Favorite editorial cartoons: September 2009
- Thread starter Mike Ventrella
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Mike Ventrella
Duke
Robb Graves said:fixed it!
For years, the economy was doing fine, and even great. Then under Bush, regulations were relaxed and ignored and everything fell apart.
I mean, I know it's the libertarian talking point that "regulations are evil" but seriously, are there any reliable economists who think that the recent economic collapse is because of too much regulation?
Mike Ventrella
Duke
Fearless Leader said:Robb Graves said:fixed it!
For years, the economy was doing fine, and even great. Then under Bush, regulations were relaxed and ignored and everything fell apart.
I mean, I know it's the libertarian talking point that "regulations are evil" but seriously, are there any reliable economists who think that the recent economic collapse is because of too much regulation?
that's a great blind way of seeing it. for years the economy was not doing great. for years these problems have been building and roadwork was being put into place that caused the housing collapse and financial crisis. are you telling me you honestly believe the The Community Reinvestment Act did not cause this? Carter, George HW Bush, and Clinton caused this.. then GW Bush and Obama perpetuated it.
federal regulation caused it, not free market capitalism.
Mike Ventrella
Duke
Robb Graves said:Fearless Leader said:Robb Graves said:fixed it!
For years, the economy was doing fine, and even great. Then under Bush, regulations were relaxed and ignored and everything fell apart.
I mean, I know it's the libertarian talking point that "regulations are evil" but seriously, are there any reliable economists who think that the recent economic collapse is because of too much regulation?
that's a great blind way of seeing it. for years the economy was not doing great. for years these problems have been building and roadwork was being put into place that caused the housing collapse and financial crisis. are you telling me you honestly believe the The Community Reinvestment Act did not cause this? Carter, George HW Bush, and Clinton caused this.. then GW Bush and Obama perpetuated it.
federal regulation caused it, not free market capitalism.
So your answer is "no, I don't have any reliable economists who think that the recent economic collapse was because of too much regulation"?
Gwendara
Fighter
This might be a bit much to read but I found it interesting. I am by no means as educated as I probably should be on economics or the current economic climate but I do get these weekly discussions from my financial advisors. I think it's relatively easy to follow even for people without a strong background in economics. Of course this is the opinion of an investment firm, but a good read in my mind.
September 13th, 2009
"Without continual growth and progress, such words as improvement, achievement, and success have no meaning."
- Benjamin Franklin
Items for Discussion
The last 25 years have been a long journey of one global asset bubble following another. There was the junk bond and Japanese mania of the late 1980’s. Those were followed by the emerging markets mania of the early to mid 1990’s. That was replaced by the epic technology/internet bubble of the late 1990’s. Following that implosion, a global housing bubble was inflated and subsequently imploded. One of the strategic errors we made from 2005-2007 was underestimating the ability of the average investor to get sucked into yet another scam. With the massive losses from technology still relatively recent, how could so many get sucked into to buying houses at inflated prices with no money down and creative financing terms?
TEAM has argued for 8+ years now that this 25 year period has really been one large bubble with many sub plots. The debt/credit super cycle has been the main driver, in our opinion, as excessive credit creation fueled asset price inflation. This “wealth” was nothing more than inflation via credit expansion, as real wages and production have not improved much in over 10 years. The implosion of the financial system in the past two years was something we believed to be inevitable, though the timing was obviously uncertain and unknowable in advance.
Now that this grand implosion has occurred, one could question whether “we’ve had enough”. Has there been enough damage done to purge the system of the prior cycle’s excess and lay the foundation for sustainable future growth? Unfortunately, our answer to that question at this point is a very confident “NO”. In fact, the decision by the US government, along with many other major governments, to enact unprecedented market and economic intervention may be the beginning of what we believe to be the “Titanic” of global bubbles – the world’s uniform use and belief in central banks.
