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EJ
04-17-09, 01:17 PM
http://www.itulip.com/images/rally1.jpgRe-inflation Rally Part I: Falsehoods, fantasies, fabrications, and fake-outs

“Mud sometimes gives the illusion of depth.” - Marshall McLuhan

Is the global stock market rally signaling the end of a worldwide race to the bottom via debt deflation or only making a pit stop? When 43 countries pour a combined $2.2 trillion of fiscal stimulus cash into their economies in six months, shoveling debt from private to public account like the desperate crew of a sinking ship bailing in shark infested waters, and the U.S. alone lending more than $10 trillion to banks and financial institutions to keep them solvent, how can the economy not stop contracting, if only until the 2010 Congressional elections?

The question from here is what happens to the economy after the public money is spent as the bailed out zombie banks that should have been allowed to fail instead stagger and stumble in a stupor? What future awaits the few remaining too-big-to-fail banks that are able to eek out a meager profit only after the government offers the raw product – debt – at a ridiculously discounted wholesale price, with a marketing campaign to retail debt buyers that includes the President of the United States, special mortgage programs, everything but a list of customers to call -- although for all we know they got that, too. For reasons that remain a mystery to us, market participants read this as a bullish sign for the economy.

In the case of the U.S. in 1938 and Japan in 1992, debt-laden economies struggling with over-capacity quickly slipped back into depression once the fiscal juice wore off. Without a shred of proof to support the theory that economy-wide price fixing of capital and under-pricing of debt by governments through manipulation of interest rates cures the economic ills caused by previous price fixing and debt subsidy schemes, global Keynesian stimulus as an alternative to debt cancellation is a triumph of ideology over evidence that will end in inflationary tears. Shall we as investors go all-in with the bulls to play the intermediate results of the fiscal fantasy plan in execution -- the stock market rallies and the price distortions in bonds and commodities -- or a solid position for the end game with the doomers, wait it out with bars of gold, a sidearm, and a case of Scotch? Is there a rational position to take between these extremes?

Before we delve into these questions, first we take note of revelations that have surfaced during the acute phase of the crisis before they are subsumed in the atmospherics of a “recovery” that only a few trillion in borrowed, un-repayable money can buy.

Foul waters

In the vast, raging deluge of falsehoods, fantasies, fabrications, and fake-outs that passes for news in the U.S., the river of informational sewage that collects in drips and spews from ducts and runoff of coin operated media outlets, occasional shimmering snippets of verified truth from immaculately credible sources bob improbably among torrential turd-waves of propaganda, hoopla, and fluff. From a perch at the shore they enter our field of vision and drift by like an immaculate flotilla of shimmering white swans on a river of shit, their incongruous beauty commanding our shocked attention.

We crane our necks to catch every detail, to savor the vision of purity and grace before it is washed down river to churn out into the deep, green sea of essential knowledge – after decades so polluted by deceit, deception, dishonesty, and distortion that we can no longer see the bottom. Lost and long forgotten, like Garret Garrett's 1932 global credit bubble classic The Bubble that Broke the World (http://books.google.com/books?hl=en&id=qmr_yGq-kagC&dq=the+bubble+that+broke+the+world&printsec=frontcover&source=web&ots=6OwP-IEUd5&sig=GrejES3U8SAuv7kRuTVtmD_wDF0&sa=X&oi=book_result&resnum=9&ct=result#PPA5,M1), waiting to be dug up by the next generation of historians after its credit bubble collapses, leading them to ask, “Do we never learn?”

Nah.

Swans of truth, if you will, authentic and exact, flock in periods of crisis. The economics of the news business compels it. The sleepwalking masses awake demanding an explanation for what the hell happened, preferably short and not too far from preconception, the shortest path from ephemeral awareness to a return to perpetual civil slumber. Audiences swell. But do not mistake the temporary improvement in water quality as the result of a permanent installation of pollution controls. Historic revelations of fact can be lost like lint, as a car can be buried as well as a cat; it just takes more dirt.

Now that the “crisis has passed,” the “economy has bottomed” and a “recovery” is underway we see Jim Cramer return to lead the charge, laughing off a slap-down that optimists only weeks ago deemed fatal to his career as the lead carnival barker of the FIRE Economy. Such critiques are now delivered by the last serious journalists a corporatist state gives a national stage: comedians. Clare Booth Luce once said of news reporting, if it isn’t pissing someone off, it’s advertising; the only people Cramer maddens are those sad sacks among his audience who mistake his act for investment advice.

More than a year into the economic collapse, numb to financial disaster, news audiences clamor for the positive. The extended marketing and PR arm of the FIRE industry that is the national financial press is only too happy to fabricate it if no truthful evidence is handy. It comes in a flurry of fantasy reports of economic recovery without economic rehabilitation, of market bottoms without markets, and assertions that the worst is over as home foreclosures surge (http://biz.yahoo.com/ap/090416/foreclosure_rates.html), industrial production collapses (http://www.itulip.com/images/industrialproduction1970-2009.gif) and retail sales, incomes, and consumption (http://www.itulip.com/images/retailPCEincome.gif) fall in the wake of the collapse of the FIRE Economy in Q4 2008 (http://www.itulip.com/images/debt1999-2008.gif).

Good news is delivered by the very same market and economic analysts who insisted before the crisis that none was imminent and claim to this day that our economic devastation, with its jaw dropping statistics, is not as bad as it looks. Financial news reporting is one of the few professions in America that allows its practitioners to enhance their reputations as experts by perfecting a record for failure.

