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FRED
06-26-07, 03:33 PM
http://www.itulip.com/images/bismobile.jpgIntroducing the 2008 BIS SUX

Tough to be a central banker these days. When you're not busy pretending you have meaningful influence (http://www.federalreserve.gov/Boarddocs/speeches/2000/20000504.htm) over the out-of-control global credit machine, you are busy pondering what to do if it breaks down (pdf) (http://www.dallasfed.org/research/indepth/2003/id0304.pdf). For the Bank of International Settlements (BIS), the central banker's central bank, that means an institutional expression of Moore’s Paradox: that the belief expressed in one part of a statement is sufficient (though not necessary) to falsify it in the second part. Thus we get two completely contradictory beliefs expressed in the 77th Annual Report (http://www.bis.org/publ/arpdf/ar2007e.htm) of the Bank for International Settlements for the financial year which began on 1 April 2006 and ended on 31 March 2007, submitted to the Bank's Annual General Meeting held in Basel on 24 June 2007.

The report contains something for the optimists.
Interest Rates Will Rise in `Golden Age' of Growth, BIS Says (http://www.bloomberg.com/apps/news?pid=20601085&sid=aWdc3e1i3hmQ&refer=europe)
June 25, 2007 (Gabi Thesing - Bloomberg)

Central banks will need to continue raising interest rates to quell inflation as the "golden age" of global economic expansion continues, the Bank for International Settlements said.

"Inflationary pressures might turn out to be more significant than anticipated," BIS General Manager Malcolm Knight told a press conference in Basel, Switzerland, yesterday. "Authorities should continue gradually to normalize the level of policy interest rates'' as the global economy extends what ``may well go down in history as a `golden age.'" And something for the pessimists:

BIS warns credit spree could produce 1930s-style depression (http://www.marketwatch.com/news/story/bis-warns-credit-spree-could/story.aspx?guid=%7BCEDD1FDC%2D721B%2D4441%2D86A3%2 DC843C1923B8C%7D&dist=hplatest)
June 25, 2007 (Leslie Wines - MarketWatch)

The Bank for International Settlements is warning that years of loose monetary policy have fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump is than generally understood, the U.K.'s Telegraph newspaper reported on its website. Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived", the bank was quoted as saying. The BIS, the ultimate bank of central bankers, pointed to multiple worrying signs, including mass issuance of new types of credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system, the report said.Can both bearish and bullish futures be equally possible? The data for now appear to be on the bear side.

For example, in his July PIMCO missive released today Bill Gross waxes doomish on the fate of Main Street as the fallout of the housing market continues to inexorably drain credit and confidence from U.S. households, setting aside for the time being last month's "glass half full" perspective.
Investment Outlook (http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+July+2007.htm)
Bill Gross | July 2007

Looking for Contagion in All the Wrong Places

Whew, that was a close one! Ugly for a few days I guess, but it could have been much worse! No, I refer not to Paris Hilton upon her initial release from the LA County pokey after serving three days of hard time, but to the Bear Stearns/subprime crisis. Shame on you Mr. Stearns, or whoever you were, for scaring us investors like that and moving the Blackstone IPO to the second page of the WSJ. We should have had a week of revelry and celebration of levered risk taking. Instead you forced us to remember Long Term Capital Management and acknowledge once again (although infrequently) that genius, when combined with borrowed money, can fail. But (as the Street would have you believe), this was just a close one. Sure Bear itself had to come up with a $3 billion bailout, but folks, most of these assets are worth 100 cents on the dollar. At least that’s how they have ‘em marked! Didn’t wanna sell any so that someone would think otherwise…no need to yell “fire” in a crowded theater ‘ya know. After all, hasn’t Ben Bernanke repeated in endless drones that financial derivatives are a healthy influence on the financial markets and the economy? And aren’t these assets well…financial derivatives? Besides, I direct you to the investment grade, nay, in many cases AAA ratings of these RMBS (Residential Mortgage-Backed Securities) and CDOs (Collateralized Debt Obligations) and defy you to tell me that these architects were not prudent men. (Sorry ladies, they are still mostly men!)Speaking of CDOs, we are scheduled to do a follow-up interview with our mortgage CDO expert Jim Finkel tomorrow. Jim is CEO of Dynamic Credit, LLC. His predictions from our interview with him in early March (http://www.itulip.com/forums/showthread.php?t=757) are holding up well:

