Credit Writedowns - Latest Comments

Re: Stop the madness now!

Sat, 21 Nov 2009 05:48:41 -0000

What level of public sector debt (as % of GDP) would you let the economy reach?

Re: Obama job approval now below 50%

LavrentiBeria — Sat, 21 Nov 2009 01:58:20 -0000

One needs look no further for the reasons for Obama's decline than the kind of leadership he's exerted on the Afghan War question:

http://original.antiwar.com/mcgovern/2009/11/20...

Consistently, in just about every area, he has been making - when he's made them - the most disasterous decisions, many, some prospective, involving the economy that have been examined at length on this blog recently. The man ran the Harvard Law Review and, if you can believe it, he's used the management style learned in that experience as the model for his presidency! He seems at times pitifully incapable of getting out in front of things. And now the paper mache that has to date decorated Obama's public presentation has begun to come loose, and what is perceived underneath is the picture of the quintessential male of this era, weak, incapable of making committments, and with a moral sense courtesy of the Psychology Department. God help us.

Re: Obama job approval now below 50%

davossherman — Fri, 20 Nov 2009 15:35:48 -0000

Follows the dollar.

Re: Morgan Stanley expects 10-year yields to rise 220 bps in 2010

CPavese — Fri, 20 Nov 2009 12:09:02 -0000

I don't mind shops "talking their book" . . . but find humor in those that always seem to talk out of both sides of their mouth!!

Just read a very well written piece from Morgan Stanley's Henry McVey, Head of Global Macro & Asset Allocation, which clearly expresses the firm's conviction in low-inflation, deflationary risks to global markets.

"If so, we believe it might be in some investors’ interest to reconsider their tactical asset allocation strategies. Specifically, we would envision a reduction of overweight positions in risk assets—equities in particular—and a shift of fixed-income exposures away from credit and towards global sovereign bonds."

Which one is it guys??

Re: Morgan Stanley expects 10-year yields to rise 220 bps in 2010

enh124 — Fri, 20 Nov 2009 11:30:03 -0000

exactly! I haven't seen their macro forecast, but 5.5% is death to both life insurers and the mortgage market.

Re: Morgan Stanley expects 10-year yields to rise 220 bps in 2010

haris07 — Fri, 20 Nov 2009 11:27:19 -0000

Stupid investment banks don't realize that if the 10 year does rise to 5.5% or anywhere near that, the recession will be destined to become worse (double dip, near depression...whatever). The ONLY way to have a muddle through economy is to hope and pray that the deflation argument trumps or is enough to counter any inflation and that keeps yields in line. A 10 year at 5.5% will kill whatever little growth that the economy has by raising credit costs beyond anything that the economy can support. So, MS arguing that the ratesd will rise to 5.5% because economic growth will be high is sufficient in and of itself to kill that very growth.

Re: Largest U.S. refiner Valero now permanently shutting capacity

enh124 — Fri, 20 Nov 2009 10:29:54 -0000

Agree 100%. This is especially true if you believe there are fundamental secular supply/demand imbalances which will re-assert themselves eventually.

Re: Largest U.S. refiner Valero now permanently shutting capacity

Dr. Duru — Fri, 20 Nov 2009 10:25:41 -0000

In the short-term, yes, this is a deflationary indicator. However, once gasoline demand starts to surge again (as it will eventually), this capacity destruction will cause gasoline prices to rise much faster than anyone might expect. So, I would be more concerned with higher gasoline prices over the longer horizon.

Re: If the U.S. stopped issuing treasuries, would it go broke?

lrandallwray — Thu, 19 Nov 2009 17:56:00 -0000

Thanks Edward. No, I do not think you are missing anything. When you submit your 10 pound note to the queen for redemption she will either hand you another 10 pound note, or if you prefer she will reduce your tax liability to her by 10 pounds. I would emphasize the second as the more important--that is what "drives" modern monies. Legal tender laws (requiring the private sector to accept govt notes in private transactions) is nothing but a "pious hope" in the words of Knapp. That is why Euroland does not ever bother with them. So long as Eurogovts accept euro notes in payment of taxes, that will drive them without legal tender laws.

