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post #11 of 51 (permalink) Old 10-26-2008, 06:38 PM
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I have posted on this forum I believe the Fed and Treasury to have acted in an incompetent manner over the last 18 months or more and that the ratings agencies have behaved in a manner that is inappropriate and that I now believe was criminal. In that sense I agree with Mr. Denninger.
I do not believe we are going to see a major move downward from this point so I am not in agreement there, nor do I care much for the implication that Mr. Buffett was in some way not honest in saying he was buying. I was buying when we saw the DJIA at 8000 and do not find this odd on Mr. Buffetts behalf.
When Mr. Denninger implies a political agenda it puts into question his objectivity.
The US government owns more foreign debt than US debt is owned by foreigners, if they sell the foreign debt they own they could fund the domestic debt for a considerable time. There are reasons this will not be done both political and monetary, but I mention it to point out the ability of the Treasury to raise money without devaluing the currency. Also the majority of money in circulation is held by foreign entities and if the currency is devalued it would have a net positive effect in isolation due to this imbalance.
I am not sure what Mr. Denninger is implying with his reference to a "crazy tail only a few months into this". What are we a few months into? Which debt is being taken down? And what does he mean by the term "goose"?


Another thing I see that strikes me as odd is the assertion that the 13 week T-Bill yield has risen due to "issue a lot of short-term supply". The Treasury offers auctions of the 13 week T-Bill every week and publishes the results in Public Debt News. On 20 Oct they offered $60 billion and only $25 billion were accepted, the previous week $86 Billion were offered and $25 Billion were accepted. Looking back through historical data I could not find evidence that the Treasury was issuing more than a typical amount of these securities. If the increased yield on the Bill is due to trading on the secondary market it would imply a lower price and therefore a lower demand not a larger supply, which contradicts the assertion made by Denninger. If the yield on short term treasuries is rising the flight to quality is decreasing and the interbank or commercial paper market should be the beneficiary of that money path, and would be evidence of the credit market normalizing (albeit early evidence the worth of which will require analysis).

I also did not see any significant change in the issuing of securities at the various ends of the curve. The issues at both ends are not anomalously out of the typical range for issues of their type over the past 25 years. I do not see a flight into 10's, either in acceptance of issue, or in a sharp rise in the price of 10's not also seen in Bills or 30's in the secondary market.
Mr Denninger says the Treasury has only two options but there is a third, which is to issue in both ends of the curve in historically normal levels. If we are to allow for this it would prevent the two scenarios Mr. Denninger asserts from either flooding the short or long end.

Mr. Denninger says Mr. Bernanke "may be technically correct but is lying through his teeth". Statements like this are inflammatory but devoid of substance, and they make the author look more like a person with an agenda than a logical point. Mr. Bernanke has no real fan in me but I do believe he is an honorable man who has made errors in judgement. To pronounce him a liar is bombastic but otherwise unwarranted nor supported by evidence.

Mr Denninger speaks of a "sham sterilization action". I have no idea what this means and he offers no real explanation.

"Swapping a dollar for an illiquid asset"
Mr. Denninger denigrates this, but that's what we do do one degree or another every time we invest in anything that isn't cash. We are placing some degree of faith in future value of the asset. I don't see any necessity in what Mr. Denninger refers to as "monetarily neutral" assets. His statement that if the asset is worth 50 cents he is "printing the other 50 cents" is meaningless because that is not what he is doing unless the asset never changes value and is then traded. And even if we accept his premise it does not devalue every other dollar by an equal value but by the percentage the amount lost represents of all the money in circulation.
I am also of the belief that there is a significant chance the assets will increase in value downstream. As Mr. Denninger asserts an asset is only worth what a buyer will pay, but that is a static view, and the market is dynamic. He points out that the assets are not worth their face value, but it is a rescue effort and that fact must be assumed or there would be no need for rescue. The premise is that the value will recover, or the gov't will eat the losses to prevent a total meltdown of the system.

