Coming Out Swinging

I would not say I am in a foul mood. I mean between the endless cloudy days, rain, and low temps why not feel a bit down. I think it is something else. Ok, I think I am in a foul mood. Combative even. Here at Economic Disconnect I try to look at all kinds of things all kinds of ways and besides for some very pointed comments aimed at Paul Krugman and Bill Gross, I give fair weight to any and all ideas, arguments, and viewpoints. Well today I think I have about had it on many fronts, so this post may be a bit more edgy than normal and I hate that. But here it comes regardless.

Bearer Bonds Story - A Waste of My Time as I was "Snookered"
There were plenty of developments in the story of the 134 Billion Dollars in US Bearer Bonds today, so we will start there.

First off, the bonds have been declared fakes as the Treasury informs us:

June 17 (Bloomberg) -- U.S. government bonds found in the false bottom of a suitcase carried by two Japanese travelers attempting to cross into Switzerland are fake, a Treasury spokesman said.
“They’re clearly fakes,” said Stephen Meyerhardt, a spokesman for the U.S. Bureau of the Public Debt in Washington. “That’s beyond the fact that the face value is far beyond what’s out there.”

So there is that. As Karl Denninger notes:

Ok, let's accept both parts of that statement (yes, there are two) at face value:
The "bonds" seized in Italy are fake.
"The face value is far beyond what's out there."
The latter is exactly what I noted is out there in authorized issuance in my second story on the matter:
Mr. Holmes would be initially puzzled by such a caper. On the one hand we have the impossibility of the bonds being real, because there simply isn't $130 billion of issues remaining outstanding.
As it turns out, the Bloomberg update tells us something surprising:
Meyerhardt said Treasury records show an estimated $105.4 billion in bearer bonds have yet to be surrendered. Most matured more than five years ago, he said. The Treasury stopped issuing bearer bonds in 1982, Meyerhardt said.
$105 billion? Uh, that's a lot more than the DTC estimates I've seen, which were in the area of $3.5 billion outstanding! Suddenly there's thirty times that on deposit with the DTC out there according to Treasury?This also leaves the second part of the question open:
On the other hand we have the impossibility of negotiating a fake $500 million bearer instrument, making the exercise of counterfeiting one expensive and futile.
Finally, what happened to the two gentlemen caught with them?
The latter is a rather important question, I'd think. See, counterfeiting is a serious offense. Just try printing up some fake $100s or $20s and see how amused the Secret Service is (hint: don't try this at home unless you are interested in a free stay at Club "This Ain't Fun" Fed.)

So the Treasury reports that there are 30X more bonds than previously thought out there somewhere, but still less than the 134 Billion amount found on the two guys. So they are fake.

My interest in this story was due to to the obscene amounts being reported. I was never of the opinion that these things were undeniably real, but there was that possibility. The story has so many angles I found it compelling reading. Add to this that it seems the Sicilian Mafia may be behind the bonds and this tale is still a great read. That the treasury has now disclosed the 105 Billion amount was another thing I wanted to come out of this caper; just how many of these things are out there?

But it seems I was wasting my time. One of my most respected bloggers and inspirations to write this blog is the author of Calculated Risk. On a few occasions I have emailed CR asking to use his charts, and he has always been a great help. I was a bit bemused to see CR finally post this about the bond story:

Some mid-day amusement ...
This was funny ... I never posted on this, because it was pretty clear there wasn't any real story. Maybe the post should be titled: "How some blogs were snookered!"
But a false bottom in a suitcase?

Now I would venture that CR really means the blogs that were writing things like "Bonds are real, US is toast" and such things, but really I took the dig a bit personal. I felt, and continue to feel that this story has real merit. If the mafia is using bonds like this on this scale, just who is buying them? How does this fake money relate to the troubles countries under strong mafia influence (think EASTERN EUROPE) have been having financially? There is plenty of stories here, but move along as forgery of US debt instruments on a massive scale can never cause any issues worth paying attention to.

