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In reply to: kahuna1 on Tuesday 15/07/08 08:20am

Thanks K1

Always an eye-opening read.


I don't understand ecnomics, so could you tell me just what would be the result of leaving Fanny May and Freddie Mac to go down the tube.

Do the creditors then want to sell all the properties to get a few dollars back and the housing market tanks big time ?

The other thing that I wonder about is do all these fantastic executives who have presided over trillion dollar company losses then put out their hands for bonuses ....... or do they get sacked ??? Sorry, I know the answer, sadly.


Cheers and keep up the comentary.



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In reply to: henrietta on Tuesday 15/07/08 10:25am

Hi .... henrietta


they cant let Fanny May and Freddie Mac go down is the simple answer.


Problem is they are trying to and will likely save a dead roo on the side of the road.


House prices simple stuff but if the average price of a house in Miami went to 1.1 million about 22 times the average salary should it be saved the fact that those who purchased late in the game and put up 5% equity ? Same for Las Vegas up near the million dollar mark Same for half of San Fran same for lots of LA counties . Millions and millions of houses involved here. In the US the Central bank unlike any other I have ever seen presided over a mess that is biblical in size. Owning a house is a function of how much you earn and when it goes to 800k for your local area its bad when it goes to 1 million or more its insane.


How can someone paying 5% interest ever hope to pay off such a loan ?


Borrow 800k for your million dollar dream at 2 or 3% rates you have some hope of meeting the interest ... USA kept rates at 1% for 18 months 2002-2004 but here ... with the correct rate being charged something over the inflation rate .... paying 5% or 6% vs 2 or 3% people who borrowed such amounts implode. An extra 25 or 30k per annum is not something that can be afforded.


Thing with the Fanny May and Freddie Mac is that they bundle so much of this debt into securities and sell it on to investors but it still doesn't change the facts ... the economics of the deals. Even with a couple both working and pulling in 120k pre tax between them with a loan up in the sky of 800k the interest alone is 40-50k and the take home pay after tax is 90k ..... and thats even allowing for the fact interest on your home loan in the USA is a tax deduction. Then unlike here the local rates we pay at 3k .... and whine about in the USA local property taxes for a house .... try 20k !!!


Reason for this is the US has a different tax system and your local taxes ... pay for your local school and your local COP ... or Sheriff is payed out of the local taxes. hence the massive differences in taxes. We pay more state and federal tax than the USA but they catch up with the local taxes. So standing back buying a 600k house in the USA the interest may be tax deductible but then add 20k for your local tax which pays for the schools for your kids and local sheriff. So to see US house prices rise above even our own given when you buy a house you in effect pay about another 4% on top via these local taxes was insane.


INSANE .....


To see US house prices DOUBLE what even the Australian average is was even worse.


Not an easy to spot bubble but still a bubble of stupid proportions. its not all over the USA they went this insane but lots of very large cities went totally nuts.


Now USA has to save the Fanny May and Freddie Mac because if it doesn't it will cause a cascade of sellers and the eventual low will be even lower and it will be a depression.


That said ... make no mistake at all the size of this problem. With 10 million out of 60 million houses right now with negative equity behind them and 3 million in total default the long term outlook is shocking even if they stop the wholesale foreclosure of millions of houses by saving Fanny May and Freddie Mac . When you have 10 million houses with a minus 75k equity vs the loan amount in them which i suspect is a reasonable number right now ... some are beyond saving and will go down making the fire sale price and difference even worse. But lets say they keep it together the amount of negative equity is 750 billion right now and at best I suspect it tops the 1 trillion mark about 10% of US GDP.


The mypotic focus of the US markets has been on just the residential side ... what is more shocking to me at least is the commercial and infrastructure side .... its larger in size the total of these loans vs residential ... around 16 trillion vs 12 trillion residential and as yet no one seems to want to admit the very same asset bubble is there on the commercial side.


My opinion mind you ... but backed with any number of things. US commercial property doubled from 2001-2006 in 5 years ... it at least took residential property 6 years and 2 months to do the same.


Sadly I see it as a cascading sort of problem as time goes on. they fix the residential side then they have to have a serious look at the commercial side and the stupid LBO's that saw idiots paying $6- for Qantas .... when its $3.23 .... 7 months later a lot of these sorts of deals sitting in the hidey holes on investment bank and trading banks books and commercial banks books. Our cage has been shaken in Australia since we raised rates and the corners that the shonky stuff was hidden in has had a blow torch applied. In the USA rather than face the idiocy of their last 10 years ... they turned off the lights so the dead rotting bodies could hide and this was facilitated by the US fed cutting rates by 3.25% and ignoring inflation and throwing money at things when this is what caused the problem in the first place.


