There was a time, dating back to the middle (dark) ages and for many centuries later, when portliness in a prospective spouse was a virtue, rather than a problem. The reason was famine. Since regular supplies of adequate food didn't happen until, realistically, after World War II, the specter of food shortages and outright famine was always hovering in the near future. A load of lard meant that one's spouse (and one's self, come to that) would be more likely to survive meager mealtimes.
The same principle applies in micro-economics: the very wealthy are nicely larded for depression. It was Andrew Mellon who said, shortly after the 1929 crash:
Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.
It was in Mellon's self interest (I can't force myself to say, enlightened self interest, because it surely was not) to see this happen. Note that he didn't include capital in the liquidation scheme (stocks, as he well knew, were not capital). This was a time when daily enemas were considered a key to good health and long life, Kellogg being a prime example. Mellon was merely advocating a healthy dump for all those miscreants who had unjustly filled up at the economic trough. Since Mellon, and the other robber barons of the day, had oodles of capital to hand, a period of deflation would be a good thing. Deflation lowers prices, which increases the value of one's capital. It's a matter of earning returns without risking anything. It is the case that wealth, as intelligence, is not absolute, but relative. Making everybody else (or at least, those one considers below one's self) poorer makes one's self richer.
Which bring us to the PIGS, Greece specifically for now. The PIGS are the five, presumed, effluvia from the Euro; Portugal, Italy, Ireland, Greece, and Spain. Of the five, Ireland is the surprise. The others have always been somewhat "backward". Ireland, on the other hand, has been done in by its recent machinations in the banking mess. A common currency is a good thing for Europe, in general, but as the Great Recession has made abundantly clear, a common currency means either a common (centralized) fiscal policy or none at all. The Germans (bless those Krauts) would rather the answer be none. What they seem unable to understand is what Eccles' said; capitalism's continued existence requires that most of the folks have most of the money, since the productivity increases resulting from increasingly mechanized (and, today, computerized and robotized) production have to be distributed. If this does not happen, collapse occurs. We here in the USofA have been skating on the edge of collapse since Reagan, since he and the Bushies worked very hard to restrict distribution of the productivity increases. Demand was supported by folks spending all that wonderful house price appreciation money. Ooops.
The Germans, and our native Wingnuts and Tea Baggers are too stupid to understand that the Golden Goose in all of this is not the Capitalist (what they insist on calling entrepreneurs, incorrectly of course), but the middle class consumer. Without the consumer, there is no market for all that prodigious output. Thus, Greece (and the other PIGS) must be supported, just as the endangered middle class here in the USofA. Without that support (call it re-distribution if you want), demand falls further and capital loses value.
Unless you are a Mellonite, of course. And therein lies the danger. Stupid people voting for Mellonites, on the fantasy that they will become Mellons in their lifetimes.
Update:
I re-read, mostly, when comments come in, and on occasion (and this is one) I see that I've left out a nugget.
Today's nugget is another of those shibboleths much beloved by the Wingnuts. They say (Jeremy Clarkson ringing in my ear) that most jobs come from Small Business, and that Small Business is the key to growth, and blah blah blah. What they conveniently omit is the productivity problem. Most Small Business is hamburger joints, hair salons, and dog washers; that is to say, non-capital intensive retail service work. Even the Wingnut economists (begrudgingly) admit that productivity increases haven't come in service sectors. So where has all that productivity come from?? Well, of course, autos and steel and the rest of capital intensive manufacturing. Not to mention that the Small Business jobs so beloved by Wingnuts are flipping hamburgers and washing dogs at (sub) minimum wage. Such a deal.
08 May 2010
What Thursday Means
It is now Saturday morning, following Golden Gate Thursday, and none of the Usual Suspects in the Pundit Gang have (that I've read or heard, at least) taken up the issue of what The Plunge means going forward. Lots of words regarding forensics and post mortems, and the like, but nothing dealing with the change in structure of stocks.
Herewith my modest attempt.
First, Blankfein and his Merry Band of Visigoths were reacting to the Day of the Long Knives on Wednesday, when Democratic leadership let it be known that they were serious. This was the Merry Band's object lesson: we can destroy the economy in minutes, and we will if you don't leave us alone. Remember the Prime Directive of Social Darwinism: never attribute to stupidity that which can be motivated by malice; malice wins every time.