Re: If the U.S. stopped issuing treasuries, would it go broke?

twitter-18292552 — Thu, 19 Nov 2009 17:32:04 -0000

I've been intrigued with this Chartalist perspective ever since I first ran across it a month or two ago, possibly via a reference from this site. I don't have anything to add right now, other than I appreciate your attention to this perspective...

Re: Tim Geithner defends himself before Congress

LavrentiBeria — Thu, 19 Nov 2009 16:23:33 -0000

Although Brady is hardly representative of anything more than brownshirt partisan interests in this questioning, Geithner just got his first meaningful public interrogation. If he keeps on with things as they are at present, his next public interrogator just might have the mindset of an Andrei Vyshinski. And that will make Brady seem like Grandma Moses.

Re: Roubini: For unemployment "the worst is yet to come"

RSDallas — Thu, 19 Nov 2009 16:18:36 -0000

Here we go again. Why is everyone in the current administration and most of the press shifting their focus to yet another symptom of the real problem? 1st: The consumer is re-trenching and not spending (the symptom) so let's lower rates and try to blow the balloon back up. 2: #1 is not working so some bright fellow in Washington suggested that it would help if +-20% of our workers could get a job. Now we'll subsidize jobs and create some tax incentives for the business sector in an attempt to increase employment (another symptom).

Let's go back to symptom 1: The consumer is not spending. Why?
He doesn't have the capacity to spend anymore because he can't find the necessary cash to do so. Why can't he find it? It no longer exists. Can't borrow against the home anymore, his credit card is maxed out, his credit limit has been dropped, he is just to scared to CHARGE or spend anything because he wonders if he will have a job in the next 6 months or better yet that America is going to collapse due to its debt level. So how do you make the symptom go away or at least just subside?

Concentrate your policies on how to lower the public and private sector's DEBT! The only way to create purchasing power is to CREATE WEALTH (make more money) or lower the debt level so you can FILL THE TANK BACK UP. Hopefully only ½ full. The problem is too much DEBT. I’m getting sick to my stomach every time I read or hear from our great leaders that those darn banks just need to start lending more!!! What????? Wake up AMERICA; we are in this situation because we have taken out to much DEBT.

Debt STEALS from the economy, it doesn’t create wealth. Now don’t get me wrong, very low debt can be a good thing. Just look at which sector has not had to be bailed out. TECHNOLOGY! Why? Just look at these companies balance sheets. Many of them do not have ANY debt. Now look at which companies our SMART government gave yours and my money to: Auto & Financial – Both rely on their customers to BORROW! America needs to CREATE wealth, NOT FABRICATE it! So what do you do?

Concentrate on speeding up the deleveraging process. Get out of the way and let the system clean itself up. There are still trillions of dollars out there in our economy. The defunct assets will find a home.

Re: What would an alternative to bailouts have looked like?

Jo — Thu, 19 Nov 2009 15:58:54 -0000

Ho about they just did nothing? Then we wouldn't have been in this never-to-end nightmare.

Re: If the U.S. stopped issuing treasuries, would it go broke?

everson — Thu, 19 Nov 2009 15:52:28 -0000

So from a technical, how the system works, point of view this is correct. The question I have for the MMT crowd is how would all of the market participants who do not believe in MMT react to this? Since the non-believers are the majority I suspect it would end poorly.

Re: If the U.S. stopped issuing treasuries, would it go broke?

hbl — Thu, 19 Nov 2009 13:57:39 -0000

That's the gist of it, I think (i.e., government bonds and reserves are all just financial assets, with the bond uses you mentioned). Bill Mitchell (another modern money theory blogger for those not aware) covers this frequently and suggests if he were running Japan's policy the last two decades he wouldn't have bothered with much bond issuance. Of course the other interesting MMT observation is that opting for more reserves vs bonds (e.g., via QE) is net *deflationary* since it deprives the non-government sector of that extra interest income!

Re: Why GM is repaying bailout money while it is still loss-making

mugurl10 — Thu, 19 Nov 2009 13:35:44 -0000

GM is getting a lot of criticism right now from the Americans for using our taxpayer dollars that they received in the bailout to further their overseas operations. Wonder if places like China are where they are getting the money to pay back these loans. http://www.newsy.com/videos/gm_criticized_for_u...

