Ensoi.The conventional terms of inflation and deflation are no longer adequate for describing the overall monetary effect of excess liquidity recently released by the US Federal Reserve, the nation's central bank, to deal with the year-long credit crunch.
This is because the approach adopted by the Treasury and the Fed to deal with a financial crisis of unsustainable debt created by excess liquidity is to inject more liquidity in the form of both new public debt and newly created money into the economy and to channel it to debt-laden institutions to reflate a burst debt-driven asset price bubble.
The Treasury does not have any power to create new money. It has to borrow from the credit market, thus shifting private debt into public debt. The Fed has the authority to create new money. Unfortunately, the Fed's new money has not been going to consumers in the form of full employment with rising wages to restore fallen demand, but instead is going only to debt-infested distressed institutions to allow them to deleverage from toxic debt. Thus deflation in the equity market (falling share prices) has been cushioned by newly issued money, while aggregate wage income continues to fall to further reduce aggregate demand.
Falling demand deflates commodity prices, but not enough to restore demand because aggregate wages are falling faster. When financial institutions deleverage with free money from the central bank, the creditors receive the money while the Fed assumes the toxic liability by expanding its balance sheet. Deleverage reduces financial costs while increasing cash flow to allow zombie financial institutions to return to nominal profitability with unearned income and while laying off workers to cut operational cost. Thus we have financial profit inflation with price deflation in a shrinking economy.
What we will have going forward is not Weimar Republic-type price hyperinflation, but a financial profit inflation in which zombie financial institutions turn nominally profitable in a collapsing economy. The danger is that this unearned nominal financial profit is mistaken as a sign of economic recovery, inducing the public to invest what remaining wealth they still hold, only to lose more of it at the next market meltdown, which will come when the profit bubble bursts.
Hyperinflation is fatal because hedging against it causes market failures to destroy wealth. Normally, when markets are functioning, unhedged inflation favors debtors by reducing the value of liabilities they owe to creditors. Instead of destroying wealth, unhedged inflation merely transfers wealth from creditors to debtors. But with government intervention in the financial market, both debtors and creditors are the taxpayers. In such circumstances, even moderate inflation destroys wealth because there are no winning parties.
Debt denominated in fiat currency is borrowed wealth to be repaid later with wealth stored in money protected by monetary policy. Bank deleveraging with Fed new money cancels private debt at full face value with money that has not been earned by anyone, that is with no stored wealth. That kind of money is toxic in that the more valuable it is (with increased purchasing power to buy more as prices deflate), the more it degrades wealth because no wealth has been put into the money to be stored, thus negating the fundamental prerequisite of money as a storer of value.
This is not demand destruction because decline in demand is temporarily slowed by the new money. Rather, it is money destruction as a restorer of value while it produces a misleading and confusing effect on aggregate demand.
Thinking about the value of any real asset (gold, oil, and so forth) in money (dollar) terms is misleading. The correct way is to think about the value of the money (dollars) in asset (gold, oil) terms, because assets (gold, oil, and so on) are wealth. The Fed can create money, but it cannot create wealth.
{Brilliant onlee saar}
Central bankers are savvy enough to know that while they can create money, they cannot create wealth. To bind money to wealth, central bankers must fight inflation as if it were a financial plague. But the first law of growth economics states that to create wealth through growth, some inflation needs to be tolerated.
The solution then is to make the working poor pay for the pain of inflation by giving the rich a bigger share of the monetized wealth created via inflation, so that the loss of purchasing power from inflation is mostly borne by the low-wage working poor and not by the owners of capital, the monetary value of which is protected from inflation through low wages. Thus the working poor loses in both boom times and bust times.
Inflation is deemed benign by monetarism as long as wages rise at a slower pace than asset prices. The monetarist iron law of wages worked in the industrial age, with the resultant excess capacity absorbed by conspicuous consumption of the moneyed class, although it eventually heralded in the age of revolutions. But the iron law of wages no longer works in the post-industrial age in which growth can only come from mass demand management because overcapacity has grown beyond the ability of conspicuous consumption of a few to absorb in an economic democracy.
That has been the basic problem of the global economy for the past three decades. Low wages even in boom times have landed the world in its current sorry state of overcapacity masked by unsustainable demand created by a debt bubble that finally imploded in July 2007. The whole world is now producing goods and services made by low-wage workers who cannot afford to buy what they make except by taking on debt on which they eventually will default because their low income cannot service it.
All the stimulus spending by all governments perpetuates this dysfunctionality. There will be no recovery from this dysfunctional financial system. Only reform toward full employment with rising wages will save this severely impaired economy.
How can that be done? Simple. Make the cost of wage increases deductible from corporate income tax and make the savings from layoffs taxable as corporate income.
Perspectives on the global economic meltdown
Re: Perspectives on the global economic meltdown
Liquidity glut drowning out the meaning of 'inflation'
Re: Perspectives on the global economic meltdown
10 yr Treasury yield at 3.64%. It might, just might, breach 4% sometime in 2009 itself.
So what if bond yields are rising, ain't the Dow rising as well, you say?
Well, like one wise guy says:
So what if bond yields are rising, ain't the Dow rising as well, you say?
Well, like one wise guy says:
Remember: the bond market dog wags the stock market tail.
Re: Perspectives on the global economic meltdown
another 'white shoe'/hamptons type in the net:
NYT
Hedge Fund Is Dissolving as It Faces 2nd Inquiry
By ZACHERY KOUWE
Published: May 27, 2009
In the rarefied world of hedge funds, he is one of the greats — a stock-picker who managed to make money, bull market or bear, for more than two decades.
But on Wednesday, Arthur J. Samberg told his investors that his long, successful run was over. Mr. Samberg, 68, said he had reached a “painful conclusion” to wind down his $3 billion investment firm, Pequot Capital Management, because a long-simmering investigation into insider trading at the fund was heating up once again.
It is a remarkable turn of events for Mr. Samberg, who withstood a high-profile investigation in 2006, only to have it reopened late last year. Then, as now, he maintained that Pequot did nothing wrong.
NYT
Hedge Fund Is Dissolving as It Faces 2nd Inquiry
By ZACHERY KOUWE
Published: May 27, 2009
In the rarefied world of hedge funds, he is one of the greats — a stock-picker who managed to make money, bull market or bear, for more than two decades.
But on Wednesday, Arthur J. Samberg told his investors that his long, successful run was over. Mr. Samberg, 68, said he had reached a “painful conclusion” to wind down his $3 billion investment firm, Pequot Capital Management, because a long-simmering investigation into insider trading at the fund was heating up once again.
It is a remarkable turn of events for Mr. Samberg, who withstood a high-profile investigation in 2006, only to have it reopened late last year. Then, as now, he maintained that Pequot did nothing wrong.
Re: Perspectives on the global economic meltdown
China Is Now in Firm Control of U.S. Debt Markets
http://rs6.net/tn.jsp?et=1102593003447& ... QdLUGRlLU=
It is hilarious listening to the propagandists try to “spin” the events in bond and currency markets to make it sound like the U.S. government is still operating from a position of strength.
