Could the Dow Sink Another 50% by 2012? [View article]
Ignoring all the hype and complex analysis, and looking simplistically at a long-term chart suggests that S&P at about 750 +/- falls nicely on a smooth trend curve.
Since things revert to their mean, my guess (and only a guess) is that the stock market will oscillate around 750, between 600 and 900 on the S&P500 for the next two years. Occasional outbursts of wild optimism or pessimism may take it out of this range on either side, but my guess is that such passionate outbursts will be brief, on the order of a few weeks each.
Preserving Wealth During the Global Banking Crisis [View article]
Thank you for an excellent article. I do have a couple of comments, though.
First, you ask "Would holders of US money market funds agree to buy long-dated Treasuries in order to finance the deficit at historically low interest rates?". I am not sure this would work because:
(a) No one in his right mind will buy long-dated treasuries at interest rates that are likely to be dwarfed by the eventual inflation now being contemplated by the fed.
(b) TIPS supposedly yield above inflation, but official inflation is widely believed to be lower than actual inflation. Additionally, there is a tax on interest.
(c) If all cash went from money market funds into treasuries, where will the current commercial paper borrowers of money market funds get their short-term finance?
My second comment is in regards to your statement taking exception with Paulson's statement:
"The banks need to lend. They can’t hoard capital. But I do not believe it is proper or right for politicians or the government to tell banks whom to loan to and how to lend,” highlighting Paulson’s collusion with the banking elite. "
I am no fan of Paulson, but cannot fault this particular statement. I believe the banks would like to lend, because that is how they earn money.
However, banks cannot simply continue to throw money at uncreditworthy borrowers, because that is how they got us into trouble in the first place. Unfortunately, there are very few creditworthy companies or individuals who wish to borrow today. Individuals who have managed their affairs prudently are making their mortgage and credit card payments, and have far less interest in borrowing against their home equity to go on vacation or to again remodel their kitchen. Well-run companies that did not engage in leveraged buyouts of competitors at silly prices have lots of cash on their balance sheets, and no desire to borrow as they don't wish to expand or splurge in this environment.
Thus, the reality is that after the borrowing binge of the last decade, those who have good credit have little interest in borrowing, and those who wish to borrow are likley in trouble and are poor credit risks.
Could the Dow Sink Another 50% by 2012? [View article]
Since things revert to their mean, my guess (and only a guess) is that the stock market will oscillate around 750, between 600 and 900 on the S&P500 for the next two years. Occasional outbursts of wild optimism or pessimism may take it out of this range on either side, but my guess is that such passionate outbursts will be brief, on the order of a few weeks each.
Preserving Wealth During the Global Banking Crisis [View article]
First, you ask "Would holders of US money market funds agree to buy long-dated Treasuries in order to finance the deficit at historically low interest rates?". I am not sure this would work because:
(a) No one in his right mind will buy long-dated treasuries at interest rates that are likely to be dwarfed by the eventual inflation now being contemplated by the fed.
(b) TIPS supposedly yield above inflation, but official inflation is widely believed to be lower than actual inflation. Additionally, there is a tax on interest.
(c) If all cash went from money market funds into treasuries, where will the current commercial paper borrowers of money market funds get their short-term finance?
My second comment is in regards to your statement taking exception with Paulson's statement:
"The banks need to lend. They can’t hoard capital. But I do not believe it is proper or right for politicians or the government to tell banks whom to loan to and how to lend,” highlighting Paulson’s collusion with the banking elite. "
I am no fan of Paulson, but cannot fault this particular statement. I believe the banks would like to lend, because that is how they earn money.
However, banks cannot simply continue to throw money at uncreditworthy borrowers, because that is how they got us into trouble in the first place. Unfortunately, there are very few creditworthy companies or individuals who wish to borrow today. Individuals who have managed their affairs prudently are making their mortgage and credit card payments, and have far less interest in borrowing against their home equity to go on vacation or to again remodel their kitchen. Well-run companies that did not engage in leveraged buyouts of competitors at silly prices have lots of cash on their balance sheets, and no desire to borrow as they don't wish to expand or splurge in this environment.
Thus, the reality is that after the borrowing binge of the last decade, those who have good credit have little interest in borrowing, and those who wish to borrow are likley in trouble and are poor credit risks.
Bond Market Expecting Outright Depression [View article]