Jobs Numbers and Moving Goalposts
I am not going to parse the jobs numbers, they are still terrible. But hey, getting less terrible at better rates so that's nice. Today my favorite economist who shall remain nameless offered that for unemployment to stabilise and to call the end of the recession, the initial jobless claims will have to come down to -400,000. Today's print was over -600,000. A few years back this guy was railing because employment was only GROWING at about +300,000 jobs a month (a positive 300,000) and said that was not even enough to support workers entering the job force. But now losing 400,000 a month will be just so great. That 700,000 spread is hard to reconcile, but he does have a Nobel prize.

Gold on it's Way to Zero; At Least the Top Will be in for "Gold Stinks" Stories
As gold continues its path towards a new range of 0-$10 an ounce at least I will be spared the avalanche of "gold stinks" stories because nobody writes about anything when it is at zero. We know that gold is going to be worthless in an upcoming metal route because it is going to be sold in gram quantities in ATMs. Also, I find the reasons set forth by this author, on Minyanville no less, so persuasive I have to share them with the readers right this second:

Five Reasons Not to Be a Gold Bug
The arguments for why you should sell your cat, pawn your mother-in-law, and use the proceeds to buy gold are well known: The friendly Fed is printing money faster than you can read this; it will result in inflation; the government is borrowing like a drunken monkey; the dollar will be devalued; all currencies will be debased; the only thing that will save you is that shiny yellow metal, and so forth.
Here are some arguments, however, for why you should think twice before jumping into bed with gold bugs.
1. For investors (not speculators), it's very hard to own gold because they can't put a value on it. Unlike stocks or bonds, gold has no cash flows, and has a negative cost of carry (meaning, it costs you money to hold it). It's only worth something if people perceive it to be worth something.
2. GLD ETF (GLD) is the sixth largest holder of physical gold in the world. If its holders decide (or are forced -- think hedge-fund liquidations) to sell it, to whom will they sell it?
3. In the past, gold had a monopoly on inflation and the fear trade -- not anymore. Now you have newly emerged competition from TIPS, currency ETFs, short US Treasury ETFs, and so on.
4. If gold fails to perform because of reason number 2 or 3, the perception that gold is worth something may be violated.
5. Over the last 200 years, gold wasn't really a good investment. It may yet have its day in the sun, but it also may not. The cost of being wrong is pretty high.

Oh My god! That was some powerful stuff! I mean the reasoning is so solid we could even take another look at it and be awed by the sheer brilliance.

Number 1 is hard to argue against:
"For investors (not speculators), it's very hard to own gold because they can't put a value on it. Unlike stocks or bonds, gold has no cash flows, and has a negative cost of carry (meaning, it costs you money to hold it).It's only worth something if people perceive it to be worth something."
Now this one really opened my eyes. Something only has a value based on perception? Who knew? All those houses in Phoenix Arizona that were selling for $400k in 2005, and now sell at $150k was is based on cash flow? Did the price/rent ratio get skewed that bad in that time?

So you say stocks and bonds can be valued by cash flow? Is GOOG trading on it's cash flow? No? Is it trading on what people perceive some future cash flow may be should GOOG ever really be able to monetize eyeballs? Nah. GOOG is always trading at cash value no doubt. How did the S&P ever get to 666 when the cash flow models were so much better? Who knows, but gold is dead. Great argument.

Number 2 is as mind changing as number 1, only less so:
"GLD ETF (GLD) is the sixth largest holder of physical gold in the world. If its holders decide (or are forced -- think hedge-fund liquidations) to sell it, to whom will they sell it?"
I had never really considered this. For every sell there is a buy, except when gold is sold, then the buyers fail to materialize. I mean, when all that toxic mortgage debt had no takers, the government took it all in. They were the buyers of last resort. I do not think uncle SAM has any need for gold though, so in a forced liquidation gold would have to go to zero, no negative whatever the carrying costs are, in order to be moved. I guess GLD is crap out of luck on this one!

