Frightening Story - Just the Beginning - Swaps

[dex]

I will probably going to 100% cash in the summer. There isn't much upside remaining and bad news e.g. Goldman - Sacks and below is coming out.

Deflation is more of a worry than inflation. Europe should be very cheap in the future. If you read some of the T-Theory it talks about being in a bear market with the bottom coming in the 13-16 time period.

Saint-Etienne Swaps Explode as Financial Weapons Ambush Europe - Bloomberg.com
The worst global financial crisis in 70 years arrived in Saint-Etienne this month, as embedded financial obligations began to blow up.

 

[bbbamI]

I will probably going to 100% cash in the summer.

I will be the first one to stand up and say, "I understand some things, but not everything."

It's a personal decision how one handles their money; this I respect. But is it wise to have all the eggs in one basket in troubled times...or any time for that matter?

 

[RonBoyd]

I will be the first one to stand up and say, "I understand some things, but not everything."

And I am beginning to wonder if I even understand some things. All in cash?!?!

 

[dex]

It's a personal decision how one handles their money; this I respect. But is it wise to have all the eggs in one basket in troubled times...or any time for that matter?

It depends upon what you think what will happen.

 

[chinaco]

Financial Reform is desperately needed.

Investment Banks have no credibility, Hedge Funds collude to raid the market, municipality financial managers were fooled (took the sales pitch from slick Investment Bankers).... net result market and economic instability for everyone in the developed world!

We could be looking at some very serious ongoing instability if something is not done to regulate the activity of the Financial Services Industry.

That municipality situation is particularly hard to swallow in the US... our tax $ go to the investment banks for someone civil servant making a a bad decision (to borrow )

But... It may be unlikely that any meaningful reform will be passed.

YouTube - GOP, Hedge Funds Work to Stop Financial Reform Bill


YouTube - McConnell dodges hedge fund question.

 

[winger]

I will not time the market, I will not time the market.........

 

[IndependentlyPoor]

I will not time the market, I will not time the market.........

 

[dex]

Financial Reform is desperately needed.

Investment Banks have no credibility, Hedge Funds collude to raid the market, municipality financial managers were fooled (took the sales pitch from slick Investment Bankers).... net result market and economic instability for everyone in the developed world!

We could be looking at some very serious ongoing instability if something is not done to regulate the activity of the Financial Services Industry.

That municipality situation is particularly hard to swallow in the US... our tax $ go to the investment banks for someone civil servant making a a bad decision (to borrow )

But... It may be unlikely that any meaningful reform will be passed.

A couple of points:
1. There was a buyer - government - in the news article posted that did not understand the swap. That is not being discussed to change or regulate.
2. The current financial housing problem roots can be traced to government attempting to get out of the depression and encouraging home ownership afterwards. That is not being discussed to change or regulate.
3. The roots of all these situations is too much debt and trying to manage it. That is not being discussed to change or regulate.
4. New regulation is like a general who is preparing to fight the last war - New regulations fail for similar reasons.

 

[dex]

I will not time the market, I will not time the market.........

"The market teaches you to lose."

 

[FUEGO]

As to the OP's article - too long, didn't read the last half. But it seems to me these municipalities are saying, after the fact, "we lost money on these craaazy derivatives, therefore they are unfair". Ex ante, these derivatives were good calculated bets for these municipalities which is why they bought them (or these municipalities waste money on employees who are incompetent). Ex post, things didn't work out well, so now they cry fraud. But if ex post, they would have made millions of dollars or euros from these swaps and derivatives, they would be doing nothing but singing praises of the investment banks for helping shepherd them through these difficult economic times.

 

[dex]

But if ex post, they would had made millions of dollars or euros from these swaps and derivatives, they would be doing nothing but singing praises of the investment banks for helping shepherd them through these difficult economic times.

This point is not made enough. If Fed low interest rates and mortgages with variable interest rates to the poor worked out; government and bankers would have been praising each other.

 

[IndependentlyPoor]

2. The current financial housing problem roots can be traced to government attempting to get out of the depression and encouraging home ownership afterwards. That is not being discussed to change or regulate.

Your reading of history is very different from mine. Consider this view:
- Banking chaos reigned during the last part of the 19th century with frequent bank runs and panics, culminating in the 1929 crash.
- Federal regulation exemplified by the Glass-Steagall Act and the FDIC ushered in a 50-year period of calm.
- A belief that regulation was strangling growth led to deregulation, starting with the S&L deregulation and continuing through to the creation of the Enron loophole, the repeal of Glass Steagall with the Gramm,Leach,Bliley act, and pehaps the worst of a bad lot, the SEC's relaxation of the Net Capital Rule, that allowed Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley to operate with unlimited leverage.

Little or no regulation: chaos, bank runs, and financial panics
Strong regulation: 50 years of orderly prosperity
Deregulation: chaos, bank runs, and financial panics

 

[dex]

Your reading of history is very different from mine.

Not really; read my post - no where did I propose no regulation. On the contrary. I have a degree in accounting and finance so auditing, accounting policies and procedures are in my bones.

2. The current financial housing problem roots can be traced to government attempting to get out of the depression and encouraging home ownership afterwards. That is not being discussed to change or regulate.

The focus/point that you quoted is that government has a hand in the housing bubble and that is not being addressed.

 

[IndependentlyPoor]

The focus/point that you quoted is that government has a hand in the housing bubble and that is not being addressed.

True, and maybe I over-reacted to your post.
The government has certainly been encouraging home ownership, and that surely contributed to the housing bubble. However, I don't think that it was anywhere close to being the most important factor. The reason is that many of those government programs have been around since the 30s, and everything rocked along just fine until the deregulation meme swept the country.

