Synchronized Boom, Synchronized Bust
Mark Faber wants to do nothing and let the free market correct the excesses. I agree — but I know its only a pipedream. Given we have already had unprecedented interventions, the let-the-market-correct ship has already sailed. And, no US politician has the stomach for that.
Excerpt:
“As a consequence of this expansionary cycle, the world experienced between 2001 and 2007 the greatest synchronized economic boom in the history of capitalism. Past booms — of the 19th century under colonial economies, or after World War II when 40% of the world’s population remained under communism, socialism, or was otherwise isolated — were not nearly as global as this one.
Another unique feature of this synchronized boom was that nearly all asset prices skyrocketed around the world — real estate, equities, commodities, art, even bonds. Meanwhile, the Fed continued to claim that it was impossible to identify any asset bubbles.
The cracks first appeared in the U.S. in 2006, when home prices became unaffordable and began to decline. The overleveraged housing sector brought about the first failures in the subprime market.
Sadly, the entire U.S. financial system, for which the Fed is largely responsible, turned out to be terribly overleveraged and badly in need of capital infusions. Investors grew apprehensive and risk averse, while financial institutions tightened lending standards. In other words, while the Fed cut the fed-funds rate to zero after September 2007, it had no impact — except temporarily on oil, which soared between September 2007 and July 2008 from $75 per barrel to $150 (another Fed induced bubble) — because the private sector tightened monetary conditions.”
Faber is always interesting to read, and this piece is no exception . . .
>
Source:
Synchronized Boom, Synchronized Bust
Mark Faber
WSJ, FEBRUARY 18, 2009
Bad U.S. monetary policy had global consequences
http://online.wsj.com/article/SB123491436689503909.html
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February 18th, 2009 at 7:50 am
See also
There’s Virtue In Geithner’s Vague Bank Plan
By MATTHEW RICHARDSON and NOURIEL ROUBINI
WSJ FEBRUARY 18, 2009
http://online.wsj.com/article/SB123491676536704371.html
February 18th, 2009 at 9:28 am
Synchronized swimming?
February 18th, 2009 at 9:36 am
Faber was dead-on in his column today–from his history of how we got here, to his prescription for what ails us, to his assessment that we chance an “inflationary depression” by our government’s silly responses. Couldn’t have said it better myself.
February 18th, 2009 at 9:37 am
If by “Synchronized Boom,” you mean ‘unprecedented, organized, criminal enterprise’, and if by “Synchronized Bust,” you mean ‘continuing, organized, criminal enterprise’, I’m in full agreement.
February 18th, 2009 at 9:40 am
Don’t worry people; we’re in a “bottoming process.”
So is falling into the abyss part of the bottoming process? Kind of like saying each day of living is part of the “dying process.” Yes, it’s inevitable, but it doesn’t mean it’s going to happen tomorrow.
I’ll be happier if I never hear that term again…
HCF
February 18th, 2009 at 9:48 am
@HCF
I’m in agreement with you. “Bottoming process” is just another term for buy and hold (please). If I’ve learned anything is that you can’t trade hope.
February 18th, 2009 at 9:48 am
Barry,
How can you agree with a crazy Austrian like Marc Faber. He is like a broken clock, right 2 times a day. The fact that he is predicting an inflationary depression should tell you everything you need to know about him. All serious economists are worried about us falling into a deflationary trap, but guys like Faber and Peter Schiff are still talking about inflation. The performance of their portfolios over the past 6 months should tell you everything you need to know about them.
February 18th, 2009 at 9:52 am
This is what Obama said today: “By bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”
Why should housing prices be shored up? I think it’s a matter of upper-class self interest, not good long term economics.
February 18th, 2009 at 9:59 am
> “By bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”
Not for me… As a renter, I’m really hoping for housing prices to crater so that I’ll be able to buy a semi-decent house in the Boston area for a semi-reasonable price someday without leveraging myself up to my eyeballs. Housing as a whole has so many Ponzi-like characteristics it’s not even funny. I think the powers that be are afraid that most people will finally realize this…
HCF
February 18th, 2009 at 10:11 am
Faber nails it, but even he doesn’t accurately convey the scope of this issue. This chart helps
http://www.comstockfunds.com/files/NLPP00000/292.pdf
It seems hopeless to avoid a Great Depression…note also that we are now even worse, at 359% of GDP and it has not even contracted an iota as of 9/30/08. All the travails so far is just debt growth slowing…not even contracting yet.
February 18th, 2009 at 10:12 am
Most people HAVE realized that housing was a ponzi scheme. Most of those house deals and 2nd loans done since 2001 were based on increasing prices. People knew it was a bubble then – and they were playing the game of bubble economics. That’s why the housing bill just announced will not work. Everyone knows the prices are still inflated. Even those sitting on large equity cannot or will not sell at 50% off the peak.
February 18th, 2009 at 10:25 am
The headline over at Marketwatch is “Obama sets aside $75 billion to stem foreclosures”
Even if the “let the market correct” ship has sailed, we can still be honest with ourselves. The headline should read “President Obama borrow’s another $75 Billion from the Chinese that our children will fight a war over in 10 or 15 years so many can live in a house they can’t afford”
Even if you take the “war” part out, the harshness is matched by reality that we are the most unrealistic generation of Americans.