While risky assets of nearly every variety are up sharply since March, we see building pressures in the plumbing of global markets. The decision by global central banks to force short term interest rates to such artificially low levels (effectively zero in many cases such as the US) has created a massive global re-leveraging. Rather than learn the lessons from too much leverage in recent years, financial institutions are right back at the same game; this time with the expressed consent of the federal government. By fixing interest rates at such low levels, the government is providing banks with what many believe to be “free money”, as they can take in deposits or borrow money at close to zero cost and use those funds to buy longer dated US Treasuries and mortgage bonds. If one can take in $1,000,000 in deposits at 0%, turn around and borrow another $19,000,000 at little more than 0% and invest the $20,000,000 at 4%, then a significant rate of return can be obtained. Of course, this rate of return comes with a multitude of risks, but apparently that risk is deemed acceptable by our “leaders”.
It appears to us that there has been a calculated decision to accept these risks in exchange for some hope that banks will be able to make enough money to offset the massive amounts of losses that are widely expected to continue in residential and commercial real estate loans, credit card loans and business loans. TEAM views this policy decision as being morally suspect, as responsible savers are being punished by this corporate welfare. Seniors living on fixed incomes have seen this picture before and we witnessed the carnage in real time. Following a similar experiment in 2003 when rates were dropped to 1%, many seniors were “forced” out the risk spectrum to find income to replace CD’s and other relatively secure vehicles. The 1%-2% CD rates weren’t paying the bills, so many found their way into preferred stocks (many from financial companies that would later get into trouble), junk bonds and REIT’s. These provided income for a few years and then imploded in price during 2007-2008. We've witnessed far too many seniors who had their life's savings and retirement put in critical condition due to the implosion in these higher risk markets. We believe this tendency to reach for yield is a terrible unintended consequence of the current policy and learned from the last cycle that many people are likely to get duped once again.
Banks aren’t the only entities that are playing the current yield curve game – borrowing short and investing/lending long. The Federal Reserve has made it very clear that they do not intend to raise short term rates any time soon. This has provided a veritable green light for global speculators to borrow in the US dollar at low costs and purchase risky assets with those funds. TEAM chronicled this “global carry trade” from 2005-2007, though the funding currency during that period was the Japanese Yen – which was the world’s only major currency at the time to be yielding close to zero.
Now that the US has assumed this less than prestigious role, we are left to try and analyze the implications. TEAM believes that global financial markets are entering a period of extreme risk. It may take quite some time for risks to be realized, but we believe the risks exist none the less. We expect the building pressure in currency and interest rate markets to explode at some point in the future and that the damage could be extensive. In fact, we fear that the very foundation of the current global currency system could be shaken with long and lasting impact. We believe we already see the next storm on the horizon – we just don’t think that land fall is likely until next year at the earliest.
Market/Economic Climate
ECRI’s Weekly Leading Index’s growth rate reached an all time high this past week. This continues its explosive recovery in recent weeks and suggest that the early stages of the economic recovery is likely to be more like those off the 1975 and 1982 troughs rather than the two most recent recoveries in the early 1990’s and earlier this decade. In fact, ECRI is now forecasting that non-manufacturing job growth will turn positive by the end of this year, which is surely good news for the nation’s significant amount of unemployed workers.
The stock market continues to defy gravity, as we believe there remains a significant amount of doubt and anxiety about the recovery. We’ve been fighting our shadow for several months now, as we’ve continued to maintain some portfolio hedges to partially protect against the risks of an abrupt end to, or at least a sharp correction of, the stock market recovery. Clients continue to benefit from a levitating stock market, though on a reduced basis due to our hedges. We review these positions daily and remain flexible and open to either increasing, decreasing or even eliminating the hedges depending on how markets evolve.
Have a great weekend.
