Baseball91's Weblog

October 2, 2009

48 Hours

Letterman Hush money.

The Telegraph had the news of David Letterman’s revelation that he had sexual relationships with female employees of his show. Letterman said after his monologue last night on the air that he had received a demand by an alleged extortionist, according to CBS an employee of “48 Hours,” to either pay $2 million or risk his relationships being made public.

Letterman’s own production company according to the Los Angeles Times, does have a sexual harassment policy in place which does not prohibit sexual relationships between managers and employees, said a spokesman for Worldwide Pants.

After making a living off as a comic over Monica Lewinsky and Eliot Spitzer jokes, Letterman put the spin that the real story was about extortion, and the “threat” to him over his “creepy behavior.” According to Nick Allen of the The Telegraph.co.uk, during the CBS “Late Show with David Letterman,” Letterman revealed earlier that day he appeared before a grand jury about an alleged extortion attempt connected to his sexual liasons with women who worked for him which would clearly involve issues of sexual harassment in his admitted “creepy stuff…relationships.”

The Manhattan District Attorney Robert Morgenthau, with a perceived timing orchestrated by Worldwide Pants, held a press conference within 14 hours to announce the specifics, revealing charges brought against CBS News producer Robert “Joe” Halderman.

Worldwide Pants. Caught without their pants on. “We have a written policy in our employee manual that covers harassment. It is circulated to every employee every year. Dave is not in violation of our policy and no one has ever raised a complaint against him.” So said the statement. Letterman’s own production company. Letterman did not believe in sexual harassment? He was an agnostic when it came to sexual harassment? What about the people who did not get the promotions that his staffers got in the Worldwide Pants world?

Thursday CBS said the “48 Hours” employee charged with attempted grand larceny was suspended from his job. Manhattan District Attorney Robert Morgenthau in a press conference revealed the charges against CBS News producer Robert “Joe”Halderman. Mr. Halderman has not gotten the same public forum to address the world that Letterman was given about his alleged wrong doing. There also was no word on how CBS was dealing with the issues of sexual harassment, if corporate policy was violated. What a time for those human resource staffers. Apparently CBS feels extortion from an entertainment star was a worse offense than sexual harassment of female staffers, or the collateral damage of sexual harassment.

Fox News New York has reported that according to a search warrant, Robert “Joe” Halderman’s girlfriend Stephanie Birkitt was one of the women that Letterman slept with. According to Fox News New York, Ms. Birkitt is Letterman’s former assistant. Fox News New York has reported that the search warrant states the package Halderman sent Letterman contained copies of parts of Stephanie Birkitt’s diary and correspondence.

Entertainment Tonight showed later featured appearances of Stephanie Birkitt over the years on “Late Show with David Letterman” from venues like the Winter Olympics.

Letterman was quoted on his show as saying: “I was worried for myself. I was worried for my family. I felt menaced by this. And I had to tell them all of the creepy things that I had done.

According to Nick Allen of the The Telegraph.co.uk, “The creepy stuff was that I have had sex with women who work for me on this show.”

Letterman described how three weeks ago he had got in his car early in the morning, found a letter within a package saying: “I know that you do some terrible, terrible things and that I can prove you do some terrible things.” The package contained the proof, Letterman said. He called his lawyer to set up a meeting with the alleged extortionist, with two subsequent meetings, the last one resulting in the delivery of the fake check. Robert “Joe” Halderman allegedly had threatened to write a screenplay and a book about him unless Halderman was given money.

According to Nick Allen, Letterman admitted on Late Night Show Thursday night to having “had sex with women who work with me on this show. My response to that is yes, I have. Would it be embarrassing if it were made public? Yes, it would. Especially for the women.”

According to Nick Allen of the The Telegraph.co.uk, after telling all to his audience Letterman lightened the mood. “I know what you’re saying. I’ll be darned – Dave had sex.”

So it was about hush money? The bizarre experience? The audience had scattered laughter throughout the confession.

Yeah. On with the show.

“It’s been a very bizarre experience. I felt like I needed to protect these people. I need to protect my family. I need to protect myself. Hope to protect my job.”

The bizarre experience! For the audience. An inappropriate place to make the revelation, by a host with an inappropriate sensibility about himself. A repeat offender. Someone who had to be making overtures. But on with the show. Before we gave it all too much thought. One-liners.

It might be a while before the president is going to be booking an appearance again.

Maybe Bill Clinton will show up next week to offer some support. Or guest Host Elliot Spitzer? What a time for those staffers trying to line up guests for next week.

The age of television. Performance enhancement egos and salaries. As people get bigger than the game, over time.

November 15, 2014 Post Script:
dateline NEW YORK – Bill Cosby’s upcoming appearance on CBS’ “Late Show with David Letterman” has been canceled amid a growing uproar over allegations that he sexually assaulted several women in past decades.
 

I originally thought that even five years later, Bill Cosby was showing the high road, refusing to appear with David Letterman over the clear violations of sexual harassment at the Letterman-owned World-Wide Pants Production Company. It had been on Mother’s Day ten years ago that I heard Bill Cosby calling for African-American men to marry the women that they impregnated and to become involved in the lives of their children. With the unusual increase in readership in the past few days of this blog posting, it is worth remembering that the Telegraph story first mentioned that Letterman’s revelation was that he had sexual relationships with female employees — plural — of his show. And what is common in both long-time shows is that the stars had successful production companies, to keep control of their worlds — as Bill Cosby came to own 33 percent of Carsey-Werner Productions, the vanguard independent production company which resisted affiliation with a major network or distributor that continues to hold the rights to the brand name of the show still in world-wide syndication. In the era of free agents, as those show business stars get bigger than the game, in this era of Vigara sponsorship of prime time television, in the era of net neutrality, those production companies have a way of controlling the spotlight; the spotlight however is not on the aging host of late night television but on an older star. Somehow in old age, Cosby has not been able to side-step the criticism of the media that David Letterman had been so apt to do, with the help of the Manhattan District Attorney, on issues not much different than sex trafficking in any form, or in allegations made and proven against Thomas Jefferson.

The ‘reserve clause’ was still around in the new system like at Carsey-Werner. Belief that is spread by behavior. As your belief that you owned your employees was replaced in a world with lost belief, with no “reserve.”

Ironically, this had all started as Cosby solicited from the public their memes. A meme acts as a unit for carrying cultural ideas, like the one described “in order to form a more perfect union.” According to Wikipedia, a meme “becomes a behavior that spreads from person to person within a culture.”

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August 2, 2009

Those Dog Days of August

 
 
There was a true revolution in the world markets last September that anyone buying stocks last week seems to have missed. The new world order was now all about social engineering on capitalism. It was only the start, back in September. Bill Gross is the Warren Buffet of the bond market and his PIMCO website with current outlook is must reading.

