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Thread: weekend commentary - where did Q4 economic growth really come from ?

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    Default weekend commentary - where did Q4 economic growth really come from ?

    scroll down to "Pig Men Heaven and Slightly Trained Monkeys"


    Although the theory of economic instability at the top of the page is worth a read as well. If you understand what this chart is telling you ...



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    Default Re: weekend commentary - where did Q4 economic growth really come from ?

    This is an “interesting” paper that has a glimmer of merit. Basically the paper says that the economic system is becoming more an more biased to more and more risk so that more and more debt can be loaded on the system.

    Meet the Press had an interesting guest on two or three weeks ago. I forgot his name. He said however that “China imports inflation in raw materials, and exports deflation in finished goods.”

    This is the most succinct and profound statement on the effect of unbridled globalization, (with not transition plan explained to the American people), that I have yet heard. Inflation in services, energy and food, but deflation in wages because you can’t raise prices on manufactured goods because China takes more of the market.

    The old saying that come the revolution we will shoot the lawyers is not correct. You will need the lawyers to prosecute the accountants who are accessories to corporate fraud by their ever creative ways of juggling the numbers. The class you shoot are the HR Nazis, who have evolved from a benign class of corporate bureaucrats pushing personnel paper, to a “high performance” culture of 100% incentive based pay. Pay for performance in decision making will go down as the stupidest wall street buro speak of the twentieth century. (Note I said decision making... not sales)

    Having people in analysis and decision making roles in which their pay is strongly influenced on pay for performance decisions leads the entire system to be always biased to doing deals. Deals where the word twenty years ago was a simple “no” now get a
    we can find a way to structure it but it will cost you.

    If you can not quantify the investment risk of a deal, the answer should be no.

    I’m afraid that the rule of large numbers, reserves, and “structuring” deals may
    Come crashing down when the unanticipated event arrives to stress the economic system.

    The truth is you need people with guts to say no. If you have enough of these people the deals that come out are better, safer, and more conservative for the long run.

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    Default Re: weekend commentary - where did Q4 economic growth really come from ?

    I'm ready for the great disaster. A few modifications and it will work perfectly.



    I don't think it is going to be a giant crash everyone can identify.

    It is going to be creeping chaos. There are large expanses of metropolitian areas that are obvious to people where "the system" doesn't work and they have chosen to live outside of it. Outside those areas the chaos creeps in with street gangs and lower opportunities.

    More and more people are realizing things aren't working and find themselves scratching their heads thinking "OK, what the fuck just happened? I did everything right! ( )" But they will still go on through the march until finally their feet give out from under them and then they will have to figure out something else.

    One by one they will be criminalized and marginized by those who refuse to see the truth, until they themselves step into the shit.

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    Default Re: weekend commentary - where did Q4 economic growth really come from ?

    I agree about 90% of what you said. Creeping Chaos really says it. Maybe it is "entropy."

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    Default Re: weekend commentary - where did Q4 economic growth really come from ?

    I will tell you one thing - when I lived in Flint Michigan, as more factories closed their doors - more "urban wastelands" started showing up.

    They are slowly turning into a college town - but it has easily been twenty years in the making and it is still an uphill fight.

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    Default Re: weekend commentary - where did Q4 economic growth really come from ?

    I'm not so sure about your 'creeping chaos' scenario. Obviously there are signs of this already happening all over the 'first world'. However, my concern is that the coming 'instability' will be much more global in nature given that 50% of US gov't debt obligations are now owed to foreigners, and a good portion of the other 50% is owed to retirement funds, hedge funds etc. Plus these numbers only refer to the US gov't and GSE debt obligations we know about and can quantify, but which actually only amount to a small percentage of the TOTAL debt exposure ...



    ...(snip)"Fannie and Freddie are able to fund the purchases of these primary market mortgages by issuing debt to the public via the bond markets. One of the extra-special benefits of being a GSE is they can borrow, with virtually no limits or volume restrictions, at cheaper rates compared to other top debt-rated companies. They have this capability because investors tag these bonds nearly as safe, if not as safe, as Treasury debt. With the spread between their ultra-low borrowing rate and the interest rates on the loans they house, they have a continual cash flow that provides them with further expansion opportunity for their portfolios. What a fantastically easy way to make money! Almost like growing it on a tree.

