Thursday, September 30, 2010
Thursday, September 23, 2010
Thursday, September 9, 2010
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· In 2008, the S&P500© lost 37% while DTI gained 8.3%
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Thursday, September 2, 2010
What Is A Depression Anyway?
What Is A Depression Anyway, And Why We Continue To Be In It?
Submitted by Tyler Durden on 09/02/2010 11:27 -0500
• David Rosenberg
• Government Stimulus
• Gross Domestic Product
• Japan
• New Home Sales
• Personal Income
• Price Action
• Reality
• Recession
• recovery
• Rosenberg
• Unemployment
You will pardon us for posting two excerpts from David Rosenberg today, but this one is a must read, and explains more clearly than anything written on the matter why America is currently, and without doubt, in a depression, due primarily to ongoing secular changes in consumer and investor behaviour, something not experienced during mere recessions. As such any intraday or short-term bounces in the stock market that merely confirm that there was a liquidity injection by one player or another, or a successful short squeeze engineered by the wily folks at the custodian firms or due to simple headfakes, are completely irrelevant (especially with record implied correlations), as the long-term trend has only one way to go in the long-run. Down. Of course, those who believe they can time the moment when the last lingering support pillar collapses and everything tumbles down, are more than welcome to keep trying their top-ticking. We are confident that when the mass exodus begins, the HFT liquidity "support" of the market will be alive and well, and provide everyone with a perfectly acceptable exit price level...
WHAT IS A DEPRESSION ANYWAY?
A depression, put simply, is a very long period of economic malaise. A series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. In baseball parlance, we are in the third inning of this current debt deleveraging ball game.
You know you’re in a depression when interest rates go to zero and there is no revival in credit-sensitive spending.
The economy is in a depression when the banks are sitting on $1.3 trillion of cash and yet there is no lending going on to the private sector. It's otherwise known as a liquidity trap.
Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.
When almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months, you know you are in something much deeper than a garden-variety recession. True, we can’t see the soup lines; the soup lines are in the mail — 99 weeks of unemployment cheques for over 10 million jobless Americans. Don’t be lulled into the view that we are into anything remotely close to a normal economic cycle.
Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away. That is why, as per last week’s data releases, we saw existing home sales slide to 15-year lows and new home sales to record lows despite the fact that mortgage rates have tumbled to their lowest levels in modern history. There is no economic model that would tell you that declining mortgage rates should lead to lower home sales.
In a depression, radical changes occur in terms of social norms and spending behaviour. In recessions, people don't cancel their life insurance policies - as one example. But in a depression, tragically, that is what happens - almost 35 million Americans now have no such coverage, up from 24 million five years ago. This reflects the focus by households to pay down their debts at all costs and how companies have bolstered profits - by eliminating benefits.
More fundamentally, in a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between those two states.
After all, we are now in a situation where every 1-in-6 Americans is now receiving some form of government assistance — more than 50 million Americans, from food stamps, to Medicaid, to extended jobless benefits, are on one or more taxpayer-supported programs. That transcends the definition of a recession.
In a recession, everything would be back to a new high 33 months after the initial decline. This time around, everything from organic personal income to employment to real GDP to home prices to corporate earnings to outstanding bank credit are still all below, to varying degrees, the levels prevailing in December 2007.
Let’s be clear: After all the monetary, fiscal and bailout stimulus, the economy should be roaring ahead, as would be the case if the economy were coming out of a normal garden-variety recession. The fact that there has been no sustained response to all these efforts by the government to turn things around is a testament to the view that this is not actually a traditional recession at all, but something closely resembling a depression. That, my friends, is exactly what the bond market is signaling, with Treasury yields rapidly approaching Japanese levels.
For all the chatter about whether the recession that started in December 2007 ended sometime last year, here is what you should know about the historical record. The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the first quarter of 1933.
What is important to know is this; in that initial four-year economic downturn, from 1929 to 1933, there were no fewer than six — six! - quarterly bounces in GDP data. The average gain in these up-quarters was 8% at an annual rate! But because they proved not to be sustainable, the National Bureau of Economic Research (NBER) refused to declare that the recession officially ended, even though the stock market rallied 50% in the opening months of 1930 on the belief that the downturn was about to end. False premise. And guess what? We may well be reliving history here. If you’re keeping score, we have recorded four quarterly advances in real GDP, and the average is only 3%.
I can understand how emotional the debate can get over whether or not we have actually just stumbled along some post-recession recovery path or whether or not this is actually a depression in the sense of a downward trend in economic activity merely punctuated with noise that is influenced by recurring rounds of government intervention. The reality is that the Fed cut the funds rate to zero, as was the case in Japan, to little avail. Then the Fed tripled the size of its balance sheet - again with little sustained impetus to a broken financial system. Government deficits of nearly 10% relative to GDP, or double what FDR ever ran during the 1930s, have obviously fallen flat in terms of providing and lasting impact to the economy.
This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to be extinguished either by paying it down or by walking away from it (or having it socialized). Look, we can understand the need to be optimistic, but it is essential that we recognize the type of market and economic backdrop we are in.
The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) we had a 2-year note auction that saw the yield dragged to new record low of 0.46%. Instead of lamenting over how attractively priced equities must be in this environment, market strategists and commentators would bring a lot more to the table if they tried to decipher what the macro message is from this price action in the Treasury market. Conducting stock market valuation analysis based on unrealistic consensus earnings assumptions does nobody any good, especially when these estimates are in the process of being cut.
If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $60 or $65 in the coming year as opposed to the current consensus view of almost $90. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 12x was actually buying the market with a 17x multiple.
How’s that for a reality check?
Submitted by Tyler Durden on 09/02/2010 11:27 -0500
• David Rosenberg
• Government Stimulus
• Gross Domestic Product
• Japan
• New Home Sales
• Personal Income
• Price Action
• Reality
• Recession
• recovery
• Rosenberg
• Unemployment
You will pardon us for posting two excerpts from David Rosenberg today, but this one is a must read, and explains more clearly than anything written on the matter why America is currently, and without doubt, in a depression, due primarily to ongoing secular changes in consumer and investor behaviour, something not experienced during mere recessions. As such any intraday or short-term bounces in the stock market that merely confirm that there was a liquidity injection by one player or another, or a successful short squeeze engineered by the wily folks at the custodian firms or due to simple headfakes, are completely irrelevant (especially with record implied correlations), as the long-term trend has only one way to go in the long-run. Down. Of course, those who believe they can time the moment when the last lingering support pillar collapses and everything tumbles down, are more than welcome to keep trying their top-ticking. We are confident that when the mass exodus begins, the HFT liquidity "support" of the market will be alive and well, and provide everyone with a perfectly acceptable exit price level...
WHAT IS A DEPRESSION ANYWAY?
A depression, put simply, is a very long period of economic malaise. A series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. In baseball parlance, we are in the third inning of this current debt deleveraging ball game.
You know you’re in a depression when interest rates go to zero and there is no revival in credit-sensitive spending.
The economy is in a depression when the banks are sitting on $1.3 trillion of cash and yet there is no lending going on to the private sector. It's otherwise known as a liquidity trap.
Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.
When almost half of the ranks of the unemployed have been looking for a job fruitlessly for at least six months, you know you are in something much deeper than a garden-variety recession. True, we can’t see the soup lines; the soup lines are in the mail — 99 weeks of unemployment cheques for over 10 million jobless Americans. Don’t be lulled into the view that we are into anything remotely close to a normal economic cycle.
Basically, in a depression, secular changes take place. Attitudes towards debt, discretionary spending and homeownership are altered for many years, or at least until the scars from the traumatic experience with defaults and delinquencies fade away. That is why, as per last week’s data releases, we saw existing home sales slide to 15-year lows and new home sales to record lows despite the fact that mortgage rates have tumbled to their lowest levels in modern history. There is no economic model that would tell you that declining mortgage rates should lead to lower home sales.
In a depression, radical changes occur in terms of social norms and spending behaviour. In recessions, people don't cancel their life insurance policies - as one example. But in a depression, tragically, that is what happens - almost 35 million Americans now have no such coverage, up from 24 million five years ago. This reflects the focus by households to pay down their debts at all costs and how companies have bolstered profits - by eliminating benefits.
More fundamentally, in a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between those two states.
After all, we are now in a situation where every 1-in-6 Americans is now receiving some form of government assistance — more than 50 million Americans, from food stamps, to Medicaid, to extended jobless benefits, are on one or more taxpayer-supported programs. That transcends the definition of a recession.
In a recession, everything would be back to a new high 33 months after the initial decline. This time around, everything from organic personal income to employment to real GDP to home prices to corporate earnings to outstanding bank credit are still all below, to varying degrees, the levels prevailing in December 2007.
Let’s be clear: After all the monetary, fiscal and bailout stimulus, the economy should be roaring ahead, as would be the case if the economy were coming out of a normal garden-variety recession. The fact that there has been no sustained response to all these efforts by the government to turn things around is a testament to the view that this is not actually a traditional recession at all, but something closely resembling a depression. That, my friends, is exactly what the bond market is signaling, with Treasury yields rapidly approaching Japanese levels.
For all the chatter about whether the recession that started in December 2007 ended sometime last year, here is what you should know about the historical record. The 1930s depression was not marked by declining quarterly GDP data every single quarter. In fact, the technical recessionary aspect to the initial period following the asset and credit shock goes from the third quarter of 1929 to the first quarter of 1933.
