Misery Economic Theater 2011

[R.D. Silverman]

Originally Posted by markr

<snip>

.

Why is a cretin from Mars leading the GOP polls? See:

http://www.cnn.com/2011/08/31/opinio...html?hpt=hp_t2

[garo]

Originally Posted by markr

Well, I live in Sydney, so that automatically makes me well informed on our housing market... riiiiiight Regardless, I'll go with "it's a bubble" - but very unlikely to deflate catastrophically, more likely a slower decline in real terms, and fairly likely in numbers-of-$ as well.

Firstly supply & demand: the amount of new land becoming available for housing around our major cities has not kept pace with population growth (including significant immigration) for several years now.

Secondly borrowers here can't just walk away from their mortgage: if they're under water on the loan there's a strong tendency to sit it out & hope the market improves before they have to sell. The alternative is a personal loss, possibly even bankruptcy. Forced sales by the lender are fairly rare (subjective - IMHO) although increasing.

I'd be very careful drawing those conclusions. Go read some of the commentary from Ireland in 2007-8 and people were making the same kinds of statements. Ireland is non-recourse and land rezoning is or rather used to be a bit of a scam/side-earner for local county councillors so an artificial shortage was created. Mind you, Ireland is one of the least densely populated countries in west Europe and has plenty of land just like Australia.

[garo]

Markets on a tear again today but Hussman urges caution. http://www.hussmanfunds.com/wmc/wmc110829.htm
If I had any equities left, I would've used any rally past 1250 to sell them. YMMV. September and October are historically bad months for the market.

Rick Bookstaber has a nice take on "late capitalism": http://rick.bookstaber.com/2011/08/w...ood-night.html

Among the many sources of this rising disparity in income is the changing nature of capitalism. A little bit of capital goes a lot further in building out the virtual world than it did in the burgeoning industrial revolution with its railroads, steam-driven mills and iron foundries, or even in the pre-rust belt, brick and mortar 20th century. Not only does it take less capital, the capital that is required need not be committed for very long before the outcome of the enterprise is manifest.
The reduced capital requirements for creating even multibillion dollar businesses can be thought of as providing a new type of leverage, what might be called functional leverage. Functional leverage means that a given amount of capital can capture a greater base of production. Which means that it is easier for the entrepreneur to bootstrap up from one enterprise to the next while maintaining a much higher equity stake than would have occurred during the period of capital intensive production. Think of the trajectory of Google, Facebook, LinkedIn or GroupOn. How much capital was needed to push the businesses past the billion dollar valuation mark, and how long was that capital required? When the IPOs in these businesses finally do occur, it is not so much to allow access to further capital as to provide a channel for the owners to monetize their stake.
Functional leverage widens the distribution of income by changing the odds and payout for risk-taking activities. Think of a casino where the bet limit is kept low and the odds of winning are close to fifty percent. At the end of the day there will be winners and losers, but the implications for their relative wealth will be small; the distribution of income that arises will be tight around the mean. With functional leverage of the new capitalism, the casino allows very high limits and the bets are ones with high odds but high payoffs. Such a casino alters the distribution of wealth by creating a large right-hand tail.
Thus the rise of the super-elite is not a product of educational differences, but rather a result of the new capitalism which creates bigger winners, and does so much more quickly than in the capital-intensive capitalist era. Less capital is needed, it is applied for a shorter period before the results are realized, and because less capital is required, the entrepreneur captures more of the value of the enterprise. The result is an accentuation in the very wealthy.

[ewmayer]

Obama Spent $535 Million on Solyndra Solar Energy Firm in 2010; Firm Went Bankrupt Today; Pricetag $486,363 Per Job Saved for 18 Months

President Obama faces political catastrophe in the form of Solyndra -- a San Francisco Bay area solar company that he touted as a gleaming example of green technology. It has announced it will declare Chapter 11 bankruptcy. More than 1,100 people will lose their jobs.

During a visit to the Fremont facility in spring of 2010, the President said the factory "is just a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly the best workers in the world. "

It's not his statements the administration will regret; it's the loan guarantees. The President was celebrating $535 million in federal promises from the Department of Energy to the solar startup. The administration didn't do its due diligence, says the Government Accountability Office. "There's a consequence if you don't follow a rigorous process that's transparent," Franklin Rusco of GAO told the website iWatch News.

My Comment: Sheesh, what an embarrassment – not that far from Keynes’ (in)famous ‘wealth creation engine’ of burying new-printed money in fields for people to dig up. (Note that the Business Week piece I linked to denies that Keynes said anything like that, but their denial is refuted by the full quotes they use, "run-on sentence" and "impenetrable prose" excuses notwithstanding.) In other words, Krugman and his ilk would argue that the idea of giving Solyndra the money was right, we just needed to give them much, much more.

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And ZeroHedge`s Bruce Krasting has a very interesting (and attention-span-longer-than-gnat-like-requiring) piece laying out what he thinks is the most likely avenue by which the Fed is angling to implement QE3 ... it`s essentially a way of achieving the administration`s recently-highlighted goal of allowing the millions of underwater (and thus currently refi-ineligible) homeowers (no 'n' in there for obvious reasons) to refi at the current record-low rates, via an intricate debt-shuffle involving the FHFA and those wards of the state, Fannie and Freddie. It sounds pretty plausible ... pop quiz for the regular readership: Since there is no such thing as a free lunch, who is in fact eating the cost of the resulting massive wave of refis?

