Trader's Corner 2008

sparky · **Joined:** Mon Apr 09, 2007 12:00 am **Posts:** 365

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I agree with you , Paulson not being the best is hardly relevant , he was there and had to make a call , , his first concern was to keep the total meltdown of the banking pyramid , this he did , leaving him in the situation of dealing with the next disaster.
White water indeed , thinking the situation trough is not an option

historical precedents are of limited help but the Japanese bubble come the closest , on a massively larger scale .
I believe the baking sector had enough support now , let the lame and wounded take care of themselves , it's harsh but that's what free market is all about .
industrials are in need of a life support , they employ way more voters and it take a generation to rebuild what could be destroyed in a couple of quarters , industrials also are the bones of the stock market
Few mention the D word but it is waiting backstage , should it come to that , with the folks screaming for help , it's going to be hard to keep a hands off attitude .

Have a good term Mr president-elect.

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mkwin · **Joined:** Fri Jun 01, 2007 12:00 am **Posts:** 641

Quote:

Kunstler will have to wait (yet) another year before we have to burn granny to keep warm this winter. You go, granny! Have a nice weekend.

LOL - I am glad to see you havn't lost your sense of humor.

MrBill · **Posted:** Mon Nov 17, 2008 2:20 am

[align=center]An Absolute Must Read[/align]

Quote:

When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they’d be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn’t expect was that any future reader would look on my experience and say, “How quaint.”

I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

source: The End of Wall Street's Boom

efarmer sent this along to me and I am very thankful to him. This is the best summary of the subprime and CDO mess, and wider indictment of Wall Street's excesses, that I have read to date. I think it is no surprise that it was written by the author of Liar's Poker Michael Lewis. What these short-sellers did was what many of us thought, but were either too lazy or unable to piece together in such detail. Carpe diem.

MrBill · **Posted:** Mon Nov 17, 2008 3:54 am

[align=center]Another Absolute Must Read
even if you disagree with his conclusion[/align]

Quote:

A few months ago, amidst comfy consensus that China's prospects are rosy, this column noted that the country is really a bubble. This contrary opinion generated much e-mail flack. But then, an e-mail arrived from a Canadian engineer in China whose team had just finished a government project in a town so small that (in the guy's words), "dogs were chasing chickens down the street."

Despite the town's size, it sported dozens of condo towers and a posh hotel. And so, to celebrate the completion of the project, the Canadians went to dinner at the hotel's restaurant with the local bigwig (the son of an army general), who, by the way, also owned the hotel and condos.

They were the only diners present - the hotel was empty and dark, the condos emptier and darker. But there were lots of staff members, and during dinner the bigwig kept complaining that the Beijing bank that lent him the construction money was suddenly demanding interest. The cheek! How could one keep restive peasants employed if one had to pay interest?

My e-mailer noted wryly that all over China there are many such empty hotels and condos - and factories too - built with loans to the well-connected and intended to maintain employment, but also (allegedly) to allow loyal bigwigs to enrich themselves.

The economic value of such enterprises is, of course, zip, yet the "loans" are carried on the books of Chinese banks as good ones - just like U.S. mortgages to shirtless Joes and Janes were carried on Freddie Mac's and Fannie Mae's books before the mortgage corporations blew up. And, yes, just like loans to Sony or Sumitomo were carried by Japanese banks in the 1990s before the Japanese economy blew up.

And, similarly again, just as everyone in Congress knew that Freddie and Fannie would soon come to grief - or just as everyone in Japan in the '90s knew that most corporate loans were unpayable - the same is known in today's China. Yet most China bulls in the West maintain that the country's growth has merely slowed temporarily and will soon resume.

Will it? Not according to my informants. China, they insist, is like Japan of the '90s times three; it is Nortel writ large, maybe even Russia before the 1988 upheaval. You think this is extreme? Think again. Just last week Chinese Premier Wen Jiabao finally admitted that slow growth could risk "social stability." Slow growth? How about no growth? Or even negative growth? It's coming, and here's why.

You see, China, like Nortel and Japan and Soviet Russia, has been selling most things below true cost - which is the direct cost of production plus the cost of capital - and thus lost money on much of what it produced, and so destroyed much of its capital. A company that does so must eventually lay off workers and go bust. China, in my opinion, now faces similar risks, which Mr. Wen finally admitted.

Why does China sell below true cost? Because it is a dictatorship that wants to keep its restive people employed, and so, like (democratic) Japan before it, it keeps throwing good savings at bogus products. I say bogus because if you sell below true cost you create fictitious demand that otherwise wouldn't be there had the product been priced realistically. Thus the large factory you built to satisfy the goosed-up demand cannot be rebuilt once it wears out because you didn't include depreciation in the product's price.

