As much turmoil as there is today, the US through the deflation of commodities prices, the continued strengthening of the US dollar relative to foreign currencies (which accelerates the commodity prices) and the significant undervaluation of the S&P 500 and the US equity markets by probably 30-40% is poised for greatness. The bailout should in all parts end up net the US government quite a bit of money and will free up the credit markets for small business and consumers. The spread on t-bills cost and potential sale prices should be at least 6% (net of borrowing). We've essentially had a virtually flat decade for US stock prices and from dcf valuations to fed models (yield vs. 10 year treasury) they are damn cheap as a whole. I can't decide whether it looks like 1992 or 1981. Either way I'll be the voice of reason amongst all the doomsday people. Cheers!
so are you saying that the republicans will say the economy did well while clinton was in office because of what regean and bush did. as the economy may do better while obama is in office for 8 years because of what bush jr did? sounds like a good idea to me that the republicans are in office for more years and work hard to get the economy going and the democrats are in there for just a few years, and long enough to mess things up.
Actually, the inflation that the bailout is going to cause will hit, and the next President look like Carter.
what is talking about the dollar strengthening, we're about to add another trillion dollars to the budget
The irony is that people have been screaming inflation inflation for years yet there are more deflationary pressures in the woodwork. The continued regression of the US dollar will continue to bring down commodity prices and the financial sector has squished liquidity out of the marketplace. Credit is tight as hell right now and as unemployment has shot up a little, there's not wage cost inflation concerns. I understand that we may have to raise rates to keep the US treasuries attractive which has inflationary concerns but that combined with above listed factors doesn't lead me to think its something that will make it look like the 1970's. Besides with credit, the issue with much of the liabilities is not liquidity or spread, but solvency. They won't be lending if rates are lower or higher anyway until the bailout goes through.
I don't like the fact that the US is now the worlds largest hedge fund, but its a damn good deal for the US government and taxpayers. The companies that will get hit are the ones that haven't aggresively written down CDO's like some of the regional banks and even potentially companies like Wachovia. If you believe Warren Buffet and Bill Gross, then the US taxpayer should win in a huge way. Our borrowing costs (treasury yields are 3-4%) and we're paying allegedly .65 on the dollar. Gross estimates 10-15% gains which is a spread of 7-8% for the government. Bill is famous for having opinions which benefit his portfolios, but I do agree with his thought process.
Thanks for your take Khan. Are you predicting the $US will appreciate compared to other currencies. (your use of the word 'regression' confused me given your comment on the it's effect on commodity prices). And the S&P undervalued...plus inflation in check. I hope you're right. Do you think the results of the election will have a significant impact, or will whoever is elected just manage a rising (of falling) economy that is more greatly influenced by factors outside of their control.
Thanks for the question. Regression basically means the return to the average or ending of an anomaly. So the dollar has been undervalued relative to foreign currencies which has elevated commodity prices for us, but has also allowed us to benefit through huge trade surpluses. I really don't think the election will have that much long-term changes, though increased taxation and constraints to globalization of commerce could stifle growth. Sudden increases in capital gains taxes by Obama could cause a rush of selling to realize the lower cap gains rate as well. I'm a narrow guy when it comes to politics. I focus on international trade and taxes. I do think that the billion plus consumers and workers in china and the emerging markets are needed to succeed in order for us to continue our GDP growth rates. Markets aren't a zero-sum game, but I believe its more that we need them to succeed if we are to also. A protectionist president concerns me as he can limit the specialization of workers and will ultimately increase costs (inflation) to all Americans due to lack of competition.
You forgot to include necessary and unavoidable to pay for the trillions of dollars of debt that we are amassing (in addition to what we alaready amassed) The party is over. The era of buy now pay later is gone. It crashed last week. Remember?
Thats a Wall St., Main St. and every street issue over the last few years. People want instant gratification, instead of saving for a tv, house or car; get it now and expect to make more later to pay for it. Biting off more than one can chew was rampant in Wall St. as a trader/fund manager with 100 million used sick leverage to make money as if he was playing with a billion. I think the debt payment is a hard note to follow, but if we're borrowing at t-bill rates and ultimately can make some money on those assets and increase the strength of the system; then taxes in the future and income to the USA rises. The question is what rates the global markets will require and whether the additional interest we pay on everything else b/c of this 700b also needs to be factored in as a cost relative to sale of these assets.
If a tax increase for the top classes (essentially an expiration, repeal, revocation of Bush's last two rounds) can't get through Congress after the passage of a trillion dollar bailout package, most tangible benefits of which will largely be felt by the upper classes (though will benefit all as well, i'm not disputing that) - then we should just fold up as a country and go our separate ways because clear that we are demanding more from our government than we are willing to commit to it.
no doubt whoever is next will enjoy an upswing, after all it is all cyclical, and people will blindly be calling him a saint...until the last part of the term when the natural downturn happens at which point he will be an idiot.
the only good thing about this is that it has forced the media to focus on the ineptness of mccain on legit issues (any talking about lipstick and pigs anymore?), and the inadequacy of palin
Well the current and hopefully soon to be adverted financial collapse should be to the anti-government/ government regulation movement as the Fall of the Wall was to Communism. This thought was stated by a nobel economist named Stiglitz. If we can free ourselves from this malignant anti-government version of conservatism we will be able to tackle once again big projects like energy conversion, expanding infrastructure, education rather than having all the action be speculation on Wall Street, coastal real estate, fine wines, art etc. If we can't do this we might have another bear market rally or two based on Khan's thinking as we keep borrowing and becoming weaker.
Hmmmmmmmm so the answer to inept government is to add more inept government to regulate the inept government ? That makes sense.....
There's a WSJ article making waves about how by the writer's calculations the government could rake in > $2 trillion on this deal, making it the greatest trade ever in history.
No of course not, silly. Who is in favor of bad government? Nothing is as threatening to government hating conservatives as good government that works and people are happy with.
