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Melonie
10-26-2007, 05:42 PM
As far as I can see, all three have played very major roles in sustaining the remarkable improvements in standard of living that have now been in steady progress for over two generations in the US.

Agreed with one caveat ... that per capita data must count all able bodied adults whether they are actually employed or not. Unfortunately, this is something that gov't stats do NOT do. This skews the data, because in the '50's a large percentage of unemployed Americans were wives / mothers, whereas in the 00's a large percentage of unemployed Americans are 'professional' social welfare benefit recipients.


I am attaching a plot that shows the trend in Japanese domestic consumption; as you can see, it is essentially flat within a few percent...and possibly finally beginning to rise again.

as in the USA, the interpretation of rising domestic consumption doesn't really mean much if the effects of currency inflation aren't identified. In the US or Japan or any other country, citing a stat of domestic spending having increased 5% has to be distinguished between a 5% actual increase and 0% inflation, versus a 5% decrease and 10% inflation.

(snip)" Economists argue that there is more than intuition at play. Toshihiro Nagahama, economist at Daiichi Life, estimates the average household will spend about Y6,800 ($59, €42, £29) more on food a month once announced price rises take effect. He calculates that, since rising prices of everyday items affect poorer people disproportionately, families with annual in*comes of less than Y2m a year have been experiencing consumer price inflation since April.

There are also, however, good reasons Japan’s headline consumer price index has continued to show prices in steady fall, albeit by a tiny 0.1 per cent.

Masaaki Kanno, chief economist at JPMorgan in Tokyo, says part of the explanation is that big falls in prices of infrequently purchased items such as television sets, computers and mobile phone contracts do not figure prominently in people’s calculations. People notice that flat-screen TVs are cheaper only when they buy one, whereas increases in rice or vegetable prices are instantly noted, he says.

Under the so-called hedonic method of calculating prices, statisticians take quality into account. Thus a more powerful computer that retails for the same amount counts as a price reduction. “Statistically, the prices of those items are coming down, but people don’t consider that to be deflation,” he says.


Everyone has been using this goofy system whereby they calculate inflation by considering technological advances as deflationary elements. So if computers can compute more but cost the same, then this tiny element is counted as a deflator so they happily announce, inflation is down! If a car has more extras, this is counted as deflation in price! So they can have negative inflation while prices of everything is either static or worse, rising rapidly. To finalize this stupid system, they also exclude many inflationary items like fuel, food, taxes and nearly everything humans use daily!"(snip)

(snip)"The peculiar depression in Japan rolls onwards. As we see a mirror image of the US system: fake interest calculations used to keep interest rates well below the rate of real inflation and huge bonuses for the upper tiers of the industrial/financial systems. For 5 years, the Japanese who keep the LDP in power have rewarded themselve increasingly while the workers get less and less and less. This corkscrew system also keeps Japan's imports down so they can run this surplus. I will note that the other G7 nations won't talk about this in public. We used to hear about it all the time since 1974!"(snip) from

Wwanderer
10-26-2007, 09:55 PM
^^^As someone who makes my living, in part, doing statistics at a fairly sophisticated level, I can only agree that most economic stats leave a lot to be desired in all sorts of ways. Even if one isn't too worried about intentional biases and deceptions devised by evil government and/or corporate conspiracies and such, there are plenty of really fundamental difficulties and ambiguities in calculating something like the CPI or the GDP in a meaningful way. In other words, even if we had perfect information on the price of everything bought and sold in the economy in two different years, I'm sure that there would be many different plausible/legit ways of converting all that data into a CPI or a GDP for the comparison of the two years. They might lead to rather different conclusions but yet all be "correct" in various senses. Compressing all that data into one or two numbers necessarily involves choices and ambiguities. So, if you don't like what one of these stats tells you, you can almost always find some reason to disregard it.