Eventually ... sadly ... these thing will implode and they take a haircut. However its like a death of 1000 paper-cuts.


My opinion mind you ....


Saw another ... front page of the Australian Business section where some guy was going every 10 years the market gets it wrong ... and badly wrong and this sell-off is just that.


he went on and on about how the US retail sales numbers showed that US consumers were boosting the economy by spending their tax cheques ..... Pity the moron doesn't know squat about anything. If one looks at the Census bureaus numbers ... as I have covered on other threads ... it becomes apparent how accurate they are. Gasoline sales which make up about 12% of all retail sales ... and the retail sales numbers are meant to be raw numbers not adjusted for inflation or anything .... its interesting to note that when petrol to the consumer was $2.68 in Dec 2007 and then the latest read when the price was 50% higher up around the US$4- mark per gallon .... one goes to the DOE dept of Energy and every week they give very precise numbers on oil consumption and refining and so on ... no change in the volume being sold ... tiny about 1.5% as of last retail sales numbers it went down ... latest number a little more ... but the retail sales number as presented by the census bureau ... back in Dec 2007 gasoline station sales which are made up 93% by sales of gasoline if you look at the supposed raw numbers not altered or buggered with and then see the price to the consumer has risen 50% .... if one looks at the total sales in Dec 2007 at 36 billion and then the latest one and knowing they are using just as much of the substance ... one might think the number would be 54 billion or so ? Nope .... try 43 billion. Some where in the midst of statistical buggering is a missing 10 billion .


Same guy went on about various other Numbers and how they showed the US was coming out of things and the sell off of late was incorrect ....



His comment was the trade numbers showed how resilient the US economy was the and lower than expected trade hole last week was proof of it !!! Sadly without calling the guy what he should be called ... when you use US$107- for your oil imports and US$135- for your oil exports according to their actual own numbers .... its amazing what you can make a trade number do. if you further seasonally adjust the fuel imports ... oil side down to US$100- it makes it even better.


His view is based on the numbers as presented. usually I might agree with him. Never in the past 25 years have I been forced to question the numbers as presented.


Sadly when the price of petrol to the consumer ... the US consumer without a currency like ours thats up 10% in recent times ... they have been hit with a full 50% petrol rise a Diesel price rise of 64% ... and amazingly neither has hit the CPI or PPI ... PPI when the energy component is 17% of the index and heavily weighted to diesel to have it removed or 52% of the 64% rise removed since Dec 2007 ... I suppose its what makes me different to most.


being able to see something and call it what it is .... a bunch of bull .... the journo cant do that and he hasn't looked into the numbers because if he had done even a little research he might have gone .... gee the PPI at 17% weighting and the price has gone well over 50% wouldn't that add .... 8% of more to the PPI instead of the reported 1% .


CPI a bigger joke 0.1% vs ... well 4% so 1/40th reported.


Who knows ?


I dont ... however I have a Strong suspicion if the USA spits yet again in the worlds face with the PPI release tonight and the CPI tomorrow night I believe its one of those points in time we can all point back to and go ... well they asked for it and here it is. last one was when they cut so aggressively US rates back in August and kept going in Jan-Mar 2008. Bugger inflation bugger paying creditors a real rate of interest ...w e must save our own. Same thing I suspect happens but with a vengeance ... have the tissues ready for the mouth full of spit about to be launched again.


If things were and are so good as the guy from the Australian seems to think, how come .... how come are so many companies downgrading their profit outlooks and not by a little but by a lot. How come for closures rose 48% last month in the USA. How come every day a new bank says it needs to raise capital ... how come if the CPI is not moving ... how come the price of part manufactured goods was able to rise 50% ... or the price of petrol 50% diesel 64% or wheat 60% or Rice 100% or iron ore 75% or thermal coal 100% or coking coal 200% and so on and so on.


Its nice to have differing views but when someone says something which is a puff piece at best and goes look at the reported US numbers things are really getting better .... I just scratch my head.


Its all simple ... if it cost you $40- more to fill your family car ... and your income is the same it means the saving has to come from some other area of your spending. either that or you borrow more.


time will tell with all this and my opinion is free ... so thats how much its worth .... nothing.