Say you charged a mere $5 for a bottle of a 30-year-old Mouton Cadet because that's the cost of the corkers' wage, the bottle's glass, the unfermented grape juices and the paper label, and charged nothing for the 30 years of fermentation in an air-conditioned cellar. You would, of course, sell a large number of $5 Moutons, but would go bust once you had to rebuild the cellar.

Just like Japan did when it sold transistors for pennies when they really cost dollars if Japan had included the cost of capital; or just like Nortel a few years ago, when it sold products obtained (or improved) through acquisitions, for prices that excluded the amortized cost of the acquisition, in effect treating capital as having little or no cost; and just like China today, which sells nearly everything at the "China Price" - the cost of labour plus (alleged) pay-offs to, for example, generals' sons - while ignoring most capital costs because many loans do not have to be repaid. That's why much of China's manufacturing sector, although impressive to look at, is uneconomical, having been built to produce stuff that, were it priced to include the full cost of capital, might not have sold at all. For a while it worked - just like dot-coms or Japan or Russia - but now the party is over and China is about to meet the fate of all those who sell below true cost: mass layoffs, upheaval and perhaps a change of management.

Why should you care? Because of gold.

Recently gold has been very volatile, and could tack on $50, or even $100, in the short term. But longer term, if inflation - already quashed by Freddie and Fannie's blow-up - is further squashed by China's punctured bubble, gold is likely heading down.

Why? First, low inflation, even deflation, will lessen the need for inflation hedges. But second, and more crucial, as the West buys less of China's more fully priced products, and as China's cash needs escalate, its government, to feed the peasants and to maintain its power, will sell state assets - including gold. This, plus inflation, could push gold much lower than anyone thinks, perhaps to half its current price. How's that for a real contrary opinion?

source: Blame it on the 'China Price'

I do not think you have to agree with the author's gold prediction to appreciate how China under-prices the cost of capital. A major financial failing. A major weakness in their jobs at any cost economic development model. Be a Nassim Taleb, not a Doubting Thomas, and don't be fooled by randomness. Or hyperbole either.

Quote:

To me a banking crisis --worse than what we have ever seen -- was unavoidable and NOT A BLACK SWAN, just as a drunk and incompetent pilot would eventually crash the plane.

source: The Black Swan: Quotes & Warnings that the Imbeciles Chose to Ignore

pogoliamo · **Joined:** Fri Dec 31, 2004 1:00 am **Posts:** 201

MrBill · **Posted:** Mon Nov 17, 2008 8:01 am

[align=center]So far, so good!

[/align] [align=center] Maybe it's like aspirin?
If two pills are good for you then more must be better? ; - )) [/align]

UPDATE:

Quote:

Nov. 18 (Bloomberg) -- International demand for U.S. financial assets rose more than economists forecast in September as China surpassed Japan to become the biggest foreign holder of Treasuries.

Total net purchases of long-term equities, notes and bonds increased a net $66.2 billion in September from $21 billion the previous month, the Treasury said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $143.4 billion, compared with net buying of $21.4 billion the month before.

Stocks plunged and Treasuries rose in September as Treasury Secretary Henry Paulson negotiated for two weeks with Congress over a $700 billion plan to address the worst financial crisis in 70 years. China's demand for U.S. government securities surged, while Japan's weakened.

``There continues to be substantial flows into Treasuries due to the uncertainty surrounding the financial crisis,'' Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, said before the report.

Economists predicted international investors would buy a net $27.2 billion of long-term securities in September, based on the median of seven estimates in a Bloomberg News survey.

China leapfrogged Japan, increasing its Treasury holdings by $43.6 billion to $585 billion, the report said. Japan, now the second-largest foreign owner of U.S. government debt, reduced its holdings by $12.8 billion to $573.2 billion.

source: Foreign Demand for U.S. Assets Up in Sept. on China Purchases

WTI is rallying after having briefly broached the $56.25 target, which is gratifying from a technical perspective, but without any sort of guarantee that we will not eventually see lower levels. Not great news for short-term energy plays or alternatives, but no reason to give up in the long-run either.

[align=center]Collapsing Wild Fish Stocks
Widespread Marine Habitat Destruction[/align]

Quote:

It’s all changed in just a few decades. I’m old enough to remember fishermen unloading boxes of flounder at the funky Fulton Fish Market in New York, charging wholesalers a nickel a pound. I remember when local mussels and oysters were practically free, when fresh tuna was an oxymoron, and when monkfish, squid and now-trendy skate were considered “trash.”

But we overfished these species to the point that it now takes more work, more energy, more equipment, more money to catch the same amount of fish — roughly 85 million tons a year, a yield that has remained mostly stagnant for the last decade after rapid growth and despite increasing demand.

Still, plenty of scientists say a turnaround is possible. Studies have found that even declining species can quickly recover if fisheries are managed well. It would help if the world’s wealthiest fish-eaters (they include us, folks) would broaden their appetites. Mackerel, anyone?

