Politics

[Randy F]

This is what people cannot seem to understand. There are consequences to political decisions.

Bloomberg - Are you a robot?

"Yellen sticks with transitory inflation view..." - Oct. 12, 2021

Everyone and their mother knew it wasn't "transitory." I have friends ranging from finance to carpentry and all of them agreed it wasn't. This is the consequences of large and rapid rate increases. Now this administration has a dumpster fire on their hands. In retrospect, Powell should have been replaced with someone more sensible who would have realized the healthier thing for the financial system: smaller more spread out increases.

I beg to differ this is worse than 08 but we still have a long way to go before we really see how this pans out.

Replacement with someone more sensible needs to start a whole lot higher than Powell.

 

[rookhawk]

This is what people cannot seem to understand. There are consequences to political decisions.

Bloomberg - Are you a robot?

"Yellen sticks with transitory inflation view..." - Oct. 12, 2021

Everyone and their mother knew it wasn't "transitory." I have friends ranging from finance to carpentry and all of them agreed it wasn't. This is the consequences of large and rapid rate increases. Now this administration has a dumpster fire on their hands. In retrospect, Powell should have been replaced with someone more sensible who would have realized the healthier thing for the financial system: smaller more spread out increases.

I beg to differ this is worse than 08 but we still have a long way to go before we really see how this pans out.

I should clarify. There is no way to know if this event is "worse than" the 2008 Mortgage Derivatives debacle as to impact on the system. I meant that this is "worse than" 2008 in regards to victims. The institutions getting burned this time don't have it coming, weren't greedy bastards, and didn't have a shill product. This time around they are literally folding in direct consequence to following best practices and guidelines from the Fed. That's the difference that I find "worse than 2008".

 

[HookMeUpII]

Replacement with someone more sensible needs to start a whole lot higher than Powell.

If you read my last couple posts you'll see I'm right there with you on that one.

I should clarify. There is no way to know if this event is "worse than" the 2008 Mortgage Derivatives debacle as to impact on the system. I meant that this is "worse than" 2008 in regards to victims. The institutions getting burned this time don't have it coming, weren't greedy bastards, and didn't have a shill product. This time around they are literally folding in direct consequence to following best practices and guidelines from the Fed. That's the difference that I find "worse than 2008".

I think the worst was Signature bank. From what I've been told and read, they didn't need to be shuttered. The Fed and current administration moved early to send a message on crypto (which they held a lot of). Personally hate crypto and own $0 of it. However, they weren't belly up and the Fed stepped in.

Now the scary irony of it? The 3 main coins are up huge today. So what am I reading between the lines:

Average Joe investor: "Banks can't be trusted. Let's pull our cash and put into crypto as an alternative!"

So in the last 3 days the 2 largest banks in the USA for crypto: Closed.
A day after: Crypto rallies huge.

This is frightening logic.

 

[rookhawk]

If you read my last couple posts you'll see I'm right there with you on that one.



I think the worst was Signature bank. From what I've been told and read, they didn't need to be shuttered. The Fed and current administration moved early to send a message on crypto (which they held a lot of). Personally hate crypto and own $0 of it. However, they weren't belly up and the Fed stepped in.

Now the scary irony of it? The 3 main coins are up huge today. So what am I reading between the lines:

Average Joe investor: "Banks can't be trusted. Let's pull our cash and put into crypto as an alternative!"

So in the last 3 days the 2 largest banks in the USA for crypto: Closed.
A day after: Crypto rallies huge.

This is frightening logic.

Don't fight the Fed, don't fight the insiders. Disclosure: I bought JP Morgan stock today. My theory: a.) too big to fail, b.) all the small and mid-size bank customers are going to run for the door, c.) everyone will dump their money at JP Morgan for safety/liquidity.

We'll have to see if I read this right or not.

