Fractal-based theories of market behavior explain discontinuous movements such as the May Trix Flash Crash.
As opposed to supposing that the bubbles in your portfolio are as random as the bubbles in your soda pop, a fractal approach concedes that bubbles are a certainty.
'Fundamentals' most certainly do matter although the use of the term is not what the conventional wisdom perceives.
Even a cursory examination of modern financial history would seem to consign the squawk of randomwalk to the febrile dustbin of history and yet the arrogance of unlimited self-determinism and the mastery of man above all motivates adherence to the ex-theory.
Like lemmings herded to discontinuous chasm after chasm, markets move in memoriam much to the prevailing wisdom's opprobrium.
For your humble blogger Mandelbrot was an eye-opener, but John Needham was the closer.
Over the last week I have automated a spreadsheet based on a 'fractal' theory where upon entering high, low, open, and close as well as ONE other indicator (proprietary from Needham), buy and sell orders can be triggered in ALL liquid markets, and quite successfully I might add.
Applying what Mr. Needham has taught in 'face-to-face' sessions and postulating as to what he will unveil in his foreshadowed 'next stages', have on this fella's spreadsheet clearly, and empirically, separated the winners from the 'sinners'.
Stunning, brilliant, simple, elegant, and in direct opposition to most every financial model known to man.
Now, gentle reader, you might ask why not publicise it Mr. Money, become rich and famous, dye your eyebrows and hair black, and become a billionaire, or at least write a book?
Well, the humble reply is as follows: 1) the entries in this blog do publicize it and have directed folks to Mr. Needham's website thedanielcode.com, however to truly appreciate his teachings one must attend a tutorial and he is coming to the States this summer ; 2) fame is way, way, overrated and I've already made enough coin for both myself and my children to be comfortable; 3) I've earned my grey hair thank you very much; 4) money is the root of all evil and should be treated with respect much like a weapon and a drug, it is so very hard to make abundance in in this world and not at the end of the day be a complete a&$%ole and 5) all I care about is feeding the kids, and from time to time the extended family, feeding a book would be torture.
And yet this is damn entertaining, and sharing, albeit anonymously, is caring.
The purpose of this blog was in part to figure it 'out', believing' it' to be 'it', with the understanding that it was much easier to make 'it' than to invest 'it'.
Now that I'm firmly ensconced into a future where I'm in 'it' to mint 'it' , the purpose of this blog is called into question.
So...will ponder that. Thoughts for now are that future entries may be limited, if any, and that the future focus will, predominantly, be on the premise that according to fractal theory 'self-similarity occurs on all scales' as well as an exploration of the more subtle concept of self-affinity which refers to a fractal whose pieces are scaled by different amounts in the x- and y-directions.
All good things must come to an end ...or perhaps a new beginning.
There is a difference between knowing the path and walking the path.
To be mindful is a discontinuous process, our senses allow us a glimpse at the perfect form (truth) but that view can often be distorted by the flickering fire of perception that illuminates the shapes we perceive to believe.
'And you will know the truth, and the truth will make you free.' - John 8:32
WSJ : The European Union picked 440 billion euros as the size of the rescue fund because the sum of 440 billion euros and 60 billion euros available initially from an EU emergency fund "sounds nice", a European Commission official said with half a smile. Even better, said another, when the IMF's portion is included, the bailout would be rendered by the American press as $1 trillion.
Forbes: In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy. “It’s not based on any particular data point,” said a Treasury spokeswoman, “We just wanted to choose a really large number.”
And that folks is the new Goldilocks world economy in the new normal - wild ass guesses promulgated to save civilization on the basis of 'sounds just right.'
Better to guess up than fess up I suppose.
Snarkiness is running aground on the shores of institutionalized fraudulent conveyance that is becoming so ridiculous that one can only stare in Gaga'd disbelief...
To wit, WSJ: 'April marked the 27th consecutive month in which small businesses either shed more or the same number of jobs that they added, according to a monthly survey to be released Tuesday by the National Federation of Independent Business, a trade group in Washington, D.C. Since July 2008, employment per firm has fallen steadily each quarter, logging the largest reductions in the survey's 35-year history. Going forward, more small-business owners say they plan to eliminate jobs compared with those that expect to create new jobs over the next three months. The latest study was conducted during the month of April and reflects responses from 2,197 U.S. small-business owners.'
Compare and contrast that with the Bureau of Laborious Statistics Birth Death Model creating 188,000 small business jobs....
Oh but it gets even wackier..
Monday's The King Report : 'For April the fabricators at the BLS have ‘men, 16 years of age and older’ gaining 456,000 jobs. But ‘women, 16 years of age and older’ gained only 94k jobs. This is impossible!!! This is the fourth straight month of impractical imbalance of job gains between the sexes.'
