Thursday, December 31, 2009

Is it all just a Ponzi scheme? - Eric Sprott & David Franklin

Is it all just a Ponzi scheme?
By: Eric Sprott & David Franklin
In our May/June Markets at a Glance, "The Solution…is the Problem", we discussed how
much debt the US government would need to issue in order to balance the budget for
fiscal 2009. We calculated they would need to sell $2.041 trillion in new debt - or almost
three times the new debt that was issued in fiscal 2008. As a thought experiment, we
separated all the various US Treasury owners and asked our readers whether each group
could afford to increase their 2009 treasury purchases by 200%. In the end, we surmised
that most groups couldn’t, and prepared our readers for the worst.
Almost seven months later, however, nothing particularly bad has happened on the US
debt front. There have been no failed auctions, no sovereign defaults, no downgrades of
debt and no significant increase in rates…not so much as a hiccup in the treasury market.
Knowing what we discussed this past June, we have to ask how it all went so smoothly.
After all – it was pretty obvious there wasn’t enough buying power to satisfy the auctions
under ‘normal’ circumstances.
In the latest Treasury Bulletin published in December 2009, ownership data reveals that
the United States increased the public debt by $1.885 trillion dollars in fiscal 2009.1 So
who bought all the new Treasury securities to finance the massive increase in
expenditures? According to the same report, there were three distinct groups that bought
more than they did in 2008. The first was "Foreign and International Buyers", who
purchased $697.5 billion worth of Treasury securities in fiscal 2009 – representing about
23% more than their respective purchases in fiscal 2008. The second group was the
Federal Reserve itself. According to its published balance sheet, it increased its treasury
holdings by $286 billion in 2009, representing a 60% increase year-over-year.2 This
increase appears to be a direct result of the Federal Reserve’s Quantitative Easing
program announced this past March. Most of the other identified buyers in the Treasury
Bulletin were either net sellers or small buyers in 2009. While the Q4 data is not yet
available, the Q1, Q2 and Q3 data suggests that the State and Local governments and
US Savings Bonds groups will be net sellers of US Treasury securities in 2009, while
pension funds, insurance companies and depository institutions only increased their
purchases by a negligible amount.
So who was the third large buyer? Drum roll please,... it was "Other Investors". After
purchasing $90 billion in 2008, this group has purchased $510.1 billion of freshly minted
treasury securities so far in the first three quarters of fiscal 2009. If you annualize this rate
of purchase, they are on pace to buy $680 billion of US treasuries this year - or more than
seven times what they purchased in 2008. This is undoubtedly the group that made the
US deficit possible this year. But who are they? The Treasury Bulletin identifies "Other
Investors" as consisting of Individuals, Government-Sponsored Enterprises (GSE),
Brokers and Dealers, Bank Personal Trusts and Estates, Corporate and Non-Corporate
Businesses, Individuals and Other Investors. Hmmm. Do you think anyone in that group
had almost $700 billion to invest in the US Treasury market in fiscal 2009? We didn’t
either. To dig further, we turned to the Federal Reserve Board of Governors Flow of
Funds Data which provides a detailed breakdown of the owners of Treasury Securities to
Q3 2009.3 Within this grouping, the GSE’s were small buyers of a mere $5 billion this
year;4 Broker and Dealers were sellers of almost $80 billion;5 Commercial Banking were
buyers of approximately $80 billion;6 Corporate and Non-corporate Businesses, grouped
together, were buyers of $11.6 billion, for a grand net purchase of $16.6 billion.7 So who
really picked up the tab? To our surprise, the only group to actually substantially increase
their purchases in 2009 is defined in the Federal Reserve Flow of Funds Report as the
"Household Sector". This category of buyers bought $15 billion worth of treasuries in
2008, but by Q3 2009 had purchased a whopping $528.7 billion worth. At the end of Q3
this Household Sector category now owns more treasuries than the Federal Reserve
So to summarize, the majority buyers of Treasury securities in 2009 were:
1. Foreign and International buyers who purchased $697.5 billion.
2. The Federal Reserve who bought $286 billion.
3. The Household Sector who bought $528 billion to Q3 – which puts them on
track purchase $704 billion for fiscal 2009.
These three buying groups represent the lion’s share of the $1.885 trillion of debt that was
issued by the US in fiscal 2009.
We must admit that we were surprised to discover that "Households" had bought so many
Treasuries in 2009. They bought 35 times more government debt than they did in 2008.
Given the financial condition of the average household in 2009, this makes little sense to
us. With unemployment and foreclosures skyrocketing, who could afford to increase
treasury investments to such a large degree? For our more discerning readers, this
enormous "Household" investment was made outside of Money Market Funds, Mutual
Funds, ETF’s, Life Insurance Companies, Pension and Retirement funds and Closed-End
Funds, which are all separate reporting categories.9 This leaves a very important question
- who makes up this Household Sector?
Amazingly, we discovered that the Household Sector is actually just a catch-all category.
It represents the buyers left over who can’t be slotted into the other group headings. For
most categories of financial assets and liabilities, the values for the Household Sector are
calculated as residuals. That is, amounts held or owed by the other sectors are subtracted
from known totals, and the remainders are assumed to be the amounts held or owed by
the Household Sector. To quote directly from the Flow of Funds Guide, "For example, the
amounts of Treasury securities held by all other sectors, obtained from asset data
reported by the companies or institutions themselves, are subtracted from total Treasury
securities outstanding, obtained from the Monthly Treasury Statement of Receipts and
Outlays of the United States Government and the balance is assigned to the household
sector." (Emphasis ours)10 So to answer the question - who is the Household Sector?
They are a PHANTOM. They don’t exist. They merely serve to balance the ledger in the
Federal Reserve’s Flow of Funds report.
Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all
know that the Fed has been active in the market for T-bills. As you can see from Table A,
under the auspices of Quantitative Easing, they bought almost 50% of the new Treasury
issues in Q2 and almost 30% in Q3. It serves to remember that the whole point of selling
new US Treasury bonds is to attract outside capital to finance deficits or to pay off existing
debts that are maturing. We are now in a situation, however, where the Fed is printing
dollars to buy Treasuries as a means of faking the Treasury’s ability to attract outside
capital. If our research proves anything, it’s that the regular buyers of US debt are no
longer buying, and it amazes us that the US can successfully issue a record number
Treasuries in this environment without the slightest hiccup in the market.
Perhaps the most striking example of the new demand dynamics for US Treasuries
comes from Bill Gross, who is co-chief investment officer at PIMCO and arguably one of
the world’s most powerful bond investors. Mr. Gross recently revealed that his bond fund
has cut holdings of US government debt and boosted cash to the highest levels since
2008.11 Earlier this year he referred to the US as a "ponzi style economy" and
recomended that investors front run Uncle Sam and other world governments into
government debt instruments of all forms.12 The fact that he is now selling US treasuries
is a foreboding sign.
Foreign holders are also expressing concern over new Treasury purchases. In a recent
discussion on the global role of the US dollar, Zhu Min, deputy governor of the People’s
Bank of China, told an academic audience that "The world does not have so much money
to buy more US Treasuries." He went on to say, "The United States cannot force foreign
governments to increase their holdings of Treasuries… Double the holdings? It is
definitely impossible."13 Judging from these statements, it seems clear that the US cannot
expect foreigners to continue to support their debt growth in this new economic
environment. As US consumers buy fewer foreign goods, there are less US dollars
available for foreigners to purchase future Treasury securities. Foreigners are the largest
source of external capital that can be clearly identified in US Treasury data. If their
support wanes in 2010, the US will require significant domestic support to fund future debt
issuances. Mr. Gross’s recent comments suggest that their domestic support may already
be weakening.
As we have seen so illustriously over the past year, all Ponzi schemes eventually fail
under their own weight. The US debt scheme is no different. 2009 has been witness to
spectacular government intervention in almost all levels of the economy. This support
requires outside capital to facilitate, and relies heavily on the US government’s ability to
raise money in the debt market. The fact that the Federal Reserve and US Treasury
cannot identify the second largest buyer of treasury securities this year proves that the
traditional buyers are not keeping pace with the US government’s deficit spending. It
makes us wonder if it’s all just a Ponzi scheme.