 

[Ray B]

The aspect of this financial problem that is "worse" than 2008 is the qualifications of those making decisions for the various banks. In 2008 those making decisions for the most part were appointed based on their qualifications. I haven't reviewed the resumes of the current bank managers but the appearance is that the "boxes" of race, sex, sexual orientation and similar criteria is more important than a knowledge base that will lead to effective leadership. But then, th same thing is true about the current administration.

 

[Ray B]

As for investing- my preference is precious metals.

 

[spike.t]

‘Mafia boss’ Putin’s chilling kill count after Prigozhin assassination

VLADIMIR Putin proudly presides over a “mafia” state where murder is a tool used to defeat enemies and keep his uneasy allies in line, say experts. Wagner chief Yevgeny Prigozhin became…

www.thesun.co.uk

 

[HookMeUpII]

The aspect of this financial problem that is "worse" than 2008 is the qualifications of those making decisions for the various banks. In 2008 those making decisions for the most part were appointed based on their qualifications. I haven't reviewed the resumes of the current bank managers but the appearance is that the "boxes" of race, sex, sexual orientation and similar criteria is more important than a knowledge base that will lead to effective leadership. But then, th same thing is true about the current administration.

Ehhh...Barney Frank was on the board of Signature so I don't know about that. Not my favorite politician but he knew his way around the banking system.

 

[Brent in Az]

 

[Wheels]

Bailing out Barney Frank.

 

[FrontLines]

As for investing- my preference is precious metals.

I think gold will be very much valued in the near future, a good time to stock up now.

 

[Doug3006]

$1,913 per ounce is the current price of gold. Let’s look at it six months from now.

 

[Ray B]

I think brass, lead and steel in proper shape and sizes is as valuable as gold.

 

[fourfive8]

IIRC, gold was something like 400.00 in 2000... around Y2K. I remember some saying, "let's look at it 6 months from now" Even adjusting for inflation or relative $ value, I think it has increased in real value since 2000. Also, I remember some trying to catch the .com bubble wave at about that time or just prior. Many lost a lot of money in that unicorn expedition. True, the various stock indexes have shown steady long increases but unfortunately many 401Ks and many mutual funds do not mirror the indexes with some seemingly completely disconnected. There is a great difference I think between the indexes that are reported regularly and any individual investment portfolio group of funds or stocks. I learned a long time ago when the broker says, "I like such and such" or "We like such and such".... run! Having caught one in the act of peddling favored commission yielding funds after stating to me there was no connection, I have steered clear of all that since then and done my own thing with my $. It's no secret they make money on both ends of a transaction whether the equities they peddled went up or down and their clients made or lost money. That awakening was 25 years ago. Since then, I have gone the slow steady high security slog with my investments and not the hi yield, hi glamour potential joy ride. I have not lost a penny since the lessons of playing that broker's game in about 1998. Only lost about 4,000 then so consider it a very low cost education. I don't have much of a gold percentage in my investments only a small amount along with a little silver. I have them for diversity, thus a safety hedge against really serious asset devaluations. I think I have about 380.00 per ounce in the gold and about 18.00 per ounce in the silver. Overall, I sleep well, don't have a mortgage on the house, have no credit card debt and always pay cash for my cars and trucks- bought used

 

[Hunter4752001]

Some time ago, a mate of mine was into the 'survivalist' thing. He always stated that you should forget about investing in gold etc, if everything turns to s**t no-one will want it. He said buy large quantities of good quality .22 LR ammo. You'll always be able to barter a few boxes with the local farmers in exchange for food etc.

ps. I hope it never comes anywhere near close to this in our lifetime. I'm sure many of us would get by, but it wouldn't be much of a life.

 

[VertigoBE]

So the politics of the day are quite interesting!

Silicon Valley Bank collapsed and several others as well. Its creating massive liquidity crisis and of course the FDIC and Fed are creating an emergency slush fund to cover the banks from a collapse of their own design.

Friends, this is not 2008 and please do not believe the talking heads when they use that as a data point of similarity. Nope, in 2008 the system was brought down by mortgage derivatives that were extremely speculative, had no oversight, and were irrational big bets by a few players.

