To ensure that imports of a particular good are substantially reduced, a government or regulatory authority ( such as the World Bank), a government may insist on imposing a “quota”. This quota will permit only a certain specified quantity of imported good to be allowed over a given time period. The quota may be “global” or “allocated”. The former merely inducates what aggreagate quantity may be imported into a country, without specifying how much comes from any one or particular country of origin. It could be from China, Vietnam , the E.U. , England or Germany it does not matter. An “allocated” quota on the other hand , authorizes a particular quantity of imports from each exporting country.
Sphere: Related Content“Tariff quotas” are commonly imposed under which a specified volume of foreign goods may be imported at a low rate of duty, while imports in excess of this figure are subject to a higher rate and percentage. “Mixing quotas” imposed by some countries require that a certain percentage of home produced goods must always be sold along with imported goods of a similar type.
A tariff may not reduce imports to the degre hoped for by those who introduced it. The foreign exporters or the domestic importers, or both , may absorb most of the duties and foreign exchange costs. Because the foreign goods are offered to consumers at a little more than the former price and prices , the volume of sales may decline only slightly. Or even if the full price of the duty is added to the selling price , consumers may still buy practically as much as before. In either case domestic producers of similar goods do not derive much benefit or benefits from the tariff. Foreign goods may be selling in virtually the same quanities as before, the share of the market held by domestic producers will be little changed, if at all. Because of the possible consequenes , a tariff imposed as a means if conserving foreign exchange , may similarily fail to produce the desired result or result, With the volume of imports down only slightly, if at all the expenditure of foreign exhange and forex currencies will the same as before or down just a small amount or percentage.
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Sphere: Related ContentThe Bush years will be remembered for the cruel triumph of realism over illusion.
One of the era’s great illusions was spun by President Bush — that the force of freedom was so irresistible, it would prevail in a place like Iraq even in the absence of law and order. Bush himself eventually realized his mistake. The second illusion — fed by anyone who possibly could get rich from it — is bursting now.
Wall Street is experiencing one of its most wrenching periods since traders began gathering around a tree there in the 1790s, beset by a terrible reckoning: No, interest rates can’t be held at unsustainably low rates — 1 percent in 2003 — without stoking wasteful investments; no, housing prices won’t always go up; no, home loans can’t be extended to people with shaky credit histories on scandalously easy terms (no money down!) with the expectation that they’ll be paid back; no, fancy financial instruments and computer models can’t eliminate risk; no, firms can’t exist on massive debt — now-bankrupt Lehman Brothers had debts 35 times its capital — without courting disaster.
It’s a sign of how fragile the entire financial edifice had become that a decline in housing prices of about 20 percent could precipitate the current near-meltdown. It’s easy to blame greed, as John McCain is doing at every opportunity, since it’s a given. Greed is endemic to the human condition, even if it is most visible on Wall Street. Lehman Brothers CEO Dick Fuld made $22 million last year, leading his firm toward the abyss, while Wall Street doled out $23.9 billion in bonuses in 2006. But everyone else joined in the wide-ranging bonanza.
As financial guru Ric Edelman writes, “The insurers got rich selling policies with fat premiums, brokerages got rich selling new securities, lenders got rich selling more loans than ever, builders, real estate agents, title settlement companies, appraisers, inspectors — everyone got rich from the ensuing real estate boom.”
He could have included the politicians who enabled the irresponsible lending of Fannie Mae and Freddie Mac because they knew these “government-sponsored enterprises” — since bailed out by the government at a potential cost of $200 billion to taxpayers — would line their campaign coffers. Fannie and Freddie were the “patient zero” of the financial contagion, encouraging and blessing the “subprime” loans that were a toxin spread throughout the financial system. Many Republicans, including McCain, wanted Fannie and Freddie reformed. As a largely Democratic cash cow, it was protected by Democrats, enamored of its mission of extending homeownership to those who — it turns out — couldn’t afford homes.