Regards,
James
800 Corporate Circle | Suite 106 | Harrisburg, PA 17110 | E-mail: team@teamfinancial.net
TEAM Financial Email Commentary Disclosure
James L. Dailey is the Chief Investment Officer, Advisory Representative and co-owner of the Harrisburg, PA-based Registered Investment Advisory TEAM Financial Managers, Inc. TEAM Financial Managers is registered with the federal Securities and Exchange Commission.
Mr. Dailey is also a registered representative offering securities through Jefferson Pilot Securities Corporation, Member NASD/SIPC. TEAM Financial Managers is not affiliated with Jefferson Pilot Securities Corporation.
All expressions of opinion reflect the judgment of the writer at this date and are subject to change. The information contained in any commentary written by Mr. Dailey reflects an analysis of market trends and conditions by him and his personal views, which may differ from, are in no way related to, and do not represent the views of Jefferson Pilot Securities Corporation. Information obtained from or linked to within this email from third-party sources is considered reliable, but we do not and cannot guarantee that the information is accurate or complete.
Nothing contained in any commentary written by Mr. Dailey should be interpreted as or deemed to be a recommendation or solicitation to any investor or category of investors to purchase, sell or hold any security.
September 13th, 2009
"Without continual growth and progress, such words as improvement, achievement, and success have no meaning."
- Benjamin Franklin
Items for Discussion
The last 25 years have been a long journey of one global asset bubble following another. There was the junk bond and Japanese mania of the late 1980’s. Those were followed by the emerging markets mania of the early to mid 1990’s. That was replaced by the epic technology/internet bubble of the late 1990’s. Following that implosion, a global housing bubble was inflated and subsequently imploded. One of the strategic errors we made from 2005-2007 was underestimating the ability of the average investor to get sucked into yet another scam. With the massive losses from technology still relatively recent, how could so many get sucked into to buying houses at inflated prices with no money down and creative financing terms?
TEAM has argued for 8+ years now that this 25 year period has really been one large bubble with many sub plots. The debt/credit super cycle has been the main driver, in our opinion, as excessive credit creation fueled asset price inflation. This “wealth” was nothing more than inflation via credit expansion, as real wages and production have not improved much in over 10 years. The implosion of the financial system in the past two years was something we believed to be inevitable, though the timing was obviously uncertain and unknowable in advance.
Now that this grand implosion has occurred, one could question whether “we’ve had enough”. Has there been enough damage done to purge the system of the prior cycle’s excess and lay the foundation for sustainable future growth? Unfortunately, our answer to that question at this point is a very confident “NO”. In fact, the decision by the US government, along with many other major governments, to enact unprecedented market and economic intervention may be the beginning of what we believe to be the “Titanic” of global bubbles – the world’s uniform use and belief in central banks.
While risky assets of nearly every variety are up sharply since March, we see building pressures in the plumbing of global markets. The decision by global central banks to force short term interest rates to such artificially low levels (effectively zero in many cases such as the US) has created a massive global re-leveraging. Rather than learn the lessons from too much leverage in recent years, financial institutions are right back at the same game; this time with the expressed consent of the federal government. By fixing interest rates at such low levels, the government is providing banks with what many believe to be “free money”, as they can take in deposits or borrow money at close to zero cost and use those funds to buy longer dated US Treasuries and mortgage bonds. If one can take in $1,000,000 in deposits at 0%, turn around and borrow another $19,000,000 at little more than 0% and invest the $20,000,000 at 4%, then a significant rate of return can be obtained. Of course, this rate of return comes with a multitude of risks, but apparently that risk is deemed acceptable by our “leaders”.
