One disastrous international trade policy of the 1930s concerned tariffs: nations increased tariffs on imports to protect domestic industries; when applied universally, it resulted in declining export sales and trade volumes. Tariffs made the Great Depression worse.

Now, it appears, nations are on the verge of implementing another counter-productive policy -- manipulating currencies -- and if public officials are not careful, a similar downward spiral in international trade could occur.

Continue reading Brazil: World Is in a 'Currency War'

Brazil: World Is in a 'Currency War' originally appeared on BloggingStocks on Mon, 27 Sep 2010 15:40:00 EST. Please see our terms for use of feeds.

The mainstream media is overflowing with hyperventilating bears preaching about a depression. All fear-mongering aside, we see two very positive developments in the U.S. economy: retail and corporate spending.

1. Retail Spending

The International Council of Shopping Centers has announced that retail sales expanded at the highest pace since September 2006. Luxury retailers posted an eye-popping 8% rise in sales. Seems like consumption is our culture. Some people think the U.S. consumer has changed. Personally, I would never bet against the DNA of a tribe ... and ours is shopping. As my brother Derek said, "In the Great Depression we had bread lines. Now, there are Apple (AAPL) iPhone 4 lines." That is a mind-blowing distinction.

Continue reading Two Signs the Economy Will Survive

Two Signs the Economy Will Survive originally appeared on BloggingStocks on Thu, 08 Jul 2010 12:10:00 EST. Please see our terms for use of feeds.

Continue reading Comfort Zone Investing: Seems Like Old, Old Times

Comfort Zone Investing: Seems Like Old, Old Times originally appeared on BloggingStocks on Sat, 12 Jun 2010 10:30:00 EST. Please see our terms for use of feeds.

Put this in the category of "we'll believe it, when we see it." There was more speculation in the financial markets Friday regarding a possible move by China to let its currency, the yuan, appreciate slightly versus the dollar in the weeks ahead.

China keeps the yuan pegged at roughly 6.82 yuan to the dollar. U.S. manufacturers charge that the peg artificially undervalues China's exports, giving China's companies an unnatural competitive advantage. China counters that the fixed yuan is necessary for its embryonic, vulnerable economy, and that the world benefits from cheaper goods.

Continue reading Is China About to Let the Yuan Rise Versus the Dollar?

Is China About to Let the Yuan Rise Versus the Dollar? originally appeared on BloggingStocks on Fri, 12 Mar 2010 16:40:00 EST. Please see our terms for use of feeds.

Continue reading Doomsday Scenario: Craig's List is another nail in the news coffin

Doomsday Scenario: Craig's List is another nail in the news coffin originally appeared on BloggingStocks on Tue, 07 Apr 2009 17:06:00 EST. Please see our terms for use of feeds.

Continue reading House Republicans take page out of Hoover's 1930s play book with spending freeze plan

House Republicans take page out of Hoover's 1930s play book with spending freeze plan originally appeared on BloggingStocks on Mon, 09 Mar 2009 13:10:00 EST. Please see our terms for use of feeds.

Sales of safes are booming in New York and probably around the United States. (SentrySafe is a large safe manufacturer that probably has an opportunity for an IPO if it's profitable -- its stock would represent another great "fear play.") The price of gold hit $927 an ounce this week. And stock in Smith & Wesson (NASDAQ: SWHC) is up 79% since inauguration day (despite losing $76 million in its fourth quarter).

It's beginning to feel a bit like the period after 9/11 when people went out and bought gas masks, duct tape, and the antibiotic Cipro.

Continue reading Will gold, guns, and safes protect you from Dow 1,400?

Will gold, guns, and safes protect you from Dow 1,400? originally appeared on BloggingStocks on Sat, 07 Mar 2009 09:20:00 EST. Please see our terms for use of feeds.

The most sweeping fiscal stimulus in a generation is about to be signed into law by President Obama. It amounts to $787 billion and includes tax incentives, infrastructure projects, renewable energy developments, and payment to state and local authorities.