February 18th, 2009 at 10:27 am
Instead of worrying about what our Congress likes or dislikes, a vote should be taken directly to the American People, on whether or not we should let the free markets take care of this problem. Let the dam thing drop and pick up the pieces. All that government should do is make sure that no one goes hungry, and everyone has a roof over their heads. Just think of how viberant the economy would be coming out it on the other end.
February 18th, 2009 at 10:31 am
This Stanford Group scandal is going to be repeated over and over as people try to get their money out of hedge funds as a result of the Madoff…and it will crush stocks as assets are liquidated.
February 18th, 2009 at 10:34 am
“Mark Faber wants to do nothing and let the free market correct the excesses. I agree — but I know its only a pipedream. Given we have already had unprecedented interventions, the let-the-market-correct ship has already sailed. And, no US politician has the stomach for that.”
It is true what you have stated, however all the ships in question will end at the same place. Some will just cost trillions more and take longer.
February 18th, 2009 at 10:36 am
Barry,
As usual, I was slightly off topic on your last post, I suppose you’ll just have to ban me from your site…
I do, as anyone who has read my ramblings knows, agree completely with your thought that now is the time to let the free market resolve this, and as you also state, we have chosen the other fork, and our leaders will see it through to the end.
The problem folks, is that we are borrowing from future generations to solve this. I am over 50, and would like for my children and grandchildren not to pay for the current mistakes. It isn’t real money…it has become monopoly money, but unlike Monopoly, when this game is over there will be real costs.
The previous 10 years was unsustainable…but that is exactly what our policies are trying to return us to. It was wrongheaded, but now we don’t want to fix the problem so that the country resumes a sustainable flight path???
Financially crippling the future generation so that we don’t feel the pain now…Priceless…(?Costless?)..
February 18th, 2009 at 10:41 am
Machiavelli999:
We are undergoing a deflationary event, but the reasons for it should be questioned. There is no precedent and/or no valid reason for fiat-based economies to undergo such an event (other than protecting the interests of the “elite” among us). To the contrary, and as demonstrated by the sudden reversal from deflation to inflation under both FDR and Nixon, fiat-based currency can be used to stop deflation in its tracks at any time.
February 18th, 2009 at 10:45 am
After letting the bankers destroy the economy, it’s too late to let the markets correct. This is the point in time when we need to take back from the bankers control of our economic future. Let’s save GM and all manufacturing. Let the market take care of the banks.
February 18th, 2009 at 11:00 am
Marcus, asset deflation yes, but price deflation on finished goods??? Even gasoline is starting to take off in the inflationary direction. How many doctors and dentist are dropping their prices? Remember that once Roosevelt took us off of gold, we started to get big time inflation. This time around it is going to be even worse. Which means: Katie bar the door!
February 18th, 2009 at 11:02 am
Kind of off topic, but I found the perfect lyrics for our times:
“But it doesn’t matter cause I’m packing plastic
and that’s what makes my life so f***ing fantastic
And I am a weapon of massive consumption
and its not my fault it’s how I’m program to function”
- Lily Allen
Perfect way of describing how we got into this mess…
HCF
February 18th, 2009 at 11:03 am
“Buy a home, get a greencard (escape a shithole)”. Greencards for anyone who buys a home without any government subsidy in the next 2 years, capped at X million homes.
February 18th, 2009 at 11:07 am
How about this:
Let’s just admit that we’re a bankrupt country and default on all government debt from the Fed all the way down to the cities.
February 18th, 2009 at 11:15 am
BR: Signing aboard the good ship NIHILISM eh Barry. You disappoint me. The chorus of doomseekers here rather remind one of those crowds in Berlin, Vienna and London in 1914.War was going to cleanse the nations of all their evils. Well we know how that turned out don’t we. Some of the cries here have strangely familiar ring to them. Let the mob take over, they know what they are doing. Let’s destroy the banks, after all they are the authors of all our misfortunes. What is this a collective meeting of the The John Birch Society, the Bolsheviks, and the Huey Long admiration society?
Time to grow up folks. Some might want to see 25% unemployment, that’s about 35 million people btw, but it doesn’t seem like a proposition likely to be very attractive to most.
February 18th, 2009 at 11:31 am
I’ve been trying to refine my thinking about this – I think we are in a period of massive deflation, and no, I don’t think the government can print enough money fast enough to stop it, only to slow it down (and drag it out). So let’s say we have a year or two (or three, or four) of deflation, and we hit some sort of “bottom”, and then wham, we get hit with inflation.
What’s the best investment for a long period of stagnation with high rates of inflation? Gold? Commodities? I’d say real estate, but I think at some point we’re going to have very high interest rates, and those are going to keep housing pinned to the mat for quite a long time.
Thoughts?
February 18th, 2009 at 11:32 am
@ottovbvs:
> War was going to cleanse the nations of all their evils.
