It is going to be very cold tonight, so you can imagine how happy I am about that. I am feeling marginally better today (thanks for asking!) and hope to continue to improve this sinus issue.
Star Wars in Concert
I wanted to pass along thanks to a very good friend of mine who alerted me to what could be one of the greatest ideas of all time. I give you:
Star Wars in Concert
Economic Disconnect will be on the computer when tickets go on sale Saturday morning for the Boston show, and no matter what I will be going to see this!
Breaking Bank of America News
This story is just coming online as I write, so I thought I would offer my two cents on it (link for Zero Hedge edition of saying goodbye):
Ken Lewis is Gone
Mr. Lewis will leave BAC by years end (that soon?) and if seems rushed to you, then you think like me.
This is some kind of ploy to take the heat off all the legal cases involving the BAC/MER deal. Sadly I think it will just that. I am not a legal scholar and have no idea how this will affect things, but politically the heat will not be turned down on anything involving BAC over the past year. Which is too bad.
Whether Deflation or Inflation, Things are Going to Change
Trolling around the financial world I was overwhelmed with the continued raging debate over deflation, inflation, or some monster born from the two. I have covered that debate too many times to really wade in again. To be honest, we are just not going to know the real answer for some time (think 5 years out) so a daily grind of data points is wearing me thin.
What cannot really be debated is that our system is going to change because of the financial crisis made possible by a careless government and reckless banks armed with liquidity which had no end. If we can all agree on that, I think that may be a good start.
I think my favorite part of the deflation/inflation debate is that you, the ordinary person, will find the real world effects almost identical to your daily life. I think most of the emotion about this area of contention is the belief that one may be able to position themselves in such a way to be insulated (to whatever degree) should either scenario unfold in earnest. On that, allow me to offer some advice.
If you are extremely well to do, or rich, then forget all this stuff and carry on. In a major deflationary episode you will either be in control of hard assets (which no one can buy) but will have utility and cash that has gained a significant amount of purchasing power (which you will not want to spend). If we enter a major inflationary phase, you are already way ahead of most chasers, and can buy hard assets for protection and move your value losing cash into another vehicle.
If you are the other 90% of the population, you will just have to do the best you can.
I stand by this call. In deflation, everything costs less and dollars are worth more as spending falls off a cliff. Of course, so does wages, so with less dollars that will buy more, you are struggling to get what you need. In inflation, everything costs more, and you of course will get paid more in dollars that will buy less, so again you will struggle to have what you need.
What's the debate?
Economic Disconnect prides himself on the very keen observations of the readership that frequent the site. If you would like to add to this debate, here is the question that may change the debate to more real world terms:
-If you only had $20,000 today, in what way would you try and prepare yourself for;
A) Deflation
B) Inflation
That's it. $20k. No leveraging the house, no liquidation of your entire net worth, just $20k. And no poking at people that "should have saved more in their life", they did not so it is not relevant. I might add that $20k is far beyond the immediate cash position of many, many families and individuals.
I look forward to the ideas.
Have a good night.
Showing posts with label Defaltion vs. Inflation. Show all posts
Showing posts with label Defaltion vs. Inflation. Show all posts
Wednesday, September 30, 2009
Wednesday, July 8, 2009
Hyper Inflation in the Confusion Market
Here I was ready to not post and then a startling news story breaks and I had a thought I wanted to write about from earlier in the day! Tomorrow I will be prepping for a Friday fishing trip to the Quabbin Reservoir, so certainly no post.
Running Out the Clock Explained
I have harped on the banking/government/FED/Treasury unified theory of running out the clock. By my line of thought, hiding losses and providing "liquidity" are the two steps decided upon to try ans wait out some kind of material improvement. Today Calculated Risk had an extended excerpt from an interview given by Bryan Marsal, CEO of Lehman Brothers Holdings (he is overseeing the unwind) that explains this all far better than I can. Here is the game plan from an insider:
And there it is plain as day.
Now one might wonder why the entire banking sector, the government, and companies across the board think playing for time is going to work. Perhaps they know something we don't. I was thinking about this another way:
If debts are going to be rolled over into new never to be paid loans guaranteed by the government, then the losses may be able to be hidden for as long as no major "call in" occurs.
Sick and sad but that is what the deal is.
Goldman Sachs: The Story with no Ending
This evening there is a story so important, so world changing, and so believable that you should at least take a look before I kill off all the excitement (from Market Ticker):
I encourage the readers to check out Market Ticker and the links to Daily Kos (I know, a pretty crazy site, but this story is hot!) and get excited and scared all at once.
After you are done reading, and before you try and pull all of your accounts from everywhere in readiness for the financial market collapse, hey I said WAIT!!!
Still here? Ok.
Nothing at all is going to come of this story.
Now do not get me wrong, there is some real meat here and I personally have NO DOUBT Goldman Sachs has been front-running trades via complex networks and thereby "skimming" as much as 100 million a day from what is easily illegal activity.
And that is why there will be no story, no action against Goldman (at least in the open), and no market dislocation.
