about markets is that if any of us really had a lock on the future the
last thing we would be doing was writing about it. We would be trading
it and getting rich.
At the end of last week I wrote that the dollar would be on the weak
side for the balance of the month. That the bad news from the US would
trump the bad news elsewhere. That proved to be a dumb idea. Having been
humbled once again, I looked at the screens and confided to myself that
I really could not make a compelling case on either side of the bond,
stock or currency markets. So I sought out the thoughts of a friend who
actually buys and sells paper for a living. He does not write about it.
He just does it. His thoughts:
We’re
digging an ever deeper hole here, the EU problems have not gone away by
any means. And after I saw the amount of sov debt the European banks
own, I have conviction the EURUSD rally is a headfake. Those banks
will go down as they are forced to take the haircuts on the sov debt…
unlike in the US, where the gov’t could borrow to bail out the losses on
private securitized debt, the Euro banks’ ‘toxic problem’ is the gov’t
debt itself… it’s a tight closed loop… or spiral, as it were…Stocks are nearly out of accounting tricks, imo…. The final demand is
not there and won’t be. Trading on fwd P/E when the ‘E’ is pure fantasy
will not end well. Everyone seems to say “stocks have gone nowhere in
10 years” as the ultimate sign of how poor stocks have done…. actually
S&P is down over 25% in the last 10yrs. And it continues as we
de-lever.If we think fund flows into bonds / out of stocks are significant now,
just wait til we get another big leg down in stocks this fall… I think
we see banks (and individuals to a lesser, but significant degree) go
all in UST… every day there’s less and less hi-quality, non-UST bonds –
eventually, if it has not already happened, the yield premium for
taking incremental risk in high-grade f/i over USTs withers to a level
that is not meaningful, and the UST bid from banks and mom/pop begins,
and then feeds itself… the proverbial towel will be thrown in.We sell a lot of product to banks. Community banks used to own a large
amount of USTs outstanding – today they own almost nothing – but that is
beginning to change. From a bank portfolio perspective, you’re just
not getting ‘paid’ to try to outsmart the market in anymore… (the one
exception is the non-agcy mbs mrkt, but they are not making those
anymore; it’s dying…) GSE MBS is rife with headline/pre-pay risk from
executed and potential gov’t ‘fix’ programs/experiments – it used to be
that the ‘base-case’ scenario in GSE MBS was the ‘worst-case’… today
it’s the ‘best-case’ and if the stars don’t line up, you can get SMOKED.
Just ask holders on GSE MBS that saw 70-80% cpr during the buy-out
months this spring and summer… and for taking on this ‘the rules can
change at anytime’ risk on your massively negatively convex portfolio,
you’re barely getting paid 1% over UST… risk >>> reward…
look at it this way: in a GSE ‘modification’ or ‘principal reduction’
or whatever program, the investor receiving immediate par back on mbs
holdings with a $108 book price is a BIG hit – 8 points will take 3-4yrs
to recoup at today’s rates…My fear was that a potential big QE2 would give another huge leg up in
stocks etc and drag this out…. But over the last 3-4 weeks, it’s amazing
the sentiment change – I think the market sees straight thru another QE
program and says “oh shit – it’s as bad as we feared”….I’ve said since many months back 2.25% 10y and 7000 DOW by 12/31…. My
only change from that thought is that the trend continues in 2011 – and
we see 1%-handle 10yr and 2%-handle 30yr at some point. And yea, I’m
aware that we are building a fiscal hole we’ll probably never get out of
– and we’ll deal with the huge consequences of that down the line, no
doubt… but for now, the US situation is the worst, except for all the
others.
Enjoy your articles Bruce.
What a trap. Issue more and more debt at plunging rates. Convincing Congress to spend even more. Rates will never be allowed to go up. There is no happy ending.
I appreciate the informed opinion Bruce. But the last two paragraphs shows an almost naive or magical view from an obviously intelligent and thoughtful source. Everyone screams at the powers-that-be for kicking the can down the road. But they can't kick it each time without the implicit and concerted agreement of all, or most, of the players. And while this person is agreeing that things are bad and getting worse, nowhere do I sense outrage or the desire to stop the madness and take the steps needed to get back on track.
The attitude of "Oh well, someone else is in charge, I'm just one person and basically powerless, gotta play the game for as long as I can" and so on from the people who are intimately involved and who could say "no more, it stops here and now" shows the utter soul numbing corrupting influence our economic system has over everyone. I say again everyone, including those in a position to force change.
Everyone has swallowed the Kool-Aid that's endlessly pushed about how we must be incentivized in order to be productive, most especially those who work within the economic system. But this also enslaves and corrupts everyone, principally because they must perpetuate the system in order to survive within the system. This ensures the system will drive off the cliff with no one at the wheel and no one taking responsibility for the crash.
Oh the insanity.
BTW I love the candles. Nothing a little shot of QE 8.5 can't handle.
You see candles CD? To me they look like slugs playing chess.
