PPI: An Economic Frost Warning

But I thought Bennie And The Feds programs were working?

The Producer Price Index for Finished Goods declined 0.6 percent in September, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This decrease followed a 1.7-percent rise in August and a 0.9-percent decline in July. In September, at the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 0.2 percent and the crude goods index fell 2.1 percent. On an unadjusted basis, from September 2008 to September 2009, prices for finished goods fell 4.8 percent, the tenth consecutive month of year-over-year declines. (See table A.)

Eek.

Intermediate prices rose but crude goods prices declined. This shows "profit push" inflation being attempted by producers, but it's not working, as the finished goods numbers show. Ex-food-and-energy the number was also negative, down 0.1%.

Food was down 0.1% after rising at 0.5% last month, but the trend is clearly still negative. Energy, after spiking huge in August (up 8%) and generally being strong on balance all year (coming off the insane price spike in oil LAST year), was down 2.4% last month.

The 12 month change is the key number, and here is the problem, as one can see in the below table (mine):

The expectation, of course, was that we would continue to see a positive slope after the declines down to July. Those hopes were dashed this morning.

Is this significant? Hell yes, and here's why:

In short, despite the collapse in the dollar this year PPI continues to decline. This is a particularly ominous development, as one would expect (given our import-dependence on balance) that we would see significant increases in both core and headline PPI given the relative decline in our currency.

It is not happening, which belies the extreme underlying weakness in our economy at the producer level.

This phenomena, by the way, mirrors what happened in the 1930s. FDR intentionally devalued the currency (one of the "benefits" of being on a gold standard is that you can do that with the stroke of a pen!) but this failed to lift PPI, especially in the area of farm products.

He then sent government agencies into the field with rifles and gasoline cans, burning farmer's fields and shooting their livestock in an outrageously unlawful and Hitleresque attempt to boost producer prices by destroying people's private property and livelihood - all while people were literally starving due to inability to afford to buy food!

We're not (yet) seeing that sort of intervention in our markets, but I don't put it past our government as this economic mess continues to deteriorate.

What is clear is that our government and Federal Reserve's intentional devaluation of the currency is not working to boost prices on the producer level, and despite the claims of "green shoots" the turn back into inflationary conditions has not occurred.

Comments

[The Geoffster:]

You stole my post.


On Oct 20 01:31 PM Socialism cannot compete! wrote:

> "He then sent government agencies into the field with rifles and
> gasoline cans, burning farmer's fields and shooting their livestock
> in an outrageously unlawful and Hitleresque attempt to boost producer
> prices by destroying people's private property and livelihood - all
> while people were literally starving due to inability to afford to
> buy food!"
>
> Wow!!! Did not realize FDR did that?! How in h#ll is the guy idolized
> by so many? Not only a radical socialist, but a totalitarian thug!
> Should be a clue as to what direction the country needs to move:
> away from big government, entitlements, and interference in private
> business and lives!!

Oct 20 07:53 PM

[Angel Martin:]

From the article: In short, despite the collapse in the dollar this year PPI continues to decline. This is a particularly ominous development, as one would expect (given our import-dependence on balance) that we would see significant increases in both core and headline PPI given the relative decline in our currency.

It is not happening, which belies the extreme underlying weakness in our economy at the producer level.

This phenomena, by the way, mirrors what happened in the 1930s.


This happened in the 1920's as well. By mid-year 1922 the dollar was falling against all foreign currencies (except the Mark, the Weimar hyperinflation was just getting going), against a backdrop of disinflation that carried on all throughout the 1920's.

Oct 20 11:05 PM

[Mark Anthony:]

That's easy to explain. There are multiple flows of the money. There are money flow across national boarders. There are also money flow between different market. When money flow away from US treasury bonds and from fixed income assets, they have got to flow into equities. There are only three different asset classes: Physical assets, equities, and debts. When money flow away from one class of asset it must flow to the other two classes.

