Tuesday, March 31, 2009

James Galbraith on Geithner's Plan

James Galbraith is spot on. Here is an excerpt from the article at yahoo finance.

We think Geithner is suffering from five fundamental misconceptions about what is wrong with the economy. Here they are:
The trouble with the economy is that the banks aren't lending. The reality: The economy is in trouble because American consumers and businesses took on way too much debt and are now collapsing under the weight of it. As consumers retrench, companies that sell to them are retrenching, thus exacerbating the problem. The banks, meanwhile, are lending. They just aren't lending as much as they used to. Also the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed.

The banks aren't lending because their balance sheets are loaded with "bad assets" that the market has temporarily mispriced. The reality: The banks aren't lending (much) because they have decided to stop making loans to people and companies who can't pay them back. And because the banks are scared that future writedowns on their old loans will lead to future losses that will wipe out their equity.

Bad assets are "bad" because the market doesn't understand how much they are really worth. The reality: The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer.

Once we get the "bad assets" off bank balance sheets, the banks will start lending again. The reality: The banks will remain cautious about lending, because the housing market and economy are still deteriorating. So they'll sit there and say they are lending while waiting for the economy to bottom.

Once the banks start lending, the economy will recover. The reality: American consumers still have debt coming out of their ears, and they'll be working it off for years. House prices are still falling. Retirement savings have been crushed. Americans need to increase their savings rate from today's 5% (a vast improvement from the 0% rate of two years ago) to the 10% long-term average. Consumers don't have room to take on more debt, even if the banks are willing to give it to them.


The markets have rallied swiftly since early March. Lack of clarity on the mega bailouts does not appear to concern the markets at the moment; and everyone seems optimistic ahead of the upcoming G20 meeting.

Speculators, Traders and Investors:
Bear Market rallies can be quite convincing as they can occur without any fundamental change for the better. The markets were oversold with the S&P500 well under 700 and panic stricken traders were forecasting the DJIA at 5000 levels.
The current market volatility is almost impossible to trade, with huge intraday directional changes, as hopes and dashed hopes (read: bailouts and failing instant fixes and solutions) keep traders on their toes.
Some make money buy buying markets when the sell off sharply, others get stuck in losing positions when the markets resume their decline.
For now, this market appears to be a traders market - where only the extremely lucky and nimble traders stand a chance of coming out ahead.
Longer term investors would do well to watch out for the coming earnings season and signs of further stress in the economy before jumping in right away.
It's painful to watch a market rallying away without reason ( especially when you are not in it - & the fundamentals don't justify a rally !), but its more painful to jump in too early; only to get stuck in a losing position in a chaotic market.
The market can stay irrational a lot longer than you can stay solvent!
It important to remember that bear markets can be irrational at times and last longer than people expect. As an Indian analyst Ramesh Damani recently commented : Equity returns are never linear - i.e. a stock can stay undervalued for an extended perid of time before suddenly turning into a multi bagger.
Good companies and solid balance sheets are not immune to bear market declines.

My caution at this stage is mainly due to worries that market regulators and the authorities are busy with just stabilizing the market and averting a near term 'panic collapse' rather than solving long term fundamental flaws that caused this mess in the first place.

As someone recently said; a recession is part and parcel of the economic cycle, but a depression is a collapse of the system of debt.
At this stage though, its all about stabilizing the ship, so as the Fed and US Treasury say - take on more credit, go out and spend it and hope that we can get the party started again.

Tuesday, March 24, 2009

Dr. Evil, the US Fed & the US Treasury!

In the next Austin Powers film, Dr Evil is going to have to reset his time clock to the time of the money printing US Fed.

If he intends to hold the world ransom again, he is going to have to ask for trillions, quadrillions even! Unless the US Fed, or Treasury succeed in destroying the world before the next movie is made!!

'''Non recourse loans to the Private Sector to buy Toxic Assets & claims that the Private sector is sharing risk with the American Public'''

Basically, don't take a 'fair/equal' share of the downside, but get a 'larger/equal' share in the upside, at the expense of the taxpayer!

A few weeks ago, Bernanke was unwilling to disclose names of ‘leper banks’, for he feared mass panic and stigmatization of these ‘no good banks’.

The free market capitalist philosophy of the US meant that they couldn’t just nationalize these banks! What would the Russians and the Chinese think of American Capitalism then?
What about the Middle East Investors trapped in Financial stocks?