However, investors appear to be skeptical as indicated by the performance of the markets today for a variety of reasons:

• Some estimate that as much as 75% of the spending will not reach the economy until 2010.
• There are questions as to how many jobs in the United States will actually be created.
• People are uncertain as to how productive the spending bill will be and how much is actually just wasteful "pork."

Continue reading The fiscal stimulus plan: Where is the missing element that solved the Great Depression?

The fiscal stimulus plan: Where is the missing element that solved the Great Depression? originally appeared on BloggingStocks on Tue, 17 Feb 2009 16:39:00 EST. Please see our terms for use of feeds.

Last March, I posted on whether we were at the beginning of the Greatest Depression. Back then, my reasoning was that there was $6.1 trillion in financial toxic waste -- in the form of Collateralized Debt Obligations (CDOs) -- in our financial system resting on a sliver, a mere $340 billion, in capital.

Therefore, a 6% decline in the value of that toxic waste would wipe out the bank capital. (I should have added in another $6 trillion in mortgage-backed securities). When you consider that Merrill Lynch sold $31.6 billion of its CDOs last year for 22 cents on the dollar, you realize that toxic waste needed an 80% haircut rather than a 3% one -- and voila -- you've wiped out all the capital!

If you look at some basic statistics comparing the current economic situation with that of the Great Depression, you might think that we are in relatively great shape. Our unemployment rate now is 7.2% -- at its nadir, 25% of the population was unemployed in the Great Depression.

Continue reading One more time: Is this the Greatest Depression?

One more time: Is this the Greatest Depression? originally appeared on BloggingStocks on Thu, 22 Jan 2009 11:30:00 EST. Please see our terms for use of feeds.

It looks like America has shut down until 2009. And that's probably a good idea because there were so many bad ones in 2008. Bad ideas are like vampires. They charm their way into the good graces of a host society and then they suck the blood right out of them.

Although they all didn't just pop into our lives in 2008, these eight ideas reached a peak of awfulness in 2008:

• Deregulation is good. The wave of deregulation that started in the early 1980s has created enormous problems for society. Sure there were some bad regulations on the books, but just one deregulated industry -- the $62 trillion credit default swaps (CDS) market -- has cost taxpayers hundreds of billions of dollars in the bailout of American International Group (NYSE: AIG).
• If you can lend against it, securitize it. Securitization -- the practice of buying, credit-rating, and bundling loans backed by assets like mortgages, credit card receivables, and leveraged buyout loans -- created the illusion that you could mix risky loans in with safer ones and you could earn above-average returns with no risk. Bad call -- securitization has spread toxic waste around the world from Iceland to Whitefish Bay, Wis.
• Home-ownership is good for everyone. The hungry maw of securitization created enormous demand for new mortgages. And that led mortgage originators to lend to people who couldn't afford to pay back the loans. The $1.3 trillion subprime mortgage market was born and it grew so big that its collapse refused to remain contained. In 2004 Bush bragged about home ownership reaching 69.2% -- three million foreclosures later it seems we should be careful what we wish for.
• Leverage up your balance sheet 30:1 or more. In 2004, the SEC gave financial institutions (FIs) discretion to borrow more money than they had ever borrowed before. Most banks and hedge funds borrowed as much as $35 for every $1 of equity. If they had used their $340 billion in equity to buy the $13 trillion worth of mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs), a 3% decline in the MBSs and CDOs value would have wiped out the FI's capital.

Continue reading 2008's eight worst ideas

2008's eight worst ideas originally appeared on BloggingStocks on Sat, 27 Dec 2008 16:45:00 EST. Please see our terms for use of feeds.

Continue reading NYT's Krugman to President-elect Obama: Think big

NYT's Krugman to President-elect Obama: Think big originally appeared on BloggingStocks on Tue, 11 Nov 2008 16:00:00 EST. Please see our terms for use of feeds.

