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



## kahuna1 (11 December 2013)

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.


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## avion (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*

Good reading kahuna, thanks.


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## FxTrader (11 December 2013)

*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.


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## kahuna1 (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*



FxTrader said:


> 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


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## FxTrader (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*



kahuna1 said:


> 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.


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## trainspotter (11 December 2013)

Obama on the phone to Janet Yellen.


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## kahuna1 (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*



FxTrader said:


> 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.


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## FxTrader (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*



kahuna1 said:


> 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.


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## kahuna1 (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*



FxTrader said:


> 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.


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## satanoperca (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*



FxTrader said:


> 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


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## Joe Blow (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*



FxTrader said:


> 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?


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## FxTrader (11 December 2013)

*Re: US Federal Reserve loss tops 300 billion and its turns 100 years old*



Joe Blow said:


> 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.


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## kahuna1 (12 December 2013)

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 :}


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## sails (12 December 2013)

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...


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## qldfrog (12 December 2013)

+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


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## Bill M (12 December 2013)

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?


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## trainspotter (12 December 2013)

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?


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## kahuna1 (12 December 2013)

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 ?


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## qldfrog (13 December 2013)

Thanks


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## kahuna1 (17 December 2013)

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.


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## kahuna1 (18 December 2013)

Hi,

Well in Australia with a new government as per normal the fun and games has begun to discredit the previous one and make the new one look good.

All of this political bickering aside, as it's not an issue, I wish to look at a modern phenomenon and compare us to other nations.

Nowadays the usual measures in stock markets quite often do not work. One reason for this is like when a new government comes in, they overestimate everything and blame it on the previous government. In the process they make their management look better and the previous managers incompetent. In a  company vs a government, your unlikely to have the CEO come back and manage the company, with governments this is the case.

In a company, usually prior to the board spill or as it's happening massive write-downs occur making the sacking of the CEO very clear and again making the new CEO's starting point very easy to build from.

So late 2013, all political bickering aside. Australia has a very low debt to GDP number. In 2013 its sub 300 billion, the nation has 50 billion in FX reserves and as such a NET debt to GDP would be in the region of 250 billion vs a GDP total of 1,400- billion. So its actually around 18%.

I read today papers and see Mr Hockey, more political blubbering and gas.

Both parties for whatever reason have done very well. Mr Howard and Keating and Hawke and even the ones who inherited the GFC. It was not their doing. The sale of CBA and Telstra made gaping holes in government federal pensions go away and getting 50 billion for Telstra does help. 

As to Mr Hockey removing the carbon tax but not the benefits promised as a result, Joe, seriously, if you abolish a tax and keep the spending of course the deficit will be larger. 

Even this is not what I wish to highlight other than the post 2000 trend in companies and governments to do this. I pat both political parties on the back for a job well done. Not about to get into what or whom is better.

The issue I wish to raise is about our debt. Australia’s and compare it to the USA. Today and for many weeks and months this has been a topic of the weak minded journalists in Australia. Our debt, NET debt is 18% of GDP. In the USA which just passed a budget for 2 years, they put off spending cuts of 64 billion, got savings of 23 billion so a NET negative of 40 billion, have a debt to GDP of 110% for the nation and not anyone really debated it in the USA.

I of course welcome the bickering and argy bargy of the political debate here in Australia. This is NOT something I wish to discuss and not the point of this post. It is about the debt.

So I read on in the Murdoch owned paper and as always its very important to instill fear and it stated as is correct in these papers by 2026 the debt will rise to 700 billion from 300 billion. Sad and funny thing is that by then the GDP with GDP growth and inflation will be nearly double. So as they used the GROSS debt and forgot the FX reserves which will likely rise with the GDP, the GROSS debt at 300 billion vs 1,400- billion GDP late 2013 at 21.4% will rise to possibly under worst case 26% in 2026.

Now none of us wants a massive debt. But it is something a government is able to use and should use in slow times, conversely when we have strong growth it should raise the tax take, run surplus budgets and reduce the number. 

For a country like ourselves, developed but small, and debt under 60% of GDP is quite acceptable. France has 90% debt to GDP, Spain well over 100%. We are not even in the same ballpark or planet.

Not suggesting  we ever join them, but reading the debate alive and well in Australia all be it by two people making noise for little point, it just highlighted the debates around the world.

In the EU austerity measures and budget cuts have been the topic for the last 3-5 years. UK to some extent. USA ? I understand Khloe Kardashian is going out with someone else. Not a hint of panic, just like  2007. In fact its identical to 2007. There wasn’t even a sniff of fear in the US markets in their dance until early 2009 when they lost all support and fell 24% in 6 weeks to their lows.

What I wish to highlight is the EU has balanced its books, governments have taken harsh measures. Australia, a worst case scenario presented yesterday is a rise in debt to GDP of 4.4% in 13 years, a rise from 21.4% debt GROSS to 26% in 2026 is a big deal. Basically in both cases the debt to GDP EU frozen at current levels and hopefully falling as inflation and GPD growth erodes the ratio to GDP ever downwards are policies which can be in place for 100 years.

Australia, well if we see 4.4% in 13 years, worst case, someone trying to appear intelligent by evoking the fear side, in 100 years hmmm … 55.2% debt to GDP worst case in 100 years time ? Obviously that was prior to the reason for all the hot air yesterday and that was to cut some spending, so the 26% number will not even be reached now in 2026. Oh and lets scare you some more the 300 billion now will be 700 billion in 2026, the GDP in 2014 will be 1,400- billion and in 2026 it will be 2,700- billion basically double !! so 300 billion now will be 578 billion in 2026 and it will rise to 700 billion.

You can see me rolling my eyes at the children games.

Back to the USA, if you believed the budget estimates from there, the GDP is meant to rise by 25% in 2014-17. Corporate tax up 80% with no real rise announced and its plan for the deficit in 2014 is 700 billion or 4.4% of GDP minus.

So going down this track, USA tells us they will be reducing their debt to GDP with some magical recovery in income. Rates will stay at zero till they tell lenders they can lend to them at below zero. Increases of an aging population are in the main missing from estimated spending in forward years. 

And all that was discussed was Khloe Kardashian and her new boyfriend. 

As the 2014 budget estimates are already out the window in the USA, the estimated income rise in corporate tax unlikely if not impossible, the income tax rising at a level above GDP and inflation which again is hard to see if not impossible, I wonder if they will ever debate this budget in the USA ?

Or will it debate Khloe Kardashian and her woes ? One is healthy, the other is unhealthy. One is guaranteed to be fatal, the other the debate and healthy debate could go on for 100 years but unlikely to be fatal. In the case of the EU and its overall debt to GDP being up around 100% it was threatening and action was taken, draconian and painful. In the USA it's what lip gloss is she wearing ? Revlon number 4 just in case if your wondering, the same shade Mr Paulson used during the GFC when dressing certain things up to make them look pretty.

I did actually get a response from the expensive newsletter writer, it did not acknowledge me of course, it didn't even raise the loss year to date, but his first article this week was about the US Feds reserves, about its leverage and about the size of its position. Sadly despite their claims and being bearish, they were not able to read the US Feds own balance sheet correctly and the loss of mark to market between September 2012 and the last one September 2013 was 200 billion. As they used average rates for the quarter which were suspiciously low about 0.5% away from current bond levels I cant wait till the next one comes out February 2014 which shows the US Federal reserve has negative capital. 

The question for me will be had Khloe Kardashian changed out of her pink tutu and Revlon number 4 ? Or will anything actually entice the USA to debate its budget and debt hole or the fact its central bank is technically broke ? I doubt it but I did get a lot of amusement out of this persons $2,350- paid for comments, yes for that each year you can learn the inside thoughts of the man ….. waiting ….. waiting …. waiting …... waiting ….. 

Sadly he has been bearish since 2002, he was correct in 2008-9, but at any point since or prior to that wrong. He is bearish in 2013, so yep I agree with him but for vastly different and more pressing reasons. 

When this report comes out for the US fed for the end of December quarter 2013 the tip will be to look at 15 and 30 year MBS securities and how they revalue them. Since last time, they used a duration, that is length of 50% LESS than the actual duration of the bonds to revalue them at 3.3 years vs one over 5 years, I wonder how far they move this so as to make it NOT appear the US fed is actually broke ? The last one for September can be found on 

http://www.federalreserve.gov/monetarypolicy/bst_fedfinancials.htm#quarterly

What is of interest is System Open Market Account (SOMA) Holdings its the mark to market value of holdings and in 2012 the value of these were 165 billion plus. In June when bond rates were 2% for a 10 year bond and 3.2% for a 30 year bond this 165 billion profit had dwindled to 46.4 billion of a loss mark to market of 120 billion. Page 15 of the PDF June report !! 

