The Fractal Futures Trader » recession

The Fed Speaks: Didn’t He Say the Same Thing Last Month?

trader7757 — Tue, 10 Aug 2010 04:00:15 +0000

Day trading today was like watching a nail rust. I find that amazing, too. The Fed has been saying the same thing for the last three months and there have been no substantive changes in the economy. They can’t lower rates, as the Fed Funds rate is already zero. So that rules out any earthshaking rate changes, and they can’t raise rates because the economy continues to, at best, stagger like a drunken sailor.

Just the same, the market waited with eager anticipation to hear what Mr. Bernanke would say. Imagine my astonishment when he said, well, he said the same things he has been saying for the last three months. The fed is going to continue quantitative easing (which is the latest phrase in a long list of Fed Speak anachronisms) and they may or may not buy some bonds to accomplish this goal. The Fed chairman did not see any immediate relief from the recession-like conditions we are experiencing. I am certainly glad we are out of the recession, and now just experiencing recession-like conditions. I would appreciate it if somebody would clarify the difference between a recession and recession-like conditions.

But the most interesting consequence of all this Federal Reserve nonsense is in the pall that falls over the stock market as it waits in eager anticipation for the utterances of the Fed chairman. Did they think he was going to say something new? To be sure, the Fed is nearly out of options for managing our monetary system. They can’t move interest rates because they have run out of room: they have a big gun, but no bullets.

And that’s what has me scratching my head. Why all this trepidation every time the Fed meets? They are, essentially, out of options to manage the economy and it’s not like you can count on them to spell out, in real terms, how damaged our economy has become. No, that would have people running to the bank’s like lemmings in a desperate attempt to withdraw whatever money they could get their hands on. So we listen to our Fed chairman spew nearly indecipherable musings of on the esoteric economic theories and machinations the Fed is currently employing to make everything “all better.”

So the market went sideways for a good portion of the day as we waited for the Fed chairman’s proclamations: and when the earthshaking proclamations were issued the market resumed its normal activity. And you know what is really crazy? We will do the same thing next time the Fed meets. Even worse, nothing will be changed and we will ask ourselves, “didn’t he say that last month?”

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The Current Debt Crisis: How Did It Happen

trader7757 — Fri, 09 Jul 2010 14:40:25 +0000

I usually don’t write articles about current events, but this particular article is about a current event that has its origins nearly 30 years ago. The tremendous debt load that most countries are currently burdened with are not something that has its origins in the last decade. This fact may surprise people, as national debt has only been coming to the forefront since the most recent credit crisis. But a careful analysis, and an honest analysis, will show that this unprecedented borrowing spree has been going on for more than 30 years and we are now only beginning to reap the consequences of a poorly managed economy.

I think it’s important to understand that I have no blame to place on any individual, as most borrowing has been approved by Congress and whatever President was currently in charge. To be frank, there is enough blame to go around and both parties have been equally complacent in failing to halt our runaway debt problem. So there will be no politics in this discussion, just simple facts that are well documented and may help readers understand the cause and current effects of our credit situation.

From the onset, I would not predict we are doomed to failure. We are, and always have been, a resilient country with vast human and natural resources. The United States has also shown a remarkable ability to adapt to a variety of conditions which have on several occasions threatened the bedrock of our democracy. So I think it’s important to understand that there are remedies to our current situation and I believe we will implement the proper laws and regulation to bring our country into a more manageable debt situation.

Many individuals believe that our recent budget deficits are a product of the last two or three administrations, but the fact of the matter is surprising; our major budget deficits began under Pres. Reagan and at the time, it created a massive stir. In England, Margaret Thatcher was in the process of drastically reducing public spending, and in the United States the Congress and Pres. Reagan were amassing massive debt, primarily spending money in the defense sector. Economists at the time were sharply divided in this approach, as the freshwater economic sector favored increased borrowing and spending, and the salt water economic sector felt strongly that an increasing debt load would be detrimental to our country. In the end, Reagan’s budget director, David Stockman, resigned in protest when the Republican Party would not bring deficits under control.

Of course, Congress and a variety of presidential administrations have continued to exacerbate our burgeoning debt load. The problems we are experiencing, are simple; we have too much debt, and lack the resources (at the present time) to service our debt levels. This phenomena is occurring at both the national and state levels. Many states are currently underfunding or borrowing from vested civil service pension funds to cover the shortfalls in our current system. The unfortunate fact is that you can’t make debt go away. On the other hand, many citizens are loathe to sacrifice the government provided services on which they depend. So our debt has continued to grow at an alarming rate.