LOL
Rook to king knight 4.
So, what do YOU recommend WE do? "Jump up and down? Lie down with a paper bag over our heads?" Shoot banksters till the situation improves? Assassinate some Senators? I'm already talking to others in my neck of the woods about the coming conflagration -- all we can do for now is get ready for the earthquake...
Keep in mind that this opinion is not emotional. Nor is it an opinion piece that lays blame. Just a view.
I understand Bruce. Still doesn't change the fact that everyone, including those within the system and those outside, are complicit in this cluster fuck. We all have a piece of this disaster with our name on it.
And that's the dirty little secret no one wants to talk about. As long as we can point to the big boys, we can safely avoid looking at ourselves. This applies both to the players within, meaning you and I and everyone else who runs or ran money or advises or whatever. If you're "in da bidness" you have some responsibility.
And let's not leave out average Joe and Jane, who has abdicated his/her responsibility for decades on end and has failed to hold leadership responsible for their (in)actions. They/them/we/us/she/he/her/him were bought off in similar ways as those "in the bidness".
Now no one wants to pull the trigger to end this insanity because it will cause pain all around. This is why in the Mafia the newbie conducts his first few kills with several witnesses present. This way everyone can be brought down if someone talks or points fingers, thus assuring everyone sticks together to keep the "bidness" going and to spread the "wealth".
Cog Dis I usually like reading your posts and think you are right about most things but i dont agree with you that we are all to blame here. Maybe to a certain extent, but there is absolutely no doubt a small minority have played a major role and profited hugely from this debacle. Those people need to be held to account. Your veiw of abdicating blame is exactly what has lead to this mess. We cant blame the bankers, we need to bail them out, we cant blame the bad managers, we need to bail them out, we cant blame the sovereign nations, we need to bail them out. So what happens is that the tax payer wears the cost while playing a very small, mainly unwilling part in it while the perpetrators who primarily caused the mess get to keep doing exactly what they have been doing. There is no accountability and the tax payer keeps getting scewed. that is the problem. Spread the wealth? the wealth has been transfered from the many to the few and all they do in return is spread misery.
I'm not saying the blame should be evenly spread among everyone nor do I infer this. There is no doubt that a few carry a great deal of blame. I would never try to say otherwise. But we can't escape the fact that many in the business either didn't care that this was going on or piled on to take "their piece" before the fishing got tough. The rest "are just doing their jobs" or are too frightened to say or do anything about it.
The same goes for the average Joe, who as long as credit was flowing and they were employed, very few (compared to the total population) were asking hard questions and rocking the "good times" boat. Hear no evil, see no evil, speak no evil. To say otherwise is to be in denial. The average Joe is captured in many ways just as severely as those in the business. The average Joe complains that collective decisions are being made that hurt them yet they make individual decisions that help themselves and hurt the collective. In other words, do as I say, not as I do.
I'm not shifting blame. Never have, never will. What I want is a proper accounting of the blame that never is placed on the average Joe and the average advisor/PM/worker. Everyone wishes to point to the big guys so they can avoid any responsibility. To try and say that the only persons responsible for this cluster fuck are a small group of powerful people is to ignore that they are powerful precisely because we allow them to be powerful.
Everyone has a piece of this mess. I can't tell you how many times I hear my clients tell me they don't want to really know what's going on. That they just want me to protect their money. When I explain that if things get really bad, and this possibility is not out of the realm of possibilities, I can't protect them. I can see the eyes glaze over and they say "whatever" or "well we'll deal with that if it comes" instead of getting involved and trying to understand, which is the first step to actually making changes politically and socially. And my clients have been trained by me over the years to be somewhat proactive financially and are more aware than the average Joe.
We as a nation have been conditioned to be passive and pliable. Who's fault is this, those who are controlling us or you and me and they and them for allowing ourselves to be controlled? This isn't about blaming the victim. This is about asking the victim why he or she is STILL sitting around allowing themselves to be victimized, jumping through hoops, chasing fireflies and passing the political power from one corrupt party to the other.
I am glad to hear you say this CD. It is something no one has really ventured to say except about the guys who are literally on "Wall Street."
I have been in the "bidness" for over 12 years. I saw what was happening in late 2007 and early 2008. I took myself out of the market completely in January 2008 and started telling my clients to do likewise. Some took their money and ran to the highest CD they could find. They would call me and say, "do you think this bank is safe?" My response was, "as long as the lights are on in Washington a bank CD is safe." We had a few name changes but everyone was safe as it turned out.
Needless to say, my BRM and Regional VP did not like it. They wanted to know why I was not pushing managed money, IA referrals, stock mutual funds, etc. I told them over 70% of my clients were over 60 years of age and were scared to death and I would not stand in their way if they wanted to stampede the exits. They chewed on my carcass for 18 months after that, and I left in January of this year.
Many of my clients participated in the market's "fake recovery" in 2009 but I never trusted what I saw. Overall, in 2009 I made up less than 50% of what I lost in 2007-08.