With the financial system teetering on collapse, the federal government has become the backstop. “Raw capitalism is dead,” Treasury Secretary Hank Paulson has said. With Paulson and Fed Chairman Ben Bernanke deciding case by case which companies the federal government will save or not, he’s not kidding. After letting Lehman die, they essentially took over $1 trillion insurance giant AIG, making the taxpayers instant stakeholders in its far-flung businesses from life insurance to aircraft leasing and a ski resort.
In this environment, it’s hard to resist calls for more regulation. But it has to be intelligent and measured, an extremely difficult task when the market is constantly adapting and the next excess will come in a new form. A basically solvent company, AIG was rendered illiquid by so-called mark-to-market accounting rules that say assets must be marked down to their value in the current market, even if they are ultimately worth more. This was a reform adopted in response to the Enron scandal that has worsened the current crisis.
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http://jewishworldreview.com/cols/jonah091908.php3John McCain insists that the financial crisis is the direct result of Wall Street’s “unbridled corruption and greed.” Sarah Palin says likewise. Senator Obama, for the most part, has merely echoed what Treasury Secretary Henry Paulson has already said. Obama has an excuse though: He hasn’t finished conducting his seminar on what’s going on; he’ll get back to us after a rousing multivariate analysis of the value of “decisiveness.” Joe Biden says the Wall Street crisis is the result of George W. Bush’s tax cuts, which makes as much sense as blaming the rising price of fairy dust. But as a wise man once asked, Who gives a rat’s patoot what Joe Biden thinks?
Nonetheless, blame is settling on those old standby scapegoats, Wall Street fat cats.
So, I ask again: Who should go to jail? And the answer, as far as I can tell, is: no one — at least no one on Wall Street. That may turn out to be wrong. But even if there’s a bad penny or two in the pile, nobody will say this CEO or that banker is responsible for the mess. And so far, despite a flood of coverage and speeches and finger-pointing, nobody’s aimed their bony finger of condemnation at any Wall Street fat cat who did anything criminal.
Criminal stupidity is another issue entirely. But the beautiful thing about our economic system is that bad decisions are punished in the marketplace.
The starting line for the parade of falling dominoes doesn’t begin on Wall Street. Nor, alas, will the parade end there. But if you want to know where it really begins, look to the Capitol steps.
The self-proclaimed angels in Washington will tell you they’ve been working tirelessly to expand the American dream of homeownership by making mortgages available to people unable to plunk down 20 percent on a house. Franklin Raines, the Clinton-appointed former head of Fannie Mae from 1998 to 2004, made it his top priority to make mortgages easier to get for people with poor credit, few assets and little money for a down payment.
The fine print to this noble intent was an ill-conceived loosening of standards. For instance, the Clinton administration reinterpreted the Jimmy Carter-era Community Reinvestment Act to politicize lending practices. Under the CRA, the government forced banks to prove they weren’t “redlining” — i.e., discriminating against minorities — by approving loans to minorities and various left-wing “community group” shakedown artists whether they were bad risks or not. (A young Barack Obama got his start with exactly these sorts of groups.) Sen. Phil Gramm called it a vast extortion scheme against America’s banks. Still, the banks were perfectly happy to pass the risky loans to Raines’ Fannie Mae, which was happy to buy them up.
That’s because Raines was transforming Fannie Mae from a boring but stable financial institution dedicated to making homes more affordable into a risky venture that abused its special status as a “Government Sponsored Enterprise” (GSE) for Raines’ personal profit. Fannie bought the bad loans and bundled them together with good ones. Wall Street was glad to buy up these mortgage securities because Fannie Mae was deemed a government-insured behemoth “too big to fail.” And others followed Fannie’s lead.
The current financial crisis stems in large part from the fact that people who shouldn’t have been buying a home, or who bought more home than they could afford, now can’t pay their bills. Their bad mortgages are mixed up with the good mortgages. And thanks in part to new accounting rules set up after Enron, the bad mortgages have contaminated the whole pile, reducing the value of even stable mortgages.
