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Pater Tenebrarum

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  • Why Inflation Never Came [View article]
    Bank reserves are not part of the money supply. The Fed has however altogether blown up the true US money supply by almost 90% anyway since 2008 (NOT counting bank reserves). That IS the inflation. Rising consumer prices are one POSSIBLE effect of inflation, and not the most important or most pernicious one. The real problem of inflation is that it distorts relative prices in the economy (which causes capital malinvestment) and redistributes wealth (from late receivers to early receivers of the newly created money). There is absolutely no need to try and reinvent the wheel just because no CPI inflation has appeared on the scene yet. The Fed inflated all out from 1933 to 1966 and no CPI inflation was visible either. It is impossible to tell in advance which prices in the economy will rise and when. Moreover, the effect of an increase in the money supply on prices depends also on the demand for money and the supply of and demand for goods. For this reason it is actually not possible to accurately 'measure' price inflation either, as there is no yardstick, no constant, one could use for the measurement. The statistical artifact we know as the CPI can at best inform us about a general trend in consumer prices, but it sheds no light on why they are rising, and there is no such thing as a 'general price level' (as an aside to this, the Fisherian 'quantity equation' is therefore a completely useless tautology. Note it needs the fudge factor 'velocity', a nonsensical concept). The example of the period 1933 to 1980 underscores an important fact however: 'price' inflation can arrive with a considerable lag, but once it does, it can become pretty significant. In any case, if one wants to know whether there is or isn't inflation it makes no sense to look at price indexes. All one has to do is look at the growth of the money supply. In free unhampered market economy, prices would be continually falling as economic productivity improves. We therefore know one thing for certain: if prices are 'stable' then they are definitely higher than they would be in a true free market not meddled with by the central bank.
    May 21, 2013. 05:03 PM | 6 Likes Like |Link to Comment
  • The Real Experiment That Is Being Carried Out In Japan [View article]
    I can tell you. They have a terrible 4.2% unemployment rate and their extremely affluent consumers enjoy mildly declining prices every year.
    Abe couldn't let that stand, after all, he's heard for years how horrible the evil deflation was.
    May 15, 2013. 07:38 AM | 5 Likes Like |Link to Comment
  • The 12 Biggest Mistakes The Media Make When Covering Gold Markets [View article]
    Generally I agree with what you write here, but I would point out that the concept of 'intrinsic value' has no place in economics. All value judgments are subjective, there exists no such thing as 'intrinsic value'.
    If Krugman actually made arguments involving intrinsic value, it only serves as additional proof that he's not an economist but little more than a political hack. I will never understand how the Nobel committee could demean its prize by giving it to him....probably the prize has become a contrary indicator.
    Apr 26, 2013. 01:36 PM | 3 Likes Like |Link to Comment
  • Are Gold Stocks Oversold? [View article]
    Are gold stocks oversold? Is that a trick question?
    Apr 24, 2013. 08:09 PM | 2 Likes Like |Link to Comment
  • Silver: Let's Get Ready To Rumble [View article]
    Right on. Sinclair sometimes sounds like he's hallucinating. I agree it is a complete waste of time to focus on manipulation theories. Obviously, if the alleged manipulators have tried to hold prices down, they haven't been exactly successful since 2000 (regardless of the recent downtrend). The long term charts of gold & silver actually are among the 'cleanest' charts in the commodities universe (i.e., they are very amenable to technical analysis, including EW theory), which I guess is due to the fact that these markets have very large participation.
    Apr 8, 2013. 07:15 PM | Likes Like |Link to Comment
  • The Fed Is Not Pushing Stock Prices Higher [View article]
    Much ado about nothing. The Fed's ministrations have increased the broad US money supply TMS-2 by approximately 80% since the fall of 2008. The central bank can create this money, but it has no control over where the money goes as it percolates through the system. Which assets the central bank buys at the outset in these money creation exercises is irrelevant in this context, as the recipients of the funds then have them available and can use them for whatever they like. At times, the new money will predominantly flow into stocks, as has happened recently.
    Apr 3, 2013. 04:31 PM | 3 Likes Like |Link to Comment
  • The World's First Gold Factory [View article]
    There has never been a 'shortage' of gold. There cannot be one, as all the gold ever produced still exists above ground. It is a waste of time to try to analyze gold as though it were an industrial commodity like copper. Gold must be analyzed like a currency...talking about a 'gold shortage' is the same as talking about a 'dollar shortage' or a 'yen shortage'. It just doesn't make any sense.
    Mar 22, 2013. 06:36 PM | 2 Likes Like |Link to Comment
  • The World's First Gold Factory [View article]
    New production from mines is basically irrelevant to the gold price. The total extant gold supply is approximately 170,000 tons. Annual mine supply is 2,600 tons, or 1.4% of the total supply of gold. If mine supply were to increase by 20%, it would add 0.28% to the total gold supply per year. A drop in the ocean. The supply of dollars has increased by 10% annualized or more for almost 50 consecutive months by way of comparison (80% cumulative since the 2008 crisis, in terms of broad money TMS-2). - and the value of the dollar has actually increased in that time.
    Mar 22, 2013. 06:32 PM | 2 Likes Like |Link to Comment
  • QE Hides In The Shadows [View article]
    I actually don't expect there to be hyperinflation (when that particular juncture comes, i.e., when the choice will be between defaulting on the government's debt or going the hyperinflation road, selective default may well be chosen), but the fact that there hasn't been hyperinflation so far does not prove that there won't be one.