So out comes the end of September report PDF page 14 and they have decided to use, well whatever means they like to revalue these assets, the actual bond yields are double to move off the lows, one would have presumed the loss, even using funny accounting would be around double, merely went from a holding value of 46 billion to one of 33 billion. Still a loss of 130 billion, but not close to the real extent of it, you may find my wry amusement awaiting this publication out in February 2014 for the end of December 2013 period. The loss is at least double the 120 billion it was in June 2013. Bond rates in 2013 went from 1.55% in 10 years to 2.85% in December 2013. In June 2013, 10 year bonds were 2.08% vs 1.55%. So if that inflicted a 120 billion dollar loss what will 2.85% vs 2.08% a move of 0.77% do at the end of 2013  vs 0.53 % up to June which cost 120 billion ? I assure you US 10 year rates and treasuries are 2.85% right now as I type. 

I know still in disbelief ? Doing the same for 30 years, lows late 2012 2.55%, June 2013 at 3.2% now at 3.88%. Again HALF. 

So if half the move caused even with very shoddy accounting a 120 billion loss, its going to cause at least 240 billion end of year. Real loss and being fair is as I said 300 billion. I have used the correct duration for the bonds, NOT using ones which half the mark to market impact. I have checked the duration many times on 15 and 30 year MBS securities and the US Fed has chosen NOT to report the loss but to cut the duration in half !! 

Sadly I suspect the same will occur in December 2013 report out in February 2013, to preserve at least the appearance of some capital and stop annoying questions to the US Federal reserve which Yellen should have been asked. Sadly its year-end and even the US fed is audited. The numbers during the year are not. Then again a good auditor who will sign off on a loss of 300 billion is always easy to find if you know where to shop. Will the US fed admit its reserves are gone ? They are in reality, so its a mad shopping frenzy to find that special auditor they need !! 

In the meantime, Khloe Kardashian is now Time magazine person of 2014.

take care


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## Knobby22 (18 December 2013)

Excellent writing.
You should get a job with a newspaper.
I do think the USA is undergoing a massive transformation which is destroying the middle class but creating a working class that will be able to compete with the Chinese.

Good comment also with regard to the actual Australian debt compared with GDP. One danger though is that growth may stop and the world may go into a depression. If that occurs the debt will not look as benign.


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## kahuna1 (18 December 2013)

Knobby22 said:


> Excellent writing.
> You should get a job with a newspaper.
> I do think the USA is undergoing a massive transformation which is destroying the middle class but creating a working class that will be able to compete with the Chinese.
> 
> Good comment also with regard to the actual Australian debt compared with GDP. One danger though is that growth may stop and the world may go into a depression. If that occurs the debt will not look as benign.





Nope not for a newspaper.

I agree, if GDP growth slows, not quickens and instead of inflation, they get DEFLATION, they are in serious trouble.

There is no known cure for deflation. In 1930-33 this is what caused the great crash. Prices falling 10% ... deflation of 10% and rates above that. The total GDP of the USA took a tumble of around 23% as they had negative GDP growth with deflation. The ratio of 110% of GDP in 2013 would be 23% higher even if not added to.

My issue with just this little part of the problem in 2013 is very complex. If the US fed has lost all its capital its no real big deal. Whilst its appears private, it is government run 100% and all profits go to the US treasury and 488 billion over 10 years has flowed form the US Fed to the US treasury. 

My point in this issue is not about the loss even, its about the debt, relative debt sizes and lack of accountability. Also its the illusion being woven by the US fed and government. The QE and tax breaks they have there are all aimed at stimulating economic activity, not something which has occurred. Its come at a cost.

What appears real right now is not real, an illusion. You are hypnotized on stage imitating a chicken right now for a hypnotist and a magical and handing out $100- notes to the crowd which are your life savings. 

In the meantime all appears well, its what is being reported. The other side is as well. The debt Mr Obama inherited at 70% of GDP is close to 100% of GDP now and by 2017 when he leaves will be 130% of GDP. In the meantime thanks for the $500- you just handed me.

Sadly an illusion, one difficult to break. Unless you study everything in minute detail, beliefs you have and reasons for doing something in 2013 will sadly cost you a lot. It is the stated policy of the US government and Federal reserve to stimulate asset prices post GFC which is meant to spur economic activity and growth. Velocity of money has fallen 33% since then. It has slowed, GDP growth is nothing special. Asset prices are, but the cost ? Well this little subset of the examination is the US federal reserve is broke, or has exhausted all of its capital if these bonds were marked to market.  The US government at 110% debt to GDP in 2013 or 130% in 2017 or 150% plus in 2020 are the other side.

One set of policies can be maintained for 100 years, the EU and Australia. USA ?  Well the next quarters report for the US fed comes out in February 2014, it is AUDITED and I suspect I will not be the only person going why if in June the loss year to date was 120 billion, why was it only 130 billion as of end of September 2013. I am sure all can see the move in bond yields post June 2013 are more than the pre 2013 calendar moves, hence the estimate its 300 billion not the 130 billion for 2013 admitted to date. I am sure they will come up with some excuse either way.

Another topic for that one either way.


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## Panaman (19 December 2013)

This is a very good read and for someone like me who has only recently taken an interest in economics and investing, a real eye opener, thank you for posting.

See some have asked what kind strategy they should run if things really start to get bad and I imagine if things get bad in the USA then it will be panic stations not only there but in every corner of the planet, but from my perspective I cant see how anything could be done to avoid not getting caught up in it all, we will all be in deep poo so if anything it’s a matter of do what you were going to do, for me that’s invest and run my own Superfund taking a balanced approach of shares and fixed interest.

I’m also an optimist and although im not going to kid myself i understand how these things work I think you have to believe that the world will overcome this with not quite the amount of pain as expected, you can always take the pessimists view and maybe sell everything and buy gold or sit in cash but if things get that bad I cant see how anything will shield you.


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## kahuna1 (19 December 2013)

Panaman said:


> I’m also an optimist and although im not going to kid myself i understand how these things work I think you have to believe that the world will overcome this with not quite the amount of pain as expected, you can always take the pessimists view and maybe sell everything and buy gold or sit in cash but if things get that bad I cant see how anything will shield you.




Be an optimist. Even in the depths of the correction last time, the sun will ALWAYS come up and life will go on.

I have done this for 30 plus years. In that time this is the third time ONLY I have been this bearish with cause. In fact over the last 120 years, it's usually only every 10 years or so you should be very negative on markets.

Australia, could rise 50% equity wise to be at the same level as the USA and UK. Same if EU Stoxx rose 50% it would be at the same levels. This is about the USA not Australia, but eventually we will be caught in the vortex.

US fed announced a taper overnight, a tiny taper of 10 billion a month in QE, talked and talked and talked about keeping rates at zero forever ... and the market went nuts.

I do not doubt my level 1,810- in the S+P 500 fails. When you have a central bank jaw-boning a market ever higher when its 50% above EU and Australian equities and it is post GFC, all time highs ... this is their policy ... to create this asset appreciation and its been achieved. If they decide to continue, so be it. I call this bubble masturbation. Stimulation of a fully inflated asset bubble. 

My analogy, and it is not to kick sand in Uranium followers faces, I was very correct then, but so what, it is about values and long-term values. Not the current policies but ones which will be here in 50  or 100 years. I accept the US Feds policies will unlikely be removed quickly of willingly.

They will remain in place for as long as possible.

The US fed came out overnight and said it WANTS inflation at 2%. it wants it there so its debt at 110% of GDP can be eroded over time. If it ever got asset bubbles bursting, and deflation, coupled with a recession, it has no policy tools left to deal with a recession, and it is not possible to deal with deflation as there is no known tool.

So their only tool left is stern talk, jibber jabber … oh and playing dirty altering your perceptions. 

We have markets globally very disjointed now with ones needing to rise to catch the US 50% and the realistic look at the USA is its in a bubble. Its trying to create activity, stimulate it via this policy but the opposite is happening. They want inflation, and they have had ASSET price inflation but will totally fail to create inflation and have at any other level. If you had 27 million on food stamps when this mess started, and now 47 million on food stamps or just under 15% of your population it will never work. This is a number 20 million HIGHER than any record since 1980.

Coupled with this USA has the lowest participation rate in the workforce  in 20 years, lowest home ownership rate in 20 years. Chances of an actual turnaround in economic activity of substance when I also see the side effect of QE is the velocity of money has fallen 33% since they started and likely even if they had stopped today the QE, it would fall to 38% as it's a lagging indicator. Instead at 85 billion a month it's now going to be 75 billion and at this rate, it's still going to take years to remove.

All of this, the hot air. Ignore it.
Facts, US will continue down this road as long as it can. It is not working.
US asset prices are in extreme bubble regions.

THE BOND market bubble I suspect has BURST. 

Last reality is the market is no longer a free market. It is a like a floated currency but with the central bank coming in time and time again. Its called a dirty float. The US side is a very dirty float. It goes down out comes the jibber jabber. Market is scared, out comes some magically adjusted number. Participation rate if it was unadjusted/fictional post GFC US unemployment would be well over 10%.

As the GFC was happening late 2007, I wrote about permanent destruction of capital and exit. Here in 2013, the markets are in similar levels if not FAR worse but the US fed has announced it will despite this continue to stimulate asset prices because 2007 bubbles were a mistake ? They haven’t said that, but that’s exactly what they are doing. 

