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alstry (34.98)

Welcome to the World of HIGH STAKES Alstrynomics

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March 31, 2009 – Comments (24)

You have been sold a bunch of BS for the past 20 years and couldn't even see it.

Now, Black Swans rule the day and if you can't see them your fate might be similar our friend the Turkey on the day before Thanksgiving.  Can you see the similarity to the retiree on the eve of retirement?????????????????????

Look at our friend Builder from the State South of Georgia....he analyzes homebuilders 24/7 7days a week 52 weeks a year and still couldn't see the swan....even when Alstry told him.

Look at all those Ivy League economists with IQs multiple times higher than the average person...they couldn't see it either.....and it was one DAMN BIG SWAN!!!!!

It is finally becoming clear, most of the world is saddled with too much debt and no one wants to believe it.....the whole game pretty was much was a ponzi scheme for the past ten years of loaning money to many that simply couldn't pay back as we all slapped high fives to each other watching sales grow on borrowed money.

You think you have millions in savings and little debt so you are secure???????  No so Kimosabe....if you are the only one with money, and your government doesn't have money.....niether do you.....

Did you notice that the thing that makes you think you are secure is an IOU from the goverment.......If the government has no "O"........niether do "U"

That is right...if the government is broke....so are you.....and all the silver and gold in the world won't make a difference.....they need that too........AND ALL GOVERNMENTS ARE BROKE all over the world.

The question is what do our leaders have in store for us at the G20???.....they clearly don't seem to want to address the rapidly spiraling epidemic of toxic borrower syndrome causing the FU virus.....

Will they ever????  Will we all go broke????  Stay tuned.....these are very interesting times.

And for those of you that think growing your own vegtables is the solution....if a 1000 hungry people know you are growing vegtables and you only have 100 bullets that you can fire off within 10 seconds.....guess what the remaining 900 people are going to do?????.....assuming you are a perfect shot in that short a time frame.

Very Interesting times indeed.........Prepare don't FEAR....in the end.....Americans always do the right thing........let's hope the end is sooner than later to start on a path to recovery......are there any good leaders left?????

24 Comments – Post Your Own

#1) On March 31, 2009 at 12:46 PM, 119862913 wrote:

For all you connect the dot er’s

 

Wikipedia Black Swan theory:

http://en.wikipedia.org/wiki/Black_swan_theory

 

Circa 1978 Post Apocalypse game super car that the “players” drove:

http://s253.photobucket.com/albums/hh73/Malcadon/Gamma%20World%20Art/?action=view&current=BubbleCar.jpg

 

The Who:

http://www.stlyrics.com/lyrics/csimiami/wontgetfooledagain.htm

Although I suppose that we’d rather get fooled in this case.

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#2) On March 31, 2009 at 1:03 PM, StatsGeek (29.17) wrote:

Sounds like your advice is, "Get Ready to Die!"  That's very useful, Alstry.

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#3) On March 31, 2009 at 1:12 PM, shffl (< 20) wrote:

alstry, i know that you recommend holding cash. what else are you doing to prepare?

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#4) On March 31, 2009 at 1:18 PM, StatsGeek (29.17) wrote:

Here's some useful advice if you agree with Alstry at all:

http://www.321gold.com/editorials/casey/casey033009.html

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#5) On March 31, 2009 at 2:24 PM, alstry (34.98) wrote:

shffl,

I will be taking my family on a Spring Break vaction in the next few days.  I expect to be drinking bloody's by the pool and wearing dark glasses.

Hopefully there will be lots of sights to look at while I contemplate how this whole mess unfolds.

The problem right now is we are at the whim of politicians to determine whether any of us have any assets at the end of the day.

For example, if you own a piece of land.... if it is taxed high enough, that land could effectively be worth less than zero because no one wants to own an unbuildable piece of land with high taxes.

So, at this point we have to sit back and wait to see what government wants to take from us.....very interesting times indeed.

The more you have, the more they are likely going to take.

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#6) On March 31, 2009 at 2:48 PM, TLStockPicks (94.11) wrote:

Alstry,

I think you're misapplying Taleb's "Black Swan"... which is simply the new-school way of referring to what pokerplayer and statisticians have long called "Expected Value," mixed with an inability to judge probability assumptions in an EV calculation due to the influence of inductive proof.

A "Black Swan" is a low probability/high effect event which gets routinely dismissed due to a lack of observations, or inductive proof.  The event itself is not necessarily either good or bad.  Winning the lotto is a black swan the same way that getting hit by a bus on your way home today is.

