Sorry, but I am not buying that 666 was a "generational low", definitely not in real terms.
If high inflation kicks in, then my guess is 666 may remain the nominal generational low. However, the requisite inflation rate will be economically, socially, and politically destabilising, and will have unintended and unknown consequences, which may backfire and reduce the nominal price of equities.
In all scenarios, I expect multiple lower lows than 666 in the next decade, if stocks are measured in real terms, i.e. adjusted for true inflation. The only remaining question is whether there is any risk-free investment that can protect assets from true inflation, and I don't know of one except physical gold, which is hard to obtain and hold safely in any considerable quantity.
Stock Market Returns: What Is in Store? [View article]
Thank you for a very interesting set of graphs and statistics. Although I had'nt seen this sort of presentation, the conclusion is very similar to my own investing philosophy to only commit my savings to stocks when stocks are "fairly valued", which in my investing lifetime happened in '79-'83, '90-'93 (more so in Europe), late 02-early 03, and late 08-early 09. In between these periods of intense buying, which have been getting shorter, I just keep my saved assets in cash, waiting for the next buying opportunity.
The main mistake I made in the past is getting too emotionally attached to the excellent dividend-paying companies I have owned, and thus failing to sell when equities get too inflated, which is most of the time between the brief buying opportunities. I finally learned, and have been taking profits steadily off the table in this astounding rally, but taking them slowly, since I've also learned that most market participants' idea of "fair value" greatly exceeds mine.
Wall Street Breakfast: Must-Know News [View article]
A few years ago, if someone had told me that the govt will loot productive taxpayers to pay egregious bonuses to wealthy bankers, who are so idiotic that they cannot manage their own business on a sound basis, I would have thought they were joking.
But the bad joke has come true, and keeps getting worse, because now we appear set for an endless subsidy from productive Americans to all irresponsible consumers of houses, autos, vacations, etc, just to maintain an ecologically disastrous level of unmerited, immoral, and destructive over-consumption.
This process is endless and feeds on itself, and will snowball as more people discover that they can simply consume things without paying for them. Unless the madness is halted, and soon, the collapse in public morality and responsibility will become irreversible.
Johnson and Kwak's '13 Bankers' Makes an Important Contribution to the Free Market Debate [View article]
I am constantly bemused by those who accept, without any further logical analysis, the notion of "too big to fail" or TBTF.
If "fail" means that all the employees lose their jobs, and all customers and counter parties are left holding the bag, then failure of a large institution would indeed wreak havoc, and TBTF is certainly a valid notion.
On the other hand, if "fail" means that a court receiver is appointed, top management replaced, shareholders lose their equity, and bond holders take a haircut, then failure would have no broad economic consequences beyond the banks' investors. This is economically and socially desirable in a capitalist free market system.
It is absurd and illogical that the taxpayers would bear the burden of making whole the bond-holders of any failed bank. These bond-holders failed to exercise due dilligence regarding how their capital was being misused for unpayable loans in the pursuit of fraudulent profits. As such, they are the ones who should bear the loss, not the taxpayers. It is even more absurd that the taxpayers should bear the cost of compensating the banks' equity holders, which is an affront to the principles of a free market and a free society.
The ratios of "DIF Damage" to "Assets" is truly appalling. Some basic math shows that on aggregate, the total "DIF Damage" for this group is 39% of their total "Assets".
Can lending have been truly that irresponsible, to the extent of losing almost 40% of the "assets", or could there be deliberate malfeasance involved?
If these ratios are representative, then it is hard to believe that the crisis is over or that it can be contained. After all, these losses have to be borne by productive members of society in some form, either taxing their earnings or inflating away their savings, and the sheer magnitude of this burden will cripple productive people and enterprises and reduce our competetiveness.
The scale of the bubble created since 2003 was so massive, that RE will fall from current levels by 50% in real terms. Inflation can reduce the drop in nominal terms, and so partly mask the inevitable and on-going decline. For example RE may stay flat in nominal terms for five years of 15% inflation, which doubles the price of everything else.