As the GFC went on, I commented on a long list of things you never do. From altering statistics and reporting say GDP went up 5.3% which was adjusted back to 1.9% two years later and was even lower than that, to banning shorting of stocks. Banks that went broke. Time and time again they came out and said in 2008 it was all ok and over, the market rallied as profits crashed, investors got the worst hammering in the USA as the companies issued into the rally and raised more capital only to see it fall 50%. Some companies like Citibank once at around $500- it went to $2-.

 In the end they totally relaxed accounting rules and mark to market of assets. Yes it was needed, so too the liquidity measures. But the rally which will stop short of being 3 times the low in the GFC at 666 so that would be 1,998- in the S+P 500, so at best you have 10% MORE before total implosion. I suspect here at 1,810- it stopped for sanity reasons. Other levels are not till 1,940- …. but given overnight yimmer yammer … are they seriously going to swallow this in 2013 ?  Maybe. Maybe not. 

I am a student as ever of the markets. It has been my life for over 30 years. My sole income. My hobby, and in 2013 for the USA my greatest fear. Bigger than in 2000 and bigger than in 2007. Every so often someone believes they are bigger than the market. Bigger, better, smarter, they have some new way of doing things.

Reality is the marekt is very simple, make money or not. Companies sell a product for a profit or they don’t. You can alter peoples perceptions of the companies profits by shoving money DOWN their throat, not charging them any tax, buying awful assets the banks were hoping to offload and creating paper profits to repair shattered balance sheets. But what happens when its all removed. US Fed or government will not remove it willingly. Not today not next week or even next year or by 2017. When its removed reality is seen. 

Eventually the market is not driven by even a government. They loose total control of it. No amount of soft speaking will convince anyone of anything.

What devastates many at these times is not taking this into account. If the government was to charge the correct tax in the USA on both corporates and individuals EPS would fall 15% if not more. Tax take in the USA has fallen by 50% as a ratio to GDP post 2000. If these higher bond rates stay here, just here the 1.3% higher than 2011-12 levels, I suspect it will hit EPS by another 10%. If they go 1% higher long end as I suspect they, do EPS will go another 10% down. 

All are artificial in nature. The US debt government side will explode prior to this. Maybe this is the US governments intention to create a sovereign debt crisis and inflation. Prior to that however, equity prices will be destroyed, bond markets destroyed and the currency. Sure there will be inflation, and asset price ultra deflation. The person on the street will suffer, the one that missed out on the assets doubling and the asset owners will also suffer. To make these prices rise, the US government has taken its debt from 55% of GDP to 110% in 2014 and by the time Obama leaves 130% of GDP. 

I am unsure what the hell their goal is late 2013, other than the USA and the US fed is NOT bigger than the market and is on the cusp of loosing total and complete control as they did in 1930. 

It is an illusion not backed by reality.

In uranium stocks in 2006-7 we had misguided CEO's talking uranium prospects up, the spot price would hit $200- , 500 new reactors built when at a spot price of $100- a lb the fuel actually was an issue ….  new reactors that have been built and as I was watching them in 2007 were DOUBLE the price expected and not viable at $100- a LB uranium. Supply was not short longer term. There were 1,700- companies in the field of whom there were over 300 known and semi commercial deposits. This was outside some very large supply coming on via Kazakhstan in 2007-10. Was $135- a LB a reality, a fleeting peak or realistic ? 

All was ignored, and stocks traded at levels they never will again. Hard to ignore the CEO of your company calling a rally when the stock is at $10-. Hard to ignore the siren song of the US fed and government at 1,810- in the S+P when its stated its intention is to keep rates at zero, ignore the fact its already overvalued and take actions to send it higher.

If the value is not there, its not there. If the value is being created by US corporates paying 11% tax vs 22% tax pre 2000, EPS are not what you think. If the US fed and its actions hands 50 billion in ultra low loans at 0.25% to banks are their EPS what you think ? How about if the number was 100 billion or 200 billion ? What about if this action changed the price of all credit in the USA despite the whole bubble of the governments 110% of GDP debt if the US Feds action lowered the cost of junk bonds to all time lows 2% lower than normal as though the GFC never happened ? What is this doing to corporate earnings ? I they are borrowing 12.5 trillion, its saving 250 billion in interest. All of it artificial. Add them up, I have, more tax 200 billion, 150 billion for financials via QE actions and radically altering their liquidity and cash flows, another 250 billion via margins. If the whole corporate market makes 2,250- billion pre tax what impact would an increase of 400-600 billion have on  things ?  But for now, US fed will jawbone us to death.

Australia can catch up as much as it likes.

Sadly the US fed just lost any credibility forever in my eyes. It is like the stupid FX rogue trader we had in Australia interviewed and he claimed he was a genius and all others were idiots. I was one of the idiots, I went gee what am I doing wrong ? Not a thing of course !! He eventually was charged and disgraced. 

US fed having clearly lost all its capital, every single cent of it should be charged and Bernanke taken away. But no one will ask them. I have provided the US Feds own balance sheet, if it lost 120 billion for half the move, the other half has taken its capital below zero. Not a big deal but it eventually it will show a loss of 240 billion which is likely 50% more, the duration of the bonds is a factual number and when the US fed estimates it at a number 50% below reality, what is the truth ?

I sadly resign myself to shaking my head as I did late 2007, its all one can do. They have pre announced they will do even worse things that they did in 2008 and the end outcome this time, knowing this, knowing markets, will be for the record books. Like at rogue FX trader many years ago interviewed on TV telling all he was the greatest FX trader ever and all others were idiots. The jaw-boning aside it was not till 2012 that the idiot Fx trader was sentenced to jail in Australia. They chased him for 25 years. In the USA no one is charged. No one will be charged and as such I can only shake my head at the current stupidity. 

http://www.smh.com.au/business/whizkid-faces-the-music-17-years-on-20100525-wb29.html

The US fed turns 100, the US fed has not net assets. This one will not take 25 years to resolve, the market will deal with it all. I suspect the bond market for one has had enough. What do I know ? Not a thing other than lessons. Maybe Koval could go join the US fed when he is off his good behaviour bond. They chased him for 25 years and still no jail. Maybe I have it all wrong !! Crime pays :} It does not protect your money however on the other end of it.


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## Caveroute (19 December 2013)

Thanks for sharing Kahuna. 

A thread of high quality and insight - greatly appreciated.


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## avion (19 December 2013)

Caveroute said:


> Thanks for sharing Kahuna.
> 
> A thread of high quality and insight - greatly appreciated.




+1...


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## Knobby22 (19 December 2013)

kahuna1 said:


> What devastates many at these times is not taking this into account. If the government was to charge the correct tax in the USA on both corporates and individuals EPS would fall 15% if not more. Tax take in the USA has fallen by 50% as a ratio to GDP post 2000. If these higher bond rates stay here, just here the 1.3% higher than 2011-12 levels, I suspect it will hit EPS by another 10%. If they go 1% higher long end as I suspect they, do EPS will go another 10% down.




Interesting point. But surely the way out is for corporates to be taxed at a better rate, tapering to cease, the war effort reduced more than it is now and finally debt to be targeted. Growth can occur but it doesn't have to be only major corporate growth. Maybe the share market will suffer however the economy may continue to pick up. I know this is unlikely in the present political situation.

Further, we don't really know what percentage of debt compared to GDP will create the collapse. It may go on a lot longer yet. If the world starts improving and GDP starts rising faster than debt, then maybe there is a way out. 

One concern I have is the oil situation. I believe it may become a trigger. In my opinion we are at peak oil already but the new gas technologies in the USA and the slow world economy has masked this. What do you think?


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## kahuna1 (20 December 2013)

Howdy,

good points.

One never can know with absolute certainty that one point is the high until time has passed. This is part and parcel of calling highs or lows.

Taxes, yes the USA could go and do something about tax. It has chosen not to.
When George W Bush came into power the debt to GDP was 55% for US federal debt. All other forms of debt much lower.

In 2009 it was 70% of GDP, in early 2014 it will hit 110% of GDP in 2014 for the US government.

This is a rise of 55% of GDP debt the US government has racked up. I believe it will hit 130% of GDP in 2017. 

Only one credit rating agency has downgraded USA and only ONE notch. The bond market has staged a revolt and we have French bonds and cost of borrowing BELOW USA despite it being 2 levels below USA credit wise. the rest of the world appears to have had enough. My view anyhow and so too the bond markets yields reflect this view. 

Cost of bonds is rising and USA has not issued any long term debt. It has, but the US fed has reversed the issues by buying them. Despite this yields are 1.3% higher late 2013.  

Can the USA change its stance on tax ? Yes sure it can, it can also cut spending. Obama and his inept government just agreed on budgets for 2014 and 2015 with none of this. No tax hikes, no real spending cuts. the deficit for 2017 or my estimate is hard to be altered at this late stage.

Simply put, USA in terms of income and corporate tax is taking as a percentage of GDP a number 50% below what it was in 2000 as tax. It is taxing LESS, and the end result is the totally inexperienced US government is being bled dry. Of course they are experienced but this Obama government has the lowest ratio of any government of people with outside experience in it ever.   

In short the finances are fried.