Second, what happened to all that stock that changed hands? Where did it come from and where did it go? According to the Usual Suspects (depending on which you read), some 40 to 60 percent of trading of NYSE stocks actually occurs on outside electronic exchanges. From reading message boards of stocks I follow, many retail investors were stripped by stop losses during the plunge. It is legend that hedgies and the like don't use stop losses, given that they have these wonderful computer robots to do real time trade analysis. Other reports out of Swan Dive Thursday say that, yes, hedgies were victims of stop loss when the S&P crossed one of its moving average points. Hoisted on their own pitards, that.
But such movement doesn't change, in the aggregate, the distribution of stock ownership: hedgies traded back and forth, so what? On the other hand, many (most, perhaps?) retail investors use stop losses, since really it's their own money at risk. All of that Mom and Pop stock went into hedgies at really cheap prices. NASDAQ has said it would cancel trades that were below a 60% line (Reuters: Nasdaq Operations said it will cancel all trades executed between 2:40 p.m. to 3 p.m. showing a rise or fall of more than 60 percent from the last trade in that security at 2:40 p.m or immediately prior). As far as I find in the news today, NYSE's electronic exchange did the same, but NYSE proper did not. But this still leaves a tsunami of really cheap stock now in the hands of hedgies. The retail investor using his/her web browser connection was locked out most of the afternoon as all this went on. Schwab couldn't even display positions for most of that time, let alone execute orders. Retail could have picked up some nice bargains; 59% is a very nice discounted price.
Once the Dow hit minus 1,000 (actually, 998.50), those same computers kicked in to buy up the stocks. Again, only 60 percenters will be undone. The loss for the day was about 350.
What is different come Monday morning? Mostly, retail investor will be much poorer and holding an even smaller proportion of stocks. Hedgies will have made billions, on paper (unrealized capital gains). The question is: what will they do with this fortune? Will they trade up the market to increase the gains, greedy bastards that they are? Or will they flip the shares, thus causing a cascade of mini-plunges? Friday's loss is instructive. There was no bad news, and what news there was, was good. But another loss on the day.
So, I'd expect a damped oscillation of losing days for a week or so. Blankfein and his Merry Band will drive home the point.
Herewith my modest attempt.
First, Blankfein and his Merry Band of Visigoths were reacting to the Day of the Long Knives on Wednesday, when Democratic leadership let it be known that they were serious. This was the Merry Band's object lesson: we can destroy the economy in minutes, and we will if you don't leave us alone. Remember the Prime Directive of Social Darwinism: never attribute to stupidity that which can be motivated by malice; malice wins every time.
Second, what happened to all that stock that changed hands? Where did it come from and where did it go? According to the Usual Suspects (depending on which you read), some 40 to 60 percent of trading of NYSE stocks actually occurs on outside electronic exchanges. From reading message boards of stocks I follow, many retail investors were stripped by stop losses during the plunge. It is legend that hedgies and the like don't use stop losses, given that they have these wonderful computer robots to do real time trade analysis. Other reports out of Swan Dive Thursday say that, yes, hedgies were victims of stop loss when the S&P crossed one of its moving average points. Hoisted on their own pitards, that.
But such movement doesn't change, in the aggregate, the distribution of stock ownership: hedgies traded back and forth, so what? On the other hand, many (most, perhaps?) retail investors use stop losses, since really it's their own money at risk. All of that Mom and Pop stock went into hedgies at really cheap prices. NASDAQ has said it would cancel trades that were below a 60% line (Reuters: Nasdaq Operations said it will cancel all trades executed between 2:40 p.m. to 3 p.m. showing a rise or fall of more than 60 percent from the last trade in that security at 2:40 p.m or immediately prior). As far as I find in the news today, NYSE's electronic exchange did the same, but NYSE proper did not. But this still leaves a tsunami of really cheap stock now in the hands of hedgies. The retail investor using his/her web browser connection was locked out most of the afternoon as all this went on. Schwab couldn't even display positions for most of that time, let alone execute orders. Retail could have picked up some nice bargains; 59% is a very nice discounted price.
Once the Dow hit minus 1,000 (actually, 998.50), those same computers kicked in to buy up the stocks. Again, only 60 percenters will be undone. The loss for the day was about 350.