I doubt that 15% US inflation can be engineered without domestic social chaos and global financial havoc, so we are more likely to see inflation in the 6-8% range. This means that in five years RE will have dropped by another 30%, and cost of living will have climbed by 40%, both in nominal terms, and RE will have returned to trend relative to other prices.
Meanwhile, public finances in the US will have become a total wreck as Fannie, Freddy, and more bailouts of every sort are piled upon the public balance sheet in an attempt to prevent the logical and the inevitable.
Greece and the Euro: Sideshow of a Main Show's Sideshow Note [View article]
The figures you show of GDP @ PPP suggest that Greece's economy is 1/6th of Germany's struck me as suspect, so I checked the CIA factbook, and it puts Greece's economy at 1/8th-1/9th of Germany's, which makes more sense.
The reality is that the on-going and expanding philosophy of endless bailouts at every level, countries, banks, industries, and individuals, is clearly unsustainable, because the bailees keep increasing as the world runs out of bailers. Sooner or later, something will give, and the longer this absurdity goes on, the greater the eventual implosion.
Germany should stand steadfast, let Greece collapse and be a lesson to the other irresponsible whiners, PIGS and others, waiting in line. Its time for responsibility to begin its slow and arduous return.
Why I'm Now Less Optimistic About Credit Crisis [View article]
Too big to fail (TBTF) is an illusion invented and marketed by those who own the TBTF banks and their PR machines. The Bush/Obama administration bought into this fallacy and bailed them out, and keep constructing all kinds of new and hidden bailouts for them, like $75 bn for mortgage modifications, Fannie & Freddie having unlimited taxpayer support to buy their garbage MBS/ABS, etc....
Reality is that cost to the taxpayer would have been far lower with outright nationalisation as espoused by MIT's Simon Johnson. If we had done the right thing and nationalised them, the economy would have been far better off, and they would have been sold back to the investing public in 4-6 years as healthy institutions. As it stands, they are zombies that will require on-going bleeding of the public purse for an indefinitely long period.
PG is an excellent and well run company. I've owned modest positions for decades under my old-fashioned buy-and-hold approach which I've been learning to modify recently (recently for me is since 1998). During last year's correction, I added several large chunks in the $47-$49 range intending to keep them as a pillar of my retirement for the long haul. However, when it reached $62-$64 I could not resist unloading most of my positions for long-term gains of around $15/share on the large chunks acquired in Spring 2009, to effectively cash in the next seven years' worth of dividends @ 15% federal tax rate.
My logic is that (a) the effective tax rate on dividends appears set to climb to over 40%, possibly over 45% with all the various stealth tax additions that don't make it to the headline rate, especially with new goodies to "fund healthcare reform", so with state taxes it would likely exceed 50%. This means that I cashed-in the next twelve years' worth of after-tax dividends last week, i.e. the dividends between now and 2022, and who knows who will still be around by then. (b) With the dead rats under the rug and the skeletons in the closet, I still see a better than 50-50 chance of another significant dip creating better buying opportunities within the next couple of years, so a bird in hand .....
Why I'm Now Less Optimistic About Credit Crisis [View article]
Cliff, A fine example of malinvestment can be seen in the hundreds of thousands of oversized McMansions whose occupants did not need and cannot afford to pay for, let alone heat and maintain.
Why I'm Now Less Optimistic About Credit Crisis [View article]
Robert,
Your language indicates that you are an intelligent and educated person, but you are victim of the common left wing fallacy that all wealth is bad, regardless of whether it is earned or stolen.
Earned wealth is good for those who earn it and for society as a whole, because those who earn it create progress, jobs, and national prosperity. High-profile examples include Bill Gates, Sergey Brin, etc.
Stolen wealth, through financial manipulation and corruption is a major problem for modern society, and examples abound in our financial "services" "industry" (what an oxymoron!).
