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Rainbows over Canyonlands - Dave Stoker
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Showing posts with label socialism. Show all posts
Showing posts with label socialism. Show all posts
Thursday, September 18, 2008
Next Steps
Next Steps
Wow!
I’m speechless. And, I love to talk. The self-destruction of the post World War II global banking and financial system is in full drive. In Washington and New York, ideology has given way to pragmatism. Potomac Socialism is alive.
The ratio of leverage (debt) to assets, a liquidity crisis (falling cash flow or the rising cost of capital), plus declining asset prices (contracting supply/demand curve) is a sure recipe for massive amounts of non-performing assets, a prelude to an avoidable financial Armageddon.
RISING DEBT LEVELS
RISING COST OF CAPITAL
FALLING ASSET PRICES
FALLING CASH FLOW
FALLING DEMAND
CONTRACTING CREDIT
= MARKET CRASH
= ECONOMIC DEPRESSION
K.I.S.S. (KEEP IT SIMPLE STUPID)
If you had allowed me to build your fixed income portfolio since 2003, and you left it intact, you slept well this week. Am I crowing in this email, perhaps? And, you should, too. Look around; there has been tens of billions of dollars in wealth destruction; major financial institutions have been eliminated, executive managerial careers have been extinguished, fear is widespread, credit markets have seized up for a week yet your bond portfolio is untouched, if not up.
Only, yesterday, gold gained $70 in a single day, the 13-week t-bill traded at .02 of one per cent, part of the reason, institutions are liquidating commercial paper, cash and money market fund accounts because Reserve Primary money market mutual fund “broke the buck”. Investors will get .97 cents for every one of their dollars on deposit. Just incredible.
Before we pop champagne corks and celebrate dodging this credit market implosion bullet, there is much work to be done. Now that the world is no longer in denial and has begun addressing this current financial calamity, I want to have a conversation with you very soon about realigning your portfolio to withstand the next phase of capitalism’s meltdown and the probable upcoming economic depression.
Why do I think a depression is probable? The levels of consumer, corporate, and municipal debt will be reversed to pre 2000 levels. Our economy will contract. At some point, investors will only be able to sell quality assets, like, you know, the bonds in your portfolio and treasuries. If the term depression is too provocative, look at things this way; we are experiencing three simultaneously transitions: 1) from an expanding to a slowing economy; 2) from an extreme credit to a moderately credit driven GDP; and 3) from the largest single economy in the world to a much smaller economy.
Understand this; you currently hold a unique bond portfolio. It has an extremely long-term duration and was designed for the unprecedented seismic shift unfolding this moment in time. Your portfolio is at its greatest vitality, now. Without proper and timely adjustments to your portfolio, radical liquidity injections coordinated by central banks around the world is toxic for long-term duration. The total return of your account is vulnerable. When that day comes to take decisive action will you be prepared?
I am preparing proprietary fixed income portfolio models for EVENT STRATEGY INVESTING, which includes Defensive Estate Planning. In this environment, there are certain insurance contract structures, AIG notwithstanding, are worth considering, for certain situations. And, the properly constructed portfolio should incorporate the next five to ten years.
Also, earlier this week, my email to you contained a link to Federal Reserve Bank of NY referencing where they are stashing all the Collateral Debt Obligations (CDOs) bad paper. There could be up to one trillion dollars in assets, on which, the feds have announced that they are prepared to lose several hundred billion dollars.
Eventually, a Resolution Trust Corporation will be established to liquidate these assets. If you know any buy-side fixed income CDO analysts, traders, or operations managers, interested in this prospect, have them email me or send their CV to: Monsoon Wealth Management, PO Box 15521, Scottsdale, AZ 85267, Attn: CCO.
Finally, as a small business, please forward this email to fellow investors or send me referrals of acquaintances envious of your portfolio or who is unhappy with their advisor. I need to grow my business, too. Thanks.
Monday, July 28, 2008
Weekly Review and Outlook: Deleveraging's Not Just for I-Banks
Like a wild jungle creature forced into a confrontation, but unsuccessful, this past week's stock market limped into the weekend, stunned, pensive, and little changed with Dow Jones Industrial Average [DJIA] closing at 11370.69, the Standard & Poor's 500 ending at 1256.76, and NASDAQ finishing its week at 2310.53. The Dow lost 125.88 for the week. Likewise, the S&P 500 dropped 2.92 and NASDAQ subtracted 27.75, respectively.