The crucial question is – Does anyone expect these non recourse loans to be ever repaid (when the underlying asset being bought is worthless)?

The amounts of money being poured into this OTC derivative black hole keeps increasing by the day.

What’s worse is that they are going to be back in a few months time with a new plan in hand once again asking for more!!!!

Some excellent comments and analysis.
Geithner Relies on Investors for $1 Trillion Plan (Update3) - Bloomberg.com
Geithner Plan Will Rob US Taxpayers: Stiglitz
Mish’s comments
Geithner's Galling (and Dangerous) Plan For Bad Bank Assets
FED and Treasury Sticking US Taxpayer with Non Recourse Clause

Friday, March 20, 2009

Remembering - Mr. T. N. Shanbhag of Strand Book Stall, Mumbai.

Amidst all the chaotic bailouts, volatile currencies and news of crashing and now rebounding markets, I’ve been meaning to write of the passing away of Mr T.N. Shanbhag on Feb 27, 2008.

The story of his 700 sq ft bookstore in Fort, Mumbai is incredible.

‘STRAND BOOK STALL was founded by Mr. T. N. Shanbhag on 20th November 1948 and its website says it was the first in the world to give minimum 20% discount on all books; way before the days of Barnes and Noble.’

Here are certain aspects of their business that I really admire

Their selection of titles is always excellent. Although Mumbai now has many bookstores such as Landmark (the Tatas), Oxford Bookstore (Apeejay Group), and Crossword (Rahejas), none can match the prices offered here.

With bookstores in Mumbai and Bangalore (Strand operates in a ‘store format’ vs. the online only format -Amazon.com), Strand Book Stall offers huge, yes huge discounts on books. Discounts off the list price range from 20-50% or more; even during non sale periods. Prices on certain new book releases even match prices at Amazon.com.
And it’s not just the discounts; the staff at the store is extremely helpful and also track new books for regular buyers.
Over the years, I’ve bought many books on financial markets here (Strand does have excellent prices on Finance books from Wiley Publishing.)

If they do not have a book in stock, they will import it for you (yes even a single copy), and still give you a discount on the cover price, though delivery could take 6-8 weeks. We don’t have the services of Amazon.com just yet!

In the same way that the Reliance Group ushered in the mobile phone revolution in India, Mr Shanbhag began to volume-sell books, far before anyone else here thought of doing so. It’s important to remember that he did this in years prior to India’s 1991 reforms, when there were all kinds of import and forex restrictions. His small business has survived and thrived over the years by providing unmatched prices and consistent service to its customers.

His daughter now runs their store in Bangalore and his son now runs a book wholesale business in the US. http://risingsunbook.com/products.html

Strand Book Stall is one bookstore ‘Where the reader comes first’.

Thursday, March 19, 2009


Its now official : The FED is going to buy US Treasuries.
Fed to Buy $300 Billion of Longer-Term Treasuries (Update4 ...

From lender of the last resort, the FED is soon going to be 'market maker' of the last resort.
The USD has been sliding since the annoncement, and Gold has been surging!!!
First the Bank of England stepped in, then the Swiss National Bank and now the US FED.
Competitive currency devaluation?
This tag-team support system is clearly working round the clock!

Take another look at my post from Sunday March 15th.

Przemyslaw Radomski's call on the USDX has been spot on!!!!

Sunday, March 15, 2009


I've been reading a lot on Gold recently, looking at many charts and also keeping a close eye on currency movements
Here are some excellent graphs on the recent movement in Gold Prices and the USDX. (The USDX graph is explained using Fibonacci retracement levels.)
They are from the Sunshine Profits Website : http://www.sunshineprofits.com/.
Przemyslaw Radomski's analysis is always excellent. I have been following his essays at KITCO.com http://www.kitco.com/ind/Radomski/mar132009.html

For the moment the $900 level is holding strong. The USD weakened a bit last weak as equity markets the word over rallied. Are we about to see a new downleg in the USD?

Watch this space.

ps: I was initially planning on making some graphs, but these ones were just perfect!

Edit: Just came across this: Gold Prices since Jan 1971 in different currencies


Friday, March 13, 2009


As Warren Buffett recently said, the world economy is being administered medicine by the cupful, not the spoonful; so there may be side effects, but no one's worried about them at the moment.

