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Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-01-08 07:16 AM
Response to Reply #22
27. Neutering the Markets
What the commentators, pundits, and policymakers are thinking about is how to fix problems in the capital markets. Most of them couldnt fix a flat tire, of course. But that doesnt stop them. They imagine that they can find the hole in the worlds money system...and patch it.

U.S. readies overhaul of financial regulation, is todays big headline in European version of the Wall Street Journal . The article goes on to tell us that a whole group of changes are coming our way. As near as we can tell, these changes mean nothing they are simply rearranging the bureaucrats desks. This is the plan put forward by Hank Paulson, former Goldman chief executive and now head man at the Treasury.

Critics charge that it doesnt go far enough...that it is really an extension of the deregulation trend that got us into trouble in the first place. A whole chorus of whiners is now calling for re-regulation of the financial institutions with heavy emphasis on mortgage lending.

Free market thinking takes hit from U.S. economic crisis, reports an AFP story. Bush mortgage bailout in the works, adds the New York Post .

Alas, improvements seem unavoidable.

March 14th, 2008, was the day the dream died, according to Martin Wolf in the Financial Times . The dream was the dream of global, free-market capitalism, says the report. The worlds wake-up call came, it continues, when the Fed decided to bailout Bear Stearns.

The dream was more like a hallucination, in our opinion. We can imagine that we live in a free market world. But the worlds central banks have been fixing the price of credit, fudging the numbers on inflation, and printing money all along. Now that we have a crisis on our hands embellished and exaggerated by central bank planning the long knives are out for free enterprise.

The Anglo-Saxon model as full of illusions, conceits and absurdities as it is is still the best model, because it allows fools and their money to part company relatively quickly. Every other model merely slows it down...gumming up the gears with special privileges, protections, and government-granted larceny. The real problem in todays capital markets is not that the machinery of capitalism is broken, but that its working. And that is what the reformers aim to stop. They want to fix the markets... like you would fix a stray cat so it couldnt have kittens. What they really want is to neuter the market...spay it, so it is a cuddly pet, but one that doesnt give you any trouble.

So far, U.S. homeowners have lost probably about 12% of the wealth they thought they had in their houses. The total capital value of the residential housing market is about $20 trillion. So, a 12% loss is equal to about $2.4 trillion. A few foreign housing markets have been hit harder Ireland, Spain and Iceland, for example.

The equity markets have been hit by similar losses. Equity funds alone have seen $100 billion of cash pulled out by nervous investors. But here something curious In an ugly global crisis, U.S. markets not so bad, another WSJ headline.

In 2008, the Dow is down 7.9%. But foreign markets are down more. France has lost twice that amount. Germany has dropped even more 18.7%. But the biggest losses are in the go-go markets of the East. Indian stocks have lost nearly 20% of their value. The Shanghai stock market has fallen 32%.

Overall, non-U.S. and Canadian markets are down about 15% meaning, that the worlds equities have taken a loss of about $4.5 trillion in local currency terms...or about $3 trillion when measured in dollars. (The dollar has gone down so that dollar-based investors have lost less on foreign markets than local investors.)

We have been pointing out that these huge reductions in the implied wealth of the worlds investors weigh heavily on the deflation side of the scales. The money people thought they had is disappearing. To a hedge fund investor, the vanished money may mean nothing more than a missing digit on his portfolio report. But to a marginal homeowner, the losses force him to change his standard of living cutting back on expenses so as to balance his family budget. For not only does he have less money, his costs keep going up. Every three months the American Farm Bureau buys a typical bag of groceries. This quarter, the price was up 8.9% over a year ago. And gasoline? Its up 64 cents a gallon over the last 12 months.

Economic downturn worsens in March, says Money Watch.

A good part of the world economy seems to be drifting into a slump despite the efforts of the feds to keep the money flowing.

Capital shortage lingers despite Feds latest steps, reports the WSJ . The banks are rebuilding their balance sheets; theyre not taking on more risky credits.

