Market commentary from Art Cashin

GR reports Q3 2009 results

Here is the market action before and after the pre-market October 22 results. The results were mixed. From MSN money Goodrich cuts 2009 sales outlook:

Goodrich lowered its 2009 sales outlook, to $6.7 billion, compared with a forecast of $6.9 billion in July. The company said its estimate includes unfavorable sales impacts of about $154 million related to foreign currency exchange rate fluctuations and lower sales of about $125 million related to the formation of a joint venture.

The Charlotte company said it still expects to post a profit of $4.60 to $4.75 per share for 2009.

Analysts surveyed by Thomson Reuters, on average, expect a 2009 profit of $4.58 per share on $6.82 billion in sales.

For 2010, Goodrich said it expects to post a profit of between $4.15 and $4.40 per share on sales of about $7 billion. The company said 2010 should be a year of "modest recovery which should allow us to grow our commercial aftermarket sales." It expects the recovery will take hold toward the middle of next year. Its shares gained $1.81, or 3.3 percent, to $56.46 in morning trading.

Analysts, on average, expect a 2010 profit of $4.59 per share on $6.89 billion in sales.

Goodrich also said its third-quarter profit fell 14 percent, as the weak economy continued to depress sales.

From the Economist Denial or acceptance:

At their most panicky investors shunned all but the safest and most liquid assets: American Treasuries were a favoured comfort blanket. That demand for safe assets prompted a rally in the dollar in the months after the collapse of Lehman Brothers last September.

Headache for countries with floating exchange rates has prompted three responses: direct measures to stop currencies rising; attempts to talk them down; or acceptance of a weak dollar as a fact of life.

Brazil has gone for the direct approach. Foreign capital has flooded in, attracted by the healthy prospects for economic growth and high short-term interest rates. That has pushed up local stock prices, as well as the real, Brazil’s currency. To stem the tide, the government this week reintroduced a tax on foreign purchases of equities and bonds.

Others have resorted to talking their currencies down. In a statement released after its monetary-policy meeting on October 20th, Canada’s central bank said the strength of the Canadian dollar would more than offset all the good news on the economy in the past three months.

Other euro-zone countries are less rattled. “A strong euro reflects the strength of the European economy,” shrugged Walter Bos, the Dutch finance minister. Germany, Europe’s export powerhouse, feels that its firms can just about live with a euro worth $1.50. Its exporters still flourished when the euro last surged to that level, because demand from Asia and the Middle East for its specialist capital goods proved insensitive to price. France, however, struggled. Other euro-area countries such as Greece, Ireland, Italy and Spain have at least benefited from the recent revival of risk appetite through lower premiums on their debt.

Ghosn's electric car gamble

From the Economist Mr Ghosn bets the company:

Mr Ghosn believes that by 2020 purely electric, zero-emission vehicles will take 10% of the global car market. What is more, he wants such vehicles to account for 20% of Renault-Nissan’s sales by then.

In urbanised western Europe, 80% of journeys are below 60km, and 20% of cars in Europe—about 20m vehicles—never go any further. Battery technology is undergoing a revolution, with more than 20 big companies worldwide competing to produce smaller, tougher and more powerful batteries. One reason for Renault’s leasing model is to allow vehicle owners to upgrade their batteries as and when the technology improves.

Renault’s commitment and attention to every detail is impressive, but Mr Ghosn’s bet depends on three things working in his favour that he cannot control: the eager co-operation of governments; a rising oil price; and the willingness of drivers to change their habits. It is the last of these that is hardest to predict.

Dollar weakness - long TBT?

From the Economist Down with the dollar:

The recession, which reduced America’s imports as consumers tightened their belts, has improved its trade imbalance, shrinking its current-account deficit. But ironically this has been accompanied by renewed weakness for the dollar.

The simplest explanation for the currency’s decline is based on risk aversion. On the days when risky assets fall, the dollar tends to go up. When risky assets rise, the dollar falls. The dollar has fallen fairly steadily since March, a period which has seen stockmarkets enjoy a phenomenal rally. Domestic American investors may be driving the relationship, repatriating funds in 2008 when they were nervous about the state of financial markets and sending the money abroad again this summer because of a perception that the global economy is reviving.

But although risk aversion may be a factor, describing the dollar as a “safe haven” seems dubious. Indeed, the weakness of American fundamentals has revived the longstanding bearish case against the currency. Some cite the American budget deficit, expected to be 13.5% of GDP this year.