While there are many Western, corporate-media outlets spouting such drivel, I'll use the Financial Times as my example.“China stuck in dollar trap”, crows FT on May 24th. Then, later “...[Beijing] has little choice but to keep pouring the bulk of its growing reserves into the U.S. Treasury”.
What somehow escaped this “analysis” by FT is that China won't touch any U.S. dollar asset except Treasury bonds. The monthly flows of capital into (or out of) the U.S., which is known as the Treasury Department's “TIC” report, tell a clear story.
So far, in the three months of data which have been reported for this year (Jan., Feb., March), the net result was an outflow of capital from the U.S. totaling $211.4 billion.
Does this number suggest China is “trapped” into buying U.S. debt?
First, the shorter-term Treasuries are the most-liquid form of U.S. debt. It's no surprise that China is choosing only these types of Treasuries, since it is currently on a commodities buying-spree – which it is financing with U.S. Treasuries
The ultimate rebuttal to the nonsense of the propagandists is to simply note what is happening in markets. Since the U.S. bond-bubble hit its peak late last year, U.S. Treasuries have already plunged a sickening 30%
http://rs6.net/tn.jsp?et=1102593003447& ... QdLUGRlLU=
It is hilarious listening to the propagandists try to “spin” the events in bond and currency markets to make it sound like the U.S. government is still operating from a position of strength.
While there are many Western, corporate-media outlets spouting such drivel, I'll use the Financial Times as my example.“China stuck in dollar trap”, crows FT on May 24th. Then, later “...[Beijing] has little choice but to keep pouring the bulk of its growing reserves into the U.S. Treasury”.
What somehow escaped this “analysis” by FT is that China won't touch any U.S. dollar asset except Treasury bonds. The monthly flows of capital into (or out of) the U.S., which is known as the Treasury Department's “TIC” report, tell a clear story.
So far, in the three months of data which have been reported for this year (Jan., Feb., March), the net result was an outflow of capital from the U.S. totaling $211.4 billion.
Does this number suggest China is “trapped” into buying U.S. debt?
First, the shorter-term Treasuries are the most-liquid form of U.S. debt. It's no surprise that China is choosing only these types of Treasuries, since it is currently on a commodities buying-spree – which it is financing with U.S. Treasuries
The ultimate rebuttal to the nonsense of the propagandists is to simply note what is happening in markets. Since the U.S. bond-bubble hit its peak late last year, U.S. Treasuries have already plunged a sickening 30%
Re: Perspectives on the global economic meltdown
Housing: 'We're About to Have a Big Problem'
http://seekingalpha.com/article/139546- ... =quickread
In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.
With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.
“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”
And it should come as no surprise that prime mortgages are defaulting at the fastest pace in all the former housing bubble states.
Those loans totaled more than $224 billion.
Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.
http://seekingalpha.com/article/139546- ... =quickread
In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.
With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.
“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”
And it should come as no surprise that prime mortgages are defaulting at the fastest pace in all the former housing bubble states.
Those loans totaled more than $224 billion.Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.
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Chinmayanand
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Re: Perspectives on the global economic meltdown
Global financial system explained
Apparently this is Marc Faber's new favourite joke:
A young boy enters a barber shop and the barber whispers to his customer,
'This is the dumbest kid in the world. Watch while I prove it to you.'
The barber puts a dollar bill in one hand and two quarters in the other, then calls the boy over and asks,
'Which do you want, son?' The boy takes the quarters and leaves the dollar.
'What did I tell you?' said the barber. 'That kid never learns!'
Later, when the customer leaves, he sees the same young boy coming out of the ice cream store and says,
'Hey, son! May I ask you a question? Why did you take the quarters instead of the dollar bill?'
The boy licked his cone and replied, 'Because the day I take the dollar, the game's over!'
Apparently this is Marc Faber's new favourite joke:
A young boy enters a barber shop and the barber whispers to his customer,
'This is the dumbest kid in the world. Watch while I prove it to you.'
The barber puts a dollar bill in one hand and two quarters in the other, then calls the boy over and asks,
'Which do you want, son?' The boy takes the quarters and leaves the dollar.
'What did I tell you?' said the barber. 'That kid never learns!'
Later, when the customer leaves, he sees the same young boy coming out of the ice cream store and says,
'Hey, son! May I ask you a question? Why did you take the quarters instead of the dollar bill?'
The boy licked his cone and replied, 'Because the day I take the dollar, the game's over!'
Re: Perspectives on the global economic meltdown
Its happened folks. Treasuries have been massacred in the bond markets onlee.
Yield Curve Is Steepest On Record
Yield Curve Is Steepest On Record
The difference in yields between Treasury two and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low.
The so-called yield curve steepened to 2.75 percentage points, surpassing the previous record of 2.74 percentage points set on Aug. 13, 2003.
Ten-year notes have lost 10.3 percent this year, according to Merrill Lynch & Co. indexes, while 30-year bonds have lost 27.5 percent. Two-year notes have gained 0.2 percent.
Rising 10-year Treasury yields are pushing yields on mortgage bonds higher, prompting holders of the securities to sell government debt used as a hedge to protect portfolios against rising interest rates.
As mortgage rates rise, the expected average lives of mortgage bonds and mortgage-servicing contacts extend as potential refinancing drops, leaving holders with portfolios of longer-than-anticipated durations. Duration is a measure of bond price sensitivity to interest-rate change.
“The back-up is mostly related to convexity selling by mortgage investors,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “This will be a test for the Fed.”
Re: Perspectives on the global economic meltdown
I had said this about three months ago, also notice how PRC will go huge investments in Africa for the commodities and natural resources which has been happening for a while now and also create markets for its (PRC) products. It may even go back to Soviet era barter deals.First, the shorter-term Treasuries are the most-liquid form of U.S. debt. It's no surprise that China is choosing only these types of Treasuries, since it is currently on a commodities buying-spree – which it is financing with U.S. Treasuries
Added later:
I wonder whats the difference between Soviet era Ruble and Bernake (Obama, Admin) Dollar?
Last edited by John Snow on 28 May 2009 20:35, edited 1 time in total.
Re: Perspectives on the global economic meltdown
Vsudhir, For the laypeople can you explain what this means? On the surface it appears to be a bigger disaster than the stick crash as all sorts of businesses and people borrow money.
Re: Perspectives on the global economic meltdown
It might just be that the short term yields are held artificially low by Fed intervention.
Re: Perspectives on the global economic meltdown
1 in 8 US homeowners late paying or in foreclosure
http://news.yahoo.com/s/nm/20090528/us_ ... closures_2
Economic conditions drove up foreclosures of prime fixed-rate mortgages, which represented the largest share of new foreclosures for the first time since the rapid growth and the ensuing collapse of the subprime loan market.
California, Florida, Arizona and Nevada accounted for nearly half of the new foreclosure activity in the quarter and half of the increase in prime fixed-rate foreclosure starts.
Average U.S. home prices swooned more than 32 percent in March from the 2006 peak, according to Standard & Poor's/Case-Shiller indexes.
http://news.yahoo.com/s/nm/20090528/us_ ... closures_2
Economic conditions drove up foreclosures of prime fixed-rate mortgages, which represented the largest share of new foreclosures for the first time since the rapid growth and the ensuing collapse of the subprime loan market.