Tipping point ? Well yep , I don't know, but I waited and have been watching this issue for many years. I waited till the Bond market spat its dummy till I commented. US bond rates rose 1.3% for 10 years and 30 years. No announcement was made, this is NOT a positive for the market looking forward. Increased cost of borrowing for listed companies will place pressure on earnings. THIS will be partially reflected in the numbers out for last quarter 2013 released early 2014.


Peak oil. Again a pet topic.
I was a peak oil person but only in one sense. traditional oil.

USA declared the tar sands of Canada open for production in 2005. It declared 185 billion barrels of dirty tar sands that require around 30% energy to produce them as open for production. Basically opening the door for every and any other non traditional form of oil production. Tar sands produce an ultra heavy tar like substance after heated to 80 degrees C which is full of heavy metals. So if they were going to do that, my view changed in 2006 about peak oil. 

Pre that point since about 2000 I had been noting a creeping up in demand, a fall in the capacity to over supply via OPEC which by 2003 I thought was dwindling and hence I was very bullish on oil then.

USA and their decision, all without debate, basically made CSG a clean alternative compared to tar sands, made fracking of shale oil and gas also clean. 

It also meant Kyoto and climate change warnings were a waste of time in 2005. That is I do believe the science of burning fossil fuels is harmful, don't get me wrong there, but if your going to decide to produce the nastiest type of oil burning 30% of the energy to produce a single barrel, limits on burning of fuels will never stick and already China and India were going get lost and USA was not interested.

To make the climate change debate worse, the models WERE WRONG. Seen in 2012, yes the world is warming, it will have effects but estimates and timelines VERY wrong in estimated impacts timeline. yes they will happen I have no doubt, but allowing themselves to be open to this ridicule has left the climate change side looking like Y2K followers when i do believe its a real topic for our grand-kids. Sadly, it will be another 20 years till they recover.

Either way USA in 2005 declaring TAR sands open, it all went out the window then. China not playing ball or India, I actually saw our effort a small nation isolated as quite stupid personally. I say this not to annoy you, just the fact that if 90% of the world does nothing, it will fail. If we do it at great cost, its pointless.

As to peak oil. Peak traditional oil, drill a well get oil out YES I agree.
As non traditional oil is NOW open, for me it put MORE production coming via these avenues over time. CSG into LNG, Shale Gas , shale oil, tar sands. With Tar sands some very big deposits not yet in production Venezuela has large ones. its messy and slow but again takes pressure off traditional oil sources. 

In terms of CSG, Shale oil and Gas to me they added another 20 years to peak oil, not by themselves but with Tar sands and something I thought maybe 2025, for me is way out 2040 or so if you take non traditional forms already on the table.

Even when we get there, I sadly know what will happen and that  will be other nastier forms of non tradition oil. If TAR sands uses 30% of the energy produced to get a single barrel, worst of the worst is Coal to liquids. That takes 40% of energy to produce. 

Any hydrocarbon can be turned into say petrol. It just takes more energy. Does this mean when the CSG which are deeper coal deposits are used up, they dig them actually up and turn them into fuel ? Possibly. 

So for me if I look logically at the issue peak oil, using non traditional is NOT until 2100 or latter.

What is and did change in 2003 besides traditional oil and it hitting a peak, is CHEAP OIL, cheap energy is gone. Oil price broke up and I wrote many articles 2002-12 on this. These non traditional types take an oil price NOT at $20- a barrel or as I had an issue with Steve Forbes of Forbes magazine in 2005, oil CANNOT go back to $40-. it can, but no money will be spent on development of non traditional oil which is costly messy and slow.

During the GFC the oil price, we briefly visited $145- on the top, too far as it would have destroyed world economies, at $33- the other side, at that price no new much needed production would happen.

Bottom line there is a long term support for oil. At least for NOW.

I live in hope for a clean new type of energy sometime in my life, fusion ? Something not even thought about. 

Other alternatives to fossil fuels and viable ones with some interesting work ALGAE and massive ponds both producing oxygen and being turned into a bio fuel may be viable commercially at some stage. Something that reverses CO2 and is clean.

All of these things other than some magical breakthrough are functions of price of energy. ALGAE I am sure they could produce a barrel  of fuel for $500-  vs the current spot around $100-. Its not a commercial option until it hits $100- without a lot of support. What I do think may be possible is that over time without support these alternatives MAY be able to be produced at $100- and below.

Anyhow just my view on this topic. Apologies if I have upset likely many with this view but I have written papers on most aspects of energy for many years from coal to shale to LNG and CSG and 10 forms of green energy from solar to wave and deep rock stuff oh and I have a comprehensive understanding of the Nuclear side.

I do  no longer believe in peak oil as such. Or even peak energy. there will be bottlenecks and if the price falls it will cause disruptions in long term supply if it happens, but nope, Canada and the Tar sands put all debate out the window, or up the chimney for me in 2005. 

take care


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## kahuna1 (20 December 2013)

Hi,

bit long, bit heavy ...

its part of the Christmas thing,


Starts .....

A NATION ON FOOD STAMPS





For a long time I have wondered how central banks could have missed the GFC and its lead-up. In late 2013 I am even more in amazement of the lack of understanding and common sense being displayed on all levels.

If you have ever seen the comic Rowan Atkinson, who plays Mr Bean I was wondering where he went ? Well Mr Bean, is visiting Australia and he is now the deputy head of the Bank Of England. Like my favourite episode of the Comedy where Mr Bean cooking the Christmas Turkey eventually gets it stuck on his head, I was amused to be able to recognise the deputy Bank Of England Chief immediately when his picture appeared in the paper today.

His quote : "Historians will judge Ben Bernanke as one of the Great Central bankers" was the give-away along with the roast turkey on Mr Beans head.




Here is the PDF ,,,Oh and yes the deputy head of the bank of England is someone who called Charles Bean


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## kahuna1 (5 March 2014)

Whatever !!!


Whatever …. like a sullen teenager I say this.

Having spent the last 6 weeks looking over events 2002-2007 and now able to prove how CPI was understated at one stage by 5% pre GFC and unemployment, very tight PRE GFC at 4.3% low was altered from it being shown it was LIKELY under 3% AT some stage pre GFC … both which would have caused any other central banks to raise rates 3-4-5% above what they did. The US federal reserve and system just swept that event under the carpet and went and acted surprised when the GFC came along.


WHATEVER …. it has taken me 250 pages to provide links and to show how it was done, but who cares ? The people who owned indexed bonds to the USA CPI were ripped off 15% over 5 years 2003-2007 by this understating of CPI. People expecting pensions linked to CPI and indexed, also got ripped off.

In some ways needed to deaden the blow of what's coming but for those who retired in 1980 they had a fantastic Social Security income vs those coming post 2015.

Again its a WHATEVER. People do not care about past history, I do, but only to be able to see what is going on right NOW.


Chapter 6 or a whole new book needs a lot of work. Its sad and to know how they did it then, and then to what is going on now, the picture is grim.

I have actually read all my comments from 1999 and 2000 and 2007-2009, they make interesting reading ... but again WHATEVER.

Since I now read articles being cut and pasted and a classic in the FT about how junk bonds now do not relect risk ... its again whatever.

Meanwhile we hit new highs ... or the USA does. Australia still has that gap and 50% below USA and UK and German equities, maybe some of it closes .... a bit in 2014 but even this i find had.

I have sadly reached a conclusion.

last time it was a nuclear event I talked about the 40-65% correction. Things being bombed back to glass and how it got there.
having spent 24 months and a lot of time, money and effort on systems for myself ... and to make the next 30 years easier.

Rather than boor people with 270 pages of reasoning .... the ELE event ... the once in 100 year correction ... the 65-90% fall in equity prices .... ones that occur well but once normally in 150 years .... last one for the USA was 1929. NASDAQ and its 88% loss was on a specialty index. Oh and prior to you scoffing China had one post GFC .... its peak I laughed about the 6,000- and its low ? the Nikkei in 1990 ... well its low ... we all know was not a good one in 2009.

But I am proud to announce after having my own results audited ... twice ... the chances of a Massive correction in the ELE region is now over 61.4% . yawn .... its like that in a rising market. Everyone is a genius ... even the chimp smearing its poo on a stock chart for your selections is beating the market.

This ELE chance is normally under 5%, it rises , each year post 2014, by 5%. In very short when your declaring a budget deficit reducing at 100 billion and the contingent unfunded liabilities are rising at 5.2 trillion in 2014 or a rate 50 time that and the ACTUAL impact of these liabilities are HERE .... in 2014 ... baby boomers born in 1949 step on down as you turn 65 .... this rises 5% each year out to 2020.

By then its assured. Its basically assured now, Obama a great orator but hopeless at math. How can anoyone who is not an idiot look at the 2018 budget and the corporate tax extimate of income and not go, compared to 2014 thats 87% higher and 76% higher over infaltion ? Or do the same with income tax 30% over inflation ? Or go to the expnese side and question the actual numebrs let alone the totals of thos eover the age of 65. USA with the longests and biggest babay boom from 1948-64, in 2014 has the smalles timapct on budgets of any nation. the lowest percenateg of those over the age of 65 in any nation OECD developed ones that is in 2040 when in reality USA had the biggest baby boom of any nation both longer and stronger, yet the budgets have it all removed.

