Tuesday, December 28, 2010
Sunday, December 19, 2010
Thursday, December 16, 2010
Tuesday, December 7, 2010
Monday, December 6, 2010
Tuesday, November 30, 2010
Sunday, November 28, 2010
Friday, November 26, 2010
Thursday, November 25, 2010
QE from and for dummies
Sunday, November 21, 2010
Thursday, November 18, 2010
Thursday, November 11, 2010
Friday, November 5, 2010
Backlash against Fed's $600bn easing
The US Federal Reserve's decision to pump an extra $600bn into the economy has galvanized emerging market central banks into preparing defensive measures and sparked criticism from leading global economies.
The Fed's initiative, in response to rising concern about the weakness of the US economy, has fuelled fears of a sharp drop in the dollar and a fresh flood of capital inflows into emerging markets.
The Fed's initiative, in response to rising concern about the weakness of the US economy, has fuelled fears of a sharp drop in the dollar and a fresh flood of capital inflows into emerging markets.
Thursday, November 4, 2010
Bernanke and QE-2
What the Fed did and why: supporting the recovery and sustaining price stability...read
Tuesday, November 2, 2010
Sunday, October 31, 2010
Friday, October 29, 2010
Friday, October 22, 2010
Monday, October 18, 2010
Monday, October 4, 2010
Monday, September 27, 2010
Saturday, September 18, 2010
Sunday, September 12, 2010
the smart person accepts. the idiot insists.
This is the secret of success for collaborative enterprise. Take whatever is thrown at you and build upon it, rather than “No … but.”
“The idiot is bound by his pride.” It always has to be his way.
This is also true of the person who is deceptive or doing things wrong: he always tries to justify himself. A person who is bright in regard to his spiritual life is humble. He accepts what others tell him—criticism, ideas—and he works with them.
from Michael Lewis, Vanity fair...
long but read
“The idiot is bound by his pride.” It always has to be his way.
This is also true of the person who is deceptive or doing things wrong: he always tries to justify himself. A person who is bright in regard to his spiritual life is humble. He accepts what others tell him—criticism, ideas—and he works with them.
from Michael Lewis, Vanity fair...
long but read
Monday, August 30, 2010
Sunday, August 29, 2010
Check out Ostrich Investors 2
read zeal may be correct for reasons entirely beyond the scope of his analysis. forget the retail investor. remember japan.. apply zeal logic to japan and see what happens. i have not changed my opinion that dow hits 60,000+ by 2030. maybe well before due to inflation. but first ongoing deflation, unless the fed panics and buys anything that moves!! that will be the black swan! the timing will be based on technical factors. left to its own devices, markets and global economy could disintegrate. feds job is to not let that happen in conjunction with other central banks. does that imply a weak dollar or a strong dollar. of course, the bond market is central. watch it very closely. it argued for deflation until friday!!!! something significant may be happening in the coming weeks to prevent a spiraling decline.
Wednesday, August 25, 2010
Sunday, August 22, 2010
Financial Myth #1 Money on the sidelines
Myth #1: There is need for outside money in order for stocks to rise.
False: Not necessary. Counter example:
Mr. Jones owns A shares. Closed Tuesday at $10. Mr. Smith owns B shares. Closed Tuesday at $10. Wednesday is a beautiful day. Everyone is optimistic. Or maybe important positive financial news. Mr. Jones would like to purchase B shares. Mr. Smith would like to purchase A shares. The exchange takes place at $11/share. Thus each investor is 10% wealthier and the market is up 10%...No new money came into the market! Just new confidence and optimism.
Now expand the example to include other kinds of assets and additional players.
Same scenario can unfold. All the players exchange assets at higher prices. Bonds Up, gold Up, real estate Up. No new money came in to the game.....
Conversely if the weather and news Wednesday morning is negative. The shares
exchange hands at $9. Markets declined 10% and every body feels much poorer. No money was taken out of the market. (uninformed people of course ask. Where did the money go??).
Similar analysis applies to the real estate markets: ten people. each one buys a
house and sells a house to a neighbor. all at higher prices from the previous sale. no new money. everybody is richer and happier...
