Wednesday, May 20, 2009

Guest Post: One Thought Could Change Your Life

Submitted by Michal Matovcik of Absolutideas

One thought could change your life, your wealth, your trading day, your happiness. Mostly they come and go, but few stay. This is something that you can find usefull, it’s not only about trading, but it could change your feeling of the market and make you become more resistant to “green shoots”, government stupidity, manipulation and many other things. There is no need to comply with these thoughts, the purpose is to start thinking.


• In order to pay down debt you must PRODUCE MORE THAN YOU CONSUME.
• Recent studies indicate one green energy job kills two jobs in the regular economy. Please call Al Gore.
• The collapse of the global economy is the result of historic levels of defaulting debt that cannot be reversed by more credit. While hope is understandable in such dire circumstances, it will not prevent what is happening. A global economic collapse is now inevitable; after which real economic change will then be possible. Darryl_R_Schoon
• The false prosperity we have been experiencing for the last thirty years has come to an abrupt conclusion in the last 18 months. The amount of wealth destroyed is beyond comprehension. Household net worth has declined by $12 trillion in a matter of months. It will take years for average Americans to restore their wealth to 2007 levels. If your investment portfolio has declined by 50%, it will need to increase by 100% to break even. James Quinn
• The working class makes up 40% of the population, the middle class 45%, and the ruling elite class 3%. All of these classes made dreadful mistakes in the last decade. The poor pretended to be middle class. They were able to buy $200,000 houses, lease $30,000 cars, own cell phones, get monthly cable, and eat out three times per week. Their friendly neighborhood banker loaned them the money to live this fantasy life. The working and middle class were able to buy $700,000 McMansions, go on trips to Europe, lease $50,000 cars and generally live the life of the rich and famous. A different banker in a nicer neighborhood also loaned them the money to live like rock stars. A portion of all these classes were the extremists that led us down the erroneous path to destruction.. James Quinn
• There has been little or no reform. Just a fresh smear of lipstick on the same old pig, applied by the swineherds of Wall Street and Washington. Jesse Café Américain


• It has been described as socialism, fascism or communism. In various contexts, all are true, but let’s refine it. From loans to the automakers to the bailouts for the banks, the taxation, spending and control, the primary philosophy that’s powering the country now is collectivism“ Ty Andros
• Albert Einstein once said: “The problems we face today cannot be solved by the minds that created them.”
• The Founding Father’s view of government was that its scope was limited and clearly defined. What we have today? Do anyone know what is their role? Running business? Do Obama know what kind of damage is he doing for future generation?
• In response to Geithner’s statement that “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” Ritholtz exploded: “No! Defending these idiots was your old gig. In the new job, you no longer work for the cretins responsible for bringing down the global economy. Please stop rationalizing their behavior, and preserving the status quo!”
• Franklin Roosevelt observed seventy years ago, “our enemies of today are the forces of privilege and greed within our own borders”
• President Obama’s stimulus package and other “remedies” will not cure our economic woes any more than the New Deal cured the Great Depression. The real question is whether Barack Obama’s New Deal, building on the old one, will finally sink the American economy into the sands. Robert P. Muprhy
• General Motors: the Obama Administration removes the security from secured bondholders and REWARDS unsecured lenders who are POLITICALLY connected. “Well, let’s pretend you’re GM’s bondholders and the $200 I owe you is the debt in question. The government has come in and said, ‘Look, we know Porter owes you $200… but for the good of the country… we want you to accept $20 instead. We’ll take $100 for helping straighten out the situation. And we’ll give $80 to the union.’ Would you accept those terms?” “No way!” ZeroHedge
• The purpose of government is for those who run it to plunder those who do not. Throughout history, governments have used violence, intimidation, coercion, and mass murder to enforce this system. But governments’ first line of “defense” is always a blizzard of lies — about its own alleged benevolence, altruism, heroism, and greatness, along with equally big lies about the “evils” of the civil society, especially the free market. Thomas J. DiLorenzo
• Obam: first, he doesn’t seem to have any appreciation at all for free enterprise or the role of liberty in commercial life. That notion seems to be missing from his thought processes altogether. Second, he seems to be under the impression that his administration is capable of shaping the economy according to their own values, however which way they want to. It’s very strange. It’s as if he believes that by conceding that anything is beyond his power, he would be divulging some kind of intellectual weakness or fail to impress people with his god-like traits. Christopher Westley

Monetary System

• Monetary system: I argue for monetary freedom, and that includes the freedom of all those Americans who want to continue to use the FED’s money to do so. I would not take that freedom from them by ending the FED. If they do not feel that they are cheated or that the system is unethical, they are welcome to live with it. By the same token, if they have that freedom, then so should others of us have the freedom to use banks and money of our own choice.
• High wages do not cause prosperity, they are rather an indication of prosperity. Ultimately, it doesn’t matter how many green pieces of paper employers hand out to workers. Unless workers first physically produced the goods (and services), there will be nothing on the store shelves for them to buy when they attempt to spend their big fat paychecks. Robert P. Muprhy
• “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Ludwig Von Mises
• If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset. The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates that induced ordinary people to say, well, it’s so cheap to acquire whatever is the object of desire in an asset boom, and go ahead and acquire that object. And then of course if monetary policy tightens, the boom collapses. Anna Schwartz
• Dow Jones index: how about [adding] the U.S. government? They make cars, money, insure, provide mortgages, invest in securities, provide rail transportation, health insurance. You know, a real all-around company. Tom Petruno