Hot money is flowing away from the US market to seek opportunities in emerging markets. This outflow of the dollar creates the false illusion of deflation. But all these outflow of US dollar end up being accumulated by foreign central banks, what do they do with the dollars? They have got to be sent back home to seek out valuable assets at some point. When foreigners send the worthless dollar back to the USA to purchase assets that have real value, that's when hyperinflation will start in America.

Take China for example, China's foreign currency reserve has been increasing rapidly recently at a pace 4 times faster than can be explained by the trade surplus. It's all due to inflow of hot money, many entered China through illegal underground channel. China does not want to keep accumulating the dollar. They are trying their best to spend the dollar out as fast as possible, while try to limit the inflow of "hot money". These dollars WILL find their way back home, flooding the liquidity in the US market.

On Oct 20 04:47 PM Hangdog wrote:

> Mark Anthony, good comment, I agree that shorting any commodities
> is inherently taking a long position on the dollar the exception
> maybe being PGM's.
>
> There is however the matter of US equities, conventionally outflows
> of money ie selling USD(buying other currencies) should lead to less
> money in the US equities so lower prices so shorting US equities
> (indexes) should be a good idea. For the last few weeks however the
> opposite has been true, in nearly all instances when the USD index
> went down the Dow went up and vice versa would you care to speculate
> as to why?
>
> If the equities are seen as an inflation hedge where is the money
> coming from, from the bond market maybe?

Oct 21 12:57 AM

[Albertarocks:]

On Oct 20 02:03 PM Mark Anthony wrote:

> Karl:

> Just think about, if all the rich people bring their money and their
> families out of the USA, if all the highly skilled engineers and
> scientists moves to overseas. If all the best of the professionals
> decide to move to overseas, because they fear of their PHYSICAL SAFETY
> in a chaotic collapsed society. Then what does the US government
> still has left that it can collect tax from? What if individual states
> themselves decide to walk away, secede from the union. Whi is going
> to carry the mountain of US debts?

> The dollar is a debt based currency. When market capital foresee
> a future of high taxation in order to pay off the astronomical US
> debt, they FLEE. When the government is forced to hike tax rate,
> the remaining market capital FLEE. When foreign holders of US treasury
> bonds see the US government no longer has the ability to collect
> tax to pay the debt, they FLEE and dump the treasury bonds. This
> will be a spiraling collapse.<

I'd say that Dick Cheney's action of moving Haliburton offshore is a good enough example to prove that what Mark Anthony is saying is correct.

Oct 21 02:10 AM

[Mark Anthony:]

Not only the rich Americans who made their rich in legitimate ways, like Jim Rogers, are moving money and assets to overseas.

But more importantly, all the wall street gangsters who robbed billions from the American tax payers have even better reasons to send everything overseas and then move their whole family away. Because they KNOW if they stay here they eventually will end up just like Madoff. More over they are sitting on top of an angry volcano and their physical safety has no guarantee.

All these money, legitimate ones and illegitimate ones, are going to exodus from American soil. This is one of the fundamental reason why the dollar must collapse.

On Oct 21 02:10 AM Albertarocks wrote:

> On Oct 20 02:03 PM Mark Anthony wrote:

Oct 21 04:09 AM

[Albertarocks:]

On Oct 21 04:09 AM Mark Anthony wrote:

> Not only the rich Americans who made their rich in legitimate ways,
> like Jim Rogers, are moving money and assets to overseas.
>
> But more importantly, all the wall street gangsters who robbed billions
> from the American tax payers have even better reasons to send everything
> overseas and then move their whole family away. Because they KNOW
> if they stay here they eventually will end up just like Madoff. More
> over they are sitting on top of an angry volcano and their physical
> safety has no guarantee.
>
> All these money, legitimate ones and illegitimate ones, are going
> to exodus from American soil. This is one of the fundamental reason
> why the dollar must collapse.<

Well, the fundamental reason why the dollar will collapse is the sheer number of them that have been created out of thin air. But yes sir, you are right about the gangstas moving out. A lot of them already have their havens set up in the Cook Islands and other beautiful get-away countries.

But these are the same gangsters who have made their fortunes but have never paid a penny of tax. So their disappearance won't hurt in that regard. It's the good honest, tax-paying wealthy Americans who will be very sadly missed, but unfortunately, they'll be leaving too.