But what is the alternative? Anecdotal evidence. That has its own problems, to say the least. But if you want my anecdotal evidence on inflation in Japan, it is that it is very mild...and possibly even negative (i.e., deflation). I have been going there regularly for over 20 years...spending about 10% of my time there, and I have seen very little/slow change of prices. Many common things, such as a ride on the subway or taxi fare rates or the cost of a bowl of soba in one of the little shops in train stations or the price of a pack of (intensely blueberry flavored) gum that is a particular favorite of mine, have not changed in price AT ALL in those 2 decades plus! Hotel prices vary a lot, but overall seem to be in the same range as they were years ago. Etc. And the cost of some things has gone down, often in sort of hidden ways; for example, many vending machines now give bottles containing more of the beverage for the same price. Happy hours in bars that used to have none. Discounted daily specials at restaurants, that sort of thing. (One chain of Indian restaurants, Samrat, that has long had a really good lunch special deal, now offers it also to "early bird" dinner customers.)

And I can even give it an SW spin by reporting that the cost of a lap dance in a Roppongi gaijin strip club (say, 7th Heaven, since it is the oldest of them) is now 7000 yen, exactly what it was when I first went there more than a decade ago (to the best of my recollection...not 100% certain, but certainly it has been pegged at 7000 for a long while).

All the above is re prices in yen, of course; changes in the exchange rate have a big impact on the cost in US dollars...trending upward in dollar cost with lots of fluctuations.

-Ww

Melonie
10-27-2007, 06:02 AM
there is a third alternative .... which is the comparison of historical data versus present data using the SAME original formula. John Williams at ShadowStats.com has put a great deal of effort into doing exactly this, and it really yields some surprises.



http://www.shadowstats.com/imgs/chartSGS01-37.gif

John's analysis shows that the tweaking of the official CPI formula during the Clinton administration has resulted in a downward revision of the CPI numbers on the order of 3%. This downward revision is 'powered' by substitutions and hedonic adjustments and weighting factors (i.e. using rent vs home prices). Employing the same formula which was officially used pre Clinton, the calculation shows that 'classic' inflation has averaged 6% for the past couple of years, versus the official stats showing 2.5% or so. Since nobody except corporate execs and investment bankers/brokers has been receiving pay raises exceeding 6% per year, this strongly implies a decline in the standard of living.

Obviously the gov't has a huge stake in publishing an official CPI number that is artificially low. The obvious reason is that SSI checks, public service worker paychecks, union worker paychecks, social welfare checks of all sorts etc. are officially tied to the published CPI number !!!

However, publishing an official CPI number that is artificially low does nothing to mitigate the higher prices that actually must be paid by consumers. This fact also points back to the huge window of misinterpretation mentioned earlier ... that by officially understating CPI it allows the gov't to paint a picture that increased consumer total dollar spending represents an actual increase in economic activity and an increase in purchases, versus representing no change in economic activity but simply paying higher prices for the same number of purchases, versus actually representing a decrease in economic activity while paying much higher prices for a smaller number of purchases. Without an 'accurate' comparison in regard to purchasing power a.k.a. 'real' CPI any of the above interpretations can be claimed with equal inaccuracy re the conclusions drawn.


I happen to agree with you about Japan's gov't keeping a tight rein on inflation, as well as the borderline situation of deflation. Part of this is the result of Japan's central bank maintaining a tight band on Yen vs US dollar exchange rate - after all the 'Yen carry trade' would fall apart in a heartbeat if that exchange rate took a major jump. Part of this is the result of Japan erecting and enforcing import restrictions and foreign investment restrictions which has prevented other countries from 'exporting' inflation to Japan a la China. Lastly and perhaps most importantly, Japanese employers in conjunction with the Japanese gov't have done a very good job of capping labor costs i.e. pay raises for Japanese workers are practically non-existant. However, where global commodities are concerned, the tightly manipulated Yen is producing the same large price increases for oil, food, steel/copper = durable goods etc. that Americans are now seeing - and for the same reason i.e. currency debasement. It is however arguable whether or not the increases in oil, food, steel/copper prices are yet being passed on to the Japanese consumer in the form of higher prices, versus these cost increases being absorbed by Japanese manufacturers / vendors / retailers in the form of lower profit margins.

