«This morning I watched a commercial on a financial cable station that aptly expresses the condition of the American consumer and economy. The commercial featured a young married man who bragged about his new home, his new car, and his membership at an exclusive country club. “How am I able to afford all of this?” he asks the viewer. “I bought it all on credit and I’m up to my eyeballs in debt.” The commercial then goes on to sell the viewer on a debt consolidation loan tapping the equity in their homes. This is what’s keeping the American economy going--a rising real estate bubble accompanied by a mortgage and consumption bubble. Without inflating asset bubbles there would be nothing left to drive the US economy. Debt and even more debt is what keeps the economy from slipping into the abyss. Debt keeps the consumer on life support and debt keeps the highly leveraged spec community in the profit zone.»
«The carry trade is one reason that long-term rates have fallen precipitously since the last Fed meeting in May. At that meeting the Fed said it was worried about deflation; in this case the Fed was referring to asset deflation and not goods deflation. The message was heard all around the globe. The green light was given for speculators to go ahead and speculate by borrowing short-term and investing on the long side. This is a basic violation of prudent financial principles. You don’t borrow short and invest long. »
«As Warren Buffett said months ago, derivatives are financial weapons of mass destruction. They have been used to create artificial profits, hide losses, and create an unrealistic profit stream by many corporations, both financial and non-financial. »
«The markets became unsettled by Fed comments that the economic outlook remains uncertain and the Fed may be unwilling to ease rates even more. However, the tone of the markets still remains bullish. Advancing issues still outnumbered declining issues by 18-15 on the Big Board and by 17-15 on the Nasdaq. John Q. is back in the market with fresh new money flowing into mutual funds. Bullishness by individual investors and by the public is at a record.»
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