Tim Geithner (Sec of Treasury) said that there was "no justifiable rationale" for the U.S. credit downgrading by S&P. The Omaha oracle, Warren Buffet, stated that Standard & Poor's had erred in lowering the credit rating. As well as, John Bellows (Acting Secretary for Economic Policy) joined in with Geithner and Buffet stating that it had been a math error on the part of S&P. They had added the same $2.1 trillion to a different baseline which changed the numbers considerably. Nevertheless, S&P acknowledged their mistake but changed their rationale from an economic justification to a political one. Consequently, this is having a huge negative effect in many ways. European Central Bankers are holding a crisis meeting to figure-out what this will mean to them and how to stem the tide of the tsunami that is already hitting their shores. Michele Bachmann wants Obama to fire Geithner (memo to Michele, Tim said on June 30th at the Clinton Global Initiative, that he was considering leaving the government sector after the collapse of Wall Street, Bear Sterns & Lehman Brothers in 2008, and now this federal debt debacle...he wants to go). So this might be a long week-end of wait and worry as we wonder how this will affect the global markets and our own markets on Monday. Whatever you do, don't watch the link below or you really might not be able to sleep.
http://marcfaberchannel.blogspot.com/2011_08_02_archive.html
Saturday, August 6, 2011
Friday, August 5, 2011
MARC FABER OF THE GLOOM BOOM & DOOM REPORT
Marc Faber predicted the Crash of 2008. You might want to take a listen. He is worth the 8 mins.
MARC FABER CNBC VIDEO INTERVIEW AUGUST 5, 2011
The interviewer asks if this is the End Game...is it the collapse of Western Civilization as we know it? Is it the end of Capitalism?
http://marcfaberchannel.blogspot.com/2011/08/marc-faber-markets-has-experienced.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29
MARC FABER CNBC VIDEO INTERVIEW AUGUST 5, 2011
The interviewer asks if this is the End Game...is it the collapse of Western Civilization as we know it? Is it the end of Capitalism?
http://marcfaberchannel.blogspot.com/2011/08/marc-faber-markets-has-experienced.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarcFaberBlog+%28Marc+Faber+Blog%29
S & P Cut Rating to AA+
When any disaster occurs it takes a few days to assess the damage. Now the statistical reports are coming forth to report that the US markets are facing more calamitous happenings. Standard & Poor's waited till the markets closed on Friday before they lowered the credit rating one level to AA+. They (like everyone else) are blaming the politics on the Hill for failing to cut spending enough to reduce the deficit.
The talk by the economists today (August 5) was one of telling everyone not to over react. They said the market was acting on emotion and needed to calm down as this was not the end. Nevertheless, the damage from this last week of declines is hard not to get emotional about.
1. Stocks fell the most in 32 months.
2. The S & P 500 fell 9.5 % in one week...yikes!
3. Bank of America is the biggest loser with loses of 13 %! Repeating: Bank of America fell 13%.
4. The Dow dropped 698 pts. in one week.
5. Over 2 Trillion wiped out.
If we go by prospect theory that losses are more painful than gains are pleasurable and that people give a higher negative value to a loss; then we know that this was a very upsetting week for many. The losses were catastrophic with many retirement funds taking a huge hit. And now with the US credit rating being lowered we will all feel this as our interest rates begin to climb. If you ask me, this has been a very bad year in so many ways...all the natural disasters of fires, floods, droughts, tornado's, and now financial crisis must be added to the list. All we can do is wait and see what tomorrow will bring. And thank goodness it is a week-end.
The talk by the economists today (August 5) was one of telling everyone not to over react. They said the market was acting on emotion and needed to calm down as this was not the end. Nevertheless, the damage from this last week of declines is hard not to get emotional about.
1. Stocks fell the most in 32 months.
2. The S & P 500 fell 9.5 % in one week...yikes!
3. Bank of America is the biggest loser with loses of 13 %! Repeating: Bank of America fell 13%.
4. The Dow dropped 698 pts. in one week.
5. Over 2 Trillion wiped out.
If we go by prospect theory that losses are more painful than gains are pleasurable and that people give a higher negative value to a loss; then we know that this was a very upsetting week for many. The losses were catastrophic with many retirement funds taking a huge hit. And now with the US credit rating being lowered we will all feel this as our interest rates begin to climb. If you ask me, this has been a very bad year in so many ways...all the natural disasters of fires, floods, droughts, tornado's, and now financial crisis must be added to the list. All we can do is wait and see what tomorrow will bring. And thank goodness it is a week-end.
Thursday, August 4, 2011
Global Financial Meltdown..again!
