28 replies to this topic

[NAV]

You alluded to this a few weeks back.

Frankly... I think you give these guys too much er uh "credit"

I think it's a continuation of their academic-oriented stupidity and lack of real World business experience.

Starting with underestimating subprime.

Their naive handling of Bear Stearns and Lehman.

Presenting the notion that the banks should be bailed out and indemnifying the parties and counterparties to the credit default swaps that resulted in the TARP program.

They have it all WRONG.


I think they are big on THEORY and light on REALITY.

And only understand running scared.


Burning Man should be FIRED.

He's NOT too big to fail.

Amen !

[arbman]

There are two discussions here, one about the micro-economy and the other one is about the macro-economy. The topic is about the macro-economy though. I think what's happening to the skilled workers and lack thereof are a completely different subject that happened as a result of a number of de-regulatory changes. Congress let the cheaper labor flood US and the US workers are asked to adapt despite a resource rich country. While this was possible at the beginning, eventually the smart money laid off all US workers and shipped out the work to the cheaper labor overseas, the rising cost of raw materials only accelerated this result. As a result, we need substantial erosion in the USD to become competitive again, but this only means less buying power and poorer middle class. These tie somewhat to macro-economy, but I see the main issue with the macro-economy as the leveraging problems during the credit bubble that cannot be safely unwound. These are the main issues Fed is trying to fix at the moment by keeping the rates very low across the board and hoping that another de-leveraging wave will not hit and instead a growth wave to support the higher rates will happen. They are trying to keep the economy somewhat going sideways without over-heating in inflation so that they don't have to adjust the short term rates higher, similarly they are also trying to aggressively print whenever the deflation risk increases. Yet, the printing is permanently adding more and more unproductive debt in this case as the correlation in between the new debt and the GDP growth are simply nonexistent.

[Iblayz]

Come drive through my office/warehouse complex and tell me that this plan is working. I counted the empty units in my building today and its still staggering. Its working for Wall Street but that will change. Men with grand schemes and theories are not going to beat the natural (and necessary) ebbs and flows of economies. The genius Greenspan waited a lifetime to test his theories and look what happened. Bernanke will be no different even though it will appear for a time that the man is a genius. Deja Vu. The bond market is already saying no to the grand schemes of the grand planner. The bond market always gets it before the stock market does.

[NAV]

There are two discussions here, one about the micro-economy and the other one is about the macro-economy. The topic is about the macro-economy though.

I think what's happening to the skilled workers and lack thereof are a completely different subject that happened as a result of a number of de-regulatory changes. Congress let the cheaper labor flood US and the US workers are asked to adapt despite a resource rich country. While this was possible at the beginning, eventually the smart money laid off all US workers and shipped out the work to the cheaper labor overseas, the rising cost of raw materials only accelerated this result. As a result, we need substantial erosion in the USD to become competitive again, but this only means less buying power and poorer middle class.

These tie somewhat to macro-economy, but I see the main issue with the macro-economy as the leveraging problems during the credit bubble that cannot be safely unwound. These are the main issues Fed is trying to fix at the moment by keeping the rates very low across the board and hoping that another de-leveraging wave will not hit and instead a growth wave to support the higher rates will happen. They are trying to keep the economy somewhat going sideways without over-heating in inflation so that they don't have to adjust the short term rates higher, similarly they are also trying to aggressively print whenever the deflation risk increases. Yet, the printing is permanently adding more and more unproductive debt in this case as the correlation in between the new debt and the GDP growth are simply nonexistent.

U.S will become competitive again, when Bernanke is fired and it's debt retired. Otherwise, U.S will become the 21 st century Britain, with two-income-horribly -poor-middle-class, extremely rich crony capitalist elites and a lower rung of society hanging on to the welfare state.

Edited by NAV, 20 January 2011 - 10:39 PM.