It will be a considerable undertaking nonetheless. Global consumption of fish, both wild and farm raised, has doubled since 1973, and 90 percent of this increase has come in developing countries. (You’ll sometimes hear that Americans are now eating more seafood, but that reflects population growth; per capita consumption has remained stable here for 20 years.)

The result of this demand for wild fish, according to the United Nations’ Food and Agricultural Organization, is that “the maximum wild-capture fisheries potential from the world’s oceans has probably been reached.”

One study, in 2006, concluded that if current fishing practices continue, the world’s major commercial stocks will collapse by 2048.

source: the Future of Fish

see related graphs as unable to post them at the moment. thanks

pogoliamo · **Joined:** Fri Dec 31, 2004 1:00 am **Posts:** 201

Blame it on China wrote:

Why does China sell below true cost? Because it is a dictatorship that wants to keep its restive people employed, and so, like (democratic) Japan before it, it keeps throwing good savings at bogus products. I say bogus because if you sell below true cost you create fictitious demand that otherwise wouldn't be there had the product been priced realistically

Fascinating sentence, totally in sci-fi style, or maybe it was a joke?

Blame it on China wrote:

First, low inflation, even deflation, will lessen the need for inflation hedges. But second, and more crucial, as the West buys less of China's more fully priced products, and as China's cash needs escalate, its government, to feed the peasants and to maintain its power, will sell state assets - including gold

I'm afraid China will not eat its gold for too long. A week of two and then switch to selling... USD's.

MrBill · **Posted:** Tue Nov 18, 2008 12:32 am

[align=center]The Era of Low Expectations
when doing something just isn't enough[/align]

Quote:

A SENSE OF HISTORY

The summit has been bedeviled by comparisons with the Bretton Woods conference in 1944. Intended as a rhetorical device to restore confidence by suggesting governments were taking bold action in an unprecedented spirit of agreement, the ghost of Bretton Woods has raised impossible expectations and distracted both leaders and officials from the real issues facing the global financial system:

(1) The three-week conference at Bretton Woods was the culmination of more than two years of detailed work at official level and more than a decade studying the issues. There was substantial prior agreement about the problem (poorly coordinated monetary and fiscal policies, leading to payment imbalances and protectionism) and the solution (a gold-exchange system, with multilateral surveillance of national policies, and national reserves supplemented by IMF drawing facilities on a conditional basis).

The system was buttressed by a new multilateral development bank to help fund infrastructure and post-war reconstruction, and later by the General Agreement on Tariffs and Trade (GATT) to prevent a slide back into protectionism.

Comparisons with Bretton Woods thus created unrealistic expectations of what top-level leaders would be able to achieve without detailed preparatory work.

(2) The more serious problem is that the comparisons frame the issue in the wrong way and encourage leaders to pursue the wrong solutions to the wrong problems.

Bretton Woods occurred against the backdrop of the Great Depression - when countries had tried to defend fixed gold parities by raising taxes, cutting expenditure, and hiking interest rates to deflate domestic demand and cut imports, while introducing trade barriers to reduce deficits and limit outflows of bullion.

The current crisis is very different. It is occurring under flexible exchange rates, not fixed ones. No one is suggesting governments raise interest rates, hike taxes or cut expenditure to maintain the external value of their currencies rather than support domestic demand. Most countries seem quite happy with depreciation and easy monetary and fiscal policies.

But the ill-conceived comparisons with 1944 have caused leaders to focus on the spectre of renewed trade protectionism and the need for international policy coordination - while more targeted but relevant proposals to improve financial regulation risk being lost in a sea of other ideas.

Like generals fighting the last war, the G20 leaders seemed more comfortable solving the problems of the 1940s than the 2000s.

source: G20 summit shows lack of resolve

[align=center]Depression Talk[/align]

Quote:

At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan's Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America's problems will take years and will burn trillions.

He sees "nothing but large increases in the deficit ... I think it would be worse than the depression. ... Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." It'll get worse because "the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government."

Reuters concludes: "Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. 'I just want to get people thinking about this, and to realize this is a road to disaster,' said Whitehead. 'I've always been a positive person and optimistic, but I don't see a solution here.'"

source: New-New Deal, bailouts, trillions in debt, antitax mindset spell disaster

I don't read Paul Farrell often. I think he is the biggest hypocrite on MarketWatch - Mark Hulbert is a close second - but as the headlines get sent to my mailbox I happened to click on this article. I do not agree that higher taxes in a recession are a good idea, but I have to agree that lower taxes combined with more government deficit spending is a bottomless pit into which America is descending.