Tuesday, September 29, 2009

Lesson: If you borrow, borrow a crapload

"Some US numbers have been bothering us for a while. If commercial property has dropped in value by something like 40% in the past two years, and if most of the financings of the past five years were tightly priced at higher values (as they were), then where are the bankruptcies that should be stirring up the financial waters? We have written before (September 3) about the long lag before commercial real estate problems become obvious because leases are renegotiated over many years, and our charitable view was that the lack of current problems was a function of this time-lag. However, the story of Tishman Speyer Properties LP and its investment in the Stuyvesant Town-Peter Cooper Village property in New York, the largest real estate transaction in US history, has woken us up. Its looming bankruptcy implies that the credit departments in the major banks were seeing more problems than were apparent to the average reader of the Wall Street Journal. An independent appraisal placed the value of this property at less than 40% of its purchase price. We remembered that the John Hancock Building, the premier office tower in Boston, was sold at less than 50% of its previous purchase earlier this year. So why aren’t there any rumblings in credit-land? It seems that the banks are not doing anything. “They don’t ask and we don’t tell them’” a leading property owner told us with a drink in his hand. He continued that almost all of his properties were in technical default, but that the banks wouldn’t want to press him on them. In fact he was in a powerful position as he could threaten to stop paying, forcing the bank to recognize the problem. As a result deals are being rewritten and problems are getting pushed out to the future. As a result, defaults are avoided and losses are deferred."

Tuesday, September 15, 2009

Cost of Education vs. Income over time

This is pretty crazy if you think about it...

Monday, August 24, 2009

Manifesto to invest/live by

Q2 2009 Letter from Elliot Management:

"To this, we say maybe... and maybe not. Our job, as stewards of Elliott’s capital, is not to choose one of the big possibilities (including, among other things: renewed collapse; recovery starting now; double-dip recession; recovery co-existing with a continued downturn in commercial real estate and then an inflation crisis) and aggressively position Elliott’s portfolio accordingly. Rather, our job is to preserve capital and to make some money on a consistent basis regardless of which scenario (or crazy combination of several) actually comes to pass. That is the really tricky part, because significant differences exist between them.

We have a number of positions which are progressing in their own timeframes and processes, not related to anything else in our book. We actively look for such uncorrelated situations, and we think that type of position is more of a primary focus for us than for most other hedge funds. Other positions that we own have a variety of risks which are impacted by what is happening in global financial markets. We hedge these risks either internally, with similar assets, or externally, by single assets, indices or derivatives. We will try not to lock ourselves into a rigid set of macro assumptions, attempt to control our own destiny to the extent we can, and do the best job possible on the “knowable” part of the equation (analysis and research). This is the “secret” to our longevity and consistency, even though we view it as the well-worn and time-tested contents of a broad and deep tool chest, which always come in handy but whose value is most vivid in tough times like these."

Great Quote

You could contrast this perspective with China's economic policy of 保八

Robert Kennedy on his campaign trail for the US presidency on March 18, 1968:

"We will find neither national purpose nor personal satisfaction in a mere continuation of economic progress, in an endless amassing of worldly goods. We cannot measure national spirit by the Dow Jones Average, nor national achievement by the Gross National Product. For the Gross National Product includes air pollution, and ambulances to clear our highways from carnage. It counts special locks for our doors and jails for the people who break them. The Gross National Product includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm and missles and nuclear warheads.... It includes... the broadcasting of television programs which glorify violence to sell goods to our children. And if the Gross National Product includes all this, there is much that it does not comprehend. It does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry, or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials... the Gross National Product measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile, and it can tell us everything about America -- except whether we are proud to be Americans."

Monday, August 10, 2009

Nice reminder of the folly of modern finance

John Mauldin's Aug 7th newsletter (GO! must read!):

Awesome excerpt:

"The EMH also teaches us that opportunities will be fleeting as someone will surely try to arbitrage them away. This, of course, is akin to the age old joke about the economist and his friend walking along the street. The friend points out a $100 bill lying on the pavement. The economist says, "It isn't really there because if it were someone would have already picked it up".