First and foremost, economic cleansing is very different from war, where physical death is intricate to the process. We’re talking money, which is important, but not THAT important. With that said, no one has said that they hope for utter destruction of the financial system. Some people and organizations took calculated (or in some cases, uncalculated) risks that in retrospect were losing bets. It is therefore fair that they should take the brunt of the pain, as they were the ones who stood to gain the most had the bets paid off in their favor. If we want the least painful solution, you let the insolvent banks and companies wipe themselves out so that we see who the strong players are. If you fortify anyone (from government or private investment), it should be the companies that played their cards right and had some element of risk control. Giving free money to anyone else is just dumping money down the drain…
HCF
February 18th, 2009 at 11:40 am
let me guess – each of these “adjustment” transactions will generate fees for the banks involved…
February 18th, 2009 at 11:41 am
It’s time to tax the upper class… a fair wealth distribution tax… should be required to be paid.
And… then we can reset the game again.
February 18th, 2009 at 11:47 am
Faber’s bias is understandable, he speaks of what he knows as we all tend to do, but there was no economic boom from 2001 to 2007, at least in the developed countries. It was almost strictly a financial boom and, as far as greatest in history goes, only two elements seem to really stand out: 1) it was an extraordinarily powerful refutation of classical economics and confirmation of Hyman Minsky’s credit cycle theory and 2) the rate of employment growth was probably among the lowest of any boom in the history of capitalism, nearly an order of magnitude smaller than the previous period; e.g, http://www.bls.gov/webapps/legacy/cesbtab1.htm
The degree of criminality, while very large, does not seem extraordinary for our species although its audacity and scope were rather breathtaking at times. The degree of denial or stupidity seems quite large too but also not particularly extraordinary; e.g., those who caused or facilitated the crisis are for the most part taking no responsibility for it and can readily be counted among those who claim they can fix it, in many cases by implementing exactly the same policies that facilitated or failed to prevent it in the first place.
It really does seem similar to the Gilded Age: A few powerful individuals claw their way to the top of the heap, crushing opponents and the weak alike, while febrile onlookers cheer and dream of the day they too might similarly prevail even as they too head for the offal heap along with the rest.
February 18th, 2009 at 11:49 am
BIg E says: “What’s the best investment for a long period of stagnation with high rates of inflation? Gold? Commodities? I’d say real estate, but I think at some point we’re going to have very high interest rates, and those are going to keep housing pinned to the mat for quite a long time.”
At some point you would have to say oil, natural gas and agricultural commodities. They ain’t making less people in the world and they are all eating, cooking, and driving around, whether or not they are selling real estate…
Inflationary depression may be the worst nightmare to come out of this but if you analyze the situation of the US relative to many other countries instead of just inspecting your national navel, you’ll see it is one possibility that has to be reckoned with. BTW, I agree with the “soak the super-rich” idea of arcticpup. Bring it on.
February 18th, 2009 at 11:55 am
HCF Says:
February 18th, 2009 at 11:32 am
@ottovbvs:
> War was going to cleanse the nations of all their evils.
“First and foremost, economic cleansing is very different from war, where physical death is intricate to the process. We’re talking money, which is important, but not THAT important.”
……..You might want to read a couple of books about the great inflation in the Weimar Republic.
“It is therefore fair that they should take the brunt of the pain, as they were the ones who stood to gain the most had the bets paid off in their favor”
……..I often wonder you think “they” are. The pension funds, small investors, 401k’s, educational endowments, charities, museums, et al who own the stock and debt of all these financial institutions and whose money will no doubt be needed again to recapitalize these institutions not to mention preventing them from pulling their money out of sound ones……When you’ve finished the books on the Weimar Republic I can recommend a couple of Wagner operas.
February 18th, 2009 at 11:57 am
ottovbvs “Time to grow up”?
Markets correct. When rules or force is used to forestall market correction, all it really does is trade off price behavior for time in the correction process without guaranteeing any eventual outcome. Go back in history and show me a real estate market in Europe that had an boom cycle without a bust that did not last a long time. Once the illusion that “real estate never loses money” was shattered for average American’s, the market for houses will never be the same and that has implications for everything else.
Standing on your illusion that somehow it can/will be controlled is the equivalent of denial. The first stage of mourning. What you see as nihilism is really a good faith effort to first own up, and then say “Now What?”
February 18th, 2009 at 12:02 pm
As someone in one of the recent links posited: Debt is Indenture to the System. Keep them chained to their mortgages.
This plan will provide some homeowner relief, but that is not the goal. The goal is to maintain social stability, feed the big incompetent banks, and try to juice the real estate market for the big boys.
But I don’t see any of this addressing the core issue that is going to continue to drag us down: we have an inadequate ability to sustain existing personal income levels, much less an ability for improvement.
That was the whole point of the feds allowing the real estate bubble in the first place.
And it also keeps government revenues flowing.
They are trying to preserve a corrupt system as the only way to avoid chaos and collapse, using the only groupthink tools at their disposal.
One very, very old technique that worked was to suspend interest. Rumor has it Islam considers that immoral.
February 18th, 2009 at 12:18 pm
@Otto:
Perfectly said as one of the ME generation…I’ll just let the next group pay for my mistakes…I never want to have to cut back on what I have….after all, it is mine. I got mine…you worry about yours in the future, grandkids…
February 18th, 2009 at 12:18 pm
DM RTA Says:
February 18th, 2009 at 11:57 am
ottovbvs “Time to grow up”?
