Economic failure impacts even kiteboarders

[davewsail]

OK, I was done with this thread but I couldn't resist. The more people I hear say things like "take all your money out of the bank, the world is ending, etc" the more I think we are close to the bottom. To get to a bottom, all the dead wood needs to be cleared out and people need to capitulate. This usually results on a big burst of selling but once there are no more people to sell, things bounce. A few more big down moves and bank failures and we might be there. BTW, Warren Buffett bought another company today.

As far as credit swaps, I think any expert will say that these are way out of hand and need to be on a regulated exchange. I hope this comes out of the debacle. But like it or not, our system relies on faith in the system and not hard assets. Note that if it was based on hard assets, we would not be anywhere near where we are today as far as prosperity and technology. It is all about intellectual capital. If people lose faith in the system then we have no system-- a huge risk. I don't think anyone knows how bad it could get if this happens. This is exactly why people shouldn't be peddling fear at this point.

Jon: you are right that because of leverage that Fannie and Freddie can be worthless without the underlying houses going to $0. However, look at their balance sheets-- their total liabilities are $1T, not $5T (the total value of the loans they underwrote). So with the federal debt of $10T and if Fannie and Freddies' assets get written down to $0, then taxpayers will be on the hook for another $1T, or a 10% increase in the federal debt. It has NOT doubled! Do your own homework and stop relying on blogs and the media. I'm not sure why you believe some news and not others. All reports have an agenda. And people have an uncanny knack for finding the data that supports their beliefs and discounts other data. The question is, why are you so negative?

BTW, I went out to Sherman yesterday evening and it was super sweet! When I was out on the water I wasn't worried about any of this.

[zgur]

A famous chineese proverb says "may you live in interesting times"......

No matter of your pt. of view, should we/not bail out certain companies, this phase of our lives will be studied in textbooks for a long time.....

Interesting times indeed.

Get some, Z.

[jono]

Dave:

Can we limit the "do your own homework" -- "stop reading the blogs" etc. type comments, you are friendly in person, but get a little personal during debates on this forum. Is doing my homework reading a text book or instead using *reference sources* and facts present on the Internet?

I kept it respectable in my response and didn't talk down to you when shredding your comment on Fannie -- consider doing the same in your attempt to shred mine if you don't mind .

> However, look at their balance sheets-- their total liabilities are $1T, not $5T (the total value of the loans they underwrote).

WHOA dude, that's just crazy talk.

Banking 101: Banks make loans for PROFIT -- a loan is an ASSET TO a BANK; To anyone else, a loan is a liability.

That 5T of assets is actually full of bad debt. That is what you use to calculate, not the 1T. Fannie is a BANK.

Fannie BUYS LOANS AS ASSETS -- they are assets because Fannie expects to receive FUTURE INTEREST PAYMENTS ON THOSE LOANS. A loan taken by someone to buy something is a liability to the borrower, NOT THE LENDER. Fannie bought CDOs to MAKE MONEY. If I loan you money and charge interest that's an asset on my books and a liability on your books. Again, I'm sure you know this. Fannie doesn't know who will or won't pay (that's a future event), but they know what rate of failure might happen based on today's rate and the acceleration of this (this is often called "rate-shock") and so they have an idea of how many might fail. Their current liabilities HAVE NOTHING TO DO with the future loans that might fail.

They are a bank, loans+interest are assets -- huge amounts of them going bad is the problem.

So, that 5T assets is actually some percentage of BAD DEBT, not really an asset at all. This is the whole problem.

Mortgage pools are getting .23 cents on the dollar on the market (or were about 6 months ago and these were AAA) so that could mean Fannie has almost 3/4 of that 5T as BAD DEBT. Add in Freddie and BAM you have 5T in new money the FED (tax payers) just paid to bail them out. QED, you just proved my point, the deficit is now double

Funny thing is, we aren't bailing out the people who can't afford the loans, just the companies that originated or currently hold the loans in pools. Imagine if they just took all this money and gave it to people instead of the corporations or something -- that would solve the same problem just approach it differently. I guess that would be public welfare, not corporate welfare.

About the double deficit from Fannie/Freddie take your pic:
http://www.google.com/search?hl=en&q=fa ... le+deficit

Fannie and Freddie double the US national debt
WSJ, NYTimes, NPR, Bloomberg, they all say the same thing

All reports may have an agenda -- those who's agenda is the truth is what I read.

