Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

[jpatter666]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

Yes, but occasionally (I think) I've seen you post from subscription postings?

One would hope google didn't manage to index that (or EJ's revenue stream has serious future issues!)

[metalman]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

that's exactly what i'm suggesting when i say that the inflation is not recognized in the official cpi statistics. that's what's already happened. according to john williams' shadowstats, social security payments would be 70% higher NOW without the "improvements" in how cpi is calculated made since 1980 or so.

imagine an election in the usa with a new admin... independent.. that looks over the books & says... 'oh, er... debts are 1.4x as we said before... er... inflation 1.7x...' that's how the shtf.

[metalman]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

Yes, but occasionally (I think) I've seen you post from subscription postings?

One would hope google didn't manage to index that (or EJ's revenue stream has serious future issues!)

don't think so. the itulip search function sucks compared to google. try it!

[we_are_toast]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

that's exactly what i'm suggesting when i say that the inflation is not recognized in the official cpi statistics. that's what's already happened. according to john williams' shadowstats, social security payments would be 70% higher NOW without the "improvements" in how cpi is calculated made since 1980 or so.

That's what I was afraid you were saying. Given there are 10's of millions of people on fixed incomes from Social Security, unemployment, pensions... and that a doubling of prices would plunge them into 3rd world type poverty, I don't see how this does anything but extremely widen an existing wealth gap between rich and poor. Sure, the lenders would get hit, but so would the poorest of Americans. The lenders would raise interest rates and make it up in future profits, the poor would have no options. If it didn't lead to civil unrest, it would certainly put the U.S. firmly in the 3rd world camp.

Wouldn't an across the board cram down on all loans accomplish the same thing without punishing those on fixed incomes?

[jk]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

That's what I was afraid you were saying. Given there are 10's of millions of people on fixed incomes from Social Security, unemployment, pensions... and that a doubling of prices would plunge them into 3rd world type poverty, I don't see how this does anything but extremely widen an existing wealth gap between rich and poor. Sure, the lenders would get hit, but so would the poorest of Americans. The lenders would raise interest rates and make it up in future profits, the poor would have no options. If it didn't lead to civil unrest, it would certainly put the U.S. firmly in the 3rd world camp.

Wouldn't an across the board cram down on all loans accomplish the same thing without punishing those on fixed incomes?

yes, but so far the bondholders have been protected at all costs. the inflation will hurt them, but without anyone having to take responsibility. a cram down requires some decisiveness and a willingness to stand up to the banks politically. these attributes seem in short supply. so the system lurches ahead, essentially monetizing crappy paper that is already in existence. the banks extend and pretend, as does the fed with the junk it took onto its balance sheet. this must eventually produce the inflation we all expect. cpi will continue to be manipulated so as to suppress the official figure. it will show up somewhat- it won't be as clean as in my little thought experiment- but people on fixed incomes will be screwed. look at the impossible promises made by state pension funds. those, too, must be crammed down in one fashion or another. what governor and state legislature will take the steps to cut state pensions? i'm not even sure it's possible [under contract law] unless the state in question goes through bankruptcy. gov. christie in new jersey has proposed cutting his state budget a lot

To close a deficit that he asserted was approaching $11 billion, Governor Christie called for the layoffs of 1,300 state workers, closings of state psychiatric institutions, an $820 million cut in aid to public schools, and nearly a half-billion dollars less in aid to towns and cities. He also suspended until May 2011 a popular property-tax rebate program, breaking one of his own campaign promises.

but i don't think he can legally touch the pensions or state employee salaries without bankruptcy. [he can lay off employees, but i don't think he can just cut their salaries.]

all the problems get easier with enough officially-unrecognized inflation. and although there will be lots of finger pointing, no one has to make a courageous decision.

[don]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

The following is from Kunstler, where one-note samba and alarmist are often intertwined. Could there be any credence to this story?

