Many times in recent months, Greece was supposed to run out of money, but then, at the last minute, found a few billions to pay the bills. Now though it seems that this incredible streak of luck is at its end and a hard landing may be imminent.
How to profit ? It's very hard to profit from any bankruptcy. In the very short term, the liquidity implications drag all asset prices down. Soon though, money creation will go into overdrive and again benefit mainly gold and silver prices.
Wednesday, December 28, 2011
Friday, December 9, 2011
Confidence
Faith, trust, confidence are some of the main ingredients needed to plan and invest for the future.
Now take the financial affairs of this fictional family:
Their income is $25,000 a year, they're spending $37,000 and their debt stands at $150,000. Obviously, they are in trouble and the head of the family agrees. To get out of it, he decides reduce the annual deficit from $12,000 to only $11,950.
Would you take your own, hard earned money and lend it to them ?
The numbers correspond to the federal budget (after taking off several zeros). How does anyone believe that the government can act recklessly and instill confidence at the same time ?
If you were to advise this fictional family, you'd likely recommend bankruptcy. It may very well be too late for the government to avoid this fate, but any honest attempt to avert it, must start by slashing spending.
I know, some people would argue that you just need to raise income. But how ? What happens when you raise the price for any product or service ? People buy less of it. This is also true for taxes. When they go up, people will find ways to avoid them.
Trust and confidence can only be restored when reality is dealt with. Absent that, this "financial crisis" is only getting worse.
Now take the financial affairs of this fictional family:
Their income is $25,000 a year, they're spending $37,000 and their debt stands at $150,000. Obviously, they are in trouble and the head of the family agrees. To get out of it, he decides reduce the annual deficit from $12,000 to only $11,950.
Would you take your own, hard earned money and lend it to them ?
The numbers correspond to the federal budget (after taking off several zeros). How does anyone believe that the government can act recklessly and instill confidence at the same time ?
If you were to advise this fictional family, you'd likely recommend bankruptcy. It may very well be too late for the government to avoid this fate, but any honest attempt to avert it, must start by slashing spending.
I know, some people would argue that you just need to raise income. But how ? What happens when you raise the price for any product or service ? People buy less of it. This is also true for taxes. When they go up, people will find ways to avoid them.
Trust and confidence can only be restored when reality is dealt with. Absent that, this "financial crisis" is only getting worse.
Friday, December 2, 2011
Public versus Private
Violent versus Peaceful
Coercive versus Voluntary
We have reached an inflection point: Whereas governments were able to "magically" deliver more than they collected, promised more than they were asked to deliver, they are now overwhelmed by the resulting debt. If you'd like to know how that bankruptcy manifest, look at South America 1980 - 1992, or the collapse of the Soviet Union
Coercive versus Voluntary
We have reached an inflection point: Whereas governments were able to "magically" deliver more than they collected, promised more than they were asked to deliver, they are now overwhelmed by the resulting debt. If you'd like to know how that bankruptcy manifest, look at South America 1980 - 1992, or the collapse of the Soviet Union
Wednesday, November 23, 2011
Gold Standard Lunatic ?
According to these statements by Dr.Nouriel Roubini, people who advocate a return to the gold standard are "Lunatics and Hacks".
http://finance.yahoo.com/blogs/daily-ticker/roubini-supporters-gold-standard-lunatics-hacks-181958239.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+DailyTickerRss+%28Yahoo%21+Finance%3A+The+Daily+Ticker%29
He has a point: before 1913, the USA were not on a gold standard, but gold was indeed money. The Dollar was a defined unit of gold itself and Dollar bills had language on them that allowed their redemption into gold at any time.
The introduction a the gold standard, by inception of the Federal Reserve and its vast expansion of the money supply, made the redemption of paper Dollars into gold impossible.
Sure, the illusion of redeemability was upheld to cover up that the Fed had in effect stolen the gold from the people. When it finally came to a situation that people wanted to redeem their paper, thereby rendering the Fed bankrupt, the government simply declared ownership of gold illegal.
Roubini is right: Only gold is money. Government promises on the other hand have a long history of not being honored.
http://finance.yahoo.com/blogs/daily-ticker/roubini-supporters-gold-standard-lunatics-hacks-181958239.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+DailyTickerRss+%28Yahoo%21+Finance%3A+The+Daily+Ticker%29
He has a point: before 1913, the USA were not on a gold standard, but gold was indeed money. The Dollar was a defined unit of gold itself and Dollar bills had language on them that allowed their redemption into gold at any time.
The introduction a the gold standard, by inception of the Federal Reserve and its vast expansion of the money supply, made the redemption of paper Dollars into gold impossible.
Sure, the illusion of redeemability was upheld to cover up that the Fed had in effect stolen the gold from the people. When it finally came to a situation that people wanted to redeem their paper, thereby rendering the Fed bankrupt, the government simply declared ownership of gold illegal.
Roubini is right: Only gold is money. Government promises on the other hand have a long history of not being honored.
Monday, November 21, 2011
Give Everyone A Million Bucks ?
Just did some cold calling on behalf of the Ron Paul campaign. Came across a guy who identified himself as a Democrat. He suggested what I made the headline.
The magnitude maybe exaggerated, but really, if the Fed can print up 2 trillion and hand it to the government, why not take that 2 trillion and cut every taxpayer a check for $20,000 Dollars ?
If the Fed would have done just that, would the economy still be in the hole ? Would there be any "danger" of deflation ?
The magnitude maybe exaggerated, but really, if the Fed can print up 2 trillion and hand it to the government, why not take that 2 trillion and cut every taxpayer a check for $20,000 Dollars ?
If the Fed would have done just that, would the economy still be in the hole ? Would there be any "danger" of deflation ?
Tuesday, November 15, 2011
Meltdown Of The Eurozone
When the bubble burst in 2008, I was bullish on the Euro. I believed that the agreements that created it were strong and would prevent unlimited money printing by the ECB to bail out member countries.
Instead, so I thought, member countries would be forced to display fiscal sanity or face bankruptcy.
Of course, I was wrong. With politicians, you can make as many agreements as you like and can always bet that they will be broken.
Greece had a small problem in 2009: The government had cooked the books. Well, of course, all governments do that, but Greece really didn't even have an idea how much they owed. Turns out, they owed much more than they can hope to repay.
In our normal world, if a company finds itself in such a situation, the prosecuting attorney would examine what happened, identify and bring to court those responsible. In normal world, this would likely produce quite a long list of perpetrators and many people would be incarcerated and obligated to pay restitution. The company itself likely would end up in bankruptcy and creditors get a fraction of what they're owed.
What happened instead:
Leaders of the other Eurozone countries decided that bankruptcy of Greece would be unacceptable. Debt at that time stood at about $350 billion. Those same leaders decided instead to give Greece more money and "bail it out".
Now, tow years later, Greece owes about $430 billion, the Greek economy has cratered, private creditors have agreed to forgive 50% of what they're owed ("voluntarily" - another little joke in this story !) and Greece is still worse off that they have ever been.
What was a minor problem, distraction, has turned into unmitigated disaster.
Greece, of course, is not the only country with problems, but the pattern in which manageable problems are turned into armageddon, looks like this:
1. There's a problem
2. It is ignored
3. It is not corrected, but amplified (Too much debt ? Add more - Too fast ? Go faster - Slobbering drunk ? - you get the picture !)
4. Friends come in to bail out
5. Since the problem has never been addressed, and the friends themselves are not in their best shape, it now also gets those friends in trouble
End result: Everyone involved ends up bankrupt.
Instead, so I thought, member countries would be forced to display fiscal sanity or face bankruptcy.
Of course, I was wrong. With politicians, you can make as many agreements as you like and can always bet that they will be broken.
Greece had a small problem in 2009: The government had cooked the books. Well, of course, all governments do that, but Greece really didn't even have an idea how much they owed. Turns out, they owed much more than they can hope to repay.
In our normal world, if a company finds itself in such a situation, the prosecuting attorney would examine what happened, identify and bring to court those responsible. In normal world, this would likely produce quite a long list of perpetrators and many people would be incarcerated and obligated to pay restitution. The company itself likely would end up in bankruptcy and creditors get a fraction of what they're owed.
What happened instead:
Leaders of the other Eurozone countries decided that bankruptcy of Greece would be unacceptable. Debt at that time stood at about $350 billion. Those same leaders decided instead to give Greece more money and "bail it out".
Now, tow years later, Greece owes about $430 billion, the Greek economy has cratered, private creditors have agreed to forgive 50% of what they're owed ("voluntarily" - another little joke in this story !) and Greece is still worse off that they have ever been.
What was a minor problem, distraction, has turned into unmitigated disaster.
Greece, of course, is not the only country with problems, but the pattern in which manageable problems are turned into armageddon, looks like this:
1. There's a problem
2. It is ignored
3. It is not corrected, but amplified (Too much debt ? Add more - Too fast ? Go faster - Slobbering drunk ? - you get the picture !)
4. Friends come in to bail out
5. Since the problem has never been addressed, and the friends themselves are not in their best shape, it now also gets those friends in trouble
End result: Everyone involved ends up bankrupt.
Monday, November 14, 2011
Income Tax
According to propaganda, income taxation taxes the rich. Then why are the rich so demanding to tax themselves by increasing the tax rate and even, like recently in Washington State, spend millions in trying to establish a state income tax ?
Why are so many people who are staunchly opposed to income taxes clearly much, much lower on the income scale?
