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Gregory M. Wetherall  

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  • QE Posted On The Wall? [View article]
    You make very good points Tack. As for managing other peoples' money, I fear your words will prove to be prophetic. GW
    May 4, 2015. 08:54 PM | Likes Like |Link to Comment
  • QE Posted On The Wall? [View article]
    For my first twelve years as an attorney, litigation was the bulk of my practice. For the last eight, I have tried to get away from it (too stressful). Now, my practice consists primarily of consumer and business bankruptcy work with some commercial litigation interspersed. My goal is to retire from the practice of law as soon as possible. I am an active trader with a good track record. I currently manage only my own money but, in the absence of a law practice, I suspect my energy levels would demand something more. Therefore, once I leave the practice of law, I will likely gravitate towards managing other people's money.

    I agree my response to your comment was harsh and I apologize. I am simply very disgusted with the federal government at all levels. The only thing the federal reserve needs to do is maintain a stable currency. The federal government needs to provide for the national defense and not much more. We need to get back to the system of federalism where police power is reserved to the states.

    At this time, we find ourselves in a situation where the federal government has promised the people far more benefits than it can ever deliver. The obligations of Social Security, Medicare, Medicaid and other entitlement programs are “staggering” or, if you prefer, “excessive.” There are only three ways to deal with those obligations: (1) pay for the benefits at face value (which would require younger generations to live near poverty to subsidize a more affluent lifestyle for the elderly); (2) monetize the debt (which would allow the government to provide the promised benefits with inflated dollars); or (3) commit a hard default on the obligations by eliminating the benefit programs (of course, option # 2 is a default but not a hard default).

    Absent an explosion in productivity and prosperity, Option 1 will be impossible to accomplish. As the costs of socialism become more onerous for younger generations, they will revolt against the sacrifices demanded of them. Therefore, only options 1 and 2 are viable. In the end, I am certain both of these options will be utilized. The debts will be monetized through inflation and there will be hard defaults in the form of increasing age eligibility requirements and the elimination of certain benefits.

    As for your question regarding which nations currently maintain excessive debt levels, the answer is virtually the entire developed world. Of course, the glaring examples are Japan, the United States and, of lesser consequence, certain members of the European Union. At present, the Bank of Japan purchases 75% of the sovereign debt issued by the Japanese government. While Japan has been spared hyperinflation so far, it is only a matter time until it emerges. I don’t know if I would call it lucky, but Japan has been protected from inflation, to a greater degree than other nations, because of the 20% to 30% savings rate the Japanese people maintained for the last 50 years. Moreover, the Japanese are far less materialistic, far less entrepreneurial and have a deep-seated mistrust of banks which has contributed to hoarding.

    In reality, Japan, and other similarly situated nations, would be better off if they just defaulted on their debt. I am a student of history and know a monetary crisis is a terrible experience for a nation but it's not permanent. At the end of the day, it isn’t the monetary system which creates wealth and prosperity. Money is just a medium of exchange which facilitates commerce. It is the people, their values, their work ethic, their intelligence, creativity and ingenuity which create the wealth. In the final analysis, a monetary crisis creates a very profound, but transient, economic discomfort. Afterwards, absent a mass exodus of is most productive citizens, the nation has the same resources as before the crisis and, by establishing a new, stable currency, will quickly rise from the ashes.

    So, over the next couple of decades, I think the entire world is in for a very rude awakening as they learn socialism doesn’t work. That we all must provide for ourselves, our families and our communities without leaning on a paternalistic government. Then, we can hopefully start over with a new government that governs less and a central bank that seeks to provide a stable medium of exchange and nothing more.
    May 4, 2015. 07:17 PM | 1 Like Like |Link to Comment
  • QE Posted On The Wall? [View article]
    "If you know of such a country, please point it out. Be sure to define "enormous" and "staggering" in non-circular terms. We'll wait."

    With 6,389 comments, it appears you have way too much free time on your hands. Rather than feeding a troll, I'll let you spend some of that time looking up the definitions for yourself.
    May 4, 2015. 01:57 PM | Likes Like |Link to Comment
  • QE Posted On The Wall? [View article]
    If you know of such a country, please point it out. Be sure to define "enormous" and "staggering" in non-circular terms. We'll wait.

    With 6,389 comments, it appears you have way too much free time on your hands. Rather than feeding a troll, I'll let you spend some of that time looking up the definitions for yourself.
    May 4, 2015. 01:30 PM | 1 Like Like |Link to Comment
  • QE Posted On The Wall? [View article]
    "There is no connection between the monetary base and the rate of inflation in the economy."

