The Big Picture

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• ‘Great’ Depression of the 1930s or the ‘Long’ Depression of the 1870s
• Europe’s Banking Problem
• Questions for Doug Kass Fireside Chat
• Customer Acquisition through Infographics
• Podcast: Jonathan Miller & Ritholtz
• QOTD: Cult of Ignorance
• Science and the Public: Why Every Lab Should Tweet
• Can the S&P500 Clear the Red Zone?
• Steve Jobs, 1955-2011
• Mercedes Gullwing 300 SL

‘Great’ Depression of the 1930s or the ‘Long’ Depression of the 1870s Posted: 06 Oct 2011 10:00 PM PDT Economists Agree: We're In a Depression Reuters notes: You know it's grim when the prevailing debate among economists and historians is whether the world economy faces the "Great" depression of the 1930s or the "Long" depression of the 1870s. *** Harvard professor and economic historian Niall Ferguson, a fan of the British government's austerity drive and skeptic of further stimulus, reckons the world is facing a "slight depression" and favors comparison with the late 19th century rather than 1930s. *** Long-term market bear Albert Edwards at Societe Generale has talked more apocalyptically for years of an economic "Ice Age" dominated by household deleveraging, low growth and deflation. But now "depression" is very much back in the mainstream lexicon as the small economic bounce from the deep global recession of 2008/09 fades rapidly after little more than two years and Europe's bank and sovereign debt crisis intensifies. Economist and doomsayer Nouriel Roubini now says there's a "huge" risk of 1930s-style depression …. HSBC chief economist Stephen King, who wrote earlier this year of a "new economic permafrost", warned last week that the systemic financial threat of a euro zone collapse and breakup risked another "Great Depression". As I've noted for 3 years, we are in a depression, and – because the government has done all of the wrong things – we're stuck in it. It Could Be WORSE Than the Great Depression Indeed, contrary to Reuters' saying that economists are split on whether it's a repeat of the Great Depression or a lesser depression, many economists say it could be worse than the Great Depression, including: Fed Chairman Ben Bernanke Former Fed Chairman Alan Greenspan (and see this and this) Former Fed Chairman Paul Volcker Economics scholar and former Federal Reserve Governor Frederic Mishkin The head of the Bank of England Mervyn King Nobel prize winning economist Joseph Stiglitz Nobel prize winning economist Paul Krugman Former Goldman Sachs chairman John Whitehead Economics professors Barry Eichengreen and and Kevin H. O'Rourke (updated here) Investment advisor, risk expert and "Black Swan" author Nassim Nicholas Taleb Well-known PhD economist Marc Faber Morgan Stanley's UK equity strategist Graham Secker Former chief credit officer at Fannie Mae Edward J. Pinto Billionaire investor George Soros Senior British minister Ed Balls Bad Government Policy Has Us Stuck We are stuck in a depression because the government has done all of the wrong things, and has failed to address the core problems. For example: An economics professor says we'll have "a never-ending depression unless we repudiate the debt, which never should have been extended in the first place" Fraud was one of the main causes of the Depression, but nothing has been done to rein in fraud today. Indeed, the only action the government is taking is to help cover up fraud All leading independent economists have said that the economy cannot recover until the big, insolvent banks are broken up, but the government has just helped them to get bigger Excessive leverage helped cause the Great Depression and the current crisis, but the government has encouraged more leverage The Federal Reserve caused the Great Depression and the current crisis, and has done nothing but help the fatcats at the expense of the little guy. And yet the government has given the Fed more power than ever. Government policies send manufacturing jobs and dollars abroad The government is doing everything else wrong. See this and this This isn't an issue of left versus right … it's corruption and bad policies which help the top .1% but are causing a depression for the vast majority of the American people.