California, Florida, Arizona and Nevada accounted for nearly half of the new foreclosure activity in the quarter and half of the increase in prime fixed-rate foreclosure starts.
Average U.S. home prices swooned more than 32 percent in March from the 2006 peak, according to Standard & Poor's/Case-Shiller indexes.
Re: Perspectives on the global economic meltdown
There is a whole case load developed in US on Product Liability. Looks like the US Trade Rep office has to negotiate garnishing future earnings of companies to see that legitimate damages are paid. For example companies that do business in US need to agree to settle law suits and damages from litigations as a condition to doing business in US.
Desi lawyers should take this up as a product liability damages issue.
Re: Perspectives on the global economic meltdown
Recession humbles the English Premier League (Soccer)
Then endgame begins..... leverage levels look ridiculous once assets have deflated by 30-40-50%. Debt servicing alone takes up more than the operating income (surefire insolvency criterion). Let the bankruptcy filings begin.....
Am not saying it will happen in the English premier league clubs. Just that this is the tried and tested path followed by firms in post bubble times leading to the newly emerging phenomenon of balance-sheet recessions.
Years of Unrestrained Growth Brought Heaps of Glory -- and Debt; 'We Are in Serious Trouble'.
Same story - debt piles up in good times. No alarm bells sound because the asset side of the balance sheet looks high as well. Then bubble pops, asset prices collapse but, but, debt remains high as ever.England's Premier League has emerged over the past two decades as one of the world's most prominent and opulently rich sports associations. But as its season concludes, the tool it used to get there -- a muscular brand of sports capitalism with very few regulations -- is starting to look like a weakness.
The league is home to England's top-20 professional soccer clubs, a roster that includes icons such as Liverpool, Arsenal and three-time champion Manchester United -- which, in a humbling result for English soccer, was beaten by 2-0 by Spain's FC Barcelona in Wednesday night's Champions League final.
As the Premier League vaulted to prominence with a frothy mix of TV money, rising ticket prices and a devoted -- and increasingly international -- fan base, it became a status symbol for billionaires across the world. They paid huge sums to acquire teams and waged a salary arms race for top players. Corporate sponsors lined up to splash their brands on teams or, in the case of banking giant Barclays PLC, the whole league. Its teams generate an estimated $2.4 billion a year in broadcast fees, tickets, sponsorships and merchandising.
Today, thanks to Britain's deep recession, the league must spend its off-season grappling with falling ticket prices, ailing corporate sponsors and financially distressed owners. Unlike teams in the NFL, Premier League clubs are almost entirely unregulated: There is no salary cap, players are freely traded, and league administrators have no control over who buys and sells clubs. Given such wide latitude, some owners racked up big debts during the credit boom, both on buying the clubs themselves and recruiting expensive, on-field talent. Analysts fear the owners who spent big will now be whipsawed by the downturn and forced to make deep cuts.
Then endgame begins..... leverage levels look ridiculous once assets have deflated by 30-40-50%. Debt servicing alone takes up more than the operating income (surefire insolvency criterion). Let the bankruptcy filings begin.....
Am not saying it will happen in the English premier league clubs. Just that this is the tried and tested path followed by firms in post bubble times leading to the newly emerging phenomenon of balance-sheet recessions.
Re: Perspectives on the global economic meltdown
In a nutshell, bond yields == interest Gubmint pays == base rate at which all other lending is pegged. IOW, it is the minimum attractive rate of return below which no lending or business activity happens. So interest rates spike up across the board -> esp at a time when demand for funds is already low -> further depresses biz activity -> more layoffs, unemployment, wage deflation -> vicious cycle continues.ramana wrote:Vsudhir, For the laypeople can you explain what this means? On the surface it appears to be a bigger disaster than the stick crash as all sorts of businesses and people borrow money.
For the property mkts in particular, the cycle is similar.
Mortgage lenders borrow from the fed and lend at slightly higher rates to retail homeowners and pocket the difference. When bond yields spike, they zimbly have to raise mortgage rates offered to homeowner -> more delinquencies & defaults -> more foreclosures and housing inventory -> more pressure on sellers as buyers postpone and home values plummet -> banks and mortgage lenders land in fresher trouble -> vicious cycle repeats.
JMTs.
Re: Perspectives on the global economic meltdown
The Bond Vigilantes Return(WSJ)
Succintly put.They're back. We refer to the global investors once known as the bond vigilantes, who demanded higher Treasury bond yields from the late 1970s through the 1990s whenever inflation fears popped up, and as a result disciplined U.S. policy makers. The vigilantes vanished earlier this decade amid the credit mania, but they appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession.
Treasury yields leapt again yesterday at the long end, with the 10-year note climbing above 3.7%, its highest close since November. Treasury yields had stayed low, and the dollar had remained strong, as long as investors were looking for the safest financial port amid the post-September panic. But as risk aversion subsides, and investors return to corporate bonds and other assets, investors are now calculating the risks of renewed dollar inflation.
They have cause to be worried, given Washington's astonishing bet on fiscal and monetary reflation. The Obama Administration's epic spending spree means the Treasury will have to float trillions of dollars in new debt in the next two or three years alone. Meanwhile, the Fed has gone beyond cutting rates to directly purchasing such financial assets as mortgage-backed securities, as well as directly monetizing federal debt by buying Treasurys for the first time in half a century. No wonder the Chinese and other dollar asset holders are nervous. They wonder -- as do we -- whether the unspoken Beltway strategy is to pay off this debt by inflating away its value.
The surge in the 10-year note is especially notable because its rate helps to determine mortgage lending rates. The Fed is desperate to keep mortgage rates low to reflate the housing market, and last week it promised to inject hundreds of billions of dollars more in this effort. This week the bond vigilantes are showing what they think of that offer, bidding up yields even higher. It's not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors, otherwise known as the financial markets. When in doubt, bet on the markets.
Re: Perspectives on the global economic meltdown
ramana garu>>
Longer the time span higher the risk.
so 2 yr bond least risky so least discount ( or ) least yield.
30 yr bond higest risk so max discount or yield.
T bills have nominal values of (multiple of ) $100
so when auctioned if it goes for 90 dollars of today to $100 at the end of maturity ( for redemption) after say 1 yrs.
crude yield is approximately 10% (correct calculation at the end of the post)
SO 30 yrs bonds (T bills are discounting at 33 percent ) based on Sudhir garus post means $100 of today is expected to be approx $66.33' that means in simple terms lot of risk of $ dollar losing value implies a solid rate of inflation of prices and vice versa solid deflation / devaluation of $. Which is in sync with the current non stop printing and borrowing.
The above is a very simple method for illustration for a layman question of ramana garu
acutual computions are based on daily rates and then annulized etc after discounting for inflation to get true vaues etc. ( not including opportunity cost which is economic cost not financial cost)
Oh by the way this GOTUS bond hence supposed to be the least risky and most liquid ( hence the Beta). The risk for other firms and individuals is based on Beta + the beta doing Actuary computation on our fate or company we keep. (like spouse being bads credit case or discredited case)
Oh even further more this means mortgage rates for 30 yrs 15 yrs will not be low as currently are but no matter which way the OBama team or Feds do they will go up. In addition because of the weak job market/unemployment high and uncertinity high the lending and lenders will be very very cautious unless another freddie may mac is started by GOTUS to underwrite the mortgages issued by Banks and Financial institutions.