And the volcano... you bet. A lot of Americans who read here are aware, but too many are not, about how bad it's going to get. Anarchy will unfortunately reign for a few years when the SHTF. When cities, counties and states can't afford their police forces any more and the fed. government can't help anybody but the banksters... who's going to stop the people who would steal food from others?

Oct 21 04:18 AM

[doubleguns:]

He then sent government agencies into the field with rifles and gasoline cans, burning farmer's fields and shooting their livestock in an outrageously unlawful and Hitleresque attempt to boost producer prices by destroying people's private property and livelihood - all while people were literally starving due to inability to afford to buy food!.

I don't see this working today. There would be a lot of dead govt. agents.

Oct 21 08:27 AM

[Karl Denninger:]

The error in believing that currency devaluation "will save us" (as many people have) is that historically capital ALWAYS flees faster than you can devalue. Japan is just the latest in a long line of nations that have learned this the hard way.

The dollar-based carry is an example (the borrowed funds are NOT invested here!) along with the fact that capital in general simply won't come here when it is faced with a 30% annualized devaluation rate on repatriation. It will either go somewhere else or leave - fast - because earning enough to be worth it to counteract that is damn near impossible.

A strategy that appears particularly appropriate given the current environment, if you expect the dollar to COLLAPSE, is to short equities and go long a basket of commodities. If the dollar DOES collapse equities will also collapse while at the same time commodities (especially oil!) will skyrocket. If you're wrong and the economy recovers you get a push, as both commodities AND equities should rally; ergo, your hedge against being wrong prevents a big loss. I do not believe that "they" will let the /DX go to 40, and if it "gets away" from them like this, I don't believe being long commodities (and/or short equities) will matter - you will need guns and lead as fully 1/3rd of America will be destitute: jobless, homeless and hungry. That's how revolutions happen and over two years ago I sent a letter to all 535 members of Congress detailing exactly how this could happen and asking them to consider setting aside $200 billion (cash, not "credit") for this eventuality - to house, feed and clothe up to 100 million Americans for a year. Of course they didn't, so there is no safety net to protect against this possibility.

BTW Mark you really ought to stop misrepresenting what I have written - repeatedly so. As I have repeatedly pointed out I was long off the 666 bottom and dumped those positions in the high 800s on valuation; the last couple of months have been nothing other than scalps and very short-term daytrades. As we have gone over 1,000 on the SPX I have been slowly picking up longer-term short positions, again, on valuation, although my exposure is both levered and light (concentrated more in PUTs where having the timing wrong will result in forfeiting what I stick in, but limits exposure, while providing a ridiculously outsized return if the timing is right.) Again, if you want my short-term outlook GET A GOLD STAR on the forum and you can see it - daily. Continually misrepresenting what I have written and said in that venue, WHEN YOU HAVEN'T SEEN IT, is dishonest in the extreme.

If/when you see the dollar reverse the impact in the equity markets will be severe; the short-dollar trade is severely unbalanced at present, and this points strongly to extreme danger. We're also VERY overbought on the internals at present - in fact, more so on my indicators than at any time since November of 1999. The worse news is that my proprietary signals are at extremes well beyond 1999, and I don't believe for a second that the earnings and economic outlook will improve enough to bring them back into balance. To the contrary.

Of course in November of 1999 we had another 3 months or so of stupid before it all blew up, so one cannot rule out more idiocy sequentially before the inevitable comes. If and when it does it is unlikely to prove good, clean entry points, and the "what has worked" meme of buying the dips is going to get you destroyed, just as it did last fall. The people who tried to buy the bounces on the way down last fall had their portfolios shredded, and that was with internal and valuation numbers FAR less over-extended than they are now.

Oct 21 08:30 AM

[lower98th:]

If everything collapses, do you really think the well-hedged stock, bond, and commodity certificates in street name will be graciously redeemed or mailed to your door? Or that gun-toting farmers and feds will actually give you something in exchange as they seize your gold and palladium coins? And I for one will not be shooting any starving children to preserve my right to die later and alone.

