Perspectives on the global economic meltdown- (Nov 28 2010)

[Neshant]

If ACC cement stock has risen from 20 Rs to 1000Rs in the last 22 years,it is not because they kept 're-inventing' cement, but because they became more efficient in production and supply towards a growing demand. If companies existed solely on 'invention' of new technologies, then 99.999% of all companies would be bankrupt in no time.

Silly example.

Most of the impact of an invention is felt when its introduced on a mass scale into the market and is ABSORBED by society. Asphalt road transport network is NOT fully absorbed into India. India's lack of roads & infrastructure in general were/are a constraint on development for the last 22 years. Hence building roads may be profitable/productive provided the economy requires them for growth. Best way to measure if the economy requires them is through private capital financing road building with tolls to recoup their investment.

There are no lack of roads in the US.

Put this ACC cement company in the US tearing up asphalt roads and rebuilding it with the same type of material using its own capital and it will be bankrupt in short order. There are no productivity gains and hence no profits in putting the same wine in a new bottle and calling it growth. Stock market does not rise 50% based on tearing up good roads and rebuilding them with the same material.

For all the hate spewed towards bailing out the banks, people forget that an unprecedented 350+ banks have been shut down in less than 2 years.

Works to interest of the large commercial banks which are shareholders of the federal reserve. The only thing it reenforces is their monopoly in the market, but I guess you did not realise that.

The largest banks that had a systemic risk across businesses were saved.

Ain't it the greatest job in the world to claim you are perpetually a systemic risk to society and need funds ripped off from the productive to fund your gambling ventures ? Sh&t man, I need to find a job like that shuffling paper and creating systemic risk for society and stop wasting my time developing real products for society. Its like a perpetual motion machine where any handout of money can be justified on the basis of systemic risk. Meanwhile one can continue a parasitic existance of questionable benefit to society.

Ironically, some of the most vocal libertarians were tagging the line of Norwegian govt during its banking

Libertarians don't talk about socialising the losses of crap banks. They talk about banks and their shareholders eating their own loss with no systemic risk shenanigans.

The 'reserve' that is attached to the names of every central bank in the world should surely be self-explanatory.

Yes, it explains how commercial banks behind the federal reserve fool people into thinking its something other than a counterfeiting racket. Say if counterfeiting is good, why don't we all do it? Can I fire up my printer and do a bit of quantitative easing to ease my debts?

if there is a systemic collapse, no bank can ever repay every rupee of all its depositors money on a single day.This leads to the spread of fear and uncertainty and more failures.

Its as stupid as saying we found Bernie Madoff running a gigantic ponzi scheme and we need to give him a bailout to keep the racket going as exposing it will pose a great risk. But guess what, not exposing it poses an even greater risk.

There is no magic trick. Instead of the productive losing money, the money loses value everytime printing & bailouting is done. So quit fooling yourself that anything is 'saved' when the same fools who perpetuate the fraud rush to bail out their buddies.

The role of a 'reserve bank' is to mitigate such a scenario by making sure the banks have enough capital to fulfill their obligations and restore faith.

Print money + run up debt. I think I could put a monkey in place of Bernanke with 2 buttons in front of it. I realised a long time ago what a fraud economics had turned into. People just invent terminologies and try to make it sound like a science when in fact its just quackery of robbing peter to pay paul (while making a fee on the robbery!).

If the private sector continues to hoard cash, there is no ways those jobs are coming back.

So what are you saying, people need to start squandering or have their money stolen from them and spent by financing crooks (who incidentally caused the crisis) and jobs will appear ?

I fear like so many financial guys, you may have spent too much time away from real work dreaming up silly theories on how to lead people into a financial mess. If nothing else, one reason for shutting down this useless middleman industry is so these guys get reaquainted with doing a productive job instead of being a con man.

[Neshant]

Unless you are living in a cave, you can not but help to see that a LOT is happening.

Could you identify what this "LOT" that might have caused the stock market to go up 50+%. The only LOT i see happening is a lot of money printing, running up debt, stock market rigging and scamming.

I have given you specific real world examples but they seem to fly above your head.

You have not given me a single example. So lets start with a simple question : Please name me one productive industry that has created jobs on a large scale in the last 10 years.

I specifically asked you the question about your professional roles have been since you have amply

I am an electrical engineer.

Talk to someone in inventory management or supply chain management and how the field has changed dramatically over the past two decades.

Internet based inventory systems have been in place for a long time. Certainly by 2000, all major companies have inventory systems in place. Give it another 5 more years to 2005 and all mid sized companies making a few million were onboard with supply chain management. It did not create any major boom in job creation which means its impact after 2000 was only incremental, not revolutionary. A few tweaks here and there might add some incremental productivity gain, but for sure nothing revolutionary happened between 2008 and 2010 that justifies a 50%+ rise in the stock market. So its purely the miracle of money printing & stock market rigging - which can only end badly.

You are literally grasping for straws looking to justify this so called "recovery". You want to believe it is true but there isn't a shread of evidence its anything other than money printing, running up debt, stock market rigging and scamming. The only reason for this is for the federal reserve to make good the terrible bets by its shareholder banks by pumping things up at the cost of the productive & the future - except this future isn't far off. High taxes, inflation and no/negative real growth, worthless money and a major drop in the standard of living is what awaits.

Look at the performance of the consumer discretionary sector over the past two years, and try to understand the role of technology in their ability to to boost profitability.

Could you identify what technology emerged that was not already there from 2000 to 2008?

I posted a graph of how fuel efficiency in the US has gone up almost 80% over the past three decades.

I have no doubt there have been incremental changes over 30 YEARS. But what about from 2008 to 2010? What was the change there? Did fuel efficiency jump 50% that justified the stock market going up 50%? The only thing that jumped 200+% was the COST of fuel and how can that be positive news.

None of them present an alternative.

I already presented an alternative.

