Australian (ASX) Stock Market Forum

US Federal Reserve loss tops 300 billion and it turns 100 years old

Joined
Jun 18, 2004
Posts
1,045
Reactions
618
Hi,

On the 23rd December 2013 the US Federal Reserve turns 100 years old.

To celebrate its going to declare its Quantitative easing where it purchased 3 trillion more bonds post GFC, and then switched these bonds mainly into Mortgage Backed Securities has failed. These bonds are mainly very long dates and when the latests round of QE started the US fed purchased these bonds adding 1.4 trillion of them at absolute lows in the market.

These bonds conservatively have LOSSES if marked to market of USD$140- billion possibly as high as $180- billion. US bond yields instead of falling rose by 1.3% despite these purchases. Loosing 1.3% on a 30 year MBS would equate to almost 26% of the real face value. On top of these 1.4 trillion purchases added since August 2012, the US fed had 1.6 trillion of other long dated assets which marked to market from 2012 to 2013 are showing a loss of $300- billion very conservatively if not closer to $400- billion.

As part of these 100 year celebrations of the US fed on the 23rd December 2013, Alan Greenspan, Ben Bernanke and Janet Yellen the brains behind this policy will reveal this during the festivities and ask for emergency funding to cover this shortfall.

I wrote two papers about the US fed and the QE. The actions are clear, as is the rise in Yields and impacts on mark to market of these purchases.
As an investment professional for over 31 years, I celebrate as always by telling the truth. No matter how painful. The policy did not and does not work and already has a devastating impact as it is the largest riskiest position I have ever seen. The losses to date just 2012-13 are 50 times the largest ever rogue trader who merely lost 6 billion.

As someone who has shared opinions and views for over 15 years for free, of late I was dismayed to find my writings almost verbatim appearing in some prominent paid letter writers blogs. As one I recently wrote appeared within days I thought I would send the very pro USA writer the graphs and hard facts on the issue as he had copied everything else for 15 years. He sadly declined.

As Christmas approaches and the US Feds 100 year party approaches, I wonder when someone will actually broach this subject with the rogue trader called the US federal reserve. As the US lawmakers have made a deal saving 10 billion of the US budget when it's already 17.25 trillion in debt, and patted themselves on the back for a job well done. Last year the US federal side the unpaid Social Security debt grew by 300 billion, US government workers unsaved pensions grew by 250 billion and the Medicaid, Medicare and Obamas medical plan rose by nearly 550 billion. That is a saving one side of 10 billion and a loss the other of 1,100- billion, one is 110 times the other.

It is nearly Christmas, obviously the US government and lawmakers are not about to ask the US fed any questions because their budget talks with a debt of 110% of GDP which will rise to 125% if not 130% of GDP by 2017, are afraid if they asked questions, someone may ask them about the budget. So asking the US fed about 300 billion in losses is not an option for them.

US papers and media would not raise this or any other issue when sadly as Citibank put it recently the “can has been kicked over the edge of the cliff”


Foreign bond holders not totally blind to facts can see as I did from the US Feds own reports and charts, what the holdings were of these bonds, when they added and how much they added and what the present mark to market is. Every junior bond trader in every dealing room on the planet could come up with the same mark to market loss I did. Yet no one will mention this !! No one will mention the dire position of the US government and its actual debt. Agreeing as the spineless politicians did to 10 billion in cuts when the long-term outlook had gone 110 times worse in 2013, is the sad state of affairs.

So at this celebration on December 23rd 2013, the US fed will declare this loss. Say sorry that yes 300 billion is enough to buy 1 million American families a $300,000- house and the economists running the show, fringe economists, will be replaced with someone with market experience and a pragmatic honest view of the world.