The CNBC midday rowdies strained themselves lifting a Hubble sized telescope looking for positive data points in the housing numbers. Existing home sales came out Thursday; they were down 2.4 percent in June, at a seasonally adjusted annual rate of 4.86 million units. New home sales for June, appearing Friday, was lower by .06 percent, on a seasonally adjusted annual rate of 530,000, from a revised upward May figure of 533,000.
I can imagine the rowdies on an express elevator to hell remarking that our destination has dry heat, that it's a gated community, and that it's a Christian neighborhood with few trespassers.
In the second quarter, 739,714 foreclosure filings were recorded. Also, 220,000 homes were lost to bank repossession, according to RealtyTrac. That is up 14 percent from the first quarter and up 121 percent from the same quarter in 2007.
A report published on Friday, by an International Monetary Fund economist, concluded U.S. housing prices were still overvalued, in the first quarter this year, perhaps, 14 percent, within a range of 8 percent to 20 percent. According to Reuters, IMF economist Vladimir Klyuev's report "What goes up must come down? House price dynamics in the United States", examined the inventory-to-sales ratio, foreclosure rates, market inertia, and other data points, formulating this opinion. That would mean at least an additional $1 trillion in lost asset value. The government debt market is still comatose.
The 2 year and 10 year US Treasury Notes, as well as the 30 year US Treasury Bond ended the week with higher yields, paying 2.71%, 4.10%, and 4.68%, versus 2.64%, 4.85%, and 4.65, respectively. August is a major refunding month with auctions scheduled for the Two, Five, Ten, and Thirty Year Treasury obligations, in addition to the weekly T-Bill The brightest spot in the market was the Nymex Light Sweet Crude Oil September contract; it closed Friday at $123.26 per barrel, extending its reprieve to cash strapped motorists from its recent high of $147.20.
Online retail analysts are reporting double digit growth in sales among several retailers because of consumers passively boycotting higher gasoline prices. Who would have thought that one day we would be happy seeing oil prices heading towards $100 a barrel?
Late Friday afternoon, the Office of the Comptroller of the Currency closed First National Bank and the FDIC was named receiver of another two banks, one California-based and the other Nevada based, First National Bank of Nevada with $3.4 billion in assets, and First Heritage with $254 million in assets. Both were owned by undercapitalized First National Bank Holding Co., of Scottsdale, Arizona. First National lost $140 million in the first quarter. They reported $4.6 billion in assets and $4.3 billion in liabilities. Nine point four percent of it $3.7 billion in loans were non-current, ending March 31. Mutual of Omaha Bank acquired the deposits of the two banks from the FDIC for a 4.41 percent premium. The new Mutual of Omaha Bank branches will open Monday morning.
There are currently 8,494 institutions holding $13.4 trillion assets insured by the FDIC. The FDIC said the failures would cost its deposit insurance fund roughly $862 million. This brings the total number of bank failures in 2008 to seven. You can learn more about the status of a particular bank here
Game Changer : The really, really, big news this week came from Chrysler LLC. It announced Friday afternoon that its financing arm would discontinue offering leasing deals to its U.S. customers beginning August 1; the same date when their $30 billion credit facility is up for renewal. The rising cost of capital is making leasing terms less attractive to consumers. This is another aftershock resulting from stifling energy prices and an economy that's deleveraging.
Declining SUV and lease values forced Ford to take a $2.1 billion charge at its finance division last week. Although, third party banks and credit unions will step in to fill the void, expect some slippage in the approval rates for leasing transactions. The same market pressures compelling Ford (F) to exit this market will certainly continue to present as a business factor for any entity looking to make a profit leasing vehicles. The cost of capital is important, however, the residual value of the underlying asset is monumental. The percentage of Chrysler sales attributed to leasing is greater than 20 percent.
It will be very interesting to see if this extemporaneous admission becomes evolutionary inside America's automobile industry. Americans divine right to drive automobiles has been an unconditional assumption since the end of WWII. In 2008, it's a fair question to ask given this extraordinary economic environment of failing banks, growing home foreclosures, stagnant incomes, evaporating jobs, personal and business credit contraction, a runaway federal budget, an aging infrastructure, an expensive endless foreign war, a fractured financial system, rising worldwide demand for limited resources, and a demonstrable shifting of global wealth. Plus, the third generation of Americans, exposed growing up around an enlightenment concerning the ecology and global environmental issues, is being handed the task of running our economy. They will shape and modify our society's habits in the future.
