Do not let the Fed’s cut diversion fool you.

[Sapiens]

Do not let the Fed’s cut diversion fool you.

There are massive amounts of derivatives that CANNOT be safely priced right now. There are massive losses currently hidden from the public. DO NOT PANIC.

Keep you liquid assets handy, you will come to a buyers market soon enough.

[Jim Nickerson]

Do not let the Fed’s cut diversion fool you.

There are massive amounts of derivatives that CANNOT be safely priced right now. There are massive losses currently hidden from the public. DO NOT PANIC.

Keep you liquid assets handy, you will come to a buyers market soon enough.

You sort disappeared here for a while, Sapiens, I thought someone had succeeded in getting to you in the way of being offensive toward your tendancies for being cryptic. Nothing cryptic about your post here, except one might ask, as one could of many things that get posted on iTulip, is how do you really know you are correct in your assertion of the massive losses currently hidden from the public?

[c1ue]

Jim,

An example of losses which haven't come to light yet, but might:

JPM is Tier 1 capitalized at 1/3 of the industry average (8ish vs. 24).

There is not a breakdown of capital vs. specific losses, but you can see this is a non-positive item.

[Jim Nickerson]

http://news.yahoo.com/s/nm/20070919/bs_nm/morganstanley_cfo_dc_1;_ylt=ArGL0XA7KimfyB5n1GJ6ba lkM3wV


Morgan Stanley execs say worst of crisis is over 9/19/07

NEW YORK (Reuters) - The worst of the credit crunch that forced Morgan Stanley to mark down loans and assets by $940 million during the third quarters is over, said Morgan Stanley's incoming chief financial officer Colm Kelleher.

"I do believe the worst is over," Kelleher, who is currently Morgan's global head of capital markets, told Reuters in an interview.

Morgan Stanley earlier on Wednesday reported a 17 percent decline in third-quarter profit, reflecting a decline in fixed income trading as well as the lower value of corporate loans and other assets.

"We're seeing some clear signs of recovery," said Kelleher, who succeeds CFO David Sidwell when he retires at the end of this year. "This will take some time to work through the credit markets. I would suspect you're talking about one to two quarters."


What are the odds this guy is lying? I have no idea myself.

Lehman reported yesterday and was up along with everything.

BSC and GS report tomorrow.

[Jim Nickerson]

http://www.marketwatch.com/news/story/morgan-stanley-ups-ante-writedowns/story.aspx?guid={FDE978FA-C300-4CA6-927A-D6562F3C0DCE}&siteid=yahoomy

9/19/07

Morgan Stanley takes its medicine
Commentary: A painful report may lead to a quicker recovery
NEW YORK (MarketWatch) -


By the traditional measures, Morgan Stanley had a terrible quarter.


Revenue on a sequential basis fell 24%. Debt trading revenue fell 53%. Equity trading was off 21%. Investment management fell 10%. Investment banking fell 16%. Profits fell 17%. And finally, overall results, $1.38 a share, fell 16 cents short of the consensus. See full story. (http://www.marketwatch.com/News/Story/morgan-stanley-profit-slides-17/story.aspx?guid=%7B1DDBDF2B%2D0288%2D4272%2DB257%2 DF4099A8A1B24%7D)

"Net-net: this is not a great quarter for Morgan Stanley," Mike Mayo, Deutsche Bank analyst, wrote in a note to clients.

But taken in the context of this early earnings season, there was some optimism from analysts that Morgan Stanley<IMG class=pixelTracking height=1 width=1 border=0>, in defiance of Lehman Bros.

Holdings Inc.'s report Tuesday, may be anticipating a quick turn around for the firm.

Shares fell about 1% near midday.

Morgan Stanley wrote down nearly $940 million in asset values, compared to $700 million for Lehman. This was a surprise because the general sentiment on Wall Street was the Lehman had far more exposure to the fixed-income and credit markets. See full story. (http://www.marketwatch.com/News/Story/morgan-stanley-makes-bigger-cut/story.aspx?guid=%7BE8E41951%2D65DA%2D4457%2DB61C%2 D6AD7AF586788%7D)

How firms write down their assets or, mark them to market, is the one place where firms can fudge if they desire. On the surface, Lehman appears to have fudged a little, its stock rallied on its report which beat estimates. Morgan Stanley missed and is flat.

One explanation may be that Lehman's Richard Fuld is hoping the markets will rally and the firm won't have a big bite as the year comes to a close. And maybe John Mack at Morgan Stanley, is betting on it.
mailto:dweidner@marketwatch.com (dweidner@marketwatch.com) http://i.mktw.net/mw3/News/greendot.gif

[c1ue]

What are the odds this guy is lying?

To steal a generalization from trial lawyers - are the lips moving? :confused:

My general rule is to look at the motivations:

Anything I hear from a company officer - doubly so in a financial call - I would take with a double helping of salt.

There is a tremendous self interest to minimize the negative and accentuate the positive - what Galbraith called incantation.

When times are good this is not especially harmful, but when times are bad it is a killer.

[c1ue]

Jim,

I'll even go out on a limb and say that this week will be the peak for the financial services companies for the short term foreseeable future.

It just isn't going to get any better than this: a hoped for and larger than expected 0.5% cut, but without (yet) the ugly news out in the open.

Even with another cut in late October - unless it is again 0.5% - the ongoing train wreck of ugly real estate news is going to drain the punch bowl despite B-Nank's best efforts.

That's why I dumped my long time C and JPM holdings yesterday and early today.

If I had followed BSC and GS more closely and were comfortable with the stock dynamics, I'd be considering medium range puts after announcements - assuming of course the kimono doesn't fall open on one or both. But that isn't too likely.

[Sapiens]

Nothing cryptic about your post here, except one might ask, as one could of many things that get posted on iTulip, is how do you really know you are correct in your assertion of the massive losses currently hidden from the public?

Jim, the reason I know, it's because I am right in the middle of it. I am wading in a unterminable sea of dubious paper.

-Sapiens

[Jim Nickerson]

Jim, the reason I know, it's because I am right in the middle of it. I am wading in a unterminable sea of dubious paper.

-Sapiens

Sapiens,

What is "unterminable," undeterminable? To me this is the first thing you have posted that suggests something about what you do. Do you wish to reveal a bit more about what you know about this stuff?

[Lukester]

This news clip from the JSMINESET website seems to fit in neatly with the topic on this thread.


