Martin Wolf for The Financial Times likes business historian Adam Tooze's important new book CRASHED: HOW A DECADE OF FINANCIAL CRISES CHANGED THE WORLD

See Martin Wolf, What really went wrong in the 2008 financial crisis?

Tooze has been making the rounds at places like Bloomberg (and especially here) and CNBC promoting the theses of the new book, and was notably interviewed yesterday on Bob Brinker's radio program "Money Talk" (the dismissive summary of the interview provided here is notably blind to Tooze's importance, weakly observing how Tooze maintains that "money has no tangible underpinning", which is about all that grabs the attention of libertarian fundamentalists).

Those more popular presentations give only a tantalizing hint of the narrative power this trained historian brings to the story of the 2008 panic.

To see that in action there is an important lecture available here which Tooze gave at the American Academy in Berlin earlier this year, on March 13th.

"Conservatives" will doubtlessly recoil at Tooze's characterizations of the role played by them during the financial crisis. That those conservatives are really the GOP's libertarians is a distinction the significance of which seems lost on Tooze.

That said, the value of Tooze's perspective goes far beyond the subject of the warring factions of libertarian fundamentalism and neoliberalism, however important those are for understanding our times.

For one thing, Tooze is almost unique in describing in such vivid detail the dominating role now played by the "dollar" in the global economy (American analyst Jeffrey Snider being the notable but obscure exception). It takes an historian. This is, of course, the eurodollar, the proper understanding of which permits Tooze to show how the financial crisis in the United States centered in the mortgage market was globalized via international banking through London and Frankfurt independently of the wishes of the state actors. It also reveals to him that the most important global economic relationship has not been the US with China but the US with London.

Same as it ever was. The king and his colonies still rule the world, with a little help from the Bank of England.

For another, Tooze's work shows the degree to which the global economy has been captured by the bankers in providing these eurodollars, who acted unilaterally behind the scenes, first in the US (Ben Bernanke) and regrettably only later in Europe (Mario "whatever it takes" Draghi), to provide liquidity swaps in the trillions of dollars during the financial crisis while politicians argued about how states should deploy mere billions.

One inescapable conclusion ten years after the financial crisis is that citizens of states are in larger measure no longer masters of their own destinies, and haven't been for a very long time. They are today really ruled by technocrats in charge of central banks who work now more, now less in concert with their host governments to manage economic flows. The danger of this global state capitalism is that it might one day slip back into the outright fascism it so closely resembles.

To the millions of unemployed who were not bailed out in the crisis and who lost their homes and their hope in the United States and in the PIIGS, or to the hundreds of thousands of Muslims now in Chinese reeducation camps, it already has.

The crisis for neoliberalism does not come from capitalist fundamentalism. It comes from its growing list of victims.

Bob Brinker's advice to stay fully invested in stocks in 2008 beats Jim Cramer's to sell

Bob Brinker famously said on his radio show Moneytalk during the 2008-2009 market meltdown that "no one could have predicted this".

As a market timer, he's taken a lot of heat for this statement, including from me, but it is time to reassess his 2003 call to return to a fully-invested position in the stock market and to stick to it in 2008 despite the meltdown.

How has that worked out? 

"Fully invested" means different things to different people. This is because it is a question of asset allocation. Asset allocation strategies are by definition highly individualized to meet objectives while minimizing risk, and they depend on many factors including income and age, which change over time and thus necessitate adjustments to the strategy periodically. So to be clear, a person who allocates 50% of all resources to stocks at any given time is fully invested when that is so. But that means that a person who has much more tolerance for risk and normally invests 90% of all resources in stocks by definition has a greater percentage of all his resources in stocks, yet both individuals are "fully invested".

OK, so let's take the hypothetical person born in 1949 who just retired at the age of 65 in November 2014. That person has had theoretically 43 years of continuous investing life, let's say beginning from November 1971 after landing that first job out of college in the spring of that year.

Now whatever this person had allocated to stocks over the course of those 43 years, using the S&P 500 as a proxy for the part allocated to stocks, he or she has averaged a nominal return of 10.68% annually with dividends fully reinvested through November 2014, including the crash periods of 2000 and 2008.

But back in March 2003 this person was turning 54 years old and was worried about the future after the stock market crash he had just experienced. And let's say he had ridden his investments all the way down in that crash by being fully invested through the 2000 debacle. From 1971 to that point in 2003 his average annual performance had been 10.94%.

Had he heard Bob Brinker's advice to be fully invested going forward and stayed the course he had been on, how did remaining in the market as before repay him as part of the overall average performance of 10.68% which he ended up achieving annually on average through November 2014?

