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    • Mon Sep 29th 12:50 PM | Rating: 0 0
      Commented on:
      The Fed Has Made the Entire U.S. a Hedge Fund - Get Your Portfolio Ready
      otbricki, constructe, simple accountant, others - The plan is not a gold standard, but a dual monetary standard giving people the choice of their asset to use as money. Monetary competition is what keeps the government honest. That is the proposal. In effect, it simply codifies what now exists because people want an indestructible *asset* as money not someone else's debt as an "asset". Debt can disappear, while gold is near indestructible. If the demand for dollar transactions rises, the gold price will fall, and the Fed will need to increase settlement money to keep the gold price steady. That's it. It's simple and effective.

      Pulling out money is good advice to people that stand to take losses from being exposed and it also cures the system. The bottom line is the "finance" industry is way too big and has to shrink. That can only happen if a number of weaker players fail. I reject the idea when it's time to shrink, the weaker players in finance get to drain the rest of the economy to keep going. that's the "Japan" solution which is many times worse than a correction. Even worse, if the government backstops this, it may run into making itself financially insolvent and then the mother-of-all-depressi... will occur.

      We can survive a 1 year correction. But losing 15 years of your life like happened in Japan? How do you get that back? Let's make the tough choices now and have a brighter future...
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    • Thu Jun 5th 18:28 PM | Rating: 0 0
      Commented on:
      What is Countrywide's Lending Operation Worth?
      sunburned - Depends if a buyer can separate their operations from their obligations. That's why the analysis focused mostly on the operations. With their obligations, you'd have to come up with a loss severity estimate (i.e. how bad is housing going to get) before a final figure emerges. I've given a few ballpark estimates of severity.
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    • Thu Apr 17th 11:57 AM | Rating: 0 0
      Commented on:
      Why The Inflation - Deflation Debate Doesn't Matter
      L. Bow - Split the bet by buying a consistent dollar amount of different assets over time (monthly, bi-monthly, or quarterly). When a particular asset goes up, you automatically buy less of it relative to the other assets in your portfolio. You should rebalance your asset allocation periodically (usually each year) to move gains in rising assets into cheaper assets.

      Example: save $250 per month and buy a commodities fund. At $20 per share you're going to buy more than if the fund share price is at $40. Hopefully your savings will increase over time (more income), but it should remain consistently upward as much as possible. The strategy works best when emotion is taken out, and varying the amount of savings means the investor is exposed to the emotions of the market and will usually tend to do worse.

      If an investor had done this since 1980, by 2000 they would have owned a substantial amount of gold and non-dollar assets by taking their stock gains and buying gold and commodities. Although the investor would have lost the compound stock gains from 1980 to 2000 in the short run because of portfolio rebalancing, the risk profile is far different as the gains are not subject to catastrophic losses and periodic buying means the average asset isn't bought "at the peak". The protection of gains becomes more and more important the closer to retirement a person gets. This is a long run savings plan which tends to do very well.

      The only environment in which the plan fails (as all plans would) is under a severe deflation when the investor is forced to sell at the worst time to survive. In reality, an investor can time the market to some degree by changing the rebalancing frequency of the portfolio. As a particular market goes asymptotic which the investor owns, rebalance the portfolio more frequently to reduce the risk.
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    • Wed Apr 16th 19:14 PM | Rating: 0 0
      Commented on:
      Why The Inflation - Deflation Debate Doesn't Matter
      flow5 -- MZM is growing because no one wants to "go long risk" ... if an investor sells mortgages and buys money market fund assets, that's not "soaring inflation" but a restructuring of debt ownership. The context makes all the difference.

      Reserves haven't been binding for a decade, true ... and all that time credit has expanded, which means leverage is higher, not lower. That means if there's any financial accident, leaving reserves roughly the same is a policy of deflation.

      A collapsing dollar is from past inflation .... We'll see if the Fed inflates by expanding money, or if the market decides to revalue existing credit (which would be inflationary).

      Finally, rising prices isn't inflation. If I buy Xs and Ys, and Ys go up by $100 and I buy $100 less Xs, that's not inflation. It's when Ys go up by more than Xs go down (price x volume) that we can be assured inflation is occuring. When house prices went up ... and nothing went down, that was inflation.
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    • Mon Apr 14th 13:38 PM | Rating: 0 0
      Commented on:
      The Fed is Deflating: 10 Reasons Why
      pater - the most interesting thing is that your argument validates the reverse position. If it is true that the banking system net settles and can do with near zero liquidity, then it is true that leverage is off the chart. That makes liquidity more powerful, not less powerful -- and the analysis here more relevant. Good luck to you.
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    • Thu Mar 27th 17:55 PM | Rating: 0 0
      Commented on:
      It's Either Inflation or Deflation - Not Much in Between
      Lucia - For most financial institutions, it would not take much (as a percentage of assets) to wipe out the equity. Unfortunately, for a number of financial firms, the quality of the assets is not transparent, meaning there is unknown, but potentially fatal, risk.
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    • Thu Mar 27th 17:45 PM | Rating: 0 0
      Commented on:
      It's Either Inflation or Deflation - Not Much in Between
      BlueSky&Sunshine - In my view the inflation / deflation debate is too aggregative, but it does help to present the basic issues.