    That is the popular notion in MMT. It isn't true. At least not in an economy where the government runs enormous budget deficits and maintains staggering debt. Especially when that debt is denominated in a currency controlled by the government which issued the debt.

    Your theory relies on the Fed's ability to pay interest on reserves to prevent the monetary base from flowing into the economy and creating inflation. But what happens when the interest rate necessary to prevent the flow of reserves into the economy approaches, or even exceeds, the interest rate paid on government bonds. Then, banks will dump sovereign debt in favor of maintaining reserves at the Federal Reserve.

    At that point, you must either reduce the rate paid on reserves or allow interest rates on government bonds to increase. As stated in my prior comments, the government’s debt is so large it cannot afford to pay higher interest rates. Therefore, you must reduce the interest rate on reserves and allow the money to flow in to the economy. Of course, that will result in unprecedented inflation.
    May 4, 2015. 12:39 PM | Likes Like |Link to Comment
  • QE Posted On The Wall? [View article]
    2008 wasn't just s cyclical economic downturn but more of a 19th century-style panic created by loose monetary policy and exacerbated by the policies of the federal government aimed at guaranteeing home ownership to the masses. The only way to moderate the booms and busts is to reform the monetary system. First, the employment maximization side of the Fed's dual mandate should be eliminated in favor of the Fed focusing solely on controlling inflation. Second, we need to implement a monetary policy similar to Milton Friedman's Monetarism model where the money supply grows at a moderate, constant rate plus any increases in productivity. To moderate the depths of general, cyclical, economic downturns, we need to reduce the size of government and implement a consumption tax in place of personal and business income taxes.
    May 4, 2015. 10:09 AM | Likes Like |Link to Comment
  • QE Posted On The Wall? [View article]
    I agree with you insofar as the only saving grace for the U.S. government is the equally abysmal fiscal state of many of the EU nations. Nevertheless, while no one can predict when it will happen, it is just a matter of time until there is a major monetary crisis in the United States. With debts and deficits at this level, and the never ending rise in entitlement spending that comes with an aging population, there is simply no possible way for the government to survive without debasing the currency in a monumental way.

    As with all financial crises, for most people it will seem to arise unexpectedly and without reason. It has been this way since the dawn of time. Recent examples abound. In 2000, Wall Street told us the bull market in internet stocks would never end. In 2006, investors believed real estate prices would never decline. Of course, we all know how those predictions turned out. Now, we are told there is no inflation and none in sight. The facts, of course, say otherwise. We will have to wait and see what happens
    May 1, 2015. 12:14 PM | Likes Like |Link to Comment
  • QE Posted On The Wall? [View article]
    QE never ended. The Federal Reserve continues to purchase assets with the interest it receives on the bonds and mortgage-backed securities it purchased over the last 7 years. Regrettably, the Fed has no choice but to continue quantitative easing on an even grander scale in the future. One need look no further than the fiscal nightmare that we call the federal government to understand why.

    The national debt stands at nearly $18 Trillion and the federal government is still running a huge budget deficit . Can you imagine what would happen if interest rates on U.S. government bonds returned to a more normal level of say 7% to 8%? If that happened, the federal debt service would increase by about $600 Billion per year.

    Quite simply, the Federal Reserve can't allow interest rates on U.S. government bonds to rise as it would decimate the fiscal train wreck that exists in the federal government. Continuing with train wreck analogies, it would be like crashing a train carrying weapons of mass destruction into another train that already wrecked. The results would be incomprehensible.

    But the only way to keep rates on U.S. bonds down is if someone is willing to buy those bonds at an acceptable interest rate. Although I disagree with the author that consumer inflation is low, I will agree the real inflation has been in the prices of investment class assets. Most notably equities. And why have equity prices blazed higher in a seemingly never ending bull market.? Because it is the only place to invest and receive a respectable, risk-adjusted rate of return. Unfortunately, this situation, where the government must maintain low interest rates for purposes of financing its spending, while individual investors, as well as other nations, are unwilling to accept those rates of return, means that someone must eventually arise who is willing to purchase government debt even when there is no logical basis to do so. That someone will be the Federal Reserve.

    As the national debt and corresponding debt service continues to increase, there will be less and less private purchasers of U.S. sovereign debt. This will create the catalyst for our next economic nightmare. As it happens, the Federal Reserve will become the lender of last resort. Unlike the Panic of 2008, however, when the Federal Reserve became the lender of last resort to the nation’s financial institutions, this time it will be the lender of last resort to the federal government. While it may seem that inflation is contained at this time, the ever increasing federal debt and budget deficits, together with the Fed’s quantitative easing necessary to fund those deficits, will lead to unprecedented inflation in the United States.

