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Originally posted by atbell If I had to guess... you're wrong! If it's been 11 months already then that means we'll be through it by the summer. None of the forcasters, who are conservative / optimistic / on crack, even think that this will be done by Dec 09. Most have changed thier tone to say that 09 is going to be worse then 08. On this I don't have to guess, the main cause is not that the banks don't want to lend, the main cause is that business models around the world have evolved such that they assume opperating with perpetually increasing debt levels is a 'profitable' business model. The 'short period of mistrust' is going to be a lot longer then you expect as continued failures of companies and bond issuing organizations keep destroying any gains made to the collective 'trust'.

that's all speculation on everyone's part. one thing i realized, however, is that people love to jump on the bandwagon. So, when its doom and gloom, everyone jumps on and says the same thing. All it will take for people to say the crisis is over is for a short series of good data. That could come in the form of earnings beating analyst expecations, or treasury yields rising, or debt issuances actually being purchased on the open market.

at any rate, i think the market may have finally priced in all the bad news. The market rose 200+ in the US when we reported the worst employment numbers in decades. Normally, an employment report like that would drive the market down precipitously. If the market has in fact priced in all the negativity, we should be looking at a recovery in the real economy is about 6 months.

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Originally posted by atbell So if the yields on treasuries don't cover inflation what does that tell you?? Maybe that investing in the US government is a loosing bet???

it also tells you that investors don't want to take a chance with any other investment. Eventually people will get tired of a guaranteed 'real' loss and move toward investments with higher returns.

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Originally posted by atbell Your analogy about a person who won't eat is quite flawed. It assumes that the sustinance of the economy is predicated on investing in markets. This is another part of the massive set of things that have contributed to the depression. Economic activity is moved not by financial assets and paper transactions but by physical companies and production. Financials simply increase efficiency but if there is nothing to make more efficient then it is a sunk investment. It is more likely that what will pull world economies back in line is the direct investment and intervention of people like venture capitalists who don't simply provide money but also take a direct stake in makeing sure the business they invest in work.

my analogy only applied to banks. in any event, while real production is obviously very important, banks move the economy because, until the past few years, they were extremely good at aligning capital with its most productive use.

Now Harper is no genius, but he's still the leader of a G7 country who holds an MA in economics...

And what is he saying these days?

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BRIAN LAGHI , STEVEN CHASE and BILL CURRY From Tuesday's Globe and Mail December 16, 2008 at 3:30 AM EST OTTAWA — Stephen Harper has delivered his bleakest forecast yet for the Canadian economy, warning yesterday the future is increasingly hard to read and conceding the possibility of a depression. http://www.theglobeandmail.com/serv...y/politics/home

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Originally posted by jerZ07002 that's all speculation on everyone's part. one thing i realized, however, is that people love to jump on the bandwagon. So, when its doom and gloom, everyone jumps on and says the same thing. All it will take for people to say the crisis is over is for a short series of good data. That could come in the form of earnings beating analyst expecations, or treasury yields rising, or debt issuances actually being purchased on the open market.

Band wagon my ass, I've seen this comming since 2004 when I started doing more and more research. At that point I can tell you that the band wagon was leaving me alone.

But I am skeptical of anything once there is clearly a bandwagon, so I have been keeping my eyes open for some good news. I haven't seen much. Obama got elected, that's a start. The Republican Senators wouldn't just let the car companies take other peoples money, also good. But there's still a lot more to do.

The biggest problem is that there are too many people with inflated egos who are lying to themselves. They've got to clear out before things get better. Unfortunately that means things have to get much worse.

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at any rate, i think the market may have finally priced in all the bad news. The market rose 200+ in the US when we reported the worst employment numbers in decades. Normally, an employment report like that would drive the market down precipitously. If the market has in fact priced in all the negativity, we should be looking at a recovery in the real economy is about 6 months.

I'm pretty certain that markets do not price in bad news. People can't remember two weeks ago let alone six months ago. That means every slide in the markets is a new one and the fact that bad news had already been priced in is no longer relevant. You want to talk about bandwagons, people parotting 'pricing in the bad news' is definately one of them.

