Frightening Story - Just the Beginning - Swaps

[audreyh1]

DON'T FORGET!

August 10. 2010 Bradley Turn Date that indicates we are going down! (The March 1 2010 turn date certainly had us going up!)

Audrey

 

[Ed_The_Gypsy]

...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

Thanks, IP. A succinct summary. I watched these atrocities come with great anxiety and the crash was no surprise. It is incredible how our masters (not to dignify them as 'leaders') forgot the lessons learned following the Crash of '29.

I am interested in Sen. Blanche Lincoln's (D-Ark.) proposed regulatory bill.
Blanche Lincoln Wall Street bill tacks left - John Bresnahan and Carrie Budoff Brown - POLITICO.com

Hang 'em high, Blanche!

Ed

 

[clifp]

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.

That was a long article even for somebody like myself interested in the subject.

I have a modest proposal. Since for the most part this debt between government and too big too fail banks I say cancel the 1/2 the debt, since it isn't in anyone interest to have huge number of municipalities in Europe go into virtual bankruptcy. Thus once again the taxpayer and future generations get stuck with the bill.

However, we need to really introduce moral hazard back into the financial system with real penalties. So I'd suggest only partly tongue cheek the following.
1. All the profits the banks made selling these absurdly complex products to stupid city official get clawed backed.
2. All bonus paid to employees based on these products are clawed back.
For the Cities
3. The mayor, city manager, treasury etc who made these stupid investment lose a years salary.
4. In the spirit of Shylock from the Merchant of Venice, I really want to see my pound of flesh for not paying ones debts.
For every 1 million euro of canceled debt a town is forgiven, the citizen of the town are on the hook for 10,000 hours of service to other communities who didn't elect stupid official. So if the10,000 citizens of Dumkoffville default 10 million euro they'd 100,000 total hours or 10 hours a piece.

Actually, I'd like to see the concept of forgiven debt be translated into community service at other levels. If you walk away 100K in mortgage debt, you owe 1,000 hours of community service.

 

[laurence]

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

80% This sounds like stock up on ammo and k-rations talk! What is this guy's history of predictions?

 

[Hamlet]

I'm 95% stocks, so I guess I'm on the other side of this trade

I have a hard time envisioning real long-term deflation being a problem in a world with fiat currencies. Printing money will always be an easy solution to deflation.

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.

 

[chinaco]

...
4. New regulation is like a general who is preparing to fight the last war - New regulations fail for similar reasons.

I respect your opinion... but I disagree. Yes, people (organizations) seem to find loopholes (sometimes I think the PACs influence the politicians to create loopholes)... but it has to be addressed somehow, otherwise similar events will occur.

IMO - The entities that control our money system need to be tightly regulated and limited in the scope of their activities. Allowing them them to stretch over too much territory enables them to seek out exploits cross businesses that are not healthy for the public or the company.

Does America really need the Mega Banks that cross all boundaries of our financial system... So called "Too Bug to Fail"? In light of what happened... I can see a future that does not have those Financial Conglomerates... and I do not see how America or Americans are worse off.

 

[IndependentlyPoor]

I have a hard time envisioning real long-term deflation being a problem in a world with fiat currencies. Printing money will always be an easy solution to deflation.

This sounds good and my initial reaction is to agree completely; then my inner Paul Krugman whispers, "Why didn't it work for Japan?".

 

[dex]

DON'T FORGET!

August 10. 2010 Bradley Turn Date that indicates we are going down! (The March 1 2010 turn date certainly had us going up!)

Audrey

Isn't that based on astrology?

 

[dex]

80% This sounds like stock up on ammo and k-rations talk! What is this guy's history of predictions?

He is well respected in technical analysis - try the link for more info.

As he says, it really isn't a projection; more of saying 'if the current market follows the depression market'.

 

[dex]

I can see a future that does not have those Financial Conglomerates... and I do not see how America or Americans are worse off.

There is no simple solution to the Big Wall St./Big Government/Big Business relationship. As government/business and debts got bigger so did Wall st. and banks to meet the needs to sell the debt and service it. With increased laws, regulation, capital requirements etc larger banks would be favored. The SWAPS and other instruments were based upon debt - that is the core issue.

At the core of the current financial problems is too much debt. A regulatory solution to the problem is the regulation of a Government's, Business and personal debt. Read about ratio analysis of business and you could devise a simple regulation to determine an appropriate amount and even an audit system.

These situations go in cycles because people forget the lessons of the past or it is different this time thinking. The next phase will be the dislike of debt (we loved it before).

In my posts I point out why new regulation will probably not work and past government policies are part of the problem not for political reasons but why the causes of the problem are not being addressed. The new regulation issue is/has become a politically polarizing issue that distracts people from the core issues and real solutions.