*****
Some of these terms can be confusing. The Discount Yield is an annualized rate of return based on the par value of the bills and is calculated on a 360-day basis. The other name for the Discount Yield is: Discount Rate. The Bond Equivalent Yield is calculated on a 365-day basis and is an annualized rate based on the purchase price of the bills and reflects the actual yield to maturity. The other names for the Bond Equivalent Yield are: Investment Yield, Coupon-Equivalent Yield or Investment Rate.
Conversion Formulas (for bills of not more than 6 months to maturity)
Convert Price (P) to Discount Rate (d): d=((100-P)/100)*(360/r)
Convert Price (P) to Coupon Equivalent Yield (i): i=((100-P)/P)*(y/r)
Convert Discount Rate (d) to Price (P): P=100*(1-d*r/360)
Convert Discount Rate (d) to Coupon Equivalent Yield (i): i=y/(360/d-r)
Convert Coupon Equivalent Yield (i) to Discount Rate (d): d=360/(y/i+r)
P = Price
d = Discount Rate
r = Days to Maturity
y = Days in Year
i = Bond Equivalent Yield
Example:
Term: 91-Day Bill
High Rate: 3.495%
Investment Rate: 3.575%
Price: 99.116542
Issue Date: 09/01/2005
Maturity Date: 12/01/2005
CUSIP: 912795WC1
Conversion Results:
Convert Price (P) to Discount Rate (d): d=((100-99.116542)/100)*(360/91)=0.03495
Convert Price (P) to Coupon Equivalent Yield (i): i=((100-99.116542)/99.116542)*(365/91)=0.03575
Convert Discount Rate (d) to Price (P): P=100*(1-0.03495*91/360)=99.11654
Convert Discount Rate (d) to Coupon Equivalent Yield (i): i=365/(360/0.03495-91)=0.035751
Convert Coupon Equivalent Yield (i) to Discount Rate (d): d=360/(365/0.03575+91)=0.034949
from:
http://mortgage-x.com/general/indexes/t ... ex_faq.asp acharya garu please note the source mentioned.
Longer the time span higher the risk.
so 2 yr bond least risky so least discount ( or ) least yield.
30 yr bond higest risk so max discount or yield.
T bills have nominal values of (multiple of ) $100
so when auctioned if it goes for 90 dollars of today to $100 at the end of maturity ( for redemption) after say 1 yrs.
crude yield is approximately 10% (correct calculation at the end of the post)
SO 30 yrs bonds (T bills are discounting at 33 percent ) based on Sudhir garus post means $100 of today is expected to be approx $66.33' that means in simple terms lot of risk of $ dollar losing value implies a solid rate of inflation of prices and vice versa solid deflation / devaluation of $. Which is in sync with the current non stop printing and borrowing.
The above is a very simple method for illustration for a layman question of ramana garu
acutual computions are based on daily rates and then annulized etc after discounting for inflation to get true vaues etc. ( not including opportunity cost which is economic cost not financial cost)
Oh by the way this GOTUS bond hence supposed to be the least risky and most liquid ( hence the Beta). The risk for other firms and individuals is based on Beta + the beta doing Actuary computation on our fate or company we keep. (like spouse being bads credit case or discredited case)
Oh even further more this means mortgage rates for 30 yrs 15 yrs will not be low as currently are but no matter which way the OBama team or Feds do they will go up. In addition because of the weak job market/unemployment high and uncertinity high the lending and lenders will be very very cautious unless another freddie may mac is started by GOTUS to underwrite the mortgages issued by Banks and Financial institutions.
*****
Some of these terms can be confusing. The Discount Yield is an annualized rate of return based on the par value of the bills and is calculated on a 360-day basis. The other name for the Discount Yield is: Discount Rate. The Bond Equivalent Yield is calculated on a 365-day basis and is an annualized rate based on the purchase price of the bills and reflects the actual yield to maturity. The other names for the Bond Equivalent Yield are: Investment Yield, Coupon-Equivalent Yield or Investment Rate.
Conversion Formulas (for bills of not more than 6 months to maturity)
Convert Price (P) to Discount Rate (d): d=((100-P)/100)*(360/r)
Convert Price (P) to Coupon Equivalent Yield (i): i=((100-P)/P)*(y/r)
Convert Discount Rate (d) to Price (P): P=100*(1-d*r/360)
Convert Discount Rate (d) to Coupon Equivalent Yield (i): i=y/(360/d-r)
Convert Coupon Equivalent Yield (i) to Discount Rate (d): d=360/(y/i+r)
P = Price
d = Discount Rate
r = Days to Maturity
y = Days in Year
i = Bond Equivalent Yield
Example:
Term: 91-Day Bill
High Rate: 3.495%
Investment Rate: 3.575%
Price: 99.116542
Issue Date: 09/01/2005
Maturity Date: 12/01/2005
CUSIP: 912795WC1
Conversion Results:
Convert Price (P) to Discount Rate (d): d=((100-99.116542)/100)*(360/91)=0.03495
Convert Price (P) to Coupon Equivalent Yield (i): i=((100-99.116542)/99.116542)*(365/91)=0.03575
Convert Discount Rate (d) to Price (P): P=100*(1-0.03495*91/360)=99.11654
Convert Discount Rate (d) to Coupon Equivalent Yield (i): i=365/(360/0.03495-91)=0.035751
Convert Coupon Equivalent Yield (i) to Discount Rate (d): d=360/(365/0.03575+91)=0.034949
from:
http://mortgage-x.com/general/indexes/t ... ex_faq.asp acharya garu please note the source mentioned.
Re: Perspectives on the global economic meltdown
World income seen to decline by 3.7% (Financial Times)
Most of which will be concentrated in the emerged (from musharraf) world whereas the emerging world will actually post nominal gains onlee. Fallacy of composition anyone?
Most of which will be concentrated in the emerged (from musharraf) world whereas the emerging world will actually post nominal gains onlee. Fallacy of composition anyone?
Re: Perspectives on the global economic meltdown
Its happening as we speak, folks.
Yesterday the bond mkts punished US treasuries. And today, per sequiter, the mortgage mkt seized up.
Link
Yesterday the bond mkts punished US treasuries. And today, per sequiter, the mortgage mkt seized up.
Read it all as much as you can bear. If the Fed is really losing the uphill battle, and moi suspects it is, then expect worse. Again, I won't be surprised to see 10yr US treasuries break the 4% mark within this year.....Its ayyo all over in that case.With respect to yesterday’s episode in the mortgage market -- yes, it is as bad as you can imagine. Yesterday, the mortgage market was so volatile that banks and mortgage bankers across the nation issued multiple midday price changes for the worse, leading many to ultimately shut down the ability to lock loans around 1pm PST. This is not uncommon over the past five months, but not that common either. Lenders that maintained the ability to lock loans had rates UP as much as 75bps in a single day.
A good friend in the center of all of the mortgage capital markets turmoil said to me yesterday “feels like they [the Fed] have lost the battle...pretty obvious from the start but kind of scary to live through it ... today felt like LTCM with respect to liquidity”.