Washington State does not have an income tax, but plenty of multi-millionaires who want one. Amongst them: Bill Gates Sr. who spent millions of Dollars of his own money to put a proposal to enact it on the ballot.
Although, the word "income tax" was judiciously avoided, the measure was soundly rejected by the unwashed masses.
Actually, the original title of the measure is truly something to behold:
"An Act Relating To Education, Health Care And Fiscal Reform" !
That mouthful was successfully challenged by Tim Eyman, who had some tax cutting initiatives of his own on the ballot.
In the end, the measure lost by 65% to 35 %.
Perhaps Washingtonians know the truth: Income taxes are a tax on labor, not on wealth. Further, they delegate the burden of laying the tax on the taxpayers themselves. In other words (to the taxpayer): "You do your own bookkeeping according to our arbitrary rules, then YOU figure out what you should pay and send us a check. Then, if we should find something that we don't like in your calculations, we can take your property or put you in prison."
Sooo much better than having to send out tax statements and having them challenged by taxpayers !
Why are so many people who are staunchly opposed to income taxes clearly much, much lower on the income scale?
Washington State does not have an income tax, but plenty of multi-millionaires who want one. Amongst them: Bill Gates Sr. who spent millions of Dollars of his own money to put a proposal to enact it on the ballot.
Although, the word "income tax" was judiciously avoided, the measure was soundly rejected by the unwashed masses.
Actually, the original title of the measure is truly something to behold:
"An Act Relating To Education, Health Care And Fiscal Reform" !
That mouthful was successfully challenged by Tim Eyman, who had some tax cutting initiatives of his own on the ballot.
In the end, the measure lost by 65% to 35 %.
Perhaps Washingtonians know the truth: Income taxes are a tax on labor, not on wealth. Further, they delegate the burden of laying the tax on the taxpayers themselves. In other words (to the taxpayer): "You do your own bookkeeping according to our arbitrary rules, then YOU figure out what you should pay and send us a check. Then, if we should find something that we don't like in your calculations, we can take your property or put you in prison."
Sooo much better than having to send out tax statements and having them challenged by taxpayers !
Thursday, October 27, 2011
Nuts !
Stocks rally strongly. They're up about 5% or more worldwide. Reason ? Greece and the Eurozone have been saved !
But how ?
Private creditors "voluntarily" give up 50% of their claims, thereby reducing Greece's debt by 100 billion Dollars. The IMF and other European countries advance Greece fresh money.
What is the HOPED for result ? That Greece will have "only" 120% debt to GDP in 2020 !
We've been there 2 years ago, and at the time, Greece was broke ! Now we shall hope that 9 years from now we'll be back to where Greece is just broke ?
Why is gold going up ? Sanity has left the building....
But how ?
Private creditors "voluntarily" give up 50% of their claims, thereby reducing Greece's debt by 100 billion Dollars. The IMF and other European countries advance Greece fresh money.
What is the HOPED for result ? That Greece will have "only" 120% debt to GDP in 2020 !
We've been there 2 years ago, and at the time, Greece was broke ! Now we shall hope that 9 years from now we'll be back to where Greece is just broke ?
Why is gold going up ? Sanity has left the building....
Ok, Maybe Not So Crazy After All.....
Just covered that put I sold at $4.70 for under $1. That yielded a return of more than 10% on capital at risk in 3 days. The stock itself though, went from $43 to now $52. Clearly an even better result at a slightly higher risk.
Tuesday, October 25, 2011
Crazy ?
Perhaps a little: just sold a strike 40 put in First Solar that has 3 1/2 weeks left for $4.70. With the stock now at 43, it obliges me to buy it at a net price (after option premium received) of $35.30.
In other words, I'm willing to bet that the company will survive and that there'll be no revelation of fraud.
In other words, I'm willing to bet that the company will survive and that there'll be no revelation of fraud.
First Solar Tanking
News that the CEO resigned sent the stock down more than 14 Dollars to a new low of $43.71.
No other news given, except that the board of directors "thanks him for his services".
No other news given, except that the board of directors "thanks him for his services".
Tuesday, October 18, 2011
Solar Stocks
Prices crashed recently with many companies losing between 2/3s and 4/5s of their value just in the last 3 months. Bearish bets (short interest) in many issues amounts to more than 50% of float, or the number of shares available for trading.
The largest publicly traded issue, First Solar (FSLR) fell from 140 to now 55 and has a short interest of about 20 million shares against a float of about 35 million. Recently downgraded by Ticonderoga (see "Barron's" link here : http://blogs.barrons.com/techtraderdaily/2011/10/12/fslr-ticonderoga-says-sell-modules-to-lose-money-in-2012/?mod=yahoobarrons), it was recommended for purchase by Goldman Sachs with a price target of $90.
Perhaps the best way to play this sector is an ETF with an unwieldy name but a much better ticker symbol.
Guggenheim Solar - ticker: TAN.
Because of its size, First Solar makes up about 20% of the fund.
Some Charts :
TAN
FSLR
Here's another interesting viewpoint:
http://finance.yahoo.com/news/Is-Solar-Dead-indexuniverse-4280332257.html?x=0
The largest publicly traded issue, First Solar (FSLR) fell from 140 to now 55 and has a short interest of about 20 million shares against a float of about 35 million. Recently downgraded by Ticonderoga (see "Barron's" link here : http://blogs.barrons.com/techtraderdaily/2011/10/12/fslr-ticonderoga-says-sell-modules-to-lose-money-in-2012/?mod=yahoobarrons), it was recommended for purchase by Goldman Sachs with a price target of $90.
Perhaps the best way to play this sector is an ETF with an unwieldy name but a much better ticker symbol.
Guggenheim Solar - ticker: TAN.
Because of its size, First Solar makes up about 20% of the fund.
Some Charts :
TAN
FSLR
Here's another interesting viewpoint:
http://finance.yahoo.com/news/Is-Solar-Dead-indexuniverse-4280332257.html?x=0
Thursday, October 13, 2011
Story Of Two Headlines:
The Wall Street Journal: "Accusations Against Iran Fleshed Out".
Germany's "Der Spiegel": "USA Admitting That Case Against Iran Is Shaky".
Germany's "Der Spiegel": "USA Admitting That Case Against Iran Is Shaky".
Monday, October 10, 2011
"Police Foil Attack on Berlin's Central Station"
That was today's headline in "Der Spiegel". When you read the article though, you learn that it wasn't the valiant police force, but sheer luck that prevented serious damage: The detonators failed to work.
Sunday, September 25, 2011
What's Going On?
Silver collapsed from $40 to $27 in 3 days and is still falling, as gold has dropped from over 1900 to now 1590. Stocks worldwide appear to now have entered bear trends while bond yields hit record lows.
In my view (and my trading record) the short term outlook has become totally unpredictable.
When the "crisis" began in 2007, I advised that the coming years would be a time of unpredictability and a time to best just to try to hold on to what one has, instead of trying to make anything.
This has indeed turned out to be true. That didn't stop me from trying to make home runs anyway, yet I should have been wiser.
The real problem ? Even when I was right, I turned out to be wrong. The moves in individual securities and commodities just didn't follow any accepted playbook which served to throw off anyone who employed leverage (like foolish me).
Best advice ? Don't listen to your emotions, try to find opportunities that make overwhelming sense, pay cash for them and let the chips fall where they may.
What are opportunities right now ?
Selective real estate: Banks are seeing the light and are beginning to dump their inventory at fire sale prices. This happens very much on a local level. Look for it: When you suddenly see properties offered at 50% of assessed value and find them to be in established neighborhoods, make an offer.
Solar stocks: Me thinks we are approaching a tipping point here: Prices for photo-voltaic elements are now dropping to levels where solar energy can compete with other sources without subsidies.
At the same time, stocks are making new all-time lows while trading at P/E ratios of 5-7 !
Silver dropping from $50 to almost $25, or from $40 to $25 in just 3 days ? Probably not a bad idea to buy a few ounces, since unlike Dollars, silver doesn't become worthless.
If we get another stock market crash, gold could drop to about $1300. That's where I would step up my buying again.
In my view (and my trading record) the short term outlook has become totally unpredictable.
When the "crisis" began in 2007, I advised that the coming years would be a time of unpredictability and a time to best just to try to hold on to what one has, instead of trying to make anything.
This has indeed turned out to be true. That didn't stop me from trying to make home runs anyway, yet I should have been wiser.
The real problem ? Even when I was right, I turned out to be wrong. The moves in individual securities and commodities just didn't follow any accepted playbook which served to throw off anyone who employed leverage (like foolish me).
Best advice ? Don't listen to your emotions, try to find opportunities that make overwhelming sense, pay cash for them and let the chips fall where they may.
What are opportunities right now ?
Selective real estate: Banks are seeing the light and are beginning to dump their inventory at fire sale prices. This happens very much on a local level. Look for it: When you suddenly see properties offered at 50% of assessed value and find them to be in established neighborhoods, make an offer.
Solar stocks: Me thinks we are approaching a tipping point here: Prices for photo-voltaic elements are now dropping to levels where solar energy can compete with other sources without subsidies.
At the same time, stocks are making new all-time lows while trading at P/E ratios of 5-7 !
Silver dropping from $50 to almost $25, or from $40 to $25 in just 3 days ? Probably not a bad idea to buy a few ounces, since unlike Dollars, silver doesn't become worthless.
If we get another stock market crash, gold could drop to about $1300. That's where I would step up my buying again.
Thursday, September 22, 2011
Mindboggling...