“Standing on your illusion that somehow it can/will be controlled is the equivalent of denial. The first stage of mourning. What you see as nihilism is really a good faith effort to first own up, and then say “Now What?”
……No it’s not. You clearly haven’t read Faber’s article, particularly the last para. What’s being proposed and you and apparently BR agree with, is that we just leave it all alone and let the market take care of it. Er…..isn’t letting the market take care of it widely considered by many, including BR as I recall, to be one of the two or three principal principal causes of this entire mess.
February 18th, 2009 at 12:22 pm
@Big E:
Great question!!!! I have answered it in the past. Right now you short the market during the deflation. When deflation is over (tricky to call the right moment, but I’d say around 2012) you buy not gold, but gold miners. There will be an extraordinary demand for gold and the cost to mine it will be dirt cheap. That will cause an explosion in mining profits.
February 18th, 2009 at 12:26 pm
Bruce N Tennessee Says:
February 18th, 2009 at 12:18 pm
@Otto:
Perfectly said as one of the ME generation…I’ll just let the next group pay for my mistakes…I never want to have to cut back on what I have….after all, it is mine. I got mine…you worry about yours in the future, grandkids…
….You never did say why you had no problem with passing onto our grandkids the roughly five trillion or six times the stimulus that has been added to the national debt over the last eight years. Apparently there’s ok legacies and not ok legacies. It’s true I don’t share your apparent enthusiasm for recreating the great depression, so we can all feel good about ourselves, I rather think that makes me a member of the commonsense generation probably because I was much closer to the real great depression than you.
February 18th, 2009 at 12:31 pm
@Machiavelli999,
You are kidding right? What portfolio of Faber’s are you referring to exactly? I read every single letter he publishes he’s been hard core into physical gold for a long long time, further, he rec’d buying stocks and very specific names such as FCX back around the end of Nov, for a trade.
I think if you actually looked instead of just stating what you think you’d find his performance to be stellar over the past 6 months.
All serious economists….., lol.
February 18th, 2009 at 1:06 pm
BR: Typo at the top. It is Marc Faber, not Mark. It’s investor, not inwestor.
Ben22: Thanks for saying what I was thinking. The guy has been spot on for 2 years at least.
Bruce in TN: I agree completely with you regarding the next generation. This is how great nations decline.
February 18th, 2009 at 1:15 pm
The worst, to me, is the current crop of economists who scream: “more money, more money”.
So now we spend trillions and a generation from now somebody will say we should have spent a quadrillion.
There is no evidence for the effectiveness of stimuli; depressions in the 1800s were shorter than the one in the 1930s. That is evidence in favor of staying out of the way.
What those economist SHOULD be spending time on is something that seems utterly ignored within that profession: finding the maximum amount of credit that can exist without triggering a collapse. Knowing that might prevent the next incident.
February 18th, 2009 at 1:19 pm
@wally: Didn’t the Depression of 1873 last nearly 20 years though?
February 18th, 2009 at 1:36 pm
wally Says:
February 18th, 2009 at 1:15 pm
There is no evidence for the effectiveness of stimuli; depressions in the 1800s were shorter than the one in the 1930s. That is evidence in favor of staying out of the way.
….Actually there’s a bunch of evidence that recessions/depressions in the period 1845 to 1945 were both deeper and more prolonged than those postwar slowdowns when Keynesian economics became generally accepted as a means of modulating economic activity.
….@Mannwich The 1873 failure of Jay Cooke and Co depression is reckoned to have lasted for about 5.5 years although that should be long enough to satisfy all those anxious to return to those happy times when the market took care of it all.
February 18th, 2009 at 1:37 pm
@ottovbvs
>……..I often wonder you think “they” are. The pension funds, small investors, 401k’s, educational endowments, charities, museums, et al who own the stock and debt of all these financial institutions…
Yes, I understand that “they” may include small investors, widows, and crippled, blind, orphaned children with cute puppies. However, you cannot dismiss the fact that each group (or their proxy) had free will to choose his/her set of investment. You can be 100% long, 100% short or anything in-between (or more if you are leveraged). You can be invest in everything from treasury bills, to stocks, to Bernie Madoff, to Barack Obama collectors plates. There is a reason some people chose Citi or GM stocks versus an FDIC insured CD or treasury bills. It’s because they thought they could make more money that way. But as with anything in life that potential reward is coupled with additional risk and in this case, some people LOST. If you have less money, you spend less; you don’t beg the taxpayer to bail you out.
Furthermore, it’s questionable whether any amount of stimulus will cushion the economy’s fall at an acceptable cost (i.e. bad recession/depression is very bad but collapse of dollar is worse). I’d really like to will away gravity as I am falling to the earth from 10,000 feet without a parachute, but it’s really not a realistic proposition. Perhaps the solution is to hijack the parachute from someone else who packed one? Maybe that’s what I’m entitled to…
HCF
February 18th, 2009 at 1:43 pm
leftback Says:
February 18th, 2009 at 1:06 pm
Bruce in TN: I agree completely with you regarding the next generation. This is how great nations decline.
…….You might want to check out public debt as % of GDP in 1945 as we headed into national decline……And if you don’t like Democratic presidents try 1988 after 8 years of the sainted Ronnie when we were clearly heading into another disastrous 12 years……Or if you want to go back further how about Great Britain in 1815…….Great nations decline for all kinds of reasons, it’s a lot more complicated than public debt.
