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| User Info | The Economic Tsunami Is Curling Over in forum [Ticker] | |||
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Genesis Posts: 71421 Incept: 2007-06-26 
KD^2 
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http://market-ticker.org/archives/1030-T....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-11 08:03:09
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Guyfawkes Posts: 352 Incept: 2008-09-19 Texas
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Excellent ticker. Emailed to all on my contact list so that they know these 'green shoots' are really 'punji sticks'.
---------- It's still "We, the People".....right?
2009-05-11 08:31:33
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Tark Posts: 37 Incept: 2009-04-21 Online
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As always, thank you for the clarity and insight into what is REALLY happening.
2009-05-11 08:34:07
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Omm Posts: 1623 Incept: 2007-08-29 NC
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Karl is right. The other commentators, including the capitulating bears, are wrong. The Obama administration is lying, lying, lying. The tsunami will be fed by the layoffs generated by the Chrysler and impending GM bankruptcies. Check this Cleveland Plain Dealer article from yesterday: http://www.cleveland.com/news/plaindeale.... ---------- "Don't whine because the Chinese won't play fair. They're communists." Xennady Jan 21, 2010.
2009-05-11 08:38:41
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Solnow Posts: 829 Incept: 2009-03-02 My Market Model
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Great Ticker KD. Just when I think the corruption can't get any worse.
---------- Adapt. Improvise. Overcome. HOPE is for sissies
2009-05-11 08:40:12
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Scrood Posts: 1999 Incept: 2008-05-17 
Green Shoots! Online
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Nice Ticker, KD! Can you expand or clarify this section of your Ticker: If Bernanke does not back off he will find himself in a tightening monetary flat spin. As he comes to own more and more of the public float of the long end the impact of each sale into his program by private holders is magnified in the market. That is, if there is $1 trillion of something outstanding and you buy $100 billion of it (10% of the float) the impact is X. If there is now $900 billion outstanding (after the first operation) and you buy another $100 billion you have in fact sucked up about 11%. When you get to owning $500 billion another $100 billion sucks up 20% of the float. Each tender operation of the same size thus creates an ever-increasing impact on the underlying price, and since nobody in their right mind will continue to hold something they believe is overvalued, the spiral will tighten precipitously, forcing even more purchases until The Fed owns it all. Scrood: I'm a little confused on the "float" and whether it will eventually return to the original number (1 trillion). Doesn't the FED strategy depend on this slow return to equilibrium? By being the largest purchaser of Treasuries with each sucessive purchase, can't the FED just reduce their asking price (and diminish the effect on yield)? Or do they have to employ the strategy of purchasing in a very short time frame in order to drastically reduce yield? At or before that point the long end becomes unavailable to Treasury as a funding source. Forcing all the issue to the short end now starts to ramp short yields (supply and demand, remember - add massive supply and what happens to price?) and Bernanke will then be urged to buy down the time line. Scrood: Why will the long end become unavailable to Treasury as a funding source? Is this because the FED is moving the Treasury market participants (buyers and mostly sellers) to the short end? Or that the supply is much larger, which causes the price to drop and yields to increase? Just a bit more of an explanation would help me and hopefully other folks! ---------- CTRL-GALT-DELETE
2009-05-11 08:41:06
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Blankfiend Posts: 1736 Incept: 2009-02-07 
MA
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Quote:tightening monetary flat spin Also known as a Death Spiral. ---------- My Elliott Wave Blog: http://blankfiendsew.blogspot.com/ Democrats and Republicans are like M&M's - different colors on the outside and full of brown stuff on the inside.