[jasonp]

My understanding is that Australia has also never had a really big stock market bust, and it's considered normal for your 'aggressive stocks' money to be 200% leveraged.

[fivemack]

http://abcnews.go.com/Blotter/obama-...ry?id=13640783 is vaguely interesting, suggesting that there were some problems with the Solyndra deal visible three months ago.

Solar-cell companies in the West have all managed to lose money quite impressively recently - subsidies in Europe for installing the panels have gone down, factories in China for building the cells have gone up, there's substantial oversupply and no room for profit. I've personally lost the price of a 32-core Magny Cours server investing in a German polysilicon maker.

[Christenson]

The question is, which of these companies had plans in place to deal with the strong downward price pressure?
Remember, "everybody" knows solar explodes at $1 per installed watt, and the price is around $2 per installed watt. (You can read this in the power engineering literature -- $1 per installed watt is the approximate cost of a commercial electric plant)

[R.D. Silverman]

Originally Posted by fivemack

<snip>

.

The guv'mint may finally be getting its head out of its proverbial
ass in taking action against some of the fraud that has taken place......



http://www.huffingtonpost.com/2011/0...1_lnk3%7C92223

[R.D. Silverman]

Originally Posted by R.D. Silverman

The guv'mint may finally be getting its head out of its proverbial
ass in taking action against some of the fraud that has taken place......



http://www.huffingtonpost.com/2011/0...1_lnk3%7C92223

http://money.cnn.com/2011/09/02/news....htm?hpt=hp_t1

The White House said yesterday that it predicts the unemployment rate will remain stubbornly high,
not falling below 6% until 2017.


---> Wonderful.



Blacks have it the worst, with an unemployment rate at 16.7% -- its highest level since 1984. The
unemployment rate for Latinos was unchanged at 11.3% and the unemployment rate for whites fell
slightly to 8%.

---> Lack of education?


Another 2.6 million people were considered "marginally attached" to the workforce in August. They
wanted and were available for work, and had looked for a job sometime in the last year, but were
not counted in the unemployment figures because they weren't actively searching for a job in August.

---> Spin!


We need a 5-million person stampede on Washington. Maybe Congress will then do something.

Note that there are things that Congress could do. But with Republitards in control they
would be impossible. One thing Congress could do IF IT WANTED: Put a very restrictive
ceiling on corporate managerial compensation until both the 'official' unemployment rate and the 'marginally
attached' rate drop substantially.... We'd see companies start hiring in one quick hurry.
Require that public companies hire one U.S. citizen for every foreign hire. Place a heavy
tax penalty for every U.S. citizen laid off.

[ewmayer]

Mish reviews the latest global macro data and concludes that a (nother) global recession is here:

Global Recession, Right Here, Right Now: Japan's Capital Spending Plummets; Eurozone PMI, UK PMI, US ISM ex-Inventory, China Exports in Contraction


Regulators seek high-frequency trading secrets

Regulators seek high-frequency trading secrets | Reuters

WASHINGTON/NEW YORK (Reuters) - U.S. securities regulators have taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes.

The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA's market regulation unit.
...
According to interviews with attorneys, traders, industry executives and regulators, the unusual requests for algo code and other computerized trading strategies really ramped up this year and have targeted stock-trading firms such as broker dealers and hedge funds.

It has alarmed some traders who are afraid their "secret sauce" -- intellectual property sometimes developed over years and at great cost -- could get into the wrong hands, especially when SEC and FINRA examiners leave for the private sector.

"I'd be disappointed and upset" if they asked for code, said a high-frequency trading firm executive who declined to be named. "I mean, are these people all going to work at the SEC forever?"

The SEC's new focus on algo strategies will likely help inform any new structural rules the government agency applies to an electronic market, criticized by some as unstable or unfair, especially after the "flash crash" on May 6, 2010.

While anything the regulators find could lead to legal action such as market manipulation suits, FINRA's effort appears more targeted at wrong-doing.
...
SEC examiners want the information to ensure that hedge funds are actually using the strategies they market to investors. They also review it to make sure that algos are not being used to manipulate the market.
...
FINRA, meanwhile, has made market manipulation a high priority since it fined a small firm called Trillium Brokerage Services $1 million last year for "baiting" other traders with a high volume of "illegitimate orders" in 2006 and 2007.

My Comment: This could be a welcome development - although I have doubts the SEC will actually seriously go after the rampant front-running and market-manipulation via criminal charges - but in fact one very simple change suggested by numerous people familiar with the kinds of strategies used by HFT algos would instantly clear up most of the abuses: Simply ban the practice of "stub quoting", that is, rapid-fire posting and cancellation of buy and sell orders which are never intended to be filled. But that would cause mass cancellation of cozy lunches and hookers-and-blow junkets for Wall Street`s supposed regulators, not to mention closing some of the revclving doors many SEC and FINRA staffers are counting on for fat paychecks after their government stints are over.

[Christenson]

Wow, it takes them this long???

I vote simply requiring that a buy or sell order be valid for an hour...and that the exchanges tax the cancelled ones. Maybe simply require all equities to be held for an hour.

Banning it won't work, but taxing the behaviors involved will....or is my glass only half full?