    In light of the most recent Fed statement, and the reasons set forth above, I am confident the Fed will do whatever is necessary to keep interest rates low. Of course, that means a continuation of the bull market for stocks. In fact, in the coming year I think we will see the beginning of a stock market bubble comparable to, if not worse than, the Dot-Com era.
    May 1, 2015. 12:02 AM | 2 Likes Like |Link to Comment
  • Ackman's Secret Herbalife Grand Slam That The World Didn't Notice [View article]
    From past performances, I knew Ackman was capable of saying or doing anything to make a buck. Still, even I wasn't prepared for the crocodile tears he shed during today's performance. I don't think I'm alone admitting I almost vomited watching him choke up. Then, adding insult to injury, the references to his immigrant grandparents, as the impetus for his short position in Herbalife, transformed a gag reflex into full blown dry heaves and convulsions. This man is truly revolting. Someone tell the makes of ipecac they can stop making it. If you need to induce vomiting, just let the patient watch one of Ackman's shows.
    Jul 23, 2014. 01:37 AM | 10 Likes Like |Link to Comment
  • Positives Are Mounting For Apple [View article]
    I agree with you assessment of Apple. Today's earnings release was like the opening barrage of artillery at the start of a great battle. The release of the iPhone 6, later this year, should serve as something similar to what Napoleon called a coup de main. I think an iPhone, with a larger screen, will result in an explosion in sales both domestically and abroad. With all of the other wonderful news released today, I would not be surprised if Apple trades near $800.00 before the earnings release in January of 2015.

    Disclosure: I maintain a long call options position in Apple and intend to add to it in the near-term.
    Apr 24, 2014. 11:21 PM | 1 Like Like |Link to Comment
  • Fannie Mae: Gold Mine Or Death Trap? [View article]
    I am pleased to hear that. Thank you for your time.
    Apr 4, 2014. 11:01 AM | Likes Like |Link to Comment
  • Fannie Mae: Gold Mine Or Death Trap? [View article]
    You are right. I was confused and thought Silicon Valley was a geographical recess in the Montagnes Noires. Perhaps, you should move to Haiti and create your own business. In the meantime, I think most people here would be very appreciative if you move your comments to a more appropriate website.
    Apr 4, 2014. 10:51 AM | Likes Like |Link to Comment
  • Fannie Mae: Gold Mine Or Death Trap? [View article]

    Sorry for the delay in responding. I was out of town shortly after this article was published, returned to a hectic schedule and, last week, succumbed to the flu.

    My article was not meant to give a precise value for FNMA but merely to point out there is a great deal more value here than the market is giving credit. As you point out, of the $80 billion in profit, about $50 billion represents deferred tax benefits. I agree completely with your assessment.

    My point is: that still leaves $30 billion after the non-cash items. And, from my perspective at least, that is nothing at which to sneeze. Moreover, you can't act as if the tax savings of $50 billion don't count. Even on a fully diluted basis, before the dividend sweep, the price to book valuation is astronomical. It isn't bad even after the dividend.

    There are articles with great valuations of this company out there. The consensus among them seems to be about $40.00 per share. I won't attempt my own valuation but, suffice it to say, I won't complain if I only see half of that?

    You are a very astute commentator. Thank you for taking time to read my article.

    Apr 4, 2014. 10:38 AM | Likes Like |Link to Comment
  • Fannie Mae: Gold Mine Or Death Trap? [View article]
    More than just off topic, your comment is one of the most ridiculous I have ever read. Demand creates jobs? There is plenty of pent-up demand in Haiti and other poverty-stricken areas of the world. According to your logic, these places should be overflowing with jobs.

    Jobs are created by people who create businesses that produce goods and services. You can't have customers until you have the means to produce the products or services they consume. That is why free market capitalism creates wealthy nations. It rewards those who start businesses which, in turn, create the goods and services that raise the standard of living.
    Apr 4, 2014. 10:15 AM | Likes Like |Link to Comment
  • Oil Prices Are Predictable During Cycles Of Fear And War [View article]
    With the government shutdown tonight, it looks like the market is ripe for an even bigger decline in oil prices: Easing tensions in the Middle East, increased domestic production, the end of the peak Summer driving season, a slowing economy and now this. Oil could come crashing down while we sleep when European markets open. Even if a shutdown is averted tonight, the debt limit will be reached in two weeks. I am short crude oil futures overnight. Short at $102.30 a barrel with a stop at $103.91.
    Sep 30, 2013. 10:08 PM | Likes Like |Link to Comment