What is different come Monday morning? Mostly, retail investor will be much poorer and holding an even smaller proportion of stocks. Hedgies will have made billions, on paper (unrealized capital gains). The question is: what will they do with this fortune? Will they trade up the market to increase the gains, greedy bastards that they are? Or will they flip the shares, thus causing a cascade of mini-plunges? Friday's loss is instructive. There was no bad news, and what news there was, was good. But another loss on the day.
So, I'd expect a damped oscillation of losing days for a week or so. Blankfein and his Merry Band will drive home the point.
06 May 2010
Ouch, That Hurt
You all have heard what happened today. I watched it in real time, although Schwab froze up and I couldn't even see my stuff, much less buy or sell. Not so much fun being a retail investor.
This was Goldman's shot across Obama's bow. The NYSE (and I will suppose NASDAQ) claim that there was no failure of the systems. On the other hand, there was no news at the time of the 500 point dive. This was an inside job.
This was Goldman's shot across Obama's bow. The NYSE (and I will suppose NASDAQ) claim that there was no failure of the systems. On the other hand, there was no news at the time of the 500 point dive. This was an inside job.
05 May 2010
About Housing Prices, redux
I have spent a few entries in this endeavour talking about how it was that the Great Recession was not a Black Swan event. In particular, that I saw it coming by 2003. Thanks to yesterday's reporting, I found it in the NY Times, we now know that the Fed agreed with me. We didn't know it at the time, of course. Once again, I feel vindicated, but more importantly, this should be enough for anyone to tell those who make the Black Swan assertion to shove it up their sphincter.
The money quote from the article:
In the June 2004 meeting, Stephen D. Oliner, a Fed researcher, cautioned that housing prices appeared to be out of line.
"I don't want to leave the impression that we think there's a huge housing bubble," Mr. Oliner said. "We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there's a part of the increase that is hard to explain."
Ya think????? Median housing expenditure to median income is a stable, long term value. It can't get out of whack without fiddling going on. The Fed knew it by mid 2004. I knew a bit before that, and I'd expect they did, too. The data was just that obvious.
The money quote from the article:
In the June 2004 meeting, Stephen D. Oliner, a Fed researcher, cautioned that housing prices appeared to be out of line.
"I don't want to leave the impression that we think there's a huge housing bubble," Mr. Oliner said. "We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there's a part of the increase that is hard to explain."
Ya think????? Median housing expenditure to median income is a stable, long term value. It can't get out of whack without fiddling going on. The Fed knew it by mid 2004. I knew a bit before that, and I'd expect they did, too. The data was just that obvious.
28 April 2010
Life is a Cabaret
The senators, and the public from what one reads, are ticked off at Goldman Sachs and its brethren over the Great Recession. All of us are suspicious that Goldman had a more direct effect on the crash than just being a victim, as they claim.
The synthetic CDO named in the SEC action, and the subsequent revelation of the "shitty" Timberwolf CDO, led the senators to condemn Goldman as just gambling and running a casino. Well, that's all the stock market EVER is. Neither the senators nor most civilians get it. When you buy or sell a stock, if it isn't a Public Offering from the company, you're just gambling. You're gambling, if you bought, that the guy you bought the stock from was an idiot to part with the stock at such a low price. Conversely, if you sold the stock, you have a similar opinion of the buyer. You're gamblers.
If stocks were direct analogs to the companies named on the certificates, the Great Recession would never have happened. The housing market would still have imploded, but the rest of the world's companies would have been largely unaffected. They weren't housing market companies. The holders of the stock would "own" these companies, and would understand the responsibilities of ownership. And so forth.
But, of course, that's not true. Most buy stocks for the share price appreciation, not dividends paid from earnings, or even for the earnings alone. MicroSoft went decades without distributing earnings, and didn't do so until the IRS began to figure out that this was simple tax evasion; converting dividends (by not paying any) into capital gains through the appreciation of the share. Clearly, the share will appreciate if earnings increase (or costs decline, or revenues increase, or some other Good Thing Happens); however, the current holders of the shares have largely not contributed any cash to the company.
And that's the rub. What makes synthetic CDOs any more of a lottery ticket? Nothing at all. Credit default swaps, which were bundled into the "shitty" Timberwolf are another matter. CDSs are inherently evil, and should be banned. If a stock/bond purchase is too risky, then it won't be made, that's all and as the world should be.