Of course, we can always hope for significant world depopulation, in which case all investments will collapse.

Give me a break.

Oct 21 09:17 AM

[Mark Anthony:]

On Oct 21 08:30 AM Karl Denninger wrote:

> The error in believing that currency devaluation "will save us" (as
> many people have) is that historically capital ALWAYS flees faster
> than you can devalue. Japan is just the latest in a long line of
> nations that have learned this the hard way.

I never say that currency devaluation "will save us" or that the FED should let the dollar collapse. I am saying the dollar will collapse, as an inevitable FACT, not as a choice. Big difference. You sound like we still have a choice to let the dollar die or let it live. NO, we do NOT have a choice.

The analogy is that I say the cancer patient (the dollar) MUST DIE, and you are accusing me "why do you want the doctor to kill the patient". No one wants to see the patient die, no one want the doctor to kill the patient. The doctor is stucking all kinds of tubes in the patient trying to delay the inevitable. But the patient will die.

The US economy itself will take a lot of pain but it will survive the currency collapse. The US economy had been the world's No. 1 for so long not because of the currency. The causal relationship is the opposite way around, the dollar had been a favorite currency for so long because of strong US economy.

> The dollar-based carry is an example (the borrowed funds are NOT
> invested here!) along with the fact that capital in general simply
> won't come here when it is faced with a 30% annualized devaluation
> rate on repatriation. It will either go somewhere else or leave -
> fast - because earning enough to be worth it to counteract that is
> damn near impossible.

Karl: money flows in both ways. On one hand, people sell US assets into cash and then bring the US dollar to China, sell the dollars for the yuans so they can have the yuans to invest in the Chinese market, or simply hold the yuan betting for appreciation. This "hot money" flow drains liquidity from the US market and is probably the reason you are seeing a false deflation right now, or why inflation has not happened yet.

On the other hand, the Chinese government had to counter the inflow of hot money. They have to absorb all the dollar that flow in. Thus their dollar holdings are going up at 4 or 5 times faster pace than their trade surplus brings them dollar accumulation. They do NOT want to hold those dollars and keep accumulating an ever increasing amount of this worthless paper. The Chinese are desperately trying to spend out the dollar as fast as they can. They spend it in overseas to buy natural resources and other overseas assets. But all the foreigners do not want to hold the ever depreciating dollar either. All these overseas dollars will have to find their way back home, as foreigners will send the worthless dollars home to exchange for any physical US assets that still have value. This backflow of the liquidity is the cause of hyper-inflation.

> A strategy that appears particularly appropriate given the current
> environment, if you expect the dollar to COLLAPSE, is to short equities
> and go long a basket of commodities. If the dollar DOES collapse
> equities will also collapse while at the same time commodities (especially
> oil!) will skyrocket. If you're wrong and the economy recovers you
> get a push, as both commodities AND equities should rally; ergo,
> your hedge against being wrong prevents a big loss. I do not believe
> that "they" will let the /DX go to 40, and if it "gets away" from
> them like this, I don't believe being long commodities (and/or short
> equities) will matter - you will need guns and lead as fully 1/3rd
> of America will be destitute: jobless, homeless and hungry.

Karl:

See here you keep saying you want to short equities while the dollar collapses. This is where you get it fundamentally wrong. Zimbabwe's stock market was booming while it's currency collapses.

Let me tell you that I have no problem buying a good Zimbabwe PGM (platinum group metals) mine and holding it, whether I pay Chinese yuan, US dollar or even Zimbabwe dollar to buy the equity of a Zimbabwe PGM mine. It make me even happier if I can spend out the ever cheaper Zimbabwe dollar to buy the equity of the mine. At the same time you would be telling me to short stocks of a Zimbabwe mine right? You believe the equity of the Zimbabwe mine will depreciate even faster than the Zimbabwe dollar, why?

The Zimbabwe mine produces platinum and palladium, a commodity wanted and valued by the world, regardless of the value of the Z$. If the metals it produce is valuable, the mine itself is also valuable. When you short the Zimbabwe mine stock, you are holding a POSITIVE cash position in Z$, while you have a debt, shares of the equity of the commodity producer, to pay back. This debt is increasing exponentially in terms of Z$ while cash proceedings from the short is ever depreciation. So why short?

