Reckless Myopia - Hussman

"Banana Republic", "Disaster", "Reckless", "Unconstitutional Breach" ...... Uh ? When Hussman ( one of the best mangers out there > Performance Hussman 2000-2009 ) is using this kind of words it clearly qualifies for a rant..... Needless to say that i think he is spot on...... Just a few reasons why i´m long term bullish on Gold ( short term it looks a little bit crowded )....Along with Rosenberg, Faber one of my long time favourites......

Wenn ein ansonsten sehr besonnener und überaus erfolgreicher ( siehe Performance Hussman 2000-2009 ) Zeitgenosse wie Hussman zu solch drastischen Worten wie "Bananenrepublik", "Desaster", Verfassungswidrig" usw. greift sollte man aufhorchen..... Und das sind nur einige der gewichtigen Gründe warum ich langfristig bullisch für Gold bin ( kurzfristig sieht es allerdings etwas überhitzt aus ).... Wer meinen Blog etwas länger verfolgt weiß, das ich zu 100% übereinstimme.....

Reckless Myopia

From a long-term perspective, my record is very comfortable. But clearly, I was wrong about the extent to which Wall Street would respond to the ebb-and-flow in the economic data – particularly the obvious and temporary lull in the mortgage reset schedule between March and November 2009 – and drive stocks to the point where they are not only overvalued again, but strikingly dependent on a sustained economic recovery and the achievement and maintenance of record profit margins in the years ahead.

I should have assumed that Wall Street's tendency toward reckless myopia – ingrained over the past decade – would return at the first sign of even temporary stability. The eagerness of investors to chase revailing trends, and their unwillingness to concern themselves with predictable longer-term risks, drove a successive series of speculative advances and crashes during the past decade – the dot-com bubble, the tech bubble, the mortgage bubble, the private-equity bubble, and the commodities bubble. And here we are again.

We face two possible states of the world. One is a world in which our economic problems are largely solved, profits are on the mend, and things will soon be back to normal, except for a lot of unemployed people whose fate is, let's face it, of no concern to Wall Street. The other is a world that has enjoyed a brief intermission prior to a terrific second act in which an even larger share of credit losses will be taken, and in which the range of policy choices will be more restricted because we've already issued more government liabilities than a banana republic, and will steeply debase our currency if we do it again. It is not at all clear that the recent data have removed any uncertainty as to which world we are in.

What I do think is that over the past decade, investors (including people who hold themselves out as investment professionals) have become far more susceptible to reckless myopia than I would have liked to believe. They have become speculators up to the point of disaster.

Frankly, I've come to believe that the markets are no longer reliable or sound discounting mechanisms.

The repeated cycle of bubbles and predictable crashes over the recent decade makes that clear. Rather, investors appear to respond to emerging risks no more than about three months ahead of time.

Worse, far too many analysts and strategists appear to discount the future only in the most pedestrian way, by taking year-ahead earnings estimates at face value, and mindlessly applying some arbitrary and historically inconsistent multiple to them.

Discounting the markets three month ahead of time..... ? This is probably only true when they are sniffing around for the next dose of QE or some kind of bailout, subsidy, stimulus etc ...But to do that you don´t need to be a rocket scientist... Washington & the Fed have a 100 percent track record in bailing out anything.....Unlike in Dubai ....;-) I think here is Hussman way too kind........

Vorwegnehmen ?. Denke das die Vergangenheit bewiesen hat das die Märkte und besonders Wall Street Finest hier keinesfall im Vorwege Probleme kommen sehen.... Die Fähigkeit etwas vorwegzunehmen trifft wohl am ehesten zu, wenn es darum geht den nächsten Bailout usw zu erahnen ( der kommt ja bekanntermaßen bestimmt ).... Hier kommt zwischenzeitlich mal wieder der "alte" höfliche Hussman durch.... ;-)

In part, the market's increasing propensity toward speculation reflects the increasing lack of fiscal and monetary discipline from our leaders. Policy makers who seek quick fixes and could care less about long-term consequences undoubtedly encourage investors to embrace the same value system.

Paul Volcker was the last Fed Chairman to have any sense that discipline and the acceptance of temporary discomfort was good for the nation.

