One Eyed Guide

Special situations
One Eyed Guide
Special situations
Contributor since: 2009
There is potential to treat NASH with Omega 3 fats such as highly purified eicosapentaenoic acid. The potential for saturated fats is really undefined (probably due to demonization preventing research) but there used to be an all meat diet that was successfully used to treat abdominal obesity so there is some evidence that saturated fat works.
However, OCA can probably get approved if effective against moderated to severe fibrosis. Cancer drugs that are much less effective with greater side effects are approved every day.
I'm a little skeptical that any drug with serious side effects will get to market given the potential for simple dietary changes to reduce NAFLD. The increase in NAFLD is clearly linked to the low fat/high carb diet that started in 1977 with DGUS. Bariatric surgery is far more effective than any drug treatment at reversing NAFLD and dietary changes are probably much more effective too. A recent study on a rat model shows dietary medium chain triglycerides prevent nonalcoholic fatty liver disease so you might find food changes will become the treatment of choice. The link is below (hope it works):
http://bit.ly/1kf7ttT
Given that AHA has gotten rid of its limits on total dietary fat and cholesterol, there is hope that correct dietary advice may come out in the future.
Christopher,
I agree that indebtedness is a big factor but in this case we are worried about margin debt as it relates specifically to stock market assets which is at an all time high. With SPY going up like a rocket yesterday on news of tapering and very modest growth, the potential for a sustained drop that turns into a Minsky moment is high.
And Minsky was clear that financial market instability is an ongoing characteristic of the capitalistic system so avoiding Minsky moments requires ongoing action by regulatory bodies like the Fed.
Let's hope they are successful so we don't have a Minsky Moment.
You don't read the criticism very carefully in any case.
I never said they didn't balance the budget. I said "the USA didn't consistently run a balanced budget until Clinton in the 1990's".
And I never said Truman and Eisenhower were Keynesians. I said "deliberately bringing the budget into balance after a recession is a Keynesian idea" - You should know this as Krugman complained about Bush's not balancing the budget just like he is complaining about Obama's reducing the deficit today.
The fact that Eisenhower criticized Keynes is not surprising - he was a politician. Reagan (who had a degree is economics) did the same but ran Keynesian deficits to generate jobs. If Obama just spent like Reagan did we would have a much lower unemployment rate. But Obama is a lawyer, not an economist.
And the General Theory was written in 1936 so there was a "Keynesian lobby" in Truman's period - if you mean economists who supported these ideas.
Sorry for confusing you. I'll type slower.
What I said was you can't learn anything about today by looking at the post-WW2 debt decline. As I am sure you know, we are in a balance sheet adjustment period with interest rate against the zero boundary. Interest rates left the zero bound in July 1947 (or June '42 by some measures). The end of a total war with massive gov spending requires different monetary and fiscal responses to a balance sheet recession rooted in excess private (not public) debt.
And deliberately bringing the budget into balance after a recession is a Keynesian idea - the question is why are you talking about balancing the budget when we are still in a technical depression, hard against the zero bound?
On RR: Eventually there are problems with debt - the question is when. The RR's math error removed the 90% cliff which was the reason there was a panic. If you go by the Japan experience public debt can get to 220% without disaster if you have debt in your own currency.

RS financial repression is a neat theory that can be used to justify less government regulation - and not much else. As they said, "Governments do not call these actions financial repression,
of course, but characterize them as part of “macroprudential
regulation,” which is designed to ensure the overall health of
the financial system."
Seems like a lack of "financial repression" is how we got in the current mess.
Oh, I see. You are still trying to prop up the discredited Reinhart 90% debt disaster fallacy.
Don't topline the numbers like you did in your "63" article and you can see what really happened.
In both the UK and US balanced budget scenarios you try to make something out of, they stopped fighting a total war so government spending plunged.
In the US, Federal spending went from 41.9% of GDP in 1945 to 15.6% of GDP in 1950. The cut in defense spending was from 37.5% of GDP in 1945 to 5% of GDP in 1950. Non-defense spending increased from 4.4% of GDP in 1945 to 10.5% of GDP in 1950.
They weren't deliberately trying to balance the budget, they were trying to make sure that they didn't fall back into the Great Depression - something that you can confirm in the contemporary press was a concern of business leaders in 1945.
So, you are not going to duplicate the 1945-50 "balanced budget" events today and they are of no use in predicting what is going to happen tomorrow.
