Thursday, April 17, 2008

Shooting the Moon

The financial institutions of the world have admitted to about 600 billion in loses so far. Uncle Bernanke coughed up 30 billion for Bear Stearns. If you figure that we are in a dive that will take the normal 6 years to pull out of, then we have a considerable amount of loses to be realized. It looks as if the loses could go hyperbolic. In real estate we are only 8 months into a situation, which normally takes 6 years to stabilize. The trouble is, we have already set records going into this mess that exceed the amounts from the last down turn, numbered in years, in months. It looks like we have 8 to 10 times the velocity of the last real estate slump. We are really moving.

Another thing to look at is the acceleration factor. Is it getting better or getting worse? Our government claims the brakes are on full (getting better). You have to wonder about that. The government is doling out 150 billion dollars to the taxpayers for doing absolutely nothing.

In a card game called Hearts, there is a maneuver called “Shooting the Moon” where one person takes all of the heart tricks. The player doing this has the option of adding 26 points to everyone else’s score or subtracting 26 off of his score (lowering his own score keeps the game going [more $$$] if one of the players is approaching the end of game point score say 500).

This tax stimulus could be called a “Governmental Moon Shot.” The government had the option to tax everyone and pay for the mess or print more money. To realize this effect, imagine that Congress passes a 10% tax on all money saved in banks or retirement funds (there would be riots in the street). But if they print more money, $10,000 in the bank, is still $10,000, but now it will only purchase $9,000 of yesterdays goods.

Giving away money in an election year isn’t a bad idea. You get $1,200 back, and think the government has given you something. You have been fleeced like a lamb. It’s a little like buying invisible goldfish as an investment, they’re not much to look at, but you’ll make money breeding them. Yea, right!

The real irritating thing about this mess is that we can count the 150 billion in the stimulus package and the 30 billion given to Bear Stearns. Whatever else the Fed is buying from the rest of the banks, is being done behind closed doors. It kind of makes you wonder what we’re going to get for Christmas this year. I just hope they're not going to give us our lunch!

Copyright 2008 All rights reserved

8 comments:

shankar said...

Jim,

This Christmas you won't get any lunch because you are going to be it.
(You = Us all)

Fed will try to get inflation under control by stepping aside - $ may strengthen, oil would come down, and GDP may show some improvement after 2nd Quarter. Unfortunately, the problem won't go away. And when those politicians don't get any lunch, we all become their lunch.


Shankar


Shankar

Anonymous said...

Jim,

The Stock Markets are defying gravity as the US sinks further into recession. In my mind this defiantly defies the "What goes up..." theory.

What are your thoughts on the Govy controlling the Exchanges by buying and selling stocks through secretive third parties and using tax payer dollars to do it?

Tom

Jim in San Marcos said...

Hi Shankar

I don't think the government is any longer in control. The 150 billion tax stimulus pretty much proves it.

The train wreck could be as early as May.

I guess my allusion to "getting your lunch" doesn't carry very well. In High School, "Giving someone his lunch" was an euphemism for a "Knuckle sandwich."

The interesting thing will be how both political parties try to pick up the ball and run if this mess hits the fan in June

Kibitzer 2006 said...

Jim,

"Giving away money in an election year isn’t a bad idea. You get $1,200 back, and think the government has given you something. You have been fleeced like a lamb."

That's only true if you have money in a bank or retirement fund. If you owe on your mortgage the inflation is an extra bonus. Gee, I wonder on which side of that line most voters fall?

--Kibitzer

Anonymous said...

At least when FDR gave away lots of money, he got large public works in return; Hoover Dam, the TVA, national parks, etc...

All we get now is the thrill of watching our savings accounts shrink in buying power.

It'll be hilarious if gas prices skyrocket one or two bucks in May once "everybody" has an extra $600 in their pocket.

Jim in San Marcos said...

Hi Kibitzer

Anon 10:11 hit the nail on the head, gas prices increasing. That could literally shut down the Airlines. Wages aren't going to go up everyone is afraid of losing their job.

English muffins that I buy at Ralph's, have gone from 79¢ to $1.99 for six.

You are right about having a mortgage or for that fact a house free and clear of a mortgage. A home is a good hedge against inflation.

Gas is about to hit $4 here.

If we burn the people with money in the bank, there will be no loans available to purchase a house. In Japan people put their money in a safe. Why give it to a bank a 1/2% interest? This is becoming a real problem over there.

As for voters, its pretty well documented that the percentage of voters who vote is pretty much correlated to their age. The older you are the more likely you are to vote. That's why Social Security is often referred to as the "Third rail." You touch it, you die.

It's kind of hard to figure out, how this will all play out.

Thank you for your comments.

shankar said...

Jim:

Aah. Got it.

In any case, I think we are all on the same page.

Shankar

Jim in San Marcos said...

Hi Tom

I don't think that the Government would get into the stock market buying and selling stock to manipulate the market. There is no return in it for them.

They do however loan market makers very large amounts of money in times of stress to keep the market from panicking like during the meltdown in 1987. A market maker usually would handle at least 6 million dollars a day in inventory. On a bad day they could need 10 times that.

People think that when they sell their stock someone else is buying. The market maker buys when there are no buyers and sells when there are no sellers.

You will see the government manipulating the exchange rates by buying and selling currency.

The stock market is a strange animal, it does the opposite of what is expected. Last week a lot of people were short the market and got eaten alive on Friday. It only takes one good up day to ruin the shorts. If you were short Google you probably got a $10,000 margin call on 100 shares or you were closed out with a buy order.

I think that the Bull is starting to Morph into a Bear.

Fear is entering the building. So kick back and relax, the main feature is about to start.

Thank you for you post.