In the last two years, our country has attempted to remediate the effect of a very deep depression by infusing economy with 8 trillion, or more, depending on which numbers you care to quote and hastened the level increase in our debt.

While there are no specific individuals to pin the blame for this crisis upon, the burgeoning debt load our country has accumulated will be an Achilles’ heel for many years to come. I think it is important to know that our current crisis is not the result of any single action, though Wall Street in recent years did help exacerbate an already tenuous position, but our problems have been accumulating for an extended period of time. Of course, from a political standpoint both parties are happy pointing the fingers at each other for this mess, history will show that both parties showed equal levels of incompetence in dealing with the United States budgetary concerns. The facts show unequivocally that our borrowing has increased exponentially in the last years and shows no sign of abating, despite the rhetoric and politicians and political pundits espouse. The truth is a simple one; this particular budget crisis is the work of Congress and presidents who targeted programs for funding that were beyond their means we had to pay for them.

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From PBS, An Interview with David Stockman and some Shocking Remarks

trader7757 — Sun, 07 Feb 2010 04:44:47 +0000

SAUL SOLMAN: David Stockman, former Michigan congressman and Ronald Reagan’s budget chief, who’s also toiled in the private sector at Wall Street’s Solomon Brothers, private equity firm the Blackstone Group, and his own controversial private equity fund.

Charges against him for accounting fraud there were filed and later dropped, and he settled a dispute with the SEC just last week. Stockman’s now working on a book about the financial crisis called “The Triumph of Crony Capitalism,” and has come out in favor of the president’s bank reform efforts.

David Stockman, welcome.

DAVID STOCKMAN, former Reagan administration budget director: Thank you.

PAUL SOLMAN: So, you like the Obama banking proposal. Why?

DAVID STOCKMAN: I would give the administration credit for trying to move us back to something that’s a lot saner than trillion-dollar banks being propped up by the taxpayers, which is exactly where we are today.

The fact is, Wall Street is entirely involved in capital markets activity, which is fine. But that’s free market activity. They shouldn’t be involved in it if they have got deposit insurance and if they have got the Fed window behind them. That’s for deposit banks, not for gunslingers and for hedge funds and for capital market players.

PAUL SOLMAN: But you were a gunslinger, right?

DAVID STOCKMAN: Yes. But I didn’t ask for any — I didn’t ask for any deposit insurance that the taxpayer is going to back up.

Please, Wall Street banks, don’t come and ask the taxpayer of this country who’s out in Green Bay Wisconsin, can’t pay his mortgage, can barely put food on his table, to have the safety net of the Fed and the Deposit Insurance and the Treasury of the United States. It’s an outrageous ask, and they ought to be ashamed of themselves.

PAUL SOLMAN: Listening to you, I’m struck by the fact that I can imagine critics on the left saying exactly the same thing.

DAVID STOCKMAN: I’m mortified by that thought. But, at some point, you have to ask, what’s good policy? And we have gotten into this syndrome, I think, over the last 20 years, where policy of the Treasury and of the Fed has been dictated by Wall Street, that, if Wall Street threatens to have a hissy fit, or the stock market is going to go down, the Fed has basically capitulated and is creating a very unstable and dangerous financial system in our economy.

PAUL SOLMAN: The president’s first bank proposal a few weeks ago, to tax financial institutions based on their size and risk-taking, stirred Stockman to write a New York Times op-ed.

“The baleful reality is that the big banks,” he wrote, “the freakish offspring of the Fed’s easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed. This is why the Obama tax is welcome.”

We asked the CEO of Bank of New York Mellon, Robert Kelly, to respond.

ROBERT KELLY, chief executive officer, BNY Mellon: The reality is, banks provide millions of jobs in our economy. The reality also is, is that we have had a one-in-80-year event. We also have a gigantic economy, which you can’t run with a lot of really small banks.

DAVID STOCKMAN: Well, you know, those are the talking points from Wall Street, and I take strong issue. The fact is, the heart of the bailout was AIG. That was $80 billion worth of CDS that was going to go sour.

PAUL SOLMAN: CDS meaning?

DAVID STOCKMAN: Credit default swaps, OK? And we weren’t bailing out AIG. We were bailing out the banks, because the banks had bought a lot of low-caliber or subprime loans, wrapped some insurance around it from AIG, and said, presto, we have a AAA, a security on our balance sheet.

They didn’t. They had garbage on their balance sheet. And the bailout was to make sure that they didn’t suffer multi $10 billion write-downs on that AIG-supported loan.

PAUL SOLMAN: So, if you had been in the administration after Lehman Brothers, you wouldn’t have supported bailing out AIG?

