"Government is acting like the last drunk at a party: spending at an unprecedented rate, regulating the minutest details of our lives, and strutting around as if it's solving problems." - analyst Robert Prechter
ALL THE GOVERNMENT HAS TO OFFER IS WHAT THEY TAKE FROM YOU. ; )
'Black Swan' Author Taleb: US Bonds Will Collapse, Avoid Stocks
Thursday, 12 Aug 2010 03:01 PM
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By: Dan Weil
Investment author Nassim Nicholas Taleb isn’t buying the government-bond rally that has sent the 10-year Treasury yield down to a 16-month low of 2.68 percent.
Investors have turned to Treasuries as a haven amid a global economic recovery that is fading. Given the explosion in government debt, that isn't a smart move, Taleb says.
The Congressional Budget Office forecast that the debt burden will total 62 percent of GDP by Sept. 30.
Taleb warned of unexpected events upsetting financial markets in his popular book “The Black Swan: The Impact of the Highly Improbable,” which predicted the financial crisis of 2008.
Now the New York University professor is “betting on the collapse of government bonds," he said at a conference in Johannesburg, Bloomberg reports.
He also urged investors to avoid stocks. “I’m very pessimistic. By staying in cash or hedging against inflation, you won’t regret it in two years.”
Individual investors are both following Taleb’s advice and rejecting it.
Experts estimate that Americans have parked up to $9 trillion in bank accounts, certificates of deposit, Treasury bills and money-market funds, CNBC reports. So in that sense, investors are toeing Taleb’s line.
But they’re also choosing Treasuries — among other bonds — over stocks.
In the most recent week, bond mutual funds enjoyed a $13.25 billion inflow, while stock funds suffered a $3.85 billion outflow.
Hedge funds aren’t shying away from Treasuries either. They now account for about 20 percent of trading in the $10 trillion market, up from 3 percent last year, according to a new study from Greenwich Associates, MarketWatch reports.
The progressive Democrats in power must believe that the citizens of this country are absolute morons, either that or they haven’t read a newspaper in two years and don’t realize that George Bush is no longer president. The Democratic party plans on retaining their change message for their 2010. Their new tag line is “vote for us, or its back to the bad old economic policies of George Bush. That’s right Barack Obama and his progressive majority are going to campaign as if they were all still in kindergarten “Its not my fault….blame Bush.”
Not only is that approach childish, but it belies the truth. Allow me to suggest that the policies of Barney Frank had more to do with the bursting of the housing bubble, the resulting bank crisis and the “great recession,” than the policies of George Bush. Led by Frank the Democratic party brought down the banking industry by forcing banks to give loans to people who couldn’t afford them, then he blunted the Republican attempts to regulate the industry
Frank aggressively fought reform efforts by the Bush administration. He told The New York Times on Sept. 11, 2003, Fannie Mae and Freddie Mac’s problems were “exaggerated.” Exaggerated? Thanks to Fannie and Freddie the housing market collapsed and we fell into this “great recession.”
“These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis,” Frank Opined to the Times. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
The 10/8/03 Washington Post reported that Frank opposed giving the Bush administration the approval rights over banking business activities that “could pose risk to the taxpayers.” He worried the Treasury Department “would sacrifice activities that are good for consumers in the name of lowering the companies’ market risks.”
In the video below Frank sits in a 9/10/03 House Financial Services Committee hearing and says Fannie and Freddie are sound, and there is no housing disaster coming.
Rep. Barney Frank (D., Mass.): I worry, frankly, that there’s a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios.
Two years later the United States was much closer to the bursting on the housing bubble. The Republicans in Congress introduced a bill to regulated Fannie Mae and Freddie Mac. Led by Barney Frank and Chris Dodd the bill was killed.
On June 27, 2005 Barney Frank stood up on the floor of the House of Representatives and told America that there is undue concern about the housing market and even though prices were growing very quickly the housing market is not like the Dot.Com industry, the housing bubble will not burst.
If the Guinness Book of World records had a hypocrisy category, the winner would be Barney Frank, Chairman of the House Banking Committee. Let me revise that, Frank wouldn’t be the winner, judging by his actions the Guinness people would have to retire the category.
When the housing bubble finally burst Mr. Frank called for prosecution of the people who caused the banking crisis, he should have looked in the mirror.
Barney Frank got away with his housing bubble hypocrisy and is still getting away with it. Fannie and Freddie are still asking the public for money, the economy is still in the toilet and the Democratic Party is still blaming President Bush.