I heard a lot of stories during the meeting in Atlanta last week but one really stood out. It was about the money and revealed a lot about what is going on in our banking system these days. A New Urbanist developer had gotten a small project going for a traditional neighborhood. Despite the global financial clusterfuck, the developer was able to meet the payments of his commercial loan. But the FDIC sent bank examiners around America and they told the small regional banks that if they had more than twenty percent of their loans in commercial real estate (CRE) they would be put out of business. The banks were ordered to reduce their loads of CRE by calling in the loans and liquidating the assets. Ironically, the banks only called in their "performing" loans, the ones that were being regularly paid off, because they were ignoring and even concealing the ones that weren't being paid.

The developer in question had his loan called in when the FDIC descended on his bank. He couldn't pay off the $3 million in one lump, of course. The FDIC's agents are going to seize and sell off his project if he can't get it refinanced in short order. He can't get it refinanced because there is now such a shortage of capital in the banking system that no one can get a loan for anything. Also, since it is now well-known that the bank failed, the vultures are circling above his project hoping to buy it for a discount, so even the few private investors who have money won't throw him a lifeline. By the way, the FDIC agents told him they are doing this because they now expect that virtually all commercial real estate loans in the USA will fail in the months ahead.

http://kunstler.com/blog/2010/05/out-of-darkness.html

[Serge_Tomiko]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

G We will experience some form of credit and currency crisis, then face the "austerity" music, which will send us into the same spiral it always sends over-indebted nations:

1) Rising threat of insolvency leads to sovereign debt crisis
2) Spending cuts intended to reduce debt issuance slows the economy
3) Demand declines
4) Output declines
5) Tax revenues decline
6) Credit-worthiness declines
Go to step 1.

I think we all know however that this circular pattern of events cannot continue ad infinitum. This kind of exploitation of the citizenry would require a unity and complacency that simply doesn't exist, despite many attempts to instill it.

What you seem to be saying is that the continued existence of the United States in its present form is in jeopardy.

[jk]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

The following is from Kunstler, where one-note samba and alarmist are often intertwined. Could there be any credence to this story?

I heard a lot of stories during the meeting in Atlanta last week but one really stood out. It was about the money and revealed a lot about what is going on in our banking system these days. A New Urbanist developer had gotten a small project going for a traditional neighborhood. Despite the global financial clusterfuck, the developer was able to meet the payments of his commercial loan. But the FDIC sent bank examiners around America and they told the small regional banks that if they had more than twenty percent of their loans in commercial real estate (CRE) they would be put out of business. The banks were ordered to reduce their loads of CRE by calling in the loans and liquidating the assets. Ironically, the banks only called in their "performing" loans, the ones that were being regularly paid off, because they were ignoring and even concealing the ones that weren't being paid.

The developer in question had his loan called in when the FDIC descended on his bank. He couldn't pay off the $3 million in one lump, of course. The FDIC's agents are going to seize and sell off his project if he can't get it refinanced in short order. He can't get it refinanced because there is now such a shortage of capital in the banking system that no one can get a loan for anything. Also, since it is now well-known that the bank failed, the vultures are circling above his project hoping to buy it for a discount, so even the few private investors who have money won't throw him a lifeline. By the way, the FDIC agents told him they are doing this because they now expect that virtually all commercial real estate loans in the USA will fail in the months ahead.

http://kunstler.com/blog/2010/05/out-of-darkness.html

this story sounds plausible [ignoring the obvious mis-statement: "the bank failed."] the calling in of loans to reduce arbitrarily calculated exposures: check. don't call the extend-and-pretend non-performers, because that would mean writing down capital: check. no thought for how this screws the customers: check. sounds right to me.

[ST]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

Tell me about it - the forum search function could not really be worse.

In addition to the many futile searches I've tried, the most frustrating one is what to buy when this dollar rally is over ;-)

[tmicou]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

Yes, but occasionally (I think) I've seen you post from subscription postings?

One would hope google didn't manage to index that (or EJ's revenue stream has serious future issues!)

I believe EJ could give the Google Search engine a login so that it can index subscription pages, and tell Google they are Subscription pages. Then, if a user clicks, they will see one page, but not the rest of the content without subscribing....http://googlenewsblog.blogspot.com/2...lick-free.html I don't know if EJ is doing that though.