The Two Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash is by Charles R. Morris, a former banker who “comes to his conclusions based on objectivity, knowledge, and lucid thought.” He wrote this book before the 2008 market collapse which I have not read. I have however read a few pieces by Mr. Morris over the last 12 months, as he is on occasion featured in the Jesuit magazine America.


Credit is the air that financial markets breathe, and when the air is poisoned, there’s no place to hide.” –
Charles R. Morris

With an estimate that 20% of the population was really unemployed, there is no reason for the optimism reflected at July’s end in the Wall Street indexes. The procedure for identifying ends of a recession is by looking at when the contraction ends. Per the Wall Street Journal, “The elements that will drive a recovery –rising wages, consumer demand, production and sales — haven’t appeared.”

Government fears throughout the world are that of deflation, because they have no arrows in their quiver to fight it, when it occurs. Paul Virgen wrote on July 31st in the Wall Street Journal that economists surveyed by Dow Jones Newswires estimate the Commerce Department’s GDP report later today likely would show a contraction of about 1.5% for the second quarter, a less-severe decline than the first quarter’s 5.5% figure.

For me the word contraction is a synonym for “DEFLATION.”

Credit markets froze between September 15th and October 7th when Congress was voting on bailouts, while the battle of ideology was going on between the credit markets and the equity markets as reflected in the spread of about 3.0 percent in the LIBOR rate which one bank charged another bank. That is 3.0 higher than the Fed rate at the time, an unheard of differential. Banks in that environment, no matter the moves put on by the Treasury, were not buying in to the bailout in October 2008. When everything was overvalued, why lend money? So government came to the rescue. Because of government fear about DEFLATION.

I continue to live in a neighborhood where real estate values have barely budged, where the bubble has not burst. The American illusion persists. About values.

Read the current Atlantic Monthly piece about Dr. Doom. Learn about the economist, Hyman Minsky. Read Paul Krugman’s piece now 4 years old. ‘The news that the US housing bubble is over won’t come in the form of plunging prices….” He won the last Pulitizer prize in economics.
http://www.nytimes.com/2005/08/08/opinion/08krugman.html?scp=1&sq=That%20Hissing%20Sound%20&st=cse

http://www.theatlantic.com/doc/200907/roubini

http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2009/Global+Central+Bank+Focus+May+2009+Shadow+Banking+and+Minsky+McCulley.htm

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+Dow+5000+Gross+Dec+08.htm

http://www.marketwatch.com/story/riding-the-rollercoaster-at-cramer-berkowitz

http://www.marketwatch.com/story/investing-rules-for-the-end-of-civilization-2009-07-28

On May 2009, Paul McCulley of PIMCO wrote, “The longer people make money by taking risk, the more imprudent they become in risk-taking. While they’re doing that, it’s self-fulfilling on the way up. If everybody is simultaneously becoming more risk-seeking, that brings in risk premiums, drives up the value of collateral, increases the ability to lever and the game keeps going. Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about.”

Hyman Minsky was an economist who has gained a lot of disciples over the past few years. He wrote about bubbles that occur in an economy. He theorized that a bubble begins with displacement caused by a significant invention, like the internet. A displacement creates profitable opportunities in any given affected sector but, rather than invention alone, financial innovation is necessary for access to cheap credit before a kick-off to an over-trading phase. Euphoria ensues as people pile into the sector, with a driving demand to affect higher prices, often with borrowed money. Ponzi’ investors join in speculation that someone will buy their assets at higher prices. But markets eventually, whether due to lenders tightening lending criteria or insiders selling out, hit a peak. Panic then sets in. With a stampede out of the market, bankruptcies ensue.

That was why credit markets froze in September 2008. Bankers who have always been conservative. Do you know any? They were not buying into the social engineering on capitalism. There was a revolution in capitalism with this bailout. No one wanted to purchase shares in these banks that were illiquid. Based on the value of real estate, there was a bubble. A huge illusion about valuations of homes. The banks owned all the real estate. And it is said that the banks in Europe were in worse shape. In September 2008, bankers neither trusted the balance sheet of another bank nor the government. Thus the state of the credit markets. Bankers understood too well the persisting illusion.

By the end of October 2008, more than half of the U.S. banks were pretend banks. With no capital. Citibank. Bank of America. Wachovia. The bailout has worked to avoid an immediate collapse that would have had consequences worse than in Russia in 1906. Or in Russia in 1917. The panic, the revolution did not occur as a result of a couple years of events. Immediately.

“If drugs continue to be injected which mask symptoms rather than address the disease (medicine in the form of debt destruction), the likelihood of a seismic readjustment increases in kind, writes Todd Harrison, about the dollar. “As governments take on more risk” as they price assets on behalf of the market and transfer debt from private to public, “the common denominator, or release valve, becomes the currency.”

Some facts:

World GDP $47 trillion
World stock valuation $121 trillion
Bond market $85 trillion
Credit derivatives $473 trillion

There would be turmoil in currencies in the coming year as a consequence of the political fallout over American debt, before this was over. It was all because there was $460 trillion to $560 trillion in derivatives, and there is not enough money in the world to keep the system of capitalism going. The social engineering last September was all about government trying to keep capitalism going. Those derivatives, not backed up by reserves. When the laws of survival of the fittest in the market place had been always about letting systems collapse.

These news items in July 2009 you might have missed:

“Joining the growing chorus questioning the U.S. dollar’s unofficial position as global reserve currency, in India, chairman of the Prime Minister’s Economic Advisory Council, Suresh Tendulkar, is urging India to diversify its foreign-exchange reserves and hold fewer dollars,” according to Bloomberg News.

“Zeng Peiyan, the head of China Center for International Economic Exchanges and the former Chinese Vice-Premier, in a speech in Beijing on Friday called for a new system to ensure the stability of the major reserve currencies,” the China Daily reported.

“To prevent speculative and manipulative attacks on their currencies, the world’s central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world’s central banks to acquire and hold more dollar reserves, making it stronger.” –2008 piece by Henry Liu

“Tensions mounting between the People’s Bank of China’s economic concerns over China’s holdings of dollars, with the earlier call by central bank chief Zhou Xiaochuan for the development of a new super-sovereign currency largely taking the place of the dollar, and the Chinese government, with their “diplomatic reasons” for toning down their criticism, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange. The Chinese government is still more happy to play to the tune of the Bernanke-Geithner camp which sees leaning against the wind in order to protect the U.S. dollar as a necessary evil,” Gallo said.”