[align=center]Hijacked G20 Think Tanker Approaching Pirate Stronghold Near Somalia[/align]

Quote:

I was also struck my how quiet the G-20 was on the macroeconomic imbalances that facilitated the expansion of leverage in the US and Europe. Remember, the US had a low savings rate – and required inflows from the rest of the world. If those inflows had fallen off as US household debts – and the financial sector’s balance sheet leverage – increased, the US might not have dug itself into a hole.

(continued)

The unwillingness of the G-20 to even mention the policies that led to large surpluses in the emerging world was noticeable. Part of the logic of meeting in the G-20 rather than the G-7 is a recognition that financial difficulties in the G-7 matter for the entire global economy. But part of the logic of the G-20 is that the G-7 isn’t the right group for addressing macroeconomic imbalances – or doing macro-economic coordination – as it leaves out the key surplus countries and adjustment ultimately requires policy changes in the surplus as well as the deficit countries (see Martin Wolf). If China (I assume) blocks any reference to misaligned exchange rates, and the resulting reserve buildup as a source of the imbalances, it is hard to see how the G-20 can become a forum for helping to coordinate the policy changes needed to bring these imbalances down.

source: The G-20 communique

mkwin · **Joined:** Fri Jun 01, 2007 12:00 am **Posts:** 641

Link to a Niall Ferguson lecture on his new book ' The Ascent of Money'. He made some interesting points - such as the banks are going to be harder hit in Europe than the US by the time the credit crunch is over.

http://www.bbc.co.uk/iplayer/episode/b0 ... n_Lecture/

sparky · **Joined:** Mon Apr 09, 2007 12:00 am **Posts:** 365

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The sudden strenght of the US $ has puzzled me for some times now ..... low taxes with no prospect of rising them .....federal , state and local councils broke or in debt with increasing outlays and decreasing revenues ...Wot is happening

from the financial times ( does it make sense to you guys )
jim Rogers on the US $

He said that the dollar is hight because there is a mad scramble for cash to cover positions , when this decrease , the dollar will drop like a stone .

does it make sense to you guys

PS. the link was one mile long but it's easy enought to find if you follows the arrows
FT Home > Multimedia > FT Video > View from the Markets>jim Rogers on the US $

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MrBill · **Posted:** Wed Nov 19, 2008 12:48 am

Jim Rogers is a self-promoting ego maniac. The fact that we agree on a few of his calls does not change that. In the long-run he is probably correct about US dollar weakness as well as the super bull market in commodities. I guess that is a view shared by many posters here at Peak Oil.

However, when an asset goes down 40, 50, 60 or 70-percent, and you have not called for it or changed your tune then quite simply you have missed it. You are wrong. I do not care whether that position comes back in a year, two years or five years. You were wrong.

Jim Rogers is always bearish the US dollar and bullish energy and commodities. But I have heard numerous podcasts or read quotes in articles that he seems to always be selling the US dollar. After a while it seems quite incredulous that he has NOT already sold all the US dollars he owns? So when he says he is selling all his dollars when the exchange rate is going from 1.2500 to 1.6000 in the euro, for example, and a year later he is selling US dollars when the rate is going from 1.6000 to 1.2500 then I have to ask, "is he bullshitting us or what?"

He may well be buying and selling, and selling and buying, crude all the time from $55 to 147 and back again, but whenever he is being interviewed he always says he is buying. That is just dishonest or he has been long and wrong from $147 to $55. Assuming he is using futures and posts 10-percent margin - a reasonable assumption - then that 60% move lower has wiped-out 600% of his starting capital. That is whatever percentage of his capital that he has allocated to energy for example.

Timing is important. So even though I may happen to agree with some of his long-range calls I also discount everything he says for his bullshit factor. To be honest I do not attach a great deal of importance to who says what. Only what they say. Does it make sense? Does it support or contradict my own view? Is it timely? I may never be a Jim Rogers, George Soros or Warren Buffet, but then again I never started out to be them. I do my own research and make my own calls. I try not to bullshit you or more importantly myself.

Quote:

Table 3.1 Probability of Success at Different Scales

Scale - Probability
1 year - 93%
1 quarter - 77%
1 month - 67%
1 day - 54%
1 hour - 51.3%
1 minute - 50.17%
1 second - 50.02%

source: Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Taleb

So if you can be right 51% of the time the rest is all risk and money management skills plus compound interest.
[align=center]

[/align]
[align=center]
Lord, make me chaste but not quite yet[/align]

Quote:

For much of this decade, easy credit that helped inflate the housing bubble and boost financial markets meant households did not need to set aside as much for a rainy day. Spending accelerated while the savings rate declined to near zero.

The trend is reversing now that the financial upheaval has blown a $7 trillion hole in Americans' wealth. Households are curbing spending at the sharpest rate on record, and economists see only a tepid rebound beginning late next year.