They spit tonight and then again with CPI numbers tomorrow and I feel the reaction is not one they will cherish.


I find it insulting to be told lies of this sort of size. Astounded some one working for a newspaper would be foolish enough to write a piece going gee the numbers look good and the marekts got it all wrong.


Obviously not one of the members of SS ....


Never ceases to amaze me some of the US based stories that come out on Fox or CNBC and more recently Bloomberg ... all is well ... its over ... we go to new highs :} Been playing the same tune for 6 months now and as yet to find a base.


Till we see fear and this time I dont mean the usual 2/3% down stuff but a full blown one way market and it reaching a creshendo its not possible to go up. Market needs FEAR and at present all we are seeing is one group try and pick the bottom only to have to sell out as a new bottom is made either the next day or two days later.


We are less than 3% from my insane 4,700 bottom for the ASX 200 and with the total lack of fear and the US market not respecting risk and about to spit in anyone with an IQ over 40's face via fabricated PPI and CPI numebrs for almost sure yet again ... the end is not in sight. When one does not respect risk .... bad things always happen. Kind of like when you mess with things that never should be touched ... as the Us is doing with its tinkering with economic numbers .... got to love the seasonal adjustments.



Doom gloom and more doom and gllom please with a side of fear and carnage sauce please.


Lunch time at the zoo !!




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QUOTE (Danville @ Tuesday 15/07/08 01:14pm)

U.S. Producer Prices Rise 1.8%; Core Rate Gains 0.2% (Update2)


By Bob Willis


July 15 (Bloomberg) -- Prices paid to U.S. producers rose for a sixth month in June, pushed up by surging fuel costs that underscore risks of inflation.


The 1.8 percent increase was the biggest gain since November and followed a 1.4 percent jump the prior month, the Labor Department said today in Washington. So-called core producer prices that exclude fuel and food increased 0.2 percent, less than economists forecast.


Higher prices for fuel and raw materials cut into corporate profits and pressure them to raise prices. Federal Reserve policy makers, who have paused in their steepest rate cuts in two decades, last month said ``upside risks'' to inflation had increased and they would act ``as needed'' to foster both stable prices and growth.


``It was primarily confined to the energy sector,'' said Lindsey Piegza, an analyst at FTN Financial in New York, which correctly forecast the rise in the core rate. ``There is risk that in the future they could seep through and cause an inflationary spiral, but right now inflation is going to take a back seat to the slowing economy'' on the list of Fed concerns.


Separately, the Commerce Department reported that retail sales rose 0.1 percent in June, less than economists forecast, and down from a 0.8 percent gain in May. Purchases excluding gasoline dropped.


The Dollar


The dollar fell 0.5 percent to $1.5993 per euro at 8:35 a.m. in New York, from $1.5908 yesterday, and touched $1.6038, the weakest level since the 15-nation currency's debut in 1999. Standard & Poor's 500 Index futures expiring in September lost 13.3 points, or 1.1 percent, to 1,215 at 8:38 a.m. in New York. Dow Jones Industrial Average futures retreated 116, or 1.1


Prices paid to factories, farmers and other producers were forecast to rise 1.4 percent, according to the median of 77 forecasts in a Bloomberg News survey. Estimates ranged from gains of 0.5 percent to 2.9 percent.


Core prices were projected to rise 0.3 percent, according to the survey median.


Fed Chairman Ben S. Bernanke is scheduled today to give semiannual testimony about the economic outlook to the Senate Banking Committee at 10 a.m. Washington time.


etc etc etc



Next chapter in the biggest farce of all time!


US Peso Tanks, Gold up---whats new???!!!!!

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Well ,


Got my wish ... not too much spit in my face.


Well only three gobs. Headline rate PPI up 1.8% instead of the expected 1.3% .... they were unable to use any more seasonal adjustments for food or oil and as such the headline number had to contain the full brunt of oil going from US$98- to US$106 !!!


Wait my screen is broken .... even with oil falling out of bed isn't it US$30- higher than that ? Oh wait looking at the diesel price ... isn't is 50% higher than the number they used in the PPI ?


Whilst happy with a higher number the amount still to be paid back from these insane seasonal adjustments is ... massive ....


PPI hit 9.2% year on year ... of the seasonal adjustments for oil and diesel when they repay them ... that alone will add another 6% to PPI inflation.