It appears to us that there has been a calculated decision to accept these risks in exchange for some hope that banks will be able to make enough money to offset the massive amounts of losses that are widely expected to continue in residential and commercial real estate loans, credit card loans and business loans. TEAM views this policy decision as being morally suspect, as responsible savers are being punished by this corporate welfare. Seniors living on fixed incomes have seen this picture before and we witnessed the carnage in real time. Following a similar experiment in 2003 when rates were dropped to 1%, many seniors were “forced” out the risk spectrum to find income to replace CD’s and other relatively secure vehicles. The 1%-2% CD rates weren’t paying the bills, so many found their way into preferred stocks (many from financial companies that would later get into trouble), junk bonds and REIT’s. These provided income for a few years and then imploded in price during 2007-2008. We've witnessed far too many seniors who had their life's savings and retirement put in critical condition due to the implosion in these higher risk markets. We believe this tendency to reach for yield is a terrible unintended consequence of the current policy and learned from the last cycle that many people are likely to get duped once again.
Banks aren’t the only entities that are playing the current yield curve game – borrowing short and investing/lending long. The Federal Reserve has made it very clear that they do not intend to raise short term rates any time soon. This has provided a veritable green light for global speculators to borrow in the US dollar at low costs and purchase risky assets with those funds. TEAM chronicled this “global carry trade” from 2005-2007, though the funding currency during that period was the Japanese Yen – which was the world’s only major currency at the time to be yielding close to zero.
Now that the US has assumed this less than prestigious role, we are left to try and analyze the implications. TEAM believes that global financial markets are entering a period of extreme risk. It may take quite some time for risks to be realized, but we believe the risks exist none the less. We expect the building pressure in currency and interest rate markets to explode at some point in the future and that the damage could be extensive. In fact, we fear that the very foundation of the current global currency system could be shaken with long and lasting impact. We believe we already see the next storm on the horizon – we just don’t think that land fall is likely until next year at the earliest.
Market/Economic Climate
ECRI’s Weekly Leading Index’s growth rate reached an all time high this past week. This continues its explosive recovery in recent weeks and suggest that the early stages of the economic recovery is likely to be more like those off the 1975 and 1982 troughs rather than the two most recent recoveries in the early 1990’s and earlier this decade. In fact, ECRI is now forecasting that non-manufacturing job growth will turn positive by the end of this year, which is surely good news for the nation’s significant amount of unemployed workers.
The stock market continues to defy gravity, as we believe there remains a significant amount of doubt and anxiety about the recovery. We’ve been fighting our shadow for several months now, as we’ve continued to maintain some portfolio hedges to partially protect against the risks of an abrupt end to, or at least a sharp correction of, the stock market recovery. Clients continue to benefit from a levitating stock market, though on a reduced basis due to our hedges. We review these positions daily and remain flexible and open to either increasing, decreasing or even eliminating the hedges depending on how markets evolve.
Have a great weekend.
Regards,
James
800 Corporate Circle | Suite 106 | Harrisburg, PA 17110 | E-mail: team@teamfinancial.net
TEAM Financial Email Commentary Disclosure
James L. Dailey is the Chief Investment Officer, Advisory Representative and co-owner of the Harrisburg, PA-based Registered Investment Advisory TEAM Financial Managers, Inc. TEAM Financial Managers is registered with the federal Securities and Exchange Commission.
Mr. Dailey is also a registered representative offering securities through Jefferson Pilot Securities Corporation, Member NASD/SIPC. TEAM Financial Managers is not affiliated with Jefferson Pilot Securities Corporation.
All expressions of opinion reflect the judgment of the writer at this date and are subject to change. The information contained in any commentary written by Mr. Dailey reflects an analysis of market trends and conditions by him and his personal views, which may differ from, are in no way related to, and do not represent the views of Jefferson Pilot Securities Corporation. Information obtained from or linked to within this email from third-party sources is considered reliable, but we do not and cannot guarantee that the information is accurate or complete.
Nothing contained in any commentary written by Mr. Dailey should be interpreted as or deemed to be a recommendation or solicitation to any investor or category of investors to purchase, sell or hold any security.
Fearless Leader said:So your answer is "no, I don't have any reliable economists who think that the recent economic collapse was because of too much regulation"?
:roll: please...
if i told a Christian there were reliable atheists who can prove there is no god, i think they would be more willing to listen.