Number three may make you want to sell your wedding ring, so be warned:
"In the past, gold had a monopoly on inflation and the fear trade -- not anymore. Now you have newly emerged competition from TIPS, currency ETFs, short US Treasury ETFs, and so on."
Brilliant! I had never considered that if the US government printed so much money that they were forced to debase the dollar and hyperinflation occurred that I could simply buy more debt instruments, backed by the full faith and credit of the US, to offset that inflation! Amazing! I read that Zimbabwe made their TIPS holders whole, even at 1000% monthly inflation. This is sooooo simple!

Number 4 just scares you with what the writer already said:
"If gold fails to perform because of reason number 2 or 3, the perception that gold is worth something may be violated."
Hard to argue with that. Performance anxiety is an issue for all of us!

Number 5 is a summary:
Over the last 200 years, gold wasn't really a good investment. It may yet have its day in the sun, but it also may not. The cost of being wrong is pretty high.
Obviously if your investment time lime is 200 years you need to stay away from gold. It is far better to go with tulips (think dividends) and cabbage patch kids (think rarity) when planning for the long term.

Very convincing stuff!
Full Disclosure: Long gold and silver and will be all the way to zero for each. As they fall I will simply dollar cost average in (as they suggest on CNBC) so I will be protected. Oh, wait......

Inflation vs. Deflation and the Limits of Rational Discourse
I think the inflation vs deflation debate is an attractive thought experiment with far reaching implications. I will say up front I am pretty strongly in the "deflation now, inflation later" camp and that is no cop out. I never mince what I say or mean. I could care less about pleasing any audience by changing my opinions based on group think. I think the great debates and interactions featured here in the comments section here at Economic Disconnect have been some of the best, most civil, most accepting debates anywhere on the net. I appreciate all for their great ability to keep it intellectual.

That said, there has been a change in tenor from both sides of the debate as of late. Inflationists are calling deflation thinkers "dumb". Deflationists are attacking inflation types with terms like "blind", and "unable to see what is in front of them". This has to stop. I will delete any such comments from this blog, but I doubt I will ever have to police the comments as the crowd here is top notch. We even have outliers in the "Stagflation" camp, though that one has moved to the "Negflation" outlook as of late, but he is a bit crazy anyways! (just kidding Mark)

To see why this debate is hard to reconcile, we should start with the clear fact that NOBODY EVEN AGREES WHAT THE DEFINITIONS ARE for inflation and deflation. Some point to money supply, others to prices paid, and others to random data points.

I would like to put out an idea I have been working on that may help many of us get onto the same page. I have not fully developed this idea, but I thought it would be good to get it out there and get some feedback. Perhaps deflation and inflation proponents are closer in view than they know. Consider:

Classic Inflation Definition: Tons of "cash" (whatever iteration) chasing too few goods pushes prices up. How that cash was made (money supply, easy credit, etc) is not central to the argument. Many cannot keep up and hardship occurs due to lack of ability to buy needed goods/services.

Classic Deflation Definition: Money supply (whatever iteration) normal or low but not being put into purchases of goods, causing prices to fall. This reinforces the pattern and a spiral down ensues that causes hardship through various channels (loss of job, loss of equity in home or investment etc) which feeds itself.

Yes simplistic, but remember I am the easily "snookered" type. (Still burns)

Now consider:
In inflation (be it regular or hyper) you have ever increasing asset values, but the pace of increases of all the things you need are going the same rate or faster. You either go nowhere or fall behind.

In deflation (I think there is only regular) asset values are falling which destroys the equity in them, decreasing money supply as debt is defaulted on. Everything falls in price INCLUDING YOUR WAGES, hence you are chasing necessities that are falling in price, but your assets are worth less and your paycheck getting smaller. You either go nowhere or fall behind.

