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November 24 - Bloomberg (Craig Torres): "Federal Reserve officials said record-low interest rates might fuel 'excessive' speculation in financial markets and possibly dislodge expectations for low inflation... 'Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period,' minutes of the Nov. 3-4 meeting said, 'including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations.'"

 

 

Ah, you don't think....... Excessive risk taking, geeze....

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Rooting around through my database files I found this piece of ancient history written 6 years ago for subscribers to the Anals of Stock Proctology, predecessor to the Wall Street Examiner Professional Edition. Talk about being early. :lol:

 

Now I ask you, who else do you know who had recognized that FCB buying of Treasuries was propping the market in Q4 of 2003? :)

 

12/03 The following is a reprise of Doc's general overview of the implications of the demise of the mortgage bubble for the benefit of new subscribers. Since this was written in Q4 2003, it has become clear that massive buying of Treasuries by the Bank of Japan has been pumping liquidity into the bubble, keeping it on life support, and mitigating mortgage bubble deflation impacts. How long the BoJ will continue this is anybody's guess.

 

In recent weeks we have begun hearing of troubles at some mortgage lenders, troubles that Doc forecast as soon as the refi bubble collapsed. First there's the very big problem of what unstable bond markets do to mortgage portfolios. Mortgage bankers trade these markets and the wild volatility increase we have seen in the bond market is something new. It is a given that some firms have been hard hit. But so far they have been able to sweep the damage into off balance sheets subs. We have seen that game before. It is called Endrun, or the new version Scamalot.

 

Then there is the problem that the mortgage finance industry invested and staffed at bubble levels. Volume is down by half and more. There will be massive layoffs. On top of portfolio losses, gross over-investment in office space and equipment will have to be written off. This is what bubbles do. Because the mortgage industry was the engine of the credit bubble, its impending collapse will be the trigger for worldwide financial implosion. The next uptick in long term interest rates will be the death knell, not only for this industry, but for the pyramid scheme credit bubble economy as a whole.

 

New mortgage demand will uptick on any uptick in rates as buyers rush into the market to beat further increases, but as rates go higher, overall loan demand will again shrink as refi borrowers are priced out of the market. If rates uptrend, refi demand will dry up completely. The boom took care of any pent-up demand. It could take years to rebuild. Even if rates remain well below peak levels, volume will not recover to anywhere near the extent necessary to reflate the credit bubble which has been driving stock prices higher. Without the ever growing flood of cash out refi money, the credit bubble will implode. So will the real estate bubble, as the macro-leverage from extracting equity from existing properties disappears. So far the implosion has been in slow motion, with limited apparent damage. The slowness of the turn has fooled many observers into thinking the pie is still growing. Doc thinks otherwise. It's like watching the Queen Mary move. The ship is so big that no one notices that it has moved until the gangway collapses.

 

In August, the MoGauge collapse broke below the November 1992 lows. The drop in lending volume exposes rising default rates and puts many portfolios under water. Defaults must eventually be written off. As long as loan portfolios grew faster than default rates this was not a problem. As portfolio growth slows, defaults take a bigger chunk out of already razor thin capital ratios. This is where leverage kills. Dramatic losses will force many lenders to stop lending, and to liquidate in an attempt to maintain capital levels. Barring a miracle, this will eventually snowball into a chain reaction, systemic blow up that will cripple worldwide financial markets. The only questions have been whether the Fed (and Bank of Japan) can engineer enough of a decline in rates to forestall this outcome, and for how long. Weakness in the dollar threatens to unglue all financial markets. The Fed has its hands tied. If they try to force long rates lower, it could trigger a dollar collapse. If long rates are allowed to rise, the liquidity crunch will worsen. Refi activity will collapse, causing a severe liquidity crisis, and stalling the economy.

 

As buyers qualify for smaller mortgages, the housing market will gradually grind to a halt, while sellers refuse to face reality. The process will be uneven, and bond market rallies will only prolong the agony. After months of this, a trend of declining and uneven market activity will force sellers to adjust their asking prices. House prices will start to fall in response, but it will be several months before the impact is seen in the market data, and reported by the media. Once the spiral starts, it will become self-feeding. It might take a year or more until the process becomes evident in the economic data. By the time it's on the nightly news, it will be too late. Most of the damage will have been done.

 

My tone became more and more strident and hysterical throughout 2004 - 2006.

 

Actually, those are probably the only two tones I know.

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That's the post - the one with the fresh baked cookies!

 

Thanks for putting it back up!

 

Man, what a time that was.

 

Does the buyer still live there?

 

I only know that she put the house on the market shortly after she bought it due to a change in personal circumstances. The house didn't sell. It's now worth 38% less than what she paid according to Zillow. Her 20% down payment is long gone. I have no clue if she's still there, or rented it out. The rent sure wouldn't cover the PITI. That would be around 2100-2200. Rent would be around 1300-1500.