    The investment vehicles Fannie and Freddie use to flood the bond markets are called Mortgage Backed Securities (MBS). An MBS is comprised of a pool of mortgages that serve as the underlying asset providing principal and interest payments passed through to investors. The GSEs sell claims to the principal and interest payments generated from this pool of mortgages in the open bond market, while fully guaranteeing the funds to the investor.

    Currently, Fannie and Freddie are liable for over $3 trillion dollars of outstanding debt securities to the markets. Folks, our national debt is at $8 trillion. How is it possible that Fannie and Freddie can accumulate debt of their own that is nearly 40% of our nation’s debt? Keep in mind an MBS carries a guarantee from the issuer to the investor on its payment, regardless of the cash flow generated from the underlying assets. $3 trillion dollars is a lot of money to have at risk with the assumption the underlying cash flow will always be there!

    You may ask yourself how they can possibly issue so much debt and where the demand comes from. Many mutual funds, commercial banks, pension funds, local governments, foreign Central Banks, etc provide ample demand for GSE debt. In most cases these institutional investors use it in their fixed-income portfolios as a replacement for U.S. Treasury debt because they get a little higher yield and deem it just as safe.

    It’s the misconstrued implication that this debt has 100% U.S. government backing that makes it so easy for a GSE to issue to the public. This is a big problem, because even though the GSEs have a conditional and limited credit line with the U.S. Treasury, the debt they issue is private debt and is not fully backed by the U.S. government. Fannie, Freddie and the U.S. government tout this disclaimer, but it seems to be pushed too lightly onto near-deaf ears."(snip)
    ...
    "The OFHEO, Alan Greenspan, as well as students of the markets are able to recognize the risk and danger these GSEs pose to the financial markets. Not only does the OFHEO’s statement give credit to the housing bubble for keeping our economy afloat, but it also recognizes the risk and exposure Fannie and Freddie may pose to the future health of the economy.

    When the mortgagors of the underlying assets that the GSEs guarantee start to default on their loans, watch out! It won’t take a large percentage of defaults to trigger a catastrophic situation. When defaults and forced prepayments become rampant, Fannie and Freddie and any other institution that guarantees mortgage-backed securitized debt will be scrambling. The derivative instruments they rely on will only protect them so much.

    Steady cash flows from these underlying mortgage pools are essential for business, and if they become compromised the health of these securities will be in danger. The culmination of such would really hurt the financial markets if Fannie and Freddie started to default on their debt obligations. It would turn into an ugly domino effect the likes of which we have never seen before.

    If Fannie and Freddie do default on their debt, it’s not just going to be Jan and George who lose a few thousand dollars similar to when their tech stocks fell. We’re talking large market institutional investors that will bleed from this, affecting Jan and George in a different way. Mutual Funds, Pension Funds and the likes will have to take massive write offs because their so-called safe investments turned sour on them.

    Imagine the panic that would ensue if peoples’ pension funds, annuities, 401(k)s and personal mutual funds posted huge losses or even worse went insolvent because their so-called stable assets went belly-up. If the long-term investments of Jan and George or perhaps even foreign central banks which aggressively invest in these bonds start taking major hits, a selloff could ensue that would be disastrous not only for our domestic financial markets, but global financial markets. "(snip)
    Last edited by Melonie; 02-12-2006 at 04:36 PM.

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    Default Re: weekend commentary - where did Q4 economic growth really come from ?

    All I know, is houses are gonna be real cheap for those of us with a bank account.

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    Default Re: weekend commentary - where did Q4 economic growth really come from ?

    All I know, is houses are gonna be real cheap for those of us with a bank account.
    ... assuming of course that your local bank actually has any cash to hand to you, or will allow you to withdraw it in the first place (versus the FDIC freezing all accounts for a few months while they figure out what to do) !

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