. February 22, 2008 SouthAmerica: I want to remind the readers that we still are just in the 2nd month of 2008. The US financial markets are going to redefine the magnitude of a financial MELTDOWN in the near future. Keep it tuned if you want to see the domino effect.... ****** RGE Monitor February 22, 2008 "Corporate Debt Defaults on the Rise in the U.S." The U.S. high yield default rate has been very low for several years. However, corporate defaults and bankruptcies have risen sharply in 2008. The total value of corporate-bond defaults is already approaching the total for all of 2007; and a number of LBOs have also gone into bankruptcy. Source: http://www.rgemonitor.com/ .
. March 1, 2008 SouthAmerica: In the latest issue of Business Week they published an article about Lessons from the Depression. That is not good when a major US business magazine starts preparing the US population for the First Great Depression of the New Millennium. I donât know if the New Great Depression qualifies to be considered as a black swan event. ******** Business Week February 29, 2008 âLessons from the Depressionâ Bernanke, a student of the era, is likely to avoid the errors made then and keep rates lowâdespite inflation By Peter Coy Testifying on Capitol Hill on Feb. 27, Federal Reserve Chairman Ben Ber-nanke explained the central bank's policy dilemma. On one hand, he said, "financial markets continue to be under considerable stress," and the risks to the economic outlook "remain to the downside." The right treatment for those problems is lower interest rates. On the other hand, he said, inflation has risen. The orthodox remedy for that is higher rates. One day before his semiannual testimony, the government said producer prices soared in January, bringing the annualized increase over the past three months to nearly 11%. So far Bernanke and his colleagues have chosen the side of cutting rates, betting, he said on Feb. 27, that inflation will "moderate significantly." But if higher inflation sticks, the Fed's policy dilemma will sharpen. What would Bernanke do then? One clue comes from his academic work on the Great Depression, which oddly enough posed a similar dilemma then for the newly formed Fed. Bernanke has written that the Federal Reserve itself worsened what would have been an ordinary recession beginning in August, 1929. The Fed, he said in a 2002 speech, ignored severe troubles in the banking system and kept rates high to keep gold from escaping abroad. The parallels between the Great Depression and now are instructive, if inexact. In the 1920s there was a stock market surge, a tech craze (in radio), and a real estate bubble (in Florida). The Fed should have cut rates when the economy toppled and banks failed, but instead it kept them high in the mistaken belief that they were essential to keep the dollar's link to gold. (High rates persuaded foreigners to hold dollars instead of exchanging them for gold.) Bernanke cited research showing that the longer countries remained on the gold standard during the 1930s, the deeper their economic depressions. Today, the roughly equivalent policy mistake would be keeping rates too high out of fear of inflation. The Fed chief may well lean against making that error because his intuitions have been shaped by his Depression research. "Bernanke is highly aware of the central bank's role as a lender of last resort to prevent serious disruptions to the financial system," says Barry Eichengreen, a University of California at Berkeley economist. That's not to say Bernanke's choice is easy. If higher inflation becomes entrenched, the Fed eventually will be forced to tame it by raising rates. It took two punishing recessions from 1980 to 1982 to extinguish the 1970s' inflation. Meanwhile, complex financial innovations such as securitization make it harder for the Fed to get a read on financial conditions, let alone influence them. So anything's possible. Says Eichengreen: "Central bankers are kind of making things up as they go." FED DISSENSION Under Bernanke, the Fed has already cut the federal funds rate by 2.25 percentage points, to 3%. The lower that rate gets, the more resistance to cuts he will face. Richard W. Fisher, president of the Federal Reserve of Dallas, the lone dissenter from the bank's Jan. 30 cut, said in a Feb. 7 speech in Mexico City that easy money is like "truly great tequila"âtasty but dangerous. The question is whether Bernanke will defer to those who oppose cuts. He once said the Depression occurred in part because "the central bank of the world's economically most important nation in 1929 was essentially leaderless and lacking in expertise." If that's his attitude, he may decide that leadership lies in cutting rates as long as needed to steer the economy clear of danger. Source: http://www.businessweek.com/magazine/content/08_10/b4074032136211.htm?chan=search ********* The Black Swan: The Impact of the Highly Improbable, by Nassim Nicholas Taleb Taleb is the philosopher of randomness who coined the phrase "known unknowns", made famous by Donald Rumsfeld. Born in Lebanon, he was shocked at how quickly this "stable paradise" degenerated into civil war. As a Wall Street analyst, he experienced the stock market crash of black Monday on October 19 1987. The unexpectedness of these events convinced him our view of the world was wrong. Our minds are "incapable of accepting the idea of unpredictability". We may not realise it but the world is dominated by "the extreme, the unknown, and the very improbable". Taleb argues that "highly improbable consequential events" - aka black swans - shape history. He scorns those economists who reduce the complexity of events to universal equations and neatly plotted bell curves. According to Taleb, in the era of globalisation, we are more vulnerable to "explosive" black swans. "I shiver at the thought," says Taleb, speculating on the scale of the next economic crisis. The Black Swan is bombastic and pugnacious, yet the essence of this over-long book - that we should expect the unexpected - is timely and important. *** By the way, tomorrow I am going to start reading the book âBad Samaritan.â But as soon I am done with that book I am going to read âThe Black Swan.â I just read the table of contents, and a few pages but these two books look very interesting to me. .