To wit, as mentioned here on March 8th : "the Federales Household Survey showed that this month (Feb.) the category of 'Men 16 years and older' accounted for 297,000 of the 308,000 jobs gain and last month (Jan.) 'Women 20 years and older' produced 529,000 of the 541,000 jobs gain. Dude, stats happen! Don't blame the soothsaya."
Last month the King report revealed, 'Once again we see chicanery in the March Employment because the Household Survey shows a gain of 264k jobs but ‘Men 20 years & over’ accounted for a 290k job gain. ‘Women 20 years & over’ lost 42k jobs. This is absurd!'
What will be the title of the April Household Survey? 'Stats from Mars, B$%#*&@t from Venus?'
Well they didn't choose that appellation although well they should have especially in light of yet another tragedy- per Reuters; 'The Agriculture Department said 39.68 million people, or 1 in 8 Americans, were enrolled for food stamps during February, an increase of 260,000 from January.'
Sadness layered upon madness served up to a hamster-wheeled populace.
And those of us that cry for reason before farce are left to muse until the dancing stops.
The road ahead seeming to fork between destroy the middle class now (wafting asset values with the gentle lubricant of debasement) or destroy the middle class later (deflation being the midwife of hyperinflation where the path to $5000 gold goes through $500.)
A burnt offering to the tribes and their machinations.
The Black Swan, when it isn't being blamed for its' prescience, synthesized as the hope upon hope of just muddling through.
I fear that we will see things in the near term that we would have never ever imagined could ever happen.
Unless of course Santa Claus, the Easter Bunny, the Tooth Fairy, and a requisite choir of angles, descends down to present us with fusion, teleportation, room temperature superconductors or the like to further enable the game...
Someday this war is gonna end.
MathTerror... we're sorry but the numbers you've reached have been logically disconnected..
Well if one is an advocate and sycophant of the ex-theory, randomwalking, a pristine and inviolate thesis that has been disproven this last century to the tune of a gazillion-squared, I guess one does indict the forenamed suspects for their obvious culpability.
In the WSJ, lead right section C, the pablum narrative to end all pablum narratives, the silliest, most inane, and flat-out stupid article that these eyes have witnessed in a long long time.
'Did a Big Bet Help Trigger 'Black Swan' Stock Swoon' is the title.. the randomwalkers' version of 'And how long sir have you beaten your wife?'
Universa Investments, a fund that bets to win on discontinuous market movements, where Nicholas Taleb is an advisor, and Benoit Mandelbrot is considered to be a visionary (a sentiment also shared by your humble blogger)... is being blamed for the 'flash crash'!
You have to be f&%$*&g kiddin' me!
The article details how Universa made a big bet, a whoppin' $7.5 million for 50,000 options, that would have paid off about $4 billion should the S&P 500 stock index fall to 800 in June. Admitting that the trade was not 'out of character' for the fund and that 'on any other day' the option contracts 'might have briefly hurt stock prices' the Wall Street Journal then lays out in a breathless array, conclusive evidence, in an attempt to brand Universa as the most likely culprit in a crash that all credible models insist should have never happened.
'The trade may have played a key role', 'traders on the other side of the transaction' led to 'selling to offset some of the risk', then, as the market fell 'those declines are likely to have forced even more hedging ' creating a 'tsunami', a 'tidal wave of selling into a market already on the edge' and 'a blast of orders' causing exchanges to be 'clogged', and causing individual stocks to 'collapse'.
'The working theory among traders and others (others??) involved in the exchange meltdown is that the "Black Swan" -linked fund may have contributed to a Black Swan moment, a rare, unforeseen event that can have devastating consequences.'
Pay no attention folks that the working theory that all our blessed mathematical models are based on emphatically states that the rare and unforeseen can be foreseen to never occur.
And so if it pleases the court (of public opinion) we shall cast the accused into the waters and if she floats she is clearly a witch... may God have mercy on her soul.
Or one can make another argument. Hours before the panic began, selling volume was unusually heavy. The selling of stocks was at its highest since the day the market reopened after the Sept 11 terror attacks. The Universa trade along with likely dozen of other trades across the market, led to a cascade of selling in the futures markets. As the trading volume soared, data systems across the stock market began to get clogged. With the high frequency funds either selling or pulling out of the market, Wall Street brokerage firms pulling back and the NYSE stock exchange temporarily halting trading on some stocks, offers to buy stocks vanished from underneath the market.
'Universa alone couldn't have caused the market meltdown", said Mark Spitznagel, Universa's founder. "We had reached a critical point in the market, and it was poised to collapse.'
Well that's a very convincing counter-argument but here's the thing... I am quoting from the same article.
Edward R. Murrow is convulsing in his tomb.
So why wasn't the headline 'Ex-theory fails again. Universa profits from discontinous market movement'?
