Friday, July 31, 2009


Leaving for the coast soon for a little rest and relaxation. Plan on sleeping for the next 36 hours. Won't have internet access which will be nice.

It has gotten to the point that it seems so worthless to talk about economic news. It just doesn't matter. The news / earnings can be bad and the market is digesting it. It is becoming a game of just trying to figure out the signs, the signals, for when the rally is over with. When the last liquidity pump is complete. As I have mentioned before, I believe the probabilities are really high that we are in the last sixty days but very unconfident if we have another 10% or more to go or not.

The cash for clunkers thing is getting alot of attention. I actually think this is one of the best ideas the government has come up with. Capitalism needs creation and destruction. You have to have both. You have to have destruction and the government has tried stopping destruction for years. You need financial destruction also which the government still isn't allowing but at least this is a start. The government is scrapping that what is old to make way for that what is new. About a year ago, I was asked to make suggestions on how to fix the problem. I had a whole list (this went to Paulson, a very well connected person who was on a panel asked me to create this) but one of the most important suggestions was to have the government buy defaulted homes from the banks. Bulldoze them. Create a law that those plots of land would be sold back to the public over 5 years starting in year 10. This would have accomplished several major things. Put a huge dent into the housing inventory which would have stabilized the biggest collateral in the banking system. Would have helped the banks shrink their books. Would have ended up bailing out consumers along with the banks though the consumers would not be walking away with a check. They would have still would have lost their house. As a result it would have also helped deleveraged the system. Finally it would have almost guaranteed to cost the government very little bc they are actually getting back plots of land that should appreciate over 10 years. 500 billion investment by the treasury (really small compared to the numbers that have already been done).

Do the math:
250k per house (average loan the bank has would probable be less).

You could buy 2,000,000 houses. Total housing inventory for sale. 3.82 million or 9.8 months supply. You need to get down to 6 months for housing prices to stabilize. Presto. You just accomplished it.

Yes your using the government's balance sheet but it is alot less than the money your spending and the gov gets real estate that it could sell back in 10 years.

This wasn't political feasible than and probably not now but it would sure solve alot of problems. It would allow the destruction size of the equation.

Back to the cash for clunkers thing. It may be suspended but if it isn't, buyer beware. Saw this article in the Guardian. England has been doing something very similar. As the Guardian points out, the benefit to consumer may be negligible.

Consumers were today warned that buying a new car under the government's car scrappage scheme could be a false economy because some manufacturers have raised list prices by up to 14% since last year.

The scrappage scheme offers buyers £2,000 off a new vehicle if they trade in one that is at least 10 years old, but they might get a better deal buying a car that is already a year old, even though those vehicles do not qualify for the scheme according to the magazine

Surprise surprise. I am sure it is going on in the U.S. also.

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