. March 1, 2008 SouthAmerica: Here is further information about the book: "The Black Swan" The Impact of the Highly Improbable A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. The astonishing success of Google was a black swan; so was 9/11. For Nassim Nicholas Taleb, black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives. Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Taleb, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we donât know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the âimpossible.â For years, Taleb has studied how we fool ourselves into thinking we know more than we actually do. We restrict our thinking to the irrelevant and inconsequential, while large events continue to surprise us and shape our world. Now, in this revelatory book, Taleb explains everything we know about what we donât know. He offers surprisingly simple tricks for dealing with black swans and benefiting from them. Elegant, startling, and universal in its applications The Black Swan will change the way you look at the world. Taleb is a vastly entertaining writer, with wit, irreverence, and unusual stories to tell. He has a polymathic command of subjects ranging from cognitive science to business to probability theory. The Black Swan is a landmark bookâitself a black swan. About the Author Nassim Nicholas Taleb has devoted his life to immersing himself in problems of luck, uncertainty, probability, and knowledge. Part literary essayist, part empiricist, part no-nonsense mathematical trader, he is currently taking a break as Deanâs Professor in the Sciences of Uncertainty at the University of Massachusetts at Amherst. His last book, the bestseller Fooled by Randomness, has been published in nineteen languages. Taleb lives mostly in New York. .
Excellent Commentary...Very Insightful ........................................................................................ It certainly appears that the low rate environment of Japan has a lot of lessons in it as well.... Think of things this way.... When a normal bonified hard working individual cannot retire on savings....a large part of the problem is that there is no reward regarding the interest rates available.... If one has saved $500,000 and the rate of interest is 7%, then $35,000 is available.... If one has saved $500,000 and the rate of interest id 1%, then $5000 is available.... This is the Japan story.... Furthermore....once down at these levels ...the way back to normalcy is equally painful....The holders of low interest rate debt will watch their equity go up in smoke as well....Just look at what happens to a 2% long term bond at par when rates go back to 7%.....and it will be the retail players that will foot this bill.....again....The real story though is about asset valuation as rates change.....Values become highly unstable.... .................................................................................................... If this is the only route to take....for a nation...to tell its retirees that no they can no longer retire on their hard earned savings...what kind of nation is this ? These people cannot wind back the clock and go to work again.....nor is it proper to change the rules towards the end of the game.... ...................................................................................................... But this is where the US is now.....and is in this position because of gross negligence and mismanagement of assets... .............................................................................................. I do have one prospective idea for savers that could help all countries.... What if there was a bank...whereby all currencies were available with interest rates payable at their current Central Bank rates... This would attract savings which would provide a more direct balancing of all currencies... Right now ...the larger banks play this game to some degree...but what I am talking about is to bring this to the retail level... Thus forming a true World Bank... http://www.fxstreet.com/fundamental/interest-rates-table/ And this is now possible...via the internet... If a retiree would have had this available for the Brazilian Real since 2002...he would have doubled his money while receiving over 17% on average in interest.... This is not a pie in the sky concept.... .................................................................................................... Other areas to promote efficiency.... E Education E Government E World Bank Zone equities Non oil, non food, origin local...based energy Medicine not as a business IRS elimination Legal Largesse elimination ................................................................................................. I hear and read more about problems than I do about solutions... And these are are going to be addressed in the future by default.... That is right...going in these directions is going to happen anyway.....why wait around ? Life is all about solving problems and moving on.... Everyone needs to get into solution mode....
Looks like you were right about the losses being far larger than people were talking about a month ago given the recent UBS paper predicting write downs of $600 Billion. Nevertheless I still think that talk of depression is not indicated. Play the devils's advocate for a minute and think about ways in which the system could be saved, not the economy from a recession but the financial system and the country from a depression and it doesn't take a lot of creative thinking to come up with some easy solutions.
Blah; Blah; Blah; we needs new scams to offload new shits that we will create. However; natural wastes can turn into great fertilizer for things to grow; but this kind waste only bring hardship for common people; aka sheeples and slaves.