(continued)

Joseph Lupton, an economist at JPMorgan in New York, expects savings to climb by 4 percentage points by the end of 2009, from 0.2 percent at the start of 2008. That would represent the sharpest eight-quarter rise in 50 years.

It reached 1.3 percent in the third quarter.

CHASTITY LATER

Flush with investment wealth, consumers stepped up spending over this decade, even though wage growth remained tepid.

Imports soared, particularly from China, driving up both U.S. deficits and Chinese surpluses. From the start of the housing market boom in 2002 through 2007, imports from China rose by 157 percent to $321.4 billion.

Economists have long warned that these trends were unsustainable, and Americans would eventually need to curb consumption while China boosted its own domestic demand.

(continued)

If history is any guide, next year's spending decline may be severe.

During the 1980 recession, which was the last time that the savings rate rose sharply, consumers cut back so dramatically that the percentage of income spent on personal goods and services dropped to just under 74 percent at the end of 1981 from nearly 77 percent in the first quarter of 1980.

In the latest quarter, consumers spent a little over 83 percent of their income. If that were to fall to 80 percent, it would mean a $300 billion reduction in spending, equal to the annual U.S. sales of retailing behemoth Wal-Mart.

source: Americans embrace saving as nest eggs shatter
[align=center]

[/align]
[align=center]Ship building and container prices still sinking[/align]
[align=center]

[/align]
[align=center]Compare the Baltic Dry Index to this chart on Stock Market Phases[/align]

Quote:

Last week, we saw a number of modern Bulk Carrier being sold at prices of about 20 % to 25 % of this year's peak values.

- Nord Phoenix 82,417/07 sold at USD 37 Mio to Greek Buyers
- Nord Saturn 76,620/05 sold at USD 29.5 Mio to Greek Buyers
- Seabee 46,671/99 sold at USD 22 Mio to Vietnamese Buyers

Container vessels were not sold but rates continued their downward trend.

Newbuilding ordering came to a standstill and Buyers are waiting for lower yard prices. Generally speaking market outlook is presently unsecure due to the weak financial markets making financing of ship purchases difficult.

It goes without saying that there is more activity in the demolition market. While prices in the usual demolition territorities remains relatively stable the Turkish Shipbreakers are presently obtaining region USD 140.- per ldt on delivered basis only whereas from Bangladesh and India region USD 220 - 285.- per ldt is reported.
Japan including t/c back for 1 year at usd 23,900 pd

source: www.zachariassen.de
[align=center]

[/align] source: Deutsche Schiffahrts-Zeitung
[align=center]Unsold autos piling up like rats in a garbage dump
while exports also pile up unwanted[/align]

Quote:

Last week, Mercedes delivered around 1,000 more cars to Long Beach on the Grus, a 580-foot container ship.

“A year ago, I was looking into buying one of these for my wife,” said Kurt Garland, the terminal manager overseeing the unloading of the white, silver and black sports cars, sport utility vehicles and sedans. “Now I’m not. I’m saving money, paying bills, hunkering down.”

Not far away, metal, cardboard, paper and plastic are piling up in the lot of Corridor Recycling. The company takes in refuse from around the country, then bales it for shipment to China. The cardboard is used to make new boxes while used shrink wrap is turned into shoe soles and insulation for sleeping bags and coats.

For much of this year, the company shipped about 25 containers a day, each filled with 23 tons of refuse to be recycled. But after the Olympics, demand slowed for recycled metal. In October, demand for everything else took a sharp downturn, and for the last two weeks the company has not shipped a single container.

“It just came to a complete stop. Absolutely a stop,” said Gilbert Dodson, the recycling company’s co-owner. “I’ve seen it slow over the last 25 years, but this is the worst,” he said of the current downturn.

Like his counterparts in the auto industry, Mr. Dodson is looking for extra space to accommodate the growing number of bales on his three-acre property. The recycled goods keep arriving in big trucks, even though he now pays only $21 a ton for refuse he paid $120 a ton for earlier this year, but there is nowhere for him to export.

“It keeps coming in,” he says. “But no one is buying.”

source: A Sea of Unwanted Imports

MrBill · **Posted:** Wed Nov 19, 2008 6:12 am

MrBill wrote:

Quote:

Curly, Moe & Larry

Quote:

Quote:
U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said in the text of a speech today in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''

Treasury and Federal Reserve officials are exploring a new ``facility'' to aid the market for securities backed by assets, Paulson said. Officials are considering using a portion of the bailout money to ``encourage private investors to come back to this troubled market,'' he said. The Treasury chief said the department is also considering having companies that accept new taxpayer funding get matching private capital.

Buying ``illiquid'' mortgage-related assets is no longer
being considered, he said. ``Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role,'' he said, referring to the Troubled Asset Relief Program.