What I did finds stunning was the tame non food and energy side ... no inflation there .... total contradiction to the same govt departments Numbers issued late last week on import Price index. two shocking months well over 2% a month and the rises even if we take out oil were awful.


What was the number ... partially manufactured goods up 50% ? Year on year ...


Sadly the PPI has yet again adjusted this out so as to present a number ex food and energy its all tame.


Nothing sadly could be further from the truth. Core PPI went up 0.2% ? Oh really with some categories raw numbers outside the food and energy recording highest ever increases ... pull the other one.


Took some nifty adjustments to get the core number so low. The increases in the import price index which the same govt department produced last week ... the massive and awful spikes in prices all disappeared ... and the womens apparel i do love how they use this one the prices actually fell .... 0.4% when the report 3 days before .... said the prices rose by 1.4% ... since its such a heavy weighting making something any self respecting man never will look at fall when its really risen is a neat trick. Other glaring falls light trucks fell 1.8% in the month ? Yes the currency falling against the major trading partners cause it all to go down .... primary non ferrous metals fell out of bed ... and copper fell out of bed according to the PPI last month.


What I do find amazing is the USA on coal prices has caught up ... and their current prices are 100% higher than 12 months ago .... so when I go to the PPI table buried at page 16 and look at the rise last 12 months ? Go on ... make a call .... 25.7% .... so no seasonal adjustment there ... but just below it on the table the Crude oil price 12 months ago for this series was less than half ... but the raw rise of 105% form the low US$50- where It was 12 months ago on this series .... vs the US$106 used this time ... when I go to the adjusted after seasonal number the fact they were using US$106- vs the current spot 30% higher I might have thought was enuf .... nope they dont want you putting this together so you have to put them together looking up each of the adjustments after seasonal buggering but the 105% raw increase form US$52- to US$106 .... 105% or so ... to make matters worse after seasonal adjustment they are taking even more ... its only up 56% not 105% ....


What bloody price are they really using for oil ? Its still under US$100- ....


All an aside ....


Third largest fail of a US bank ever and still the US market sits propped up like a cadaver ....


On the PPI ... the importance of the core rate not showing any inflation and the food and energy side being seasonally adjusted and the lag of oil price used ... US$106- but after seasonal adjustments I am not sure its even breached US$90-=-


I do find this so annoying .....


Spittle dripping off my face.


Dow Chemicals which produces a vast array of chemicals which are used in all facets of production ... its sees no price pressures at all ... it just announced a 25% increase in prices across the board for its products.


Nope no inflation outside food and energy ....


Sadly the US market is still living the dream without a single whiff of fear out there.


The third largest ever bank to fail over the weekend and what does the market do ?

Not a hell of a lot given the size of this news.


I await the CPI tonight and maybe since they surprised me with the PPI actually reporting something closer to the truth .... OH really ... sorry being foolish here.


If they used oil at the 30% higher price and repaid the seasonal adjustments in the PPI which are 40% of the rise to date .... thats to US$106- the price used in the PPI ... instead of being 9.2% PPI ... the PPI would be 14.5% just for the oil adjustments alone. As for the others ... Jesus the Chinese import prices for apparel keep going up ... but they according to PPI and CPI keep going DOWN ..... I know for fairly sure the prices are going up in dollars and the PPI and CPI being adjusted down is a fiction ..... fiction vs reality ....


who wins ? Fiction short term ... long term .... reality.


Cant wait the latest episode in the CPI saga ... has the price of petrol gone over US$3- per gallon yet according the US CPI ?


Its actually US$4.10 to the consumer mind you .... but after seasonal adjustments according to CPI last month the price was still below the US$3- mark ....




Oh well death via 1,000 paper cuts it is ... lets save the Fannie Mae guys ... they are broke like the Mono-line insurers .... all reserves gone ... lets make it illegal to sell Fannie and Freddie Short ... the fact the shares are worth ZERO and in fact likely MINUS US$100- is the correct price ... nope lets make it illegal.


If one knew bond corp or HIH and what would happen and we were allowed to sell them short making it illegal to sell either short at $5- when you knew the actual outcome and HIH was minus $10- value in the end ..... all very funny the goings on in the USA right now.


Bottom line we cannot let even companies which are broke ... go broke and ... we leave it all for the chip guy or Obama the next president of HIH or Enron or whatever one wishes to call this ship.


In the meantime ... no fear ... bank collapses and not a whiff of fear out there.