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November 24 - Bloomberg (Craig Torres): "Federal Reserve officials said record-low interest rates might fuel 'excessive' speculation in financial markets and possibly dislodge expectations for low inflation... 'Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period,' minutes of the Nov. 3-4 meeting said, 'including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations.'"

 

 

Ah, you don't think....... Excessive risk taking, geeze....

 

Behind the curve as always. Self deluded maniacs.

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Russ Winter on RFWS mentioned the possibility that maybe the long knives of the law might be ready to make a move to right inside the Treasury or the Fed. That means GS too. This isn't something one should predict or count on, it is something you should be prepared for. As in look out below. Such a move would be massively popular and very dangerous. Russ theorized the administration put the old crowd back in so they could get enough rope to hang themselves. I doubt it. In the early days after the election when bloggy type liberals started looking on in horror at Geithner and such a theory like that arose. It attributed to Obama super powers of concentration and manipulation and was called 11 Dimensional Chess by skeptics. If it happens, ,doubfull, it would set the stage for news of the double dip along with Stim Pac III and QE II.

 

Is Russ still living outside the USA? I'll have to go read what he wrote.

 

Regardless, he's 100% wrong about Obama putting the old crowd back in. Those turds are 100% safe, they only way they are coming out is if Obama loses his reelection bid.

 

Similarly, Roxy is 100% wrong about the banking crises being over. We're just in a time out phase right now, where with a wink and a nod the government pukes told the banks they are ok. The system has yet to experience a meaningful cleansing that will set the stage for a healthy recovery that isn't based on the next Fed blown Bubble or outrageous speculative financing.

 

In fact at this point I wonder if the country as a whole can even remember what real hard work, time spent building something that will last decades, is actually like.

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You said you wanted self-deluding BS mixed with a healthy dose of media spinning?

 

Gerald L. Storch, chairman and chief executive of Toys ?€œR?€? Us, said he thought the day would be a success. ?€œFor the retailers as a whole this might be the biggest Black Friday in history,?€? he said.

 

Yeah, I'm just sure people will be spending a lot more than a few years ago, when they felt rich.

 

And then there is this:

 

The Conference Board said this week that American households were expected to spend an average of $390 on Christmas gifts, down from $418 last year.

 

Just recently I read that households were expected to spend over $600 on Christmas gifts.

 

Hmmm.

 

 

http://www.nytimes.com/2009/11/28/business...p;th&emc=th

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Black Friday:

 

My friend told me that he has been pleading with him to get it out of the stock market, but he refuses, stating that he is confident.

 

I have a co-worker who took his lump sum retirement and has had it invested with an advisor at Smith-Barney since before the crash. Word is that they would lighten up his exposure at Dow 10,500. This plan was out months ago. I wonder how this kind of set-up information travels among financial advisers. Maybe they all feel confident that this is the proper place to pull back their horns.

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I didn't get up at 3am to visit the local Walmart and the 4am rush for a $298 laptop that is probably worth what you get, or a Phillips mp3 player that is probably worth no more than $29. I didn't need a 32" big screen.

 

I went to Walmart today to get some duct tape. I was disturbed when I saw duct tape with a blazing label "made in China." I said to myself - it's come to this, and I can't even get some duct tape without china being in the product line-up.

 

DuctTape.jpg

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I didn't get up at 3am to visit the local Walmart and the 4am rush for a $298 laptop that is probably worth what you get, or a Phillips mp3 player that is probably worth no more than $29. I didn't need a 32" big screen.

 

I went to Walmart today to get some duct tape. I was disturbed when I saw duct tape with a blazing label "made in China." I said to myself - it's come to this, and I can't even get some duct tape without china being in the product line-up.

 

DuctTape.jpg

 

 

Seems China may be aware of their image trouble - Made in China Campaign

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The black friday sales numbers, along with the entire shopping season sales numbers, are probably going to be lies.

 

To get the real truth we'll have to do YOY comparisons of sales tax revenues, one of the few numbers we have left that isn't heavily massaged and passed through the Ministry of Truth.

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November 24 - Bloomberg (Craig Torres): "Federal Reserve officials said record-low interest rates might fuel 'excessive' speculation in financial markets and possibly dislodge expectations for low inflation... 'Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period,' minutes of the Nov. 3-4 meeting said, 'including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations.'"

 

 

 

I'm too lazy to look up the beige book statement but a reference to inflation created a tiny buzz the other day and the part I read said nothing about "financial markets" inflation. It was just inflation and that had the inflationists knickers in a real bunch. Obviously there is no inflation in the peoples economy and this leads to the conclusion that Fed 'ease, in all its forms as imagined by the naive can continue forever.

 

I will say if this summary of what the statement said is accurate it is the first time that I know of an official recognition of what we alt economics people have been talking about for a decade or more.

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Are

You

Kidding

Me?

 

I'm half way though the article and had to stop and type this so that I didn't put my fist through my laptop screen...

 

OK.....

 

That's better....deep breaths.....take deep breaths

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