The answer might surprise you: The average annual performance of the S&P 500 from March 2003 through November 2014 has been 10.01%. The market crash of 2008-2009 might certainly have unnerved this investor, who was then turning 60, to the point of utter capitulation, for it reduced his performance from 1971 through March 2009 to 9.11% per year on average.

It's clear, however, that cutting and running after the fact in 2008-2009 was not the answer. That was Jim Cramer's answer in October 2008, on morning television no less, but it wasn't Bob Brinker's.

Simply staying the course was like putting back on a point and a half for every year of the 43 year investing life of our hypothetical investor in a matter of just five years.

Kudos to Bob Brinker. Raspberries to Cramer.

Bob Brinker cites high valuations in 1Q2000 as determinative for his sell call then

Bob Brinker cited high forward operating price to earnings ratios at "almost 30" in 1Q2000 as an important reason behind his call to sell at the time, during the first hour of his radio program yesterday. He continues to like stocks right now because forward p/e ratios are in line with a long term average around 16. You can listen for yourself this week in the seven day archive at ksfo.com by picking Sunday between 1 and 2 pm.

The trouble is, the measure never got much above 25 in the first place, and then flirted with the vicinity of that already in early 1999, a year before Bob sold the market. That suggests that as a timing tool there is considerable elasticity to it in practice, or in Bob's memory. Unfortunately, however, the forward p/e has predicted nothing untoward since, from 2005 to this day, missing the 2008-2009 debacle entirely.

Factset framed things this way, here, in March, where you'll also find a nice chart of forward p/e ratios over time:

"On the other hand, the current forward 12-month P/E ratio is still below the 15-year average (16.0). During the first two years of this time frame (1999 – 2001), the forward 12-month P/E ratio was consistently above 20.0, peaking at around 25.0 at various points in time. With the forward P/E ratio still below the 15-year average and not close to the higher P/E ratios recorded in the early years of this period, one could argue that the index may still be undervalued."

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The p/e based on reported earnings, however, actually did average 32.4 for the ten months between November 1998 and August 1999 inclusive and then fell somewhat by the first quarter of 2000 to an average of 28.4. Perhaps Bob Brinker is thinking of that instead of forward p/e ratios. The p/e ratio from reported earnings is presently above its mean and median levels at 19.6. This measure climbed into the 20s from the October 2007 high into the crash in September/October 2008.

That said, the forward ratio of 25 by itself admittedly looks extreme in its historical context, and current forward estimates close to 16 are arguably at a minimum indicating that stocks are not yet frothy.

Bob Brinker was right in March 2003, but not until May 2009 at the earliest

Bob Brinker's gain since March 2003 when he called for his followers to fully invest in the stock market has been an impressive 7.14% per annum inflation-adjusted, on average, in the S&P500 index through March 2014.

Things didn't look anywhere near that good in April 2009, however, when his  return was still -0.45% per annum, inflation-adjusted, on average, for the 6 years plus one month. His returns had plunged at their worst to -2.32% per annum just the month before, through March 2009, because of the market crash, which of course he never saw coming and he never predicted. Bob remained fully invested into the teeth of the 2008-2009 banking apocalypse cum financial panic, and never told his followers to sell, as did Jim Cramer, infamously, the Monday after TARP was signed into law by President George W. Bush on October 3, 2008, a Friday, on national television no less. Who needs Monday morning coffee with that kind of news on NBC? I say Bob Brinker gets a lot of credit for that courage, and Cramer gets nothing but ridicule.

Bob Brinker's advice began to turn positive again in May 2009, as the stock market began to recover with the suspension of mark to market rules by the SEC in late March. Brinker never told anyone to get out of the markets, but soldiered on to where we are today. Was it prescience? Bull-headedness? Luck? Faith?

Here's what I think it was: Bob believes in secular markets, and he knew the secular high in 2000 was not matched in 2007 on an inflation-adjusted basis (1753), so there was no need for caution even though there might be a big correction. The financial collapse made him look like a fool for the size of it, but he knows that today even at 1967 the S&P500 remains well off the real 2000 high of 2045. We could just as easily get a big correction here before we march on to retest that real high.

Either way the market should retest the former high before the secular bear comes to an end, which means we have a bit more to go in point terms, but not very much.

I'm expecting a stock market sell order from Bob Brinker in the not very distant future as we get closer to 2045.

Anyone wanna bet we get as high as 2249?

h/t politicalcalculations.blogspot.com

Something about riskier bonds for Bob Brinker listeners to think about

Seen here:

"The sensitivity of a bond to interest rate increases is determined by the time to maturity, not its credit rating."

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Some of Bob Brinker's followers/critics think his recent move away from all bonds with durations beyond one year was a big mistake.