Amazing the resilience of the US market. I have another word for it mind you ... stupidity comes close. Each day seems to bring fresh horror to the picture and sweeping these things under the carpet and putting a band aid on a cancer patient as Rogers commented is not even coming close to the pile of doo doo out there.


Not just one direction but take your pick ...


Mono-line insurers ... broke

Prime insurers Fannie and Freddie ... now both broke

Inflation out of the park ...


Dollar on its knees


fiscal policy a joke with US govt deficit awful and stealing from baby boomer's pensions reaching new peaks.


Monetary policy ? what idiots presided over this credit mess and their solution ... more of the same ... prop up the dead body ....


Debt ... adding 22 trillion or 150% to debt in the last 10 years taking it to 400% of GDP ... no one seems to want to face the music ....


Trade ... US has not run a surplus trade number since I went kindergarten and thats a long time ago ....


It has spent more than it produced and borrowed to make up the difference for many years, this level and intensity last 10 years exploded and no one seems willing to face the sad reality there is eventually a bill to pay.


Another few months of paper cuts and lets leave it to the new president ?


Not sure the cadaver will cooperate and giving mouth to mouth to something thats been dead for a few years it just sick.


For me as I said on the Fannie Mae thread ... there is now a race like the mono-line insurers ... the quicker you get your paper declared bankrupt and make them pay up their insurance on it the better off you are. All of them are broke and its degrees of how far broke they are thats the question. Sadly they cannot be saved ... SEC saying its illegal to sell shares in something for $10- when its in reality worth Minus US$100- a joke.


All smoke and mirrors.


Structurally the USA is broken. From the trade side to the credit side. the fact the asset bubble is here is an aside and these things are going down either way. Until you export more than you import, save more than you spend ... and tax more than you spend as a government the structure of the whole thing is broken.


Not going to change under Bush. His job is to drop smoke grenades all over the place till he leaves than god in 5 months .... McCain I doubt has the stamina to do it ... make the changes ... telling people sorry but we have to raise taxes and take a hit ... Keating we loved his one a few years ago. Obama he wants to talk about it and talk and talk and try and placate the thing. Sadly when you have such crap going on .... you need someone with the guts to make some very unpopular choices.


Can the US keep racking up trade Numbers like it is ? At 6% of GDP and then add the govt deficit side up same level ? Adding 12% to the debt pile before even the corporates and consumers try and add some more ... when the pile is already 400% of GDP adding another 10% or 15% so what ?


Going to be an interesting ride 2008 ... can Bush and Paulson drop enuf smoke grenades to cover their retreat ?


Sadly either way ... longer term .... its reached critical stage here ... my nuclear option I have been prattling on about since 6,700 on the ASX 200 ... still a remote chance ... but the Reactor has gone super critical and whilst a Chernobyl type event still not likely the reactor has been damaged beyond repair. Having Fannie Mae and Freddie Mac go down just last few nails in the coffin.


How they go from here ... I suspect its more smoke and mirrors from Paulson till they depart. Expecting honesty from someone who's first job was working for Nixon's aid who went to jail is a bit much. Expecting it from someone who then went on to a career in investment banking is like asking the Pope whether its ok to have pre marital sex.


What does amaze me is the pure arrogance Paulson treats the market with. Oh we are going to save tow bond insurers Fannie Mae and Freddie who insure 5.3 trillion in bonds they issued ...w e are saving them by buying 3 billion of their debt securities ?


What a joke. the two have 50 billion in reserves between them ... at least 300 billion in the bonds they issued are crap and minimum they are MINUS US$50- billion in equity right now and if its not minus 150 billion I will eat my shorts.


Paulson's smart arsed plan just like the two previous ones treats the markets with the contempt they deserve ... or so Paulson thinks. I suppos ebeing fair hiring someone without a conscience is exaclty what is needed. someone who can give a press conference and say this is all right and make soothing noises as he has time and time again when in fact he knows and me having been around for 25 years also know ... the thing is dead ... its broke and making moises soothing ones does not change this fact. he did not become the CEO and Chair of goldman sachs by being a dummy, he is no dummy .... but the baility to sell something which is worth 5 cents for $400- is exactly what is needed and thats what investment banks in the main do. Sell things for more than they buy them for. sure they sometimes buy thigns make them better and rightly sell them for more but in the main its buying something .... doing little other than dressing it in a frilly dress and then onselling it for as much as you can get.


Business nowadays ....