If this is true, it cannot be allowed to see daylight, and hence it will not. There is simply no way, no how.
Ok, now you can still get crazy, but keep it "contained".
Hyper Inflation in the Confusion Market
I am not one that sets his feet to an idea and refuses to move no matter what kind of information or argument is presented before him. I have been wrong so many times about so many things I have experience in changing my view, yes flip flopping, should I think I am wrong. There is nothing wrong with changing your mind as long as you have as solid line of reasoning behind it.
So here I was, thinking about the whole inflation/deflation debate that we have all been having. After careful consideration of the great Stoneleigh missive on deflation and the followup by Ilargi both of The Automatic Earth, I must say my inflation scenario was losing steam in my own mind. Add to this the daily data that Mish Shedlock provides and I was feeling like a deflation type of guy.
And then out of no where I became all confused again.
The culprit today was, strange1y enough, a Mish piece on deflation! As I was reading this article from today I was ticking off the deflation proofs presented and was again feeling the deflation groove. Mish covers all the usuals, but then this line hit me over the head:
And thus came my confusion.
I hardly ever find myself at odds with Mr. Shedlock, but this line was a head scratcher for me.
Now we have entered into a period where as long as relative money magic is applied, all will be well? If this is so, then cannot every country simply print up some amount of money (relative to their monetary bases), use this new money to retire debt (debt deflation), and then all can go on as if this whole episode never happened? As long as each country stays withing relative limits, is there something wrong with it?
Say the US goes 5 trillion, China 2 trillion, Japan 1 trillion, and so on, could not enough money be "printed" to offset the debt deflationary cycle? As long as some parameters are kept fixed, then no currency should have issues as they are all doing the same thing, yes?
I admit I am confused by all this. A currency is measured, of course, against other currencies for the most part. It is also measured against goods and services. But if all money is funny money, will all money be just as good as it is today?
I am sure Mish has a well thought out process about that line, and to be fair it was two tiny sentences in a long article, but I have been stuck on it all day.
And thus I am still on the fence on the whole deflation/inflation thing. With the entire world printing money it is hard to imagine it will not come down to roost somewhere. While deflation says people will just save it, and banks will not lend it, and it will just be used as a set aside for losses the money is being put out there. Eventually it will replace the bad debt. Then it will enter the money system at some point.
I liked it better when I was not so confused!
Have a good night.
Running Out the Clock Explained
I have harped on the banking/government/FED/Treasury unified theory of running out the clock. By my line of thought, hiding losses and providing "liquidity" are the two steps decided upon to try ans wait out some kind of material improvement. Today Calculated Risk had an extended excerpt from an interview given by Bryan Marsal, CEO of Lehman Brothers Holdings (he is overseeing the unwind) that explains this all far better than I can. Here is the game plan from an insider:
One of my partners said yesterday that we are going to call this phase the "extend and pretend" phase in our economy. Which is you extend someone's maturity - because they are going to default - and you pretend that business will come back or that leverage factor is going to come back.
Then we'll enter phase two, which he said is the request to extend or "amend".
Then "send". In other words send the keys.
That is the phases we are in right now. Everyone is trying to buy time, as opposed to dealing with the leverage, they are trying to buy time. Whether you are a banker or a company, they are all trying to buy time. I don't see the leverage coming back, and I don't see the consumption of good and services coming back.
Bryan Marsal, CEO of Lehman Brothers Holdings.
And there it is plain as day.
Now one might wonder why the entire banking sector, the government, and companies across the board think playing for time is going to work. Perhaps they know something we don't. I was thinking about this another way:
If debts are going to be rolled over into new never to be paid loans guaranteed by the government, then the losses may be able to be hidden for as long as no major "call in" occurs.
Sick and sad but that is what the deal is.
Goldman Sachs: The Story with no Ending
This evening there is a story so important, so world changing, and so believable that you should at least take a look before I kill off all the excitement (from Market Ticker):
**FLASH** Goldman Code Theft Bombshell
from DailyKos:
...GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters world.
Two things come out of this:
1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen...
(2. ... is way off point....)
God help Goldman if this is true and the government goes after them. This would constitute massive unlawful activity. Indeed, the allegation is that Goldman alone was given this access!
God help our capital markets if this is true and is ignored by our government and regulatory agencies, or generates nothing more than a "handslap." Nobody in their right mind would ever trade on our markets again if this occurred and does not result in severe criminal and civil penalties.
I encourage the readers to check out Market Ticker and the links to Daily Kos (I know, a pretty crazy site, but this story is hot!) and get excited and scared all at once.
After you are done reading, and before you try and pull all of your accounts from everywhere in readiness for the financial market collapse, hey I said WAIT!!!
Still here? Ok.
Nothing at all is going to come of this story.
Now do not get me wrong, there is some real meat here and I personally have NO DOUBT Goldman Sachs has been front-running trades via complex networks and thereby "skimming" as much as 100 million a day from what is easily illegal activity.