What is important to know is this; in that initial four-year economic downturn, from 1929 to 1933, there were no fewer than six — six! - quarterly bounces in GDP data. The average gain in these up-quarters was 8% at an annual rate! But because they proved not to be sustainable, the National Bureau of Economic Research (NBER) refused to declare that the recession officially ended, even though the stock market rallied 50% in the opening months of 1930 on the belief that the downturn was about to end. False premise. And guess what? We may well be reliving history here. If you’re keeping score, we have recorded four quarterly advances in real GDP, and the average is only 3%.
I can understand how emotional the debate can get over whether or not we have actually just stumbled along some post-recession recovery path or whether or not this is actually a depression in the sense of a downward trend in economic activity merely punctuated with noise that is influenced by recurring rounds of government intervention. The reality is that the Fed cut the funds rate to zero, as was the case in Japan, to little avail. Then the Fed tripled the size of its balance sheet - again with little sustained impetus to a broken financial system. Government deficits of nearly 10% relative to GDP, or double what FDR ever ran during the 1930s, have obviously fallen flat in terms of providing and lasting impact to the economy.
This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to be extinguished either by paying it down or by walking away from it (or having it socialized). Look, we can understand the need to be optimistic, but it is essential that we recognize the type of market and economic backdrop we are in.
The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) we had a 2-year note auction that saw the yield dragged to new record low of 0.46%. Instead of lamenting over how attractively priced equities must be in this environment, market strategists and commentators would bring a lot more to the table if they tried to decipher what the macro message is from this price action in the Treasury market. Conducting stock market valuation analysis based on unrealistic consensus earnings assumptions does nobody any good, especially when these estimates are in the process of being cut.
If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $60 or $65 in the coming year as opposed to the current consensus view of almost $90. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 12x was actually buying the market with a 17x multiple.
How’s that for a reality check?
Thursday, August 26, 2010
Congress Hypocrites? You Tell Me
Congress Calling for Legal Action Against Lenders who Sold Bad Debts to Fannie and Freddie
Posted by Carole VanSickle on Thursday, August 26th 2010
Earlier this week, we reported on a movement gathering momentum in Congress that would enable Fannie Mae and Freddie Mac to force lenders to buy back bad loans to help the mortgage giants recoup some of their combined $354 billion in losses due to delinquent mortgages and bad debt. Now, some members of the House of Representatives (Barney Frank, D-MA, and Paul E. Kanjorski, D-PA) are taking things a step further and calling for the president, both GSE’s and anyone else that they can get their hands on to use “all of [their] power to recover money” from underwriters and issuers of underwater securities that ultimately made their way to Fannie Mae and Freddie Mac [1].
The two representatives claim that Fannie and Freddie have cost taxpayers $150 billion to date, and blame a significant portion of these losses on “deception” on the part of “private companies [that] sold Fannie and Freddie loans or securities based on fraudulent documents.” Now, I am certainly not saying that there was no fraud on the part of any lenders, and we all know that some pretty lousy mortgages made it through the underwriting process in the past decade. But wasn’t this partly because of the lenient and even aggressive policies that not only encouraged but rewarded and even demanded these types of loans? Why should only half of the guilty parties pay the price now, especially when Fannie and Freddie were bailed out specifically to help disperse these losses?
Thank you for reading the Bryan Ellis Real Estate Letter! Your comments and questions are welcomed below.
Read more: http://realestate.bryanellis.com/2359/congress-calling-for-legal-action-against-lenders-who-sold-bad-debts-to-fannie-and-freddie/#rIFcQfPBtTWy#ixzz0xjz9fc2G
Posted by Carole VanSickle on Thursday, August 26th 2010
Earlier this week, we reported on a movement gathering momentum in Congress that would enable Fannie Mae and Freddie Mac to force lenders to buy back bad loans to help the mortgage giants recoup some of their combined $354 billion in losses due to delinquent mortgages and bad debt. Now, some members of the House of Representatives (Barney Frank, D-MA, and Paul E. Kanjorski, D-PA) are taking things a step further and calling for the president, both GSE’s and anyone else that they can get their hands on to use “all of [their] power to recover money” from underwriters and issuers of underwater securities that ultimately made their way to Fannie Mae and Freddie Mac [1].
The two representatives claim that Fannie and Freddie have cost taxpayers $150 billion to date, and blame a significant portion of these losses on “deception” on the part of “private companies [that] sold Fannie and Freddie loans or securities based on fraudulent documents.” Now, I am certainly not saying that there was no fraud on the part of any lenders, and we all know that some pretty lousy mortgages made it through the underwriting process in the past decade. But wasn’t this partly because of the lenient and even aggressive policies that not only encouraged but rewarded and even demanded these types of loans? Why should only half of the guilty parties pay the price now, especially when Fannie and Freddie were bailed out specifically to help disperse these losses?
Thank you for reading the Bryan Ellis Real Estate Letter! Your comments and questions are welcomed below.
Read more: http://realestate.bryanellis.com/2359/congress-calling-for-legal-action-against-lenders-who-sold-bad-debts-to-fannie-and-freddie/#rIFcQfPBtTWy#ixzz0xjz9fc2G
Friday, August 20, 2010
Steve Rattner and Nancy Pelosi
We close with a parting shot at Steve Rattner. You might recall us heckling Rattner earlier this year during a presentation at an elite investment conference in New York. We were flabbergasted that a guy like Rattner – who made hundreds of millions as a private-equity manager while his clients reportedly made almost nothing – would lecture a room of real investors about the supposed "evils" of income inequality. We booed him and then called him a joke – to widespread applause from the audience. (By the way, Vanity Fair reports about the spectacle in its current issue.)
Our booing, the negative press, and even a corruption indictment for bribing New York State pension officials don't appear to have slowed him down or weakened his impressive self-esteem. He is not only publishing a book that brags about his role in restructuring General Motors (where he arranged for the union to steal 20% of the company, despite the fact that the union's policies and strikes led to the firm's demise). Rattner now says the tens of billions of dollars the U.S. taxpayers are going to lose on the upcoming GM initial public offering are a great stimulus for the U.S. economy. I'm not making this up. Here's what Rattner told Fortune: "If the government loses $10 to $20 billion, that's one of the most effective stimulus programs around."
Apparently Rattner and Nancy Pelosi went to the same school of economics. (Remember, Pelosi said paying for people to stay unemployed was the best way to stimulate the economy...) If the government losing money in bailout after bailout was truly good for our country, why wouldn't the government simply print billions up every day and mail it randomly to people across the country? We could have new billionaires every day!
It has never occurred to these people (Rattner and Pelosi) that when you take money away from profitable and productive people (taxpayers) and give it (by the billions) to failed companies and unemployed workers, you're not stimulating anything but more failure. Or maybe it has occurred to them... but they're merely operating (successfully) under the new rules of Amerika, where everything is done to appease the mob.
Porter Stansberry
Our booing, the negative press, and even a corruption indictment for bribing New York State pension officials don't appear to have slowed him down or weakened his impressive self-esteem. He is not only publishing a book that brags about his role in restructuring General Motors (where he arranged for the union to steal 20% of the company, despite the fact that the union's policies and strikes led to the firm's demise). Rattner now says the tens of billions of dollars the U.S. taxpayers are going to lose on the upcoming GM initial public offering are a great stimulus for the U.S. economy. I'm not making this up. Here's what Rattner told Fortune: "If the government loses $10 to $20 billion, that's one of the most effective stimulus programs around."
Apparently Rattner and Nancy Pelosi went to the same school of economics. (Remember, Pelosi said paying for people to stay unemployed was the best way to stimulate the economy...) If the government losing money in bailout after bailout was truly good for our country, why wouldn't the government simply print billions up every day and mail it randomly to people across the country? We could have new billionaires every day!
It has never occurred to these people (Rattner and Pelosi) that when you take money away from profitable and productive people (taxpayers) and give it (by the billions) to failed companies and unemployed workers, you're not stimulating anything but more failure. Or maybe it has occurred to them... but they're merely operating (successfully) under the new rules of Amerika, where everything is done to appease the mob.
Porter Stansberry
GE "Government Electric?"
"I read Porter's analysis of GE's financial status and after doing my own reseach came to the same conclusion. Yet to date, GE is neither dead nor in a coma. Immelt seems to be well connected to the current administration. Is the government proping up the company similar to what it did for GM?" – Paid-up subscriber Butch
Porter comment: Actually, in some ways, what the government did for GE was much more valuable than what it did for GM. The government guaranteed nearly $300 billion in GE's debts. Probably no other force in the world could have saved GE from bankruptcy in the fall of 2008. Stupidly, the government didn't demand any substantial payment for that guarantee. Dumb, dumb, dumb.
But in any case, GE's problems really have nothing to do with liquidity. The problem is solvency. And more debt (or more guarantees) won't help the situation. They only forestall the inevitable. How do I know GE's problems are really about solvency, not just liquidity? Well, ask yourself the obvious question: How much is GE able to earn from its asset base? The answer is around $30 billion a year before taxes and interest. Its asset base is nearly $800 billion. Thus, its return on assets is a bit more than 3.5%. How can it afford to leverage these assets, when it's not generating enough income to cover reasonable interest? This analysis, by the way, doesn't even consider the massive losses GE faces from its investment into European mortgages.
Porter Stansberry
Porter comment: Actually, in some ways, what the government did for GE was much more valuable than what it did for GM. The government guaranteed nearly $300 billion in GE's debts. Probably no other force in the world could have saved GE from bankruptcy in the fall of 2008. Stupidly, the government didn't demand any substantial payment for that guarantee. Dumb, dumb, dumb.
