Given that interest rates are already quite depressed, Bernanke seems to be grasping at straws in justifying QE2 on the basis further slight reductions in yields. As for Bernanke's case for creating wealth effects via the stock market, one might look at this logic and conclude that while it may or may not be valid, the argument is at least the subject of reasonable debate. But that would not be true. Rather, these are undoubtedly among the most ignorant remarks ever made by a central banker. - John Hussman
Goldman is Ratcheting Up VIE Risk!!! More So Than the Top of the Bubble! Many Thought the Enronesque Days of “Hide the Sausage” Accounting Games Were OverSubmitted by Reggie Middleton on 10/27/2010 07:27 -0500
“Goldman, unlike the rest of the street and practically the rest of the I banking world, is ratcheting up VIE risk!!! Is BoomBustBlog the only one inquiring as to WHY??? We have a few reasons in mind… And to think, many thought the Enronesque days of “hide the sausage” games have come to an end…”
The Truth Goes Viral, Part 2: Italian Towns Damaged by Derivatives, Downtown Brooklyn Real Estate, Goldman Sachs, JP Morgan, Europe’s Overbanked Status, Reggie Middleton, Matt Taibbi, and Simon Johnson – All in One VideoSubmitted by Reggie Middleton on 10/05/2010 12:51 -0500
A very well made 45 minute documentary on Goldman Sachs, derivatives, US real estate and the root causes of the Pan-European Sovereign Debt Crisis
Some rather scary predictions out of Paul Farrell today: "It’s inevitable: Wall Street banks control the Federal Reserve system,
it’s their personal piggy bank. They’ve already done so much damage, yet
have more control than ever.Warning: That’s a set-up. They will eventually destroy capitalism,
democracy, and the dollar’s global reserve-currency status. They will
self-destruct before 2035 … maybe as early as 2012 … most likely by
2020. Last week we cheered the Tea Party for starting the countdown to the
Second American Revolution. Our timeline is crucial to understanding the
historic implications of Taleb’s prediction that the Fed is dying, that
it’s only a matter of time before a revolution triggers class warfare
forcing America to dump capitalism, eliminate our corrupt system of
lobbying, come up with a new workable form of government, and create a
new economy without a banking system ruled by Wall Street." And just like in the Hangover, where the guy is funny because he's fat, Farrell is scary cause he is spot on correct.
My last post "Correlation of mortgage rates with real housing prices: how increasing inflation could affect housing prices", raised some questions. I didn't have the chance to respond to them. But before I do, let me go back to the original purpose of the article. I asked the question, "What could happen to real estate in the event of higher inflation?" If inflation shot up from 1% to 7%, what would happen to the real value of your home. My thesis was: you're screwed. You will lose what little equity you have and real housing prices could drop by as high as 50%. - Taylor Cottam
How Keynesian Archduke Krugman Recommended A Housing Bubble As A Solution To All Of America's Post Tech Bubble ProblemsSubmitted by Tyler Durden on 09/08/2010 00:20 -0500
The year is 2002, America has just woken up with the worst post dot.com hangover ever. Paul Krugman then, just as now, writes worthless op-eds for the NYT. And then, just as now, the Keynsian acolyte recommended excess spending as the solution to all of America problems. Only this one time, at band camp, Krugman went too far. If there is one thing that everyone can agree on, is that the Housing Bubble, is arguably the worst thing to ever happen to America, bringing with it such pestilence and locusts as the credit bubble, the end of free market capitalism, and the inception of American-style crony capitalism. Those who ignored it, even though it was staring them in the face, such as Greenspan and Bernanke, now have their reputation teetering on the edge of oblivion. So what can we say of those who openly endorsed it as a solution to America's problems? Enter exhibit A: New York Times, August 2, 2002, "Dubya's Double Dip?" Name the author: "The basic point is that the recession of 2001 wasn't a typical postwar
slump, brought on when an inflation-fighting Fed raises interest rates
and easily ended by a snapback in housing and consumer spending when the
Fed brings rates back down again. This was a prewar-style recession, a
morning after brought on by irrational exuberance. To fight this
recession the Fed needs more than a snapback; it needs soaring household
spending to offset moribund business investment. And to do that, as
Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing
bubble to replace the Nasdaq bubble." If you said Krugman, you win. Indeed, the idiocy of Keynesianism knew no bounds then, as it does now. The solution then, as now, to all problems was more bubbles, more spending, more deficits. So we have the implosion tech bubble: And what does Krugman want to create, to fix it? Why, create a housing bubble... Well, at least we know now how that advice played out.
