naked capitalism Mon 2010-09-20 19:10 EDT

American Businesses and Consumers are NOT Deleveraging ... They Are Going On One Last Binge

Everyone knows that the American consumer is deleveraging ... living more frugally, and paying down debt. Right?...Karl Denninger notes: ``From a peak in 2005 of $13.1 trillion in equity in residential real estate, that value has now diminished by approximately half to $6.67 trillion!Yet outstanding household debt has in fact increased from $11.7 trillion to $13.5 trillion today. Folks, those who claim that we have ``de-levered'' are lying. Not only has the consumer not de-levered but business is actually gearing up -- putting the lie to any claim that they have ``record cash.'' Well, yes, but they also have record debt, and instead of decreasing leverage levels they're adding to them'' ...the government has done everything it can to prevent deleveraging by the financial companies, and to re-lever up the economy to dizzying levels.

American businesses; Binge; consumer; deleveraging; Go; naked capitalism.

PRAGMATIC CAPITALISM Thu 2010-09-16 16:15 EDT

CREDIT SUISSE: 6 BULLISH FACTS ABOUT HOUSING

TPC

Here's a contrarian view for you. Credit Suisse says the fears about housing are well overdone. In their analysis they cite 6 different bullish factors that should help to bolster house prices in the USA...The government now owns or guarantees about 70% of US mortgage debt...Valuation is extremely cheap on all measures...Delinquency ratios, charge-off and foreclosure rates seem to have peaked...Housing starts are about 1m below trend demand of housing units -- based on household formation and replacement demand... * Distressed sales (short-sales, foreclosures and REO sales) are less than a third of the total, after peaking at almost half in 2009...Housing as a proportion of GDP is now just 2.2%, compared with a long-run average of 4.5%...

6 BULLISH FACTS; Credit Suisse; Housing; PRAGMATIC CAPITALISM.

naked capitalism Fri 2010-07-23 17:08 EDT

Deficits Do Matter, But Not the Way You Think

L. Randall Wray

In recent months, a form of mass hysteria has swept the country as fear of ``unsustainable'' budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices. What is most troubling is that this shift in focus comes even as the government's stimulus package winds down and as its temporary hires for the census are let go. Worse, the economy is still -- likely -- years away from a full recovery. To be sure, at least some of the hysteria has been manufactured by Pete Peterson's well-funded public relations campaign, fronted by President Obama's National Commission on Fiscal Responsibility and Reform -- a group that supposedly draws members from across the political spectrum, yet are all committed to the belief that the current fiscal stance puts the nation on a path to ruinous indebtedness...[however] the notion of ``fiscal sustainability'' or ``solvency'' is not applicable to a sovereign government -- which cannot be forced into involuntary default on debts denominated in its own currency...If we can get beyond the fears of national insolvency then there are many issues that can be fruitfully discussed. While inflation will not be a problem for many years, price pressures could return some day. Impacts of exchange rate instability are important, at least for some nations. Unemployment is a chronic problem, even at business cycle peaks. Aging does raise serious questions about allocation of resources, especially medical care. Poverty and homelessness exist in the midst of relative abundance. Simply recognizing that our sovereign government cannot go bankrupt does not solve those problems, but it does make them easier to resolve...

Deficit; matter; naked capitalism; Think; way.

PRAGMATIC CAPITALISM Mon 2010-07-19 13:35 EDT

PROPERTY FALLS, MORTGAGES STAY THE SAME

TPC

While property prices have fallen 30% over the last two years mortgage debt remains larlgely unchanged from peak levels. Housing Story asks if the de-leveraging is a myth? ...The current evidence points to continued weakness in housing prices going forward...

mortgages stay; PRAGMATIC CAPITALISM; property fall.

naked capitalism Fri 2010-07-16 16:15 EDT

What is Simon Johnson Smoking?

Simon Johnson...incorrectly celebrates a toothless provision in the Dodd-Frank bill as being tantamount to an anti-trust act for too big to fail banks...If we believed this bill was meaningful, action be taken against these banks immediately upon signing. Odds of that happening? Zero...The problem is it not merely the size of these firms, but the fact that they control infrastructure that is deemed critical to modern commerce. I'll get into specifics in short order, but in some cases the firm owns critical plumbing outright; in other cases, it is so tightly networked to other firms that mucking with it very much runs the risk of taking down the rest of the grid...Citi runs a big corporate cash management/reporting system called GTS...And no one is going to dare tamper with JP Morgan's clearing business...The problem is that it would take a radical restructuring of the very biggest banks, the critically placed dealer firms, and the most important payment and clearing operations to make a real dent in systemic risk. The officialdom the political lacked the will to do so at the peak of the crisis, and there is no basis for fantasizing that it will suddenly develop more nerve now.

naked capitalism; Simon Johnson Smoking.