Big bang, with fallout

The pipelines feeding the FIRE Economy alit when falling housing prices starting in 2006 took out the CDO models and blew out the market for securitized mortgage debt in the first quarter of 2007. After a series of smaller explosions that detonated lesser stores of financial accelerants, the flames reached the main storage tanks holding the mother load of financial fuel – asset-backed securities and agency debt -- and blew up spectacularly in the closing quarter of 2008 (see Flow of Funds Q4 2008: Debt Deflation confirmation (http://www.itulip.com/forums/showthread.php?p=83348#post83348)). The catastrophic explosion sent anyone not already in gold and U.S. Treasury bonds running for cover. A few months later, the pressure and heat gauges on the pipelines began to return toward normal, but the damage was done. Ash followed the shrapnel that landed first. After the rumbling subsided, investors uncurled from fetal positions to survey the disaster scene, an economic landscape covered bankruptcies and layoffs.

Everything is entertainment in America: the Somalis pirates, the President’s dog, Mexican drug wars, Paris Hilton, the mass destruction of a generation’s savings, Susan Boyle, and the looting of our treasury each get equal coverage. Scratch that. We’ll hear more about the dog, Paris, and Susan, but at least Susan deserves it. The crash itself provided a hot new topic for doomertainment; economic collapse, like a war the American government started raging in some distant country that most Americans cannot find on a map, is an abstract concept here. “What does that have to do with me?” wonders an American TV viewer absorbed in working out the most likely remaining cast members of the latest episode of Survivor as the county sheriff tapes a foreclosure notice to the door. But as winter turns to spring, the knock on effects of the financial crisis move from the headlines to the front lines of the economy, from abstract to the personal, and soon from the personal to the political.

Will the revelations of fact soon be buried in the river of mud as in the past? If so, before that happens, while still fresh in our minds, before the sense of crisis – the forcing function for truth -- subsides and the powerful myth of the government financed “recovery” dispels our hard earned wisdom, we drag these facts back upriver with our little tugboat, against the flow, and hold them here for one final inspection before they disappear into the deep.

Crash revelations, before you forget

The acute period of financial and economic crisis in the final months of 2008 launched staccato revelations that opened eyes to a world beyond the fantasy the river of news crud portrays. Simon Johnson told us the nation is run by a financial oligarchy (http://www.theatlantic.com/doc/200905/imf-advice). Bill Black told us the Treasury Department’s banking system bailout is a fraud (http://www.pbs.org/moyers/journal/04032009/transcript1.html) designed to hide the fraud behind the financial crisis. Two years into the housing bubble and two years before it ended, in 2004 the FBI warned of mortgage fraud 'epidemic' (http://www.cnn.com/2004/LAW/09/17/mortgage.fraud/) and in March 2009 that Stimulus, bailout will lead to more fraud (http://www.reuters.com/article/domesticNews/idUSTRE52O5KB20090325). Black points out that after the S&L crisis and bursting of the stock bubble in 2000 there were a significant number of investigations into criminal wrongdoing and accounting fraud, yet two years into the current financial crisis began the FBI "doesn't have a single major conviction or indictment of anyone.” So far the only miscreants of the financial debacle to be prosecuted are those who, like Bernie Maddoff, turned themselves in. To get arrested for financial crimes today it seems you need to walk into a police station with your hands up and yell, “Arrest me! I’m a crook!” and even then you will be asked to produce corroborating evidence.

The FBI says it needs money to hire more agents: Mortgage fraud caseload is overwhelming agency (http://www.govexec.com/dailyfed/0309/032509cdpm3.htm). Get in line, boys. As federal, state, and local tax receipts evaporate with falling incomes and asset prices, political competition for diminishing cash flows from business and household income heats up: "With the size of our budget gap, we are looking at a situation of closing down our courts, releasing prisoners and cutting the school year by as much as a month," said Rep. Peter Buckley, co-chairman of Oregon's joint Ways and Means Committee (http://online.wsj.com/article/SB123923448796803135.html).

Streets flooded with “criminal” pot smokers? Students freed early from their indoctrination pens? The horror! Take that, Tea Party tax revolters! We’ve been preparing our readers for year for a pitched battle for their cash flow and savings as banks demand interest be paid before taxes and all other claims, marketed as “keeping homeowners in their homes,” and state and local government attach fees onto every bag of trash and line painted on the road, and the Treasury prints and the Federal Reserve drops money from helicopters, without a believable plan to vacuum it back up again.

Recovery without rehabilitation?

The cornerstone of the economic recovery story is the fallacy that the stock market can see into the future, and that today’s rising stock market foretells economic recovery.

A review in of past recessions reveals that stock markets are blind to the onset of recession, fall coincident with economic contraction, and recover coincident with economic growth, sustained or temporary.

In the current instance, the Debt Deflation Bear Market started at the same time as the collapse of the FIRE Economy at the end of Q4 2007, as iTulip forecast in October 2006. Debt deflation has followed ever since. Stock market participants do not understand the dynamics of the FIRE Economy or debt deflation. That has been good news for us: such widespread confusion is tradable.

The correlation of stock market performance and recessions since the 1960 recession is the story of the Federal Reserve killing off expansions with short term interest rate hikes and successfully restarting of the economy by re-inflation of credit following rate cuts, some of the badness wrung out in the process, especially bad debts. Stock markets anticipate the money-fueled recovery and take off before the economy does. We look into the past seven recessions to see how the story holds up.


http://www.itulip.com/images/djiaforecast.gif


Three observations hold for every recession since 1960. One, the stock market (blue) never wanders far from real GDP (red) on the way out of recession. This reveals an obvious truth: we can have a market rally on a brief recovery financed by public spending but can’t have a bull market without self-sustained economic growth. Two, the stock market did rise before recessions ended both before and after the post 1980 FIRE Economy era, but so did they also rally and fall throughout each recession. Three, since the beginning of the FIRE Economy, turning points in the stock market from bear to bull are coincident with a rise in personal consumption expenditures (PCE).


http://www.itulip.com/images/PCEvsRecession1972-2009.gif


This is logical; consumer-based economic growth became more credit-based that savings-based during the FIRE Economy era. Economic expansion followed consumption that followed increases in consumer credit and reductions in savings. The process worked in ratchet-like fashion, and each period of FIRE Economy growth saw debt grow from one dollar of public and private sector debt per dollar of GDP growth to two to three, all the way to nearly five before the system broke down and the debt deflation process began in 2008.


http://www.itulip.com/images/creditvssavings1969-2009.gif


With this as background, stock market performance during the past six recessions, counting the two in 1980 and 1982 as one, went like this.