Gee-Perwin
Adept
Fearless Leader said:So your answer is "no, I don't have any reliable economists who think that the recent economic collapse was because of too much regulation"?
Peter Schiff. Here he is on The Daily Show back in June. Notice all the lovin' he gets from Stewart & the crowd:
http://www.thedailyshow.com/watch/tue-j ... ter-schiff
All Austrian economists agree that there has been too much regulation, though.
edit: Oh Yeah, Thomas Woods is another GREAT Austrian economist who wrote the book on the austrian school of thought called Meltdown. He's funny as hell, too, when he gets going. I can't wait to see him & Peter (along with a bunch of others) this Thursday, Friday, & Saturday in Philly at the Campaign for Liberty Northeast Convention.
Mike Ventrella
Duke
Gee-Perwin said:Fearless Leader said:So your answer is "no, I don't have any reliable economists who think that the recent economic collapse was because of too much regulation"?
Peter Schiff. Here he is on The Daily Show back in June. Notice all the lovin' he gets from Stewart & the crowd:
http://www.thedailyshow.com/watch/tue-j ... ter-schiff
All Austrian economists agree that there has been too much regulation, though.
edit: Oh Yeah, Thomas Woods is another GREAT Austrian economist who wrote the book on the austrian school of thought called Meltdown. He's funny as hell, too, when he gets going. I can't wait to see him & Peter (along with a bunch of others) this Thursday, Friday, & Saturday in Philly at the Campaign for Liberty Northeast Convention.
Peter Schiff is indeed an economist, but you have to admit that he's not that well regarded among economists in general. His books are of the "How You Can Profit From Other People's Pain" variety as opposed to learned economic treatises. He's never won any awards or recognition. Mostly he just goes on talk shows and rants.
Not everyone who gets an economic degree is a "reliable economist" any more than everyone who graduates from law school is a "reasonable attorney."
Gee-Perwin
Adept
If you are looking for award winning Austrian economists then look no further than Friedrich Hayek. He won a nobel prize. Sure, he died in '92, but he was one of the most famous Austrian economists--right up there with Mises.
I'm not going to defend Schiff in this thread. Keynesians & Austrians are on opposite ends of the economic spectrum, and keynesians have been in control for a long time. The power & seduction of the printing press is quite strong. All I will do is encourage people to read Meltdown by Tom Woods to learn the side that you probably weren't taught in school. I know I will educate my children on matters like these.
I'm not going to defend Schiff in this thread. Keynesians & Austrians are on opposite ends of the economic spectrum, and keynesians have been in control for a long time. The power & seduction of the printing press is quite strong. All I will do is encourage people to read Meltdown by Tom Woods to learn the side that you probably weren't taught in school. I know I will educate my children on matters like these.
Mike Ventrella
Duke
I wasn't taught any economics in school, actually! Heh! As I've said here before, that's one part of politics I don't have a lot of knowledge about...
Duke Frost
Baron
Fearless Leader said:
We always just assumed that by your comments about the economy. :twisted:
Here are a few basic principles that fiscal liberals should know:
Money doesn't grow on trees.
Taxing people more is not the same as making money.
Successful businessmen rarely go into politics...and there's a reason.
Economists didn't predict the housing crash or the fall of big business...they helped cause it.
The "reliable economists" have already admitted they don't know. The unreliable ones predict and blame according to their personal agendas.
Duke Frost
Baron
From wikipedia:
The Austrian School (also known as the Vienna School or the Psychological School) is a school of economic thought that emphasizes the spontaneous organizing power of the price mechanism. Austrians hold that the complexity of human behavior makes mathematical modeling of the evolving market extremely difficult (or undecidable) and advocate a laissez faire approach to the economy. Austrian School economists advocate the strict enforcement of voluntary contractual agreements between economic agents, and hold that commercial transactions should be subject to the smallest possible imposition of forces they consider to be coercive (in particular the smallest possible amount of government intervention).