Billions and likey trillions lost in this mess ... I would send half the people involved to jail from the mortgage brokers to the invesmtnet bankers to the credot ratings agencies and anyone in between. Fraud and theft and greed sadly lie at the bottom of all these booms and busts. Rarely do the crooks get caught or punished.


Distressing thing for me was the last two .... Even I believed the first one and it was not clear how shocking the quality of the loans were or how far the US fed had let the US property market go. One cannot be on top of everything ... but seeing they had let it double in 6 years then double again sent shivers down my spine.


Second plan the market loved ... like the first to save the mono-line insures ... well its failed and even the real insurers .... the PRIME insurers insured total crap . Any idiot who lets house prices rise to well over US$1- million for not just one city but lots of them when the average income is 50k has presided over something special ...


Yes Mr Bush, Greenspan , Paulson, Berananke .... your all very special :}



Greenspans got an excuse for the last 10 years ... he was senile .... Not really Paulson's fault as such ... he is the dirty tricks man they hired to cover the mess till they can exit ... Berananke the new guy on the block but handed a pile of poo .... Leaves in some part Clinton but more Bush ..... but each has added his little special touches to it.

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In reply to: kahuna1 on Wednesday 16/07/08 09:37am

At this time of total gloom and doom you make some very good doom postings. What I would be interested to hear is your positive outlook for the USA. It is often at these times of total gloom that the unexpected happens. I see some good signs already, the main one being the "USA for sale at bargain prices" The other positive that I see is the world pushing the US to take the very painful action that is needed, this could involve a complete loss of face for the once proud nation. Many US companies that sell their services overseas are still in major bullish uptrends (egMO,ORCL,PG ect) profits in US dollars are going through the roof. With the overvalued Euro 100000 can now buy US$160,000 value of shares whereas a few years back the same amount would only buy $85000 worth of shares. The same is true for property. The same is true for companies. What are overseas holders of US $ going to do with all the large amounts they hold ? The answer take out good quality US companies on very favourable terms, its already starting. Its really going to hurt the Americans but they have no choice ,they voted those idiots in and now have to pay the price. USA will have to say to the world "We are in a complete mess, a fire sale is on we are prepared to sell everything at bargain prices to get out of this mess" A European buying a company doing business overseas such as Pfizer can now buy about 9500 shares whereas a few years ago the same money would have only bought 2300 shares, also current yield is over 7%. Looks a lot better than whats available in Europe.

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In reply to: albion on Wednesday 16/07/08 11:06am

Yep point taken ....


Lots of things being thrown out with the dishwater.


Pfizer ... interesting met the old CEO now on CSL board ... nice guy.


Lots of these multinationals yes .... under priced in terms of long term value. Companies which get more and more earnings from overseas .... sadly they make up by value about 30% of the DOW .... things like GM or their airlines or purely domestic banks and others with a 100% or 90% domestic focus dwarf the positives out there.


So yes ... I dwell on the doom and gloom because sadly ... overall whilst I agree with your excellent point some are trading at very very attractive long term value areas ... the core ... the 70% of pure domestic stocks in the US there remains a problem and the financials are just part of it. hit hardest and with good reason but the lack of taking a broom to some others is dwarfing the values of the Pfizer's and all the rest.


If your going to tell me the mono lines are worth more than Zero ... AMBAC and MBIA ... and Freddie Mac or Fannie Mae is worth more than zero I would just point you towards their balance sheet. Sadly ... and not being doom and gloom just realist there are whole slabs of the US index priced for perfection when in reality pricing for anything but bear is foolish.


As to the level of the US dollar its all relative and yep Pfizer looks cheap and is cheap at present levels .... irrespective of the level of the US dollar and its being made cheap by these overseas earnings .... not so much the domestic ones. Do they rally some of the value sectors ? Sure maybe .... however the financial side and side created from lending to any fool in a cardboard box who wanted to buy a home has yet to really enter the equation.


Once someone looses their home it cripples them for several years. The prices of the average stock trading on the domestic side has an EPS growth assumption on average built into it .... that somehow ... as if by magic their fortunes are going to recover and the economy rebound overnight and the 25% increase in EPS priced into the forward earnings outlook for the S+P 500 .... aint going to happen.


However I do agree some of these larger multinationals ... yes are cheap .... in the end it depends on how bad one views the current woes in the USA.


Do you expect it to recover ? Or go up overnight ....


I see the whole problem with the US as a structural one ....