I'm not too excited about any new regulation because it does not address the core issue - debt - and will probably not address the future crisis and possibly will be repealed or weakened decades from now 'when it is different this time'.

 

[audreyh1]

Isn't that based on astrology?

Yep!

 

[Nords]

Yep!

Well, gee, I'd think that technical analysis should be at least as well respected as astrology...

 

[laurence]

Well, gee, I'd think that technical analysis should be at least as well respected as astrology...

 

[Tigger]

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

I have no idea what we should do and I don't know the future, except that it's uncertain and risky. Sure, it always is, but this time it's pretty spectaculair:

And now back to our regular scheduled therapy.

 

[dex]

Snohomish Busts Synthetic Rate Gone Awry as AIG Swaps Blow Up - Bloomberg.com

Another example
April 21 (Bloomberg) -- Water and electric customers in the Seattle area, most of whom pay U.S. taxes, will pay an additional $14 million to get out of an agreement with American International Group Inc., the insurance company rescued from insolvency in 2008 by American taxpayers.

 

[audreyh1]

Well, gee, I'd think that technical analysis should be at least as well respected as astrology...

The really funny thing is that I learned about it from my technical analysis buddies over on M*

Audrey

 

[dex]

over on M*

Audrey

M*?

I think a Bradley turn date can go either way up or down and there is a +/- 3 day window.

 

[audreyh1]

Morningstar

Yes, but it usually signifies a change in direction.

 

[Gone4Good]

As he says, it really isn't a projection; more of saying 'if the current market follows the depression market'.

That would make more sense if the economy was following the path charted in the 1930's. It's not.

Real GDP Growth:

1930 . . . (8.6%)
1931 . . . (6.5%)
1932 . . . (13.1%)

2008 . . . +0.4%
2009 . . . (2.4%)
2010E . . . ~3%

 

[dex]

That would make more sense if the economy was following the path charted in the 1930's. It's not.

Real GDP Growth:

1930 . . . (8.6%)
1931 . . . (6.5%)
1932 . . . (13.1%)

2008 . . . +0.4%
2009 . . . (2.4%)
2010E . . . ~3%

Read up on Technical Analysis
Technical analysis - Wikipedia, the free encyclopedia
Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume

 

[Gone4Good]

Read up on Technical Analysis

I'm familiar with technical analysis. I wrote an MBA thesis on it for a professor who was trying to use chaos theory to predict markets. So I know enough about it to consider it bunk . . . particularly when trying to chart 2010 versus 1930.

Somewhat off point, but one of my good friends is also a professional technical analyst for small cap companies. He worked for Lehman until, well, you know. He's since set up his own research shop with some of his Lehman colleagues and sells his analysis to institutional investors. He seems to be doing quite well. I recall one conversation with him in particular where he was trying to convince me of the superiority of technical analysis to fundamental analysis. But he never could quite explain how technical analysis was superior if it couldn't value an asset that multiple people hadn't already put a value on using a completely different technique.

 

[dex]

I'm familiar with technical analysis. I wrote an MBA thesis on it for a professor who was trying to use chaos theory to predict markets. So I know enough about it to consider it bunk . . . particularly when trying to chart 2010 versus 1930.

I would have understood your point if you noted that in your post. I thought you were trying to disprove Carl's 4-year cycle theory estimate with GDP.

Somewhat off point, but one of my good friends is also a professional technical analyst for small cap companies. He worked for Lehman until, well, you know. He's since set up his own research shop with some of his Lehman colleagues and sells his analysis to institutional investors. He seems to be doing quite well. I recall one conversation with him in particular where he was trying to convince me of the superiority of technical analysis to fundamental analysis. But he never could quite explain how technical analysis was superior if it couldn't value an asset that multiple people hadn't already put a value on using a completely different technique.

Technical analysis and fundamental analysis are tools. Both have their value when used appropriately. I don't invest in individual stocks anymore. But when I did I would start with technical analysis for the general stock market direction then a specific industry direction and finally to a particular stocks in that industry. After all that I would look at the fundamentals of those stocks.
Investor's Business Daily provides good info as to the sectors.

There are many technical analysis methods and some are arcane. I find the simple ones are the best - e.g. moving averages; bollenger bands - sometimes momentum tools and oscillators.

 

[Gone4Good]

I thought you were trying to disprove Carl's 4-year cycle theory estimate with GDP.

I would have thought that Dow 11,000 in April 2010 already disproves a prediction of Dow 3,000 by mid-late 2010.

 

[haha]

I would have thought that Dow 11,000 in April 2010 already disproves a prediction of Dow 3,000 by mid-late 2010.

No, ya see it all depends on the wave count...

 

[RonBoyd]

Read up on Technical Analysis
Technical analysis - Wikipedia, the free encyclopedia
Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume

This technique is very useful because past performance is such a terrific guarantor of future results.