No hate taken, everyone has their own opinion.


Yes, they were rhetorical questions, it is your thinking that is incorrect.

I proposed two questions for you: one asked why did the market still crash despite bailouts?, and two, if you believe that some bailout(s) solved everything, why weren't they done earlier?

Despite all of the credit facilities the Fed created 2007-2008, despite their surprise interest rate cuts in that same timeframe, despite the bailout of Bear Stearns, despite the bailouts of IndyMac and the GSE's, despite the bailouts or forced buyouts of AIG, WaMu, Wachovia, MER, and others, despite illegally opening up the discount window to hedge funds named Goldman Sachs and Morgan Stanley, and despite the recapitalization of the entire banking system, not least of which TARP, all of which was accomplished by Oct. 3, 2008 when the DJIA was at 10,400 ... the market still crashed to 6,400 by March 2009 ... can you tell us why that still happened despite all of the bailouts I just listed?

(the obv. answer is that the bailouts did not prevent anything)

And if you think QE, printing money, is what solved the crisis, then I posed a second rhetorical question for you ... why wasn't it done sooner?

(the obv. answer being that they COULDN'T do it sooner)

Printing money has grave consequences for global financial markets.
I'm sure you are familiar with Bernanke always mentioning the "risk/reward" dynamic re: Quantitative Easing.

At tops of mis-aligned markets, liquidity injections don't work because the liquidity bypasses impaired assets and acts as hot money. It goes toward assets that are not in need of more liquidity, like commodities, and worse it goes to countries and their currencies that certainly do not want it.

Currency wars in the 1930s lead to global bond market crashes in '37-38 and World War II followed not long after. When Nixon closed the gold window in '71 and the U.S. started printing a total fiat system, currency wars and the '73-74 financial crisis followed.

Printing money is only benign when it happens after a deflationary collapse,
like March 2009 ... AFTER the event has already come and gone.

QE isn't medicine for the sick, it's a placebo for the recovering.



No, I agree with you, at some point they will take action.
But when will they act, when should they act? Those are the relevant questions.

I think 4 things will eventually happen.

1. Euro-wide bank deposit guarantees

This will be an emergency response to the breakout of any crisis.

2. Move toward Euro-bonds (or something similar)

The creditors and borrowers are playing chicken right now, the borrowers want a free lunch, and the creditors don't want to throw money down a black hole. For Germany, it's not politically viable to bailout other nations with no strings attached, nor should it be. If they bailout Spain now, Spain will continue to run up massive debt, and Germany would be forced to pay for it perpetually. Pretty stupid idea. They want control over the purse strings, if they are going to be the ones paying for it. On the other hand, Spain and the others don't want anyone telling them what to do, they would rather get free money and are willing to hold a gun to the German's heads if need be.

The Eurobond solution will only come in the heat of crisis.

3. The European banking system will need to be re-capitalized.

Again, this will only take place in the heat of crisis.

4. The ECB will begin quantitative easing.

But as I mentioned above, it can't happen until AFTER a deflationary bust.
That's when the risk/reward equation will be in the ECB's favor.

Since you don't appear to have any knowledge, is it safe to assume you're harmless?


Thanks man, I don't know tbh. It's taken a few years, to be sure. I didn't even study anything to do with this stuff in college, only took the basic freshman econ classes. Then a few years ago when the financial crisis hit I took an interest in it, obviously being pretty uninformed at that time.

One of the epiphanies I had back then was when I read about the ratings agency schemes. In case you don't know, the ratings agencies rated pretty much anything AAA right up until the crash. Lots of paper was AAA until the next day when the company either failed or was about to fail. The ratings agencies were being paid by the people who they rated, so naturally you can see the conflict of interest there. But that conflict of interest was ignored during the bubble because of all the greed.

When I read about those ratings schemes, I remembered back to a day I was in a junior high business class in the '90s ... the bull market was raging, and my teacher would tell us everyday how amazing it was. Then one day we were studying credit ratings out of the textbook ... and keep in mind this was the 90's and I was 14 or something at the time ... and I asked her "but wait, if these companies pay the ratings agency to rate them, won't the ratings agencies just give them better ratings for more money?"

