Couple of Good Roubini and Einhorn Articles

As some of you know, Nouriel Roubini and David Einhorn are, IMHO, two of the best minds in their fields and I’ve been posting some of their stuff on here since at least 2006 (list of posts here).  Here are their latest articles:

Multimedia Graphic & Article (US Debt)

It’s been like watching a slow motion train wreak build momentum these past eight years. And now we’re past the event horizon. Click the graphic and read the article for details. Also see Krugman’s 2009-11-22 article: “The Phantom Menace” and this time-lapse map showing the unemployment rate from January 2007 to September 2009.

PAYBACK TIME
Wave of Debt Payments Facing U.S. Government
By Edmund L. Andrews
2009-11-23
NY Times

WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

First Post From the USA and First Post From the New MacBook

Just time for a quickie:

1. NYT: Bailout Plan: $2.5 Trillion and a Strong U.S. Hand
2. NYT Graphic: The Government’s $8.8 Trillion Bailout Tab
3. Nouriel Roubini: Treasury’s Financial Stability Plan: Will It Work?
4. Nouriel Roubini: It Is Time to Nationalize Insolvent Banking Systems
5. Video and My Comments: Obama and Henrietta Hughes at Town Hall Meeting

UPDATE: Two additional articles:

1. NYT: Stopping a Financial Crisis, the Swedish Way
   (September 2008)
2. Matthew Richardson and Nouriel Roubini: Nationalize the Banks! We’re all Swedes Now (current)

Santa Claus is Comin’ to Town?

Just a quick update on last week’s post noting the high and tight downward-sloping handle (in indexes and stocks).

Today (December 16th), we got the upside breakout/follow-through, and it came  on increased volume, but the volume was below average, which is a question mark, perhaps the kind of question mark that leaves some doubt/worry, which is what can sustain rallies.

The news of the day was the U.S. Fed cutting continuing to push on it’s little string, cutting its Fed Funds target rate to a record low 0% to 0.25% (Washington Post article and LA Times article).  Now that it’s out of bullets there…

Quick Market Update: High and Tight

This chart (taken intraday today), shows some very tight, low-volume action above a moving average that has not held for a long time. This comes after the gap up of a few days ago, which is also still holding.

We really could break either way here, but this action, combined with multiple other signs of decreased fear and flight-to-quality (risk assets and gold are up, spreads are down) and ability to hold on “bad news” (Jobless claims jump to 573,000, a 26-year high), is interesting.  The Fed is printing massive amounts of money.  It’s going to go somewhere (eventually).  Cheers!

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Good Closed-End Fixed Income Funds

Do they exist? Where? I’m especially curious about closed-end funds that invest in senior-secured loans. I did a little research and found these “senior” funds, but don’t know much about them:

Web 2.0 Expo Next Week, First Doing Market Update

Susanne and I just got back from a great 4-day trip to Berlin for the Web 2.0 Expo. Met a lot of interesting people and startups there and will report on it next week. First, however, a quick market update.

The reprieve rally I blogged about here is over, with new lows being set Thursday. See the 18 comments I added to that blog post for a number of interesting articles. Also see Nouriel Roubini’s video from yesterday in London: “It’s going to be a financial and economic wreak.”

What Bank Run? See This Google Search Trends Chart

True it’s only anecdotal evidence, but I’m pretty sure people search Google about FDIC insurance when they’re worried about their bank going bust.

What you see on this chart is a bank run precursor, the starting gun getting cocked.  All someone has to do now is blink and the run is on.  Doesn’t matter if it’s a false start or not once a run starts, the outcome becomes inevitable.

As discussed for months by Nouriel Roubini (see here for some of his articles and references on my blog and see here for a Bloogberg radio interview with him last week).

Note, there are solutions to this problem, as discussed by Roubini. It starts with the government increasing FDIC insurance immediately (a temporary increase to $250,000 FDIC insurance was signed into law on Friday) and also recapitalizing banks (more than buying bad assets).

Bailout “Hope Rally” = Eye of the Storm

(just time for a quick, somewhat unpolished update)

What I mean by “hope rally” is the rally off a (bear-market) low that is driven by the hope that some specified thing (the Bailout legislation in this case) is going to make everything all better. That is never the case, of course, otherwise it would be called the start of a new bull market.  Also, in the current situation, it’s almost certainly (effectively certainly) too early (time and price) in the bear market for a new bull market to start.

That’s why I make the eye of the hurricane analogy, because any “Bailout Reprieve” will (almost certainly) be only temporary.

Last week’s…

Nouriel Roubini’s Latest – Must Read

(NOTE: There are many more NR articles on this blog, going back to 2006, just use the search box at the top of the right-hand sidebar (or click here).  Here’s one from January.  I have been writing about the coming crisis myself since 2004, when I sold my co-op in DC and started renting, and also started liquidating my other real estate investments.  The asset and credit bubbles were obvious to all who had their eyes open and thought for themselves.  Sadly, most people do not think for themselves, maybe that’s why we have the term sheeple.)

The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever

The next step of this panic could become the mother of all bank runs…

By Nouriel Roubini
2008-9-29

It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening).

Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown…

USA Bailout: So, How Much Is $700+ Billion, Anyway? And What Would Sweden Do?

UPDATE #1: See the comments to this post for updated numbers and links.

UPDATE #2: See updates and articles on my 2009-2-12 blog post. Also see this New York Times graphic: The tab is now $8.8 trillion, equivalent to the second largest economy in the world, behind USA at $13+ trillion.

