Baltbear on Finance markets are like marshmallows

here’s a simple rule of living, well known for 3000 years, to the point of being essential to the foundation of any fair trial: if you weren’t there, you don’t know.

granted that o’reilly, jon stuart, facebook and the entire fox network exist to convince you that you don’t need to know anything at all to have an opinion that must be respected, if shouted lodly enough.

in terms of teaching the concept of due diligence i offer this simple story: around Christmas 2005 loud signals (that is, silence on real estate agents phone lines) were being sent that the florida real estate bubble was done inflating. real estate transfers to launder drug $$, real estate transfers to hide military spending, retiring uaw/umw/etc workes with strong pensions and health care, retiring insurance/banking workers with strong pensions and health care, strong pension funds seeing good risk/reward for being general partners in reits–all that had been used up.

time to repeat walres’ law, in marshmallow easy terms:
if something changes, then something happened.
that is–if that’s too hard for you to get–things don;t grow because things grow, they grow because something is added. thus, they shrink under negative addition, called subtraction.
prices do not go up because prices go up: they go up because more money is chasing the same amount of goods. (it took arthur burns entire trip as fed res chair to even get congress to believe the statement could be made out loud, let alone believed or trusted.) thus, they go down when less money is on the hunt for goods and services.

florida, then california, then nevada, then new york, then all over the country joined in the habit of keeping housing prices going up or at least holding steady by offering kickbacks to the buyer. that is, “no, i am not selling this house for $400k. i am selling it for $450, and you are winning a $50k secret shopper prize for being the lucky buyer.”

even then, the “time on market began to grow”. by late 2006, the only way for “housing” as an industry to continue to grow was to create the >appearance< of cash flow by writing increasingly non-valid (difficult to believe) mortgages and refinancing, since, in a badly regulated mkt, just as on fox news and brittany speirs concerts, “appearance is everything.”

by early 2008 any serious investor or truly prudent speculator knew the housing bubble was imploding, and with it, the world economy. this fact was then pasted over by assuming that at any given time the bubble would deflate in small areas. the only problem with this concept is that bubbles inflate and deflate overall, and in a modern economy, there is no “local” economy to which the deflation can be localised. thus, the insurance policies on the mortgage packages, and the re-insurance, and the hedges on the re-insurance (default credit swaps) could not be seperated from the underlying reality.

the only way to maintain any kind of real cash flow planet wide was to shrink the rate of chinese growth, and squeeze every last loose dollar in a wallet into firmer hands by inflating oil prices, and diverting those profits into propping up balance sheets.

the prudent speculator may ask, “so what?” and the answer is that by january 2008 the only “institutions” capable of holding this imploding bubble on their backs, and do atlas’ job, were jpm, goldman-sachs, the us treasury (that is, the future) thru its running dogs, fanny and freddie.

jpm, whose power to bail out the american economy was so great by 1907 that the fed res was created as a proxy so that the government might have some say in the matter, began preparing to buy billions of debt for thousands of dollars, put it on its books at 0, and plan how to turn 0 into 1/4 over 10 years, thereby booking “profit”. the fdic cooperated, since for 30 years it had been being bled dry by a succession of bailouts beginning with penn state, onto continental, then general re, ad inf, ad nauseam. jpm’s willingness to eat the dominos did not cause them to fall. it kept them from falling on your head.

the real issue is not a “conspiracy by jpm and gs to take over the world” but a “conspiracy” by the entire consuming public of the so-called free world to insist that prices they receive must go up, and prices paid must go down: a free lunch.

so, whether it’s wamuq.pk or a stem cell stock ur looking at, find out: who holds the debt, who pays the rent, who gets first bite at the apple. then go on to ask, who buys this stuff, and how how can they, and how much can they buy.

imho it will be another 15 years before american housing prices and growth reach 2006 levels, and only if america keeps its swinging door immigration policy loose. it will be 5-15 years before any “stem cell” company has a penny a share attributable to common.

those who want to haul water and make $$ had better not bet much on hauling it to a bubble factory.

Posted under business

there is now more evidence for the need for the “10 cent solution.”
the president has seen the strategic requirement to open east coast offshore exploration as an emergency measure to reduce trade deficits.
the petroleum idustry sees usa oil demand as having peaked 3 years ago, based on price efficiency models.
if transportation is to remain on any growth curve, without breaking the constraints of the supply model, there remains a high requirement for improved vehicle efficiency, and a steady rate of change model.
polk has now determined that a combination of factors ranging from quality improvements to economic hardship has stretched the time vehicle owners hang on to any vehicle by 10.8% over the past year, to 49.9 months.
does the economy, “green” or otherwise depend on reducing that number back towards the 36 months that was a standard expectation during the strong growth period of 1955-1974? that 3 year metric applied to new car purchases, and driving much of anything better than a “roller” that was only useful for the 2 mile drive to the steel mill.
in the middle of breaking open the national piggybank of energy reserve, it is past time to impose a 10 cent fuel tax with the proceeds going to driving vehicle scrappage.
with a slight modification in the original plan to weight towards getting guzzlers taken out first, by sending them to the tuna can factory after 12 years, and tightening the kill point on passenger cars to 18 years from 20, the auto industry goes back to work, the wons that support them stabilise, and capital markets can have a rational expectation for funding r&d and startups that are aiming 10-15 years out.
the “cash for clunkers” program partially worked, for the little while it was in place. it creaked and rattled from gimmicky eligibility, and broke down from its lack of funding source.
Those who don’t like thinking about $125 oil need to be thinking now about taxing the fuel made from $80 oil.

Posted under business