But in any case, GE's problems really have nothing to do with liquidity. The problem is solvency. And more debt (or more guarantees) won't help the situation. They only forestall the inevitable. How do I know GE's problems are really about solvency, not just liquidity? Well, ask yourself the obvious question: How much is GE able to earn from its asset base? The answer is around $30 billion a year before taxes and interest. Its asset base is nearly $800 billion. Thus, its return on assets is a bit more than 3.5%. How can it afford to leverage these assets, when it's not generating enough income to cover reasonable interest? This analysis, by the way, doesn't even consider the massive losses GE faces from its investment into European mortgages.
Porter Stansberry
Roger Clemens
Poor Roger Clemens. It's bad enough to be exposed as a steroid user. And it's even worse to be caught lying about it (as it appears he has been). But the worst thing, from my perspective, is being accused of lying to Congress. I mean, that shouldn't even be a crime, should it? I thought you had to be a pretty damn good liar just to get into Congress. Imagine going to jail for doing something that nearly every other person in the room gets paid to do.
When it comes to lying to Congress, Clemens is a small-time perp. The big fish never get charged. Why haven't Hank Paulson and Ben Bernanke been investigated for the whoppers they told the world in front of Congress in July 2008? I watched both of them swear that Fannie and Freddie were "sound" and "well capitalized" just months before they completely collapsed. I knew they were lying and told you so at the time. What do you think is more important to our country... No. 1: On the record comments by the Secretary of the Treasury and the Chairman of the Federal Reserve about the solvency of government-backed financial institutions that were $10 trillion in debt and owned or guaranteed 50% of the mortgages in the United States? Or No. 2.: Whether or not Roger Clemens used steroids?
Porter Stansberry
When it comes to lying to Congress, Clemens is a small-time perp. The big fish never get charged. Why haven't Hank Paulson and Ben Bernanke been investigated for the whoppers they told the world in front of Congress in July 2008? I watched both of them swear that Fannie and Freddie were "sound" and "well capitalized" just months before they completely collapsed. I knew they were lying and told you so at the time. What do you think is more important to our country... No. 1: On the record comments by the Secretary of the Treasury and the Chairman of the Federal Reserve about the solvency of government-backed financial institutions that were $10 trillion in debt and owned or guaranteed 50% of the mortgages in the United States? Or No. 2.: Whether or not Roger Clemens used steroids?
Porter Stansberry
Monday, July 26, 2010
Wednesday, June 2, 2010
Monday, May 24, 2010
Tuesday, May 11, 2010
Monday, May 3, 2010
Wednesday, April 21, 2010
Tuesday, April 13, 2010
GOD is With Us
God is with us! Alleluia
His name is called Emmanuel,
More wonderful than words can tell.
God is with us! Alleluia!
Born in our darkness, He is Light.
Born in our weakness, He is might.
God is with us! Alleluia!
God is with us! Alleluia! Alleluia!
Rejoice, and lay aside your fear.
Rejoice, the Holy One is here.
God is with us! Alleluia!
Lift up your voices, come and sing.
Come worship Christ, the newborn King.
God is with us! Alleluia!
God is with us! Alleluia! Alleluia!
Praise God, from whom all blessings flow.
Praise Him, all creatures here below.
God is with us! Alleluia!
Praise Him above, ye heavenly host.
Praise Father, Son and Holy Ghost.
God is with us! Alleluia!
God is with us! Alleluia! Alleluia!
From Failure to Famous
From Failure to Famous
The stone which the builders rejected
has become the cornerstone.
(St. Mark 12:10 )
Woody Allen , Academy Award-winning writer/producer/director, flunked motion picture production at New York University and the City College of New York and failed English at N.Y.U. (The Best of Bits & Piece s, p. 60)
Who flunked first and fourth grades yet went on to become an astronaut ? Ed Gibson. (Glenn Van Ekeren, The Speaker's Sourcebook , p. 355)
Auntie Mame by Patrick Dennis: Some 17 publishers rejected this novel about a free-spirited older woman before Vanguard accepted it. An immediate hit, the book was soon made into a popular film starring Rosalind Russell. Ten years later a musical version of the play, now called Mame , started a long Broadway run. The film Mame was released in 1974. Total book sales have been around 2 million copies. (Wallace/Wallechinsky, The Book of Lists, #2 )
In the Irish uprising of 1848, the men were captured, tried and convicted of treason against Her Majesty, Queen Victoria. All were sentenced to death...
Passionate protest from all over the world persuaded the Queen to commute the death sentences. The men were banished to Australia --as remote and full of prisoners as Russian Siberia. Years passed. In 1874 Queen Victoria learned that a Sir Charles Duffy who had been elected Prime Minister of Australia was the same Charles Duffy who had been banished 26 years earlier. She asked what had become of the other eight convicts. She learned that:
Patrick Donahue became a Brigadier General in the United States Army.
Morris Lyene became Attorney General for Australia.
Michael Ireland succeeded Lyene as Attorney General.
Thomas McGee became Minister of.. Agriculture for Canada.
Terrence McManus became a Brigadier General in the United States Army.
Thomas Meagher was elected Governor of Montana.
John Mitchell became a prominent New York politician and his son, John Purroy Mitchell, a famous Mayor of New York City.
Richard O'Gorman became Governor of Newfoundland.
(Johnny Rocco, in Abundant Living magazine)
It is said that there is not a moment of the day when reruns of the madcap television series I Love Lucy are not playing somewhere in the world. Lucille Ball 's career didn't start off so well, however. She was once dismissed from drama school for being too quiet and shy.
(Paul Stirling Hagerman, It's a Weird World )
Big companies that went bankrupt :
1. Quaker Oats (3 times)
2. Pepsi-Cola (3 times)
3. Birds Eye Frozen Foods
4. Borden's
5. Aunt Jemima
6. Wrigley's (3 times) (Press-Telegram newspaper, Long Beach, CA)
In 1962 the Decca Recording Company turned down the opportunity to work with the Beatles . Their rationale? "We don't like their sound. Groups of guitars are on their way out." Of course, the Beatles turned that imminent failure into prominent success.
(Glenn Van Ekeren, The Speaker's Sourcebook )
Alexander Graham Bell , the inventor of the telephone, an invention without which the business world of today could not even begin to function, was hard pressed to find a major backer. In 1876, the year he patented the telephone, Bell approached Western Union, then the largest communications company in America, and offered it exclusive rights to the invention for $100,000. William Orton, Western Union's president, turned down the offer, posing one of the most shortsighted questions in business history: "What use could this company make of an electrical toy?"
(M. Hirsh Goldberg, The Blunder Book , p. 151)
Lee Strasberg, head of the famed Actors Studio, once told Robert Blake he could never learn to act. Blake went on to star in the popular American TV show Baretta and was voted outstanding actor in a dramatic series in 1975 by the U. S. Academy of TV Arts and Sciences.
(Ripley's Believe It or Not!: Book of Chance)
Best-selling books rejected by six or more publishers: And to Think That I Saw It on Mulberry Street , Theodor Geisel (Dr. Seuss); MASH , Richard Hooker; Kon-Tiki , Thor Heyerdahl; Jonathan Livingston Seagull , Richard Bach; Auntie Mame , Patrick Dennis.
(Wallace/Wallechinsky,The Book of Lists , #2)
Gregor Johann Mendel (1822-1884) the Austrian botanist who discovered the basic laws of heredity, never was able to pass the examination to become a full-fledged teacher of science.
(Ripley's Believe It or Not!: Weird Inventions and Discoveries, p. 67)
Winston Churchill did not become prime minister of England until he was 62, and then only after a lifetime of defeats and setbacks. His greatest contributions came when he was a senior citizen.
(Joe Griffith, Speaker's Library of Business , p. 250)
Discussing her early career as a would-be stage actress at England's Royal Academy of Dramatic Art, "Dynasty" star Joan Collins reveals that her first report card there contained a rather ironic assessment of her talents. It read: "Joan has a good personality and lots of stage presence. But she must try to improve her voice projection or she will wind up in films and TV, and that would be a pity." (People Weekly)
Turn On , a television series hosted by Tim Conway , proved to be a turn off. It premiered on February 5, 1969, and was cancelled the same day.
(Jack Kreismer, The Bathroom Trivia Book , p. 88)
Gary Cooper wore his best suit to a tryout for a western movie, but suspicious producers thought the big actor was a dude and made him prove he could ride--and fall off--a horse. He went on to a career that culminated in the classic High Noon , but before he made it big, Coop was fired and rehired by the movie bosses seven times.
(Ripley's Believe It or Not!: Book of Chance , p. 8)
Twenty dollars a week was all the salary Joan Crawford drew in her first job on the stage. She was a dancer in a road show which closed two weeks after it opened. (Sunshine magazine)
Edison knew 1800 ways not to build a light bulb. One of Madame Curie's failures was radium. Columbus thought he had discovered the East Indies. Freud had several big failures before he devised psychoanalysis. Rodgers and Hammerstein's first collaboration bombed so badly that they didn't get together again for years. The whole history of thought is filled with people who arrived at the "wrong" destinations . (Bits & Pieces)
Neil Diamond was on his way to becoming the first member of his family to graduate from college when he dropped out in his senior year to take a songwriting job with a music-publishing company. "It was a chance to step into my career," he explains. The job lasted only four months. Eventually, he was fired by five other music publishers. "I loved writing music and lyrics," he says, "and I thought, 'There's got to be a place for me somewhere.'" After eight years of knocking around and bringing songs to publishers and still being basically nowhere, I met two very successful producers and writers, Jeff Barry and Ellie Greenwich, who liked the way I sang. They took me from being a guy with a guitar to a guy who could make real records," he adds. (Claire Carter, in Parade magazine)
Dune by Frank Herbert: Herbert's massive science-fiction tale was rejected by 13 publishers with comments like "too slow," "confusing and irritating," "too long," and "issues too clear-cut and old fashioned." But the persistence of Herbert and his agent, Lurton Blassingame, finally paid off. Dune won the two highest awards in the science-fiction writing and has sold over 10 million copies. (Wallace/Wallechinsky, The Book of Lists, #2 )
Clint Eastwood was once told by a Universal Pictures executive that his future wasn't very promising. The man said, "You have a chip on your tooth, your Adam's apple sticks out too far, and you talk too slow." (Ed Lucaire, Celebrity Setbacks )
Thomas A. Edison (1847-1931) America's most prolific inventor, was granted 1,093 patents by the U.S. Patent office, more than anyone else--yet they included such duds as a perpetual cigar, furniture made of cement and a way of using goldenrod for rubber.