The chart above shows the world’s largest economies (measured by GDP), ranked by size.  Assuming the US bailout is only $700 billion, the bailout is larger than all the economies highlighted in yellow.

Note: The bailout is actually already well over $950 billion if you count $150 billion stimulus package (checks to individual tax payers this spring), Bear Stearns, FannieMae, FreddieMac, and AIG.  If you add in the cost to bail out insured bank depositors and all the others who are lining up, it’s going to be well over $1 trillion. But let’s just call it $700-$800 billion for now.  How much is that?

As shown on the chart above (Wikipedia page here), it’s about the size of the Dutch economy, the 15th largest economy in the world (it shows as #16 on the list because the list counts the EU as #1). That’s a lot of “coffee”!

Remember, GDP (the “economy”) is the total value of ALL goods and services produced by ALL people and entities in a country in a year. All that money, down the drain.  Well, not actually down the drain, but into the pockets of those who profited on the way up (privatize the profits) and will profit and/or not lose as much on the way down (socialize the losses).  Nice.  Ok, I better nip that rant in the bud ’cause I gotta hop in a minute.

Real quick, lets say the bailout cost climbs to $1 trillion, how much is that? Larger than Mexican, Australian, and South Korean economies, getting close to the size of Inda’s and not far from Rusia, Brazil, and Canada.

Yeah, it’s that big…

Quick Updates: Stock Market, London, BuzzPal, Nouriel Roubini

2008-9-24 UPDATE: See here for pics and a complete debrief of me week in London.

Some interesting events since my most recent post (“The End of an Era“) and market update, when I said “it’s time to allocate some [brain] CPU and bandwidth, primarily for the purpose of monitoring the sentiment as it works towards its next extreme (and reversal).”

This is exactly what happened.  Unfortunately (for my trading), BuzzPal and I were in London for Seedcamp week, where we went to events, held meetings, and co-sponsored the first-ever TechCrunch Tech Talk, which was a smashing success and a great party, including after hours with some people you might recognize (see pic, below).

The End of an Era

Just a quick post to note today’s taxpayer bailout of Fannie Mae and Freddie Mac, which was inevitable given the system of corruption, which has been discussed on this blog since its inception over four years ago, such as in this April 2004 post, where I said:

What we have here is the greed-fed denial of a flawed system whereby real estate sales people, mortgage brokers, appraisers, Fannie Mae, Freddie Mac, and investment banks are driven to originate volume, earn their fees, and pass off the risk to others. It’s a great game in a booming market, but after markets boom there is another phase that ain’t so pretty.

One day this will unwind and besides creating some surprised and upside-down homeowners and burnt bond and asset-backed securities investors there could easily be enough carnage to carry beyond Capitol Hill and to U.S. taxpayers. Could even be enough to make the S&L crisis of the ‘80’s look like child’s play.

The man who said it best, and who thinks and articulates most clearly, is Nouriel Roubini:

Cartoon Capitalism

Exactly on point! It would be funny it wasn’t true.

Of course, the same may be said of America’s – and Britain’s – entire economies during the last 20 years. The loose credit that built cartoon houses also constructed cartoon economies; they look like real economies, but they are essentially perverse, consuming wealth rather than creating it.

What Happens Next to Fannie and Freddie?

Insolvency of the Fannie and Freddie Predicted Two Years Ago. What Happens Next? Or How to Avoid the “Mother of All Bailouts”
By Nouriel Roubini
2008-7-11

A pretty good article from Nouriel Roubini. A choice quote below, then on to the article.

“Privatizing profits and socializing” losses may dominate the policy outcome. Financial institutions love a system where they gamble recklessly, pocket the profits in good times and let the fisc (taxpayer) pay the bill when their reckless behavior triggers a financial crisis; this is socialism for the rich. That is why you already hear the whole Wall Street Greek chorus moaning for a bailout of the GSEs.

Old Joke That Applies to Ben Bernanke

Got this from Don Cox’s piece, “Traders of the Lost Arc”:

The Clark Kentish ex-professor has been transformed into a financial superhero who bails out bankers faster than a speeding bullet. As the chart on Fed Treasury holdings shows, his creativity in crisis seems to know no bounds, as he continues to pump liquidity into failing banks.

We can’t help recalling an old joke about the little boy who brought home a stray dog. He wanted to keep it, but his father objected. After a few days, his father told him:

Nassim Nicholas Taleb Profile

An interesting profile of Nassim Nicholas Taleb, author of The Black Swan: The Impact of the Highly Improbable. Also includes his list of life tips.

Along the “black swan” vein, see Black Swans and Endogenous Uncertainty by John Mauldin.

The Numbers Racket: Why The Economy Is Worse Than We Know

The Numbers Racket: Why The Economy Is Worse Than We Know
By Kevin Phillips
13 May 2008
Harper’s Magazine

If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

The corruption has tainted the very measures that most shape public perception of the economy-the monthly Consumer Price Index (CPI), which serves as the chief bellwether of inflation; the quarterly Gross Domestic Product (GDP), which tracks the U.S. economy’s overall growth; and the monthly unemployment figure, which for the general public is perhaps the most vivid indicator of economic health or infirmity. Not only do governments, businesses, and individuals use these yardsticks in their decision-making but minor revisions in the data can mean major changes in household circumstances-inflation measurements help determine interest rates, federal interest payments on the national debt, and cost-of-living increases for wages, pensions, and Social Security benefits. And, of course, our statistics have political consequences too. An administration is helped when it can mouth banalities about price levels being “anchored” as food and energy costs begin to soar.