I live in hope. I actually wonder when the media will wake up to the worst kept secret in the bond world. As the US treasury tried to issue some debt, to cover this monstrous budget funding hole, the US fed actually LENT more than they issued and for a lot longer. Meanwhile the corporate world knowing the lowest possible rate someone can realistically hope to borrow for 10 years is 1.5% and for 30 years is 1% higher at 2.5%, in 2012 and 2013, corporate issues in the USA are both at record highs, around 1.2 trillion each year.

Anyone with a brain will never lend at below 1.5% for 10 years to someone with a debt of 110% of the GDP and the income out of Corporate tax at record lows and income tax is 18% of GDP. Less than 20 years ago this was close to 30%. this is why the US debt is 110% of GDP, why it will rise to 125% in 2017 and 150% in 2020. This along with an aging population.

Current attacks on the EU have of late failed over debt sizes below 100% for the likes of France for the simple reason, they will HAVE a balanced budget in 2017. USA proposed a deficit of 5% of GDP in 2014 alone. France in income and corporate tax takes ? Close to 30% so to service a debt of 90% of GDP and an income of 30% in primary tax is not an issue. Servicing a debt of 110% with an income of 18% for the USA is. US lawmakers and politicians will be mouthing at the US federal Reserves party platitudes and so too will Ben Bernanake the largest rogue trader of all time. Yellen his right hand person taking over in 2014 will be blind to this as well. It's what happens with a central bank run by astrologers. The last US fed chief with any real outside experience was Volker. Greenspan will also be there, but as he is 94, I am not sure he has been aware of anything since Ronald Regan was in power.
In the end, the 4 trillion in assets on the US federal reserves books will need to be funded forever. Will the overall global market be tolerant of the US debt rising by 5 trillion by this time in 2017, likely 6 or 7 trillion ? Is it possible if the US fed continues the QE at 1 trillion more a year, increases in other debt of 1 trillion a year and the US government adding at 1.5 trillion a year so 3.5 trillion a year, is the world able to fund this ?

Warren Buffett even mentioned the USA is borrowing off the Chinese, supposedly its the poor borrowing off the rich but this is now the opposite. Between Japan and OPEC and China and places like Singapore and Hong kong. In 2013 they fund around 10 trillion of US debt. They are the much-needed funders for the expanded intended operations looking forward. It took these nations over 20 years to accumulate this wealth. About 500 billion is added to this a year. The demand in total of proposed Budget and US fed and Expanded borrowings outside this each year 2014 looking forward just till 2017 are 3.5 trillion.

It is NOT possible for them to lend even 2 trillion even if they wanted to in 2014, they simply do not have it. As such the US QE program adding another 1 trillion to this overall mess is NOT going to make rates in bonds lower, it's helping to drive them higher. Even if this was removed, the US government addition of 5-6 trillion by 2017 I am not sure even this could be funded. Let alone the ever-increasing corporate debt and the US agency debt rising between them at a 1 trillion a year pace.

I know, sadly no one will speak of either issue at the Feds 100th Birthday party. Because if they speak about one issue, the other will have to be raised. In 2014 and beyond this is the only issue for the global economy as it is a global issue. A central bank out of control married with a government who's spending is out of control. I hope by this time next near, since no action will take part on either part, the price of borrowing US 10 years and 30 years reflects this and its 1% higher in yield.

Happy Birthday US Fed.

Take care

Mark M

I was going to run a book to see who would be the first media outlet to actually mention this loss .... no one seems to be willing to touch it }

Here are the PDF's on the topic with the US feds own charts and data on their holdings.
 

Attachments

Joined
Jan 28, 2009
Posts
235
Reactions
1
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

Good reading kahuna, thanks.
 
Joined
Nov 20, 2010
Posts
544
Reactions
2
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

Shocking grammar aside, an interesting perspective. As I write this I note that leaders in the U.S. Congress appear to be on the verge of a deal on the budget prior to the Christmas break but the debt ceiling still looms large as a contentious issue in Jan.

One wonders just what the response will be in world markets once the Fed winds down QE. No doubt that once this financial heroin, currently fueling an asset bubble in equities and artificially holding down interest rates, is fully withdrawn there will be a downward adjustment in world markets. The magnitude of this move is anyone's guess.
 