Re-inflation Rally Part II: Prospects for self-sustained economic growth ($ubscription) (http://www.itulip.com/forums/showthread.php?p=92568)

The stock market tracks real GDP growth out of recession. The difference between a bear market rally on a temporary recovery financed by public spending and a bull market is the difference between public financed and organic economic growth. Stock markets rise before recessions end both before and after the post 1980 FIRE Economy era, and also rise and fall throughout each recession. Since the beginning of the FIRE Economy, turning points in the stock market from bear to bull are coincident with a rise in personal consumption expenditures (PCE), but other conditions must also be met before a new bull market can be confirmed as likely. more... (http://www.itulip.com/images/rally2SM.jpg)

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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metalman
04-17-09, 04:45 PM
cramer... like a bad penny...

"We are still long Cisco. Bought some more yesterday. It has been a poor performer though. Maybe that is enough."

- James J. Cramer - January 1, 2000

Cramer averaging in on CSCO at $50 (theStreet.com 1/1/2000) (http://www.thestreet.com/comment/wrongrear/1195627.html)

<hr size="1" width="100%">
"I have a word for that. It's called 'the bottom.' Again, if you want to know why this market bottomed, I urge you to read my most recent version of the checklist that I set up during the bear market to tell you how to determine when you could get bullish again."
- James J. Cramer - Jan. 8, 2000

Calling the bottom (TheStreet.com 12/8/2000) (http://www.thestreet.com/comment/wrong/1205675.html)

<hr size="1" width="100%">
"Once again, I reiterate that the bear phase is over. This rally looks like the real deal. It has the financials and the techs and the drugs all up. Maybe we bounce down a little off NDX 3000, but then we just reload and go through." Sorry to be so unabashedly bullish. But nobody else I know is, so it seems fine with me.

- James J. Cramer January 11, 2000

The Bear Phase Is Over (TheStreet.com 12/11/2000) (http://www.thestreet.com/comment/wrong/1207252.html)

<hr size="1" width="100%">
"Just makes me feel even more right. As does the action in these so-called broken tech stocks. That's bullish action coming from short-sellers covering, value buyers saying, 'I guess this is my chance' and momentum guys saying, 'I better get in and make a couple of good-looking charts before they take the money away!' That, my friends, is genuine tinder for a lasting rally."

- James J. Cramer January 12, 2000

Lasting Rally (TheStreet.com 12/12/2000) (http://www.thestreet.com/comment/wrongrear/1208594.html)

<hr size="1" width="100%">
"We said we took off a lot of those shorts at 2500. We took off the remainder of the shorts at 2200. We have no shorts. That's what you do when you think you are around the bottom."

Covering shorts at NAZ 2200 (TheStreet.com 12/22/2000) (http://www.thestreet.com/comment/wrong/1226131.html)

<hr width="100%"> <center></center> "You know I have been adamant that this is a new bull market. You know that I went on record blasting those Nasdaq 1500 sirens. But there are still persistent emails from people asking me if this is just one more big bear spike.

"To which I say, give me a break. Tape this checklist to your forehead if you can't remember it and nail-gun it to the bears in your firms and households. It might put them out of their misery for good!"

- James J. Cramer - Jan. 23, 2001

Top 10 Tells Why This Is a Bull Market (TheStreet.com 1/23/2001) (http://www.thestreet.com/comment/wrongrear/1271233.html)

<hr size="1" width="100%">
"Nasty Friday selloff. Nasty. And to me it means an opportunity to put money to work. I am using typical bull-market rules. You get these profit-taking pullbacks and they inspire tons of worry. They make people nervous as heck. They shake out the weak holders."

- James J. Cramer - Feb. 2, 2001

Don't Get Too Rattled by This Selloff (TheStreet.com 2/2/2001) (http://www.thestreet.com/comment/wrong/1290083.html)


"It is bad to be in a bear's den in a bull market, but I keep thinking of all the mail I get from people who are thrilled that we--this site--have been pretty unrelentingly negative about tech during this sell-off. We are proud of that. I can't stress how riddled the whole client base in this country is with cellphone stocks. They are cancers on your portfolio, though, and I don't think a cancer gets better with time."

- James J. Cramer - Feb. 27, 2001

Bear's Den (2/27/2001) (http://www.thestreet.com/p/cc/ColumnistConversations_page_1.html)

"And unlike you, I have been pretty negative on tech for a long time. I have not been on television saying I would load the boat up with tech. At the beginning of the year, I frowned on a long QQQ (Amex: QQQ - news) strategy right in the face of a proponent of it on CNBC. I thought it foolish. I am not someone who has advocated riding tech all the way down from 5000 and am now telling you to get out. The opposite is true. I am a credentialed tech bear and I am not going to have it pinned on me that I just got bearish on tech, as so many others around me have. I made great money last year betting against tech and was vocal about it. I told you as late as yesterday to take those prices we had in the rally and reposition. Look, often it doesn't seem worth it to go through the aggravation or the heat I am getting for this negativity. I swear, unfortunately, that it is much easier to be Joe Battipaglia or Abby Joseph Cohen or Tom Galvin than it is to be me. They get credit every time it goes up and they look like white knights every time it goes down. They seem like the friend of capital. When I say sell I seem like the enemy. Objectively, in the real world of professional money, however, that is wrong. These people are, in the real world of big-time performance management, regarded as glad-handers who would have annihilated you if you listened to them. I am from the real world of big-time money management. I'd rather be right and make money than be wrong and make everybody feel happy."