So, my superiors were forcing us to push products and fee based advice in the middle of the worst economic downturn since the 1930s and we were a discount firm. I can only imagine what it was like in full-service firms. In some ways, I think discount firms were the worse place to be if you stayed in the market during all of this. We also had a banking arm and they wanted us to push HELOCs and ReFis and we were threatened with termination if we did not meet quotas. I finally told my BrM that I would not contribute to a debt and credit problem by encouraging people to incur more debt.
That did not go over too well.
I was not the only one who refused to go along, but many did out of fear of losing their job. In not a small way, this mentality did contribute to the problem - not to mention probably violated suitability rules. I know for a fact that FINRA is looking into sales practices at more than a half-dozen firms that involved coercion and threats if sales quotas were not met. The unspoken rule was, just sell something and the hell with what was in the best interest of the customer.
Sigh, if only more people had a conscience like you. Good on ya! :-)
CD: ummmm....well...for starters: Take care of CD's shit, that is all you are responsible for and all you can be responsible for. Telling others how to live is unbalanced. They are perfect. The circumstance is perfect. Tornados are perfect, so is the tornado in the financial sector. Have fun, go see the Wiz, bring Toto. Meet flying monkeys.
Not every one is interested in tilting at windmills. Most are interested in getting blind-sided by circumstance that they "flat out can't see." Wazzat? Huh? That Hurt! (you know the drill.)
And Bruce's acquintance is not letting down "the side" because he's not frothing at the mouth. He's just being himself, a beautiful person, just like you.
Let the angst go. Please you will be better able to laugh through the tears.
I am in complete agreement that days like yesterday with the Fed buying 30 year T-Bills without notice and the EU ordering Germany to buy its dying Banks was a new level of unbelievable, but there are so many more levels to go before we get anywhere near full chaos.
I hope this helps rather than just makes you growl.
Maybe I shouldn't even post it, but I will.
Good Night.
It didn't make me growl at all. But I did save it for the next time you go off the deep end LaBalance, which is happening more and more lately, especially in the Israel articles. See you soon. :>)
Evil always requires the sanction of its victim.
wtf...what world do you live in? I give you that some people tolerant abusive situations that might be able to escape in some way but please, genocide in Rwanda, Holocaust, slavery, child abuse....all those victims SANCTIONED this terror, abuse, oppression, torture, mass murder? And what of the many well-known and the many more little know matyrs of the world that have died standing up against oppression? What of courageous journalists that get killed and tortured?
I could go on....but you seem to crazy to reach so I guess I shouldn't bother
What an absolutely idiotic statement. I suppose the child abuse visited upon infants happens only because the infants sanction it.
http://www.amazon.com/Language-But-Cry-Laurel-Leaf-Library/product-revie...
"Democracy collapses when the majority discovers it can vote for itself treasure from the public coffers. Democracy is the last plateau of social order before anarchy." Henry Lamb
Democracy is not a form of government. You have: monarchy, oligarchy, and republic and they are mutually exclusive as the only forms of government. Democracy, communism, fascism, socialism, and other dictatorships with the exception of monarchy are all forms of oligarchy. Anarchy is a transitional phase to some other form of oligarchy.
"Anarchy is a transitional phase to some other form of oligarchy."
And all oligarchies are only a transitional phase to anarchy. But... none of this should be confused with anarchism, which abhors centralized power and more closely mimicks natural forces (promotion of and acceptance of diversity).
Didn't some old Greek guy say that first.
And DeTocqueville
It was Alexis.
A look at the future? Think 10 lb. bags of rice.
http://www.youtube.com/watch?v=H9q36UFzx70&playnext=1&videos=JnFfmz9gv2I
Yeah I heard about that.
We're from the government and we're here to help. I agree with the reporter Ron Mott. If they're just going to print money there has to be a better way to distribute it.
And this wasn't even money...only applications for taxpayer monies.
Bizzare.
I think it was Jimmy the Greek. Or maybe it was Zorba.
Telly Savalas
"No raindrop thinks it is responsible for the flood."
Wait - your buddy is Karl Denninger? That dude writes all the time ;)
I think your friend is right, "My fear was that a potential big QE2 would give another huge leg up in stocks etc and drag this out…. But over the last 3-4 weeks, it’s amazing the sentiment change – I think the market sees straight thru another QE program and says “oh shit – it’s as bad as we feared”….
His is an analogy to the half life credibility of the faster and deeper interest rate cut coming from the FED trying desperately to get ahead of the financial crisis (as it was known then) until ZIRP and finally the only choice became the money printing.
This latest QE is ZIRP R squared and the FED is sowing the seeds of doubt.
So the bad news is, we're running out of policy options.
The good news is... we're running out of policy options.
never met the man. Like I said, he does not write for a living.
I actually had dinner with him about a month ago. He talks faster than we writes and is scary smart. Very nice and suprisingly humble. It was a pleasure to get to meet him.
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