Joined
Jun 18, 2004
Posts
1,045
Reactions
618
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

Shocking grammar aside
Thanks

14 errors. Sorry, some showing as errors, six in fact, are correct financial markets terminology.
32 pages, a months work. Thanks again
 
Joined
Nov 20, 2010
Posts
544
Reactions
2
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

14 errors. Sorry, some showing as errors, six in fact, are correct financial markets terminology. 32 pages, a months work. Thanks again
My comment was about 1 page (the post) not 32. Grammar is not just about spelling, it's also about how sentences are constructed and syntax. Unfortunately your focus was on just one small part of my comment that I still assert. Your post was a good read and effort, I have no issues with the content. A little more attention to grammar would have made your post even better and that is true in all writing.
 
Joined
Jun 18, 2004
Posts
1,045
Reactions
618
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

Your post was a good read and effort, I have no issues with the content. A little more attention to grammar would have made your post even better and that is true in all writing.
So glad you liked an article that took 100 hours to research. Content which is unique, so glad you had no issues with it.

I agree with my grammar errors and being human, just love to have it pointed out. Time for a better tool :}

It is reminding me of the just announced US budget deal. With 100% of GDP in debt, a total of 17.2 trillion, the US budget has reached an agreement to shave 85 billion off the budget over 10 years. That's less than 10 billion vs 17,250- BILLION debt.

Did i get the grammar correct in this ? Since the content, and message was one that is not anywhere else, a loss of 300 billion or 30 times the yearly savings just announced I did take the time to share this research.

Apologies.

thanks again.
 
Joined
Nov 20, 2010
Posts
544
Reactions
2
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

So glad you liked an article that took 100 hours to research. Content which is unique, so glad you had no issues with it. ...thanks again.
Next time why not invest 1 hour out of 100 to produce something free of glaring grammatical errors - it's called proof reading. Instead of taking offense just accept the advice and move on. Discussion over.
 
Joined
Jun 18, 2004
Posts
1,045
Reactions
618
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

Next time why not invest 1 hour out of 100 to produce something free of glaring grammatical errors - it's called proof reading. Instead of taking offense just accept the advice and move on. Discussion over.
Glaring ?

Whoops, just read your views on the religion thread.

A mistake to respond, your correct. Others enjoy the content. When someone worries about the tie they are wearing as the bus runs them over, then engages you in debate over it, who is the bigger fool ?

Me sadly. But thanks for the comments and have moved on.
 
Joined
Jan 6, 2009
Posts
2,173
Reactions
1,014
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

Next time why not invest 1 hour out of 100 to produce something free of glaring grammatical errors - it's called proof reading. Instead of taking offense just accept the advice and move on. Discussion over.
Hey, why don't you invest 100 hours of your precious time and write something constructive, then publish it for FREE for people to digest instead of criticizing others. He didn't right a book and ask you to pay money for it. Society is made up of those that do and those that think they can do.

Thank-you kahuna1 for sharing your research, it is appreciated by many, regardless of some grammatttticall errors.

Just some advice of course.

Next time the doctor give me some advice, I will pay attention until his/hers handwriting is legible.

Cheers
 

Joe Blow

Administrator
Staff member
Joined
May 28, 2004
Posts
9,786
Reactions
2,227
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

Next time why not invest 1 hour out of 100 to produce something free of glaring grammatical errors - it's called proof reading. Instead of taking offense just accept the advice and move on. Discussion over.
Why not focus on and comment on the content, rather than something as peripheral as a few grammatical errors?

How could someone not take offence when they have spent a lot of time and effort producing a significant amount of original content, and all you have to say about it is that it contains a few grammatical errors? We all make typos or put commas in the wrong place occasionally. I don't see how that is relevant.

How about being a little more constructive, and contribute something positive to the thread, rather than simply criticising others?
 