I go Whatever. Sadly whatever. Since like in 2007 the same players are either there or pulling the strings, I suggest that the likely stopping point eventually will be in the 80-90% loss of capital region. Hopefully it does not take like Japan 20 years to get there.

On another note. the US fed declared it will NOT mark to market its bonds. It has suspended its mark to market and since there are only two reasons for this, one is an illiquid market .... or the other .. an intention to hold bonds until maturity.

I am proud to announce the USA Federal reserve has frozen its capaitla levesl at 55 billion. It will not be decalring the 330-350 billion it lost on bonds in 2013 if they were marked to market. Since 2.3 trillion of these bonds have 30 years Maturity the USA federal reserve has announced to China it expects them to fund the USA federal resevres postiion which is in fact owned by the USA treasury and fund it at zero percent till 2044. China may be better just to hand over its 3.89 trillion in FX reserves right now in 2014 and save 30 years of being paid nothing for them.

All of this a whatever as the market rises to new highs.

It is frustration that massive moves to the goal posts such as the USA Federal reserve openly declaring war on everyone and its intention to fund the 4.3 trillion balance sheet at zero percent forever is going to occur.

Honestly if I was Chinese, I would buy other currencies, metals, even multinationals. Whilst overvalued at 200% of value, its much better than losing 75% by funding it for 30 years.

Must go actually confirm this, I noticed over the weekend despite one report during 2013 showing reserves had slipped to a mere 36 billion and that was prior to the awful bond yield rises late 2013, the USA federal reserve had adopted NO revaluation policy and there are only two reasons for that, one is an illiquid market ... which is not possible when the US fed itself is buying everything in sight ... or was ... or the unannounced intention to make lenders lend at zero percent for 30 years. So instead of mark to market its just amortized over the 30 years.

So the USA on top of its 17.3 trillion debt, the 11 trillion in agency debt it underwrites, its now added another 4.1 trillion of bond positions that went wrong to funding needs. I think I missed that memo !!

Market goes WHATEVER .... my RISK model goes #$^@#$^#$^ as does anyone else s .. Obama gives a good speech he practiced in the mirror for hours about changes which will never occur and the market ignores it all rises to a new high.

Is it a big think the USA just declared a need to fund another 4.2 trillion for 30 years or not ? the USA federal reserve has clearly suspended mark to market of Bonds and frozen its capital at 55 billion. If one takes the money being borrowed from social security and pensions and the debt at near 13 trillion adding another 4.3 trillion to be funded, at zero please ... for the next 30 years, is the bond market going to react well longer term or not to this ? Maybe they will not react. But by 2018 with another 6 trillion in debt will they react ? Or by 2020 with 8 trillion ?

Whatever is all i can say. Never seen anything like it even pre GFC. ELE ... NOT Nuclear this time ... not 40-65% falls this time this round ... the arrogance of this cabal of nitwits knows no bounds so its 65-90%.

Imagine sneaking in buried in the USA Federal reserves reports the fact we wish you ... the funders of our debt to accept zero percent for the next 30 years.

WHATEVER .... the market is going to the moon. I am a genius ... I made money when its going up. Catch you on the way back down, where it peaks ? I really dont know. this was a serious if not earth shattering in your face announcment and declaration by a borrower to go nope ... we intend NOT to issue long bonds to fund it, which even when the US treasury issued the US fed purchased more ... the USA Fed will borrow 4 trillion at zero for 30 years.

So maybe if the Chinese just hand over their FX reserves NOW it may delay the start of this correction till 2022. Thats how big the holes get, a hole in 2030 that is the actual size of all the Chinese FX reserves in 2014.

Market Yawns, goes WHATEVER ... and rises.

Me, I do so too. resigned to watch with a weird fascintaion. I did so early 2008 on the rally that all was safe. Some of my comments during that rise, I rode it up for a bit, Knowing if you make it illegal to short banks they will rally, but it doesn't change the fact as I said in January 2008 about Citibank by late 2008, Citi without a direct injection of 300 billion, without virtually unlimited funding it was broke vai any definition of the word pre GFC, and COO of that company in 2008, jack Lew is the USA treasury secretary in 2014 ? A man who openly admits not much knowledge about risk ?

WHATEVER .... I watch with that morbid knowledge of what is about to occur. Maybe delusional but in 2000, 2007,2008 even 2009 ... I wish i was wrong ... but since I just had a very good team of statisticians and actuaries go over my models to make sure ... I honestly do hope I am wrong.

I have no desire to see what is about to happen ... happen. but when a goverment and central bank doesn't mention the fact they intend to fund an extra 4 trillion on top of 28 trillion with 128 trillion in unfunded liabilities coming their way ... I just have to go

WHATEVER.

Bottom line the USA fed will NOT be declaring a loss. the bonds will be run till maturity thas 30 years for 2.3 trillion of them  and China has said they are willing just to hand over their 3.89 trillion in FX reserves to help the US federal reserve fund this disaster ....


NOT true ... other than the US fed not revaluing or declaring any loss .... it intends to run these bonds till maturity !!


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## Trembling Hand (5 March 2014)

kahuna1 said:


> WHATEVER .... I watch with that morbid knowledge of what is about to occur. Maybe delusional but in 2000, 2007,2008 even 2009 ... I wish i was wrong ... but since I just had a very good team of statisticians and actuaries go over my models to make sure ... I honestly do hope I am wrong.




Did they include profits lost from sitting out the bull markets. Especially the fastest smoothest one since Eve went long forbidden apples?

I mean what is the point? Once a bear market starts its not like you wake up the next day and find 90% of all your companies market cap has disappeared and your bank has closed. What is the plan? Continually shorting a rising market? Nope! Stand aside and watch it rise? Nope thats more costly than taking a hit once it does turn.


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## kahuna1 (6 March 2014)

Trembling Hand said:


> Did they include profits lost from sitting out the bull markets. Especially the fastest smoothest one since Eve went long forbidden apples?
> 
> I mean what is the point? Once a bear market starts its not like you wake up the next day and find 90% of all your companies market cap has disappeared and your bank has closed. What is the plan? Continually shorting a rising market? Nope! Stand aside and watch it rise? Nope thats more costly than taking a hit once it does turn.




I never try and estimate stupidity ... how far they will take things. Shorting is doing that.

Sitting out of a rising market  ... well opportunity cost is at 3% now .... since I goth the others much closer ... 2007 and 2000 not too fussed either way. 

Deciding when a market is going down always amusing. Like the broker who said never catch a falling knife ... even for a blue chip company. When did he decide it was going up ? he knew no concept of VALUE and as such like his mate recommending a stock from $10- to $1.16 ... same stock again no idea.

When FMG the stock in question in 2007 was over $10- I thought it had too much debt and was idiotically prices. when it fell below $2- I loved it.

this is the opposite .... when to exit. On the downside the broker eventually likely thought it was going up at $2.25 vs a  low of $1.16. since things were madness at the time ... even lowered my safe zone and it spent 3 days in total BELOW the $1.50 mark. Back then I preferred buying at $1.38 average vs his entry of $2.25.

In 2014 as in 2007 the question was and is the top .... 

being bullish when a market in the USA has tripled ? Just as bullish as you were at 666 in the S+P 500 vs 1,868- now ? 

Having run a thread for 9 years real time I have had this discussion so many times its amazing but in 2004,5,6,7 corrections my pet stocks then WPL or BHP or CSL .... in an 8% correction they went down 23% normally.

When do you decide the market overall is going down ? or its a bigger long term correction. In 2000 the day the NASDAQ hit 5,000 was the day i exited US stocks ... the day the 2007 peak was hit ... same day I exited the stock. i am yes having issues with missing this one. Still whats lost the short term i really don't care.

If I was using say a trailing stop loss, where do i place it. if I have the correct stocks .... ones which advanced the most into the GFC peak ... in a small normal healthy correction of the overall market shedding 8% they shed 20% and BHP and WPL did it numerous times as did CSL or my pet JBH back then ... same story different times.

I prefer to sell into a rising market NOT wait till even blind Freddy knows its going down.

Conversely when everyone hates stocks ... knowing what I think is VALUE for the stocks ... I much prefer someone giving me FMG at sub $1.50 and not paying over 60% more when its safe to buy them.

I don't doubt Australia which needs to rise 50% to meet the same equity levels as the USA could rise a bit more and play catchup to where UK USA and Germany are possibly in 2014. I do however think its unlikely and my exit, right or wrong is on what the world index's follow and in 2007 I got the USA very close top exit and entry in 2009 .

Maybe you could tell me how you decide its a major correction or a bigger one and how you exit ? How do you get out ? By the time its 10% down the stocks usually the favorites I hold have been hit harder than the overall market. they also rise higher than the market hopefully in a climbing index. 

I have tried various things and yep trailing stops but being able to see the roadblocks ... rightly or wrongly is what I prefer to use. Obviously you are a bull which is fine and it makes the marekt go round.