The Fed is more likely to raise than lower rates. At the time (early March), ALL of the investment banks were forecasting three (3) rate cuts. It’s almost July, and no rate cuts in sight.
When push comes to shove in the mortgage CDO market, the ratings agencies will become the focus of attention. Can’t think of anyone else who had that insight then.
Efficient market theory will win: many careless lenders will go out of business. Sure enough, 80 of the 86 lenders who have gone out of business [http://ml-implode.com/] have done so since then.But some of his more optimistic projections about the CDO market have not materialized, as indicated by this report today: Mortgage CDO Pipeline Dries Up Amid Fund Bailout, JPMorgan Says (http://www.bloomberg.com/apps/news?pid=20601087&sid=agGitLyUP71Q&refer=home). We'll find out where he sees things going from here.

In the mainstream press, it's still Groundhog Day (http://www.itulip.com/forums/showthread.php?t=1404) in the housing market. No surprises for iTulip readers.

Homebuilders' Index Drops to 16-Year Low (http://biz.yahoo.com/ap/070618/housing_outlook.html?.v=2)
June 18, 2007 (Alan Zibel - AP)

Sentiment Index for Housing Market Hits Lowest Level in More Than 16 Years, Trade Group Says

A measurement of industry sentiment about the housing market fell in June for the fourth straight month to the lowest point in more than 16 years.

Housing developers are being squeezed by tighter lending standards for borrowers trying to get mortgage loans. In response to weak demand, developers are cutting prices and offering buyer incentives to cope with a mounting supply of unsold homes, the National Association of Home Builders said Monday.
And...

New home sales ease, while confidence falls (http://www.reuters.com/article/businessNews/idUSN2530849120070626)
June 26, 2007 (Chris Reese - Reuters)

U.S. new home sales in May fell more than expected while consumer confidence in June fell to a 10-month low amid anxiousness about jobs and the business climate, adding to signs of sluggish economic growth this year.
Some economists are starting to adjust to the realities. Housing economist Mark Vitner says, "Must wait for 2009 (http://www.marketwatch.com/tvradio/player.asp?siteid=yhoof&guid=%7BBD239B54%2D2F01%2D4441%2D9FE8%2DE24A0D0275 E5%7D)" for home prices to start to recover.

We are very near a bottom in the housing market. But we are not out of the hole yet and we won't see any "real strength" until 2009. So says Mark Vitner, senior economist at Wachovia Securities. He tells John Wordock we should continue to see "soft conditions" for "quite some time."
That's still one to six years ahead of our Jan. 2005 prediction of a bottom between 2010 and 2015, but more accurate than frequent statements earlier this year that the bottom had already occurred.

If you go back and look at our January 2004 housing bust scenario
Housing Bubbles Are Not Like Stock Market Bubbles (http://www.itulip.com/forums/../housingnotlikeequities.htm), you'll see that far from indicating a bottom, today's housing news indicates the next steps in the process.

Unlike stock market bubbles, real estate bubbles don't pop. Collapsing stock market bubbles are characterized by a sudden collapse in prices because stock markets are highly liquid. You see huge volumes of transactions at ever lower prices during a stock market collapse. Collapsing housing bubbles, on the other hand, are characterized by illiquidity, a sudden collapse in transactions. Buyers and sellers seem to disappear.