Your example of the 7000 Yen dance price for Gaijin's still being the case after 10 years only reinforces the point that the 'working class' in Japan are being squeezed between non-rising incomes and rising prices / costs of living (even if they aren't Japanese !). In the specific case of Gaijin's this means paying a greatly increased air fare to get to Japan today vs 10 years ago at the very least - which is the reason that most Gaijins today lock themselves into the club's contract deal where airfare is covered by the club. In fact, the transfer of financial risk (i.e. the cost of her ticket / room and board etc.) from the Gaijin's own pocketbook to the Japanese clubowner's profit margin is in some ways very similar to the transfer of financial risk US investment banks and mortgage lenders have been engaged in via resale of mortgages and CDO 'insurance'. And in exactly the same fashion, we have no idea regarding the true financial condition of the Rippongi clubs any more than we have no idea regarding the true financial condition of those US investment banks and mortgage lenders !!!

~

Wwanderer
10-27-2007, 08:21 PM
there is a third alternative .... which is the comparison of historical data versus present data using the SAME original formula.

I agree that one should use the same method to calculate the CPI (or whatever) if you want to compare the inflation rate (or whatever) in two different years or over a period of time.

However, the next part of your argument:


John's analysis shows that the tweaking of the official CPI formula during the Clinton administration has resulted in a downward revision of the CPI numbers on the order of 3%. This downward revision is 'powered' by substitutions and hedonic adjustments and weighting factors (i.e. using rent vs home prices). Employing the same formula which was officially used pre Clinton, the calculation shows that 'classic' inflation has averaged 6% for the past couple of years, versus the official stats showing 2.5% or so. Since nobody except corporate execs and investment bankers/brokers has been receiving pay raises exceeding 6% per year, this strongly implies a decline in the standard of living.

makes the strong and unsupported assumption that the old method is more accurate, more meaningful, than the new method...which is a different claim all together than saying that you have to use the same formula to make comparisons.

On an anecdotal basis, I'd say the new/official formula that gives about a 16% total increase in prices since 2001 seems a lot closer to me than the old/pre-Clinton one which shows an over 40% increase. At least I can't think of many major consumer goods, other than gasoline, that have increased in price by 40% in the last 6 years.

More fundamentally, I doubt that there is any way at all of calculating a single number for the CPI that is really meaningful for all income levels, parts of the countries, age brackets etc.


I happen to agree with you about Japan's gov't keeping a tight rein on inflation, as well as the borderline situation of deflation. ...

Your example of the 7000 Yen dance price for Gaijin's still being the case after 10 years only reinforces the point that the 'working class' in Japan are being squeezed between non-rising incomes and rising prices / costs of living (even if they aren't Japanese !).

Now you have lost me. First you say that you agree that there has been little or no inflation in Japan, maybe even some deflation...but then you say that the 'working class' is caught in a squeeze against "rising prices". Those two statements seem inconsistent of the face of it.


a greatly increased air fare to get to Japan today vs 10 years ago at the very least - which is the reason that most Gaijins today lock themselves into the club's contract deal where airfare is covered by the club

Uhhh...if there has been any "great" increase, my travel agent hasn't gotten the word. I am paying right in the same range now that I was then. Any source/evidence on this big escalation of airfare prices?

In any case, you can currently find lots of NYC<-->Tokyo coach class fares in the $1100-1500 range on major US flag carrier airlines (and you can do it signigicantly cheaper if you fly through Seoul on KAL...but it is a pain in the ass). A rather slow week could easily net a dancer that much, and a single good night could do it; a very good night could well more than cover it. Of course, there are lots of other expenses, but my point is that the whole airfare is a rather small part of the expenses of spending 2 or 3 months dancing in Roppongi. So, it seems surprising that a change in airfares, if there was one, could make much difference with the whole cost being a pretty small part of the total. (All that said, I certainly wouldn't claim to understand the economics of dancing in Tokyo or anywhere else compared to the actual dancers on SW...but just my take on it.)

-Ww

Melonie
10-28-2007, 06:01 AM
At least I can't think of many major consumer goods, other than gasoline, that have increased in price by 40% in the last 6 years.

Your point about consumer goods is arguably true if you are speaking about goods which are imported from China / Asia, where the US price has been held down thanks to 'slave labor' hourly pay rates, a total lack of environmental compliance / worker benefit costs etc. If you look at US made consumer goods (i.e. those few companies that have continued to make consumer goods in the US), admittedly you won't see a 40% retail price increase.