(Ripley's Believe It or Not!: Weird Inventions and Discoveries , p. 36)
Paul Ehrlich , the German bacteriologist, always performed badly at school, and he particularly loathed examinations. He had a flair for microscopic staining work, however, and this carried him through his education despite his ineptness at composition and oral presentations. He eventually used his talent with the microscope to develop the field of chemotherapy, and he was awarded a Nobel Prize in medicine in 1908.
(Wallace/Wallechinsky, The Book of Lists, #2 )
Albert Einstein did poorly in elementary school, and he failed his first college entrance exam at Zurich Polytechnic. But he became one of the greatest scientists in the history of the world.
(Charles Reichblum, Knowledge in a Nutshell , p. 137)
If starting your own business is what you'd like to do, please note that studies at Tulane University suggest the average entrepreneur fails 3.8 times before making it work. (L. M. Boyd)
Hope, can be increased and fears decreased when you keep in mind that failure, like success, is never fatal . God always has new experiences and surprises in store for us. Often what appears to be the end is, in the hands of God, a new beginning. (Victor M. Parachin, in Unity magazine)
William Faulkner failed to graduate from high school because he didn't have enough credits.
He bummed around the United States and Canada, enlisting in the Royal Canadian Air Force, trying to get into a university and later working as a postmaster until he was fired for reading on the job.
He then tried writing and had five books finished by 1930 but failed to earn enough money to support a family. But he kept going and became popular in the mid 1930's. He eventually received the Nobel Prize for Literature in 1949. (Ripley's Believe It or Not!: Book of Chance, p. 37)
Malcolm Forbes , the late editor-in-chief of Forbes magazine, one of the largest business publications in the world, did not make the staff of The
Princetonian , the school newspaper at Princeton University.
(The Best of Bits & Piece s, p. 60)
Henry Ford failed and went broke five times before he finally succeeded.
(Joe Griffith, Speaker's Library of Business , p. 250)
Henry Ford forgot to put reverse gear in the first car he manufactured. Then in 1957, he bragged about the car of the decade. It was the Edsel, renowned for doors that wouldn't close, a hood that wouldn't open, paint that peeled, a horn that stuck, and a reputation that made it impossible to resell. However, Ford's future track record contains more glowing productions. (Glenn Van Ekeren, The Speaker's Sourcebook , p. 150)
Who was dismissed from the psychiatric society in Vienna, Austria, only to become a world respected, prominent psychiatrist? Victor Frankl .
(Glenn Van Ekeren, The Speaker's Sourcebook , p. 355)
Past performance is usually a pretty good indication of a man's future potential--but not always.
In 1860 a thirty-eight-year-old man was working as a handyman for his father, a leather merchant. He kept books, drove wagons, and handled hides for about $66 a month.
Prior to this menial job the man had failed as a soldier, a farmer, and a real estate agent. Most of the people who knew him had written him off as a failure.
Eight years later he was President of the United States. The man was Ulysses S. Grant . (Bits & Pieces)
In World War II, the army classified thirty-three-year-old Joe Rosenthal as 4-F because he had one-twentieth normal vision, but he followed the fighting anyway as a war photographer. When the U. S. invaded the island of Iwo Jima under heavy Japanese fire, Rosenthal was there wearing his thick glasses and carrying two spare pairs.
At the top of Mount Suribachi he caught the greatest picture of the war--five marines and a navy corpsman raising the Stars and Stripes. Rosenthal became an immediate celebrity and his picture won the Pulitzer Prize. The flag-raising appeared on a three-cent stamp and broke all records for first-day-issue sales. On November 19, 1954, a seventy-five-feet-high sculpture of the raising was dedicated at Arlington National Cemetery.
(John & Claire Whitcomb, Oh Say Can You See , p. 101)
Eighteen publishers turned down Richard Bach's 10,000-word story about a "soaring" seagull, Jonathan Livingston Seagull , before Macmillan finally published it in 1970. By 1975, it had sold more than 7 million copies in the United States alone. (Joe Griffith, Speaker's Library of Business , p. 250)
One November night, Michael Jordan and I found ourselves alone, and he told me about being cut as a sophomore from his high-school basketball team in Wilmington, N.C. "The day the cut list was going up, a friend--Leroy Smith--and I went to the gym to look together," Jordan recalled. "If your name was on the list, you made the team. Leroy's name was there, and mine wasn't. I went through the day numb. After school, I hurried home, closed the door to my room and cried so hard. It was all I wanted--to play on that team." (Bob Greene, in Reader's Digest )
Who flunked the first grade and went on to become attorney general? Robert F. Kennedy . (Glenn Van Ekeren, The Speaker's Sourcebook )
When he was 22, he failed in business. When he was 23, he ran for the legislature and lost. When he was 24, he failed in business again. The following year he was elected to the legislature. When he was 26, his sweetheart died. At the age of 27, he had a nervous breakdown. When he was 29, he was defeated for the post of Speaker of the House in the State Legislature. When he was 31, he was defeated as Elector. When he was 34, he ran for Congress and lost. At the age of 37, he ran for Congress and finally won. Two years later, he ran again and lost his seat in Congress. At the age of 46, he ran for the U.S. Senate and lost. The following year he ran for Vice President and lost that, too. He ran for the Senate again, and again lost. Finally, at the age of 51, he was elected President of the United States. Who was this perpetual "loser"? Abraham Lincoln .
(Paul Stirling Hagerman, It's a Weird World , p. 74)
It's an historical fact that Carl Linder , the 1919 winner of the Boston Marathon, was rejected for military service because of flat feet.
(L. M. Boyd)
When Mickey Mantle graduated from Commerce High (Oklahoma) in 1949 he was not voted "Most Athletic." That's right, the man who possessed the greatest combination of power from both sides of the plate (he hit the longest home run in major league history, 565 feet in 1953) and speed (some experts suggested he could have won a track medal in the Olympics) lost out in the voting to his best friend, Bill Mosley.
(Jim Kreuz, in Baseball Digest )
Richard Hooker worked for seven years on his humorous war novel, M*A*S*H , only to have it rejected by 21 publishers before Morrow decided to publish it. It became a runaway best-seller, spawning a blockbusting movie and a highly successful television series.
(Joe Griffith, Speaker's Library of Business , p. 250)
Napoleon finished near the bottom of his class at military school, yet became one of the leading military men of all time.
(Charles Reichblum, Knowledge in a Nutshell , p. 138)
Lord Laurence Olivier is acknowledged by many critics as the greatest actor of the 20th century. However, his debut as an actor was less than auspicious. His first professional role was that of a policeman in a play called The Ghost Train . At his first entrance--the very first time he had ever set foot on the professional stage--he tripped over the door sill and fell headfirst into the floodlights. (Paul Stirling Hagerman, It"s a Weird World )
Charles Schulz, the cartoonist who draws " Peanuts ", was told by his high school's yearbook staff that his cartoons were not acceptable for the annual. But Charles Schulz knew that he was of importance to God. He kept on drawing and eventually became known internationally for his considerable talent. (Charles E. Ferrell, in The Clergy Journal )
Devotees of Elvis Presley will tell you their hero tried to join his high school glee club but was turned down. (L. M. Boyd)
As playwright Gore Vidal tells it, when his play The Best Man was being cast back in 1959, Ronald Reagan was proposed for the lead role of the distinguished front-running Presidential candidate. He was rejected. It was decided that he lacked the "Presidential look." (Fifty Plus)
Daniel Dafoe took Robinson Crusoe to 20 publishers before he finally got it printed. It has been a best-seller for over 250 years and has been translated into 10 languages. (Ripley's Believe It or Not!: Book of Chance)
The poet Carl Sandburg flunked out of West Point, according to the record, because of deficiencies in English. (L. M. Boyd)
One of America's most beloved writers was rejected 20 times by the magazine that eventually bought most of his work. James Thurber started writing sketches for the New Yorker in 1926, but they kept turning him down before finally accepting a short piece on a man caught in a revolving door. Thurber never looked back. He published more than 20 books of collected prose and delightful pictures he drew himself.
(Ripley's Believe It or Not!: Book of Chance)
Liv Ullman , two-time Academy Award nominee for Best Actress, failed an audition for the state theater school in Norway. The judges told her she had no talent. (The Best of Bits & Piece s, p. 60)
The United States greatest naval victory--Midway--occurred only six months after its greatest naval defeat--Pearl Harbor. (L. M. Boyd)
At that time we had the pleasure of visiting with Mary Oliff Ward, whose husband, William Arthur Ward , is one of America's most quoted writers of inspirational maxims...Mary told how Bill kept a rolling pin around which he wrapped all rejection slips received. When one of his students complained about rejected work, yet one more time, Bill would unwind the rolling pin to reveal yards of rejection slips!
(Dr. Delia Sellers, in Abundant Living )
George Washington lived in the day of the Duke of Wellington and Napoleon, both of whom far outshone him as military geniuses. He made some rather tragic blunders on the battlefield but somehow managed to bring our troops through that long and painful war to victory.