[Neshant]

1) Money given by consent: Certainly all money taken in by banks and other intermediaries have to be based on documents indicating the saver's consent.

Then you agree that the Federal Reserve should be shut down. Because printing money, stock market rigging and scamming by its shareholders the commercial banks is a ripoff of savers without their consent. Please confirm this.

If you believe that a significant percentage of money taken in by the financial industry is not based on the consent of the relevant savers - do indicate this.

Assuming you agree that the federal reserve and its counterfeiting racket needs to be shut down, any money consentually deposited with any third party by a saver is part of the productive industry.

The primary reason people are COERCED to hand over money to financial companies is to preserve the store of value that money is supposed to have but does not under this system of counterfeiting by the federal reserve. End the counterfeiting and that will dry up like a river in a hot desert. I'm willing to conceed that that any money thereafter that savers WILLINGLY deposit with a financial institution is 100% certified scam free.

Of course by agreeing to end the federal reserve, you also end the scam of leverage (10 to 100+ X) which the financial instutitions use by passing on the risk to productive society. As it stands now, its not so much what the financial industry take in as it is what it puts out through leverage which is to say it takes the wealth of the entire country including future generations hostage without consent.

2) The issue of bailouts of failed banks. I believe further academic study is required

No academic study is required to know its a case of offloading gambling debts onto the rest of society. When you lose at a casino, you don't pull out a gun and claim you pose a risk to everyone if your line of credit for gambling is not extended by the house. Or claim an academic study is needed to find out if society benefits by handing you their money. You lost period, now pay up. That special priveledge is to be preserved for some can only come at the expense of others both now and future generations.

if the government has the opportunity to invest at the lowest point of the investment cycle and exit at a higher point

I got a better idea. Why not print & tax less so that people can avail themselves to these so called great opportunities? Why govt needs to become a private investor while rigging the market at the same time? Now if govt gains, someone else has to lose. Could you tell me who suffers the loss when govt prints, borrows & rigs the market?

If that's the case, why don't we just hand over all our money to govt and let govt do the investing. After all, if they can rig the markets and they can buy in at the lowest point and print it up the charts 50%, then there's no reason for any private investor to waste his time.

As I have pointed out to VickramS, there is not a single productive industry in the last 10 years that has created well paying jobs (in America) on a large scale. The only thing going was the house flipping scam. Now that has come to an abrupt end, there is no mystery where crap mortgages are headed. Massive printing & running up of debt only ensures an even bigger mess is about to unfold.

[somnath]

^^^Neshant-ji,

You can actually state your (otherwise copious) posts in 3 points:

1. Banks and central banks are all frauds.
2. There is no productive industry.
3. Everything is "con" maya only!

Just keep posting these in repsonse to everything else, the point is exactly the same!

[Ambar]

^^^Neshant-ji,

You can actually state your (otherwise copious) posts in 3 points:

1. Banks and central banks are all frauds.
2. There is no productive industry.
3. Everything is "con" maya only!

Just keep posting these in repsonse to everything else, the point is exactly the same!

+ a billion!

Back in grad school, we had plenty of popular and quite vocal Austrian contrarians who tabled their ideas in a rational manner, but i cannot think of a single one who said all banks are frauds, no industry or company is productive and the entire financial sector should be made away with! It is painful to debate with someone who has quite obviously never prepared a single balance-sheet in their life to understand revenue and margin growth or asset amortization. If we are done with 5 lines of canned responses and a constant reference to read an obscure book , we now have to deal with same videos being posted over and over again. Plenty of 'perspective' indeed!

[VikramS]

Neshant:

There is a basic flaw in your premise which you do not recognize.

You associate stock market performance on a vaguely defined notion of real economic growth. You believe that the growth in the last decade was all a ponzi scheme (possibly correct) and hence the stock market gains are also a mirage (possibly correct).

But does an investor who bought the market in the Spring of 2009 care that it is all a ponzi and chimera? The bears have been predicting a collapse of the market for two years but it has not come.

That is why trading the stock-market based on some hypothesis which tries to predict the future is a loser's game. Especially something hinged on a dooms-day scenario becoming real; simply because the forces which can make a difference are lined up against it.

The one big advantage of the stock market is its liquidity. You have to learn to take advantage of that; meaning get in and out, and trade the trend. All valuation metrics etc., are bogus; just a way of justifying a position.

What really matters is money flow. And even if that money comes from a counterfeiting operation it is still money.

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Also recognize the difference between the deployment of a technology and effective utilization of that technology to further productivity. Think in terms of a manager making decisions. It takes time for them to get used to all the systems in place, and using the information available to them to change the way they do business. There is always an inertia when it comes to changing a system and the impact of any new tool takes some time to be felt.

Take the example of garment retailers; as fickle a business as it gets. Garment retailers today know exactly how much of what is selling in different stores; what sizes, what patterns and at what price. What this allows them is to manage inventory at a precision which is astounding. Automated ordering systems, send orders to suppliers half the across the world, replenishing inventory real-time. Suppliers are not stuck with unsold inventory or designs and patterns which the retailer will not lift, simply because the feedback mechanisms are very fast. That level of integration across the entire supply chain is a recent phenomenon (last decade); I know a few engineers who made it possible.

Note that the retail garment business is a pure trading business, with no massive capital investment or other complex balance sheet structures, which can be used to run a Ponzi scheme. They buy and they sell, while responding to the vagaries of the consumer balance sheet and changing trends. The visibility they have on both sides of their operation is quite unique and is being reflected in their profitability. They are going to face head-winds as commodity inflation cuts down on buying power and also raises input costs; however they are in an excellent position to manage those challenges.
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And this visibility also introduces volatility. Compared to the past the pace at which good news or bad news travels to the system has increased enormously. As a result, the reaction to any bad news is very fast. Everyone sees things worsening real-time and hunkers down. So events which would take months to percolate through the system now make their impact in a few weeks.

