Roubini: No Poom

[phirang]

Re: Roubini: No Poom

Who says I'm solvent now? :p

Wow, I better get your bonds then before the CDS settlement begins.

[metalman]

Re: Roubini: No Poom

Schiff needs to debate Roubini as well. Schiff has similar views to EJ, but has higher visablity and influence--on TV, in print, through his brokerage firm EuroPacific Capital. He is lauded by the financial press as a visionary for having predicted this crisis. When it comes down to it, Schiff has contributed to a lot more people to losing a lot more money then EJ ever could. Really pisses me off that no one in the press is taking him to task for the MASSIVE losses his clients are taking right now.

Schiff is unwavering in his view that the dollar is toast. My account with EuroPacific is down huge (gold plus foreign stocks), and I'm not feeling too confident about Schiff's claim that its all going to come roaring back.

Seems to me that Roubini and Mish got this right--deflation. EJ and Schiff...wrong wrong wrong. I believe they each have the responsability to address Roubini's POV, so those who follow them (with their money) have all information necessary to decide whether to CUT and RUN.

no, 'ka' IS deflation... but itulip calls it disinflation.

ej got it exactly right, but no one likes the experience of this part of the theory. it's the part when things go down.

you wanted him to TELL you to trade out of gold? come over to your house and threaten to kill your dog if you don't sell gold? he gave you many opportunities to trade out of gold. did you?

still in stocks? stupid. your own fault. itulip said GET OUT in dec. 2007. mining stocks are the worst.

wouldn't it be ironic if ej refuses to give up on ka-poom theory, refuses to capitulate and loses all of his readers, schiff capitulates and keeps his clients who have gotten their asses handed to them unlike itulipers, then years later a 'sudden stop' happens that causes the dollar to crash. but by then everyone is in bonds.

and everyone loses! :eek:

[marvenger]

Re: Roubini: No Poom

thanks Judas, I guess noone knows. But it definitely seems unavoidable to me. They can't do this alphabet soup stuff forever either, unless they want a second American Revolution. Maybe these bankers are going to go the mutual destruction route through creditor protection and deflation death spiral like the Romans. They'd rather that than live in a world with more equal rules...far too alien for them.

Maybe with these talks of chinese promoting non dollar trade the decision will be out of these bankers hands...for the rest of the world anyway.

[Down Under]

Re: Roubini: No Poom

Third that.

[ThePythonicCow]

Re: Roubini: No Poom

then years later a 'sudden stop' happens

I'm new around here ... probably you old timers have already hashed this out ... but I don't see how one could have positions in Treasuries and Dollars suddenly destroyed. Sure, with far smaller markets (gold mining stocks anyone?) one can lose most of ones investment within days.

But it seems to me that trying to jump the gun and prematurely anticipate the declining dollar phase of this crash (I guess that's called the "Poom" phase around here) seems unnecessary and a poor bet.

[Jim Nickerson]

Re: Roubini: No Poom

I'm new around here ... probably you old timers have already hashed this out ... but I don't see how one could have positions in Treasuries and Dollars suddenly destroyed. Sure, with far smaller markets (gold mining stocks anyone?) one can lose most of ones investment within days.

But it seems to me that trying to jump the gun and prematurely anticipate the declining dollar phase of this crash (I guess that's called the "Poom" phase around here) seems unnecessary and a poor bet.

John Hussman tonight's--10/27/08--Weekly Comment noted:

Generally speaking, it takes smaller and smaller price declines to produce the same increment to expected returns, suggesting that investors should initially scale slowly, but accelerate their scaling as prices decline substantially.

The way investors do violence to their financial security is to establish an investment position outside of their actual tolerance for risk, believing they can manage that risk by panicking to sell if the market drops lower. As prices drop, poor investors set an ultimatum for the market by saying, “If this thing loses one more dime, I'm out.” Invariably, the thing will lose that dime and the the investor will get out near the bottom, having taken most of the losses, but abandoning any prospect for recovery and subsequent growth.

The time for fear is when stocks are strenuously overvalued. The time for panic is when they are overvalued and market internals begin to deteriorate. We are now beyond the time for fear, and beyond the time for panic. Still, we are not yet to the point for aggressive investment positions. Rather, we are at the point where investors should be gradually increasing their exposure, open to the possibility that stocks could decline still lower. If they do, long-term investors should cheer, because lower prices will mean better long-term return prospects, and will be an opportunity to increase investment positions further.