And in April 2009, the head of the China Banking Regulatory Commission issued a statement published on its website that banks need to guard against making risky loans and instead focus more on sustainable lending practices. Banks must be “on high alert for the accumulation of hidden risks as loans surge,” Liu Mingkang said. According to published reports in remarks made at the Boao Forum for Asia, Chinese Premier Wen Jiabao last spring called for more surveillance of countries that issue major reserve currencies. That would be the United States. This statement comes on the heels of discussion at the G20 meeting of a new world currency. There is growing distrust of America and the politics involved in our currency. Last spring in an essay published on the central bank’s web site, the head of the People’s Bank of China, Zhou Xiaochuan, proposed the creation a new international reserve currency. Seeking to expand currency swap agreements that are seen as a step toward eventually making the yuan more of a global reserve asset, Wen said, “We should give full play to bilateral currency swap agreements and will study expanding currency swaps in scale and to more countries.”

“There is no chance that a nation as reputationally scarred and maimed as the US is today, could extract any true ‘alpha’ from foreign investors for the next 25 years or so. So the US will have to start to pay a normal market price for the net resources it borrows from abroad. It will therefore have to start to generate primary surpluses, on average, for the indefinite future. A nation with credibility as regards its commitment to meeting its obligations could afford to delay the onset of the period of pain. It could borrow more from abroad today, because foreign creditors and investors are confident that, in due course, the country would be willing and able to generate the (correspondingly larger) future primary external surpluses required to service its external obligations. I don’t believe the US has either the external credibility or the goodwill capital any longer to ask, Oliver Twist-like, for a little more leeway, a little more latitude. I believe that markets – both the private players and the large public players managing the foreign exchange reserves of the PRC, Hong Kong, Taiwan, Singapore, the Gulf states, Japan and other nations – will make this clear.

“Keynesian demand stimulus may work for a while (a couple of years, say). When the consequences for the public debt of both the Keynesian stimulus and the realization of the losses from the assets and commitments the Fed and the Treasury have taken onto their balance sheets become apparent, the demand stimulus will fade and may be reserved as precautionary behavior takes over in the private sector. My recommendation is to go easy on the fiscal stimulus. The US government is ill-placed financially and fiscally, to engage in short-term fiscal heroics. All they can really do is pray for a stronger-than-expected revival of global demand, without any major stimulus from the US.” -Willem H. Buiter of the European Institute, Professor of European Political Economy, London School of Economics and Political Science

William McChesney Martin was the Fed’s chairman from 1951 through 1970. Martin said his job as central-bank chief was “to take away the punchbowl just as the party gets going” to keep the economy from overheating. Paul McCulley said that the government’s efforts to aid financial firms in effect are reversing this well-known quip. “Now they are actually creating ‘punchbowl banks’ where you have the equity coming in from the Treasury,” McCulley said. “They are de facto banks owned by the Treasury and funded by the Fed. If the U.S. is putting its ‘full faith and credit’ behind the liabilities of the various financial institutions, then I want to be a co-investor with Uncle Sam, which is another way of saying I want to invest with the American taxpayer. It sounds a little like socialism only because it is.” The government’s attempts to revive lending have led policy makers to use taxpayer money to recreate “the shadow banking system,” he said.

According to Pimm Fox and Daniel Kruger, “So far, that has included expanding the Fed’s assets to $2.2 trillion, injecting $270 billion of capital into what Paul McCulley called ‘punchbowl banks,’ and promising to buy $600 billion in mortgage securities related to government-sponsored enterprises.” The government’s attempts to revive lending have led policy makers to use taxpayer money to recreate “the shadow banking system,” he said. Before the start of the financial crisis in August 2007, that comprised institutions which lacked access to the Fed’s discount window and whose customer accounts were not insured by the Federal Deposit Insurance Corp.

So that 12 months later, we are all back to where the world was, with just a little more transparency, recreating “the shadow banking system.”
 
Money always seemed to affect the outcome of elections.

In June 2009 there was a summit of the world’s four largest emerging economies, as leaders from of China, India Russia, and Brazil met in Yekaterinburg, Russia to discuss reforming the global financial system and lessening reliance on the United States. These four countries hold nearly 40 percent of the world’s currency reserves and make up 15 percent of the global economy.

A joint BRIC (Brazil, Russia, India, China) statement issued before the summit expressed a commitment to advance the reform of international financial institutions so as to reflect changes in the world economy. The statement said. “The emerging and developing economies must have a greater voice and representation in international financial institutions,” calling for a greater role for developing nations in global financial institutions and the United Nations. Leaders discussed investing their reserves in one another’s bonds, swapping reserve currencies and increasing the role of Special Drawing Rights, an international reserve asset. Discussions took place earlier in the day in the Urals city at a meeting of the Shanghai Cooperation Organization about the creation of a supranational currency and lessening global reliance on the U.S. dollar. President Dmitry Medvedev was an outspoken a critic of the current world financial system, reserving his most bold comments for the Shanghai Cooperation Organization. “There cannot be a successful global currency system if the financial instruments it uses are denominated in only one currency, which is the case today. And that currency is the dollar.”

But the idea of replacing the dollar found little traction with China, which holds $2 trillion in foreign currency reserves.

Other notable quotes this year, not dealing with currency:

“With stocks tied to bonds, bonds tied to housing, housing tied to the credit crisis, and everyone hitched to the government, this was all like the conga line to the poor house.” -Craig Rappaport, wealth manager at Janney Montgomery Scott

Bob Prince hedge fund manager of Bridgewater Associates, on downward spirals: “The pressure on corporate margins is now passing through to employment cuts. Employment cuts will reduce incomes which will raise defaults. Rising defaults will hinder bank capital adequacy, which will constrain credit growth, which will slow spending, which will hurt profit margins, then employment. This chain of events was virtually sealed when demand dropped off the table in October, although it was highly probable earlier this year when credit conditions deteriorated rapidly. We are now in the middle of it and there really isn’t much that anyone can do besides hang on.”

“My transgenerational stock market outlook is this: stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past not our future. More regulation, lower leverage, higher taxes, and a lack of entrepreneurial testosterone are what we must get used to – that and a government checkbook that allows for healing, but crowds the private sector into an awkward and less productive corner. Dow 5,000? We don’t have to go there if current domestic and global policies are focused on asset price support and eventual recapitalization of lending institutions. But 14,000 is a stretch as well. One only has to recognize that roughly 20% of bank capital is now owned by the U.S. government and that a near proportionate share of profits will flow in that direction as well. Better to own corporate bonds than corporate stocks, but that’s a story for another Investment Outlook.” -William H. Gross , Managing Director, PIMCO, December 1, 2008

Bill Gross, in October 2008: “What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August 2007.