PRAGMATIC CAPITALISM Tue 2010-05-18 15:17 EDT

11 REASON WHY DEFLATION REMAINS THE GREATER RISK

TPC

A nice follow-up here on our earlier piece. David Rosenberg has really nailed the macro picture in terms of inflation and deflation...why deflation remains the greater risk... * Credit is contracting. * Wage rates are stagnating. * Money supply growth is vanishing * The U.S. dollar is strong. * Commodities have peaked. * U.S. home prices are rolling over ... again. * Lumber prices tumbling (down nearly 17% from April 2010 highs) * Wal-Mart is cutting prices on 10,000 items. * Home Depot just cut prices on flowers, fertilizers, lawn equipment and outdoor furniture. * Taco Bell is offering two dollar combo meals. * The April U.S. retail sales report hinted at deflation in groceries, electronics, apparel and sporting goods.

11 reasons; deflation remains; greater risk; PRAGMATIC CAPITALISM.

PRAGMATIC CAPITALISM Tue 2010-05-18 15:15 EDT

A DEFLATIONARY RED FLAG IN THE $U.S. DOLLAR

TPC

...the performance of the dollar is the surest evidence of the kind of environment we're currently in. The surging dollar is a clear sign that inflation is not the concern of global investors. This is almost a sure sign that deflation is once again gripping the global economy and should be setting off red flags for equity investors around the world. The recent action in the dollar is eerily reminiscent of the peak worries in the credit crisis when deflation appeared to be taking a death grip on the global economy and demand for dollars was extremely high...As for the gold rally, I think it's clear gold is rallying in anticipation of its potential to become a future reserve currency. The potential demise of the Euro has become a rally cry for inflationistas who don't understand that the Euro is in fact another single currency system (like the gold standard) which is destined to fail. In the near-term, the rise in gold is likely justified as fear mongering and misguided governments increase demand for the yellow metal. Ultimately, I believe investors will realize that there is little to no inflation in the global economy and that the non-convertible floating exchange systems (such as the USD and JPY) are fundamentally different from the flawed currency system in place in Europe. Debt deflation continues to plague the global economy. Thus far, policymakers have been unable to fend off this wretched beast and I attribute this largely to the widespread misconceptions regarding our monetary systems. This extends to the very highest levels of government...Positioning yourself for hyperinflation and a U.S. dollar collapse has been a recipe for disaster and will continue to be a recipe for disaster as debt deflation remains the single greatest risk to the global economy.

DEFLATIONARY RED FLAG; PRAGMATIC CAPITALISM; U.S. dollar.

Sun 2010-01-31 11:43 EST

Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009

In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we've observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980...the peak of the furious advance in S&P 500 driven by enthusiasm over "less bad" economic news, though with little proven economic strength. It was the last day of the 1980 bull market. The economy later proved to have been in a short lull within a double-dip recession, taking stocks to their final lows in 1982...One of the notable features of extreme overbought conditions is that investors rarely have much opportunity to get out...

2009; Hussman Funds; intermediate term; October 19; Overbought; stock market; weekly market comments.

Culture of Life News Mon 2010-01-04 16:52 EST

The Horrors Of The Carbon Trade Derivatives Beast

Elaine Supkis

There are many ways of fixing things. Using the right tools is important. The international bankers have chosen a very nasty tool for fixing both global warming and dealing with the Hubbert Oil Peak: wild derivative futures markets modeled on the goofy OTC --CDS market! The thing that just destroyed international banking. We mustn't forget that the reason we had a banking meltdown was due to the sudden climb in energy prices beginning with the invasion of Iraq.

Carbon Trade Derivatives Beast; Culture; horror; Life News.

naked capitalism Wed 2009-11-25 11:37 EST

Marc Faber: ``I don't think that you'll see gold below $1,000 per ounce probably ever''

Edward Harrison of Credit Writedowns

...cash is now trash with zero interest rates. So holding cash means underperforming. Bonds present an unfavourable risk/reward. Therefore, commodities and precious metals look attractive. One must also have equities exposure. Interestingly, he makes a fairly explicit statement in favour of peak oil from about 1:40 in the second video below. The world is adding less in oil reserves than it consumes. That necessarily means a tighter supply/demand dynamic, especially given the demand in emerging economies for oil.

000; 1; Marc Faber; naked capitalism; ounce probably; see gold; Think.

zero hedge Wed 2009-11-25 10:10 EST

Shadow Banking Topology

A new paper by the IMF provides much needed insights into the nature of Asset Backed Commercial Paper (ABCP) conduits, which amounted to $1.2 trillion in June 2007, a subset of the broader Commercial Paper shadow asset class (which as Bill Dudley discussed a week ago, hit a peak of $2.3 trillion), and the product's role in funding imbalances (and maturity mismatch) at global banks courtesy of the shadow banking system. However, the most useful observation of the paper's addenda include insights into the global shadow banking system's holdings, as well as its changing composition over time, the collapse of the ABS securitization market whose reincarnation via TALF is critical for preventing the CRE market's implosion in 2012, and lastly a comprehensive overview of the entire shadow banking system...