Now add people with cash in the bank. Include people with any and all other classes of assets. they decide to buy stocks. A seller for each buyer. The seller uses the proceeds of his sale to either buy a different asset class or puts the money in the bank. In any event, eventually someone puts the money in the bank or buys Treasury securities which are viewed as the equivalent to money. Treasuries can be borrowed collateralized or quickly sold quickly....
Bottom line: positive or negative psychology determine price not necessarily cash on the sidelines!
False: Not necessary. Counter example:
Mr. Jones owns A shares. Closed Tuesday at $10. Mr. Smith owns B shares. Closed Tuesday at $10. Wednesday is a beautiful day. Everyone is optimistic. Or maybe important positive financial news. Mr. Jones would like to purchase B shares. Mr. Smith would like to purchase A shares. The exchange takes place at $11/share. Thus each investor is 10% wealthier and the market is up 10%...No new money came into the market! Just new confidence and optimism.
Now expand the example to include other kinds of assets and additional players.
Same scenario can unfold. All the players exchange assets at higher prices. Bonds Up, gold Up, real estate Up. No new money came in to the game.....
Conversely if the weather and news Wednesday morning is negative. The shares
exchange hands at $9. Markets declined 10% and every body feels much poorer. No money was taken out of the market. (uninformed people of course ask. Where did the money go??).
Similar analysis applies to the real estate markets: ten people. each one buys a
house and sells a house to a neighbor. all at higher prices from the previous sale. no new money. everybody is richer and happier...
Now add people with cash in the bank. Include people with any and all other classes of assets. they decide to buy stocks. A seller for each buyer. The seller uses the proceeds of his sale to either buy a different asset class or puts the money in the bank. In any event, eventually someone puts the money in the bank or buys Treasury securities which are viewed as the equivalent to money. Treasuries can be borrowed collateralized or quickly sold quickly....
Bottom line: positive or negative psychology determine price not necessarily cash on the sidelines!
How to create Inflation
Now let's go to Myth #2: Quantitative easing is the same as Printing
Money.... and is a guaranteed path to Inflation
False!
The Federal Reserve Bank (Fed) has a responsibility to regulate bank reserves.
When member banks that are in compliance need funds they can obtain them from the Fed either by selling very short term maturity securities or borrowing at the Fed window at the discount rate. Conversely, the Fed can reduce bank liquidity by selling securities into the market place.
When member banks need currency (cash) they can obtain them by exchanging their reserve deposits at the Fed for cash-currency. That is how paper money enters the economy. PERIOD.
The US Treasury does not print money. It is illegal. The Treasury must borrow money to pay its obligations like any other player in the economy. Of course, by definition their credit is good.
Now let's examine quantitative easing. The Fed purchase of longer maturity Treasury paper or Treasury guaranteed paper...Is that process always inflationary?? Is it printing money?
No!
When the Fed buys T Bonds, the seller can do several things with the proceeds. He can buy other T-Bond equivalents or he can use the proceeds to make loans to the private sector. There is currently no evidence that private sector loan demand exceeds the capacity of Banks to make loans. Thus there is no reason to believe that Fed QE is necessarily inflationary. Furthermore, the holder of Treasury securities can always borrow against them or sell them. Thus the Fed through QE at best raises the prices of the Treasury securities (effectively lowering interest rates). However, there is no evidence that further lowering of interest rates will increase loan demand. Lenders are afraid to lend and borrowers are deleveraging. Not increasing their debts. As long as loan creation to the private sector is stagnating or declining, there will be no increase in aggregate demand for goods and services in the economy. No inflationary expectation.
Suppose the Fed bought the entire Gov't debt (not owned by various government agencies like the SSA)?