Analysts will take aid and comfort from the performance of the U.S. market so far this year; they will see it as a sign of strength that American equities have sunk less than others. But it is really a sign of weakness. While foreign markets soared over the last 10 years, U.S. stocks went nowhere. Having not gone up, now theyre not going down. And while they are not going anywhere, the value of the dollar continues to fall wiping out stockholders real wealth. In terms of what they can buy on world markets, U.S. stock market investors have lost 25% to 30% of their purchasing power over the last decade. Theyll probably lose another 30% over the decade ahead.

And so, we turn our weary eyes back to Japan. The sun set on the land of the rising sun 18 years ago when the air went out of Japans bubble and the Nikkei crashed.

Japanese authorities have been pumping ever since but the air leaks out about as fast as it goes in. This year alone, the Nikkei has lost 16% of its value, bringing it down to a level that is less than one-third its peak in 1989.

In real terms, we suspect that that is where U.S. stocks will end up too maybe five years from now...maybe ten years.

But not without a fight!

Japans lost decade offers dire pointers for the Fed, says a headline in the Financial Times today. The pointer is that the Fed should act fast and aggressively to bailout the banks and homeowners. According to legend, Japanese officials dithered. They failed to react quickly enough so that by the time they finally got moving, it was too late...a deflationary slump was already underway and impossible to reverse.