But if foreign investors are so concerned, why is the dollar’s decline not accompanied by a sharp rise in bond yields? One reason may be that the Federal Reserve has been buying so much of the year’s debt issuance, as part of its quantitative easing programme. That has helped to keep yields down.

A simple dynamic may be at work: supply and demand. Last year the market was short of dollars because investors needed the American currency to meet their liquidity needs. This year QE is creating a surplus of dollars (and pounds) and is thus driving both currencies down.

The use of QE also creates a problem for central banks as they contemplate their exit strategies. An early abandonment of the approach could cause bond yields to rise sharply, unless there is an unexpectedly dramatic improvement in the fiscal position. But continuing QE could cause further currency weakness.

It is hard to see what the American authorities could do to bolster their currency even if they wanted to. Low yields offer little support to the dollar.

A country heavily in debt to foreigners, with a government deficit it is making little headway at controlling, is creating vast amounts of additional currency. Yet it is allowed to get away with very low interest rates. Eventually such an arrangement must surely break down.

Cloud computing: Battle of the clouds

From the Economist Battle of the clouds:

The idea is that computing will increasingly be delivered as a service, over the internet, from vast warehouses of shared machines. Documents, e-mails and other data will be stored online, or “in the cloud”, making them accessible from any PC or mobile device. Many things work this way already, from e-mail and photo albums to calendars and shared documents.

This represents a big shift. If you store more and more things online, and access more and more software through an ordinary web browser, it suddenly matters much less what sort of computer you have, and what kind of software it is running.

By switching to cloud-based e-mail, accounting and customer-tracking systems, firms can reduce complexity and maintenance costs, because everything runs inside a web browser. Providers of cloud services, meanwhile, can benefit from economies of scale. Why should every company or university set up and maintain its own mail server, when Google or Microsoft can do it more efficiently? Companies are already happy to rely on utilities to provide electrical power, after all. Cloud computing will do the same for computing power.

The ability to summon computing capacity from the cloud when needed will also give the software industry a shot in the arm. During the dotcom boom, the first thing a start-up had to do was raise the money to buy a room full of servers. If a website experienced a sudden surge in popularity, more servers were needed to meet demand. Today a capacity can be rented as needed, allowing cloud services to scale up smoothly. This lowers barriers to entry and promotes innovation and competition.

From the Economist Clash of the clouds:

Windows 7 is not just a sizeable step for Microsoft. It is also likely to mark the end of one era in information technology and the start of another. Much of computing will no longer be done on personal computers in homes and offices, but in the “cloud”: huge data centres housing vast storage systems and hundreds of thousands of servers, the powerful machines that dish up data over the internet. Web-based e-mail, social networking and online games are all examples of what are increasingly called cloud services, and are accessible through browsers, smart-phones or other “client” devices.

The rise of cloud computing is not just shifting Microsoft’s centre of gravity. It is changing the nature of competition within the computer industry. Technological developments have hitherto pushed computing power away from central hubs: first from mainframes to minicomputers, and then to PCs. Now a combination of ever cheaper and more powerful processors, and ever faster and more ubiquitous networks, is pushing power back to the centre in some respects, and even further away in others. The cloud’s data centres are, in effect, outsize public mainframes. At the same time, the PC is being pushed aside by a host of smaller, often wireless devices, such as smart-phones, netbooks (small laptops) and, perhaps soon, tablets (touch-screen computers the size of books).

Apple is also secretive about the way it conducts its internal R&D. Mr Jobs clearly calls most of the shots. But insiders say that there is a system of teams that pitch projects to him.

EnerNOC: an interesting business model

From the Economist Wiser wires:

For applications that run on smart grids, it is still early days. EnerNOC gives a hint of things to come. The speciality of this American firm, whose share price has more than quadrupled in the past 12 months despite the crisis, is demand response. It promises utilities to supply them if they need additional power and is paid as if it were keeping physical plants ready. In fact it has agreements with many firms, which it pays for the privilege of being allowed to shut down their non-essential gear if need be, thus freeing up capacity. As of June 2,400 customers, from steel plants to grocery stores, had signed up. They represent 3,150MW, the output of about 30 peak-power plants. But EnerNOC also wants to use the equipment it has installed and the data it collects to offer something called “continuous commissioning”: making sure that big buildings, for instance, do not start to waste energy.

Smart grid developments

From the Economist Wiser wires:

A global movement is afoot to make grids “smart”. This means adding all kinds of information technology, such as sensors, digital meters and a communications network akin to the internet, to the dumb wires.