Headline I just read: Lybian Rebels find billions of Gaddafi's money.
The picture to the article shows crates of colorful Dinar notes with the former rulers face on them.
The article claims that because of this find they can now finance the government for the next 6 months.
Wow, boxes upon boxes of colorful paper, sporting the head of the tyrant they just pushed out. This is worth something ?
Don't the new rulers have the power to make up their own colorful confetti ? Don't the people of Lybia know that ? Why would they accept it for value ?
Here's the link :
http://www.spiegel.de/politik/ausland/0,1518,787758,00.html
Though it"s in German, Google translate can give you a good idea what it says.
The picture to the article shows crates of colorful Dinar notes with the former rulers face on them.
The article claims that because of this find they can now finance the government for the next 6 months.
Wow, boxes upon boxes of colorful paper, sporting the head of the tyrant they just pushed out. This is worth something ?
Don't the new rulers have the power to make up their own colorful confetti ? Don't the people of Lybia know that ? Why would they accept it for value ?
Here's the link :
http://www.spiegel.de/politik/ausland/0,1518,787758,00.html
Though it"s in German, Google translate can give you a good idea what it says.
Monday, September 12, 2011
Efficient Market: Crude Oil ?
For many month now, we can observe a growing price difference between the two major crude oil contracts:
Brent Crude, traded in Europe, and the WTI Crude contract traded in the USA. Traditionally, the Brent contract traded for about $2 less per barrel as it represents more a more "sour" type of crude (containing more sulfur). During the course of last year, this relationship has reversed quite dramatically: WTI now trades for $89 while Brent fetches $113.
This is a humongous $24 price difference, especially in light of the fact that Crude traded for less than $20 in 2002 and dipped below $40 in 2009.
Articles that I've read tried to convince me that WTI is now less of a benchmark (even though it still has a much higher open interest and trading volume). It's also claimed that the delivery point (Cushing, OK) is landlocked and that this prohibits meaningful arbitrage.
WTI prices have dropped from $114 in May to $89 now. Prices for gasoline at your station are still at their highs.
What these facts show IMHO, is that these prices are not the result of free market action. If the market would not be manipulated, sellers would re-direct their output to where they get the highest price. Someone would come up with a way to buy at $89 and sell at $113.
Perhaps it has something to do with federal regulations that prohibit the export of crude from the US ?
One thing is certain: even though US crude prices are almost 25% lower than prices in the rest of the world, US consumers are not profiting.
Brent Crude, traded in Europe, and the WTI Crude contract traded in the USA. Traditionally, the Brent contract traded for about $2 less per barrel as it represents more a more "sour" type of crude (containing more sulfur). During the course of last year, this relationship has reversed quite dramatically: WTI now trades for $89 while Brent fetches $113.
This is a humongous $24 price difference, especially in light of the fact that Crude traded for less than $20 in 2002 and dipped below $40 in 2009.
Articles that I've read tried to convince me that WTI is now less of a benchmark (even though it still has a much higher open interest and trading volume). It's also claimed that the delivery point (Cushing, OK) is landlocked and that this prohibits meaningful arbitrage.
WTI prices have dropped from $114 in May to $89 now. Prices for gasoline at your station are still at their highs.
What these facts show IMHO, is that these prices are not the result of free market action. If the market would not be manipulated, sellers would re-direct their output to where they get the highest price. Someone would come up with a way to buy at $89 and sell at $113.
Perhaps it has something to do with federal regulations that prohibit the export of crude from the US ?
One thing is certain: even though US crude prices are almost 25% lower than prices in the rest of the world, US consumers are not profiting.
Efficient Market: Update on SunPower
The majority shareholder decided today to schedule a vote to merge the 2 classes of stock into one, thereby eliminating the price difference between the A and the B shares.
Predictably the B shares rallied about 10% on the news while the A shares dropped.
Predictably the B shares rallied about 10% on the news while the A shares dropped.
Sunday, September 4, 2011
Here's An Example:
It's from "Der Spiegel", without a doubt the most influential German weekly magazine.
Speculating with Lives
How Global Investors Make Money Out of Hunger
If you ever wondered how dictators come to power, this is the method: You single out a group of people, make them the scapegoat and make up stories on how they are responsible for all what's wrong with the world.
Now, to be fair, utter ignorance about the working of markets runs rampant in the USA as well.
The above mentioned article is not worth reading. Just as with most fabrications of its ilk, the headline is the whole story. It's propaganda meant to lead the average reader to create a picture in his head, to promote a certain outcome.
In this case the desired outcome is to render markets meaningless and have the government set prices.
It is propaganda that is meant to prepare Germany for a new planned economy, preferably communism I suppose.
Of all the idiocy spewed forth by these highly intelligent and educated journalists, let me just pick on one:
1: Speculators, hedge funds and other nasties are investing in food items and their concerted buying drives prices out of reach for consumers.
Answer: Said speculators are not buying any foodstuffs at all, but are making BETS on what the price will be at various times in the future (hence: futures trading) !
What is the most certain outcome, if producers (farmers) are promised a high price for future production ?
Right: they'll make more, which in turn, by "Der Spiegels" "reasoning", leads to people going hungry.
Oh, and why are people making bets on higher prices ? Because governments all over the world are busy printing trillions of Dollars, Euros and Yen to deliberately drive up inflation.
Thursday, August 25, 2011
Government Lies, Cheats, Defrauds :How ?
Let's take this big whopper from Europe:
In 2001 the Euro was introduced in the majority of countries making up the European Community. The promise was made that the European Central Bank would follow a monetary policy modeled after that of the Deutsche Bundesbank.
Further, an agreement was made that no Eurozone country would be allowed to bail out another. The ECB would not be allowed to buy the obligations of any member country.
By agreement, member countries would not be allowed to incur budget deficits of more than 3% of their respective GDP in any year, and the total debt was not to exceed 65% of GDP.
Nice plan: it actually made me bullish on the Euro for a long time.
Unfortunately, whenever a little problem pops up, rules are thrown out in a hurry.
In 2009, Greece discovered a "little" problem: It's reported financial data could not be relied upon as debts were much higher than previously disclosed.
Imagine that Greece was a company. What would have happened ? It likely would be forced into bankruptcy and the management would certainly be prosecuted for misleading the public, fraud etc..
What happened instead ? No-one has been put on trial !
Instead of letting those who foolishly lent money to Greece suffer the consequences, the IMF and the governments of the world that support it, have committed YOUR money, the money of the tax payers of the world, to bail out Greece.
But wait, it's not Greece or the Greek people who are helped here: It's the worlds large banks instead. Because they are "system-relevant" and if they would have to take the losses, they might fail ?
In the meantime, few days go by that there's not a gruesome story told in a major German magazine or newspaper on how "speculators" are guilty of causing all these problems.
How does it work in today's democracies, that governments can dish up a big pile of horse manure and the mainstream media and (therefore?) the public just eagerly gobble it up ?
In 2001 the Euro was introduced in the majority of countries making up the European Community. The promise was made that the European Central Bank would follow a monetary policy modeled after that of the Deutsche Bundesbank.
Further, an agreement was made that no Eurozone country would be allowed to bail out another. The ECB would not be allowed to buy the obligations of any member country.
By agreement, member countries would not be allowed to incur budget deficits of more than 3% of their respective GDP in any year, and the total debt was not to exceed 65% of GDP.
Nice plan: it actually made me bullish on the Euro for a long time.
Unfortunately, whenever a little problem pops up, rules are thrown out in a hurry.
In 2009, Greece discovered a "little" problem: It's reported financial data could not be relied upon as debts were much higher than previously disclosed.
Imagine that Greece was a company. What would have happened ? It likely would be forced into bankruptcy and the management would certainly be prosecuted for misleading the public, fraud etc..
What happened instead ? No-one has been put on trial !
Instead of letting those who foolishly lent money to Greece suffer the consequences, the IMF and the governments of the world that support it, have committed YOUR money, the money of the tax payers of the world, to bail out Greece.
But wait, it's not Greece or the Greek people who are helped here: It's the worlds large banks instead. Because they are "system-relevant" and if they would have to take the losses, they might fail ?
In the meantime, few days go by that there's not a gruesome story told in a major German magazine or newspaper on how "speculators" are guilty of causing all these problems.
How does it work in today's democracies, that governments can dish up a big pile of horse manure and the mainstream media and (therefore?) the public just eagerly gobble it up ?
Fortysix Percent Interest Per Year !
That's the current yield on Greek government 2 year obligations. If you buy these AND get paid, you double your money in 2 years !
Will you get paid ? Want to make that bet ? After all, the other European governments have publicly declared that they will not allow Greece to go bankrupt.
The European Central Bank holds about 60 billion Euros of Greek debt (with capital of only 10 billion).
What could possibly go wrong ?
In the meantime, Portugal 2 year debt yields more than 12% and the ECB is gobbling up more paper from Italy and Spain while their prices continue to fall.
Will you get paid ? Want to make that bet ? After all, the other European governments have publicly declared that they will not allow Greece to go bankrupt.
The European Central Bank holds about 60 billion Euros of Greek debt (with capital of only 10 billion).
What could possibly go wrong ?
In the meantime, Portugal 2 year debt yields more than 12% and the ECB is gobbling up more paper from Italy and Spain while their prices continue to fall.
Saturday, August 13, 2011
Democracy
Just hours ago, the results of the Aimes, Iowa straw poll were released. The first place finisher received 4823, Ron Paul received 4671 votes. Third place got only 2293 and since the total vote count was 16,892, the tally drops off rather markedly after.
