Thursday, September 23, 2010

Voodoo Economics

It was a really long week at the real job and I am running out of gas this week. Never fear, as Friday is upon us! The Show will go on.

Voodoo Economics
I spent quite a while on last nights post and I did get some great feedback which is appreciated. I have spent quite some time cogitating on things QE, MMT, and monetary phenomena and I can tell you I am about all set. As a scientist I can tell you this stuff is all make it up on the fly baloney. My only explanation for things MMT and Keynesian crapola is that they look at the fact that the US had been the big dog for so long and has done whatever it wants money wise and they extrapolate out a whole theorem based on that history and the idea that it will continue to the end of the universe. Guys, it could change.

When you are outgunned intelligence wise and outclassed by huge words and round about reasoning all you can do is strike back with sarcasm. It is one more free service I offer! So I am about to let one rip, you have been warned.

Great Link, Now I am Dizzy
Reader Scharfy offered this article in my quest for greater understanding:
FED Mulls Trillion Dollar Policy Question
You can read it but quick summary (All my own interpretation):
QE lowers rates which does not help anything. Stop QE and have fiscal spending as large as you want because there is no limit to fiscal spending for a sovereign nation.

As Scharfy pointed out, reader Brian in the comments asks:
Good stuff, my question is does QE shift buyer base of assets into other things and create inflation (not necessarily good) in other forms? As an example, China no longer buying / and potentially selling Treasuries into the bid of the Fed shifting USD reserves into EURO or GBP or other resources? Does QE shift USDs into different assets as FED is new buyer?

The answer (my take):
All purchases are net cancellations of some part of the money universe so don't worry.

Sounds wonderful.

While everyone is in deep thought how long to keep the Fed statement reading as :
"The baby oil massage will continue indefinitely, but the tantric hold off experiment will end sometime in the next 25 years, so don't delay your happy ending".
I would offer a new idea.

State in no uncertain terms (hard for the FED to do) that rates will be set at 4% on the first Monday in 2012 (provided the Mayans were not correct) and the FED rate will never be less than 4% come hell or high water ever again. That gives one year to take advantage of the best rates you will ever see. Now let's see who wants to buy!

Asked and Answered
I have been trying to square the fact that rail traffic has been higher while real sales and tax receipts are still terrible. What gives? I could argue a few ideas, but what fun is that? Pragmatic Capitalism covers the rail traffic:
Of course the graph used is my most hated, a % year over year change but the press release says some stuff:
U.S. railroads originated 304,679 carloads for the week, up 8.1 percent compared with the same week in 2009, but down 2.4 percent from the same week in 2008. In order to offer a complete picture of the progress in rail traffic, AAR reports 2010 weekly rail traffic with comparison weeks in both 2009 and 2008.
So better than last year but not better than 2008.

My tin foil hat theory? The FED is indeed "printing money" and instead of using electronic means they are actually shipping the paper money all over the world! Think of all those jobs! All that energy usage! First great idea they have had in a while.

Crazy Stocks and a Nice Hit Piece
Readers know by now that the Apple company bugs me. I am no PC guy (I just use a computer, I don't snuggle up with it and speak sweet things to it like some of you weirdos!) so I could give a crapola less if Apple is better, or is easier to use. I also get furious when there is a line at the Apple store for useless gadgets that will not survive even a minor EMP blast from a meteorite. If you think the key to getting a better life is to be MORE dialed in with everyone you know and plenty you don't at all times you are beyond any help I could offer.

Given this prelude, here you go:
Apple Passes PetroChina to Become Second-Largest Stock
So if I can remember my old definition, a stock price is the price thinking about all future earnings divided by time or whatever. So for the math symbol geeks, here is a question:

Is Chinese appetite for gadgets > their need for energy looking out 10 years?

I have a clear bias here, I hate Apple like you cannot believe because it is a cult about 1000X worse and bigger than us gold/silver freaks! What I could do this weekend is get an Ipad and drop 10 ounce silver bars onto it from a height of 3 feet until it shatters. What's the over under on tries? On height? I also want to get an Ipod Nano and flush it down my golden toilet (I am not rich, it's only plated to 1/18th of an inch, the rest is tungsten but it is till crazy heavy!). The toilet is rated to flush over 15 golf balls per flush so I fail to see an issue with an Ipod Nano meeting it's final destination (maybe Nemo can use it).