Joined
Nov 20, 2010
Posts
544
Reactions
2
Re: US Federal Reserve loss tops 300 billion and its turns 100 years old

Why not focus on and comment on the content, rather than something as peripheral as a few grammatical errors?

How could someone not take offence when they have spent a lot of time and effort producing a significant amount of original content, and all you have to say about it is that it contains a few grammatical errors? We all make typos or put commas in the wrong place occasionally. I don't see how that is relevant.

How about being a little more constructive, and contribute something positive to the thread, rather than simply criticising others?
I did comment on the content and did contribute something positive. He chose to make a big issue of the grammar comment not I. Why doesn't everyone else just focus on the content as well instead of flaming me over one comment? I agree, let's put the focus back on commenting on the content of the original post and stop discussing "peripheral" comments.
 
Joined
Jun 18, 2004
Posts
1,045
Reactions
618
Hi,


Sorry, my fault.

I have written for many years and shared for free. Yes there were and are a few errors. My mistake.

My frustration, as in 2007, and in 2013, is a sad reality. The facts are accurate. I have used US federal reserve data.
The US bond markets move is also clear, the rise in yield.

The revaluation of bonds, well, as an expert in this field I can assure you the estimate is correct.

The US Government announced a budget agreement, where they owe 1,725 billion and cut less than 10 billion in spending a year.

This is the issue. Not anything else. In 2007 In October I wrote a similar item and I did in 2000. It pains me to do this.

In 2000, I was told the NAsdaq was going to 10,000-.

In 2007 I was sat in the corner at work and looked at as though I was saying something strange. On the public site I shared, for free, despite working for several of the largest funds in Australia, I had some interesting discussions and disagreements about that view.

One guy started in 2007 a thread that said the market was at a bottom and it went higher. October 2007. He like Charlie who writes a report that told me at that time, I was wrong, history will only tell.

In 2000, I actually got the fund I worked for to sell both TLS and NWS, a great victory. On the public site I took the time to share on I was voted actually as the weakest link. True story ....

Company i was deriding at the time in 2000 is now no longer around.

In 2013, grammar or even spelling is not why I still share views. Its been 15 years. Its been 6,000 pages, in public view open to ridicule. Some very interesting calls over the years.

I do it, in my spare time, for one reason. The reason is sadly obvious, I actually would prefer others not to loose their savings. This problem in 2013 is mainly UK and US, but the scope of it I suspect becomes global.

In 2003, I had a 74 year old friend show me he had been advised to go leveraged into US equities in 2000. You can only imagine my dismay. Possibly you cannot. In 2009 doing the same with people sold products which, they were sold as risk free and went bust within 18 months wiping out 20% of their savings and being leveraged in 2007 did the rest.

I think the US fed loosing 300 billion is an accurate estimate. it is not a question asked or event mentioned in the US media. the size of the US debt is also not mentioned.

It is my belief that, sadly for the third time in 15 years, the US suffers a major correction. RISK is what has taken the US markets to where they are and budgets and tax levels. All cannot be maintained. lowest margin for Junk bonds over treasuries. During the GFC it hit 20% in 2013 there is no risk its 4.11%. Tax is 11% vs 22% in 1996. Zero cash rates ? All make the market look fair value, all are artificial.

But back to this topic, the QE and US fed buying 3 trillion of bonds, has not worked, will not work and in 2013 has a cost if the US fed revalued right now of MINUS 300 billion. An astounding number. This eventually will be discussed. It is in plain sight. I am not really sure than many posses the technical ability to forensically deconstruct a balance sheet then time the asset purchases and changes in maturity vs the yield curve and accurately estimate the total loss. I do. If you also posses that skill bravo.

In the great scheme of things 300 billion loss is not a big thing. If the US stops QE it will likely rise to 500 billion, on paper. Are rates going to be zero for 16 years ? NO. When creditor nations work out this loss, will bonds be at 2.8% for ten years ? If the US fed stops supporting these markets and stands aside, the natural increase in debt will likely push rates higher. If the US fed tries exiting the position and selling 3 trillion of very long dated bonds the yields will rise even further. The total size of this loss may be Nothing ... it could be 1.5 trillion.