The reason is a reversal in the psychology of buyers that developed at the top of a speculative housing market. Buyers had been buying at prices they knew were too high but on the assumption that they'd be able to sell if they needed to. The thought was: "Ok, maybe it's overpriced, but at least I'll be able to sell it later for at least what I paid for it, but likely more." What happens on the way down is that houses go on the market and just about no one shows up to look. That's because buyers weren't buying earlier primarily because they needed a place to live, but because they thought the price would likely rise and that, in any case, they'd be able to get out when they wanted with all of their money or more. On the way down, neither condition is true. So buyers stay home, so to speak.
We made that prediction three and a half years ago (the piece was originally published on AlwaysOn, January 20, 2004). Where will we be three and a half years from now?

The housing bubble is another instance of a forgotten lesson of history. You'd think we'd have learned our lesson from the 1990s stock market bubble, but then you might have expected we'd have learned the lessons of speculative bubbles from the U.S. bubble in the 1920s, and Japan in the 1990s, rather than repeating the mistake in the U.S. in the 1990s. But there are even more important forgotten lessons of history than the lesson of speculative bubbles (http://www.itulip.com/forums/showthread.php?t=1397). In the iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032) area today I spell out the Three Great Lost Lessons (http://www.itulip.com/forums/showthread.php?t=1526) and the implications: Too Much Credit, Limits of Economic and Military Monopoly, and the Rise of Authoritarian Capitalism.

iTulip Select: (http://www.itulip.com/forums/showthread.php?t=1032) The Investment Thesis for the Next Cycle™
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metalman
06-26-07, 10:07 PM
these days gross is flip floppin' more than mitt romney. the bis is confused.

so how come the dow can't manage a little rally? i smell something burning.

Tet
06-26-07, 11:26 PM
these days gross is flip floppin' more than mitt romney. the bis is confused.

so how come the dow can't manage a little rally? i smell something burning.
Me thinks rally is about to commence.

Jim Nickerson
06-27-07, 12:51 AM
Me thinks rally is about to commence.

Rally? Tet, I don't see it technically. I basically look at RSI and MACD when I follow charts, and I don't surmise that any of the major US indices look as though they have completed their trips down yet.

The SPX, DJI, and RUT are all beneath the 50 DMA's for the first time in 4 months (that is in going from above the 50 DMA to below it), and they could reverse tomorrow. The McClellan Summation indices for the NYSE and NASDAQ have been demonstrating gigantic non-confirmations of the recent highs in those two indices.

Personally, I am slightly short the major indices now, and though I am not expecting to make a lot of money based on hope for some sort of reasonable correction, I am happier than if I were long two stocks now.

MOT and QCOM look to be headed to hell in a handbasket. Just joking.

Tet
06-27-07, 11:46 AM
Rally? Tet, I don't see it technically. I basically look at RSI and MACD when I follow charts, and I don't surmise that any of the major US indices look as though they have completed their trips down yet.

The SPX, DJI, and RUT are all beneath the 50 DMA's for the first time in 4 months (that is in going from above the 50 DMA to below it), and they could reverse tomorrow. The McClellan Summation indices for the NYSE and NASDAQ have been demonstrating gigantic non-confirmations of the recent highs in those two indices.

Personally, I am slightly short the major indices now, and though I am not expecting to make a lot of money based on hope for some sort of reasonable correction, I am happier than if I were long two stocks now.

MOT and QCOM look to be headed to hell in a handbasket. Just joking.
Lot's of bad good news, durables dropped, housing sux, jobless claims creeping up, all we need is for China's market to bomb in order to justify a rate cut as not in our own best interest, but for the sake of China rates needed to be cut. Remember it's for the children or some such nonesense. That would be rolling out the same gameplan as 1998 when the Asian Tigers needed to be saved with a rate cut. I don't think Wall Street and the Fed make-up a new gameplan. Market reacts to what is said after the Fed meeting, market looks ahead is how they spin it. No cut, but cut much more likely. Shorts covering get the bounce going.


It's decision time, do we bounce off the 50-day moving average or do we drop below? Almost all of these hedge funds aren't Federal Reserve Hedge Funds so the Fed might as well steal the Hedges money. It doesn't surprise me that the markets find themselves sitting exactly on the 50-day moving averages a day ahead of the Fed meeting.

bart
06-27-07, 01:53 PM
Rally? Tet, I don't see it technically. I basically look at RSI and MACD when I follow charts, and I don't surmise that any of the major US indices look as though they have completed their trips down yet.