The Credit Crisis Could Be Just Beginning
By Jon D. Markman
Special to TheStreet.com
9/21/2007 6:40 AM EDT

Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world’s leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.

I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?" Still too optimistic.
Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.

[Rajiv]

The link to the article "The Credit Crisis Could Be Just Beginning (http://www.thestreet.com/pf/newsanalysis/investing/10380613.html)"

[Jim Nickerson]

The link to the article "The Credit Crisis Could Be Just Beginning (http://www.thestreet.com/pf/newsanalysis/investing/10380613.html)"

Thanks for doing the work to link the article, Rajiv. Lukester seems to have a genetic deficit when it comes to putting up links. Perhaps he isn't savvy enough to know how to do it, yet he is so savvy about most things.

It is an interesting article, Lukester. Thanks for posting enough info on it so that Rajiv could find it.

This thread seems to remind me of another, or even two maybe, where Sapiens was the subject, and everyone seemed to respond but Sapiens (though he did give a possibly pertinent response in this thread).

[Jim Nickerson]

One other thought. Das probably is a very informed dude, but who really knows? He strikes me as someone on the outside thinking about what is going on inside.

If Sapiens were to be an individual who works in a "place" where people are actually trying to figure out what in the hell to do about all the derivatives that, according to Sapiens, cannot be safely priced right now, then such an individual's opinion about all this shit might just be the most valid opinion that is going to come about.

Certainly Das's article supports there is going to be a long-unwinding.

[Lukester]

Jim -

<< Thanks for doing the work to link the article, Rajiv. Lukester seems to have a genetic deficit when it comes to putting up links. Perhaps he isn't savvy enough to know how to do it, yet he is so savvy about most things. >>

I get attention deficit whatchamacallit (translation: lazy-sloppy disorder) about posting source links because I know Rajiv is always obsessively hunting around on this website looking for loose ends to staple down to the concrete.

He seems incapable of reading past ANY flapping loose end without pouncing upon the source reference material and then presenting it in silent indignation to the sloppy poster and the community, all while presumably muttering something under his breath about "abysmal work ethics".


Now, where's Sapiens, and why hasn't he told us what the bottom line is yet?


[ Sorry C1ue - too late. I edited that out. You've got to be faster on the draw. :) ]

[c1ue]

Wierd and wacky is cool.

I thought referring to yourself as cool meant exactly the opposite? :confused: :p ;)

[Sapiens]

http://business.guardian.co.uk/story/0,,2198221,00.html?gusrc=rss&feed=24

2.30pm

--------------------------------------------------------------------------------

Merrill Lynch suffers 'spectacular' losses


Andrew Clark in New York
Wednesday October 24, 2007
Guardian Unlimited


Investment bank Merrill Lynch has disappointed Wall Street with a dismal set of quarterly earnings which includes a larger than expected write-down of $7.9bn (£3.86bn) on mortgage-related losses.

Merrill's continuing operations made a loss of $2.3bn in the third quarter, compared to a $3.1bn profit a year ago.


The figures indicate that the firm suffered more seriously than many of its investment banking peers during the summer's credit crunch, which was sparked by defaults on American subprime mortgages.




This is nothing.

[GRG55]

http://business.guardian.co.uk/story/0,,2198221,00.html?gusrc=rss&feed=24



This is nothing.

Looks to me like a slow motion train wreck in the making.

I don't think there's any absolutes Jim. I think a lot of the picture has to be inferred by connecting the dots (unless you are on the inside as Sapiens claims): German banks being bailed out, a run on CFC and Northern Rock, stunningly large injections of liquidity into the banking system let by the ECB then BoJ, Canada, Australia, & Fed, sudden Fed policy reversal between Aug 7 FOMC and Aug 17 discount rate cut, apparent Fed "surprise" at depth of housing downturn and subprime couldn't be contained, mortgage companies collapsing by the score, US comptroller general announces fiscal policies unsustainable, hedge fund blowups all over the Anglo world with Bear and GS (Alpha) the poster children, hedge fund-of-funds geared 10:1 which hold funds geared 10:1 (reminders of the pyramid investment trusts from 1928/29), unprecedented currency vols (1.5% in a day is not uncommon now, and the Yen/AU$ & Yen/NZ$ crosses both moved 5% in one day in August), and finally Hank Paulson's jawboning with "strong dollar", "strong US economy" now falling back to "strong global economy" and most recently "a healthy financial system". None of this is news, but sometimes I have to update my list just to see the full extent - and I am sure I've missed some things.

I would respectfully disagree with Hank; there's not very damn much that is healthy about this financial system. I don't "know" exactly how and when this will play out. But I don't feel alone because I am quite certain neither does Hank, or Ben, or Trichet, or anyone else.

I would love to be proven wrong in the fullness of time, but it is inconceivable to me that the biggest credit bubble in history, which spawned literally trillions of dollars of illiquid credit derivatives (way beyond CDO's with subprime that they want to Super-SIV away), won't be followed by (one of) the biggest credit contractions in history. The risk levels today seem exceptionally high.

[Jim Nickerson]

Looks to me like a slow motion train wreck in the making.

I don't think there's any absolutes Jim. I think a lot of the picture has to be inferred by connecting the dots (unless you are on the inside as Sapiens claims): German banks being bailed out, a run on CFC and Northern Rock, stunningly large injections of liquidity into the banking system let by the ECB then BoJ, Canada, Australia, & Fed, sudden Fed policy reversal between Aug 7 FOMC and Aug 17 discount rate cut, apparent Fed "surprise" at depth of housing downturn and subprime couldn't be contained, mortgage companies collapsing by the score, US comptroller general announces fiscal policies unsustainable, hedge fund blowups all over the Anglo world with Bear and GS (Alpha) the poster children, hedge fund-of-funds geared 10:1 which hold funds geared 10:1 (reminders of the pyramid investment trusts from 1928/29), unprecedented currency vols (1.5% in a day is not uncommon now, and the Yen/AU$ & Yen/NZ$ crosses both moved 5% in one day in August), and finally Hank Paulson's jawboning with "strong dollar", "strong US economy" now falling back to "strong global economy" and most recently "a healthy financial system". None of this is news, but sometimes I have to update my list just to see the full extent - and I am sure I've missed some things.

I would respectfully disagree with Hank; there's not very damn much that is healthy about this financial system. I don't "know" exactly how and when this will play out. But I don't feel alone because I am quite certain neither does Hank, or Ben, or Trichet, or anyone else.