I agree with Mr. Deninger that the FED and Treasury produced a dislocation by favoring some debt over another, and the consequences he lays out are self evident. We are not rapidly reaching a point where the FED and Treasury are the only lenders, we are there already.
I do not see the connection he then makes by saying the discipline has been removed, since nobody is borrowing in any serious amounts other than to protect assets. If folks were borrowing from the FED and lending with abandon or buying equity in reckless ways then I would agree but I don't see that happening.
Then Denninger makes the statement that Bernanke and Paulson are "'going to produce the bond market dislocation that I have been warning about". I always see a red flag with statements like that because it points to the possibility that the whole argument he makes is self serving. When authors use terms like "there is exactly one way to stop this idiocy" and then it's his way, I cringe.

I won't go any further on a point to point basis as it would be overlong. I will just say that Mr. Denninger makes statements that are overly bombastic, not backed up by evidence to the degree I find necessary when making such absolute statements, potentially motivated by politics, and potentially motivated by other self interest. I also find his conclusions, even in the cases I agree with them to be unjustified by the evidence he presents.

In his defense, the page I am critiquing is like the 500th in a long series where it is possible Mr. Denninger has already presented evidence for his statements and conclusions. I do not have the time or frankly the inclination to read the last years material he has posted. My admittedly cursory examination of the material indicates a lot of the same sort of stuff, and I am not impressed enough to dedicate my limited resources of time to his posts.

I hope this is of some value.

When devils will the blackest sins put on, they do suggest, at first with heavenly shows - Othello
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post #12 of 51 (permalink) Old 10-26-2008, 06:50 PM Thread Starter
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Good lord! I'm gonna read your post a few times over, seriously. Right off the bat, though, I want to agree that Mr Denninger's remarks about Warren Buffett are indeed silly, as are his observations about the presidential contenders.

Brings to mind, though, we have 500 billionaires in this country, you'd think that a few of them might step up to the plate in one way or another, as Mr Buffett as done. Instead, they're all cowering in the Hamptons or somewhere. Far be it from them to try and help out when this society is in trouble. This society which has enriched them beyond all measure. More anon..

Addendum: Can you (or anyone) point me to an authoritative source/analysis supporting this statement: "The US government owns more foreign debt than US debt is owned by foreigners, if they sell the foreign debt they own they could fund the domestic debt for a considerable time. There are reasons this will not be done both political and monetary, but I mention it to point out the ability of the Treasury to raise money without devaluing the currency."

Last edited by Marsden; 10-26-2008 at 07:08 PM.
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post #13 of 51 (permalink) Old 10-26-2008, 07:05 PM
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c'est la merde, de toute façon les ultra riches son bien épargnes des vas et viens qui déplument la majorité de la populace. Le fait que notre système bancaire est établis sur une base de liens est une équation compliquée pour Joe le Plombier. Merci pour cette essai Cozzette, je prendrai mon temps a la lire

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post #14 of 51 (permalink) Old 10-26-2008, 08:10 PM
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I agree with Marsden. I need to read cozette's post a couple of times.

For some reason I am fully unable to focus on economics the last couple of days. I don't know if I am just blocking or if there is something worming through my mind that is trying to sort itself out. But focus is just not working.

Maybe I will start again tomorrow morning when the drywall guys get here. The banging and shoveling should distract me enough to start thinking again.

McBear,
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post #15 of 51 (permalink) Old 10-26-2008, 08:11 PM
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Quote:
Originally Posted by Marsden View Post
Addendum: Can you (or anyone) point me to an authoritative source/analysis supporting this statement: "The US government owns more foreign debt than US debt is owned by foreigners, if they sell the foreign debt they own they could fund the domestic debt for a considerable time. There are reasons this will not be done both political and monetary, but I mention it to point out the ability of the Treasury to raise money without devaluing the currency."
Here is the table of foreign holders of our debt from the treasury website
http://www.ustreas.gov/tic/mfh.txt
Total is around 2.7 trillion as Mr. Denninger put it

Here's a list of our assets note line A(1)(a)
http://www.treas.gov/press/releases/...1726172051.htm
Total in Euro and Yen denominated securities 21.6 trillion

Note also the 11 trillion in gold we have which is valued at $42.2/troy oz or more than 20 times undervalued.

