Leverage, Risk and the Future

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At the height of the Japanese bubble, 1990s, the royal palace compound in Tokyo was worth more than the state of California.

Now that's a bubble.

Here's an interesting article:

http://www.telegraph.co.uk/finance/econ ... -hoax.html

So China hit the 7% shutdown early in the morning, and the shock goes around the world.

China's problems are not ours, but they are related.

As for the Stock Market, we are doing it wrong. 0% money and new fool pension funds flow in, stocks increase in price, but the earning remain the same, and companies do not benefit from the second hand sales.

It does not put Capital in the hands of the companies who could invest in increased production.

A better system would be if share prices rise 10%, in a year, companies would be required to sell more stock to absorb the excess investment, moving it to productive Capital, rather than inflated stock prices.

While it does dilute earnings per share, it also increases cash on hand. Value would be retained.

Currently we look at the market and see stocks have increased in price, but not earnings, going from a P/E of 10 to a P/E of 20. A selloff, a Bull market, and P/E returns to 10, and half of the investors wealth just vanishes.

Making companies issue more stock, the investors wealth is held by the company, no matter what the market price. Wealth is retained, the stock price is based on EPS + cash on hand.

The problem is excess cash in the system causes asset bubbles, which always pop. At the same time productive companies have problems raising cash. New stock is an interest free loan. Taking money out of circulation upholds the value of money in circulation.

The company only has to maintain the value of the money. Paying off loans, reducing costs, or investing in government securities that at least equal inflation. They can expand if the market exists, or buy some related company. Expanding increases employment. Companies sold were likely closing anyway, so jobs were retained.

It would prevent what we see now, China over inflated stocks dropping 7% per day, and world stock markets following suit.

When Lehman Brothers failed they were leveraged 40-1. So the people taking 0% money and buying stocks on margin, futures, are exposed to much greater loss than the market drop.

It was intended to recapitalize the banks and brokers who were bankrupt. Free money for market speculation. Recapitalize means steal from the public.

Sell offs are harmless until they force margin calls, then it forces the sale of more and more, destroys value, and leaves ugly people in ugly debt.

The market which is falling is made up of Pension Funds, your 401K, and various QEs. A historic value, by P/E, says DOW 8-10,000 would match the other numbers.

Wall Street and the Federal Reserve have taken your pension and savings to the Chinese casino.

If we're still making wishes, I'd like some hyper-inflation to go with my student debt please!

I was big into the whole real estate free money garbage in the 2000s. Bought the "courses", got on the mailing lists, etc. I finally decided that it didn't make sense, that you can't get your money for nothing and your chicks for free. I have been starting to see real estate seminar offerings pop up in my mailbox again. I just got one today, invest in real estate "notes" with none of my own money, make $9k in a few weeks, then go to Hawaii to celebrate. The packet even included a cheaply printed "postcard" saying "Greetings from Maui, Hawaii, wish you were here!" on it. Major lulz. I think it's time to really start focusing on getting my survival retreat ready. I'm gonna need those chickens and ducks when the supermarkets empty.

I don't like playing games where only I win leaves me feeling rather lonely.

Another wild ride.



You are correct, high frequency trading is a problem. The SEC should impose a transaction fee to slow it down.

When the casino can destroy the economy, regulation is needed.

In 1929 a man who had made a lot of money running whiskey during Prohibition, then used it to loot Wall Street was appointed to make rules for crooks. Joseph Kennedy produced the Glass-Steagall Act.

It brought a stability to the markets until deregulation in the 1990s. Then from The Savings and Loan crisis, to the Dotcom bust, to the Mortgage Fraud of 2008, show the results of deregulation.

Banks were not allowed to Speculate, Brokers were required to have their own money to cover their risks.

Banks could loan customer funds against assets, Brokers were not allowed in the banking business.

A Savings and Loan Charter was for a small local bank to take deposits and make mortgages. Deregulation made their deposits available to build a mall a thousand miles away. The return offered was higher than they could get on a local house. When the mall went bankrupt they lost, and there was no way to recover. They had lost the customer deposits, speculating. The short version, robbing the bank had been made legal.

