More Ponzi Damnit!

Bill Gross once again....

"To PIMCO, the remedy for this deflationary delevering and mini-depression is simple and almost axiomatic: stop the decline in asset prices. If that can be done, the real economy will level out as well. When home prices stop going down, newly created households will be more willing to take a chance on ownership as opposed to renting. If stock prices consolidate, recently burned investors will be more willing to invest, as opposed to stuffing their 401(k) mattresses with Treasury bills. Business investment, jobs, and profits should follow quickly behind.

The solution to Ponzi finance is more Ponzi finance?

I guess if you've been a part of the Ponzi system its hard to look beyond it.

Earth to Bill: Housing is shelter, not a speculative vehicle.  It is a place to sleep, cook, eat, shower and crap.

"Capitalism at its philosophical and practical center depends on credit, and while new loans can be and are being advanced via the banking system, it’s a much more difficult task to force shadow banks to lend. That lending depends on securitization which in turn depends on stable and eventually higher asset prices than currently exist. "

Earth to Bill: Credit extended beyond current production is PONZI FINANCE.  All such schemes eventually collapse and this one is no exception.  1873, 1929.  History, Bill, History. Get over it.

You own a calculator with an exponent function Bill.  I'm sure of it.  If you don't have one you can hold in your hand your Windows software has one built in to "Accessories."

Bill has his own "pie in the sky" nonsense embedded in his missive, such as this piece:

"Modern day capitalism depends on the successful refinancing and issuance of securities at a price and yield level not significantly divorced from past experience. That is the same thing as saying that current yields must come close to matching the economy’s embedded cost of debt if default is to be avoided."

A better (more accurate) way of putting the second sentence is that production must always cover all costs plus the cost of financing or that financing is PONZI FINANCE.  Of course that's not what he said.

The reason that securities and yield cannot be issued at levels "not significantly divorced from past experience" (as Bill demands in the first sentence) is that the previous 20 years have been marked by PONZI FINANCE where said yields were depressed and prices elevated based on OUTRIGHT FALSE PROJECTIONS OF PERFORMANCE AND FRAUD.

Yet Bill's view is that prices must improve.

How can one "improve" the price of something that is correcting to its true underlying value once the fraud and falsehood is removed?

Bill is asking for the mathematically impossible or rather, praying for yet another round of Ponzi finance and/or yet more fraud, this time sponsored and committed by the government!

Sorry Bill, but no.

You will not get your wish. 

You cannot get your wish.

The gig is up; those foreigners who supported and enabled the game (whether unwittingly or believing they could run for the door in time) have discovered gravity also, and are now suffering through their own problems as a consequence.

You would be wise to determine how to make money at the intrinsic value of the underlyings in these instruments. 

You know, housing as a place to sleep, eat, crap and shower?

Commercial Real Estate as a place to sell things where the paper written on it can be reasonably retired over, say, 10 or 20 years?  Yes, I know this means CRE prices will be cut dramatically - maybe by half - as 20% or more of all the puff-piece "shops" that have sprung up in the last 20 years go under, offering baubles that can't be justified for purchase based on intrinsic value and the current earnings (not Ponzi-credit) of consumers.  And?

C&I bond issues that actually fund the production of things that can be and are sold within the next few months or years, like airplanes, jet engines, avionics, buses and wind turbines, rather than paying the interest on existing debt and levering up acquisitions at insane multiples?

Fact is Bill that an awful lot of securitizations of the last 20 years were based on false and even fraudulent (that is, knowingly false) representations of "expected" performance over time.  "House prices go up 10% a year forever" is just one example of such crap, while real incomes rise at 2% a year and even that is skewed towards the higher-earners, with the lower half of all households earning the same, after inflation, that they did in 1990!  The "solution" to this problem in 2003 was to SELL $8/hour hairdressers no-doc loans to buy $500,000 houses - debt they could not possibly pay on the original terms - without telling them that when, not if, the music stopped they'd lose their home and credit rating.

The law of exponents makes such "securitizations" fraudulent in the first instance, and now those entities that relied on such claims and promises, from commercial entities to municipalities, are learning that they were SOLD a pig in a poke by people who were either starry-eyed or simply ripping people off.

Wake up Bill; the Ponzi-finance of the last 20 years is gone not only will not return - it cannot return, at least until all the people burned by it this time die off.

Just like the last time Bill, people will not allow anyone to pull that crap on them again.  After the 1930s the games were gone and buried until essentially everyone who lived through the pain was dead; then we had yet another crop of MBAs who decided that "this time its different."

The end of the rope for this generation has been reached and it is a long way down; your complaint and demand sounds an awful lot like the guy who jumps off a 100 story building and as he passes the 50th floor someone asks "how's it going?" and he says "heh, not bad so far."

There's only 50 floors left.

Got Gravity Bill?  Sure seems that way from the graphic at the top of your missive.

Welcome to the real world where debt written on an asset must be supported by the current cash flow  generated by today's production of things, not tomorrow's projections of exponential growth that are mathematically impossible to sustain over long periods of time.