Sadly these simple edicts are no joking matter as they are probably the most damaging aspects of the EMH legacy. Thus the EMH urges investors to try and forecast the future. In my opinion this is one of the biggest wastes of time, yet one that is nearly universal in our industry. Pretty much 80-90% of the investment processes that I come across revolve around forecasting. Yet there isn't a scrap of evidence to suggest that we can actually see the future at all."

The undue focus upon benchmark and relative performance also leads Homo Ovinus to engage in Keynes' beauty contest. As Keynes wrote:

"Professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the price being awarded to the competitor whose choice most nearly corresponds to the average preference of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgment, are really prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees"

This game can be easily replicated by asking people to pick a number between 0 and 100, and telling them the winner will be the person who picks the number closest to two-thirds the average number picked. The chart below shows the results from the largest incidence of the game that I have played - in fact the third largest game ever played, and the only one played purely among professional investors.

The highest possible correct answer is 67. To go for 67 you have to believe that every other muppet in the known universe has just gone for 100. The fact we got a whole raft of responses above 67 is more than slightly alarming.

You can see spikes which represent various levels of thinking. The spike at fifty reflects what we (somewhat rudely) call level zero thinkers. They are the investment equivalent of Homer Simpson, 0, 100, duh 50! Not a vast amount of cognitive effort expended here!

There is a spike at 33 - of those who expect everyone else in the world to be Homer. There's a spike at 22, again those who obviously think everyone else is at 33. As you can see there is also a spike at zero. Here we find all the economists, game theorists and mathematicians of the world. They are the only people trained to solve these problems backwards. And indeed the only stable Nash equilibrium is zero (two-thirds of zero is still zero). However, it is only the 'correct' answer when everyone chooses zero.

The final noticeable spike is at one. These are economists who have (mistakenly...) been invited to one dinner party (economists only ever get invited to one dinner party). They have gone out into the world and realised the rest of the world doesn't think like them. So they try to estimate the scale of irrationality. However, they end up suffering the curse of knowledge (once you know the true answer, you tend to anchor to it). In this game, which is fairly typical, the average number picked was 26, giving a two-thirds average of 17. Just three people out of more than 1000 picked the number 17.

I play this game to try to illustrate just how hard it is to be just one step ahead of everyone else - to get in before everyone else, and get out before everyone else. Yet despite this fact, it seems to be that this is exactly what a large number of investors spend their time doing.

Wednesday, May 06, 2009

Amen to this

Unafraid In Greenwich Connecticut
Clifford S. Asness
Managing and Founding Principal
AQR Capital Management, LLC

The President has just harshly castigated hedge fund managers for being unwilling to take his administration’s bid for their Chrysler bonds. He called them “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”

The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President (an exception, though still in the form of a “group letter,” was the superb note from “The Committee of Chrysler Non-TARP Lenders,” some of the points of which I echo here, and a relatively few firms, like Oppenheimer, that have publicly defended themselves). Furthermore, one by one the managers and banks are said to be caving to the President’s wishes out of justifiable fear.

I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President’s comments (of course, these are my own views, not those of my company). Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called “Not Afraid Enough” as I am indeed fearful writing this… It’s really a bad idea to speak out.

Angering the President is a mistake, and my views will annoy half my clients. I hope my clients will understand that I’m entitled to my voice and to speak it loudly, just as they are in this great country. I hope they will also like that I do not think I have the right to intentionally “sacrifice” their money without their permission.

Here’s a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens, it usually does not result in a complete loss. A firm in bankruptcy still has assets. It’s not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first.

The process already has built-in partial protections for employees and pensions, and can set lenders’ contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.

The above is how it works in America, or how it’s supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.

Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing. Clients of hedge funds include, among others, pension funds of all kinds of workers, unionized and not.

The managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the President, nor to oppose him, nor otherwise advance their personal political views. That’s how the system works. If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could “share in the sacrifice”, you would not be happy.

Let’s quickly review a few side issues.

The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.

Let’s also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won’t work because of this irresponsible hectoring.

Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying.

The TARP recipients had no choice but to go along. The hedge funds were singled out only because they are unpopular, not because they behaved any differently from any other ethical manager of other people’s money. The President’s comments here are backwards and libelous. Yet, somehow I don’t think the hedge funds will be following ACORN’s lead and trucking in a bunch of paid professional protesters soon. Hedge funds really need a community organizer.

This is America. We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.

I am ready for my “personalized” tax rate now.

Wednesday, April 15, 2009

Testimony on AIG Portfolio Firesales

The implications of all this is baffling


Sunday, March 29, 2009
Posted by Tyler Durden at 6:35 PM
Zero Hedge is rarely speechless, but after receiving this email from a correlation desk trader, we simply had to hold a moment of silence for the phenomenal scam that continues unabated in the financial markets, and now has the full oversight and blessing of the U.S. government, which in turns keeps on duping U.S. taxpayers into believing everything is good.

I present the insider perspective of trader Lou (who wishes to remain
anonymous) in its entirety:

"AIG-FP accumulated thousands of trades over the years, all essentially consisted of selling default protection. This was done via a number of structures with really only one criteria - rated at least AA- (if it fit these criteria all OK - as far as I could tell credit assessment was completely outsourced to the rating agencies).

Main products they took on were always levered credit risk, credit-linked notes (collateral and CDS both had to be at least AA-, no joint probability stuff) and AAA or super senior portfolio swaps. Portfolio swaps were either corporate synthetic CDO or asset backed, effectively sub-prime wraps (as per news stories regarding GS and DB).

Credit linked notes are done through single-name CDS desks and a cash desk (for the note collateral) and the portfolio swaps are done through the correlation desk. These trades were done is almost every jurisdiction - wherever AIG had an office they had IB salespeople covering them.

Correlation desks just back their risk out via the single names desks - the correlation desk manages the delta/gamma according to their correlation model. So correlation desks carry model risk but very little market risk.

I was mostly involved in the corporate synthetic CDO side.