Governments have earmarked parts of their stimulus packages for smart grids. Utilities have started to spend serious money. In recent years American venture capitalists have put more than $1 billion into smart-grid start-ups, even if investment this year has not matched the heights of 2008. Two of these start-ups, GridPoint and Silver Spring Networks, raised $220m and $170m respectively.

Outages cost the American economy $150 billion a year.

A more resilient grid, however, is the less important half of the story. Just as the original grid facilitated the industrial innovations of the 20th century, the smart grid should support the green advances of the 21st.

More intelligence in the grid would also help integrate renewable sources of electricity, such as solar panels or wind turbines. As things stand, the trouble is that their output, being hostage to the weather, is highly variable. A standard grid becomes hard to manage if too many of them are connected to it; supply and demand on electricity-transmission systems must always be in balance. A smart grid could turn on appliances should, for instance, the wind blow more strongly.

Within the smart-grid market, there are three different strata of technologies, known as “stacks”.

The first stack is called “advanced metering infrastructure”, or AMI. It is at the heart of every smart grid and is the most vibrant part of the market so far, which is good news for makers of smart meters, such as General Electric, Itron, based in Washington state, and Landis+Gyr, from Switzerland. Their products are rather like smart-phones: they have a powerful chip and a display, and are connected to a communications network. More than 76m will have been installed worldwide by the end of this year, forecasts ABI Research, a market-research firm. By 2013 the number will rise to 155m.

The main task of a metering system is to get information reliably into and out of meters—for example, how much power is being used, when and at what price. The best approach is to use wireless mesh networks, in which data are handed from one meter to the next.

Such networks, which automatically reconfigure themselves when new meters are added, are at the core of the wares sold by Silver Spring Networks and Trilliant Networks, both based in Silicon Valley. Yet as well as providing the communications infrastructure of a smart grid, they also want to offer its software foundation. So far Silver Spring is the more successful of the two, having several American utilities on its customer list, PG&E among them. But Cisco is likely to enter this market, probably through acquisition.

The other two technology stacks of a smart grid are more straightforward, but no less promising. One is all the technology a utility needs to manage the usage data, combine it with other information and set rates depending on demand. The leading start-up in this area is eMeter, from Silicon Valley, but Oracle, a database giant, offers similar software. IBM helps utilities connect their disparate systems, build applications for smart grids and analyse the huge amount of data they produce.

The third stack is the “home area network” (HAN)—industry-speak for all the smart-grid technology in the home, behind the meter. There is general agreement that it will include things such as wireless displays that show the household’s power consumption at that instant, thermostats that are connected to the meter and smart appliances that can be switched on and off remotely. The big question is how all these devices will be connected and controlled. Will the HAN be dedicated to regulating electricity consumptions, for instance, or will it also control home security or stream music through the rooms?

Given the infantry of start-ups and the artillery of corporate giants, you might think it cannot be long before smart grids are widely deployed, at least in the rich world. Alas, things are more complicated, for three main reasons. The first of these is that the technology is not ready yet. Granted, most of it exists in some form (with the notable exception of ways to store energy efficiently when demand is low). But many products are not widely available or still need honing. Smart grids are also said to be vulnerable to cyber criminals. At a recent conference, a security consultant showed how a large number of meters could be hacked and shut down.

What is more, many standards have yet to emerge and the technology is still in flux. Understandably, utilities are hesitant to make big bets on products that could soon be obsolete.

That does not mean that smart grids will never be widespread. But just like other new technologies, they will first go through what Gartner, a market-research firm, calls the “hype cycle”. After a peak of inflated expectations, there comes a “trough of disillusionment” before the technology reaches the “slope of enlightenment”. And perhaps more than with other technologies, how steep this slope turns out to be will largely depend on what people, from politicians to business leaders to consumers, make of it.

A weak dollar explains the rising price of gold?

Inquiring minds are reading the Economist article Bullion bulls:

Gold was once the linchpin of the global monetary system and is still seen by many as a hedge against inflation. But if investors are really frightened of price rises, it is hard to see evidence in the government bond market. There has been a modest increase in inflation expectations (measured by the difference between the yield on inflation-linked bonds from that on conventional bonds). But the Treasury bond market is only pointing to average inflation of 1.9% over the next 20 years.

Conventional explanations of supply and demand do not work, either. Mining production is slightly up year on year; jewellery demand is down by 13.8%. The main demand has been led by investment. Retail and institutional investors have been buying gold through exchange-traded funds, which allow them to have a pooled stake in bullion.