Ben Bernanke went over to Japan years ago to offer advice on how to get out of the deflationary trap. Now, he has a chance to show the world how its done. Will he succeed? We doubt it.
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  -Stock Market Watch: Tuesday, April 1, 2008 Demeter  Apr-01-08 04:12 AM   #0 
  - Today's Market WrapUp: Pedal to the Metal  Demeter   Apr-01-08 04:20 AM   #1 
  - Today's Reports  Demeter   Apr-01-08 04:28 AM   #2 
  - U.S. March ISM manufacturing index 48.6% vs 48.3% in Feb.  UpInArms   Apr-01-08 09:15 AM   #59 
  - Construction spending falls 0.3% in Feb. from Jan.: Commerce  UpInArms   Apr-01-08 09:36 AM   #71 
  - Oil near mid-$101 after falling Monday By GILLIAN WONG / AP  Demeter   Apr-01-08 04:32 AM   #3 
  - Congress has big questions for Big Oil By H. JOSEF HEBERT / AP  Demeter   Apr-01-08 04:36 AM   #4 
     - Crude pivots off early losses, back atop $102 mark  Demeter   Apr-01-08 12:58 PM   #103 
  - UBS in capital hike after huge loss, chairman goes By Thomas Atkins  Demeter   Apr-01-08 04:40 AM   #5 
  - UBS plans $19 bln write-down, 1Q loss around $12 billion By Simon Kennedy, MarketWatch  Demeter   Apr-01-08 04:44 AM   #6 
     - UBS 1Q Losses to Equal 1/3 of Equity  Demeter   Apr-01-08 10:02 AM   #81 
  - France to bring EADS insider-trading charges  Demeter   Apr-01-08 04:47 AM   #7 
  - Quarter was a bad one for stocks, no matter how you look at it By Mark Hulbert, MarketWatch  Demeter   Apr-01-08 04:52 AM   #8 
  - Lehman to raise $3 billion capital  Demeter   Apr-01-08 04:53 AM   #9 
  - Lehman raises $4 billion of capital to quell critics By Dan Wilchins  Demeter   Apr-01-08 12:49 PM   #100 
  - Senate's Dodd: Paulson plan "not even close" By Kevin Drawbaugh  Demeter   Apr-01-08 05:03 AM   #10 
  - Paulson's Financial Fix: Less regulation, More Power to the Fed By Mike Whitney  Demeter   Apr-01-08 05:10 AM   #11 
     - On Paper, Wall Street Gets Its Way By JENNY ANDERSON NYT  Demeter   Apr-01-08 06:18 AM   #19 
        - Under the Treasury's Plan, Fed Would Lose a Key Power By Neil Irwin WAPO  Demeter   Apr-01-08 06:36 AM   #22 
           - Neutering the Markets  Demeter   Apr-01-08 07:16 AM   #27 
  - Top U.S. Housing Official Resigns By RACHEL L. SWARNS NYT  Demeter   Apr-01-08 05:13 AM   #12 
  - I like the cartoon at the bottom, but it is not Uncle Sam (American public)  whistle   Apr-01-08 05:14 AM   #13 
  - The Decline And Coming Fall Of US Hegemony By K Gajendra Singh  Demeter   Apr-01-08 05:16 AM   #14 
  - As Jobs Vanish and Prices Rise, Food Stamp Use Nears Record By Erik Eckholm  Demeter   Apr-01-08 05:22 AM   #15 
  - Business Off in Several U.S. Regions, Indexes Show REUTERS  Demeter   Apr-01-08 06:23 AM   #20 
  - Just in time for the election  formercia   Apr-01-08 07:15 AM   #26 
  - Question and long musing: What would the collapse look like. . . .  Tansy_Gold   Apr-01-08 10:41 AM   #86 
     - Call me a pessimist, but...  Wednesdays   Apr-01-08 11:47 AM   #89 
     - WWII Was Started by the Terms of WWI  Demeter   Apr-01-08 11:52 AM   #91 
     - If We Replaced Consumerism With Public Commonwealth Spending  Demeter   Apr-01-08 11:51 AM   #90 
     - The original colonists deserve more credit than that  starroute   Apr-01-08 12:12 PM   #96 
     - New England's Wealth Came from Fishing, Slavery and Industrial Revolution  Demeter   Apr-01-08 12:40 PM   # 
     - I admire your ability to express your thoughts...  Prag   Apr-01-08 01:09 PM   #107 
     - Thanks, Prag!  Tansy_Gold   Apr-01-08 03:53 PM   #109 
        - Perhaps relevant to your thought-piece,  Ghost Dog   Apr-01-08 04:40 PM   #114 
           - Ah, very interesting.  Prag   Apr-01-08 06:43 PM   #121 
           - Thanks, GhostDog, for the interesting links  Tansy_Gold   Apr-01-08 08:41 PM   #130 
              - That is why I like to read the SMW thread  DemReadingDU   Apr-02-08 07:10 PM   #133 
     - Great writing, thanks for your thoughts  DemReadingDU   Apr-02-08 06:47 PM   #132 
  - Thanks, Demeter!  Roland99   Apr-01-08 05:42 AM   #16 
  - Good Morning, Roland!  Demeter   Apr-01-08 06:03 AM   #17 
  - Hey!  Prag   Apr-01-08 08:31 AM   #43 
