The moguls are bracing for another economic downswing ...

• O-Trap

  

  This isn't inherently political, but I'm betting it gets there quickly.
  
  http://www.moneynews.com/MKTNews/billionaires-dump-economist-stock/2012/08/29/id/450265?PROMO_CODE=110D8-1&utm_source=taboola
  
  Buffet, Paulson, and Soros are all selling staggering volumes of stock in companies that operate in a consumer-based space.
  
  The article, which quotes Robert Wiedemer's most recent projections, is definitely worth a read.
  
  Is this a sign of things to come? Just a market swing? Governmental manipulation caused?
• gut

  Wow. What starts out as a pretty reasonable assumption (dumping consumer stocks on expectation of a coming recession), or even if just plain over-valued do for a 10-20% correction....then the wheels fall off.
  
  I can't remotely envision any scenario where stocks fall 90%. Majority of those companies have real sales and resources (including people), among other assets. I don't know what the number is, but if you take liquidation value it's probably in the neighborhood of 30%. And in an inflationary environment, those hard assets/human capital are worth more.
  
  Consider that the NASDAQ lost like 2/3 of its value from the peak, but there was nothing there in many of the internet stocks driving the bubble.
  
  I might also add the stock market performance has surprised me. Yes, earnings have been good and cash even better, but valuations IMO reflected an expectation of a robust recovery that never materialized. So valuations are definitely juiced by the low rates and easy money.
  
  I also hesitate to give this guy too much credence for one call. There are always "radicals" out there making outlandish predictions. Occasionally one of them ends up being right. Doesn't really mean they had some profound insight or are smarter than everyone else.
• O-Trap

  

  gut;1359980 wrote:Wow. What starts out as a pretty reasonable assumption (dumping consumer stocks on expectation of a coming recession), or even if just plain over-valued do for a 10-20% correction....then the wheels fall off.
  
  I can't remotely envision any scenario where stocks fall 90%. Majority of those companies have real sales and resources (including people), among other assets. I don't know what the number is, but if you take liquidation value it's probably in the neighborhood of 30%. And in an inflationary environment, those hard assets/human capital are worth more.
  
  Consider that the NASDAQ lost like 2/3 of its value from the peak, but there was nothing there in many of the internet stocks driving the bubble.
  
  I might also add the stock market performance has surprised me. Yes, earnings have been good and cash even better, but valuations IMO reflected an expectation of a robust recovery that never materialized. So valuations are definitely juiced by the low rates and easy money.
  
  I also hesitate to give this guy too much credence for one call. There are always "radicals" out there making outlandish predictions. Occasionally one of them ends up being right. Doesn't really mean they had some profound insight or are smarter than everyone else.

  Oh, I agree, and to be fair, he does say that 90% is an extreme (his phraseology is "worst case scenario"). However, when several of the market pillars are acting in such a way as to follow suit, at least to some degree (maybe not the extreme), it does lend some level of credibility to the claim itself, if not the extremity of the claim.
• Footwedge

  The markets are controlled by the select few. It's a small club. And you...and I...ain't in it. Bubbles are artificially created....and then popped by design.
• Footwedge

  ....And....John Paulson did what you were not really permitted to do...in amassing his fortune....literally overnight. Shorting the housing market was supposedly illegal. But where there is a will....there is a way, I guess.
  
  Again, "the club" determines what the markets do moreso than the climate.
• gut

  Paulson didn't short the housing market. He took the long exposure on CDS - which was and is perfectly legal - and banked when the underlying MBS collapsd.
  
  And Paulson had been doing that since at least 2004 as the only decent hedge he could find on his fund's bread & butter merger arbitrage. I thought it was brilliant - his big systemic risk was hordes of deals falling thru, which would correlate with a deteriorating credit market.
  
  Oh, and Paulson - as one of the largest and most successful hedge fund managers in the world - was already a billionaire, or close to it, before his housing market bet.
• believer

  

  It starts with the reckless strategy of the Federal Reserve to print a massive amount of money out of thin air in an attempt to stimulate the economy.

  I wonder what the Keynesianists will say about that?
• gut

  believer;1360073 wrote:I wonder what the Keynesianists will say about that?