• Fed actions have distorted what used to be the prior “risk based” message of LIBOR. And that cuts right to the conceptual heart of government intervention. Just how the heck can the private sector assess risk and allocate capital correctly and efficiently when the Fed/Treasury/Administration is acting to help “misprice” assets and risk measures? There will be no true recovery in the economy and capital markets until risk is being priced appropriately and all risks are known (the issue of transparency). Make no mistake about it; the decline in LIBOR is not a result of credit market healing and the lessening of risk perceptions. It’s a result of the Fed TAF. And so once again, how do they step away from this intervention? Brian Pretti
• FED exit strategy: in searching for one, I thought of Richard Nixon, who in 1972 wanted to bring unemployment down to the 3.5% levels which prevailed at the end of the 1960’s. He found a co-conspirator in Fed Chairman Arthur Burns[1], who resisted FOMC calls for a higher discount rate, supported wage and price controls, and oversaw an 11% expansion in the money supply (the fastest since WWII, until today’s episode which is 10x larger). It ended in higher unemployment, inflation and a decade of 0% real returns on both stocks and bonds. I don’t doubt that the Fed has a more coherent exit strategy for this monetary expansion; but it will need to be 10x better, and not collide with the needs of a massive fiscal deficit.
• The FOMC’s policy response, led by Bernanke who was a key player in the Greenspan 1% fed funds policy, to deal with the aftermath is to revert to another period of easy money. Ben and Greenspan were the mad scientists whose experiment went wrong after the recession in ‘01-’02 and the world looks to a ‘new’ Bernanke now as Chairman, to clean it up with another grand experiment. Peter Boockvar

Market Sentiment

• Consumer confidence: Increases in consumer confidence during the past two months are indicative of desensitization. Consumers are becoming acclimated to weak economic conditions, poor stock market returns, and the continued accumulation of job losses. This desensitization has been emphasized by the mainstream media; particularly in the past few months. The take-home message of articles and news reports has shifted to ‘be happy things aren’t getting worse’ and people are doing just that. Bargain hunters have been lured into many areas including housing, stocks, and even retail products. Meanwhile, important fundamentals like GDP, unemployment, foreclosures, and household net worth go largely unmentioned and underanalyzed. Andy Sutton
• There are 2 types of investors today, those who want a pullback so they can get in, and those who are already in. That dynamic makes short selling a tough game. Jason Schwarz
• Optimism is one explanation. But the idiocy of autopilot is the one that I prefer.
• Never underestimate the power of greed and fear over memory and prudence.

Real Estate Market

• Market analysts predict there will be 5 million more foreclosures between now and 2011. Do you think banks are well capitalized?
• 60 percent of the new condo units sold in downtown Miami since 2003 belong to investors and second-home buyers. They will for sure keep paying down their underwater mortgages..
• I joined Deutsche Bank in 2006 to build an investment business within its commercial real estate lending operation, and I was generally surprised by the aggressive sales culture within our firm. While many people consider the banking sector’s problems to be caused by residential lending, I witnessed multibillion-dollar loan proposals for commercial property.With funds provided at more than 90 percent loan-to-value, these loans were “priced to perfection” and assumed that property prices and rental rates would continue to rise. For perspective, a single billion-dollar commercial real estate loan is equivalent to 2,000 residential loans of $500,000. Deepak Moorjani (former Deutsche Bank employee)
• If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They’d also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 “disappeared” homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is underwater.
• Why is the media misleading the public about housing? The housing market is crashing. There are no “green shoots” or “glimmers of hope”; the market is worn to a stump, it’s kaput. Still, whenever new housing figures are released, they’re crunched and tweaked and spin-dried until they tell a totally different story; a hopeful story about an elusive “light in the tunnel”. Mike Whitney
• The American Bankers Association reported that 3.22% of consumer loans were delinquent at the end of 2008. That is the highest level since the ABA began tracking overall loan delinquency rates in the mid 1970’s. And that was before 2 million jobs were lost in the first quarter. John Mauldin


• I believe I have uncovered the largest conspiracy in history. The government wants you to believe that banks are recovering, housing has bottomed, stimulus works, borrowing leads to prosperity and war leads to peace. President Obama and his cronies at Treasury and the Federal Reserve are trying to mislead the public regarding the health of our banking system. If you believe their spin on these issues, I have a structurally deficient bridge in Brooklyn I’d like to sell you. James Quinn

Stock Market

U.S dollar

• The purchasing power of the dollar over the past 76 years has declined by 94%. And based on current monetary and fiscal policy, we have at least another 94% to go. The only question is whether this will be achieved in 76 months this time.
• “The beauty of recycling China’s surplus into metals instead of US bonds is that it kills so many birds with one stone.

Oil Market

• Mexico’s Cantarell Field is probably experiencing the most dramatic decline in oil production. As a result, Mexico is probably in its last year of exports. Saudi Arabia’s Ghawar Field - the largest oil field in the world - is also near the end of its life.
• To generate the energy required worldwide by the 2030s would require us to find an additional 1.4 million barrels per day every year until then. During the next twenty-five years, coal, oil, and natural gas will remain indispensable to meet energy requirements.

Bond Market

• China is a major global creditor nation, funding $10.4 million in USGovt debt per second
Industry Trends

• Personalized medicine is one of the most interesting emerging technologies affecting the healthcare sector. The potential is practically unlimited


• Categorizing Jim Cramer’s opinions can be a challenge, because he can change his opinions drastically from one day to the next. He has argued that the stimulus needs to be 10 times as big as it currently is, but also criticized it for pumping up the deficit. He supports taxing the rich, but not right now. (Andrew Leonard).
• BusinessWeek has done us a favor by pointing out that most economists continue to accept the very theories that prevented them from anticipating the financial collapse. However, the magazine errs in concluding that we should now listen to those same economists. It would make more sense to ignore those economists that not only failed to predict but also had a hand in creating the crisis

Good luck,

Michal Matovcik Sphere: Related Content
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