The sellers of those Gov't securities would have to do something with the money. If it is left in non interest bearing accounts, it will have no impact on the economy. Thus the sellers will have to go out and buy something or lend the money to somebody. But everybody is looking to deleverage, to pay down their loans...Next step, the US Gov't decides to increase the deficit (fiscal policy) . Problem: Congress at this stage, > will not let the Government increase the deficit (fiscal > irresponsibility). Incidentally, if the increase in the US Gov't deficit is less than the decrease in private borrowing, there would be no reason to believe that US deficits are inflationary. Indeed, for example, if private sector borrowing decreases by $3 trillion and Gov't deficit increase by $1.5 trillion, there is a net $1.5 trillion deleveraging > in the economy. Total demand as represented by "new" purchasing power declines by $1.5 trillion. Not inflationary. If on top of that, the US government manages to transfer money to the public and the public uses that money not to buy goods and services but instead pays back debt, then the transfers are also not inflationary.
In the extreme, the Fed purchases the entire annual deficit (about $1.3 trillion). The government replaces the private sector as the consumer of last resort. If private spending declines by $1.3 trillion, there is no demand inflation. Furthermore, if global productivity continues to increase, more goods and services
can be produced at lower and lower cost by fewer and fewer workers... hmmm.......
Where is the inflation???????
Eventually, the game may have to be restarted. The rules will change and the government actually will print money (weimar republic, banana republics, Israel in the 80's, Zimbabwe). The government could deposit the newly minted money and deposit $10M into everybody's checking account. All debtors can easily repay their loans with almost worthless money and lenders get destroyed. Everybody owns their house debt free.... The government owes no more money (the debt is repaid with worthless old dollars) ... and there is a total financial reorganization....
What will hard assets be worth? Well for a short period of time, it will be back to a barter economy. All real estate, capital assets and commodities including sardines, water and gold (with no special standing) will be subject to supply and demand in a barter economy. Owners of all hard assets (as evidenced by shares of
companies, deeds, warehouse receipts for commodities) will be in good shape. Shares in companies whose only assets are bonds, notes IOUs, etc. will be wiped out. The above presumes that there will not be uncontrollable social unrest or revolution.
Do not forget that there are more borrowers than lenders. Democracy can play funny games... demagogues can take advantage and point fingers at various minority elements in the society. Only time will tell.
What does Myth #1 teach us? Given confidence in the future, lenders will make loans, borrowers will borrow money to make purchases at higher prices...that is called inflation.
Conversely, pessimism can lead to devastating spiraling deflation. Eventually these long term leveraging cycles must come to an end. Debt creation can only grow so high. Even trees do not grow to the sky. Servicing of debt eventually becomes impossible.
Ancient geniuses understood the long term multi-generational cycles and created the 50 year Jubilee concept that placed a lid on expectations, concentration of wealth and debt creation...The world is in the process of relearning that lesson....
Money.... and is a guaranteed path to Inflation
False!
The Federal Reserve Bank (Fed) has a responsibility to regulate bank reserves.
When member banks that are in compliance need funds they can obtain them from the Fed either by selling very short term maturity securities or borrowing at the Fed window at the discount rate. Conversely, the Fed can reduce bank liquidity by selling securities into the market place.
When member banks need currency (cash) they can obtain them by exchanging their reserve deposits at the Fed for cash-currency. That is how paper money enters the economy. PERIOD.
The US Treasury does not print money. It is illegal. The Treasury must borrow money to pay its obligations like any other player in the economy. Of course, by definition their credit is good.
Now let's examine quantitative easing. The Fed purchase of longer maturity Treasury paper or Treasury guaranteed paper...Is that process always inflationary?? Is it printing money?
No!
When the Fed buys T Bonds, the seller can do several things with the proceeds. He can buy other T-Bond equivalents or he can use the proceeds to make loans to the private sector. There is currently no evidence that private sector loan demand exceeds the capacity of Banks to make loans. Thus there is no reason to believe that Fed QE is necessarily inflationary. Furthermore, the holder of Treasury securities can always borrow against them or sell them. Thus the Fed through QE at best raises the prices of the Treasury securities (effectively lowering interest rates). However, there is no evidence that further lowering of interest rates will increase loan demand. Lenders are afraid to lend and borrowers are deleveraging. Not increasing their debts. As long as loan creation to the private sector is stagnating or declining, there will be no increase in aggregate demand for goods and services in the economy. No inflationary expectation.
Suppose the Fed bought the entire Gov't debt (not owned by various government agencies like the SSA)?