Betting on the Black Swan may or may not be a good idea, based on the EV... that is, the sum of the (probability of Black Swan) x (magnitude of Black Swan Effect) + (probability of White Swans) x (magnitude of White Swan Effects).  If following a white-swan approach would yield +10 utility (or dollars or whatever) at a 90% occurrence rate, and a black swan would be -100 utility (or dollars) at a 10% occurrence rate, then your EV would be -1 and you'd likely adopt a Black Swan strategy.  But if that black swan only had a magnitude of -80, then your EV is +1, and betting on the White Swan would be the better strategy in the long-run.

Of course, that's very simplistic, but what I'm trying to get at is that sometimes the Black Swan is ignored for good reason... simply that the EV is positive if you play only white swans.  The Black Swan will come in every once in a while and ruin your day, but in the long run, the White Swan wins.  And ESPECIALLY in a game where the idea of "confidence" is so key... predictions one way or another from big name economists can turn the economy into self-fulfilling prophecies.  So I can see why notable, big-IQ economists might have chosen to dismiss the black swan even as they saw its EV creep up.

But if you did nothing but play the black swan for the past 20 years--for simplicity, let's assume that means shorting the Dow--you would've lost.  The dow was below 2500 20 years ago.  Even today it's >7500.  Being long on the Dow would've yielded you close to 6% annually over the long run. 

And you seem to believe that there was, at some point before the flashing lights came on, enough evidence to show that the black swan was not really much of a black swan anymore... that as the bubble inflated, the black swan actually grew to become a high probability event, and it should've been evident that disaster had turned to become the higher EV bet.  But that has a heavy dose of what Taleb calls hindsight bias... the economists/analysts are only as good as the information they get at that time.  For example, the credit crunch was tough to predict because the information available at the time was distorted... AAA ratings for subprime bonds and the like.

I think it's inaccurate to say that economists didn't see this coming as soon as possible... I remember published reports from as early as 2004 predicting this crash with fair certainty (though not nearly focused enough on the credit crisis), and I'm sure some reports floated around even before then.  But as more information became available, I'm sure most of the good economists saw a creeping probability of disaster.  They just didn't think that saying so would do the economy much good to guess wrongly in that direction, and erred to caution.

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#7) On March 31, 2009 at 2:50 PM, TLStockPicks (94.11) wrote:

whoops didn't mean to say inductive proof... meant inductive reasoning.  and I did it twice!  sigh.

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#8) On March 31, 2009 at 2:57 PM, alstry (34.98) wrote:

They just didn't think that saying so would do the economy much good to guess wrongly in that direction, and erred to caution.

Hmmmmmmmmmmmmmmmm.

Errred to caution?????????????  You are joking right????  Tell that to the millions and millions that lost billions and billions as CEOs got trillions and trillions to fund their banks.

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#9) On March 31, 2009 at 3:04 PM, TLStockPicks (94.11) wrote:

If a million lost a billion then we only lost a thousand dollars each.  I like that. 

An economist predicting the bad weather earlier would've just caused more people to have lost the money faster... or to have never accumulated that magnitude of money to begin with.  Let's pop the bubble in 2005 where dow was between 10,000-11,000 and "we're in deep dookie" started coming out.  What would the warnings have done?  We wouldn't have gained the trillions of wealth from then til 2007 (just to subsequently lose it all) but I'm sure we would've lost some money.  Would we have just ended up where we are right now?  Maybe.  Probably? 

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#10) On March 31, 2009 at 3:17 PM, alstry (34.98) wrote:

NOT EVEN CLOSE............

Trillions and Trillons of mortgages and commercial loans at over inflated prices would have been avoided.

Millions and millions would have avoided the FU virus

And whatever issue we were dealing with three years ago would have been an order of magnitude smaller.

Alstrynomics is all about winning....and often winning is a matter of degree.

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#11) On March 31, 2009 at 3:24 PM, TLStockPicks (94.11) wrote:

Commercial loan defaults are at 1.5%  It's FAS157 that's losing the values for you.

Mortgages... that I can agree with in a way.  Fewer people would've stuck their 20% down into a home if they knew this was coming.  But the subprimes who have lost the most homes were 0-5% downs... they were basically paying rent.  Not really much lost there.  A lot of what was "lost" was just what was made because we delayed the "early detection" that you advocate. 

Yeah you can say someone with $1000 dollars in 2005 and $2000 dollars in 2007 who loses $1000 in 2008 lost 50% of his money.  Or you can say he just stayed flat from 2005.  So in your degree/magnitude analysis you're comparing apples to the holocaust.

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#12) On March 31, 2009 at 3:40 PM, alstry (34.98) wrote:

Nope...you are dead wrong...

If the "economists" were honest.....homes would have never bubbled between 2004 and 2007.

Trillions of dollars of toxic mortgages were written then due to the FACT that many of the people that borrowed against those inflated compounded the problem by qualifying for loans that bankers knew or should have known would be almost impossible to pay back.

Do you think the bankers would have made those trillions of dollars of loans if they couldn't securitize them and dump them on our pensions????????????????