- James J. Cramer 3/15/2001

Bubble Pundit Watch (http://www.itulip.com/awards.htm)
Outstanding Accomplishment Demands Recognition

goadam1
04-17-09, 05:03 PM
In 2005 I saw a fox business show telling people to take out a second mortgage and put the money into stocks. I thought, "Oh, lord this is criminal." They were right at the time, though.

Chief Tomahawk
04-17-09, 05:09 PM
"Now that the “crisis has passed,” the “economy has bottomed” and a “recovery” is underway we see Jim Cramer return to lead the charge, laughing off a slap-down that optimists only weeks ago deemed fatal to his career as the lead carnival barker of the FIRE Economy. Such critiques are now delivered by the last serious journalists a corporatist state gives a national stage: comedians. Clare Booth Luce once said of news reporting, if it isn’t pissing someone off, it’s advertising; the only people Cramer maddens are those sad sacks among his audience who mistake his act for investment advice."

Glad you addressed this, EJ. A couple of weeks ago you had a post about "having a feeling, more than a hunch" and enough "to place some shorts on" or something to that effect. Then quantitative easing happened, and the markets have reversed since. I was beginning to think the score should be updated from "EJ 404, Jim Cramer 0" to "EJ 403, Jim Cramer 1".

metalman
04-17-09, 05:10 PM
In 2005 I saw a fox business show telling people to take out a second mortgage and put the money into stocks. I thought, "Oh, lord this is criminal." They were right at the time, though.

did you catch the show in late 2007 when they told you to sell the stocks and pay back the 2nd mortgage? yeh, neither did i. :rolleyes:

strittmatter
04-17-09, 05:17 PM
cramer... like a bad penny...

"We are still long Cisco. Bought some more yesterday. It has been a poor performer though. Maybe that is enough."

- James J. Cramer - January 1, 2000

Cramer averaging in on CSCO at $50 (theStreet.com 1/1/2000) (http://www.thestreet.com/comment/wrongrear/1195627.html)


<HR width="100%" SIZE=1>
"I have a word for that. It's called 'the bottom.' Again, if you want to know why this market bottomed, I urge you to read my most recent version of the checklist that I set up during the bear market to tell you how to determine when you could get bullish again."
- James J. Cramer - Jan. 8, 2000

Calling the bottom (TheStreet.com 12/8/2000) (http://www.thestreet.com/comment/wrong/1205675.html)


<HR width="100%" SIZE=1>
"Once again, I reiterate that the bear phase is over. This rally looks like the real deal. It has the financials and the techs and the drugs all up. Maybe we bounce down a little off NDX 3000, but then we just reload and go through." Sorry to be so unabashedly bullish. But nobody else I know is, so it seems fine with me.

- James J. Cramer January 11, 2000

The Bear Phase Is Over (TheStreet.com 12/11/2000) (http://www.thestreet.com/comment/wrong/1207252.html)


<HR width="100%" SIZE=1>
"Just makes me feel even more right. As does the action in these so-called broken tech stocks. That's bullish action coming from short-sellers covering, value buyers saying, 'I guess this is my chance' and momentum guys saying, 'I better get in and make a couple of good-looking charts before they take the money away!' That, my friends, is genuine tinder for a lasting rally."

- James J. Cramer January 12, 2000

Lasting Rally (TheStreet.com 12/12/2000) (http://www.thestreet.com/comment/wrongrear/1208594.html)


<HR width="100%" SIZE=1>
"We said we took off a lot of those shorts at 2500. We took off the remainder of the shorts at 2200. We have no shorts. That's what you do when you think you are around the bottom."

Covering shorts at NAZ 2200 (TheStreet.com 12/22/2000) (http://www.thestreet.com/comment/wrong/1226131.html)


<HR width="100%"><CENTER></CENTER>"You know I have been adamant that this is a new bull market. You know that I went on record blasting those Nasdaq 1500 sirens. But there are still persistent emails from people asking me if this is just one more big bear spike.

"To which I say, give me a break. Tape this checklist to your forehead if you can't remember it and nail-gun it to the bears in your firms and households. It might put them out of their misery for good!"

- James J. Cramer - Jan. 23, 2001

Top 10 Tells Why This Is a Bull Market (TheStreet.com 1/23/2001) (http://www.thestreet.com/comment/wrongrear/1271233.html)


<HR width="100%" SIZE=1>
"Nasty Friday selloff. Nasty. And to me it means an opportunity to put money to work. I am using typical bull-market rules. You get these profit-taking pullbacks and they inspire tons of worry. They make people nervous as heck. They shake out the weak holders."

- James J. Cramer - Feb. 2, 2001

Don't Get Too Rattled by This Selloff (TheStreet.com 2/2/2001) (http://www.thestreet.com/comment/wrong/1290083.html)


"It is bad to be in a bear's den in a bull market, but I keep thinking of all the mail I get from people who are thrilled that we--this site--have been pretty unrelentingly negative about tech during this sell-off. We are proud of that. I can't stress how riddled the whole client base in this country is with cellphone stocks. They are cancers on your portfolio, though, and I don't think a cancer gets better with time."

- James J. Cramer - Feb. 27, 2001

Bear's Den (2/27/2001) (http://www.thestreet.com/p/cc/ColumnistConversations_page_1.html)

"And unlike you, I have been pretty negative on tech for a long time. I have not been on television saying I would load the boat up with tech. At the beginning of the year, I frowned on a long QQQ (Amex: QQQ - news) strategy right in the face of a proponent of it on CNBC. I thought it foolish. I am not someone who has advocated riding tech all the way down from 5000 and am now telling you to get out. The opposite is true. I am a credentialed tech bear and I am not going to have it pinned on me that I just got bearish on tech, as so many others around me have. I made great money last year betting against tech and was vocal about it. I told you as late as yesterday to take those prices we had in the rally and reposition. Look, often it doesn't seem worth it to go through the aggravation or the heat I am getting for this negativity. I swear, unfortunately, that it is much easier to be Joe Battipaglia or Abby Joseph Cohen or Tom Galvin than it is to be me. They get credit every time it goes up and they look like white knights every time it goes down. They seem like the friend of capital. When I say sell I seem like the enemy. Objectively, in the real world of professional money, however, that is wrong. These people are, in the real world of big-time performance management, regarded as glad-handers who would have annihilated you if you listened to them. I am from the real world of big-time money management. I'd rather be right and make money than be wrong and make everybody feel happy."