2009-05-11 08:43:44
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Asianbull Posts: 2184 Incept: 2007-09-03
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It gets better: May 11, 2009 Banks Pass Stress Test - Regulators Fail Ethics Test John P. Hussman, Ph.D. All rights reserved and actively enforced. Reprint Policy Banks Pass Stress Test - Regulators Fail Ethics Test Last week, financial stocks enjoyed a powerful advance and short squeeze on the announcement of the results of the “stress test” of major banks. It is important to begin by noting that this was not a regulatory procedure with teeth. It was initially a response to Congressional demands to introduce greater objectivity into the use of public capital for these bailouts, and gradually morphed into nothing more than a “confidence building” exercise. And keeping with the emphasis on keeping the numbers happy, as opposed to providing full and fair disclosure, the Wall Street Journal reported on Saturday, “The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining. In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.” To some extent, it is not possible to get full and fair disclosure using the method that regulators used in the first place, since it relied on banks' self-estimates of their potential losses in a further economic downturn. These of course being the same banks that made the bad loans, and have already proved themselves vastly incapable of loss estimation and risk management. Moreover, the Fed only asked for loss estimates for 2009 and 2010, not beyond – “Each participating firm was instructed to project potential losses on its loan, investment, and trading securities portfolios, including off-balance sheet commitments and contingent liabilities and exposures over the two-year horizon beginning with year-end 2008 financial statement data.” This period specifically excludes the window where we can expect the majority of “second wave” mortgage losses to be taken, as it does not capture any losses that will emerge as a result of mortgage resets from mid-2010, through 2011, and into 2012. The “stress test” procedure also conveniently excludes any potential mark-to-market losses during 2009 and 2010, as banks “were instructed to estimate forward-looking, undiscounted credit losses, that is, losses due to failure to pay obligations (‘cash flow losses') rather than discounts related to mark-to-market values.” Now, just think of this for a minute. Even if you assume that the “risk-weighted assets” of the banks are about two-thirds of their total assets (as the stress-test does), we're still looking at $7.8 trillion in total assets at risk in these banks, and despite being on the edge of insolvency only weeks ago, we are asked to believe that they will need less than 1% of this amount – $74.6 billion – of additional capital even in a worst case scenario. How do the stress tests arrive at this conclusion? 1) They underestimate potential losses by minimizing the horizon over which the losses would have to occur, excluding potential mark-to-market losses and restricting the loan losses to “cash flow” losses only; 2) They define capital well beyond tangible sources, to include about double what is available as Tier-1 common; 3) They include $362.9 billion in “resources other than capital” – essentially pre-provision net revenue expected to be earned by the banks over the coming two years to absorb potential losses; 4) They report the capital buffer that would be required after massive dilution in the common stock of these banks has already occurred. As an example, Citigroup comes in with $119 billion in capital ($22 billion as Tier-1 common). Total assets are over $2.1 trillion, but the stress test assumes “risk weighted” assets of less than half that. Citi projects losses in 2009 and 2010 of $104.7 billion in a scenario where the unemployment rate reaches 10.3%. Citi assumes that it will earn $49 billion during that period which would partially absorb those losses, and that it will obtain $87 billion in Tier-1 from other capital sources, presumably including $33 billion of preferred that it would be willing to convert to common. Of course, Citi's entire market cap is only $22 billion, so the “$5.5 billion” that Citi is reported to need under the stress test is what it would require after a 5-to-1 dilution in its common stock (87+22/22). Essentially, we've got a company with a common equity buffer of just over 1% of total assets, that just 8 weeks ago was on the verge of receivership, and investors are urged to believe that there are enough voodoo dolls in the vault to make the company solvent even in a further weakened economy. Great. Then no more government money should be needed. Outstanding. Not a dime more of public funds beyond what remains in the TARP. No need to use public money to buy toxic assets either. Believe me, I would be overjoyed if the madness of public bailouts of private bondholders was to stop. Unfortunately, I don't believe it for a second, because our regulators have clearly demonstrated that they do not want accurate public disclosure of losses (witness Ken Lewis' testimony a few weeks ago, the watered-down mark-to-market rules, and the “negotiated” results of the stress test). Our regulators want confidence. And they're willing to fudge the numbers to get it. If there wasn't a freight train of additional mortgage defaults coming, perhaps confidence building would be a good thing. As matters stand, encouraging confidence is equivalent to encouraging investors to throw good money after bad. As for bank equities, it is problematic to treat the stocks simply as a discounted stream of future cash flows, because when capital cushions become thin, the only way to properly value these stocks is to treat them like options with an absorbing barrier at zero. Indeed, that is how bank stocks have been trading lately – not as equities, but as option-like securities. I doubt that