I would love to be proven wrong in the fullness of time, but it is inconceivable to me that the biggest credit bubble in history, which spawned literally trillions of dollars of illiquid credit derivatives (way beyond CDO's with subprime that they want to Super-SIV away), won't be followed by (one of) the biggest credit contractions in history. The risk levels today seem exceptionally high.

GR, generally I feel badly about something or other on most days, but seeing your list is nice work. You must be tough as steel to trouble yourself to keep a list of all this bad stuff. Thanks for recalling it.

Prechter is some book of his I read made a point of the size of the credit bubble and the multiplier effect of leverage, and how if/when it should unwind the "multiplier effect will go into reverse." "Total credit will contract, so bank deposits will contract, all with the same degree of leverage with which they were initially expanded." On and on to a deflationary crash which those who know way more than I ever will say will not be allowed to happen.

My personal opinion, which is truly based in financial igorance, is that I don't think anyone really knows how all this shit is going to settle.

[GRG55]

GR, generally I feel badly about something or other on most days, but seeing your list is nice work. You must be tough as steel to trouble yourself to keep a list of all this bad stuff. Thanks for recalling it.

Prechter is some book of his I read made a point of the size of the credit bubble and the multiplier effect of leverage, and how if/when it should unwind the "multiplier effect will go into reverse." "Total credit will contract, so bank deposits will contract, all with the same degree of leverage with which they were initially expanded." On and on to a deflationary crash which those who know way more than I ever will say will not be allowed to happen.

My personal opinion, which is truly based in financial igorance, is that I don't think anyone really knows how all this shit is going to settle.

I didn't used to be that way. But years of reading the local papers converted me. Every day over breakfast get to read the latest body count from Palestine and last night's horrific local traffic accidents. I don't think they've changed the front page of the paper for years, just the numbers (I cancelled my subscription 3 years ago, but the damage was done).

You and I are in full agreement on your closing sentence. But as bad as things seem now, I have a great deal of optimism that the USA will creatively innovate its way through this latest crisis. Let's hope its a more successful experiment than the innovative crap paper that got us here.

[Jim Nickerson]

I didn't used to be that way. But years of reading the local papers converted me. Every day over breakfast get to read the latest body count from Palestine and last night's horrific local traffic accidents. I don't think they've changed the front page of the paper for years, just the numbers (I cancelled my subscription 3 years ago, but the damage was done).

You and I are in full agreement on your closing sentence. But as bad as things seem now, I have a great deal of optimism that the USA will creatively innovate its way through this latest crisis. Let's hope its a more successful experiment than the innovative crap paper that got us here.

Perhaps, c1ue, you are in a state of denial. If I, and I do mean myself, were younger, I would be more ignorant than I am, and as such coupled with the probability that I would stay alive a longer time I would find it difficult not to be optimistic, as there is no joy in Muddville or pessimism.

All I see with the level of knowledge I have is that over my lifetime though great strides have been made in so many areas that allow a higher quality of life, such has not been the case socioeconomically for so many and certainly not politically for anyone except those who buy politicians.

[c1ue]

Perhaps, c1ue, you are in a state of denial. If I, and I do mean myself, were younger, I would be more ignorant than I am, and as such coupled with the probability that I would stay alive a longer time I would find it difficult not to be optimistic, as there is no joy in Muddville or pessimism.

Eh? While you are right - I am extremely pessimistic about the US and its future right now, I'm guessing you are referring to GRG55 in this particular note and quote!

As for choosing ignorance - well - that ain't my thang. I choose to be erudite and also optimistic elsewhere - although I am starting a business here in the US as well.

I like to think my stance is not pessimism, but realism and that my behavior is designed to protect my future from the harsh realities of today.

But as bad as things seem now, I have a great deal of optimism that the USA will creatively innovate its way through this latest crisis.

In a similar vein to my previous response to Jim - I just don't see how the USA will creatively innovate out of this one. The scale is too large - furthermore the problem lies with the systematic stripping of jobs and capital away from the economy in general and the middle classes in particular.

The only way I see out of this is if there is a war sufficient to ruin American economic competitors - and with 3 of 4 BRICs with nuclear weapons, I just don't see this happening.

As I've mentioned before: my view has always been that the grand experiment of the American democratic/capitalist ethic was saved on at least 3 separate occasions by war:

1) Civil War

Roots in the Crisis of 1857-1858

From "The History of the Commercial Crisis, 1857-1858 and the Stock Market Panic" by David Morier Evans

There had been over-trading, too much competition in business, too heavy expenses, too long and large credits, and there was still quite a land speculation in the West

This crash was due to collapse in the railroad stocks - one of the first technology bubbles.

2) WW I (and creation of Fed)

Crash of 1907

US Treasury buys $35M dollars of government bonds to offset market declines. To put this in perspective, the entire US budget in 1910 was $676M, and in 1905 was $544M - or in other words over 5% of the entire federal budget was devoted toward buying bonds to alleviate the financial calamity.

3) WW II

Great Depression (I). 'nuff said.

While the US did not start the war in every instance - in each instance a major economic competitor was destroyed by the conflict and the aftermath provided easy money for American industrialists but also easy growth for the overall nation.

We're long past that - barring discovery of viable fusion power coupled with resource requirements for construction that only the US can provide, even most innovations which might be discovered in the next few years will be built elsewhere, with the financing from the same clique of bankers internationally. Why should these specifically benefit the US?

As a semi-humorous note... there are those conspiracy theorists who believe the true reason for the Civil War was not abolition, but rather the fact that the South was starting to import its labor practices into industry (as opposed to farming).

[Sapiens]

My dear friends,

Please do not get caught in the "léger de main" claim of inflation, or as is said in the U.S. “Sleight of hand,” that is being propagandized by the Fed.

Yes, there is presently inflation, but soon we are going to be caught in a debt-deflationary wave of defaults that will make most people wish they were dead.

Preserve your cash (printed currency), stay liquid and you will be wealthier than all your wildest dreams.

-Sapiens

[EJ]

My dear friends,

Please do not get caught in the "léger de main" claim of inflation, or as is said in the U.S. “Sleight of hand,” that is being propagandized by the Fed.

Yes, there is presently inflation, but soon we are going to be caught in a debt-deflationary wave of defaults that will make most people wish they were dead.

Preserve your cash (printed currency), stay liquid and you will be wealthier than all your wildest dreams.