     - Thanks Prag!  Demeter   Apr-01-08 08:39 AM   #46 
        - Well, you see...  Prag   Apr-01-08 08:46 AM   #51 
        - A cat's understanding of life vs. a dog's.  TalkingDog   Apr-01-08 09:35 AM   #70 
           - That's More LIke Groundhog's Day--Bill Murray Style  Demeter   Apr-01-08 09:38 AM   #72 
           - Yep, it's been One LONG April Fool's Day...  Prag   Apr-01-08 09:49 AM   #75 
           - At one time...  AnneD   Apr-01-08 09:58 AM   #79 
  - Ditto!  Karenina   Apr-01-08 06:33 AM   #21 
     - Good to See You!  Demeter   Apr-01-08 06:41 AM   #24 
     - Morning Marketeers.....  AnneD   Apr-01-08 07:28 AM   #31 
        - Good Luck to the Diva!  Demeter   Apr-01-08 07:30 AM   #33 
        - I'm SO THERE with you all, Anne!!!  Karenina   Apr-01-08 07:33 AM   #35 
        - Thanks ....  AnneD   Apr-01-08 08:28 AM   #42 
        - Good luck!  Prag   Apr-01-08 08:34 AM   #45 
        - Hope it goes well... I am all too familiar with recitals! n/t  antigop   Apr-01-08 08:54 AM   #54 
  - Mexico: American-Owned Bank Bombed By ANTONIO BETANCOURT NYT  Demeter   Apr-01-08 06:07 AM   #18 
  - natives are getting restless...  kineneb   Apr-01-08 11:32 AM   #87 
     - Natives Are Always Restless  Demeter   Apr-01-08 11:45 AM   #88 
  - Bush Names 2 Democrats For SEC: Vacancies Were Unfilled for Weeks By Mike Musgrove WAPO  Demeter   Apr-01-08 06:40 AM   #23 
  - In Sale to Bank of America, Countrywide Executives to Get $19 Million in Stock AP  Demeter   Apr-01-08 06:48 AM   #25 
  - Sad Anniversary /  Demeter   Apr-01-08 07:18 AM   #28 
  - Mom tells me of my...  AnneD   Apr-01-08 08:41 AM   #47 
  - dollar watch  UpInArms   Apr-01-08 07:23 AM   #29 
  - Morning!  Demeter   Apr-01-08 07:29 AM   #32 
  - g'morning to you Demeter!  UpInArms   Apr-01-08 07:31 AM   #34 
  - I Doubt that the Fed Has Even a Plan A  Demeter   Apr-01-08 11:57 AM   #94 
  - Euro slips on weak eurozone data  Ghost Dog   Apr-01-08 04:57 PM   #115 
  - THE VOYAGES OF THE ECONOMIC ENTERPRISE by The Mogambo Guru  Demeter   Apr-01-08 07:28 AM   #30 
  - You know what this means?  Prag   Apr-01-08 08:44 AM   #49 
     - Live Long and Prosper, Prag!  Demeter   Apr-01-08 08:48 AM   #52 
  - One man's mortgage nightmare  AnneD   Apr-01-08 07:56 AM   #36 
  - Lawsuits question disability claims  AnneD   Apr-01-08 08:03 AM   #37 
  - The insurance companies  burf   Apr-01-08 08:45 AM   #50 
  - Colorado fraud law would be the harshest  AnneD   Apr-01-08 08:10 AM   #38 
  - Mexico's remittances down 2.8 pct  AnneD   Apr-01-08 08:14 AM   #39 
  - Dr. Greenspan's Amazing Invisible Thesis  DemReadingDU   Apr-01-08 08:16 AM   #40 
  - Pa. Truckers Protest Fuel Prices  AnneD   Apr-01-08 08:19 AM   #41 
  - Sure, let's see what happens when they eliminate gas taxes  Wednesdays   Apr-01-08 12:06 PM   #95 
     - I think they are barking up the wrong tree.....  AnneD   Apr-01-08 12:32 PM   #97 
  - Krugman: Is Iceland the victim of a financial conspiracy?  DemReadingDU   Apr-01-08 08:33 AM   #44 
  - One Might Think That the US Dollar Was The Next Target  Demeter   Apr-01-08 08:44 AM   #48 
     - It has been already to some extent. It is harder to manipulate though because its market is so much  Zynx   Apr-01-08 08:49 AM   #53 
        - So Alternatively, Just Smash the Whole Economy to Bits?  Demeter   Apr-01-08 08:55 AM   #55 
           - Congrats!  Prag   Apr-01-08 09:09 AM   #57 
              - No!  Demeter   Apr-01-08 09:14 AM   #58 
  - Commodities Tumble as U.S. Recession Risk Weighs on Oil, Copper  Zynx   Apr-01-08 09:03 AM   #56 
  - It's The Copper Plumbing From Vacant Houses  Demeter   Apr-01-08 09:15 AM   #60 
  - Considering the housing boom drove copper to a great extent, I think this is expected.  Zynx   Apr-01-08 09:22 AM   #62 
  - Of the commodities...  Prag   Apr-01-08 09:24 AM   #64 
     - Gold has been above a normal growth curve for two years.  Zynx   Apr-01-08 09:29 AM   #67 
     - Gold does not have a normal growth curve.  BadgerLaw2010   Apr-01-08 11:53 AM   #92 
  - I give up  abelenkpe   Apr-01-08 09:18 AM   #61 
  - All the markets are connected  RantinRavin   Apr-01-08 09:25 AM   #65 
