Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
Jeff - - -
I have considered the entire European fiasco as background music to the U.S. markets which have been driven more by internals such as earnings. There are day-to-day (even week-to-week) global effects that have a temporary effect on U.S. stocks but the major effects are U.S. internal. As you know from our discussion at the time, I felt that the European situation would have more of a negative effect in October than it had (the U.S. had a massive rally that lasted far longer than I thought it would), while you thought Europe would be off the radar by December. We both were wrong but your market call was better.
What is the biggest drawback for U.S. markets? The uncertain outlook for bank earnings. The "settlement" announced last week now looks like a proposed plan rather than a signed agreement so I don't think the uncertainty has been mitigated that much, if at all. Yves Smith has written that a significant aspect in favor of the banks with the proposed agreement is that it will enable them to promote hundreds of billions of worthless second mortgage liens and home equity lines of credit from no value (if marked to market - which they don't do) to partially recoverable as first lein positions are underwritten by writedowns passed to investors and tax payers. Those first lien writedowns allow transfer of equity to second lien positions, according to Yves.
If all she says is correct, that would help with the banks earnings problem. But if what she says is correct the agreement may meet sufficient political opposition to remove some of the bank advantage. After all, this is an election year where everyone running for office will posture with the 99%.
So financials remain the biggest reason why the PE ratio will likely remain below the historical average.
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
DAG1996 and Trader 2708 - - -
My assessment is than Jeff is quite reasonable with the 15,000 by mid-2013 idea and 17,000 by yearend 2013. The former requires an 11% annualized rate of growth for the Dow and the latter 15%. Neither is an unreasonable expectation.
But reasonable doesn't mean that I agree with Jeff either. I was bullish when Jeff was bearish late Sept. through mid-October, then neutral into early November and bearish since mid November. I think it is clear that Jeff's calls have been better than mine over the 4+ months in spite of my beating his with a few weeks of bullishness in October before he made the turn.
I still disagree with Jeff today and am still voting bearish every week. My assessment is based on a slowing global economy, a muddle through U.S. economy and persistent macro workarounds that still lie in front of the world. I would put an expectation bracket on 2012 for the year to see somewhere between +5% and -10% for U.S. equities. That would put brackets on the Dow of 11,500 to 13,500. This compares to my expectation range for the past 15 months of Dow 10,500 to 12,500.
Using my expectation range I will be bearish (30-day outlook) when the Dow is above mid-range (12,500), neutral 12,000 to 12,500, and bullish below 12,000. My slightly assymetric pattern reflects my belief that a downside fat tail is more likely that an upside.
So Jeff's assessments that 15,000 and 17,000 are reachable are very well within reason. Personally I put them in the 20% or so probability range. The downside that Trader2708 mentions (S&P 500 at 800) I give less than 10% probability. The trading range market I envision is about 50% probable in my opinion.
The other 20% probability? Mostly for the region between the bottom of my range and something above Trader2708's 800 target, with a very tiny probability (less than 1-2% tail) for something significantly above 17,000 in the next two years.
That's my view - now let's see if there will be reversion to the mean or will Jeff keep on beating my butt as he has the past few months.
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
We have posted a detailed summary of the mortgage settlement announced today: http://bit.ly/yK44G2 and will have at least one more news summary this evening. I will post an Instablog that summarizes both and gives both (or all if more than two) links later.
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
thegoodoledays - - -
The problem is that the processes instituted over the past 20-25 years have created millions of potentially broken title records through the implementation of short cuts in maintaining the legal connection between promissory notes and the mortgages they relate to. This was done to enable the functioning of the MBS (mortgage backed securities) market.
The MBS market only works if the securities can be readily traded, sometimes even on an hourly and/or daily basis. If the legal process of recording every mortgage transaction were enforced the MBS market would be clogged with paperwork and delays while county records offices recorded every mortgage change. And I haven't even talked about the expense.
So the banks had a new entity created in the mid 1990s called MERS (Mortgage Electronic Registry Service) that used modern technology to presumably handle all the transactions data and keep the records that would otherwise have been handled through county recording offices. This led to at least two problems:
1. By law the mortgage transactions are required to be filed at the time they occur in the local records offices; and 2. The MERS system did not in fact accurately track the sequence of transactions so the records could not be reconstructed at a later date in many cases.
That led to a process known as robo-signing to produce the required documentation to establish a phony transaction record for the presumed mortgage holder to use when pursuing foreclosure on a delinquent property.
This has led to many cases of multiple foreclosures being filed on the same property because more than one bank produced forged documents to establish standing to foreclose.