investors in these companies fully recognize the potential for the spectacular advance in these stocks to vanish if the current confidence about bank balance sheets is not sustained. Meanwhile, we can expect an immediate rush by banks to capitalize on the recent advance by heavily issuing new stock, which would be fine, except that the quality of disclosure is in question. Investors should be sure to read the offering documents carefully. Ethics, Distribution and Incentives Over the past few weeks, I've heard a number of analysts suggesting that the bailouts aren't so bad because “we owe this money to ourselves,” and that in terms of present value, they are neutral for society as a whole. What's fascinating about these arguments is that they entirely miss the ethical and distributional effects of the bailouts. This isn't something that would be missed if the Treasury was to borrow a trillion dollars and then hand it over to a fur-coated pimp standing on a street corner in lower Manhattan, but it somehow escapes concern when the recipients are in the offices above the ground floor. It's amazing how quickly capitalists turn into socialists when they stand to lose money. Here's the situation. A variety of investors provided capital to financial companies, with which they made irresponsible loans and took excessive risks. These activities resulted in real losses, which have largely wiped out the shareholder equity of the companies. But behind that shareholder equity is bondholder money, and so much of it that neither depositors of the institution nor the public ever need to take a penny of losses. Citigroup, for example, has $2 trillion in assets, but also has $600 billion owed to its own bondholders. From an ethical perspective, the lenders who took the risk to finance the activities of these companies are the ones that should directly bear the cost of the losses. We can always compensate those who we believe lost unfairly, were cheated, or whom we otherwise believe that there is a social interest in compensating. But those decisions should emphatically be made through the political process by our elected officials, not by the arbitrary decisions of bureaucrats that continue to erode the Constitutional separation of powers. As I wrote in March 2008, at the beginning of this downturn, when Bear Stearns was first rescued: "This is not water under the bridge, and the deal struck last week should not be allowed to stand if we care at all about the integrity of the capital markets. If the market was “certain to crash” in the event that Bear Stearns failed, then the market is certain to crash anyway, because Bear Stearns wasn't the last shoe to drop – it was one of the first. Unfortunately, we're standing in a shoe store. At the point where unelected bureaucrats pick and choose who to subsidize – who prospers and who perishes – in a free capital market, and use public funds to do it, more is at risk than just $30 billion. Instead, we cross a line, and stumble off a very clear edge down an interminably slippery slope." As long as we don't have a disorganized Lehman-type liquidation, it would be appropriate to take insolvent institutions into receivership, write down the bondholder claims appropriately, then re-issue the companies back to the public. This was more difficult with the auto companies, because there is no regulator with unilateral receivership authority. Still, even Chrysler's holdout bondholders have now thrown in the towel, which will make it easier to restructure in Chapter 11. The process is more straightforward with banks – witness Washington Mutual – but additional authority from Congress would be helpful in order to deal with non-bank entities, including bank holding companies. To minimize the add-on effects of debt haircuts, it would also be helpful for Congress to impose strong capital requirements on newly originated credit default swaps, and to restrict their use to bona-fide hedging. Notice that by bailing out the financial companies, there is a massive crowding out of private investment, because for every dollar of losses that should have been wiped off the ledger, we are forced to retain and service two dollars of overall debt – the debt securities owed by the financial companies to their bondholders continue to exist, and we now have an equal amount of new debt issued by the Treasury. The rescued bank debt is a drain on the public because it has to be serviced through a combination of higher interest rates to borrowers, and lower deposit rates to savers. Meanwhile, the Treasury debt is also a drain, because except for some income from the Treasury's holdings of preferred stock, the debt has to be serviced from tax receipts. The bailout is not something “neutral” that cancels itself out, but instead amounts to a transfer of trillions of dollars of purchasing power directly and indirectly from those who didn't finance reckless mortgage loans to those who did. Farewell to the projects, innovation, research, investment, and growth that might have been financed by the savings and retained earnings of good stewards of capital. Those funds are being diverted to the careless stewards who now stand to be made whole. In short, these bailouts are emphatically not neutral to society as a whole, because they damage incentives and divert productive resources into hands that have proven themselves to be reckless and incapable. To believe that the bailouts are just money we owe to ourselves is to overlook serious ethical implications, as well as distributional and incentive effects. ---------- The root cause of all the world's problems is inflation. The only sound money in the world is commodities. Last modified:
2009-05-11 08:51:28 by asianbull
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Scrood Posts: 1999 Incept: 2008-05-17
Green Shoots! Online
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Is there a yield curve that also shows the current "float"?