And for the last time: You do not need jobs to make the stock market go up. You also do not need revolutionary new technology. So stop repeating the same flawed hypothesis ad nauseam. And the stock market is up 100% not 50%

You are probably right that there is a major drop in the standard of living coming down our way. Commodity costs and borrowing costs are going to be much higher. But that has nothing to do with investing in the right areas.

[ldev]

http://www.federalreserve.gov/newsevent ... 01105a.htm

And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

This Neshant vs the World IX match has turned into a marathon. But irrespective of that, some months ago when I first read the captioned quote from Ben Bernanke the Chairman of the Federal Reserve I could not believe my eyes. I was always taught that real economic performance was reflected in the stock market and not the other way around. That that was the way for sustainable economic growth. This op-ed by Bernanke was published in the Washington Post of November 5, 2010. If the Chairman of the Federal Reserve has to fall back on the wealth effect of the stock market to get the virtuous cycle going, things are in dire shape indeed in the economy or the fox is guarding the chicken coop. Whatever happend to productivity , innovation, job growth in the real economy and not the financial economy. This is economic logic turned on its head.

In the 1950s and the early 1960s when the US experienced some of the fastest economic growth it has ever had, families could rely on one income to support themselves, debt was manageable, marginal tax rates in the US were more than 80% and in some years 90%, and yet the US grew and real family incomes also grew. Today, billionaire hedge fund owners have an effective tax rate of 15% and the rest of aam janata is scraping by, unemployment/underemployment is high, the US is deindustrialized other than the arms industry, debt has exploded, it is impossible for a family to make ends meet unless husband and wife work and the financial industry has got the US by the jugular.

A simple smell test says that there is a big stink somewhere.

[somnath]

^^^Ldev-ji, wealth effect is nothing strange, or unusual..In the long run, stock markets should reflect economic fundamentals...But wealth created by stock markets create consumer confidence. And a bullish stock market helps businesses raise capital cheaper, thereby enabling more investments..So Ben Bernanke is only stating something that is tautological...

[VikramS]

ldevji:

There was a chance of double dip and there was no way Ben would let that happen under his watch. The Congress was in no mood to provide another Fiscal stimulus so Ben had to do QE2.

The fact of the matter is that most of the discretionary spending in the US comes from the upper income earners. The masses spend most of their paycheck on non-discretionary item. Rising stock prices have a strong correlation with discretionary spending and that is what Ben wanted and succeeded in getting.

As an investor it is very important to keep the impact of government policies in mind. While the secular forces eventually make their presence felt, the cyclical rallies and declines can last for a long time. Further in an inter-related world, how the secular forces will play out is also debatable. We would not be in this mess if there the global imbalances were not so extreme.

The one good thing about Ben's action was that regardless of what the stock market did, the precious metals would get a bid as the paper printing became widespread. Silver is on a tear and still not done yet IMHO.

[Satya_anveshi]

Apologies if posted earlier.

Crisis Is Over, but Where’s the Fix? - NYT Link

When the financial system began to crumble more than three years ago, the world rushed to rescue it. Country after country went deeply into debt to keep banks afloat and prevent a deep recession from turning into something worse.

It worked. This week was the second anniversary of the nadir of the crisis. Most stock markets around the world are at least 75 percent higher than they were then. Financial stocks, which led the markets down, have also led them up.

At the time, rescuing seemed more important than reforming. The world economy was breaking down because of a lack of financing. Trade flows collapsed, and companies and individuals stopped spending. It seemed clear that halting the slide was critical.

But the world has changed since then. The economic recovery in most developed countries is stuttering at best, and governments are struggling with their own finances. It is time for remorse and second-guessing.

More capital is clearly needed, but it may not be nearly enough. “If we ask them for more capital, and they are too big to fail, they can take even more risk” after they raise additional capital, Y. Venugopal Reddy, a former governor of India’s central bank, argued at an economic conference sponsored by the I.M.F. this week. He added that he was worried about institutions that were “too powerful to regulate.”

One of the questions economists were asked to address at the conference was, Does the financial system have social value? - Neshant, you have your friends attending the conf

It is clear that there are functions of the financial system that must be performed, among them the allocation of capital and the setting of prices. But there is at least a suspicion that a significant part of modern finance has no real value for anyone except the participants.

And of course, there is also the fact that the financial system did not accomplish what it was supposed to do. “At the core of these functions is the ability to find and set the right price, including the extent to which it reflects risk,” Antonio Borges, an I.M.F. official and former vice chairman of Goldman Sachs International, told the conference. “This is not really a question of financial sophistication, of complex products or greedy bankers. It is a question of getting the prices wrong.”

He added, “It is unbelievable how wrong they were.”

Read on folks and btw on a related point: Fed begins to prepare for life after QE2

[ldev]

Somnath,

But wealth created by stock markets create consumer confidence.

Sure if they liquidate part or whole of their portfolios, because otherwise at least the US consumer's debt servicing ability is tapped out. Also confidence levels are nowwhere near for retail investors to believe that the market will not suffer another meltdown and hence reticence to borrow against a portfolio.

And a bullish stock market helps businesses raise capital cheaper, thereby enabling more investments.

I would hazard a guess that the cheap money policy of the US as well as QE 1&2 have resulted in 10 year corporate bonds being "cheaper" than cost of equity. Have you seen some of the recent yields on corporate bond offerings?

Stock price is a multiple of earnings. Earnings are dervived from the real economy. If you flood the economy with cheap money, the supply of money will bid up the price of everything including stocks and P/E ratios will rise. How real are these increases in P/E ratios? Its a house of cards which the slightest whiff of wind will unravel if the resulting confidence does not produce a self sustaining response in the real economy.