The U.S. Senate actually gaveled a rare Saturday session passing landmark legislation to triage a metastasizing bankrupted residential real estate market. Highlights of the bill include; a new regulator for Fannie Mae (FNM) and Freddie Mac (FRE) and up to $300 billion to insure refinanced mortgages for the next 18 months; $4 billion to states to buy and rehabilitate foreclosed properties, a 10 percent tax credit up to $7,500 dollars for first time home buyers purchasing a home between April of this year and June of next year; increase the federal debt limit to $10.6 trillion, and more.
We now have a de facto nationalized residential real estate market. The reversal by the White House to withdraw a veto threat and sign a passed bill into law would create tears of joy on the face of Scottish economist John Law and Louis the XIV of France. Welcome to the new depression. France has succumbed to capitalism. In between fist bumping with the Democratic presumptive nominee Barack Obama and checking out his Italian-born former model turned pop star wife's, Carla Bruni-Sarkozy's new music album, "Comme si de rien n'etait"(As if nothing had happened), President Nicolas Sarkozy of France bullied his National Assembly into radically reforming their 1958 Constitution. Passage of the reform package includes limiting Presidential terms, strengthening the power of the legislature, weakening the position of Prime Minister, and repealing the 35 hour per week cap for workers.
It is an indication that the global downturn will affect everyone. The French are now more aware than ever of prioritizing work and leisure to enhance income and productivity. Calling national strikes on idealistic principles was an industrial age luxury. Cash flow is paramount in the beginning of the 21st century. Welcome to the club.
The year 2008 will record the resignation of Fidel Castro of Cuba, as its President, and the abandonment of immense leisure time by the average French worker; two aging symbols of 20th Century socialism. I wonder if Hank Paulson and Ben Bernanke are erecting the first 21st century's symbol of socialism. Tonight, I shall pour a very, very, nice XO Cognac and contemplate the upcoming Consumer Confidence figure on the 29th; the Employment and Crude Inventories figures on the 30th; the GDP-Advanced, Initial Claims, and Chicago PMI, on the 31st; and August 1st, Auto and Truck Sales, Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Construction Spending, and the ISM Index. Maybe two drinks, au revoir!
The CNBC midday rowdies strained themselves lifting a Hubble sized telescope looking for positive data points in the housing numbers. Existing home sales came out Thursday; they were down 2.4 percent in June, at a seasonally adjusted annual rate of 4.86 million units. New home sales for June, appearing Friday, was lower by .06 percent, on a seasonally adjusted annual rate of 530,000, from a revised upward May figure of 533,000.
I can imagine the rowdies on an express elevator to hell remarking that our destination has dry heat, that it's a gated community, and that it's a Christian neighborhood with few trespassers.
In the second quarter, 739,714 foreclosure filings were recorded. Also, 220,000 homes were lost to bank repossession, according to RealtyTrac. That is up 14 percent from the first quarter and up 121 percent from the same quarter in 2007.
A report published on Friday, by an International Monetary Fund economist, concluded U.S. housing prices were still overvalued, in the first quarter this year, perhaps, 14 percent, within a range of 8 percent to 20 percent. According to Reuters, IMF economist Vladimir Klyuev's report "What goes up must come down? House price dynamics in the United States", examined the inventory-to-sales ratio, foreclosure rates, market inertia, and other data points, formulating this opinion. That would mean at least an additional $1 trillion in lost asset value. The government debt market is still comatose.
The 2 year and 10 year US Treasury Notes, as well as the 30 year US Treasury Bond ended the week with higher yields, paying 2.71%, 4.10%, and 4.68%, versus 2.64%, 4.85%, and 4.65, respectively. August is a major refunding month with auctions scheduled for the Two, Five, Ten, and Thirty Year Treasury obligations, in addition to the weekly T-Bill The brightest spot in the market was the Nymex Light Sweet Crude Oil September contract; it closed Friday at $123.26 per barrel, extending its reprieve to cash strapped motorists from its recent high of $147.20.
Online retail analysts are reporting double digit growth in sales among several retailers because of consumers passively boycotting higher gasoline prices. Who would have thought that one day we would be happy seeing oil prices heading towards $100 a barrel?
