Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen

[Chris Coles]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

Looking forward beyond 2010, industrially, there are going to be some rich pickings when the fallout finally stops. Many producers of what were well received products with stable markets will be out of business and the IP in the hands of the receivers to be sold off for a song to ensure the receivers get their ounce of silver.

Restarting production will be much easier as there will be a surplus of everything you need and thus your reference prices will not be under pressure. Again, with so much settled dust, there will be much less competition too.

Your long term opportunity will not be in trading but watching for the new priced in pennies that will take off like a mining stock in the 1960's to be held for long enough to reach stability..

Some of us that held onto our IP will be able to do things we cannot have contemplated even a year ago.

[ASH]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

By the way, can anyone explain this concept of the Fed "expanding its balance sheet" or the concept of the Fed "purchasing long term treasuries directly from the Treasury?" Whenever I think I understand what these mean, I stop myself because I know it can't work like that, right? If so, then where's the run on the dollar, where are the bond vigilantes ...? Is everyone inlcuding world governments in a state of shock or is there simply no place to run?

If you think that it can't possibly work like that, then you probably grasp it.

I was pondering some of these questions myself in this earlier thread. I feel no wiser than when I wrote those comments: I get the impression that the US is temporarily getting a pass on monetization because so far the things it has been monetizing are paper assets like mortgage-backed securities whose prices recently collapsed. When everybody is worried about avoiding a deflationary spiral, it seems that inflationary policies that "reflate" crashed paper assets is forgiven. Once the Fed starts buying bonds directly from the Treasury, one layer of fig leaves will be removed, and maybe we'll see a reaction.

On a minor historical note, obviously Japan didn't crash the yen by its program of quantitative easing. Clearly this is a sin that is judged by degree and circumstance.

[vinoveri]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

.
The new bankruptcy laws passed in 2005 make credit card debt in the US is for all practical purposes full recourse.

Not quite. One can shield one's entire homestead and qualified retirement funds in states like florida and texas with liberal homestead exemption statutes.

[c1ue]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

There's a lot of uncertainty in Russia. The 'regular folks' are rushing to dollars and the Bank of Sealy.

However, in the background there is a lot of activity.

If the intent was to weaken Putin, it is not working so far - this credit crisis has done more to reverse the Yeltsin/IMF era than everything Putin has done to date including Yukos.

The amusing thing is that the Russian consumers were not heavily dependent on mortgages and credit cards, but the large chains which sprang up in the past 6 years were. What's happening now is the economic balance of payments for these chains and their largely foreign suppliers is broken as the former standard of 120 day repayment terms is now switched to cash prepayment. The government is stepping in and selectively helping - so there is going to be a major retrenchment in the order of what EJ is predicting for the US: 1/3 of stores going out of business. The irony though is that although some retail jobs are going to be lost - the brunt of the suffering are the foreign nations who exported the inventory.

Secondly the fallout from the world deleveraging process is ironically strengthening Russia's relative position with Germany.

A closer cooperation between these two nations will create a very interesting new entity in world affairs.

Overall it is certainly easy to think that Russia is in crisis, but to me it is still not clear. There is going to be some suffering, but the excesses of the credit bubble largely were avoided in Russia. The recent increase of the import tax is going to keep inflation high, but since there isn't monstrous debt at the personal level the main issue for consumers is uncertainty.

The next big step is for Russia to start investing in internal manufacturing production - this is my litmus test to see how the government is executing.

I do find it interesting that EJ is now forecasting 20% unemployment. This is a major jump from before hence I was wondering if it was a typo.

On the investing front - as expected SKF is approaching the 90s again. Very tempting, I will likely take a 1/2 share VAR stab at it tomorrow morning. I can't in good conscience take a full share stab at it because my trigger is the auto bailout - and that hasn't happened yet.

[vinoveri]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

It seems to me like most retailers in the US still CAN'T cut prices further. While they fail to do so and move inventory, more of them will go into bankruptcy. Then they'll be competing at liquidation, and prices will probably reach a trigger point and plummet (as you suggest, early 2009).

but perhaps it will be a chapter 11 vs a liquidation bankruptcy (maybe a 'prepackaged' bankruptcy)? In fact, since the Fed/Treasury have already pledged upwards of $7t, that's already half of the yearly U.S. GDP. Hey, let's just double that number and the Fed can backstop the nations GDP for a year (i.e., not only be the lender of last resort, but the consumer of last resort??)

By the way, can anyone explain this concept of the Fed "expanding its balance sheet" or the concept of the Fed "purchasing long term treasuries directly from the Treasury?" Whenever I think I understand what these mean, I stop myself because I know it can't work like that, right? If so, then where's the run on the dollar, where are the bond vigilantes ...? Is everyone inlcuding world governments in a state of shock or is there simply no place to run?

sorry for the digression and sarcasm that but I'm truly perplexed by what's going on

[FRED]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

Demon-Japan rhyme with the US?
My take is the result will be different this time due to massive US government intervention.
The reason is to do with how slow the Japanese Govt was in dealing with the crisis to begin ie. they pretended they didn't have a banking crisis.
The government didn't agree to buy a bunch of worthless assets off the banks, hence the banks took years to sort out their balance sheets. Another point is anyone who bought property at the peak has been paying down their mortgages ever since resulting in less consumer cash sloshing around.
As we can see Bernanke is determined not to make the same "mistakes."