What is at issue, is a reputation is built over time. It can be 30 years or 100 years. It can be destroyed in minutes.

the credibility of the US as a borrower is gone and has gone. Actually pointing out the current mark to market loss of 300 billion of the US central bank highlights how out of touch they are with reality.

I write for my US friends, I write for you, so you may not be the person who like in 2003 or 2009 asked me for help.

Enough. We all do what we must. But for 15 years, I have done what I must, what I could. Opinions but based upon facts.

Will anyone be amused by these facts ? On the thread ? I suspect most know it, they just never put two and two together. All hell will break out one day soon. It may be the 17.2 trillion debt and cutting by 10 billion a year, it may be the US fed, it may be needing to borrow 3.5 trillion more a year between the US feds QE and US government debt and then corporate debt and agency debt. I personally do not believe the world has the capacity to fund the debt any longer even if it wished to.

Opinion about possible outcome, factual about increases with current activity. Foreign lenders took 20 years to be able to own 12 trillion of the US government and agency debt. Asking to borrow 3.5 trillion more each and every year from 2014 till 2017 ? And promising to reduce the outlays by 10 trillion but racking up 5 trillion, that's 5,000 billion MORE debt by 2017 and cutting spending by 10 billion each year ?

That is 40 billion savings till 2017, vs 5,000- billion more debt. Again a fact. Interesting ? Some if not most dismiss it.

I believe as it was my sad action in 2000, on another chat site to discuss the two idiots calling the NASDAQ which had just breached 5,000- as they discussed when it hit 10,000-. I knew then, and typed then, probably with more grammar mistakes I thought then was the end. Same in 2007, different reasons but same thing. In 2013, when you have a central bank so out of control, with not one person calling a halt, they could do anything. There is nothing however they can do. Rates at zero are zero. Offering minus rates, will ensure the collapse of half the economic activity in the economy. I will take my money out of a bank paying me minus 2% let alone minus 1%.

Still the bank that lost 300 billion threatened it with the new leader/ Janet Yellen.

Do as you will with my post. I am deeply saddened for example I could not change the views of many owning PDN over $10- or Bannerman, my god did I write something about them, a pre feasibility study which was fiction. One is down 95% the other 98%.

I don't know the outcome of making predictions about the future. I do know facts, I do know my track record. I also know people do not make the head of trading of one of the worlds largest institutions without that ability. Sadly I lack when typing at 100 WPM grammatical accuracy. I will get my staff to read it next time.

It is however a race to see who actually reports this first ? I say NO US based media outlets questions the US feds 4 trillion in assets value dropping. This is if anything scarier than the pre GFC even in 2008. Everything was fine was the message, market rallied back to 6% from the all time high. It then fell 45% MORE. It only recovered because there was both possible stimulus measures and some credibility.

think back to the comment about reputation and the impact of a central bank loosing so much. Malaysia supposedly had an out of control one. They went bust in ... 95 from memory ... nope 93,94 as Soros took on the bank of England. Anyhow our dear friends in Malaysia encouraged the central bank to speculate in currency markets, it was well known. in 1993 they lost 4 billion and another 2 billion in 94. So they were broke. the government blamed rogue traders for the loss and not to know anything about the speculation. they however in the early 1990's were the terrors of the world currency markets. since my good friend is called FX trader I am sure he knows this. Anyhow wind forward to 2013 and a 300 billion loss. A position I am unable to comprehend what entered their minds. It may be nothing, rates may remain at zero. but I suspect the global lenders are already in revolt !! If like most sovereign risk explosions the rates rise to 5% above where they were if not 10%, right NOW they are not even where they should be and already their is a loss of 300 billion. The US fed is that silly it drove rates down and then basically LENT at those low artificial rates as long as it could.