"In every large country episode in which debt was successfully reduced below 90% of GDP without slamming creditors, this was achieved by balancing the budget."
Except for Great Brittan after 1814 and the USA from 1945 to 1980.
If you will recall, the USA didn't consistently run a balanced budget until Clinton in the 1990's which was promptly blown up by Bush.
Look up the "law of motion of government debt" if you want to understand the basic math.
And before you say inflation - it was growth that did most of the debt reduction. If we had the growth of 1945 to 1980, we would not have a debt problem.
"Earnings recession" revealed by revisions! Good stuff.
Minsky's theories predicted that reducing the deficit would result in reduced earnings - but it didn't appear in the initial earnings. Looks like the revisions have shown Minsky is correct. If Minsky continues to be correct, the continuing precipitous fall in the federal deficit will reveal itself in downwardly revised second-quarter earnings and ongoing earnings that are far below projections.
Can't see how this is good for the market.
Thank you. Noticed you do VC. If you need in-depth analysis of a VC idea, please feel free to contact me.
I looked at financials in the third quarter 13 F and you're correct that Soros is holding a tremendous amount of nonmajor bank financials. As I only looked at the major banks, I missed these additions.
Still, the reason I pointed out Soros' increased financial investments versus gold is that euromagedon will be very bad for financials but good for gold. However inflation and excess money supply growth generated by efforts to preserve the euro should be good for financials as well as gold so Soros's financial purchasing could mean he was pursuing a different investment strategy than safe haven. Given Soros is a Keynesian/demand side economist, it's unlikely he's doing this but what do I know?
If Soros is buying gold in anticipation of euromageddon then he will sell the majority of his financials relatively quickly. If the fourth quarter 13 F report shows that he's sold his financials and kept his gold than the likelihood is that Soros is buying gold as a safe haven.
There are a couple of hints but nothing definitive in the investment strategy shown in the third quarter 13 F.
Soros appears more defensive on his financial investments versus his gold. He bought $1/2 billion in AIG and paired it with what appears to be a defensive put. For his gold miner stocks, he added an aggressive call.
Finally, the gld and the gold mining stock together equal around 4.5% of the Soros portfolio, close enough to the 5% I was always taught was the amount you wanted to have in gold, etc. for hedging or safe haven.
If euromagedon holds off till the fourth quarter 13 F report is issued, we can look at it and try to figure out what he's doing. If it arrives before then I'm sure Soros will tell us exactly what he thinks.
I'll be making a change to point out the amount of the increase in financials. Thanks for pointing this out.
Always follows Soros if you can figure out what he is doing today. I only looked for the majors in the latest 13f - and I may have missed some of them.
I'll look at it the 13f more carefully and make a comment on the composition of financial stocks.
The euro-mess is a structural problem, not a difference in ratio, debt, etc - technically Japan is worse than everybody but is doing better than the Eurozone. This is because the euro was designed without the relief mechanisms that are built into the government structures of the USA, Japan and GB.
The euro-mess arises from the fact that the Eurozone is not a OCA - Optimal Currency Area like the USA, Japan and Britain. There are 5 factors that make up an OCA with the two most important being risk sharing and labor mobility - neither of which exist in the Eurozone at this time. For example, when the tsunami hit Japan and Sandy hit the NE there was an existing mechanism to share the risk through the Federal governments.
More directly, in China and in the USA stimulus efforts were focused on areas that needed help rather than those that could pay
for them. For example, in the USA the most extended unemployment benefits were available in areas that had higher unemployment.
This article goes into OCA's in more detail: The Euro Deal: Expect Much Greater Economic Contraction Than Forecast http://bit.ly/Wv2P7v
Note that the predictions in the article, written a year ago, are coming true.
China is probably buying gold to depress the price of the RMB without directly buying dollars which will get them labeled a currency manipulator. Also, the Chinese gold demand trend in tonnes was flat for the last 12 months.
Gold will eventually be much higher than it is today - but it going to have a lots of ups and downs before then. Any dollar crisis is a couple of years off so it's not going to be a factor. Japan crisis is closer but what exactly will it do to the price of gold - this will boost the dollar but only have a short term safe haven effect on gold prices.
Hmm. So gold is not a bubble? There was not a peak in September 2011? We'll see.
In my first article, published when gold was around $900, I gave a sell target of $1600. Fairly good call of the 2011 top for a prediction in 2009.
In my last article, Second Quarter 2012 Gold Review: Short Term Profit Opportunity, Long Term Sell http://bit.ly/T4yr2U, gold was at $1670 and is now at $1725. This is still the current trend.