- James J. Cramer 3/15/2001

Bubble Pundit Watch (http://www.itulip.com/awards.htm)
Outstanding Accomplishment Demands Recognition


Hey wait.

Back it up to 1997. "I could just sit here all day and watch......watch it go up and up and up."

http://www.pbs.org/wgbh/pages/frontline/story/2009/03/cramer-v-stewart.html

5:53 minutes

Jeff
04-17-09, 05:24 PM
Eric and I did a deal way back when in which I ended up with 100,000 shares of Cisco in the spring of 2000, with a cost basis of $0.20 a share. I called Goldman the day it hit my account and said sell. All of it. Today.

Goldman had me on the phone for an hour trying to talk me out of it. I had them sell and took all my money out, effectively firing Goldman. I had practically been in a shouting match with Abby Joseph Cohen a few weeks prior at a client conference, but trying to talk me out of selling put me over the edge.

That was at $62. It went to $69 before heading for the basement.

And this was advice from Goldman, the smart ones. Pity the poor boneheads who only have JJ.

Chief Tomahawk
04-17-09, 05:43 PM
Eric and I did a deal way back when in which I ended up with 100,000 shares of Cisco in the spring of 2000, with a cost basis of $0.20 a share. I called Goldman the day it hit my account and said sell. All of it. Today.

Goldman had me on the phone for an hour trying to talk me out of it. I had them sell and took all my money out, effectively firing Goldman. I had practically been in a shouting match with Abby Joseph Cohen a few weeks prior at a client conference, but trying to talk me out of selling put me over the edge.

That was at $62. It went to $69 before heading for the basement.

And this was advice from Goldman, the smart ones. Pity the poor boneheads who only have JJ.


That's really something, Jeff. And to think the other day I suggested to my Dad he approach Goldman for some venture funding since they seem to be the only folks who can get large sums of cash seemingly at will from the Feds these days.

Mega
04-17-09, 06:50 PM
Bloody Hell EJ.............You are sure PISSED at the Powers to be!

I just listerned to Zbigniew Brzeinski give a "Chat" to the British Elite at Chatum House in 2008..........he is a bright man, i love to talk to him......but the delusional bulsh*t he coming out with was shocking:-

Europe MUST join America in a "Pantership".....In other words the US is now too weak to fight un-win-able wars.

The US & Europe between then control 50% of World GDP......Well you did, but China/India Etc will take a lot of that off you.

Russia is hurting because the oil price has fallen sharply......Yes, because the US has used J P Morgan.Goldman Sachs to short it on the Nymex

He went on and on, but what he didn't wish to face was that every problem the World faced from Peek Oil to peace in the middle east was best served if the rest of the World BANKUPTED the USA!

Mike

Contemptuous
04-17-09, 07:07 PM
Bart posting some interesting corollaries to this topic on his "they do ring a bell" thread today. My guess is that pure nitroglycerine poured in copious quantities and sluicing into the markets will jolt the market's cadaver to life, and it will rise and walk in juiced up Frankenstein steps, and walk, and walk and walk. :eek:

goadam1
04-17-09, 07:28 PM
I would like to thank the banskters for keeping oil cheap for me.

ax
04-17-09, 08:28 PM
Metalman, you are too kind. You left out the following:

1/08 "Goldman Sachs (GS (http://seekingalpha.com/symbol/gs)) makes more money than every other brokerage firm in New York combined and finishes the year at $300 a share. Not a prediction—an inevitability. In fact, it’s only January, and I think it’s already come true."

"Google stock reaches $1,000. The company becomes one of the top three companies in the U.S. in market capitalization... and successfully challenges Microsoft (MSFT (http://seekingalpha.com/symbol/msft)) for operating-system dominance."

"Apple will reach $300."

9/30/08-"Jim Cramer Admits: "I Screwed Up" In Recommending Wachovia Stock Two Weeks Ago Because I Liked The CEO (http://www.huffingtonpost.com/2008/09/30/jim-cramer-admits-i-screw_n_130602.html)"

8/1/08-""I am indeed sticking my neck out right here, right now, declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15. and I think anyone out there who’s waiting for that low to be breached is in for a big disappointment and [they’re] missing a great deal of upside."

6/5/08-"At an investment symposium I attended last night, someone asked me whether I thought Lehman Brothers (http://finance.aol.com/quotes/lehman-brothers-holdings-inc/leh/nys) (NYSE: LEH (http://finance.aol.com/quotes/lehman-brothers-holdings-inc/leh/nys)) (Cramer's Take (http://find.thestreet.com/cgi-bin/texis/cramertake_free?site=tsc&puc=aoljjc&tkr=LEH)) was going under. I said, no, no I didn't think so. It's got a great franchise with a good cash position, reduced leverage, much better management than Bear and a buyback that's kicking in that wouldn't if things were as bad as the bears make it out to be."

Down Under
04-17-09, 08:28 PM
Eric and I did a deal way back when in which I ended up with 100,000 shares of Cisco in the spring of 2000, with a cost basis of $0.20 a share. I called Goldman the day it hit my account and said sell. All of it. Today.



I used to work at Cisco, amazing company. I believe Cisco actually hit 82 but there must have been some sort of stock split since then as a current chart does in fact show the high as 69.

Be that as it may, a VP at Smith Barney, who knew a lot about Cisco, was telling all his friends and relatives to buy Cisco at 40, after it had hit 82, since it was cheap. Well, it got down to about 9 around 9/11.