Europe’s Banking Problem Posted: 06 Oct 2011 07:00 PM PDT Another informative chart from the IMF showing the fundamental problem in Europe's banking system -  excessive leverage and dependence on wholesale funding.  Add to that  overexposure to highly indebted sovereigns with deteriorating credit fundamentals.    It also illustrates why the German DAX and French CAC stock indices have been hammered over the summer and are two of the worst performing markets this year. The arrows indicate the direction of the data points from 2007-2010.  It also illustrates how the U.S.  and U.K. got religion about strengthening their banking systems after the financial crisis. How did the Euro banks get so levered up?   The London Banker explains it best: A primary fallacy of the Basel Accord is that OECD government debt is risk free and requires no bank reserves. Better yet, the banks can count the government debt they hold as Tier 1 capital, reserving against other debt assets. The Basel Accords assume all OECD government debt is a cash proxy, being liquid in all market conditions… Roughly, the risk weights of the main asset classes under Basel I were: – zero for Zone A (EEA and OECD) government debt of all maturities and Zone B (non-OECD) government debt of less than one year; – 20 percent for Zone A inter-bank obligations and public sector entity debt (e.g. Fannie Mae, Freddie Mac, et al.); – 50 percent for fully secured mortgage debt; – 100 percent for all corporate debt… With Basel II they could reduce capital even further by writing each other a daisy chain of credit default swaps for all categories of exposure… OECD government debt is zero risk weighted and accounts for a disproportionate bulk of Tier 1 capital of major banks. A default by any EEA or OECD government will force banks and central banks to recognise that government debt has inherent risk like all other debt. This would force recognition of a positive risk weighting, and bring into question the assumption that government debt can be counted as a cash-proxy in Tier 1 reserves. The illiquidity of impaired or defaulted government debt would undermine its role as a Tier 1 reserve asset in bank capital models… If any OECD state were to default there would be very serious implications: – The Basel Accord zero risk weight of government debt would be proved fanciful; – The assumption of government debt as a liquid asset suitable for bank Tier 1 reserves to meet unanticipated and sudden cash demands will become unsustainable; – Banks would be forced to recapitalise at much higher levels, forcing even sharper deleveraging and contraction of lending; – Governments would lose the captive, uncritical investor base they have relied on to finance excess public expenditure for the past 30 years; – Central banks could be forced to suddenly monetise even more government debt if required to meet the cash demands of a run on their undercapitalised banks. Merkel & Co. finally seem to get it.  Exit Trichet, enter Super Mario.  It's going to get interesting.

Questions for Doug Kass Fireside Chat Posted: 06 Oct 2011 03:31 PM PDT One of the highlights of the 2009 Big Picture conference was the Q&A session with Doug Kass of Seabreeze Partners Management. For  the BP Conference 2011, we are bringing Doug back for a fireside chat — questions asked by audience members, both on line and live and in person. What question would you ask Doug? What do you want to hear him discuss? ASK HERE

Customer Acquisition through Infographics Posted: 06 Oct 2011 01:30 PM PDT Customer Acquisition through Infographics View more presentations from visually

Podcast: Jonathan Miller & Ritholtz Posted: 06 Oct 2011 10:00 AM PDT > I did an extensive interview with Jonathan Miller of Housing Helix Tuesday before leaving for Vermont. This interview is notable for a number factors — not just the economic and housing discussion, but for someone somewhere along this chat calling Larry Summers “the biggest asshole in America.” Enjoy: > Part I > Part II

QOTD: Cult of Ignorance Posted: 06 Oct 2011 09:00 AM PDT Our Quote of the Day is over 30 years old: “There is a cult of ignorance in the United States, and there always has been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that “my ignorance is just as good as your knowledge.” - Isaac Asimov, column in Newsweek (21 January 1980).

Science and the Public: Why Every Lab Should Tweet Posted: 06 Oct 2011 09:00 AM PDT Science and the Public: Why Every Lab Should Tweet View more presentations from Christie Wilcox

Can the S&P500 Clear the Red Zone? Posted: 06 Oct 2011 05:30 AM PDT Some rally!  Almost 70 S&P points or 6.4 percent from yesterday's low to today's close.  Makes us feel we're back in the 1990′s trading Brazilian and Russian defaulted sovereign debt.   So where to now? The next 60 points are going to be much harder as the S&P500 has to clear the "red zone" — 1175 to 1195 — which will be full of 300 pound Bear linebackers, who can bench press  400 lbs..  Yikes!   Halfway into the zone is the 50-day moving average at around 1183, which will also be stiff resistance. Now that the bulls are on offense, however,  here's what we think it will take for the next 60 yard [point] gain: 1)  The Shanghai (closed this week) and Heng Sang will need to confirm this move; 2)  No fumbles from the Eurozone backfield.  European banks need to continue to rally and the Eurocrats have to give the impression they're moving toward a comprehensive debt solution.   The bank recap will have to done as not to adversely affect the sovereign credit of the home governments; 3) No big penalties from the U.S. data.  A significant economic slowdown has been priced, in our opinion, but not a recession nor a -1ooK jobs report. Earnings and guidance will also be key and are priced for a 5-yard off-side setback, but not a 15-yard unsportsmanlike conduct penalty — i.e, big miss and large downward revisions. 4) No team infighting.  No Fugly politics in the U.S. and Europe.  No demonstrations turning into riots.   Peace, love, soap! There will be setbacks and quarterback sacks, however, but the bulls are hungry and know time is running out in the 4th quarter.  They need performance to get paid.  If they can clear the red zone at 1295, we sense performance panic can generate a further rally to 1260, which will move the S&P500 into green for the year.   We'll focus on the Dick Butkus and Michael Singletary at 1230 when we get there.    Now let's hope the backfield of Merkel and Sarkozy can hold onto the football. A smart bull is like Cub fan who never gives up hope, but never bets the ranch.   The bulls lose the ball again at 1101 and the season at 1075.   Enjoy the game!