Well aside from the obvious reason, one might note from reading between the lines that Barclays most certainly falls under the auspices of the aforementioned 'others' and in part, or perhaps in whole, the enabler for this hatchet job. Universa placed their order on Barclays trading desks, Barclays was selling hard, and a market data feed at Barclays that delivers data on "buy" and "sell" orders went down, although a backup data system purportedly went 'immediately online'. Although Barclays disingenuously 'declined to comment' for the article, their head of electronic trading is cited once and the bank is named seven other times in this missive, suggesting someone over there was squawking and deflecting.
The sentence in this trash worth considering is the brief citation to Taleb's fame referencing his thesis that 'unlikely events in the financial markets are far more likely than most investors believe.'
If quantum theory is correct there is an alternate plane of reality where their Wall Street Journal would expand upon this assertion in the following manner.
Randomwalkin's not pinin'! It's passed on! This theory is no more! It has ceased to be! It's expired and gone to meet 'is maker! 'It's a stiff! Bereft of life, it rests in peace! If you hadn't nailed it to the masses it'd be pushing up the daisies! It's metabolic processes are now 'istory! It's off the twig! It's kicked the bucket, it's shuffled off 'is mortal coil, run down the curtain and joined the bleedin' choir invisible!! THIS IS AN EX-THEORY!!'
Natural law is based upon a "fractioning" of a larger structure into smaller structures that have not only the features of the larger structure but if scaled up will look identical to the larger structure. Mandelbrot showed this scalability by graphing long-term financial data that appeared to be discontinuous on logarithmic paper revealing a fractal relationship in markets.
Per Benoit: 'Price changes are not independent of each other.My heresy is a different, fractal kind of statistical relationship, a "long memory." Why this should be is not certain; but one can speculate. Whatever the explanation, we can confirm the phenomenon exists- and it contradicts the random-walk model. Contrary to orthodoxy, price changes are very far from following the bell curve. Such theory predicts that index swings of more than 7 percent should come once every 300,000 years; in fact, the twentieth century saw forty-eight such days.(Over 50 now!) Truly, a calamitous era that insists on flaunting all predictions. Or perhaps, our assumptions are wrong.'
Mandelbrot discerned that markets exhibit a wild trait of abrupt change or discontinuity. This hierarchy of turbulence, a pattern that scales up and down with time, he describes as the Noah Effect - catastrophic, but transient. This Noah Effect is seen in the market's discontinuity : this is the pillar of fractal geometry.
The market's second wild trait - almost-cycles- he describes as prefigured in the story of the prophetic dreams of Joseph, a biblical tale of pattern recognition or long-term dependence. The Joseph effect is the influence of a long-term memory through which the past continues to influence the present.
Per Benoit: ' But how exactly do these two effects- Noah and Joseph, dependence and discontinuity - interact in markets? Answer: At least one market mechanism I identified naturally leads to the other. Suppose, for instance, that you have an "almost-trend" emerging in a stock price: a few weeks, say, in which a stock price rises seven days out of ten. The pattern must eventually break up, of course; otherwise, it would be a real trend that you could bet on continuing a few weeks, and hope to make some real money. But when the "almost-trend" finally does break, it can do so rapidly. A sudden lurch downward, perhaps. A discontinuity. Or, in the terms of the Biblical metaphor, a Noah Effect produced by Joseph-style dependence.
For some real-world examples, think about investment bubbles. They seem calamitous -but they happen all the time. Conventional economics tells us they are aberrations, "irrational" deviations from the norm, caused by a rapacious speculator, mass greed, or some other unpleasant factor. But under certain circumstances they can be entirely rational and flow from the entwined effects of long-term dependence and discontinuity.
The distribution of price changes in a financial market scales. Given that event X has happened, what are the odds that Y will happen next? With financial prices, scaling means that the odds of a massive price movement given a large one are akin to those of a large movement given a merely sizable one. Such is the confusion of scaling. It makes decisions difficult, prediction perilous, and bubbles a certainty.'
There are few sights more terrifying to a father than watching ones' young child claw at his throat, in duress, struggling to gather a breath. This scenario played out for your humbled blogger as my son's peanut/tree nut allergy flared up in full force after a family outing yesterday. Fortunately we had the necessary medicines, benadryl and an EpiPen, which did stabilize him as an ambulance quickly arrived to whisk us to the Children's Hospital Emergency Room. The missus and I had notified our family that our son did have this allergy and folks had agreed to put any desserts or foods that contained such ingredients out of reach, but the soon-to-be 4 year old is in the 100% percentile on height and is developing a commanding reach. Even given our best intentions he must have spied a tasty dessert and indulged himself. The solution is clear, if a function carries any foodstuffs with allergic ingredients we just can't bring the family and we're going to have to put an alert bracelet on him.