Fed Chair Ben Bernanke always likes to remind us that he is a scholar of the Great Depression. But I am not sure he has drawn the right lessons from it based on his actions. As Mark Twain said, history doesn't repeat itself but sometimes it rhymes. There are certain rhymes between the Great Depression and the current circumstance. Income inequality and negative savings rates leading up to the current circumstance are the same as they were in 1929. In both situations, high levels of borrowing and lack of transparency were key contributors.

But things are also different now. For example, securitization is at the core of the current catastrophe and so is the globally-interconnected nature of the financial system. There are $13 trillion worth of mortgage backed securities (MBS) and collateralized debt obligations (CDOs) alone and there is perhaps $340 billion worth of capital on the books of leading financial institutions (FIs).

And due to the global interconnections, banks in Germany were wiped out since they bought too much of this financial toxic waste. And this does not even take into account the $54 trillion credit default swap market - which did not exist in 1929.

Continue reading Have we learned the right lessons from the Great Depression?

Have we learned the right lessons from the Great Depression? originally appeared on BloggingStocks on Fri, 17 Oct 2008 12:45:00 EST. Please see our terms for use of feeds.

Continue reading Despite stock rout and more U.S. debt, dollar is firm (so far), except vs yen

Despite stock rout and more U.S. debt, dollar is firm (so far), except vs yen originally appeared on BloggingStocks on Fri, 10 Oct 2008 16:50:00 EST. Please see our terms for use of feeds.

Continue reading Rescue package: Oil change for U.S. economy; next up: tune-up

Rescue package: Oil change for U.S. economy; next up: tune-up originally appeared on BloggingStocks on Mon, 29 Sep 2008 09:00:00 EST. Please see our terms for use of feeds.

Continue reading Frank says U.S. Treasury's plan may not be that costly

Frank says U.S. Treasury's plan may not be that costly originally appeared on BloggingStocks on Fri, 19 Sep 2008 14:44:00 EST. Please see our terms for use of feeds.

Continue reading Fed, ECB, BOE, BOJ add yet more funds to financial system

Fed, ECB, BOE, BOJ add yet more funds to financial system originally appeared on BloggingStocks on Tue, 16 Sep 2008 14:15:00 EST. Please see our terms for use of feeds.

Continue reading Could U.S. economy, American people tolerate more government intervention?

Could U.S. economy, American people tolerate more government intervention? originally appeared on BloggingStocks on Fri, 05 Sep 2008 17:08:00 EST. Please see our terms for use of feeds.

Continue reading Will a new U.S. president lead to a new mortgage system?

Will a new U.S. president lead to a new mortgage system? originally appeared on BloggingStocks on Wed, 30 Jul 2008 16:55:00 EST. Please see our terms for use of feeds.

Continue reading The June Swoon: DJIA set to record worst June since Great Depression

The June Swoon: DJIA set to record worst June since Great Depression originally appeared on BloggingStocks on Mon, 30 Jun 2008 13:30:00 EST. Please see our terms for use of feeds.

IMF now expects the global economy to grow 3.7% in 2008, down from its earlier forecast of 4.1% growth, Bloomberg News reported, citing an IMF document it obtained at the meeting of Southeast Asian deputy finance ministers and central bankers in Vietnam. The IMF also said there's a 25% chance global growth will drop below 3% in 2008 and 2009.

In January 2008, the IMF lowered its forecast for global economic growth this year to 4.1%, the lowest since 2003, from 4.4% predicted in October 2007. At that time the IMF said last year's increase in credit costs resulting from defaults on mortgages aimed at borrowers with poor credit histories was hurting the rest of the economy.

Continue reading IMF again cuts 2008 global growth forecast on credit crunch ripples

IMF again cuts 2008 global growth forecast on credit crunch ripples originally appeared on BloggingStocks on Wed, 02 Apr 2008 15:18:00 EST. Please see our terms for use of feeds.