While there were plenty of problems with George Bush’s policies, this recession has more to do with the policies of the progressive Democrats, than those of the former president. In fact, if the POTUS and his progressive lemmings were to be truthful, they should be blaming Barney Frank because when you examine what happened Frank is the one blocked the regulation of Fannie and Freddie and it was Frank who kept saying over and over there is no housing crisis
The White House’s ever-optimistic economic cheerleading squad is in shambles. Over the last six weeks, Peter Orszag, Director of the Office of Management & Budget and Christine Romer, Chairman of the Council of Economic Advisor, have now euphemistically “resigned to spend more time with their families”. Both Orszag and Romer were highly credentialed and respected academicians who provided a veneer of elitist credibility to offset the enormous skepticism regarding the lugubrious Larry Summers and the dubious Timothy Geithner. Orszag and Romer had been reduced early on to a level of authority similar to Saturday Night Lives’ iconic Spartan Cheerleaders, Will Ferrell and Cheri Oteri. They trotted out each week dressed for the part to enthusiastically give the “World’s Greatest Cheer”, but they were never actually allowed on the team.
The Obama Administration has fancied itself as the new Camelot of American Politics. Their campaign march to power was capped by a highly choreographed speech near Berlin’s Brandenburg Gate where Presidents Ronald Reagan and John Kennedy rallied the Free World to oppose tyranny with “tear down these walls” and “ich bein Berliner”.
Obama was successful demonstrating the he could match America’s two most photogenic Presidents for good looks and beautiful wives. (Michelle Obama is beautiful??? Why didn't somebody tell me. I thought she was a ridiculous, America-hating harpy.) But his appeasement message of “the walls between the countries with the most and those with the least cannot stand” seemed the antithesis to Reagan’s: “Democracy is worth dying for, because it’s the most deeply honorable form of government ever devised by mAan.”and Kennedy’s: “Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty.”
Presidents Reagan and Kennedy championed supply-side tax cuts and reductions in regulations to support spur the economic triumph for America’s brand of free market democracy, whereas President Obama seems much comfortable with bureaucratic orthodoxy. Both Reagan and Kennedy respected the profit motive and extolled the creative virtues of the capitalism. Reagan stated: “The most terrifying words in the English language are: “I’m from the government and I’m here to help.”
Kennedy stated “Conformity is the jailer of freedom and the enemy of growth”. Obama on the other hand dismissing a career in business as; “Focusing your life solely on making a buck shows a certain poverty of ambition. It asks too little of yourself. Because it’s only when you hitch your wagon to something larger than yourself that you realize your true potential.” For the last two years Summers and Geithner have smugly claimed (1) America has better demographics, (2) China will be happy to continue to fund our government spending and (3) the dominance of the US economy will return as it always has. The Great Recession has been worse than the Administration’s cheerful predictions. Reassurances that unemployment would fall to 7.5% by this November’s election are being replaced with; deficit spending of only $3.5 trillion over two years was not sufficient stimulus and the 9.5% current unemployment may “temporarily” move higher.
The Administration’s signature accomplishment of “Healthcare Reform”, passed in over a weekend as cost containment, is taking some tough hits now that independent analysts have read the 2324 pages of small print. Towers Watson, an employment benefits consultant, now projects it will cost corporations $14 billion a year more to comply. The fear of this new spiraling entitlement has small business frightened. The Heritage Foundation calculates the annual budget deficit when Obamacare is fully implemented in nine years, will be more than double the White House estimate of $ 917 billion.
Christine Romer may still eventually win the Nobel prize for her pioneering economics studies. She convincingly demonstrated the failure of US fiscal stimulation to be effective during the Great Depression, because taxes were raised almost as quickly as government spending increased during the New Deal. Her recent work, with husband David Romer, focussed on the impact of tax policy on government and general economic growth. The historical record of US tax changes from 1945-2007, reveals that a one percent increase in taxes by “one percent of GDP lowers real GDP by roughly three percent.” (Higher taxes suffocate the economy. No kidding. Everyone knows this but Obama, our idiot overlord.)
Peter Orszag’s economic research determined “higher health care costs coincide with downward pressure on consumer incomes.” As real disposable income growth has been 1% or less for the last eight quarters – the longest period of such slow growth since World War II, Orszag could quickly calculate that pay checks from private payrolls shrank to their smallest share of personal income ever in first quarter. who believe they have zero or negative equity in their homes has risen to over 50%.
The Spartan cheerleaders may be hanging up their pompoms after two years of rooting for policies their own research told them would not work. The fear that higher government spending will lead to higher tax rates has paralyzed business, which is the cause of anemic income growth and high unemployment in the US. President Obama said; “we are the change we were looking for”. He is right! He should change course and adopt the proven supply side policies championed by Presidents Reagan and Kennedy of cutting taxes and supporting business is the change that lead to economic victory. Now that would be the change worthy of; The World’s Greatest Cheer
I graduated in 2009 with an MBA and highest honors, during the course of which I had to study graduate-level economics, finance, HR, etc. I have also spent 12 years studying marketing and management, and several years studying macroeconomics, currencies, commodities, political systems, and the current Great Recession. I predicted the 2001 recession six months in advance, and the 2007 recession a year in advance, and made moves that prevented having a single dollar of losses from the current recession. My predictions this year have all come true except that the slide of the dollar has stalled.
www.linkedin.com/in/mattcaulder