I think the core issue to think about is how much relative income you have that will have to chase relative prices and here I think the two views are more alike than thought.

Again, this is a theorem in progress and I would ask all readers to offer their ideas in the comments section. I value your opinions and I think this thing has some merit. Or not. Leave a comment anyway!

Ok, enough for the night. I will be online for a bit, so please get involved as I would like to get some feedback.

Have a good night.

Tuesday Late Night

Home late from a work related function, but some links are in order.

More Bearer Bond News
Oh boy, now the Italians want the SEC to make a ruling on the bonds authenticity. Market Skeptics has the goods.

Krugman Is, and Always was a Keynesian Clown
Mish delivers the knockout blow with this story. Dead to rights line from Krugman himself in August 2002:

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Game over. The housing bubble was both done on purpose and finally exposes Keynesian economics for what it is: Useless and Dangerous

Other Stuff
A good friend of Economic Disconnect has plenty of content up tonight, so why not check out Illusion of Prosperity?

Another new stop for me is Accrued Interest.

And of course, if you have not checked out The Automatic Earth, well, you are really missing out.

Have a good night.

One Thing At A Time

Mondays can be rough. Today was one of those Monday's. Either I need a 4 day work week or I need the day to be 30 hours long instead of 24. Not likely!

Bearer Bond Media Note
I am not going to let this story die off, so i will try and find at least one mention of it daily.

Clusterstock's Joe Weisenthal was on the Glenn Beck show and did a small discussion. See video here.

Inflation/Deflation - Another View
An interesting take over at Accrued Interest on the -flation debate:

FED: Deflation? Over My Dead Body
But will we see CPI print below zero? Only if the Fed fails. In other words, sustained deflation remains a remote possibility. But sustained Fed interference in the markets in attempt to avert deflation is a strong probability.
So the bet should be not on deflation outright, but on the fallout from attempts to fight it. Weaker dollar. Higher commodities. Low short-term rates (including buying 2-year bonds as opposed to holding cash). Flat yield curve. Lower mortgage rates (at least from here).
That's is how I'm playing my deflation view.

I left a comment chiming in that would it be possible for deflation to take hold AND have a weaker dollar? An interesting thought experiment. The author seems to be closely aligned with my theorem that in the course of peeing their pants about deflation, the FED will cause all kinds of other damage trying to stop it. Leading to inflation! Eventually.

Dick Bove Sighting
I have spilled pixels on Dick Bove many times over the past 2 years, so I thought I might give the guy some more attention:

Dick Bove: Bank of America Faces “Horrific” Loan Losses (BAC)
"In the second quarter, (Bank of America's) position as the largest lender in multiple sectors of the American financial system will haunt the company as its losses expand," Bove said.
Nonetheless, Bove rates the company a buy, and raised his price target to $19 (from $14). He expects the price-earnings multiple on the stock to rise, and thinks confidence in the bank and its management are improving. This reminds us, of course, of our thesis from this weekend: the government’s guarantee against bank failure is driving up stock prices.

As an investor I try very hard to isolate companies who will "be haunted by expanding losses" and then load up on their stocks. NOT!

One Thing at a Time
Markets took a hit across the board today, with losses reaching their worst sizes since April. There was a ton of noise out there today, so I want to touch upon some things I was looking at.

It seems almost like the same players that are responsible for the two month gunning of futures right before the market close are unable to do two things at once. Today mission number 1 was to get a dollar rally. Helped by the Russian communication (so soon after the 135 Billion in bearer bonds was reported) that the US dollar was King Chit of Turd Mountain (KSTM) spurred the buck higher on the day. Of course a higher dollar is bad for stocks, oil, metals, well everything so everything fell.

As far as specifics, I will likely be stopped out of my SPY position taken a while back if there is further weakness. I have removed stops of my buys of SLV, GLD, and PAAS even though they are looking a bit weak here. Yes, I am a metals addict.