This latest article is just alerting investors of the continuing demand trends and when to sell to maximize the short term opportunity from safe haven investing. I'm working on an article on the technical details of safe haven trading which will be out Friday or Monday, if the editor gods of SeekingAlpha decide to publish it.
A questions to ask about where America is in the cycle: Which cycle?
Cheaper energy than the rest of the world will do a lot to fix the problems that America has endured since the Oil Embargos of the 70's. Fracking is going to change a lot of economic dynamics.
So where does gold fit in a cheap energy economy?
The WGC report showed India was the strongest market in the 3rd qtr up 12% in investment and 7% in jewelry. The report concluded that the 4th Qtr in India would be stronger but not enough to overcome the weakness in the 1st half. Also some news reports that Indians are turning to silver instead of the traditional gold due to cost - as yellow gold is out of style in international fashion perhaps as fashion change also.
I'd like to hear any comments from India also.
I think you have to separate this into business and consumer confidence. Consumer confidence has been recovering and continues even with the Obama reelection despite very weak income growth. Business confidence has not increased significantly and remains at what are described as recession levels. If rising consumer confidence results in increased retail sales we should see business confidence increase.
We'll see.
Freddy,
The movement was small - a couple of months of slightly better performance. As far as "silly" goes - I think that's the nicest thing anyone who disagrees with me has called me recently.
As always, I hope you're right on the upswing in the fourth quarter. Obviously housing and auto sales are positives and the drop in energy prices will help. Hurricane Sandy is going to make it hard to figure out exactly what is happening in the fourth quarter due to the destruction and or delays in delivery of retail inventory but it should have a positive effect on first-quarter GDP. Nevertheless, the addition of the euro mess makes the likelihood of any significant rally small before the new year.
You didn't mention that the other correction to euro imbalances is for Germany to have inflation while other countries have none. The ECB seems to think it can generate selective deflation without generating inflation in Germany. Not to get in to too many details but what used to be widely accepted (yes, Keynesian) economic theory states that deflation is very hard to achieve and incredibly destructive while inflation is relatively painless and inevitable. Looks like inflation in Germany is popping up first in housing - expect more inflation in Germany unless the Euro blows up.
Freddy,
Hope you're right. A 3rd Q bottom could happen just from getting the election behind us.
Is your projection of a worse post election outcome from an Obama or Romney victory? If so, why? I don't like either one's economics.
We're in a depression already: An extended period of high unemployment and excess manufacturing capacity.
If we go into a recession (a period of negative growth) things will get worse.
However, going to even more of the so called business friendly practices of GWB will make things worse.
Not many good choices in this election.
The recession of 1937 was preceded by a positive yield curve. When interest rates are hard against the zero boundary the yield curve can only be positive so it loses its predictive power. In normal times you're absolutely correct about the yield curve.
Personally I think there will be tremendous growth in equities in the near future but there's going to be at least one significant drop before the sustained growth. There are three factors that make me think that the market will drop: the euro-mess, the slowing world economy including the US, and peaking corporate profits.
We'll see.
I had a typo in my line about middle class income. It should have been "1970's" instead of "things were better for most families in the 1980's". Middle class lost ground from 1980 on.
The data you cite on income is about concentration of income, not middle class income, primarily in metropolitan areas. Even so, things were better for most families in the 1980's and concentration of income decreased for all families, but not for some subgroups like blacks (see page 14 figure 2.)
Reagan had very fast growth after Volcker rate hikes and the S&L crisis was really after Reagan. He did this by increasing spending primarily in the military (but he didn't cut anywhere) and by revenue neutral tax reform.
Now we have a crumbling infrastructure that could be supported with stimulus spending. I'd also suggest increasing and simplifying taxes (maybe just roll back to the whole Reagan structure) to get a little productive money in the system.
Inflation is low in historical terms but income growth is lower so it feels like high inflation - we don't have stagflation as this would require inflation of more than 6%.
At least 20% of the Oil price is due to speculation according to the WTO. But oil prices are going down due to increased regulation of speculation and Oil getting killed by gas - we don't have an energy problem in the USA - the USA is now a net exporter of petro energy.
Finally, read a little about how excess reserves work - they're in the system primarily to act as an insurance policy for when the Euro blows up. When credit markets freeze up, the excess reserves allow banks to continue operations without needing to go right to the Fed. When the Fed wants the excess reserves out they can do this quickly - been there, done that, as they say. There will be considerable inflation but more likely due to excess demand as people finally feel comfortable with spending for those things they have denied themselves.
