patrick.net

I would not advice shorting treasuries.

There is no paradox here. In the times of uncertainty, return OF principal matters more than return ON principal. Treasuries are considered the safest investment vehicle.

I will not bet on US Govt defaulting. If you are so worried then going long on gold is better than going short on treasuries.

This is classic deflation. Guys like Mish who saw it coming argued about strength of US treasuries. BTW, I was wrong on that one. I was far more worried about inflation and yields rising with it. But I did not short treasuries, thankfully.

* THIS IS NOT AN INVESTMENT ADVICE.

RYJUX is a vehicle to short the long bond. This is more a doomsday fund. Its never outperformed stocks in good economic times (rising rates) and never provided safety during normal economic downturns (falling rates).

Now as we know, is a different time. Rates can go down no more than 2%. If our dear masters abroad finally get the nerve to demand higher rates for holding useless paper, this is where you want to be. The question is will we enter a period of dismal economic growth, combined with rising interest rates?

Inflation. What inflation? The commodities bust may provide cover for the Fed to ease to 1%. That is an appropriate time to consider this vehicle.

* THIS IS NOT AN NOT INVESTMENT ADVICE. Also, I am not a good counter-party for any liability.

Its -----> It has. Dumb. I know.

It is Friday, but Lehman Brothers isn't really a bank, is it?

New proposal coming out of Treasury and the FRB via Congress:

Shortened work week (think 3 days on - 4 days off) to allow for compressed failure cycles. The work week would begin on Wed! We can't make it to Friday with the failures anymore so why not bring Friday to us all that much quicker! Also, we have the added benefit of the long weekend to cobble together these quicken bailouts!

Brilliant!

quicken = quickened

Schemen Bros (LEH) last 3.42 after hours.

Wasted Money (WM) at 2.60

All Integrity Gone (AIG) at 16.87

U.S. Government to Assist in Sale of Lehman Brothers

The blind leading the blind.

E.C. Harwood, who founded the American Institute for Economic Research, wrote an article in 1928 called "Inflation is Here." He blamed inflation on the buidup of illiquid assets and loose credit. Interesting that in 1928 a fellow purchased a Massachussetts estate for $1 million at the height of this "inflation." Harwood himself purchased that exact same estate in the 1940s for $50,000.

In 1986 a pair of renowned economists (James Davidson and William Rees-Moog) said the following concerning the 1929 crash:

1. A tremendous buildup in mortgage debt before the crash
2. Mushrooming debt allowed prices to rise to a level that far outstrippped income
3. Innovations in financing allowed previously disqualified people to buy using little cash down, effectively increasing demand from consumers who were no wealthier than before.
4. However, no "creativity" could indefinitely increase sales faster than the growth of income.

Those four points could just as accurately describe the years 2000 - 2006.

In the follow up to the 1929 crash, a liquidity trap developed. That is, to cover bad loans, banks had to raise cash. They could only do that by selling assets. But with so many mortage assets being put on the market, the price for those assets fell. So, it was not profitable to create new assets by granting new loans. This also seems to be the case today.

I think this is the line of reasoning the gov is using when they put Freddie/Fannie into conservatorship. They want to avoid the liquidity trap by actively maintaining a market for new loan securities. However, we have more bank failures on the horizon, and thus we will see the gutting of the FDIC and FSLIC as well. The gov trying to avoid the liquidity trap in this environment is like a baby trying to crawl up the down escalator.

We are going to have deflation.

How can I short US treasuries anyway?

Buy TBT, if you're so inclined.

I'm tempted, but probably will not imbibe.

STCM

Headset, do you have a link to E.C. Harwood's article?

http://www.rgemonitor.com/roubini-monitor/253529/comrades_bush_paulson_and_bernanke_welcome_you_to_the_ussra_united_socialist_state_republic_of_america

Please read this as I am not able to copy & paste:

http://tinyurl.com/5seoce

I had a very bad experience with RYWBX, an inverse dollar fund kind of like TBT. It most definitely did NOT track 2x the inverse dollar index. Note the large discontinuity last December. They never explained it to me.

I have completely sworn off all mutual funds forever. I just buy individual stocks, options, bonds, or CDs. I'll make my own mistakes. Don't need a professional to make them for me.

Patrick

>How can I short US treasuries anyway?
>
>Buy TBT, if you’re so inclined.
>
>I’m tempted, but probably will not imbibe.
>
>STCM

Do the interventionists ever take a weekend off?

Brand,

That E.C. Harwood article titled "Inflation is Here" appeared in the Jan 20 1928 issue of the Analyst.

I do not have a link.

http://www.feedba.cc/live/banks.html

I like this web page. This makes these bank failures into a childrenbook's format. Look at all those pretty icons for dead banks.

I am really getting worried again about the possiblility of massive bank failures. During the past two months I've moved about 40% of what I have into treasury securites. And I may be adding to the metals packed into safe deposit. What else can you do? The traditional place for safety - real estate - is still far from attractive. Who wants to buy in only to see the equity fall another 25 percent? The Lehman story is damned ugly. The Treasury/Fed/Wall Street banksters don't stay up late Friday and work all day Saturday unless something big is going on. I'm keeping my fingers crossed.