And that is why there will be no story, no action against Goldman (at least in the open), and no market dislocation.
If this is true, it cannot be allowed to see daylight, and hence it will not. There is simply no way, no how.
Ok, now you can still get crazy, but keep it "contained".
Hyper Inflation in the Confusion Market
I am not one that sets his feet to an idea and refuses to move no matter what kind of information or argument is presented before him. I have been wrong so many times about so many things I have experience in changing my view, yes flip flopping, should I think I am wrong. There is nothing wrong with changing your mind as long as you have as solid line of reasoning behind it.
So here I was, thinking about the whole inflation/deflation debate that we have all been having. After careful consideration of the great Stoneleigh missive on deflation and the followup by Ilargi both of The Automatic Earth, I must say my inflation scenario was losing steam in my own mind. Add to this the daily data that Mish Shedlock provides and I was feeling like a deflation type of guy.
And then out of no where I became all confused again.
The culprit today was, strange1y enough, a Mish piece on deflation! As I was reading this article from today I was ticking off the deflation proofs presented and was again feeling the deflation groove. Mish covers all the usuals, but then this line hit me over the head:
Please keep in mind every country on the planet is following the same stupid Keynesian Handbook so on a relative basis the US is not as bad as appears at first glance. Don't expect a complete collapse of the dollar to happen anytime soon.
And thus came my confusion.
I hardly ever find myself at odds with Mr. Shedlock, but this line was a head scratcher for me.
Now we have entered into a period where as long as relative money magic is applied, all will be well? If this is so, then cannot every country simply print up some amount of money (relative to their monetary bases), use this new money to retire debt (debt deflation), and then all can go on as if this whole episode never happened? As long as each country stays withing relative limits, is there something wrong with it?
Say the US goes 5 trillion, China 2 trillion, Japan 1 trillion, and so on, could not enough money be "printed" to offset the debt deflationary cycle? As long as some parameters are kept fixed, then no currency should have issues as they are all doing the same thing, yes?
I admit I am confused by all this. A currency is measured, of course, against other currencies for the most part. It is also measured against goods and services. But if all money is funny money, will all money be just as good as it is today?
I am sure Mish has a well thought out process about that line, and to be fair it was two tiny sentences in a long article, but I have been stuck on it all day.
And thus I am still on the fence on the whole deflation/inflation thing. With the entire world printing money it is hard to imagine it will not come down to roost somewhere. While deflation says people will just save it, and banks will not lend it, and it will just be used as a set aside for losses the money is being put out there. Eventually it will replace the bad debt. Then it will enter the money system at some point.
I liked it better when I was not so confused!
Have a good night.
Monday, June 22, 2009
Monday Night and Who Will Stop the Rain?
It has been raining or misting for 5 days now. Enough is enough! No Sun until Thursday. Still waiting for the summer.
I left a comment on the computer post from last night. As of now the wireless is behaving ok, but I would still like to get some kind of upgrade. I will put it off until this weekend, or longer as I am lazy! A little short on time this evening, so a shorter post.
Insider Selling
To me insider selling of company stock can mean many things, but it most often means the people most in the know are abandoning ship. Other reasons like diversification, tax reasons, or many others can be very true at times. When looking at insider selling you want to see some real spikes up (or down) to make an inference for the market direction.
Tim Iacono over at The Mess That Greenspan Made has a write up and a great graph:
Tim notes that the last insider selling top nicely coincided with the top in the market in 2007.
I have been wondering just who in the world has been snapping up all the bank secondary offerings as of late? I mean who would want to step in front of that train wreck? Deep down I have a bad feeling that big investment houses used things like pension money to purchase the shares. I also think the FED/Treasury has provided some kind of downside protection here.
Massive Treasury Auctions Hurting the Stock Market?
The Treasury is on tap to sell $165 Billion in bonds this week. That kind of debt issuance may be sucking up available funds from things like the orchestrated SPY futures gunners near the market close which have suddenly fallen silent.
Of course a nice stock market route is just what the government needs to spread some fear so investors will run for the solid "safety" of US Treasuries. This line of thought will one day be the butt of pointed financial jokes like "Remember when we all ran to US bonds when things got rough?" "Yeah, well we should have kept on running!" HAHAHA.
Anyways, Market Ticker has the goods on what this may mean:
So either the early part of the week will be rough for the markets to get the needed bond buyers active, or this could be the signal for a lot more weakness going forward. I have argued that the government can either goose the stock market or have a stronger dollar, but they cannot have both. I will be looking forward to seeing how they balance this high wire act.
Disclosure: I had taken a small position in SPY a while back to show my "Split the Distance Bull Market" call. It never got there, and I was stopped out today for a loss. I always said never do what I do!
When Great Minds Think Un-Alike
I was pulled in two directions today after reading two outstanding posts regarding the inflation/deflation debate. Truly this debate is great economic thought exercises, and today I had a full work out!
First up, Mish with his deflation manifesto. I will not excerpt as the entire post must be read.