The Swiss National Bank intervened in the currency markets yesterday, in order to weaken the strengthening Swiss Franc that was hurting exports to Europe, (the Swiss Franc has been strengthening vs the EURO.)

The Europeans feel that the weak GBP is subsidizing and supporting the weak UK economy. The Bank of England is manipulating ( sorry make that intervening in ) the UK Bond market to keep GILT yields down, as the financial centre in London has been hard hit by the financial tsunami.

Currencies in Eastern Europe that are stuck with ‘Swiss Franc’ loans and rapidly slowing economies are looking for an EU/ECB led bailout!!!

Central Banks in Asia, are quite content to see their local currencies weaken vs. the USD, as exports to the ‘West’ are collapsing. Asian Multinational companies with USD denominated debt are going to be next in line for a handout or ‘temporary suspension’ of mark to market rules as Forex Loss adjustments threaten to destroy any profitability that’s left.

The Chinese continue to voice concerns about USD T Bonds, even as they continue their shopping spree in the industrial Commodities market. Are the Australians going to be cool with the Chinese holding controlling stakes in their mining companies!!!!

In the US, the big banks are claiming to be profitable for 2009, but given what they did in 2007 and 2008, I’m not taking their word for it! Bernanke is still unwilling to release the names of ‘Leper Banks’, so I guess we have a few more surprises in store.

Some are intervening, some are manipulating but most have no clue what they are doing!!

One thing’s for sure, they are damaging whatever credibility they have left and more and more people are starting to realise that the clowns in the hot seat are perpetually behind the curve and that they have also been consistently wrong.

The average Joe may not understand the complexities of the derivative webs on Wall Street, but he has heard the story of ‘ the boy who cried wolf’ and thus can no longer believe the empty promises. He has been lied to over and over again and can no longer believe that ‘its going to be all right’

GOLD tested levels under $900 this week and has recovered somewhat over the last couple of days. Yesterday was especially curious as Gold, Crude Oil and the Stock Markets all rallied together. In these choppy markets, day traders are as confused as long only investors!

The Equity markets rallied from extremely oversold levels, and short covering probably also contributed to part of the rally. We have not had a decent dead cat bounce thus far as any attempted bear market rallies have been repeatedly stamped out by the unending flow of bad news.

Clearly there’s more manipulating and intervening left to be done!!

Thursday, March 12, 2009


....... and no end in sight!!!
Just take a look at the headlines. Blame games, Record Losses and Internal Communication & emails - They don't know what they are dealing with yet, so goodluck with finding a solution to this mess!!!

Greenspan Forgets Where He Put His Asset Bubble
Greenspan: Fed Didn't Cause the Housing Bubble
Wells Fargo CEO Paid $13.8 Million for 2008
(Wells Fargo had taken $25 billion from the TARP!!!!!)
Barclays Shares Jump on Government Aid Hopes
Vikram Pandit's Letter to Citi Employees - Financials * US * News ...
UBS Revises Its Loss and Offers a Warning

The market rebounds after ' bullish ' comments from Vikram Pandit, but the newsflow hasn't changed much. I expect to see another round of writedowns and further capital raising later on in 2009.
Remember there's more Toxic + Illiquid derivatives on their books so its not over yet.

Saturday, March 7, 2009


I have signed up the Bullish Bear with Wikinvest Wire. http://www.wikinvest.com/
This could increase traffic to my blog, but lets see how it goes.

New posts will have links at the end, provided by Wikinvest.
I will monitor the relevance and quality of these wikinvest links over the next few weeks.

Friday, March 6, 2009


Gold has had some 'crazy' rallies in currencies that have weakened vs the USD over the last 6 months. Its important to remember how destructive the stock market crashes have been in some of these markets; South Korea, Australia & Russia to name a few.
Gold has played its role as a true store of value!!

GOLD in the South Korean Won (KRW)

GOLD in the Australian Dollar

GOLD in the Russian Ruble

These charts are from the Global InfoMine website:


An excellent site. Commodities in different currencies and quick charts.


Tuesday, March 3, 2009


Hat tip to The Cranky Banker for this one. Do visit the blog, I'm adding it to my blogroll.

I still don't know who came up with this, but as the cartoon says.......its 'damn accurate'

Excellent work!