  He's basically arguing (as others have) that there's this massive, pent-up inflation just waiting to burst forth like a volcano. I don't buy it. While I agree that we could suddenly start seeing a rapid increase in inflation, some day, I just can't see a dam-bursting scenario where it spikes almost overnight.
  
  And it would also appear to be an inherent contradiction. On one hand he's saying stock prices plummet, but then he's talking about inflation. Problem is stocks have done well in periods of high inflation - because THEIR higher prices are what drives it. There's also no evidence of wage inflation, which is a big driver. It's only plausible with massive inflation in a core commodity that can't be passed on (because of stagnant wages) in which case demand collapses at break-even prices. But there are only a few industries where energy makes-up a big portion of the costs.
• believer

  

  gut;1360082 wrote:He's basically arguing (as others have) that there's this massive, pent-up inflation just waiting to burst forth like a volcano. I don't buy it. While I agree that we could suddenly start seeing a rapid increase in inflation, some day, I just can't see a dam-bursting scenario where it spikes almost overnight.
  
  And it would also appear to be an inherent contradiction. On one hand he's saying stock prices plummet, but then he's talking about inflation. Problem is stocks have done well in periods of high inflation - because THEIR higher prices are what drives it. There's also no evidence of wage inflation, which is a big driver. It's only plausible with massive inflation in a core commodity that can't be passed on (because of stagnant wages) in which case demand collapses at break-even prices. But there are only a few industries where energy makes-up a big portion of the costs.

  I can recall the inflationary cycle of the 70's which drove the economy into back-to-back deep recession. Frankly I believe we're already beginning to see an inflationary cycle in areas like food, utilities, etc. For the moment it's nothing like the 70's, but if the Fed opens up the bogus cash spigot, I have a hunch we ain't seen nuthin' yet.
• gut

  believer;1360148 wrote:I can recall the inflationary cycle of the 70's which drove the economy into back-to-back deep recession. Frankly I believe we're already beginning to see an inflationary cycle in areas like food, utilities, etc. For the moment it's nothing like the 70's, but if the Fed opens up the bogus cash spigot, I have a hunch we ain't seen nuthin' yet.

  Ehhh, the S&P did well the first 3 years of the 70's, then gave it all back (plus some) the next 2. Got most of it back of the next 3. In all, it rose @ 33% cumulative in the decade. A volatile start in the early 80's, but generally a huge decade up until the crash of '87.
  
  Inflation isn't the only factor here obviously. And I probably misspoke when I said stocks do "well" in periods of inflation. But I don't think there's evidence that stocks shed much value, if any, in periods of inflation.
• believer

  

  gut;1360192 wrote:Ehhh, the S&P did well the first 3 years of the 70's, then gave it all back (plus some) the next 2. Got most of it back of the next 3. In all, it rose @ 33% cumulative in the decade. A volatile start in the early 80's, but generally a huge decade up until the crash of '87.
  
  Inflation isn't the only factor here obviously. And I probably misspoke when I said stocks do "well" in periods of inflation. But I don't think there's evidence that stocks shed much value, if any, in periods of inflation.

  Although I have a basic understand of the complexities of stocks vs. monetary policies vs. inflation, etc., etc. and I would agree that the stock market can flourish during inflationary cycles, I'm more concerned with consumption and the negative impact that inflation has on maintaining sustained healthy economic growth.
  
  Stocks aside, a hard inflationary cycle hasn't hit American consumers since the 70's. All the signs are there for another round of it under current economic conditions. If Big Ben feels pressure to create more funny money, we could easily see another round of wage and price hikes the likes we haven't seen since the 70's.
• BoatShoes

  We are not going to see inflation any time soon. It is amazing how afraid of inflation people are. In the 70's policy makers believed in naive phillips curve analysis and thought that they could always drop unemployment further with more inflation but Milton Friedman came along and taught us all that there were limits to this and that eventually expectations of higher inflation could be built in and voila you end up with stagflation. The Fed knows better now and has treated the core inflation target of 2% almost like a ceiling even with the new dovish policy pronouncement based upon Mike Woodford's analysis at Jackson Hole. Uncle Ben has said flat out they're willing to tolerate as much as 2.5% inflation now....hyperinflation ahhh
  
  There's no chance of demand-pull inflation with such a huge amount of unemployed people keeping downward pressure on wages and there's little evidence there's going to be a supply shock as far as oil is concerned or something like that and pretty big natural disasters/unforeseen events the last couple of years (Japan earthquake, Sandy, Gulf Oil Spill)have not caused huge supply-shock inflation either.
  