It was all one big Ponzi scheme....Nuriel Roubini knew it, Nasim Taleb knew it, Mish Shedlock knew it, and Alstry among many others knew it........

Hmmmmmmmmmmmmmmmm.

Now what is your point......especially when you can easily foresee trillions in commercial RE loans and private equity deals made under similar ridiculous terms are about to sour????

What about trillions and  trillions between 2004 and 2007 is not a big number to you??????????????

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#13) On March 31, 2009 at 3:50 PM, MarketBottom (29.14) wrote:

Tallest building in Boston, 50% off

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#14) On March 31, 2009 at 3:55 PM, alstry (34.98) wrote:

Market,

I saw that.....it was sold in 2006 and financed on BS terms for 1.2B and now worth $600MM.....and maybe $300MM in a couple years????

Just a little more evidence of the crack the banks were dealing and placing in our pension plans.......

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#15) On March 31, 2009 at 4:05 PM, TLStockPicks (94.11) wrote:

Speaking of being wrong...

First, the economists weren't dishonest.  They just, at that time, did not have the evidence to safely say what we can say now with hindsight bias.

Second, the housing bubble was not building up 2004-2007.  Try 2001-2005.  The bubble started leaking in 05.  And bubbles aren't inherently bad; they're just a product (and cause) of volatility... over time the line smooths out and upwards.

Third, slapping on buzz words like "toxic mortgages" and "Ponzi scheme" does not somehow make economists responsible for the game of hot potato that the financial underwriters played, refereed by the kind folks at Moody's and Fitch.  Selling traunches of shotty MBSs (for a combined total value over the value of the whole) and CDOs was never the economist-sponsored gameplan.

Economists are but spectators and news reporters, save the few that have federal regulatory authority, and even they weren't "lying".  Greenspan tried to fix the tech bubble and 9-11 with his 1% fed rate and then tried to let the market work itself out while (too) slowly moving the fed rate back up.  Predatory lending was an unexpected consequence.  Ratings of securities backed by the mortgages that came out of predatory lending at non-junk levels were unexpected (and confusing).  The fact that financial instutitions acted like check-the-box underwriters (ooh... BBB+, I'll take some) was unexpected.  And economists rely on historical data for the snapshot of the economy so there's some lag... again, put all this together, and my point is... the economists have nothign to do with it.

By the way, where were you in 2001 to say DON'T DO IT GREENSPAN, YOU'LL KILL THE ECONOMY?  Or in 2005 to tell your family/friends GET OUT NOW?

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#16) On March 31, 2009 at 4:16 PM, TLStockPicks (94.11) wrote:

To clarify my view:

By 2004/2005, which really was the earliest that economists could've had a solid grasp of the crap that was going on without being too speculative, many of the crap mortgages were already written.  Values were already balooned.  Things already got out of hand.  This was the earliest that economists could've sounded the horn, and some did, while others waited for more evidence.  I can't fault either side, but those who waited GOT more evidence and soon they came onto the bandwagon later.  Was it just us not wanting to hear the bad news?  Would their sounding the horn in 2005 have helped anything?  That's what I'm saying... the economist had a no win once they realized where we were headed.  And they couldn't have realized until we were in the middle of it.  So find some other people to blame, like FASB or Fitch or the Dept. of Education for trying to teach us spanish rather than personal finance.

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#17) On March 31, 2009 at 4:27 PM, alstry (34.98) wrote:

You may want to revisit history a bit and calculate exactly how many HELOCs, Sub Prime, Alt A, and Neg Am loans were written in 2005 and 2006 slowing into 2007 at incredibly inflated values......

The peak was 2005 into 2006 and continued with declining force into 2007.

By the way many of us were blogging contemperaneously and openly on the subject that any "economist" worth his weight in salt should have seen.

The data is available on CalculatedRisk.com in the archives.

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#18) On March 31, 2009 at 5:38 PM, TLStockPicks (94.11) wrote:

alstry: "If the "economists" were honest.....homes would have never bubbled between 2004 and 2007."

Me: "the housing bubble was not building up 2004-2007.  Try 2001-2005.  The bubble started leaking in 05." 

alstry: "You may want to revisit history a bit and calculate exactly how many HELOCs, Sub Prime, Alt A, and Neg Am loans were written in 2005 and 2006 slowing into 2007 at incredibly inflated values......"