Mr. Lavalle, because of his own experience in seeing his family defrauded in the 1980s (on a mortgage for which all payments were made on time), started an investigation of mortgage industry practices in the 1990s and found this documentation problem had roots going back 20 years or more from today.
His standing for seeking action with the banks? He was a stockholder and wanted to protect his investments. We can only hope that he gave up on that objective and sold his bank stocks by the time he was basically thrown out by Fannie Mae in 2006.
By the way, there is criminal action being started in a few cases, the most recently in Missouri this week: http://bit.ly/yH5mcN There was also some action in Massachusetts in December (sorry I don't have a link).
A lot of people are upset that a group of about 25 states Attorney Generals are negotiating a civil settlement with the banks for a few tens of billions of dollars to resolve all legal issues associated with the banks and the mortgage documentation mess. People are upset because they feel that widespread criminal prosecution is warranted.
What is happening is another one of those settlements where the banks will make payments totaling $XX billions and sign statements saying "we did nothing wrong and we promise not to do it again."
I understand why you said "It's a little hard for me to understand exactly what this issue is..." The reason it is hard to understand is because this is such a colossal fraud which permeates to the very heart of our property ownership system that without many hours of study the details of what has actually happened sound unbelievable. For most people the amount of time (and actually the mental tenacity) necessary to start to understand what has happened just isn't available.
When I write updates on happenings in this area I don't go back to the basics, but simply provide reference links (which I did here if you click back through the GEI News link in the article. Many people just don't have time to track back through the references. And I don't have time to keep retelling the whole story from the beginning. That puts me in the position of having to write long comment replies like this, so I just can't win!
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
Readers - - -
Thanks for commenting. Without feedback I don't know what is being read on the Instablog and what is not. With articles I can see reader counts and have a pretty good idea when what I have written is wasting time and space on SA.
Since this is summarizing what I have already written on GEI and brings in the additional views that Ritholtz had on the subject I will not be posting it on our own site. I may send it to Credit Writedowns. I have to check what Edward has on this over there - don't want to be redundant.
Employment: Return Of The Great Oscillation [View article]
lyeonn - - -
There is some movement in the direction you suggest although in the modern era the data shows that there are more men not working in a single earner household compared to the 1950-1970 era.
Employment: Return Of The Great Oscillation [View article]
ain't no fortunate son - - -
The incredible shrinking labor force (http://bit.ly/zRks9o) is indeed a big problem for the economy that became evident during the 2008-09 collapse. However the 1.2 million lost labor force "bodies" in January was an accounting anomaly and not a real loss. The BLS changed from the Census Bureau estimates of population and age demographics based on the 2000 census to the new results from the 2010 census. Numbers were adjusted backward for several years so the accumulated changes were "dumped" into the December to January change.
Developed Economies' Debt Levels, By Sector [View article]
DM - - -
Yes the study does say 51% but it also has something like 25% sleeping. My 75% estimate is for the time available for studying and learning. (Leaving out the sleep time.)
Developed Economies' Debt Levels, By Sector [View article]
Yes DM, you make a lot of sense. Some small part of mortgage debt can be classified as savings (unless of course the homeowner uses the refinance ATM machine, but that has been severely hampered by the bubble collapse). But most of mortgage payments are consumption, simply replacing rent.
Student loan debt can also be considered investment rather than consumption. However analysis indicates that only 25% of the potentially productive time for college students is spent on school activity, a very small part is devoted to working and nearly 75% is spent socializing. So how much of student debt is investment? Maybe 75% is vacation debt. http://bit.ly/AwMRY9
And yes, your argument that someone's consumption is someone else's production is very correct. But when the U.S. is running both a current account deficit and a personal accounts deficit it must be considered how much of the payment for production stays in the U.S. Certainly not all. The leakage outside the country may diminish the value that might otherwise accrue.
Developed Economies' Debt Levels, By Sector [View article]
Paul - - -
Very important to recognize what you point out. Debt owed to foreign entities can be much more complicated to work-out than is debt owed domestically and sensitive to some significantly different exposures.
The structure of debt is, of course, as important as the amount - or maybe even more important. As Edward points out the proportion of debt attributed to households varies significantly across the globe. For the most part, household debt has funded consumption and that debt has little long-term benefit (instant gratification debt). Likewise I wonder if financial debt is not largely the same as consumption (instant gratification) in that it largely funds increased leverage of financial instruments looking for the "quick buck."
Non-financial industry debt can be a different animal altogether and should largely be funding the means of future production. Of course, if the other debt burdens collapse future demand then this debt default risk rises as well. But this is an effect of a debt crisis while the other categories are proximate causes.
