JWG's Comments

Central Bank Efforts Are Stimulating ... for Gold's Price

Thu, 03 Dec 2009 10:22:31 -0500

David wrote,

"Europe’s central bank president Jean-Claude Trichet, to be sure, has been talking about the need for euro-zone national governments."

Gee, I never knew this had been questioned. This European thing has gone farther than I knew.

/jwg

Roger Wiegand: $2,960 Gold on the Horizon?

Fri, 27 Nov 2009 21:16:13 -0500

$2960?? Why not $2970? Or $2950?

Where do these guys get these silly pseudo-precise numbers?

The interviewer didn't even ask him how he arrives at his predictions....

Color me skeptical.

Stock Prices and Unemployment Peaks

Thu, 12 Nov 2009 10:06:02 -0500

Cam & Old Trader,

I agree, but as with a lot of market commentary that I see,
I feel the perspective ought to be globalized.

The very phrase "jobless recovery" suggests an US-Centric point
of view to me (at least I feel it's read that way here in the US;
maybe Canadian readers have a more global perspective).

I don't think that the current recovery is jobless, unless you
confine your view to the high-wage economies.

It has been endlessly pointed out, especially back when things
were coooking along nicely, that a billion new workers [pick
your sensational statistic] were entering the global workforce.
This process is continuing, and law of supply and demand suggests
something about its consequences: wages should fall.

Of course, the new workers don't see falling wages, they see it
as a rise from zero. But if the overall level of wages falls,
somebody has to see their wages go down. Any guesses who?

This global leveling of wages is a long-term process, probably
decades, but it does not proceed at a constant rate. The whole
economy has its cycles, and on the up cycles, the US worker more
or less holds his own, and on the down cycles he gets killed.
That's exactly what we've been seeing at least since the Asian
financial crisis of '97.

And I think it will continue like that, unless and until the US
learns to work a lot harder and educate its people a lot better,
and the new Asian workers begin consuming more of their new
income and saving less of it. And I don't see many signs of that
at present.

So I don't like the phrase "jobless recovery" much; it tends to
focus one's thinking on national and cyclical trends, whereas
the focus ought to be on the global and secular trend.

I haven't got a better phrase though.

/Jim G.

Is This the Long Awaited Correction?

Fri, 30 Oct 2009 09:35:57 -0400

Cam,

I don't follow this bit: "If individual investors are convinced that the economy is truly turning around (and never mind the snark) and buy, then it could truly be a sign that we may have seen a multi-year top for the S&P 500."

If the buying broadens (from the pros to the general public) why do you think that would mark a top? I'm either one level of contrary thinking behind you, or you meant "bottom" not top, or...?

Money Supply: The Myth of Hyperinflation

Fri, 04 Sep 2009 01:18:07 -0400

On Sep 03 12:01 PM Johnny Oxygen wrote:
> ... you don't understand that the definition of inflation
> is an increase in the money supply. Higher prices are a symptom of
> inflation not a definition.

Johnny O, you are the one who doesn't understand and you have it exactly backwards. The Wikipedia entry on inflation begins:

"In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time."

Any first year econ textbook will say the same thing.

The issue is not whether the Fed printed a lot of money, or increased the velocity of money. The issue is whether the
increase by the Fed is greater than the decrease by the private
sector.

Any discussion of the inflationary impact of Fed activity
is just blowing smoke if you don't consider the other end of the
seesaw. It's all about balance. About 98% of the blatherskite
about the risk of inflation, on SeekingAlpha and elsewhere,
only compares Fed money creation to earlier time periods.
That is nonsense. What you have to compare to is the other
money creation/destruction processes going on in the same
time period. Very few writers understand this -- and looking at the rubbish in the comments on this article, very few readers get it either.

/jg

Why Apple Should Buy Twitter

Wed, 06 May 2009 10:03:57 -0400

Rot.

There's no revenue model.

China's Graduates

Wed, 01 Apr 2009 23:31:46 -0400

Ma-lin: Pettis didn't say it was hard to start up a business in China. He said not very many young Chinese wanted to try.

Michal P: you wrote of "the latte 70's". That's a typo, right?
You meant "the latte 90's", right? OK, maybe you've been out of the country....
/jwg

China: From Crony Capitalism to Geopolitical Mercantilism?

Mon, 30 Mar 2009 10:24:05 -0400

Cam, You wrote "then we will see a reflationary boom in the next cycle followed by a deflationary collapse." I'd like to know more about your rationale/source for anticipating a second deflationary collapse after the intervening reflationary boom.