No problemo there you fell the Marekt is rising and hold your shares. I was wondering how or if you ever decide the marekt is going to have a correction ever. Say a 15% one which i find tends to wipe cloe to 30% off my idnividual share favs prices. Obvioulsy i feel we have a doosey coming .... a 50% plus correction coming.

We agree to disagree, but maybe you could share how you exit shares ? Or if you ever do ? Would love to hear the perspective from the other side. I find grating deep in the money options pretty worthless, I find usuing a trailing stop loss a bit worthless without a reference to the actual index. that is I have and run a stop loss on a share if it performs worse than the index than say 25% and tariling. So I buy it, it goes 10% higher than the index, if it trades 15% below the index in relative terms I go ... ok i am wrong and exit.

But what if ? Your a bull ... but one day decided like me to take risk off the table and exit. Do you wait till there is a clear trend going down and exit your shares at double the rate the index has shed ? 

As to daily moves. Being an old fart ....I remember 1987 ... I was a trader at a bank then and it was OVERNIGHT .. it was out of the blue and it was one followed by the next and within just 3 weeks it was 36% off its highs and it lost 34% of them in 3 weeks. 

I was around in 1982 .... still with banks but there were w hole series of brutal 10% moves .... 

In 1990 the new breed of experts were in and that was fun ... 10% in 3 weeks.
then 17% in 6 weeks ... just over 20% in 9 weeks.

I could go on, but markets do sometimes go down. My preference to sell into extreme strength into roadblocks both fiscally, technically and mechanical ones but also VALUE based is my method. It works. Converse into extreme end of the day events.

so what is an exit strategy ? Or is there one ? Even if its not here ? Selling at 1550 in 2000 in the S+P 500 and buying it half that in 2002 and selling at 1,576 in 2007 and buying at 666 in 2009 and exiting here ... at yep wrong ... 1,810- I am not going to cry.

End result post 2000 ? is 5 times. I wait and I just miss the top, think it will bounce and hold too long. Eventually my stop loss kicks in and its not pretty when it occurs. So rather than endure pain I sometimes leave some on the table for others. opportunity cost.

Is there another method maybe you have  ?


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## kahuna1 (6 March 2014)

Oh ...  

and since I know we are looking at things from opposite sides ...

PRE GFC. the high ...

Don't know or honeslty care if it was the high. Down under 5% invested. Up to 95% in cash. SMSF is 15% invested. Quite a change from the 122% for trading at 5,480 and 100% in the SMSF.

Cut and paste this, put it into Google and you may actually learn sometimes people tell the truth :} just the tow lines above. Sorry ... spelling is wonky was in a hurry back then. 

But would appreciate a reply on a better way to exit ... I have tried and thought about this. When i feel we have a massive correction coming even deep in the money options totally fail .... If I waited post October 2007 ... did the early 2008 correction get me out ? It fell rapidly early Jan 2008 and bounced but never back to the highs ...it did make it back to 1,440 when they banned short selling but ... well short of the 1,576 exit. even if I was lucky enough to get the exact high of the bounce it had visited 1,270- on the downside prior to this min bounce in May 2008. One was 19.4% off the highs ... if a managed to exit at 1,440 vs 1,576 ... better ... but unlikely only 9.44% off the high.

Unlikely one totally exited even there for the simple reason, that if you saw the VALUE and SAW the risks going off the scales and saw the exit correctly I am not sure you would have seen it at any other time on the way down ... to be able to sell on  a bounce with a  changed view when the bounce is still 9.44% below the previous high ? Unlikely. 

Anyhow any ideas appreciated.


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## Trembling Hand (7 March 2014)

kahuna1 said:


> Anyhow any ideas appreciated.




Sorry mate with all due respect you haven't a clue how to manage risk. Its clear. You are painting a story like its impossible to profit in a rising market because you will lose it all on a turn. If that is the case then it is always been the case, markets always whip around. What are you saying? Don't get in ever because you may not win 100% of the time?

And of course you can say "yeah but now it has ran too far". Which it has, its a long way from where the bears expected it to be. In the meantime you have been advocating missing out on this. 




I just don't see what you have offered as an answer other than fear and loss.


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## kid hustlr (7 March 2014)

I find your writing style a little confusing and in this day and age - long-

are you saying you were long pre GFC and sold at the high and have since been uninvested ever since due to the fact you see another massive fall coming?


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## kahuna1 (7 March 2014)

kid hustlr said:


> I find your writing style a little confusing and in this day and age - long-
> 
> are you saying you were long pre GFC and sold at the high and have since been uninvested ever since due to the fact you see another massive fall coming?




If that was the question to me, YES.

I sold in 2007 went long into late 2008 early 2009.

I sold the lot because yes I fear another correction.

Trembling.

I have no idea how to handle risk ? Reducing as a market goes up and hits all time highs ? then when no  one likes it ... as in 2002-03 or late 2008-09 ... buying.


Risk I asked how you exit stocks ? or reduce risk or if you do ? 

I didn't tell you you have no idea. If you sold at 1,550- and purchased at 666 prepared to reduce risk into all time highs and add at lows less than half of it, that is the essence of good risk management.

I am not suggesting you loose your shirt other than MAYBE this is a generational change in risk. I believe so and have shared why along with my view and factual backing for that conclusion.

Pre 2007 people believed PDN ... Palladin was worth over $10- I had the view fully valued long term it was worth $1-.

The market overall today in 2014 believes for the S+P 500 its worth the index 1,870- I believe on historic valuations its between 75% and 125% OVERVALUED. So does numerous other measures. Not just my own value index, TOBINs is showing 76% over valued a lot of the forward P?E methods at 110-125% ...


I was honestly wondering if you ever actually take it all off the table ? All risk. I tend to be more proactive than most, but this is, sadly for me the third time in 15 year I have removed all risk. I shared why in 2014, did so in 2007 and shared a way to read why then, I did so in 2000. 

Do you have any way of managing RISK or assets 
My perspective as both a value based investor but also a technical one and mixed with this a very good respect for risk I am wondering if you do anything when a share market rallies to levels it cannot sustain.

I shares what I did in 2007 and chose to exit it all, eventually entering and even leveraged in march 2009. 

If there is a better way of managing risk ? I would serious love to hear it.

Obviously you believe the market goes up, and I am an idiot for selling out. 

Its been said before. I notice you asked me or thought I had been short or out since 2009, since I was leveraged at the low, the answer is NO.

I am however here, late 2013 and early 2014 extremely concerned about the valuations on the UK USA and German markets.
As I had and have repeated Australia which valuation wise is needing to rise 50% just to catchup to advances post GFC 2009 lows to now ... Australia is well insulated for some of the fall as it was in 2000. If I am correct and we have a bigger fall we eventually will follow the USA correction.

What did you do during the GFC ? 57% wipe-out ? Australia is NOT back there and needs to actually rise 40% to catch up to that on an inflation wise basis.

Sorry was after another possible way ? If there is. Since I wrote most of the risk management systems for quite a few institutions I believe I have a handle on risk, but thanks. Will go read what you were doing in 2007.

cheers

Wow just looked for some 2007 record trembling hand. 7,000 post in a year. In 16 years, on every site I contribute to I have not posted that many times.


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## Trembling Hand (7 March 2014)

kahuna1 said:


> Sorry was after another possible way ? If there is. Since I wrote most of the risk management systems for quite a few institutions I believe I have a handle on risk, but thanks. Will go read what you were doing in 2007.
> 
> cheers
> 
> Wow just looked for some 2007 record trembling hand. 7,000 post in a year. In 16 years, on every site I contribute to I have not posted that many times.




Yeah was waiting for this gem..... 

Started to talk about the changing market here on November 16, 2007,
http://tremblinghandtrader.typepad.com/trembling_hand_trader/2007/11/the-changing-ma.html

8 days after the high.

Then here I started to warn about using 5 year old strategies in a bull market that was finished. 5 days before the very last high that turns into a record breaking point and % loss and record number of consecutive down days,

http://tremblinghandtrader.typepad.com/trembling_hand_trader/2007/12/leadership.html

Then the morning before the market opened to set the first lower high in 5 years I posted this,

"Its all over"
http://tremblinghandtrader.typepad.com/trembling_hand_trader/2007/12/it-is-all-over.html

Then this,
http://tremblinghandtrader.typepad.com/trembling_hand_trader/2007/12/whats-going-on.html

more
http://tremblinghandtrader.typepad.com/trembling_hand_trader/2007/12/no-more-over-br.html



*Now back to you and your claim that you have to be out, much lower.* Are you ever wrong? Because all the post above still go on about being out or else. meanwhile the market keeps going up. Why if you are such a smart cookie wouldn't one advise just to run an index filter and lose the fear.


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## kahuna1 (7 March 2014)

Trembling Hand said:


> Yeah was waiting for this gem.....
> 
> Started to talk about the changing market here on November 16, 2007,
> http://tremblinghandtrader.typepad.com/trembling_hand_trader/2007/11/the-changing-ma.html
> ...




Well done bravo.

Of course I am wrong. i am wrong now I exited USA at 1,810- and its 1,870.

