Greenspan Sees Market Rebound

I trust Alan 'The Maestro' Greenspan! He knows what he's talking about...

Oh wait.

He didn't see the tech bubble...

He helped cause the Real Estate bubble by cutting and leaving rates near 1%...

He encouraged the move into variable rate and exotic mortgages by Joe Sixpack...

He didn't see the real estate bubble...

He didn't see the credit bubble...

He didn't see the derivatives bubble...

But he can see equities rebounding.

Yech...

Greenspan Says Financial Markets May Rebound in 6 to 12 Months: "Financial markets, which have been depressed by “fear” not seen since at least the 1930s, are likely to rebound in the next six to 12 months, former Federal Reserve Chairman Alan Greenspan said in a commentary published by The Economist online.

“Markets are being suppressed by a degree of fear not experienced since the early 20th century (1907 and 1932 come to mind),” Greenspan said in the commentary. “Human nature being what it is, we can count on a market reversal, hopefully, within six months to a year.”

A stabilization in home prices, which will allow financial institutions to judge the value of collateral underlying mortgages and mortgage-backed securities, is likely in 2009 and is another “critical piece” to ending the turmoil, the former Fed chairman said.

The Treasury’s $250 billion in investments in the equity of American banks has halved the gap between the London Interbank Offered Rate and the overnight index swap rate, an indication of progress, Greenspan said.

“While helpful, the Treasury’s $250 billion goes only partway towards the levels required to support renewed lending,” he said. “Temporary public capital injections into banks” should help lead to stability and “arguably provide far more benefit per dollar than conventional fiscal stimulus.”"

I too believe we'll bounce significantly... but only to dive into abyss after.

Credit Suisse Will Pay Bonuses With Illiquid Assets

Put another way, Credit Suisse is basically admitting they've got more crap than cold hard cash... and will henceforth be paying out in crap.

'Illiquid' is Wallstreet speak for 'worthless'. If you don't believe that, I've got a fund for you called the Super Hyper Madoff Ponzi Ultra fund that just can't loose...

Credit Suisse to Use Illiquid Assets to Pay Bonuses (Update1): "Credit Suisse Group AG’s investment bank has found a new way to reduce the risk of losses from about $5 billion of its most illiquid loans and bonds: using them to pay employees’ year-end bonuses.

The bank will use leveraged loans and commercial mortgage- backed debt, some of the securities blamed for generating the worst financial crisis since the Great Depression, to fund executive compensation packages, people familiar with the matter said. The new policy applies only to managing directors and directors, the two most senior ranks at the Zurich-based company, according to a memo sent to employees today.

“While the solution we have come up with may not be ideal for everyone, we believe it strikes the appropriate balance among the interests of our employees, shareholders and regulators and helps position us well for 2009,” Chief Executive Officer Brady Dougan and Paul Calello, CEO of the investment bank, said in the memo.

The securities will be placed into a so-called Partner Asset Facility, and affected employees at the bank, Switzerland’s second biggest, will be given stakes in the facility as part of their pay. Bonuses will take the first hit should the securities decline further in value.

“It’s monstrously clever,” said Dirk Hoffman-Becking, an analyst at Sanford C. Bernstein Ltd. in London who has a “market perform” rating on Credit Suisse stock. “From a shareholders’ perspective it’s great because you’ve got rid of some of the assets and regulators will be pleased because you’ve organized a risk transfer.” "

Banking Index, Now or Never

We Got That Major Accumulation Day

In Drift Higher Into Year End I wrote into the comments on the chart: "A major accumulation days is required for this 'rally' to be anything more than just a 'bounce'."

That occurred yesterday after the Fed decision.

Today the markets held up well despite some nasty news. Expect another quiet day tomorrow as these recent gains are digested... and looke for a sneaky, low volume blast higher on Friday into the weekend.

No Inflation "IF IT IS HOARDED"

This is a follow up to some of the comments to the post Welcome to a Free Money World!

From the post Money Supply, Hoarding, Gold, Deflation: Tin Foil Hats: "For the hyperinflationists out there, a massive increase in money supply IF IT IS HOARDED would still result in deflation."

The above chart from the Federal Reserve Bank of St. Louis is of Excess Reserves of Depository Institutions (EXCRESNS). This rather large and sudden jump can only signify one thing: BANK HOARDING.