When devils will the blackest sins put on, they do suggest, at first with heavenly shows - Othello
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post #16 of 51 (permalink) Old 10-26-2008, 08:20 PM
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Quote:
Originally Posted by cozette View Post
Here is the table of foreign holders of our debt from the treasury website
http://www.ustreas.gov/tic/mfh.txt
Total is around 2.7 trillion as Mr. Denninger put it

Here's a list of our assets note line A(1)(a)
http://www.treas.gov/press/releases/...1726172051.htm
Total in Euro and Yen denominated securities 21.6 trillion

Note also the 11 trillion in gold we have which is valued at $42.2/troy oz or more than 20 times undervalued.
Now that's an interesting twist on the discussion as to whether or not it was a good thing that we got off the gold standard in the valuation of our currency.

http://en.wikipedia.org/wiki/Gold_standard

This keeps coming up on discussions related to, well, the economy, lately.

http://en.wikipedia.org/wiki/Bretton_Woods_system

Last edited by Qubes; 10-26-2008 at 08:25 PM.
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post #17 of 51 (permalink) Old 10-26-2008, 08:26 PM Thread Starter
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Quote:
Originally Posted by cozette View Post
Here is the table of foreign holders of our debt from the treasury website
http://www.ustreas.gov/tic/mfh.txt
Total is around 2.7 trillion as Mr. Denninger put it

Here's a list of our assets note line A(1)(a)
http://www.treas.gov/press/releases/...1726172051.htm
Total in Euro and Yen denominated securities 21.6 trillion

Am I missing something? 21,619 million is 21 billion, not 21 trillion.
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post #18 of 51 (permalink) Old 10-26-2008, 08:31 PM
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Nouriel Roubini is an economist at NYU. I have met him a couple of times and he is, without doubt the sharpest knife in the drawer, ANY drawer. I posted up an article by him a couple of years ago and it was poo-pooed as stupid, way off base, nuts. It was deadly accurate. He has been THE most consistently accurate economist over the past four years in discussing this current crisis.

Here is a look at his current thinking.

From The Sunday Times
October 26, 2008
Nouriel Roubini: I fear the worst is yet to come
When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...


As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.

For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.

While the economic sun was shining, most other economists scoffed at Roubini and his predictions of imminent disaster. They dismissed his warnings that the sub-prime mortgage disaster would trigger a financial meltdown. They could not quite believe his view that the US mortgage giants Fannie Mae and Freddie Mac would collapse, and that the investment banks would be crushed as the world headed for a long recession.

Yet all these predictions and more came true. Few are laughing now.

What does Roubini think is going to happen next? Rather worryingly, in London last Thursday he predicted that hundreds of hedge funds will go bust and stock markets may soon have to shut – perhaps for as long as a week – in order to stem the panic selling now sweeping the world.

What happened? The next day trading was briefly stopped in New York and Moscow.

Dubbed Dr Doom for his gloomy views, this lugubrious disciple of the “dismal science” is now the world’s most in-demand economist. He reckons he is getting about four hours’ sleep a night. Last week he was in Budapest, London, Madrid and New York. Next week he will address Congress in Washington. Do not expect any good news.

Contacted in Madrid on Friday, Roubini said the world economy was “at a breaking point”. He believes the stock markets are now “essentially in free fall” and “we are reaching the point of sheer panic”.

For all his recent predictive success, his critics still urge calm. They charge he is a professional doom-monger who was banging on about recession for years as the economy boomed. Roubini is stung by such charges, dismissing them as “pathetic”.

