The discussion that followed TMFBent's post has prompted me to pen down these few lines. [more]
Being fully absorbed by domestic news, we haven't payed much attention to another soap bubble, which I think fully deserves your red thumbs, growing quietly on the emerging markets, and I'm not talking China. Ten days from now, Russia will hold its parliamentary "election". The "election" itself is a non-event, however, Dec 2 is an important milestone because right after that Putin will name his successor, and then all masks will be off and we'll see the next stage in this regime's evolution, which won't be pretty for the foreign shareholders of Gazprom, Lukoil, MTS, Rostelecom, Wimm-Bill-Dann and other comanies. We haven't witnessed many nationalizations of late, and I believe foreign shareholders will soon be in for a rude awakening. Meanwhile, whatever upside these stocks had to offer is now rapidly dwindling. Wimm-Bill-Dann has become the victim of socialist economics, when October inflation got so out of controle that the government froze food prices. Lukoil and other "oils" are not going to benefit from the rising price of crude because all the extra profit is going to the government coffers. Rosneft is the only oil company with a future because they are gobbling up other companies, exproptiating what they want and when they want, but you, as a foreign shareholder, will participate in this feast only as a meal served for the dinner table. Gazprom, which has the stupidest management team among Russian companies, has been growing its revenues by eliminating subsidies to the ex-Soviet republics, which by itself makes full economic sense, but now with the subsidies mostly gone, growth will hit the wall next year. Its CEO is a moron who thinks that gas prices will keep rising forever and dreams about 1200 ft-tall office buildings. Telecoms are solid enough, but for only as long as the ruble remains strong, and it means for as long as oil doesn't get cheaper. In short, this commodity-driven boom is dangerously close to its peak, and if you take a 10-year time frame, all the big names are nothing else than overpriced cylcicals. Usually you take the country risk in exchange for a good upside in the stock price, but here is the case where you've got the country risk and no upside, only some short-term "catalysts". Meanwhile, after Dec 2, we will be in for a major reevaluatuon of political risks. The foreigners who think that the current regime is going to turn the country into an extention of the free-market, prosperous Western Europe, have no clue. This regime's role model is Iran, not China and not even Venezuela. So I wonder what will happen to all these green thumbs when the new president will announce a) his preference for economic autarky, b) his admiration for Stalin, c) his intention to restore the USSR, d) his new expensive military programs, e) his belief that foreign currency reserves should be used to subsidize state-run factories, and finally, f) his view that it would be a mistake to squander money by paying dividends to foreign shareholders? [more]
Looking at the price action of stocks, I can make only one comment: today, American investors have collectively jumped out of windows.
Welcome to our "Lending Money to Subprime Governments" freshman course. While the course is still ongoing, the first semester grades have been posted. The students in this class are the governments, banks, corporations, and individuals across the globe, and the subprime government is the US government. By now, the Fed's intention to swindle foreign creditors by repaying its debt with useless dollar bills is clear to everybody, first of all to the foreign creditors who are being swindled. Surprisingly, despite our extensive lecture notes, we still have some D's and F's in our class. Apparently, some of our students are lacking the IQ to process the information. Anyway, posted below are the letter grades for the semester. [more]
There are only 3 possible scenarios. [more]
The most extravagant award ever since Kissinger received the Nobel Piece Prize.
It is always awkward to have an odious six-percenter as an ally, but you don't get to choose your allies...These are the ones I've got. Darn! Why is it that common logic always puts me side by side with some of the most odious parasites in this market (as you see, it only took my mentioning of stock equity as the source of purchasing power for Lawrence Yun to bring up that argument :)? [more]
This is the verdict of Wall Street today. Not that we're necessarily going into recession. In fact, the indicators still point to what I think is less than 50% probability of recesison. There is GDP growth, employment numbers and trade balance, which all point to economic expansion, and then there is some serious but fixable trouble in the financial sector. Which of these factors is more important is uncertain. At the current stage, banking problems have more to do with perception of risk that with real losses. The vast majority of mortgages are still being paid on time, the vast majority of collaterals is still providing an adequate compensation for the risk, and even subprime paper is more valuable than panic-striken people imagine. That being said, the risk is far from negligible, not because the adverse outcome is too likely, but because the bets are too high. The simple reason is that the US economy IS the financial sector. Yes, it may not be so obvious from official statistics, which says that outside financial services, America also produces other valuable services, and even some tangible things like minerals, weapons, and a smidgeon of industrial goods, but for all that, the financial industry is the flagship that's heavy enough to pull the smaller boats underwater if it goes down. I'll be even more blunt: if several big banks file Chapter 11, then we are not going into recession because we are going into a depression. I don't see it happening, unless house values drop 10%. I don't think we're anywhere near that (at least here in New York prices are growing faster than they did in 2005, and similarly in all other cities I can think of except maybe Detroit, I only wonder where the NAR takes its numbers from). We need a mortgage rate hike to something like 7% to make it happen, and there is little chance of that, unless the Chinese stop buying our mortgage paper. That would be an intriguing possibility. Other than that, Bernanke should have no difficulty bailing out the troubled banks with tons of newly-made greenish bathroom tissue. Unless I am underestimating the stupidity of our govenment and they somehow manage to mismanage it. But two things are clear. Number one, the market will be going nuts for several more months in any case. And number two, whether or not the bank rescue effort is successful, it is the depositiors who will pay for it. The bankers don't want to pay. [more]
I have to admit it: the pessimists who saw it coming were right and I was dead wrong. I expected the 4.75% barrier to hold because of the fact that GDP is growing, house values are holding on (a mere 4.2% dip after a 100% rise is but a tiny correction after a monstrous rally), and inflation is on the rise. Apparently, Bernanke was even more anxious to deliver instant gratification to homeowners that I gave him credit for.