Finally, government debt has two classifications and the one in deep trouble today (and always will be in deep trouble in any debt crisis) is seen in those countries that do not control their own currencies. The Eurozone is the poster child for this classification.
I guess I am going to have to read Reinhart and Rogoff all the way through and give up waiting for someone else to do an in depth analysis of "This Time is Different." I need to see how many of the factors involving the structure of debt they actually dissect in their analysis.
Hindenburg Omen Blog - December, 2011 - The HO Is Repaired [View instapost]
AR - - -
The blogroll thing should work - we have full Google RSS feeds from all our blogs. If you continue to have a problem let me know and i'll get someone with more technical skill than I have to look into it.
I wrote about the need to push expenditure decisions directly to the consumer during the healthcare debate 2-3 years ago. The idea was that it is only when the patient has an economic stake in how healthcare is delivered to him/her personally will there be a force driving effective efficiency. The single payer option can address costs statistically but does not have any chance to drive down costs in a way which is efficient for all consumers. Only individual decision control can do that.
Of course, the idea I outlined is too idealistic to be a perfect solution. Some of the impediments: -- Some patients will simply not make the effort (or lack the intellectual competence) to learn enough about their options. -- Since there will always be some sort of safety net, there will be those who will try to game the system. -- Some of the providers of care and services will not be on board for efficiency because if will reduce their income.
Yes, the idea that "free market competition" can drive down costs and drive up efficiency is wonderful. But it many areas, and health care is one of them, free market conditions do not exist - prices are essentially fixed by insurance companies (and government) and consumer information and education is lacking.
The ideas that there are "capitalist" or "socialist" solutions (bottom up competition or top down management) are just keeping us from making progress. My idealistic patient control model or someone else's single payer model are both pie in the sky for the world as it has evolved. Both might have some merit if you were starting from scratch to design a healthcare system. But both are so distant from our present reality that thinking that one or the other is "the solution" is plainly poor thinking.
So, if there is going to be evolution from the current morass, the steps would likely involve some aspects of both centralized control and individual decisions, competition. And such solutions are not politically possible in a system with the free-market fantasists and the central control freaks demonizing each other.
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
I have considered the entire European fiasco as background music to the U.S. markets which have been driven more by internals such as earnings. There are day-to-day (even week-to-week) global effects that have a temporary effect on U.S. stocks but the major effects are U.S. internal. As you know from our discussion at the time, I felt that the European situation would have more of a negative effect in October than it had (the U.S. had a massive rally that lasted far longer than I thought it would), while you thought Europe would be off the radar by December. We both were wrong but your market call was better.
What is the biggest drawback for U.S. markets? The uncertain outlook for bank earnings. The "settlement" announced last week now looks like a proposed plan rather than a signed agreement so I don't think the uncertainty has been mitigated that much, if at all. Yves Smith has written that a significant aspect in favor of the banks with the proposed agreement is that it will enable them to promote hundreds of billions of worthless second mortgage liens and home equity lines of credit from no value (if marked to market - which they don't do) to partially recoverable as first lein positions are underwritten by writedowns passed to investors and tax payers. Those first lien writedowns allow transfer of equity to second lien positions, according to Yves.
If all she says is correct, that would help with the banks earnings problem. But if what she says is correct the agreement may meet sufficient political opposition to remove some of the bank advantage. After all, this is an election year where everyone running for office will posture with the 99%.
So financials remain the biggest reason why the PE ratio will likely remain below the historical average.
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
My assessment is than Jeff is quite reasonable with the 15,000 by mid-2013 idea and 17,000 by yearend 2013. The former requires an 11% annualized rate of growth for the Dow and the latter 15%. Neither is an unreasonable expectation.
But reasonable doesn't mean that I agree with Jeff either. I was bullish when Jeff was bearish late Sept. through mid-October, then neutral into early November and bearish since mid November. I think it is clear that Jeff's calls have been better than mine over the 4+ months in spite of my beating his with a few weeks of bullishness in October before he made the turn.
I still disagree with Jeff today and am still voting bearish every week. My assessment is based on a slowing global economy, a muddle through U.S. economy and persistent macro workarounds that still lie in front of the world. I would put an expectation bracket on 2012 for the year to see somewhere between +5% and -10% for U.S. equities. That would put brackets on the Dow of 11,500 to 13,500. This compares to my expectation range for the past 15 months of Dow 10,500 to 12,500.
Using my expectation range I will be bearish (30-day outlook) when the Dow is above mid-range (12,500), neutral 12,000 to 12,500, and bullish below 12,000. My slightly assymetric pattern reflects my belief that a downside fat tail is more likely that an upside.