The sellers of those Gov't securities would have to do something with the money. If it is left in non interest bearing accounts, it will have no impact on the economy. Thus the sellers will have to go out and buy something or lend the money to somebody. But everybody is looking to deleverage, to pay down their loans...Next step, the US Gov't decides to increase the deficit (fiscal policy) . Problem: Congress at this stage, > will not let the Government increase the deficit (fiscal > irresponsibility). Incidentally, if the increase in the US Gov't deficit is less than the decrease in private borrowing, there would be no reason to believe that US deficits are inflationary. Indeed, for example, if private sector borrowing decreases by $3 trillion and Gov't deficit increase by $1.5 trillion, there is a net $1.5 trillion deleveraging > in the economy. Total demand as represented by "new" purchasing power declines by $1.5 trillion. Not inflationary. If on top of that, the US government manages to transfer money to the public and the public uses that money not to buy goods and services but instead pays back debt, then the transfers are also not inflationary.
In the extreme, the Fed purchases the entire annual deficit (about $1.3 trillion). The government replaces the private sector as the consumer of last resort. If private spending declines by $1.3 trillion, there is no demand inflation. Furthermore, if global productivity continues to increase, more goods and services
can be produced at lower and lower cost by fewer and fewer workers... hmmm.......
Where is the inflation???????
Eventually, the game may have to be restarted. The rules will change and the government actually will print money (weimar republic, banana republics, Israel in the 80's, Zimbabwe). The government could deposit the newly minted money and deposit $10M into everybody's checking account. All debtors can easily repay their loans with almost worthless money and lenders get destroyed. Everybody owns their house debt free.... The government owes no more money (the debt is repaid with worthless old dollars) ... and there is a total financial reorganization....
What will hard assets be worth? Well for a short period of time, it will be back to a barter economy. All real estate, capital assets and commodities including sardines, water and gold (with no special standing) will be subject to supply and demand in a barter economy. Owners of all hard assets (as evidenced by shares of
companies, deeds, warehouse receipts for commodities) will be in good shape. Shares in companies whose only assets are bonds, notes IOUs, etc. will be wiped out. The above presumes that there will not be uncontrollable social unrest or revolution.
Do not forget that there are more borrowers than lenders. Democracy can play funny games... demagogues can take advantage and point fingers at various minority elements in the society. Only time will tell.
What does Myth #1 teach us? Given confidence in the future, lenders will make loans, borrowers will borrow money to make purchases at higher prices...that is called inflation.
Conversely, pessimism can lead to devastating spiraling deflation. Eventually these long term leveraging cycles must come to an end. Debt creation can only grow so high. Even trees do not grow to the sky. Servicing of debt eventually becomes impossible.
Ancient geniuses understood the long term multi-generational cycles and created the 50 year Jubilee concept that placed a lid on expectations, concentration of wealth and debt creation...The world is in the process of relearning that lesson....
Wednesday, August 18, 2010
Monday, August 16, 2010
Sunday, August 15, 2010
Monday, August 9, 2010
Sunday, August 8, 2010
Sunday, July 25, 2010
Tuesday, July 20, 2010
Friday, July 16, 2010
Tuesday, July 13, 2010
Sunday, July 4, 2010
Monday, June 28, 2010
Sunday, June 27, 2010
Saturday, June 26, 2010
Friday, June 25, 2010
Thursday, June 24, 2010
Wednesday, June 23, 2010
Sunday, June 20, 2010
Wednesday, June 16, 2010
Iran strategy...
WHY NOT DESTROY IRAN OIL AND GAS TERMINALS? PUT THEM OUT OF THE ENERGY DELIVERY BUSINESS. NO OIL REVENUES=NO POWER OR INFLUENCE. LENTY OF GLOBAL OIL OVERSUPPLY. SAUDIS AND OTHERS WOULD BE DELIGHTED TO MAKE UP SHORTFALL.