What did the mainstream media make of it ? Exactly the opposite of what I just practiced here: Ron Paul was not mentioned by name, but everyone else was.
In addition, the first place finisher was born in Iowa and therefore had some hometown advantage and he was heavily favored by same mainstream media going into the poll. The Wall Street Journal for instance, wrote a lengthy "puff" piece about him just days ago.
What did the mainstream media make of it ? Exactly the opposite of what I just practiced here: Ron Paul was not mentioned by name, but everyone else was.
In addition, the first place finisher was born in Iowa and therefore had some hometown advantage and he was heavily favored by same mainstream media going into the poll. The Wall Street Journal for instance, wrote a lengthy "puff" piece about him just days ago.
Efficient Market ?
One company, two classes of stock. Both classes are exactly equal in rights except for one: The second, of class B shares, have 8 votes per share versus only 1 vote per A share.
Today, the B shares trade at 12, and the A shares at 16. Does it make any sense ?
The company in question is SunPower (SPWRA and SPWRB). Interesting to note that most brokerage analysts only talk about the A shares when they give estimates and recommendations.
Today, the B shares trade at 12, and the A shares at 16. Does it make any sense ?
The company in question is SunPower (SPWRA and SPWRB). Interesting to note that most brokerage analysts only talk about the A shares when they give estimates and recommendations.
Wednesday, August 10, 2011
What's Wrong With Banking ? (Part One Of Many)
Funny story: My son wants to buy a first home and he is pre-approved for a 4.5% conventional mortgage loan, yet will finance his purchase with an 8% private loan because it's, get this, CHEAPER !
(with a lot less hassle to boot !)
A bank giving back it's banking charter because it lent to small business and got harassed for it by the regulators:
See article here :
http://online.wsj.com/article/SB10001424053111904480904576498442951766826.html
(with a lot less hassle to boot !)
A bank giving back it's banking charter because it lent to small business and got harassed for it by the regulators:
See article here :
http://online.wsj.com/article/SB10001424053111904480904576498442951766826.html
Gold At 1800....
The frequency with which I'm now posting about 100 Dollar increments in the new high price in gold should be a testament in itself that we may approach a short term top.
Commodity prices, as measured by the CRB Index, made their highs in mid April of this year and are now about 12% lower. Platinum is trading now at a lower price than gold and silver could not get much above $40. It is trading at $39 right now after hitting $50 in April.
Ever keeping in mind that the Dollar is destined to be worthless, it may be time to trade some gold for other assets. Perhaps even real estate: Banks are seemingly getting serious about cleaning their books of unwanted REO (at least in this Seattle area)
Commodity prices, as measured by the CRB Index, made their highs in mid April of this year and are now about 12% lower. Platinum is trading now at a lower price than gold and silver could not get much above $40. It is trading at $39 right now after hitting $50 in April.
Ever keeping in mind that the Dollar is destined to be worthless, it may be time to trade some gold for other assets. Perhaps even real estate: Banks are seemingly getting serious about cleaning their books of unwanted REO (at least in this Seattle area)
Monday, August 8, 2011
Gold At 1700....
while other commodity prices are falling on account of a weakening economy, gold continues its relentless rise. Gold stocks, on the other hand, still fail to join in and are acting supremely disappointing.
Governments Of The World
pledge to stabilize the financial markets ! That's the headline I just read. Given their recent successes at "helping out" the markets, I'm feeling uneasy to scared right now.
Saturday, July 2, 2011
Co-Signing a Loan
The most stupid financial act anyone can ever commit. What's worse is to become a guarantor not even knowing what the real situation of the debtor is (and when do you ever really know anyway ?).
In 2008 the Irish government decided it best to guarantee the debt of the nations banks as they were teetering on bankruptcy. At that time, Ireland was in excellent financial shape with a debt to GDP ration of around 50%.
Guess what, the banks lied: their problems were much bigger than they let on and now the whole country is bankrupt.
In 2009 Greece told the world that it "discovered" a little problem: It never knew how to do any kind of bookkeeping. It's reported balance sheet should not be relied upon and its debt is apparently much higher than previously stated.
In any rational context, this would have led to bankruptcy and incarceration of the people responsible.
What happened ? European government officials decided that bankruptcy is out of the question and since government is always above the law, the only solution left was for them to co-sign Greed debt by sending them the money needed to pay off old debt.*
Now, two years later, markets around the world a rallying strongly as another time bankruptcy of Greece has been averted by a fresh money injection. Has the situation improved in the last two years ? No: debt is 25% higher, the economy is shrinking and the country is paralyzed by strikes and violent demonstrations against the policies of the government. Is there any hope of improvement in the next two years ?
Two years ago I advocated the Euro over the Dollar because the overall financial situation in Euroland is still much better than in the USA. Now I'm selling the Euro as the lawlessness and stupidity of European leaders has turned a very small problem into a many faceted disaster that keeps growing.
How can it be legal or moral to mortgage the future of our progeny to save the hides of our present day politicians ?
*just a really minor point: this also violated the agreements that were entered into when the Euro was created. One of the resulting lawsuits will be decided July 5th before the German constitutional court. Not to worry though, since courts have an abysmal record of deciding against even the most outlandish decisions of their respective governments.
In 2008 the Irish government decided it best to guarantee the debt of the nations banks as they were teetering on bankruptcy. At that time, Ireland was in excellent financial shape with a debt to GDP ration of around 50%.
Guess what, the banks lied: their problems were much bigger than they let on and now the whole country is bankrupt.
In 2009 Greece told the world that it "discovered" a little problem: It never knew how to do any kind of bookkeeping. It's reported balance sheet should not be relied upon and its debt is apparently much higher than previously stated.
In any rational context, this would have led to bankruptcy and incarceration of the people responsible.
What happened ? European government officials decided that bankruptcy is out of the question and since government is always above the law, the only solution left was for them to co-sign Greed debt by sending them the money needed to pay off old debt.*
Now, two years later, markets around the world a rallying strongly as another time bankruptcy of Greece has been averted by a fresh money injection. Has the situation improved in the last two years ? No: debt is 25% higher, the economy is shrinking and the country is paralyzed by strikes and violent demonstrations against the policies of the government. Is there any hope of improvement in the next two years ?
Two years ago I advocated the Euro over the Dollar because the overall financial situation in Euroland is still much better than in the USA. Now I'm selling the Euro as the lawlessness and stupidity of European leaders has turned a very small problem into a many faceted disaster that keeps growing.
How can it be legal or moral to mortgage the future of our progeny to save the hides of our present day politicians ?
*just a really minor point: this also violated the agreements that were entered into when the Euro was created. One of the resulting lawsuits will be decided July 5th before the German constitutional court. Not to worry though, since courts have an abysmal record of deciding against even the most outlandish decisions of their respective governments.
Wednesday, June 22, 2011
Liquidity Still Receding
As incredible as it may seem, even with unprecedented 2 trillion Dollar plus money printing in the last 2 years by the Fed, the pressure is still on US consumers. Credit has become more obtainable, but he still suffers from a still falling housing market.
Zillow is a seemingly good source of data. Just by accident I discovered that they must have re-jiggered their methodology recently: my own house fell from about 300k to 270 and they also changed their history chart. It now seems reasonable to think that about half of all houses with a mortgage are now effectively "under water". (after considering eventual selling costs)
Well, Ben, very often its just good to stick with your original ideas: dropping the mulah among the general populace would have given the economy a much better jolt than giving it just to bankers.
Zillow is a seemingly good source of data. Just by accident I discovered that they must have re-jiggered their methodology recently: my own house fell from about 300k to 270 and they also changed their history chart. It now seems reasonable to think that about half of all houses with a mortgage are now effectively "under water". (after considering eventual selling costs)
Well, Ben, very often its just good to stick with your original ideas: dropping the mulah among the general populace would have given the economy a much better jolt than giving it just to bankers.
Wednesday, June 8, 2011
Debt ? What Debt ?
What a nice surprise: According to commentators from all across the political spectrum, the national debt is "only" 10.5 trillion and not the 14.3 trillion that is currently the maximum allowed.
So what is congress and what are the rating agencies so worried about ? Government shutdown and default because we cannot borrow more than 14.3 trillion ? According to these specialists we have another 4 trillion to go before this dire outcome is to happen.
"The national debt has jumped to 69% of GDP this year, from 40% in 2008."
This is what Martin Feldstein wrote in an opinion piece in the Wall Street Journal today and its just an example of similar recent utterances.
What makes up the 4 trillion Dollar difference ? It's social security obligations, and it's only about 7% of the total estimated liability. It ended up on the US balance sheet because these are prior years surpluses that have been invested with the Treasury. What a fine investment when financial experts of all color can now claim it doesn't really exist ?
This surplus has been accumulated as the baby boomers entered their highest income years but are now beginning to retire and withdraw those same surpluses. Unless the government intends to stop Social Security, that surplus will have to be paid out over the course of the next 10 years and this "non-existing" debt will then be represented by publicly held Notes and Bonds.
Just 3 years ago, on July 24th, 2008, the debt limit was raised from 9.9 trillion to 10.7 trillion to have 800 billion available to bail out the mortgage insurers Fannie Mae and Freddie Mac. More than 4 trillion in additional debt in 3 years. Almost $30,000 for every taxpayer (140 million of them according to this source: http://www.taxfoundation.org/news/show/250.html)
Here's the link to the Feldstein piece :http://online.wsj.com/article/SB10001424052702303657404576363984173620692.html?KEYWORDS=martin+feldstein
So what is congress and what are the rating agencies so worried about ? Government shutdown and default because we cannot borrow more than 14.3 trillion ? According to these specialists we have another 4 trillion to go before this dire outcome is to happen.