February 18th, 2009 at 1:50 pm
Whereas I agree with your premise that starter homes have to be affordable, I am not sure that affordability absolutely must be accomplished by lower home prices. It is the monthly payment compared to the monthly after tax household income that determines true affordability. So interest rates, length of loans and taxation of midlevel income are as important for affordability as the actual cost of the house. In some European contries houses for sale are advertised by monthly cost before and after the tax advantage, sometime even without mentioning the total price. Using monthly (or annual) payments and total household after tax incomes becomes particularly important if you want to compare prices to historical prices when number of working adults per household as well as interest and taxrates may have been different.
February 18th, 2009 at 1:59 pm
HCF Says:
February 18th, 2009 at 1:37 pm
“Yes, I understand that “they” may include small investors, widows, and crippled, blind, orphaned children with cute puppies.”
Private lack of info or understanding, cupidity, etc which you dismiss in a rather tired way, if I may say so, hardly justifies public economic suicide which is going to impact lots of folks who never personally made an investment decision in their lives. I assume you have no wish to protect elderly widows from religious con artists or children from playing with guns either since these are also manifestations of the moral hazard.
(i.e. bad recession/depression is very bad but collapse of dollar is worse).
……And unless you’d noticed the dollar isn’t collapsing. I’d drop the banal cliches about puppy dogs and parachutes and focus on reality.
February 18th, 2009 at 2:06 pm
@leftback,
It’s a sad state that guys like Faber somehow get lumped in with peter schiff over the last six months performance. Faber has been making good investment calls for almost 20 years now and as you say he has been so very right for a couple years running, it is actually pretty amazing what he’s said during that time and how it has come to pass. I also find him very funny. Had you bought call options for example on some of the stocks he referenced in November you just cleaned up. As if 6 months means anything anyway but this is exactly what Grantham means when he speaks about career risk. You could make a client several hundred percent over a long period but lose 20% in one year in a bear market and you are a fool, you are washed up, you suck.
I understand this frustration, to an extent, and last year some MF managers really made fools of themself but lets not lump guys like Faber or Doug Kass (saw someone here bust on Kass the other day about being bullish, lol, in the same group as a Rich Pzena or Bill Miller) The fact that lately they make short term bullish calls doesn’t mean they just bought and held, in fact, I wouldn’t ever expect that from either of them. Even if Faber did have a bad six months did that make him wrong? My guess is the person that posted above is talking about Mish when they state that “serious economists” are worried about deflation given that peter schiff entered into the conversation, that line about serious economists is a laugh.
Oh well, I have to imagine even BR gets annoyed by this kind of stuff. I don’t know why but that Faber comment just bothered me. I’m too big a fan I guess. I saw someone on a thread here the other day trying to call BR out with his call back in Oct. when he set up for a trade, which BR had to shoot down, I just wonder what the hell people are thinking when the write that sort of thing. They will never get it.
February 18th, 2009 at 2:45 pm
“I understand this frustration, to an extent, and last year some MF managers really made fools of themself but lets not lump guys like Faber or Doug Kass”
….A word of support on Kass. He’s been entirely consistent and sensible throughout this entire mess except that its turned out even worse than he expected. I can remember a couple of years ago BR appearing with him on one of the Kudlow jokefests as the voices of sanity. Of course both were shouted down. Kass is calling a cautious bottom, with lots of caveats, and basically I agree with him.
February 18th, 2009 at 2:54 pm
ottovbvs Says:
February 18th, 2009 at 1:43 pm
leftback Says:
February 18th, 2009 at 1:06 pm
Bruce in TN: I agree completely with you regarding the next generation. This is how great nations decline.
…….You might want to check out public debt as % of GDP in 1945 as we headed into national decline……And if you don’t like Democratic presidents try 1988 after 8 years of the sainted Ronnie when we were clearly heading into another disastrous 12 years……Or if you want to go back further how about Great Britain in 1815…….Great nations decline for all kinds of reasons, it’s a lot more complicated than public debt
http://www.usgovernmentspending.com/federal_debt_chart.html
…..To make it easy here’s a link.
February 18th, 2009 at 3:07 pm
Well..as they say…..”in the long run we’re all..” and “There is no such thing as a free lunch.”
Or as the Flaming Lips ask:”Do You Realize???”
We all live in the same world. We are all “free-market” ultimately. I don’t think anyone has a free-energy or time machine yet.
Governments are as much economic entities as the “free-market” wonders of the world. Geo-Political and technological events should never be underestimated.
Clearly our actions have consequence not only for ourselves and future humans, but no one knows THE answer, or ever will.
You fight on everyday for what you believe in an absurd world, a la Camus….
Good luck, “thank goodness for the good souls……….”
February 18th, 2009 at 3:11 pm
otto,
Thanks, I follow kass and faber more than anyone except BR and what you say about Kass is true. More important, what people seem to forget is he is a short seller primarily, brave enough to call a big short on BRKA last spring and while he has been somewhat bullish as of late, he constantly discusses using stops, being flexible, and the fact that everyone, himself included, should be trading smaller than normal in case of being wrong in this current environment.