Like I said: the official sector has a history of buying high, selling low. I don't see anything in your statement (much of which is true) to change this fact.
As the middle class did very well during the inflation of the 1970's, there is no reason that inflation will "decimate" the middle classes. Inflation hurts wealth holders as it usually reduced the real return on their bonds and cash. As inflation forces investment over coupon clipping higher inflation usually generates higher growth-Carter had higher growth than Reagan. Only if there is an exogenous (outside) commodity shock do you get stagflation and this is only temporary (though it might lock in higher inflation for a while.)
So you have 1 and 3 or 2 or 3. Right now, stimulus would give 3 with relatively little inflation and this has been the situation since 1983.
Enjoyed your article. I agree that supply and manufacturing demand are not the basis to value gold today and I hope I made that clear. The supply and demand analysis was just to make it clear that there was no basis (for manufacturing) supply constraints driving prices.
2 comments:
1.The marginal cost of producing the last gold oz. is what is important in supply and demand, including speculative demand. I didn't look at this, this time, but believe that it is as high as $1600 today.
2. You assume that there is some need to back currencies with gold. Why? Fiat Money is a fiction that we all agree on. Adding gold to the fiction story does not add anything and makes it harder for central banks to control. If your intent is to reduce the control of central banks by adding gold, then say so. (I'd rather trust central bankers than miners to control the currency but I'm funny that way.)
Developing countries are far better off using the currencies of their trading partners as reserves as it allows them to manipulate their currency and gives a cushion that is readily usable in times of economic crisis. When the banking system froze in 2008, China had lots of dollars to lend to it's own banks - gold was not accepted during the crisis as it was varying wildly in price vs. the dollar.
Hmm. I'm going to suggest that commodity prices are at least 20-40% higher than they would be if we had maintained the anti-speculation controls that were dismantled in the 90's and 00's. When these are put back on (which JP Morgan seems intent on helping make the case for) we'll have a big pullback in commodity pricing.
Then we'll start to see what the real problems are.
I do like your point about the "Soviet" model - we seem to have copied a lot including a run away financial sector (post their Afghanistan and command economy).
However, you are expecting 200 years of Roman history to occur in months - something different will happen.
Finally, in history you can't find a comparable situation to today that would indicate that the USA is going to hyperinflation in the next few years - all the worst examples are deflationary. You have to have some form of "Original Sin" to generate hyperinflation.
If you think the world is in a liquidity trap then the money printing is not important - of course, the currency world does come to an end if the central banks keep printing once we are out of the liquidity trap.
Mauldin had some good articles on M1 and the drop in the velocity of money. The drop in velocity is indicative of a liquidity trap and is the classic definition of "pushing on a string".
We'll see.
Historically, Central Bank buying and selling are contrary indicators - they buy high and sell low - really - check out GB's sales in 1999 to 2002. http://bit.ly/Lm4tSY
I tried to make it clear that gold is a secondary reserve - stronger currencies are better if you a diversifying out of a problem currency. If you are concerned about inflation then any commodity should be as good as gold, particularly if it is in short supply relative to consumption. Gold is not "consumed" to any great degree so as an investment it is only good during a bubble up period like 2001 to 2011.
Gold is a good "reserve" if you are not sure what currency to buy and your currency (China and India) has high inflation. China has had to stop (or reduce) buying dollars as they wanted to avoid the manipulation charge so gold is good for them.
Greece, Portugal, Spain might think that they are having a "crisis" with the Euro.
I don't know what else to call the possible breakup of the Euro except "crisis". Let me know if you have a better term for the Euromess.
Hmm. Not sure how to answer this. Here goes:
TIPS pricing is market based and is used a proxy for real interest rates (Interest rates less inflation). If TIPS understates inflation because of the CPI, it does not change the relationship of gold to interest rates as long as TIPS is calculated consistently - which it is.
Pricing is determined by supply and demand in the long run (actually the marginal cost of extraction and the demand curve). In the short run, different things happen - Hotelling is one explanation about what happened after the Lehman crash.
All bubbles go through a build period that can be 10 or more years so length of stating something is a bubble does not mean it's not a bubble nor a bad investment during the bubble up stage. I reco'd gold up to $1600 in 2009.
Gold is part of a diversification strategy that should include all precious metals - right now sell gold and buy platinum as part of this strategy.