"The national debt has jumped to 69% of GDP this year, from 40% in 2008."
This is what Martin Feldstein wrote in an opinion piece in the Wall Street Journal today and its just an example of similar recent utterances.
What makes up the 4 trillion Dollar difference ? It's social security obligations, and it's only about 7% of the total estimated liability. It ended up on the US balance sheet because these are prior years surpluses that have been invested with the Treasury. What a fine investment when financial experts of all color can now claim it doesn't really exist ?
This surplus has been accumulated as the baby boomers entered their highest income years but are now beginning to retire and withdraw those same surpluses. Unless the government intends to stop Social Security, that surplus will have to be paid out over the course of the next 10 years and this "non-existing" debt will then be represented by publicly held Notes and Bonds.
Just 3 years ago, on July 24th, 2008, the debt limit was raised from 9.9 trillion to 10.7 trillion to have 800 billion available to bail out the mortgage insurers Fannie Mae and Freddie Mac. More than 4 trillion in additional debt in 3 years. Almost $30,000 for every taxpayer (140 million of them according to this source: http://www.taxfoundation.org/news/show/250.html)
Here's the link to the Feldstein piece :http://online.wsj.com/article/SB10001424052702303657404576363984173620692.html?KEYWORDS=martin+feldstein
Tuesday, May 31, 2011
Are European Banks Safe For Depositors ?
Since the "financial crisis"* started, I never felt that insured bank depositors were ever at any risk. Now there are reports that Greek citizens are withdrawing huge amounts of Euros from their local banks.
Their fear ? That they wake up one day and hold rapidly devaluing Drachmas instead of Euros.
Similar thinking seems to spread to other parts of the distressed Euro zone:
According to one of todays headlines, Irish residents trimmed their deposits in their banks by 9.1% year over year.
*Financial crisis is a misnomer: It is a bankruptcy that is not allowed to happen. In trying to avoid outright default, governments in the USA and Europe are, unfortunately, making the problem bigger and the eventual default much more painful.
How will the default manifest ? When the governments involved will issue intrinsically worthless paper to pay for their debts.
Their fear ? That they wake up one day and hold rapidly devaluing Drachmas instead of Euros.
Similar thinking seems to spread to other parts of the distressed Euro zone:
According to one of todays headlines, Irish residents trimmed their deposits in their banks by 9.1% year over year.
*Financial crisis is a misnomer: It is a bankruptcy that is not allowed to happen. In trying to avoid outright default, governments in the USA and Europe are, unfortunately, making the problem bigger and the eventual default much more painful.
How will the default manifest ? When the governments involved will issue intrinsically worthless paper to pay for their debts.
Wednesday, May 11, 2011
Is This Complicated ?
Where we are:
Money printing (QE2) to end in June.
Extreme deficit spending by the Federal Government has to end.
Interest rates are going up.
Stocks are trading at close to record P/Es.
Economic activity is slowing around the globe.
Where do you put your money ?
Stocks ? No. Bonds ? No.
Sell everything and wait for QE3 ? Maybe.
Money printing (QE2) to end in June.
Extreme deficit spending by the Federal Government has to end.
Interest rates are going up.
Stocks are trading at close to record P/Es.
Economic activity is slowing around the globe.
Where do you put your money ?
Stocks ? No. Bonds ? No.
Sell everything and wait for QE3 ? Maybe.
Saturday, May 7, 2011
Who Is Howard Buffet ?
He is the father of Warren. He also was a 4 term U.S. Congressman. In 1948 he held this speech, titled :
Human Freedom Rests on Gold Redeemable Money:
http://www.fame.org/pdf/buffet3.pdf
Human Freedom Rests on Gold Redeemable Money:
http://www.fame.org/pdf/buffet3.pdf
Friday, May 6, 2011
Rumors (promptly denied)...
are hitting the news that Greece will leave the Eurozone and re-introduce its own currency. It would also declare bankruptcy.
In response, the Euro declines, US Treasury securities advance and gold initially sold off a few Dollars.
This could not make any less sense. Greece IS bankrupt. There is just no way that they can make their debt service at the interest rates that the market is demanding.
Since everyone but the European Central Bank knows this, what could possibly be the surprise?
In response, the Euro declines, US Treasury securities advance and gold initially sold off a few Dollars.
This could not make any less sense. Greece IS bankrupt. There is just no way that they can make their debt service at the interest rates that the market is demanding.
Since everyone but the European Central Bank knows this, what could possibly be the surprise?
Thursday, May 5, 2011
Is The Commodity Rally Over ?
After silver crashed from 50 to 35 Dollars an ounce in just 4 days and crude oil dropped $10 per barrel and copper dropped below $4 today, many people again call the prior run-up a bubble and this the crash.
Although its certainly possible that we'll witness a pause for the price increases, like I mentioned a few days ago, I don't believe its anywhere close to being over.
The Dollar rallied strongly today and the Dollar Index gained almost 2%. Yet, was it the Dollar rising, or the Euro dropping ?
The European Central Bank met today and decided not to raise rates and left the impression that another hike will not happen soon. That tanked the Euro as it became clear that they're not much into inflation fighting either.
Although its certainly possible that we'll witness a pause for the price increases, like I mentioned a few days ago, I don't believe its anywhere close to being over.
The Dollar rallied strongly today and the Dollar Index gained almost 2%. Yet, was it the Dollar rising, or the Euro dropping ?
The European Central Bank met today and decided not to raise rates and left the impression that another hike will not happen soon. That tanked the Euro as it became clear that they're not much into inflation fighting either.
Wednesday, May 4, 2011
Funny Headlines From The Dow Jones News Wires :
"Geithner: No Prospect Of Change In Global Monetary System This Decade" (May 4,2011)
The following are all from Federal Reserve Bank of Dallas President Richard Fisher on May 4, 2011:
"Monitoring Underlying Inflation Closely"
"Many Executives Behind US Financial Crisis Are Now Richer"
"Fed's Recession Policies Were Unpopular But Worked"
"Fed Will Change Interest Rates When Time Is Right"
"US Was In Risk Of Something Worse Than Great Recession"
Well, I'm sorry, you're right: It's only funny in the "Newspeak" fashion of Orwell's 1984.
The following are all from Federal Reserve Bank of Dallas President Richard Fisher on May 4, 2011:
"Monitoring Underlying Inflation Closely"
"Many Executives Behind US Financial Crisis Are Now Richer"
"Fed's Recession Policies Were Unpopular But Worked"
"Fed Will Change Interest Rates When Time Is Right"
"US Was In Risk Of Something Worse Than Great Recession"
Well, I'm sorry, you're right: It's only funny in the "Newspeak" fashion of Orwell's 1984.
Friday, April 29, 2011
Gold Up, Miners Down ...
Large cap mining shares (GDX) made their high on December 7 at $64.62 when gold traded at $1420. Now, 5 months later, gold trades at 1540, but GDX only fetches $61.50.
Thursday, April 28, 2011
Commodity Boom: Short Term Hiccup Possible ?
I've decided to become a little cautious here and took off my leveraged gold positions. Silver recently went almost parabolic on extremely heavy volume and so I sense that the market could take a breather.
Economic activity around the world seems to cool down a little and interest rates are rising everywhere but in the USA. Key commodity prices like those of copper and grains are beginning to show weakness.
Sugar went from 35 Cents per pound in February to 22 Cents now and that could be a rewarding entry point.
Economic activity around the world seems to cool down a little and interest rates are rising everywhere but in the USA. Key commodity prices like those of copper and grains are beginning to show weakness.
Sugar went from 35 Cents per pound in February to 22 Cents now and that could be a rewarding entry point.
Friday, April 15, 2011
As Gold Makes New Record Highs...
just about every day, stocks of gold miners continue to disappoint. It appears that their cost of producing the metal is increasing at a similar rate leading to almost no margin expansion.
Fed officials keep harping that there's no inflation.
Fed officials keep harping that there's no inflation.
Friday, April 8, 2011
Stocks: On Thin Ice
Bernanke's commodity boom is starting to really hurt business and Ben's claim that these price pressures are transitory becomes ever more ludicrous. Interest rates have no way to go but up and now investor sentiment has left no-one in the bearish camp.
Inflation is NOT good for business. Sure, profits and profit margins are apt to rise as historical costs are lower than price paid currently, but that is a temporary phenomenon. As interest rates must eventually rise, earnings will be pressured further and price earnings ratios will contract.
In the 1970's for instance, prices rose by 10% p.a. as stocks as measured by the Dow Jones Index stayed flat for 13 years.
Once we enter hyper-inflation, stocks will be of course better than Dollars, but Gold will be even better.
I know, I've been bearish and wrong for too long, but owning stocks here just doesn't compute.
Inflation is NOT good for business. Sure, profits and profit margins are apt to rise as historical costs are lower than price paid currently, but that is a temporary phenomenon. As interest rates must eventually rise, earnings will be pressured further and price earnings ratios will contract.
In the 1970's for instance, prices rose by 10% p.a. as stocks as measured by the Dow Jones Index stayed flat for 13 years.
Once we enter hyper-inflation, stocks will be of course better than Dollars, but Gold will be even better.
I know, I've been bearish and wrong for too long, but owning stocks here just doesn't compute.