      If you work in a "long maturity" industry (takes a long time to come to market with a viable product, especially one which is financed on credit) you will likely be hit hard, while consumption goods will zoom upward. Even if there's no net inflation, imagine losing everything being in the wrong industry, while your expenses still rise!

      What matters is which prices do what.

      User 167683 - You're right. It sure makes sense, if possible, to have assets in a variety of places, even out of the country (like quite a few congresspeople do).
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    • Thu Mar 27th 17:05 PM | Rating: 0 0
      Commented on:
      The Fed is Deflating: 10 Reasons Why
      special1person - It's important to distinguish between credit (M3 or L) and money. Money hasn't expanded at all to keep up with leverage. In fact, leverage is vaulting higher because equity is shrinking (asset losses) while investment houses have been forced to hold paper they don't normally.

      While I can't say what the Fed or the international dollar market will do, I can definitively say (if the Fed's balance sheet is to be believed) what the Fed has done in the last 2 years.

      Now that the Fed has opened up their discount window to Investment banking houses, failures may slow down, and that can be inflationary if liquidity expansion increases substantially while supply constraints still exist ... but the effects now will be felt down the road, not immediately. Past policy is having effects now (witness the sudden collapse of Bear Stearns and failure of 240 mortgage banking companies).

      Even with significant expansion of liquidity and price-volume effects, continued losses will likely pressure and may still take down more major players. That can, by the way, still happen in inflation. We'll see.
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    • Thu Mar 27th 11:46 AM | Rating: 0 0
      Commented on:
      The Fed is Deflating: 10 Reasons Why
      Damienh - M3 is a broad credit measure with very little consistent connection to long term price inflation.

      ItsJustMe - CIA stats put Chinese GDP at more than 7 Trillion on a PPP basis. I suspect the actual figures of Chinese vs. U.S. are closer than the official stats, especially since the U.S. has been fudging the CPI numbers for some time.

      StateofConfusion - Keep a portion of assets in physical cash and physical gold. The point is whether we have inflation or deflation depends on a number of factors. The underlying secular trend is inflationary, while periodic cycles speed up and slow down that trend. It can switch violently if the Fed is unsuccessful.

      Big Jim Slade - I concur with your sentiment. However, its very unlikely the losses will be monetized except over a long period of time. If the markets thought the losses would be quickly monetized, it would immediately bring on hyperinflation (dumping the dollar) and the only way the Fed would "remain in business" would be to vigorously deflate credit and money so substantially that a good portion of the banking system would go down. Only the most well capitalized companies would survive and they would then be a buy. The market can ask for and get deflation if the market overcomes the central banks attempted support of the dollar.

      The whipsaw would be unbelievable (inflation to deflation and vice versa). I don't think anyone really can reliably make out on that volatility except to hold both sides of the fence: cash and gold.

      Stanley - The Fed is actively deflating at the same time trying to prevent the settlement system from going under.

      MarkInSF - Commodity prices are price inflation from prior credit and money inflation, not present credit and money inflation. The Fed will likely reverse course and begin inflating at some point in the future, but it is not doing so yet.

      Thank you for the opportunity, everyone. Good luck in this investment climate.
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    • Thu Jan 10th 23:45 PM | Rating: 0 0
      Commented on:
      Do Rising Prices Indicate Inflation?
      flow 5 - Irving Fisher's equation is a mnemonic at best. You cannot add things of different units, therefore 1 unit of wheat + 1 cow isn't = 2 of anything that makes sense -- So MV=PQ cannot be used except as a memory device.
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    • Thu Jan 10th 16:55 PM | Rating: 0 0
      Commented on:
      Do Rising Prices Indicate Inflation?
      Eric, The Fed doesn't increase M3 ... they provide liquidity (cash, electronic cash) at a price which allows for the settlement of increases in M3.

      ****

      Keynesian paradox doesn't hold: If the population wants to hold more purchasing power, then either the Fed supplies the additional money or prices will fall so that real money balances rise. The entire population can indeed increase their real monetary holdings.

      ****

      Effective purchasing power in any period reflects the volume of money available in comparison to the goods available for sale.

      ****

      "Promises to pay money" (credit) are not money and do not affect the analysis. Visit j-bradley.com and read up on the money section for clarification. Feel free to email if you want.
      View article »
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