-Sapiens

An excerpt from an article I am writing to be published later:

Sir Isaac Newton (1642-1727) was the smartest man who ever lived. I cite as one point of evidence that he once attended a conference where he tried to convince his fellow physicists that planetary orbits are elliptical not circular. But the mathematics he needed to prove his claim–differential calculus–did not yet exist. He went home and, in a few months, invented differential calculus–called it "Theory of Fluxions." He then used the new math to prove his theory of elliptical planetary orbits.

Now that is one smart guy.

Of course, that was only one of many accomplishments which earned him the deepest respect, trust and pride among the British people in his own time. Who better for the British government to award the position of Warden then Master of the Royal Mint.

He went about the job with characteristic brilliance and diligence for 31 years. "It is in the mint reports of Sir Isaac Newton that we see fullest expression of expert official sense of the action of Mint Laws and tariff in steadying and safeguarding the internal currency."

On one occasion when the British government was running out of funds to pay for war, as governments have often done over the centuries, it sought a painless way to pay off its war debts. Gold coinage was the centerpiece of the British financial system for centuries, providing the stability to the currency needed to guarantee the value of payments in international transactions. All money issued by the government was either made of gold or silver coins minted at the Royal mint under Newton's watch or printed and backed by gold in the treasury.

Treasury's gold stocks had been depleted by the war. Repayment of war debts meant either a reducing expenditures, such as payment of salaries to high positions of the court–never popular or politically healthy–or an increase in taxes on a population already restive from high taxes and other burdens of war. Nor did the government have a ready means to earn more gold by a positive balance of trade by increasing exports or reduced imports. The government was in a bind.

As has also often occurred to governments since the first government took on debts it could not repay, if occurred to creative minds within the British government that if it printed money not made of or backed by gold to pay off those debts if could pay off debts without the politically difficult act of cutting payments to workers for the government, raising taxes, or increasing exports or cutting imports, or by any other troublesome method of increasing the quantity of gold in the Treasury.

The Lords Commissioners of His Majesty's Treasury approached Newton for his advice on printing money not made of or backed by gold, in order that the government might repay war debts. Under such an arrangement, they asked, how will the value of this non gold-backed printed money be determined?

The simple and precise reply suited the mathematician who is serious about his duty to steady and safeguard the internal currency. He replied with a question: "What is your unit?"

Let us take the extreme case, the massive debt defaults you expect. My question to you is Newton's: As the defaults mount and debt deflates, what happens to the unit of exchange?

In Europe, where there is no unified euro bond market to put in motion to monetize debt, I see your point; asset price deflation can lead to commodity price deflation. But here in the US that is not a problem. The trick for the US has been to convince the world how scarce dollars are, and in fact to force them to help make dollars scarce. The problem, if the extreme debt deflation case occurs, will be that while government money is printed and assets purchased–some by commercial banks, some outright by the government, but few if any through the bond market–the money that is printed to buy these assets is the same unit (currency) as the money that must also be used by all to paid for, say, imported oil. So while a hoarder of green pieces of paper may be able to buy from a bank or the government a house or a building with a small bundle of them amounting to a few month's salary, a similar pile of them may be required to pay for a single barrel of imported oil. It is the Nth extreme case of what you see today: the government continues to maintain the quantity and velocity of money within in the US economy, but an American traveling abroad will find themselves as poor as church mice, unable to afford much of anything.

Of course, long before that happened foreigners would buy up everything in sight, before their dollars became worthless, if the government allowed them to.

[Sapiens]

My question to you is Newton's: As the defaults mount and debt deflates, what happens to the unit of exchange?



An excellent question. And the answer is quite simple really, as defaults mounts, debts do not deflate and they still stand until discharged. As to what happens to the unit of exchange, it depends as to how you are holding it. If you are holding it in printed currency, it gains purchasing power; if you are holding it in securities, it loses purchasing power.

[Jim Nickerson]

Eh? While you are right - I am extremely pessimistic about the US and its future right now, I'm guessing you are referring to GRG55 in this particular note and quote!


Sorry, c1ue, I got cornfused, but it served to elicit a worthwhile comment from you. Thanks.

[EJ]

An excellent question. And the answer is quite simple really, as defaults mounts, debts do not deflate they still stand until discharged. As to what happens to the unit of exchange, it depends as to how you are holding it. If you are holding it in printed currency, it gains purchasing power; if you are holding it in securities, it loses purchasing power.

Debts are either paid in full, paid in part, or defaulted on, depending on the arrangements made between debtor and creditor.

They are paid out of savings or out of income.

If the debt is secured, then the asset can be accepted by the creditor in payment of the debt. Of course, the resale value of the asset may be considerably lower than the amount of debt. In fact, the value of the asset may be next to nothing, as in the case of some of the SIVs, which is why neither the debtor nor the creditor want to clear a transaction that sets a valuation. (The auditors may or may not let them get away with that as the fiscal year comes to a close.)

If the debt is not secured, the debtor defaults and the creditor writes off the entire loan.

Multiply this by millions of mortgages and other debts, and you have a lot off writing down and writing off going on, and a lot of assets for sale all at the same time, never good for sellers trying to get a good price, especially since at the same time banks are less willing to extend credit, and the pool of credit-worthy borrowers is shrinking.

As you say, a person with cash in hand in is a good position in these circumstances. The question is, what actions will the US government take to ensure that the debt deflation process does not go on to the extent that the system seizes up, to prevent to use the archaic term, a break in the chain of payments?

We already have our answer. The Fed will print money and buy virtually anything. What happens to the exchange value of the dollar in the process? We have our answer there, too. It falls. And that even before the US has had much to resort to buying it's own debt, except perhaps on the "open market" through Caribbean banking centers.

As I write, gold and oil are pricing in the future monetization of US government debt to manage the ongoing debt and asset price deflation processes. It's quite a paradox, really.

[Sapiens]

As I write, gold and oil are pricing in the future monetization of US government debt to manage the ongoing debt and asset price deflation processes. It's quite a paradox, really.

Not really, look closer, at a more granular level.

Look at the types of money creation, one is the monetization of bank credit, another is the monetization of government bonds.

Most of the current money is monetized bank credit, (let me look for the reference) $46 Trillion plus, then there is the monetized government bonds $9 Trillion plus.

Most of the bank credit has been secured by monetizing real assets and guaranteed by people’s labor. Most of the US Bonds, have been purchased with that monetized bank credit.