Paulson has committed all except $60 billion of the initial $350 billion allocated last month to address the collapse of financial institutions and markets, and Congress could reject approval for the remainder. Lawmakers including House Speaker Nancy Pelosi are pushing for aid to automakers including General Motors Corp., pressure that Paulson is resisting.
source: Nov. 12 (Bloomberg)

They are just making this stuff-up as they go along. It is more like slapstick comedy than making public policy. I am sure glad they are avoiding the mistakes that lead to the Great Depression. No, they are just making new mistakes. Anyone notice how quiet Bernanke has gone?

Apparently others are starting to ask the same questions?

Quote:

Last week, Paulson announced that TARP, the program for buying troubled assets, was dead. (How can you have a TARP without the “T” and the “A?”) In its reincarnated form, the program will be reoriented toward helping the consumer.

There were no details.

“We’re in the process of working with the Fed to design it,” Paulson said at a Nov. 12 press briefing.

As a practical matter, what is he going to do?

Movin’ On

That’s unclear. He spoke about distress in the “asset- backed securitization market,” where credit-card, auto and student loans are packaged and resold. He said he was “exploring the development of a potential liquidity facility for highly rated AAA asset-backed securities” and using TARP “to encourage investors to come back to this troubled market, by providing them access to federal financing while protecting the availability for consumers.”

Got it? By the time you figure out what he’s exploring, encouraging, providing and protecting, TARP will have moved on to bigger and better things.

In the process, “Paulson managed to blow up several markets in one press conference,” said Jim Bianco, president of Bianco Research in Chicago.

Mortgage bonds were clobbered as Paulson called off the stillborn purchase of troubled mortgage-related assets. “The asset-backed market for credit cards and auto loans is in chaos, with folks watching TV and waiting for the announcement of how the government is going to accomplish these things,” Bianco said.

Flipping and Flopping

Instead of apologizing for his flip-flop on one after another ill-conceived initiative, Paulson prided himself on his flexibility.

“I will never apologize for changing a strategy or an approach if the facts change,” he said, paraphrasing the late economist John Maynard Keynes.

The facts haven’t changed, Mr. Secretary. Your appreciation of and approach to them have.

source: It Isn’t a TARP Without Troubled Assets to Cover

BASF is one company along with E.On that I really liked for the long-term as they are partners with Gazprom for the import of Russian natural gas into Germany that is then distributed throughout EU countries. However, apparently now is not the time to buy even solid long-term plays even though the DAX is down some 40% YTD. Watch it and wait. Add it to the list.

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BASF, the world's largest chemicals maker by revenue, cut its profit outlook for 2008 and announced cutbacks in production, citing a "massive" decline in demand in key industries.

The previous year's earnings before interest and taxes (EBIT) before special items would not be reached, the group said on Wednesday, adding it would temporarily shut down 80 plants worldwide and reduce production at a total of about 100 plants.

BASF had said last month it would "make every effort to match" last year's EBIT before special items.

Some 20,000 employees would be affected by the production cuts, of which about 5,000 are at its main site in Ludwigshafen, southern Germany, the company said on Wednesday.

It said it was difficult to foresee how 2009 would develop and that it would prepare for "tough times."

BASF shares fell 13.1 percent to 22.10 euros by 7:35 a.m. EST, while the German blue-chip DAX index was down 2.1 percent.

source: www.reuters.com

MrBill · **Posted:** Thu Nov 20, 2008 2:30 am

I thought you might enjoy seeing the fruits of your excellent research into stock market phases as applied to the Baltic Dry Index. They are almost a perfect match. Even the slope of the Mean are very similiar. I was able to use your stock market phases graph to correctly identify the top of the S&P500 last year and subsequent sell-off since, so thank you very much for that useful tool. Take care and all the best.

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Glad that some of the material I developed actually makes sense in the real world. I initially developed this chart a few years ago to explain to my students the mess we were heading to. It is an issue that I have addressed for many years at conferences, stating that the growth we had over the last few years was essentially a debt based fraud leveraged by asset inflation (real estate bubble).

This view was commonly set aside as nonsense and that a collapse was impossible. It looks like the “impossibility” has become a reality, much to the dumbfounded surprise of many as if what is happening was some kind of random event; the seeds of the current crisis were sowed many years ago and what is taking place is the logical conclusion of a process.

Indeed, I have been tracking the BDI myself for a while. I plan with a colleague over the next few weeks to write an article for a trade journal explaining the potential consequences of the current crisis on the shipping industry, particularly over port calls and network configuration.