After reading Mish's article, I certainly appreciated his fine arguments. As I have said, there can be no debate about deflation is on right now. It is the longer term I think it cannot win out. Still, I will admit I was flip flopping after the great read.
Later in the day Jesse's Cafe entered into the fray with a very complete essay on why inflation is going to happen. Again, no excerpts as the article is well worth your time.
I wish I had written that piece. I think Jesse captures exactly what I have been feebly trying to say about how dollar devaluation will have to be the endgame, if not then I am all in the deflation camp.
Use the comments section to discuss the Mish and Jesse's takes. Both high level analysis, both perfectly credible. The articles as a pair really capture the heart of the debate.
Sorry for the short post, but the rain is making traffic terrible! Who'll Stop the Rain?
Have a good night.
I left a comment on the computer post from last night. As of now the wireless is behaving ok, but I would still like to get some kind of upgrade. I will put it off until this weekend, or longer as I am lazy! A little short on time this evening, so a shorter post.
Insider Selling
To me insider selling of company stock can mean many things, but it most often means the people most in the know are abandoning ship. Other reasons like diversification, tax reasons, or many others can be very true at times. When looking at insider selling you want to see some real spikes up (or down) to make an inference for the market direction.
Tim Iacono over at The Mess That Greenspan Made has a write up and a great graph:
What to Make of the Insider Selling?
Bloomberg files this report on the recent rise of insider selling, company executives dumping the most shares since mid-2007, shortly before the broad stock market's peak.
Surely this can't be a good development for retail investors , many of whom have just recently convinced themselves that it's OK to put some money back into stocks again.
Perhaps a visual aid might help...(click for larger view)
Tim notes that the last insider selling top nicely coincided with the top in the market in 2007.
I have been wondering just who in the world has been snapping up all the bank secondary offerings as of late? I mean who would want to step in front of that train wreck? Deep down I have a bad feeling that big investment houses used things like pension money to purchase the shares. I also think the FED/Treasury has provided some kind of downside protection here.
Massive Treasury Auctions Hurting the Stock Market?
The Treasury is on tap to sell $165 Billion in bonds this week. That kind of debt issuance may be sucking up available funds from things like the orchestrated SPY futures gunners near the market close which have suddenly fallen silent.
Of course a nice stock market route is just what the government needs to spread some fear so investors will run for the solid "safety" of US Treasuries. This line of thought will one day be the butt of pointed financial jokes like "Remember when we all ran to US bonds when things got rough?" "Yeah, well we should have kept on running!" HAHAHA.
Anyways, Market Ticker has the goods on what this may mean:
Liquidity Disappearing
I hope you folks who got all giddy about the SPX in the 900s and the DOW up around 8,800 took the opportunity to either sell or hedge.
While there is no guarantee that this pattern will continue the fact remains that liquidity matters and there is little point in trying to argue that the primary fuel for the rally off the March lows has been unprecedented system liquidity provided by Sir Feds-a-lot.
The problem is that Treasury has been and continues to suck all the oxygen out of the room with their unprecedented issuance of debt to fund Obama's silliness in the form of his budget "priorities" and the raw handouts to banking interests, much of which is apparently going to show up in Goldman Sachs bonuses.
Again, to put this in perspective this 7-day window has $165 billion in issuance. The entire S&P 500 - all 500 stocks - has been trading in the $2-2.5 billion a day range for the last month or so. That's the capital flow that is represented by all trades in all 500 stocks.
There are of course lots of other stocks, but in aggregate the S&P 500 posts the largest dollar volume on a typical day by a significant margin.
You simply cannot issue $165 billion in Treasury Debt and expect it not to have a major impact on system liquidity. It is not possible. That which is spent on one thing (in this case Treasury bonds) cannot be spent on another (in this case stocks.)
The Fed cannot "monetize" this debt without creating an instant dislocation in the Treasury market - their games thus far have produced a SMALL rumbling of trouble there, but nothing like an outright monetization campaign would produce.
Bernanke and Obama are backed into a corner, exactly as I predicted would happen. In order to continue to issue like this in the Treasury market while not driving Treasury rates to the moon money will have to be "scared" into bonds - which means blowing up the stock market.
Sorry folks, but those "green shoots" are in fact marijuana plants and our President along with his economic advisers have been smoking 'em.
So either the early part of the week will be rough for the markets to get the needed bond buyers active, or this could be the signal for a lot more weakness going forward. I have argued that the government can either goose the stock market or have a stronger dollar, but they cannot have both. I will be looking forward to seeing how they balance this high wire act.
Disclosure: I had taken a small position in SPY a while back to show my "Split the Distance Bull Market" call. It never got there, and I was stopped out today for a loss. I always said never do what I do!
When Great Minds Think Un-Alike
I was pulled in two directions today after reading two outstanding posts regarding the inflation/deflation debate. Truly this debate is great economic thought exercises, and today I had a full work out!
First up, Mish with his deflation manifesto. I will not excerpt as the entire post must be read.