Oil and Gold are rising because people expect the government to print money, yet they don’t realize that debt defaults are going to reduce the monetary aggregates at a faster rate than the government issues new money. But the true reason Gold and Oil will rise faster than any other commodity is because people will flee to them seeking safety from their defaulting securities. Those that are dumping Treasuries will soon after realize their grave mistake.

But to be quite honest, I fear that if we reach that point, WWIII will be upon us.

-Sapiens

[GRG55]

Sorry, c1ue, I got cornfused, but it served to elicit a worthwhile comment from you. Thanks.

Well after reading this thread it's clear that my optimism is a definite minority of one. This sort of stuff will have all of us reaching for the kool-aid...

[raja]

the monetary aggregates at a faster rate than the government issues new money
If I'm understanding this correctly, deflation in the FIRE and real economy . . .

. . . Ka-Poom theory is wrong!?!?!?!? :eek: :eek: :eek: :eek:

[Sapiens]

http://www.stocktiming.com/Thursday-DailyMarketUpdate.htm

Are VISA and MasterCard adding fire to the credit crunch?

This morning, we are going to have a short discussion about credit contraction, and then move on to the Shanghai Composite Index which fell 4.81% this morning.

David Wessel from the Wall Street Journal made a case for a recession this morning. Basically, he said that we would look back a year from now and see that the recession was caused by credit tightening. Additionally, he contended that "credit lenders will stay in a process of getting a little more cautious and tightening a little more". Many analyst disagree with him, and some think he may be right.

What signs are showing up for an increase in credit tightening?

On Tuesday, we learned first hand of a new one that we had not heard of before. There are many merchants who sell items or services that are technically a "future deliverable". A future deliverable is something that gets delivered over time. In the case of publishers, they traditionally sell 1 year subscriptions to the Wall Street Journal, your home town newspaper, magazines like Business Week, an investment newsletter, or newsletters on various other topics. Selling yearly subscriptions has been a basic to the cash flow of these companies.

It used to be that VISA and MasterCard allowed merchants to take orders for future delivery as far out as 1 year, and sometimes longer. However, quietly ... during the past year, VISA and MasterCard changed the rules and fine print to say that these merchants were no longer allowed such practices.

In fact, their new regulations state that a company may only charge for a period of 90 days or less. Most publishers haven't gotten the message and are continuing with their yearly subscriptions. But, that is all going to end soon, as merchant banks and credit card processors are going to start enforcing this new ruling.

There is a real "credit crunch" affect to all this, and this fits in with what Wessel was saying this morning. For magazine publishers, their monthly cash flows will drop 40% to 50% when they implement the new ruling. This means that they will have to lay off some people, and watch their profits take a hit. (What's the math to this? If a yearly subscription is $100 per year, then a quarterly subscription is $25 per year ... that's a 75% drop in cash flow for a 3 month period on every subscription until it renews again in the fourth month.)

VISA and MasterCard are reducing the chargeable time period on these purchases in order to reduce the liability ceiling. In effect, they are reducing the amount of credit being extended to merchants on their sales. This is a good example of a credit contraction action, and for many, it will have a negative impact on cash flows, profits, and layoffs.

On Tuesday, our merchant company called and told us that we would have to comply with the new VISA and MasterCard regulations. So, before November 11th., we will stop offering any one year subscription that is paid with a charge card. In the future, the maximum subscription time for those using a charge card for any subscription based product or future deliverable will be 3 months.

There is always a solution to things like this, although it may be less appealing to consumers. In our case, we will continue to offer one year subscriptions, but they will be through the use of a "mailed check", or an instant transaction on the internet through an echeck or icheck merchant service. Along with that, we will offer 1 and 3 month subscriptions payable through VISA, MasterCard, American Express, or Discover.

For the merchants who just stop offering one year options, they will obviously suffer economically. For those who use creative solutions, their business will go on as usual. In the long run, VISA and MasterCard will reduce their total revenues. The harm they are creating with this "credit crunching" tactic will hurt their merchants ... and in the end, it will hurt VISA and MasterCard as well.

P.S. I wouldn't be surprised to suddenly see VISA and MasterCard issue some "exceptions" to large companies like the Wall Street Journal and Business Week.

[Sapiens]

http://www.reuters.com/article/bondsNews/idUSN2633940120071026

Moody's begins cutting top-rated CDOs to junk

Moody's Investors Service on Friday began cutting ratings of top-rated collateralized debt obligations to junk due to exposure to $33.4 billion in deteriorating subprime loans.

Debt that was rated as high as "A2," the sixth highest rating, was cut to "Caa1," seven levels into junk territory. Moody's cut or placed at least 45 CDOs on review for more cuts, which are tied to Moody's Oct. 11 rating cuts on $33.4 billion of subprime mortgage debt, its biggest action on mortgage debt to date.

"Some have been downgraded, and some have been placed on watch," said spokesman Michael Adler, who didn't immediately have details on the amount of debt affected.

Those deteriorating loans were packaged into bigger, complex bonds known as CDOs that are now being cut and reviewed for further cuts, Moody's said on Friday.

The ripple effect from the Oct. 11 rating cuts may be felt in 461 CDOs in United States and 41 CDOs in Europe, Moody's had said earlier.

[EJ]

Not really, look closer, at a more granular level.

Look at the types of money creation, one is the monetization of bank credit, another is the monetization of government bonds.

Most of the current money is monetized bank credit, (let me look for the reference) $46 Trillion plus, then there is the monetized government bonds $9 Trillion plus.

Most of the bank credit has been secured by monetizing real assets and guaranteed by people’s labor. Most of the US Bonds, have been purchased with that monetized bank credit.

Oil and Gold are rising because people expect the government to print money, yet they don’t realize that debt defaults are going to reduce the monetary aggregates at a faster rate than the government issues new money. But the true reason Gold and Oil will rise faster than any other commodity is because people will flee to them seeking safety from their defaulting securities. Those that are dumping Treasuries will soon after realize their grave mistake.

But to be quite honest, I fear that if we reach that point, WWIII will be upon us.

-Sapiens

There is no rate of printing problem. The only problem is printing without destroying confidence in the dollar. In a floating exchange rate system, that means cooperation from the central banks of countries that issue other major currencies, primarily the ECB, Bank of England, and BoJ with all others necessarily forced to follow suit. The issue is political, not technical.