He takes no pleasure in bad news, he says, but he makes his standpoint clear: “Frankly I was right.” A combative, complex man, he is fond of the word “frankly”, which may be appropriate for someone so used to delivering bad news.

Born in Istanbul 49 years ago, he comes from a family of Iranian Jews. They moved to Tehran, then to Tel Aviv and finally to Italy, where he grew up and attended college, graduating summa cum laude in economics from Bocconi University before taking a PhD in international economics at Harvard.

Fluent in English, Italian, Hebrew, and Persian, Roubini has one of those “international man of mystery” accents: think Henry Kissinger without the bonhomie. Single, he lives in a loft in Manhattan’s trendy Tribeca, an area popularised by Robert De Niro, and collects contemporary art.

Despite his slightly mad-professor look, he is at pains to make clear he is normal. “I’m not a geek,” said Roubini, who sounds rather concerned that people might think he is. “I mean it frankly. I’m not a geek.”

He is, however, ferociously bright. When he left Harvard, he moved quickly, holding various positions at the Treasury department, rising to become an economic adviser to Bill Clinton in the late 1990s. Then his profile seemed to plateau. His doubts about the economic outlook seemed out of tune with the times, especially when a few years ago he began predicting a meltdown in the financial markets through his blog, hosted on RGEmonitor. com, the website of his advisory company.

But it was a meeting of the International Monetary Fund (IMF) in September 2006 that earned him his nickname Dr Doom.

Roubini told an audience of fellow economists that a generational crisis was coming. A once-in-a-lifetime housing bust would lay waste to the US economy as oil prices soared, consumers stopped shopping and the country went into a deep recession.

The collapse of the mortgage market would trigger a global meltdown, as trillions of dollars of mortgage-backed securities unravelled. The shockwaves would destroy banks and other big financial institutions such as Fannie Mae and Freddie Mac, America’s largest home loan lenders.

“I think perhaps we will need a stiff drink after that,” the moderator said. Members of the audience laughed.

Economics is not called the dismal science for nothing. While the public might be impressed by Nostradamus-like predictions, economists want figures and equations. Anirvan Banerji, economist with the New York-based Economic Cycle Research Institute, summed up the feeling of many of those at the IMF meeting when he delivered his response to Roubini’s talk.

Banerji questioned Roubini’s assumptions, said they were not based on mathematical models and dismissed his hunches as those of a Cassandra. At first, indeed, it seemed Roubini was wrong. Meltdown did not happen. Even by the end of 2007, the financial and economic outlook was grim but not disastrous.

Then, in February 2008, Roubini posted an entry on his blog headlined: “The rising risk of a systemic financial meltdown: the twelve steps to financial disaster”.

It detailed how the housing market collapse would lead to huge losses for the financial system, particularly in the vehicles used to securitise loans. It warned that “ a national bank” might go bust, and that, as trouble deepened, investment banks and hedge funds might collapse.

Even Roubini was taken aback at how quickly this scenario unfolded. The following month the US investment bank Bear Stearns went under. Since then, the pace and scale of the disaster has accelerated and, as Roubini predicted, the banking sector has been destroyed, Freddie and Fannie have collapsed, stock markets have gone mad and the economy has entered a frightening recession.

Roubini says he was able to predict the catastrophe so accurately because of his “holistic” approach to the crisis and his ability to work outside traditional economic disciplines. A long-time student of financial crises, he looked at the history and politics of past crises as well as the economic models.

“These crises don’t come out of nowhere,” he said. “Usually they arrive because of a systematic increase in a variety of asset and credit bubbles, macro-economic policies and other vulnerabilities. If you combine them, you may not get the timing right but you get an indication that you are closer to a tipping point.”

Others who claimed the economy would escape a recession had been swept up in “a critical euphoria and mania, an irrational exuberance”, he said. And many financial pundits, he believes, were just talking up their own vested interests. “I might be right or wrong, but I have never traded, bought or sold a single security in my life. I am trying to be as objective as I can.”