The Dotcom Bubble was computers, and both banks and brokers saw how fast and high stocks rose. So they bought up the IPOs with customer funds. What they did not understand about computers was something much better would come out in six months. They thought they had bought the future, they had bought vaporware from the past.

Trying to recoup their losses they engaged in Mortgage Fraud. Banks loaned on property, mature loans could be sold to Freddy Mac, Fanny Mae. This gave the banks more funds for more loans, and an income from managing the loan. There were standards, to keep the loans investment grade.

Wall Street offers to bundle questionable loans and issue securities based on the bundle. Suddenly everyone qualified for a mortgage, Maria from the coffee shop bought an $800,000 house, which sooner than the ink was dry was bundled with others, sold to investors, and the bank got the money, the broker got a cut, and three month later Maria quit the coffee shop. She never made a payment, stayed for several years, renting rooms to other illegal aliens.

When anything that gets built can be presold, way too much gets built.

Reasonable people who had put 20% down, found their home dropping in price, due to a glut of overbuilding and foreclosure. They lost everything they had put in and were on the hook for twice what it could sell for.

The same banks and brokers who had created the fraud, had also shorted the market, insured the short, and were now owed trillions. Obama said , No one did anything illegal, it was all legal, but the United States has to pay off the insured losses of AIG, to Goldman Sachs.

It broke Europe, AAA Rated Securities became worthless, banks failed.

We have never recovered, the National Debt has doubled to $20 Trillion.

The Regulation of crooks is a needed part of the business cycle. In China regulation is a bullet in the back of the head. I was amazed that Bernie Madoff was convicted, the rest got away.

Free Markets are a risk to The State, and should only be allowed in a way that protects investors, and provides income to the State.

A Tax on Securities Transactions brings government regulation the same way a tax on Whiskey does, Fraud becomes stealing from the Government.

Regulation can control the issue of Securities. A Shelf Issue, Stock issued but not sold, can be required to back up Stock Sold. As the price per share rises, new shares are sold into the market. Also, Stock declining in price should be allowed buybacks. This counters the Boom Bust Cycle, and limits the losses caused by overpriced shares.

It is Regulation that protects investors, limits speculators, a 1/2% Securities Tax ends Day Trading.

It directs more of the value created back to the company that created it. My kind of feedback loop.

I await the new Crowd funding Stock Regulations, Being able to raise Capital across State lines, from many small investors, without going through Wall Street, opens a vast new economy. Nothing is happening, because the crooks say other people may not be honest, so all the money should go through their hands. They wish to regulate an exemption from regulation. They will skim 15-25%.

Strangely enough, The Securities and Exchange Commission is owned by Goldman Sachs. Their workers vacation there.

I will have a lot to say to President Trump about this. We need regulation that protects the Country, Investors, and the Companies that issue Stock. Computers have made Wall Street obsolete.

Having drafted Stock offerings, Regulation "A", and written Prospectus, I will say, Fraud is legal, and it is easy to avoid disclosing information. Besides, there is no Standard Form, so companies cannot be directly compared.

The only thing stopping an honest and transparent stock market, is, there are laws against it.

Deregulations have been put in place to allow another turn of the wheel,
profit that goes to capitallenders/shareholders is literaly sucked out of the workers, out of investing and even viable factories or retail must die, for the sake of making money out of that !
What's trending, getting rid of the workforce, and refill with subsidised workforce (disabled, unemployed, those who must do it in order to keep getting "benefits") and killing by this another round of small bussnisses, bc those who have the ressources to work this out are gouvernment structures and bigger, and connected to politics, enterprises. (gouvernments like Big and gov's little bullies like bullying small structures)

Got clobbered this week. Bonds and gold held up, but equities were smashed. Foreign equities were the worst.



The markets overreacted to all the conflicting economic news for the week. So what else is new.

Just put your money in a low percentage fixed rate annuity and you will not worry about market crashes.