Consider though, gentle reader, the following analogy where his nut allergy is our financial crisis. In that scenario most certainly the parents would have been chagrined by the duress. However these parents would have resolved to first consider how debilitating all different types of nuts might be and then would have resolved to put the 'nut buffet' on a table and pretend that the table in fact did not exist. If however one tenacious fella at the family function named Market did, vaingloriously, begin to pontificate on the disappeared table still in plain sight, then the parents would have assuaged him with a team of physicians at the ready with limitless medicine at their disposal. Further, they would have argued that the very sight of the flotilla of remedies would, by themselves, dissuade the deleterious effect of the allergy and lastly, that the table of nuts was in fact required for a balanced diet notwithstanding the potential knock-on effects that as previously stated would be tightly monitored...
The child is safe with us! No worries...
In reading about the latest Nancy Capitalist exercise in can-kicking, Le Tarp, the oh so fine print suggests that the implementation of the European bazooka (or better yet hookah) is contingent upon the need to go through 'the parliamentary procedure' in the relevant member states.
Good luck with that!
As the preliminary results of Germany's North Rhine-Westphalia's elections come in suggesting legislative gridlock, one wonders if we will be blessed with a redux of Paulson, er I meant Trichet on bended knee, in front of Merkel?
Wolf pack a circlin', Febrile piiggies at the troughs, Greek skies are going to fear up, as they task the Keynesian whores.
Those who fail to learn from history may be doomed to repeat it but those that purportedly have learned the lessons, but now proclaim they are masters of their fate and that this time is in fact different, are doubly damned.
'For in much wisdom is much grief: and he that increaseth knowledge increaseth sorrow. Sorrow is better than laughter: for by the sadness of the countenance the heart is made better. The heart of the wise is in the house of mourning but the heart of the fools is in the house of mirth. For wisdom is a defence, and money is a defence, but the excellency of knowledge is, that wisdom giveth life to them that have it. For God shall bring every work into judgment, with every secret thing, whether it be good, or whether it be evil.' -Ecclesiastes 1:18, 7:3-4, 12:14
5am central time on a Saturday with Barron's, just delivered, in hand.
The dots on the cover; 'expect a bottom soon', 'bull will regain his footing', 'make money on Old World's woes', 'flock to the dollar', 'get very defensive'.
Inside Honest Abe channels Bill King (proprietor of the best daily newsletter on the planet), Santoli does his typical if-but, the letters to the Editor beat up on Goldie, there's some pablum hand-wringing on the 'Flash Crash', and an interesting chart comparing this 'recovery' to past recoveries.
The 2 year percentage change of the S&P from the market bottoms of October 1974, August 1982,December 1987, October 1990, and October 2002 were 67%, 62%, 57%,36% and 44% respectively. Currently we stand at 64% from the March 2009 low.
The number of 5% plus corrections during these previous recoveries were 3,3,6,6, and 3 respectively.
Currently, we stand at 5.
The gist of the jibe?
Steady as she goes, pay no attention that the market action this week was, per every 'established' financial model, absolutely impossible. Choose mirth over sorrow.
Your humble blogger would rather mourn the loss of all rationality.
Back when I was a pup and making my way in this world came across counsel that had been the editor of the Harvard Law Review. Would watch this fella give a deposition and as he did, as his 'subject' offered up a lengthy word in rebuttal, he would take that word, and on his yellow legal pad he would proceed to jot down every four letter word that he could create from the lengthy one, all while continuing the deposition. Freaky brilliant he was and one bit of advice he shared that always stuck with me was 'imagine your future self, what advice would he give your current self?'.
This anecdote came to mind when a commentator to a previous post asked me 'Could you do a post for the young, or those with enough fire in the belly to try something new, about what industries/jobs look interesting going forward?'
Most all of us want a glimpse into the future, but counter intuitively our arrogance regarding our dominion over our environment dismisses our ability to perceive tomorrow.
We are fooled by self-determination over ingemination, viewing the past as more primitive than similar, and the future as more unique than repetitive.
So to answer the 'going forward' query made would offer to the next generation the most penitent apology.
For my generation 'it' started with Reagan, ideology ascendant over reality, we could grow out of deficits, we could cut taxes, and providence would trickle down. True there were remedies called for after Carter, most certainly, but the mantra became inviolate and was taken to the extremes that provided the germination of the crisis we are living through now. This 'ideology of the rich' hallmarked by folks voting against their self-interest given the inculcation that someday they too would be rich or at least entitled to it, was accompanied by an 'ends justifying the means' mentality that morphed the political 'manufacture of consent' into an economic 'manufacture of content', i.e., the slow and insidious debasing of almost every government statistic to maintain the illusion of prosperity. It is no coincidence that we have had bubbles and crashes over the last decade, for ephemeral undertakings and their resultant creative destruction would seem to go hand in hand with a Potemkin prosperity.
