2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

[Forrest]

Re: What is a "debt deflation"

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I truly love big cats, but I am happy to see them in glorious freedom on a monitor or TV. I can say "Biiiigggg Kitty!" And not get bitten!

[shiny!]

Re: What is a "debt deflation"

I truly love big cats, but I am happy to see them in glorious freedom on a monitor or TV. I can say "Biiiigggg Kitty!" And not get bitten!

That's how I feel about snow. I just love snow... in pictures.

[mmr]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

I agree that the Fed most likely wouldn't actually purchase equities directly, which would require a legislative change (along with the other issues that you noted).

Instead, they'd likely provide cheap financing to other investors to do so, which would be consistent with the playbook that was used to support commercial real estate in the depths of the last crisis. In 2009, the Treasury and Fed partnered to allow hedge funds and private equity firms to make levered purchases of distressed commercial real estate loans and securities (the "PPIP" program). For every dollar of equity that the private investor contributed, the Treasury would co-invest on a dollar for dollar basis, and the Fed would lend to the private investor up to 5:1 leverage, from what I recall. Basically, if hedge fund X contributed $10, the Treasury Department would throw in an additional $10 and the Fed would lend $100, allowing the hedge fund to buy $120 of distressed loans. This worked very well in a QE / asset inflation environment.

Presumably this would be the approach used to fund levered equity purchases if the situation became dire enough - the Fed could support equities without the legal / optical problems associated with taking equities on-balance sheet.

[Chris Coles]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

I agree that the Fed most likely wouldn't actually purchase equities directly, which would require a legislative change (along with the other issues that you noted).

Instead, they'd likely provide cheap financing to other investors to do so, which would be consistent with the playbook that was used to support commercial real estate in the depths of the last crisis. In 2009, the Treasury and Fed partnered to allow hedge funds and private equity firms to make levered purchases of distressed commercial real estate loans and securities (the "PPIP" program). For every dollar of equity that the private investor contributed, the Treasury would co-invest on a dollar for dollar basis, and the Fed would lend to the private investor up to 5:1 leverage, from what I recall. Basically, if hedge fund X contributed $10, the Treasury Department would throw in an additional $10 and the Fed would lend $100, allowing the hedge fund to buy $120 of distressed loans. This worked very well in a QE / asset inflation environment.

Presumably this would be the approach used to fund levered equity purchases if the situation became dire enough - the Fed could support equities without the legal / optical problems associated with taking equities on-balance sheet.

Not a wonder the dominance of the FIRE economy when players have such things going for them; puts the struggles of the inventor into focus like nothing else I have ever come across.

[jk]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

I agree that the Fed most likely wouldn't actually purchase equities directly, which would require a legislative change (along with the other issues that you noted).

Instead, they'd likely provide cheap financing to other investors to do so, which would be consistent with the playbook that was used to support commercial real estate in the depths of the last crisis. In 2009, the Treasury and Fed partnered to allow hedge funds and private equity firms to make levered purchases of distressed commercial real estate loans and securities (the "PPIP" program). For every dollar of equity that the private investor contributed, the Treasury would co-invest on a dollar for dollar basis, and the Fed would lend to the private investor up to 5:1 leverage, from what I recall. Basically, if hedge fund X contributed $10, the Treasury Department would throw in an additional $10 and the Fed would lend $100, allowing the hedge fund to buy $120 of distressed loans. This worked very well in a QE / asset inflation environment.

Presumably this would be the approach used to fund levered equity purchases if the situation became dire enough - the Fed could support equities without the legal / optical problems associated with taking equities on-balance sheet.

iirc the wives of two top morgan stanley execs somehow got over $200billion in fed loans through this or a similar program. [pause for a little googling] - ahh, here it is: The Real Housewives of Wall Street
i'm sure when/if the need arises for loans to purchase equity cheaply, the money will go to the deserving rich.