Just got off the call with Dr. Warburton. He projects a de-leveraging of debt driving a short term rise in demand for dollars followed by an eventual repudiation of the currencies of net debtor countries, especially the US dollar. To hedge, he recommends what iTulip has always recommended, with some interesting additions.

I've gone from 80% confidence in Ka-Poom Theory to 90% confidence.

Will post the interview shortly.

[jk]

a post that seems germane to this thread, from a reader at bill fleckenstein's web site


A few observations. The word inside Merrill is that there is alot more where this came from. While their release was more robust than the rest of the of the street's disclosure, the conference call was broadly viewed as a disaster.

There is so much obfuscation going on around the brokerage community with regards to leveraged and structured credit markets.. investors don't fathom just how massive the issues are....

A few questions to ask the major structured credit players: How are they monitoring and
marking the collateral in their repo book and are they asking for margin calls?

How much warehouse mortage credit is being sold/converted into total return swaps at below market terms (in order to amortize the losses)?

How much credit exposure does an institution have in total return swap form that does not have reg cap attached to it?

How much price engineering (i.e contingent liabilities) is being utilized through "most
favored nation" agreements, sub market margin credit and other side agreements to support new issue lev. fin deals....

Have never seen this level of desperation to hide from price transparency in 22 years of this...

Face it, the structured credit models based on normal distribution and continuous pricing liquidity broke down at the end of June and everyone is making it up ever sense. Today was just the first slim wedge into the door of realty. Financials may have a pretty tough forth quarter to face from here..

[FRED]

a post that seems germane to this thread, from a reader at bill fleckenstein's web site

Transcribing the Warburton interview.

Interesting tidbit: Ratings agencies are estimated to have downgraded approx. 5,000 securities ever... until Oct. 2007. So far in Oct. they have downgraded 2,500.

[Tet]

Transcribing the Warburton interview.

Interesting tidbit: Ratings agencies are estimated to have downgraded approx. 5,000 securities ever... until Oct. 2007. So far in Oct. they have downgraded 2,500.
Now that's interesting.

[Sapiens]

There is no rate of printing problem. The only problem is printing without destroying confidence in the dollar. In a floating exchange rate system, that means cooperation from the central banks of countries that issue other major currencies, primarily the ECB, Bank of England, and BoJ with all others necessarily forced to follow suit. The issue is political, not technical.


Of-course it is not a technical problem, in our present epoch all the Fed has to do in enter the numbers into the computer system. The question is, how are they going to inject those symbols representing money into the physical economy? Are they going to issue each debtor holding a mortgage certain amount to offset the outstanding amount of that mortgage? Without doing any work or wealth transfer?

Where is the fun in that?

[EJ]

Of-course it is not a technical problem, in our present epoch all the Fed has to do in enter the numbers into the computer system. The question is, how are they going to inject those symbols representing money into the physical economy? Are they going to issue each debtor holding a mortgage certain amount to offset the outstanding amount of that mortgage? Without doing any work or wealth transfer?

Where is the fun in that?

I agree with Hudson on this point. Banks don't want you to pay anything off. Ever. Especially your mortgage.

If you as a credit card holder commit the indiscretion of paying off your debt you are a labeled a "deadbeat" and punished via a lower credit rating that translates into a higher rate of interest (higher rent on your labor).

Loans will be extended then extended again. As they say on Wall Street, "a rolling loan gathers no loss." A hundred year mortgage or interest-only mortgage is the perfect product for our times.

Taxation is such a crude form of government extraction of economic rent. Debt is so much more supple. I'm sure a simple spreadsheet is floating around the offices of several of our fine government institutions that demonstrates convincingly to any ambitious young pol who seeks to end the subsidy of the real estate industry represented by the mortgage interest rate deduction. The spreadsheet shows how much incremental revenue is earned by the government (rent) for each additional mortgage payment net of the interest rate deduction from income, provided the profits earned by the Federal Reserve are figured into the total, of course.

[jk]

The question is, how are they going to inject those symbols representing money into the physical economy? Are they going to issue each debtor holding a mortgage certain amount to offset the outstanding amount of that mortgage?
no, they'll purchase tbills, and if that doesn't work they'll move out the rate curve, purchasing notes and bonds. if that doesn't work they'll move on to other assets, as bernanke made clear in his famous "making sure it [deflation] doesn't happen here" speech. of course, the dollar will dive unless other cb's do the same, so it's quite likely other cb's WILL do the same.

[Jim Nickerson]

There is no rate of printing problem. The only problem is printing without destroying confidence in the dollar. In a floating exchange rate system, that means cooperation from the central banks of countries that issue other major currencies, primarily the ECB, Bank of England, and BoJ with all others necessarily forced to follow suit. The issue is political, not technical.

Just got off the call with Dr. Warburton. He projects a de-leveraging of debt driving a short term rise in demand for dollars followed by an eventual repudiation of the currencies of net debtor countries, especially the US dollar. To hedge, he recommends what iTulip has always recommended, with some interesting additions.

I've gone from 80% confidence in Ka-Poom Theory to 90% confidence.

Will post the interview shortly.


So, EJ, is it premature to ask you since you are at a 90% confidence level on Ka-Poom, where we are NOW?

You know I don't know a lot, but I think we are still to get into Ka, though I must say oil, PM'S, commodities are behaving Poomishly.

Set us on the right path, oh, Great One.

[Lukester]

Jim wrote -

<< Behaving Poomishly >>

We seem have acquired a new bit of iTulip jargon.

TESTING "POOMISH" SYNTAX ...

"Concern was expressed by KA-ish proponents that Grapejelly and Mackay et. al. might be viewing the gold gambit a bit too Poomishly ... "

"Once JK was persuaded to regard the markets a little more poomishly the community's general mood was found to be markedly improved ... "

"Bart's charts were revealed to evidence a clear poomish secular bias emerging ... "

"Jim Roger's exit from all US assets was regarded as a distinctly un-poomish portent for domestic structured debt assets, but fairly poomish for the US Bonar ... "

"regularly forced to tune out CNBC due to their unrelentingly poomish view of the broad stock market indices ... "

"August FOMC minutes interpreted to demonstrate a cautious optimism that the risk of poomish monetary drift was now well in hand ... "

"Prechter's most recent missive reported to unambiguously reiterate a long avowed anti-poomish stance ... "

"Poomish effervescence moved sharply to the forefront of the market after the FED rate cut ... leaving many pundits surprised ... "

"Mish's recent missives were reported to unambiguously debunk the poomish thesis, pouring cold water on any notion of another Fed engendered poomlet ... "

"as iTuliper's gloom deepened in August, they began to acquire an ever more contra-poomish pallor ... "

"Janszen's future articles widely anticipated to gain a more poomish tinge in the near future ? ... "

"Futures markets hinted at increased odds the Janszen bada-poomish forecast might be unfolding slightly ahead of schedule ... "

____________


The new poomish all-weather adjective is guaranteed for 40,000 miles, or for a tin ear, whichever arrives first - with free rotation at any poomishly inclined service center.

