2007: The Year of Debunked Financial Market Myths
Stock-Markets / Financial Markets Jan 09, 2008 - 01:22 PMBy: Mark_B_Rasmussen
The “WEALTH AFFECT” is real and you can borrow yourself into perpetual prosperity.
- You can spend yourself rich.
- “It is different this time” and not all speculative manias collapse.
- Real Estate always goes up.
- The subprime problem is contained.
- We are at or near a bottom in the Real Estate correction.
- February 2004, near a generational low for fixed rate mortgages, was a good time to get an Adjustable Rate Mortgage (ARM) as recommended by Mr. Bubble…..3 months before a 17 rate hike campaign began.
- “A strong dollar is in the country's best interest” Henry Paulson-Secretary of the Treasury.
- The “2% Core Rate” of inflation is accurate, reliable and credible. Gold + 31.8%, Oil +59%, Gas +54%, Wheat +77%, Soybeans +79%, Barley 56%, Rice +28%, Cotton +20%, Eggs +69%, CRB +16.5%, Goldman Sachs Commodities Index +40.6% for 2007.
- The U.S. economy is fundamentally strong with good job creation. The (BLS) Bureau of Labor statistics has created hypothetical jobs with a computer model X12ARIMA aka the Birth/Death model (probably the same programmers used by Wall Street for mark to model valuations). For 2007, 89% of total non farm jobs reported were created by the BLS computer model and were therefore, hypothetical or not real. An example of this is, during 12/2007 17,000 financial services jobs were created by this model, while financial institutions were declaring massive losses and layoffs. The same phenomenon happened in Q2 of 2007 when 115,000 construction jobs were created while home builders were declaring massive losses and new home starts were plunging…..perhaps builders were paying people to stay home. The BLS does conduct a “Household Survey” of 60,000 households and for 12-2007 found a loss of 486,000 jobs, yet reported +18,000 new jobs for December. George Orwell would be so proud to know that “The Ministry of Truth” is alive and well in the U.S. Do hypothetical people consume and pay bills? “figures don't lie but liars figure”, “There are three kinds of lies…….lies, damn lies and statistics” Mark Twain.
- It is possible to turn financial lead into gold through financial alchemy aka innovation and creativity.
- Subprime securitized (RMBS) Residential Mortgage Backed Securities deserve AAA credit ratings, the same as U.S. Treasuries and ONLY 5 American corporations.
- The ratings by the bond rating agencies (Moody's, S & P and Fitch) are credible, trustworthy and reliable. The rating agencies would never be influenced by the companies that Pay them to rate the bonds they issue.
- Shorting gold is a top 10 investment for 2008-Goldman Sachs. $863 today, a new all time record close, the first monthly and annual close over $800. GS wouldn't recommend shorting gold to cover their huge short positions, would they?
- Goldman Sachs wouldn't short the same RMBS's they made huge fees and commissions on at the same time they sold them….and Henry Paulson knew nothing about such things before becoming the Secretary of the Treasury.
- Financial innovation, flexibility and risk disbursement is what makes the American financial system so great. Thank you Mr. Bubble.
- Risk disbursement is almost as good as eliminating risk altogether……the interest rate spreads said so! That is, unless you were a small town in northern Norway, Make a Wish Foundation, countless Local Government Investment Pools (like Florida), money market funds, Asset Backed Commercial Paper, Insurance Companies, Pension Funds and the entire global financial system. We created a financial plague that has infected every corner of the globe with the blessing and encouragement of Mr. Bubble.
- Mark to Model/Myth (no sales or market inputs) is a very accurate, credible and reliable method to establish the value of $100's of billions of over the counter securities that have No Real Market.
- Bond insurance companies (Monolines) with less than 1% equity to risk exposure are definitely deserving of AAA ratings (did ACA really get reduced 12 credit levels to junk in a day? And if they don't raise $1.5 billion in capital by 01/16/2007 $69 billion of their insured bonds will also be rated junk) as they and their insured bonds are as risk free as U.S. Treasuries and only 5 U.S. corporations…….in process.
- SIV's (Special Investment Vehicles) ($100's of billions) are kept off of bank balance sheets and are much different than Enron's SPE's (Special Purpose Entities).
- 1.5% capitalization rates for commercial property (1/3 of treasury yields) are a very good value……remember Real Estate only goes up…….in process.
- The Federal Reserve is omnipotent and can fix any financial problem. After 1% in rate cuts, fixed rate mortgages are the same as last year, the LIBOR rate has hardly moved, the dollar has declined dramatically, inflation is up, they cannot force lenders to lend, they cannot force borrowers to borrow and they can't dictate where the oceans of liquidity they create go……in process.
- Liquidity is the solution for insolvency…….in process.
- Subprime is the “Only Cockroach” in the financial pantry. Look at the accelerating Alt-A, Prime, HELOC (Home Equity Lines Of Credit), Commercial Mortgage Backed Securities (CMBS), credit cards and auto loans default rates. S & P is expecting a 4 fold increase in corporate defaults over the next year. Private Equity and M&A loans with Covenant lite and PIK (Payment In Kind) provisions ($7.5 Trillion over the past 2 years) were issued with the same stringent standards as subprime……in process.
- Legislation to prevent foreclosure on U.S. homes is not to prevent many and large losses by lenders……it is really to allow U.S. homeowners to pay considerably more than their home is worth for a long time.
- Central banks are inflation fighters with 18 of the 20 largest growing money supply over 10% per year.......between 2-10 times real economic growth. Clearly, they never read or heard Milton Friedman “Inflation is always and everywhere a monetary phenomenon”.
- “Peak Oil Theory” is false and oil is going down to $30 - $40 per barrel. The world owes the U.S. unlimited, discrete, secure and inexpensive oil. We don't need no stinkin oil wells off of the Florida and California coasts or ANWAR. We also don't need no stinkin refineries or nuclear power plants. We can run our national trucking fleet on wind, our cars on photovoltaic panels and our ships and trains on geothermal.
- Black Swans, Rogue Waves and Fat Tails are fairy tales.
- You can believe and trust the Government, the Federal Reserve (private banking cartel) and Wall Street spokespeople.
Mark is a real estate appraiser/broker by profession
Copyright © 2008 Mark B. Rasmussen
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