DAVID STOCKMAN: No, absolutely not. It was the single most, you know, drastic error in policy in modern history, going back to the 1930s. This was exactly the wrong thing to do.

It’s destroyed any basis for fiscal discipline in the United States. I was a member of Congress, and I know how they think. And they think by analogy. If you did it for John, you have got to do it for Bob. There is no way that any congressman is ever going to vote against farm subsidies or ethanol subsidies or housing subsidies or anything else, refrigerator subsidies, once we have made this tremendous bailout for Wall Street, and we stepped into AIG.

PAUL SOLMAN: Well, spoken like a true gunslinger, but you would have been taking an enormous risk.

DAVID STOCKMAN: It’s part of the capitalist system. You know, if an investment bank gets in trouble, it ought to fail. If a hedge fund gets in trouble, it ought to fail.

The idea that our system is so fragile that the failure of Lehman Brothers or even Goldman Sachs, which could have happened, allegedly, in the next few days, would have brought the whole system down, I think, is baloney. I think it’s an urban legend that was created by Wall Street.

PAUL SOLMAN: Almost everyone I talk to says too big to fail is a bad idea, and, yet, in Republican and Democrat administrations alike, it has been the de facto policy. Why?

DAVID STOCKMAN: I think part of the problem is that Wall Street has this tremendous army of lobbyists, who strangle in the cradle any decent idea before it can even see — see the light of day.

PAUL SOLMAN: Which sounded a lot like Stockman’s political polar opposite, Paul Krugman.

PAUL KRUGMAN, columnist, The New York Times: This is as raw an incidence of the power of money in preventing us from doing something that everybody knows we should do that I have ever seen.

PAUL SOLMAN: And now both men favor a new tax on risk-taking financial institutions, which prompted one last question for Ronald Reagan’s budget director, famous for the starve-the-beast argument, that tax cuts would force government to cut spending.

Do you still feel that way?

DAVID STOCKMAN: I think the lesson of the last 25 years is that it doesn’t work. You can keep cutting taxes until you reach the point where this year — or the year just ended, we spent $3.6 trillion, and we only collected $2.2 trillion.

So, we are now so far out of kilter that it’s irrelevant. Taxes are going to have to be raised. And the beast needs to be trimmed back. But it can’t be starved enough to even begin to cope with our fiscal problem. And this is where I think all the politicians are faking in both parties, but the Republicans especially.

The Republicans think their mission in life is to cut taxes. Sorry, game — game over. We’re now in the tax-raising business. And we’re going to be in the tax-raising business for the next decade.

PAUL SOLMAN: David Stockman, thank you very much. Thank you.

Have We Moved Out of the Recession?

trader7757 — Sun, 18 Oct 2009 03:23:53 +0000

There is a lot of talk these days that the tough times are behind us, and good times are sure to come. After all, the Dow has breached the 10,000 mark and analyst are issuing rosy reports on all sorts of undervalued stocks. One analyst trumpeted that “there has never been a better time to buy equities.”

Note: I thought that analyst statement a bit bombastic, after all, surely there has been a better time to buy than now, like, say, right in the middle of a roaring bull market. But an analyst gets paid to pump stock and issue buys….not spread gloom and doom.

Anyway, I have been thinking about this run up in equities of late and wondering just exactly is the root cause of all this stock buying euphoria? I would also note that the volume on the run up has not always been overly impressive, and further, trading in the financial stocks has been much heavier than the norm. Then again, when a company is being wholly subsidized by the government, who wouldn’t invest in that stock? But I digress….

You see, I keep thinking about these darn unemployment numbers. There are a lot of people out of work, and people out of work don’t spend much money. We are a consumer driven economy and common sense tells me we need robust consumer spending to really emerge from the recession. The unemployment number are horrifying…the market got all excited last week because the economy only jettisoned half a million jobs, which is better than past months.

Half a million jobs is good news? It’s horrible news.

I look at the housing inventory and foreclosure rates and I am not very excited either, especially with a new round of resets on the Alt-A mortgages. That might not be a pretty thing, and the projected defaults on the resets is alarmingly high, depending on which economist you care to follow.

On and on it goes, with the government in full spin cycle trying to convince me that things are honky-dory. They don’t seem all that good to me. I worry that this latest rally my be short lived and a nasty correction may ensue. Look at 1933, they thought they had the depression whipped, so the government tightened monetary and economic policy and the depression started all over again.

No, we are still walking on a very slippery slope and I am not very comfortable with the level the market is sitting on, and the the underlying cause of the run up….which is pure speculation. Speculation doesn’t make for a bull market rally.

Then again, maybe I’m all wet and things will be just fine. I just am having a difficult time swallowing the “everything is great” pill right now.

