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twofish
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What do you think of Peter Schiff and other pessimists ?

May 11th, 2009, 11:02 am

QuoteOriginally posted by: CEexsThey may be right, but my point is that this current crisis is nothing anyone has experienced so far.Except that this isn't true. What we have is a garden variety banking crisis and credit bust, which has happened about a dozen times in the last century.
 
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twofish
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What do you think of Peter Schiff and other pessimists ?

May 11th, 2009, 11:10 am

QuoteOriginally posted by: AbhiJThe only thing is that only two people(in my knowledge) namely Peter Schiff and Roubini predicted the coming market crash back in 2005-6.One can say that was a chance but you when you see the you tube videos taken back in 2006 and how they were laughed at publickly, however they still continued to defiantly stand by their opinion appears to me as a quality and not as a chance.One has to give some credit to these guys.That doesn't mean that they are right. If you consistently predict that things are awful then you are going to be right sooner or later. I hereby predict that there will be a massive crash in the financial markets. I don't know when and how which makes the prediction useless. Also, Roubini was pretty wrong about *how* things would blow up.
 
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spice
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What do you think of Peter Schiff and other pessimists ?

May 11th, 2009, 6:18 pm

QuoteHow about J Paulson? Instead of going on CNBC to claim that he was right, he's probably busy counting the 600% or so returns he got in one of his funds that shorted ABX to the hilt.Or licking his wounds from his short Barclays trade.
 
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emh
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What do you think of Peter Schiff and other pessimists ?

May 11th, 2009, 9:34 pm

It is very easy to make predictions. A lot of people were saying in 2004-2005 that the housing market was over valued. The problem is making money of this. As Keynes said "The market can stay irrational longer than you can stay solvent".
 
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CEexs
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What do you think of Peter Schiff and other pessimists ?

May 12th, 2009, 2:04 am

QuoteOriginally posted by: twofishQuoteOriginally posted by: CEexsThey may be right, but my point is that this current crisis is nothing anyone has experienced so far.Except that this isn't true. What we have is a garden variety banking crisis and credit bust, which has happened about a dozen times in the last century.Sure, banking crisis and credit bust is nothing new and fancy. However, earlier cases had smaller geographical dimensions. Additionally, despite the fact that quantitative easing was quite popular in earlier crises already, it is reaching new dimensions right now. So yes, it is a garden variety of banking crisis and credit bust, but being baked from the same basic ingredients doesnt mean they all have to follow the same pattern.
 
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ThinkDifferent
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What do you think of Peter Schiff and other pessimists ?

May 13th, 2009, 6:01 am

I wouldn't call Peter Schiff a pessimist. i'd add to your list of "pessimists" people like Jim Rogers, Marc Faber etc....I like all of these guys, they are always fun to watch/listen to...and, most importantly, they make sense, unlike Bernanke of Geithner check out Schiff's regular videoblog on youtube.
Last edited by ThinkDifferent on May 12th, 2009, 10:00 pm, edited 1 time in total.
 
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ThinkDifferent
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What do you think of Peter Schiff and other pessimists ?

May 13th, 2009, 6:07 am

QuoteOriginally posted by: NomadeOf all those clowns yo mentioned none of them actually put their money where their mouth is. If they were so sure, wouldn't they have made loads of money in the process?I recall P. Schiff calling oil at $200 or something like that. He lost on oil. He also lost on gold. Yeah he called the housing bubble but if you look at what Schiller was putting out back in 2005 it doesn't take a genius to realize things were overvalued. Remember: a broken watch is right twice a day. How about J Paulson? Instead of going on CNBC to claim that he was right, he's probably busy counting the 600% or so returns he got in one of his funds that shorted ABX to the hilt.Peter Schiff lost on gold?.....how come? was he short gold?
 
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Traden4Alpha
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What do you think of Peter Schiff and other pessimists ?

