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post #1 of 11 (permalink) Old 03-26-2010, 10:41 PM Thread Starter
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I've been posting it here for a while now

Just some nice (horrible) tidbits. The other thread about companies' charges due to Obamacare drove me to post this. I read all that stuff, but realize a lot of posters here might not. Here ya go:



Leeds on Finance


--------------------------------------------------------------------------------
What a Difference a Year Makes!

Posted: 25 Mar 2010 08:54 PM PDT

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As I mentioned several days ago, McCombs has started “Lingo” to introduce some simple finance terminology. I taped three or four of them for the school. The first one they posted was “sovereign debt.” Now, there’s a new one – on “risk premium.” Again, this is too simple for most of you, but I think that they did a really nice job with it.

Risk Premium Lingo Link

Now, on to what I read and what I’m thinking about…


What a difference a year makes. Imagine that it was March 2009 and some of the following news came out:

Interest rates were headed higher as foreign investors seemed reluctant to buy our debt

Credit default swaps were pricing Treasuries as riskier than some AAA European bonds

Social Security announced that they would pay out more than they took in this year – something that wasn’t supposed to happen until 2016

Half of all modified mortgages were in default one year later


I’d argue that if these things had happened a year ago, we would be talking about financial Armageddon. They happened this week and the equity market doesn’t seem phased. We’ve had a huge rally going. Of course, the market was up close to 120 points today but closed just slightly positive. Maybe these fears are starting to be discussed. Below, I’ll take you through each of the four stories.

Story 1: Interest Rates Rising
The ten-year Treasury bond is yielding 3.90%, the highest level since June. There are a series of factors at play:

weak bond auctions this week (particularly Tuesday’s two year note auction and Thursday’s seven year note auction), with weak foreign demand

fear that the end of the Fed’s purchase of $1.25 trillion of MBS will hurt rates

concerns about the budget deficit

concerns about our unfunded liabilities

recent discussion about some corporate bonds (Berkshire) being considered less risky than Treasuries

Of course, higher rates will result in:

an even slower recovery of housing (the 30 year mortgage has increased from 5.06% to 5.13% this week)

higher interest on the deficit


I’m always fascinated by the fact that the market’s opinion can change so quickly. In the past few weeks, the common talk was that the end of the Fed purchases wouldn’t affect rates. It seemed strange, but everyone was saying it. Now, people are starting to say that there might be a negative effect.


We’re also seeing the bond market diverge from the stock market. You could argue that rates are increasing because of growth. But, I don’t think many people believe that’s what’s driving higher rates. Rates are increasing due to fear…fear of our budget deficits, fear about our long-term problems and fear that foreign investors are starting to flee our markets. For some time, I’ve been comparing the US to GM. There were plenty of times when the markets started to express fear about GM. Things always calmed down…until the time they didn’t.


Story 2: Social Security Paying Out More Than They Are Taking In

The New York Times reported that Social Security is going to pay out more in benefits than it receives in payroll taxes this year. This wasn’t supposed to happen until 2016. Payments have risen quicker than expected because jobs have been reduced and more people had applied for benefits. At the same time, there are fewer employees to tax.


Unless we get a quick recovery, we’re going to be on a quicker track to insolvency than we had expected – last year, the government forecast insolvency in 2037. Alan Greenspan says the obvious: we can raise taxes, lower benefits or bail out the program by tapping general revenue. This is just another reminder of the upcoming disaster. Don’t forget that 68% of retirees consider social security to have major importance to their retirement and that 67% of retirees have less than $50K in retirement savings.


Story 3: Credit Default Swaps Indicate UST Higher Than European AAA Bonds

Credit default swaps (think of these as insurance on a bond default) became more expensive for US Treasuries than for an equivalent benchmark of AAA-rated euro-zone countries. This first happened on March 12th and it is still that way. In other words, the chance of a US default is greater than the euro-denominated sovereign debt.


WSJ writer Michael Casey made clear that this is still very confusing. Credit default swaps can be relatively illiquid and can be impacted by different users hedging certain positions. In addition, we’re comparing the US to a basket of countries (Germany, France, Austria, Finland, the Netherlands and Luxembourg). Regardless, if this relationship stays this way for some time, it has to make you stop and think. It would be strange to start to think that the US Treasury is not the risk free rate. Apparently, S&P has a “market derived signal” and this would now put the US Treasury at AA+.


Story #4: Half of US Home Loan Modifications Default Again (Bloomberg)

More than half (51.5%) of US borrowers who had their delinquent mortgage loan modified in Q1 of 2009 have already defaulted again! It’s hard to buy into the idea that the housing market is bottoming when many of these people still need to lose their home.


Modified loans in bank portfolios (rather than Fannie and Freddie) had the best record of avoiding re-default. This is likely evidence that the banks have flexibility in their system to design the modification, while the government has bureaucratic rules.


There are still loads of ugly housing numbers out there. Approximately 24% of homes were currently underwater in Q4. The median home price is $165,100 – down 28% from the July 2006 peak. Approximately 2.39 million borrowers are at least 60 days behind. (This is up 13.1% from the prior quarter and 49.6% higher YOY.)


Random

One of the viral videos making the rounds right now is of a student getting arrested in class at UW-Milwaukee. I’ve put the link below. This rivals the video from The University of Florida (a couple of years ago), known as “don’t tase me bro…” Ah, stodgy academia.