Then there's also the fact that the worst hasn't even started! The economic data is going to get a lot worse then it is right now, we're talking never been seen before bad. I hope that doesn't cause a panic but my guess is that it will.

Six months! You've got to be kidding, a six month recovery is so October. The bandwagon is betting on Dec. 09 from what I can tell, I'm more pesimistic then that though.

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it also tells you that investors don't want to take a chance with any other investment. Eventually people will get tired of a guaranteed 'real' loss and move toward investments with higher returns.

Such as? What can you invest in that has higher returns? (this is a trick, I know the answer already but I'm baiting you ... )

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my analogy only applied to banks. in any event, while real production is obviously very important, banks move the economy because, until the past few years, they were extremely good at aligning capital with its most productive use.

Not so much more productive but higher returns.

I understand that this was the original theory behind investment banking but it looks like people got lazy or decided the highest returns were just to sell more paper at a higher price.

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Originally posted by atbell Such as? What can you invest in that has higher returns? (this is a trick, I know the answer already but I'm baiting you ... )

i think it was last week that treasuries had negative 'real' interest for the first time ever! with the expected fed cut to .5%, and the feds expected new policy of purchasing treasuries to push the long term treasury yield even lower, people should start moving out of that market. People will tire of losing money like this.

to address your question specifically, i don't know. one thing is for certain, GE isn't about to collapse so buying GE bonds would be a much smarter investment. Long term muni bonds is also a better investment (depending on the source from which the bonds will be paid - i.e., general revenue, collateral, etc...). Investing in energy companies or companies (foodstuff, medical, etc...) that provide essential needs to society is also not a bad idea. obviously there is a lot of due diligence that needs to be done prior to investing. The problem is the current due diligence process seems to consist of shunning everything except treasuries.

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Originally posted by atbell Not so much more productive but higher returns. I understand that this was the original theory behind investment banking but it looks like people got lazy or decided the highest returns were just to sell more paper at a higher price.

the problem, as it always seems to be in scandals, was a lack of transparency. Investors were essentially duped by rating agencies and underwriters into thinking what the banks were selling was a higher quality product than it really was. The disconnect between mortgage brokers and the investors, as well as the way fees were obtained by mortgage brokers likely factored heavily in it also. I think banks will still function properly at distributing capital efficiently once transparency and trust are restored.

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Originally posted by jerZ07002 to address your question specifically, i don't know. one thing is for certain, GE isn't about to collapse so buying GE bonds would be a much smarter investment. Long term muni bonds is also a better investment (depending on the source from which the bonds will be paid - i.e., general revenue, collateral, etc...). Investing in energy companies or companies (foodstuff, medical, etc...) that provide essential needs to society is also not a bad idea. obviously there is a lot of due diligence that needs to be done prior to investing. The problem is the current due diligence process seems to consist of shunning everything except treasuries.

what about investing in a metal lathe, or a camera, or a pizza oven.

Tangible assets, capital, are solid investments as long as the customer base is well studied.

Financials, stocks and bonds are in real trouble.

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the problem, as it always seems to be in scandals, was a lack of transparency. Investors were essentially duped by rating agencies and underwriters into thinking what the banks were selling was a higher quality product than it really was. The disconnect between mortgage brokers and the investors, as well as the way fees were obtained by mortgage brokers likely factored heavily in it also. I think banks will still function properly at distributing capital efficiently once transparency and trust are restored.

The problem is that there is a massive amount of debt in the US. America owes the whole world. American companies do, American governments do, and American people do. Now the lenders have finaly realized that US $ aren't worth anything so they aren't willing to accept them as payment on interest.

Just wait till the US government defaults on a bonds, like Equador just did.

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Originally posted by atbell Just wait till the US government defaults on a bonds, like Equador just did.

WOW - now i can't take anything you say seriously!! the US can't default on US bonds. US treasuries are denominated in US dollars. All the US has to do is print more dollars to pay off its bonds. Ecuador defaulted on its bonds 1) because it didn't want to pay them off, and if they actually didn't have the capability to pay (which isn't the scenario i've been reading) then 2) since the bonds are denominated in US dollars (its official currency), ecuador can't print US dollars to meet the obligations. Ecuador doesn't have the capability to control its money supply like the US can.