Shadow Banking Topology; Zero Hedge.

Thu 2009-11-19 10:12 EST

Business & Technology | Part one | Reckless strategies doomed WaMu | Seattle Times Newspaper

Drew DeSilver

In its headlong pursuit of growth, WaMu systematically dismantled or weakened the internal controls meant to prevent the bank from taking on too much risk -- the very standards and practices that had helped it grow in the first place. WaMu's riskiest loans raked in money from high fees, but because the bank skimped on making sure borrowers could repay them, they eventually failed at disastrously high rates. As loans went bad, they sucked massive amounts of cash that WaMu needed to stay in business. WaMu's subprime home loans failed at the highest rates in nation. Foreclosure rates for subprime loans made from 2005 to 2007 -- the peak of the boom -- were calamitous. In the 10 hardest-hit cities, more than a third of WaMu subprime loans went into foreclosure.

business; part; Reckless Strategies Doomed WaMu; Seattle Times Newspaper; Technology.

zero hedge Mon 2009-10-26 09:28 EDT

How The Federal Reserve Bailed Out The World

The Bank of International Settlements [BIS] just released a major paper titled "The US dollar shortage in global banking and the international policy response" which goes on to demonstrate just how it happened that Fed chief Ben Bernanke in essence bailed out the entire developed world, which was facing an unprecedented dollar shortage crisis due to the sudden implosion of FX swap lines and other mechanisms which until that point were critical in maintaining the dollar funding shortfall for virtually every foreign Central Bank...When the financial system almost imploded in the fall of 2008, one of the primary responses by the Federal Reserve was the issuance of an unprecedented amount of FX liquidity lines in the form of swaps to foreign Central Banks. The number went from practically zero to a peak of $582 billion on December 10, 2008. The number of swaps outstanding was almost directly inversely correlated with the value of the dollar...what happened is that short-term sources to sustain the massive dollar funding mismatch disappeared virtually overnight, and CBs were suddenly facing a toxic spiral of selling increasingly more worthless assets merely to satisfy currency funding needs in an environment where all of a sudden nobody was willing to provide FX swap lines...had the Fed not stepped in, the rest of the world...would have simply collapsed as the $6.5 trillion dollar funding gap closed in on itself, causing a indiscriminate selling off of all dollar denominated assets. The implosion of the basis trade would have seemed like a picnic compared to what was about to ensue had the Fed not stepped in to perpetuate the Fiat banking way of life.

Federal Reserve bail; world; Zero Hedge.

zero hedge Mon 2009-10-12 10:10 EDT

Albert Edwards Warns Of Western Authorities' Positioning For Dismal Failure, As US Becomes Japan Redux

Albert Edwards continues doling out common sense; everyone, and the market in particular, continues ignoring it...The post-bubble whiplash in the economic and profits cycle is exactly a replay of Japan?'s experience. They too had seen an extended period of strong and steady growth going into the peak of the bubble. It took many years, repeated painful lapses back into recession, and sharp declines in equity markets before investors fully de-rated valuations low enough to reflect a new new paradigm...To gauge whether the world economy can surprise and escape this balance sheet recession, keep a very close eye on the bank lending numbers.

Albert Edwards Warns; Becomes Japan Redux; dismal failure; positive; Western authorities; Zero Hedge.

The Baseline Scenario Thu 2009-10-08 16:52 EDT

The Problem with Securitization

James Kwak

The New York Times has a story on ``Paralysis in the Debt Markets'' which says, basically, that credit has dried up because of lack of demand for asset-backed securities. In English, that means that since no one wants to invest in securities that are made out of home mortgages, the people who originate mortgages have no place to sell the mortgages to, so they don't have any money to lend. And this is also true of commercial real estate, student loans, and so on. For example, ``A once-thriving private market in securities backed by home mortgages has collapsed, from $744 billion in 2005, at the peak of the housing boom, to $8 billion during the first half of this year.''...the private market may never recover. The boom in securitization was based on investors' willingness to believe what investment banks and credit rating agencies said about these securities.

Baseline Scenario; problem; securitizations.

The Big Picture Thu 2009-09-03 15:36 EDT

BLS Birth Death Conundrum ?

B/D defenders were horrifically wrong across the board about nearly everything -- about the housing crisis, the credit collapse, the recession, the market crash, and of course, the massive loss of jobs since hiring peaked late 2007-08...