If there's a bond run, which becomes more likely when bonds are overvalued, which they arguably are, selling becomes more difficult than people realize. Steep losses would be almost certain, but it is also likely that the ultra short duration bonds would recover much more quickly, and perhaps not just because they are ultra short. People might actually plow into them as they did with bonds in general in the wake of the financial panic of 2008, boosting prices.

Impact of a '94-style bond debacle on today's NAVs of popular Vanguard bond index funds

In November and December 1994, the NAVs of some popular Vanguard bond index funds hit their lowest levels in memory during that year's bond market meltdown. What if we revisited those lows today? How much could you lose, both in value and in time?

On the short end, VBISX at 10.53 to start the week would have to fall to 9.50 to match that debacle low from December 1994, wiping out 9.78% of value. With a duration of 2.7 years, presumably you'd have to sit tight almost three years from such a low to recoup your losses as the fund replaced its maturing issues with higher yielding short-term instruments in the new landscape. 

In the intermediate space, VBIIX at 11.46 now would have to fall to 9.16, the November 1994 low, wiping out 20.07% of value. Your duration-implied wait to recoup your losses there is 6.5 years.

VBLTX in the long term space at 13.59 today would have to fall to the November 1994 level of 8.87 to match the November 1994 low, wiping out 34.73% of value. Could you wait 14.5 years to recover from that?

Consider also VBMFX, the total bond index. At 10.82 this week it would have to fall to 9.15 to match the November 1994 meltdown low. That would wipe out 15.43% of value from here. Time to recovery based on duration of the fund? 5.6 years.

Or VFIIX, the Ginnie Mae fund. Current net asset value started the week at 10.73. That would have to fall to 9.54 to match the November 1994 meltdown low, wiping out 11.09% of value. Duration for that fund is 5.5 years.

Many Americans have fled to bond funds for safety in the wake of the financial panic 6 years ago. By doing so, they have driven NAVs to levels in such funds never before seen in their histories, helping to create a bubble. Exiting from such bubbles is not easy when everyone suddenly wants to do so at the same time.

No wonder market timer Bob Brinker of Money Talk Radio Program fame has recently gone ultra short duration for his fixed income investing. He has picked funds which have durations of about one year. That's it.

The wisdom of the move is not yet well appreciated because of what it is not telling you: that a stock market crash is coming, right after the bond market nose dives. He doesn't want to be caught booking huge bond losses in his portfolios when the opportunity to invest new cash will present itself not long after. In other words, I think this is Brinker's way of raising cash now without saying so.

Not advice. Just my humble opinion.  

Consensus estimate for GDP has worsened to -1.7% from -1.6% at fxstreet

Bob Brinker mentioned the consensus estimate for GDP this last weekend on his radio program Money Talk at -1.8%. fxstreet.com had had the consensus estimate at -1.6% as recently as last week, but now shows it at -1.7%. Very curious.

How did the winter get so much worse in the last month for its impact on GDP? After all, everyone has blamed the -1.0% print in the second estimate on the bad winter. But somehow things are much worse than we thought because of the weather? 70% or 80% worse than we imagined?

It's not because of the winter, dear friends. It's because your master wants you to suffer, wants to cut you down to size, wants to destroy your aspirations.

He is succeeding.

How does it feel to be a slave?

Inflation Year Over Year April Is 1.06%: Bob Brinker Thinks That's Great!

Here's a news flash for you: At 1% inflation it will take about 69 years to halve the value of your money. I said halve it. To many people like Bob Brinker on his radio program "Money Talk" today it is more than acceptable that after 69 years go by your dollar will be then worth 50 cents. That's what the rule of 72 teaches, but our contemporaries couldn't care less about rules, especially involving MATH!

Back in the good old days of the gold standard when you couldn't pull a fast one on the average Joe without getting a bullet in your chest, a dollar from 1774 lost nearly NOTHING of its value by 1899, when you needed an extra 3 cents to buy what $1 bought 125 years prior.

But things have completely collapsed in this country in the 113 years since 1899. Compared to then, in 2012 you needed $28.60 to buy what your $1.03 could buy two years before the close of the 19th century. What would you choose? A loss of 3 cents over 125 years, or a loss of $27.57 over 113 years, for every dollar you own?

The founders of our country would find today's relatively very low rate of inflation an outrage and a cause for taking up arms against the government because the government of the United States is robbing its own people blind as a matter of policy.

None dare call it tyranny.

Caller To Bob Brinker Claims To Have Collected Nearly 19 POUNDS Of Gold Nuggets!

A guy with a high school education called in to Bob Brinker's "Money Talk" radio program today claiming to have collected almost 19 pounds of gold nuggets and gold dust over the years.

With a purity on average of between say 83 and 92 percent, those nuggets at $1,672 the ounce are worth between . . . $415K and $460K!

