Wednesday, February 17, 2010

Information Overload

Of course on a day when I have no time I come across plenty of good things!

IMF Gold Sale
Gold was stumbling today on word the IMF was selling gold. Check this headline from Clusterstock:
IMF Announces Gold Liquidation, Sending Bulls Hiding In The Corner
I thought that another sale was in the works but this announcement is just the OTHER half of the 400 or so ton sale announced a while ago. India bought the hole chunk last time from the IMF.

Maybe more sales are in the works, and in the end it makes perfect sense (to bankers anyway). Sell gold to raise cash to bail out broke nations. Sounds like a winning strategy. At some point there will be some nations with gold and many others with plenty of paper. Who will be better off?

This leads me to.....

Modern Markets Theory
I have never heard of MMT but I stumbled upon a post over at Kid Dynamite's site that opened the door:
Two Sides to Every Story
Check it out for the particulars and for linkage to Billyblog. Great discussion on both sites going on and it may be worth a look.

My quick take, and I am using my words and observations not those of the people that really have a grasp on this idea, a country can never print too much money and the government is a great conduit to channel aggregate demand. Obviously I would disagree 100%, but I am not very enlightened either!

UK is China in Bond Market
Last post I noted that China may have been dumping US debt. Well it seems that may not be the case as China can do their buying through various intermediaries and thus the drop by China proper is not a big deal. Or something. I wonder why this crap cannot be more transparent?
Zero Hedge's take.
EconomPic's discussion.

Essay on Topic
On the question I have been working on about debt limits, Mish of course has a great article up that directly speaks to this:
Law of Diminishing Returns of Credit Expansion
Very interesting.

Have a good night.


watchtower said...

I noticed in the 'total credit market debt as a % of GDP' chart over at Mish's started to zig down at the very end (2009?)

Here is a good pic of it:

What does this mean (besides the obvious)?

I thought it would have continued to trend upward for quite some time before dropping (but what do I know).

Stagflationary Mark said...

You asked what I thought of Bill Mitchell on my blog so I thought I'd offer something here that's related to what he wrote.

“If the Chinese do not want to buy US Government bonds then they will not. The US government will still go on spending and the Chinese will have less $USD assets. No loss to the US.”

Given all that I know or think I know (might be a big gap there, lol), I do think the current real yield on the 30-Year TIPS is reasonably attractive. Not sure how high the inflation adjusted yield will be, but it should be at least 2.1% if today's rates are any indicator.

The auction will be announced tomorrow in theory and I will be a buyer. I will be holding it the full 30 years so I'm not all that worried about interest rate risk. I freely admit that it is not a risk-free trade though. 30 years is a long time. We could hyperinflate or we could simply default outright.

I do not believe there are any risk free investments though, especially these days.

I can point to one that makes no sense to me. According to Bloomberg, the 5-Year TIPS yields 0.14% over inflation.

One underlooked nightmare would be investing and reinvesting in 5-Year TIPS over the next 30 years and continuing to see such lousy rates. After taxes, that could easily chew through a nest egg's purchasing power.

I think people are doing just that though, and not knowing it. Many of the inflation protected treasury bond funds have fairly short durations.

As you may recall, I sold a good chunk of my TIP bond fund in November as its price rose. Cash has since outperformed it. I'm not up much, but a little bit anyway. It was a decent trade so far. People still seem convinced that it will earn them 12% this year though. I think they are going to be very disappointed.

If they do get disappointed, what will they do next? That is the $64,000 question.

It is quite possible that they will push up your gold and silver investments to newer highs. Who knows? In any event, I'll be riding out the storm, at least in theory, in what they probably thought they were invested in but weren't (TIPS with decent real rates).

It might actually work for both of us, even over the long-term. I don't want them investing where I am. It drives down my yields and makes the place I want to invest less profitable to me. You do want them investing where you are though, so as to drive up the price of what you own.

It's certainly possible that we could both do all right. Who knows?

Kid Dynamite said...

fyi - i don't think the MMT crowd thinks that you can never print too much money. i think that they think that you can remove the excess money when you need to through taxation.

i don't think it works in the real world. the model is relatively sound in the utopian classroom though, which probably makes it even MORE dangerous.

Dave in Denver said...

gyc, that "Anonymous" dude who left some comments under my IMF post knows his shit.

watchtower said...

Does the little zig down at the end of the 'total credit market debt as a % of GDP' chart mean that we have net zeroed on the 'diminishing returns from each $1 of new debt in the US economy' chart?

watchtower said...

Here is what I'm saying, I've been watching that 'total credit market debt as a % of GDP' chart for over two years now and it looks like it hasn't seriously trended downward since about 1981...until now.

getyourselfconnected said...

you are a debt addict, I mean a debt information addict!

getyourselfconnected said...

great comment!