In my estimation, there is still close to an 80% probability (Bayes' Rule) that a second market plunge and economic downturn will unfold during the coming year. This is not certainty, but the evidence that we've observed in the equity market, labor market, and credit markets to-date is simply much more consistent with the recent advance being a component of a more drawn-out and painful deleveraging cycle.

As Gluskin Sheff chief economist David Rosenberg noted last week, “Even if the recession is over, the historical record shows that downturns induced by asset deflation and credit contraction are different than a garden-variety recession induced by Fed tightening and excessive manufacturing inventories since the former typically induce a secular shift in behavior and attitudes towards debt, asset allocation, avings, discretionary spending and homeownership. The latter fades more quickly.

Larger / Vergrößerte Version via VOX EU

> On this topic comes another excellent report ( see Charting The Great World Trade Collapse ) via VOX EU

> Empfehle in diesem Zusammenhang einen Blick auf Charting The Great World Trade Collapse ( ebenfalls von VOX EU ) zu werfen.....

“This is why people didn't figure out that it was the Great Depression until two years after the worst point in the crisis in the 1930s; and why it took decades, not months, quarters or even years, for the complete transition to the next sustainable economic expansion and bull market.

... It is truly mind-numbing that a moment after a temporary surge of trillions of dollars, borrowed and tossed out of a helicopter (though to specific corporations and private beneficiaries), analysts would hail a subsequent improvement in corporate results as evidence of “resilience.”

What matters is sustainability, and unfortunately, it is clear that credit continues to collapse.....

Emphatically, the trillions of dollars spent over the past year were not in the interest of protecting bank depositors or the general public. They went to protect bank bondholders.

Instead of taking appropriate losses on those bonds (which financed reckless mortgage lending), those bonds are happily priced near their face value, for the benefit of private individuals, thanks to an equivalent issuance of U.S. Treasury debt. But that's not enough. Outside of a very narrow set of institutions that are subject to compensation limits, just watch how much of the public's money – which benefitted several major investment banks following a very direct route – gets allocated to Wall Street bonuses in the next few weeks.

AMEN......

UPDATE:

Guest Post: Dividends Are Still Trending Worse Than The Great Depression ZH

Wall Street Vs Main Street..........

Thanks Ben, Timmy etc....... Yes we can´t........ I think the guy from Main Street ( see Chart of the day, underemployment edition & Still on the Job, but Making Only Half as Much ) will be pleased when he reads this kind of news....... Make sure you watch the Bird & Fortune, FT video: Banking, bonuses, boom and bust :-) & Bank-Favoring Censorship by Congress :-( !

Besten Dank an Ben, Timmy usw........ Yes We Can´t........ Solche "dollen" Nachrichten dürften bei dem Durchschnittsbürger ( siehe Chart of the day, underemployment edition & Still on the Job, but Making Only Half as Much ) besonders gut ankommen..... Die satirische Betrachtung von Bird & Fortune, FT video: Banking, bonuses, boom and bust ist sehenswert und leider recht nahe an der Realität :-)! Wer immer noch Zweifel hat das sich nichts ändern wird sollte dringend Bank-Favoring Censorship by Congress lesen..... DEPRIMIEREND!



Wall Street On Track To Award Record Pay WSJ

Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year -- a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture.

Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year's $117 billion -- and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost almost $2,000 from 2007 levels.

H/T Rolfe Winkler

Here is a link to the raw data, below a list of the top 10.

NOTE: This includes only public companies

Blackstone: $4.04 million per employee
Och-Ziff: $878k
Goldman Sachs: $743k
Jeffries: $514k
Lazard: $473k
BlackRock: $318k
Legg Mason: $291k
Eaton Vance: $280k
IntercontinentalExchange: $279k
Morgan Stanley: $263k

Felix Salmon on Goldman

But just because we need these banks to exist does not mean that we want these banks to make enormous profits.....

So the answer to the question Sorkin poses in the question is, essentially, “yes”: we don’t want Goldman to fail, and neither do we want Goldman to reward success in the way it has of late. What we do want is less excess and less systemic risk.

Allowing a super-sized Goldman to pay out untold billions in bonuses every year — even if they’re cleverly structured in the form of slowly-vesting stock — achieves neither of those aims.

Havn´t heard the word "moral hazard" for a long long time.....Unfortunately i think the following excellent cartoon from Gary Varvel is spot on.....