I should know better, and Tim Knight lowers the boom with Broken GLD:

"My precious metals shorts have done well for me; GLD now has broken a major trendline. Precious metals could be in serious trouble now."

Tim is a sharp player and I respect his call. Still, this is the 17th time in the past year that GLD and SLV have broken down on their way to zero and yet they still hang tough. We will see.

It seems the relationship between the dollar and stocks/commodities/metals has become super sensitive. The dollar only moved up from mid 79's to low 81's on the index so the aggressive move on the other end seems a bit overdone.

This relationship is a major contributor to my view that the dollar will have to weaken for any stock rally to continue. There will be one day wonders where the concentrated efforts to push it up occur, but the general market puking reaction will snuff that out.

It is a wild interconnected mess we have here. Balancing the buck and foreign interest in it with the need for a recovering market is a delicate dance. The folks in charge of the music think they can do this without a serious dislocation in one or more of the parts. Who has such a high opinion of their own abilities? From 10 years ago:

I submit the Committee to Save the World. Rubin and Summers are once again at the helm, and while Greenspan has since sailed on, we now have Ben Bernanke in the same position as Greenspan in this picture: The public face while the two behind him hold knives to his back.

I am sure this will all work out well.

Have a good night.

Taking a Look from a Better Angle

Another dreary day here in Massachusetts. Tomorrow it is supposed to get a bit better. Get your requests in for Friday night entertainment. Judging by the soporific site hit numbers and the lack of comments maybe everyone is asleep!

Softball Question
In a blog post today the fine site The Baseline Scenario asks:

"Does the Administration Care About Executive Compensation?"

As I am always glad to help a fellow blogger, here is the answer:
NO.

Elucidation Required Immediately
Both Zero Hedge and Clusterstock were all over this story about

$135 BILLION in US bearer bonds being seized in Italy
US government securities seized from Japanese nationals, not clear whether real or fake
Bonds worth US$ 134.5 billion are seized. This is the largest financial smuggling case in history. But are they real? Concern over ‘funny money’ or counterfeit securities is spreading in Asia. The international press is silent.

The specifics are not known right now, but there is plenty to mull over here.

First up, what is a bearer bond? The first thing I thought of was the film "Die Hard" with Bruce Willis where the "terrorists" were actually thieves trying to steal a mere $600 Million in "negotiable bearer bonds". Also in the film "Heat" bearer bond theft is featured. As I followed this story all day, most input seemed to imply that these bonds are easily traced. Not sure then why stealing them would be such a hot topic then?

From Wikipedia:

A bearer bond is a debt security issued by a business entity, such as a corporation, or by a government. It differs from the more common types of investment securities in that it is unregistered – no records are kept of the owner, or the transactions involving ownership. Whoever physically holds the paper on which the bond is issued owns the instrument. This is useful for investors who wish to retain anonymity. The downside is that in the event of loss or theft, bearer bonds are extremely difficult to recover.

I am no expert, but it seems these items are truly like gold, liquid and very hard to track.

Consensus opinion, which is always correct, at this point says that the bonds are forgeries, counterfeits. Of course this tale has yet to make any splash here in US press. Assuming they are fake, these counterfeiters are the most inept in history.

The immense size of the bills, 135 BILLION total, makes selling them in smallish blocks of say 100 million almost a lifetime worth of effort. These were captured all together, so a small sale was not the plan. If these are fakes, some fool was about to drop 135 billion.

This story demands an explanation on a few fronts:
-Are the bonds real?
-Do bonds like this exist, if these are fake?
-How many?
-How are they used?
-How might this impact bond markets?
This bears watching.

Bond Auction Final Word
After yesterday's 10 year sale was called a draw by Economic Disconnect regarding my "great auction" call, the 30 year was the tiebreaker. Of course nothing is that simple!