During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent - these were whole portfolio unwinds. The size of these unwinds were enormous, the quotes I have heard were "we have never done as big or as profitable trades - ever".

As these trades are unwound, the correlation desk needs to unwind the single name risk through the single name desks - effectively the AIG-FP unwinds caused massive single name protection buying. This caused single name credit to massively underperform equities - run a chart from say last September to current of say S&P 500 and Itraxx - credit has underperformed massively. This is largely due to AIG-FP unwinds.

I can only guess/extrapolate what sort of PnL this put into the major global banks (both correlation and single names desks) during this period.
Allowing for significant reserve release and trade PnL, I think for the big correlation players this could have easily been US$1-2bn per bank in this period."

For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman's terms:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.

In simple terms think of it as an auto dealer, which knows that U.S.
taxpayers will provide for an infinite amount of money to fund its ongoing sales of horrendous vehicles (think Pontiac Azteks): the company decides to sell all the cars currently in contract, to lessors at far below the amortized market value, thereby generating huge profits for these lessors, as these turn around and sell the cars at a major profit, funded exclusively by U.S. taxpayers (readers should feel free to provide more gripping allegories).

What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.

For banks to proclaim their profitability in January and February is about as close to criminal hypocrisy as is possible. And again, the taxpayers fund this "one time profit", which causes a market rally, thus allowing the banks to promptly turn around and start selling more expensive equity (soon coming to a prospectus near you), also funded by taxpayers' money flows into the market. If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day.

And the conspiracy thickens.

Thanks to an intrepid reader who pointed this out, a month ago ISDA published an amended close out protocol. This protocol would allow non-market close outs, i.e. CDS trade crosses that were not alligned with market bid/offers.

The purpose of the Protocol is to permit parties to agree upfront that in the event of a counterparty default, they will use Close-Out Amount valuation methodology to value trades. Close-Out Amount valuation, which was introduced in the 2002 ISDA Master Agreement, differs from the Market Quotation approach in that it allows participants more flexibility in valuation where market quotations may be difficult to obtain.
Of course ISDA made it seems that it was doing a favor to industry participants, very likely dictating under the gun:

Industry participants observed the significant benefits of the Close-Out Amount approach following the default of Lehman Brothers. In launching the Close-Out Amount Protocol, ISDA is facilitating amendment of existing 1992 ISDA Master Agreements by replacing Market Quotation and, if elected, Loss with the Close-Out Amount approach.

"This is yet another example of ISDA helping the industry to coalesce around more efficient and effective practices, while maintaining flexibility," said Robert Pickel, Executive Director and Chief Executive Officer, ISDA. "The Protocol permits parties to value trades in the way that is most appropriate, which greatly enhances smooth functioning of the market in testing circumstances."

And, lo and behold, on the list of adhering parties, AIG takes front and center stage (together with several other parties that probably deserve the microscope treatment).

So - in simple terms, ISDA, which is the only effective supervisor of the Over The Counter CDS market, is giving its blessing for trades to occur
(cross) below where there is a realistic market bid, or higher than the offer. In traditional equity markets this is a highly illegal practice.
ISDA is allowing retrospective arbitrary trades to have occurred at whatever price any two parties agree on, so long as the very vague necessary and sufficient condition of "market quotations may be difficult to obtain" is met. As anyone who follows CDS trading knows, this can be extrapolated to virtually any specific single-name, index or structured product easily. In essence ISDA gave its blessing for below the radar fund transfers of questionable legality. The curious timing of this decision and the alleged abuse of CDS transaction marks by and among AIG and the big banks, is striking to say the least.

This wholesale manipulation of markets, investors and taxpayers has gone on long enough.

Wednesday, March 25, 2009

Cool U.S. Household Debt/Savings Charts

"Wealth can only be accumulated by the earnings of industry and the savings of frugality" - John Tyler

Courtesy of Nomura:

Good Read on AIG Bonuses

March 25, 2009
Op-Ed Contributor
Dear A.I.G., I Quit!

The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”


Jake DeSantis

Wednesday, March 11, 2009

Cool quotes of the day

"I don't know the bottom. I mean, if I knew the bottom, you know, I wouldn't have to look up 10-Ks and do all that stuff, I'd just buy the S&P 500 at the bottoms"
- Warren Buffett, CNBC interview Mar 9, 2009

"There are no such things as absolute values, independent of the subjective references of erring men. Judgments of values are the outcome of human arbitrariness. They reflect all the shortcomings and weaknesses of their authors."
- Ludwig Von Mises, Bureaucracy

Monday, March 09, 2009

Mundus vult decipi, ergo decipitatur

Quote of the day, courtesy of Marc Faber and his genius March 2009 issue of Gloom, Boom & Doom Report. None so captures the past and present state of affairs so succinctly and accurately. Of the truths that the world would rather ignore--the fact that our fragile world remains ever so such, and yet the fleeting solutions and seducing words of amateur gods ring through the hearts of men; the discord mistaken for profundity.

Yep... thats pretty much it!

Friday, March 06, 2009

This made my day... courtesy of a jolly salesman from one of our Swedish bank coverages

Sent as what I presume to be as a metaphor for the markets these days? haha.


4. Ragnarok - Viking Mythology to prepare for the worst winters and wars and the renewal that follows.

The long nights and the short, dark days followed fast upon each other, and as the time drew near when summer would come again men's hearts grew light with hope once more. Each day they looked into the sullen skies, through which clouds of snow were whirling, and said to each other, "To-morrow the summer will come;" but when the morrow came no summer came with it. And all through the months that in other days had been beautiful with flowers the snow fell steadily, and the cold winds blew fiercely, while eyes grew sad and hearts heavy with waiting for a summer that did not come. And it never came again; for this was the terrible Fimbul-winter, long foretold, from which even the gods could not escape. In Jotunheim there was joy among the frost-giants as they shouted to each other through the howling storms, "The Fimbul-winter has come at last." At first men shuddered as they whispered, "Can it be the Fimbul-winter?" But when they knew it beyond all doubting a blind despair filled them, and they were reckless alike of good or evil. Over the whole earth war followed fast upon war, and everywhere there were wrangling and fighting and murder. It hardly snowed fast enough to cover the blood-stains. Mothers forgot to love their little children, and brothers struck each other down as if they were the bitterest enemies.