Now we stand at a crux; deficits without end, income growth due to government transfers and temporarily pumped by counterproductive government policies, an eroding tax base with increasing? GDP , an unemployment level empirically WORSE than the WORSE levels of the Great Depression, a fervent desire to obviate the requisite and inevitable creative destruction of scores upon scores of festering bad speculative bets ... and a perpetual motion machine in Washington that seems hell bent to legislate bigger shovels to dig out of a hole.
The models of course say that recovery is 100% assured. Unfortunately the models also were 100% sure that the 'What Just Happened Crisis' could never happen and neither could the May Trix 'Flash Crash'.
Perhaps our assumptions are wrong.
In choosing 'prophetic' models with a track record of failure we are mortgaging the ability to be masters of our fate. To foresee a future that rhymes with a past is not, as the pablum narrative whines, to refute self-determination but ironically such recognition would harness the same to shape the unknown to a more benevolent conclusion.
Deficits do matter, belief in a random deliverance is foolish, better to accept a mandatory across the board cut and employ a fair and flat tax.
Free market statistics that are transparent and real allow the free market to allocate resources productively and intelligently.
Creative destruction is the progenitor and the instigator of the wealth creating mechanism of capitalism.
Empires are not eternal. The hard fought blessings of liberty are secured by the prudent not the profligate.
Years from now all this, and most assuredly more, will be obvious and this chapter in history, marked by excesses and folly, will be seen as similar to the ones preceding.
May Trix, a fitting foreshadowing of the denouement of the trusted, a reminder that the 'I Can't Believe it's not Capitalism' plan has not completely resolved the 'What Just Happened' Crisis; verily, some quarters, including this one, think our 'solution' has worsened the problem.
May Trix... A V-shaped 'Discovery': the shape of things to come.
The pablum narrative will probably focus on : (NY Times) In Washington, Treasury officials began combing market tapes for answers. By the evening they still had not gotten to the bottom of it, but they discovered some aberrations — market blips — in trading coming out of Chicago… As of about 6 p.m., all the officials knew was that there had been what one called “a huge, anomalous, unexplained surge in selling, it looks like in Chicago, at about 2:45.” The source remained unknown, but it had apparently set off algorithmic trading strategies, which in turn rippled across everything, pushing trading out of whack and feeding on itself — until it started to reverse...
Fil Zucchi at Minyanville:
'Since everyone has an opinion on yesterday's 5 minute plunge, let me offer this:
•We've oft discussed that a tell-tale sign of risk withdrawal is a rising JPY/USD •Currency movements are measured in 1/100 of a cent •Between 10:50 and 14:00 yesterday, the JPY/USD rose 307 bps.; that's the kind of move people usually position for over a year period, not 3 hours •Between 14:00 and 14:10 the JPY/USD gained another 100 bps. ; the S&P 500 (SPX) fell a modest 6 points in that time frame •The plunge in the equity markets began in earnest at 14:10, after traders were already disorderly buying JPY/USD • After 14:10 the JPY/USD gained another 150 bps. And that's when the SPX went into a tail-spin
Interpret the data as you wish, but the JPY/USD signaled crash-like risk aversion before the SPX went off the cliff. Maybe panic caused a "fat finger", but to these tired eyes, the selling was no mistake.'
Oh ye crazed randomwalkers, no doubt some revisionist rationale will be provided as to why the models don't, can't, and won't explain this latest 'reality' show.
The initial mongering (PHD and the like) crowd will hold up as a sticks-and-glue proof, that the bubbles in your soda pop do in fact explain the bubbles in your portfolio, something called the Generalized Auto-Regressive Conditional Heteroskedasticity Model and its variations. Seriously, you can look it up!
My retort? Got fractals?
What has been will be again, what has been done will be done again; there is nothing new under the sun.
The Band of the Hand can only create a Potemkin demand...
As in, the Atlanta Fed confirming that the major contributor to income growth during the past several months has been transfer payments.
As in, that birth death model... it ain't payin' no taxes!
Bread and Circuses divert folks from staring at the 'chickenless' pot...
As in , no Fed audit, no breakin' up the banks, but hey we might limit ATM fees to 50 cents!
And soon coming to the cineplex near you, the horror film, 99 Weeks Later.
They will inflate until they can’t. Inflation rewards those that have their wealth first. All roads lead to deflation. The stock market will bottom when no one cares. Much like the aristocracy when the barbarians are at the gates… you save the silver (banks) first. They will destroy the village (dollar and markets) in order to save it. After the deflation is overwhelmed, the West will never be the same.
In 1982 S&P bottomed at 6.6 P/E, a 15% earnings yield...