They say when America sneezes the world catches a cold. Today has proven that cliche is true once again as we see the terrible illness that is infecting the world markets. The Dow Jones fell 512 pts. Marc Faber stated that the world has gone crazy with panic selling. He states the "whole world has gone mad!" The European and Asian markets tumbled more than we did today. Some were saying to get out of the way of the oncoming freight train. Many are predicting a severe recession and some say maybe depression. It appears that we are headed for some very bumpy times for awhile as the world economy is slowing down. That means there won't be growth. That means there will be more job loss. Some are predicting another crisis like 2008. Others are asking if it is now time to consider "global austerity?" (Austerity: severe, forbidding, without excess, luxury or ease, without ornament, simple, grave, sober, solemn, harsh, rough, and bitter)
Reasons for the severe downturn:
1. Already distressed markets.
2. Over-sold markets.
3. The fall-out from Capital Hill escapade.
4. Sovereign debt problems now spreading to Italy.
5. Worsening job market.
6. Lack of consumer confidence and spending.
The way the can has been kicked down the road makes me think that Ben Bernanke will ride in on his white horse and fire up the cannon with Quanative Easing 3. Although, most economist don't believe that QE 1 & 2 fixed anything. It has done one thing...postponed the PAIN. We will see what tomorrow will bring. But it doesn't look too good right now. Nevertheless, we did get beyond the 2008 crisis. And who would have thunk it!
Reasons for the severe downturn:
1. Already distressed markets.
2. Over-sold markets.
3. The fall-out from Capital Hill escapade.
4. Sovereign debt problems now spreading to Italy.
5. Worsening job market.
6. Lack of consumer confidence and spending.
The way the can has been kicked down the road makes me think that Ben Bernanke will ride in on his white horse and fire up the cannon with Quanative Easing 3. Although, most economist don't believe that QE 1 & 2 fixed anything. It has done one thing...postponed the PAIN. We will see what tomorrow will bring. But it doesn't look too good right now. Nevertheless, we did get beyond the 2008 crisis. And who would have thunk it!
Wednesday, August 3, 2011
The Market Today
Is the market the pulse of the economy? Many think so! If this is the case then there are some points of interest from today's market report.
1. The market has made a 10% correction.
2. Bloomberg reported that yesterday a trillion dollars was lost in the drop in the market (8/2/2011).
3. There was so much selling today that the "circuit breakers" kicked in. (Circuit breakers were put in place to stop any stocks that fall more than 10 % in a 5 minute period as a result to the Flash Crash of May 6, 2010).
4. Gold has went up $70.00 since Monday.
5. They called the market today "a panic market" as it was dropping again today.
6. Companies were the biggest stock buyers today as they bought back their own stock as it was so cheap.
7. The Dow has had the lowest slide since 1978 with 9 straight days of losses...till today.
This is just one day of news in the market. Economists are worried that this "soft patch" may last and turn into a downward forecast for our economy. The lowering of our credit rating is still being considered. What does this all mean for you and for me? Time will tell.
1. The market has made a 10% correction.
2. Bloomberg reported that yesterday a trillion dollars was lost in the drop in the market (8/2/2011).
3. There was so much selling today that the "circuit breakers" kicked in. (Circuit breakers were put in place to stop any stocks that fall more than 10 % in a 5 minute period as a result to the Flash Crash of May 6, 2010).
4. Gold has went up $70.00 since Monday.
5. They called the market today "a panic market" as it was dropping again today.
6. Companies were the biggest stock buyers today as they bought back their own stock as it was so cheap.
7. The Dow has had the lowest slide since 1978 with 9 straight days of losses...till today.
This is just one day of news in the market. Economists are worried that this "soft patch" may last and turn into a downward forecast for our economy. The lowering of our credit rating is still being considered. What does this all mean for you and for me? Time will tell.
Tuesday, August 2, 2011
United States Default...Not Today!
I always wonder what is really happening when the media and government keep our attention concentrated so uniformly on one topic. This past few weeks it has been agenda setting of "Will the United States default?" The media had the whole country whipped into a frenzy with worry and disgust. And alas, it has been kicked down the road till after elections. But the real question is whether the country is out of the woods over this or is it growing ever so much larger with unimaginable consequences?
Neel Kashkari (Managing Director for Pimco) reported to Bloomberg News that the economy has taken on so much debt over the past few years to "fuel consumption" that spending has now fueled a crisis. He believes that we need to restructure the economy towards savings and investment instead of spending and debt. He argues that the politicians need to be leaders instead of looking to the next election or checking the latest poll for what is popular. Kashkari argues that when government taxes an activity that society uses less of a certain activity like cigarettes or alcohol. He stated that when government wants people to work more and save more that they shouldn't be taxing income and savings. He also emphasized the need for a massive architectural change by considering Means testing. Means testing would eliminate those that have saved all their lives, that have high paying jobs and retirement from collecting Social Security and Medicare and Medicaid. Regardless, that they have paid into the fund all their lives. I suggest that with the means testing and disqualification for entitlements that they should receive tax breaks on their retirement funds on scale according to amount of entitlement forfeited.
When asked if he felt the United States deserved a credit downgrade he said that the US has too much promised liability, stating that "with all the promises we have made out into the future it does not hold well for our fiscal situation." He says debt will be 85% of GDP by 2020 if cuts aren't made. As such he argues that without getting the economy growing again and cutting entitlements that "we will eventually get a downgrade from Standard and Poor's and Moody's." He believes that a downgrade could trigger a financial crisis as markets are believing in something that is proven untrue and could cause the markets to adjust violently as we saw with the housing bubble. Furthermore, and of great importance, is that the US Treasury Bonds are defined as the risk free financial instrument that underpins the entire global economy. If people wake up realizing that they have taken on too much risk it could de-stablize the whole global economy. Then the Central Banks around the world would be more diversified as to where they put their reserves by not putting them into the dollar.