Wednesday, March 30, 2011
Bernard von Nothaus
was convicted and could face 25 years in prison. Read here for the details of his incredible story:
http://www.nysun.com/editorials/a-unique-form-of-terrorism/87269/
In the meantime, 13 states are working on laws to make gold and silver legal tender.
http://www.foxnews.com/politics/2011/03/04/utah-house-passes-recognizing-gold-silver-legal-tender/
Of course, the latter article finishes with the readily passed off lie that the gold standard caused the depression. Indeed the depression was caused by the Fed. It was with the creation of this banking cartel, the Fed, that the gold standard effectively ended. Though Dollars were still redeemable for gold in theory, because of the over-expansion of credit after the founding of the Fed, any meaningful redemption would have resulted in its bankruptcy.
Which is of course what happened in 1933. At the same time that the number of Dollars required to redeem 1 ounce of gold was increased from $20.67 to $35, private ownership of gold was outlawed.
The re-setting of the gold price amounted to a bankruptcy in which creditors were repaid only about 59% of their claims. At the same time, all privately owned gold in the USA was confiscated by the government. That made any redemption, even at the new higher price, impossible.
Only after 42 years had passed, in 1975, was it again legal for US citizens to own gold. At that time the price was $180 per ounce.
http://www.nysun.com/editorials/a-unique-form-of-terrorism/87269/
In the meantime, 13 states are working on laws to make gold and silver legal tender.
http://www.foxnews.com/politics/2011/03/04/utah-house-passes-recognizing-gold-silver-legal-tender/
Of course, the latter article finishes with the readily passed off lie that the gold standard caused the depression. Indeed the depression was caused by the Fed. It was with the creation of this banking cartel, the Fed, that the gold standard effectively ended. Though Dollars were still redeemable for gold in theory, because of the over-expansion of credit after the founding of the Fed, any meaningful redemption would have resulted in its bankruptcy.
Which is of course what happened in 1933. At the same time that the number of Dollars required to redeem 1 ounce of gold was increased from $20.67 to $35, private ownership of gold was outlawed.
The re-setting of the gold price amounted to a bankruptcy in which creditors were repaid only about 59% of their claims. At the same time, all privately owned gold in the USA was confiscated by the government. That made any redemption, even at the new higher price, impossible.
Only after 42 years had passed, in 1975, was it again legal for US citizens to own gold. At that time the price was $180 per ounce.
Tuesday, March 22, 2011
Gold buyers are jerks !
Yes, Warren Buffet's second in command thinks so, according to this article:
http://blogs.wsj.com/marketbeat/2011/01/12/warren-buffett-bud-charlie-munger-to-goldbugs-youre-a-jerk/
Warren has of course voiced his distaste for gold previously.
But if you simply decide to adopt gold as your currency, you would have to
evaluate any investment opportunity offered to you in terms of: "Does this offer
me a positive return ?" Does the offered investment even promise to give you
your money back to begin with ?
The long term money creation of the Fed amounts to a compound 7.5% per year for
the last 40 years or so. The current rate appears to even vastly exceed that
average.
So, if you buy a 10 year obligation that promises you a return of 3.5%, do you
even have any kind of chance to ever get your money back in real terms ?
What if you buy stocks that sport an earnings yield of 5% ?
The definition of a bubble is that people buy assets that will never allow them
to make a profit, except for finding a greater fool !
Now, is there a bubble in gold ? Or is there a bubble in the Dollar ? (and the
bond market and the stock market ?)
Interesting to note that Warren is just talking his book: When he bought for
instance into Goldman Sachs 2 years ago, he was given preferred shares with a
yield of 10% plus warrants (options) to purchase 5 million shares at about the
then market price.
He then promoted the shares that paid nothing to everyone else. As he himself
admitted, the 700 billion TARP program was crucial for the survival of Goldman.
He is a very clever investor and knows which side his bread is buttered on !
In summary: I totally buy his argument that it's better to buy productive assets
than hold cash.
But, if the investments offered do not even promise me to pay my money back from
the outset, I'd rather hold cash.
http://blogs.wsj.com/marketbeat/2011/01/12/warren-buffett-bud-charlie-munger-to-goldbugs-youre-a-jerk/
Warren has of course voiced his distaste for gold previously.
But if you simply decide to adopt gold as your currency, you would have to
evaluate any investment opportunity offered to you in terms of: "Does this offer
me a positive return ?" Does the offered investment even promise to give you
your money back to begin with ?
The long term money creation of the Fed amounts to a compound 7.5% per year for
the last 40 years or so. The current rate appears to even vastly exceed that
average.
So, if you buy a 10 year obligation that promises you a return of 3.5%, do you
even have any kind of chance to ever get your money back in real terms ?
What if you buy stocks that sport an earnings yield of 5% ?
The definition of a bubble is that people buy assets that will never allow them
to make a profit, except for finding a greater fool !
Now, is there a bubble in gold ? Or is there a bubble in the Dollar ? (and the
bond market and the stock market ?)
Interesting to note that Warren is just talking his book: When he bought for
instance into Goldman Sachs 2 years ago, he was given preferred shares with a
yield of 10% plus warrants (options) to purchase 5 million shares at about the
then market price.
He then promoted the shares that paid nothing to everyone else. As he himself
admitted, the 700 billion TARP program was crucial for the survival of Goldman.
He is a very clever investor and knows which side his bread is buttered on !
In summary: I totally buy his argument that it's better to buy productive assets
than hold cash.
But, if the investments offered do not even promise me to pay my money back from
the outset, I'd rather hold cash.
Thursday, March 17, 2011
What about gold ?
Here are two "mainstream" views of the merits of gold:
http://online.wsj.com/article/SB10001424052748703584804576144493294520526.html
http://online.wsj.com/article/SB10001424052748703584804576144503030551000.html
These views totally miss the bigger point:
What if you were given the choice of "investing" your money to receive 5% less every year? That is, very conservatively, the rate of return offered currently in the US bond market. That is why investors favor cash, which is gold, over investments that are guaranteed to lose money.
http://online.wsj.com/article/SB10001424052748703584804576144493294520526.html
http://online.wsj.com/article/SB10001424052748703584804576144503030551000.html
These views totally miss the bigger point:
What if you were given the choice of "investing" your money to receive 5% less every year? That is, very conservatively, the rate of return offered currently in the US bond market. That is why investors favor cash, which is gold, over investments that are guaranteed to lose money.
Wednesday, March 2, 2011
This is the essence of our predicament :
While Ben and his central bank friends around the world are bemoaning the lack of inflation, they all have one answer to everything that ails the world: Print more money !
We have a recession or depression: Print more money.
We have too many unemployed : Print more money.
When commodity prices rise to new record levels, like right now, they are not important.
If the official US inflation rate would be calculated like it was during Jimmy Carters time as president, it likely would be closer to 10% than 1%.
I fear that there is a good chance that in the not too distant future the paper currencies of the world will be abandoned as worthless.
It now is clear that Alan Greenspan didn't know what he was doing and it is becoming increasingly obvious that Ben isn't any wiser.
Just today, March 1st, and tomorrow he will deliver testimony on Capitol Hill and will go in great length into his "exit strategy" from the "extraordinary measures" of monetary easing he has engaged in.
There is no such thing. If he's unable to grasp reality today, it is a good assumption that by the time reality hits him like a ton of bricks, it will be too late to turn the ship around.
We have a recession or depression: Print more money.
We have too many unemployed : Print more money.
When commodity prices rise to new record levels, like right now, they are not important.
If the official US inflation rate would be calculated like it was during Jimmy Carters time as president, it likely would be closer to 10% than 1%.
I fear that there is a good chance that in the not too distant future the paper currencies of the world will be abandoned as worthless.
It now is clear that Alan Greenspan didn't know what he was doing and it is becoming increasingly obvious that Ben isn't any wiser.
Just today, March 1st, and tomorrow he will deliver testimony on Capitol Hill and will go in great length into his "exit strategy" from the "extraordinary measures" of monetary easing he has engaged in.
There is no such thing. If he's unable to grasp reality today, it is a good assumption that by the time reality hits him like a ton of bricks, it will be too late to turn the ship around.
Tuesday, February 22, 2011
Wednesday, February 16, 2011
Common wisdom ?
Whoever coined the phrase "early to bed and early to rise makes a man healthy and wealthy and wise" must be a complete and utter moron.
Monday, February 14, 2011
Latest 2011 deficit estimate now 1.65 trillion .....
This is an update on my recent "Is the crisis over ?" comment.
Thursday, February 3, 2011
What is the proper way to measure inflation ?
This is how it's done: You make up an average Americans shopping list and compare prices in regular intervals. Then you take out the items that really went up a lot and blame their great volatility for not including them. Then you make up a number and tell the public that there is no inflation at all.
Another way would be to just compare the money supply. Let's make up a very simple economy: Money supply is only 100 bucks and people only buy bread. Bread costs $1 per loaf and someone invents an apparatus to make bread cheaper. He can now sell it for 50 Cents per loaf.
If our initial method of measuring inflation would be applied, we suddenly have 50% deflation.
Wow, that's bad: the Fed to the rescue: They print up some more cash, so that the money supply now equals 200 Dollars (a 100% increase) and bread still costs $1 per loaf.
According to our government statisticians, no inflation at all ! (and no deflation, just perfection)
What has happened here ?
Even though prices have stayed the same, do you believe that there's no inflation ?