I also should have said that I think that some adjustment/loosening of some regulations may have been in order. It is just that we went about it in a particularly stupid way. "Everybody" knew that FDIC and FSLIC were only possible when coupled with strong regulation. Otherwise moral hazard was extreme. Well, poof! We got rid of federal regulation and continued to insure the deposits.

Sorry about the ranting tone of these posts. IndependentlyPoor is just in a grouchy mood today.

 

[IndependentlyPoor]

I have a degree in accounting and finance so auditing, accounting policies and procedures are in my bones.

Interesting. The only other person I know who is 100% cash is a semi-retired securities lawyer. Am I seeing the beginnings of a pattern here? The folks who know the most about the business are getting out?

 

[ziggy29]

It's starting to feel like summer 2007 around here again....

 

[IndependentlyPoor]

I wasn't around in 2007. Did the ER posting show concern about the market peaking?

 

[MichaelB]

I will probably going to 100% cash in the summer. There isn't much upside remaining and bad news e.g. Goldman - Sacks and below is coming out.

Deflation is more of a worry than inflation. Europe should be very cheap in the future. If you read some of the T-Theory it talks about being in a bear market with the bottom coming in the 13-16 time period.

Saint-Etienne Swaps Explode as Financial Weapons Ambush Europe - Bloomberg.com
The worst global financial crisis in 70 years arrived in Saint-Etienne this month, as embedded financial obligations began to blow up.

Not challenging your choice to go to all cash - but curious why not now if the upside is limited.

 

[REWahoo]

I wasn't around in 2007. Did the ER posting show concern about the market peaking?

See for yourself. There were threads that indicate (in retrospect) warning signs and that many of us were contemplating whistling as we walked past the graveyard...

http://www.early-retirement.org/forums/f28/20-stock-market-plunge-27659.html
http://www.early-retirement.org/forums/f28/reits-finally-taking-a-dive-27627.html
http://www.early-retirement.org/forums/f28/chase-banks-giving-away-money-28768.html
http://www.early-retirement.org/forums/f28/sleeping-well-in-this-crazy-market-29171.html

 

[dex]

Not challenging your choice to go to all cash - but curious why not now if the upside is limited.

Read about the Aug 28th peak - I'll average out before then. Right now I have 45% in cash - excluding home.
Terry Laundry's T Theoryâ„¢ Observations: Terry Laundry's Weekly T Theoryâ„¢ Observations for April 18 2010

Among other reasons

 

[dex]

True, and maybe I over-reacted to your post.
++++
Sorry about the ranting tone of these posts. IndependentlyPoor is just in a grouchy mood today.

Thanks for the honesty.

A couple of points:
- There is no one cause to the housing bubble - it is an enviorment
- It takes time for things to go bad
- Gov't and industry had a hand in it
- Look at the programs started in the 30s - Fannie Mae 1938 created the secondary mortgage market prior to that banks kept the mortgages they knew to whom they were lending also mortgages were usually 5 years. The gov't allowed/started 30yr mortgages. There were other government policies/laws that came after that also contributed.

 

[haha]

Data From Wm Hester About The Election Cycle

Hussman Funds: Business Cycles, Election Cycles and Potential Risks

Clearly there is not enough data to be sure of anything, but I still prefer it to pure assertions. (Pure guesses.)

Readers might wish to skip down about 2/3 toward bottom of the piece under the heading Declines In Year 2 Often Precede Year 3 Gains.

Ha

 

[MichaelB]

Hussman Funds: Business Cycles, Election Cycles and Potential Risks

Clearly there is not enough data to be sure of anything, but I still prefer it to pure assertions. (Pure guesses.)

Readers might wish to skip down about 2/3 toward bottom of the piece under the heading Declines In Year 2 Often Precede Year 3 Gains.

Ha

Jeremy Grantham has written a number of times on the presidential cycle. Year 2, of course, is down more often than any other.

If interested see his letters of 4Q 2002 and 4Q 2003 https://www.gmo.com/America/Library/Letters/ (registration required)

 

[dex]

Hussman Funds: Business Cycles, Election Cycles and Potential Risks

Clearly there is not enough data to be sure of anything, but I still prefer it to pure assertions. (Pure guesses.)

Readers might wish to skip down about 2/3 toward bottom of the piece under the heading Declines In Year 2 Often Precede Year 3 Gains.

Ha

OK,
So we have on the sell side:
- More Swap bombs out there
- The 2nd year presidential cycle
- T Theory August 28 top
- The question - How much further upside is there and is it worth the risk?
- Cycle theory - we are in a secular bear trend since 2000 but in a cyclical bull since March 2009
- Cycle theory: - I don't put much emphasis on this but it is interesting to see if it happens
Decision Point®: Chart Spotlight 2/27/2009
Hi Carl,
I really enjoy your service and have for about nine years. Thank you for all your hard work and dedication. I was wondering if you could tell me the potential technical "bottom" numbers for the Dow, S&P 500, and Nasdaq?
Thank you very much.

ANSWER: I don't follow the Nasdaq. I have rough targets of Dow 3000 and SPX 300 around late-2010. I wouldn't exactly call these "technical" targets -- I am guestimating a total decline of about 80%, using the 1929-1932 bear market 90% decline as a guide. The timing is based on the estimate for the next 4-Year Cycle low, which is due mid-to-late 2010.
While I can't swear by these estimates, I don't think I'm sticking my neck out too far.
Carl

 

[copyright1997reloaded]

I wasn't around in 2007. Did the ER posting show concern about the market peaking?

Nah, lot's of threads about how milestones were being reached and how we were all going to retire early with so much cash we wouldn't know what to do with it!

In all seriousness...most people don't see peaks until after they have happened. I've found when I spend time being gleeful about my gains the bull run end is near, and fearful of my losses the turnaround is near.

[FIREd May 2009]