But, this bloke was an intelligent guy and genuinely believed that at 40, Cisco was cheap.

zenith191
04-17-09, 11:58 PM
Are you sure that was not AUD$82 ;)

Down Under
04-18-09, 01:37 AM
Are you sure that was not AUD$82 ;)
Let me assure you that is/was not a mistake I make.

Adeptus
04-18-09, 02:22 AM
"Global Keynesian stimulus as an alternative to debt cancellation is a triumph of ideology over evidence that will end in inflationary tears." -EJ

Love it! Best economic quote of the year to date!

Looking forward to reading part 2 tomorrow.

Adeptus

tombat1913
04-18-09, 05:04 AM
Fantastic! Poetic. Damn good commentary!

cjppjc
04-18-09, 11:49 AM
Great Article. Thanks.

cjppjc
04-18-09, 11:52 AM
In 2005 I saw a fox business show telling people to take out a second mortgage and put the money into stocks. I thought, "Oh, lord this is criminal." They were right at the time, though.


I remember that. I thought it was awfull. No shame. No thought of the consequences if it turned out wrong for the viewer.

stockman
04-18-09, 12:48 PM
FWIW- Rosenberg's comments-


Deflation realities …
don’t ignore them

1448

jk
04-18-09, 01:59 PM
global Keynesian stimulus as an alternative to debt cancellation is a triumph of ideology over evidence
stimulus means the politicos get to spend a lot of money. wheee!
debt cancellation means the politicos get to apportion pain.:o
which would YOU rather spend your time doing?

which brings us to


“Do we never learn?”the answer depends on the time frame. for the short term: absolutely! for the medium term: sort of. for the long term: nah!

Jim Nickerson
04-18-09, 03:33 PM
FWIW- Rosenberg's comments-


Deflation realities …
don’t ignore themTTACH]1448H]




Thanks for putting up the Rosenberg pdf.

nme
04-18-09, 05:26 PM
A 2009 reflection on the economy by Herman Melville - I like it!

Ann
04-18-09, 05:35 PM
A 2009 reflection on the economy by Herman Melville - I like it!

Hah! Had the same thought. Melville as economist with a pinch of PJ O'Rourke.

FRED
04-18-09, 07:02 PM
Thanks for putting up the Rosenberg pdf.

EJ writes in:

Re-read the Fed's "Debt Deflation Playbook (http://www.itulip.com/Select/feddeflationplaybook.pdf)."

The deflationists laughed in 2006 when we told them the Fed will print money and buy mortgage securities "That's not legal under their charter," they said.

The deflationists laughed again in 2007 when we told them the Fed will print money and buy 10 Year Treasury bonds. "That's never been done since WWII," they said.

Both have happened.

"When deflation hits, oil will fall to $10 and gold to $200," the deflationists warned. They were wrong. Gold is holding above $800 and oil above $40. Why?

When will the deflationists stop being wrong and when will we stop to be right?

The question preoccupies us; it is the worry that keeps us vigilant.

The Fed will:
Print money and buy not only MBS but mortgages directly, and gold will rise.

Print money and buy corporate bonds directly, and gold will rise.

Print money and buy stocks directly, and gold will rise.
The Fed is only getting warmed up in its execution of desperate anti-deflation measures.

We have read everything the Fed has ever written about deflation starting in 2002. One thing we can say for certain is that the misguided concepts in their heads as they express them in their reports have been 100% confounded by unfolding events.

There are not a lot of elegant ways for a central bank to fight deflation, as debt deflation causes the collapse of the FIRE Economy to spill over into the Production economy, without producing a raft of unintended consequences that are much worse than deflation itself. The Fed has so far followed all of the promised "solutions" to deflation proposed in the "Deflation Playbook" that we brought to iTulip readers' attention back in 2003. What is the chance that they will abandon the desperate inflation path and not execute on the other measures outlined in 2003, plus many more that were not, such as TARP?

The Fed will print money to buy corporate bonds, stocks, mortgages, and so on, all as promised. From the 2003 Playbook:

On unintended consequences of buying the long end of the yield curve
"First of all: No one, we believe, has a good quantitative sense of the mechanics of this strategy–that is, what size operations are needed to secure a given stimulus? While the Fed has managed longer-term yields at various times in the 1940s, ‘50 and ‘60s, the last time such a strategy was implemented was nearly 40 years ago."
On wrecking the Fed's balance sheet
"Second, if the short riskless rate is zero, but other rates are positive, those rates must be positive for reasons–to compensate the holders of those assets for some form of illiquidity or risk. Under this strategy, the Fed takes those risks onto its balance sheet."
On two bad outcomes
"This leads us to a third point: the Fed is almost guaranteed to take a capital loss on its portfolio. If the strategy works, the economy picks up, interest rates go up, bond prices go down, and the value of the Fed’s holdings of longer-term Treasuries falls."
That means we are locked into a world where the economy cannot recover without also causing long rates to rise, killing the recovery of the FIRE Economy. That's the trap, not liquidity.
"Finally, narrowing the yield spread between assets of long and short maturity can stress institutions, such as banks, that profit from that spread. On the other hand, it must be noted, a wave of deflation-induced loan defaults would no doubt also be stressful for banks."
A true, self-sustained recovery, when it happens, will kill the zombie banks, too.

-Eric

Chomsky
04-18-09, 07:40 PM
EJ writes in:

Re-read the Fed's "Debt Deflation Playbook (http://www.itulip.com/Select/feddeflationplaybook.pdf)."

The deflationists laughed on 2006 when we told them the Fed will print money and buy mortgage securities "That's not legal under their charter," they said.

The deflationists laughed in 2007 when we told them the Fed will print money and buy 10 Year Treasury bonds. "That's never been done since WWII," they said.

When deflation hits, oil will fall to $10 and gold to $200, the deflationists warned.