The SPX, DJI, and RUT are all beneath the 50 DMA's for the first time in 4 months (that is in going from above the 50 DMA to below it), and they could reverse tomorrow. The McClellan Summation indices for the NYSE and NASDAQ have been demonstrating gigantic non-confirmations of the recent highs in those two indices.

Personally, I am slightly short the major indices now, and though I am not expecting to make a lot of money based on hope for some sort of reasonable correction, I am happier than if I were long two stocks now.

MOT and QCOM look to be headed to hell in a handbasket. Just joking.



I'm with you Jim. I have no longs in any market and am short the S&P with a medium size position.

It appears to me that in the inflation area that we're getting a convergence. Actual inflation is moving slightly down (currently 8-9%) while recognition of actual inflation is moving up.

lb
06-27-07, 02:02 PM
I'm actually thinking they might throw in a rate cut as well.

Moe_Gamble
06-27-07, 04:29 PM
I think Tet was right in his post yesterday in one of the threads here about the record number of short positions--too many shorts. The house (or one of the big stacks, since I see a poker analogy as more fitting) will zap them.

All the headlines yesterday scared me sh*tless, and that always means the market's the place to be. You gotta ask why the guy across the table is working so hard to get you to fold.

Regarding the charts, I follow them closely, but I'm thinking if China's getting out of treasuries and into stocks, there's a new player at the table with a very big stack.

Finster's 2007 predictions are looking pretty good to me:


http://www.itulip.com/forums/showthread.php?t=752

Tet
06-27-07, 05:07 PM
I think Tet was right in his post yesterday in one of the threads here about the record number of short positions--too many shorts. The house (or one of the big stacks, since I see a poker analogy as more fitting) will zap them.

All the headlines yesterday scared me sh*tless, and that always means the market's the place to be. You gotta ask why the guy across the table is working so hard to get you to fold.

Regarding the charts, I follow them closely, but I'm thinking if China's getting out of treasuries and into stocks, there's a new player at the table with a very big stack.

Finster's 2007 predictions are looking pretty good to me:


http://www.itulip.com/forums/showthread.php?t=752

Certainly looked like some short covering today, I'm reading about banks calling loans and I'm going to go out on a limb and say we've got some very large margin calls being made. Should be a very interesting day tomorrow.

EJ
06-27-07, 05:38 PM
A brief suggestion on the comments here.

As one who has spent time on boards and with various flavors of bankers, from venture capitalists to investment bankers to central bankers, my experience is that if you assert that "they" are in control, you are giving "them" too much credit.

First, there is no "they" but a bunch of actors in competition, albeit a small number of key actors. No one is "in control" as they don't always get along, and conditions for any or all of them getting their way ebb and flow. Better to think in terms of "influence" than "control." Sometimes the influence of key market players is weak, and at other times strong.

The best analogy for the markets is a river, of money rather than water. Under ideal conditions it flows smoothly, when all the critical conditions are met: inflation is low, credit markets are functioning, entrepreneurs are inventing, consumers are buying, trading partners are trading, currencies are stable, investors are making money and re-investing, and so on. In those times the strategy of key players is to divert portions of the river to yourself–your department if you are in government, to your firm if you are in finance, etc. In such an environment influence of key members as a group over the river of money is strong, even if they are in competition with each other.

Less ideal conditions are a shallow slow moving river (e.g., a debt deflation) or a raging torrent (e.g., a monetary inflation). In both cases, the influence groups have over the river is limited, either because there is little to influence because the river has become a creek (see The Great Depression) or because it is too chaotic, like a rapids.

Today we are in a rapids, and the influence of key interested parties is weak. The ride is exciting, and the money has been flowing like crazy. But just now many key players are starting to realize that they may be soon going over the falls, along with everyone else.

bart
06-27-07, 06:35 PM
...
First, there is no "they" but a bunch of actors in competition, albeit a small number of key actors. No one is "in control" as they don't always get along, and conditions for any or all of them getting their way ebb and flow. Better to think in terms of "influence" than "control." Sometimes the influence of key market players is weak, and at other times strong.
...


