wonder why in this so called democracy (some claim its not only the envy of the world, but something we have to forcibly install in other countries) almost no-one bothers to vote?
What if you really like to participate in the process, but the 2 clowns offering to run your life are simply too offensive a choice?
None of the above ! This simple and effective idea was actually tried in Russia after the collapse of the Soviet empire. It now isn't offered anymore. I'm assuming that it must have been a little too threatening to the new elite (which strangely resembles the old one ! ).
None of the above: a real necessity in a system that is allowing the voters only the choice between 2 candidates that they very likely wholeheartedly disagree with.
Thursday, October 14, 2010
Monday, October 11, 2010
No inflation ! (and no COLA)
here is a list of the major traded commodity contracts that are close to their all- time highs:
corn, wheat, soybeans, cattle, crude oil, gold, silver, copper, sugar, coffee, cocoa, cotton.
Are there any contracts trading close to their lows ? No.
I found only three items that trade about in the middle of the range of the last 10 years: hogs, natural gas and orange juice.
Oh, I almost forgot: yes, there is one contract that is trading close to all-time-lows. It's the Dollar index.
In short, the Dollar is at its low and the overwhelming majority of commodities is trading close to all-time highs.
Hey, wake up Ben ! You seriously want to tell us that we need to fear deflation ? You are so fearful that you feel it necessary to print up another 2 trillion Dollars ? Can you imagine what will happen to prices if you do ?
corn, wheat, soybeans, cattle, crude oil, gold, silver, copper, sugar, coffee, cocoa, cotton.
Are there any contracts trading close to their lows ? No.
I found only three items that trade about in the middle of the range of the last 10 years: hogs, natural gas and orange juice.
Oh, I almost forgot: yes, there is one contract that is trading close to all-time-lows. It's the Dollar index.
In short, the Dollar is at its low and the overwhelming majority of commodities is trading close to all-time highs.
Hey, wake up Ben ! You seriously want to tell us that we need to fear deflation ? You are so fearful that you feel it necessary to print up another 2 trillion Dollars ? Can you imagine what will happen to prices if you do ?
Friday, October 8, 2010
The Ultimate Pain !
After harvest estimates were reduced Friday morning by the USDA, futures for corn, wheat and soybeans immediately went limit up bid. Anyone who had sold the contracts not only lost his margin, but is now also unable to close his position and will be forced to buy at the open on Monday.
Most traders will protect their positions with stop orders that are triggered when the trade moves against them. In this case, the stop would have been triggered, but even market orders would not have been filled and traders would now be forced to carry their losses over the weekend, not knowing how much it will cost them in the end.
Most traders will protect their positions with stop orders that are triggered when the trade moves against them. In this case, the stop would have been triggered, but even market orders would not have been filled and traders would now be forced to carry their losses over the weekend, not knowing how much it will cost them in the end.
Wednesday, October 6, 2010
What's the difference between a financial bubble and a Ponzi scheme ?
None, really. They both rely on greater fools to inject ever greater amounts of money into the scheme for it to work and make EVERYBODY rich.
Here's the major difference and problem: Ponzi schemes are of course illegal. Financial bubbles on the other hand ?
They were tolerated by the Fed (remember chairman Greenspan stating that he is not in the business of pricking bubbles ?) and now that the biggest one of them all has burst, the Fed is frantically promoting bubbles so that the game can go on !
In a sane economy that uses money of real value, rising prices cause demand to decrease and production to increase. In our bubble economy, when prices rise, everybody tries to buy before prices go up even higher.
Here's the major difference and problem: Ponzi schemes are of course illegal. Financial bubbles on the other hand ?
They were tolerated by the Fed (remember chairman Greenspan stating that he is not in the business of pricking bubbles ?) and now that the biggest one of them all has burst, the Fed is frantically promoting bubbles so that the game can go on !
In a sane economy that uses money of real value, rising prices cause demand to decrease and production to increase. In our bubble economy, when prices rise, everybody tries to buy before prices go up even higher.
Tuesday, October 5, 2010
Japan has a new "printing" program too..
Japanese central bank just announced last night that they want to create another 60 billion Dollar worth of currency. Since the Japanese economy is roughly 1/3 the size of ours, it would translate to about 180 billion if done here.
It doesn't quite compare to 2 trillion, but the interesting part is that they are planning to buy just about ANY asset that's traded in Japan, including stocks (through ETF's) and Real Estate Investment Trusts. That's something that many people, including myself, have speculated that the Fed is already doing.
It doesn't quite compare to 2 trillion, but the interesting part is that they are planning to buy just about ANY asset that's traded in Japan, including stocks (through ETF's) and Real Estate Investment Trusts. That's something that many people, including myself, have speculated that the Fed is already doing.
Monday, October 4, 2010
Some more unwieldy numbers...
Total mine output of gold this year in the world (as well as average for about last 10 years) is about 2500 tons. At the current price (which some say is too high) that amount is worth about 100 billion Dollars.