Re: Apple: Can it stop the Android menace

enh124 — Thu, 19 Nov 2009 13:18:03 -0000

I also didn't touch on RIMM, Nokia, the handset makers, developers or the telcos! I tried to keep a narrow focus on the Apple-Google thing but, like you, I suspect Google is gunning for Microsoft as much if not more than Apple. I see Android as a Trojan Horse into the desktop space.

I ran this at Naked Capitalism as well and there are a lot of good comments.

Re: Apple: Can it stop the Android menace

Joel — Thu, 19 Nov 2009 12:12:47 -0000

Lost in all of this, except in your opening and closing paragraphs is Microsoft. They have completely missed this transition from home computers to pocket computers and it will cost them big time. I had heard how Google was set to become the new Microsoft, but failed to truly see how until Android OS. Microsoft seems set to become a history lesson.

Re: News from around the web: 2009-11-19

enh124 — Thu, 19 Nov 2009 11:43:16 -0000

I'm glad you liked it. You know, I can't be all doom and gloom!

Re: Apple: Can it stop the Android menace

Name — Thu, 19 Nov 2009 11:43:01 -0000

I wasn't around in the '80s to see how Macintosh declined, but I suppose Apple didn't have the same level of market share as it does now in the smartphone segment with the iPhone. Suffice saying, all the people I know that are thinking about getting a better phone are first thinking about the iPhone (or the JesusPhone as The Reg named it). I think eventually the Android will be their biggest competitor in the consumer area (the corporate one is way too dominated by RIM), but this time Apple has a well-consolidated first mover advantage with the Apple Store nearing 90 000 applications. Probably that would be enough for most iPhone users to not make the switch. And if the iPhone moves to Verizon and other carriers it might get an extra push too...
Which surely doesn't exclude the possibility that Apple shares aren't overvalued!

Re: News from around the web: 2009-11-19

LavrentiBeria — Thu, 19 Nov 2009 11:41:40 -0000

Please continue distracting me with beautiful stories like the one about Chuck the steer. What great folks the Millers are and what great examples to their son. Clearly the boy will learn what love is from them and to grow up a spiritually healthy person. Stories like this are diametric opposite of the poison our leadership encourages with their wars, their torture, their abortions and their filthy, corrupt style of managing their "public service". I'd rather make a friend of Chuck the steer than be within fifty miles of their stench.

Re: Barack Obama: “if we keep on adding to the debt… that could actually lead to a double-dip”

scott6 — Thu, 19 Nov 2009 03:46:48 -0000

The reality is is that the man on the street does not manage his life with a stimulus package in mind. He manages his life with the money in his pockets and he is not comfortable with the fact that government spending redistributes income. Who cares if the government needs to pick up the slack to make up for a drop in consumption? I stopped consuming and money still gets taken away. That's why these philosophical arguments are so misguided.

I love your input and your analysis and this is not pointed at you, but all this "what we should do" just makes the "man on the street" feel insignificant. He'd rather have the money he made in his pocket. Obama is catering to tha sentament, regardless of a double dip because he is a politician that needs votes.

Scott

Re: Barack Obama: “if we keep on adding to the debt… that could actually lead to a double-dip”

Edward Harrison — Wed, 18 Nov 2009 16:25:37 -0000

Joel, you could be right. After all, we have seen Obama visit Japan and China in the past few days. Time will tell what policy is, but you have to worry whether the Administration understands we are in a very fragile economic state. reducing demand through higher taxes and/or spending cuts will certainly make things worse over the short-term.

Re: Barack Obama: “if we keep on adding to the debt… that could actually lead to a double-dip”

Joel — Wed, 18 Nov 2009 15:57:27 -0000

I think you need to take what he said with a grain of salt. Perhaps he was talking up the need to tackle the deficit to appease his major creditor. This seems more likely considering that he has been in China this week. Actions speak louder than words and as WPEconomy said, his actions have all spoken of increased deficits.

Ed, thanks for your insightful posts and for this wonderful blog. It has become a daily read for me.

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

Edward Harrison — Wed, 18 Nov 2009 15:45:19 -0000

Thanks. I think I have fixed that.