But blaming the rise on ETF purchases does not answer the fundamental question; why do investors want exposure to gold at all? The dollar is the prime suspect. Gold’s rise coincided with a fall in the greenback on a report (since denied) that oil-producing countries were talking about replacing the dollar as the pricing currency. When the dollar falls, as it has since March, risk-averse investors tend to buy gold.

David Malpass's view on the U.S. dollar

Inquiring minds are reading the WSJ article The Weak-Dollar Threat to Prosperity:

If you want to know why the dollar has been falling this week and gold hit a new high, look no further than the weak jobs numbers last Friday and the weak communique issued over the weekend at the G-7 meeting in Istanbul.

Asked whether low interest rates will weaken the dollar, Bill Gross said: "I think that's part of the administration's plan. It's obviously not announced—the 'strong dollar' is always the policy, so to speak. One of the ways a country gets out from under its debt burden is to devalue."

Corporations play this game for bigger stakes, borrowing billions in dollars to expand their foreign businesses. As the pound slid in the 1950s and '60s and the British Empire crumbled, the corporations that prospered were the ones that borrowed pounds aggressively in order to expand abroad. Though British equities rose in pound terms, they generally underperformed gold and foreign equities.

Some weak-dollar advocates believe that American workers will eventually get cheap enough in foreign-currency terms to win manufacturing jobs back. In practice, however, capital outflows overwhelm the trade flows, causing more job losses than cheap real wages create.

The more the dollar devalued against the yen in the 1970s and '80s, the more Japan gained share in valued-added manufacturing, using the capital from weak-currency countries to increase productivity.

The value is migrating from firms that run networks and make hardware to those that make software and offer services

Inquiring minds are reading the Economist's Cleverly simple and Copycats:

Sales of smart-phones were up by nearly 15% in the 2Q of 2009, according to IDC, a market-research firm. The market for smart-phones is expected to grow so quickly in part because they are changing. Expensive pocket computers such as the iPhone and BlackBerry are giving way to new models that come with popular services built in, but are less versatile or run on open-source operating systems, and are often cheaper. All this reflects a broader trend in the industry, where value is migrating from firms that run networks and make hardware to those that make software and offer services.

New handsets from Motorola, an industry veteran, and INQ, a rising star, illustrate these changes. They both feature built-in support for online services, including popular social-networking sites such as Facebook and Twitter.

INQ and Motorola are also both betting on Android, an open-source operating system developed by Google. Although the internet giant’s operating system only has a small piece of the market, it is clearly gaining momentum.

Android will also accelerate the third trend. Prices are now on a downward spiral, says Ben Wood of CCS Insight, a research firm. Several other handset-makers are already offering cheap smart-phone-like devices. Android allows cut-price Chinese firms such as Huawei and ZTE to enter the smart-phone market, which they had previously stayed out of for lack of the necessary software.

But if pared-down smart-phones become the norm, handset-makers risk becoming sellers of commodity hardware while operators face a future as dumb pipes for data. Hence the recent rush into services.

Xerox’s move follows Dell’s recent $3.9 billion offer for Perot Systems, another services company. Both bidders are betting that profits from their targets, which boast fat margins and multi-year contracts with customers, will offset shrinking returns from the increasingly commoditised hardware business. They hope the deals will help them sell more photocopiers, computers and other gear too. The combined firms will compete with behemoths such as IBM, which now gets more than half of its revenues from services, as well as Indian rivals such as Infosys and Wipro.

Splicing hardware and services firms together can pay off handsomely. Witness the experience of HP, which last year forked out $13.9 billion for EDS, a services giant. (On September 23rd HP renamed the business HP Enterprise Services.) After a difficult integration process involving thousands of job losses, HP’s operating margin in services has hit a ten-year high of 15.2% and it now has deals involving $4 billion-worth of HP equipment in the pipeline. Before the acquisition, EDS mainly touted kit from HP’s rivals. Dell and Xerox must be hoping that this success can be copied.

Some great daily market analysis

From Zero Hedge - Wall Street "Animal Spirits" Stampede Across the River

Anyone see 60 Minutes last night? The story about the animal migration across the Mara River in Kenya? All the Wall Street particpants were there. And this morning they were stampeding back into the "inflation" and "re-risking" trade once again.

Despite the warnings from Nouriel Roubini, despite the crash warnings from the survivalists who have suddenly become expert market technicians, etc., the market was ramped up on a Goldman Sachs upgrade of a few bank stocks, and that was enough to get the "Animal Spirits" going.