In 1974 S&P bottomed at 7.9 P/E, a 12.66% earnings yield...
In 1932 S&P bottomed at 5.6 P/E, a 17.86% earnings yield...
And 2012 is 40 days and 40 nights from 1932 dontchaknow...
History ingeminates and the truths you hold to be most dear are lies told to you by liars.
'The job before Congress is to bring the fear of God back to Wall Street. ' -James Grant
'Statutory directors, board members, and controlling shareholders of Brazilian banks have their entire net worth at stake if their banks fail. All their personal assets are frozen for the duration of the liquidation process and may be used to cover any shortfall.' Bruno Rocha, Dynamo Capital
'Clowns to the left of me, Jokers to the right' - Gerry Rafferty
Don't know what to make of the financial reform bill.
All things being equal though my empirical thesis until proven wrong is that its' not merely a matter of 'fool me once, don't fool me twice', its' more accurately described by can we please please stop the f$%&*g 'serial fool machine' and resultant perpetual enabling of the 'greater fool' pablum narrative?
Consumer protection looks like it will be treated like witness protection...squirreled from sight.
Fed Audit? Will probably qualify for a social security retirement benefit that won't exist by the time we see the 'fraudulent conveyance' of the Eccles ledgers. Sure that the assemblage of tribes, our noble plutocracy, will fight it all the way to the Supremes... wonder how that will turn out...
Once upon a time we had leaders, yes they had their draw backs, they objectified and subjectified their brother because of melanin production ( and treated the sisters poorly too regardless of same) and if it wasn't for a burdensome tax rate they probably would have remained a British territory ad infinitum, but still they provided some intellectual heft to the rights of the individual versus the state and the role of each within society.
Who are their progenitors? Who will advocate sense over the senseless?
As an example of what would make sense please consider this plan from Wilbur Ross:
"My proposal is that lenders who agree to downsize a mortgage to today's values be given the following deal, regardless of whether the mortgage was in default or not:
• First, the federal government would guarantee one third of the reduced mortgage. This would give the lender an asset [that can be sold] at par and therefore provide liquidity to the mortgage market.
• Second, the lender -- in return for reducing the mortgage principal amount -- would get one-half of the appreciation on the first resale, until the lender had recouped the forgiven principal, without interest.
• The government would get one-fourth of the appreciation up to the same cap, on the first resale, as a form of insurance premium.
• And the homeowner would get one-fourth of the appreciation back to the original principal amount -- and 100 percent of any further appreciation."
Seems pretty simple doesn't it? 'Twould be a few paragraph attachment to the title. Not saying the plan is perfect, but it is a step in the sensible direction of risk-takin' not risk-fakin'.
Let me guess though what would happen if this made it to the Hill. Repubs would decry the nanny state, lobbyists would say it would curtail bank lending, and Libs would trumpet it and than negotiate all the teeth away with the Repubs...
Any financial reform that constitutes public risk-fakin less private risk-takin' equals history ingeminatin' and crisis reanimatin'.
Consider the 'resolution authority' being bandied about. Here's another common-sense idea, apply the Brazilian solution (see quote above). The left and right would spout the same Kabuki but Brazil came through the 'What Just Happened Crisis' fairly well didn't they?
Now their system certainly is far from perfect, the state takes much too much of a heavy hand, yet they do have a thriving banking sector, per heritage.org, the 10 largest domestic banks account for more than 60 percent of total assets. Three of the top 10 banks are foreign-owned. The two largest state-owned banks control about 25 percent of total assets.The government currently is allowed to take shares in struggling banks through the two largest state-owned banks, and a Credit Guarantee Fund introduced in March 2009 provides state guarantees on bank certificates of deposit.
Again not perfect but too big too bail and too big too fail becomes less germane when its' you lose you booze.
When its' your skin in the game its' blame mio not Rio.
And speaking of blame, looks like this weekend will be focusing on public versus private risk as the Germans choose between Mark it Gyro or Cough up Euro. Per a commentary from Adam Tooze in yesterday's FT, the May 9th North Rhine-Westphalia election may result in legislative gridlock.
He notes that as a share of local GDP, the debts of German states such as Berlin, Bremen or Sachsen-Anhalt are four to six times worse than California!
Can you imagine California voting to bail out Greece?
Per Reuters, the many potential triggers for an expanded crisis include ...any signs that Athens or donor nations are backing away.
Pair Merkel saying the European Project itself is at risk with an oft-quoted gem (on this blog at least) from Martin Armstrong :
'It was the financial war between European nations attacking each other's bond markets openly shorting them that led to all of Europe defaulting on their debt. Even Britain went into a moratorium suspending debt payments. This is what put the pressure on capital flows sending waves of capital to the United States that to some degree was kind of like the capital flow to Japan into 1989. This put tremendous pressure upon the dollar driving it to new record highs that were misread by the politicians who did not understand capital flow. They responded with Smoot-Hawley misreading the entire set of facts.'