    Historically it has been observed that an inflationary policy can be pursued for extended periods of time without the general level of prices increasing much (some prices rise, some remain the same, some even fall...), as the public often tends to increase its demand for money in parallel with the increase in its supply - after all, inflationary policy is pursued mainly during times of economic weakness, and low economic confidence will tend to increase the demand for cash balances. However, if the authorities do not stop the inflationary policy, the public one day wakes up to this fact. Then the demand for money can decline rapidly. Note that in all historical hyperinflation events, the actual phase during which the underlying currency system broke down was a very short term, non-linear event. The usual progression is from 'no notable price increases' to 'notable, but still shrugged off price increases' to 'very notable price increases explained as a temporary necessity' to 'collapse of the currency's value'. The final phase in this progression is actually the by far shortest and often happens in the space of a few months.
    Mar 21, 2013. 01:48 PM | Likes Like |Link to Comment
  • Google's Android Seems Unstoppable - What Could Derail It? [View article]
    I don't think so. It appears it is not a big problem and was fixed long ago. A few users simply didn't notice that their devices were set to the wrong time zone. See reply # 13 on this thread:
    (I googled this after reading your comment, since I haven't experienced the issue I was curious).
    Mar 21, 2013. 01:34 PM | Likes Like |Link to Comment
  • Your Bond Allocation For 2013: It's Time To Lower Your Risk [View article]
    You're overstating the deflation case imo. The US true money supply TMS-2 has grown by about 80% since the 2008 crisis, so it seems obvious that 'fear' of deflation alone is sufficient to get the central bank to print like crazy.
    However, I agree that treasuries are a buy....t-bonds are once again the most hated market in the world this year (the Barron's 'smart money' poll had a 93% bearish consensus on bonds, the highest ever; they've been dead wrong on treasuries for years). A big deflation scare could see the SPX fall quite a bit, but I assure you there won't be any actual deflation (i.e., negative money supply growth).
    Mar 21, 2013. 01:19 PM | Likes Like |Link to Comment
  • Bernanke Sets Gold Free For Now [View article]
    Sprott seemingly forgets that the total gold supply extant in the world amounts to about 170,000 tons. The numbers he is quoting are a drop in the ocean. Gold cannot be analyzed as though it were an industrial commodity like oil or copper. Neither central bank or Chinese buying or variations in the mine supply really matter to its price. The main price driver is the reservation demand of existing gold holders.
    Feb 27, 2013. 07:48 PM | 1 Like Like |Link to Comment
  • Stunning Bond Collapse Will Be Gold's Gain [View article]
    I would add that the futures curve in gold actually looks increasingly bullish as well. What I mean is that nearby delivery months have recently a tendency to go into slight backwardation (February has been in backwardation for the past three weeks or so) and further out months have very little contango. This happened also shortly before the most recent $270 rally from the low 1500ds to just below $1800. To give credit where it's due, this is something Keith Weiner, one of the authors at my blog has pointed out to me. Since I have seen this signal working a few times already - usually when it coincides with a fairly neutral/bullish set-up in the commitments of traders report - I think it is worth keeping an eye on.
    Feb 5, 2013. 08:59 PM | Likes Like |Link to Comment
  • Apple: 7 Reasons Shorts Can't Sleep At Night [View article]
    Current configuration:
    short interest ratio of 1, which is very low, but it has actually been even lower at times over the past two years (i.e., it takes one day's worth of average trading volume to cover all outstanding shorts).
    Put/call open interest ratio: 0.67 (67 puts outstanding for every 100 calls), which is actually lower than 90% of all readings over the past 52 weeks.
    Wall Street ratings: 32 'strong buys', 4 'buys', 2 'holds, zero 'sells' (this is dangerous, as it can lead to downgrades, see today's downgrade by Nomura, which helped drag the stock over 3% lower, breaking the $500 support level in the process).
    So the fact of the matter is that only very few people are actually betting on AAPL going down - they are vastly outnumbered by the longs, in both the stock and its options. And yet, the stock has clearly entered a strong downtrend.
    Having said that, the hurdle it must now climb on occasion of the earnings report is no longer as high as it once was, due to lowered expectations. So the earnings release could produce a bounce based on that consideration and the fact that it looks 'oversold'. Nevertheless, if I were long the stock (discl.: I have no position in it at all, neither long nor short), all these data points would worry me , because they indicate extremely stubborn bullishness in the face of very negative price action.
    Jan 15, 2013. 06:41 PM | 1 Like Like |Link to Comment
  • Nokia Vs. Research In Motion: Only One Will Survive [View article]
    In fact, capitalism is the only rational economic system. Socialism is literally 'impossible', as a socialist economy cannot engage in economic calculation. Economic calculation requires a price system, but when the means of production are collectivized, there no longer are prices. The only reason why the socialist COMECON survived for so long is that its planners were able to observe prices in the capitalist West, which enabled them to engage in rudimentary calculation. They were so to speak 'socialist islands in the capitalist sea', a bit like the Federal Reserve actually...
    However, had socialism been adopted globally, as e.g. the Fourth International had planned, then the division of labor and with it the entire economy would have broken down into small autarkic units within a few years, living from hand to mouth, scraping along close to the subsistence level. We would definitely NOT have conversations about 'smart phones'. :)
    Jan 15, 2013. 06:17 PM | Likes Like |Link to Comment