Of course, there are other important factors at work here, having to do with changing technology among other things. And even if the bad mortgages weren’t in the system, we’d still have the hangover from the end of the housing boom. But the financial system could have handled that with the usual corrections. The biggest dose of poison entered the financial bloodstream through Washington. And some people warned us. In 2005, Fannie Mae revealed it overstated earnings by $10.6 billion and that it didn’t really know what was going on. The Bush administration pushed for reforms, but those efforts were rebuffed by Congress, with Democrats Barney Frank and Christopher Dodd taking point, because Fannie and Freddie have spent millions in campaign contributions.
In 2005, McCain sponsored legislation to thwart what he later called “the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole.”
Obama, the Senate’s second-greatest recipient of donations from Fannie and Freddie after Dodd, did nothing.
Meanwhile, Raines, the head of a government-supported institution, made $52 million of his $90 million compensation package thanks in part to fraudulent earnings statements.
But, ah yes, the greedy criminals responsible for this mess must be somewhere on Wall Street.
The global investing trend is dead, and the next big thing is what I call the “America trade,” i.e., investing in North and South American stocks.
For years, U.S. investors have been told to “go global” in search of stronger growth and higher returns. Americans obliged and poured billions of dollars into international stocks, mutual funds and exchange-traded funds (ETFs), which have outperformed during the past seven years.
But, as the saying goes, “Trees do not grow to the sky.” The seeds of underperformance were sewn by the over-performance of Chinese, Indian and European stocks. Nothing lasts forever, my friends.
The time of shorting U.S. stocks and going long stocks in emerging markets is over.
The global markets topped out in late 2007, while the United States — the source of the subprime nightmare — has dramatically outperformed some of last year’s hotshots.
The U.S. stock averages have lost much less than their major European and Asian counterparts in this global bear market. The six-year run in which the foreign bourses routinely thrashed the S&P 500 (SPX) and the Dow Jones Industrial Average (DJI) has come to an end.
Once everyone has piled into a trend, it no longer works. As for going global, when everyone including my grandmother has 70% or more of the money in their 401(k) plan in developing countries’ markets, you can bet the trend is dead. And when those people open their 401(k) statement for the first quarter, it’s going to hurt — not as much as it did after the Nasdaq meltdown in 2000, but it’ll still be painful.
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We should all be grateful for the bear market rallies that followed, because they gave us another opportunity to lighten up on stocks and build cash in preparation for the real end of the bear market.
I hate to be the bearer of bad news, but the worst of the sub prime mortgage mess hasn’t even begun. We have more pain to go through before we can call the bottom.
Now, the post-rate-cut question is:
A) Do the worst offenders in the sub prime market have a liquidity problem?
Or…
B) Do the financial institutions heavy with sub prime debt — Washington Mutual (WM), National City Corporation (NCC), etc. — have a solvency problem?
The correct question to ask is B, and we should expect to see lower housing prices and more liquidation, a la Bear Stearns (BSC), before the “all clear” signal is sounded.
Before this is over, we’ll see more of these investment banks carried out in body bags to reconcile the enormous level of bad judgment and runaway greed that is behind this whole fiasco.
Now let’s not get too bearish here — we’re making progress. Personally, I can’t wait to take advantage of some of the great opportunities that lie ahead.
As a matter of fact, we’re already taking advantage of some opportunities that are just too good to pass up — particularly in the Freddie Mac and Fannie Mae guaranteed mortgage paper owned by mortgage real estate investment trusts (REITs). That paper is discounted 50% below its actual value.
Come Back to Reality
As with all problems in life, we have to leave the denial zone and enter reality.
Remember, in August, the turmoil in the financial markets was characterized as a “temporary liquidity problem.” The B&P Paribas and Bear Stearns hedge funds blowups were seen as isolated incidences.
Now, seven months after this “temporary” problem, and $200 billion (probably headed to $500 billion) in bad loans write-offs later, the politicians are still in denial.
We need to step back and recognize that the current situation is not a liquidity issue, and hasn’t been one for a long time.
The problem is the genuine uncertainty about the underlying value of the assets, and that’s a solvency problem, which is exacerbated by the fact that many of the entities that own these bad assets are financial companies with 20- to 30-to-1 leverage.