To refresh, the details of the 10 year sale were:

"The bid-to-cover ratio, which gauges demand by comparing the number of bids with the amount of securities sold was 2.62. It was 2.47 last month and has averaged 2.40 at the past 10 scheduled sales."
"Indirect bidders, the class of investors that includes foreign central banks, bought 34.2 percent of the notes, up from 31.9 percent in May. The average at the past 10 scheduled auctions is 25.8 percent."
"The notes auctioned today drew a yield of 3.99 percent, compared with the 3.975 percent forecast (0.015 miss higher) by seven bond-trading firms surveyed by Bloomberg News." Which drew this from Accrued Interest:
"The 10-year auction was horrible. Non-fixed income people don't realize how big a miss 3bps is on a 10-year auction."

And headlines proclaimed the auction "poor" to "terrible"

The 30 year sale direct comparison via Bloomberg:

"The bid-to-cover ratio, which gauges demand by comparing the number of bids with the amount of securities sold, was 2.68. It was 2.14 last month and has averaged 2.21 at the past 10 scheduled sales."
"Indirect bidders bought 49 percent of the bonds, up from 33 percent in May. That class of investors bought 65.4 percent at the February 2006 sale, when the Treasury brought back the bond after a five-year hiatus."
"The bonds sold today drew a yield of 4.72 percent, the highest since August 2007. The average forecast by eight bond- trading firms surveyed by Bloomberg News was 4.80 percent." (a miss 0.8 lower). As of writing Accrued Interest has no additional take.

Headlines were screaming "good" to "very strong' auction.

I am going to declare victory! I was right that no way, no how was this auction going to go poorly. Identical numbers, and the miss on yield estimates was 53X better to the downside! I win, right?

Karl Denninger has a rather bleak take on the sale and what it implies:

30 Year Bond Results: Beware
The auction results make absolutely no sense! under "conventional wisdom."
Median yield down, primary dealers took about half and indirect bidders took the other half, basically.

What? 50% take for foreign central banks on 30y debt at a 4.6ish coupon?

That makes no sense given what we're being told is coming: massive inflation, maybe even hyperinflation, commodities ramping to the moon, the stock market going to the moon in a hyper-inflationary printing explosion.
The stock market rocketed on the release. I couldn't make sense out of the initial FX moves, especially in the DX and Yen. Someone was front-running in the financials bigtime as well, with a big ramp for an hour or so prior to the results.
Folks, if you think hyperinflation is coming, or even serious inflation, you're going to get your head cut off on a 4.6% 30y bond. In fact you could easily lose half or more of your investment, should you need to sell, and your coupon will be half or less of what it should be.

So how does this make any sense?

There is only one reason for the FCBs to want this sort of exposure:
They expect a ramp in the dollar and crushing DEFLATION, as this is the only way that bet will pay off.
If you're on the other side of this trade in any way, I hope you are putting on some sort of hedge.
Remember, foreign central banks can FORCE a pull in liquidity and make their desires a self-fulfilling prophecy.

Care to bet against someone who can make their bet pay off?

That's what I thought.....
Oh guess what - the primary dealers would like this outcome too......
PS: If this analysis is correct then we're in for some really NASTY trouble, quite soon. If you're short Ts, short dollars or long equities, your neck is in the guillotine. Better move before the blade falls!

I have no desire to disagree with Mr. Denninger, he will forget more about the markets (by a factor of 100) then I will EVER know. I really hate to quibble, but his line:
"They expect a ramp in the dollar and crushing DEFLATION"
Just hits me as wrong as can be. If the dollar gets stronger, people can buy more useless cheap China crap and it will hurt them less. So a general contraction is spending to wait for "lower prices", deflation, will not happen. Not that Chinese products could get much cheaper. I do not want to start a big fracas, and this will not because I doubt very much that Karl will ever see this blog, but we are at one of those deflation vs. inflation points where any 100 observers will define both so differently that you simply cannot have a discussion about it.

All in all, I proclaim my bond sale prediction correct and I invite any and all to offer alternate takes in the comments.