This time its different. Silicon Valley Bank had lots of reserves and they invested those reserves in "stable" (air quotes) assets: Technology firms with promising futures, Long-term treasuries, other long-term sovereign debt (gov bonds), and quality mortgage backed securities. (E.g. Fannie/Freddie Conforming Loan bundles)

Literally, SVB is the poster child for Keynesian economics, "not fighting the Fed", and investing in what the Fed and Treasury considered the most stable, reliable, and low-risk of investment classes. And it all blew up.

What happened?

1.) Those tech darlings didn't have any tangible assets. They are "big ideas", copyrighted software, or patented processes. For those reasons, the Tech companies could not get loans as easily as say a manufacturer, a distributor, or a land developer that has a tangible asset to pledge as collateral. When interest rates rose, those loans were friggin sweet deals for the tech companies because they'd NEVER be able to get a new loan at the rates they were paying on the existing loans. Consequently, SVB couldn't sell those loans from tech companies because they wouldn't sell for anything but a loss, because who wants a higher risk unsecured or poorly secured debt that has a yield for an investor that is less than market rates today, a lot less? Answer, to sell them, you'd have to sell them below par value and the bank would literally have to pay billions to get someone to take them off their hands. Those aren't easily bundled debt trenches either, so there isn't a spot on an exchange where you can sell those by the billions in a matter of minutes. Strike one.

2.) The Treasuries and Sovereign Debt. SVB literally F'd themselves by buying products guaranteed by the full faith and credit of the US (and other) governments. Sure they pay crap interest, but the US government isn't going to default, right? Yeah, but they bought long-term (emphasis) Treasuries that had yields of 1-2% over 30 years and with recent inflation, interest rates have spiked. Again, they were stuck with toxic assets because while they could sell the bonds any day of the week instantly, they'd have to pay someone to take them off their hands since they are trading below par value. Not 5-6% bonds, but 2-29 year old Treasuries that were 2% yields. Strike two.

3.) They bought mortgage backed securities. Same scenario as #2. They owned swaths of quality Freddie/Fannie home mortgages that had 2.75%-3.5% interest rates. Current rates are 6.25%. They would have to pay someone gigantic sums to take these low yielding securities off their balance sheet. Strike three.

4.) Human nature changed. People don't watch their pennies, they watch their dollars. All these business banking customers didn't care in the least when their checking accounts were yielding them 0.33% annual interest. It was effectively zero interest, basically a nice safe mattress to put money into for a period of time. CDs and Money Market Funds were paying 1% a couple years ago and nobody bought them, what's the point and whats the difference between 0% (Effectively) returns on your checking account versus 1%? Yeah, not worth the hassle to even move the money. But now CDs and Money Market Funds are paying about 4.4% and SVB and all the other banks figured customers would remain chumps forever. Um, no. Over the past several weeks all over the nation businesses and individuals have been asking for the money from banks because the difference between a 0% interest bearing checking account and a 4.4% money market account is actually a tangible difference, and everyone wanted their money so they could make a few bucks off of it. No bank kept up with this by offering a competitive savings interest rate so customers would keep their money in their banks. Strike four.

So by following all the advice of the Fed and Treasury and investing in companies with a solid future in tech, plus very conservative investments like MBS and Treasuries, SVD killed themselves.

SVD died not because they were insolvent, but because they were illiquid. They couldn't get people their money instantly because doing so would require them to sell stable investments for billions less than face value due to the climbing interest rates.

This is why inflation matters and this is why the current go-around is NOT 2008 all over again. It's worse by far. The banks getting crushed are the ones that were conservative in their investments, followed Fed instructions, and followed the modern rule change of zero cash reserves.

This is a bubble due to inflation which has pushed up yields tremendously. The Fed and FDIC's corrective action (inventing money out of thin air this weekend to protect the banking system) is literally creating another bubble to save the current bubble. That never works out well in the end.

"The Bank Term Funding Program (BTFP) will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Banks will be able to borrow against their assets “at par” (face value)."