____________

An ambitious project is also underway to carry the Poomish expression into seven different languages! -

"pendant que la tristesse des iTuliper approfondissait en août, ils ont commencé à acquérir un plus contre-poomish pâleur..."

"mientras que el gloom de los iTuliper profundizó en agosto, comenzaron a adquirir siempre más contra-poomish-poomish pallor..."

"как gloom iTuliper's углубил в августе, они начал приобретать всегда больше contra-poomish-poomish pallor..."

"mentre il scarso morale dei iTuliper si e' approfondito in agosto, hanno cominciato ad acquistare sempre più contra-poomish-poomish pallore ..."

"ως κατάθλιψη iTuliper's που εμβαθύθηκε τον Αύγουστο, άρχισαν να αποκτούν μια πάντα πιό ενάντια -ενάντιος-ποομησχ ωχρότητα... "

"während Trübsinn der iTulipers im August sich vertiefte, fingen sie an, mehr gegen-poomish pallor überhaupt zu erwerben..."

"当iTuliper 的幽暗加深了在8月, 他们开始获取一更多poomish pallor..."

[jk]

So, EJ, is it premature to ask you since you are at a 90% confidence level on Ka-Poom, where we are NOW?

You know I don't know a lot, but I think we are still to get into Ka, though I must say oil, PM'S, commodities are behaving Poomishly.

Set us on the right path, oh, Great One.

warburton apparently feels that we have to get to ka:

Just got off the call with Dr. Warburton. He projects a de-leveraging of debt driving a short term rise in demand for dollars followed by an eventual repudiation of the currencies of net debtor countries, especially the US dollar.

that short term deleveraging will be the ka.

[GRG55]

Jim wrote -

<< Behaving Poomishly >>

We seem have acquired a new bit of iTulip jargon.

TESTING "POOMISH" SYNTAX ...

"Concern was expressed by KA-ish proponents that Grapejelly and Mackay et. al. might be viewing the gold gambit a bit too Poomishly ... "

"Once JK was persuaded to regard the markets a little more poomishly the community's general mood was found to be markedly improved ... "

"Bart's charts were revealed to evidence a clear poomish secular bias emerging ... "

"Jim Roger's exit from all US assets was regarded as a distinctly un-poomish portent for domestic structured debt assets, but fairly poomish for the US Bonar ... "

"regularly forced to tune out CNBC due to their unrelentingly poomish view of the broad stock market indices ... "

"August FOMC minutes interpreted to demonstrate a cautious optimism that the risk of poomish monetary drift was now well in hand ... "

"Prechter's most recent missive reported to unambiguously reiterate a long avowed anti-poomish stance ... "

"Poomish effervescence moved sharply to the forefront of the market after the FED rate cut ... leaving many pundits surprised ... "

"Mish's recent missives were reported to unambiguously debunk the poomish thesis, pouring cold water on any notion of another Fed engendered poomlet ... "

"as iTuliper's gloom deepened in August, they began to acquire an ever more contra-poomish pallor ... "

"Janszen's future articles widely anticipated to gain a more poomish tinge in the near future ? ... "

"Futures markets hinted at increased odds the Janszen bada-poomish forecast might be unfolding slightly ahead of schedule ... "

____________


The new poomish all-weather adjective is guaranteed for 40,000 miles, or for a tin ear, whichever arrives first - with free rotation at any poomishly inclined service center.

____________

An ambitious project is also underway to carry the Poomish expression into seven different languages! -

"pendant que la tristesse des iTuliper approfondissait en août, ils ont commencé à acquérir un plus contre-poomish pâleur..."

"mientras que el gloom de los iTuliper profundizó en agosto, comenzaron a adquirir siempre más contra-poomish-poomish pallor..."

"как gloom iTuliper's углубил в августе, они начал приобретать всегда больше contra-poomish-poomish pallor..."

"mentre il scarso morale dei iTuliper si e' approfondito in agosto, hanno cominciato ad acquistare sempre più contra-poomish-poomish pallore ..."

"ως κατάθλιψη iTuliper's που εμβαθύθηκε τον Αύγουστο, άρχισαν να αποκτούν μια πάντα πιό ενάντια -ενάντιος-ποομησχ ωχρότητα... "

"während Trübsinn der iTulipers im August sich vertiefte, fingen sie an, mehr gegen-poomish pallor überhaupt zu erwerben..."

"当iTuliper 的幽暗加深了在8月, 他们开始获取一更多poomish pallor..."

Irrationally poomish?

[Spartacus]

Eric, I've been looking for proof that this happens (pay off the card, reduce your FICO) but cannot formulate the right search.

Have you any links?

There was a Gary North article on it some time ago as well but he seems to have removed it.

If you as a credit card holder commit the indiscretion of paying off your debt you are a labeled a "deadbeat" and punished via a lower credit rating that translates into a higher rate of interest (higher rent on your labor).

[Spartacus]

NObody told Moody's about the MLEC?

I think Paulson needs to take all of his 6 foot 8 body down there and apply some "persuasion". Maybe play some baksetball while he's at it. Take along Bernanke's beard to make sure Moody's knows the FED is cheerleading.

If the ratings agencies remove their air freshener, how can the Treasury buy the cr*p that on its own stinks of a most unpleasant, nauseating reek?
http://www.reuters.com/article/bondsNews/idUSN2633940120071026

[Jim Nickerson]

warburton apparently feels that we have to get to ka:



that short term deleveraging will be the ka.

Thanks, Brain, it amazes me you can store all this stuff, I guess the secret is to be able to pick out the important stuff, remember it, and forget the rest.

However, your insight does not supplant a comment still due from EJ.

Fred (1,2,3, or 4) wake up EJ and ask him to respond to in response to EJ's comment in the post previous to mine: I've gone from 80% confidence in Ka-Poom Theory to 90% confidence.

Edit: jk, what is your opinion?