I hold a large position of SWC, the US based world unique palladium mine, and I feel perfect comfortable holding that position and add more when the dollar collapses. The world will need the palladium that SWC produces while the dollar becomes worthless.

Let me also use a non-commodity producer example, Microsoft. Microsoft will retain its valuation, as it produces a unique product the world want: computer operating system you can not be without. As long as the world continue to use computers they need the product from Microsoft, regardless of the value of the dollar. Microsoft can sell its software in Chinese yuan, Euro, or in gold ounces, if the dollar goes to zero. They can pay their employees gold coins for salary, and demand gold coins for payments for Windows 7. So why would you short Microsoft and hold dollar cash against your short position, knowing the dollar will go to zero but Microsoft will not?

You are fundamentally wrong in your logic.

>That's how revolutions happen and over two years ago I sent a letter to
> all 535 members of Congress detailing exactly how this could happen
> and asking them to consider setting aside $200 billion (cash, not
> "credit") for this eventuality - to house, feed and clothe up to
> 100 million Americans for a year. Of course they didn't, so there
> is no safety net to protect against this possibility.

I agree with your general resentments against what the government is doing right now. But I also want to say does any politician have the courage to order the American people to swallow the bitter medicine? Cut welfare to zero, cut unemployment benefits to zero. Announce a defeat in Afganistan and withdraw all of troops overnight. Let street gangs fight in the street and let people bleed in the street and fire all the policemen, as we have to cut spending on everyting. Mean while, double the tax rate so we can have a budget surplus. Do that and see how popular you are and if you can get re-elected next year?

Why force a cancer patient to swallow bitter medicine, and accept other tortures, when the doctor knows full well there is no cure for the cancer? If I am a politician I am not sure I can do any better?

> BTW Mark you really ought to stop misrepresenting what I have written
> - repeatedly so. As I have repeatedly pointed out I was long off
> the 666 bottom and dumped those positions in the high 800s on valuation;
> the last couple of months have been nothing other than scalps and
> very short-term daytrades. As we have gone over 1,000 on the SPX
> I have been slowly picking up longer-term short positions, again,
> on valuation, although my exposure is both levered and light (concentrated
> more in PUTs where having the timing wrong will result in forfeiting
> what I stick in, but limits exposure, while providing a ridiculously
> outsized return if the timing is right.) Again, if you want my short-term
> outlook GET A GOLD STAR on the forum and you can see it - daily.

I did not represent you. I don't give a damn of your day trades. But you have just repeated that you want to short equities in the long term, amid the dollar collase, a few paragraphes ago. You are an equity bear, not bull. I represented you correctly here.

> Continually misrepresenting what I have written and said in that
> venue, WHEN YOU HAVEN'T SEEN IT, is dishonest in the extreme.
>
> If/when you see the dollar reverse the impact in the equity markets
> will be severe; the short-dollar trade is severely unbalanced at
> present, and this points strongly to extreme danger. We're also VERY
> overbought on the internals at present - in fact, more so on my indicators
> than at any time since November of 1999. The worse news is that my
> proprietary signals are at extremes well beyond 1999, and I don't
> believe for a second that the earnings and economic outlook will
> improve enough to bring them back into balance. To the contrary.
>
>
> Of course in November of 1999 we had another 3 months or so of stupid
> before it all blew up, so one cannot rule out more idiocy sequentially
> before the inevitable comes. If and when it does it is unlikely to
> prove good, clean entry points, and the "what has worked" meme of
> buying the dips is going to get you destroyed, just as it did last
> fall. The people who tried to buy the bounces on the way down last
> fall had their portfolios shredded, and that was with internal and
> valuation numbers FAR less over-extended than they are now.

Oct 21 10:45 AM

[Karl Denninger:]

Mark:

Going "long equities" as a means to avoid a currency collapse is idiotic. The net return on such a strategy is negative; this is trivially discerned by looking at the input costs to the companies in any index, some of which are imports. In a currency collapse this prevents their EPS from keeping up and you lose in purchasing power (nominal numbers don't count, only purchasing power does.)

