The House is begging China to do what's in China's own interests, without wining back any American jobs. The maximum this trade war can achieve is relocation of a few sweatshops into the neighboring Vietnam.
Headline: The heroic American entrepreneur Ben Bernanke earns $75 Billion and donates all of it to the American Government. [more]
Most people know that mercantilism is a failed 18-th century theory that nobody takes seriously any longer. But we can witness with our own eyes an economic paradox where a major country named China has effectively chosen this failed growth model. What's even more remarkable is that its government failed to notice that in the world of fiat currency, the 18th century variant of mercantilism must fail even more spectacularly than it failed back then under the gold standard. It is instructive to see how this model first spurs rapid growth and then causes stagnation and eventually a crisis. [more]
There is solidarity among bloggers. At least two Fools went on strike yesterday and I'd hate to be a scab. So until the top brass authorize the expenditure of $8 to hire a student for 1 hour to install that spam filter, I'll be going on vacation, sabbatical, leave of absence. Let spammers provide all the content for the site.
Happy watching Gossip Girl Season 4!
Whoever finds it, please don't return it back to me.
We can speak about politics here to the extent that it affects economics. [more]
I'll be very brief. There are two thesises we learned from you during this election campaign: a) The unbalanced budget is the absolute evil and b) Taxes on the upper 2% is also the absolute evil. There is a natural way out of this difficulty that solves the contentious Bush tax cut issue once and for all while avoiding both these evils: repeal the tax cuts for everyone except the upper 2%. It may sound like a tough decision, but when you think of it, it won't alienate any voters except those who don't vote for you anyway. Just say the word, Mr. Boehner! [more]
Finally, a good article in Yahoo Finance. And also let's not forget the thousands of fraudulent businesses - all of them are very small. [more]
It is really very simple. The government is selling bonds to the government. The government can charge unreasonably high prices for its bonds because it knows the government will buy its bonds anyway. The government will not object to paying up for the bonds issued by the government, because it knows it will have an unlimited supply of funds. These funds will be raised by selling more bonds to the government. You may ask, why would the government manage the deficit by selling bonds to the government? Because by selling bonds to the government, it can take advantage of the super-low interest rates set by the government. The government's job is to keep interest rates super-low. It is keeping them super-low by purchasing bonds issued by the government. Why would the government want to keep interest rates low? Because by keeping them low, it can refinance its debt to the government. Why would it want to do that? Because by refinancing its debt to the government, it can maintain its creditworthiness so that it could sell even more bonds to the government. [more]
Here is my dialogue with TMFKopp about the Big Short initiative and its chances to success: [more]
The rally in the stock market occurred quite naturally. In fact, I called the bottom accurately on Aug 31 [more]
It's a good article, which provides some food for thought. Whether we should necessarily accept its conclusions is a different matter. Japanese government debt is clearly the biggest bond bubble ever. But what happens when it finally pops? Will Japan have hyperinflation, or maybe the injection of a quadrillion yens into the economy will become the ultimate stimulus that will finally end the Japanese Great Recession? Much will depend on the reaction of Japanese consumers when they realize the days of 0% inflation are over. [more]
Put the proceeds in DIA @105.88.
As always, the short is protected with a call option.
Too often you see people worship the bond market. Here are the two common stereotypes and one corollary: [more]
As of late, I can't open my mailbox without seeing an obnoxious ad of the Fool's latest trading idea, "Big Short". The front page of the Fool is alive with headlines touting their shorting advise, which then overflow into the blogs, comments, and archives. The "groundbreaking news" that the average stock goes down and that professionals from financial institutions such as Goldman Sachs and Morgan Stanley were not aware of this fact is so artfully presented that you may even wish it were true. [more]
It is uncommon to hear a seller complain about having too many buyers, but Japan did just that. [more]
"My wife is a woman who's got an incredible talent, and everybody who knows her admits it. She would be richer still if she weren't a mayor's wife". [more]
It was with some trepidation that I opened my first real-life short position last Friday. Holding a short position is more difficult than holding a long position, if only in terms of expenditure of your precious nervous cells, which don't regenerate. I would never even consider being short without a hedge. Fortunately, an out-of-the-money call was available and the price was reasonable. [more]
Bush's tax cuts for the highest brackets were ridiculous to begin with. But the tax cuts on cap gains and dividends was even more ridiculous. For all the Republican talk about stimulus (as if they could stimulate anything except stock speculation), I have yet to hear a convincing explanation why on earth you should pay a 30% tax on the earned income and only a 15% tax on unearned income. Do these Republicans believe that holding a stock for 365 days and selling it at a higher price is harder than flipping burgers or moving furniture and should accordingly deserve a greater reward? The only sense in which it is true is that with such dedicated support of the stock market by the government, it did become an intellectual challenge to find a stock that still has a room to go up. But nevertheless, I'd say equating this challenge to the challenges of a real job is taking it too far. [more]
The only surprising thing is that the author of this article found the results surprising. People who buy lottery tickets don't have enough IQ to use their money wisely, who would have thought? Hello, selection bias! [more]
Yes, our village fool has inadvertently hit it on the head this time. The proposed debt Ponzi scheme keeps running as long as the people haven't caught up to what's happening and try to behave as if we had a normal economy. Once everybody realizes it, everybody takes as much debt as he can, asset prices get bid up to the point where getting a return on your investment becomes all but impossible, and then the sweet dream comes to an end, and enrichment through debt no longer works. "Hey, how do I pay off that $100,000 margin debt to my brokerage?" - "You don't pay it off. You outgrow it by borrowing another $120,000 and investing it and growing your equity faster than the debt. What did you say? You're asking, "but, uncle, how can I be sure my equity will grow when the PE ratio of the index is already above 40?" Oh, well...a good question...And I don't know the answer to that one...I guess, our little game is up. Damn financial literacy...If every Joe and their cousin did not try to copycat our margin trading strategy, we could stay in this game forever..." [more]
And finally this moment has arrived when none of the reasons behind the original crash is valid any longer but market participants still project the past performance into the future. But Obama and Bernanke have very different plans. They want to take out the old bubble highs of 14000 on the Dow and 1400 on S&P as early as by the New Year. And they are very likely to succeed in that. [more]
Dick Fuld wins the idiot award for his claim that he had “absolutely no recollection whatsoever” about the Repo 105 transactions while he was CEO." If he did not know anything about this 50 Billion dollar transaction as a CEO, then what did he know at all? Or, if he knew it and then lost recollection, maybe he should keep quiet about his memory problem for fear of jeopardizing his new lucrative job at Legend Securities? They don't want employees with a memory problem who can't remember what position they opened yesterday. Maybe we should check if Mr. Fuld still remembers his name and today's date? [more]