Here's a picture of the Wall Street Herd crossing the river called the 50-day EMA:

And here are some of the participants:

Fidelity, Vanguard, Schwab, Barclay's, etc.

TIAA-CREF, Harvard Endowment, Gates Foundation, CalPERS, etc.

Myriad Hedge Funds, Bucket Shop Players, etc.

Various 19-year old enterprising speculators, daytraders, action junkies, etc.

Goldman Sachs Prop Desk Traders lying in wait:

As soon as it was evident that the oft-predicted October Crash was not going to happen just yet, and the 50-day was not going to be broken today, the herd immediately jumped in and wildly bought stocks....

Meanwhile, here's a hapless retail daytrader who was caught on the wrong side of the river, overmargined with a short position, being devoured by a Goldman Sachs Prop Trader:

Just another day in the jungle, buying the worst stocks possible.

Like Select Comfort Mattress:

Las Vegas Sands:

Nordstrom's

Robert Reich thinks government debt is not an issue, creating jobs is more important

From Robert Reich's blog:

Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.

Yes, I know. Our government is already deep in debt. But let me tell you something: When one out of six Americans is unemployed or underemployed, this is no time to worry about the debt.

When I was a small boy my father told me that I and my kids and my grand-kids would be paying down the debt created by Franklin D. Roosevelt during the Depression and World War II. I didn’t even know what a debt was, but it kept me up at night.

My father was right about a lot of things, but he was wrong about this. America paid down FDR’s debt in the 1950s, when Americans went back to work, when the economy was growing again, and when our incomes grew, too. We paid taxes, and in a few years that FDR debt had shrunk to almost nothing.

You see? The most important thing right now is getting the jobs back, and getting the economy growing again.

People who now obsess about government debt have it backwards. The problem isn’t the debt. The problem is just the opposite. It’s that at a time like this, when consumers and businesses and exports can’t do it, government has to spend more to get Americans back to work and recharge the economy. Then – after people are working and the economy is growing – we can pay down that debt.

But if government doesn’t spend more right now and get Americans back to work, we could be out of work for years. And the debt will be with us even longer. And politics could get much uglier.

h/t Zero Hedge

Some companies are investing their way out of recession

Inquiring minds are reading the Economist's Thriving on adversity:

Bain & Company discovered that twice as many firms made the leap from “laggards” to “leaders” (ie, from the bottom quartile of companies in their industry to the top quartile) during the recession of 1991-92 than during non-recessionary times. McKinsey discovered that one-third of banks and two-fifths of big American industrial companies dropped out of the first quartile of their industries in the recession of 2001-02.

What about the current recession? The most obvious winners are established giants: market leaders that entered the recession with cash in their pockets and sound management systems under their belts. These companies are reaping rewards from investors who are skittish about shakier rivals. They are also using their corporate muscle to squeeze their costs (for example, by negotiating cheap rates for advertising) and so win market share from their competitors. BCG, another consultancy, notes that 58% of companies that were among the top three in their industry had rising profits in 2008 and only 30% saw their profits decline. In contrast, only 21% of companies outside the top three had rising profits, and 61% had falling profits.

McDonald’s is simultaneously sharpening its appeal to its core customers, even introducing computer systems that allow its outlets to adjust their prices to local economic circumstances, and moving upmarket with lattes and salads. Asda, a British supermarket chain, is building 14 new stores and hiring 7,000 new workers. PepsiCo has taken direct control of two of its biggest bottling companies, at a cost of $6 billion.

Despite seeing its revenues fall by 23% in the last quarter of 2008 compared with the last quarter of 2007, Intel is continuing to invest heavily in innovation. Craig Barrett, the company’s former boss, insists, “You can’t save your way out of a recession; you have to invest your way out.” P&G is launching its biggest expansion in its 170 years, opening 19 new factories around the world and investing heavily in new ideas, despite disappointing recent results. IBM is holding a series of “innovation jams” designed to squeeze ideas out of its employees.

Cisco is speeding up its transformation from a backroom network plumber into a much more versatile internet giant, using its cash reserves to snap up start-ups in new fields and expand its business portfolio. Repositioning is a strategy that has paid off dramatically in the past. When the Soviet Union collapsed, plunging Finland into economic turmoil, Nokia’s response was to abandon 90% of its businesses to concentrate on telecoms, particularly mobile phones.