You want to be long "things" that have to be imported and won't collapse. Those "things" have to have utility value. Thus, commodities like oil.

Several times I have been asked what my strategy would be if I believed in this scenario (I don't.) I said over two years ago (and repeatedly since) that if you believe this as a thesis the best plays available are levered defined-risk plays on commodities, and if you want to, on equities. Specifically, LEAP CALL options. You HAVE TO HAVE leverage to keep ahead of the devaluation on equities or you WILL lose. This is not true on commodities since the FX reserves of the producers (in the case of oil) will be devalued too and they will thus withdraw supply to boost price in an attempt to get back their already-held FX value.

Nonetheless I don't believe that this will be the outcome - not by intent and not be necessity. If it happens it will be due to accident, not design or pre-ordained reality.

The risk of an accident is high but as with bets on the end of the world most of the time a bet on such an outcome turns out poorly.

Oct 21 04:57 PM

[artkarl:]

Well, heck, our great strength as a nation has always been our military, and it's associated industrial complex.
THAT will always provide an artificial, international, financial/fiscal safety net. -Karl Krachenberg

Oct 21 05:50 PM

[Mark Anthony:]

ArtKarl:

We can't handle a third world small country like Afganistan so what military power do we have? We are a country who can NOT survive on our own resource, so what military power do we have? We might be able to shot down a few airplanes, sink a few ships, and launch a few cruise missles, but if you talk about large scale wars. No, we are powerless because we simply do not have the resource. The Afganistan war was a very very small war, BTW.

Karl:

So let me try to get you:

1. You do not believe the dollar will collapse. So you are a dollar bull.

2. In the case the dollar do collapse, you believe equities are worse holdings than the us dollar cash. So amid a dollar collapse, you would rather hold cash, or treasury bonds, than holding equities.

You are completely wrong on both and I do nto even know how to debate you. Because you are not even logical!

Somebody, please help me to tell Karl why he is wrong.

Mr. Karl Denninger. I would recommend that you buy an air ticket to fly to Beijing on an important mission. You can do a great service to the Chinese people, by helping their Prime Minister Wen Jia Bao to get some sleep at night. He desperately needs to get some rest. He said he could not sleep at night, worrying about the safety of China gigantic foreign currency reserve which is mostly in US dollars and US treasury bonds.

Oct 21 11:14 PM

[Mark Anthony:]

On Oct 21 04:57 PM Karl Denninger wrote:

> Mark:

> You want to be long "things" that have to be imported and won't
> collapse. Those "things" have to have utility value. Thus, commodities like oil.

That's just idiotic. Are you suggesting that anything America imports will have value and won't collapse, and anything that America exports will have no value and will collapse with the dollar?

Are you going to tell me that the platinum we import from South Africa and the palladium we import from Russia has utility value and will not collapse, but the palladium produced by the Americna mine SWC will have no utility and will collapse?

Physical assets, as well as intellectual assets all have intrinsic value, regardless of who produces them or where they are from.

Do the computer processors produced by INTEL or AMD, two American companies, not have utility value? Virtually every PC computer any where in the world would contain a CPU produced either by INTEL or by AMD.

Are you going to tell me if the dollar collapses, the CPUs produces by INTEL or AMD will no longer have utility value, and hence these two companies will be worthless?

What about the agriculture products we export? So our farms will have no value if the dollar collapses, and our food will be sold to the world for free, if the dollar collapses?

You are so wrong I do not even know where to start.

Oct 21 11:28 PM

[doubleguns:]

Bull shit!!! Our fearless leader wont send the might. We could crush them in 20 days but there would be nothing left.

FUCKING NOTHING!!!

MARK ANTHONY WROTE; We can't handle a third world small country like Afganistan so what military power do we have? We are a country who can NOT survive on our own resource, so what military power do we have? We might be able to shot down a few airplanes, sink a few ships, and launch a few cruise missles, but if you talk about large scale wars. No, we are powerless because we simply do not have the resource. The Afganistan war was a very very small war, BTW.