What a nice problem to have. He has $40K in the bank, but ten times that in gold.

Bob Brinker Of "Money Talk" Is Wrong: GDP Isn't Growing At An Average Of 1.75 Percent

On his radio program "Money Talk" yesterday Bob Brinker sought to defend recent economic performance as better than the Q2 report of 1.5 percent makes it appear. He accomplished this feat by averaging that number 1.5 with the 2.0 percent reported in Q1, coming up with a little better number, 1.75 percent.

This is wrong and I stated so in a post I have since removed.

I thought Bob Brinker said this for political reasons in the context of the remarks, and in a fit of pique I posted that Bob Brinker is a shill for the Obama regime in doing this, remembering as I am wont that Bob Brinker has stated on the program, among other things that hint of leaning to the Democrats despite calling himself an independent, that Obama's man in the US Senate, Dirty Harry Reid, is "a good man, a good man." Harry Reid is manifestly not a good man, recently using the well of the Senate to innoculate himself for potentially libelous remarks he has made from there against Mitt Romney, a fellow Mormon to Reid no less. Harry Reid has also been the chief instrument of gridlock on Capitol Hill, both now and when Pelosi was Speaker of the House. Just ask her how many bills she sent to him which never received action.

I've removed that post because I think it's possible Bob Brinker made the comments entirely out of ignorance, not from political bias. The reason is that I've realized that I've made the exact same mistake about GDP myself on this very blog, and my bias against Obama didn't keep me from making it. I actually forgot about those errors long after I had improved my understanding of GDP. So even if Bob Brinker did make the statements in order to put Obama's performance in the best possible light, it's also possible Bob Brinker just isn't as smart about GDP as he thinks he is. After all, it is a complicated subject about which very few people really are expert, and if I can make an honest mistake about it, so can he.

So the politics aside, it is impermissible to take the sum of quarterly headline GDP and divide by 2 or 3 or 4 to get an average rate. Each quarterly statement of GDP is already stating the annual rate, that is, the annual rate prevailing during the quarter. That's what the meaning of annualized is. As the quarters roll and the data become more full and complete, the numbers are routinely refined, even many years after we learn of the third and final estimate of quarterly GDP for month x, y or z. GDP is always a work in progress, and even somewhat controversial among the truly expert.

So in the second quarter, the annualized rate of GDP growth is 1.5 percent, not 2 percent, and not 1.75 percent. And that is terrible for everyone, Democrat, Republican and independent alike, because we are all in this together.

At least that is what we would like to think.

Will Government Be Short $134 Billion In August as Bob Brinker Claims Today?

He made the claim on his radio show, "Money Talk." See the recap here.

Others, as for example here, maintain there's plenty of cash flow to pay for everything critical both in law and for creditworthiness:

"The Daily Treasury Statement for June 30—which any American, including the president, can look up on the U.S. Treasury Department’s website at this link—says the government took in $196.994 billion in revenue during the month ... more than enough to pay not only all Social Security benefits and veterans benefits and programs for the month, but also, on top of that, the interest on the federal debt, Medicare, Medicaid, the Indian Health Service, Temporary Assistance to Needy Families, all federal workers’ salaries, federal workers’ insurance benefits, Justice Department programs, and Defense Department venders.

"The combined costs for all of these federal expenditures in June was $195.502 billion.

"That means that out of the federal government’s $196.994 billion in revenue in June, the government would have had a surplus of $1.492 billion after it had paid the interest on the national debt, plus all Social Security benefits, veterans’ benefits, veterans’ programs, Medicare, Medicaid, the Indian Health Service, Temporary Assistance to Needy Families, federal workers’ salaries, federal workers’ insurance benefits, Justice Department programs, and Defense Department vend[o]rs."


Isn't it the potential of cutting off the cash cow for extraneous government spending which really has liberals like Brinker in a fit? After all, he called Senator Harry "The War is Lost" Reid of Nevada "a good man" more than once on his show. Brinker loves the guy.

How is it that Brinker can assert, as he did today, that advocating against raising the debt ceiling, as certain Republicans are doing presently, disqualifies one for the presidency when Obama actually voted against raising the debt ceiling in 2006, along with all the rest of his Democrat colleagues in the Senate? The Roll Call vote is here.

The minions of liberals in the federal workforce might actually have to THINK going forward and prove their competence for their exorbitant salaries by PRIORITIZING spending for a change if Republicans muster the courage to force them TO DO THEIR JOBS and leave the debt ceiling where it is. Raising the debt ceiling is the true default: It means you can't pay your bills without more borrowing.

Maybe Bob Brinker is afraid the Democrats are not really up to it. They certainly haven't been in the past. We're still waiting for a budget proposal from the Senate. The Senate under Reid hasn't passed one in over two years.