[jk]

jk, what is your opinion?
i think the ka is still ahead. looking at my portfolio, i'm invested like the ka is MOST LIKELY still ahead, but perhaps not. if i were sure the ka were ahead i would hold less gold, figuring i'd pick up more, cheaper, on a big all-assets-down sell-off. but i hold a lot of pms, 26% of my portfolio, including about 1% as calls on gdx and paas. if i were sure the ka was behind, i'd hold 30%. if i were sure it was ahead, i think i'd go down to 20%, because i couldn't be THAT sure. i should say, however, that i have a chunky nominal put position, and some shorts as well, to protect me if we indeed have yet to traverse the ka and to cushion my losses on the pm's in that event. if i were sure we were into poom i wouldn't have the puts and shorts, and i'd have big em and commodity positions- which i don't have.

[is that enough equivocation, jim? i think about harry truman's remark about wanting a one-armed economist, who couldn't say "on the one hand, this, on the other hand, that." i identify, instead, with one of those hindu guys with 8 arms.]

[zoog]

Eric, I've been looking for proof that this happens (pay off the card, reduce your FICO) but cannot formulate the right search.

Have you any links?

There was a Gary North article on it some time ago as well but he seems to have removed it.

I've never been able to find any research confirming this either. Certainly the pay-full-balance-each-month, get labeled a "deadbeat" part is well-known. I believe I first heard that in an old Frontline from 2004 called Secret History of the Credit Card.

BEN STEIN: The credit card companies hate people like me, who pay off our bills every month. And I know that because I ran into a fellow I went to high school with on the street, and he told me he worked for a credit card company. And I told him about how much I use credit cards and how I pay them off every month, and he said, "Oh, we hate you. We hate you guys. We call you deadbeats."
NARRATOR: "Deadbeats," in the upside-down world of the credit card business, are the people like Ben Stein, who pay off their bills on time. The industry's best customers are the 90 million Americans who don't pay off their credit card debt. They're called the "revolvers."
http://www.pbs.org/wgbh/pages/frontline/shows/credit/

I've been a "deadbeat" on my credit cards for a few years now, although I've had school loans and car loans to slowly pay off with interest. Haven't checked recently but a couple years ago my FICO scores were in the upper 700's. This suggests to me that any negative effect of denying the credit cards their interest income may be minimal. YMMV. Perhaps having no interest payments whatsoever would be a different story.

[Jim Nickerson]

i think the ka is still ahead. looking at my portfolio, i'm invested like the ka is MOST LIKELY still ahead, but perhaps not. if i were sure the ka were ahead i would hold less gold, figuring i'd pick up more, cheaper, on a big all-assets-down sell-off. but i hold a lot of pms, 26% of my portfolio, including about 1% as calls on gdx and paas. if i were sure the ka was behind, i'd hold 30%. if i were sure it was ahead, i think i'd go down to 20%, because i couldn't be THAT sure. i should say, however, that i have a chunky nominal put position, and some shorts as well, to protect me if we indeed have yet to traverse the ka and to cushion my losses on the pm's in that event. if i were sure we were into poom i wouldn't have the puts and shorts, and i'd have big em and commodity positions- which i don't have.

[is that enough equivocation, jim? i think about harry truman's remark about wanting a one-armed economist, who couldn't say "on the one hand, this, on the other hand, that." i identify, instead, with one of those hindu guys with 8 arms.]

Thanks, jk, I believe you to be a balanced sort of investor, so as I read your remarks, "equivocation" did not cross my mind. But looking at the way you're allocated, it, to me, supports what you say about believing Ka is still if front of us.

[GRG55]

i think the ka is still ahead. looking at my portfolio, i'm invested like the ka is MOST LIKELY still ahead, but perhaps not. if i were sure the ka were ahead i would hold less gold, figuring i'd pick up more, cheaper, on a big all-assets-down sell-off. but i hold a lot of pms, 26% of my portfolio, including about 1% as calls on gdx and paas. if i were sure the ka was behind, i'd hold 30%. if i were sure it was ahead, i think i'd go down to 20%, because i couldn't be THAT sure. i should say, however, that i have a chunky nominal put position, and some shorts as well, to protect me if we indeed have yet to traverse the ka and to cushion my losses on the pm's in that event. if i were sure we were into poom i wouldn't have the puts and shorts, and i'd have big em and commodity positions- which i don't have.

[is that enough equivocation, jim? i think about harry truman's remark about wanting a one-armed economist, who couldn't say "on the one hand, this, on the other hand, that." i identify, instead, with one of those hindu guys with 8 arms.]


Some time back EJ gave us one of his few detailed investment posts, laying out the pros and cons of liquidating positions (particularly pm's) in advance of the Ka (even when you KNOW its coming) and why he was planning to hold his pm's throughout. I go back to my printed copy of that regularly these days, as we try to figure out what's really going on in these crazy markets.

[Andreuccio]

Some time back EJ gave us one of his few detailed investment posts, laying out the pros and cons of liquidating positions (particularly pm's) in advance of the Ka (even when you KNOW its coming) and why he was planning to hold his pm's throughout. I go back to my printed copy of that regularly these days, as we try to figure out what's really going on in these crazy markets.

My recollection of that post, (assuming I'm thinking of the same one), is that the pros and cons he laid out had more to do with the transactional costs of PM's and the difficulty of accurately timing exactly where we are in the Ka-Poom cycle.

[Andreuccio]

To hedge, he recommends what iTulip has always recommended, with some interesting additions.



I'm curious what, specifically, iTulip has always recommended.

I remember reading in one recent post of yours that the iTulip recommendation is get out of debt, save money, diversify out of dollars. (If memory serves.) Is there anything beyond that that forms part of the official iTulip recommendation?

[Andreuccio]

There are many merchants who sell items or services that are technically a "future deliverable". A future deliverable is something that gets delivered over time. In the case of publishers, they traditionally sell 1 year subscriptions to the Wall Street Journal, your home town newspaper, magazines like Business Week, an investment newsletter, or newsletters on various other topics. Selling yearly subscriptions has been a basic to the cash flow of these companies.

It used to be that VISA and MasterCard allowed merchants to take orders for future delivery as far out as 1 year, and sometimes longer. However, quietly ... during the past year, VISA and MasterCard changed the rules and fine print to say that these merchants were no longer allowed such practices.

In fact, their new regulations state that a company may only charge for a period of 90 days or less.

Um, this won't affect my iTulip subscription, will it?