Investigators Ask Whether Payments Misled Lenders

http://online.wsj.com/article/SB121884641242946145.html?mod=sphere_ts&mod=sphere_wd

When home sales began to slow at the start of the downturn, home builders offered buyers incentives -- instead of reducing prices -- to stimulate demand. The incentives included cars, tuition and credit-card payments, and even cash.
Now, federal investigators are questioning whether some of those incentives misled lenders and caused them to write mortgages that were artificially inflated, contributing to today's home-price crash.
Using incentives to sell homes has long been a marketing tool for builders. When properly disclosed and structured, the practice is legal. But the Federal Bureau of Investigation is looking into allegations that home builders, brokers and appraisers defrauded lenders by not disclosing unusually large incentives to buyers, which could have added as much as $100,000 to the price of a home.

bank safe deposit box are not insured. i suggest you keep in in your home.

Bank safe deposit boxes are not safe? ONG who would have thunk it! The same organizations that helped to create the mess we are in can be trusted with your physical belongings?

I don't understand why gold is so prized as "money". It is a rare metal that only is valuable because we think it is. This is very similar to a dollar except for the fact that gold has some use as an industrial metal.

My life is the most valuable thing I have. I think the better approach would be buying something of use to you for doing work or getting food. I doubt many people can make use of gold. How many people here know how to make electronics that require gold contacts?

TOB,

I don't think the government could enforce a martial law for any length of time. I think you would see a New Orleans type situation unfolding where the police abandon their duties and go to their families.

WOW! I am more surprised that it is not Lehman.

Lehman is expected to declare bankruptcy tomorrow. I guess the FED is tired of bailing people out.

http://www.youtube.com/watch?v=yqMjMPlXzdA&feature=related

Check this out. I will not surrender any of my Bill of Rights to a police officer. Avoid them and maybe nothing happens. If you can't avoid them, be prepared to use force to defend your rights. Just hope all their other cop buddies are too busy trying to keep the peace else where.

Hey TOB:
why don't you take your convulated ideas with idiotic conclusions with you back to europe. Take all your brothers who created all this finacial mess back to europe too.

You are no better than the illegal immigrants coming from south of border, its just that you came "little early".

we don't want your stupid capitalism

R u demented. Do I need to loan my brain cells to you, to make you understand that i am not an immigrant.
I am a proud native and have very "long" history here.
I am sorry to call you european.I should have qualified it like
"Born here European !"
Can you please ask your "born here european friends" in Newyork and washington who created this financial mess to join you on your long awaited journey back to forgotted motherland Europe.
I am sure you are from germany, I can bet on it.

Demented TOB says : I am not going to debate the native because i am a moron and cannot debate him so i am going to just ASSUME he is chindian so that its to debate him. BTW i am related to hitler, i just asked my grandma
I love my "born here european friends" who created the biggest financial mess in US history and scammed every hardworking american.

..and i am guessing you are Alan greenspan. Com'on dude, give me a break !
OK ..everybody, lets continue our discussion on the main topic.
TOB is now playing Peek-a-boo , just ignore him.
He dreaming of wierd immigrant guys now.Looks like he had some trauma at the hands of some immigrants. Do we have a Guess game running on this blog now.Hey TOB , be a man and debate like a man...don't be sissy and force yourself to believe than i am an immigrant.I don't want to continue this debate with a sissy.
Bye ( i hope you go back to germany soon )

The action surrounding LEH and MER seems pretty heavy. What are people's guesses on the impact to the mortgage market?

I suspect credit availability will shrink even more, causing corresponding decreases in the buyer pool size. The sensationalism over FNM, FRE, LEH, and MER is deafening, and it seems likely WaMu, AIG and Wachovia will join the fray before the year is out. That would cause potential buyers (and lenders) to pull in their horns, get more cautious on buy decisions, slowing originations even further.

At this point, only one hell of a stick save from all the major central banks would smooth over this sticky wicket. I don't count that out yet; it looks like Paulson is hoarding his bullets and trying to stall for time, but I think they will start feeling like they are pushing on a string soon. Then this mess starts to get really interesting.

Apostasy,
It was clear that when the US Governement took Fannie and Freddie into conservatoship that they were going to allow the Lehman's, Merril's, Goldman's, and Morgan Stanelys die. If they do not get suitors they will all eventually go into Cahpter 11 (as Lehman has) which means stiffing the stock holders AND the bond holders. I think this means that non-performing bundles of mortgages now go ALL THE WAY BACK from investors to - you guessed it - the Mae's. This means the tax payer. So, rather than proping up each and every player ala Bear one at a time, the governement has said quite simply, "go away: and is just playing the last possible backstop.
Credit availability, as you said, is pertty much gone. Now we will se the other shoes drop: Commercial real estate, businesses with marginal business models that needed cheap cash, higly leveraged buy-outs. We will see the government realise AIG needs to go. There will be a 50-50 shot that the American Auto bailout (to the tune of $25 billion) will NOT occur. Hedge funds will die and not be allowed to come back as regulation will prevent their market manipulations.