I know my history.  You're just not reading very carefully.  Both you and I were talking about the housing bubble that inflated the home values, which included above-subprime mortgages as well.  Yes, in 2004-2007, a lot of the subprime/creative loans were originated.  But that is just a product of the price bubble built from 2001-2005 which created a 5 year history where housing did nothing but shoot up due to all the speculation and sales activity.  Here's a history of mortgage origs; you'll see highest activity happened before 2004.

http://static.seekingalpha.com/uploads/2009/1/19/saupload_ss1.jpg 

The fact that subprime/creative mortgages didn't peak til later supports my whole contention: that earlier warnings were NOT feasible.  If an economist worth his weight in salt tried to predict financial armageddon due to a subprime mortgage crisis before 2005 or 2006, he'd have no historical facts to back him up, no downward momentum, and nothing to really substantiate his claim and dignify it as anything more than a WAG (Wild *** Guess).  And, because those toxic loans didn't find their way into securites til even later in the process (have to originate before you can sell the debt...), the economist wouldn't have the volume of toxic loans to base this WAG on.  The sheer volume of the dirty stuff happening was not foreseeable then and economists are not to blame for not having sounded the alarms earlier... (even though some tried and were ignored for their unsubstatiated claims).

So people wanting poorly-evidenced WAGS will have to keep getting them from contemperaeous blogs, where you can be right or wrong and get to keep your job as an accounts receivable manager or whatever you do.

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#19) On March 31, 2009 at 5:46 PM, alstry (34.98) wrote:

I guess Alstrynomics is all about KNOWING the unknowable....

Who is this ordinary guy Alstry who can be so right about so many "unknowable" things over and over again??????   and most  of the economists get it soooooo wrong time and time again....

There is only one Alstry.....and he intends to be the BEST in CAPS......

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#20) On March 31, 2009 at 5:57 PM, TLStockPicks (94.11) wrote:

Sorry, read that chart too conveniently.  Disregard my reference to it.  The point is that the housing prices skyrocketing through the roof occurred from 2001-05, thereby creating the bubble, and I don't think you need a chart to agree with me there.

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#21) On March 31, 2009 at 6:02 PM, TLStockPicks (94.11) wrote:

I guess Alstrynomics is all about KNOWING the unknowable....

Who is this ordinary guy Alstry who can be so right about so many "unknowable" things over and over again??????   and most  of the economists get it soooooo wrong time and time again....

Sorry, I don't normally read your blogs but I guess you're pretty famous in this community so you must have quite a few people convinced of your powers.  Can you cite a few specific "unknowable" predictions that you made that maybe were "black swans" at the time of your call? 

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#22) On March 31, 2009 at 6:03 PM, alstry (34.98) wrote:

I agree with you....but in that same logic prices also started rising in price in 1997, 1998, 1999 and 2000.....

The biggest part of the problem came in at the peak...between 2004 and 2007 when the prices were most inflated and the loans most toxic.

If you had any background in understanding financial analysis and were actually reviewing the loans.....any idiot could see what was coming....

Aren't you the same guy that just said the Recession was over????  You simply forgot to mention the Depression is now here!!!!!!!!!!!!!!!!!!

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#23) On March 31, 2009 at 6:07 PM, alstry (34.98) wrote:

Where do you want me to start....

How about the collapse of Pensions....Municipal Debt....Unemployment skyrocketing beyone anyone's dreams....Bankruptcies beyond anyone's belief.....homes selling below contruction cost.......we could go on and on

You may want to go back and read my archived blogs from when I started blogging and take them in context of the time written when the Treasury Secretary and Fed Head were saying all was fine.....

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#24) On March 31, 2009 at 6:42 PM, TLStockPicks (94.11) wrote:

"I agree with you....but in that same logic prices also started rising in price in 1997, 1998, 1999 and 2000.....The biggest part of the problem came in at the peak...between 2004 and 2007 when the prices were most inflated and the loans most toxic."

No... the magitude of price appreciation was much larger between 2001-2005 than it ever should have been or than it was between 1997-2000... it's not the fact that prices went up, it's the fact that they went up a bazillion% in a short time frame.  Either way, I don't think you'll find economists fighting the notion that we're in deep crap in 2007, after they had the ability to observe the amount of crap assets in the marketplace.

If you had any background in understanding financial analysis and were actually reviewing the loans.....any idiot could see what was coming....

Here's the thing... let's redo the world from 2005 with just one change:  Have Fitch and Moody's rate the MBSs correctly (and allow financial institutions to follow these ratings).  At the end of the day, that one thing alone could have prevented a huge chunk of today's problems.  Predatory lending probably wouldn't have been possible to the scale that it was due to an inability to move this debt and recapitalize.  Credit crunch probably wouldn't have been this severe due to the restriction on leverage that would've occurred if the banks never bought these assets to leverage on. etc etc etc.

No economist commentary would've substituted for the impact that these two things

Aren't you the same guy that just said the Recession was over????  You simply forgot to mention the Depression is now here!!!!!!!!!!!!!!!!!! 

Yup!  March 12.  Maybe not in the traditional sense of positive GDP growth, but things are going nowhere but UP from here!

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