Late Friday afternoon, the Office of the Comptroller of the Currency closed First National Bank and the FDIC was named receiver of another two banks, one California-based and the other Nevada based, First National Bank of Nevada with $3.4 billion in assets, and First Heritage with $254 million in assets. Both were owned by undercapitalized First National Bank Holding Co., of Scottsdale, Arizona. First National lost $140 million in the first quarter. They reported $4.6 billion in assets and $4.3 billion in liabilities. Nine point four percent of it $3.7 billion in loans were non-current, ending March 31. Mutual of Omaha Bank acquired the deposits of the two banks from the FDIC for a 4.41 percent premium. The new Mutual of Omaha Bank branches will open Monday morning.
There are currently 8,494 institutions holding $13.4 trillion assets insured by the FDIC. The FDIC said the failures would cost its deposit insurance fund roughly $862 million. This brings the total number of bank failures in 2008 to seven. You can learn more about the status of a particular bank here
Game Changer : The really, really, big news this week came from Chrysler LLC. It announced Friday afternoon that its financing arm would discontinue offering leasing deals to its U.S. customers beginning August 1; the same date when their $30 billion credit facility is up for renewal. The rising cost of capital is making leasing terms less attractive to consumers. This is another aftershock resulting from stifling energy prices and an economy that's deleveraging.
Declining SUV and lease values forced Ford to take a $2.1 billion charge at its finance division last week. Although, third party banks and credit unions will step in to fill the void, expect some slippage in the approval rates for leasing transactions. The same market pressures compelling Ford (F) to exit this market will certainly continue to present as a business factor for any entity looking to make a profit leasing vehicles. The cost of capital is important, however, the residual value of the underlying asset is monumental. The percentage of Chrysler sales attributed to leasing is greater than 20 percent.
It will be very interesting to see if this extemporaneous admission becomes evolutionary inside America's automobile industry. Americans divine right to drive automobiles has been an unconditional assumption since the end of WWII. In 2008, it's a fair question to ask given this extraordinary economic environment of failing banks, growing home foreclosures, stagnant incomes, evaporating jobs, personal and business credit contraction, a runaway federal budget, an aging infrastructure, an expensive endless foreign war, a fractured financial system, rising worldwide demand for limited resources, and a demonstrable shifting of global wealth. Plus, the third generation of Americans, exposed growing up around an enlightenment concerning the ecology and global environmental issues, is being handed the task of running our economy. They will shape and modify our society's habits in the future.
The U.S. Senate actually gaveled a rare Saturday session passing landmark legislation to triage a metastasizing bankrupted residential real estate market. Highlights of the bill include; a new regulator for Fannie Mae (FNM) and Freddie Mac (FRE) and up to $300 billion to insure refinanced mortgages for the next 18 months; $4 billion to states to buy and rehabilitate foreclosed properties, a 10 percent tax credit up to $7,500 dollars for first time home buyers purchasing a home between April of this year and June of next year; increase the federal debt limit to $10.6 trillion, and more.
We now have a de facto nationalized residential real estate market. The reversal by the White House to withdraw a veto threat and sign a passed bill into law would create tears of joy on the face of Scottish economist John Law and Louis the XIV of France. Welcome to the new depression. France has succumbed to capitalism. In between fist bumping with the Democratic presumptive nominee Barack Obama and checking out his Italian-born former model turned pop star wife's, Carla Bruni-Sarkozy's new music album, "Comme si de rien n'etait"(As if nothing had happened), President Nicolas Sarkozy of France bullied his National Assembly into radically reforming their 1958 Constitution. Passage of the reform package includes limiting Presidential terms, strengthening the power of the legislature, weakening the position of Prime Minister, and repealing the 35 hour per week cap for workers.
It is an indication that the global downturn will affect everyone. The French are now more aware than ever of prioritizing work and leisure to enhance income and productivity. Calling national strikes on idealistic principles was an industrial age luxury. Cash flow is paramount in the beginning of the 21st century. Welcome to the club.
The year 2008 will record the resignation of Fidel Castro of Cuba, as its President, and the abandonment of immense leisure time by the average French worker; two aging symbols of 20th Century socialism. I wonder if Hank Paulson and Ben Bernanke are erecting the first 21st century's symbol of socialism. Tonight, I shall pour a very, very, nice XO Cognac and contemplate the upcoming Consumer Confidence figure on the 29th; the Employment and Crude Inventories figures on the 30th; the GDP-Advanced, Initial Claims, and Chicago PMI, on the 31st; and August 1st, Auto and Truck Sales, Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Construction Spending, and the ISM Index. Maybe two drinks, au revoir!
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