Bank hoarding can also be seen via the absolute collapse of money velocity. Just take a look at the M1 Money Multiplier (MULT) from the Federal Reserve Bank of St. Louis. Banks don't lend, so you can't spend. Everything stops.

Stare into the abyss of deflation. All the money in the world is useless if it doesn't move...

Welcome To A Free Money World!

Welcome to a free-money world!

After this there ain't nothing left in the arsenal but to print bling directly and to cram that green straight down your throat... whether you like it or not.

Fed Cuts Rate to Zero-0.25%, Will Use All Tools (Update1): "The Federal Reserve cut the main U.S. interest rate to “a target range” of between zero and 0.25 percent and said it will do whatever is needed to end the longest recession in a quarter-century and revive credit.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”"

Relax. This isn't inflationary at all. Not right now. Not yet.

“Forget about inflation. There has never been in the history of the world an inflationary run while land prices were declining. The amount of debt being destroyed as the monster of a debt bubbles implodes will suck down all asset prices and just absolutely collapse the velocity of money.” -TheFinancialNinja, 09/10/08

Well, we now have sufficient data to see the absolute collapse of money velocity. Just take a look at the M1 Money Multiplier (MULT) from the Federal Reserve Bank of St. Louis. Stare into the abyss of deflation. All the money in the world is useless if it doesn't move...

From the post Money Supply, Hoarding, Gold, Deflation: Tin Foil Hats: "For the hyperinflationists out there, a massive increase in money supply IF IT IS HOARDED would still result in deflation."

I repeat what I said in Inflation, Deflation, Money Velocity and Gold: "I’m firmly in the deflationist camp.”

Related Posts:
I Give You The Stupidity Trap... Errr... Liquidity Trap
Fed Admits Quantitative Easing
From INFLATION to Instant DEFLATION
Zero Rate World, The Age of Free Money: We’re Doomed
ZIRP, Zero, Nada, Free Money and a Big Mess
Money Supply, Hoarding, Gold, Deflation: Tin Foil Hats
Japan Stuck, Quantitative Easing in the US
Closer to ZIRP, Liquidity Trap, Lost Decade
Japan v2.0: GLOBAL Liquidity Trap
Japan v2.0
The Lost Decade
Stimulus Package: Does it Even Work
DEFLATION is Here

Drift Higher Into Year End

Fred Thompson: Spend Your Way To Prosperity

"This holiday season, be extra nice to the kids. Bless their hearts. They have no idea whats in store for them. But of course that's their problem. Our job; your job this holiday season is to follow the lead of our government.

Spend more than you can afford. More than you can ever possibly pay back.

Ask not what your country can spend for you. Ask what you can spend for your country. Isn't that what made America a great country?

Happy Holiday Season." -Fred Thompson

Ranting About The Bad Economy and Poor Judgment After The Fact

A comment from the post The Current Economic and Political System Makes Me So Angry:

"Hi, you might be right about the bad economy and poor judgement, but what purpose does it serve to keep ranting about it now after the fact. We get it."

First, HeadlineCharts is a great blog that I visit daily. The charts and analysis are excellent.

Second, will somebody please explain to HeadlineCharts why we need to keep ranting about the bad economy and poor judgment "after the fact". Fight amongst yourselves...

(I'm traveling. Posting will be weak and sporadic, but I will tackle this subject later in detail.)

Financial Ninja or Ponzi Ninja?

A comment on the post Ponzi Schemes, Madoff and Falling for it Everytime:

"Ben,

I don't mean this in an offensive way, but a simple thought exercise for you.

You have been a successful trader over the years, I'm guessing with "much better than normal" results.

Trading stocks (not investing capital in a company, mind you) isn't a real business, is it ? check. Abnormal returns ? check. Aren't you also part of a Ponzi scheme ? Well, you maybe be smart enough to time your entry and exits.. just like some guy who sold a buncha houses in 2006 ? Isn't there a very thin line here ?

I'm interested in hearing your thoughts on this."

So, is trading nothing but another version of a Ponzi scheme? Is the Financial Ninja nothing more than a Ponzi Ninja? Fight amongst yourselves...

(I'm traveling. Posting will be weak and sporadic, but I will tackle this subject later in detail.)

Make or Break Time...