Of course her foolish response was "they would never do that, it's all regulated".

Well fast forward to 2008 and when my eyes were opened to the scam at the same time as most of the rest of the world, I remembered back to that day with the business teacher and realized I had a knack for "perspective".

So basically I've taught myself everything I know about economics and financial markets in the last few years .... I have an insatiable appetite for learning more, I have an appreciation for historical perspective and realize that markets don't always behave like they have in the last 30 years.

And I'm sure someone will criticize me for not being formally taught in this ****, and my response would who gives a ****

My econ education came about the same way as my 2p2 poker education .... that is to say self-taught on the internet

Also remember they started bailing out Greece in 2010. Obviously that didn't work, they've had to do further bailouts several times now, and then Greece still defaulted a few months ago.

They WILL leave the EU later this year and will default 100% when they do it.

For someone who thinks he is so sharp you aren't all that great at picking up on sarcasm...

I don't know if you're talking to me or five4suited, but I picked up on awval999's sarcasm just fine.

I just want to know what Shuffle reads and how one attains this level of logic when thinking about macro ideas.

I'm a day trader btw who isn't going to blidnly follow viewpoints... I just want to learn how to fish.

Great response and this was kind of the answer I was expecting. Good to hear... I'll continue to pay attention, read everything I can get my hands on, and continue to using logic and intuition to guide my perspective. Thanks


Where do you trade?

to the first part:

that still happened because of the type of bailouts that occured at each stage. The first bailouts, TARP and cutting the borrowing rate (which isnt a bailout btw but a standard operating procedure of a central bank) where to stabilize the financial institutions so they wouldnt bring down the entire financial system. It wasnt about the level of the dow and these types of bailouts do nothing to address the great deflation that was occurring due to unwinding of leverage.

QE in march is what caused the market to rally, as it is about reflation. You ask why they didnt do it sooner. Why didnt humans invent the internet sooner, or the cure for polio? It was the first time in ecnomics that it was done, it was a crazy 6 months, and the fed was happy to try many different things to see what would stick. QE worked much better than the other types of bailouts.

anyways, you dont seem to disagree on what the policy response will be, but you are incorrect in thinking the US market will drop 40% in nominal terms before they get it together .

You're right, this is the reason to be bullish on gold. The powers that be will not be allowing deflation, so we're going to continue having deflation in gold instead.

Not with dollars anyway. The dow has been losing value and getting cheaper and cheaper for a while now priced in numerous other things.

Criticisms of gold though based on hyperinflation and mad max scenarios is a strawman, fwiw. I don't mind another 10 years of steady gains during what will be a highly inflationary environment as central banks and governments debase currencies to "preveNTz the evIl Deflation!!!11 rawwr! oh no! lower gas and food prices!!". Who needs hyperinflation.

odds?

Pretty much agree with all your points. I don't personally own gold but I see it as a nice hedge. To be honest a 30/year mortgage on a piece of property will also be a nice inflation hedge.

AIG did get wiped out. Are you forgeting about the 1:20 reverse spilt? The AIG shareholders, including the executives were bent over and railed relentlessly. Per Google! Finance the 5 year chart on AIG is -97.94%

you've illustrated why my post was poorly written, thanks

I'll have to reconsider what I'm getting at and re-post. I started a ycharts watchlist a few weeks ago and I've added AIG. according to them AIG has a 17.4% profit margin and a P/E just under 2.8, and according to google they've paid back $137Bn of the $182Bn in bailout money... almost looks appealing. otoh the govt still owns 70%, I bet that really complicates the true valuation.

Crammer recommends AIG all the time fwiw.

50/50 by the look of it. The Greek election is on the 17th and it's pretty close. One side seemingly favors leaving the EU while the other is more inclined to accept the bailout plan. That's a short version and there's more going on, but it's anybody's guess.