Big Picture; BLS Birth Death Conundrum.

naked capitalism Wed 2009-08-26 16:18 EDT

Guest Post: A Plunge in Foreign Net Capital Inflows Preceded the Break in US Financial Markets

Jesse

Served by Jesse of Le Café Américain The peak of foreign capital inflows into the US was clearly seen in the second quarter of 2007, just before the crisis in the US that has rocked its banking system and driven it deeply into recession. Are the two events connected? Had the US become a Ponzi scheme that began to collapse when new investment began to wane, and the growth of returns could not be maintained? Watch the dollar and the Treasury and Agency Debt auctions for any further signs of capital flight, which is when those net inflows of foreign capital turn negative. And if for some reason the unlikely happens and it gains momentum, the dollar and bonds and stocks can all go lower in unison, and there...

break; financial market; Foreign Net Capital Inflows Preceded; Guest Post; naked capitalism; plunge.

ClubOrlov Wed 2009-08-26 13:53 EDT

The Slope of Dysfunction

kollapsnik

(Update: click here for a special version for the Nihonjin care of Masayuki.) Perhaps you have heard of the Peak Oil theory? Most people have by now, even the people whose job used to involve denying the possibility that global crude oil production would peak any time soon. Now that everybody seems a bit more comfortable with the idea, perhaps it is time to reexamine it. Is the scenario Peak Oil theoreticians paint indeed realistic, or is it firmly grounded in wishful thinking? Here is a typical, slightly outdated Peak Oil chart. I chose it because it looks pretty and conveys the typical Peak Oil message, which is that global crude oil (and natural gas condensate) production will rise to a lofty peak sometime soon, and then drift down...

ClubOrlov; dysfunctional; Slope.

Thu 2009-05-07 00:00 EDT

naked capitalism: Goldman: Global Oil Storage Capacity Could Be Filled by June

commenter Hugh: ``Oil in the short term was way overpriced (excess speculation) and in the long term absurdly underpriced (peak oil)''

fill; Global Oil Storage Capacity; Goldman; June; naked capitalism.

Tue 2008-09-02 00:00 EDT

naked capitalism: "Peak Oil!! Peak Inflation ?!? Peak Credit??"

naked capitalism; Peak Credit; Peak Inflation; Peak Oil.

Fri 2008-07-04 00:00 EDT

Peak Oil Debunked: 366. FUTURES PRICES DETERMINE PHYSICAL OIL PRICES

"Krugman and Birger are grossly misinformed about the way physical crude is actually priced in the global oil market."

366; Futures Prices Determine Physical Oil Prices; Peak Oil Debunked.

Wed 2008-07-02 00:00 EDT

Peak Oil Debunked: 365. MASSIVE DROP IN U.S. DEMAND IN APRIL

"supply outstripping demand theory of the feverish price action since March s emanating an extremely fish-like odor. U.S. demand down by a whopping 0.8mbd year-on-year."

365; April; massive drop; Peak Oil Debunked; U. S. demand.

Thu 2008-04-17 00:00 EDT

naked capitalism: The Rise of the Neo-Malthusians

Malthus suspension ending with peak oil?

naked capitalism; Neo-Malthusians; rising.

Wed 2008-03-26 00:00 EDT

naked capitalism: Wolf: Free Market Capitalism Just Passed Its Peak

"Bear Stearns bailout as the high water mark of free market capitalist ideology."

Free Market Capitalism Just Passed; naked capitalism; peak; Wolf.

Mon 2007-07-30 00:00 EDT

RGE - Are We at The Peak of a Minsky Credit Cycle?

Are We at The Peak of a Minsky Credit Cycle? by Nouriel Roubini; Minsky moment; credit bust

Minsky Credit Cycle; peak; RGE.

Wed 2007-05-16 00:00 EDT

The Oil Drum | Three Pieces of Peak Oil Media: Simmons/Kilduff and Pickens on CNBC on GAO/Peak Oil and Kunstler on Peak Oil and the Car Culture

(Kunstler mp3 talk)

cars culturally; CNBC; GAO/Peak Oil; Kunstler; Oil Drum; Peak Oil; Peak Oil Media; Pickens; pieces; Simmons/Kilduff.

Tue 2006-12-19 00:00 EST

Closing the 'Collapse Gap': the USSR was better prepared for peak oil than the US | EnergyBulletin.net | Peak Oil News Clearinghouse

Closing the 'Collapse Gap': the USSR was better prepared for peak oil than the US, by Dimitry Orlov | EnergyBulletin.net | Peak Oil News Clearinghouse

better prepared; closed; Collapse Gap; EnergyBulletin; net; Peak Oil; Peak Oil News Clearinghouse; USSR.

Thu 2006-02-16 00:00 EST

Join us as we watch the crisis unfolding by Kenneth S. Deffeyes

(peak oil production)

crisis unfolded; joining; Kenneth S. Deffeyes; watch.