Living4Dividends

September Housing Starts and Permits Disappoint

The printing presses are electronic and since redundant fault-tolerant computers are used, they will never break down.

Their is no limit to the amount of money that the govt can electronically print. The only thing that will stop the presses is a surge in inflation and angry electorate.


On Oct 20 12:42 PM doubleguns wrote:

> Housing is down because the govt money is getting ready to end. They
> may extend it but where is that money going to come from . The presses.
> The only thing working in this economy is the areas that the govt
> has funded.
>
> When the govt money runs out or the presses break down, the economy
> will grind back to a halt.

Asset Valuation and the Dollar

I said earlier that "NO fiat currency is a safe form of holding wealth. " So, what is the alternative?

Stocks of natural resource companies or companies that provide essential goods and services are a far better way of holding wealth. Commodities, gold and other PMEs are also good ways to protect wealth, but aren't necessarily good ways to GROW wealth, because these assets to no produce income.

Sharks Circling the Galleon Galleon

Good one !


On Oct 20 10:04 PM Moon Kil Woong wrote:

> LOL knowing Galleon for what it is, it is probably shorting its own
> positions as it pares it's positions. Talk about great inside information
> lol. Now they just need a bit more bad news to really clean up.

Housing Starts Flatline

"Somehow, just throwing money at the bursting housing bubble doesn't seem to be fixing it."

Yet, the Government continues to do just that.

Housing prices have been declining and their is clearly and excess supply of existing homes. Yet, through the FHA and oddly enough USDA (yes, US Dept of Agriculture), the Fed Govt continues to support new housing starts. This makes no sense.

I say the Government recognize that the nation doesn't need to build any more new homes until demand catches up with supply. Remove all Govt subsidies (FHA and USDA cheap loans) to home builders. If someone wants to buy a NEW home, they will have to obtain their own private financing.

The Govt should still maintain their subsidies for existing homes.

This policy will encourage the purchase of existing homes.

Asset Valuation and the Dollar

" The American currency remains the safest form of wealth the world knows. "

I don't totally agree with the above statement. The USD still remains the leading reserve currency ( is the most widely held). However, central bankers are slowly decreasing their dollar holdings.

In a crisis, people flee to the dollar. This was true in past crises, but I am doubtful it will remain true going forward.

Because nearly every country is printing currency like its going out of style, NO fiat currency is a safe form of holding wealth. Fiat currencies have always been risky. They have become even more risky since the global flood in liquidity. The dollar is vulnerable to devaluation, but so is the Pound and Euro. Putting 100% of one's wealth in Dollars is very risky.

As a side note: Due to rampant printing, money supply has exploded in the Dollar and Euro and Pound at roughly the same amounts (within 10%). That having been said, due to rampant growth in Federal Debt, I think that the Dollar is fundamentally weak.

Who is the biggest printer of them all ?

Surprisingly, it is the Chinese. They have had the largest recent increase in monetary base of all the important currencies. By far, China has printed more currency and has expanded its monetary base much more than the Western Economies.

Surprisingly, the Yuan still remains undervalued and China is experiencing 6-7 % deflation. If the Brits, Europeans and/or Americans printed money like the Chinese, we would almost certainly experience high inflation.

Three Asset Classes that Can Actually Outpace Coming Inflationary Price Increases

yes - you can have both

asset deflation
price deflation

this happened in Japan during the 90's


On Oct 20 08:45 AM fatpitch2 wrote:

> Nice article, thanks.
>
> I'm just going to toss out some random stuff here:
>
> 1) Indeed returns on gold do not seem to be well correlated with
> inflation but perhaps more correlated to periods of "unrest". So
> even without inflation on the horizon gold is not a bad place to
> park some cash?
>
> 2) Inflation vs. Deflation ... can't we have BOTH?
> It seems to me it's not as simple as one or the other...
> Certainly some assets/classes will be suffering "deflation" for years
> to come ... residential and commercial RE seem to have large inventories
> to work off for example. On the other hand it seems we could be in
> for shortages of ag. commodities, energy, and other "hard" assets.
> The stuff that the BRIC needs to build out their countries?
>
> 3) oil being held off the market - well I guess that could be the
> case, but a VLCC holds about 2M bbls, and with worldwide consumption
> at 80M+ bbls/day could there BE enough tankers willing to sit at
> anchor to really make a big difference???

Best Available Risk Reward Proposition

Terrific article !

I agree that fixed income will be devasted by the coming inflation. Additionally, yields are at or near multi-decades lows. When yields rise and inflation rises, bonds will be hit with a double whammy.

Investors tend to think of bonds as a "safe and boring asset." The above paragraph shows that bonds are risky. Cash is slightly safer, because cash has no duration. Even so, cash is subject to the effects of inflation.

Risk is defined by the academics as standard deviation of returns (volatility). OK, volatility is to be avoided, but it is not the only thing to be avoided.

The best definition of RISK is "Loss of purchasing power."

Sharks Circling the Galleon Galleon

" One of my favorite bits of bloodthirsty Wall Street behavior is the feeding frenzy when a hedge fund goes down."

Using momementum shorting against CDSes and stock, hedge funds were the ones who brought down Lehman, and many big financial players. Hedge funds are the sharks of the financial world.

In the ocean, during a feeding frenzy, oftentimes the other sharks will turn on an injured shark and commence to devour one of their brethren.