  - The 30-60% rise in commodities in the space of less than a year was hardly driven  Zynx   Apr-01-08 09:31 AM   #69 
  - My point exactly  RantinRavin   Apr-01-08 09:40 AM   #73 
     - But buying dollars doesn't make sense either  Timefortruth   Apr-01-08 09:48 AM   #74 
        - Stocks anticipate recessions in advance. They usually bottom out half way through them.  Zynx   Apr-01-08 09:55 AM   #78 
           - This recession hasn't started  Timefortruth   Apr-01-08 10:00 AM   #80 
              - No, but the largest stock market declines usually hit before they even start.  Zynx   Apr-01-08 10:12 AM   #84 
                 - Agree and that is why we need to separate the economic news  slipslidingaway   Apr-01-08 11:55 AM   #93 
  - My thoughts exactly. n/t  Prag   Apr-01-08 10:04 AM   #83 
  - No, no joke...  Prag   Apr-01-08 09:26 AM   #66 
  - Currency markets have been very volatile for some time.  Zynx   Apr-01-08 09:30 AM   #68 
     - How can the dollar be undervalued  Timefortruth   Apr-01-08 09:51 AM   #76 
        - Oh, there are reasons for it to drop, the issue is that it may have declined too far.  Zynx   Apr-01-08 09:54 AM   #77 
           - But how is that possible?  Timefortruth   Apr-01-08 10:02 AM   #82 
              - Let me explain it to you in the following way with a stock example:  Zynx   Apr-01-08 10:19 AM   #85 
                 - Maybe but the UK property market is not EURO based  fedsron2us   Apr-02-08 07:43 PM   #134 
  - Here is an interesting (albeit off-topic) news bit...  Roland99   Apr-01-08 09:23 AM   #63 
  - WEEEE, 2 corrupt banks only lost $20 billion last quarter, ain't it great?  specimenfred1984   Apr-01-08 12:40 PM   #98 
  - Somebody (Besides Me) Must Be Out of Their Minds  Demeter   Apr-01-08 12:45 PM   #99 
  - Banks boost Wall Street as credit fears ease By Kevin Plumberg  Demeter   Apr-01-08 12:51 PM   #101 
  - Likely story... Uh huh... Yeah right...  Prag   Apr-01-08 01:04 PM   #105 
     - UBS, Deutsche losses mount, but bank fog clearing  Ghost Dog   Apr-01-08 05:03 PM   #116 
     - Many of these financial stocks have gotten pummeled in the past on nothing but rumors  Zynx   Apr-01-08 06:11 PM   #119 
  - I've dubbed this the "Gomez Addams" Effect...  Prag   Apr-01-08 01:02 PM   #104 
  - Love It!  Demeter   Apr-01-08 01:05 PM   #106 
  - I'll put it in the Queue for Tomorrow...  Prag   Apr-01-08 01:14 PM   #108 
  - they really are a screa-um  cosmicdot   Apr-01-08 07:31 PM   #125 
     - Thanks for digging that up, cosmicdot.  Prag   Apr-01-08 07:37 PM   #126 
        - You Are Shameless! My Thanks Too, Cosmic Dot  Demeter   Apr-01-08 08:05 PM   #127 
  - think this would make a great cartoon for tomorrow's Stock Market board  wordpix   Apr-01-08 04:14 PM   #112 
  - "What is driving the Dow up 330 points?!!" Could it be the $9.2 trillion US debt?  wordpix   Apr-01-08 04:09 PM   #110 
  - Are you sitting down?  Prag   Apr-01-08 04:34 PM   #113 
  - The Federal Government is not directly purchasing stocks. That is fantasy.  Zynx   Apr-01-08 06:13 PM   #120 
  - There's a feeling capital concerns at financial companies are easing.  Zynx   Apr-01-08 06:09 PM   #118 
     - That's the propaganda, thanks for repeating it  specimenfred1984   Apr-01-08 06:43 PM   #122 
        - Well said, specimenfred1984.  Prag   Apr-01-08 06:54 PM   #123 
        - The Betting Is Senile, and Reports Are already Leaking Out  Demeter   Apr-01-08 08:07 PM   #128 
        - I never said the speculators were insignificant. They have been driving the market both ways.  Zynx   Apr-01-08 06:59 PM   #124 
  - Ford says U.S. sales fell 14 percent in March  Demeter   Apr-01-08 12:53 PM   #102 
  - just keep those big 12 mpg trucks coming, Ford, and see how low you can go  wordpix   Apr-01-08 04:10 PM   #111 
  - Hooray!  JNelson6563   Apr-01-08 05:38 PM   #117 
     - Maybe Not You, Julie, But Somebody Obviously Is  Demeter   Apr-01-08 08:09 PM   #129 
        - I wonder if there is another bank about to go under?  DemReadingDU   Apr-01-08 08:51 PM   #131 

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