After reading Mish's article, I certainly appreciated his fine arguments. As I have said, there can be no debate about deflation is on right now. It is the longer term I think it cannot win out. Still, I will admit I was flip flopping after the great read.
Later in the day Jesse's Cafe entered into the fray with a very complete essay on why inflation is going to happen. Again, no excerpts as the article is well worth your time.
I wish I had written that piece. I think Jesse captures exactly what I have been feebly trying to say about how dollar devaluation will have to be the endgame, if not then I am all in the deflation camp.
Use the comments section to discuss the Mish and Jesse's takes. Both high level analysis, both perfectly credible. The articles as a pair really capture the heart of the debate.
Sorry for the short post, but the rain is making traffic terrible! Who'll Stop the Rain?
Have a good night.
Friday, June 19, 2009
Friday Night Clarity
Very active comment thread on last night's post both here and at Seeking Alpha. Great ideas and thorough explanations were in abundance, and I would expect no less from the usual crew. Plenty of stories tonight, so an around the world wrap up and then some entertainment.
Gold as an Investment - Final Thoughts
Your author is a big fan of the precious metals, both gold and silver. I have dropped enough pixels with my ideas on the "why" that I will not rerun all that now. I wanted to clarify any misconceptions of ideas any may have about my stance on the metals.
-I am not and have never implied or stated that anyone should run out and convert all of their wealth to gold. I think gold needs to be a part of any portfolio. As a fan of the metals, gold and silver make up about 20% of my investment capital and about 5% of my entire net worth. So in no way am I an all or nothing kind of thinker on this.
-Gold is a terrible "end of the world" play for all the reasons many have noted (Mark and others). If everything goes down, some metal coins or bars may have some value and use, but not really. I do not think the end of the world is coming. I prefer to think of an Argentina type currency issue instead. If you like the whole "end of the world" type thought exercise, take a trip to The Survival Blog and you can find some good stuff. Look, I live about 35 miles north of Boston, if the SHTF I am screwed royally and unless I have a private army I will have to do the best I can.
Hope that clears things up!
Deflation and Inflation Wrap Up
I really liked my simplistic analysis of the common thread of both Deflation and Inflation. The comments section had plenty of great debate, and I would refer you there to see the discussion.
There is no doubt that deflation is going on right now. Nobody can argue other wise, and if they do they are in a losing position. Mish notes today that "Flow of Funds Report Offers Hard Evidence of Deflation", and I totally agree. If any of my posts have implied that I thought inflation was an issue right now, then I am sorry for the confusion.
When I talk about inflation I am of course talking about the longer term. Next year and into the next 3 years I think we will see policies at work to make inflation happen. Remember, Ben Bernanke's whole claim to fame is his paper titled "Deflation: Making Sure It Does Not Happen Here".
While the system has been stabilised, deflation will rule the day unless more is done. Consider that:
-The FED is about to get an extension of powers through which they will have even more room to bypass the US Congress. With no check on their activities, the academic elites may well have a real world blackboard (dry erase for you younger folks)to try out their silly Keynesian ideas.
So deflation is here stay? Not if the leading thinkers on economics have their way. People like Paul Krugman are chomping at the bit for more stimulus. A new $4500 car buying credit is coming out. The new $15000 home buying credit is out, and will get bigger.
Still not convinced spending will be forced no matter the cost? Here are two respected economists asking, no begging for more firepower to be deployed:
-Paul Samuelson; Fiscal Policy Must be Sustained
Key excerpt:
A 10-12% inflation end point is just dandy for this guy.
Mark Thoma: Don't "Nullify" Fiscal policy
Key excerpt:
Not today, and not next week, but at some point panic will hit about deflation and a depression and then the money accelerator will be matted until something changes. It is at that point I envision a dollar crisis or other major event.
The Real Threat of Deflation
The real danger of deflation was revealed to me by a great comment over at the Seeking Alpha print of my last blog:
ejhickey, thanks for the great insight.
Faced with a new thinking that cash must be preserved and risk shunned, just what do you think is going to happen to America's last industry, the banking sector? Do you think that the Goldman Sachs-FED-JP Morgan-Treasury cabal is just going to sit tight and watch it all unfold?
I think of the line from a Dylan Thomas poem:
Savers are already being punished by obscene low rates on savings. Bond yields are as low as they have ever been. Risk free is also return free. The very system is being set up to dare you to reach for a return.
Now, I do not think the efforts will work, but I am sure they will try. It is when this process kicks into high gear that we will see the "major event" occur. But not this week.
Entertainment Section
A bit short on time, and you all know how much I love the fun section! Lets dive in.
Cipher Texts
A while back I was posting puzzles that were sentences spelled out using DNA bases and amino acid single letter designations. I love ciphers and coded texts. If you like such things, an interesting piece of artwork resides at the US CIA headquarters at Langley.
The puzzle is called "Kryptos" and it has yet to be fully translated. Some think the artist that made it actually made a mistake on the final cipher, and hence it will never be solved. Fascinating item indeed.
LOL Cats
Easy laughs!