Yet what has the Fed not yet done as promised since then? Why is oil still at $50 and gold above $600? When will the deflationists stop being wrong and when will we start to be wrong?

The Fed will:
Print money and buy not only MBS but mortgages, and gold will rise.

Print money and buy corporate bonds, and gold will rise.

Print money and buy stocks, and gold will rise.
The Fed is only getting warmed up.

We have read everything the Fed has ever written about deflation starting in 2002. One thing we can say for certain is that the misguided concepts in their heads as they express them in their reports have been 100% confounded by unfolding events.

There are not a lot of elegant ways for a central bank to fight deflation without producing a raft of unintended consequences that are even worse than deflation. The Fed has so far followed all of the promised "solutions" to deflation proposed in the "Deflation Playbook" that we brought to iTulip readers' attention back in 2003. Why not the others?

The Fed will print money to buy corporate bonds, stocks, mortgages, and so on, all as promised. From the 2003 Playbook.

On unintended consequences of buying the long end of the yield curve:
"First of all: No one, we believe, has a good quantitative sense of the mechanics of this strategy–that is, what size operations are needed to secure a given stimulus? While the Fed has managed longer-term yields at various times in the 1940s, ‘50 and ‘60s, the last time such a strategy was implemented was nearly 40 years ago."
On wrecking the Fed's balance sheet:
"Second, if the short riskless rate is zero, but other rates are positive, those rates must be positive for reasons–to compensate the holders of those assets for some form of illiquidity or risk. Under this strategy, the Fed takes those risks onto its balance sheet."
On two bad outcomes:
"This leads us to a third point: the Fed is almost guaranteed to take a capital loss on its portfolio. If the strategy works, the economy picks up, interest rates go up, bond prices go down, and the value of the Fed’s holdings of longer-term Treasuries falls."
That means we are locked into a world where the economy cannot recover without also causing long rates to rise, killing the recovery. That's the trap, not liquidity.
"Finally, narrowing the yield spread between assets of long and short maturity can stress institutions, such as banks, that profit from that spread. On the other hand, it must be noted, a wave of deflation-induced loan defaults would no doubt also be stressful for banks."
A true, self-sustained recovery, when it happens, will kill the zombie banks, too.

-Eric



Thanks so much for the succinct post: the post of the year, so far.

jk
04-18-09, 08:08 PM
The Fed will:
Print money and buy not only MBS but mortgages, and gold will rise.

Print money and buy corporate bonds, and gold will rise.

Print money and buy stocks, and gold will rise.
The Fed is only getting warmed up.


the treasury injects money into gm, likely to be converted to equity. the fed buys tbonds. so maybe the fed only buys equity indirectly. maybe it already has.



On unintended consequences of buying the long end of the yield curve:
"First of all: No one, we believe, has a good quantitative sense of the mechanics of this strategy–that is, what size operations are needed to secure a given stimulus? While the Fed has managed longer-term yields at various times in the 1940s, ‘50 and ‘60s, the last time such a strategy was implemented was nearly 40 years ago."
On wrecking the Fed's balance sheet:
"Second, if the short riskless rate is zero, but other rates are positive, those rates must be positive for reasons–to compensate the holders of those assets for some form of illiquidity or risk. Under this strategy, the Fed takes those risks onto its balance sheet."
On two bad outcomes:
"This leads us to a third point: the Fed is almost guaranteed to take a capital loss on its portfolio. If the strategy works, the economy picks up, interest rates go up, bond prices go down, and the value of the Fed’s holdings of longer-term Treasuries falls."


if anyone can afford to take a loss, it's an entity that can print money.



That means we are locked into a world where the economy cannot recover without also causing long rates to rise, killing the recovery. That's the trap, not liquidity.
every period of growth is accompanied by rising rates. the issue is one of speed and timing. gradually rising rates has never choked off anything.


"Finally, narrowing the yield spread between assets of long and short maturity can stress institutions, such as banks, that profit from that spread. On the other hand, it must be noted, a wave of deflation-induced loan defaults would no doubt also be stressful for banks."

A true, self-sustained recovery, when it happens, will kill the zombie banks, too.
it seems to me that the length of time until we get a true recovery is an important variable. the longer that interval, the more banks can coin money by borrowing at zero and buying positive yielding tbonds provided the yield curve has any slope at all. also the longer the time til recovery, the more time for inflation to work its magic on fixed rate liabilities. perhaps the dead can walk again, if only they molder long enough.

Jim Nickerson
04-18-09, 10:35 PM
FWIW- Rosenberg's comments-


Deflation realities …
don’t ignore them

1448




Some more from Rosenberg, via Zero Hedge from 4/17/09 http://zerohedge.blogspot.com/2009/04/weekly-observations.html


Too much spare capacity to be concerned about inflation There seems to be a lot of market chatter about how the dramatic fiscal and monetary stimulus is going to reignite inflation. Let’s look at the bigger picture. We have a real unemployment rate of nearly 16% and a capacity utilization rate that looks about to decline to 65%. We think there is simply too much spare capacity to absorb to be concerned about what the government is going to do except prevent an outright deflationary environment from taking hold. The inflation trade is totally an overplayed card, in our view. The reality is that it is not economists or market pundits on television who determine the pricing of goods and services that go into the CPI and the PPI. As the latest NFIB small business survey shows, the net share of companies intending to raise prices has plunged for eight months in a row to now stand at ZERO. Nada. For the first time ever, the net share of small businesses that are planning price increases over the next six months has totally vanished. NFIB intentions regarding wage increases have also collapsed to zero – again for the very first time. Based on this data, we would have to conclude that even with all the gobs of government intervention, deflation risks continue to trump inflation risks. That the equity market has enjoyed a very sharp and snappy short-covering rally over the past month has not dissuaded us from this viewpoint.