I agree completely that the collapse of the housing bubble and subsequent subprime mess are anything but a random event - or Black Swan as Nassim Taleb would say - but a completely predictable result of global financial imbalances caused by large current account deficits on one hand and central bank currency manipulation on the other. This has resulted in excessive money supply growth - especially in emerging countries that are either oil or commodity producers or Asian manufacturers - and an explosion in credit expansion due to cheap money. Unfortunately, the bailouts and other accommodating loose fiscal and monetary policy responses to the rolling worldwide recession can only exacerbate those global financial imbalances. As necessary as they may be - or seem - in the short-term they certainly do not address the underlying causes of the problem. Excessive debt in a slowing economy and borrowing tied to falling asset prices creating negative equity.

We are very interested in energy, commodities, shipping and emerging markets. Here in Cyprus we have many friends involved in the shipping business. We help manage the assets and liabilities in an investment firm. I have lectured and published on risk management in emerging markets, and I am currently working on my PhD on marketing and strategy. As a life-long trader in emerging markets I have seen these type of blow-ups many times before. An interesting read on this subject is Micheal Pettis' book The Volatility Machine on Emerging Economics and the Threat of Financial Collapse. He talks about self re-enforcing virtuous circles and vicious cycles as countries - substitute for consumers or companies - allow imbalances to accumulate while volatility, inflation and interest rates are low and stable, but that makes 'them' more vulnerable to a reversal in that stability via external shocks. He was writing about emerging markets, but it explains the global problems we are experiencing from those imbalances quite well.

This is my first worldwide financial crisis, although all the events feel very familiar. In Nassim Taleb's Fooled by Randomness on The Hidden Role of Chance in Life and in the Markets he would classify this as a rare event, but with grave consequences. Predictable, probable, but infrequent enough that its outcome gets underpriced in terms of risk. Ironically the public policy response to this crisis refuses to acknowledge the role of government interference in the market economy that created the distortions and imbalances in the first place, but rather too late blames it all on poor supervision and on the banking system. If governments create large current account surpluses and deficits via budget deficits on one hand and currency manipulation on the other then that excessive money supply creation is going to flow into assets somewhere, while often under-appreciating, and therefore under-pricing, the accompanying risks. We now see the results of deleveraging and falling asset prices as banks, investors and savers wake-up to those over-sized risks.

For your guide, friends tell us that shipping companies are walking away from deposits made on new vessels under-construction or on-order. That will hurt Japan and S. Korea, but especially shipyards in China where the quality of vessels is seen as of particularly low quality that produces vessels with a much shorter economic lifespan. Older vessels are now trading at about 20-25 percent of their peak valuations according to the shipping broker Zachariassen in Hamburg. Symptomatic of the global slowdown and its affect on marine traffic is an article in yesterday's New York Times entitled A Sea of Unwanted Imports.

What interested me as well was at the end of the article when they talked about the effect on exports of recyclable materials to Asia and the knock-on effect that was having on scrap prices that have fallen dramatically. It is not just imports getting hit but exports as well. Asia is going to be exporting a lot of over-capacity soon as port expansions in places like Singapore mean they were still gearing-up at full speed (H1'08 ) before the rolling financial crisis finally hit energy and commodity prices as well as emerging markets that had looked less prone to recession. I never did buy the decoupling theory. We were all gorging on excessive global liquidity, and that was simply showing-up as a wealth transfer from consuming nations to producing ones. The knock-on economic effect on saving nations may be shorter and less severe, but then again many now feel that The Consumer of Last Resort is finally irreversibly tapped-out and is not expected to return to their free spending ways based on credit any time soon. That will create long-term challenges for their export based economies.

Therefore, future Asian growth is going to have to come from Asian demand as opposed to growth in exports. That may happen eventually, but there is a longish time lag as habits need to change, factories need to be re-fitted and the basket of goods that Asian consumers may want or need is different than the basket of goods they have been exporting abroad. The gap between global trade and GDP growth will have to narrow, which means global trade contracting even faster than slowing GDP growth. The Baltic Dry Index may be in over-sold territory now, but it is hard to see what demand is going to emerge that turns it around any time in the immediate future. Maybe we will see a dead cat bounce, but not likely enough to compensate ship owners for their overly optimistic expansion preceding this credit crisis and global slowdown. This feels in many ways like 2000-2002 all over again, except that the global imbalances are much worse, and therefore the recovery is not going to look anything like the 2002-2007 bull market. Instead of a V-shaped, or even a U-shaped, recovery we may instead see a rather weak L-shaped recovery.

If you do write an article on the potential consequences of the current crisis on the shipping industry then please do me a favor and send it my way. I would be more than happy to comment on it as well as read your ideas and conclusions. Thank you very much. I am off to HK and China for 10-days, but back in December. Until then take care and all the best.

shakespear1 · **Joined:** Fri May 13, 2005 12:00 am **Posts:** 1604

About China

Code:

They were the only diners present - the hotel was empty and dark, the condos emptier and darker.

I saw some of the same things in Russia. The well connected wine and dine, while the rest are just looking in through the window.