So Jeff's assessments that 15,000 and 17,000 are reachable are very well within reason. Personally I put them in the 20% or so probability range. The downside that Trader2708 mentions (S&P 500 at 800) I give less than 10% probability. The trading range market I envision is about 50% probable in my opinion.
The other 20% probability? Mostly for the region between the bottom of my range and something above Trader2708's 800 target, with a very tiny probability (less than 1-2% tail) for something significantly above 17,000 in the next two years.
That's my view - now let's see if there will be reversion to the mean or will Jeff keep on beating my butt as he has the past few months.
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
and will have at least one more news summary this evening.
I will post an Instablog that summarizes both and gives both (or all if more than two) links later.
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
The problem is that the processes instituted over the past 20-25 years have created millions of potentially broken title records through the implementation of short cuts in maintaining the legal connection between promissory notes and the mortgages they relate to. This was done to enable the functioning of the MBS (mortgage backed securities) market.
The MBS market only works if the securities can be readily traded, sometimes even on an hourly and/or daily basis. If the legal process of recording every mortgage transaction were enforced the MBS market would be clogged with paperwork and delays while county records offices recorded every mortgage change. And I haven't even talked about the expense.
So the banks had a new entity created in the mid 1990s called MERS (Mortgage Electronic Registry Service) that used modern technology to presumably handle all the transactions data and keep the records that would otherwise have been handled through county recording offices. This led to at least two problems:
1. By law the mortgage transactions are required to be filed at the time they occur in the local records offices; and
2. The MERS system did not in fact accurately track the sequence of transactions so the records could not be reconstructed at a later date in many cases.
That led to a process known as robo-signing to produce the required documentation to establish a phony transaction record for the presumed mortgage holder to use when pursuing foreclosure on a delinquent property.
This has led to many cases of multiple foreclosures being filed on the same property because more than one bank produced forged documents to establish standing to foreclose.
Mr. Lavalle, because of his own experience in seeing his family defrauded in the 1980s (on a mortgage for which all payments were made on time), started an investigation of mortgage industry practices in the 1990s and found this documentation problem had roots going back 20 years or more from today.
His standing for seeking action with the banks? He was a stockholder and wanted to protect his investments. We can only hope that he gave up on that objective and sold his bank stocks by the time he was basically thrown out by Fannie Mae in 2006.
By the way, there is criminal action being started in a few cases, the most recently in Missouri this week: http://bit.ly/yH5mcN
There was also some action in Massachusetts in December (sorry I don't have a link).
A lot of people are upset that a group of about 25 states Attorney Generals are negotiating a civil settlement with the banks for a few tens of billions of dollars to resolve all legal issues associated with the banks and the mortgage documentation mess. People are upset because they feel that widespread criminal prosecution is warranted.
What is happening is another one of those settlements where the banks will make payments totaling $XX billions and sign statements saying "we did nothing wrong and we promise not to do it again."
I understand why you said "It's a little hard for me to understand exactly what this issue is..." The reason it is hard to understand is because this is such a colossal fraud which permeates to the very heart of our property ownership system that without many hours of study the details of what has actually happened sound unbelievable. For most people the amount of time (and actually the mental tenacity) necessary to start to understand what has happened just isn't available.
When I write updates on happenings in this area I don't go back to the basics, but simply provide reference links (which I did here if you click back through the GEI News link in the article. Many people just don't have time to track back through the references. And I don't have time to keep retelling the whole story from the beginning. That puts me in the position of having to write long comment replies like this, so I just can't win!
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
Thanks for commenting. Without feedback I don't know what is being read on the Instablog and what is not. With articles I can see reader counts and have a pretty good idea when what I have written is wasting time and space on SA.
Since this is summarizing what I have already written on GEI and brings in the additional views that Ritholtz had on the subject I will not be posting it on our own site. I may send it to Credit Writedowns. I have to check what Edward has on this over there - don't want to be redundant.
Thanks again for the feedback.
Employment: Return Of The Great Oscillation [View article]
There is some movement in the direction you suggest although in the modern era the data shows that there are more men not working in a single earner household compared to the 1950-1970 era.
Employment: Return Of The Great Oscillation [View article]
The incredible shrinking labor force (http://bit.ly/zRks9o) is indeed a big problem for the economy that became evident during the 2008-09 collapse. However the 1.2 million lost labor force "bodies" in January was an accounting anomaly and not a real loss. The BLS changed from the Census Bureau estimates of population and age demographics based on the 2000 census to the new results from the 2010 census. Numbers were adjusted backward for several years so the accumulated changes were "dumped" into the December to January change.