The US can, however, deflate the value of its dollar, which is likely, to pay off the debts. There are two main ways the US can pay off its debt, 1) deflate the value of its dollar by printing more dollars, and 2) pay it off with tax revenue. As long as the US takes approach 2, there shouldn't be too much inflationary pressure from this debt. However, I am not confident the US will take that route. I suspect in the near/mid term we are likely to see the US pay off its debt by issuing more debt.

Last edited by jerZ07002 on Dec-16-2008 at 20:03

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Originally posted by atbell what about investing in a metal lathe, or a camera, or a pizza oven. Tangible assets, capital, are solid investments as long as the customer base is well studied. Financials, stocks and bonds are in real trouble.

stocks represent the productive use of assets. People aren't going to invest in a pizza oven for the sake of investing. if they are going to invest in a pizza oven they will do it because it is a component to a business. your disconnect between tangible assets and stocks is forced and unrealistic.

Last edited by jerZ07002 on Dec-16-2008 at 20:03

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Originally posted by Capitalizt You think this is bad? We aint seen nothing yet. Governments are borrowing and printing dollars at record levels to buy their way out of this mess. I think they will succeed. We will reinflate the bubbles around the world..but when the bill comes due in 10-20 years and governments begin to collapse under their massive debt, then the fit hits the shan.

hey, he's playing that broken record again!

___________________

Now we've seen it all. Bernanke & Co are all in and the U.S. is officially in quantitative easing mode. I am going to plunk some equity into my house and refinance in short order. Capitalizt I still hope you own all that gold!

Pk..still refusing to acknowledge reality when it's all playing out before your eyes eh?

And shakka... GLD and SLV FTW!!

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Originally posted by Capitalizt Pk..still refusing to acknowledge reality when it's all playing out before your eyes eh? And shakka... GLD and SLV FTW!!

no, just pointing out that your one and only commentary re the economy always focuses on spending and inflation, when its blatantly obvious (to those of us in reality) that some things are far worse.

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Originally posted by jerZ07002 WOW - now i can't take anything you say seriously!! the US can't default on US bonds. US treasuries are denominated in US dollars. All the US has to do is print more dollars to pay off its bonds. Ecuador defaulted on its bonds 1) because it didn't want to pay them off, and if they actually didn't have the capability to pay (which isn't the scenario i've been reading) then 2) since the bonds are denominated in US dollars (its official currency), ecuador can't print US dollars to meet the obligations. Ecuador doesn't have the capability to control its money supply like the US can. The US can, however, deflate the value of its dollar, which is likely, to pay off the debts. There are two main ways the US can pay off its debt, 1) deflate the value of its dollar by printing more dollars, and 2) pay it off with tax revenue. As long as the US takes approach 2, there shouldn't be too much inflationary pressure from this debt. However, I am not confident the US will take that route. I suspect in the near/mid term we are likely to see the US pay off its debt by issuing more debt.

Realllllllyyyyy

Here's how they do it.

I, sovereign country, say to Uncle Sam, please pay up. Uncle Sam says, "No".

The US government would default on bonds if they realize that the damage to the economy would be worse because of inflation. But I didn't have to tell you that now did I.

The risk is that the US is currently only sustainable because people want to buy more of what they've got. As soon as a bond issue is unfulfilled ... watch out!

Tax revenues... depressions don't creat tax revenus, they create deficits.

This is good, I'll write it again:

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I suspect in the near/mid term we are likely to see the US pay off its debt by issuing more debt.

You mean, ah, it won't pay off it's debt?

This is called a ponzi scheme, where losses are covered by swindling more people into buying. Generally the term is used to describe suckers who keep them going.


Oh, and I shouldn't forget:

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As long as the US takes approach 2, there shouldn't be too much inflationary pressure from this debt. However, I am not confident the US will take that route.

Is nicely met by today's financial times:
http://www.ft.com/cms/s/0/d049482c-...0077b07658.html



I will summarize.

1. there is a depression
2. deflation is setting in
3. to clear up deflation money is printed
4. debt stock continues to climb as no tax revenues are comming in (see 1)
5. US defaults on bonds
6. Ponzies cry

That's a little simplified but I think it does the job.