MrBill · **Posted:** Thu Nov 20, 2008 7:19 am

[align=center]How To Near Zero[/align]

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The quantitative easing question

Quantitative easing is a phrase that is being banded around by Fed officials a bit more these days. This could signal that the Fed is starting to think about how it needs to drive monetary policy forward once inflation—and rates—near the zero line. It could clearly take some time for this to happen but, as they say, to be forewarned is to be forearmed. In our view this debate is already of considerable relevance even with rates as high (sic) as 1%. We may even find that the Fed tries to tackle the question of quantitative easing head on at the December 16th FOMC meeting. If the Fed does move in this direction it is likely to find that the dollar weakens over the long haul—just as Japan found when it quantitatively eased between 2001 and 2005.

In very simple terms monetary policy involves either the central bank setting a rate target or a quantity target. Most choose the former, which means that they agree to supply all the money that is demanded at the set rate. A quantitative easing strategy involves setting a quantity target (such as bank reserves). In theory, rates become indeterminate in this situation although the Fed has already stopped this from happening by paying interest on banks’ excess reserves. It has not, as yet, officially switched to a quantity target from a rate target and we suspect it will be loathe to do so at this stage. Right now, the Fed is conducting both rate easing and quantitative easing, according to Fed Governor Kohn yesterday. Nonetheless, if rates reach a lower bound and if deflation creeps up, the Fed may have to go further down the quantitative easing route— as Fed Governor Kohn also admitted yesterday.

Full-on quantitative easing won’t be an easy decision for the Fed to take and we suspect that the most it might do at this stage is to bring the debate about this alternative to the markets attention a bit more, just in case it has to switch over at short notice. If it does have to switch to this policy it would come in the context of another downward lurch in the economy and the real threat of deflation. Such a negative outlook would probably give the dollar another safe-haven bid. This, in our view could push euro/dollar down well below 1.20 next spring even if the run through to the end of this year sees the euro hold up. However, over the long haul, there’s no getting away from the fact that quantitative easing and currency strength seem incompatible. Japan proved as much earlier this decade when the quantitative easing regime between 2001 and 2005 spurned a slump in the yen’s trade-weighted exchange rate (figure 2).

It is just possible that the dollar could be saved this time around by both its safe-haven status in the near-term and the fact that other central banks may have to follow the Fed into quantitative easing in the long haul. However, while we think that the dollar is ’safe’ for a while yet, it is vulnerable in the long haul if the Fed goes down the quantitative easing route.

source: research@standardbank.com

[align=center]Government Borrowing to Crowd-out Private Borrowing
Government spending to become a bigger share of a smaller economic pie[/align]

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Banks in Europe and Britain, and their unfortunate would-be borrowers, face another blow as plunging oil prices tighten the spigot of petrodollar deposits.

Billions of dollars worth of funds from oil exporting nations have made their way into banks from Zurich to London in recent years. These inflows helped banks withstand credit crisis losses and, given much of the money was in dollars, was a source of dollar liquidity during recent money market difficulties.

Petrodollars also arguably fed the lending boom while it lasted and cushioned the effects when the boom turned to bust. But, with oil having tumbled to around $55 per barrel from almost $150 this summer and the mid-$90s a year ago, flows into European banks will likely drop dramatically. What’s more, a global recession and rolling financial crises mean that oil producers such as Russia and the Middle East states will have new calls to spend money at home, further diminishing the money available to grease the wheels of international banking.

Though it is impossible to track exactly, depositors from oil exporting states have long shown a preference for British and European banks over U.S. ones, some for political reasons, such as Venezuela, and some out of concern over the effects of post-Sept. 11 U.S. banking disclosure laws.

This, needless to say, is not a good time for these banks to lose an important source of inflows. It will worsen their position and make it tougher for their clients to secure loans.

Borrowers in emerging Europe, such as in Hungary, may be particularly hard hit having gorged on credit during the boom.

Deposits abroad from oil producing countries hit more than $1.2 trillion at the end of 2007, according to the Bank for International Settlements, up from less than half a trillion in the third quarter of 2003. More than $150 billion flowed into international accounts in 2007 alone, according to the BIS. Those flows will have continued to be strong in the first half of this year as oil soared, but would seem very likely to now be slowing and to diminish further so long as oil and the global economy struggle.

Certainly the oil-producing states have new calls on their funds. The Gulf particularly is suffering from crashing confidence and tight liquidity, and has its own housing boom that is turning to dust. The United Arab Emirates poured $6.8 billion into the financial system in October as part of a $19.1 billion rescue facility while Saudi Arabia injected $3 billion in long-term deposits into its banks, echoing other similar moves elsewhere.

Russian central bank reserves are down about $120 billion since their August peak, sapped in part by massive interventions to support the rouble.

source: Petrodollar Drought Another Blow to Banks

Trader's Corner 2008

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