[BWTrader]

Thanks, Vic, I appreciate your thoughts. I guess the reason I replied was because I really think it is ridiculous & counter productive for the fed to be formulating monitary policy heavily weighting the unemployment rate. It won't hurt people to suffer for their poor judgement or even misfortune. Thinking of ourself as a victim does us no good whatsoever. If we think of ourself as a sucker then at least we question why or how we allowed ourself to be trapped in a bad predicament. The victim mentality is self-perpetuating whereas the sucker mentality prods us to better ourself so that bad things don't happen to us again. The fed is not doing the job they should be doing, IMO, and it is the congress' job to monitor them and make sure that they are. These are my thoughts anyway. As it appears it won't matter much longer anyway because things cannot go on the way they have been much longer. The financial house is beginnning to implode. Good trading to you! BW

[entre]

It's no secret the Fed wants the stock market to be where the hot money flows at the expense of commodities. What helps is the same primary dealers the Fed injects money directly to are those that employ marketmakers for all the major stocks. I remember describing the Fed as volatility killing more than anything so I'm not surprised that we just came off the least volatile week of trading since 1994. When you have one big buyer at regular intervals, that's what one should expect. It's also no secret that Bernanke thinks he can "manufacture" the stock market, and has no ethical qualms about doing so. Bernanke is a smart guy but he is a mechanical thinker. He has no doubt thought of what was mentioned, but I think he is screwed more than he realizes. He doesn't have the support from the world community and foreign central banks to do another batch of quantitive easing after this 600 billion runs out late second quarter. He has all his eggs in one basket that between now and mid-year, corporations will start capital spending. Why corporations would choose to expand operations when they know the Fed will be finished by mid-year is beyond me. If they haven't open the spigots for the past two years, why would they do it in the next several months? The reverse wealth effect from an immediate stock market decline would prove it to be very poor timing. In most situations, there is a lag time between the Fed ceasing injections and the market going down due to self-sustaining economic strength. But this is clearly not one of those situations with how the Fed knows they have to support the market directly. I also think Bernanke is underestimating the decline if the "props" are removed from the stock market. If he drains that last 600 billion, the market will fall farther than where it was when he decided to inject that 600 billion in the first place. That's the price for the market being addicted to Fed crack. Greenspan understood the value of "surprising" the market. I remember the Fed announcing surprise rate cuts on option expiration fridays. Bernanke is less creative there. The one thing you don't want to do is become predictable, and Bernanke has made the Fed very predictable. If he thinks he can wean off the injections and get an orderly decline, I think he has gravely miscalculated. Only around 400 billion left to inject. With how addicted the market is to Fed money, that's not a lot. What would change my opinion is if the Fed announced QE 3.0 to take place just after that 400 billion ran out. But I doubt that's possible due to the political reality, let alone higher oil prices.

[pdx5]

Asia is on verge of creating 1,000,000,000 middle class people. (1 Billion). 10 years ago that number was somewhere near 100 Million. China now has more millionaires than United Kingdom! That is why corporate earnings are growing. More and more corporations are making their profits outside of United States. The American economists have not quite caught on to the changed paradigm. Any theory which worked 20 years ago does not apply any more. Hyper Inflation can not take hold until wages in China & India catch up to US. Bernanke can't print money fast enough to soak up all the goods and services Asia can deliver. I chuckle everytime Americans are perplexed why inflation is benign in spite of QE2 and all the printing presses. They need to get on a plane and travel to Asia.

[pdx5]

Millionaires in China:
http://www.telegraph...first-time.html

Industrial progress in India:
http://www.youtube.c...feature=related

[OEXCHAOS]

Really good comments. My only real add on is in two points: 1) This may not work or work out as expected (the latter is almost inevitable). 2) What disturbs me most is what these folks will try to do afterward if it DOES work. Mark

[Om_Namah_Shivay]

Millionaires in China:
http://www.telegraph...first-time.html

Industrial progress in India:
http://www.youtube.c...feature=related

My two bits to the discussion- I agree with Semi that we are giving to much credit to Fed. They are doing what they are doing assuming they can direct capital to flow where they want/intend.
I think Armstrong describes it the best that this is going to be a simple case of capital flowing from Public assets to Private assets. In this background I see the market path as following
a) Now that bullishness is at its peak with commodities boiling over on strong US rebound will burn and crash (expecting~20% correction in SPX, GOLD, Metals) by end of first half of this year
DXY will bounce to its long term upper channel and bonds will form a long term top
c) What will follow will be a long hibernation period of bears and an ecstatic bullishness (expecting same structure as 2004-2007)

This will be most satisfying outcome for Fed and they would assume job well done and lower their guard. What will follow will be interesting wait and watch!!
And so its going to be long wait for bears after little bit of sunshine by middle of 2011. Enjoy the sunshine while it last, and get ready to ride the bull thereafter:)