Great comment SA> I like how the author describes goog as a black swan event... people tend to ignore bull side black swans... and focus on the bear side ones... For example, last friday, that rip 10 minutes before the close looked to me like a black swan event. What's the problem with a bullside black swan? It adds volatility to the market. One common denomitator of the current situation has been rising volatility and volume. [we're seeing bandwidth requirements from all exchanges that grow exponentially] I think that as volatility goes up, a black swan becomes a more likely event... Regarding Helicopter Benny... His analisys of the great depression is incomplete. He forget's to ask himself the question: what did they know then that Im forgetting now. Why did they choose not to lower rates in 29? Why was it so important to them to keep rates high and a strong currency? We're probably going to find out soon.
. March 3, 2008 SouthAmerica: Reply to Libertad, Mvic, and Eusdaiki Sorry, but I could not respond to your last reply, since my account had been disabled on this forum for a few days by the moderator of these forums, because of my posting about the Daily Kos website. Finally, today I was able to talk to Baron Robertson, and the issue has been resolved and my account have been reactivated. ***** In the meantime, on Saturday, March 1, 2008 The New York Times published an article by Floyd Norris âBuffettâs State of the World: Thereâs Folly in Wonderlandâ - Warren Buffett's overview of Berkshire Hathaway's investments included disclosure of a position in Brazil's currency. The article said among other things: âThe billionaire investor Warren E. Buffett disclosed Friday that he had earned profits for shareholders of Berkshire Hathaway by speculating in the Brazilian currency, the real⦠⦠Mr. Buffett said the companyâs only direct foreign currency exposure last year was in the Brazilian real, an investment he conceded might seem odd. âAfter all, during the past century, five versions of the Brazilian currency have, in effect, turned into confetti,â he said. But the real position earned $100 million in 2007, according to the report.â Source: http://www.nytimes.com/2008/03/01/b...em&ex=1204520400&en=b942a9727f3abf18&ei=5087 I also saw Warren Buffett this morning on CNBC the Wall Street show and he was live from 6 AM to 9 AM answering questions from viewers and from the talking heads of that show. Here we have one of the brightest investment minds around and instead of asking a million interesting questions â some Jackass send an email to ask Warren Buffett what he puts on his hamburger. Here we have one of the great investors of all time answering questions â and someone has the chance to ask a question of his lifetime â and all that person wanted to know is what Mr. Buffett with his hamburger â what is scary is that there are millions of people out there and they have the right to vote. Anyway, when I was reading the article on The New York Times, which was a summary of Mr. Buffett wrote on his annual letter to shareholders I found interesting the following and I quote again: âThe billionaire investor Warren E. Buffett disclosed Friday that he had earned profits for shareholders of Berkshire Hathaway by speculating in the Brazilian currency, the real⦠⦠Mr. Buffett said the companyâs only direct foreign currency exposure last year was in the Brazilian real, an investment he conceded might seem odd. âAfter all, during the past century, five versions of the Brazilian currency have, in effect, turned into confetti,â he said. But the real position earned $100 million in 2007, according to the report.â Today, if I had the opportunity to ask a question to Mr. Buffett my question would be: you made a nice change by investing in the Brazilian real against the US dollar and donât you find ironic that today the US dollar currency that it is turning into confetti? I also would like to know how long it will take for the United States to adopt a New US Dollar â after the current version of the US dollar has become almost worthless. The New United States Currency - The New US Dollar. http://www.elitetrader.com/vb/showthread.php?s=&threadid=86842 I understand Treasury Secretary Hank Paulsen wants to faze out the penny â it is a good idea since the value of the $ 1.00 US dollar coin has declined so much that the purchasing power of $ 1.00 is approaching the value and buys as much as a penny used to buy not long ago. Ben Bernanke is going to continue his efforts in helping with the bailout of the major US banks, and he will continue cutting the Fed Funds rate, and at the same time he is helping create a new wave of inflation that probably is going to spiral completely out of control in the future. I wonder what is Paul Volckersâ opinion right now on this subject. Not what he has to say in public, but what he is probably saying in private to his close associates? The US dollar is reaching the level of the black hole â after that what is going to happen to the US currency? Maybe the birth of The New US Dollar. After a reverse split of the current US dollar based on a conversion rate of 100 to 1. .
south america, I sense you are perhaps a little upset that when you decide to pack your bags and move back to Brazil, your US $ savings won't buy you much back home after all these years living "abroad".
Excellent Commentary as Usual.... Want to know how to make a stronger currency ? You Chavez it ....just lop off some 0000's.... Or you could Bush/Cheney it.... Then presto....a strong looking new currency ...... ...................................................................................... With Brazil's recent oil discovery.....the future for Brazil and its currency is very promising indeed.... ................................................................................ In Latin America the politicians have a unique way of taking care of inflation....they just increase their own pay...then problem solved....The sad thing is....I am not joking.....