There are still dozens of these special purpose entities out there sitting on a pyramid of paper that’s supported by leverage — and no one has any idea what they’re actually worth.
If this were a simple liquidity problem, then the action that’s been taken by the Federal Reserve and other Central Banks ($1.5 trillion worth) would have solved things — but it hasn’t. Instead, the Fed’s actions have resulted in bear market rallies, followed by pullbacks.
If you still think we’re dealing with a liquidity problem, consider the following:
1) Credit spreads — the cost of buying credit is higher today than it was seven months ago.
2) Mortgage rates — these are also higher today than they were seven months ago, even with all of the liquidity that has been pumped in by the Fed.
3) Corporate debt spreads for banks — corporate bank debt is now paying a higher rate than what they can hope to get lending the money out, which is unheard of.
We are now experiencing the classic example of what George Akerlof described in “The Market for ‘Lemons.’”
He basically said that, absent better information, it is perfectly rational for the buyer of an asset to assume that the assets offered for sale are lemons, i.e., the bad stuff.
This is why we’re currently seeing the flight to quality in the way of Treasuries and other things that people can value, while the rest of the stuff is floating out in la-la land.
Well, we are turning lemons into lemonade, so to speak, by taking advantage of some of these situations.
But until the financial institutions and politicians come out of denial and we get to the hard business of triaging the dead loans from the live ones — and, unfortunately, moving about 1 million unqualified homeowners back into the apartments they can really afford — we have more pain to go.
However, we don’t need all of the pain out of the markets to get the “all clear” signal for stocks — we just need to get about halfway there.
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Sphere: Related ContentThink back to some of the massive financial fiascos and blowups that turned the tide in the stock market: Penn Central declaring bankruptcy in 1970; the Fed stepping in to rescue the Continental Illinois Bank in 1984; Mexico’s peso debacle in 1994; and the Long Term Capital Management crisis in 1998.
This brings us to 2008 and the Bear Sterns (BSC) calamity. We were staring into the abyss, but the Fed stepped in and the market rebounded more than 400 points.
This is the stuff bottoms are made of!
We almost certainly have reached a bottom in the financials, but that is not to say there won’t be more blowups and down days ahead. For the most part, though, things can’t get much worse than they are right now.
Consumer confidence is extremely low and we’ve seen the steepest year-on-year drop in home prices since 1968. In fact, some people are buying houses again, because prices are coming back in line with reality.
So, investors should be thinking six to nine months down the road as they’re looking at what to buy now. One area you definitely want to get positioned in is alternative energy.
The 30% to 40% secular growth in alternative energy stocks will not be stopped by a recession or a bear market because:
1) Governments are beginning to mandate the use of cleaner and greener energy and technologies.
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Sphere: Related ContentLook to the West
The answers to the world’s problems are not coming from countries like China or India. They’re coming from the Americas.
Brazil has the first energy-independent economy of the 21st century.
Canada has the resources to replace Saudi Arabia as the No. 1 energy exporter.
The United States has the technology, educational and capital systems, and entrepreneurial spirit to solve the 21st century’s biggest problems. The mortgage meltdown has made people forget that the majority of the solutions needed to keep China and India growing are coming from the good old U.S. of A.
The “America trade” is what you want to be invested in as we come out of this bear market. There’s big money to be made in North and South American stocks that sell their products and services throughout the world
.
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Spending Still Up – But Clouds Loom
· 67% of industry respondents say water spending will increase for next 12 months – a 14-pt decline since June 2007
U.S. Water Spending Trends
· Slower spending growth is seen for the private sector, and for federal and local governments
· By better than a 2-to-1 margin, respondents believe a U.S. recession will lead to decreased water project spending – with local governments the hardest hit
Water Sectors Attracting the Most Spending…
· Wastewater Treatment (Net Diff. Score = +39; up 17-pts)
· Water Infrastructure Repair & Replacement (+68; up 10-pts)
…And The Least Spending
· Water Filtration (+2; down 8-pts)
· Desalination (-24; up 2-pts)
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