Fiscal policy and govt overspending gone nuts .... solution either cut spending or raise taxes ... unpleasant but thats the truth.


Not a positive for any recovery.


Monetary policy is set so lax .... its absurd with inflation I suspect 6/7/8% in reality to have fed funds at 2% ? And debt levels 400% of GDP up 150% ... Again unpleasant but true.


trade ... shocking .


I am being balanced overall and was saying the same thing nearly 2,000 points ago on the ASX 200 ... in fact it was 2000 points ago.


Yes right now I accept we are closer to the eventual bottom than the top.


However for me to see any bottom ... there has to be some light at the end of the tunnel and when the structure is broken .... and thats what it is I see no chance of any meaningful recovery. Sure they may have another dummies rally 10% lets make it 15% .... however till the structure is fixed it is stuffed and getting more stuffed as they build more and more onto a foundation which is broken.


Other key for me ..... is with each of these cycles on and on I go about respect for risk and fear .... when the market reaches the end of any of the cycles whether it be a top or a bottom the brains are thrown out the window at the top and we see stupid and idiotic rises ... on the bottom the sellers just have cows and their is a series of down days and then follows a cataclysmic day where it makes and creates a bottom for it to rebound off.


Right now ... there is not a whiff of fear out there. NONE.


People and the market shrugs and goes ... oh its gone lower ... thats ok .... its only 1% lower today .... and on it goes.


Here at 4,800 on the ASX 200 we are I suspect 75% of the way to its low maybe a little less.


When people and in this case a govt is prepared to kick a problem under the carpet and leave it for the next guy ... its still there.


I wonder how the next US president deals with the fact that in 2009 instead of having 50 trillion or so in Social security to pay pensions to 60 million baby boomer's the Social security has a mere 3 trillion in savings ?


An aside to the current problems ... too much debt ... too lax credit policies ... a housing market gone nuts ... a not even talked about commercial property market that went even more nuts.


I could talk positive but when you have the third largest US bank fail ... ever ... over the weekend it would be pointless to talk things up.


but yep agree ... some getting very cheap.


Thing is ... for one like a drug company if I am correct and US faces a recession and a long one as it repairs the damage .... how strong are those earnings when half of them are US based ? If the baby boomer's pension has been spent ... as it has ... will they be able to afford the drugs when the cash runs out in 2015 ?


All vexing questions .... I presume they pay some sort of pension to people retiring but the expected Social security cheque they get in 2008 vs reality post 2015 I think will be about a 50% haircut for the baby boomer's.


have fun .... would like to see a 10 day period where US market had a cow ... down 2% then 3% then 1% then 4% signaling a fairer reading on what is value ....


Not prepared to buy even at what appears to be bargain levels for some stocks ... sadly the banks looked cheap here about 20% higher than where they are now . I await some sort of susptained selloff and without fear there cant be a low. without change to the structure I doubt there can be low .... without any repest for risk I cant see a low.


Since we have none of the three ... I still wait ... but yep closer to the likely low than we were ... not prepared however to talk lovingly about stocks despite the bargain levels thay are at compared to a few months ago. Too many people trying to pick bottoms the whole way down and I am sure if they were honest they bloody wish they hadn't.





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That's not doom, this is doom:







Event Horizon - by JHK



There's a particular moment known to all Baby Boomers when Wile E. Coyote, in a rapture of over-reaching, has run past the edge of the mesa and, still licking his chops and rubbing his front paws in anticipation of fricasseed roadrunner, discovers that he is suspended in thin air by nothing more than momentum. Grin becomes chagrin. He turns a nauseating shade of green, and drops, whistling, back to earth thousands of feet below, with a distant, dismal, barely audible thud at the end of his journey. We are Wile E. Coyote Nation.


Is there anyone in the known universe who thinks that the US financial system is not fifty feet beyond the edge of the mesa of credibility?


Nothing will avail now. Not even if Sirhan Sirhan were paroled at noon today and transported directly to the West Wing with a .44 magnum in each hand (and a taxi driven by the Devil waiting outside to take him to the US Treasury and the offices of the Federal Reserve).


It's hard to imagine what kind of melodramas were unspooling on the Hamptons lawns this weekend, while everybody else in America was watching Nascar, or plying the aisles of BJs Discount Warehouse for next week's supply of mesquite-and-guacamole flavored Doritos, or having flames and chains tattooed on their necks, or lost in a haze of valium and methedrine.