A google news search of 'GDP Commerce Department' yields 26,600 hits. A google news search of 'GDI Commerce Department' yields 19 unique hits ?!?!
And to the best of my ability, it appears that none of the 19 'hits' even discusses GDI?
How about the blogosphere? 1460 hits for the former selection this last week and ZERO hits for the latter?
For the heck of it went to the gubmint web page but they aren't showin' it and I guess the inability to calculate it for myself shows the limitation of my bachelor degree.
Maybe I shouldn't be so hard on myself...
John Williams (via King Report) on Q1 GDP reliability: 'Given the lack of meaningful data available for the "advance" estimate of first-quarter 2010 economic activity, the Bureau of Economic Analysis will not attempt even to guesstimate the Gross National Product (GNP) or Gross Domestic Income (GDI) for first-quarter 2010 until next month’s (May 27th) "second" estimate, or first revision, of the first-quarter GDP.'
Ominous portent? But wait there's more...
Consumer Metrics Institute (via King Report): 'If the sampling period had shifted to two weeks earlier, the reported GDP number would have been 4.4%, substantially higher. However, if the sampling period had shifted to two weeks later, the GDP growth rate would have been only 2.0%, less than half the reading from only 4 weeks earlier. This is the sign of an economy in rapid transition.'
This morning's King Report : 'When we told a hedge fund consultant that PPI is accelerating at a record pace, he reminded us the Ministry of Truth has the GDP Implicit Deflator at a five decades low! For over a decade we have moaned that PPI understates true inflationary pressure and CPI greatly understates inflation due to OER, hedonics, sampling, geometric weighting and any of the numerous other schemes that have been implied over the past 20 years or so. CPI is constructed to not show inflation. If the US government beancounters employed a realistic inflation metric, there would be no GDP gain. If the US government employed accurate inflation metrics, there would be little or no GDP growth since 1999. Then we would have harmony with the negative job and income growth of the past decade.If not for OER, the CPI would wipe out GDP growth in Q1 – and this includes all the hokey CPI chicanery that understates inflation.'
What would I do without my red pills, Morpheus?
But gosh so many experts rely on GDP, and its obvious that the recovery is (still) nascent right? There's no need to empirically argue otherwise is there?
Experts are also trying to offer a narrative as to what motivated our 'I Can't Believe it's not Capitalism' Plan: too much leverage, OTC derivatives, lax regulation', lax underwritin'. All true no doubt. Seriously doubt though that 'charges' will be brought up on all the culprits contributing to this litany of woe. Whom amongst the banksters would not be charged and whom of the 'chargers' could even approximate chastity?
For example, shouldn't the SEC investigate this?
Huffington Post (March 2004 FOMC Minutes): 'As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that the dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves. "We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting…'
And while you're at it SEC how about indicting Yellen as a co-conspirator?
By Jim Grant Grant's Interest Rate Observer December 2, 2005
'Former Fed governor Laurence H. Meyer, in a 2003 talk at the Federal Reserve Bank of St. Louis, described a telltale exchange on the subject of how to define[price/financial] stability. The scene was Meyer's first FOMC meeting, in July 1996, and governor Janet Yellen was making the case for inflation targeting; she said she would aim for 2%. Greenspan replied that the Federal Reserve had a mandate to foster stable prices, not rising ones. To which Yellen rejoined that the Fed also had a mandate to promote full employment. To hear her tell it, a small positive rate of currency depreciation is a necessary lubricant for economic growth (not so, according to a survey of 133 economists over 50 years, produced in 2002 by Stanley Fischer et al.)
"Janet then seized the initiative", Meyer related,"asking the chairman how he would define price stability. Greenspan tried to get away with his vague definition; 'Price stability is the state in which expected changes in the general price level do not effectively alter business or household decisions.' But Yellen pressed him and asked him if he could put a number on that. Remarkably, the chairman agreed, and said he preferred zero inflation, correctly measured. Janet asked him if he could settle for 2% incorrectly measured."
Meyer finished his story;
During a go-around on the topic, only a few Committee members preferred a target of zero, and the consensus was very strong for a 2% target. The chairman ended up summarizing the discussions 'an agreement for 2%' but he cautioned members not to reveal that such a discussion took place.'
Most certainly acknowledge that connecting the dots and ascribing consequences to actions is too challenging for the MSM comics but golly might it not be considered preventative medicine to at least glimpse at the similarities between the late 20's and the late oughts? 40 'days' and 40 'nights' from 1932 to 2012 dontchaknow....