However, what you WILL see is the US consumer goods manufacturers being forced to accept a lower and lower profit margins to the point where they are forced out of business (google plant closures by Amana, Maytag buyout etc.). US auto manufacturers are obviously on record that they have had to absorb so many extra costs of manufacture in US facilities that they are LOSING over $1000 on every car sold ! So it is entirely arguable that the COSTS of manufacturing US consumer goods have increased 40% in the past 6 years, but those cost increases have been impossible for the US manufacturers to pass onto US consumers. This of course 'hollows out' these US manufacturing companies and contributes to a 'Black Friday' scenario when these companies report losses instead of profits.

In terms of other items, it's entirely reasonable that insurance costs, health care costs, cost of basic foods, property taxes, electricity costs, tuition costs etc. HAVE risen an average of 40% over the last 6 years.



First you say that you agree that there has been little or no inflation in Japan, maybe even some deflation...but then you say that the 'working class' is caught in a squeeze against "rising prices". Those two statements seem inconsistent of the face of it.

Not at all. There has been little or no wage inflation in Japan. There has also been little or no price inflation on domestic goods and services i.e. the 7000 yen lap dance. However, there has indeed been a ton of currency exchange rate based inflation on imported goods i.e. oil / energy, steel / copper / raw materials, basic foods etc. For the most part, the Japanese gov't has been able to prevent the massive import of low cost Chinese consumer goods which has become commonplace in America. This of course denied Japanese consumers the 'bargains' that US consumers enjoy. However, it has also led to rising tensions between the Chinese and Japanese gov'ts (google the Chinese / Japanese economic summit coincident with the worldwide liquidity crisis last August !). Also, prime Japanese real estate prices have been rising a lot in recent years ... but I have no way to know whether the increases have been in the 40% range.


I am paying right in the same range now that I was then. Any source/evidence on this big escalation of airfare prices?

I basically pulled this particular item out of a hat to illustrate the point of rising costs of doing business versus stagnant earnings. My numbers were based on personal anecdotal evidence i.e. Tokyo airfares I paid 7-8 years ago. Granted that there are still 'deals' to be had for flying from New York / Chicago / LA to Tokyo if you pick the right time and book well in advance. However, the cost of the associated commuter flight from home to New York / Chicago / LA has indeed increased significantly as a result of the deep discount commuter airlines being forced to up fares in response to rising jet fuel costs.

~

Wwanderer
10-28-2007, 07:47 AM
Your point about consumer goods is arguably true if you are speaking about goods which are imported from China / Asia, where the US price has been held down thanks to 'slave labor' hourly pay rates, a total lack of environmental compliance / worker benefit costs etc. If you look at US made consumer goods (i.e. those few companies that have continued to make consumer goods in the US), admittedly you won't see a 40% retail price increase.

However, what you WILL see is the US consumer goods manufacturers being forced to accept a lower and lower profit margins to the point where they are forced out of business (google plant closures by Amana, Maytag buyout etc.). ...

This could well be a correct description of the overall situation for all I know, and it surely has at least an element of truth to it. However, the CPI is only intended to measure prices paid by consumers and not, as far as I understand it, how those prices were achieved (import of 'slave labor' goods, reduced profits due to competitive 'free market' pressures, etc). So, if the prices being paid by US consumers have escalated by more like 16% than 40+% on average over the last six years, it follows that the new 'Clinton-era' CPI formula is more accurate than the older one it replaced...no matter what the reasons for or implications of that inflation. Right?


Not at all. There has been little or no wage inflation in Japan. There has also been little or no price inflation on domestic goods and services i.e. the 7000 yen lap dance. However, there has indeed been a ton of currency exchange rate based inflation on imported goods i.e. oil / energy, steel / copper / raw materials, basic foods etc.

There is a history of yen-to-dollar exchange rates at
http://research.stlouisfed.org/fred2/data/EXJPUS.txt
There is a very clear and strong long term (decades) in favor of the yen (for a dollar to cost fewer yen), and there are a ton of fluctuations, so that if you 'cherry pick' points in the past, you can show pretty dramatic decreases or increases in the value of the yen compared to today. However, if you average over a year or two, it appears to my eye that the yen is bouncing around in the same range this year as it was 5 to 10 years ago. Of course, to the extent that the yen-to-dollar is constant, the Japanese economy still sees inflation's effect on the dollar.