Bets are:
a sharper global contraction (say -3 to -5%),
high US unemployment (over 8%),
real estate will revise to lower as securitzation is gone - no more borrow short and lend long. This means mortgages will increase 2 basis points, permanently. This is a 16% decline in property value.

On the bright side:
Sosciety has shifted a great many of itsbest and brightest int finance. Why work 10-12 hour days as a physician or electrical engineer for $80k=$140k when you can make 7 figures a year in finance. With 100,000 already gone from finance and at least that many more to come, society gets its engineers and doctors back. Something I prize.

In my last post I called for world-wide Central Banks to pull together. I think this will not happen. And, maybe thats okay. Just maybe we will get a better system in the place of this current one.

I think the fed is in an inflate or die situation. As long as the Saudis keep recycling their wealth into treasuries, this counterintuitive behavior in treasuries might continue. However, this cannot continue indefinitely, especially with recent very inflationary measures the fed has taken. This includes accepting equities for cash loans. Unbelievable! I thought taking mortgage debt was bad!

I wonder how big the piles of LEH are at the Fed window today? I wonder how many fed notes they are getting for one?

Possible Layoffs at eBay, Golden Parachutes for Execs
By: Ina Steiner
Sun Sept 14 2008 11:21:14

Barrons cites a Wedge Partners report that "the company's business is "deteriorating" and that the company is readying layoffs that could affect 10% of the company's 15,000 employees."

If there are layoffs, it will be interesting to compare the severance packages of "regular employees" and managers with those of eBay's top executives.

Like many corporate boards, eBay's Board of Directors put into place Golden Parachutes for its top executives. It appears from SEC filings that some top execs will receive two years' target cash compensation, defined as annual base salary plus target annual incentive bonus. That "bonus" is usually 100% of salary, so it would be like getting 4 years' worth of pay if they are laid off. (President and CEO John Donahoe's target bonus is 125% of salary.)

Donahoe and Dutta's severance packages are detailed in this SEC filing.

Here's one example of a Golden Parachute. On July 16, 2008, eBay revealed in an SEC filing that the company's Chief Financial Officer Bob Swan would receive a severance package in the event of his termination without cause:

providing a cash payment equal to two years' target cash compensation (defined as annual base salary plus target annual incentive bonus) if the termination occurs within two years of the date of the severance agreement, one and one-half years' target cash compensation if the termination occurs more than two but within three years of the date of the severance agreement, and one year's target cash compensation if the termination occurs more than three years after the date of the severance agreement.

I highly recommend this article to anyone using informal revocable trusts to "increase" the amount insured by the FDIC in a single bank.
Informal revocable trusts are commonly known as “payable on death” (POD) accounts, “in trust for” (ITF) accounts, “as trustee for” (ATF) accounts, “transfer on death” (TOD) accounts, or Totten trust accounts.
The short summary is: the account title must include commonly accepted terms such as "payable on death," "in trust for," "as trustee for" or similar language to indicate the testamentary nature of the account. These terms may be abbreviated as POD, ITF or ATF. If this doesn't appear on your bank statement -- good luck. If only I had such problems...

I remember somebody in this forum mentioned this scenerio a year back on what it would take to shake the fortress.

1) Arm resets
2) credit (mortgage) tightening
3) job losses

We had 1 and 2 but not 3. finally 3 is coming to bay area.
There is not much fat in tech market because of our recent memory of tech bust causing companies to hire conservatively.I wouldn't expect something like 2001 bust but its going to be significant.
finally, all the predictions from patrick dot net are becoming reality.
laws of economics never cease to exist, they just need some time to show up.

HP to cut 24,600 jobs as part of EDS integration
Monday September 15, 4:58 pm ET
By Jordan Robertson, AP Technology Writer

Hewlett-Packard to cut 24,600 jobs, 7.5 percent of work force, in EDS integration

SAN FRANCISCO (AP) -- Hewlett-Packard Co. said Monday it plans to cut 24,600 jobs over the next three years, about 7.5 percent of its work force, as it combines operations with Electronic Data Systems Corp., the technology-services company it recently acquired.

Most of the cuts will come from within EDS's ranks, and nearly half will hit jobs in the U.S., HP said Monday after the markets closed.

In spite of being mentally prepared for everything that's happening - it's still painful. The years after dot com boom are already feeling like a lost decade. A disastrous war, a disastrous budget and a disastrous economy.

Only if Greenspan and his worshipers hadn't thought of him as God, things could have been so different. There were so many warning signs - and all were ignored. In the end, this will be another textbook example of a bubble that could have fit into "Short History of Financial Euphoria" by John Kenneth Galbraith and written around 15 years ago.

I feel bad saying this. But maybe we as a society deserve this. When debt is considered wealth, what else can happen ? Trying to keep a positive attitude, may be we will see a return of fiscal conservatism and frugality. And hopefully our children will see a better future as a result, and if not maybe our grand-children.