Loose Fear ? Well I call it RISK and respect for risk. By an index filter you mean what ? I do always run a filter on any share if it performs vs the index too much below it I exit the stock.

thanks for sharing ... bravo ... different ways to bite the cherry. I suppose I look at things very different to you and very different I mean different planet. You in 2009 April said it all, that you MISSED the biggest bear rally in ages and are of the belief you will unlikely see another.

I would have agreed with you then, about seeing another. Here in 2014 I am back sadly to report I believe its happening again. I think you can read mine I saw it coming in 2007 even the why.
My perspective reading on even longer than yours, it hit the low in March 2009 i am talking about 4,975-5,000 as the next target, when it was 1,000- points below that, maybe arrogant of me, but its there.

If you have something that will or possibly I could add to my bag of tricks I am all ears. You saw a short term peak in 2007. I saw something I clearly described as a capital destruction event. Even took the time at 6,850 talking how we got to 4,000- it was the nuclear correction which is a 40-65% one.

Different ways to skin a fish, but if you have some policy on exiting other than chart wise ? I do use a mechanical monster and then a few other things, value, RISK and stupidity.

If you call my respect of risk, fear thats ok.

Opinions vary


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## Trembling Hand (7 March 2014)

kahuna1 said:


> Loose Fear ? Well I call it RISK and respect for risk. By an index filter you mean what ?



Err any of 101 ways that simple trade management dictates (certain number of periods below a MA, a lower higher then a lower low, etc ). All of which haven't been triggered since 2008.

My point always to the Bears, which you never get an answer to, is what if you are wrong? How do you manage the event of you standing aside and the market leaving you behind considering that it is yet to produce one long term sell signal in years. And when it does you can be out in a day/week/whatever. No real harm done.

Since mid 2009 we have had endless calls for test of the lows. All backed by convincing intellectual arguments as to the trouble we are in (funnily enough not from the countries that probably will cause the next meltdown). Yet up we go. How many have read the stuff like the above posts and have expected to wake up next week with the market cut in half over night? And so haven't done anything in a long time. When in fact intellectually thats a really dumb idea. Everyone has opportunity that is managed with a simple sell button...... again no harm done.


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## Wysiwyg (7 March 2014)

kahuna1 said:


> If that was the question to me, YES.
> 
> I sold in 2007 went long into late 2008 early 2009.
> 
> I sold the lot because yes I fear another correction.



I can see you're perception and what is actually happening quite opposite. You aren't the only one though. I and I am sure others 'thought' the GFC issue would be a protracted affair. History has shown this not to be the case with U.S. indices almost tripling from their lows in March 2009. Deep seated fear of losing (only one 'o' in lose) further stock value would have kept many "on the sidelines" but woo wee, for those that bought quality stocks at the apocalyptic lows have had a dream run both dividend and price wise.

I look forward to the next decent market crash.


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## qldfrog (7 March 2014)

Trembling Hand, Kahuna,
my own inexperienced input: I believe you are both in the right;
are we getting ready fro a nice crash: I have no doubt myself.
Is the answer getting out altogether probably not

 I went out asx shares  in november  and bought put options: 
all went very well till mid decmber..and loosing since...
Logical based on my feeling ut not a good move as the options will expire and I will be left with a loss.
My experience is that money wise you have to run with the lemmings and I started learning this the hard way  nearly 20 years ago
....
Telstra share offer was a dud (I was working in telco at the time) I did not get in and so the price jump;
Real estate was going to surge a year ago, I restrained as I believe it is massively overpriced in australia and every colleague boast of the paper profit they made in the last year...

So how do you protect yourself?
I believe this is the question or am i wrong.
Kahuna, while your style is hard to follow (I am not a native english speaker) I do appreciate your analysis.
TH, I value highly your input as well, even when I disagree
My summary is:

You need to profit from bubble but be able to disengage quick as heel as soon as the bubble pops.
I have spent some time playing the market and expecting stop loss to be the safety switch..but after two years, I have seen too many cases where my stops were just sped past, or triggered after abject manipulation of the market,
 [interesting to see post mortem when you see shares packet of 5 or 10 $ sold/bought probably by the same entity  and trigering my stop loss;]
Is the answer playing asx200 etf only  to be protected from these ripples and have the chance to have the stop loss activated?but what is the liquitity of an ETF on a panic day???
Any of your opinions would be very welcome
Have a nice week end
PS:
TH do you have a new website, I only saw pre 2010 pages???
cheers


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## kahuna1 (8 March 2014)

Howdy,

Yes sorry my writing style is rambling.

Trembling, Many thanks.

I am not a trader as such. I once was for a very long time. There is a big difference between being a trader and an investor.

I don't use margin ... or use it very sparingly.
I rarely if every day-trade shares or even weekly. Sometimes yes an opportunity happens and i am in and out quickly but rarely in a day. Often I have looked at a share or a sector for many years waiting. 

What do I do if I am wrong ?? Stop loss ... second move  stop loss.
Being bearish when others are bullish I agree is foolish. I have been bearish overall not for long, yes the USA market is 3% higher at one end from where I exited. It has been 4% lower than where I exited as well.

Neither prompts me to take action.
I feel this move, as I did in 2007-2009 will be  a big one. 
In 2007-2008 I stayed out for months on end ... I only entered twice for the quick bounces and only partially. the low of October 2008 i felt was near the low of our market so i went fully invested plus a very small margin 22% I think.
It bounced, too hard and fast for me, I thought correctly the USA was not showing enough respect for risk and still had to see panic and when it bounced massively Oct-dec 2008 i exited and waited and by end of March 2009 I got back in. From then till when the index hit 5,000- which was not so long I was long fully invested. I became less so when it hit 5,000 or near there and failed. RBA just kept raising rates and I thought it was stupid ... or too much on their part ... and exited. As it fell into 4,000 I became long again eventually it tested the other end of the scale and that was the magic 3,750- on the ASX which it hit late 2011 after being 25% higher post GFC I was again leveraged but TINY ... 138% ... and rode it upwards.

Exiting here, or actually being invested in the US vs Australia for the last rally, our market whilst its done ok, the USA put on 30% in 2013 and the currency went down adding to it.

What do I do if it goes up 10% ? I actually go ok, that's fine. I don't need to do anything I can watch my cash earn interest all be it not a great amount but my capital remains 100% intact. 

One side, is the opportunity cost. As most are traders, they look at it as a loss. It is in one persons eyes, missing out on something. I prefer to keep my assets hard fought safe. I believe and with a degree of conviction that is very high, that I will be able to buy a lot lower over time all of these shares. This move, the forces at work on the US market have been ignored as the price raises and risk of being long goes to nutty levels.

Since I am not margin ed and could live very happily even off the measly interest I am able to stand back and go whatever to the market at times. 

Long term for me I agree its the only place I want my investments. I see it as the BEST place to protect the value of my capital long term. having money in cash for any length of time will not be a good thing. This said, for very extended periods sometimes it is needed when the market looses its mind on values. It all appears fine when you have your face planted in the screen all day. What seems normal then and a share that was $1- trading at $10- still worth $1- seems ok at the time.

Different strokes for different folks.

If the USA took the S+P 500 to 2000, i honestly would not care. Yes I would be upset at my loss or an opportunity NOT being there for the last 10% or whatever, but believing it will correct at least 33% if not 50% is not an irrational fear. The forces that caused the last fall are alive and well. In fact they have been joined by several others which dwarf them in importance.
I saw my first collapse as i became a trader in 1982, yes I too once was a trader, and I have seen many since. This one has the makings of the worst types of them all added together.


Good luck


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## kahuna1 (15 March 2014)

Hi

Interesting times. For me, for now, I will sit and watch the markets. At some stage the last place I want to be is in cash. The USA federal reserve in March 2014 has confirmed its intention to run these 3.3 trillion bond assets till maturity. It intends NOT to revalue them and intends to NOT do anything other than fund them for the lowest possible rate forever. All of this hinges on one thing, how long does it take the global markets to work out that fiscally USA is not ready in any way for its aging population and cannot fund its promises ? When do people accept eventually they will be getting a haircut on USA treasuries if nothing is done ? 

Its strange and amusing, and sad, USA Budget this year appears to be getting better. It is. USA Federal reserve by NOT marking to market and just amortising the bonds, ignoring that if marked to market they would lose 330-350 billion for the 2013 spike in bond rates, instead of that, the USA now able to fund them at 0.25% vs interest rates of 3% on most of the bonds was able to send the USA Treasury 79 billion in profits this year and IGNORE the losses of 330-350 billion if marked to market.

I am sure this may actually keep things alive for another few months. The Deficit as a result is LOWER than expected. I am left wondering if China or Japan or OPEC who funds this debt and funds the US federal reserves bond and asset buying program is happy about the fact that the USA government is booking 80 billion in profit a year ? And conversely paying them 1.4% overall on the debt of 17.5 trillion. Not even that, if one takes the PROFIT of 80 billion off the total interest cost of $250 billion, that’s leaves the USA paying $170- billion net interest on 17.5 trillion in debt. That’s 0.97% an astounding number. But NO it actually gets worse than that. You forgot the US federal reserve has 3.3 trillion MORE of bonds and it pays just 0.25% interest as required on these debts.