Was ist eigentlich aus dem Wort "Moral Hazard" geworden....... Leider ist der Wahrheitsgehalt des folgenden Cartoons von Gary Varvel erschreckend hoch......

Geithner Aides Reaped Millions Working for Banks, Hedge Funds

Speaking to financial executives last month, Obama said: “We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.”

At the same time, the president has promised to change Washington by keeping lobbyists for special interests at a distance and by making decisions in the open.

I´ll finish with a good "advice" from Jesse Gold: Until the Banks Are Restrained and Balance Is Restored ... ;-) & a nice rant from Black ( see The financial sector harms the real economy. )

Denke der folgenden Ratschlag Gold: Until the Banks Are Restrained and Balance Is Restored von Jesse & der Standpunkt von Black ( The financial sector harms the real economy. )sind ideal um dieses Posting zu beenden..... ;-)

Update:

JPM Sets Aside $471,779 Run-Rated Compensation For 2009 ZH

Lobbyists Mass to Try to Shape Financial Reform NYT

The financial services industry has poured more than $220 million into lobbying in 2009, much of it in anticipation of this Congressional effort now beginning

Bank Lobbyists Are Not Only Trying to Kill NEW Legislation, They Are Trying to Weaken EXISTING Regulations Washington´s Blog

WALL STREET IS WINNING! Elizabeth Warren "Speechless" About Record Bonuses Blodget

The 'Heads I Win, Tails You Lose' Bank Bonus Culture

Still no riots...... ;-) I highly recommend to read From A Former Goldman Managing Director: How You Finance Goldman Sachs’ Profits via Zero Hedge. Doesn´t make you feel better..... And keep in mind "BASE COMPENSATION ISN`T COUNTED IN THE NUMBERS" and that "greater than $ 3 Mio" can also mean $ 10 Mio ( see Bonus Breakdown ) ......

Schon erstaunlich das die Amis das noch alles so hinnehmen.... Denke spätestens nachdem man From A Former Goldman Managing Director: How You Finance Goldman Sachs’ Profits via Zero Hedge gelesen hat dürften einige mehr als nur die Faust in der Tasche ballen...... Die "Chuzpe" ist schon fast wieder bewundernswert..... Nur zur Erinnerung "DIE GRUNDVERGÜTUNG IST IN DEN U.G. ZAHLEN NICHT ENTHALTEN UND KOMMT ON TOP".... Zudem bedeutet die Formulierung Bonuszahlung größer als 3 Mio $ gleichzeitig das etliche locker 10 Mio $ "verdient" haben ( siehe Bonus Breakdown )

Deal Journal

Andrew Cuomo, New York’s Attorney General, just released a report breaking down compensation at the nine original TARP recipients.

Bank	Greater Than $3 Million	Greater Than $2 Million	Greater Than $1 Million
Bank of America	28	65	172
Bank of New York Mellon	12	22	74
Citigroup	124	176	738
Goldman Sachs	212	391	953
J.P. Morgan Chase	200*	-	1626
Merrill Lynch	149	-	696
Morgan Stanley	101	189	428
State Street	3	8	44
Wells Fargo	7	22	62

The following graph is even more "impressive" and puts the bonus pool into perspective to the earnings/losses..... Taken from Cuomo releases ugly details on bank bonuses via R. Winkler

Denke das die nächste Übersicht noch mehr "Freude" verbreitet.... Hier werden die Bonuszahlungen ins Verhältnis zu den erzielten Gewinnnen oder besser gesagt erzielten Verlusten gesetzt...... Dank an R. Winkler ( siehe Cuomo releases ugly details on bank bonuses )

larger version / vergrößerte Version

More via the WSJ

The Millionaire´s Club / Interactive Graph

NYT & Dealbook

All told, the bonus pools at the nine banks that received bailout money was $32.6 billion, while those banks lost $81 billion.

In Thursday’s report, Mr. Cuomo described how Merrill and Citigroup — also the recipient of a big federal bailout — both lost more than $27 billion in 2008, but nonetheless paid a total of nearly $9 billion in bonuses to workers for that year.

Other banks, like Goldman Sachs, Morgan Stanley and JPMorgan Chase, paid out 2008 bonuses that were substantially greater than their profits for the year.

In general, the report said, compensation at major banks “has become unmoored from the banks’ financial performance.”

Mr. Cuomo wrote:
Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well.

Bonus Report