I have never taken creative accounting….full disclosure. But anyone who was investing might recognize that the greatest opportunity to make money is now in the credit markets and not equities.

Now about the political consequences over the social engineering on capitalism which would be studied in history books in a thousand years, if the world survived this mess……. oh, that’s another lecture.

July 25, 2009

The Minsky Watch

There has been a lot of public discourse over the last year of systemic risk without any real systemic re-pricing of risk in my neighborhood, which would have a deflationary affect. Now my home is located within a few blocks of some famous people, like Joe Mauer and Garrison Keiller. From my own research, the homes around here have barely budged in valuation over the past year. Home now selling for $575,000 that would not have brought $325,000 since the time I moved into the neighborhood in the 1990s. In times when the financial system economy was not overlooking the precipice, trapped in a classic debt-deflation cycle as it seemed now in which falling asset prices and declining consumer demand transmit deflation through the economy. It had not really happened much yet in my neighborhood.

A number of publications have referred to real unemployment to be near 20%, despite the $787 billion stimulus package. State budgets are drowning in red ink, soon to deepen with jobless claims and Medicaid bills, hesitant to spend consumers as paychecks shrink and jobs disappear. I would not be buying stocks with this kind of economic forecast, yet this week the indexes on Wall Street sprouted up like Iowa corn.

The speculators still abound. People who are gambling with their money in these times, as they had gambled turning real estate in this decade. In May 2009, Paul McCulley of PIMCO wrote, “The longer people make money by taking risk, the more imprudent they become in risk-taking. While they’re doing that, it’s self-fulfilling on the way up. If everybody is simultaneously becoming more risk-seeking, that brings in risk premiums, drives up the value of collateral, increases the ability to lever and the game keeps going. Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about.”

Hyman Minsky is an economist who has gained a lot of disciples over the past few years. He wrote about bubbles that occur in an economy. He theorized that a bubble begins with displacement caused by a significant invention like the internet. A displacement creates profitable opportunities in any given affected sector but, rather than invention alone, financial innovation is necessary for access to cheap credit before a kick-off to an over-trading phase. Euphoria ensues as people pile into the sector, with a driving demand to affect higher prices, often with borrowed money. Ponzi’ investors join in speculation that someone will buy their assets at higher prices. But markets eventually, whether due to lenders tightening lending criteria or insiders selling out, hit a peak. Panic then sets in. With a stampede out of the market, bankruptcies ensue.

James Fallow’s opening paragraph in this months Atlantic Monthly is: “On March 28, 2007, Federal Reserve Chairman Ben Bernanke appeared before the congressional Joint Economic Committee to discuss trends in the U.S. economy. Everyone was concerned about the ‘substantial correction in the housing market,’ he noted in his prepared remarks. Fortunately, ‘the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.’ Better still, ‘the weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant extent to other sectors of the economy.’ On that day, the Dow Jones industrial average was above 12,000, the S&P 500 was above 1,400, and the U.S. unemployment rate was 4.4 percent. That assurance looks bad in retrospect, as do many of Bernanke’s claims through the rest of the year: that the real-estate crisis was working itself out and that its problems would likely remain ‘niche’ issues. If experts can be this wrong—within two years, unemployment had nearly doubled, and financial markets had lost roughly half their value—what good is their expertise? And of course it wasn’t just Bernanke, though presumably he had the most authoritative data to draw on. Through the markets’ rise to their peak late in 2007 and for many months into their precipitous fall, the dominant voices from the government, financial journalism, and the business and financial establishment under- rather than overplayed the scope of the current disaster.”

Paul McCulley delivered a speech to the 17th Annual Hyman Minsky Conference on April 17, 2008. He stated, “Since August 2007, the shadow banking system – defined as any levered lender who does not have access to (1) deposit insurance and/or (2) the Fed’s discount window – experienced a modern-day run, with asset-backed commercial paper holders refusing to roll over their paper. It has not been fun. It has not been pretty.” And he saw that it was not over, as the ensuing 15 months proved. Whereas James Fallow cited Federal Reserve Chairman Ben Bernanke discussion of trends in the U.S. economy on March 28, 2007, Paul McCulley of PIMCO on April 17, 2008, 25 weeks before the Lehman Brother collapse, talked about a lot of things that Bernanke publicly was oblivious to.

Paul McCulley of PIMCO wrote on April 17, 2008: “Which brings us back to where I began: Minsky’s insight that financial capitalism is inherently and endogenously given to bubbles and busts is not just right, but spectacularly right. And when the financial regulators are not only asleep but actively cheerleading financial innovation outside their direct purview, a disaster is in the making, as the last year has taught us. We have much to learn and relearn from the great man as we collectively restore prudential common sense to bank regulation – both for conventional banks and shadow banks.

In May 2009, Paul McCulley wrote, “Human nature is inherently pro-cyclical, and that’s essentially what the Minsky thesis is all about. He says ‘from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system’s reactions to a movement of the economy amplify the movement – inflation feeds upon inflation and debt-deflation feeds upon debt-deflation.'”

Paul McCulley on April 17, 2008: “Whatever moment you pick for the Moment, we have since been traveling the reverse Minsky journey: moving backward through the three-part progression, with asset prices falling, risk premiums moving higher, leverage getting scaled back and economic growth getting squeezed. Minsky’s Ponzi debt units are only viable as long as the levered assets appreciate in price. But when the price of the assets decline, as we’ve seen in the U.S. housing market, Minsky tells us we must go through the process of increasing risk-taking in reverse – with all its consequences.

“The recent Minsky moment comprised three bubbles bursting: in property valuation in the U.S., in mortgage creation, again, principally in the U.S., and in the shadow banking system, not just in the U.S. but around the world. The blowing up of these three bubbles demanded a systemic re-pricing of all risk, which was deflationary for all risk asset prices. These developments are, as Minsky declared, a prescription for an unstable system – to wit, a system in which the purging of capitalist excesses is not a self-correcting therapeutic process, but a self-feeding contagion: debt deflation.

“Fittingly, the last debt unit on the forward Minsky journey is called a Ponzi unit, defined as a borrower who has insufficient cash flow to even pay the full interest on a loan, much less pay down the principal over time. Now, how and why would such a borrower ever find a lender to make him a loan? Simple: as long as home prices are universally expected to continue rising indefinitely, lenders come out of the woodwork offering loans with what is called negative amortization, meaning that if you can’t pay the full interest charge, that’s okay; they’ll just tack the unpaid amount on to your principal. At the maturity of the loan, of course, the balloon payment will be bigger than the original loan.