Tuesday, June 15, 2010
Monday, June 14, 2010
Sunday, June 13, 2010
deflation or inflation
you wrote:
"The Fed's answer to the deflationary effects of the housing crash is the production of more fiat money and a continuation of zero rates."
it is not fiat money....yet. it is borrowed. the treasury is replacing the consumer as a borrower in the market! i suspect that net increase in fed borrowing is less than the decline in private borrowing. it may become inflationary when fed borrowing exceeds the decline in private sector borrowing. but as is pointed out, the public is wary with regard to increasing the deficit(beyond the shortfall in private borrowing). thus it will be difficult to generate inflation.
possible overseas inflation could eventually spread to the USA economy, but japan Germany and china, are not prone to inflation creation.
hence debt creation must be monitored...
gold is not necessarily a good indicator because there are gold bugs who will buy gold in expectation of a global crash, deflation and depression. GOLD BECOMES A SUBSTITUTE FOR TUNA FISH.
indeed you forwarded:
The voters have finally understood that we can't print ourselves out of this primary bear market, and they are choosing (can you believe it?) austerity. The voters realize that the Obama/Bernanke "solution," -- printing and zero rates can't work and IS NOT WORKING. Housing prices are not rising, employment is not increasing, stocks are down for the decade, and Bernanke is having a hard time justifying his money printing position to Congressmen.
again it is not money printing. it is borrowing. public debt replacing private debt...
"The Fed's answer to the deflationary effects of the housing crash is the production of more fiat money and a continuation of zero rates."
it is not fiat money....yet. it is borrowed. the treasury is replacing the consumer as a borrower in the market! i suspect that net increase in fed borrowing is less than the decline in private borrowing. it may become inflationary when fed borrowing exceeds the decline in private sector borrowing. but as is pointed out, the public is wary with regard to increasing the deficit(beyond the shortfall in private borrowing). thus it will be difficult to generate inflation.
possible overseas inflation could eventually spread to the USA economy, but japan Germany and china, are not prone to inflation creation.
hence debt creation must be monitored...
gold is not necessarily a good indicator because there are gold bugs who will buy gold in expectation of a global crash, deflation and depression. GOLD BECOMES A SUBSTITUTE FOR TUNA FISH.
indeed you forwarded:
The voters have finally understood that we can't print ourselves out of this primary bear market, and they are choosing (can you believe it?) austerity. The voters realize that the Obama/Bernanke "solution," -- printing and zero rates can't work and IS NOT WORKING. Housing prices are not rising, employment is not increasing, stocks are down for the decade, and Bernanke is having a hard time justifying his money printing position to Congressmen.
again it is not money printing. it is borrowing. public debt replacing private debt...
Tuesday, May 25, 2010
Saturday, May 15, 2010
Sunday, May 9, 2010
All over??
greece will not honor it. next will be portugal and then spain italy and ireland then europe. but it will all drag out. many trading opportunities... of course japan is in the worst condition of any country on the planet. but do not forget china and india. and when oil collapses all the moslem countries. england will get lost in the noise. leaving US and israel as the last standing men... view
Monday, May 3, 2010
Wednesday, April 28, 2010
PIIGS
Risk aversion increased sharply yesterday after Greece was downgraded to junk by S&P and Portugal was downgraded too. The market fear is that if Moody's also downgrades Greece below investment grade, then Greek banks won't be able to post Greek bonds at the ECB for collateral. This would cause serious problems for the country's banking sector. The S&P 500 was down 2.35% overnight and 10y Greek bond yields rose another 13bp to 9.67% while Portuguese bond yields spiked 48bp to 5.67%. This increases the pressure on EU/IMF funds to be distributed as soon as possible now to Greece. But the timetable remains difficult: 1) EU-IMF officials have to agree a package of reforms with Greece in Athens, most likely by this week. 2) The ECB and EU commission have to ratify this, which should be a formality. 3) Eurozone national leaders including Germany's Merkel have to approve it. 4) some parliaments including Germany and Ireland's have to pass laws approving the assistance. All this before Greece's next big bond rollover on May 19 of EUR8.5bn. If there is any 'good' news from last night's ratings downgrades, it is that it must now concentrate EU/IMF/Greek officials' minds so that they avoid Greece defaulting on this rollover. Thus in the near term, sentiment is likely to be very adverse as the market fears a re-run of the Lehman collapse 2008. But the likelihood remains for now that Greece will get the money in time. So for next two weeks, the euro will stay under pressure until funds are disbursed and then we should get a short covering rally in EURUSD.