Very good summary @rookhawk

 

[HookMeUpII]

I think gold will be very much valued in the near future, a good time to stock up now.

It's part of a portfolio. I do this for a living. I remember when I had clients loading up on gold funds in 401k's during the global financial crisis because a "friend told them it was a good move." Most of them got in pre moonshot. Some got in during 2012 and then took a 30% haircut.

Once again, it's part of a portfolio. The problem is a lot of people go all in or with too large an allocation. Collective and comprehensive investing and diversification wins long term.

My outlook on gold is bullish though. The amount of demand for semi conductors and electronic components is going to fuel the upside for a while.

 

[PARA45]

This is an interesting read. @Red Leg I would like to know your thoughts of this. Thank you!

MSN

 

[mdwest]

 

[Red Leg]

This is an interesting read. @Red Leg I would like to know your thoughts of this. Thank you!

MSN

In 1963 T. R. Fehrenbach's "This Kind of War" was published and remains the definitive history of the Korean War. In it, he concludes a major lesson from that conflict.

"Americans in 1950 rediscovered something that since Hiroshima they had forgotten: you may fly over a land forever; you may bomb it, atomize it, pulverize it and wipe it clean of life—but if you desire to defend it, protect it and keep it for civilization, you must do this on the ground, the way the Roman legions did, by putting your young men in the mud. ”

Periodically, we forget that. In the 1930's the "Bomber Mafia" worshiping at the tomb of Billy Mitchel, was determined to prove that fleets of bombers and precision strategic bombardment (US doctrine) or burning cities (British doctrine - though adopted by the US over Japan) would make ground warfare obsolete.

In the late nineties, it was the "shock and awe" crowd championed by Donald Rumsfeld (and of course the Air Force) that was convinced an Army would be little more than an occupation force in any future wars thanks to smart munitions. Prior to 911, Rumsfeld had put in motion a study to reduce the Army by two divisions and to turn two others into "piece keeping / enforcement" organizations. That theory and its limitations ran hard up against the reality of ground combat in places like Falluja.

To date, the US Air Force has managed to achieve air superiority in every conflict since WWII. However, the proliferation of man portable air defense weapons (MANPADS) has changed close air support dramatically. Those missions, to the extent the Air Force flies them, are now typically done with a JDAM from 35 thousand feet providing great accuracy but also a slant range of fifty plus miles. Such missions against a peer opponent like Russia or China would be problematic due to the density of long range air defense systems. An extensive SEAD (Suppression of Enemy Air Defenses) and DEAD (Destruction of Enemy Air Defenses) campaign would have to be waged successfully before JDAM strikes would be possible.

Such tactics are also rather unresponsive to ground force needs which is why artillery remains so important to the Army. It is also why it was such a blow to the Army when Rumsfeld canceled the Crusader artillery program just as it was about to go into production.

I also agree with the authors with the question of the survivability of naval assets within the cruise missile range of an enemy mainland. Carrier battle groups are indeed powerful elements of national will. They also represent large high value targets. China has and is investing a lot of its development dollars in long range anti-ship missile technology. Whether missile cruisers and destroyers can keep the the battle group afloat under such an attack has never really been tested.

I also agree with them that classic airborne and amphibious landings are unlikely to even be attempted in future conflicts. Insertion of SOF is a different issue. But the idea that we would send 100 low flying transports over a peer enemy's held ground to drop the 82d Airborne would be pure fantasy. And in the age of cheap, highly accurate, and very lethal anti-tank guided missiles and land based cruise missiles who really wants to try and swim a wave of AAVs onto a hostile shore?

Another lesson I would add to the list is the need for unit organic weapon systems capable of quickly detecting, engaging, and destroying UAVs. This doesn't need to be an Air Defense mission. Rather a simple surveillance/targeting radar married to a remote weapons station on a HMMWV. We could field such a system now.

Everyone needs to pay attention to this war. The key is to learn the right lessons for the next one.