[Hari Seldon]

In the 1950s and the early 1960s when the US experienced some of the fastest economic growth it has ever had, families could rely on one income to support themselves, debt was manageable, marginal tax rates in the US were more than 80% and in some years 90%, and yet the US grew and real family incomes also grew. Today, billionaire hedge fund owners have an effective tax rate of 15% and the rest of aam janata is scraping by, unemployment/underemployment is high, the US is deindustrialized other than the arms industry, debt has exploded, it is impossible for a family to make ends meet unless husband and wife work and the financial industry has got the US by the jugular.

A simple smell test says that there is a big stink somewhere.

+1 x10 only. Hits the nail on the head. Turns the debate to ends-and-means fundamentals.

Positive social impact (such as rise in median real wages, improvement in median socio-economic indicators etc) are the end, the goal, of the political economy and not the means. Economic activity, that over the years, has shown itself to be detrimental to social indicators (and they are - far more Americans as a % of the population are underwater today than in 1955 even though the nominal per capita looks shinier now than '55. One has to subtract accumulated liabilities to get at net worth which is median negative only.) Of course, this is not to say one should go luddite and resist all attempts at change - technological or otherwise but one should gather the sanity and the courage to resist detrimental change. Only. That courage and sanity are worrisomely missing in aajkal ka yamreeka. The brains have been co-opted (look only at the academic world to see this) and the proles lulled into stupor with bread and circuses.

[ldev]

VikramS,

Rising stock prices have a strong correlation with discretionary spending and that is what Ben wanted and succeeded in getting.

And that is what is precisely wrong with the direction of this economy. Discretionary spending should not happen out of inflated or inflating asset prices. It should happen out of cashflow. But rather than taking away the punch bowl, the Chairman has served 2 more drinks before last call and maybe ready to serve 1 more aka QE3.

On a slightly larger overview, mild inflation has been regarded as historically good by most Central Banks because of the incentive it provides for manufacturers to expand i.e. they had first dibs on new money and got to it before others down the food chain, once it has already lost a little of its value to inflation. When large scale outsourcing started in the US beginning with manufacturing, you had deflation in the manufactured goods sector in the US and inflation (the good variety) in the outsourced locations, initially Japan, South Korea, Taiwan, Malaysia and now China. This was manna from heaven for the politicians and Central Bankers. Sure, people were losing their jobs, and wages were falling, but Wal-Mart was ensuring that prices fell faster. So there was grumbling, but life was kind of still A-Ok. First dibs on new money created moved from manufacturing to financial services. Whereas manufacturing was lucky to have leverage of 2.5x, banks began with 10x and the go-go boys of the investment banks ran it up to 40x and more. Asset prices exploded and masses were kept happy because their asset values primarily real estate also increase in price. But cashflow from the real economy depended on those fast food industry jobs...the rest is history.

After all of that, Ben Bernanke says he is relying on the wealth effect. Hasnt the man learnt his lesson once?

[Arjun]

Positive social impact (such as rise in median real wages, improvement in median socio-economic indicators etc) are the end, the goal, of the political economy and not the means. Economic activity, that over the years, has shown itself to be detrimental to social indicators (and they are - far more Americans as a % of the population are underwater today than in 1955 even though the nominal per capita looks shinier now than '55. One has to subtract accumulated liabilities to get at net worth which is median negative only.) Of course, this is not to say one should go luddite and resist all attempts at change - technological or otherwise but one should gather the sanity and the courage to resist detrimental change. Only. That courage and sanity are worrisomely missing in aajkal ka yamreeka. The brains have been co-opted (look only at the academic world to see this) and the proles lulled into stupor with bread and circuses.

I would be very interested in the social / financial indicators you are looking at that indicate a decline. Can someone post the data / link?

[Arjun]

Sure if they liquidate part or whole of their portfolios, because otherwise at least the US consumer's debt servicing ability is tapped out. Also confidence levels are nowwhere near for retail investors to believe that the market will not suffer another meltdown and hence reticence to borrow against a portfolio.

No, the 'wealth effect' is that when you feel far more secure and confident of the money growing in your brokerage or bank account - you tend to consume more today as well. This is not dependent on any liquidation of portfolio of borrowing against it.

How real are these increases in P/E ratios?

Easy way to judge. Compare the P/E ratios to what they have been historically or to what they are in other countries. If you want to be more accurate use the P/E/G (PE to growth) ratios - in all these parameters the US market is turning out to be a big buy currently - one reason why global money managers are underweight today on emerging markets and overweight on the US.

[Ambar]

I had posted this a while back in the 'Global Economy' dhaga, here's the global comparison of P/E figures as it stood at the end of Jan 2011.



This was before US markets corrected from their Feb highs, so the current US P/E would be even more attractive. And it is not just P/E, as a business traveler in the US, the prices of hotel rooms ( from moderate to business class ) have all remained stagnant or in some cases have become much cheaper than what they were 3-4 years ago. Same goes with food at chain restaurants or clothes and wages. US looks much more attractive at the current level than most emerging markets. And about company earnings, one can always adjust them to the CPI figures and recalculate the P/E.

[ldev]

Arjun,

You are probably aware that besides financial leverage which is what the popular press speaks off, there is also operating leverage. Historically one referred to it when talking of corporate financial performance. IMO, retail spending dervived from inflated asset prices relative to retail spending dervived from current cashflow is akin to total retail consumer leverage. As an economy increases its reliance on consumer spending via asset price increases, its operating leverage increases and it becomes increasingly vulnerable to shocks. That IMO is what is happening to the US. In this scenario, speaking of the wealth effect is like giving an alcoholic one more drink.

[Arjun]

You are probably aware that besides financial leverage which is what the popular press speaks off, there is also operating leverage. Historically one referred to it when talking of corporate financial performance. IMO, retail spending dervived from inflated asset prices relative to retail spending dervived from current cashflow is akin to total retail consumer leverage. As an economy increases its reliance on consumer spending via asset price increases, its operating leverage increases and it becomes increasingly vulnerable to shocks. That IMO is what is happening to the US. In this scenario, speaking of the wealth effect is like giving an alcoholic one more drink.