Saturday, April 24, 2010
Wednesday, April 21, 2010
Friday, April 16, 2010
Saturday, March 13, 2010
Sunday, February 21, 2010
Thursday, February 18, 2010
Monday, February 15, 2010
Monday, January 25, 2010
Thursday, January 21, 2010
Wednesday, January 20, 2010
Tuesday, January 19, 2010
Sunday, January 17, 2010
Friday, January 15, 2010
Wednesday, January 6, 2010
Re: market thoughts
dow 60,000 by 2030.
clearly the most difficult period to get a handle on that i have seen in 40 years.
US economy will need more stimulation by the summer. i will be very surprised if we do not see a healthy 20% correction by the summer. commercial real estate problems low demand oversupply, weak consumer credit, no housing recovery. jobs, underemployment etc..however, one of the fed's only choices will be to do what it can to encourage the stock market and maintain stability. they cannot buy all the world's long term debt (quantitative easing) so some increased level of inflation will be very necessary. historically that is generally viewed as bad for stocks because the fed will have to raise interest rates to slow the economy. but this time around it looks like the stock market is looking over the valley to the repricing of all physical assets or else the fed understands that the best way to stimulate the economy is to encourage the ongoing bull market in whatever way it can. oddly enough the US is in a superior position relative to the other developed industrial economies and thus dollar should be strong against their currencies. which leaves commodity dependent currencies as one of the places to be. the only thing that seems clear to me is not to own long term bonds or simply be short the bond market and everything else will take care of itself! the remarkable thing is the ongoing rise in many commodities from oil to copper to sugar to... no supply shortages on the horizon. thus further support for the heavy inflation argument just around the corner. this will be a very peculiar asset inflation because every element from jobs to industrial capacity to materials are all abundant.
the real global economy story IMHO (in my humble opinion) is much deeper. we are in a major transition period in which human labor will not be necessary to provide all the goods and services that people need. therefore, a new model for distribution of the wealth created by the new age must replace the old work ethic.... but that for another time. after all machines can do billions of functions with little or no human intervention.
at the same time there are 3 billion people living on our planet at the moment without proper sanitation and all the other amenities we are accustomed to. you stumble over some of them going to work every day. but most are unseen. ISLAM and obama will not solve those problems.
clearly the most difficult period to get a handle on that i have seen in 40 years.
US economy will need more stimulation by the summer. i will be very surprised if we do not see a healthy 20% correction by the summer. commercial real estate problems low demand oversupply, weak consumer credit, no housing recovery. jobs, underemployment etc..however, one of the fed's only choices will be to do what it can to encourage the stock market and maintain stability. they cannot buy all the world's long term debt (quantitative easing) so some increased level of inflation will be very necessary. historically that is generally viewed as bad for stocks because the fed will have to raise interest rates to slow the economy. but this time around it looks like the stock market is looking over the valley to the repricing of all physical assets or else the fed understands that the best way to stimulate the economy is to encourage the ongoing bull market in whatever way it can. oddly enough the US is in a superior position relative to the other developed industrial economies and thus dollar should be strong against their currencies. which leaves commodity dependent currencies as one of the places to be. the only thing that seems clear to me is not to own long term bonds or simply be short the bond market and everything else will take care of itself! the remarkable thing is the ongoing rise in many commodities from oil to copper to sugar to... no supply shortages on the horizon. thus further support for the heavy inflation argument just around the corner. this will be a very peculiar asset inflation because every element from jobs to industrial capacity to materials are all abundant.
the real global economy story IMHO (in my humble opinion) is much deeper. we are in a major transition period in which human labor will not be necessary to provide all the goods and services that people need. therefore, a new model for distribution of the wealth created by the new age must replace the old work ethic.... but that for another time. after all machines can do billions of functions with little or no human intervention.
at the same time there are 3 billion people living on our planet at the moment without proper sanitation and all the other amenities we are accustomed to. you stumble over some of them going to work every day. but most are unseen. ISLAM and obama will not solve those problems.
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