(Dr. D. James Kennedy)
Thoughts Along The Way : 8th issue. Compiled by Rev. David J. Seibert
c/o Unity Temple, 1555 Race Street, Denver, CO 80206--(303) 377-4838
Friday, April 9, 2010
Thursday, April 8, 2010
Fool’s Capitalism
Goldman-style Capitalism: Separating Fools from Their Money
Bill Bonner |
And now the rest of today's reckoning from Baltimore, Maryland...
Cut expenses. Go broke. Be happy.
Everybody is convinced the market is going up. So what does the market do? It goes down - 72 points yesterday.
What do you call it when the market goes down 72 points? A beginning!
Well, we don't know if it's really the beginning of the end or not. We've seen more beginnings than we can count. Still, no sign of the end. But there must be an end out there somewhere. Always is.
And look at what is happening in the gold market. While everyone has been watching health care...and stocks...and bonds, gold has been moving up. It rose another $17 yesterday to bring the price up to $1,151.
Why is gold moving up? Because it anticipates higher inflation? Because it is afraid of government defaults?
Most likely, it has no more idea than we do. It doesn't know what's going to happen...but with the feds borrowing more than 10% of GDP each year, it ain't going to be pretty.
The S&P is now trading at a P/E over 23, according to the most recent Barron's report. Dave Rosenberg:
"No matter how we slice it, whether on a Shiller P/E, Tobin Q or historical profit basis, the US market is anywhere between 20% and 30% overvalued."
Emerging markets are soaring. Oil is over $85. And the temperature here in Baltimore is 83 degrees.
The heat is on. Something's gonna blow.
But Goldman Sachs is as cool as a cucumber. Goldman released its annual report earlier this week. The firm said it hadn't done anything wrong. It hadn't bet against its own clients. Nor had it expected any help from the government.
Here at The Daily Reckoning, we've always taken Goldman's side. We've always had a weak spot for cripples, lamebrains and predatory lenders. Besides, Goldman stole the money fair and square.
Critics charge that Goldman 'perverted' capitalism. But they just don't understand how kinky capitalism can be on its own.
You see, dear reader, when it comes to putting meat on the table, nothing beats capitalism. But it only succeeds so well because it is allows foolish hunters to blow their own heads off. In his book FIASCO, Frank Partnoy recalled his days on Wall Street:
"The way you made money from derivatives was by trying to blow up your clients," he writes.
He described how Wall Street regularly sold extravagantly complicated derivative instruments to institutional buyers who were either too dim or too lazy to figure out what they were buying. If they had known what was in them, they wouldn't have bought them.
Then, of course, the instruments blew up...along with the pension funds, endowments and insurers who bought them.
But that's just the way it should work. Capitalism doesn't like it when idiots have too much money. So it uses people like Goldman to help take it away from them. That's what Lloyd Blankfein meant when he said Goldman was doing "God's work."
We don't know if God wanted Goldman to blow up the world economy...but capitalism seemed to be calling for it. And it looked like capitalism was going to blow up the bomb tosser, too. Unfortunately, the feds stepped in. They bailed out AIG...and the whole financial industry - including Goldman. Now, they lend the big banks money for practically nothing...which the banks lend back to the feds at 4%. The banks make money. They restock their reserves with US Treasury debt. And the feds get to finance their gigantic deficits. It's great for everyone - until it blows up too.
It's true, of course, that capitalism had already been twisted long before the feds bailed out the banks. Individual investors believed they could make money just by buying mutual funds or a house. Institutional buyers thought they could make money by buying collections of mortgages, any one of which they knew was likely to be garbage. But these crackpot ideas are just part of what makes capitalism so much fun to watch. And don't worry, just leave it alone...it will correct those mistakes in a jiffy.
Here we are barely 24 months after the correction began. Who thinks he can make money by buying a house now? Only people standing on the courthouse steps and hoping for an extreme bargain. Who thinks he can finance his retirement by buying stocks? Only the young and the dreamers.
And who thinks you can make an economy richer by consuming more? Or cure a problem of too much private sector debt by adding more debt in the public sector?
Only economists! And that's a whole 'nuther subject.
And more thoughts...
While the markets are hot, the economy is cool.
Nearly 7,000 people go bankrupt every day - a record number. And in March, M3, the broadest measure of the money supply, recorded its biggest drop ever.
And get this. Peak to trough, December '07 to February '10, 8.3 million jobs were lost. As we reported yesterday, take away the statistical tricks and the number of people with real jobs actually fell last month - despite reports of an additional 163,000 new jobs in March.
Consumer credit fell again in February - down $11 billion. To put this number in perspective, the US government has run about $2.5 trillion in deficits since the correction began. So, in spite of pumping monthly deficits on the order of $120 billion...consumer credit still sank by $11 billion.
What can we say? It's a Great Correction, after all.
Greece is going broke after all. Yields on Greek debt rose over 7% yesterday. So let's look at how this works. Investors worry about a default. They push up yields (they need higher interest payments to justify the risk). This causes Greece to go further into debt (the cost of paying the extra interest), which causes even more worry among lenders.
Why doesn't Greece just cut expenses?
Ah...glad you asked. This just goes to show what a dead-end debt can be. The government has already proposed substantial cuts. But it has to answer to the voters - who are on the verge of rioting in the street. And its own cabinet ministers are calling the Germans 'racist' because they refuse to give the Greeks money.
It's hard for a popular democracy to cut spending. And then when it does, it discovers that it is in another trap. So much of the private sector depends on government spending that, take it away, and the whole economy shrinks. This causes tax revenues to fall by more than the budget cuts. In other words, a multiplier works in the other direction - causing the budget deficit to widen when cuts are made!
And guess what? Greece is not the only government that is falling into this hole. Latvia. Iceland. Maybe Ireland, England, California...and even the US...
Where, exactly, the point of no return lies, we don't know. But it's out there somewhere...
What's the solution? Well, just to bite the bullet. Make the cuts. Default. Be happy.
Regards,
Bill Bonner,
for The Daily Reckoning
Wednesday, April 7, 2010
Incompetent or Bold Faced Liars?
Dear Bottarelli Research Reader,
As you know, I take tremendous pride in offering a small group of high-level traders the very best market research available.
That's why it troubles me to write you this letter today…
You see, never before in history has Wall Street been dripping with so many lies, deceit, and manipulation. In this day and age, it seems like unethical behavior is now a commonly accepted practice, and it's costing honest, hardworking folks like you money.
Lots of money.
In short, the time has come to turn the tables on the financial elite, and that's why I'm writing you today.
You see, you're now invited to enjoy a new "white-knuckled" trading strategy designed to beat these lying rats at their own game.
Starting now, you can make phenomenal trading profits by using these manipulative tricks to your advantage.
That's right! By following this new trading methodology, you can lock in daily returns of 322.73%, 52.17%, 245.95%, 150.00%, 42.86%, and 59.53%.
You can review our track record below. But first, let's be perfectly clear about the lies and deception that I'm referring to above.
Over the last few years, the following quotes (which I'm calling "boldfaced lies") were made by some of the top financial figureheads in the world. As you'll see, every single one of them has been dead wrong.
In fact, some of them are so laughable, you'll wonder how these bozos can even keep their jobs. See for yourself:
BOLDFACED LIE #1:
"I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They're not in danger of going under. I think they are in good shape going forward."
– Barney Frank, July 14th 2008
BOLDFACED LIE #2:
"Freddie and Fannie will make it through the storm. They are in no danger of failing….adequately capitalized."
- Ben Bernanke, July 16th 2008
BOLDFACED LIE #3:
"We have no plans to insert money into either of those two institutions [referring to Fannie Mae and Freddie Mac]."
- Hank Paulson, August 10th 2008
What Happened? Within two months of the above assurances of Barney Frank, Ben Bernanke, and Hank Paulson, the U.S. government forced both mortgage giants into conservatorship and committed $100 billion in each company to save them from imploding. If you believed these guys — and bought Freddie or Fannie stock — you got completely wiped out.
But that's just the beginning…
BOLDFACED LIE #4
"I don't see sub-prime mortgage market troubles imposing a serious problem. I think it's going to be largely contained. All the signs I look at show the housing market is at or near the bottom."
- Hank Paulson, April 20th 2007
As you know, sub-prime mortgages sparked the financial meltdown that nearly sent the entire global economy into free-fall. How could Paulson not see this coming? Is he really that stupid?
It gets worse…
BOLDFACED LIE #5
"In today's regulatory environment, it's virtually impossible to violate rules."
- Bernie Madoff, October 20th 2007
Are you kidding me? One year later, Madoff (who once sat atop the NASDAQ stock market) admitted that he cost investors over $50 billion in an alleged Ponzi scheme. You know how this story ends. Madoff is now wearing an orange jumpsuit behind bars.
But here's the doozy of them all…
BOLDFACED LIE #6
"It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions."
–Ben Bernanke, October 15th 2007
In a major reversal, Bernake decided to bail out every major financial institution in trouble, setting up one of the biggest "false market recoveries" in financial history.
I can go on with hundreds of other examples, but I think the bottom line is pretty clear…
Right now, our financial and political leaders are either incompetent or they're stone-cold liars. Either way, the loser in this deal is the individual investor like you and me. That's why I'm sending you this special invitation to subscribe to Bottarelli Research today.