The piece on Zero Hedge is short and might be worth some readers' time.

cjppjc
04-18-09, 11:54 PM
These are great arguments. The only credence I give to the deflation camp is MY belief in the inflation arguement.

xela
04-19-09, 05:54 AM
Thanks so much for the succinct post: the post of the year, so far.
Ditto.


The Fed is only getting warmed up.

I remember them trowing a 10 trillion number out not so long ago for a target of their balance sheet.

So not less then that is my uninformed reading.

metalman
04-19-09, 11:37 AM
hey, ej... you man obama is pushing stocks...

<object width="560" height="340">


<embed src="http://www.youtube.com/v/pVfhTPLkOj0&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="560" height="340"></object>

...and two days later was on TV pushing refis. (http://www.nytimes.com/2009/04/10/us/politics/10memo.html?ref=economy)

still loving obama? not me. sorry i voted for him.

jk
04-19-09, 06:30 PM
still loving obama? not me. sorry i voted for him.
i'm not sorry i voted for him, given the choice, but on his economics- omg:eek:.
i suppose if he'd lost, at least there'd be some laughs.

on his economics, sometimes i wonder what i'd do if i were president, my goal was inflation but i wasn't allowed to say so.

ax
04-19-09, 08:53 PM
Me too. At the time, despite the fact that I voted against all of the incumbents who voted for the bailout, for some reason I couldn't force myself to not vote for the President. Arguments against a "wasted" vote I guess, but I'd retract my vote in protest now.

metalman
04-19-09, 10:30 PM
Me too. At the time, despite the fact that I voted against all of the incumbents who voted for the bailout, for some reason I couldn't force myself to not vote for the President. Arguments against a "wasted" vote I guess, but I'd retract my vote in protest now.

was afraid mccain was another nixon... everyone said he could not win.

WildspitzE
04-20-09, 12:58 PM
http://www.itulip.com/images/PCEvsRecession1972-2009.gif


This is logical; consumer-based economic growth became more credit-based that savings-based during the FIRE Economy era. Economic expansion followed consumption that followed increases in consumer credit and reductions in savings. The process worked in ratchet-like fashion, and each period of FIRE Economy growth saw debt grow from one dollar of public and private sector debt per dollar of GDP growth to two to three, all the way to nearly five before the system broke down and the debt deflation process began in 2008.


http://www.itulip.com/images/creditvssavings1969-2009.gif

So spot on EJ, thank you (both for I and II)-- especially your comments about PCE (and sales), and PCE's (and it's influence on GDP) increasing relevance as a predictor as savings erodes. And, as you infer later on, the key observation behind PCE and consumption is: what's the source of PCE and sales? Is it income, debt, or savings?

Your comments on savings are extremely important. I keep an eye out for it too because it is helpful to try to understand the choices individuals will make (or be forced to make) in the future -- and what the implications are for the economy. FWIW, some of the charts I look at are:

LT erosion in savings, LT debt loading:

http://i39.tinypic.com/2rhuxkm.png


Savings can be telling in terms of what people are doing and think about the economy. Check out how little savings have increased during this recession -- in spite of the magnitude.

http://i44.tinypic.com/14imqe1.png


Or is it that because of rising unemployment, lowered PIs, and (in spite of interest rate changes) they can't pay debt service:

http://i41.tinypic.com/5547cj.png


I'm really looking forward to PCE/PI etc releases at the end of April. Oh yeah, and CMDEBT.

Willette
04-21-09, 07:53 AM
Don't vote: it just encourages them. Voting sustains the illusion that Americans choose policy by their votes, when in reality it is a rigged game and all we choose are personalities, or may be only faces.

Willette
04-23-09, 11:41 AM
I have long been a convinced inflationist, so much so that I was surprised by the big KA deflation. But now that its happened, I'm reconsidering inflation. The biggest flaw that I see is that in the USA, how are we going to get incomes to inflate along with prices of goods and services??? No sign or that, for sure.

No doubt that the feds can create money without limit - the issue is, how does it get into circulation? So far, they are mainly turning it over to the "too big to fail" operators. How does that create an inflationary feedback loop?

Suppose these TBTF characters have already acquired loads of real wealth during the prior inflationary boom. Their problem now is the money they borrowed to do so, and the worthless inventory of derivatives they got stuck with when the music stopped. If most of the Fed's new money is given to them, and they simply use it to reduce their leverage, pay down debts, and unload their worthless gambling chits, how does this ever produce inflation? Meanwhile the DEflation cycle of lost jobs, falling incomes, decreasing purchases, declining asset prices and diminishing tax revenues continues unabated.

grapejelly
04-23-09, 01:22 PM
I have long been a convinced inflationist, so much so that I was surprised by the big KA deflation. But now that its happened, I'm reconsidering inflation. The biggest flaw that I see is that in the USA, how are we going to get incomes to inflate along with prices of goods and services??? No sign or that, for sure.

No doubt that the feds can create money without limit - the issue is, how does it get into circulation? So far, they are mainly turning it over to the "too big to fail" operators. How does that create an inflationary feedback loop?

Suppose these TBTF characters have already acquired loads of real wealth during the prior inflationary boom. Their problem now is the money they borrowed to do so, and the worthless inventory of derivatives they got stuck with when the music stopped. If most of the Fed's new money is given to them, and they simply use it to reduce their leverage, pay down debts, and unload their worthless gambling chits, how does this ever produce inflation? Meanwhile the DEflation cycle of lost jobs, falling incomes, decreasing purchases, declining asset prices and diminishing tax revenues continues unabated.


Tax rebates.

Public works projects

Government buys houses.

Government buys stocks.

Government buys bonds.

Government buys ag products

etc. etc. etc.

Willette
04-23-09, 01:58 PM
Well, we are several trillion dollars into the money spinning, and still waiting to see any of the above. What insures that they will ever distribute any of that money into the hands of normal American families? So far it has gone ONLY to the favored few, who then offer to lend it back to us. Meantime, the G20 are beginning to talk about removing our money spinning powers and turning them over to the NWO.