The Austrian School (also known as the Vienna School or the Psychological School) is a school of economic thought that emphasizes the spontaneous organizing power of the price mechanism. Austrians hold that the complexity of human behavior makes mathematical modeling of the evolving market extremely difficult (or undecidable) and advocate a laissez faire approach to the economy. Austrian School economists advocate the strict enforcement of voluntary contractual agreements between economic agents, and hold that commercial transactions should be subject to the smallest possible imposition of forces they consider to be coercive (in particular the smallest possible amount of government intervention).
Mike Ventrella
Duke
Like I said, it just seemed to me that the removal of regulations came right before the economy fell bad. When Reagan and Bush I did it in the 80s, the economy fell apart and unemployment rose (even higher than it is now). It helped elect Clinton. Then when GWB did the same, we had another economic collapse. It helped elect Obama.
I mean, if Republicans want to keep promoting something that keeps them out of office, that's fine by me!
But seriously, I believe in regulated capitalism. Capitalism only works when there's competition and oversight. The unregulated free market cannot solve everything, as we have seen many times. It's a tough balance to meet -- enough regulation to prevent monopolies, unfair trade practices, and unsafe products but not so much as to prevent growth and expansion. I think we went too far in one direction under GWB and are paying for it now.
I mean, if Republicans want to keep promoting something that keeps them out of office, that's fine by me!
But seriously, I believe in regulated capitalism. Capitalism only works when there's competition and oversight. The unregulated free market cannot solve everything, as we have seen many times. It's a tough balance to meet -- enough regulation to prevent monopolies, unfair trade practices, and unsafe products but not so much as to prevent growth and expansion. I think we went too far in one direction under GWB and are paying for it now.
i disagree. the housing market was being over regulated by forcing banks to loan to people who would not have otherwise been accepted if it weren't for the Community Reinvestment Act. the banks didn't want these loans so they had to get creative and bundled them together into securities they then sold off to others who didn't exactly understand what they were (toxic assets). in that sense, it was the banks who were not being regulated enough, so I'm going to have to put the blame on the SEC for that.
all of this was then compounded by government intervention proclaiming that banks and businesses are "too big to fail" and then promising our tax dollars to bail them out.
I'll agree that the banks should not be able to sell bundled securities the way they did, (even though it was BECAUSE of government that they chose to do this) but beyond that, every other piece of this was caused by government.
by saying things like "for years the economy was doing fine, and even great" is akin to saying "for years i worked with toxic waste and was fine, even great, until my hair fell out."
and what regulations did bush relax and ignore that you claim ruined our economy?
all of this was then compounded by government intervention proclaiming that banks and businesses are "too big to fail" and then promising our tax dollars to bail them out.
I'll agree that the banks should not be able to sell bundled securities the way they did, (even though it was BECAUSE of government that they chose to do this) but beyond that, every other piece of this was caused by government.
by saying things like "for years the economy was doing fine, and even great" is akin to saying "for years i worked with toxic waste and was fine, even great, until my hair fell out."
and what regulations did bush relax and ignore that you claim ruined our economy?
Mike Ventrella
Duke
Robb Graves said:
The ones you just mentioned... allowing the bundled securities and not overseeing the banking industry. The banks loved lending this money out for housing, you know -- they made tons of money from it. They certainly weren't complaining about it then. Now they are just looking for a scapegoat.
But also allowing massive takeovers of business, from entertainment to oil to banks. We have like three oil companies now, and maybe a dozen big banks and three main entertainment companies. Capitalism needs competition! Way back when you were a kid there was just one phone company. Service was terrible, prices were high, phones were ugly. the government broke the monopoly and now we have lots of choices and cheaper prices. Regulation also includes the kind of "trustbusting" that Teddy Roosevelt warned about and fought against 100 years ago.
Mike Ventrella
Duke
Gee-Perwin
Adept
This guy clearly hates black people.