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« Understanding Government Action: An Investment Essential | Main | A De-Leveraging Date with Destiny »

October 21, 2008


The Second Last Samurai

"What we need is a clarion call to get us back on track."

Forget it, losers...


What we need is a clarion call to get us back on track. That isn't what we are getting from the Government. Bush's weekly talks are less and less helpful. What we need is to get back to fundamentals. Economics, in America at least, needs the market to function properly. I think Steve Forbes's latest article adds a lot of clarity to this discussion. Check it out here: Like Forbes says, it is capitalism that will save us, not the government.


Gray - You raise a lot of issues in a few words. Most importantly, the only thing I am suggesting for readers of this article is to keep a close eye on the upcoming Treasury moves, and do not be so impatient. I do not know how well their efforts will work out. None of us want to be like Japan. There is a wide disparity between where some securities are marked and the values suggested by people like Bill Gross. How can you object to a better mechanism for price discovery? We shall see.

As to the comment about being "right", I will consider this as a future topic. Meanwhile, I suggest that you compare some specific topics rather than form an overall impression.

Thanks for reading and for taking the time to comment.



Jeffrey - I really appreciate your observation on the "exit" aspect of FAS 157. It will be very interesting to see if any of the Treasury ideas have any real effect.

Meanwhile, I am listening to the "Fast Money" gang opine on models. They all hate models and Dylan calls mark-to-model "a scam." My guess is that accountants hate that assertion as well.

Thanks again, and I hope you keep commenting on these developments. I really like to reach out to experts in each field.



Mike - You are correct. The "gong" has not yet rung. The hammer pulled back a bit further. It is a two-step indicator that is not simply based on sentiment or something like the VIX.

Good question - I have been surprised that it has not signaled earlier.



Jeff, I think you're a smart guy, with good insights & I agree good things have been done over the last few weeks by Treasury, Congress and the Fed - but I'm still trying to reconcile that you spent a lot of time last year putting down the blogs predicting downside (and patronizing Mom & Pop investors who were likely to read these blogs and take their advice.)

Why are you right now?
Isn't this more an issue of solvency than liquidity? Won't the selling continue until there aren't leveraged sellers left?

How does mark to model avoid propping up zombies, e.g. Japan?

In the end, I lean towards us coming out of this, as opposed to a complete global collapse...if its the former, there will be strong opportunities. If its the latter, I guess all this may not matter anymore.

Jeffrey Levin


I wanted to update some info I provided you on FAS 157 last week that will be very interesting in the coming months if the TARP program is successful in bringing out real prices. One of the most important concepts in FAS 157 is that it has at its epicenter is the idea that the FMV of any given financial asset is based on exit pricing. Everyone needs to understand that this means that a value is arrived at by placing yourself in the shoes of a seller of that asset. What do you price it at to move the asset. The obvious bias this creates in a market in which asset prices in general are decreasing is "everyone heads for the exit at the same time". The bias is a downward mark on prices.

However, exit pricing has the exact opposite effect/bias when prices for that same asset are generally rising. One only has to look at pricing of new houses in california circa pre 2005 to understand.

Hope this shed some light

Great Post Jeff

Mike C

I've really enjoyed the last several posts. Really good stuff, and I wouldn't worry about sounding too professorial. Couple of thoughts/questions.

1. I assume the "Gong" has NOT yet rung?

2. What are your thoughts on the various interpretations of sentiment? We seem to be all over the map depending on what who is looking at.

This blogger says sentiment is not bearish enough:

Yet I can find other references that bearish sentiment is off the charts.

I wonder if sentiment is perhaps losing its effectiveness as a contrary indicator or if too many people are utilizing the very thing they are observing and thus distorting it?

David Merkel

We've talked about MTM accounting. Not going to argue it here. Aside from that, I think you are spot-on. Good piece.

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