May 13th, 2009, 12:07 pm

I think this graph gives some support for the "pessimists" view:QuoteOriginally posted by: Karl Denniger on Seeking AlphaThe most salient and worrying feature is that the last two recessions DON'T follow a V-shaped recovery -- they show a more protracted U or "jobless" recovery. Given that both of these last two recessions had an element of asset-overvaluation (a saving-and-loan real estate bubble crisis caused the 1990 downturn and the dotcom asset price bubble cause the 2000 downturn), then we might expect the current larger housing asset overvaluation and banking crisis downturn to follow a similar U. Unfortunately, we can see that this downturn is already twice as severe as the dotcom crash and about 3X as bad as the 1990 downturn. That suggests that even if we hit bottom this instant (i.e., the next and all future employment reports show ZERO job losses) that we can expect another 15 to 20 months of market declines.I can understand and appreciate the "confidence boosting" -- it really is important because psychological factors do explain some of the variance of economic performance. But is that confidence boosting enough and is it in the best interests of the economies of the world? Many (myself and many of these so-called pessimists) see this economic event as having much more to with seriously imbalanced balance sheets of consumers, corporations, banks, and government than any animal spirit crisis of confidence. Personally, I doubt that confidence can cover the future writedowns on subprime and Eastern European debt nor can it replace the gap in consumer spending created by the now-ended cycle of cash-out-mortgages nor can it replace the future lost corporate earnings that will go toward repaying debt and new, higher taxes. To optimistically proclaim that we can roll back the clock, re-inflate the economy, and resume our 2005 consumption-driven lifestyle seems ingenuous at best and fraudulent at worst.
Last edited by Traden4Alpha on May 12th, 2009, 10:00 pm, edited 1 time in total.
 
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phil451
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What do you think of Peter Schiff and other pessimists ?

May 13th, 2009, 1:01 pm

I don't think that anyone disputes that this is a bad recession and all recessions are usually U shaped. What annoys me is that many commentators manage to make some kind of comparison between the Great Depression and now, or the Second World War and now.During the depression 25 million American's were unemployedDuring the Second World War, 25 million Soviet Citizen's died and 7 million jews were exterminated plus a fair number of other peopleWe have to get a sense of proportion and that is what is lacking. I agree that we are not going to return to the credit fuelled boom of the mid 2000s but in 18/24 months time we could be moving towards are more stable and sustainable growth paradigm. This is what we should be aiming for and sounding like Fraser from Dad's Army (now you're confused) is not the way to go about it!!
 
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TitanPartners
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What do you think of Peter Schiff and other pessimists ?

May 13th, 2009, 1:07 pm

I totally agree with that. We are in a recession. We have short lives, and our working lives are even shorter (~40 years?) and our working lives where we can be promoted relatively quickly is shorter still (<10 years?) therefore a few years of recession is very very important to us as individuals, and we over react.Perhaps if we had lived during the great depression when people starved to death in a dustbowl, or during WW2 when almost an entire generation of young men were maimed or killed in Russia, the UK and Germany; we would not make such ill conceived and downright stupid comparisons between those times and the overly large outstanding OTC derivatives cock-up of 2007/08/09 ...
 
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Traden4Alpha
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What do you think of Peter Schiff and other pessimists ?

May 13th, 2009, 1:43 pm

QuoteOriginally posted by: phil451We have to get a sense of proportion and that is what is lacking. I agree that we are not going to return to the credit fuelled boom of the mid 2000s but in 18/24 months time we could be moving towards are more stable and sustainable growth paradigm. This is what we should be aiming for and sounding like Fraser from Dad's Army (now you're confused) is not the way to go about it!!Agreed! We don't need the hyperbole of the "bunkers and bullets" pessimists.I'm not sure whether comparisons to the Great Depression are warranted or not. What can be said (arranged from increasing order of pessimism) is this: 1) We now have and are using economic tools that weren't available in 1929 (e.g., FDIC); 2) If the downturn halts this instant, it won't be as bad as the Great Depression; 3) This downturn is clearly worse than any "recent memory" downturn;4) Unemployment is worse than the reported numbers due to changes in definitions since the 1930s5) Most officials, economists, and business leaders have consistently underestimated the depth and duration of the downturn6) We've hit the limits of some economic tools (e..g, short-term rates are at zero)7) The economy now includes much higher levels of complexity and coupling (= unknown/unintended consequences)8) We entered this downturn with much higher levels of debt than in 1929Some issues such as the much higher numbers of elderly in current populations, the much higher % of healthcare spending, and the global nature of this downturn have arguably negative effects, but I've not quantified them.
 