You Tube Liink — Student Arrested in Class


Have a good weekend. (If you are going to school this weekend, try to not get arrested.)
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post #2 of 11 (permalink) Old 03-27-2010, 09:40 PM
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Well we knew this, cause it's what the cancer that is socialism breeds. Economic collapse. You can't have socialism, and not have the government control everything. It just wouldn't work. So they have to control everything.

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post #3 of 11 (permalink) Old 03-28-2010, 11:58 AM
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Well, is the healthcare bill the one that finally shoves us off a cliff? Obviously costs are highly elevated, revenues are down and with the cuts needed in the private sector to fund this horseshit and survive, we're facing greater unemployment, greater federal spending, greater federal deficit, more borrowing, less availability for credit, more defaults and so on.

What is the solution? Is there a solution? Is there a way out, even if government eliminated spending completely, could we survive this?

1/19/09, the last day of Free America.
Pericles "Freedom is the sure possession of those alone who have the courage to defend it. "

"[T]he people alone have an incontestable, unalienable, and indefeasible right to institute government and to reform, alter, or totally change the same when their protection, safety, prosperity, and happiness require it." --Samuel Adams


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post #4 of 11 (permalink) Old 03-28-2010, 01:29 PM
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The solution is to elect real conservatives, not two faced career politicians like Mccain. They'll do their best to clean this up, and start saving up some money.

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i think thedark1337 is a pretty cool guy. eh plays the game and doesnt afraid of anything


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- later on when i was about 16 i suddenly came to the realization that i had zero appeal to women and i said "i'm going to say i'm gay from now on"
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post #5 of 11 (permalink) Old 03-28-2010, 03:49 PM
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The solution is to elect real conservatives, not two faced career politicians like Mccain. They'll do their best to clean this up, and start saving up some money.
While I'll agree we need better leaders, isn't that kind of like applying sunscreen after the body is 100% consumed with skin cancer?

1/19/09, the last day of Free America.
Pericles "Freedom is the sure possession of those alone who have the courage to defend it. "

"[T]he people alone have an incontestable, unalienable, and indefeasible right to institute government and to reform, alter, or totally change the same when their protection, safety, prosperity, and happiness require it." --Samuel Adams


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post #6 of 11 (permalink) Old 03-28-2010, 07:23 PM
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Not in my opinion. I mean yeah, the money got wasted. But if we got some good people in there, who were actually principled, then they could clean up a lot of the cancer.

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i think thedark1337 is a pretty cool guy. eh plays the game and doesnt afraid of anything


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- later on when i was about 16 i suddenly came to the realization that i had zero appeal to women and i said "i'm going to say i'm gay from now on"
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post #7 of 11 (permalink) Old 03-30-2010, 01:10 AM
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It would take a true conservative of unimaginable frugality to turn things around and that includes military cutbacks and being more passive in general.

They could also get busy with replacing the mcdonalds/walmart jobs with real decent paying careers for americans, that aint gonna happen cause it would cut into CEOs bonuses. Of course the chinese arent gonna allow america to fix itself either since it would mean the end to their climb to the worlds only superpower.

They know america is going to fall and when it does they will be ready to take our place, disgusting! Never defeated militaryly but economically which is what this country never expected.

If we did BOTH we could maybe get back on track in a decent amount of time. Im still waiting to see how a nation of $7-10 an hour workers is supposed to keep this country going and so far....it doesnt look like it can.

I dont understand whats wrong with the mindset "If theres a job that needs doing, an american should be doing it!"

Its either us or them, take your pick but the top 5% shouldnt be the ones making this decision. The government has to reverse these one side "trade agreements", the outsourcing, and work visa BS. Destroyed the middle class and made the rich fucks even more rich.

The trouble with doing something right the first time is that nobody appreciates how difficult it was.
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post #8 of 11 (permalink) Old 03-30-2010, 09:37 AM
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Thanks Jody.

I subscribed, get his updates in the middle of the night, then have to sit up watching shit like Zombieland, because I can't sleep.

1/19/09, the last day of Free America.
Pericles "Freedom is the sure possession of those alone who have the courage to defend it. "

"[T]he people alone have an incontestable, unalienable, and indefeasible right to institute government and to reform, alter, or totally change the same when their protection, safety, prosperity, and happiness require it." --Samuel Adams


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post #9 of 11 (permalink) Old 03-30-2010, 12:39 PM
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In my humble opinoin spending will never stop. Spending didn't stop with Regan, Bush, Clinton, Bush and now with Obama. It won't stop with out next Prsident and the one after that... The best we can hope for is to curb spending. Taxes are going to go up soon'er or later.
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post #10 of 11 (permalink) Old 04-01-2010, 10:07 PM
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Thanks Jody.

I subscribed, get his updates in the middle of the night, then have to sit up watching shit like Zombieland, because I can't sleep.

I'm wearing the blue off my firearms when I sit up all night after reading them...
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post #11 of 11 (permalink) Old 04-01-2010, 11:09 PM Thread Starter
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Some of Leeds' best work, imo. From a couple months ago:

Doing the right thing! Toyota announced that they would stop selling eight of their models until they fixed a sticky accelerator problem that can lead to unintentional accelerating. In a show of support GM stopped selling cars a few years ago. But, my guess is that this is going to give a big edge to Kia who can proudly advertise that their cars donít accelerate.
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