Now here I again have to repeat myself: the Fed is proposing to "print" another 2 trillion Dollars in the near future after having "created" 1.7 trillion last year.
It's not just the magnitude of the difference, but also the nature of the two assets that must be taken into account. Paper Dollars can and will be further multiplied by the wonder of the reserve banking system. In normal economic times this multiplier is about a factor of ten. Now the Fed claims that it has to create these huge amounts because credit is not being created in its usual fashion. That may be true, but will the Fed be able or even willing to withdraw this potent drug from circulation when things return to normal ?
Remember that this is the Fed that was utterly unable to foresee what the housing bubble would do. The same Fed that saw no problems when trillions of Dollars were lent to borrowers who would not get a loan of even twenty bucks from a responsible lender.
When the Fed announced its first printing job in December of 2008, copper prices were at about $1.25 per pound. Today copper trades at almost record highs again: $3.70 a pound. Even though crude oil trades at "only" $82 per barrel (after having dropped to a low of $35 from a high in 2008 of $150 ), major commodity price indexes are making new record highs. The Dollar index (a basket of the currencies of the major trading partners of the USA) would be trading at a record low, it not for the temporary weakness of the Euro.
Here are two worthwhile links:
http://online.wsj.com/article/SB10001424052748704847104575532442706099582.html?mod=WSJ_hpp_LEFTWhatsNewsCollection
http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html
Now here I again have to repeat myself: the Fed is proposing to "print" another 2 trillion Dollars in the near future after having "created" 1.7 trillion last year.
It's not just the magnitude of the difference, but also the nature of the two assets that must be taken into account. Paper Dollars can and will be further multiplied by the wonder of the reserve banking system. In normal economic times this multiplier is about a factor of ten. Now the Fed claims that it has to create these huge amounts because credit is not being created in its usual fashion. That may be true, but will the Fed be able or even willing to withdraw this potent drug from circulation when things return to normal ?
Remember that this is the Fed that was utterly unable to foresee what the housing bubble would do. The same Fed that saw no problems when trillions of Dollars were lent to borrowers who would not get a loan of even twenty bucks from a responsible lender.
When the Fed announced its first printing job in December of 2008, copper prices were at about $1.25 per pound. Today copper trades at almost record highs again: $3.70 a pound. Even though crude oil trades at "only" $82 per barrel (after having dropped to a low of $35 from a high in 2008 of $150 ), major commodity price indexes are making new record highs. The Dollar index (a basket of the currencies of the major trading partners of the USA) would be trading at a record low, it not for the temporary weakness of the Euro.
Here are two worthwhile links:
http://online.wsj.com/article/SB10001424052748704847104575532442706099582.html?mod=WSJ_hpp_LEFTWhatsNewsCollection
http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html
Friday, October 1, 2010
US is not Japan
Many investors expect to see rates on US government debt fall to levels like they are common in Japan for the last 15 years: 1 to 1.5 % on 10 year obligations.
That is highly unlikely IMHO and indeed I see a much greater danger in inflation hitting double digits.
The key difference is that Japan was a net creditor to the world when its real estate bubble burst in 1989. I guess that because debtors in Japan were now pressured to repay debts in Japan itself and also were unable to incur new debt because of falling asset prices, they in turn called in loans and sold assets in foreign countries. The receipts of those transactions were converted to Yen, thereby pushing it from around $0.60 per hundred Yen in 1989 to about $1.20 per hundred Yen 6 years later. Japan, in other words, experienced vicious asset price deflation and at the same time had to deal with a doubling of the value of its currency, making its exports much less competitive.
The position of the USA is exactly opposite: It is a net debtor and the Dollar has been making new lows since the bubble burst here in 2008. Since the US trade balance is still negative and amounts to about 3-4% of GDP per year, it requires foreign entities to accept that quantity of new Dollar assets every year. It would seem a daunting proposition, considering that investment returns here do not cover the present inflation rate.
It appears ludicrous to me, to fear deflation as commodity price indexes are reaching new historic highs almost every day.
That is highly unlikely IMHO and indeed I see a much greater danger in inflation hitting double digits.
The key difference is that Japan was a net creditor to the world when its real estate bubble burst in 1989. I guess that because debtors in Japan were now pressured to repay debts in Japan itself and also were unable to incur new debt because of falling asset prices, they in turn called in loans and sold assets in foreign countries. The receipts of those transactions were converted to Yen, thereby pushing it from around $0.60 per hundred Yen in 1989 to about $1.20 per hundred Yen 6 years later. Japan, in other words, experienced vicious asset price deflation and at the same time had to deal with a doubling of the value of its currency, making its exports much less competitive.
The position of the USA is exactly opposite: It is a net debtor and the Dollar has been making new lows since the bubble burst here in 2008. Since the US trade balance is still negative and amounts to about 3-4% of GDP per year, it requires foreign entities to accept that quantity of new Dollar assets every year. It would seem a daunting proposition, considering that investment returns here do not cover the present inflation rate.
It appears ludicrous to me, to fear deflation as commodity price indexes are reaching new historic highs almost every day.
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