Friday, March 19, 2010
Wednesday, March 17, 2010
Wednesday, March 10, 2010
u.s. taxpayers on hook for 5 trillion of fannie freddie debt ... no matter what barney frank says
u.s. taxpayers on hook for 5 trillion of fannie freddie debt ... no matter what barney frank says: Tech Ticker, Yahoo! Finance
http://finance.yahoo.com/tech-ticker/u.s.-taxpayers-on-hook-for-5-trillion-of-fannie-freddie-debt-...-no-matter-what-barney-frank-says-438124.html?tickers=FNM,FRE,XLF,AIG,C,FAZ,JPM
Monday, March 8, 2010
Why Go To Church?
Why go to Church?
A Church goer wrote a letter to the editor of a newspaper and complained that it made no sense to go to church every Sunday. "I've gone for 30 years now," he wrote, "and in that time I have heard something like 3,000 sermons. But for the life of me, I can't remember a single one of them. So, I think I'm wasting my time and the pastors are wasting theirs by giving sermons at all."
This started a real controversy in the "Letters to the Editor" column, much to the delight of the editor. It went on for weeks until someone wrote this clincher:
"I've been married for 30 years now. In that time my wife has cooked some 32,000 meals. But, for the life of me, I cannot recall the entire menu for a single one of those meals But I do know this.. They all nourished me and gave me the strength I needed to do my work. If my wife had not given me these meals, I would be physically dead today. Likewise, if I had not gone to church for nourishment, I would be spiritually dead today!"
When you are DOWN to nothing.... God is UP to something! Faith sees the invisible, believes the incredible and receives the impossible! Thank God for our physical AND our spiritual nourishment!
All right, now that you're done reading, send it on! I think everyone should read this!
Doors
Doors
Look back and thank God.
Look forward and trust God.
Look around and serve God.
Look within and find God!
God closes doors no man can open and
God opens doors no man can close..
Pine Trees Know When It’s Easter
PINE TREES KNOW WHEN IT'S EASTER
Last April on a Sunday we took one of our "nowhere" drives, my husband was quietly driving a back road. I was occupied in the front passenger seat watchig the scenery.
I noticed out of the corner of my eye that my husband was straining to look out my window. This startled me, since his eyes should be on the road in front of him. I asked him what he was looking at out the windows, and he quietly replied, "Nothing." His eyes went back to the road in front of him.
After a few minutes, I looked over at my husband and noticed a tear running down his cheek. I asked him what was wrong. This time he told me, "I was just thinking about Pop and a story he had once told me." Of course, because it had to do with his Pop I wanted to know the story, so I asked him to share it with me.
He said, "When I was about 8 years old, Pop and I were out fishing and that's when he told me that the Pine trees know when it is Easter."
I had no idea what he meant by that, so I pressed him for more information.
He continuedon... "The Pine trees start their new growth in the weeks before Easter -- if you look at the tops of the Pine trees two weeks before, you will see the yellow shoots. As the days get closer to Easter Sunday, the tallest shoot wil branch off and form a cross. By the time Easter Sunday comes around, you will see that most of the Pine trees will have small yellow crosses on all of the tallest shoots."
I turned to look out the window and I couldn't believe my eyes. It was a week before Easter, and you could see all of the trees with the tall yellow shoots stretching to Heaven.
The tallest ones shone in the sunlight like rows of tiny golden crosses.
~ Author Unknown ~
Seth Klarman Lessons
Must Read: Seth Klarman On The True And False Lessons From The Financial Crisis, Blasts Government Market Intervention
By Tyler Durden
Created 03/04/2010 - 22:17
Via Value Investing Insight [1]. Absolute must read for a new investing generation which really does think that this time it is different (and will not end in tears). Pay special attention to the False Lessons, which blare at you daily as the one true gospel by the likes of CNBC.
In this excerpt from his annual letter, investing great Seth Klarman describes 20 lessons from the financial crisis which, he says, "were either never learned or else were immediately forgotten by most market participants."
One might have expected that the near-death experience of most investors in 2008 would generate valuable lessons for the future. We all know about the "depression mentality" of our parents and grandparents who lived through the Great Depression. Memories of tough times colored their behavior for more than a generation, leading to limited risk taking and a sustainable base for healthy growth. Yet one year after the 2008 collapse, investors have returned to shockingly speculative behavior. One state investment board recently adopted a plan to leverage its portfolio – specifically its government and high-grade bond holdings – in an amount that could grow to 20% of its assets over the next three years. No one who was paying attention in 2008 would possibly think this is a good idea.
Below, we highlight the lessons that we believe could and should have been learned from the turmoil of 2008. Some of them are unique to the 2008 melt- down; others, which could have been drawn from general market observation over the past several decades, were certainly reinforced last year. Shockingly, virtually all of these lessons were either never learned or else were immediately forgotten by most market participants.
Twenty Investment Lessons of 2008
1. Things that have never happened before are bound to occur with some regularity. You must always be prepared for the unexpected, including sudden, sharp downward swings in markets and the economy. Whatever adverse scenario you can contemplate, reality can be far worse.
2. When excesses such as lax lending standards become widespread and persist for some time, people are lulled into a false sense of security, creating an even more dangerous situation. In some cases, excesses migrate beyond regional or national borders, raising the ante for investors and governments. These excesses will eventually end, triggering a crisis at least in proportion to the degree of the excesses. Correlations between asset classes may be surprisingly high when leverage rapidly unwinds.
3. Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return. Conservative positioning entering a crisis is crucial: it enables one to maintain long-term oriented, clear thinking, and to focus on new opportunities while others are distracted or even forced to sell. Portfolio hedges must be in place before a crisis hits. One cannot reliably or affordably increase or replace hedges that are rolling off during a financial crisis.
4. Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty – such as in the fall of 2008 – drives securities prices to especially low levels, they often become less risky investments.
5. Do not trust financial market risk models. Reality is always too complex to be accurately modeled. Attention to risk must be a 24/7/365 obsession, with people – not computers – assessing and reassessing the risk environment in real time. Despite the predilection of some analysts to model the financial markets using sophisticated mathematics, the markets are governed by behavioral science, not physical science.
6. Do not accept principal risk while investing short-term cash: the greedy effort to earn a few extra basis points of yield inevitably leads to the incurrence of greater risk, which increases the likelihood of losses and severe illiquidity at precisely the moment when cash is needed to cover expenses, to meet commitments, or to make compelling long-term investments.
7. The latest trade of a security creates a dangerous illusion that its market price approximates its true value. This mirage is especially dangerous during periods of market exuberance. The concept of "private market value" as an anchor to the proper valuation of a business can also be greatly skewed during ebullient times and should always be considered with a healthy degree of skepticism.
8. A broad and flexible investment approach is essential during a crisis. Opportunities can be vast, ephemeral, and dispersed through various sectors and markets. Rigid silos can be an enormous disadvantage at such times.
9. You must buy on the way down. There is far more volume on the way down than on the way back up, and far less competition among buyers. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy.
10. Financial innovation can be highly dangerous, though almost no one will tell you this. New financial products are typically created for sunny days and are almost never stress-tested for stormy weather. Securitization is an area that almost perfectly fits this description; markets for securitized assets such as subprime mortgages completely collapsed in 2008 and have not fully recovered. Ironically, the government is eager to restore the securitization markets back to their pre-collapse stature.
11. Ratings agencies are highly conflicted, unimaginative dupes. They are blissfully unaware of adverse selection and moral hazard. Investors should never trust them.
12. Be sure that you are well compensated for illiquidity – especially illiquidity without control – because it can create particularly high opportunity costs.
13. At equal returns, public investments are generally superior to private investments not only because they are more liquid but also because amidst distress, public markets are more likely than private ones to offer attractive opportunities to average down.
14. Beware leverage in all its forms. Borrowers – individual, corporate, or government – should always match fund their liabilities against the duration of their assets. Borrowers must always remember that capital markets can be extremely fickle, and that it is never safe to assume a maturing loan can be rolled over. Even if you are unleveraged, the leverage employed by others can drive dramatic price and valuation swings; sudden unavailability of leverage in the economy may trigger an economic downturn.
15. Many LBOs are man-made disasters. When the price paid is excessive, the equity portion of an LBO is really an out-of-the-money call option. Many fiduciaries placed large amounts of the capital under their stewardship into such options in 2006 and 2007.
16. Financial stocks are particularly risky. Banking, in particular, is a highly leveraged, extremely competitive, and challenging business. A major European bank recently announced the goal of achieving a 20% return on equity (ROE) within several years. Unfortunately, ROE is highly dependent on absolute yields, yield spreads, maintaining adequate loan loss reserves, and the amount of leverage used. What is the bank's management to do if it cannot readily get to 20%? Leverage up? Hold riskier assets? Ignore the risk of loss? In some ways, for a major fin-ancial institution even to have a ROE goal is to court disaster.
17. Having clients with a long-term orientation is crucial. Nothing else is as important to the success of an investment firm.
18. When a government official says a problem has been "contained," pay no attention.
19.
The government – the ultimate short- term-oriented player – cannot withstand much pain in the economy or the financial markets. Bailouts and rescues are likely to occur, though not with sufficient predictability for investors to comfortably take advantage. The government will take enormous risks in such interventions, especially if the expenses can be conveniently deferred to the future. Some of the price-tag is in the form of back- stops and guarantees, whose cost is almost impossible to determine.
20. Almost no one will accept responsibility for his or her role in precipitating a crisis: not leveraged speculators, not willfully blind leaders of financial institutions, and certainly not regulators, government officials, ratings agencies or politicians.
Below, we itemize some of the quite different lessons investors seem to have learned as of late 2009 – false lessons, we believe. To not only learn but also effectively implement investment lessons requires a disciplined, often contrary, and long-term-oriented investment approach. It requires a resolute focus on risk aversion rather than maximizing immediate returns, as well as an understanding of history, a sense of financial market cycles, and, at times, extraordinary patience.