Good points and a grunt (http://www.nowandfutures.com/grins/timgrunt.wav) of agreement... as long as I can get a nod to "manipulation" as an alternate to "control". ;)

Rajiv
07-02-07, 06:34 PM
Article by Mike Whitney "The Fed’s Role in the Bear Stearns Meltdown" (http://www.dissidentvoice.org/2007/07/the-feds-role-in-the-bear-stearns-meltdown/)


The “easy credit” which created the subprime crisis in mortgage lending has now spread to the hedge fund industry. The troubles at Bear Stearns prove that Secretary of the Treasury Henry Paulson’s assurance that the problem is “contained” is pure baloney. The contagion is swiftly moving through the entire system taking down home owners, mortgage lenders, banks, rating agencies, and hedge funds. We are just at the beginning of a system-wide breakdown.

The problem originated at the Federal Reserve when Fed-chief Alan Greenspan lowered the Feds Fund Rate to 1% in June 2003 and kept rates perilously low for more than 2 years. Trillions of dollars flowed into the economy through low interest loans creating a massive equity bubble in real estate which drove up housing prices and triggered a speculative frenzy.

The Feds’ “easy money” policy has disrupted the “debt-to-GDP” balance which maintains the integrity of the currency. By expanding circulation debt via low interest rates, Greenspan put the country on the path to hyperinflation and, very likely, the collapse of the monetary system.

The problems at Bear Stearns are the logical upshot of Greenspan’s policies. The over-leveraged hedge funds are a good example of what happens during a “credit boom”. Liquidity flows into the markets and raises the nominal value of all asset classes but, at the same time, GDP continues to shrink. That’s because the wages of working class people have stagnated and not kept pace with productivity. When workers have less discretionary income, consumer spending — which accounts for 70% of GDP — begins to decline. That’s why this quarters earnings reports have fallen short of expectations. The American consumer is “tapped out”.

The current rise in stock prices does not indicate a healthy economy. It simply proves that the market is awash in cheap credit resulting from the Fed’s increases in the money supply. Consumer spending is a better indicator of the real state of the economy than stocks. When consumer spending drops off; it is a sign of overcapacity, which is deflationary. That means that growth will continue to shrivel because maxed-out workers can no longer purchase the things they are making.
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To large extent, the housing bubble has concealed the systematic destruction of America’s industrial and manufacturing base. Low interest rates have lulled the public to sleep while millions of high-paying jobs have been outsourced. The rise in housing prices has created the illusion of prosperity but, in truth, we are only selling houses to each other and are not making anything that the rest of the world wants. The $11 trillion dollars that was pumped into the real estate market is probably the greatest waste of capital investment in the nations’ history. It hasn’t produced a single asset that will add to our collective wealth or industrial competitiveness. It’s been a total bust.

The Federal Reserve produces all the facts and figures related to the housing industry. They knew that trillions of dollars were being diverted into a speculative bubble, but they did nothing to stop it. Instead, they kept interest rates low and endorsed the lax lending standards which paved the way for millions of defaults. Now the effects of their “cheap money” policies have spread to the hedge fund industry where hundreds of billions of dollars in pensions and savings are in jeopardy.

Moe_Gamble
07-05-07, 12:27 AM
First, there is no "they" but a bunch of actors in competition, albeit a small number of key actors. No one is "in control" as they don't always get along...

Oh, I'd say the key boys are pretty united right now.



Today we are in a rapids, and the influence of key interested parties is weak. The ride is exciting, and the money has been flowing like crazy. But just now many key players are starting to realize that they may be soon going over the falls, along with everyone else.

True, and they are paddling like crazy.

Slimprofits
06-29-14, 10:58 AM
84th BIS Annual Report, 2013/2014
29 June 2014

http://www.bis.org/publ/arpdf/ar2014e.htm