What does his objectivity tell him now? No end is yet in sight to the crisis.

“Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom. They said it after Bear Stearns, after Fannie and Freddie, after AIG [the giant US insurer that had to be rescued], and after [the $700 billion bailout plan]. Each time they have called the bottom, and the bottom has not been reached.”

Across the world, governments have taken more and more aggressive actions to stop the panic. However, Roubini believes investors appear to have lost confidence in governments’ ability to sort out the mess.

The announcement of the US government’s $700 billion bailout, Gordon Brown’s grand bank rescue plan and the coordinated response of governments around the world has done little to calm the situation. “It’s been a slaughter, day after day after day,” said Roubini. “Markets are dysfunctional; they are totally unhinged.” Economic fundamentals no longer apply, he believes.

“Even using the nuclear option of guaranteeing everything, providing unlimited liquidity, nationalising the banks, making clear that nobody of importance is going to be allowed to fail, even that has not helped. We are reaching a breaking point, frankly.”

He believes governments will have to come up with an even bigger international rescue, and that the US is facing “multi-year economic stagnation”.

Given such cataclysmic talk, some experts fear his new-found influence may be a bad thing in such troubled times. One senior Wall Street figure said: “He is clearly very bright and thoughtful when he is not shooting from the hip.”

He said he found some of Roubini’s comments “slapdash and silly”. “Sometimes the rigour of his analysis seems to be missing,” he said.

Banerji still has problems with Roubini’s prescient IMF speech. “He has been very accurate in terms of what would happen,” he said. But Roubini was predicting an “imminent” recession by the start of 2007 and he was wrong. “He hurt his credibility by being so pessimistic long before it was appropriate.”

Banerji said on average the US economy had grown for five years before hitting a bad patch. “Roubini started predicting a recession four years ago and saying it was imminent. He kept changing his justification: first the trade deficit, the current account deficit, then the oil price spike, then the housing downturn and so on. But the recession actually did not arrive,” he said.

“If you are an investor or a businessman and you took him seriously four years ago, what on earth would happen to you? You would be in a foetal position for years. This is why the timing is critical. It’s not enough to know what will happen in some point in the distant future.”

Roubini says the argument about content and timing is irrelevant. “People who have been totally blinded and wrong accusing me of getting the timing wrong, it’s just a joke,” he said. “It’s a bit pathetic, frankly. I was not making generic statements. I have made very specific predictions and I have been right all along.” Maybe so, but he does not sound too happy about it, frankly.

Nouriel Roubini: I fear the worst is yet to come - Times Online

McBear,
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post #19 of 51 (permalink) Old 10-26-2008, 09:44 PM
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Warning flags were being waved

YouTube - Bush, McCain Warned of Banking Disaster, Democrats ignored

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post #20 of 51 (permalink) Old 10-26-2008, 09:55 PM
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Yes they did WARN, but that is all they did. And BUSH had the authority to do more than WARN. He had the AUTHORITY TO ACT. Bushie had the authority to ENFORCE the regulations on the books. HE DID NOT. He had the authority to provide executive letters and executive orders [much like he did with GITMO] to define the limits the FED took to regulate the Financial Sector. HE DID NOT.

McCain had SIX YEARS as a Senior Senator in a Majority Congress to bring as many bills as he felt necessary to address any problems he felt needed addressed. HE DID NOT. There are no bills introduced by McCain that address ANY Economic issues that are currently problematic and only one in which he signed onto over a year after it was introduced.

Where was the Bush Administration and McCain except yapping? They had the complete power to address it. THEY DID NOT. What they did have was a whole bunch of friends who were lobbyists for the banks and Fannie Mae and Freddie Mac. Those friends are now the Campaign Manager for McCain and his Senior Economic Advisers. They are also the current Secretary of the Treasury and his underlings.

Convenient, that.

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