Perhaps it is important to remember that you can be a little early on your calls if you don’t go all in and you didn’t ride the market all the way down already, I believe Kass’ seabreeze investments were net positive for 2008.
Now I’ll let you battle out the more serious stuff with Bruce, HCF, Mannwich and the rest, you guys are really going at it today. It’s been fun to read the back and forth but I’m happy to watch that from the sidelines. I wish our federal government had as much passion about the situation as we do here.
February 18th, 2009 at 3:21 pm
@karen,
must be some of those serious economists talking about deflation, yep those Fed economists, we should just assume whatever Bernanke says is true, I mean, after all, he’s been so right since August 2007 hasn’t he? If he says we won’t have inflation, we won’t ….. wait a minute.
something tells me that in the fullness of time that quote you put up from Bernanke will be looked at with as many raised eyebrows as the quotes we got from Greenspan on how great derivatives and ARM’s were.
He too was a serious economist
February 18th, 2009 at 3:30 pm
“Now I’ll let you battle out the more serious stuff with Bruce, HCF, Mannwich and the rest, you guys are Now I’ll let you battle out the more serious stuff with Bruce, HCF, Mannwich and the rest, you guys are really going at it today. It’s been fun to read the back and forth but I’m happy to watch that from the sidelines. I wish our federal government had as much passion about the situation as we do here.
@ ben22 Says:
Well we guys have to have a little scrap every so often. What I find so perplexing about these three excellent gentleman is that although they clearly come from different parts of the political spectrum they all advocate the same rather extreme solutions ….although for different reasons in many cases.
February 18th, 2009 at 3:40 pm
“hardly justifies public economic suicide which is going to impact lots of folks who never personally made an investment decision in their lives..”–otto
yes, of course, spare the culpable for the Phantoms of collateral damage..
regardless the inanity of this horrid Fallacy: “..lots of folks who never personally made an investment decision in their lives”
this piece of advice: “I’d drop the banal cliches..”, from the same font that gives us: “sainted Ronnie”, “..no wish to protect elderly widows from religious con artists or children from playing with guns either since these are also manifestations of the moral hazard.”
some things Are priceless..
February 18th, 2009 at 3:41 pm
ben22, bot fxi today : ) shoulda bot yesterday, but i must think better with a hangover.
February 18th, 2009 at 3:49 pm
karen,
lol, whatever works for you.
I haven’t picked up any since we all talked about this the other day but I am keeping AT’s target of 17 in mind and I have cash ready at that level if it does in fact get there. If not I’ll just find something new.
I have done nothing today but watch.
February 18th, 2009 at 3:51 pm
> I assume you have no wish to protect elderly widows from religious con artists or children from playing with guns either since these are also manifestations of the moral hazard.
@ottovbvs:
My key point is not that moral hazard trumps all, merely that those with the chance for upside must also be the first to suffer any downside. Granted that some people in pensions and the such had no control over direct investment decisions, but they do have the free will to spend or save or invest their net income (since when did the three legged stool of pensions, SS, and savings become the 1-legged stool of government bailout?).
To bring up defrauding eldery investors and children playing with guns, frankly, is just as absurd as my statements about blind children with cute puppies (if only I wasn’t joking). Elderly investors bilked by scams have had a CRIME committed upon them. Children are not intellectually capable of understanding the consequences of playing with guns. In both cases, they should absolutely should be protected. Investors, however, make decisions on how to deploy their money based on expected return, risk tolerance, greed, etc. Short of there being fraud involved, you kind of get what you deserve. You buy GOOG at $100 and sell at $700, then good for you. You buy BSC at $100 and it goes to $2, then too bad. Yes, perhaps some ppl on fixed income will suffer and I truly do feel bad for them, but at the same time, we the taxpayer as a collective do not have a fiduciary duty to provide for them. They or their proxy dropped the ball, and as crappy as it is, thems are the breaks…
HCF
February 18th, 2009 at 3:52 pm
Goldman says partners hit by margin calls
Wed Feb 18, 2009 7:45pm GMT
Note to Goldman partners: Leverage is not a magic money making device for rich, connected reptiles. Leverage is a LOAN. Your stock is shot. Pay up in a synchronized manner. And don’t ask the illustrious Texas billionaire Stanford for help. I hear Bush and Rove refuse to take Stanford’s long distance calls. They never heard of him. LOL
February 18th, 2009 at 4:11 pm
Wow, a totally no-event day. I was truly expecting another triple digit swing up or down.
As with everything, time will tell.
February 18th, 2009 at 4:12 pm
@otto: I just think we have an honest disagreement about the appropriate courses of action. Nothing wrong with that. A good, open debate is healthy. I think you’ve made some good points, for sure, and will concede that you may actually be right on many of your assertions. Only time will tell though. I can’t speak for the others (although I’m fairly sure they’re not hellbent on world destruction), but I’m no nihilist. I’m not advocating doing nothing and “letting it all burn” down. It’s not an either/or selection. I’m just skeptical the gov’t and corporate elites have our best interests at heart. After what’s happened, how can one not at least be a little skeptical? I just can’t take things at face value anymore. It’s never been in my nature to do so, but I’m even more circumspect nowadays, and I think, rightfully so.