Unfortunately, the populist backlash against all wealth, without distinction between the earned type and the stolen type, is going to lead to a crippling decimation of the most productive 1% of society who create its prosperity, as they are lumped along with the wealthy and corrupt manipulators. The solution is not to punish the true wealth producers with egregious taxes, but to prevent parasitic looting by corrupt and unproductive manipulators.
While there may be short-term positive momentum in stocks, underlying economic fundamentals appear worse than in the Fall of 2008. The fundamental problems that caused the most recent crash are all in place, albeit exacerbated by a mountain of new debt and a takeover by the government of an excessive portion of the economy. This, unfortunately, is the big picture, and until it changes, equities are overpriced relative to basic economic fundamentals, hence prone to another debacle.
Wall Street Breakfast: Must-Know News [View article]
"..The White House's latest attempt to stem the foreclosure crisis is a program that allows homeowners to sell their houses for less than what they owe, and gives them some money ..."
Hmmm... I wonder where that money will come from ... perhaps from further taxation of the productive? or perhaps from further debasement of prudent peoples' savings? Not to worry, at least it may buy some votes in November.
You state "I would challenge those who fantasize about a consumer-led recovery to describe where the spending money will come from...."
Here is where the sepnding money will come from: The govt will fleece productive people through egregious taxation, loot savers through monetary debasement, and pass on their earnings and savings to subsidize continued overconsumption by the unproductive. This will kick the can down the road, until the efficient have lost incentive to over-produce beyond what they need to consume, and savers have been squeezed dry, and only then will the inevitable set in.
20 Signs That Could Mark a Top [View article]
If high inflation kicks in, then my guess is 666 may remain the nominal generational low. However, the requisite inflation rate will be economically, socially, and politically destabilising, and will have unintended and unknown consequences, which may backfire and reduce the nominal price of equities.
In all scenarios, I expect multiple lower lows than 666 in the next decade, if stocks are measured in real terms, i.e. adjusted for true inflation. The only remaining question is whether there is any risk-free investment that can protect assets from true inflation, and I don't know of one except physical gold, which is hard to obtain and hold safely in any considerable quantity.
Stock Market Returns: What Is in Store? [View article]
The main mistake I made in the past is getting too emotionally attached to the excellent dividend-paying companies I have owned, and thus failing to sell when equities get too inflated, which is most of the time between the brief buying opportunities. I finally learned, and have been taking profits steadily off the table in this astounding rally, but taking them slowly, since I've also learned that most market participants' idea of "fair value" greatly exceeds mine.
Wall Street Breakfast: Must-Know News [View article]
But the bad joke has come true, and keeps getting worse, because now we appear set for an endless subsidy from productive Americans to all irresponsible consumers of houses, autos, vacations, etc, just to maintain an ecologically disastrous level of unmerited, immoral, and destructive over-consumption.
This process is endless and feeds on itself, and will snowball as more people discover that they can simply consume things without paying for them. Unless the madness is halted, and soon, the collapse in public morality and responsibility will become irreversible.
Johnson and Kwak's '13 Bankers' Makes an Important Contribution to the Free Market Debate [View article]
If "fail" means that all the employees lose their jobs, and all customers and counter parties are left holding the bag, then failure of a large institution would indeed wreak havoc, and TBTF is certainly a valid notion.
On the other hand, if "fail" means that a court receiver is appointed, top management replaced, shareholders lose their equity, and bond holders take a haircut, then failure would have no broad economic consequences beyond the banks' investors. This is economically and socially desirable in a capitalist free market system.
It is absurd and illogical that the taxpayers would bear the burden of making whole the bond-holders of any failed bank. These bond-holders failed to exercise due dilligence regarding how their capital was being misused for unpayable loans in the pursuit of fraudulent profits. As such, they are the ones who should bear the loss, not the taxpayers. It is even more absurd that the taxpayers should bear the cost of compensating the banks' equity holders, which is an affront to the principles of a free market and a free society.
Friday Bank Failure Report [View article]
Can lending have been truly that irresponsible, to the extent of losing almost 40% of the "assets", or could there be deliberate malfeasance involved?