Three years passed without one breath of the warm south wind or the blossoming of a single flower, and three other years darker and colder succeeded them. A savage joy filled the hearts of the frost-giants, and they shook their clenched hands at Asgard as if they had mastered the gods at last. On the earth there was nothing but silence and despair, and among the gods only patient waiting for the end. One day, as the sun rose dim and cold, a deep howl echoed through the sky, and a great wolf sprang up from the underworld and leaped vainly after it. All day long, through the frosty air, that terrible cry was heard, and all day the giant wolf ran close behind, slowly gaining in the chase. At last, as the sun went down over the snow-covered mountains, the wolf, with a mighty spring, reached and devoured it. The glow upon the hills went out in blackness; it was the last sunset. Faint and colourless the moon rose, and another howl filled the heavens as a second wolf sprang upon her track, ran swiftly behind, and devoured her also. Then came an awful darkness over all as, one by one, the stars fell from heaven, and blackness and whirling snow wrapped all things in their folds. The end had come; the last great battle was to be fought; Ragnarok, the Twilight of the Gods, was at hand.

Suddenly a strange sound broke in upon the darkness and was heard throughout all the worlds; on a lofty height the eagle Egder struck his prophetic harp. The earth shook, mountains crumbled, rocks were rent, and all fetters were broken. Loke shook off his chains and rushed out of his cavern, his heart hot with hate and burning with revenge, the terrible Fenris-wolf broke loose, and out of the deep sea the Midgard-serpent drew his long folds toward the land, lashing the water into foam as he passed. From every quarter the enemies of the gods gathered for the last great battle on the plain of Vigrid, which was a hundred miles wide on each side. Thither came the Fenris-wolf, his hungry jaws stretched so far apart that they reached from earth to heaven; the Midgard-serpent, with fiery eyes and pouring out floods of venom; the awful host of Hel with Loke at their head; the grim ranks of the frost-giants marching behind Hrym; and, last of all, the glittering fire-giants of Muspelheim, the fire-world, with Surt at the front.

The long line of enemies already stretched across the plain when Heimdal, standing on the rainbow bridge, blew the Gjallar-horn to call the gods. No sooner had Odin heard the terrible call to arms than he mounted and rode swiftly to Mimer's fountain, that he might know how to lead the gods into battle. When he came, the Norns sat veiled beneath the tree, silent and idle, for their work was done, and Ygdrasil began to quiver as if its very roots had been loosened. What Odin said to Mimer no one will ever know. He had no sooner finished speaking than Heimdal blew a second blast, and out of Asgard the gods rode forth to the last great battle, the golden helmet and shining armour of Odin leading the way. There was a momentary hush as the two armies confronted each other, and then the awful fight began. Shouts of rage rose from the frost-giants, and the armour of the fire-giants fairly broke into blaze as they rushed forward. The Fenris-wolf howled wildly, the hosts of Hel grew dark and horrible with rage, and the Midgard-serpent coiled its scaly length to strike. But before a blow had been struck the shining forms of the gods were seen advancing, and their battle-cry rang strong and clear across the field. Odin and Thor started side by side, but were soon separated. Odin sprang upon the wolf, and after a terrible struggle was devoured. Thor singled out his old enemy, the Midgard-serpent, and in a furious combat slew him; but as the monster died it drew its folds together with a mighty effort and poured upon Thor such a deadly flood of venom that he fell back nine paces, sank down and died. Frey encountered Surt, and because he had not the sword he had given long before to Skirner, could not defend himself, and he too was slain. The dog Garm rushed upon Tyr, the sword-god, and both were killed, Tyr missing the arm which he lost when the Fenris-wolf was bound.

And now the battle was at its height, and over the whole field gods, monsters, and giants were fighting with the energy of despair. Heimdal and Loke met, struggled, and fell together, and Vidar rushed upon the wolf which had devoured Odin, and tore him limb from limb. Then Surt strode into the middle of the armies, and in an awful pause flung a flaming firebrand among the worlds. There was a breathless hush, a sudden rush of air, a deadly heat, and the whole universe burst into blaze. A roaring flame filled all space and devoured all worlds, Ygdrasil fell in ashes, the earth sank beneath the sea. No sun, no moon, no stars, no earth, no Asgard, no Hel, no Jotunheim; gods, giants, monsters, and men all dead! Nothing remained but a vast abyss filled with the moaning seas, and brooded over by a pale, colourless light. Ragnarok, the end of all things, the Twilight of the Gods, had come. (My Comments: This is not the end of the story. It is just the end of the beginning. Fear is as old as human life)

Friday, February 20, 2009

Saving Capitalistic Banking From Itself - Paul McCulley

gr8 simple read on banking/finance 101, the magnification of economic/market cycles by credit, and the role of government

Friday, February 13, 2009


2009年02月12日 来源:经理人












  他为什么这个时候买呢?他认为,1932年7月8日道琼斯指数创了新低,但是到了第二年的3月,罗斯福就任总统之后,这个指数马上上涨30%。而且纵观 20世纪,虽然美国经历过两次世界大战,经济大萧条,多次金融崩溃,但是道琼斯指数由最初的66点攀升到11497点。组成道琼斯指数的都是传统企业,他买的就是以道琼斯指数为主的传统企业。他笃信,长期之下,道琼斯指数一定是向上走,因此现在就是进场的好时机,将来一定会回弹。


Man Up! Hedge-Fund Man's Advice for Wall Street: Michael Lewis

Man Up! Hedge-Fund Man's Advice for Wall Street: Michael Lewis
2009-02-13 05:01:00.700 GMT

Commentary by Michael Lewis
Feb. 13 (Bloomberg) -- Before I quit my job trading bonds for my former Wall Street employer and set up my first hedge fund, I thought long and hard.
I stared at the ceiling every night, unable to sleep, and asked myself, over and over, many difficult questions. For
example: "How sincerely do I want to grow my net worth from $10 million to $100 million?" And: "How much pleasure might be had from the envy of others?"
One question I didn't ask myself, however, was "What will I do if people off Wall Street try to take away my money?" It just never crossed my mind. I assumed they'd know better.
Clearly they don't.
Everywhere I turn I hear people who know nothing about Wall Street complaining about how much Wall Street people get paid -- as if a few million at the end of the year is excessive as opposed to the barest necessity. Barack Obama's rant about bonuses I can understand: The guy never recovered from passing up Goldman Sachs Group Inc. to become a community organizer.
What's more disturbing -- what has provoked me to the point where I am willing to take extremely valuable time away from shorting Spain to write a column for Bloomberg -- is that people on Wall Street are actually paying attention to what people off Wall Street think.