I basically pulled this particular item out of a hat to illustrate the point of rising costs of doing business versus stagnant earnings. My numbers were based on personal anecdotal evidence i.e. Tokyo airfares I paid 7-8 years ago. Granted that there are still 'deals' to be had for flying from New York / Chicago / LA to Tokyo if you pick the right time and book well in advance.

Airline fares are, of course, notoriously weird and wildly variable, and it is common to find even people on the same flight and in the same class of seats paying fares differring by a factor of two or three depending on all sorts of factors. This makes it nearly impossible to assess trends based on personal experience. In other words, the big increase you saw in fares to Japan compared to 7-8 years ago might be only the result of you flying on a different day of the week or of more seats having already been sold on your flight when you booked yours. Or, perhaps the fact that I have seen little change in the price is just a result of my travel agent being good at finding "deals" for me. Hard to say...

-Ww

Melonie
10-28-2007, 11:08 AM
t follows that the new 'Clinton-era' CPI formula is more accurate than the older one it replaced...no matter what the reasons for or implications of that inflation. Right?

In a word, NO ! I fail to see how comparing the price of Clinton Era hamburger with 2007 chicken on the basis of absolute dollar cost, or comparing the price of a Clinton Era Apple II with a 2007 IMac on the basis of cost per unit of computing power, or comparing the Clinton Era cost of buying a home versus the 2007 cost of renting an apartment, comprises an apples to apples comparison (forgive the pun) ! An index rampant with substitutions and hedonic adjustments is at the mercy of it's official interpreters, which is arguably the reason that it was adopted !!! I'll offer up some corroboration from that 'notorious wacko' Bill Gross ...


o that if you 'cherry pick' points in the past, you can show pretty dramatic decreases or increases in the value of the yen compared to today. However, if you average over a year or two, it appears to my eye that the yen is bouncing around in the same range this year as it was 5 to 10 years ago. Of course, to the extent that the yen-to-dollar is constant, the Japanese economy still sees inflation's effect on the dollar.

Indeed since the Clinton Era began, the yen vs US$ exchange rate hasn't varied more than 10% one way or the other. This manipulation of course was and remains necessary to perpetuate the post-crash American / Japanese financial framework ... we buy their products at the expense of our own products ... our financial institutions borrow money from the Japanese at extremely low interest rates and re-loan that money to American consumers at much higher interest rates ... Our financial institutions and the very rich US investors in those financial institutions pocket the profits ... American consumers go ever deeper into debt ... American industries construct new Asian facilities / outsource / eliminate high paying US jobs, to the benefit of corporate execs and very rich US investors. All part of the grand plan for 'globalization' ... see for a fairly concise overview.


Or, perhaps the fact that I have seen little change in the price is just a result of my travel agent being good at finding "deals" for me.

A definite possibility. As with anything 'on sale', it is difficult to determine whether or not the seller is actually profiting directly from the transaction or whether that transaction is being subsidized by the sale of some other product in order to achieve a particular seller objective. I believe the retail buzz word is 'loss leader' (poster child offering particularly popular Christmas toys at cost / loss in an attempt to draw new customers to the store who will also buy other products). In the case of the airline industry, flights to Florida and Vegas have traditionally fallen into this category. I really don't know whether the Tokyo routes fall into this category as well. However there is absolutely no doubt that the deep discount regional airlines (poster child Southwest) have been forced to increase their air fares SIGNIFICANTLY compared to 7-8 years ago. See for the latest.

Wwanderer
10-31-2007, 07:51 PM
Sorry for letting my end of the thread drop; it has been a busy week. I've been tied up arranging the 3rd mortgage on my house and making the payments via my credit cards! ;)

But back to the topic at hand. First you said that US consumers have not generally seen a 40% price increase over the last 6 years as the old way of calculating the CPI indicates but that the much lower rate of inflation, perhaps close to the 16% indicated by the "Clinton-era" CPI, has been achieved by 'slave labor', reduced profits and so forth:


Your point about consumer goods is arguably true if you are speaking about goods which are imported from China / Asia, where the US price has been held down thanks to 'slave labor' hourly pay rates, a total lack of environmental compliance / worker benefit costs etc. If you look at US made consumer goods (i.e. those few companies that have continued to make consumer goods in the US), admittedly you won't see a 40% retail price increase.