  People have been predicting massive runaway inflation for almost half a decade now and they are wrong. It is time re-evaluate. The velocity of money can be controlled even with a hugh expansion in the monetary base.
  
  Phantom Menace.
  
  It's not unreasonable to be dumping consumer-based stocks and put your money elswhere right now. With the expiration of the payroll tax cut, etc. you're looking at a solid amount of money out of people's pockets in the near future and no real sign to see anything boosting aggregate demand/employment/produciton over the next couple of years we're looking at a slog of misery but no collapse.
• gut

  believer;1360742 wrote: Stocks aside, a hard inflationary cycle hasn't hit American consumers since the 70's. All the signs are there for another round of it under current economic conditions. If Big Ben feels pressure to create more funny money, we could easily see another round of wage and price hikes the likes we haven't seen since the 70's.

  I don't disagree that inflation is very
  bad for the economy and jobs. I was only commenting on equities because that seems to have been the focus of the article.
• Footwedge

  gut;1360068 wrote:Paulson didn't short the housing market. He took the long exposure on CDS - which was and is perfectly legal - and banked when the underlying MBS collapsd.
  
  And Paulson had been doing that since at least 2004 as the only decent hedge he could find on his fund's bread & butter merger arbitrage. I thought it was brilliant - his big systemic risk was hordes of deals falling thru, which would correlate with a deteriorating credit market.
  
  Oh, and Paulson - as one of the largest and most successful hedge fund managers in the world - was already a billionaire, or close to it, before his housing market bet.

  Call it what you will....from his own words...in his own book...from his own mouth...he spent years on figuring out a way to short the housing bubble....which he ultimately did.
  
  He was the first to do it.
  
  Secondly, prior to 2007, he wasn't very wealthy...at all. Then, he found a legal window to short the housing market....again...his words....his book...his mouth.
  
  And then wham!! He made several billion betting on the collapse of the American economy, as a result of the housing bubble pop. He's my hero.
• gut

  Yeah, I also heard - directly from the horse's mouth - that he was buying CDS way back in 2004. Maybe the hedge of Merger Arb was BS (although there was really no reason for the fib), but it doesn't change the fact that HE DID NOT short the housing market. What he did was not illegal and is not illegal today, in fact it's a valuable part of efficient markets. He did not make money off of home owners or contribute to the housing collapse.
  
  And he WAS very wealthy prior to his housing bet. He was running one of the largest hedge funds in the world back in 2004 and earlier. Like I said, he may not have been a billionaire but he was certainly worth hundreds of millions.
• Footwedge

  gut;1361014 wrote:Yeah, I also heard - directly from the horse's mouth - that he was buying CDS way back in 2004. Maybe the hedge of Merger Arb was BS (although there was really no reason for the fib), but it doesn't change the fact that HE DID NOT short the housing market. What he did was not illegal and is not illegal today, in fact it's a valuable part of efficient markets. He did not make money off of home owners or contribute to the housing collapse.
  
  And he WAS very wealthy prior to his housing bet. He was running one of the largest hedge funds in the world back in 2004 and earlier. Like I said, he may not have been a billionaire but he was certainly worth hundreds of millions.

  You can call it anything you want to call it. And I never said anything about what he did being illegal. If my books were not packed in crates right now, I would pull them out and provide you quotes....from his own mouth.
  
  To paraphrase...
  
  "At the time it was illegal to short the housing market...So after a year of investigating a legal way of doing it, I was able to concoct vehicles whereby I would become filthy rich when the over inflated housing industry collapsed....inspite of the current laws on the books."
  
  His plan was so unique, that he considered patenting it.
  
  And...the guy was a relative pauper before the market collapsed. There is a huge difference between being worth 15 million and then 4 billion....attained virtually overnight. Look it up.
• Footwedge

  believer;1360742 wrote:Although I have a basic understand of the complexities of stocks vs. monetary policies vs. inflation, etc., etc. and I would agree that the stock market can flourish during inflationary cycles, I'm more concerned with consumption and the negative impact that inflation has on maintaining sustained healthy economic growth.
  