The Perfect Portfolio for 10,000 or 10,000,000 Dollars

trader7757 — Thu, 15 Oct 2009 22:59:41 +0000

There is a saying which has been attributed to a fictional Chinese storyteller named Kai Lung and it goes like this, “May you live in interesting times”.

Well my friends, we do live in interesting times, very interesting times. With China holding the largest share of US debt, inflation just around the corner, and no light at the end of the tunnel for the unemployed – these are interesting times.

So what’s going to be the best plan of action for your money in the next three years? Is the value of your portfolio going to be cut in half, or is it going to double? I have my game plan in place, do you have yours?

Introducing “The Perfect Portfolio”

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I’ve given a lot of thought as to what’s going to happen in the next three years. Specifically, what I am going to do with my own portfolio and my own money. I have scoped out several markets that I think are going to offer excellent opportunities, no matter what happens to the economy. Yes, you heard me right. No matter what happens to the economy, I believe that this “Perfect Portfolio” will work for you in the next 36 months whether you have 10,000 or 10,000,000 million dollars.

In this video I show you exactly the number of trades you would’ve made with the “Perfect Portfolio”.

We back tested the portfolio using our “Trade Triangle” technology for 42 months through some of the toughest, most difficult markets the world has ever seen. I think you will be pleasantly surprised at the results of these two portfolios.

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If you are making more than 6% a month in your portfolio, you don’t need “The Perfect Portfolio”.
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“The Perfect Portfolio”.

Is there such a thing as a perfect portfolio? Maybe or maybe not, but there are certain times, and this is one those times, that it is practically a no brainer in how to make money in the market. That is why we call this approach “The Perfect Portfolio”.

It doesn’t matter if you have $10,000 or $10,000,000. It’s all percentages and this approach has averaged 6% a month over the last 42 months in some of the toughest economic time on record.

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Right about now you might be saying to yourself, “Man this has got to be super risky and they must be swinging for the fences or using some highly speculative option plays, or worse yet, futures.” It is none of these. In fact, the approach downright conservative and in some cases only makes 1 trade a year. Now I understand that this is not going to make your broker happy, but whose money is it anyway?!

Okay, let’s get started. This is a two part video and I promise I will show you how these gains were generated and how you can easily replicate this approach. No one can guarantee 6 percent per month returns, but what I can guarantee is that this approach is proactive. There are very few trades and it works!

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You are going to be shocked and quite frankly disbelieving that anything this simple can work. Then you’ll say to yourself, “Hey, I can do that!”

Bull Market? Bear Market Rally?

trader7757 — Wed, 14 Oct 2009 18:49:28 +0000

Well, we have crossed the 10,000 point level on the Dow and the pundits are filling the pages of blogs and business magazines with predictions of all sorts. The question they are asking is a simple one, really. In the absence of any earthshaking news about positive developments in the economy, “what has caused this unprecedented run up?”

It’s a fair question, and no concrete answers seem to be at hand.

Let’s examine what we DO know:

1. Unemployment continues to be an ongoing problem. We have seen some incremental improvements in the number of people losing their jobs, but the numbers remain staggering.

2. The housing problem, and the credit crisis that has accompanied it, is far from resolved. Further, the problems in commercial real estate loans remain unaddressed.

3. On the other hand, September consumer spending numbers were fairly encouraging. (with the exception of the automobile market)

4. Our government continues to overspend and the deficit is a number nearly beyond comprehension.

There are a host of other factors, both positive and negative, that could be added to the list and be considered important. Overall, though, the news has generally been less-than-positive and the market run up is difficult to decipher. Several articles in ‘MarketWatch” claim they we have created a stock market bubble that is set to implode at any given moment, and you could make coherent arguments to support that supposition.

Other pundits, claim this market rally is a natural reaction to the public’s perception of the end of the recession. Several economists have already declared the recession is ended and good times are headed our way. I think this is a far more difficult argument to sustain, as the news and economic reports certainly don’t provide a huge amount of ammunition to support this argument. Sure, there has been a smattering of good news here and there, but I would not describe the news as an “avalanche” of great news. Far from it.

So, in my opinion, we find ourselves on shaky ground. I honestly cannot predict another market meltdown, though the volume in this rally has not been impressive. But a round of rosy economic reports would support the bulls in argument that the market has turned around. I suppose the opposite would be true, also.

My expectation is for several months of conflicting reports about the state of the economy which will keep the market in the 9,000-10,000 range, whether it should actually be there or not. But one thing that deeply disturbs me is this: I feel like the employment situation must start to improve before any real recovery can be proclaimed. There are simply too many Americans out of work and having little luck finding employment.