Crime Against Nature

In the past year I've witnessed more crimes against financial nature committed than in the previous 20 combined:
former Merrill Lynch & Co. traders writing op-eds for the New York Times questioning Wall Street's right to bonuses; Wall Street CEOs afraid to show their faces in Davos: Wall Street firms canceling their boondoggles in Las Vegas out of concern for appearances; former investment bankers telling journalists how much happier they are having more time to spend with the family.
It's gotten so bad that Michael Moore, saying how encouraged he has been by financiers who have written to him, is now mass e- mailing Wall Street employees in search of even more guys who want to confess their sins to his cameras.
Even as I write I am watching the eunuchs now posing as Wall Street CEOs bend over backward before some congressional committee to prove that the operation was a success, and they are now well and truly without testicles.
John Mack swore that he and everyone else at Morgan Stanley have only a secondary interest in money -- that the guys at Morgan Stanley love to bank so much that if necessary they'd do it for free. Vikram Pandit went out of his way to apologize for ordering up a single corporate jet. "I get the new reality,"
he said.

Get It

No, Vikram, you don't. You think the new reality is cowering and simpering before elected officials so that they'll quit being mean to you and maybe even let Tim Geithner give you more money.
The new reality is that you need to grow a pair. Here's how:

-- Play the hand you've been dealt rather than the hand other people insist that you hold.
Pandit and Mack and the rest have completely swallowed "the people's" line that because they've taken taxpayer money they are somehow now required to care how "the people" feel about them.
Think about this. Some fool comes along and gives you $15 billion, no strings attached. The fool doesn't own you. You own him. Mack needs to stand up and say, "We at Morgan Stanley are pleased by your investment. Now, if you ever want to see a dime of it back, go away.
We'll call you if we need you."

Thain's Right Idea

John Thain had the right idea: The minute these numb nuts started to meddle in his affairs he demanded a $10 million bonus after spending $35,000 on an antique commode. Thain's mistake was his last-second failure of nerve. The minute he was exposed in the newspapers he panicked like a 6-year-old caught trying to steal an extra cookie. Which brings me to my second point:

-- Don't allow yourself to feel guilty.
America is supposedly outraged by your behavior. See America's outrage and raise it. "You blame Wall Street for this financial crisis?"
Ken Lewis might ask, as only Ken Lewis might.
"I'm not the guy who walked away from the house he bought but can't afford. I'm not the guy who reneged on his debts. All I did was make it possible for you ingrates to live large, like me."
Having established this pose of righteous indignation (poor people should be thanking Wall Street for agreeing to have anything at all to do with them) seek opportunities to extend it.

Guilt Kills

For instance, John Thain might point out that the thoughts he had while admiring his commode paid for the thing many times over and so he wished only he had spent even more money on the thing. Vikram Pandit might insist that Citi Field not only remain Citi Field but that Citi's subprime-mortgage traders should throw out every first pitch. Lloyd Blankfein might demand further compensation from the Treasury for allowing former Goldman employees to spend so much valuable time on the public's business.
The main point is that guilt is financially counterproductive. To combat yours you need to identify exactly the sort of things that cause the average congressman to say "these Wall Street guys just don't get it," and do as many of them as possible.
Which brings me to my third and final point:

-- Embrace your manhood.
We've all been hearing a lot lately about the dangers of testosterone. A preposterous idea is gaining traction: that the problem with Wall Street is that it is run exclusively by men.
News flash: Wall Street always has been run exclusively by men.
If this crisis is worse than previous ones it may be because, for the first time in financial history, women were let in. Remember Erin Callan, Zoe Cruz, Sallie Krawcheck?
Some of this advice is, I realize, ahead of its time. Most of it is counterintuitive. But if you step back from your situation you'll see that it requires a radical re-think. Above all, you need to keep on paying yourself as much as you can.
No one really liked you when you were making $45 million a year.
How do you think they'll treat you when you're poor?

(Michael Lewis, author of "Liar's Poker," "Moneyball,"
"The Blind Side" and the fictitious hedge-fund man, is a columnist for Bloomberg News. The opinions expressed are his and hedge-fund man's

For Related News and Information:
More on Financial Crisis: NI CRUNCH BN More Lewis columns: NI LEWIS For more of the credit crunch: CCRU For more about banks:
BANKS For more columns: NI COLUMNS BN For the top editorial
menu: OPED

Tuesday, February 10, 2009

Interesting idea from that article... now that I think about it

The stimulus in place within China (and also applies in principle to other parts of the world) fails consider the consequences of not allocating credit into the private domestic sector as a result of excess government spending/borrowing, which will crowd out any real recovery and structural changes in the Chinese economy to sustain wage growth and domestic consumption. This happened both during policy tightening in the last few years (which inadvertently directed excess private capital towards an overheating stock/property market as a result lack of private credit for domestic industry) and the loosening going on right now (2trln out of 4trln must be from banks). This economist's pretty acrimonious with failed policies of the Chinese government, but he gets it, which is sometimes all that matters! (保8 is China's misguided mantra of protecting an 8% GDP growth with public infrastructure spending, this passage is preceded by passages on the dual-economy--private vs. public--and the misallocation of capital which results... interesting read!). Frankly, im surprised the government lets him publish such scathing attacks on Chinese economic policy :) Good for him, stickin' it to the man