My reply was that the CPI is supposed to measure price increases, and not why they weren't higher (or lower):


This could well be a correct description of the overall situation for all I know, and it surely has at least an element of truth to it. However, the CPI is only intended to measure prices paid by consumers and not, as far as I understand it, how those prices were achieved (import of 'slave labor' goods, reduced profits due to competitive 'free market' pressures, etc). So, if the prices being paid by US consumers have escalated by more like 16% than 40+% on average over the last six years, it follows that the new 'Clinton-era' CPI formula is more accurate than the older one it replaced...no matter what the reasons for or implications of that inflation. Right?

Now, you seem to be complaining that the 'Clinton-era' CPI is not an 'apples-to-apples' comparison and is subject to intentional manipulations:


In a word, NO ! I fail to see how comparing the price of Clinton Era hamburger with 2007 chicken on the basis of absolute dollar cost, or comparing the price of a Clinton Era Apple II with a 2007 IMac on the basis of cost per unit of computing power, or comparing the Clinton Era cost of buying a home versus the 2007 cost of renting an apartment, comprises an apples to apples comparison (forgive the pun) ! An index rampant with substitutions and hedonic adjustments is at the mercy of it's official interpreters, which is arguably the reason that it was adopted !!!

This may well be the case (for all I know), but it is again not what we were discussing, namely, the absolute accuracy of the two methods over the last 6 years...in other words, how well the two versions of the index represent match reality, not how they were derived.

-Ww

Katrine
11-01-2007, 01:56 PM
The Apple II was way pre-Clinton era. As for the rest, I defer to the experts.

Jay Zeno
11-01-2007, 02:29 PM
I got lost.... so when is the 2007 "Black (whatever)day" supposed to occur? And are we shoveling our spare disposable income into puts, or not?

Melonie
11-01-2007, 02:54 PM
well, based on today's news and market action, tomorrow could be pretty scary !!! As to contrary investments, I bought some extra SDS shares as soon as the market turned down after the fed's 1/4 point interest rate cut ... I'm still holding all of my shares of 2899.hk (a.k.a. Jiangxi copper mines) and MFN (gold mines).

Jay Zeno
11-01-2007, 03:02 PM
OK, I'm no investor, but that sounds less than fully confident that the market will crash at a time certain. Otherwise, I'd think that wW's proposed strategy would be pursued.

Wwanderer
11-01-2007, 08:20 PM
OK, I'm no investor, but that sounds less than fully confident that the market will crash at a time certain. Otherwise, I'd think that wW's proposed strategy would be pursued.

It need not even be all that certain. If you think that there is even a 10%, say, chance of a 1987-like market crash in the next quarter, the "expected gain" would be 10x the investment or more. Of course, there would still be a 90% chance of losing the "bet", so you wouldn't want to put more money into it than you could afford to lose without great pain, but you'd certainly want to put some on such an attractive opportunity.

To me it is pretty persuasive that the people who predict market collapses on a regular basis and with great confidence apparently don't make such bets. If they did, they'd be broke by now.

-Ww

Melonie
11-01-2007, 10:55 PM
hence the famous quote 'the market can remain irrational longer than you can remain solvent !

lunchbox
11-01-2007, 11:37 PM
JZ - I say now is the time, I tried to make this call in August and missed. Even if we don't crash, the bull market is over. Financial make up such a large part of the SP, we aren't going to be making new highs in the near future. That will drag everything down.

Adelina
11-02-2007, 12:10 AM
5 rules by Zapata:

http://www.youtube.com/watch?v=JKQF78ZbW1k

Pay attention to rule #5: Fundumentals will rule.

xanfiles1
11-07-2007, 04:21 PM
JZ - I say now is the time, I tried to make this call in August and missed. Even if we don't crash, the bull market is over. Financial make up such a large part of the SP, we aren't going to be making new highs in the near future. That will drag everything down.