No I was just clarifying the correct interpretation of 'wealth effect' - but that can at best be a short-term solution - no economy can depend on it to keep growing. At the same time - I do think there is real growth happening at the corporate level as well - at least compared to the recession levels. US firms in many industries are among the most competitive globally and they are also taking advantage of the torrid growth in emerging markets.

[VikramS]

ldevji:

The fact of the matter is that those with college degrees are doing OK. The unemployment rate is under 4-5%. Anecdotal evidence does not suggest any doom or gloom in the valley. Colleagues with the right skills are getting multiple offers when they are available in the market with hiring managers willing to beat any other offer etc.

What rising stock prices do is get these people to open up their wallets. What they had been saving or reluctant to spend is now coming out. Note that at least here in the valley, the consumption is not based on taking on more debt, but based on the willingness to spend. Things might be different else where, but I doubt it is going to be drastically different.

The problem in the US is that the large group of former manufacturing jobs which were lost. The housing boom hid the losses but now that that bandage is gone, the wounds are out in the open. These wounds will only heal when the global imbalances reverse. And the administration has been very clear that they want the recovery to be export driven, and Ben is bent on destroying the USD to make sure exports rise.

This can fall apart if long term interest rates really start rising. It is coming down to a game of chicken. The long term bull market in bonds is possibly coming to an end. Draw a trend line on TNX/TYX and you can see it clearly that yields are now basing, and poised to go up. Bond King at PIMCO is out of ALL treasuries.
Ten year yield

Will the emerging economies raise their interest rates above inflation levels and allow their currencies to float to fend off the inflation pressures before the US starts seeing failed bond auctions or much higher interest rates is the question.

Like Neshant, I also do not seeing this ending well. The cleansing has to be done. But who will be the last man standing is still open.

[Arjun]

The latest on US P/E figures, post the quarterly earnings season.....

Earnings season is essentially done. According to Thomson Reuters data, 493 of the 500 companies in the S&P 500 have reported their quarterly results and they've come through with flying colors, with 70% beating Wall Street's consensus view. And despite the 80%-plus run-up in equities off their March 9, 2009 bear market low, the forward 2011 price-to-earnings ratio for the S&P 500 sits at 13.2.

[devesh]

And for the last time: You do not need jobs to make the stock market go up. You also do not need revolutionary new technology. So stop repeating the same flawed hypothesis ad nauseam. And the stock market is up 100% not 50%

there it is. that is the crux of the issue. you've nailed it, VikramS, and indirectly you've confirmed what Neshant has been saying. the Stock market growth is not based on real economic growth. for all we know unemployment could be 25%, and the country could be in a Depression, and still stock market could be going through the roof. you've essentially proven Neshant's belief that measuring economic health via the performance of the stocks market is BS, b/c stock market doesn't reflect the economic scene.

What really matters is money flow. And even if that money comes from a counterfeiting operation it is still money.

holy sh**....so counterfeit money is all good and fine then. we should all support counterfeit money b/c that can help "stimulate" the economy. after all it's all just money and money is good, no!!! this is insane. i've never seen anyone make an argument like this. it becomes increasingly evident to me why Wall Street has become what it is today. if this kind of thinking prevails on the average Wall Street Joe, GOD help America. and GOD help every country/people afflicted by an elite which believes in this kind of decadent thinking.

Bernanke's actions will result in an up and down, see-saw economy for the US. there will be periods of mild growth (aided by horrendous inflation which goes understated and underestimated by GoTUS) followed by a downturn and then followed by a period of inflation, and the cycle continues. this is what Benny and his friends would prefer. it is all by design. read Ed Harrison's piece a couple of years ago when he says the same. the QE cannot create prosperity. it cannot solve the problems. it can only create artificial and illusory growth for junk sectors like the financial "industry" and create inflation not just for US but also for the rest of the world.

[VikramS]

devesh:

No point railing against the sun, is there? You wear a hat on a hot summer day; but you seek it when the weather is cold. Understanding what it is doing and profiting from it is what our goal should be.

There are global imbalances which need to be resolved. Till they resolve it will be every country is for itself and will do what is better for its interests.

The Fed's actions are very well telegraphed. They are designed to spread the pain out over many years and also force the hands of other players supporting the Ponzi. That they are designed to preserve the current system should not be a surprise to anyone. After all it is the banker's bank.

Unfortunately, a lot of the Gold-Bug rhetoric falls flat because the Fed is only one side of the Ponzi scheme. There is China with its failed bond auctions but a refusal to raise rates because the people might revolt. There are the holier than thou Europeans who are fire from the Fed's shoulders.


And what I wrote about how the stock market moves is nothing unique. It is true of all asset classes. Why do you think bonds start falling the day the Fed announced QE2? Shouldn't it help the price of bonds if the Fed was buying $600B in bonds? It is all about the money-flow; where is the money moving.

Follow that and profit. Fight it and lose.
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BTW: This is what inflation adjusted performance of the market looks like. Very consistent with the economic growth. But a debt bases system needs preservation of nominal asset prices. And that is what the Fed is trying to do. That is why you always need gold/silver as a part of your portfolio.
http://www.ritholtz.com/blog/2011/03/se ... r-markets/

[devesh]

PRC is but a pawn in this game. imvho, Uncle has weaved a web of such intricacy that PRC has no good moves in its arsenal. PRC is in a damned if you do--damned if you don't situation. and as such, West has carefully planned the neutering of China by advocating for and having CPC implement one-child policy and other such non sense. the CPC controlled China is the West's brainchild. the imperialist establishment in the West could not have hoped for a better outcome in China. and final phase of their plan is being played out right now. it remains to be seen if PRC leadership retains even an iota of Chinese thinking or if they're blindly aping the West. India must hope for the former but prepare for the later.