Remember the old school yard bully's favorite torture?:
see more Lolcats and funny pictures
If the SHTF and zombies start walking the earth it may look like this:
see more Lolcats and funny pictures
Rock Blogging
A little music ladies and gentlemen!
There is nothing wrong with Bon Jovi and "Runaway":
It is hard to know if the film "The Breakfast Club" was so iconic due to the great story and acting, or the great soundtrack. Here is Simple Minds and "Don't You Forget About Me":
I love the song from Danzig called "How the Gods Kill". Great acoustic work and a nice blending of speeds and beats make a great listen:
Just so you know I am not totally stuck in the past (well, not totally) here is a band I like that is pretty recent, 7 Mary 3. This song is called "Cumbersome" and the video i found was a live acoustic version played on a radio show. Not bad!:
Last Call!
Final tune for the night.
Let's hope you follow Ratt's advice and be "Back for More" when I post my next blog! And yes the girl is the same girl from the Whitesnake videos, Tawny Kitaen:
Have a good night.
Gold as an Investment - Final Thoughts
Your author is a big fan of the precious metals, both gold and silver. I have dropped enough pixels with my ideas on the "why" that I will not rerun all that now. I wanted to clarify any misconceptions of ideas any may have about my stance on the metals.
-I am not and have never implied or stated that anyone should run out and convert all of their wealth to gold. I think gold needs to be a part of any portfolio. As a fan of the metals, gold and silver make up about 20% of my investment capital and about 5% of my entire net worth. So in no way am I an all or nothing kind of thinker on this.
-Gold is a terrible "end of the world" play for all the reasons many have noted (Mark and others). If everything goes down, some metal coins or bars may have some value and use, but not really. I do not think the end of the world is coming. I prefer to think of an Argentina type currency issue instead. If you like the whole "end of the world" type thought exercise, take a trip to The Survival Blog and you can find some good stuff. Look, I live about 35 miles north of Boston, if the SHTF I am screwed royally and unless I have a private army I will have to do the best I can.
Hope that clears things up!
Deflation and Inflation Wrap Up
I really liked my simplistic analysis of the common thread of both Deflation and Inflation. The comments section had plenty of great debate, and I would refer you there to see the discussion.
There is no doubt that deflation is going on right now. Nobody can argue other wise, and if they do they are in a losing position. Mish notes today that "Flow of Funds Report Offers Hard Evidence of Deflation", and I totally agree. If any of my posts have implied that I thought inflation was an issue right now, then I am sorry for the confusion.
When I talk about inflation I am of course talking about the longer term. Next year and into the next 3 years I think we will see policies at work to make inflation happen. Remember, Ben Bernanke's whole claim to fame is his paper titled "Deflation: Making Sure It Does Not Happen Here".
While the system has been stabilised, deflation will rule the day unless more is done. Consider that:
-The FED is about to get an extension of powers through which they will have even more room to bypass the US Congress. With no check on their activities, the academic elites may well have a real world blackboard (dry erase for you younger folks)to try out their silly Keynesian ideas.
So deflation is here stay? Not if the leading thinkers on economics have their way. People like Paul Krugman are chomping at the bit for more stimulus. A new $4500 car buying credit is coming out. The new $15000 home buying credit is out, and will get bigger.
Still not convinced spending will be forced no matter the cost? Here are two respected economists asking, no begging for more firepower to be deployed:
-Paul Samuelson; Fiscal Policy Must be Sustained
Key excerpt:
"Back to some middle-term and long-term policy questions..., do you worry about the rising deficit and the potential risk of inflation? There's been a lot of articles on this in the past two weeks -- Paul Krugman and Niall Ferguson and others.
I think it would be surprising if, down the road -- not in the long long run but in the somewhat short run -- we don't have some return of inflation. On the other hand, I'm of the view that if we come out of this with some kind of temporary stabilization at least, and the price level is let's say 10-12% above what it was before we got into the meltdown, I think that's a price I would be willing to pay! ...
A 10-12% inflation end point is just dandy for this guy.
Mark Thoma: Don't "Nullify" Fiscal policy
Key excerpt:
As Brad DeLong notes, if it is the long-run budget you are worried about, ending the stimulus package, say, six months or a year earlier makes little difference to the long-term budget outlook. That being the case, and given the dangers of not doing enough and the dangers of ending the help too soon, why are we in such a hurry to end the stimulus package, and we are we so reluctant to consider doing more?
Not today, and not next week, but at some point panic will hit about deflation and a depression and then the money accelerator will be matted until something changes. It is at that point I envision a dollar crisis or other major event.
The Real Threat of Deflation
The real danger of deflation was revealed to me by a great comment over at the Seeking Alpha print of my last blog:
ejhickey writes;
Another question. If we are still going through deflation and deleveraging , then prices for most things should continue to fall. For anyone who has a lot of assets in cash, why bother to invest in stocks or bonds or anything that has a risk of declining in price? If the deflation theory is correct, a cash based non investor could increase his purchasing power simply by doing nothing . This would not only avoid risk but taxes as well. In the short , medium or long run this is the whole purpose of investing - increasing one''s ability to buy stuff.
ejhickey, thanks for the great insight.