False Lessons
1. There are no long-term lessons – ever.
2. Bad things happen, but really bad things do not. Do buy the dips, especially the lowest quality securities when they come under pressure, because declines will quickly be reversed.
3. There is no amount of bad news that the markets cannot see past.
4. If you've just stared into the abyss, quickly forget it: the lessons of history can only hold you back.
5. Excess capacity in people, machines, or property will be quickly absorbed.
6. Markets need not be in sync with one another. Simultaneously, the bond market can be priced for sustained tough times, the equity market for a strong recovery, and gold for high inflation. Such an apparent disconnect is indefinitely sustainable.
7. In a crisis, stocks of financial companies are great investments, because the tide is bound to turn. Massive losses on bad loans and soured investments are irrelevant to value; improving trends and future prospects are what matter, regardless of whether profits will have to be used to cover loan losses and equity shortfalls for years to come.
8. The government can reasonably rely on debt ratings when it forms programs to lend money to buyers of otherwise unattractive debt instruments.
9. The government can indefinitely control both short-term and long-term interest rates.
10. The government can always rescue the markets or interfere with contract law whenever it deems convenient with little or no apparent cost. (Investors believe this now and, worse still, the government believes it as well. We are probably doomed to a lasting legacy of government tampering with financial markets and the economy, which is likely to create the mother of all moral hazards. The government is blissfully unaware of the wisdom of Friedrich Hayek: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.")
v
Friday, March 5, 2010
Friday, February 26, 2010
Friday, January 22, 2010
Is the Government Manipulating Stock Prices?
Written by The Growth Stock Wire - 1/22/10
After a 20-year career trading S&P 500 futures contracts on the floor of the Chicago Mercantile Exchange, my friend Charlie suddenly retired last November.
"There was no way to protect yourself," Charlie said to me over lunch a couple weeks ago when I asked him about his unexpected decision. "This guy would walk into the pits and just start buying. It was unconventional. He'd buy at times when it really didn't make any sense – at least not to those of us who'd been around for a while. And he'd buy HUGE."
"It got to the point," Charlie continued, "that we'd have a bunch of our interns just watching the guy when he was off the floor. We'd know if he took a phone call. We'd know if he'd gone outside for a smoke. And we'd know if he started walking in the direction of the pit. That was our cue to start buying futures contracts ourselves – just to get in front of the guy.
"I knew it was time to retire," Charlie sighed, "when I started planning my trading day around this guy's bathroom breaks."
For the past 20 years, conspiracy theorists have engaged in stories about the "Plunge Protection Team" – a group of traders funded by the Fed whose sole purpose is to prop up the stock market. I never really bought into the argument, though. After all, an awful lot of people "in the know" have to stay quiet in order to keep the conspiracy going. And it's unlikely any group of people can maintain that sort of silence for two decades.
But Charlie's story got me thinking.
Then, last week, Charles Biderman, CEO of TrimTabs – one of the most respected and widely read financial research organizations – published a report that raised the possibility that the Fed is actively involved in boosting stock prices.
In the article, Mr. Biderman suggests it would only take $5 billion to $15 billion each month to buy enough S&P 500 futures contracts to boost the market 70%. Surely, with all the hundreds of billions of dollars used to prop up the real estate, auto, and banking industries, it's reasonable to suspect the Fed might use a few bucks to prop up stock prices, too.
At least it's something to think about.
I'm still not sure if I can completely buy into the whole conspiracy theory just yet. There is, however, one thing I do know for sure…
If the Fed has been actively engaged in manipulating stock prices higher, then it can manipulate them lower as well. You won't want to be the one left holding the bag when that happens.
Best regards and good trading,
Jeff Clark
Monday, January 18, 2010
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Wednesday, January 13, 2010
“The Rarest Achievement”
"The Rarest Achievement"
It's pretty rare to get an Olympic Gold Medal, wouldn't you say? Only 1,210 Americans have received one. It's unusual to climb Mt. Everest, too: Just 2,300 people have done that. But there's an even rarer category: The number of billionaires. No more than 1,125 people in the world can claim that distinction.
My friend, Bill Bartmann, did just that. Now keep in mind that this group of 1,125 people includes people who had major help along the way: Many were born with it, inherited it, or had every advantage while growing up.
In the history of billionaires, Bill Bartmann stands alone. He's the ONLY former homeless person and gang member ever to have made a billion dollars. That's right, Bill went from eating out of dumpsters and living under a bridge viaduct, to having after-tax, take-home pay in a single year of more than $100 million and being listed as the 25th richest person in America.
Here's where it gets extremely interesting: Bill is willing to coach YOU on how to succeed in business.
After all, what can you learn from someone whose daddy died and left him a billion? But it's totally different with Bill Bartmann: He worked in a slaughterhouse. He was an alcoholic at age 17. And at one point Bill was paralyzed from the waist down. Yet Bill discovered a DIFFERENT way of thinking and acting that enabled him to overcome all of that, and become a self-made billionaire.
After scaling the highest peaks in the business world and getting his fill of toys like $25 million aircraft, what's Bill up to now? He has one current passion: Showing others his special techniques for overcoming any challenge and being as successful as they want to be.
Do you think Bill might know a few things YOU could use to overcome your own challenges? What if you could get his thoughts on dozens of business topics?
Now you can. Bill is launching a one-of-a-kind online service, called his "Billionaire Business System". This is not some one-size-fits-all deal. Instead, Bill has built a mentoring tool that provides you with laser-targeted advice on many individual topics.
Are you already running a business but not sure what's the best way to secure financing for your next stage of growth? Bill covers that topic. Not even sure if business is right for you? Bill has a video session just about that.
In fact, the Billionaire Business System currently has almost two dozen topics, and is constantly growing.
I strongly recommend that you take a look at Bill's system and see for yourself how it can remove whatever roadblocks are in your way to greater business success. You can find it by going to: http://www.BillionaireU.com/go.aspx?AID=15285
Name me anywhere else on the planet that you can get specific, useful, and comprehensive business-building advice from a self-made billionaire? That's OK, I can't think of any, either.
The sooner you have Bill Bartmann in your corner, advising you on business success, the sooner you can sit back and bask in your own dreams coming true.
To Your Success,
Andre
P.S. The chances are really good that whatever challenges you have, Bill's been there, and found a way to overcome them. Let Bill show you how, by taking the easy step of going to
http://www.BillionaireU.com/go.aspx?AID=15285
Tuesday, January 12, 2010
Poor Obama. The man is in way over his head. And what can he do? Few people understand what is going on in the economy...and none of them work for the Obama administration, as near as we can tell. The only one who seemed to be on the ball was his advisor, Paul Volcker. But Volcker got edged out by Larry Summers, a man with a long history of bad ideas on economic matters.
Summers is a stalwart member of that very special club - modern economists. Never has an unarmed professional group done more damage to a society than Summers and his colleagues.
"We cannot and will not accept any speed limit on American growth," said Summers in a 1995 speech, rejecting the idea of higher interest rates to cool speculation. By 2000, the economy with no speed limit had smashed into an abutment. But Summers never figured out what the problem was. He was too busy wrecking a great university. He went on to apply the same 'no speed limit' philosophy to Harvard, where his building program was so costly the university years will probably never recover from it.
Ben Bernanke gives no hint that he has any idea of what is going on either. He maintains that modern central banking can't see when economies are getting into trouble. But when they do...he knows just what to do to fix it.
What kind of strange GPS system is this, dear reader? It failed to tell us where we were before we ran off the cliff... But now, we're going to use it to find our way home. Good luck!
But who worries now? We're rolling along...convinced that trouble is behind us. Recovery is on the way; that's what the signs say.
But wait...
Joblessness at a 26-year high, and rising....
Consumer credit just took the biggest monthly drop ever...it's fallen 10 months in a row.
Nearly half of Florida's mortgages are underwater...
Hey...what a recovery!
But the stock market doesn't seem to care. Or notice.
The Dow rose 45 points yesterday. Investors seem to think that businesses are going to make a lot of money in the years ahead. How? How much stuff can you sell to unemployed people? But why else would investors pay 100 times earnings for a share?
The current price/earnings ratio is a subject of much discussion. Earnings collapsed in the depression. Prices did not. So if you look just at current earnings you come to a P/E ratio in the 100+ range. That means investors pay $100 for every dollar's worth of earnings. If they intend to earn their money back - and nothing changes - they'll wait a century to break even.
But earnings are expected to go up. So Robert Shiller used a 10-year moving average to compute earnings...smoothing them out to a "normal" level. Still, he says, the S&P 500 is overvalued by about 27%.
The point is, stocks are expensive. So, you have to wonder: what is going on? Are stock market investors really such optimists?
Or, is the federal government manipulating stock prices? It is spending trillions of dollars to give people the impression that things are getting back to normal. Why not spend a few billion more to manipulate stock prices?
We don't know. The feds have shown themselves willing to do any fool thing...but rigging the stock market? Who knows?
We've got to reckon with what we've got. And what we've got is a stock market that is either manipulated...or delusional.
Stocks could only be worth current prices if this were a normal recession. But if this were a normal recession, it would be over by now. Stocks would be moving up in anticipation of the next boom phase. But this is not a normal recession. And it hasn't come to an end. New jobs aren't being created. Consumer credit is not expanding. And the only prices that are going up are the prices subject to speculation.
The real reason stocks are so expensive (assuming the market isn't rigged) is that this is the beginning of a depression, not the end of one. At the beginning, people don't quite believe it.
"We're climbing out of a nasty recession," said a financial expert interviewed on the radio this morning. "And we're all happy to put this thing behind us as soon as possible."