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twofish
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What do you think of Peter Schiff and other pessimists ?

May 13th, 2009, 2:23 pm

QuoteOriginally posted by: Traden4AlphaI can understand and appreciate the "confidence boosting" -- it really is important because psychological factors do explain some of the variance of economic performance. But is that confidence boosting enough and is it in the best interests of the economies of the world? Many (myself and many of these so-called pessimists) see this economic event as having much more to with seriously imbalanced balance sheets of consumers, corporations, banks, and government than any animal spirit crisis of confidence.The problem is that without confidence the bad impact of the seriously imbalanced balance sheets creates a full scale collapse. Once you lose confidence, all of the balance sheets numbers change making things worse creating even less confidence making the balance sheets even worse. You can have bad balance sheets without a full scale crisis for a very long time, but once you have a loss of confidence and bad balance sheets, you are on the road to hell.The thing about confidence is that once you are in a downward spiral, you need to break the cycle. Bad balance sheets take a while to fix, and you have no chance of fixing them while things are falling apart. Confidence can change things in an instant, and once you have some degree of confidence, you can stabilize the situation while you work on the other problems.QuotePersonally, I doubt that confidence can cover the future writedowns on subprime and Eastern European debt nor can it replace the gap in consumer spending created by the now-ended cycle of cash-out-mortgages nor can it replace the future lost corporate earnings that will go toward repaying debt and new, higher taxes.It can't. but if you have a crisis of confidence, you have a full scale bank run in which you have hours to solve problems rather than years. With hopes of a better economy in the future, you end up with 20-30% writedowns in subprime. If you think everything is going to fall apart, people won't even touch subprime with 70-80% writedowns, which kills balance sheets. Consumer spending is going to be done, but if you have no lending, it makes things a lot worse.QuoteTo optimistically proclaim that we can roll back the clock, re-inflate the economy, and resume our 2005 consumption-driven lifestyle seems ingenuous at best and fraudulent at worst.The goal here is not to get to heaven but avoid hell. Personally, I think we are going to have a long and nasty recession lasting for at least two years since the official start in 2008 and with unemployment hitting 10%, at which point things will get back to normal. That makes me a flaming optimist compared to what people were talking about a month ago.
 
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Traden4Alpha
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What do you think of Peter Schiff and other pessimists ?