Some have said that the problem was/is a global savings glut, and they're correct. The funds to fuel the housing bubble were not manufactured by the Fed. The Fed didn't print the money involved. The Right Wingnuts are conspicuously silent on this. The Hound of the Baskervilles: the dog that didn't bark in the night. The money largely came from Asia, where labour receives vastly less than what Adam Smith says it would earn; and this money piles up in the hands of capitalists, unused. Enter American mortgage companies, not banks. It was mortgage companies that created the sleazy mortgages, not banks. They provided a place to put all that cash "to work". And we know how well that worked out.
In sum: Goldman is far more evil than their stonewalling innocence. But stocks are all about gambling. What Goldman did was to rig the game by creating pigs ears and selling them as silk purses. They say that the law allows them to lie, in fact. They don't have to be honest about the nature of the item. The buyer is required to figure it out. Goldman is allowed to make figuring it out as difficult as possible, and they did. They were doing God's work; not the Christian God, of course.
The synthetic CDO named in the SEC action, and the subsequent revelation of the "shitty" Timberwolf CDO, led the senators to condemn Goldman as just gambling and running a casino. Well, that's all the stock market EVER is. Neither the senators nor most civilians get it. When you buy or sell a stock, if it isn't a Public Offering from the company, you're just gambling. You're gambling, if you bought, that the guy you bought the stock from was an idiot to part with the stock at such a low price. Conversely, if you sold the stock, you have a similar opinion of the buyer. You're gamblers.
If stocks were direct analogs to the companies named on the certificates, the Great Recession would never have happened. The housing market would still have imploded, but the rest of the world's companies would have been largely unaffected. They weren't housing market companies. The holders of the stock would "own" these companies, and would understand the responsibilities of ownership. And so forth.
But, of course, that's not true. Most buy stocks for the share price appreciation, not dividends paid from earnings, or even for the earnings alone. MicroSoft went decades without distributing earnings, and didn't do so until the IRS began to figure out that this was simple tax evasion; converting dividends (by not paying any) into capital gains through the appreciation of the share. Clearly, the share will appreciate if earnings increase (or costs decline, or revenues increase, or some other Good Thing Happens); however, the current holders of the shares have largely not contributed any cash to the company.
And that's the rub. What makes synthetic CDOs any more of a lottery ticket? Nothing at all. Credit default swaps, which were bundled into the "shitty" Timberwolf are another matter. CDSs are inherently evil, and should be banned. If a stock/bond purchase is too risky, then it won't be made, that's all and as the world should be.
Some have said that the problem was/is a global savings glut, and they're correct. The funds to fuel the housing bubble were not manufactured by the Fed. The Fed didn't print the money involved. The Right Wingnuts are conspicuously silent on this. The Hound of the Baskervilles: the dog that didn't bark in the night. The money largely came from Asia, where labour receives vastly less than what Adam Smith says it would earn; and this money piles up in the hands of capitalists, unused. Enter American mortgage companies, not banks. It was mortgage companies that created the sleazy mortgages, not banks. They provided a place to put all that cash "to work". And we know how well that worked out.
In sum: Goldman is far more evil than their stonewalling innocence. But stocks are all about gambling. What Goldman did was to rig the game by creating pigs ears and selling them as silk purses. They say that the law allows them to lie, in fact. They don't have to be honest about the nature of the item. The buyer is required to figure it out. Goldman is allowed to make figuring it out as difficult as possible, and they did. They were doing God's work; not the Christian God, of course.
18 April 2010
Operator! Operator! I've Been Disconnected
There's been a theme running through the press, both news and pundit, the last while. That theme: disconnection.
The longest running has been stories that Wall Street has become disconnected from Main Street, as if this were a Bad Thing. It isn't, it's a Good Thing. Consider this, both the Great Depression and the Great Recession happened because Main Street waded into Wall Street (or perhaps the other way 'round, either way, they danced together) when it shouldn't have. There is no structural reason for Wall Street to be connected to Main Street. They should be separate, since the stock market is just a gambling den among rich guys, and some poor guys who mostly end up poorer. Buying stocks is NOT investing in company XYZ; it is a bet with some other guy who bets it's smarter to unload the stock in XYZ. Your money goes to him, not company XYZ. People need to understand that buying stocks and bonds in the market is NOT aiding the corporations whose names are on the instruments.