With the death of the IndyMac Bank last week, and the GSEs Fannie Mae and Freddie Mac laying side-by-side in the EMT van on IV drips, headed for the Federal Reserve's ever more crowded intensive care unit, there was a sense of the American Dream having passed through the event horizon that denotes the opening of a black hole.


What would happen if the US Government acted to bail out these feckless enterprises (and what if they don't)? Either way, it's not a pretty picture. If Mr. Bernanke does start shoveling loans into the GSE black hole, he'll further undermine the soundness of his own outfit and do nothing, really, to repair Fannie and Freddie's structural problem of having securitized too many loans that will never be paid back. If instead Fannie and Freddie are flat-out taken over entirely by the US government (and remember the Federal Reserve is not the government), then the national debt will roughly double overnight -- which will pound the US dollar down a rat-hole.


Meanwhile, the foreign holders of those decrepitating dollars might not rush to the redemption window, but they certainly would use them to buy up every oil futures contract on God's not-so-green Earth as fast as possible -- they'd be dumb not to -- which would leave American Happy Motorists with gasoline prices north of $5 a gallon, and possibly north of $10. (In that case, say goodbye to the airlines. In fact, say goodbye to what passes for the rest of the US economy, including especially the vaunted retail sector that supposedly counts for 70 percent of the action.)


If Fannie and Freddie are left to die out on the desert floor, say goodbye to the housing market, the major investment banks, countless regional banks, the retirement accounts of virtually everyone in America, the viability of all fifty states' governments, and the day-to-day operating ability of all their municipalities -- and very likely the current incarnation of the world banking system.


This process is really out of control now. The bottom line is the comprehensive bankruptcy of the United States. The Republican Party under George Bush will be known as the party that wrecked America (release 2.0). Painful as it is, Americans had better get a new "Dream" and fast. It better be a dream based on the way the universe actually works, which is to say an operating procedure run on earnest effort and truthfulness rather than merely trying to get something for nothing and wishing on stars. We might begin symbolically by evacuating Las Vegas and calling in an air strike on the loathsome place -- to register our new reality-based attitude adjustment.


After that, we've got to get to work re-tooling all the everyday activities of life, including the way we grow our food, the way we raise and deploy capital, the way we do trade and manufacturing, the way we go from point A to point B, the way we educate children, the way we stay healthy, and the way we occupy the landscape. I know, it sounds like a lot, maybe too much. But grok this: we don't have any choice if we want a plausible future on this portion of the North American continent.


Of course, none of that is likely to happen. Instead, and under the worst imaginable economic conditions, we'll probably embark on a campaign to prop up the un-prop-up-able and sustain the unsustainable -- that is, defend every status quo habit and behavior that we're used to, whether it can be salvaged or not. Of course, this would be a fatal squandering of our dwindling resources, but it it tends, historically, to be the last act of the melodrama in any faltering empire.


The result, pretty soon into that process, will be social breakdown and political upheaval. Every tattoo freak out there who has been prepping for his own starring role in some kind of comic book armageddon will finally get his chance to shine. Lots of people will get hurt and starve. Property will change hands in a disorderly way. And at the end of this process an American corn-pone Hitler may be waiting to set everything and everyone straight.


The markets open in about an hour. Good luck everybody.

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In reply to: kahuna1 on Wednesday 16/07/08 02:35pm

Hi K1


Long term reader of your posts. I suspect there are many lurkers on this site who have remained sane (and better informed on what is really happening) by their daily dose of K1.


With all the remarks about doom and gloom in the recent posts thought that everyone might enjoy this sadly accurate satirical take on the US economy.






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In reply to: albion on Wednesday 16/07/08 11:06am

you have a cool head abion.


Ffizer had bit of problem with their pipline, CEO seems try to wait for the good timing to go shoping.{boost their pipline}. have to say at current price it is bargain non the less.


INTC is another good one to pick, see their after hour action. earning release and CEO comments. lower dollar really helps it both balance sheet and competitiveness to it's assian conterpart.


there is another one to keep eye on it----CAT, it expending really fast at Assia-- where growth still looks good. suspect it will bring some earning suprises as well.


but as K1 point out that market sentiment is in the shity hole, you might be able to get them even cheeper.


what i do is when i see the weakness i go in and pick little stake----a fency word-----accumulate?? LOL... if we get those earning surprises then sell a chunk into it and keep some in case market have a sustainable rebound.



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