The negative consequences of 5.5% rates are enormous. Because of capacity issues and the long timeline to actually fund a loan very few borrowers ever got the 4.25% to 4.75% perceived to be the prevailing rate range for everyone A significant percentage of loan applications (refis particularly) in the pipeline are submitted to the lender without a rate lock. This is because consumers are incented by much better pricing to lock for a short period of time…12-15 day rate locks carry the best rates by a long shot. But to get this short-term rate lock, the loan has to be complete enough to draw loan documents, which has been taking 45-75 days over the past several months depending upon the lender’s timeline. Therefore, millions of refi applications presently in the pipeline, on which lenders already spent a considerably amount of time and money processing, will never fund.
Furthermore, many of these ‘applicants’ with loans in process were awaiting the magical 4.5% rate before they lock -- a large percentage of these suddenly died yesterday. To make matters worse, after 90-days much of the paperwork (much taken at the date of application) within the file becomes stale-dated and has to be re-done with new dates -- if rates don’t come down quickly many will have to be cancelled out of the lender’s system. To add insult to mortal injury, unless this spike in rates corrects quickly, a large percentage of unlocked purchases and refis will have to be denied because at the higher interest rate level, borrowers do not qualify any longer. For the final groin kicker, a 5.5% rate just does not benefit nearly as many people as a 4.5%-5% rate does. Millions already have 5.25% to 5.75% fixed rates left over from 2002-2006.
Link
Re: Perspectives on the global economic meltdown
in laymans terms does this mean
[a] US will need to pay more interest to buyers of its Govt bonds as and when they keep maturing in enormous amts ?
Corporates raising money by issueing bonds will need to pay more interest?
i.e. suck up more public & corporate sector money to service bond interest?
[a] US will need to pay more interest to buyers of its Govt bonds as and when they keep maturing in enormous amts ?
Corporates raising money by issueing bonds will need to pay more interest?
i.e. suck up more public & corporate sector money to service bond interest?
Re: Perspectives on the global economic meltdown
Singha wrote:in laymans terms does this mean
[a] US will need to pay more interest to buyers of its Govt bonds as and when they keep maturing in enormous amts ?
Corporates raising money by issueing bonds will need to pay more interest?
i.e. suck up more public & corporate sector money to service bond interest?
From what I understand (and I could well be mistaken here), both.
The T-bill rate is a kinda benchmark. No lender will lend at a rate less than the benchmark rate (of course) coz he could always invest in Treasuries instead and get a guaranteed nominal return. Hence, interest rates across the board are pushed up.
Corp bond mkt rates exceed those of treasuries by some margin which we can now expect to widen. In any case, not much action in the corp bond mkts simply because demand for funds (more debt) is not there at this perilous time. Which is why all this brouhaha about getting the banks to lend more is ridiculous. There's no demand amongst borrowers (both firms and households).
Balance sheet recession has only 1 cure - balance sheet repair over time as debt is summarily retired regardless of how low interest rates are.
Re: Perspectives on the global economic meltdown
At present the datum is set as T bills and is called Beta
For 1yr Arm 1 yr TBill + margin + risk factor as evaluated by the actuaries (for Individuals) if corporate bond the rating ( even if bogus in recet times) + cost of capital for the firm to raise due to ist balance sheet health as detrmined by pundits.
For 5 yrs Arm 5 Yr T bill (+ the rest of the above)
for 10 yr or 15 or 30 yr 10 yr T or 15 yr T or 30 Yr T + (ditto)
In addition the mortgage rates are influenced by LIBOR London Inter Bank offerd rates
Hope this clarifies.
The cost of borrowing depends on the probablity of default, offset by raising taxes, (or new incomes for the soverign state)
but when the Govt borrowes large amounts, its going to crowd the market that means gobbles up most of the funds thereby forcing Banks and other lending agencies to offer inducements to increase the interest rates for depositers which means cost of capital goes up that means lending rates will consequently be higher, so by and alrge the inflation cycle starts to crop up.
For 1yr Arm 1 yr TBill + margin + risk factor as evaluated by the actuaries (for Individuals) if corporate bond the rating ( even if bogus in recet times) + cost of capital for the firm to raise due to ist balance sheet health as detrmined by pundits.
For 5 yrs Arm 5 Yr T bill (+ the rest of the above)
for 10 yr or 15 or 30 yr 10 yr T or 15 yr T or 30 Yr T + (ditto)
In addition the mortgage rates are influenced by LIBOR London Inter Bank offerd rates
Hope this clarifies.
The cost of borrowing depends on the probablity of default, offset by raising taxes, (or new incomes for the soverign state)
but when the Govt borrowes large amounts, its going to crowd the market that means gobbles up most of the funds thereby forcing Banks and other lending agencies to offer inducements to increase the interest rates for depositers which means cost of capital goes up that means lending rates will consequently be higher, so by and alrge the inflation cycle starts to crop up.
Re: Perspectives on the global economic meltdown
Canary in ze US coalmine - California - shows the way on what budget cuts will look like soon enough in the other 42 states currently facing deficits and the scores of town and city municipalities looking at possible defaults.
Schwarzenegger's Latest proposal eliminates CalWORKs, lets out inmates early
Of course the rona-dhona amongst the professional pinkos in a deep blue state has already started.
One tongue in cheek blogpost says
Schwarzenegger's Latest proposal eliminates CalWORKs, lets out inmates early
In California's latest doom-and-gloom announcement, Gov. Arnold Schwarzenegger's Department of Finance on Tuesday proposed closing the state's main welfare program, releasing nonviolent prisoners one year early and shuttering up to 80 percent of state parks to shrink the state's $24.3 billion budget deficit.
Schwarzenegger wants $5.6 billion in new cuts to replace a like amount of borrowing he proposed in his budget plan earlier this month. The Republican governor previously asked for more than $15 billion in other savings by slashing schools and Medi-Cal, laying off 5,000 state workers and borrowing money from local governments.
Several of the latest cuts were eye-openers, but the largest was the wholesale elimination of the California Work Opportunity and Responsibility to Kids Program, which provides grants to parents that people commonly refer to as "welfare."
Nearly 1.3 million Californians received CalWORKs payments in February, almost 1 million of whom were children. The state would save $1.3 billion next year by eliminating CalWORKs but lose three times as much in federal funds.
Schwarzenegger envisions phasing out Cal Grants for low-income college students. He would save $10 million by giving only $7,000 to the University of California's Hastings College of the Law, the bare minimum so as not to upset the state's 19th-century compact with the Hastings family. And he wants to defund state parks, forcing them to rely on user fees.
The governor's plan would release a year early about 19,000 nonviolent, non-serious prisoners not convicted of sex offenses, saving $120 million. He also would seek $790 million in savings by reducing inmate services such as substance abuse counseling and vocational education.
Schwarzenegger would cut Medi-Cal services such as dialysis, breast cancer treatment for women over 65 and non-emergency care for undocumented immigrants.
Of course the rona-dhona amongst the professional pinkos in a deep blue state has already started.
"It boggles the mind that California would be the only state in the Union without a CalWORKs-type program," said Frank Mecca, executive director of the County Welfare Directors Association. "In fact, we'd be, to our knowledge, the only state in a country in the entire First World not to have subsistence benefits for children."