And that is where all this could takes us. What would it mean if the dollar was not the reserve currency of the world? Many countries would like to see this and the Economist has reported that that is exactly what China is preparing for. So what have we accomplished by kicking the debt problem down the road...? There will be a day of when the piper calls. If we don't deal with this now with some pain, it could very likely become terminal for our nation.
Neel Kashkari (Managing Director for Pimco) reported to Bloomberg News that the economy has taken on so much debt over the past few years to "fuel consumption" that spending has now fueled a crisis. He believes that we need to restructure the economy towards savings and investment instead of spending and debt. He argues that the politicians need to be leaders instead of looking to the next election or checking the latest poll for what is popular. Kashkari argues that when government taxes an activity that society uses less of a certain activity like cigarettes or alcohol. He stated that when government wants people to work more and save more that they shouldn't be taxing income and savings. He also emphasized the need for a massive architectural change by considering Means testing. Means testing would eliminate those that have saved all their lives, that have high paying jobs and retirement from collecting Social Security and Medicare and Medicaid. Regardless, that they have paid into the fund all their lives. I suggest that with the means testing and disqualification for entitlements that they should receive tax breaks on their retirement funds on scale according to amount of entitlement forfeited.
When asked if he felt the United States deserved a credit downgrade he said that the US has too much promised liability, stating that "with all the promises we have made out into the future it does not hold well for our fiscal situation." He says debt will be 85% of GDP by 2020 if cuts aren't made. As such he argues that without getting the economy growing again and cutting entitlements that "we will eventually get a downgrade from Standard and Poor's and Moody's." He believes that a downgrade could trigger a financial crisis as markets are believing in something that is proven untrue and could cause the markets to adjust violently as we saw with the housing bubble. Furthermore, and of great importance, is that the US Treasury Bonds are defined as the risk free financial instrument that underpins the entire global economy. If people wake up realizing that they have taken on too much risk it could de-stablize the whole global economy. Then the Central Banks around the world would be more diversified as to where they put their reserves by not putting them into the dollar.
And that is where all this could takes us. What would it mean if the dollar was not the reserve currency of the world? Many countries would like to see this and the Economist has reported that that is exactly what China is preparing for. So what have we accomplished by kicking the debt problem down the road...? There will be a day of when the piper calls. If we don't deal with this now with some pain, it could very likely become terminal for our nation.
Monday, August 1, 2011
Irrational Consumers
Sunstein and Thaler have assumed all of us are Homer Simpsons as they wrote their book Nudge. They have divided their explanations to those that are "econs" and the rest are considered "humans." Then they separate them into two different worlds....Econworld, where the Econs have no problem with difficult choices and Humanworld which is made up of the rest of us Homers. What this boils down to is that they (obviously from the Econworld) are worried that we (obviously from Hormerworld) "are least likely to make good choices." Their argument is to convince the choice architects of the necessity of our peril of choosing for ourselves. It is important for them "to design the choice environment and what kinds of nudges to offer, and how subtle the nudges should be." Sunstein and Thaler are concerned about our making choices that would bring us benefits now but the costs come later. These are considered investment goods and sinful goods. It is also a great concern for them that we can not make the difficult choices such as a mortgage but we are fine to decide upon coffee flavored ice cream or vanilla. Nevertheless, they do point out a few examples of restaurants that don't offer choice in selection but that the chef is authorized to make that choice for you. This is where they begin to steer the choice architects into limiting the options. "When people have a hard time predicting how their choices will end up affecting their lives, they have less to gain by numerous options and perhaps even by choosing for themselves." Then Sunstein and Thaler turn their concern on the markets and their fear that the free market system may not work for the "irrational consumer." This comes under their argument that there are situations that people are less likely to make good choices. They turn their attention to the "potential magic of markets and ask whether and when free markets and open competition will tend to exacerbate rather than mitigate the effects of human frailty."
We are at (or maybe beyond) the crossroad of change and free will. Sunstein and Thaler are proposing a new system or movement as they like to call it of Libertarian Paternalism that will take away our burden of choosing. They suggest (strongly) that choice needs to be limited and guided to save us from making a wrong choice. And they are writing books, teaching in colleges and holding key positions in government trying to persuade others that we are irrational choice makers and are not capable of decision making on our own.
We are at (or maybe beyond) the crossroad of change and free will. Sunstein and Thaler are proposing a new system or movement as they like to call it of Libertarian Paternalism that will take away our burden of choosing. They suggest (strongly) that choice needs to be limited and guided to save us from making a wrong choice. And they are writing books, teaching in colleges and holding key positions in government trying to persuade others that we are irrational choice makers and are not capable of decision making on our own.
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