What if the Market has already priced all the bad news into the financial firms stock? Then those stocks have nowhere to go but up. No?

I'm not saying that it is going to happen. Just picking holes in your argument.

lunchbox
11-09-2007, 04:41 PM
What if the Market has already priced all the bad news into the financial firms stock? Then those stocks have nowhere to go but up. No?

I'm not saying that it is going to happen. Just picking holes in your argument.
I'm always up for a discussion or an argument. The market is always trying to price everything in all at once. The problem is the market is thinking to small, they are still trying to quantify this cluster fuck in billions.

You might be asking yourself, what's wrong with that?

The problem is we are talking about trillions in residential mortgages alone. When they start to talk about it in those terms on CNBC, or when Ben admits it, then you will know it is priced in. We are a long way off.

I mean yesterday, Ben was talking about 6 month return to 'regularity' in the housing market. Let's use some common fucking sense. There is over 10 months of inventory, so please explain just how that is supposed to happen. Housing has gotten so bad they revise down the numbers multiple times because the models they use, just don't get how bad it is.

I'm not not done yet!

Commercial real estate lags 4-6 quarters behind residential. GUESS WHAT TIME IT IS? The CMBX markets are weakening, just like the ABX markets did. The only reason this would happen is if retail sucked! As we have seen from the most recent quarter, it does!

It gets way more complicated from there. The global derivatives market is valued at something like 8+ times the world's GDP. That is approaching half a quadrillion dollars. Normally, people don't even talk about that much money, I had to look up what comes after a trillion!

What happens when that starts to break down? It's like domino's, and they keep falling. The entire system is broken and has reached critical mass. It's at the point where it can only be fixed with a new system, war, or a massive natural disaster.

Melonie
11-10-2007, 02:32 AM
The problem is we are talking about trillions in residential mortgages alone. When they start to talk about it in those terms on CNBC, or when Ben admits it, then you will know it is priced in. We are a long way off.

I mean yesterday, Ben was talking about 6 month return to 'regularity' in the housing market. Let's use some common fucking sense. There is over 10 months of inventory, so please explain just how that is supposed to happen. Housing has gotten so bad they revise down the numbers multiple times because the models they use, just don't get how bad it is.

In fact, there are more adjustable rate mortgages that are scheduled for their first interest rate / monthly payment between now and next April than have already reset since the housing market began to decline !!! This is not speculation, but a matter of cold hard fact based on mortgages already written. Thus if you extrapolate the foreclosure rates which have already developed as a result of ARM resets, and add in the fact that some ARM mortgageholders are temporarily fending off foreclosure but will succumb anyhow once their credit cards are maxxed out and their other assets are sold off, you can probably multiply today's foreclosure rate by a factor or 2.5 to 3 in terms of the foreclosure rate 6 months from now !

However, a potentially much more serious development has occurred that hasn't gotten a lot of news coverage outside of New York. That development was NY Attorney General Andrew Cuomo's subpoenas to Fannie Mae and Freddie Mac, followed by an on record statement from Fannie and Freddie that any mortgages which they are currently holding that are found to contain fraud will be 'put back' to the originating lender. At the very least this will mean that all future mortgages will be gone over with a fine tooth come re property appraisal, true income and pre-existing financial obligations of would-be mortgage and re-fi seekers. At worst this could mean an investigations into mortgages already sold to Freddie and Fannie by banks across the country, potentially meaning that those banks would have to reimburse Fannie and Freddie for the sale price of these fraudulent mortgages which the banks have already received, plus eat the foreclosure losses themselves !!! If that were to happen it would result in widespread failures of the US banks involved, who simply don't have this kind of money at their disposal anymore.





As discussed in the link stories, banks simply don't have the free capital to invest in mortgages which they must hold themselves until maturity regardless of the foreclosure / bankruptcy risk on the part of mortgage borrowers. Because the US dollar is plummeting, foreign capital is scarce because no foreign investor wants to earn a 6% profit on a US mortgage but lose 10% in terms of US dollar vs Euro exchange rates. Certainly US consumers are not depositing money in savings accounts / CD's etc. to provide new US bank capital for mortgage lending on their own books.