Most likely the new equilibrium will involve service cuts AND tax raises in many places across the land of milk and honey. They tried only the latter in Maryland last year, with a "millionaire tax" and lo, a third of the state's millionaires 'disappeared' this fiscal year. Expect more of the productive people, moneyed people and such to flee high taxes for greener pastures across the board. Surreal as in Atlas Shruggedesque but happening all the same.Assemblywoman Noreen Evans, D-Santa Rosa, chairwoman of the Assembly Budget Committee, said it would be more responsible to seek additional taxes. "With this proposal, the governor's made it very clear he'd rather throw women and children out of the lifeboat before he raises taxes," she said.
One tongue in cheek blogpost says
Well, it is sad that the seemingly magical std of living moi was totally blown away by when moi first landed in the land of milk and honey s few yrs ago turns out to be way ahead of our time. A std of living like this in any nation based entirely on its own productivity and means would have been very liberating as a ideal, indeed.DEAR AMERICAN TAXPAYER, EXPECT MORE TAXES, LESS BENEFITS.
DEAR AMERICAN CONSUMER, EXPECT HIGHER PRICES
DEAR AMERICAN WORKER, EXPECT LOWER SALARY OR UNEMPLOYMENT
Re: Perspectives on the global economic meltdown
[youtube]<object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/iF83wwij828&co ... ram><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/iF83wwij828&co ... edded&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>[/youtube]
Must watch, IMHO.
Worthwhile ~5 minutes. He calls it "greed". Many would call it 'fraud', and rightly so, IMHO.
Must watch, IMHO.
Worthwhile ~5 minutes. He calls it "greed". Many would call it 'fraud', and rightly so, IMHO.
Re: Perspectives on the global economic meltdown
pandyan saar I did that into annuties with minimum return of inflation + 3 %.time to move 25+% money in 401K to infl.protected secs?
There are lot of products out there, you might have notice how all the Mutual fund companies like Fidelity etc are touting annuties these days.
Please research investigate and do the thing that suits your needs such as when (at what age you want to retire, how much risk you can take with the othe 75% of 401 funds left over, baed on 25% in annuties)
Re: Perspectives on the global economic meltdown
LinkJudging from the Treasury TIC data, the US might expect to import about $400 billion of capital from the rest of the world, against a $1.8 trillion federal financing requirement. Earlier this year the World Bank warned of a possible $700 billion reversal out of emerging markets to finance the Treasury’s requirements. No such thin will happen. For the first time, the Treasury has to bid against other, competing assets, such as commodity-backed emerging market equities. In two fell swoops, the Bush and Obama administrations have put the US at a disadvantage in world markets.
Was I ever wrong on Monday about the Treasury market! The bloodshed continued all week as the market contemplated the relative merits of holding US government debt vs. competing assets. For the Treasury to finance the $1.4 trillion in borrowing that will NOT be supported by global purchases of Treasuries, the Fed will have to pick up $300 to $400 billion of the total, an unprecented degree of debt monetization. The savings rate in the US will have to rise to accomodate the rest, which means that yields have to go up, and consumers have to spend less.
Re: Perspectives on the global economic meltdown
SA Rand appreciated by 26% in three weeks agaist dollar according to SHQ.
Also notice that Gas price have gone up 33% in the twp weeks. Even if you take 8 -9 % for memorial day and summer driving, its still21 21 22% increase if you take away 5% for Nigerian unrest, the rest translates to USD depreciation...
I think
Also notice that Gas price have gone up 33% in the twp weeks. Even if you take 8 -9 % for memorial day and summer driving, its still21 21 22% increase if you take away 5% for Nigerian unrest, the rest translates to USD depreciation...
I think
Re: Perspectives on the global economic meltdown
Shadow Inventory
I was looking at some homes with an idea of purchasing one of them in the next few months. I am surprised by suspicious activity going on in Real Estate market in US. Although lots of homeowners have been foreclosed upon and the property seized by the banks, the banks dont seem to be trying to sell them in the market. The speculation is that with the change in mark to market rules, banks can hold them for infinite period without having to show losses on them and if the market recovers, they can sell for higher prices than what they get now. While the national association of realtors claim that this is healthy trend as dumping them on market causes prices to fall, they are also downplaying this by saying that such ghost assets form less than 20% of the properties for sale. But my guess is that these form more than 20% of the inventory (atleast in the areas i am looking). All this is made possible due to the recent changes in accounting rules and we never know what these banks are counting as their assets
Here is an article which corroborates my findings
http://www.calculatedriskblog.com/2009/ ... ntory.html
I was looking at some homes with an idea of purchasing one of them in the next few months. I am surprised by suspicious activity going on in Real Estate market in US. Although lots of homeowners have been foreclosed upon and the property seized by the banks, the banks dont seem to be trying to sell them in the market. The speculation is that with the change in mark to market rules, banks can hold them for infinite period without having to show losses on them and if the market recovers, they can sell for higher prices than what they get now. While the national association of realtors claim that this is healthy trend as dumping them on market causes prices to fall, they are also downplaying this by saying that such ghost assets form less than 20% of the properties for sale. But my guess is that these form more than 20% of the inventory (atleast in the areas i am looking). All this is made possible due to the recent changes in accounting rules and we never know what these banks are counting as their assets
Here is an article which corroborates my findings
http://www.calculatedriskblog.com/2009/ ... ntory.html
Re: Perspectives on the global economic meltdown
It is another way to keep the exisitng home prices from crashing down. Most of the retired baby boomers have their savings in the home equity and they cannot allow that to come down. This is a cheap way to keep the savings and equity good enough for the retires so that they dont have to depend on the state.mnag wrote:Shadow Inventory
I was looking at some homes with an idea of purchasing one of them in the next few months. I am surprised by suspicious activity going on in Real Estate market in US. Although lots of homeowners have been foreclosed upon and the property seized by the banks, the banks dont seem to be trying to sell them in the market. The speculation is that with the change in mark to market rules, banks can hold them for infinite period without having to show losses on them and if the market recovers, they can sell for higher prices than what they get now. While the national association of realtors claim that this is healthy trend as dumping them on market causes prices to fall, they are also downplaying this by saying that such ghost assets form less than 20% of the properties for sale. But my guess is that these form more than 20% of the inventory (atleast in the areas i am looking). All this is made possible due to the recent changes in accounting rules and we never know what these banks are counting as their assets
Here is an article which corroborates my findings
http://www.calculatedriskblog.com/2009/ ... ntory.html
Re: Perspectives on the global economic meltdown
I am reminded of a tom and jerry cartoon where tom tries to shore up a leaky tank with all this arms and legs but new holes keep sprouting...until a final boom.
Re: Perspectives on the global economic meltdown
very funny comparison. just saw the episode 2 days backSingha wrote:I am reminded of a tom and jerry cartoon where tom tries to shore up a leaky tank with all this arms and legs but new holes keep sprouting...until a final boom.
. Here its a matter of a bunch of cats hiding the stuffVery funny that banks not only hide their bad assets, but also wanted tax payer assistance to buy their impaired assets to cleanse their balance sheets as reported by wallstreet journal. Itseems FDIC turned it down.