---------- CTRL-GALT-DELETE
2009-05-11 08:48:54
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Genesis Posts: 71421 Incept: 2007-06-26
KD^2
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Scrood, if he lowers his bid price then the yield keeps going up. Bernanke wants yields to go DOWN. But the paradox is that when you try to force the market like this the reaction is the opposite of what you want, because any time someone overpays for something their bid is immediately hit. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-11 08:53:28
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Scrood Posts: 1999 Incept: 2008-05-17
Green Shoots! Online
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Gotcha How about the float? Is there a way to measure this across the yield curve? ---------- CTRL-GALT-DELETE
2009-05-11 08:57:44
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Genesis Posts: 71421 Incept: 2007-06-26
KD^2
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Theoretically; the public treasury float is about $5.5 trillion, more or less, and growing quite rapidly. Treasury has been reducing duration for years; this in an attempt to keep the paid coupon down. The problem with this is that shorter durations have increasing rollover risk (the risk that when you need to roll it the demanded coupon spikes higher, assraping you immediately.) ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-11 09:00:31
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Jata1 Posts: 2378 Incept: 2009-03-08
mi
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Obama has never done anything in his life but talk about things. He thinks if he sprinkles enough bull**** everything will magically get better. But sooner or later reality takes hold. We are ****ed and anyone who thinks otherwise is delusionary. I don't want it to happen but the handwriting is on the wall and everyone should plan accordingly to minimize pain.
---------- Mayorquimby says- My Idea- Everyone gets Dick
2009-05-11 09:10:00
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Scrood Posts: 1999 Incept: 2008-05-17
Green Shoots! Online
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I think I follow you. The $5.5 T is the total Treasuries that are being traded regularly? The "average" term of Treasuries has been dropping and this is reflected in the shape of the yield curve? I think I understand the rollover risk...the Treasury has a "portfolio" of Treasuries with coupon payments. By shifting to the shorter term Treasuries, they have a rollover risk. In order to pay for the expiring Treasuries, they have to purchase new Treasuries that may have a higher yield and therefore a higher coupon payment. By shifting their portfolio towards the shorter term Treasuries, they box themselves into a corner. Although an increase of the yield from say 3% to 4% on the 10-year Treasury doesn't seem like much, this actually increases the coupon payment by 33%. This means a greater percentage of the federal gov't budget has to be diverted towards the interest payment. This basically ****s us, the taxpayers, since we are ultimately responsible for the coupon payments. ---------- CTRL-GALT-DELETE
2009-05-11 09:17:42
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Genesis Posts: 71421 Incept: 2007-06-26
KD^2
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Scrood: Correct, except the Treasury is SELLING Treasuries, not buying them :)
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-11 09:23:10
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Themortgagedude Posts: 3930 Incept: 2007-12-17
saint louis
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I coulda writen that their tiker. Eksactly wat i ben thinkin. But sales tax receipts off 50% - WOW! Cali is so ****ed. When do we start bailing them out. Instead of bailing them out can we just kick them out of the union. ---------- "These are interesting times. We don't trust the government, we don't trust the legal system, we don't trust the media, and we don't trust each other! We've undermined all authority, and with it, the basis for replacing it! It's like a six-year-old's dream come true!"
2009-05-11 09:26:03
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Dashingdwl Posts: 4564 Incept: 2007-06-26
los angeles
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Give Kalifornia back to the Mexicans.
---------- Think Green Tip.
2009-05-11 09:29:11
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Stonedog Posts: 1105 Incept: 2008-05-29
New Jersey
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TMD - it's very likely that the .gov will look on California as too big to fail and bail them out.