Excellent points. Mortgages in Japan are full recourse. No handing over the keys and walking away as in the US. On the other hand, if the Obama administration hires Lawrence B. Lindsey to get busy Building a Better Bailout, new mortgage loans in the US will be as in Japan:

The new mortgage would have one very significant difference: It would be a full recourse loan. That is, if the borrower fell behind in the payments, the government could use any means necessary to get repaid. That means not only foreclosing on the house (as under current mortgages) but also collecting any remaining unpaid sums after the house was foreclosed on by garnishing the wages, bank accounts, and other assets of the borrower. Think of it as the IRS providing the loan on the same collection terms as it does on taxes, or perhaps using the powers the government now has to collect on student loans.

The result? Decades of household cash flow diverted to paying down mortgage debt taken on at inflated real estate prices.

The new bankruptcy laws passed in 2005 make credit card debt in the US is for all practical purposes full recourse.

So far it's FIRE Economy 2, Production/Consumption Economy 0.

Should I start a scoreboard here?

[goadam1]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

What if "it" re-flates?

[DemonD]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

I've already kicked myself (and am still kicking) for being short at 215pm.

SRS (double short real estate etf) plunged below it's 52-week low today.

Due your due diligence, but there it is.

[DemonD]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

The US economy glides like a box of rocks. Don't stand under it.

Arrogance and incompetence are at fault here, with the usual awful results.

I can't get it out of my head, the article that EJ posted that said that in a market at any given time, there are inflationary and deflationary forces. And I also can't get it out of my head that a drop in household debt is deflationary in nature. I know we're just looking at one data point in a vacuum, but it's another point in that column.

This is why I was asking, what if the fiscal stimulus being pumped into the FIRE sector never makes it to the P/C economy? Wouldn't the above chart be a data point in favor of that type of action?

[jtabeb]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

Dang, Labasta. I remember that thread. Sorry to hear you were being optimistic.

I just read that unemployment in my home state of Oregon jumped 0.9% between October and November, from 7.2% to 8.1%. And still the local mall was packed last Saturday. Makes me think the mall-goers are different from those receiving the axe.

On the other hand, I read of large layoffs at local technology companies, so the job losses aren't entirely in construction and the financial industries. The latest was Infocus, which makes projectors -- they announced plans to lay-off 30% of their staff.

When you can borrow money at 0% for 12 months, why wouldn't you go shop. I mean free money is hard to beat.

(I must confess, I bought $20K of Gold and silver on CREDIT, because the terms were so generous. I mean I could have just paid cash, but why NOT use credit if it's at 0%!)

[vinoveri]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

i'm going to kick myself for not taking short positions at the close.

I've already kicked myself (and am still kicking) for being short at 215pm.

[bart]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

The Fed raised rates to squash speculation in commodities, especially oil.

How soon we forget the food riots in India and among other US allies.

Not to mention the political boost that Chavez and other dictators and aspiring dictators received from high oil prices.

But just as when the Bank of Japan raised rates to pop the stock bubble in 1989, and the Fed raised them to pop the US stock bubble in 1999, things never work out like the textbooks say they will!

The US economy glides like a box of rocks. Don't stand under it.

Arrogance and incompetence are at fault here, with the usual awful results.

All basically true, but it also in no way proves that there was not an intent to have a failure of a significant degree. "Evil" does exist, as well as idiocy and incompetence.

[llanlad2]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

Demon-Japan rhyme with the US?
My take is the result will be different this time due to massive US government intervention.
The reason is to do with how slow the Japanese Govt was in dealing with the crisis to begin ie. they pretended they didn't have a banking crisis.
The government didn't agree to buy a bunch of worthless assets off the banks, hence the banks took years to sort out their balance sheets. Another point is anyone who bought property at the peak has been paying down their mortgages ever since resulting in less consumer cash sloshing around.
As we can see Bernanke is determined not to make the same "mistakes."

[ASH]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

On unemployment, my exponential 16.2% (end of 2009) forecast has been optimistic so far. The rate is getting WORSE! Holy collapse Batman.

Dang, Labasta. I remember that thread. Sorry to hear you were being optimistic.

I just read that unemployment in my home state of Oregon jumped 0.9% between October and November, from 7.2% to 8.1%. And still the local mall was packed last Saturday. Makes me think the mall-goers are different from those receiving the axe.

On the other hand, I read of large layoffs at local technology companies, so the job losses aren't entirely in construction and the financial industries. The latest was Infocus, which makes projectors -- they announced plans to lay-off 30% of their staff.

[FRED]

Re: Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzel shrinks again - Eric Janszen

I submit that you can not prove that there was not an intent to have a failure of a significant degree.

The Fed raised rates to squash speculation in commodities, especially oil.

How soon we forget the food riots in India and among other US allies.

Not to mention the political boost that Chavez and other dictators and aspiring dictators received from high oil prices.

But just as when the Bank of Japan raised rates to pop the stock bubble in 1989, and the Fed raised them to pop the US stock bubble in 1999, things never work out like the textbooks say they will!

The US economy glides like a box of rocks. Don't stand under it.

Arrogance and incompetence are at fault here, with the usual awful results.