Italics Hussman's emphasis.

http://www.hussman.net/wmc/wmc081027.htm

The entire article is worth reading in my opinion,

[ThePythonicCow]

Re: Roubini: No Poom

Thank-you for you links to Hussman, Jim. And howdy -- I'm just north of you, in Denton.

Perhaps I missed it in my first quick skim, but I don't see Hussman address a point I was considering, that the size of an asset classes market matters. The bigger markets (and Treasuries are one of the biggest "open" markets) turn slower.

I suppose that a good wind surfer could ride the wakes of giant oil tankers all day long, with little risk. The tanker simply can't turn fast enough to catch the wind surfer too far off guard.

But if our surfer tries to ride the wake of a drug runners speed boat, and if the captain of that boat decides his way to safety lies through the body of our surfer, our surfer risks being a grease spot on the side of that boat.

Hussman seems to be speaking to value investing, and to one interesting second order affect, that the size of the move can be in proportion to how the price is from proper value. The further "off-center" is the price, the faster it can snap back.

So I guess this indirectly this relates to my point. Gold mining stocks can frequently get further from their "proper value" than Treasuries. But ... no matter what the current versus "proper" value of something as volatile as a junior gold stock, even for a "perfectly" priced junior gold stock, it always can jump quicker and further than Treasuries.

The often noted need to consider an investors "risk tolerance" is misleadingly abused in sales pitches for investment funds, in my humble view. It's given as a vague reassurance that "we'll take care of you, large or small, short or longer term", and then used as to motivate asking questions of the persons circumstances, so as to lead to finer tuning of the sales pitch to that prospect.

A proper consideration of risk tolerance, in my view, would take note of how fast one can respond (day trader minutes, or grandmothers decades), of how much swing one can tolerate in existing funds (which depends in good part of the ratio of existing funds to anticipated money to be invested later), and of ones bias for wealth preservation versus gambling for a possible shot at greatly superior returns. Of course, none of this will have much explicit use in the pitch of a fund salesman.

[D-Mack]

Re: Roubini: No Poom

What does Roubini think is going to happen next? Rather worryingly, in London last Thursday he predicted that hundreds of hedge funds will go bust and stock markets may soon have to shut – perhaps for as long as a week – in order to stem the panic selling now sweeping the world.

What happened? The next day trading was briefly stopped in New York and Moscow.

Dubbed Dr Doom for his gloomy views, this lugubrious disciple of the “dismal science” is now the world’s most in-demand economist. He reckons he is getting about four hours’ sleep a night. Last week he was in Budapest, London, Madrid and New York. Next week he will address Congress in Washington. Do not expect any good news.

Contacted in Madrid on Friday, Roubini said the world economy was “at a breaking point”. He believes the stock markets are now “essentially in free fall” and “we are reaching the point of sheer panic”.

http://business.timesonline.co.uk/to...cle5014463.ece

whatever poom means for him

[labasta]

Re: Roubini: No Poom

That's funny, because I've been in the exact opposite state.

I've been struggling with the idea that the US can go into the crapper and keep a strong currency (with the death of exports, literal blood in the streets, etc.) when it can just choose to inflate... especially when the keeper of the currency has specifically stated that he will print like Mugabe if need be and drop bundles of cash from the sky.

EDIT: Oh, and Zimbabwe is bankrupt, no?

No Judas, we are on the same boat. I don't understand how a country becomes insolvent and keeps a strong currency either. That's my point. I've never known a poor country to have a strong currency.

What I don't understand are the logical steps to dollar depreciation in a debt destruction environment. The key mechanism must be capital flight is it not? Or is it government creating treasuries backed by nothing? Or is it both?


My logic is debt is deleveraging therefore deflationary. Ok, got that.

Creditors and anyone holding dollars runs away as the government creates treasuries trying to maintain money in the system (and because they themselves can't afford to anyway). The world dumps their dollars on America. Nobody wants dollars so imports are fiercely expensive which pushes up the price of everything else.

People's incomes are still shit because the debt is still not being paid back.

Hence inflationary depression, which can only be sorted out by reindustrialising. The super high import prices might be the incentive for the US to make stuff themselves. America still has an industrial base, doesn't it? The next era may be American.

[labasta]

Re: Roubini: No Poom

"Rather worryingly, in London last Thursday he predicted that hundreds of hedge funds will go bust and stock markets may soon have to shut – perhaps for as long as a week – in order to stem the panic selling now sweeping the world."



I'm not an expert and even I could have told you two or three weeks ago that stock markets may close for a while. Sheeesh.