February 18th, 2009 at 4:24 pm
HCF Says:
February 18th, 2009 at 3:51 pm
“Elderly investors bilked by scams have had a CRIME committed upon them.”
……..whereas elderly investors in Bernie’s ponzi schemes or in money market funds that broke the buck didn’t?…….. Actually there’s a world of difference between a metaphor for relative financial illiteracy which I properly used (unprotected elderly and religious scammers or children and guns) and your cliche(blind children with puppy dogs). A distinction that also seems to escape Mr Hoffer. Alas most of us live in the real world not some theoretical one where the vast majority of investors, workers with 401k’s, retiree’s with IRA’s et al don’t have MBA’s or financial qualifications. Therefore, when the ship is sinking it is sensible to turn on the pumps even if they are govt issue (metaphor).
February 18th, 2009 at 4:31 pm
> I’m just skeptical the gov’t and corporate elites have our best interests at heart
Perfectly summed up, Mannwich!
@ottovbvs:
I’m not sure of the precise political orientation of most people on this board, but I hazard a guess that we have great diversity across the spectrum and perhaps more flavors of libertarianism and pseudo-libertarianism than Baskin Robbins has ice cream varieties.
Part of the problem for me is the difference between philosophical ideals vs. practical implementation. For example, while I am philosophically opposed to Keynesian stimulus, I can understand how it could work if implemented correctly. However, since the powers that be stuffed more pork into the stimulus bill than Polish kielbasa, I am convinced that it will never work and in fact might set us back further. If only our policy makers weren’t so economically inept and morally corrupt…
Either way, fascinating discussion and debate… It’s always fun to spar every so often
HCF
February 18th, 2009 at 4:36 pm
Mannwich Says:
February 18th, 2009 at 4:12 pm
@otto: I just think we have an honest disagreement about the appropriate courses of action. Nothing wrong with that.
…..Of course there isn’t it’s rather fun. And believe me I’m well aware a lot of people in the financial community are out to screw us. They are the modern day toll keepers ripping you off at every pportunity. You may not be a nihilist but there is a hint of the tar and feathers at times. And I just don’t buy the prevailing philosophy here of oversimplification. I’ve worked in the financial and manufacturing industries and in my experience most things even something as simple as making candy turns out to be pretty complicated.
February 18th, 2009 at 4:54 pm
“Alas most of us live in the real world not some theoretical one where the vast majority of investors, workers with 401k’s, retiree’s with IRA’s et al don’t have MBA’s or financial qualifications. Therefore, when the ship is sinking it is sensible to turn on the pumps even if they are govt issue (metaphor).”–otto
yes, of course, push the unqualified onto the field of Play–by Gov’t Fiat, then, when the, inevitable, dislocations occur, bring on the Gov’t ‘Paramedics’–surprisingly enough–by way of more Fiat..
and: “I’m well aware a lot of people in the financial community are out to screw us. They are the modern day toll keepers ripping you off at every opportunity.”–otto
yes, of course, construct more roads–IRAs, and their, now, multiple permutations, 401(k)s, and their ilk, 529s, et al., ad infi..–to funnel the unsuspecting to the shearing pen..
and, this: “Alas most of us live in the real world not some theoretical one where the vast majority of investors, workers with 401k’s, retiree’s with IRA’s et al don’t have MBA’s or financial qualifications.”–otto
while I think it includes a syntax error, otto, How do you get 4 out of those 2 2′s?
February 18th, 2009 at 4:54 pm
HCF Says:
February 18th, 2009 at 4:31 pm
> I’m just skeptical the gov’t and corporate elites have our best interests at heart
Perfectly summed up, Mannwich!
@ottovbvs:
I’m not sure of the precise political orientation of most people on this board, but I hazard a guess that we have great diversity across the spectrum and perhaps more flavors of libertarianism and pseudo-libertarianism than Baskin Robbins has ice cream varieties.
Part of the problem for me is the difference between philosophical ideals vs. practical implementation. For example, while I am philosophically opposed to Keynesian stimulus, I can understand how it could work if implemented correctly. However, since the powers that be stuffed more pork into the stimulus bill than Polish kielbasa, I am convinced that it will never work and in fact might set us back further. If only our policy makers weren’t so economically inept and morally corrupt…
Either way, fascinating discussion and debate… It’s always fun to spar every so often
HCF
…..Probably right about Baskins. I’m a Keynesian because that’s the way I was taught and I’ve seen nothing in 45 years to make me believe he wasn’t broadly correct. I rather dismiss all this emotive pork stuff because one man’s pork is another man’s bridge or jet fighter. And I’m a hell of a believer in the restorative powers of concrete. I also think you are wrong to dismiss Tim Geithner and Larry Summers as economically inept and morally corrupt. These guys are extraordinarily bright and well qualified members of the small group of people who have some idea of how to fix this even if they are going to make some mistakes along the way. 99.999999% of the population including me and probably you hasn’t a clue. I’m heavy into reality. Changing a car wheel on the interstate in the dark during a rainstorm sounds sounds a lot easier in the manual. Sorry I’ve a weakness for metaphors and cocktails which I’m now going to satisfy.
Otto.
February 18th, 2009 at 5:01 pm
Mark E Hoffer Says:
February 18th, 2009 at 4:54 pm
What exactly is your point Mr Hoffer?