---------- "F**k CNBS, CONgress, Obama, the Democrats, the Republicans, the ratings agencies, the Banksters, the Fed, the FASB, all the government regulatory agencies, the Trilateral Commission, the Council of Foreign Relations, the G whatever, the UN, and any other bastard or big corporate interest that has a fingerprint on this
2009-05-11 09:29:12
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Spazznout Posts: 235 Incept: 2009-04-15 Columbus, Ohio
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Excellent Ticker Karl, as always. You said; "The bad news is that the event horizon is far before Bernanke actually winds up owning the entire float," Would you take a wild educated poke at what point this will be. Unlike a majority of submitters here I have no formal Economics training. I do however have a firm understanding and knowledge of the economy and its workings through my never ending pursuit of knowledge through reading and bugging ppl like yourself. The level I cannot achieve and you seem to have the uniqu knack for doing is putting the piece togeathter to form a clearer picture of what is goin on behind the smoke and mirrors. Yes all these smoke and mirrors of late can make it hard to see the truth of what is going on on Wall Street for novices like me. You said; "We best not go there, because if we go down that road too far Americans will be needing all those firearms that they've been buying since Obama was elected - not for a revolution, as some suppose, but rather for self-defense as our political, social and economic structures collapse" Sure some defense, but this WILL bring on the revolution we desperately need. It seems to me Karl this is the ONLY thing that will get the Bezzle out of the markets. A RESET as Obama and Hillary would say. I have been reading your tickers for months and you constantly call for prosecutions and an end to the lies and lawlessness. The problem is I cannot find anywhere on the nets or in talking to others where a plausible solution is presented. We are living in a Paradigm of disillusion I have spoke of before. Untill that bubble is popped and we reestablish a Matrix under which business and our country is ran we will continue to fall apart. Look at the writings of our forefathers. They told us we would do this. Why is it a surprise. They even warned it may fall apart (as it is right now as you read this). But luckily they gave us a blue print to fix it. INMHO until that happens we continue to fall until your final sentiments in your ticker today are realized, I see Revolution now as the only answer. Question is now or later. Please Karl or anyone...I genuinely hope you can show me where I am wrong and where there is another PLAUSIBLE solution. I dont feel I am alone in this thinking. The gun and ammo sales do back my thesis I believe. ---------- "Those who make peaceful revolution impossible, make violent revolution inevitable." John F. Kennedy 35th president of US 1961-1963 (1917 - 1963)
2009-05-11 09:32:19
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Genesis Posts: 71421 Incept: 2007-06-26
KD^2
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Spazz, it is not possible to know at what level of float ownership by The Fed you find a collapse in confidence and thus the government bond market. Those sort of events have a nasty way of "just happening." I suspect that somewhere around half of the long-term float in these longer-duration bonds, or somewhere between $500 billion and $1 trillion, a "knee point" is reached. The problem is that it could happen a LOT sooner than that - this is just a guess. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-11 09:35:10
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Stonedog Posts: 1105 Incept: 2008-05-29
New Jersey
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Spazz - I think that most folks here have no formal economics training either. That's why they can see the problems that most mainstream economists (scratch that, most economists) don't.
---------- "F**k CNBS, CONgress, Obama, the Democrats, the Republicans, the ratings agencies, the Banksters, the Fed, the FASB, all the government regulatory agencies, the Trilateral Commission, the Council of Foreign Relations, the G whatever, the UN, and any other bastard or big corporate interest that has a fingerprint on this
2009-05-11 09:35:17
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Gmak Posts: 10176 Incept: 2007-07-27
Re-inventing the future at the speed of time.
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Here is what Reuters had to say, an extract from this AM's e-mail:Quote:
2009-05-11 09:36:59
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Nomullet Posts: 3422 Incept: 2007-11-11
Duke City
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Probably half of those layoffs in the last 5 months are going to result in another foreclosure.
---------- if you crap more than once a day you are eating too much
2009-05-11 09:52:37
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Gizmodo Posts: 1146 Incept: 2009-04-15
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So wait. You think that investor capital in these banks would be better allocated elsewhere in the economy? What about all of the record profits they're making? Look at the stock prices! BAC and C are up what, four or more times from their lows. What could be wrong with throwing some more hundreds of billions of government and investor capital at them? It's not like we could be using it elsewhere in the economy or anything. We've got skittle-****ting unicorns for that purpose. Someone remind me again how this gigantic misallocation of capital is superior to letting these suckers FAIL and starting over. Ah, that old refrain of Bastiat's comes to mind: what is seen versus what is not seen. We see the bailout of the banks, but we do not see the damage to the economy that comes from this misallocation of capital. And no one in the media or government (who are generally in active collusion with this scheme) is going to let the cat out of the bag. ---------- "Hide the decline": the policy of climate fraudsters and government fraudsters alike. Can't you see? It all makes perfect sense, expressed in dollars and cents...
2009-05-11 10:04:20
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Statusquojoe Posts: 2397 Incept: 2008-11-20
Land of the fees Home of the slaves.
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Oh my it seems its just keeps more and more expensive to spend our way to prosperity doesn't it? Thanks Karl, you are indeed the hardest working man in the field of "alternative media economics." FWIW I learn so much here, thanks again! ---------- "In short, you are the definition of moral hazard." Senator Bunning to Bernanke Last modified:
2009-05-11 11:36:29 by statusquojoe
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