Credit Writedowns

“With the current policy, [European leaders] will need force to keep it going against the interests of the people. You do not need to be a eurosceptic to conclude that such a monetary union is also deeply immoral.” – Wolfgang Manchau, Eurozone Break-Up Edges Even Closer, Financial Times, March 25, 2013

The People are growing angry. The People will become very, very angry.

Bernanke will inflate at an accelerating pace. The other central banks will chase him.

The destructive quality of irredeemable credit, understood by some before the U.S. mortgage crash, obvious to more in its wake, was crystallized in the too-low, centrally controlled, interest rates that flushed a bacillus of fake money and credit, even though it was mathematically impossible for overzealous borrowers to produce cash in quantities sufficient to meet loan payments.

Nowhere does The Economist suggest Scandinavian countries are similarly hobbled despite the tell-tale data (published in every issue of The Economist). “The Next Supermodel” is being celebrated, at least partially, as a consequence of medicated interest rates. The Economist could follow its Scandinavian advert with a cover story on another praiseworthy economy: Canada.

Akira Amrai, Japan’s economic minister, announced: “It will be important to show our mettle and see the Nikkei reach the 13,000 mark by the end of the fiscal year (March 31)… We want to continue taking (new) steps to help stock prices rise.” The Nikkei must hop 17% in less than seven weeks to meet the government’s injunction. Comparing and contrasting the Greenspan-Amrai eras is an illustration of institutional collapse.

The talk in 2013 has been of the great rotation from bonds to the U.S. stock market. This accompanies a new world record for the Russell 2000 Index (small-cap stocks). The S&P 500 has topped 1,500. It did so twice before, in 2000 and 2007. Here we are, again.

How did stock prices more than double since investors have dumped stocks and bought bonds? A second question: what might we expect of stock market returns if investors stop taking money out of the market and put it in – 40% a year?

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (Aucontrarian.com, 2009) Ed Harrison at Credit Writedowns, adding fuel to the outrage upon the announcement that “Doctor” Alan Greenspan will address the Annual Market Dinner of the Boston Securities [...]

The banks are slowly admitting losses, but Bloomberg’s summary is of a slow recognition. Even so, writedowns have left the banks stranded: unable to make loans. Up until now, it appears, the banks and the government were able to carry the building gear manufacturers.

By Frederick J. Sheehan Editor’s Note: Edward Harrison will be writing about the logic others feel support he other side of this trade based on views that Deniis Gartman espoused at an investment conference earlier today.  Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) [...]

Now, to the hearing that preceded the Senate confirmation vote on August 11, 1987

“Positive Housing News Keeps Rolling In,” exclaimed the headline of a July 24, 2012,Wall Street Journal story by Steven Russolillo. The author found much to praise. One gloomy Gus could not help but conclude otherwise. Teke Wiggin discovered, “as many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. Releasing house inventory would not only wreak havoc on bank balance sheets but also damage the impregnability of beloved homebuilders.

Frederick J. Sheehan is the author of (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (Aucontrarian.com, 2009) The July 25, 2012, tribute to Barton Biggs received a large response. Biggs was obviously respected as well as loved. In the end, virtue is its own reward. Virtue is rarely rewarded in the world today; in fact, quite the [...]