[WDCRob]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

EJ, JK, gnk, Toast, et al... thank you for the discussion above. Extremely illuminating.

[ThePythonicCow]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

I believe EJ could give the Google Search engine a login so that it can index subscription pages, and tell Google they are Subscription pages. Then, if a user clicks, they will see one page, but not the rest of the content without subscribing....http://googlenewsblog.blogspot.com/2...lick-free.html I don't know if EJ is doing that though.

That sounds like a good idea -- you should "Private Message" FRED and/or BDAdmin, to insure they are aware of your post here and of this possibility.

I won't agree with steveaustin2006 that the iTulip search function could not be worse, for I personally have coded worse myself. Personally I find the iTulip search function adequate, but that may be because I still have a large stock of "magic computer voodoo potions" sitting on my desk.

I will agree however that the iTulip search function is no where near as useful or easy to use as Google's.

[charliebrown]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

I have a simple technical/value model that I use to decide if I should be in the market or not. Back testing over the last 50yrs, yields me a good return over buy and hold on the S&P.

Last week EFA broke down, Today, SPY has broken down. EEM very precarious, could break down given another few down days. I only have a few % of my money in the stock market, I will sell blocks of it into any upswing.

There is one thing that I have never seen though, and that is SPY ttm r.e. E/P = 5.6%; rates on 10yr i.g. corp bonds at 4%.
I have never seen the spread so wide. This did not occur during last march melt down. Both E/P and yields spiked together.
So either the S&P is a good deal now compared to bonds, or the bond market is setting up to get pounded.

[ThePythonicCow]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

SPY ttm r.e. E/P = 5.6%; rates on 10yr i.g. corp bonds at 4%.

Could you humor a poor cow and rewrite the above phrase without abbreviations? Thanks.

[charliebrown]

Re: Dow Theorist Richard Russell: Sell Everything Liquid, You Won't Recognize America By The End Of The Year

hello cow.

I track the s&p 500 p/e. r.e. means reported earnings as opposed to operational earnings or some other doctored earnings. reported earnings may be doctored too, but if the SEC gets wind of it, it counts as fraud. ttm means trailing 12 months. The last number I have is around 18; ttm, r.e. (trailing 12 months, reported earnings) So if you take the reciprical of p/e, e/p
You get roughly 1/18 = 5.6%.

One method to evalaulate the price level of the stock market is to compare this number 5.6%, to the yield on an intermediate investment grade corporate bond portfolio, choose LQD or a vanguard fund i.e., Assuming earnings remain steady, by doing this you are roughly asking the question, Is it a better deal for me to be an owner of the companies in the S&P or is it better to lend money to the companies. Over the past 5 years, the ratio or premium paid for owning stocks vs bonds using this comparison is 1.08. Meaing the e/p on the S&P has been 1.08 x the intrest rate on quality corporate bonds. The standard deviation over that time is .13%, so the range is rather tight. Today this ratio hit 1.43, which is a nearly a 3 sigma event.
This ratio only was in this range once and that was Feb of last year, with the S&P at roughly 735, and corp rates at 6%+
The ratio normalized around June or July of last year at S&P 1000, and corp rates at 5%.

If bonds stay still, and if this ratio reverts to the mean, then the stock market zooms to over 1500. If on the the other hand
stocks stay still and bond interest rates go up, I think we are looking at 100 - 200 basis points leap in corporate bond
interest rates. This leap in bond interest rates will probably be more from the fear of default rather than an entire shift
up in the yield curve. If the duration of this bond portfolio is roughly 6 yrs, this is a 6 - 12% whack the principle, which
is a big whack at the currently low interest rates.

I am tending to go with concern in the corp bond market, and rates heading up because of default fears, rather than the S&P zooming up to near record highs. Is 4 - 5% really enough interest with inflation out there in the future, and corp default risk too?

There is a third possibility, I only have five years of corp bond interest rates. I can probably find another source,
but I am very busy right now. But maybe we are entering a new norm period, where stock investors must be compensated much more highly than 1.08x than bond investors.