Alan Greenspan, the Chairman of the Federal Reserve from 1987 to 2006, was more directly responsible for the current Global Depression than even his worst critics realize. Here is the explanation why. —Gonzalo Lira.
While traditionally technicals have been considered voodoo by the vast majority of "legitimate" financial analysts, lately the trend has flipped, and scribbling that one is something as demode as a fundamental analyst tends to generate scowls of disapproval and outright disgust from PMs with a 10 second holding horizon during hedge fund interviews. Which is why looking at the chartist tea leaves, as Goldman's John Noyce has done, suggests that those looking for much more irrational exuberance in bond yields may get their wish, as a double top formation may be forming in 10 Years. The result of a broader double top would likely be an end target of between 2% and 2.2% in the 10 Year, and something potentially as low as 2.84% in the 30 Year, which would probably put all those with TBT exposure in the poor house.
ICI reports that the week ended July 14 saw another massive outflow from domestic equity mutual funds of $3.2 billion, bringing the July total to $7.3 billion, and year-to-date equity outflows to a stunning $37.5 billion. Yet neither liquidations, nor redemptions, nor mutual fund capitulation, nor lack of liquidity, nor lack of human traders, nor rumors that it is all one big scam, can tame the market's most recent bout of irrational exuberance: in a time when equity funds had to redeem over $7 billion in stocks, the stock market surged by 90 points! Just like last week, despite huge order blocks of selling pressure, the fact that volume is so light and liquidity so tight, the market succeeds in ramping ever higher, now that the few remaining carbon-based market participants have reverse engineered the key algo "predictive" frontrunning mechanisms, and manage to fool them that there is bid side interest, into which all domestic equity mutual funds manage to sell en masse. Soon enough there will be little left to sell, which will, paradoxically cause a much overdue market crash. (It is a bizarro market for a reason). And even as equity mutual funds are running on fumes (explains Bill Miller's call of desperation yesterday), all the money in the world continues to rush into credit funds: the past week saw inflows into every single bond category, with a total of $5.8 billion going into all taxable bond funds. We are gratified that behind the fake equity facade of "alliswellishness", everyone is pulling their money out of stocks with an increased sense of urgency. Retail has had it with this pathetic shitshow of a market: the computer can front run each other for all anyone cares. We are fairly confident that the Obama administration will not have a soft spot in its heart to bail out the quant community... unless, of course, Rahm Emanuel discovers some way to unionize algorithms and give them voting rights.
Actually, I did tell you last quarter (and 2 years ago) that not only is Goldman basically the world's largest, federally insured hedge fund (with trading influenced earnings volatility to prove it), but that most pundits have forgotten their balance sheet threatens solvency in times of high volatility and rapidly declining prices. 2008, anyone? Anyone???
It seems everyone is perplexed by the most recent irrational bout of July market action. Like clockwork, once July rolls in, the market surges, no questions asked. This year, the ramp is particularly blatant because as the attached chart demonstrates, bonds, which are a far more credible barometer of market (in)sanity, indicate the S&P is rich by at about 50 points. As this spread will most certainly converge eventually as we discussed previously, a short stock, short bond position would generate some much needed P&L in this world of deranged fractal algorithms. As to what may have caused the most recent bout of irrational exuberance, David Rosenberg has the most logical, and generic solution: excess liquidity and a short covering spree, and "nothing fundamental here."
The irrational exuberance of the last 24 hours has evaporated following the Meredith Whitney downgrade of Goldman 2010 EPS, but mostly after reports that some European banks are so busted they managed to fail an exquisitely doctored test designed so that no banks would fail. The market is once again wondering if someone can fail this farce, what would the test of reality look like? The result: the traditional carry-risk correlation has once again recoupled and with countless such occurrences continues to be the most routinely profitable intraday trade available.
The irrational exuberance of the last 24 hours has evaporated following reports that some European banks are so busted to fail an exquisitely doctored test designed so that no banks would fail. The market is once again wondering if someone can fail this farce, what would reality look like? The result: the traditional carry-risk correlation has once again recoupled and with countless such occurrences continues to be the most routinely profitable intraday trade available.
Irrational exuberance or Rational idiocy?