Faced with a new thinking that cash must be preserved and risk shunned, just what do you think is going to happen to America's last industry, the banking sector? Do you think that the Goldman Sachs-FED-JP Morgan-Treasury cabal is just going to sit tight and watch it all unfold?
I think of the line from a Dylan Thomas poem:
"Rage, Rage Against the Dying of the Light!"
Savers are already being punished by obscene low rates on savings. Bond yields are as low as they have ever been. Risk free is also return free. The very system is being set up to dare you to reach for a return.
Now, I do not think the efforts will work, but I am sure they will try. It is when this process kicks into high gear that we will see the "major event" occur. But not this week.
Entertainment Section
A bit short on time, and you all know how much I love the fun section! Lets dive in.
Cipher Texts
A while back I was posting puzzles that were sentences spelled out using DNA bases and amino acid single letter designations. I love ciphers and coded texts. If you like such things, an interesting piece of artwork resides at the US CIA headquarters at Langley.
The puzzle is called "Kryptos" and it has yet to be fully translated. Some think the artist that made it actually made a mistake on the final cipher, and hence it will never be solved. Fascinating item indeed.
LOL Cats
Easy laughs!
Remember the old school yard bully's favorite torture?:
see more Lolcats and funny pictures
If the SHTF and zombies start walking the earth it may look like this:
see more Lolcats and funny pictures
Rock Blogging
A little music ladies and gentlemen!
There is nothing wrong with Bon Jovi and "Runaway":
It is hard to know if the film "The Breakfast Club" was so iconic due to the great story and acting, or the great soundtrack. Here is Simple Minds and "Don't You Forget About Me":
I love the song from Danzig called "How the Gods Kill". Great acoustic work and a nice blending of speeds and beats make a great listen:
Just so you know I am not totally stuck in the past (well, not totally) here is a band I like that is pretty recent, 7 Mary 3. This song is called "Cumbersome" and the video i found was a live acoustic version played on a radio show. Not bad!:
Last Call!
Final tune for the night.
Let's hope you follow Ratt's advice and be "Back for More" when I post my next blog! And yes the girl is the same girl from the Whitesnake videos, Tawny Kitaen:
Have a good night.
Monday, January 12, 2009
More on the Deflation vs. Inflation Debate
What a crazy NFL playoff weekend! Only one home team won their game in the divisional round. The Baltimore Ravens have the same look that took them to a Superbowl win in 2000. The Phoenix Cardinals look like an entirely different team. Who knows what is going to happen this weekend, but I am sure it will be fun.
When Transparency Collides with Systemic Risk
If you can recall so far back as this Fall Treasury head Hank Paulson stated that the threat of having a "bazooka" in terms of money to bail out the financial system would be enough to smooth things over. Then we got his 3 page letter asking for an actual bazooka of 700 Billion dollars! While Congress did something at least mildly smart in only handing over half of the cash up front, Paulson said he probably would not need the other half anyway.
And so today we are informed that the president elect Barack Obama has asked Mr. Bush to request the 350 Billion from Congress so the money will be warm and ready to go when Obama takes office. That is quite a journey, but you knew we would end up here, didn't you?
Leaving aside the debate about whether the money should be released (we do not debate anymore, just act FAST!) I would point your attention to a more baloney being spoken by the incoming president who seems on a mission to become as much of a failure economically as the last guy. From Yahoo Finance:
I have a question: How is there going to be more clarity and transparency with the second half of the TARP funds when after two lawsuits to get information have been unable to pry any data out of the FED or the Treasury? Mr. Paulson and Mr. Bernanke have both said that to tell where the money is going could pose a "systemic risk" for those institutions that have been given free cash.
So what will win out in the battle of transparency versus systemic risk? I am going to bet on systemic risk here. We will never get details on where the money was poured until way, way later. I imagine it does not matter, just assume every bank and almost any corporation has their hands in that pie and you will be about right. Mr. Obama and others in Congress want to spend the money directly by "stopping foreclosures". How many houses does 350 Billion buy anyway?
Powerful Essay on Deflation Versus Inflation
Over at The Mess That Greenspan Made today Tim Iacono excerpts and links to a wonderful piece by Rich Toscano and John Simon of Pacific Capital Associates. The entire post is a must read if you want to see both sides of the deflation/inflation debate. The logic and reason of the article is very persuasive.
I have been of the mind that the US government is in a panic stage. Deflation terrifies central banks like nothing else it seems. The policy moves to this point have not worked as yet, but there are more tricks on the way. I highly recommend the entire article as a good slow read. Full link here.
There is too much great stuff to excerpt, but I will present their summation:
Again, read the whole thing. Leave your thoughts on the debate in the comments section.
Have a good night.