Stocks are high because people think they can 'put this thing behind them.' They can't imagine that the depression will last for 5...10...maybe 15 more years. Nor do they realize that the US economy is permanently impaired...that the companies traded on Wall Street will have a very hard time earning profits in the years ahead...nor that the average American family may have reached the height of its wealth in 1973!
The disappointment will come...then the disillusionment...then the disgust...then the despair. It will be like walking down a staircase...each step heavier...deeper...and more depressing the last. And with each step, stocks will fall. Investors will begin to see things in a new way. And at the bottom, a whole new outlook will be common:
"America is finished as an economic power," people will say. "Incomes are going down - forever; we can't compete with the Chinese. Stocks were dreadfully overpriced; now they are cheap...but who would want to buy them?"
It may not happen like that. But somehow, some day...stocks will once again trade at low P/E ratios... Below 10...maybe down to 5. Then, they will be bargains.
How will you know when it is time to buy again? When you no longer want to.Poor Obama. The man is in way over his head. And what can he do? Few people understand what is going on in the economy...and none of them work for the Obama administration, as near as we can tell. The only one who seemed to be on the ball was his advisor, Paul Volcker. But Volcker got edged out by Larry Summers, a man with a long history of bad ideas on economic matters.
Summers is a stalwart member of that very special club - modern economists. Never has an unarmed professional group done more damage to a society than Summers and his colleagues.
"We cannot and will not accept any speed limit on American growth," said Summers in a 1995 speech, rejecting the idea of higher interest rates to cool speculation. By 2000, the economy with no speed limit had smashed into an abutment. But Summers never figured out what the problem was. He was too busy wrecking a great university. He went on to apply the same 'no speed limit' philosophy to Harvard, where his building program was so costly the university years will probably never recover from it.
Ben Bernanke gives no hint that he has any idea of what is going on either. He maintains that modern central banking can't see when economies are getting into trouble. But when they do...he knows just what to do to fix it.
What kind of strange GPS system is this, dear reader? It failed to tell us where we were before we ran off the cliff... But now, we're going to use it to find our way home. Good luck!
But who worries now? We're rolling along...convinced that trouble is behind us. Recovery is on the way; that's what the signs say.
But wait...
Joblessness at a 26-year high, and rising....
Consumer credit just took the biggest monthly drop ever...it's fallen 10 months in a row.
Nearly half of Florida's mortgages are underwater...
Hey...what a recovery!
But the stock market doesn't seem to care. Or notice.
The Dow rose 45 points yesterday. Investors seem to think that businesses are going to make a lot of money in the years ahead. How? How much stuff can you sell to unemployed people? But why else would investors pay 100 times earnings for a share?
The current price/earnings ratio is a subject of much discussion. Earnings collapsed in the depression. Prices did not. So if you look just at current earnings you come to a P/E ratio in the 100+ range. That means investors pay $100 for every dollar's worth of earnings. If they intend to earn their money back - and nothing changes - they'll wait a century to break even.
But earnings are expected to go up. So Robert Shiller used a 10-year moving average to compute earnings...smoothing them out to a "normal" level. Still, he says, the S&P 500 is overvalued by about 27%.
The point is, stocks are expensive. So, you have to wonder: what is going on? Are stock market investors really such optimists?
Or, is the federal government manipulating stock prices? It is spending trillions of dollars to give people the impression that things are getting back to normal. Why not spend a few billion more to manipulate stock prices?
We don't know. The feds have shown themselves willing to do any fool thing...but rigging the stock market? Who knows?
We've got to reckon with what we've got. And what we've got is a stock market that is either manipulated...or delusional.
Stocks could only be worth current prices if this were a normal recession. But if this were a normal recession, it would be over by now. Stocks would be moving up in anticipation of the next boom phase. But this is not a normal recession. And it hasn't come to an end. New jobs aren't being created. Consumer credit is not expanding. And the only prices that are going up are the prices subject to speculation.
The real reason stocks are so expensive (assuming the market isn't rigged) is that this is the beginning of a depression, not the end of one. At the beginning, people don't quite believe it.
"We're climbing out of a nasty recession," said a financial expert interviewed on the radio this morning. "And we're all happy to put this thing behind us as soon as possible."
Stocks are high because people think they can 'put this thing behind them.' They can't imagine that the depression will last for 5...10...maybe 15 more years. Nor do they realize that the US economy is permanently impaired...that the companies traded on Wall Street will have a very hard time earning profits in the years ahead...nor that the average American family may have reached the height of its wealth in 1973!
The disappointment will come...then the disillusionment...then the disgust...then the despair. It will be like walking down a staircase...each step heavier...deeper...and more depressing the last. And with each step, stocks will fall. Investors will begin to see things in a new way. And at the bottom, a whole new outlook will be common:
"America is finished as an economic power," people will say. "Incomes are going down - forever; we can't compete with the Chinese. Stocks were dreadfully overpriced; now they are cheap...but who would want to buy them?"
It may not happen like that. But somehow, some day...stocks will once again trade at low P/E ratios... Below 10...maybe down to 5. Then, they will be bargains.
How will you know when it is time to buy again? When you no longer want to.
Bill Bonner
The Biggest Financial Deception of the Decade
The Biggest Financial Deception of the Decade
By Jeff Clark
Stowe, Vermont
Enron? Bear Stearns? Bernie Madoff? They're all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade's most dastardly deception...
First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in US history at that time. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later. And what had we been told by the media? Fortune magazine dubbed Enron "America's Most Innovative Company" for six consecutive years.
Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron's. Tyco, Adelphia, Peregrine Systems...also made headlines for their acts of fraud and mismanagement.
A few years later, Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset- backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets. With net equity of $11.1 billion supporting $395 billion in assets, Bear leveraged itself up to an astonishing 35-to-1.
And during it all, Bear Stearns was recognized as the "Most Admired" securities firm in a survey by Fortune magazine (there's that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was "no liquidity crisis for the firm" and insisted he "had the numbers to back it up." His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high.
Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in US history. L.B. succumbed to 2007's Word of the Year, "subprime," and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman's stock slid 73%.
And what did CEO Dick Fuld tell us in April of that year? "I will hurt the shorts, and that is my goal." He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.
Moving on to the largest US government bailout recipient by far, AIG's troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, "Jump!" Maybe its creator heard what I did from AIG's financial products head Joseph Cassano: "It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions."
Oops!
Topping off our list of the infamous debacles of the decade is Bernie Made-off (er, Madoff), who scammed $65 billion over 20 years from unsuspecting institutions and wealthy investors...
By now you are probably wondering... What's bigger than all these debacles? He's covered the major frauds and scams of the past decade - what could possibly be left?
To quote my favorite sleuth, Hercule Poirot, "When all the facts are laid before me, the solution becomes inevitable."
Here are a few clues...
Federal Reserve Chairman Ben Bernanke said on July 16, 2008, that Fannie Mae and Freddie Mac are "adequately capitalized" and "in no danger of failing." Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, "We have no plans to insert money into either of those two institutions."
- Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.
Ben Bernanke claimed on February 28, 2008, "Among the largest banks, the capital ratios remain good and I don't expect any serious problems of that sort among the large, internationally active banks..." Henry Paulson added on July 20, 2008, that "It's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."
- Since the recession started in December, 2008, 144 banks have failed.
Paulson informed us on April 20, 2007, that "All the signs I look at show the housing market is at or near the bottom."
- The number of foreclosures skyrocketed shortly thereafter and will now any day surpass those during the Great Depression.
Ben Bernanke announced on June 20, 2007, that "[The sub prime fallout] will not affect the economy overall."
- Less than one year later, the stock market crashed, losing 53% of its value, and is still down 25% despite one of the biggest bounces in history.
Those in charge of our country's finances not only failed to see the crises developing and then bungled the handling of the recovery, they've deliberately misled us about what they're doing to our currency. In spite of emphatic promises, flowery speeches, pat-on-the- back assurances, and continual reassurances, here's what they've actually done to the dollar:
Since September 1, 2008, the monetary base has ballooned from $908 billion to $2.0 trillion. The current monetary base is now equal to bailing out General Motors 23 times.
Bailout funds in 2008 and 2009 total $8.1 trillion. That's almost 78 WorldComs. It's over 123 Enrons.
US debt has risen sharply, from $6.2 trillion in 2002 to $12.1 trillion today. That's over $39,000 per citizen.
David Walker, the comptroller general of the Government Accountability Office from 1998-2008, warned that the US is on the hook for $60 trillion in unfunded liabilities. Independent analysts peg the figure at near twice that. Whatever the number, it is incomprehensibly large. The only way we will meet these liabilities is to print the money and inflate them away.
We're bailing out corporations that should fail, making financial promises we can't keep, and adding layers of debt we can't possibly repay. And the real killer is, if we don't have the cash, we just print it. It is, by any reasonable account, the "blunder that will plunder" the next several generations. It is changing America permanently, and the problems will persist long after you and I are laid to rest.
Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the US government is doing to the dollar. Nothing else even comes close.
This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.
Yet, what is the guardian of our economy and money telling us now?
"Will the Federal Reserve's actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here." (Ben Bernanke, December 7, 2009).
This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it's insulting.
Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It's clear that inflation is not a question of "if," but "when."
Any level-headed individual has to conclude that there will be a steady - and likely accelerating - decline in the dollar's purchasing power. It's inevitable.
The great masses don't quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face citizens will receive when a high level of inflation arrives. And when it does, it will make a mockery of any opposing viewpoint.
So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?
For me, there's only one solution. Don't kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.
Regards,
Jeff Clark
for The Daily Reckoning
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