That is exactly what happened, they created an artificial market to stimulate the economy and then took the worlds largest ever recorded position in an artificially lowered market they created themselves. They put cash rates 2% below inflation, waited like the dummies they are until bonds had followed them, and then lent as much for as long as they could. So when i say things are not even NORMAL rates right now I suspect there is another 0.5% even if this secret I shared does not get out.

I did think it may be one of the triggers,

But what do I know :}
 
Joined
Jun 16, 2005
Posts
4,281
Reactions
4
Kahuna1, thanks for sharing something you have clearly put a lot of effort into. I would prefer a few grammatical errors than a critical poster who is so obsessed nit picking that he has hijacked this thread.

Don't be put off by one poster - I am sure many appreciate the effort you have shared so willingly...:)
 
Joined
Jun 8, 2008
Posts
5,799
Reactions
5,142
+1 Kahuna1:
I really appreciate your posts.I trust the figures quoted and I mainly agree with the conclusion you draw
Your posts and this one is not the first one I read, do help building my overall view.
Now the problem (which is mine) is what action should I take out of this, as an aussie who has no direct exposure to US bond.
will the AUD actually rise vs the AUD, will the ASX collapse, should I buy BHP/RIO as a kind of "real asset vs monopoly money"...
When the demon will be released and I also believe it will, and soon, how to face the storm and even benefit from it
 

Bill M

Self Funded Retiree
Joined
Jan 4, 2008
Posts
2,070
Reactions
589
qldfrog has asked the same question on my mind. What course of action should an investor in Australia take? What can we do about it?
 
Joined
Jun 21, 2009
Posts
5,880
Reactions
11
Massive_debt.jpg

The more things change the more they stay the same. Great posts Kahuna1 ... keep them coming.

I echo the last few posts .... what can WE do about it in Australia or better yet how can we shield ourselves from this catastrophic event that is going to happen? :confused:
 
Joined
Jun 18, 2004
Posts
1,045
Reactions
618
Hi,

thanks.

I wish with 100% confidence I could answer these questions.

I do however believe investment markets are predictable. Rather than being luck, it is something else obviously.

US and UK markets, in late 2013 out of sync with the rest of the world. Stimulated by deficits and central banks I called this Bubble Masturbation. that is stimulation a fully inflated asset bubble.

Its a world of contrasts in 2013. My confidence level of prediction Australian moves in 2000 where I was NOT bearish till 2001-2 vs being bearish on the USA in 2000 is a similar dilemma I find myself with in 2013. In 2007 most economies were in sync as well as equity prices. Being bearish in October 20078 and talking about permanent destruction of capital was correct. Thing is, instead of shareholders wearing it the US government is wearing 8 trillion more debt.

Now I am not too concerned about UK debt. It taxes like the EU.
Greece was cut loose for a simple reason. Its debt at 150% of GDP it had a tax take of 29% of GDP. THAT DEBT … unlike US versions of the number included allowances and plans to FUND PENSIONS. USA does not. There are 30 trillion worth of these problems in the US. Hopefully the new budget has removed a little of that with US Government workers having to put more in for their pensions.

Risk has been deliberately and methodically removed from the US equation. One cannot REMOVE risk, one can make it seem to go away, but at great cost. It is still there. Junk bonds trading at 4.11% over US treasuries, at all time lows late 2012, mainly due to US policy, US fed action, has half the companies listed having their very leveraged balance sheets funded at 4-5% LOWER in 2013 vs 2007. As these funding costs at times for say an infrastructure company they are HALF the expenses of the company an a fall of 40% in costs has added 25% to the EPS and being taxed at 11% instead of 22%, the EPS is, well 30% higher than reality.

Can the USA continue to tax corporates at 11% effective rate vs 22% in 1996 ? NO.