When Transparency Collides with Systemic Risk
If you can recall so far back as this Fall Treasury head Hank Paulson stated that the threat of having a "bazooka" in terms of money to bail out the financial system would be enough to smooth things over. Then we got his 3 page letter asking for an actual bazooka of 700 Billion dollars! While Congress did something at least mildly smart in only handing over half of the cash up front, Paulson said he probably would not need the other half anyway.
And so today we are informed that the president elect Barack Obama has asked Mr. Bush to request the 350 Billion from Congress so the money will be warm and ready to go when Obama takes office. That is quite a journey, but you knew we would end up here, didn't you?
Leaving aside the debate about whether the money should be released (we do not debate anymore, just act FAST!) I would point your attention to a more baloney being spoken by the incoming president who seems on a mission to become as much of a failure economically as the last guy. From Yahoo Finance:
AP
Obama promises changes in use of bailout billions
Monday January 12, 4:26 pm ET
By Andrew Taylor and Jim Kuhnhenn, Associated Press Writers
Obama pledges to change goals of bailout as Bush agrees to ask for remaining $350 billion
WASHINGTON (AP) -- Seeking to reassure wary lawmakers, President-elect Barack Obama said Monday he will fundamentally change the way the second half of the $700 billion financial bailout fund is spent, focusing some of the relief on housing and small businesses.
Obama asked President George W. Bush to submit a request to Congress so that the remaining $350 billion would be available quickly after the inauguration next Tuesday. Bush agreed to do so.
"I think many of us have been disappointed with the absence of clarity, the lack of transparency," Obama told reporters after a meeting with Mexico's president, Felipe Calderon. He said some of the money should have been spent on helping people avoid foreclosure.
"It is clear that the financial system, although improved from where it was in September, is still fragile," Obama said.
Separately, Larry Summers, Obama's choice for National Economic Council director, said the new president intends to broaden the goals of the remaining bailout package and impose tougher restrictions and oversight on how the money is spent.
Earlier Monday, Bush told reporters he would not make a request for the money form Congress unless Obama "specifically asked me to make it." Obama called Bush at 10:25 a.m. EST, after Bush's news conference ended, Obama transition officials said.
Bush's assertion that the decision to tap the money rests with Obama was an acknowledgment of what has been an extraordinary ceding of power to the incoming administration. Bush in recent weeks has let Obama be the driving force behind most recovery efforts.
A vote in Congress is likely soon, possibly this week, several senators said after a briefing from Summers Sunday on the Wall Street bailout, as well as on Obama's separate plan for roughly $800 billion more in spending and tax breaks to spur the economy.
At his news conference, Bush said, "I readily concede I chucked aside some of my free market principles when I was told by chief economic advisers that the situation we were facing could be worse than the Great Depression."
But he credited the program so far with improving the credit environment, saying that "lending is just beginning to pick up."
I have a question: How is there going to be more clarity and transparency with the second half of the TARP funds when after two lawsuits to get information have been unable to pry any data out of the FED or the Treasury? Mr. Paulson and Mr. Bernanke have both said that to tell where the money is going could pose a "systemic risk" for those institutions that have been given free cash.
So what will win out in the battle of transparency versus systemic risk? I am going to bet on systemic risk here. We will never get details on where the money was poured until way, way later. I imagine it does not matter, just assume every bank and almost any corporation has their hands in that pie and you will be about right. Mr. Obama and others in Congress want to spend the money directly by "stopping foreclosures". How many houses does 350 Billion buy anyway?
Powerful Essay on Deflation Versus Inflation
Over at The Mess That Greenspan Made today Tim Iacono excerpts and links to a wonderful piece by Rich Toscano and John Simon of Pacific Capital Associates. The entire post is a must read if you want to see both sides of the deflation/inflation debate. The logic and reason of the article is very persuasive.
I have been of the mind that the US government is in a panic stage. Deflation terrifies central banks like nothing else it seems. The policy moves to this point have not worked as yet, but there are more tricks on the way. I highly recommend the entire article as a good slow read. Full link here.
There is too much great stuff to excerpt, but I will present their summation:
Conclusion
We in the United States have been dumping our dollars into the world for years and we continue to do so. We owe a staggering amount of foreign debt denominated in dollars and we are gearing up to borrow even more. Our legislators and the stewards of our currency are rabidly hostile to deflation -- they are hostile, in other words, to the idea of the dollar gaining purchasing power. They have shown via word and deed that they will do whatever it takes to prevent deflation from taking hold. When deflation is viewed as even a remote possibility, there are effectively no limits to the amount of money the government can create nor to what they can do with that newly minted money.
Under these circumstances, we just don't believe that the dollar is going to gain purchasing power in any sustainable way. The current deflationary storm could continue for a while yet, but the longer it goes on, the more violent and severe its reversal is likely to be.
Deflation is a choice within the current monetary regime. It is a choice that our government has shown it will not make. There are serious long-term risks inherent in our dysfunctional monetary system, to be sure -- but deflation isn't one of them.
Again, read the whole thing. Leave your thoughts on the debate in the comments section.
Have a good night.
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