May 13th, 2009, 3:49 pm

QuoteOriginally posted by: twofishQuoteOriginally posted by: Traden4AlphaI can understand and appreciate the "confidence boosting" -- it really is important because psychological factors do explain some of the variance of economic performance. But is that confidence boosting enough and is it in the best interests of the economies of the world? Many (myself and many of these so-called pessimists) see this economic event as having much more to with seriously imbalanced balance sheets of consumers, corporations, banks, and government than any animal spirit crisis of confidence.The problem is that without confidence the bad impact of the seriously imbalanced balance sheets creates a full scale collapse. Once you lose confidence, all of the balance sheets numbers change making things worse creating even less confidence making the balance sheets even worse. You can have bad balance sheets without a full scale crisis for a very long time, but once you have a loss of confidence and bad balance sheets, you are on the road to hell.The thing about confidence is that once you are in a downward spiral, you need to break the cycle. Bad balance sheets take a while to fix, and you have no chance of fixing them while things are falling apart. Confidence can change things in an instant, and once you have some degree of confidence, you can stabilize the situation while you work on the other problems.Those are very good points about the crucial role of confidence in preventing a death spiral in economic behavior and balance sheets. In that regard, I agree that you are entirely correct. Yet two troubling issues remain.First, are the confidence boosters being used too early? Premature confidence boosting will lead to much greater disappointment and the distrust of confidence boosting tools when they are really needed. My fear of this arises from the perpetual under-estimation of the crisis and from the strong political pressures to "do something because real people are hurting." Putting a bandage on a wound before the wound is clean doesn't help the patient in the long-term. Sure, quick bandaging is infinitely less painful than digging the dirt out of the wound, but the serious risk of infection means that the more painful course may be the better one.Second, I see a misalignment of incentives and purposes. Central bankers, politicians, and executives of public companies have strong incentives for the use of optimism to preserve the larger system even if that preservation comes at the expense of some individual investors. One could argue that false optimism serves a public purpose by diffusing the losses from historic investors (e.g. banks, pension funds, and homeowners) to over-optimistic new entrants (or re-entrants) to the equity, debt, and real estate markets. But as a portfolio manager, I want to navigate this crisis with a much more realistic view of short-term and long-term economic outcomes. Thus, I want to understand what does consumer spending look like if the refinancing cycle is broken or what do corporate profits look like if taxes increase to pay off government debt and pension liabilities? The preliminary answers to those questions aren't very optimistic. So what should a fund manager do? At some level, not "buying the green shoots" could be seen as unpatriotic. At another level, wasting risk capital too early in the downturn (i.e., catching the falling knife because someone said the knife was slowing down) will do even more damage to the economy. Studies show that people burned by losses become much more risk averse. But if everyone turns their backs on equities, I don't see how the U.S. economy is going to create all the jobs lost in the downturn or create the exports needed to rebalance U.S. trade.
Last edited by Traden4Alpha on May 12th, 2009, 10:00 pm, edited 1 time in total.
 
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twofish
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What do you think of Peter Schiff and other pessimists ?