“As long as lenders made loans available on virtually non-existent terms, the price didn’t really matter all that much to borrowers; after all, housing prices were going up so fast that a point or two either way on the mortgage rate didn’t really matter. The availability of credit trumped the price of credit. Such is always the case in manias. It is also the case that once a speculative bubble bursts, reduced availability of credit will dominate the price of credit, even if markets and policymakers cut the price. The supply side of Ponzi credit is what matters, not the interest elasticity of demand.

“Clearly the explosion of exotic mortgages in recent years have been textbook examples of Minsky’s speculative and Ponzi units. But they seemed okay, as long as expectations of stably rising home prices were realized. Except, of course they cannot forever be realized. At some point, valuation does matter! How could lenders ignore this obvious truth? Because while it was going on, they were making tons of money. Tons of money does serious damage to the eyesight. And our industry’s moral equivalent of optometrists, the regulators and the rating agencies, are humans too.

“As long as the forward Minsky journey was unfolding, rising house prices covered all shameful underwriting sins. Essentially, the mortgage arena began lending against asset value only, rather than asset value plus the borrowers’ income. The mortgage originators, who were operating on the originate-to-distribute model, had no skin in the game – no active interest – because they simply originated the loans and then repackaged them.
But who they distributed these packages to, interestingly enough, were the shadow banks. So we had an originate-to-distribute model and no skin in the game for the originator, and the guy in the middle was being asked to create product for the shadow banking system.

“The system was demanding product. Well, if you’ve got to feed the beast that wants product, how do you do it? You have a systematic degradation in underwriting standards so that you can originate more. But as you originate more, you bid up the price of property, and therefore you say, “These junk borrowers really aren’t junk borrowers. They’re not defaulting.” So you drop your standards once again. And you take prices up. And you still don’t get a high default rate. The reason this system works is that you, as the guy in the middle, had somebody bless it: the credit rating agencies. A key part of keeping the three bubbles (property valuation, mortgage finance and the shadow banking system) going was that the rating agencies thought the default rates were low because they were low. But they were low because the degradation of underwriting standards was driving up asset prices.

“Both regulators and rating agencies were beguiled by very low default rates during the period of soaring home prices. It all went swimmingly, dampening volatility in a self-reinforcing way, until the bubbles created by financial alchemy hit the fundamental wall of housing affordability.

“Ultimately, fundamentals do matter! We have a day of reckoning, the day the balloon comes due, the margin call, the Minsky Moment.

“If the value of the house hasn’t gone up, then Ponzi units, particularly those with negatively-amortizing loans, are toast. And if the price of the house has fallen, speculative units are toast still in the toaster. Ponzi borrowers are forced to “make position by selling out position,” frequently by stopping (or not even beginning!) monthly mortgage payments, the prelude to eventual default or jingle mail. Ponzi lenders dramatically tighten underwriting standards, at least back to Minsky’s speculative units – loans that may not be self-amortizing, but at least are underwritten on evidence that borrowers can pay the required interest, not just the teaser rate, but the fully-indexed rate on ARMs.
From a microeconomic point of view, such a tightening of underwriting standards is a good thing, albeit belated. But from a macroeconomic point of view, it is a deflationary turn of events, as serial refinancers, riding the back of presumed perpetual home price appreciation, are trapped long and wrong. And in this cycle, it’s not just the first-time homebuyer that is trapped, but also the speculative Ponzi long: borrowers who weren’t covering a natural short – remember, you are born short a roof over your head, and must cover, either by renting or buying – but rather betting on a bigger fool to take them out (“make book”, in Minsky’s words). The property bubble stops bubbling and when it does, both the property market and the shadow banking system go bust.

“The asset class imploded violently, when the conventional basis of valuation was undermined for the originate-to-distribute (to the shadow banking system) business model.

“And the implosion was on Wall Street and next on Main Street, with debt-deflation accelerating in the wake of a mushrooming mortgage credit crunch, notably in the subprime sector, but also up the quality ladder. Yes, we are now experiencing a reverse Minsky journey, where instability will, in the fullness of time, restore stability, as Ponzi debt units evaporate, speculative debt units morph after the fact into Ponzi units and are severely disciplined if not destroyed, and even hedge units take a beating. The shadow banking system contracts implosively as a run on its assets forces it to delever, driving down asset prices, eroding equity – and forcing it to delever again. The shadow banking system is particularly vulnerable to runs – commercial paper investors refusing to re-up when their paper matures, leaving the shadow banks with a liquidity crisis – a need to tap their back-up lines of credit with real banks or to liquidate assets at fire sale prices. Real banks are in a risk-averse state of mind when it comes to lending to shadow banks, lending when required by backup lines but not seeking to proactively increase their footings to the shadow banking system but, if anything, reduce them. Thus, the mighty gulf between the Fed’s liquidity cup and the shadow banking system’s parched liquidity lips.

“The entire progression self-feeds on the way down, just like it self-feeds on the way up. It’s incredibly pro-cyclical. The regulatory response is also incredibly pro-cyclical. You have a rush to laxity on the way up, and you have a rush to the opposite on the way back down. And essentially, on the way down, you have the equivalent of Keynes’s paradox of thrift – the paradox of delevering. It can make sense for each individual institution, for a shadow bank or even a real bank, to delever, but collectively, they can’t all delever at the same time.

“Along the way, policymakers slowly have recognized the Minsky Moment followed by the unfolding reverse Minsky journey. But I want to emphasize “slowly,” as policymakers, collectively, tend to suffer from more than a thermos full of denial. Part of the reason is human nature: to acknowledge a reverse Minsky journey, it is first necessary to acknowledge a preceding forward Minsky journey – a bubble in asset and debt prices – as the marginal unit of debt creation morphed from hedge to speculative to Ponzi. That is difficult for policymakers to do, especially ones who claim an inability to recognize bubbles while they are forming and, therefore, don’t believe that prophylactic action against them is appropriate. But framing policies to mitigate the damage of a reverse Minsky journey requires that policymakers openly acknowledge that we are where we are because they let the invisible, if not crooked, hand of financial capitalism go precisely where Professor Minsky said it would go, unless checked by the visible fist of counter-cyclical, rather than pro-cyclical, regulatory policy.

“That’s not to say that Minsky had confidence that regulators could stay out in front of short-term profit-driven innovation in financial arrangements. Indeed, he believed precisely the opposite. Minsky wrote these words in 1986:

“In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the structure of portfolios from occurring. What they can do is keep the asset-equity ratio of banks within bounds by setting equity-absorption ratios for various types of assets. If the authorities constrain banks and are aware of the activities of fringe banks and other financial institutions, they are in a better position to attenuate the disruptive expansionary tendencies of our economy.”