Understanding what it is doing and profiting from it is what our goal should be.

sorry, i disagree with you. India's goal should be to understand it, not to try and profit from it. we cannot profit from it. the profits have already been distributed by the early entrants into the game. at this point, there is a lot of shit that needs to be cleaned up. if we enter this convoluted global finance ponzi scheme now, at such a later stage, we will have our finances raped (once again) by foreign imperialists.

India's interest should only be to understand the game and to make sure that this system perishes sooner rather than later. there is no winning scenario for India in this game. absolutely none. it is a lose-lose game for us.

[VikramS]

deveshji:

We only wish we had the power to control where India invests....

We are just small fry trying to navigate the system.

As I have noted earlier in this thread, India is better of with its limited integration until the the global imbalances resolve. There is no need for anything more.

BTW, as I write this the Japanese stock market is being hammered and currencies are all over.

Perhaps the days of reckoning are approaching.

But I doubt that the PRC is nothing but a pawn. They are determined.

===============================

http://www.ravibatra.com/

BTW Dr. Batra has written about this issue for quite some time. FWIW it was the Chinese financing of US debt which seems to have postponed the day of reckoning.

[Arjun]

for all we know unemployment could be 25%, and the country could be in a Depression, and still stock market could be going through the roof.

That's a load of BS !! Stock prices are basically dependent on corporate profits (both current and expectations for the future) - which will be directly impacted by any depression.

[devesh]

America is in a semi-depression right now, with unemployment higher than what is reported. corporate profits have returned to healthy levels and beyound. and in the case of the finance mob, profits are skyrocketing again. but there is no growth b/c the underlying imbalances in the economy have not been resolved. debt being top on the list of imbalances. individual debt has not moved an inch, for all practical purposes, and as long as this is the case, corporate profits and stock market can go up all they want but there will be no growth.

[Arjun]

America is in a semi-depression right now, with unemployment higher than what is reported. corporate profits have returned to healthy levels and beyound. and in the case of the finance mob, profits are skyrocketing again. but there is no growth b/c the underlying imbalances in the economy have not been resolved. debt being top on the list of imbalances. individual debt has not moved an inch, for all practical purposes, and as long as this is the case, corporate profits and stock market can go up all they want but there will be no growth.

Depression by what yardsticks? The US GDP is growing again for the second year in a row - it declined only for 1 year in 2009.

For the D&G proponents, it would be useful if the positions are backed up by referenceable data, and please detail out the alternatives you have in mind to the current one - we would rather not have yet another whine thread.

[devesh]

eh...depression b/c the so called growth that is reported is minimal and often times, in the past 2 years, even that minimal growth is "revised" at a later date. adjusted to inflation, there has been no growth in US. the inflation numbers of BLS are fake. no sane person would believe that inflation is 1%. there has been some revival in manufacturing but most the "growth" is from individual spending and debt. let us not be lulled into complacency by this fake growth. there is no growth in USA. simply money printing which is maintaining the status quo and creating illusory growth. the status quo can be explained as a reasonable choice if an alternate plan has been laid out and is being worked out. but there is no such plan. the FED is hell bent on maintaining status quo, while a suitable alternative to the spend/debt model is not even being debated. until the probelms which led to this crisis are solved, it must be noted that US is in a depression or deep stagnation with high inflation (which is stagflation and depression all at once).

[VikramS]

for all we know unemployment could be 25%, and the country could be in a Depression, and still stock market could be going through the roof.

That's a load of BS !! Stock prices are basically dependent on corporate profits (both current and expectations for the future) - which will be directly impacted by any depression.

That link is often lost in the debate.
Corporate Profits can delink with the employment situation for a long time.


deveshji:

How many people do you personally know who are out of jobs or struggling? True the situation is not rosy by any means, but it is not D&G as it is often made out to be.

Also while the rhetoric about inflation being fake is often touted, I do not see too much evidence of that in my personal life. The car I bought for $16K 15 years ago, continue to be sold within 5-10% of that price, but with a whole lot of new gizmos, better mileage, and much better safety features. It cost must less to remodel or build a home right now than it did 3 years ago; not only have the labor costs gone down but material costs too have. Rents have been declining or stable. Domestic workers (nanny, gardener etc.) are working at lower wages. That Subway footlong which used to be $6 is now $5. The Plasma TV I bought for $2K in 2006 costs $400 now. Yes commodity prices are higher (gas). Food also perhaps costs a bit more though after our family grow we shifted towards more organic food; and the price and availability of that has never been better. But a lot of commodity inflation has to do with supply disruptions, and demand increase. It is not just a purely monetary or liquidity issue.

There is no doubt that over the past two decades the disparity in wealth has increased substantially, partly as a result of the migration of manufacturing jobs. There is also a huge structural imbalance.

Ray Dalio runs the world's biggest hedge fund which has returned in the high teens over the past decade (40% last year). This was his interview published last weekend
http://online.barrons.com/article/SB500 ... rticle%3D1

Note the distinction he makes about countries with independent monetary and fiscal policies and the challenges the world faces. These inter-related monetary policies have to come to an end before these imbalances end. It will be a painful transition but it is going to be inevitable. What the markets do during this period is everyone's guess.

[Hari Seldon]

VikramS,

How many people do you personally know who are out of jobs or struggling? True the situation is not rosy by any means, but it is not D&G as it is often made out to be.

Agreed.
However, lest we forget, the rot usually starts at the periphery even as the core looks all solid and shiny only. Better to catch the nastier ailments in the early stages than otherwise but seems the system is, by design, unable to acknowledge much less rectify and ameliorate structural and systemic problems.