Excerpt from http://www.boston.com/business/articles ... wn_assets/
Related doom and gloom news"There should be no confusion: Banks will not be able to bid on their own assets," Bair said yesterday at a Washington, D.C., news briefing to discuss first-quarter bank earnings. There is "no structure" for such purchases
Job fair canceled for fear of crowds
http://www.boston.com/business/ticker/2 ... n:twit:biz
Re: Perspectives on the global economic meltdown
Jim Rogers on the Next Financial Meltdown--In the Currency Markets
http://www.lewrockwell.com/rogers-j/rogers-j13.html
Investment gurus Jim Rogers and Marc Faber agree on one thing. They see a major correction looming in equity markets with a currency effect for the US, since the current rally has been mostly based on printed money, a kind of "reverse Robin Hood policy" of governments, to steal from the peasants to give to the rich.
As with Faber, Rogers is mostly to be seen being interviewed on CNBC Asia or Europe, since their views are to put it mildly, somewhat negative on the US Dollar and the prospects for green shoots in the US economy.
Legendary investor Jim Rogers told CNBC on Wednesday he is not short or hedged in anything at the moment, but buying Japanese Yen. The next crisis in his eyes is in currencies which makes sense since sovereign states have taken much of the bad debt from the banks and piled them onto their own balance sheets.
The stock market may hit new lows this year or the next as the current rally has been largely caused by the money printed by central banks and fundamental problems remain unsolved, he said.
His views echo those of renowned bear Marc Faber, who told CNBC last week that the rises in share prices did not mean the world was embarking on a path of sustainable economic growth.
"I'm not buying shares if that's what you mean. Not at all," Rogers told Squawk Box Asia.
Governments have not solved the essential problems that caused the crisis but instead they "flooded the world with money," according to Rogers. Trying to solve the problem of too much consumption and too much debt with more consumption "defies belief" and will not work, he said.
The price of oil is also likely to remain high despite the fact that the recession is taking its toll on demand, he said.
"You know supplies worldwide are declining at the rate of anywhere from 4% to 6% a year, yes, demand is down at the moment but in longer term, unless somebody discovers a lot of oil very quickly, the surprise is going to be how high the price of oil stays, and how high it eventually goes," Rogers added.
The next financial meltdown will be in the currency markets, as central banks around the world have been printing money, giving the appearance of massive government intervention to weaken their currencies.
"At the moment I have virtually no hedges, I suspect it is going to be the next problem, big crisis will be in the currency markets, I'm trying to figure out what to do there," Rogers said.
"If I am right, you're going to see a lot of currency problems in the next decade or two," Rogers said.
Governments around the world are doing their best to destroy currencies, many currencies in fact. And people need to understand that; if they don't understand it now, they're going to find out, they're going to find out the hard way," he added.
Marc Faber agrees that we will see a correction unfold in the equity markets. Faber said: “In general, the markets were very oversold on 6 March 2009 and there were some favourable technical divergences [which resulted in the subsequent rally].”
“When the S&P made a new low, many markets and stocks were higher than they were in October-November. That means many stocks had entered bull markets including Asian stock markets,” said Faber, pointing out that now, most stocks were up by more than 100%. "
“A number of stocks above the 50-day moving average reached 90% the other day, which signals an overbought position in US. I expect a correction to unfold. If the correction is a resumption of the bear market where we will make new lows or is still a correction, that still remains to be seen,” he said.
http://www.lewrockwell.com/rogers-j/rogers-j13.html
Investment gurus Jim Rogers and Marc Faber agree on one thing. They see a major correction looming in equity markets with a currency effect for the US, since the current rally has been mostly based on printed money, a kind of "reverse Robin Hood policy" of governments, to steal from the peasants to give to the rich.
As with Faber, Rogers is mostly to be seen being interviewed on CNBC Asia or Europe, since their views are to put it mildly, somewhat negative on the US Dollar and the prospects for green shoots in the US economy.
Legendary investor Jim Rogers told CNBC on Wednesday he is not short or hedged in anything at the moment, but buying Japanese Yen. The next crisis in his eyes is in currencies which makes sense since sovereign states have taken much of the bad debt from the banks and piled them onto their own balance sheets.
The stock market may hit new lows this year or the next as the current rally has been largely caused by the money printed by central banks and fundamental problems remain unsolved, he said.
His views echo those of renowned bear Marc Faber, who told CNBC last week that the rises in share prices did not mean the world was embarking on a path of sustainable economic growth.
"I'm not buying shares if that's what you mean. Not at all," Rogers told Squawk Box Asia.
Governments have not solved the essential problems that caused the crisis but instead they "flooded the world with money," according to Rogers. Trying to solve the problem of too much consumption and too much debt with more consumption "defies belief" and will not work, he said.
The price of oil is also likely to remain high despite the fact that the recession is taking its toll on demand, he said.
"You know supplies worldwide are declining at the rate of anywhere from 4% to 6% a year, yes, demand is down at the moment but in longer term, unless somebody discovers a lot of oil very quickly, the surprise is going to be how high the price of oil stays, and how high it eventually goes," Rogers added.
The next financial meltdown will be in the currency markets, as central banks around the world have been printing money, giving the appearance of massive government intervention to weaken their currencies.
"At the moment I have virtually no hedges, I suspect it is going to be the next problem, big crisis will be in the currency markets, I'm trying to figure out what to do there," Rogers said.
"If I am right, you're going to see a lot of currency problems in the next decade or two," Rogers said.
Governments around the world are doing their best to destroy currencies, many currencies in fact. And people need to understand that; if they don't understand it now, they're going to find out, they're going to find out the hard way," he added.
Marc Faber agrees that we will see a correction unfold in the equity markets. Faber said: “In general, the markets were very oversold on 6 March 2009 and there were some favourable technical divergences [which resulted in the subsequent rally].”
“When the S&P made a new low, many markets and stocks were higher than they were in October-November. That means many stocks had entered bull markets including Asian stock markets,” said Faber, pointing out that now, most stocks were up by more than 100%. "
“A number of stocks above the 50-day moving average reached 90% the other day, which signals an overbought position in US. I expect a correction to unfold. If the correction is a resumption of the bear market where we will make new lows or is still a correction, that still remains to be seen,” he said.
Re: Perspectives on the global economic meltdown
Analysis: The oil surge and what it means for the Gulf
http://www.bi-me.com/main.php?id=20087&t=1&c=36&cg=4
My independent analysis says higher oil prices will result in greater influx of money in US bond & treasury markets from opec countries. I see all commodity prices going up by 100% in next coming years so that US bond market is intact......Uncle sam is playing a longterm strategy...........
http://www.bi-me.com/main.php?id=20087&t=1&c=36&cg=4
My independent analysis says higher oil prices will result in greater influx of money in US bond & treasury markets from opec countries. I see all commodity prices going up by 100% in next coming years so that US bond market is intact......Uncle sam is playing a longterm strategy...........