John Paulson, of his self named hedge fund, wasn't named in the Goldman Sachs motion. Why might that be? How could he be disconnected from the matter? After all, the instrument was tailored for his short by him. You heard it here first: SEC will nail him with the criminal charge.
Finally, what of Goldman Sachs, and the rest of the Banksters? They are being roasted for being disconnected from Main Street, yet the Dow and NASDAQ have recovered/risen nicely for a bit more than a year. And the Right Wingnuts fear (since they don't actually produce anything in the economy) of inflation hasn't appeared. How is this possible? Well, inflation is rampant in the stock market, all that bailout and much of the stimulus money, chasing after the (pretty much) fixed amount of stock. If one has kept track of the Banksters' reports, one sees that they're profits are disconnected from their pledge, and the Gummint's assertion, that the bailout and stimulus would be used to support lending to jump start the economy. They haven't done that. They've traded with the money. The self-same money which has boosted the market indexes.
So, GS will do its evilest best to crash the market by curtailing its trading, along with the other Banksters, to punish the SEC and Obama for having the temerity to hold them to the law. Nuke 'em all and start over.
The longest running has been stories that Wall Street has become disconnected from Main Street, as if this were a Bad Thing. It isn't, it's a Good Thing. Consider this, both the Great Depression and the Great Recession happened because Main Street waded into Wall Street (or perhaps the other way 'round, either way, they danced together) when it shouldn't have. There is no structural reason for Wall Street to be connected to Main Street. They should be separate, since the stock market is just a gambling den among rich guys, and some poor guys who mostly end up poorer. Buying stocks is NOT investing in company XYZ; it is a bet with some other guy who bets it's smarter to unload the stock in XYZ. Your money goes to him, not company XYZ. People need to understand that buying stocks and bonds in the market is NOT aiding the corporations whose names are on the instruments.
John Paulson, of his self named hedge fund, wasn't named in the Goldman Sachs motion. Why might that be? How could he be disconnected from the matter? After all, the instrument was tailored for his short by him. You heard it here first: SEC will nail him with the criminal charge.
Finally, what of Goldman Sachs, and the rest of the Banksters? They are being roasted for being disconnected from Main Street, yet the Dow and NASDAQ have recovered/risen nicely for a bit more than a year. And the Right Wingnuts fear (since they don't actually produce anything in the economy) of inflation hasn't appeared. How is this possible? Well, inflation is rampant in the stock market, all that bailout and much of the stimulus money, chasing after the (pretty much) fixed amount of stock. If one has kept track of the Banksters' reports, one sees that they're profits are disconnected from their pledge, and the Gummint's assertion, that the bailout and stimulus would be used to support lending to jump start the economy. They haven't done that. They've traded with the money. The self-same money which has boosted the market indexes.
So, GS will do its evilest best to crash the market by curtailing its trading, along with the other Banksters, to punish the SEC and Obama for having the temerity to hold them to the law. Nuke 'em all and start over.
16 April 2010
Stimulate Me, Big Guy, I Like It
There's a report from the AP (here through Yahoo! news) today on South Carolina's boon from the stimulus money, which all those crackers denounced. That part is not so surprising. What is noteworthy is that the crackers themselves, without knowing it of course, explained the functioning of the demand multiplier, a notion I've recently discussed. Here's the quote from the article (it's towards the end):
Meanwhile, at Jess Walker's Carolina Bar-B-Que, as many as 800 people line up every day for pulled pork, hash and rice at his family owned restaurant just miles from Savannah River's gates.
Business here has always been brisk since Walker opened in 1969. But Walker said his stream of customers has managed to stay steady even during the darkest of economic times, an even keel he attributes to the employees doing stimulus-funded work at Savannah River.
"Without the plant, we wouldn't be here," he said, as customers began to fill his restaurant. "It's the reason we even exist."
Remember that in November, you dummy.
Meanwhile, at Jess Walker's Carolina Bar-B-Que, as many as 800 people line up every day for pulled pork, hash and rice at his family owned restaurant just miles from Savannah River's gates.
Business here has always been brisk since Walker opened in 1969. But Walker said his stream of customers has managed to stay steady even during the darkest of economic times, an even keel he attributes to the employees doing stimulus-funded work at Savannah River.
"Without the plant, we wouldn't be here," he said, as customers began to fill his restaurant. "It's the reason we even exist."
Remember that in November, you dummy.
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