Taking a Look from a Better Angle
Usually when I am going to write a post, I single out 2 or maybe 3 items that really caught my attention and focus on those. Lately I feel that I have been pulled in many directions and the general noise level has risen to distracting decibels. I mean, I never mention bond auctions unless they fail, and fail in the real sense. I think that all the cross currents of information and conflicting reports have caused me to be too focused on small things.

Taking a step back and getting a better view from a more distant angle is a good idea at this point, and I would like to thank the fine author of Capitalist Preservation for inspiring me on this. In response to inquiries why she does not post frequently, the author offered this explanation:

This was only a test. If this had been a real emergency, our government would have said so. Ok, they did. But, that was then, this is now. Everything is all right and we may return to our regularly scheduled programs.
I've been asked why I'm not posting more about the market. Well, there's not much reason to right now. The story has been the same for months: the charts are broken, the government is lying and the market is in a holding pattern based on hope. Here are a few tidbits floating around the financial news world that have not changed in freaking weeks, with a few other absurdities. Believe what you will:

the list following this intro is compelling, so you should take a look.

It is like when you stare at a dot on a piece of paper too long, eventually you see two of them. Reality has not changed, there is only one dot, but your perception has.

So I would like to get a bit of distance and see the one dot.

Stepping back, here is what I see:
-Unemployment looms large. Today's number of 600k initial, almost 7 MILLION ongoing claims IS a disaster. It is only in the small window world we have right now that this is seen as "good". Consider that even if initials dropped to 0 in the next report (dream on) and then the next month 300k jobs were created, it would take almost 2 YEARS of 300k monthly job creation to recover just the jobs lost, not even accounting for new workers. Stick that green shoot in your pipe and smoke it!

-Just because something has not happened in a long time does not make it impossible. For year the scientific community refused to believe bacteria existed. The possibility of their being real could only be proved indirectly by various old school porcelain filters and hard to prove experiments. The possibility of viruses was even harder to imprint on the best minds of the time.

Keep that in mind when you read this passage featured on Zero Hedge (by JPM's Michael Cembalest) and note this section:

As for the dollar, we can put off a discussion on its status as the world's reserve currency for another day. We don't think it’s disappearing, but the Portuguese, Spanish, Dutch, French and British probably didn't see the end coming either. Joseph Yam, the storied head of the Hong Kong Monetary Authority, refers to the eras of reserve currencies as Portugal (1450-1530), Spain (1530-1640), the Netherlands (1640-1720), France (1720-1815) and Britain (1815-1920). 100 years looks like a long time.
The notion that the Chinese yuan could replace the US dollar as the world's reserve currency may strike some as odd, or at least very premature. But in 1920, only 7 years after the creation of the U.S. Federal Reserve, the notion that the dollar would replace the British pound probably sounded even more bizarre, given the recent memory of US defaults on Civil War debts, a major depression in 1893 and the Panic of 1907. I thought it was notable that the Chairman of the state-owned China Construction Bank called on the United States and the World Bank to begin issuing yuan-denominated bonds, after several other steps taken this year to increase the yuan's convertibility.

Remember today's idiot is tomorrow's best economist, which leads me to the final point...

-The top economists of any era are those that have been proven to "understand" past failures. Ben Bernanke is an expert on the Great Depression. Paul Krugman, the Nobel prize winner, is renowned for his expertise on the Great Depression and the Japan Deflation. I say let me now when the exact circumstances of today's episode occurs, in a separate universe so it can be studied endlessly and models made of them so that things "fit", and then can be used in real time today. Oh, no time travel machine or super string theorem to make that happen? Then those clowns are just guessing.

As am I.

I have been too focused on the micro, when the macro is all that matters. I have stated many times that the problem with economics is the glacial pace at which it moves. By next January we will know if "green shoots" were true or if they were second derivative baloney. Next week we will not.

Have a good night.