"Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang.
-John Kenneth Galbraith writes in his book "A Short History of Financial Euphoria"
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."
Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay, - 1841
"I can calculate the motions of heavenly bodies, but not the madness of people."
-Issac Newton 1721, after being ruined by the South Sea Bubble
"To combat depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection or production, we want to create further misdirection- a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end."
-Fredrich Hayek, 1933
Once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities will not cease to rise, everybody becomes eager to buy as much as possible and restrict his cash holdings to minimum size… If the credit expansion is not stopped in time, the boom turns to crack-up boom: the flight into real values begins, and the whole monetary system founders.”
-- Ludwig von Mises (1949)
"The truth is that liquidity, the only significant weapon remaining in the central bank's arsenal as decision making moves to the markets, will not necessarily go where you want it to go when you need it to go there."
--Martin Meyer writes in The Fed
‘Ponzi’ finance units must increase its outstanding debt in order to meet its financial obligations.”
A transition occurs over the course of an expansion as increasingly risky positions are validated by the booming economy that renders the built in margins of error superfluous - encouraging adoption of riskier positions. Eventually, either financing costs rise or income comes in below expectations, leading to defaults on payment commitments.
--Hyman Minsky
Springhopemania:
The unsound mental condition, held by newspaper writers, homeowners, real estate people and other shills and canards, that reveals its symptoms through a series of unsound beliefs. The infected repeat, ad nauseum, statements similar to this, often while drooling spasmotically: “In the Spring of 2006, buyers who have not already gotten bad loans, or flippers who have 20 homes on the market - and hopefully sold them- will come to the rescue of a rapidly deteriorating real estate market. SPRINGHOPEMANIA afflicts all races, creeds, religions, and spares no social class from it’s ruthless hold on the victim’s imagination.”
Lab tools:
Terminology important to understanding the impending US-Asian maladjustment Train Wreck:
Message 21107936
Economic releases and data (NBER):
nber.org
Corporate bond spreads:
Message 21439696
Treasury rates and Agency spreads:
rbsgc.com
Bloomberg interest rate quotes:
bloomberg.com
Libor and Constant Maturity Treasury yields, used to price "house as ATM card" reset costs on Adjustable Rate Mortgages:
libor-loans.com
federalreserve.gov
Treasury Dept Auction Announcements and Results:
publicdebt.treas.gov
Paul Kasreil's (Northern Trust) presentation "Inevitable Rebalancing of the US Economy". A must read.
northerntrust.com
Tracking the consumer liquidity trap, Steve Church:
prudentbear.com
Economic Policy Institute chart and synopsis of the degree foreign CBs "finance" US trade and debt imbalances.
epinet.org
Peter Warburton's Debt and Delusion, although written before the serious arrival of heavy handed foreign central banks, still offers a concise overview of "Boyz" synthetic finance: financial assets inflation, gearing, management of expectations, and corruption of savings:
Message 21008670
Rasmussen consumer and investor confidence.
rasmussenreports.com
AMG mutual fund flows:
amgdata.com
Fed repurchase pool:
bullandbearwise.com
Fed OMO:
ny.frb.org
Bank of Japan:
www3.boj.or.jp
Daily Treasury Statements:
fms.treas.gov
Some original thinking on how Fed repos impact markets:
financialsense.com
Assets (loan data) and Liabilities of US commercial banks, released Fridays:
federalreserve.gov
Fed govt securities bought outright (monetized) and FCB activity:
federalreserve.gov
Federal Reserve Economic Data: St. Louis Fed
research.stlouisfed.org
Baltic freight index(BDIY):
quote.bloomberg.com
LME and Comex metal inventories, another good "maladjusted economy" indicator:
kitcometals.com
Fed futures;
cbot.com
Committment of traders (COT) reports:
futuresemail.com
Prudent Bear commentaries; key on Doug Noland's Credit Bubble Bulletin (updated weekends), Marshall Auerback, and Richard Duncan:
prudentbear.com
Financial Sense Online (Jim Puplava), some very good weekend interviews and links to other sites:
netcastdaily.com
Excellent commentary and graphics from Contrary Investor:
contraryinvestor.com
Wall Street Examiner, exceptional "liquidity" tracking and commentary:
wallstreetexaminer.com
Bank Credit Analyst:
bcaresearch.com
Ild's charts and graphs:
idorfman.com
Russ Winter's, Calculated Risk's, Suttrees, and Mish's Blog site, good articles, and links to relevant sites:
xanga.com
calculatedrisk.blogspot.com
wantonignorance.blogspot.com
globaleconomicanalysis.blogspot.com
Ben Jones housing Bubble Blog:
thehousingbubble2.blogspot.com
Yahoo Finance list of toxic loan purveyors and enablers, and outfits who like to sit on high ledges, henceforth dubbed Humpty Dumpties:
finance.yahoo.com |