[Ny4nae]

Re: What is a "debt deflation"

For the perfectionistic, it's worth noting that the S&P500 today flirted with but did not yet exceeded what may be the 1850 3rd reflation peak, and that tonight the NIKKEI is teetering, which is significant as this is an Asia-centric versus US-centric crisis, for a change.

As you have indicated above, the S&P 500 refuses to break the 1850 barrier point. Also, the giant fluctuation displayed by the NIKKEI these past two days show investors are indeed jittery.

[ProdigyofZen]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Unbelievable. These people had no financial experience whatsoever how did they get 220 million from the Fed!

All it takes is opportunity, that most people never get.

[vinoveri]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Unbelievable. These people had no financial experience whatsoever how did they get 220 million from the Fed!

All it takes is opportunity, that most people never get.

Quite believable and not surprising at all I would suggest in view of what has transpired over the past 5 yrs. Corruption, cronyism, and existence of a financial overclass which pulls the strings of the political class resulting in abrogation of rule of law etc. and nothing is being done about it. As DC said, it's a world of Mammon and no amount of thanks should be spared to the modernist mind who replace humility in front of the Almighty with ambition and the delusion of human independent greatness, which of course leads to the vices of pride, greed and envy and lack of SHAME writ large on culture. We reap what we sow.

[lektrode]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Unbelievable. These people had no financial experience whatsoever how did they get 220 million from the Fed!

All it takes is opportunity, that most people never get.

being part of the in crowd in lwr manhattan is really all it takes.

heres one little clue: http://littlesis.org/person/78494/Ch...Mack/political

cant seem to find much on the other one...

[jk]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Unbelievable. These people had no financial experience whatsoever how did they get 220 million from the Fed!

All it takes is opportunity, that most people never get.

one was john mack's wife. how do YOU think they got 220 million from the fed? [i'm confidant your question was really meant rhetorically, btw. so is mine.]
the answer to that question will also explain why you and i will NOT get hundreds of millions from the fed.

[ProdigyofZen]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Yes, rhetorical.

I guess this is the "I scratch your back you scratch mine" in regards to foreign governments buying USTs to the tune of 2.9 trillion starting in Q2 2008. Why else would the Fed buy up auto paper of foreign companies:

As crazy as it is to lend to banks at near zero percent and borrow back from them at three percent, one could at least argue that the policy may have aided American companies by providing banks more cash to lend. But how do you explain the host of other bailout transactions now being examined by Congress? Like the Fed's massive purchases of securities in foreign automakers, including BMW, Volkswagen, Honda, Mitsubishi and Nissan? Or the nearly $5 billion in cheap credit the Fed extended to Toyota and Mitsubishi? Sure, those companies have factories and dealerships in the U.S. — but does it really make sense to give them free cash at the same time taxpayers were being asked to bail out Chrysler and GM? Seems a little crazy to fund the competition of the very automakers you're trying to rescue.


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[Slimprofits]

Re: What is a "debt deflation"

Yes, and given all that we have seen and talked about here since 1998, is there anyone here who doesn't think this market is past it's Sell By date by at least a month?

What's going to be the trigger this time around?

Here's a vague scenario:

Interest rates start to rise ---> corporate defaults rise including one or more surprises ---> reality finally sets in

[Slimprofits]

Re: What is a "debt deflation"

For the perfectionistic, it's worth noting that the S&P500 today flirted with but did not yet exceeded what may be the 1850 3rd reflation peak, and that tonight the NIKKEI is teetering, which is significant as this is an Asia-centric versus US-centric crisis, for a change.

Can you further explain the signifcance of the S&P500 exceeding 1850?

[EJ]

Re: What is a "debt deflation"

Can you further explain the signifcance of the S&P500 exceeding 1850?

It's a magic number that means nothing except that traders believe it does and so it does mean something.

[Chris Coles]

Re: What is a "debt deflation"

It's a magic number that means nothing except that traders believe it does and so it does mean something.

A herd of sheep come to mind.