If these ratios are representative, then it is hard to believe that the crisis is over or that it can be contained. After all, these losses have to be borne by productive members of society in some form, either taxing their earnings or inflating away their savings, and the sheer magnitude of this burden will cripple productive people and enterprises and reduce our competetiveness.
Is Real Estate Rolling Over? [View article]
I doubt that 15% US inflation can be engineered without domestic social chaos and global financial havoc, so we are more likely to see inflation in the 6-8% range. This means that in five years RE will have dropped by another 30%, and cost of living will have climbed by 40%, both in nominal terms, and RE will have returned to trend relative to other prices.
Meanwhile, public finances in the US will have become a total wreck as Fannie, Freddy, and more bailouts of every sort are piled upon the public balance sheet in an attempt to prevent the logical and the inevitable.
Greece and the Euro: Sideshow of a Main Show's Sideshow Note [View article]
www.cia.gov/library/pu...
The reality is that the on-going and expanding philosophy of endless bailouts at every level, countries, banks, industries, and individuals, is clearly unsustainable, because the bailees keep increasing as the world runs out of bailers. Sooner or later, something will give, and the longer this absurdity goes on, the greater the eventual implosion.
Germany should stand steadfast, let Greece collapse and be a lesson to the other irresponsible whiners, PIGS and others, waiting in line. Its time for responsibility to begin its slow and arduous return.
Why I'm Now Less Optimistic About Credit Crisis [View article]
Reality is that cost to the taxpayer would have been far lower with outright nationalisation as espoused by MIT's Simon Johnson. If we had done the right thing and nationalised them, the economy would have been far better off, and they would have been sold back to the investing public in 4-6 years as healthy institutions. As it stands, they are zombies that will require on-going bleeding of the public purse for an indefinitely long period.
Procter & Gamble: Stock Dividend Analysis [View article]
My logic is that (a) the effective tax rate on dividends appears set to climb to over 40%, possibly over 45% with all the various stealth tax additions that don't make it to the headline rate, especially with new goodies to "fund healthcare reform", so with state taxes it would likely exceed 50%. This means that I cashed-in the next twelve years' worth of after-tax dividends last week, i.e. the dividends between now and 2022, and who knows who will still be around by then. (b) With the dead rats under the rug and the skeletons in the closet, I still see a better than 50-50 chance of another significant dip creating better buying opportunities within the next couple of years, so a bird in hand .....
Why I'm Now Less Optimistic About Credit Crisis [View article]
Why I'm Now Less Optimistic About Credit Crisis [View article]
Your language indicates that you are an intelligent and educated person, but you are victim of the common left wing fallacy that all wealth is bad, regardless of whether it is earned or stolen.
Earned wealth is good for those who earn it and for society as a whole, because those who earn it create progress, jobs, and national prosperity. High-profile examples include Bill Gates, Sergey Brin, etc.
Stolen wealth, through financial manipulation and corruption is a major problem for modern society, and examples abound in our financial "services" "industry" (what an oxymoron!).
Unfortunately, the populist backlash against all wealth, without distinction between the earned type and the stolen type, is going to lead to a crippling decimation of the most productive 1% of society who create its prosperity, as they are lumped along with the wealthy and corrupt manipulators. The solution is not to punish the true wealth producers with egregious taxes, but to prevent parasitic looting by corrupt and unproductive manipulators.
The British Canary Keels Over? [View article]
Wall Street Breakfast: Must-Know News [View article]
Hmmm... I wonder where that money will come from ... perhaps from further taxation of the productive? or perhaps from further debasement of prudent peoples' savings? Not to worry, at least it may buy some votes in November.
The FDIC Needs to Get a Clue [View article]
Don't Bet on a Recovery [View article]
Here is where the sepnding money will come from: The govt will fleece productive people through egregious taxation, loot savers through monetary debasement, and pass on their earnings and savings to subsidize continued overconsumption by the unproductive. This will kick the can down the road, until the efficient have lost incentive to over-produce beyond what they need to consume, and savers have been squeezed dry, and only then will the inevitable set in.