Another way would be to just compare the money supply. Let's make up a very simple economy: Money supply is only 100 bucks and people only buy bread. Bread costs $1 per loaf and someone invents an apparatus to make bread cheaper. He can now sell it for 50 Cents per loaf.
If our initial method of measuring inflation would be applied, we suddenly have 50% deflation.
Wow, that's bad: the Fed to the rescue: They print up some more cash, so that the money supply now equals 200 Dollars (a 100% increase) and bread still costs $1 per loaf.
According to our government statisticians, no inflation at all ! (and no deflation, just perfection)
What has happened here ?
Even though prices have stayed the same, do you believe that there's no inflation ?
Is the crisis over ?
The stock market has more than doubled in less than 2 years and is trading close to the highs again. Recent economic statistics show better than expected numbers. Commodity prices are making new historic highs while mortgage rates are still close to historic lows.
We dodged that bullet and everything is fine ?
We, the taxpayers, even made money on the bailout ?
Just one fly in the ointment: unemployment is stubbornly high and new jobs don't seem to pay too much.
Also, there are those pesky deficits. If the problems are really behind us, should those deficits not decline ?
In the first budget of the Obama administration, the 2011 deficit was estimated at 912 billion. One year ago, that guess had risen to 1.267 trillion. The latest number from the Congressional Budget Office is 1.48 trillion.
At the same time, the Fed is creating 2.4 trillion Dollars from nothing.
Ben thinks that he has everything under control, that his money printing program is working, that inflation is too low and unemployment too high. As I agree with him on his last point, I very much disagree on the former.
Well, I didn't call this Bens Fan Club for nothing: As he is laying the groundwork for an even bigger disaster than the one he thinks he has averted, he is doing a much more credible job at abolishing the Fed than Ron Paul does !
We dodged that bullet and everything is fine ?
We, the taxpayers, even made money on the bailout ?
Just one fly in the ointment: unemployment is stubbornly high and new jobs don't seem to pay too much.
Also, there are those pesky deficits. If the problems are really behind us, should those deficits not decline ?
In the first budget of the Obama administration, the 2011 deficit was estimated at 912 billion. One year ago, that guess had risen to 1.267 trillion. The latest number from the Congressional Budget Office is 1.48 trillion.
At the same time, the Fed is creating 2.4 trillion Dollars from nothing.
Ben thinks that he has everything under control, that his money printing program is working, that inflation is too low and unemployment too high. As I agree with him on his last point, I very much disagree on the former.
Well, I didn't call this Bens Fan Club for nothing: As he is laying the groundwork for an even bigger disaster than the one he thinks he has averted, he is doing a much more credible job at abolishing the Fed than Ron Paul does !
Wednesday, January 26, 2011
Answer this question, please...
How does anyone have the legal right to pledge the lives of future generations to pay for our present day consumption ?
Just one part of the national debt, the one that is actually accounted for, went from 900 Billion in 1980 to 14,000 Billion today. That is an increase of 1500% and even when expressed as a share of GDP, it went up by 300%.
Where are the assets that were purchased with this money ?
Furthermore, this Dollar amount does not include the value of all the promises the government made. If any enterprise would try to keep accounts like the government does, its leaders would be rightfully thrown into prison.
Since 1980 the people of the United States have in the majority voted for a conservative platform, one that would call for prudent handling of the national finances and a reduction of debt. How did that apparent desire of the voters translate into this trainwreck ?
Is it any wonder that people do not even bother to vote ?
Just one part of the national debt, the one that is actually accounted for, went from 900 Billion in 1980 to 14,000 Billion today. That is an increase of 1500% and even when expressed as a share of GDP, it went up by 300%.
Where are the assets that were purchased with this money ?
Furthermore, this Dollar amount does not include the value of all the promises the government made. If any enterprise would try to keep accounts like the government does, its leaders would be rightfully thrown into prison.
Since 1980 the people of the United States have in the majority voted for a conservative platform, one that would call for prudent handling of the national finances and a reduction of debt. How did that apparent desire of the voters translate into this trainwreck ?
Is it any wonder that people do not even bother to vote ?
Tuesday, January 25, 2011
Barron's and Bill Gross of Pimco
Here are some quotes from Barron's twice a year investment roundtable and a link to the latest thoughts of Bill Gross from Pimco.
He manages over 1 trillion Dollars and has consistently outperformed the markets over decades.
Here's the link:
http://www.pimco.com/Pages/OffWithOurHeads.aspx
Still, Mexican Pesos and Brazilian Real ? Honestly, I'd rather stick with gold, thank you very much !
Here is a quote from a very long term participant of the roundtable:
Felix Zulauf in Barrons January 2011
He manages over 1 trillion Dollars and has consistently outperformed the markets over decades.
Here's the link:
http://www.pimco.com/Pages/OffWithOurHeads.aspx
Still, Mexican Pesos and Brazilian Real ? Honestly, I'd rather stick with gold, thank you very much !
Here is a quote from a very long term participant of the roundtable:
Finally, I have talked about gold many times. Structural trends are in place for a continued rise of public-sector debt in the industrialized countries, a continued monetization of debt and continued debasement of currencies, all of which are bullish long-term for gold. The price of gold has run up to an extreme point, and gold is technically vulnerable to a big shakeout this year, particularly if emerging markets tighten and lift real interest rates. But shakeouts will be followed by higher prices, and would just represent opportunities to buy. Gold could fall to $1,150 or $1,200 from $1,370 now. I would be a buyer at those levels.
How high is the upside?
Zulauf: Unlimited. What [Federal Reserve Chairman Ben] Bernanke is doing [buying up government debt to force down interest rates], others will do. The European Central Bank has tried to resist quantitative easing. It was the one major central bank that tried to sell part of the paper it bought on an emergency basis during the financial crisis. The first time it tried, it triggered the Greek crisis. The second time, it triggered the Irish crisis. Therefore, the ECB has to handle the European situation in a way that the weakest economies in the EU can survive. That forces it into monetary easing for a long time. That is bullish for gold. I don't know how high it can go, but I will give you a call when I think the run-up is over.
Do you like any gold stocks?
Zulauf: I am not a big fan of the stocks. The real costs for gold companies are rising about 15% a year. I would rather buy the physical stuff. There will be a time when the mining stocks outperform physical gold, but you have to time it.
Zulauf: Unlimited. What [Federal Reserve Chairman Ben] Bernanke is doing [buying up government debt to force down interest rates], others will do. The European Central Bank has tried to resist quantitative easing. It was the one major central bank that tried to sell part of the paper it bought on an emergency basis during the financial crisis. The first time it tried, it triggered the Greek crisis. The second time, it triggered the Irish crisis. Therefore, the ECB has to handle the European situation in a way that the weakest economies in the EU can survive. That forces it into monetary easing for a long time. That is bullish for gold. I don't know how high it can go, but I will give you a call when I think the run-up is over.
Do you like any gold stocks?
Zulauf: I am not a big fan of the stocks. The real costs for gold companies are rising about 15% a year. I would rather buy the physical stuff. There will be a time when the mining stocks outperform physical gold, but you have to time it.
Here's Marc Faber, another participant of the roundtable who has been there for as long as I can remember - 35 years ?
Faber: One more thing: Janet Yellen, vice chair of the Federal Reserve, said about a year ago that if it were possible to push interest rates into negative territory, she would vote for that. This is a very important statement because it implies that the Fed will keep interest rates negative as far as the eye can see. Negative real rates amount to expropriation and destroy one function of money: to be a store of value and a unit of account. If you measure the stock market not in dollars but gold, it is down 80% since 1999. I no longer regard the U.S. dollar as a valid unit of account. People shouldn't value their wealth in dollars because one day, in dollars, everyone will be a billionaire.
Faber: One more thing: Janet Yellen, vice chair of the Federal Reserve, said about a year ago that if it were possible to push interest rates into negative territory, she would vote for that. This is a very important statement because it implies that the Fed will keep interest rates negative as far as the eye can see. Negative real rates amount to expropriation and destroy one function of money: to be a store of value and a unit of account. If you measure the stock market not in dollars but gold, it is down 80% since 1999. I no longer regard the U.S. dollar as a valid unit of account. People shouldn't value their wealth in dollars because one day, in dollars, everyone will be a billionaire.
Sunday, January 23, 2011
Real Return
Are you making money, or losing ?
Not so easy to tell these days. If you buy 10 year Treasury Notes and "earn" 3.3%, are you actually gaining or are you losing ?
I have made my decision and I will elaborate in the next few days. I'm confident that I will make 7-10% buying real assets, like farmland or forestland, and that anyone who buys Treasury securities here is guaranteed to lose money.
Stocks, by the way, are no inflation hedge. In fact, they are stupendously overvalued right now.
Not so easy to tell these days. If you buy 10 year Treasury Notes and "earn" 3.3%, are you actually gaining or are you losing ?
I have made my decision and I will elaborate in the next few days. I'm confident that I will make 7-10% buying real assets, like farmland or forestland, and that anyone who buys Treasury securities here is guaranteed to lose money.
Stocks, by the way, are no inflation hedge. In fact, they are stupendously overvalued right now.
Saturday, January 22, 2011
Taxes and Government Services
Just a local issue, but a good proxy of how it usually works: The local transit authority is asking for a 0.03 % increase of the local sales tax to fund its operations and threatens voters with significant cutbacks if not approved.
Turns out, they're asking for a 50% increase.
They don't say that. They'll leave the voter with the impression that this is just insignificant small change.
How is a voter to decide ? The official ballot title or the statements offered in favor as well as the one opposed to the increase do not give any hard facts to base a decision on.
