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The Bull has Horns nuh?

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Super Contributor
This market has some woema and the bull has "blou ballas". I wouldna short this one yet. It's amazing but the whole plan to sell toxic assets to private investors is going to 'work' because in the real world the doneky always walks his head into the same rock, at least twice. Imagine it: Roughly you pay $7, The US Gov pays $7 and guarantee's the other $86 to make up for every $100 of toxic asset value. Looks 'too good to be true' innit? I'm sure I heard that one mentioned alongside PONZI schemes? The only way anyone is gonna get a 'return' on this ponzi scheme is if the USD is devalued by 70% or more. Don't hold your breath because pension funds and other institutional 'geniuses' are going to PILE OTHER PEOPLE's MONEY into this one. The moral of the story? Manage your own money, go along for the ride, and make oh so sure you get out in time...
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19 REPLIES 19
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Super Contributor
Howzit Nova - how is the forex trading going? What are your current views on the Rand?
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Not applicable
actually all they need now is a scheme to bolster the actual toxic assets, so keep your eye out for tricks to inflate house prices
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Super Contributor
I can't help meself, sometimes I just got to say what I think. I borrow $7 of REAL money from Joe Sicily and promise to pay him back $100 for his trust in me (I mean, a payback of more than $86 for a $7 borrowing is nothing short of suicidially desperate?). I 'steal' another $7 from my next door neighbour to help finance the deal? And eventually I have to pay back $100. Something wrong with this deal!
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Super Contributor
IIRC and may be wrong: it's leverage of 6:1, so the "investor" puts up 14 for the govt 86. The investor and govt share profits 50/50, so the investor gets their 14 back, plus profits, which gives them an incentive to price it right, like a futures contract. I think - I'm putting this out to be checked. To me, the real reasoning for all of this is to get the banks holding all the junk to admit what it's worth - they'll still have to write down. They can also keep it, or some of it, but then it's their own baby. (until next time).
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Super Contributor
Whaddaya know, crime really, really pays and criminals really do get away with it. Shaun, I reckon the ZAR is actually going to hold it's own the way things are going. It all depends on commodities as that's about the only thing of value this economy has left. Also, it looks like holders of USD are fleeing into anything that's not USD. But that can change overnight. The way we've been seeing 3 to 4 bagger moves in the EURUSD lately has got me sitting on the sidelines. There's too much potential for wiping out margins. Greed is not good in a market like this one.
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Not applicable
Dude, you miss the point. Jus becaws the emperor has no kit on, does not mean he's naked. He's a wrinkly old bugger an not good to look at - so all the markets need is to be told he's wearing Prada - and they'll believe it. And so do we.
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Regular Contributor
yip, add a dash of tomy hilfinger and you have a no brainer
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Not applicable
What makes the assets toxic? Its falling house prices that every insitution built there instruments on. I've got a nagging suspicion that this plan will only work if the carpet is not pulled gradually more and more out from under the US's feet - i.e, house prices don't fall anymore. And that's not happening.
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Super Contributor
I think it's more of a mechanism than an event. If it drops more, they'll use this method to get the assets moving, or at least harder to hide. The price will simply drop as well. I've seen a couple opinions that they'll have to watch for "scratch my back, I'll scratch yours", where banks just buy each other's junk and have the govt pay for 86% of it.
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Not applicable
SO we can expect the US to be printing 86$ notes in the near future?
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Super Contributor
No, $100 but they'll only be worth $86 :)
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Super Contributor
Just as high oil prices were the cure for high oil prices, low US house prices will be the cure for low house prices. It's one of the principal laws of nature. The cure for too many seals is an increase in the shark population. A cure for too many sharks is too little seals (because of the increased shark pop.)to sustain the increased shark population. I guess ECO 101 - supply and demand. At some stage US house prices will go low enough that it will allow demand to gain traction. Perhaps it gets so cheap that it will be cheaper to pay a 20 year fixed bond than renting. Who knows? Let's just hope it happens sooner rather than later.
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Not applicable
And that's when the slide will stop. The problem is that at that stage we'll also have to pay for all the mistakes made (money printing, $86 vouchers, etc) in attempting to bail the banking system out of its current mess. IMO the slide is being prolonged by all these measures. And in retrospect most of them would have been the wrong ones.
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Super Contributor
No Richard, the $100 note will be worth $14.
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Super Contributor
have the government pay for it? It's the taxpayer footing the bill here. Who pays the government? Who guards the guardians?
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Not applicable
No, no, no, Louis, you gottit all wrong. Everyone knows the answer to too many seals is: Canadians. So maybe the answer to the world's problems is a slow-talkin, slow-witted boring dude with a club.
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Super Contributor
IF and only if you can get a bond and put down 10% to 20% deposit nuh? Not too many punters that can do that. Let's see, I'm paying 30% rent to the value of a bond repayment on the 'market valuation' of the pad I'm living in. No brainer there, I'll rent, and I negotiated my rent increment at 5% since I consider this a deflationary environment. And next year I simply will not accept a rent increase, or else I'll move on and find another place. Lot's of empty pads standing around. No argument from the estate agent of course. Nee wat, house prices are coming down, a lot, and it's nowhere near the bottom. Either people have to earn about 200% more or house prices have to come down by 50% to get a 3 x annual income average parity before it's affordable. Bubble's take as long to pop as they inflated and for property that's a decade. Price deflation started end 2004, so that leaves us at least till 2014 for property values to stabilise. I've been having a good laff at a couple auctions. It's so obvious that the banks, agents and the unfortunate foreclosed owners are trying their best to 'bid' up the prices. Though, the 'developers' have now disappeared and the agents are no longer picking up inventory so that leaves the vultures, and they're quite wise to these shennanigans. They just stand there and eyeball the auctioneer and they simply don't bid until the bid price reverses and comes down at least 50% off the asking price, which are mostly pegged to the elevated levels we saw in 2007. Don't believe me? Go see for yourself, check the Sunday papers auctions section and attend one. Anyone who now buys a house at more than 50% of the asking price of 2007 deserves to burn his fingers.
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Super Contributor
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Super Contributor
Nova, if one of those 50% discounted houses come available in Newlands , Cape Town, let me know. My wife just won't give in until we are proud homeowners and it's costing us three times the amount for the same living conditions with little or no prospect of meaningful capital appreciation in the near term.
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