I'm not sure where all of this is headed, but I can really only think of two alternatives. Scenario 1 is that mortgage and other types of loans suddenly become next to impossible to obtain for everyone, and totally impossible to obtain for anybody who has a less than great credit rating. Scenario 2 is that the US government (equals US taxpayer) winds up bankrolling the US bank capital shortage as well as accepting the loss risk via some sort of bailout program.

~

lunchbox
11-11-2007, 11:18 PM
$/yen is flirting with 110!!! unwind anyone?

I've never seen action like this coming across on a Sunday night. It's going to be ugly Monday! What's really scary is fixed income is going to be closed, so it will probably just get worse Tuesday.

Melonie
11-12-2007, 04:41 AM
^^^ It would appear that China has dropped their direct attack on the US dollar, and are now conducting an indirect attack via the Japanese Yen. From a conspiracy theory standpoint this is twice as effective, since it will force all of the Carry Traders to sell off their US investments (bought with cheaply borrowed Yen) in order to pay off their Yen loans before the US$ : Yen exchange rate worsens any further. This exchange rate has made a huge move from 114 last thursday to 110 today ... a nearly 4% 'loss' for those Carry Traders who must now sell US dollar priced investments to pay off loans priced in Yen. This Carry Trade principle is what tanked LTCM !!!

But to make matters worse, the Yen carry trade is one of the only remaining sources of foreign capital for 'hungry' US individuals and businesses. The death of the carry trade will probably precipitate a credit crunch of unprecedented proportions. It will then be up to the US Fed (and their printing presses) as to whether this turns into deflation and 'cash' starvation, or weimar-esque inflation. I'm betting on the latter since the US has far more debtors than savers / investors.

xanfiles1
11-12-2007, 12:34 PM
I'm always up for a discussion or an argument. The market is always trying to price everything in all at once. The problem is the market is thinking to small, they are still trying to quantify this cluster fuck in billions.

You might be asking yourself, what's wrong with that?

The problem is we are talking about trillions in residential mortgages alone. When they start to talk about it in those terms on CNBC, or when Ben admits it, then you will know it is priced in. We are a long way off.

I mean yesterday, Ben was talking about 6 month return to 'regularity' in the housing market. Let's use some common fucking sense. There is over 10 months of inventory, so please explain just how that is supposed to happen. Housing has gotten so bad they revise down the numbers multiple times because the models they use, just don't get how bad it is.

I'm not not done yet!

Commercial real estate lags 4-6 quarters behind residential. GUESS WHAT TIME IT IS? The CMBX markets are weakening, just like the ABX markets did. The only reason this would happen is if retail sucked! As we have seen from the most recent quarter, it does!

It gets way more complicated from there. The global derivatives market is valued at something like 8+ times the world's GDP. That is approaching half a quadrillion dollars. Normally, people don't even talk about that much money, I had to look up what comes after a trillion!

What happens when that starts to break down? It's like domino's, and they keep falling. The entire system is broken and has reached critical mass. It's at the point where it can only be fixed with a new system, war, or a massive natural disaster.

It is really easy to throw Trillion Dollars into the air just for the heck of it. Almost feel like I'm watching Austin Powers.
Evil: The loss is 1 Billion Dollars (Pinky on the lips)
#2: People don't get scared with a Billion Dollars anymore. I mean just the Iraq war has cost us $250 Billion Dollars
Evil: Throw me a frickin bone here....Alright, 1 Trillion Dollars. Is that good. I mean will people should get scared with a Trillion dollars right

Here's a simple logic.

You can't lose what you don't have.

Sure you can leverage a derivative to 30000 times and make/lose boatloads of money. But, derivative trading is a zero sum game. If somebody is losing Quadrillion Dollars, somebody else must be making a Quadrillion dollars. I don't see Forbes updating its Richest Man on Earth with Quadrillion dollars Net worth.

Bottomline, there was no asteroid that struck earth and wiped away most of its wealth. But, the articles behave as though it did

lunchbox
11-12-2007, 02:02 PM
spx = 4 red days...