Russia's sickly car market and some "smart" predictions

Inquiring minds are reading The Economist's Russia's sickly car market:

A year ago Russia’s market for new cars was one of the fastest growing in the world. It had gone from annual sales of less than 1.5m in 2005 to nearly 3m and was poised to overtake Germany as the fourth-biggest car market in the world. Ernst & Young, a consultancy, forecast sales of 5m by 2012. Credit Suisse confidently predicted that sales would grow by at least 12% a year until 2012 and that by then the foreign car firms that had rushed to build factories in Russia would be producing more than 1.5m cars a year. How wrong they were.

There is no mystery about why Russia’s car market is reeling. Credit, which was used to finance the purchase of about half of all new cars, disappeared almost instantly because Russian banks were unusually dependent on shuttered wholesale markets. Thanks to the economy’s reliance on exports of oil and gas, slumping energy prices immediately hit both earnings and the rouble. The tumbling rouble also meant that foreign car brands suddenly became much less affordable, including those made in Russia, because most of their components are still imported. “We had to force through several price increases in a weakening market,” says Nigel Brackenbury, Ford’s senior executive in Russia.

“The market will come back—the wealth has not disappeared,” says Christian Estève, who runs Renault’s operations in Russia. Pointing to car-ownership levels that are still less than a third of Western Europe’s and the age of the Russian fleet, Mr Brackenbury agrees: “We still believe the market will eventually get back to 3m-4m a year.” However, neither expects a rapid bounce.

Mr Putin wants both AvtoVAZ and Gaz to survive, so they probably will. But although Russia’s car market will eventually recover, the same cannot confidently be said of its native carmakers.

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Economic outlook from Paolo Pellegrini

From Bloomberg's Pellegrini 80% Return Proves Paulson Protege No Fluke at Fund:

Today, Pellegrini’s economic outlook for the next 5 to 10 years is a sobering one. He says the U.S. economy will groan under the weight of budget deficits, increased regulation and household debt. Europe will perform only slightly better, and Asian economic growth will outstrip that of the developed world. “There are going to be huge shifts in wealth around the globe,” he says. “I want to invest in that.”

Pellegrini says the U.S. stock market is likely to generate negative returns when adjusted for inflation. And the U.S. dollar will flag as an unrestrained Federal Reserve dispenses more money.

“In the U.S., there is limited interest among those in power in the stability of the dollar,” he says.

Meanwhile, the price of scarce commodities such as oil will surge as global competition for them heats up, Pellegrini says. Accordingly, he expects U.S. Treasuries to fall in price in the long term, and he’s buying oil futures. In September, he owned Norwegian kroner and said he believed the Australian dollar would benefit from that resource-rich country’s geographic proximity to Asia.

From Zero Hedge - John Paulson's ABX Oracle Paolo Pellegrini Discusses Anemic Real Stock Returns, Blasts Federal Reserve:

• Stay away from US fixed income asset: he is short USTs and Agencies
• Much more demand for commodities, specifically oil: "these are the real assets you want to be in"
• US Equities: "trend growth will be much less than in the past and that affects equity valuations" - there will be less efficiency, less activity, less real growth, which will affect stock valuation. "You will have anemic real returns on stocks."
• What should the Fed be doing? "We should focus on market based way of reducing household liabilities, basically restructure mortgages one by one and whoever made the mortgages should bear the brunt of the losses"
  
• "Long-term let's change the mission of the Federal Reserve: let's codify something that prevents it from running amok, like it did for the past ten years"

h/t Zero Hedge

Success story: Paolo Pellegrini of PSQR - John Paulson's protege and ABX oracle

Inquiring minds are reading Bloomberg's article Pellegrini 80% Return Proves Paulson Protege No Fluke at Fund:

Paolo Pellegrini has a nose for trouble. He saw it in rising housing prices in early 2006, when he cranked through decades of home price data and concluded the bubble was poised to burst. Pellegrini then helped engineer a massive bet against subprime mortgages that catapulted Paulson & Co. hedge funds to 2007 gains of as much as 590 percent -- and firmwide profits of more than $3.5 billion.

Pellegrini says his fund’s name, PSQR, is a play on his own: Paolo or Pellegrini Squared. It’s also an anagram of SPQR, the initials of the ancient Roman Republic that stand for Senatus Populusque Romanus, or the Senate and the People of Rome. The four letters are still emblazoned on monuments and signs around the city, where Pellegrini was born and spent his first five years amid the cobblestoned alleys of the Trastevere district.