[due_indigence]

Re: Roubini: No Poom

Marc Faber on CNBC this morning making decidedly ka-poomish noises (well deflation as opposed to disinflation, but the hockey stick formation is there):

"I think first we’ll have a bout of deflation that will actually be quite substantial… but then the budget deficits will go through the roof and the Fed will print even more money … and then later on we'll have very high inflation," he said.

http://www.cnbc.com/id/27397168

[pfalstad]

Re: Roubini: No Poom

There are lots of ways to suck up liquidity: reserves requirements, collateral rule changes, and of course FOMC (again, I suggest reading up on the FOMC and how exactly it works).

There are lots of ways to create liquidity, therefore deflation won't happen. QED

Then again, the central banks don't seem to be creating it fast enough at the moment. Why would they be able to destroy it fast enough? And would they begin to stop creating liquidity and start destroying it at the exact right moment? Would it be politically palatable for them to take those steps? I don't think so... So I think the poom will happen. But just in case I sold all my (liquid) inflation hedges, because this ka could go on longer than we expect. (EJ was a bit early calling the top of the dotcom bubble, as I recall.)

[jdv]

Re: Roubini: No Poom

If you guys don't like what phirang has to say don't read his posts. He has been willing to disagree with EJ, and that is healthy. EJ isn't perfect, and neither is phirang, but educated dialogue is what makes itulip strong. And to say phirang hasn't backed up his views just isn't true. He has had plenty of indepth posts and also plenty of throw aways too. His willingness to engage with others has certainly has contributed to my knowledge. This place is more energetic with him here.

I for one would love to have a front row seat at a Roubini/EJ tete a tete.

What is annoying about Phirang, is that it's all one liners and smugness.
If he actually added any knowledge to the pool, then it would be different.

[labasta]

Re: Roubini: No Poom

Itulip is US centric. What about the UK?

I remember reading that two thirds of US treasuries are held by foreign central banks. I have looked up who holds UK gilts and I found this in a 2005 lecture.


http://66.102.9.104/search?q=cache:Z...ient=firefox-a


It seems that only 7% is held by foreign central banks and 8% by other foreign buyers. Two-thirds is held by UK life insurance and pension funds. (page 23 pf the PDF)

So what happens when the UK government creates gilts from nothing as Darling has already insinuated. http://www.housepricecrash.co.uk/forum/lofiversion/index.php/t88537.html

Debt is being destroyed and Darling will try and make up for it, but people are not borrowing as much so the banks won't be able to lend out deposits based on these gilts as much as before.

Is this deflation or inflation for the UK? There seem to be no foreign creditors to pull the plug on the UK economy... or are there? There must be foreign investment in the stock market too.. or in other financial instruments which are going down causing (or because of) capital flight. Is capital moving from the stock market back into gilts as a safe haven?

What happens when the UK government has more money than it can lend out as gilts? Negative yields? Surely money won't stay there long. Is it at this time that they will flee to something a little more tangible creating a gold rush? Then the UK government will have to raise gilt yields to attract money again as it must pay its own obligations. But it can't really tax the people more to pay for the interest (law of diminishing returns and politically unpalatable) so it has to create gilts out of thin air. The government percentage of the UK's real economy is large (in Scotland, I think it passed the 50% mark of employment recently). The government will spend like a madman to counter the private debt destruction. Is this inflationary or deflationary?


I know that the UK has a balance of trade deficit and a balance of payments deficit:

http://www.statistics.gov.uk/cci/nugget.asp?ID=199

http://www.statistics.gov.uk/pdfdir/bop0908.pdf


Could any economists out there help me understand the UK situation please?

Thank you.

[labasta]

Re: Roubini: No Poom

Actually, I've been reading this article. Heavy for me.

http://www.forbes.com/afxnewslimited...fx5584935.html


Does this mean, that if the market deems that the government has to borrow more to pay its balance of payments, then it is seen as more at risk of defaulting (especially if it thinks that the people have become poorer so they can't pay as much tax). This means that government must raise yields to overcome risk aversion? Is this right?

Or is it that borrowing for the balance of payments increases to meet obligations. To attract more money, yields increase, but to pay the increase yield, taxes must increase or more gilts issued? That is inflationary in itself isn't it? But it doesn't take the overburdened debt problem of the UK people.

Bah! I put my hands up. I give up. I'm goign to make myself a cup of tee and relax. My head hurts.





I need an economics lesson on the bond market.