  Stocks aside, a hard inflationary cycle hasn't hit American consumers since the 70's. All the signs are there for another round of it under current economic conditions. If Big Ben feels pressure to create more funny money, we could easily see another round of wage and price hikes the likes we haven't seen since the 70's.

  Inflation is almost always...like in 99% of the time,,,, biproduct of a strong, healthy, growing "hot" economy. Those people that worry about inflation in this economy should get their heads on straight.
• believer

  

  Footwedge;1361175 wrote:Inflation is almost always...like in 99% of the time,,,, biproduct of a strong, healthy, growing "hot" economy. Those people that worry about inflation in this economy should get their heads on straight.

  I'll call Uncle Ben right now and ask him to fire up those printing presses! :thumbup:
• gut

  Footwedge;1361172 wrote:You can call it anything you want to call it. And I never said anything about what he did being illegal. If my books were not packed in crates right now, I would pull them out and provide you quotes....from his own mouth.
  
  To paraphrase...
  
  "At the time it was illegal to short the housing market...So after a year of investigating a legal way of doing it, I was able to concoct vehicles whereby I would become filthy rich when the over inflated housing industry collapsed....inspite of the current laws on the books."
  
  His plan was so unique, that he considered patenting it.
  
  And...the guy was a relative pauper before the market collapsed. There is a huge difference between being worth 15 million and then 4 billion....attained virtually overnight. Look it up.

  Whatever, you're first post on the subject said "shorting the housing market was supposedly illegal, but where there's a will" Since you can't remember what you wrote 2 hours ago, I question your ability to recall a book, much less understand it. You demonstrate over and over an ability to read a lot and not understand hardly any of it.
  
  I interviewed Paulson for an investment back in 2004. He was already doing this back then - so I got it straight from his mouth, too, and I got to ask questions to clarify and understand what he was doing. There was nothing novel about it, other than perhaps a willingness to make a big bet against the market. It's just short credit - all those people that buy CDS someone has to be on the other end selling it and taking the opposite exposure.
  
  Be it bravado or an attempt to appear smarter than he really is with a healthy dose of embellishment, the only thing special about him was his willingness to take that risk. Patent the approach (that, by the way, is bravado). That's a good one. He didn't create any new securities, he just made a huge directional bet.
• Footwedge

  gut;1361396 wrote:Whatever, you're first post on the subject said "shorting the housing market was supposedly illegal, but where there's a will" Since you can't remember what you wrote 2 hours ago, I question your ability to recall a book, much less understand it. You demonstrate over and over an ability to read a lot and not understand hardly any of it.

  Yes I wrote that....and if you had any comprehension skills...at all...you would understand clearly....that I am not saying what he did was illegal.
  
  You have a really, really bad habit...of misquoting me, or twisting my words into something they are not. It's pretty annoying...and you should pay more attention to detail.
  

  I interviewed Paulson for an investment back in 2004. He was already doing this back then - so I got it straight from his mouth, too, and I got to ask questions to clarify and understand what he was doing. There was nothing novel about it, other than perhaps a willingness to make a big bet against the market. It's just short credit - all those people that buy CDS someone has to be on the other end selling it and taking the opposite exposure.

  When I retrieve the book, and I will, I will quote him word for word. My memory isn't always perfect, but those 2 chapters on what Paulson did was something I would not forget.
  

  Be it bravado or an attempt to appear smarter than he really is with a healthy dose of embellishment, the only thing special about him was his willingness to take that risk. Patent the approach (that, by the way, is bravado). That's a good one. He didn't create any new securities, he just made a huge directional bet.

  He took what risk, exactly? There were multiple articles from virtually every business periodical talking about the housing bubble being a disaster waiting to happen...back in 05 or 06. That the prices of homes were a joke, and that homeowners ran the risk of going underwater.
  
  It was not a matter of if...it was a matter of when.
  
  Oh sure.....if the prices of homes would have continued to skyrocket, then Paulson would have lost his small pile. As ghe put it....there wasn't any risk at all...
  
  All he had to do is figure out a legal avenue to short the housing market. Which took him a good while to contrive, whereby he actually succeeded in doing so.
  
  If and when you respond, do not misquote me again, or I am done discussing the subject with you.