IS a company borrowing 200% of its balance sheet, riskier or not ? Yes lowering the amount of cash needed to be paid to service the debt makes the risk disappear. It also makes the assets appear worth more, and the bubble of these types of asset prices in 2007 went down, but has come back to NEW highs in 2013. The risk is still there. Lowering rates makes forward cash-flows appear of more value when discounted back to present value and as such they are able to declare profits as the value of these assets rises and rises and rises. Just like in 2006-7.

So what would I do ? If I had UK or US stocks reduce, or like me cut. Do we follow if the US does stop as I suspect here at 1,810- in the S+P 500 ? Unlike 2000 where I was still bullish on Australia till late 2001 early 2002, sadly the GFC showed it very plainly. USA which was GFC central was 15% ABOVE us most of the correction 2008-09 and only caught up the last 6 weeks into March 2009 when it fell 24% in 6 weeks. So being totally immune for me not able to see as I did in 2000. My reasoning shared back then was that the S+P index in the USA post 1997 doubled, doubled to where I said halt in 2000. The ASX or all ords was barely 15% higher in 2000 than in 1997. Yes reasons behind this but the USA had gone 100% we had gone 15%.

If I was to say the 2000 peak the 2007 peak in the S+P were 100% over value and both were peaks which saw them HALVED, saying the US market fist stop will be 900-, will I get a visit to the looney bin ?

The re-inflation of asset bubbles as the USA has done, appear real, feel real. But are NOT real. I saw in the paper today some wombat saying Australia must not breach 500 billion debt. Its just reaching 300 billion, the RBA has about 50 billion so really its 250 billion vs 1,400 billion GDP a little worse but under 20% net to GDP debt. If it went to 500 billion vs a GDP of 1,400 billion its likely still under 30% NET debt.

If the new S+P high which is 14.7% above the 2007 GFC high was used on the ASX 200 we would need to be 7,860- We basically need to rise 50% to reach that level of madness. If the fall is going to be for the USA if they are lucky just 50%, our market to 3,900- its not such a big risk vs the USA.

I do however believe, and I do so with regret, that like in 1929 the third fall in 15 years it took 70 years to come back and trade at 100% of value, that it went well above this 3 times since, the last time the market got shaken so badly was the 1966-1980 period and it did not recover to an inflation and growth adjusted level until 1995. yes the index went higher, but strangely you would have been better for 15 years to be NOT invested in the market at all between 1966 and 1983. Dow was 995 in 1966 ..... it had a low of 1024 in 1983 which was 17 year latter.

We shall see with great regret what happens this time. I know it sounds almost like predicting the end of the world. Knowing and scoffing at these calls for most of the first 20 years I worked I joined the fringe in 2000, in 2003 I was ultra bullish, 2007 October, gee some of the things I said .... 2008 when we were hitting 3,200- it was I love you.

here ASX 200, I suspect will yes go down but only half any correction. May sadly be more as the China fears are wheeled out. China is NOT going away, in 2007 its economy was half the size of 2013. So a GDP growth number of 7% in 2013 is 14%. Obviously in any pullback the market will react here and we are very reliant on them and the other BRICS and similar high growth and population nations. Whilst we like in the GFC will get sadly sold with the dishwater I am very bullish longer term on Australia.

Exporting 40 million tons of worthless dirt called Iron ore in 2000 for $20- a ton vs 800 million tons at $120 a ton a vast difference to GDP. Exporting 5 million tons of LNG at an oil price of $20- a barrel or around $12- adjusted to LNG and in 2017 exporting 100- million tons of LNG likely at $65-. Same coal. Expansions beyond 2020.

Do not stand in front of the train if the USA goes, if we follow and follow hard, our index if it was at 7,860- would be the same adjusted high for the US S+P.

Am I really saying anything you don't know that the USA is overvalued ? When viewed this way ? We need to rise over 50% to just catch up !! EU about the same. Are we wrong ? or right ? we have debt in order ... fiscal side in order. Noise makes this at times impossible to see. Government policies in the USA make it doubly so. Risk is risk. If I jumped out of a plane parachuting the risk is always there. Lending to a borrower who is very leveraged is always a risk. A government without income, but debt ?
 