I could do that, or I could print this piece and re-read it a few times (via Wall Street Forums Writer Ags Nightmare):
I will give a pass to bulls, or should I say gamblers, that have played this "Stairway to Heaven" rally which has pole axed anyone with a negative thought. And I will give a pass to bears, gamblers, that have tried to guess when this stoopid rally will end due to the fact the negative news outweighed the positive. Sure bears are idiots for not seeing the obvious but in a weird way righteous for not buying trash at 300 or chasing space needles. They all end the same way. Don't give us the "we are discounting future earnings" sheet, Wall Street. Not flying this time. This is insanity. Pure bullsheet wafting in the morning dew.
You know I have to excerpt more:
Would I call a bull a bull in today's market? Not really. Just someone who recognizes rigging and moral hazard when it's in play. That is all that is left. Bubbles and crashes. Sure, call me a tin foil hat wearing fool, but if you do not think there is some kind of rigging going on somewhere, you are out to lunch. Real long term bulls are gone and the "it's just a trade" bulls are surfing the 20 foot waves and smoking hooch. In the end, the "just a trade" bulls will end up morphing into chest thumping jackasses that push the envelope too far right before we get ripped. Never fails.
I have argued this point many times but not as well. Last piece but you really should read the whole thing:
So I have a suggestion. If we are going into another bubble, announce it to the American public. Let people know where we intend to top out. If 666 was advertised as the low, how about the high? Just let us know. Or better yet, just open the market next week and place the prices where you want them. Why go through all the bullsheet of taking a year to do it. Get it over with. Then you can freeze everything and give people a window of one week to sell at the high. After that, allow Goldman Sachs, JPM, BAC, and Morgan Stanley to get short and ride down the decline to 666 so we can test our Exorcist low.
"They Make Our Lives, But They Will Never Take Our FREEDOM!!!!!!"
What a great hit piece! I am so envious.

In light of my Voodoo Economics based post, I will close with Joe Rogan's song, "Voodoo Poonanny":


Have a good night.


watchtower said...

Great post!

EconomicDisconnect said...

Glad you liked it, I certainly did! Better to have fun and do what I was made for, sarcasm.

EconomicDisconnect said...

I changed a side bar picture, which one?

Kid Dynamite said...

check this:

i strenuously disagree with TPC here, and I think he's been brainwashed...

he writes:

"If a bank swaps bonds for cash the net financial assets in the system was not changed. This is the key point that most people seem to miss with regards to QE. Therefore, if that bank were to go out and use that cash to purchase new assets they would have to find a seller of equal size. The price the buyer and seller decide upon has nothing to do with the fact that one has cash and one has another asset. The price they agree upon is based upon which buyer or seller is more eager to allocate funds."

as I wrote in my own post comments, this is where commercial banking theory and investment banking reality differ. CS was completely right in their claim of how it works, which TPC was trying to refute.

Kid Dynamite said...

GYC - TPC says he did answer my question, and it all comes down to excess reserves. Their point is that banks have trillions that they CAN spend if they want to, but they aren't doing it.. ie, they are already NOT spending it on treasuries - it's sitting at the Fed as excess reserves... so, when the Fed buys stuff from them, there is no reason to believe that they will have to reinvest it...

that's not quite true, obviously. The banks don't HAVE to reinvest it - actually, they might - if the Fed bought all of the banks assets the banks would obviously reinvest their 0% cash. So there is a sliding scale somewhere - that's my point, that they keep missing.

TPC also keeps mentioning Cash On the Sidelines which is not the right analogy here.

scharfy said...

Phil Collins. Easy Lover

The Wiz. Ease on down the Road

Lionel Richie. Easy Like Sunday Morning

Eazy E. Eazy Duz it.

Any of the above. Theme should be self evident.

EconomicDisconnect said...

Well I think when pressed TPC was vague. I tried to make the best of it but I thnk its funny that we are probably on the same wavelength as far as WHAT QE can do but not the mechanics. I can only hope all those reserves are not available or anyone that has no metals is going broke real fast, like overnight.

a bit late, but I will see what I can do!

Kid Dynamite said...

GYC - final thought on this, because I'm sick of arguing about it - TPC said that my argument was like the Cash on the Sidelines nonsense. 1) Cash on the sidelines IS nonsense - I wrote a whole post about it. 2) there are two things that change Cash on the Sidelines - a) new issuance b) buybacks

when the Fed buys, it's like a buyback (even TPC said himself that it was like the bond was being called!) - that changes (increases) "cash" on the sideline! it may not matter for a 2 year bond, which will mature soon anyway, but a 30 year bond is different.

I think THEIR point has to do more with the fact that 30 yr treasuries are very much cash-like in the current excess -reserves environment, but TPC never responded to that comment either.

fahhhhk it.