Wanna know when the housing market will bottom? 3 months of decreased inventory with a combined reduction in days on market (DOM) should tell you pretty well. I called the peak two months after it peaked and I'm fairly sure I can call the bottom as well. I'll forward you the emails as proof.

Figure 1.7 in this article also gives a good indication -- it shows when all the "exotic" loans will reset (assuming the .gov doesn't do something to change this chart on a huge scale, like wipe-out all these loans, or swap them en mass to fixed rates or something):
http://krugman.blogs.nytimes.com/2007/1 ... -pictures/
As you can see, the "option adjustable" mortgages won't have their first adjustment until 2011 -- after that is when the recovery will start. Whatever carnage may happen until then will take place to reset the market TO THE MEAN -- THIS IS MEAN REVERSION, nothing more. The mean is 6% appreciation/year on a 20 year timeline. Until the housing prices come back in line with that and you can cover your mortgage with the rent you would get on the same place, prices will fall.

It's just we got so far off the mean that the reversion is more severe than we are used to.

Gold is the place to be (yes, you would have made 12% in two days had you bought last time I said that as is renting -- I'm just pissed the corporations are getting all this free money.

I like Yuri's idea best.

[Loscocco]

If things get really bad I think all of us kiters should pool our money and skills and build a really big house at the delta. Paul can help with the crops, Jono can make us fuel, Russ can give us capital to build, Ramsey can do all the fiber optic lighting, Adam and clint can engineer it, Ollie can shingle the place, greg can paint it, I'll take care of the structural and ornamental steel, josh,chris,etc can set up the wi-fi, kirk/gunnar/dr. sue can be onsite medics.......point made, I think we could cover ourselves if we had to.

I got the high tech AV Systems and electronics part covered

[elli]

In 2006 I worked for a start up that was about to run out of money in May. Just when the season kicks in. The future looked bright. And indeed we could not get funding, and I was a full time kiteboarder. Didn’t look for a real job until September. 2006 was a hell of a year.

What can you do? You cannot change the economic situation. If you do not trust the US dollar invest in commodities or other currencies or buy a chunk of metal and burry it in your back yard (or a few barrels of oil, just don’t smoke in the yard).
And don’t forget that US economy is not all housing. The financial impact can be big, but it's not the whole story.

When we say ride it out, literally, ride on the water. The biggest problem as I see it now is that if you loose your job today it is off season.

If it has to crash, I hope the fed can keep it going until April-May 2009. I vote for a house near third av.

[davewsail]

Jon, just stop would you? I know you mean well but I'm sure people are tired of this. If you want to be negative, please don't try to spread misery to everyone. I'm not going to argue how basic accounting rules work-- this isn't the place. It is clear to me that your mind is made up and I've learned long ago arguing between two people who are sure they are right is a waste of energy. History is always 20/20 so we'll see. Make whatever decisions you need to make and rest peacefully that you've warned all your kite brethren. For all sakes, go kite!

If you want to discuss this more, how about privately?

[jono]

> Jon, just stop would you?

Just stop what? Making you reply to me? I'm not making you reply. Stop explaining simple logic errors? I want to make sure mis-info doesn't spread.

What about your quote above "Everyone is entitled to their opinion" -- does that not apply to me? Stop reading this thread if it's bothering you, but this is off-topic and I think it's fair to post off-topic things here...

I think Elli just had some good comments and I liked Yuri's too -- so if you don't like something here, stop reading it.

[windhorny]

My milk went bad yesterday and taco bells Volcano taco's are SOOO mild I got another one today just to make sure they hadn't forgot to put something in it. I'm bummed.

And if anyone is so bored as to read this on a friday night, my friend's band "B-side 70's" are playing at the Fire Den on Park Ave in alameda tonight at 9. 70's costumes wont be unheard of.

[Loscocco]

we all actually should have bought gold when this thread started. It went up 11% yesterday.

yes and silver is an even better investment ratio compared to gold. I have noticed and invested accordingly

[jono]

Jono: BTW, my recommendation to buy GLD still stands.

That was 2 days before the 12% run up (the largest single day increase in GLD ever), but it might bounce around and 12% ain't bad, so...

I do think there could be some kind of "event" tomorrow or next week. The FDIC just added a new tool that doesn't make me feel good:
Is My Account Fully Insured?
http://www2.fdic.gov/dip/index.asp

Short selling has been banned in .uk, .au, .us.

Credit default swap rate on 10-year Treasury is up and has increased to 3x what it was in July:
http://www.telegraph.co.uk/money/main.j ... tviewedbox

SLV is actually in a better ratio (hasn't followed GLD up, but usually does).