(Posted on Sept 5, 2009) The two most trenchant similarities of the two periods? - 1) Pre- and post Glass Steagel and perhaps not coincidentally, 2) The top 0.01 percent of earners in the US are now taking home six percent of all the income, higher than the 1920s peak of five percent, and a whopping six-fold increase since the start of the Reagan administration, when the top 0.01 percent earned one percent of all the income. There is no consensus among economists on whether large disparities in income lead to economic disruption, but it is hard to ignore the correlation between rising income inequality and the onset of economic crisis. The last time the US saw similar differences in income was in 1928 and 1929, just before the start of the Great Depression.
Fast-forward to today and some PHD per a tucked-away paragraph in the comics:
'The top 1% held 34.6% of all national wealth in 2007, by Dec.31, 2009 they held 35.6%. Meanwhile, the share of national wealth held by the bottom 90% fell to 25% from 27%.'
That's creative destruction 21st century style folks!
Any other lessons to be ignored?
'It was the financial war between European nations attacking each other's bond markets openly shorting them that led to all of Europe defaulting on their debt. Even Britain went into a moratorium suspending debt payments. This is what put the pressure on capital flows sending waves of capital to the United States that to some degree was kind of like the capital flow to Japan into 1989. This put tremendous pressure upon the dollar driving it to new record highs that were misread by the politicians who did not understand capital flow. They responded with Smoot-Hawley misreading the entire set of facts.' -Martin Armstrong
Beware the Trojan Hoax! (The new 100 billion plus bailout notwithstanding.)
Well golly that's scary but just too complicated for J6P ... we need to break it down into pellet form, offer a tonic for the pain that is the 'new normal' and in classic American style, we need a villian...
U.S. vs. Goldie is the Amerikan version of Yukos vs. Russia. Greedy until proven guilty? Better to adjudicate against the participants of the circus then to put the microscope on the folks that baked all the bread. Of them an example must be made, as the pablum narrative falls squarely in line with mob justice. Decimus Iunius Iuvenalis (Juvenal) for SEC chairman!
Actually the Goldie fracas is entirely more discomfiting than a simple plutocratic sacrifice to the hamster-wheeled populace, it is a small glimpse behind a curtain exposing a conspiracy of silence and an assemblage of tribes and machinations that frankly your humble blogger tries his best to not stare too hard at. Its' too damn frustrating, best to just raise your kids with love and kindness than become embittered by the revelations that the truths one holds to be most dear are lies told to you by liars.
And of course, blogging is cheaper than therapy.
Would appear that Goldie is having trouble getting their 'club' membership renewed. Now any settlement from the SEC will involve a sign-off by Justice. Pay no attention that DoJ has not sought any information from Goldie nor have they interviewed any people currently working for Goldie just focus on the word CRIMINAL puh-leeze. For they are as the Washington Post reports 'casting a wider net'... and believe you me that does not mean they are going to charge the derivatives king J.P. Morgan ...oh no!
We need the bookmark for this era, else how can we turn the page and start afresh? Stakes are much higher this time, so someone needs to be 'unmade', you can't just squeeze a family member to get a confession, a la Milken. If Goldie is 'taken out', won't every single soul on the planet herald that as the denouement of the 'What Just Happened Crisis'? If Goldie is, by some mind-boggling turn of events, found innocent by an impartial jury then who could possibly be guilty if the biggest baddest bankster ain't? Goldie is trying to get ahead of this but for your humble blogger something feels wrong, like a glitich in the matrix so to speak. Upon further reflection, would be shocked if the case made it to a jury and frankly given the ominous undertones of between-the-line reading now think the odds favor Goldie being whacked.
But who cares about Goldie? Live by the sword, die by the sword. Its' 'just desserts', 'had it comin' and all that...
While we are it, who cares about free markets? Who cares about a free press? Freedom is for those that can afford it and if you haven't noticed this is the age of austerity, well at least for some folks...Don't forget that old chestnut of... how does democracy end? To the sound of thunderous applause. Maybe we should stop clapping.
When Holder says 'We're here not to win cases, but to do justice' it reminds your humble blogger of a failing bank stating' Nothing to see here. Move along.' or an ideological news slash entertainment channel proclaiming that they are 'fair and balanced'.
You bray it? You ain't it.
Per quantum mechanics there exist an alternative reality where the acid bath of ' proof of an intent to defraud' would be applied to the custodes, all the banksters, and the comedy that is government statistics.
One last rant...
Consumer spending up! Goes to show the power of proper role models, be your own corportocracy writ large. American schemer and synarchy for all. A nation of squatters with revolving credit.
We should fear the austere. Revolving credit spins ever more slowly without evolving incomes. The economic horror movie coming to the local cineplex? 99 weeks later.
Absolving the rater, Goldie as satyr, 99 weeks later ... dude! don't be such a hater!