May 15th, 2009, 6:18 am

QuoteOriginally posted by: Traden4AlphaFirst, are the confidence boosters being used too early?I don't think so. First of all the Obama administration is playing down the speed of the recovery, and most of the talk about recovery is just the result of the manic-depressive news cycle. What was really important was not so much "creating optimism" than "stopping total and wild panic." If you had a situation in which people were just running for the exits and pulling money out of everything, then you can't do anything done. Remember that it wasn't that long ago, that people were thinking "so which major bank or country is going to self-destruct this weekend?"Quote My fear of this arises from the perpetual under-estimation of the crisis and from the strong political pressures to "do something because real people are hurting."The problem is that you get into this cycle where each estimate becomes seen as an overestimate. People predict a Dow of 7000, then people remember that that was an overestimate so people then predict a Dow of 6000, then people remember that was an overestimate, and people predict a Dow of 5000. If you can stabilize things to the point where people aren't creating a new estimate that is worse than the last, you've done a lot. Something that is odd is that people are now wildly happy about numbers that would have been seen as a disaster two years ago. Who would have thought that people would be jumping for joy if the Dow hit 9000.The situation we are in is one in which people are giddy about having lost a leg because it seems that they didn't lose all their limbs. It's very interesting human psychology. This may be a good thing since it means that whatever happens probably won't "feel" that bad because we've gotten use to it. It's likely that bonuses and salaries in 2011 will stink compared to 2005, but since we are comparing them to 2008 and 2009, it might feel good.QuotePutting a bandage on a wound before the wound is clean doesn't help the patient in the long-term.But stopping the bleeding does. We were in a situation not long ago, in which every day there was a new financial institution failing each day. Also, if a policy causes unacceptable levels of pain, it's not politically viable. One thing I find interesting is that economists often blame people for being people. It's this weird attitude that "my models of economic behavior would work fine if I didn't have to deal with people." That bit of human psychology that I mentioned means that people would rather have 5% losses each year for ten years rather than a 50% loss in one year. When confronted with people's preferences, it's odd that economists often just act as if people shouldn't behave that way.Quote Central bankers, politicians, and executives of public companies have strong incentives for the use of optimism to preserve the larger system even if that preservation comes at the expense of some individual investors.You say that as if it is a bad thing. I suppose whether it is or isn't depends on whether or not your are the individual investor that is getting picked on.QuoteBut as a portfolio manager, I want to navigate this crisis with a much more realistic view of short-term and long-term economic outcomes. Thus, I want to understand what does consumer spending look like if the refinancing cycle is broken or what do corporate profits look like if taxes increase to pay off government debt and pension liabilities? The preliminary answers to those questions aren't very optimistic.I think whether a number is optimistic or pessimistic depends on what your reference level is. Something that explains a lot about me is that my reference level is the Great Leap Forward and the Cultural Revolution, and I doubt anything you are seeing is that bad. One nice thing about having low standards for success is that you tend to be in a good mood.Also, I don't think you can understand consumer or corporate spending if you assume consumers or corporations are automatons. A lot will depend on the level of optimism.QuoteSo what should a fund manager do?Your job is to manage funds, you aren't the President, the Secretary of the Treasury, or the head of the Federal Reserve. If your actions have the effect of contracting the economy, then it's the job of the Fed to pump enough liquidity into the economy to counteract that affect. Even if you wanted to help with the recovery, I don't think your individual actions are going to make much difference.QuoteBut if everyone turns their backs on equities, I don't see how the U.S. economy is going to create all the jobs lost in the downturn or create the exports needed to rebalance U.S. trade.I do. If this sort of thing happens, then it's likely that the United States government will become the investor of last resort and pump money into the stock markets, perhaps using the social security trust fund. Alternatively, you could have a situation in which the Fed buys portfolios of stock, perhaps from state pension funds, and exchanges it for cash. It's not a huge distance from what the Fed has done already. There are also some very interesting things that the government could do with universities. Basically, universities right now can take federal grant money and then use this to start companies based on patents they develop from this research. If you run into the problem where you don't have anyone private that is willing to take the second step, then you could have the NSF or NiH take this role.This will create an economic system that is *wildly* different than anything that anyone could have imagined in 2007, but it's actually not that far from what the government has done thus far, and if it's a choice between a stagnant economy and rethinking the role of government, then people will rethink the role of government. The US has a lot of resistance to state ownership, but resistance to state ownership is much less in other countries, and if China or France tries something like it, and it works, the US will follow along.I think we are moving out of the "crisis" phase, and into the much, more interesting "structural change" phase. Right now, I'll believe anything, but I think that if a time traveler from 2027 went back to 2007, and explained what the economy looked like, I think people would be shocked. Whatever system comes out of it, I think people will eventually go overboard, and things will crash and burn again in my lifetime. The good news is that I'm pretty optimistic about the future of Wall Street. You have a bunch of smart and motivated people that will figure out how to get ahead in the new system whatever that system may look like. If it turns out that people decide that Soviet-style central planning is the way to go, then you'll see pictures of Karl Marx and Lenin pop up on Wall Street. If the public goes into "shoot the bankers" and all the bankers and banks will suddenly disappear, but you'll have people called "resource allocation specialists".
Last edited by twofish on May 14th, 2009, 10:00 pm, edited 1 time in total.
 
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twofish
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What do you think of Peter Schiff and other pessimists ?

May 15th, 2009, 6:29 am

Speaking of universities. One thing that shocks me is that universities are now facing their biggest financial crisis since the Great Depression as endowments plummet, and I'm a bit shocked at the lack of leadership and vision that is coming out of the academy. MIT is facing a $150 million short fall in revenue over the next three years, and all they can do is create committees to study the problem, and no one is even talking about the fact that the drop in revenue may be permanent.One reason I think that academia is in such sorry state is that anyone with any vision and determination got out of academia.
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