A good summary (among many) was written by Ross Kaminsky http://bit.ly/AqppuI
I saw a detailed table that dissected the data but I can't remember where so sorry no link.
Yes I am a revolutionary - following the radical leader Adam Smith.
Developed Economies' Debt Levels, By Sector [View article]
Yes the study does say 51% but it also has something like 25% sleeping. My 75% estimate is for the time available for studying and learning. (Leaving out the sleep time.)
Developed Economies' Debt Levels, By Sector [View article]
Student loan debt can also be considered investment rather than consumption. However analysis indicates that only 25% of the potentially productive time for college students is spent on school activity, a very small part is devoted to working and nearly 75% is spent socializing. So how much of student debt is investment? Maybe 75% is vacation debt. http://bit.ly/AwMRY9
And yes, your argument that someone's consumption is someone else's production is very correct. But when the U.S. is running both a current account deficit and a personal accounts deficit it must be considered how much of the payment for production stays in the U.S. Certainly not all. The leakage outside the country may diminish the value that might otherwise accrue.
Developed Economies' Debt Levels, By Sector [View article]
Very important to recognize what you point out. Debt owed to foreign entities can be much more complicated to work-out than is debt owed domestically and sensitive to some significantly different exposures.
The structure of debt is, of course, as important as the amount - or maybe even more important. As Edward points out the proportion of debt attributed to households varies significantly across the globe. For the most part, household debt has funded consumption and that debt has little long-term benefit (instant gratification debt). Likewise I wonder if financial debt is not largely the same as consumption (instant gratification) in that it largely funds increased leverage of financial instruments looking for the "quick buck."
Non-financial industry debt can be a different animal altogether and should largely be funding the means of future production. Of course, if the other debt burdens collapse future demand then this debt default risk rises as well. But this is an effect of a debt crisis while the other categories are proximate causes.
Finally, government debt has two classifications and the one in deep trouble today (and always will be in deep trouble in any debt crisis) is seen in those countries that do not control their own currencies. The Eurozone is the poster child for this classification.
I guess I am going to have to read Reinhart and Rogoff all the way through and give up waiting for someone else to do an in depth analysis of "This Time is Different." I need to see how many of the factors involving the structure of debt they actually dissect in their analysis.
Hindenburg Omen Blog - Heading Into The New Year [View instapost]
Hindenburg Omen Blog - Heading Into The New Year [View instapost]
Logging in to follow more chatter and TA news. Merry Christmas and Happy New Year.
Hindenburg Omen Blog - December, 2011 - The HO Is Repaired [View instapost]
The blogroll thing should work - we have full Google RSS feeds from all our blogs. If you continue to have a problem let me know and i'll get someone with more technical skill than I have to look into it.
Hindenburg Omen Blog - December, 2011 - The HO Is Repaired [View instapost]
Nice site. You are doing okay for a person who told me 2-3 years ago you didn't think you had the skill to have your own Instablog.
Everyone now knows it wasn't skill that was lacking, but confidence.
The Demise of Retirement [View instapost]
I wrote about the need to push expenditure decisions directly to the consumer during the healthcare debate 2-3 years ago. The idea was that it is only when the patient has an economic stake in how healthcare is delivered to him/her personally will there be a force driving effective efficiency. The single payer option can address costs statistically but does not have any chance to drive down costs in a way which is efficient for all consumers. Only individual decision control can do that.
Of course, the idea I outlined is too idealistic to be a perfect solution. Some of the impediments:
-- Some patients will simply not make the effort (or lack the intellectual competence) to learn enough about their options.
-- Since there will always be some sort of safety net, there will be those who will try to game the system.
-- Some of the providers of care and services will not be on board for efficiency because if will reduce their income.
Yes, the idea that "free market competition" can drive down costs and drive up efficiency is wonderful. But it many areas, and health care is one of them, free market conditions do not exist - prices are essentially fixed by insurance companies (and government) and consumer information and education is lacking.
The ideas that there are "capitalist" or "socialist" solutions (bottom up competition or top down management) are just keeping us from making progress. My idealistic patient control model or someone else's single payer model are both pie in the sky for the world as it has evolved. Both might have some merit if you were starting from scratch to design a healthcare system. But both are so distant from our present reality that thinking that one or the other is "the solution" is plainly poor thinking.
So, if there is going to be evolution from the current morass, the steps would likely involve some aspects of both centralized control and individual decisions, competition. And such solutions are not politically possible in a system with the free-market fantasists and the central control freaks demonizing each other.
Let me know where you are emigrating.