Also while the rhetoric about inflation being fake is often touted, I do not see too much evidence of that in my personal life. The car I bought for $16K 15 years ago, continue to be sold within 5-10% of that price, but with a whole lot of new gizmos, better mileage, and much better safety features. It cost must less to remodel or build a home right now than it did 3 years ago; not only have the labor costs gone down but material costs too have. Rents have been declining or stable. Domestic workers (nanny, gardener etc.) are working at lower wages. That Subway footlong which used to be $6 is now $5. The Plasma TV I bought for $2K in 2006 costs $400 now. Yes commodity prices are higher (gas). Food also perhaps costs a bit more though after our family grow we shifted towards more organic food; and the price and availability of that has never been better. But a lot of commodity inflation has to do with supply disruptions, and demand increase. It is not just a purely monetary or liquidity issue.

Yup, and so we have deflation in the optionals of life - flat screen TVs, fancy houses and the like and in one essential - wages. Meanwhile, we have inflation in the core essentials of life - food, energy, healthcare. That is typically how deflation would play out, IMHO. The net availability of 'money' in the system contracts and what remains chases after the essentials which shoot up in price while everything else drops like a stone for dire want of demand. The fancier heavy 'ass-ets' - like the McMansion or the yacht are liable to go for distress sales, perhaps. And the lawd knows much of the AAA rated fancy, heavy stuff is quite distressed now.

Anyway, silver lining is, its not all D&G anyway. The US will find a way. For all our sakes. In G_d we trust. Meanwhile, let us profit from this current situ. Let us (to quote Taleb) pick pennies in front of a steamroller because, you know, we haven't been steamrolled yet. Ain't everything in life based on chance anyway?

[Arjun]

eh...depression b/c the so called growth that is reported is minimal and often times, in the past 2 years, even that minimal growth is "revised" at a later date. adjusted to inflation, there has been no growth in US. the inflation numbers of BLS are fake. no sane person would believe that inflation is 1%. there has been some revival in manufacturing but most the "growth" is from individual spending and debt. let us not be lulled into complacency by this fake growth. there is no growth in USA. simply money printing which is maintaining the status quo and creating illusory growth. the status quo can be explained as a reasonable choice if an alternate plan has been laid out and is being worked out. but there is no such plan. the FED is hell bent on maintaining status quo, while a suitable alternative to the spend/debt model is not even being debated. until the probelms which led to this crisis are solved, it must be noted that US is in a depression or deep stagnation with high inflation (which is stagflation and depression all at once).

Real US growth rate (not nominal) was 2.8% for 2010, and is expected to be at least 3.2% for 2011...This compares to a historical average growth rate of 3.3%

Inflation is reported at 1.6%, as compared to historical average of 3.38%

Unemployment is reported at 8.9%, compared to historical median of around 7%.

The US situation is certainly not the best - but at the same time there is no way the above can be described as depression. You are of course disputing all three set of figures - there is not much you can say to that kind of argument.

Btw- can you describe the alternative to the spend/debt model that you have in mind?

[Hari Seldon]

TAE tweet:

Japan has a dire fiscal position, tax revenue covers less than half the budget & public debt is 225pc of GDP (That's $12 Trillion).

Now, on the surface, say, just before the quake and all, japan certainly looked 'normal'. Upper middle class japanese yuppies could alsways look around within their circle and see folks getting job offers and all. The stark reality, slow but accumulative outside the circle, at the periphery lessay, was that the famed Japanese employment model was broken, perhaps irretrievably so. Meanwhile, debt levels and loads climbed even as things seemed 'normal' on the surface in terms of inflation, unemployment and other such gubmint agency figures.

However, the US is not japan in too many ways only. The US debt load is but a fraction of Japan's and it'll take running the GWB-Obama deficit levels another full decade before the debt load starts to tell measurably upon long bond yields regardless of what the Fed does. But a decade is a long time indeed, especially nowadays.

The gubmint agency numbers do appear to be deliberately understating of the real problems in the economy. For example, the way unemployment was measured during the great depression (plateaued around 25% for a good part of the time) is not how unemployment is measured today. If it were, we'd be closer to a 17% unemployment figure. BLS has regularly and notoriously changed the denominator figure to keep the headline unemployment figure conform to political compulsions. The simply astonishing # of people declared out of the labor force would be ridiculous if it weren't so serious. I've been hammering away at these things over a series of posts last year and the year before.

On the one extreme is sri John Wiliams of shadowstats whose figures are truly alarming if you choose to believe them. IMHO, the truth lies somewhere in between shadow-stats and gubmint-stats. And gubmint stats seem to have a greater incentive to mislead and deceive thanks to the full-fledged faith expressed in a reverse acting wealth effect.

Anyway, too much D&G is also self-defeating. Be optimistic and all w/o losing touch with reality. What other choice do we have anyway?

[Airavat]

If Market Keeps Falling, Fed Will Keep Printing: Marc Faber

Speaking as global markets fell violently lower in the wake of the Japan earthquake and fears of a nuclear meltdown, Faber said a stock correction actually is healthy in view of how far equities have come from the March 2009 lows. He also expects weakness to persist and the Standard & Poor's 500 to drop as much as 15 percent.

Further, Fed Chairman Ben Bernanke will likely give the green light to another round of Treasurys purchases, which have come to be known as quantitative easing, he said. "We may drop 10 to 15 percent. Then QE 2 will come, (then) QE 4, QE 5, QE 6, QE 7—whatever you want. The money printer will continue to print, that I'm sure," said the author of the Gloom, Boom and Doom Report.

"I think Mr. Bernanke doesn't know much about the global economy but he probably watches the S&P every day," he said.

[Chinmayanand]

Portugal’s Rating Cut Two Steps by Moody’s on Outlook

Portugal’s debt rating was cut by Moody’s Investors Service, which cited a weaker outlook for economic growth, risks to the government’s deficit- reduction plans and a possible need to recapitalize banks.

The rating was downgraded to A3, four steps from so-called junk status, according to an e-mailed statement from Moody’s yesterday, with the outlook on the grade “negative.”