Re: Perspectives on the global economic meltdown
In a very amusing section from the release, the San Fran Fed is discussing the financial behaviour of the consumer, when in fact the very same words are 100% applicable to the U.S. Treasury itself:
More than 20 years ago, economist Hyman Minsky (1986) proposed a “financial instability hypothesis.” He argued that prosperous times can often induce borrowers to accumulate debt beyond their ability to repay out of current income, thus leading to financial crises and severe economic contractions.
Until recently, U.S. households were accumulating debt at a rapid pace, allowing consumption to grow faster than income. An environment of easy credit facilitated this process, fueled further by rising prices of stocks and housing, which provided collateral for even more borrowing.The value of that collateral has since dropped dramatically, leaving many households in a precarious financial position, particularly in light of economic uncertainty that threatens their jobs.
Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates. Alternatively, if accomplished through some form of default on existing debt, such as real estate short sales, foreclosures, or bankruptcy, deleveraging could involve significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores. Moreover, this form of deleveraging would simply shift the problem onto banks that hold these loans as assets on their balance sheets. Either way, the process of household deleveraging will not be painless.
http://zerohedge.blogspot.com/2009_05_17_archive.html
More than 20 years ago, economist Hyman Minsky (1986) proposed a “financial instability hypothesis.” He argued that prosperous times can often induce borrowers to accumulate debt beyond their ability to repay out of current income, thus leading to financial crises and severe economic contractions.
Until recently, U.S. households were accumulating debt at a rapid pace, allowing consumption to grow faster than income. An environment of easy credit facilitated this process, fueled further by rising prices of stocks and housing, which provided collateral for even more borrowing.The value of that collateral has since dropped dramatically, leaving many households in a precarious financial position, particularly in light of economic uncertainty that threatens their jobs.
Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates. Alternatively, if accomplished through some form of default on existing debt, such as real estate short sales, foreclosures, or bankruptcy, deleveraging could involve significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores. Moreover, this form of deleveraging would simply shift the problem onto banks that hold these loans as assets on their balance sheets. Either way, the process of household deleveraging will not be painless.
http://zerohedge.blogspot.com/2009_05_17_archive.html
Re: Perspectives on the global economic meltdown
Now they have to say something.... and yup, admittedly they'd know a thing or 2 about Marxism, one would think...
PRAVDA: 'American descent into Marxism happening with breathtaking speed'
PRAVDA: 'American descent into Marxism happening with breathtaking speed'
Re: Perspectives on the global economic meltdown
After a while the numbers become so large, they look meaningless only.... After all the average joe 6pack can spot the difference in $10 and $100 but between $1000000000 and $1000000000?
Leap in U.S. debt hits taxpayers with 12% more red ink
Leap in U.S. debt hits taxpayers with 12% more red ink
Huh? Really, gets numb after looking at those numbers. Zimbabwe level inflation needed to pay down that kinda total debt.Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.
The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.
That's the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003.
The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.
"We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it's not backed up by a house," says David Walker, former U.S. comptroller general, the government's top auditor.
USA TODAY used federal data to compute all government liabilities, from Treasury bonds to Medicare to military pensions.
Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.
The numbers measure what's needed today — set aside in a lump sum, earning interest — to pay benefits that won't be covered by future taxes.
Congress can reduce or increase the burden by changing laws that determine taxes and benefits for programs such as Medicare and Social Security.
....
blah blah blah
Re: Perspectives on the global economic meltdown
Cash strapped cities and towns are relying on traffic and other tickets to beef up revenues.
More Tickets in Hard Times
Dallas County looks to traffic ticket revenue for budget shortfall
Its no secret that unlike the Federal gubmint that can create deficits and then the money to fill them, the state and local gubmints are in far direr straits.
More Tickets in Hard Times
Dallas in Texas presents an extreme example.Motorists beware: In some communities, police are issuing tickets during these hard times at a rate higher than ever in what critics say is an attempt to raise revenue in order to offset budget shortfalls.
Take, for example, the metropolitan Detroit area, which has been reeling economically much longer than has the rest of the country. The number of moving violations issued has increased by at least 50 percent in 18 communities in the metro area since 2002—and 11 of those municipalities have seen ticketing increases of 90 percent or more.
The president of a state police union isn’t pretending it doesn’t happen. James Tignanelli, president of the Police Officers Association of Michigan union, says, “When elected officials say, ‘We need more money,’ they can’t look to the department of public works to raise revenues, so where do they find it? Police departments.
“A lot of police chiefs will tell you the goal is to have nobody speeding through their community, but heaven forbid if it should actually happen—they’d be out of money,” Tignanelli says.
Police Chief Michael Reaves of Utica, Michigan, says the role of law enforcement has changed over the years. “When I first started in this job 30 years ago, police work was never about revenue enhancement, but if you’re a chief now, you have to look at whether your department produces revenues,” he says. “That’s just the reality nowadays.”
Dallas County looks to traffic ticket revenue for budget shortfall
The cracks in the facade are showing.The February issue of Car and Driver includes a story describing how many jurisdictions are giving more traffic tickets as a revenue booster during tough financial times.
In Texas, to my mind, we've already taken this strategy about as far as it can go, to the point that, right now, more than 10% of Texas adults have outstanding arrest warrants - mostly for traffic tickets.
Dallas County represents perhaps the most extreme example of this trend in Texas. According to the Dallas Morning News ("Dallas county to vote on withholding vehicle registrations for those who owe fines," Feb. 9), "Unlike most counties, Dallas County gets slightly more than half of its annual revenue from fines and fees. Other counties rely more heavily on property-tax revenue."
Now Dallas plans to step up the pressure on even more on folks who can't or don't pay traffic fines, denying vehicle registration to drivers with outstanding traffic tickets. Again, we're talking about more than 10% of the adult population!
It seems almost unfathomable to me that a majority of county revenue would come from fines and fees. That's an untenable economic arrangement, but I suppose when more than 10% of adults owe fines, there's a deep well to draw from, though it's still crappy public policy.
More likely, more drivers will simply drive unregistered vehicles, which will cause them to accumulate more tickets they can't pay and creating a vicious cycle that makes the situation more chronic and intractable. And since Texas already holds up vehicle registration for drivers without auto insurance, the plan will almost certainly increase the number of uninsured drivers on the road. Just what we need, huh?
Its no secret that unlike the Federal gubmint that can create deficits and then the money to fill them, the state and local gubmints are in far direr straits.
Re: Perspectives on the global economic meltdown
Continuing from the last post
Critics Call Delaware a Tax Haven
Critics Call Delaware a Tax Haven
The Obama administration has riled corporate America by cracking down on secretive offshore tax havens. But now a big onshore refuge -- Delaware -- is drawing scrutiny, too.
Squeezed by hard times, states are pushing to collect taxes that corporations are avoiding through Delaware shell companies. Maryland has reclaimed $267 million in such taxes, including interest and penalties, and has assessed an additional $143 million.
About 20 states have adopted laws that would effectively keep companies from using the decades-old tax loopholes in Delaware. At stake are tens of billions of dollars in annual tax receipts, funds that states say they need during this recession.
Critics of the arrangement in Delaware say it cheats state governments out of money. Delaware, these people say, has created its own onshore Cayman Islands. Even the Swiss are complaining, claiming that the United States is letting this homegrown haven flourish even as the I.R.S. pursues offshore shelters.