So that’s a mere 8.25 billion the USA federal reserve pays for the 3.3 trillion more. So the sum total is 20.8 trillion debt, or 122% of GDP the USA gets to fund at a total NET cost of 178.25 billion in interest and that equates to a loan at 0.8569%. Talk about a great deal, or a nightmare waiting to happen> that is if you know anything about RISK. Inflation at 1.8%, actual cost of living as per normal is 0.75-1% higher than that, but USA gets to borrow for 122% of GDP at 1% BELOW inflation. Maybe the US fed could buy all treasuries not just the 3.3 trillion but all of them and fund the whole debt at 0.25% ? wouldn't that be neat !! 

I talked about assets being allocated incorrectly to junk bond people being able to borrow at 5%, I honestly have never seen, or heard of anything like this. We plan to have a deficit of 30% of GDP in 2030, but must not mention it. In 2014, we have magically made our budget appear ok because the USA central bank which lost 330-350 billion on a bond position in 2013  is Not going to mark to market but expects China and Japan and OPEC to fund at 0.25% for 30 years on 3.3 trillion, so doing this, we at the USA federal reserve can ignore the very real loss, declare a profit, hand the profit to USA treasury who will then declare a lowering of the USA budget deficit as a result and for now the problem is swept further under the carpet.

Must not speak about this of course. Obama will not invite me over for ribs. Likely he means my ribs !! Strange strange world.

Eventually people do catch on. The elderly are real. The costs are real, the loss, well I would have said its real and thought it wise, not to declare a paper profit and just amortise the value of the bonds upwards rather than pass one fake bit of paper to another side of the government and hey presto the deficit is reduced by 15% this year !! It's like that trick they pulled in 2013 where one day the GDP of the USA was 16.1 trillion and the next it was 17 trillion. Nothing better when your dent was approaching 110% of GDP to produce 5% more GDP out of thin air.

This is what the house of cards is built upon. Am I being politically incorrect mentioning it ? Do I care. I am a nobody to them. If you wish to ignore a loss of 330 billion and declare a profit of 80 billion, your making one hell of an assumption. I now understand what Jack Lew said when they had made some progress on the budget. They decided to take 80 billion there and add 5% to the total GDP of the USA there and all is apples. Will anyone notice ? Or actually react ? Or even care ? Or will the rally resume until it hits the sun and turns to cinders ? 

Honestly, if the Chinese and Japan and others are willing to lend at negative rates below inflation, with no premium for RISK, or TIME, or even INFLATION and watch their real money evaporate in every sense, that is not something I can predict when it will change. It is NEW territory, does the demographic train hit first, or will this stalemate continue for another 12-24 months ? The asset prices are there at 200% of value, the debt is what it is. The risks are what they are, and the outlook is also cast in stone. I choose NOT to get involved in any of it. I choose NOT to own assets that rarely trade at 200% of value but here we are. I choose NOT to lend to the USA at below inflation. I choose to accept an OK deal to earn 4-5% on my money and sit out of this mess.

Whilst I could I suppose have hung onto my pet Telstra or the others, the deal was great at $2.80 and over 10% with franking credits 14% and a whole group of companies paying around 10%. Now in 2014, at 5.5% yield and still the franking credits, for some attractive for me, far less so.



Take care

Mark M

PS end of thread ... USA is going to get China to fund this debt for 30 years.


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## satanoperca (15 March 2014)

kahuna1 said:


> PS end of thread ... USA is going to get China to fund this debt for 30 years.




Mark, great insight, but I think you are underestimate the intelligence and capability of the Chinese. They are playing a game, they are fully aware of the rules, they are masters, they conquer by trade not force, this will not unfold as you have predicted in regards to the Chinese. The Chinese will rule the world and the USA will be left with, how did this happen? we are the center of the universe. They will continue to funds the USA debt until they believe that switching hands will give them control. I see this happening over the coming decade. 

I for one, find this exciting, the new world is at hand. For those that are ignorant, they will be torched, for those that are wise, they will come out ahead.

I have just returned from another successful trip to China. I have great respect for their culture and ethics. Several successful older Chinese businessman told me over dinner, China is moving into the second phase of it's development - to create and innovate. Watch out world. The only thing that is of a concern is that they have f--kedd their land and environment to get ahead, but then again they have the wealth, desire and ability now to take over countries without force but with wealth, that have clean air and a relatively sound environment to move to. Eg them bidding up properties in Australia. The wealth in China held by 30-40 year old's is staggering. 

Got interviewed over dinner with a New York Times journalist that resides in Hong Kong. Even he, a proud American admitted defeat. The Chinese has beaten the US on every level/sector or international trade and our now in the process of ramping up their military resources but %12.3 this year alone.

Cheers

PS running off to my Mandarin classes. Can already catch flies with chopsticks


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## CanOz (15 March 2014)

satanoperca said:


> Mark, great insight, but I think you are underestimate the intelligence and capability of the Chinese. They are playing a game, they are fully aware of the rules, they are masters, they conquer by trade not force, this will not unfold as you have predicted in regards to the Chinese. The Chinese will rule the world and the USA will be left with, how did this happen? we are the center of the universe. They will continue to funds the USA debt until they believe that switching hands will give them control. I see this happening over the coming decade.
> 
> I for one, find this exciting, the new world is at hand. For those that are ignorant, they will be torched, for those that are wise, they will come out ahead.
> 
> ...





Cool post satanoperca,we really should meet for brunch one Sunday in shangers!


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## kahuna1 (16 March 2014)

Well said,

Have been of the view same as you for some time. A war was fought, an economic war. The USA lost it and lost it by a very long margin.

I do of course expect the Chinese and other creditors to revolt at some stage. The US fed declaring war on them and its NOT going to declare the very real loss it made on QE bonds in 2013. Instead, to my utter amazement its going to NOT market to market, fund them for as long as it can at zero percent and go on as if everything is ok.

In reality the 80 billion positive funding they enjoy, comes from a lot of nations but China is a big part of the lending side to the USA.

In 2014, the 80 billion comes off the USA deficit as its handed from the Fed to Treasury. It appears the deficit drops but the loss in 2013 was real but undeclared.

In 2014 the USA budget deficit as a result closer to 500 billion than 600 as a result. This for me is even an aside. The unfunded pensions and medicare of the US fiscal side goes up 5,000- billion  that's 5 trillion in 2014. Eventually when its too late the focus will come back to this astounding 128 trillion hole. Using correct rates its likely even more than that around 180 trillion. Of course things will change ... but when ? 

I thought the US fed declaring the loss may be a catalyst, NO. They just swept it under the carpet and actually the fact that they will need to fund 3.3 trillion in bonds some that mature in 30 years time, again ignored. this to me, the funding hole is more important than the actual loss. 

Strange but NOT debate, or even mention or discussion of this. 

With the 80 billion that the US Federal reserve pays 0.25% to banks and buys bonds at 3%, the funders of this debt and I include Japanese and Chinese housewives, OPEC nations and a long list of others. they are directly supporting the lifestyle of the USA to the tune of donation each year.

Of course this may continue on for some while. One cannot fight progress :} 

Having watched many sovereign risk crisis's unravel over the years, there is no signs of this happening right now. Funny thing is that with most, they appear out of the blue and there is a massive loss of confidence in the bonds in a very short period of time despite the fact the problems quite often have been there for decades. 

The US fed for this thread, has no intention of doing anything other than its mission. That mission is to stimulate asset prices and ignore all else. I am hoping the bond markets of the world come to their senses, but likely not. Eventually  they will be forced to confront these issues but the longer they can delay it they think the better it gets. This belief is incorrect. The official unfunded contingent liability is 128 trillion, likely 180 trillion. This year it goes up 5 trillion. The stop gap of finding or creating the illusion of 80 billion more income is not massive vs the GDP its just over 0.5%. The longer they dilly dally about the fact the USA medicare and Tax system is not able to fund the baby boomers coming the worse the eventual outcome will be for the USA. 

Only time will tell, but sorry I was being cynical about the Chinese. I am sure they know what they are doing as do the Japanese. Personally wish they would pull the trigger and act. Its strange to have the borrower dictating terms to the lenders when the borrower is 100% reliant upon the funds. Another thing not seen very often outside the Mafia in the last 3000 years history of money.

take care


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## satanoperca (16 March 2014)

kahuna1 said:


> Personally wish they would pull the trigger and act. Its strange to have the borrower dictating terms to the lenders when the borrower is 100% reliant upon the funds. Another thing not seen very often outside the Mafia in the last 3000 years history of money.
> 
> take care




I wish they would to, but only a black swan event will see this happening and by the definition of a black swan, nobody knows when and how it will happen.

Do you really think they will mark things to market and tell their 330million citizens, they are broke, have to work for Chinese wages and that they are no longer the center of the universe, don't think any polly would do that.

Secondly, the borrower can dictate to the lender when the borrower has bigger guns, hence why the USA keeps spending a ridiculous amount of $$$$ on funding it's military, money as you have pointed out, it doesn't have.

This will eventually play out, but I don't think I will see it in my lifetime.

Is Australia any different, just on a smaller scale, or to that note, Europe, Russia, UK etc.

Cheers


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