"对于2009年政府的4万亿救市工程我想从目的、行动跟手段三方面做一个全面的评估。首先看一看4万亿的资金用途,你们都知道大部分是中西部的基础建设,对于这个用途,我是赞同的,因为它讲的非常明确,目的是为了增加中西部人口的就业量,如果达到这个目的,那在中西部投资完全可以理解,如果你认为这个目的可以达得到,如果为了这个目的保8也可以做得到,但是我要提醒的是,你的副作用是什么?如果要在中西部创造8%的GDP增长需求,同时大量雇佣中西部人口这个我相信做得到,可是我要提醒的是,你能不能够承受副作用,因为金额太大了, 2009年之后能不能筹到4万亿都是未定之数,包括我本人在内都比较怀疑,除非你印钞票,由于9月份开始我们已经和欧美工商链条挂钩,所以从今年开始各级政府财政收入将大幅下滑,这是不可争辩的事实,如果财政收入大幅下滑,你如何筹集4万亿这本身就是一个疑问。


Monday, February 09, 2009


Gotta love these Chinese economists telling it like it is. Especially the part about borrowing to buy cars



  首先想给各位讲两个资料,第一个就是为什么从08年11月份开始,我们深圳和广东地区对外的贸易,或者出口订单大幅下跌,为什么是11月?另外,1月 7号联想开始重组,你认为联想只是一个简单的重组吗?这是这一家公司进入09年之后一个极其悲观的信号,或者叫做一叶知秋。



  我们中国的问题是除了我们所面临的金融海啸之外,我们还有一个别人没有的问题,就是我们有第二个危机,叫做制造业危机。而制造业危机最佳的表现,就是 2006年股市泡沫、楼市泡沫,本质就是告诉你制造业出了最大的问题,所以当时我们整个市场一片火热,对危机我们是缺乏认识的。







  斩断工商链条 设立防火墙


  我们在06年所碰到的楼市泡沫跟股市泡沫,其实就是工商链条的第二张骨牌。第一张骨牌是什么?那就是从05年到06年所开始的,我国制造业所面临的投资营商环境急速恶化,大量资金不做制造业,拿出来炒楼、炒股了,从而冲击第二张骨牌,形成股市泡沫,楼市泡沫。 2、3年之前政府误判,使得第二张骨牌倒下,形成股市泡沫。那么由于制造业回光返照,就造成了第三张骨牌,就是楼价下跌,就造成09年的全面停顿。由于是回光返照,所以第四张骨牌一定倒下,那就是08年你们所见证的一切,就是制造业的倒闭。第五张工商链条就是失业,如果第五张还不斩断,那第六张出来了。







  美国人如何从事泡沫消费?美国银行接给A去买汽车,所以这是泡沫消费,因为他借钱买汽车,然后美国银行把一期债券卖给投资人取出一千块,再借一千块给 B去投资买冰箱,再拿一千块债券借给债权人,然后又拿这个债券借给第三个人买电脑,所以他唯一的功用就是从投资里那里取回三千块钱,借给A和B、C进行泡沫消费。而中国透过政府的两项政策,第一就是拉动GDP,使得消费比例达到35%,第二个政策由于招商引资,使产能扩大到GDP的30%,就是我们一半的产能靠着三千的泡沫所吸收的。那么你慢慢看出危机了,就是我们全国对于出口的误判,误判什么呢?我们没有把它当成三千块的泡沫消费,我们把它当成一个常态,我们甚至简单认为美国、欧洲的消费需求上升,所以我们拼命建仓,拼命扩仓,错误是一样的,因为泡沫消费一旦爆破,就像楼市跟股市一样很难起来了。

  当银行借一千块给A去买汽车以后,他们把这个债权拿在手里不想借给其他人了,为什么不想借呢?因为有三聚氰氨,他就一千块钱抠在手上坐收利息,所以到 11月份美国政府说明什么问题呢?就是美国的泡沫消费由过去三千块跌到了11月份的一千块。美国政府希望拿出8千亿美金里面一千亿借给投资人,请投资人拿一千亿里面的一千块钱向银行收购汽车债权,然后希望银行拿这一千块借给B买冰箱,然后拿一千块冰箱的债权卖给投资人,投资人拿美国政府一千亿里面的一千块钱给银行。希望透过这种借款借给投资人一千亿的方式激活消费市场,否则就冻结了,激活的目的就是让美国人有一千块的泡沫消费变成三千块的泡沫消费。你只要跟从事出口有关的行业,10月份你的出口订单大幅下滑,原因就是中国工商链条透过35%的过剩产能跟美国的工商链条紧密的挂钩在一起了。



  后面还有第四个泡沫, 05年、06年开始,我国制造业所面临的投资营商环境急速恶化,从而冲击第二张骨牌.按照分析,有四大重要原因,以及无数小原因,四大重要原因,第一国家通货膨胀所引发的成本上升;第二个原因,人民币汇率的升值;第三个原因劳动合同法;第四个原因宏观调控的误判,再加上其他一些小原因都是误判,但是太多了,所以我挑四个比较重要的。第一个就是通货膨胀所引发的成本问题,这个是我今天跟大家谈的第四个泡沫。








  我们这个国家有35%的过剩产能要靠出口来吸收,既然是过剩产能要靠出口吸收,所以出口减掉进口,那一定是贸易顺差,是常态,而且很多工厂进口原材料以后简单加工出口,所以在这种结构之下成为一种必然,就像在去年11月份跟12月份,我们经济已经走下坡之后,出口大跌,比如说11月份出口下跌 2%,12月份出口下跌接近3%,而进口11月份下跌17%,12月份下跌21%,进口下跌的速度远远大于出口下跌的速度,这就是35%过剩产能必然的结果。那是什么结果,人民币就升值,到12月份还升值,我佩服你的勇气,是什么时代,你还敢让人民币升值,我们前一阵子连续贬值5天,被美国一吓不敢贬了。各位懂我的意思吧,有些事是只能说不能做的。而且我们出口这么衰退了,你没有想到人民币现在是全世界最强势的货币,你知道吗?美金在涨,人民币涨的还多,最强势的货币就是人民币,我们出口这么衰退了,你还保持这么强势的增值,我不知道该说你什么,我只有四个字,无话可说。