Its just: Don't you like public transportation ?
Turns out that dividing the total number of riders last year with their budget, I arrived at just about $10* per fare. Amazing: at that price we might as well have seen a lower tax bill if every user would have called a taxi cab instead of waiting 30 minutes for a bus !
This link is to other commentators who have a lot more insight into this particular issue than I have.
That's the method : ask for just what looks like a teeny amount at a time, get people hooked on “free” services and then threaten them with cutbacks to get even more money the next time around.
*this represents the price tag before the proposed increase in taxes, of course.
Tuesday, January 18, 2011
What will stop gold from going to $5000 or higher ?
Ben made it very clear that we need another few bubbles to overcome the problems of the latest ones blowing up. He welcomes rising commodity prices. At what point would he be publicly concerned about inflation ?
And, at what point would he be willing to re-issue "WIN" buttons ? (remember those ? Whip inflation now ! - hilarious !!)
To give you a graphic idea of Ben at work, here's a clip from Disney:
http://www.youtube.com/watch?v=XChxLGnIwCU&playnext=1&list=PL30DDB0EE9FFC8123&index=3
And, at what point would he be willing to re-issue "WIN" buttons ? (remember those ? Whip inflation now ! - hilarious !!)
To give you a graphic idea of Ben at work, here's a clip from Disney:
http://www.youtube.com/watch?v=XChxLGnIwCU&playnext=1&list=PL30DDB0EE9FFC8123&index=3
Monday, January 17, 2011
What is money ?
This most interesting question was discussed on NPR (yes, National Public Radio) the other day for about 1 hour. Here's the link:
http://www.thisamericanlife.org/radio-archives/episode/423/the-invention-of-money
If you'd like to listen to it, click on the link, click on the "Play Episode" button that is located right next to the lower right hand side of the picture of the huge stone disk, that the authors present as an example for money.
According to these lighthearted experts, money is fiction. You can listen to them for 1 hour and will be not any wiser. Too bad that this opportunity was wasted that way, as a better understanding of money certainly would make it easier to understand our economic life.
Here's what they could have said :
1.Money is credit
2.Money is something of value that people agree on to act as an intermediary to facilitate the exchange of diverse goods
3.Money is anything that people agree to be money
4.Money is whatever the government tells you it is
Ok, but what SHOULD money be ?
It should be whatever people decide to be money. Money should have independent value that all parties to transactions voluntarily recognize.
Money is really a yardstick, a measure. Few people ever want to hold on to money, as no matter what form it takes, money itself is likely not very useful. Money helps us to get what we really want. The only time that people will want to hoard money itself, is when the future seems especially uncertain.
Today, money is credit. It does not have any independent value and the government tells you that you have to take it (legal tender laws). When a credit card company sends you a cash advance check and you decide to write it for $4000 and deposit it into your checking account, you have just legally printed money.
That $4000 didn't exist before you wrote that check, and when you pay it off, it has ceased to exist.
You could say that our money is backed by debt. People will accept it as long as they have debts that they need to pay off. If they would be debt free, they would likely think a lot harder about accepting something for value that has such a poor track record of keeping it.
http://www.thisamericanlife.org/radio-archives/episode/423/the-invention-of-money
If you'd like to listen to it, click on the link, click on the "Play Episode" button that is located right next to the lower right hand side of the picture of the huge stone disk, that the authors present as an example for money.
According to these lighthearted experts, money is fiction. You can listen to them for 1 hour and will be not any wiser. Too bad that this opportunity was wasted that way, as a better understanding of money certainly would make it easier to understand our economic life.
Here's what they could have said :
1.Money is credit
2.Money is something of value that people agree on to act as an intermediary to facilitate the exchange of diverse goods
3.Money is anything that people agree to be money
4.Money is whatever the government tells you it is
Ok, but what SHOULD money be ?
It should be whatever people decide to be money. Money should have independent value that all parties to transactions voluntarily recognize.
Money is really a yardstick, a measure. Few people ever want to hold on to money, as no matter what form it takes, money itself is likely not very useful. Money helps us to get what we really want. The only time that people will want to hoard money itself, is when the future seems especially uncertain.
Today, money is credit. It does not have any independent value and the government tells you that you have to take it (legal tender laws). When a credit card company sends you a cash advance check and you decide to write it for $4000 and deposit it into your checking account, you have just legally printed money.
That $4000 didn't exist before you wrote that check, and when you pay it off, it has ceased to exist.
You could say that our money is backed by debt. People will accept it as long as they have debts that they need to pay off. If they would be debt free, they would likely think a lot harder about accepting something for value that has such a poor track record of keeping it.
Monday, January 10, 2011
A good way to take a position in gold ....
Today, January 10th 2011, the GLD ETF is trading at 133.80 and one can buy the January 2012 call with a strike of 120 for $19.75.
That means: It's possible to purchase a position in GLD with a down payment of 14.76%. This amounts to the total risk taken. The balance of $114.05 is "financed" at a rate of 5.22% per year. To arrive at this yield, I divided the option premium paid by the balance that would remain if I purchased GLD at 133.80 and applied the option premium as a down payment.
$133.80 - $19.75 = $114.05 = financed balance
$5.95 = total premium paid divided by $114.05 results in 5.22%
If this position would be held to expiration, an increase in the price of GLD of 4.45% or more would yield a profit. The income generated from investing the $114.05 cash balance would be added to that profit.
The real advantage of this strategy reveals itself when the price, against expectations, falls. For instance, if the price of gold should go down by 20% in 6 months, to about $1100 an ounce from the current 1375, and GLD therefore falls to $107, the strike 120 call with 6 months to run should still cost about $3.50.
Selling it at that price would result in a loss of $16.25, but the loss on the GLD itself would have been $26.80.
Now we would have the opportunity to employ the same strategy at the lower price.
That means: It's possible to purchase a position in GLD with a down payment of 14.76%. This amounts to the total risk taken. The balance of $114.05 is "financed" at a rate of 5.22% per year. To arrive at this yield, I divided the option premium paid by the balance that would remain if I purchased GLD at 133.80 and applied the option premium as a down payment.
$133.80 - $19.75 = $114.05 = financed balance
$5.95 = total premium paid divided by $114.05 results in 5.22%
If this position would be held to expiration, an increase in the price of GLD of 4.45% or more would yield a profit. The income generated from investing the $114.05 cash balance would be added to that profit.
The real advantage of this strategy reveals itself when the price, against expectations, falls. For instance, if the price of gold should go down by 20% in 6 months, to about $1100 an ounce from the current 1375, and GLD therefore falls to $107, the strike 120 call with 6 months to run should still cost about $3.50.
Selling it at that price would result in a loss of $16.25, but the loss on the GLD itself would have been $26.80.
Now we would have the opportunity to employ the same strategy at the lower price.
Sunday, January 2, 2011
Fairy Tales Concerning The Emperor
As most everyone knows, the previous peak of inflation and Dollar crisis, with gold reaching almost $1000 an ounce, happened at the end of the 1970s.
What is different between now and that time 30 years ago:
Gold had risen from around $100 to almost $1000 in about 10 years, inflation (as measured by the Government) was running at 10%+. At that time, the Fed had the insight that they needed to target the supply of money to bring inflation under control. Interest rates rose to 18%, long-term Treasuries yielded almost 13% and inflation subsided.
Now that the world is again losing faith, as evidenced by the rise of commodity prices, the rise of Gold to new record highs and the Dollar falling to record lows against all other major currencies, the Fed is printing a few trillion Dollars.
In 1980, the official federal debt amounted to 908 billion which was equal to 33% of GDP.
Today, the debt is about 14 trillion, which amounts to 100% of GDP.
If the government would have to apply the same bookkeeping that is required of any private entity, the obligation likely would top 60 trillion !
While Ben believes that printing money cures unemployment and lowers long term interest rates, and that he is basically able to avert any future financial calamity with all the powerful tools at his disposal, it will all come crashing down when that little boy takes a look at all this and says: "but the emperor has no clothes !"
PS - Just a little perspective: 14 trillion amounts to about $50,000 for each man, woman and child living in the USA, 60 trillion equals roughly $200,000.
Take a family of 4, and they owe $800,000 thanks to our gracious and benevolent government.
What is different between now and that time 30 years ago:
Gold had risen from around $100 to almost $1000 in about 10 years, inflation (as measured by the Government) was running at 10%+. At that time, the Fed had the insight that they needed to target the supply of money to bring inflation under control. Interest rates rose to 18%, long-term Treasuries yielded almost 13% and inflation subsided.
Now that the world is again losing faith, as evidenced by the rise of commodity prices, the rise of Gold to new record highs and the Dollar falling to record lows against all other major currencies, the Fed is printing a few trillion Dollars.
In 1980, the official federal debt amounted to 908 billion which was equal to 33% of GDP.
Today, the debt is about 14 trillion, which amounts to 100% of GDP.
If the government would have to apply the same bookkeeping that is required of any private entity, the obligation likely would top 60 trillion !
While Ben believes that printing money cures unemployment and lowers long term interest rates, and that he is basically able to avert any future financial calamity with all the powerful tools at his disposal, it will all come crashing down when that little boy takes a look at all this and says: "but the emperor has no clothes !"
PS - Just a little perspective: 14 trillion amounts to about $50,000 for each man, woman and child living in the USA, 60 trillion equals roughly $200,000.
Take a family of 4, and they owe $800,000 thanks to our gracious and benevolent government.
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