Three years later, we can only bemoan that his sensible counsel was ignored and the economy experienced the explosive growth of the shadow banking system, or what Minsky cleverly called “fringe banks and other financial institutions.”
Minsky’s insight that financial capitalism is inherently and endogenously given to bubbles and busts is not just right, but spectacularly right. We have much to learn and relearn from the great man as we collectively restore prudential common sense to bank regulation – both for conventional banks and shadow banks.

“Meantime, we’ve got a problem: we’re on a reverse Minsky journey. The private sector wants to shrink and de-risk its balance sheet, so someone has to take the other side of the trade to avoid a depression – the sovereign. We pretend that the Fed’s balance sheet and Uncle Sam’s balance sheet are in entirely separate orbits because of the whole notion of the political independence of the central bank in making monetary policy. But when you think about it, not from the standpoint of making monetary policy but of providing balance sheet support to buffer a reverse Minsky journey, there’s no difference between Uncle Sam’s balance sheet and the Fed’s balance sheet. Economically speaking, they’re one and the same.

“I think we’re pretty well advanced along this reverse Minsky journey, and it’s a lot quicker than the forward journey for a very simple reason. The forward journey is essentially momentum-driven; there is a systematic relaxation of underwriting standards and all that sort of thing, but it doesn’t create any pain for anybody. The reverse journey, however, does create pain, otherwise known as one giant margin call. The reverse journey comes to an end when the full faith and credit of the sovereign’s balance sheet is brought into play to effectively take the other side of the trade. No, I’m not a socialist; I’m just a practical person. You’ve got to have somebody on the other side of the trade. The government not only steps up to the risk-taking and spending that the private sector is shirking, but goes further, stepping up with even more vigor, providing a meaningful reflationary thrust to both private sector risk assets and aggregate demand for goods and services.

Thus, policymakers have a tricky balancing act: let the deflationary pain unfold, as it’s the only way to find a bottom of undervalued asset prices from presently overvalued asset prices, while providing sufficient monetary and fiscal policy safety nets to keep the deflationary process from spinning out of control. Debt deflation is a beast of burden that capitalism cannot bear alone. It ain’t rich enough, it ain’t tough enough.

“Capitalism’s prosperity is hostage to the hope that policymakers are not simply too blind to see.

“As long as we have reasonably deregulated markets and a complex and innovative financial system, we will have Minsky journeys, forward and reverse, punctuated by Minsky Moments. That is reality. You can’t eliminate the Minsky journeys. It’s a matter of having the good sense to have in place a counter-cyclical regulatory policy to help modulate human nature.

“Not to say that Minsky had confidence that regulators could stay out in front of short-term profit-driven innovation in financial arrangements. Indeed, he believed precisely the opposite:

“In a world of businessmen and financial intermediaries who aggressively seek profit, innovators will always outpace regulators; the authorities cannot prevent changes in the structure of portfolios from occurring. What they can do is keep the asset-equity ratio of banks within bounds by setting equity-absorption ratios for various types of assets. If the authorities constrain banks and are aware of the activities of fringe banks and other financial institutions, they are in a better position to attenuate the disruptive expansionary tendencies of our economy.”

“While asset prices, and notably property prices, were soaring, it was all quite dandy. Which, of course, propelled the Forward Minsky Journey. There were no regulatory cops on the beat, only regulatory czars in corner offices, actively accommodating growth in the shadow banking system. Most fundamentally, regulatory authorities ignored the systemic liquidity risk imposed by the shadow banking system versus the conventional banking system: without access to either deposit insurance or the Fed’s discount window, and mostly void of any meaningful term financing, the shadow was a sitting duck for a classic run on liquidity. And ever since last August, that has been precisely what has unfolded, punctuated by the run on Bear Stearns last month.

“Along the way, the Fed has taken gallant and bold steps to inject liquidity into the markets, creating lending facility after lending facility. But up until last month, when the Fed opened the discount window to investment banks, who are the largest shadow banks of all, the Fed’s role as liquidity provider of last resort was simply not effective, however valiant it may have been. Channeling liquidity to conventional banks, in hopes that they would pass it along to shadow banks, simply did not work very well, though it did have the salutatory effect of allowing some banks to (reluctantly) expand their balance sheets so as to absorb assets being disgorged by shadow banks.

“As the Bear Stearns rescue forcefully demonstrated, the Fed had no choice but to open the discount window to investment banks, to facilitate the takeover of Bear in particular and even more importantly, to prevent a cascading of runs. This was a moment of truth and clarity, if there ever was one. I applaud the Fed for doing what it had but no choice to do. At the same time, the Fed’s action demands a complete re-think of the bifurcated regulatory regime for conventional banks and investment banks.

James Fallow: “The difference was partly ‘debt versus equity.’ That is, a loss of stock-market value is damaging, but defaults on loans which put banks themselves in trouble had a ‘multiplier’ effect. The difference between this crash and others, Nouriel Roubini said, was that the speculative bubble involved so much more of the economy than the term ‘subprime’ could suggest. ‘It was subprime, it was near-prime, it was prime mortgages. It was home-equity-loan lines. It was commercial real estate, it was credit cards, and it was auto loans. When there’s a credit crunch, for every dollar of capital the financial institution loses, the contraction of credit has to be 10 times bigger.’

“‘Bernanke should have known better. But it’s not really about him. It’s in everybody’s interest to let the bubble go on. Instead of the wisdom of the crowd, we got the madness of the crowd. So when the proverbial stuff hit the fan in the summer of 2007, the Fed and the Bush administration were initially taken by surprise,’ Nouriel Roubini concluded. ‘Their analysis had been wrong. And they didn’t understand the severity of what was to come. And all along, their policy was two steps behind the curve. We’ve had a model of growth in which over the last 15 or 20 years, too much human capital went into finance rather than more-productive activities. It was a growth model where we over-invested in housing, the most unproductive form of capital. We have been in a growth model based on bubbles, and the model has broken down, because we borrowed too much. The only time we are growing fast enough is when there is a big bubble.

And so the government now more than doubled note and bond offerings to $963 billion in the first half of 2009 as it tries to end the recession. It may sell another $1.1 trillion by year-end, according to Barclays. The second-half sales would be more than the amount sold in all of 2008.

“Unless we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable economic growth,” Fed Chairman Ben Bernanke said this week in semi-annual testimony before the House Financial Services Committee. Bernanke said “limited inflation pressures” will allow policy makers to keep interest rates near zero for an “extended period.”

“‘The Fed is now embarked on a policy,’ Nouriel Roubini said, ‘in which they are in effect directly monetizing about half of the budget deficit. The public debt is going up, and the federal government is covering about half of that total by printing new money and sending it to banks. In the short run, that monetization is not inflationary.” But banks are holding much of the money themselves. ‘They are not re-lending it. So that money is not going anywhere and is becoming inflationary.’”