Steve Jobs, 1955-2011 Posted: 06 Oct 2011 04:40 AM PDT

Mercedes Gullwing 300 SL Posted: 06 Oct 2011 04:30 AM PDT Inspired form and revolutionary function come together in the Mercedes Gullwing SL at number 6." "It’s such a work of art. It really is, you know, it’s stunning. It’s better than any Picasso." "The lines of the Gullwing are pretty much perfect. The frame of the car has its wonderful torch shape and yet has really voluptuous curves, but they’re not the voluptuous curves that, like the Chevy Corvette, which are a bit over the top and brazen and showy. These curves are kept in check and you know that the car has been designed to be super aerodynamic and yet it’s hugely glamorous at the same time." "Driving a car and then the doors got up a little gas struts was really Christ, but if you wanna make a steer in those days you arrive in a Gullwing, you’ve made it." "Certainly, the Gullwing is a milestone car, aesthetically, technologically. I mean it stunned the world when it came out. Everybody just went, "Holy Mack! Look at the technology that is put in that thing."" "Its tubular space frame made the Gullwing extra rigid, crucial for control at high speeds, and at only 82 kilograms, the frame was as light as a feather, but those same tubes took up a room where the bottom of the doors would go, so instead, they would hinge on the roof and lift up as opposed to out." "It was a practical piece of design, but warmed up becoming the car’s exotic signature." "I mean those doors were just unbelievable. They really look like a bird with the window—- with the doors open, and when you pull them down, you’re in this cocoon." "You know what [unk]." "Getting out is more difficult because you actually gotta get your bottom on the ledge back up from the seat and swing out, but you see Mercedes gentlemen are so clever. [time-0:02:00] They have to think of all these things because what happens if a woman is driving wearing a skirt." "There’s a bar under the steering wheel. When you pull it out, the steering wheel goes out like that, so now you can raise yourself, flip your legs over. See, the gentlemen think of everything, damn them! Yet another innovation. This was the first production car in the world to use fuel injection. It was one of the most important high-tech advancements in the history [time-0:02:30] of sports cars and yet the concept of fuel injection is deceptively simple." "With a carburetor, you got pressure from the fuel tank barrel pumped, but it’s low pressure and when you put your foot on the accelerator, the fuel falls into the manifold like that, mixes with the air, explosive mix, and the car accelerates." "With fuel injection, it’s different because the fuel is actually propelled at high pressure into its cylinder, [time-0:03:00] mixed with the air, and it’s the exact amount of fuel, so it’s efficient. It is the most combustible fuel-air mix so that you get the biggest explosion, and therefore, the greatest amount of acceleration and no wastage." "Well-renowned the world over for its glamorous looks and technical achievements, it wasn’t always the easiest car to drive." "Driving it, it’s a truck. You know, it’s a big heavy thing. The brakes, you’ve gotta [time-0:03:30] push your, you know, the pedal through the floor to get it to stop." "And the exhaust ran right underneath the car, so the floorboard gets really, really hot. It will melt your tennis shoes, and it has big swing axle in the back, so when you really got a hole in the butt, you could get it squarely very easily, so it was sort of like riding the bull." "It was unpredictable on the corner and the suspension wasn’t actually very good. We should push it ’cause the rest of it is brilliant. [time-0:04:00]" "It’s not the nicest engine, no. It’s not the nicest looking. It’s not the nicest interior, but as an overall package, it is one of the greatest."

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