Oct 21 11:42 PM

[Swashbuckler:]

20 days, hell, 20 minutes and there'd be nothing left but rubble.

Oct 21 11:50 PM

[doubleguns:]

Swash, Keep away from the BIG RED BUTTON. ;-{


On Oct 21 11:50 PM Swashbuckler wrote:

> 20 days, hell, 20 minutes and there'd be nothing left but rubble.

Oct 22 12:07 AM

[derryl:]

"He then sent government agencies into the field with rifles and gasoline cans, burning farmer's fields and shooting their livestock in an outrageously unlawful and Hitleresque attempt to boost producer prices by destroying people's private property and livelihood - all while people were literally starving due to inability to afford to buy food!"

FDR didn't have innovative financial products so he had to do things the old fashioned way. Now we have mo' betta' ways of destroying people's economic lives to preserve the viability of fiat money.

Oct 22 01:09 AM

[H. T. Love:]

This is an effect of many decades of migrating towards more concern for "world opinion" than "what's right for America".

Combine that with we started thinking we had to be the world's "Dudley Dooright"(sp?) and here we are.

Funny that the folks that are supposed to represent America's values seem so out of tune with the majority (my opinion).

HardToLove


On Oct 21 11:42 PM doubleguns wrote:

> Bull shit!!! Our fearless leader wont send the might. We could crush
> them in 20 days but there would be nothing left.
>
> FUCKING NOTHING!!!
>
> MARK ANTHONY WROTE; We can't handle a third world small country
> like Afganistan so what military power do we have? We are a country
> who can NOT survive on our own resource, so what military power do
> we have? We might be able to shot down a few airplanes, sink a few
> ships, and launch a few cruise missles, but if you talk about large
> scale wars. No, we are powerless because we simply do not have the
> resource. The Afganistan war was a very very small war, BTW.

Oct 22 08:28 AM

[Mark Anthony:]

In response to Karl, I cited Microsoft as a non-commodity equity example. I said: "Let me also use a non-commodity producer example, Microsoft. Microsoft will retain its valuation, as it produces a unique product the world want: computer operating system you can not be without. As long as the world continue to use computers they need the product from Microsoft, regardless of the value of the dollar. Microsoft can sell its software in Chinese yuan, Euro, or in gold ounces, if the dollar goes to zero. They can pay their employees gold coins for salary, and demand gold coins for payments for Windows 7. So why would you short Microsoft and hold dollar cash against your short position, knowing the dollar will go to zero but Microsoft will not?"

Today Microsoft reported a good result and the stock SURGED. I am not boasting that I made a good call, because I did not specifically call to buy Microsoft. I just said Microsoft has inherit value, regardless of the value of the dollar. I have made my point.

To short equity is to long the dollar, which has no value, and short something that has value. Karl's strategy of "short the phone book" was wrong and continue to be wrong. When are you going to start to tell us "long the phone book"?

On Oct 21 04:57 PM Karl Denninger wrote:

> Mark:
>
> Going "long equities" as a means to avoid a currency collapse is
> idiotic. The net return on such a strategy is negative; this is trivially
> discerned by looking at the input costs to the companies in any index,
> some of which are imports. In a currency collapse this prevents their
> EPS from keeping up and you lose in purchasing power (nominal numbers
> don't count, only purchasing power does.)
>
> You want to be long "things" that have to be imported and won't collapse.
> Those "things" have to have utility value. Thus, commodities like
> oil.
>
> Several times I have been asked what my strategy would be if I believed
> in this scenario (I don't.) I said over two years ago (and repeatedly
> since) that if you believe this as a thesis the best plays available
> are levered defined-risk plays on commodities, and if you want to,
> on equities. Specifically, LEAP CALL options. You HAVE TO HAVE leverage
> to keep ahead of the devaluation on equities or you WILL lose. This
> is not true on commodities since the FX reserves of the producers
> (in the case of oil) will be devalued too and they will thus withdraw
> supply to boost price in an attempt to get back their already-held
> FX value.

Oct 23 12:45 PM