February 18th, 2009 at 5:08 pm
@persons interested in 1873, gold, and deflation
As I recall from my research, the deflation which began in 1873 did not truly end until 1896.
As for gold, it goes up in value during a deflationary period, even if that is only on a relative basis. I believe that the gold price will continue to increase during the initial deflationary asset spiral…a theory thus far supported by reality. While I did not expect the miners to get whacked quite so badly, I think they go up from here and have been investing accordingly. In theory, a combination of high gold prices and low mining costs will translate into much higher dividend payouts, which then drive up share prices. The value of the reserves in the ground is also a factor, and may be far more important during this deflationary period than it has been in the past.
Furthermore, I don’t believe that some of the recent ratios – gold/oil, for example – are relevant correlations. What was the gold/oil ratio during the last depression? Throw it out the window.
And finally, what will be the top for gold? I have no idea, but the Bank of England selling gold to a gold mining company at auction (Goldfields, Ltd.), marked the bottom. When the Bank of England starts buying gold, I’ll probably start shorting it.
February 18th, 2009 at 5:21 pm
otto,
you’re saying, from what I gathered, that many ‘in investments’ are ill-prepared to properly manage them, thereby, you think they should be bailed-out, or, in some fashion, protected, by the “Gov’t”.
yet, those, same, many are in those ‘investments’ b/c of actions taken by the, saidsame, “Gov’t”.
coupled w/: ““I’m well aware a lot of people in the financial community are out to screw us. They are the modern day toll keepers ripping you off at every opportunity.”–otto
I was asking how, IOW, you get that to line up “in the real world”, in such a way that it makes any sense..
February 18th, 2009 at 6:16 pm
hoffer,
where did you vanish to for a while? vacation? I just asked here the other day why we haven’t seen any posts from you.
February 18th, 2009 at 6:39 pm
ben22,
mixed in some of that, as well, but, mainly, was in the field–work related, and, of course, on the hustings..
http://www.thefreedictionary.com/hustings
February 18th, 2009 at 7:36 pm
The main culprit in Faber’s elegant but glossy cause-and-effect is US-China trade. Bad monetary policy led to the “consumption boom” and “explosion of imports” that gave us the terrible trade and current account deficits that so many analysts and economists warned were unsustainable going back to 2003 if not earlier. Using his timeframe, the trade deficit went from -$83 bln in 2001 (the first year of China’s accession to the WTO) to -$256 billion in 2007, a 208% increase. Imports actually increased 214% in that period but exports to China rose 242%. Last year China imports and exports continued to rise. Not so with Japan.
How much of this “synchronized” boom and bust is really a giant adjustment to China’s entry (one could argue return) in global trade? Will they go down this year? Haven’t seen any totals for January 2009 but I doubt it.
February 18th, 2009 at 8:39 pm
Good point sinomania, synchronicity is more likely a consequence than a cause or possibly even merely an epiphenomenon of global carry trade gone mad: When homes in Poland are purchased with loans denominated in Japanese Yen you’ve got to figure something has gone askew.
China Financial Markets at http://mpettis.com/ , one of the best blogs I’ve found WRT China investing, sees trouble ahead for China including serious social unrest but Chinese leadership has (so far) demonstrated significant abilities in organizing both capitalistic enterprise and systemic oppression and already appear to be looking ahead to a revised global power and currency arrangement by converting increasing amounts of their foreign bond holdings into commodities and commodity producers.
February 18th, 2009 at 11:02 pm
What, no catcalls of “ideologue!” for Mr. Faber? No prognoses of insanity and fundamentalism for believing that markets should be allowed to work themselves out?
No, just a resignation to the idea that “that ship has sailed.” One is left to ask: when, exactly did it leave the harbor, and why is it continuing to take the blame for everything bad under the sun?
Those of you ragging on the nineteenth century American economy, please explain why–without the profound wisdom of Keynesian economics and a central bank–it enjoyed a higher rate of real economic growth, and of its two depressions (one of which is widely considered mild by depression standards), neither had levels of malnutrition remotely approaching those of the 1930s? If you count what’s going on right now as a developing depression, is the twentieth century’s economic record one damn sight better than the nineteenth’s?
What will it take to convince us that Keynesianism and a public sector spending 40% and more of GDP are not “pragmatic”?
February 18th, 2009 at 11:16 pm
“What will it take to convince us that Keynesianism and a public sector spending 40% and more of GDP are not “pragmatic”?”
Quod gratis asseritur, gratis negatur (“what is asserted without justification may be denied without justification”).
When something stronger than a mere assertion is offered then a stronger response may be offered in return but, until then, no one is obliged to respond at all much less respond rationally (although I suspect the difference between the 19th and 20th Century could be the color pink).
February 21st, 2009 at 10:02 am
Faber is a follower of the Austiran Economics school. Like most of the Austrians he was able to see the problems and predict the current outcome while supporting both his analysis and his predictions with a sound theoretical knowledge that has high predictive value. Few people would dispute that Faber and the Austrian School were right. Yet, they give the, ‘it is not politically expedient,’ excuse and support interventionist policies that will make things even worse. How can anyone with any intellectual integrity do that? How do you turn your back on reason and support political expedience instead?