But at some point the recession will end—Roubini’s guess is 2011–and banks will want to lend the money. People and businesses will want to borrow and spend it, James Fallow’s piece concludes.

Writes Alan Blinder, a Princeton University professor of economics and public affairs, in the Wall Street Journal: “Economic conditions are dreadful at the bottom of a deep recession. Jobs are scarce. Layoffs abound. Businesses scramble for penurious customers. Companies go bankrupt. Banks suffer loan losses. Tax receipts plunge. Government budget deficits balloon. All this and more in what now looks to be the country’s worst recession since 1938. So why is everyone so blue when the U.S. economy is hitting bottom. The good news also is the bad news. As the economy hits bottom, it’s a long uphill climb to get out.

Paul McCulley of PIMCO and Bill Gross of PIMCO and Mohamed El-Erian at PIMCO have had a better public perspective than Mr. Bernanke has over the past two years. As did Nouriel Roubini. It is hard to believe his name will be put in nomination at the soon to end current term as Fed chief, no matter his performance since September 2008. Even though the real-estate crisis was working itself out and its problems likely remained ‘niche’ issues, and had not approached my neighborhood.

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July 17, 2009

Summer Recess


The outlook on future economic behavior: One in five people in California who desire full time work are not now working. That rate reached 23.5 percent Oregon this spring,, 21.5 percent in both Michigan and Rhode Island, and 20.3 percent in California according to a New York Times analysis of state-by-state data. The rate was just under 20 percent this spring in Tennessee and Nevada.

Mortimer Zuckerman, the chairman and editor-in-chief of U.S. News & World Report wrote today in the Wall Street Journal: “Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook. How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? State budgets are drowning in red ink as jobless claims and Medicaid bills climb. Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. As paychecks shrink and disappear, consumers are more hesitant to spend. The combination of a weak job picture and a severe credit crunch means that people won’t be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending. Businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.”

I would not be buying stocks with this kind of economic forecast. The next 12 months are going to be the hardest in 70 years. And in my view, Congress and the president have the same insight into how to resolve pending current affairs as FEMA did during Hurricane Katrina.

July 15, 2009

Professions and Professionals

It was the age of enhancements.

Those women in the movies. Those athletes in the all-star games.
Enhancements might only attract attention for a short while. That was the nature of enhancement while the human mind figures out what was underneath the next layer.

Ascending into the ranks of the elite, surrendering to individual, partisan, and class interests, people no longer try to preserve their ethnic heritage. Or their belief system. That was the secular world. Those were my thoughts listening to the hearings of a nominee for the U .S Supreme Court.

David Brooks wrote in the New York Times this week that the lure of work provides an organizing purpose and identity. “Until the strains of a multicultural establishment become visible. You see the way that people not only choose a profession, it chooses them. It changes them in a way they probably didn’t anticipate at first.”

Ascension into the ranks of the elite. Business that cut back workers. Parking lots now with money slots instead of attendants. Every business with voice mail instead of real people. The Microsoft world. Where even the armed forces lived and died by computer outages, susceptible to hackers in North Korea. Young people with priceless educations susceptible to outsourcing in India or the Philippines.

The outward signs were there that our institutional arrangements seem to be failing the community. The signs were all around us. In world with too many divorces, more cohabitation, where the equilibrium was lost pursuing self-interests at the cost of the common good. Too many leaders who were not leading. Because the electorate can no longer come together. In board rooms across the country, in state houses, and on Capitol Hill, there was the pursuit of self-interests.

June 24, 2009

A New Asian Contagion?


Unrest. Unease about the economic outlook. There was a lot of restlessness out there. Unrest beyond the stories out of Iran. Unrest in the market. Marketwatch reported that the dollar gained against the Euro but declined against the yen, “in a pattern that has frequently emerged when traders grow nervous about the outlook.”

The World Bank said that the global economy will shrink by 2.9% in 2009, a revised outlook from a previous forecast of a 1.7% contraction. That mean the deflation animal was loose around the world.

Money always seemed to affect the outcome of elections. Japan is now in the throes of its worst post-World War II recession. I think we all were, actually. As fate would have it, the prime minister must call elections by September 2009.

Last week there was a summit of the world’s four largest emerging economies, as leaders from of China, India Russia, and Brazil met in Yekaterinburg, Russia to discuss reforming the global financial system and lessening reliance on the United States. These four countries hold nearly 40 percent of the world’s currency reserves and make up 15 percent of the global economy.

A joint BRIC (Brazil, Russia, India, China) statement issued before the summit expressed a commitment to advance the reform of international financial institutions so as to reflect changes in the world economy. The statement said. “The emerging and developing economies must have a greater voice and representation in international financial institutions,” calling for a greater role for developing nations in global financial institutions and the United Nations.

Leaders discussed investing their reserves in one another’s bonds, swapping reserve currencies and increasing the role of Special Drawing Rights, an international reserve asset. Discussions took place earlier in the day in the Urals city at a meeting of the Shanghai Cooperation Organization about the creation of a supranational currency and lessening global reliance on the U.S. dollar. President Dmitry Medvedev was an outspoken a critic of the current world financial system, reserving his most bold comments for the Shanghai Cooperation Organization. “There cannot be a successful global currency system if the financial instruments it uses are denominated in only one currency, which is the case today. And that currency is the dollar.”

But the idea of replacing the dollar found little traction with China, which holds $2 trillion in foreign currency reserves and which did not offer any comment in support of the proposal. Back in February 2009 at the Davos, Chinese premier Wen Jiabo, looking at the system of capitalism, lashed out at the ‘blind pursuit of profit’ in some countries in what he called the ‘American financial crisis.’ The view from China was that stocks and bonds were an American system.

In Japan, exports were down 40.9% from May 2008, adding to doubts about the possibility of a quick recovery from the global recession.

In Japan, the Democratic Party of Japan (DPJ) hopes to topple Japan’s prime minister Taro Aso’s Liberal Democratic Party which has been in power for almost all of the past 50 years, seeing Japan rise to become the world’s number 2 economy, Asia’s largest economy. If he becomes the next finance minister, Masaharu Nakagawa of the Democratic Party of Japan would like to make changes to reshape Japan into a kinder gentler place.

Saying the dollar may no longer reign supreme in the future, Nakagawa envisions “in the course of the region’s forming a single economic zone,” as he told AFP, an Asia united by a single common currency. With possibility the dollar might not function as the key currency any more in the medium term, Nakagawa said, “Now is the time for Japan to say what kind of world it would like to create. Not to adapt itself to the given circumstances as it has,” since the end of World War II. People must take change into account as the world seeks a new order in the post-Cold War era.