“Rising inflationary pressures could lead to an increase in the ECB’s policy rate, which could aggravate the Portuguese government’s funding costs and put additional pressure on private-sector borrowing costs,” Moody’s said. “Should oil prices rise further and remain high for over a long period, external imbalances would worsen, given Portugal’s dependence on imported energy.”

The spread between Portuguese and German 10-year bond yields was at 427 basis points yesterday after reaching a euro- era record of 484 on Nov. 11.

Portugal’s 10-year bond yield climbed to a euro-era record of 7.70 percent on March 9, according to data compiled by Bloomberg.

The Bank of Portugal on Jan. 11 said GDP will shrink 1.3 percent in 2011 as consumer demand drops and the government cuts spending.

Portugal will report a 2010 budget deficit equivalent to 7 percent of GDP or less than 7 percent, narrower than the 7.3 percent gap the government had forecast, Socrates said on Jan. 28. The government has set a target for a budget deficit of 4.6 percent of GDP in 2011, and aims to reach the European Union limit of 3 percent in 2012.

[Chinmayanand]

Black Swan Earthquake Catches Geithner Naked: William Pesek

A sudden shock to the global financial system has a way of uncovering its true state.

As billionaire Warren Buffett famously said, it’s only when the tide goes out that you learn who has been swimming naked. Two events since Japan’s March 11 earthquake have shown the extent to which our economic reality has no proverbial clothes.

One is that the yen is rising. You would think earthquakes, tsunamis and radiation clouds would have investors actively fleeing yen assets. Not so. On March 14, a Bloomberg News headline proclaimed “Yen Reaches Four-Month High Against Dollar on Safe-Haven Demand.” Some haven, that Japan.

The other is how quickly Timothy Geithner, the U.S. Treasury secretary, got in front of the biggest worry in markets: that Japan will dump its vast holdings of Treasuries to raise cash. This latter one is worth exploring because its implications would travel farther and wider than the radiation leaking from nuclear power plants. It could just happen, roiling world markets like only a Black Swan-event can.

Theories for yen demand tread similar ground as the rationale for Japan selling its dollars holdings -- just less convincingly. We always need a handy explanation for why something is happening. New reports argue that it’s all about insurance companies repatriating funds to pay for quake demand.

[ramana]

Vikaram-S Thanks for the Ray Dalio interview. Please keep posting such links and your own views for balance.

[svinayak]

What is the implications for this
I talked to few VPs of BOA and they are working with several small IT companies in mergers and aqcuisitions




He is a member of Indo-US CEOs Forum.

Intrestingly Ambani is a member of the Indian Prime Minister's Council on Trade and Industry. Among others, he is a member of the Indo-US CEOs Forum, the co-chair of the Japan-India Business Leader's Forum, and India-Russia CEO Council.

He is a member of the Indo-US CEOs Forum


http://www.deccanherald.com/content/146 ... -bank.html

Mukesh Ambani appointed as director of Bank of America
New York, Mar 16 (PTI)

Reliance Industries Chairman Mukesh Ambani has been appointed as a director on board of Bank of America -- the first non-American on the board of the one of the largest financial institutions in the world.


"BofA's shareholders will benefit from the global perspective Ambani brings to our board.
He has demonstrated expertise in risk management and strategic planning across a diverse range of businesses, including energy, information and communications technology, and retail networks," BofA Chairman Charles O Holliday Jr said in a statement.

Ambani is a member of the Indian Prime Minister's Council on Trade and Industry. Among others, he is a member of the Indo-US CEOs Forum, the co-chair of the Japan-India Business Leader's Forum, and India-Russia CEO Council.

The business tycoon also serves on the Foundation Board of the World Economic Forum.
"I am delighted to join the board of BofA. It is a privilege and a great honour for me, as the first non-American citizen to join the board of one of the world's largest financial institutions. I look forward to contributing to the growth and progress of BofA," the BofA statement quoated Ambani as saying.

BofA Chief Executive Officer Brian T Moynihan said the management team looks forward to benefiting from Ambani's judgement and experience.

Ambani would stand for election at annual meeting of shareholders of BofA

__._,_.___

[devesh]

seems to me like the Western Corporate elite is trying to coax the Indian corporate elite to adopt their ways. to become globalized just like them and to become part of the group than to worry about such pesky things as nationalism, and local/national needs. imvho, we need to find a way to keep our corporate/business elite tethered to India or we risk becoming like Uncle where the concept of billionnaires having fiduciary responsibility towards their fellow citizens is non-existant. these assorted Ambanis, tatas, birlas, etc together have enough wealth that if they become corrupt instruments of the Global elite, India is screwed. this time we'll be colonized by our own people who answer to masters on foreign soil.

[ramana]

Amazing. Finally he gets into big time hawala.

Try to look into origins of BoA in SFO.

[Arjun]

seems to me like the Western Corporate elite is trying to coax the Indian corporate elite to adopt their ways. to become globalized just like them and to become part of the group than to worry about such pesky things as nationalism, and local/national needs. imvho, we need to find a way to keep our corporate/business elite tethered to India or we risk becoming like Uncle where the concept of billionnaires having fiduciary responsibility towards their fellow citizens is non-existant. these assorted Ambanis, tatas, birlas, etc together have enough wealth that if they become corrupt instruments of the Global elite, India is screwed. this time we'll be colonized by our own people who answer to masters on foreign soil.

If there is any group that can claim credit for India's rise over the last 20 years - it is India's corporate elite and entrepreneurs !! And we are all aware that their success is inspite of the (non-functional) GOI, not because of it - unlike the case of China.

And concept of American billionaires having fiduciary responsibility towards their fellow citizens is non-existent ?! Check out 40 American billionaires pledge wealth to charity

If you are looking for true robber-barons you need to look towards Russian billionaires !