Joined
Jun 18, 2004
Posts
1,045
Reactions
618
Hi,

Sometimes, I am actually stupid. I was mulling over actually taking the time and pointing out the current actual situation to President Obama, thinking maybe he missed it? or was surrounded by people not telling him the truth.

Then, I woke up and after many days of debating with myself, 14 pages of a well written letter, for once, I abandoned it.

Mr Obama is well aware of the issue. As someone who has his musings copied and in particular by one of the most well publicized writers, I actually approached this person and said, thanks for copying something of mine and by the way would you ask someone about the 300 billion loss the US Fed has just made ? He declined, or didn't respond, so same thing.

I debate because like in late 2007 I was going they must see this ? Surely they cant do that ? Which they did. They cant possibly have this thing called the plunge protection team in place, which they did and still do. I know these things as the lady who headed the team attended every meeting till late 2012 from 2007 wrote a book. Me asking if Obama is aware of the cliff that has been jumped over ? It is silly, naive and idiotic for me to take the time to write to Obama, when he is already well aware of the problem.

I concluded the letter with this

America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves. - Abraham Lincoln

The debt clock and at the top right had corner has a wind forward function till 2017. These estimates are so out of whack they are and can only be called lies.

This link is on the debt clock top right hand side. Its the budget position in 2017 or 4 years time.


http://www.usdebtclock.org/cbo-omb-gop-budget-estimates.html

I have written about these forward estimates previously. USA is not going to grow by 25% in 4 years. GDP is not going to be 4.6% each year 2014-2017.

Corporate taxes are not magically going to go up 86% to 500 billion. Personal tax is not going to rise by 38%.

As such after going a different way and getting these three budget offices actual papers I concluded in a previous paper the best case scenario of 2017.

I suspect as I said the US Debt to GDP ratio is 130% in 2017. Debt is 23 trillion GDP 17.7 trillion.

Income is fictitious and too high, payments out too low hence the much higher deficit in 2017. This is without a bubble bursting.

If MR Obama, not president, MR, I find this impossible to believe he is unaware the US fed lost 300 billion on its bond position in 2013.

Mr Bush in 8 years, took the US Deficit from 55% of GDP to 70% of GDP by 2009. Obama inherited a poisoned chalice to some extent, but has made NO hard decisions, no cuts and will be remembered as the person who destroyed the global financial system. He too US debt from 70% of GDP to 130% in 2017. No one can rescue the largest economy in the world except themselves.

He is a second term president, cant be re-elected. As such he can make unpopular decisions. They need to be made. The next second term will not be until 2021, and this CLOCK runs out now if not previously.

"Due to economic conditions, the light at the end of the tunnel has been temporarily turned off." -unknown author

Great empires rose and fall. All for various reasons. Have a very good look at this debt clock and the original one and look at the estimates going forward. What they mean. USA unlike the British empire and every one proceeding it will fail without action, and as always for different reasons each time. Some dissipated without a trace due to famine, some dwindled away, others via war.

Only people who could awaken the USA to their plight are likely the Mexicans who have had 3 sovereign risk crisis's since 1982. Many austerity packages and sadly their is a massive physical wall in many places between the USA and Mexico in many regions. There is of course another not visible wall as well.


Until early 2014 it will not become clear to all. It will be ignored as it was in 2007 and 2008.

I have to stop, being ... well stupid. I cannot change the course that has been set. I can only share a view about it, take action for myself, and watch.

This one is sadly cast in stone, unlikely to change until another crisis hits, and by then, it will be too late.

I have one more thing I wish to share in 2013, and something to think about. Another paper, but the bottom of the reason why the US stock market is 50% higher than ours and the EU. I am not sure anyone will look at the P/E levels again without scratching their heads in the case of the USA.
 
Top