Speaking more broadly about his vision for Japan, he said his country had followed the liberalism of the United States in the past, but the time had come for the nation to be “more Asian.”

In an article by Miwa Suzuki, he said the Japanese government could extend lending to the International Monetary Fund on condition that it is in yen, while guaranteeing bonds by Asian countries if they are denominated in the Japanese currency. “Until an Asian common currency emerges,” he said, “the Japanese government should make efforts to have the ‘Asia zone’ use the yen, not the dollar, for trade settlements. It’s time for Japan to launch this plan.”

Money and fate. And relationships. On June 17, 2009, President Dmitry Medvedev and Chinese President Hu Jintao signed an agreement in which Russia will sell 300 million tons of oil to China over 20 years at $57 per barrel or $100 billion. In order for Russia to deliver that oil, a new pipeline has to be built by Yukos to China which was originally planned at a cost of $4 billion for the mid-2000s, but by March 2008, the price had risen to $29 billion. Given oil prices of at least $80 per barrel, Russia has no plan to recoup this cost at the agreed to price of just $57 per barrel. This is the same Russia that has been using oil as a weapon against it Slavic brethren in Belarus and Ukraine.

Money and fate and relationships. These were the major ingredients in a love story. Any love story. Money and the times always provided the ambiance to the story. In all relationships, actually. Even with the new BRIC nations. Amidst this unrest and unease about the economic outlook.
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June 20, 2009

No Hat? $510,000 Settlement

Alfred G. Rava initiated a class-action lawsuit against the Oakland A’s after he wasn’t given a commemorative plaid sun hat being handed out to women at an A’s-Twins game on Mother’s Day 2004 as one of the first 7,500 ladies arriving at McAfee Coliseum for the game. The Oakland A’s have reached an out of court $510,000 settlement with the biological male, who happens to be an attorney.

Alfred G. Rava, the biological male who happens to be an attorney, also initiated similar class action lawsuits against the San Diego Padres and Los Angeles Angels of Anaheim, claiming a violation of his civil rights under gender discrimination.

According to freelance writer Joe Kukura, biological male attendees of that Mother’s Day game may come forward and claim a $50 plus 2-for-1 A’s tickets and a Macy’s gift card. The Mother’s Day hat promotion had followed the breast cancer research fundraiser in a 5 kilometer “Race For a Cure,” in support of breast cancer research.

In other news, as federal judges are bound by a code that says they should not join any organization that discriminates by race, sex, religion or nationality, Supreme Court nominee Sonia Sotomayor resigned from an elite club for women on Friday.

June 4, 2009

Global Positioning Systems

The word for the day is TOILETS. I just came home from a visit to the stockbroker. I presented my theory about globalization. Asia was the place where capitalism was booming. If that was the case, I proposed, these were the people who were the target for comforts from the west.

The Chinese never had squat until now. Which might explain the circumstances of waste disposal in China. There was a 30% increase in the amount of money spent on food in the average Chinese household in 8 years. And I always felt, smelt really, a connection between food and plumbing.

I see the day when the Chinese will be dreaming to have a bathroom like I have. I am thinking of starting a Chinese company, manufacturing toilets, getting Chinese input as they contemplate evolving from customs that they know squat about. I see a billion dollar idea, which is a lot like toothpaste and razors. Something they will need every day.

Call it global positioning.

May 28, 2009

Corrections

The National Association for Business Economics released a report Wednesday that more than 90 percent of economists predict the recession will end this year, although the recovery is likely to be bumpy.

That assessment is in line generally with the Federal Reserve Chairman outlook of Ben Bernanke. About seventy-four percent of the forecasters expect the recession — which started in December 2007— to end in the third quarter. Nineteen percent predict the turning point will come in the final three months of this year. The remaining seven percent believe the recession will end in the first quarter of 2010.

This National Association for Business Economics report followed a report on October 6, 2008 that 31% of economists did not think there was a recession. So 10% of the economists did not see an end to the recessions, with 31% of economists proven to be out of touch with the current world.

Has anyone checked the market in commercial real estate? When there was too much credit in the system, something had to give.

I wrote on October 6, 2008 that there was going to be another at least 25% to 30% correction in the valuations of homes. Real estate prices had fallen 23.3% in Minneapolis-St. Paul in the last 12 months. So there were signs that an honest correction had occurred at least in single family homes.

May 22, 2009

A Nation’s Capital

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Markets.

Deflation overseas continued to be in the news. The news from the UK was that in the 4th quarter of 2008, the economy had contracted 1.6%. Office for National Statistics yesterday announced that GDP in the UK fell 1.9% in the 1st quarter when compared with the prior quarter. This was the largest decline since the 3rd quarter of 1979. MarketWatch reported that year-on-year, GDP was down 4.1%, much larger than the 2% decline seen in the fourth quarter.

There then was a downgrade from Standard & Poor’s Corporation in the UK ratings outlook. Yet today MarketWatch is reporting that the dollar fell to the lowest level versus the Euro since December on Friday, as traders looked for alternatives to the U.S. dollar. It additionally was stated that fears about the global economy were abating. Whose analysis was that?

At the same time, the central bank of Japan upwardly had revised its economic view for the first time since July 2006, leaving the key interest rate unchanged at 0.1% and expanding the range of eligible collateral to ensure financial market stability.

Who trusted the Bank of Japan, based on their reported of real estate valuations in their portfolio over the last 10 to 15 years of their own crisis?

With worry that the debt level in the UK may result in its credit rating being cut, there was new concern about the massive U.S. deficit, with the falling US dollar notching fresh multi-month lows against the Euro, pound, and yen.

The battle was waging between forces of deflation in many countries on the continent overseas, with government in the United States and the United Kingdon promoting hyper-inflation. This was the same battle reflected in LIBOR rates on October 1, 2008.

No ratings agency has issued any new comments on the credit rating of the U.S.

How to protect capital in times of crisis? Is there a real alternative to the dollar?

The Euro reached a high against the dollar at $1.4008, its highest level since Jan. 2, 2009.

The pound recovered from the turbulence it suffered in the wake of the S&P announcement Thursday and set a new high for 2009 at $1.5937. Why?

Pension funds, insurers, and institutional investors, are pouring back currency flow into Great Britain, supporting the British pound and exchange traded fund (ETF). According to Boston-based State Street Global Markets LLC, in the 60 days to May 13, the money flows were 99% higher than any comparable period since 1997.
The depressed pound is actually a way to play distressed assets with potential for the upside, says Joe Weisenthal. The pound gathered strength today after the Bank of England voted to hold the key interest rate at a record low of 0.5%, says RTT News.

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