Hedge funds are the sharks of the financial world. They devour weak and/or vulnerable companies. Why the pity or shock when one of the sharks devours another shark?

Bond Indexes: Fundamentally Flawed

Good post! Thanks for bringing up this point.

Three Asset Classes that Can Actually Outpace Coming Inflationary Price Increases

Tack - The deflation of the 30's was pretty severe with a 30%+ net delation. Prior to that, there were plenty of deflations.

The USA went off the Gold standard in 33 and it took some time for that to reflect in increased money supply and inflation. Since 35, there has been only one deflation (early 50's) but that was mild (appx 4%).


On Oct 20 05:07 AM Tack wrote:

> Finally, there's never been a period of sustained worldwide deflation
> in modern recorded history, save for a brief period in the '30's,
> when the money supply was in a disastrous cyclical contraction from
> 1929-1935.

Three Asset Classes that Can Actually Outpace Coming Inflationary Price Increases

High Tack, I am a follower of yours, because you tell it like it is. I agree that Gold has a poor inflation-adjusted history (seems counterintuitive - but there it is).

Just curious, where did you you get your data that shows assets classes correlation with inflation ? Because I am interested in seeing how other asset classes respond to inflation, can you please post the website that has this data? Thanks

On Oct 19 09:39 PM Tack wrote:

> Energy....check
> Agriculture....check
> Chemicals.....check
> Industrial minerals....check
> Gold....a very poor inflation-adjusted history

Three Asset Classes that Can Actually Outpace Coming Inflationary Price Increases

"The deficit pales in comparison to the backstops and money the Fed balance sheet expansion has losed upon the world. Everyone knows it."

The first sentence is true, and a very important point. I am afraid that everyone isn't aware of this fact. The MSM rarely gripes about the Fed's bloated balance sheet.

Example: When the first 700B stimulus came out, the MSM attention was focused on this extravagant government spending. Meanwhile, the Fed had expanded its balance sheet by 2000B or more at the time.


On Oct 19 07:29 PM Moon Kil Woong wrote:

> First, Greenspan's comments just shows he was fully cognizant that
> his policies, much the same as Bernake's, is bad for America and
> leads to dollar devaluation and asset bubbles. Which shows he just
> wanted to be superman on his watch regardless of the fact he was
> doing so by setting an economic timebomb. I still have no respect
> for the man.
>
> Regarding what he just said. He is thoroughly correct now that he's
> out of power. It's nice to know he knows something about fiscal prudence.
> But sorry, it's a bit too late and now he is just a mealy mouthed
> voice in a tornado of opinions. It serves him right.
>
> The reason why no opne is complaining that oil is $80 bucks a barrel
> and your fuel prices are rising is because everyone knows this is
> a Federal Reserved induced dollar devaluation. It has nothing to
> do with anyone else. No oil production curtailment, no gold shortage,
> no undersupply, or too much demand. Just too many dollars.
>
> When people say that it's our budget deficit they have it only 1/4
> right or 3/4 wrong. In fact, the dollar's devaluation is mostly Federal
> Reserve QE related and artificialy stimulated liquidity driven by
> the prolonged abnormally low rates set by the Federal Reserve. In
> fact the Fed has poured more liquidity into the market than any elected
> official and spending program in 2008 and 2009. The deficit pales
> in comparison to the backstops and money the Fed balance sheet expansion
> has losed upon the world. Everyone knows it.
>
> So when Bernake goes on his next speaking tour, he should be chastizing
> himself not others for their lack of fiscal competence. The Federal
> Reserve is the biggest cause for low savings rates in the US, Trade
> imbalances, and dollar devaluation. They always have been and they
> always will be for as long as they are around. They are the printing
> press and big spenders. Even more so than our elected officials.
> It's just that they are allowed to hide their nefarious actions because
> they claim immunity from audits and from accountability because they
> are a "private company".
>
> I wonder, as a private company who made more per employee in 2009,
> GS or the Federal Reserve? And which bank is the biggest systemic
> risk? To have the Fed manage systemic risk is like asking AIG to
> manage the insurance industry.
>
> So don't be so down on yourself for electing Bush Jr. or Obama. Whoever
> you elect means so very little compared to who sits in the throne
> of the Federal Reserve. If anyone's going to ruin your life it will
> be them and they figure that there is almost no chance you can or
> will do anything about it.

Three Sides to the Housing Story

Good post

Commercial Real Estate and REITs: Ticking Time Bomb?

Good post Tack !!


On Oct 19 11:54 AM Tack wrote:

> Current projections for maximum industry default rates are now pegged
> at 5.4% in 2011. That's no worse than the last commercial-realty
> slump in 1989-1992.
>
> Also, most commercial REITs have raised capital, paid down debt,
> extended maturities, sold assets, and added significantly to reserves.
>
>
> However, unlike the last slump, many REITs and commercial lenders
> have seen their prices plummet 70-95%, and many remain significantly
> depressed, even after the recent rally.
>
> Commercial REITs look more like a buying opportunity than a problem.

Pfizer Wastes No Time Realizing Cost Efficiencies

I was against the merger for the following reasons:
1.) Cost Savings are often cited as a justification for most mergers. The promised cost savings usually never materialize.
2.) Acquiring a company requires paying a premium above and beyond market price for the acquired companies stock
3.) After having tons of cash on hand, Pfizer cut its dividend to pay for the merger.