  我们的楼市也是二元经济的产物,根据一些学者做的研究,发现深圳资金炒地产资金7%是外资,其中6%是港澳台资金,只有1%是真正的外资,93%都是内资,什么意思?那就是我07年所说的,深圳房价为什么上升这么快?因为深圳企业倒闭数目应该是越来越多。这就是当时所谓的奇怪推论,也就是深圳房价翻几翻的缘故。制造业资金流入楼市的结果通常是进入高档楼盘,所以高档楼盘价格拉高之后,附近中低档楼盘随之水涨船高。所以真正有泡沫的是中低档楼盘,而不是高档楼盘,这种现象就很可怕,由于高档楼盘拉抬速度过快,使得后续大量资金竟然慢慢进入了整个结构错乱的房地产市场,就是以中高档楼盘为主,这个现象是非常让人遗憾的。所以今天我跟大家演讲的,这种楼价上涨的后果使我们地产商产生误判,误判的结果,是大量资源被这种高档楼盘,或者中高档楼盘所锁定,大量资源进入这种楼盘,一旦萧条之后,使这种楼盘产生严重的供过于求的现象,而农民工这样的弱势群体根本买不起,你再怎么跌还是买不起,因为我们整个房地产资源就误导到了结构性的扭曲上面去了,那就是以中高档为主,加上政府提倡的经济适用房和廉租物,这样造成的差距就更大,实际上真正的农民工还是买不起。这就是绝对扭曲式的超额供给,这种超额供给更可怕。11月份开始的金融海啸威胁,使得地产商的资金链变得非常紧张,结果就是09年开始由于误导到这个行业,使得 09年开始的地产没有大面积的新楼盘推出,没有大面积的新楼盘重新开始构建,这个就非常危险,现在不是楼价跌不跌的因素,而是09年政府要如何刺激大面积的构建地产。否则这个冲击是不可想象的,这就是09年的地产危机。地产危机来源就是我刚才讲的,这里是超额供给,这里是超额需求,两个没有连在一起。如果你这么理解房地产市场跟股票市场,你会发现这两个市场的驱动因素就是二元经济,你只要把二元经济彻底理解了,未来的股价、楼市走势非常容易判断。

  对于2009年政府的4万亿救市工程我想从目的、行动跟手段三方面做一个全面的评估。首先看一看4万亿的资金用途,你们都知道大部分是中西部的基础建设,对于这个用途,我是赞同的,因为它讲的非常明确,目的是为了增加中西部人口的就业量,如果达到这个目的,那在中西部投资完全可以理解,如果你认为这个目的可以达得到,如果为了这个目的保8也可以做得到,但是我要提醒的是,你的副作用是什么?如果要在中西部创造8%的GDP增长需求,同时大量雇佣中西部人口这个我相信做得到,可是我要提醒的是,你能不能够承受副作用,因为金额太大了, 2009年之后能不能筹到4万亿都是未定之数,包括我本人在内都比较怀疑,除非你印钞票,由于9月份开始我们已经和欧美工商链条挂钩,所以从今年开始各级政府财政收入将大幅下滑,这是不可争辩的事实,如果财政收入大幅下滑,你如何筹集4万亿这本身就是一个疑问。








  这也是我跟各位讲的第二个观点:定价.在很久以前,当中国经济要发展的时候,美国已经决定了未来的战略,那就是进入了产业链的战争时代。也就是 09年开始你们所面临的这一切不是产品对产品,也不是公司对公司,更不是行业对行业的竞争,而是一个前所未有的产业链对产业链的战争.你真的认为我们中国是制造业大国吗?我告诉你,真正的制造业大国不是中国,是美国.而美国产业链战争最高指导原则,就是把整条产业链一切为二,把价值最低的放在了中国和其他经济欠发达国家.而制造有三大特色,第一破坏环境,第二浪费资源,第三剥削劳工,他不想要。他要的是制造业以外的其他六大环节,包括产品设计、原材料采购、订单规划,商品运输、产品零售、终端,六加一就是整条产业链.





Friday, January 16, 2009

I dig this suggestion!

lovingly ripped off from Market Vertigo by Cliff Draughn

"The third risk I foresee for Obama's administration is the continued thought process of "too big to fail." Whether it is financial services, autos, transportation, etc., the "top-down" approach of providing more and more taxpayer dollars to weak corporations is ill-advised. In my opinion, if you're using taxpayer dollars, then either nationalize the company or let it fail. And, if you nationalize the company then wipe out the bond holders and shareholders, replace the management and board, sell the good assets to qualified buyers, and then and only then, have the taxpayers eat the remaining deficit. With the current "bailout system" we are merely trying to sustain the status quo, which penalizes those banking institutions that did not make bad decisions while at the same time rewarding poorly managed institutions by handing them taxpayer money. Until you put the stimulus money back in the hands of the private sector (i.e., the individual) you're fighting today's housing/mortgage fires with a garden hose. The bailout funds need to be distributed to the homeowners, not the banking and lending institutions. Banks currently taking the government TARP money (our tax money) are adding it as capital to their balance sheets and then sitting on the funds in anticipation of further losses, rather than lending back into the system. Obama should follow the laws of nature: if you have a herd of animals and some become sick, get rid of the sick. Why continue sustaining the sick animals that will eventually die anyway and at the same time risk the entire herd? A prime example of propping up the status quo occurred in December of this year when Treasury Secretary Paulsen made the unilateral decision to guarantee $306 billion of CitiGroup's assets. The guarantee was in addition to the $25 billion Citi had already received in TARP funding. The $306 billion "guarantee" was not part of TARP and was extended without Congressional approval! $306 billion is equal to what our government spent in 2007 for the departments of Agriculture, Education, Energy, Homeland Security, Housing and Urban Development, and Transportation combined. (The Economist) Unfortunately, the only money makers to come out of TARP and the proposed stimulus bill, in my opinion, will be the lobbyists, the legislators (imagine, with our taxpayer money, the campaign contributions to be received!), and a few "selected" legal, accounting, and infrastructure firms."