Thanks
Jim G.

E*Trade: A Bet Worth Making

Fri, 13 Mar 2009 19:00:42 -0400

Steven F: Here's a question that has put me off buying ETFC. Citadel owns a bunch of stock and a whole bunch of senior debt. They effectively control ETFC. So now: is it more advantageous to them that the company recovers, or goes bankrupt? If it goes bankrupt, they lose on their existing stock (goes to zero) but their debt would be swapped for new stock, and they'd end up owning a *higher* percentage of the company. They might make out a lot better that way. Any thoughts?
/jwg

Bears and Big Gains

Fri, 23 Jan 2009 08:40:55 -0500

Betting on the VIX is betting on a derivative of a derivative of a....

This isn't investing, it isn't even speculating, it's just gambling. I'm not opposed to somebody gambling, but they ought to be clear about it.

And there is more, that Roger did not mention: ETN risk. An ETN depends on the issuing bank. It's *NOT* an ETF.

If Barclays rolls over and croaks, your investment is gone, as far as I understand it. There are no underlying assets; you're just placing a bet at the casino, and if the house goes bust, you don't get your winnings, or even get your stake back.

Like all banks in the UK, and indeed elsewhere, one has to ask whether Barclays will be around and honor their commitments. These are perilous times, for banks.

JWG

First Call of a Double-Dip Recession: Setting Up a Market Bottom?

Sat, 03 Jan 2009 13:31:22 -0500

Never mind. If you use double-quotes around the "Great Depression" you don't get the news results. Soon Google will be as opaque to use as Windoze.

First Call of a Double-Dip Recession: Setting Up a Market Bottom?

Sat, 03 Jan 2009 13:29:50 -0500

When I repeat the Google Trends search on "Great Depression", I don't get the news-volume graph at the bottom (it reports "no news stories found") nor the flags to access top news stories at key points.

Anybody have any idea why I don't get that?

TIA
jwg

Would a Trade War Help Solve the Problem of Excess Capacity?

Mon, 17 Nov 2008 12:37:18 -0500

Michael,

Thanks for another excellent article.

A question. Suppose China actually did dramatically stimulate its domestic consumption and imports. How would that affect the value of the dollar?

One might argue that taking a trillion dollars out of the Chinese mattress and restoring them to circulation would increase the world supply of dollars and would be inflationary.

Or one might argue that it would choke the gusher of uneconomic dollar debt at the source (the US current account deficit), and shift US lending away from consumption and toward investment in real productive assets, stabilizing the dollar.

I can't see an argument that it would be outright deflationary, but maybe I lack imagination.

Any opinions?

Thanks

Microsoft Online Store May Drive Another Nail in Retail Coffin

Fri, 14 Nov 2008 11:22:00 -0500

Eric S wrote: "You always have the option of copying the downloaded products to physical media if you want to have it available longer than the mainstream support lifetime."

Well... no, you probably won't ALWAYS have that option.

As soon as the ESD model is established and customers have no remaining alternatives, it is in the interests of vendors to take that option away, which they can easily do. Just make the installer a bootstrap program that interacts with their download server. This is already widely done, even where the software is free, for convenience' sake (java.sun.com for example). But then you can't re-install without their server, where they can establish their toll booth if desired.

Europe's Bank Nationalization Fever

Thu, 16 Oct 2008 10:20:28 -0400

Paul,

Glad you showed up on Seeking Alpha. Keep writing.

Two questions.

1)
"While I personally think the dangers of derivatives are seriously overstated, ..." That could be a subject for another post.

2)
If you can write about the investment perspective in Russia, please do so. I have always wondered how some investors, who appear to be sane in other respects, can send their money to Russia.

/jwg

The Bear Market Ain't Over Till It's Over

Thu, 16 Oct 2008 09:21:24 -0400

Macro Man wrote:

"That today's cheap dollar funding in Europe ... hasn't prevented European equities is another ominous sign ..."

"Prevent European equities"?? One hopes this is a typo ...

/jg

Why Bubbles Can't Be Stopped

Fri, 29 Aug 2008 20:46:23 -0400

PARETO’S CIRCULATION OF ELITES covers this quite well.
ocw.mit.edu/NR/rdonlyr...

We're seeing an inflection point where the foxes overreached, got into trouble, and must now surrender initiative for a time to the lions. Holes in the regs will be plugged, life will resume, the public will go back to sleep, and very quietly the innovation by the foxes will begin again and slowly begin to accelerate...

None of which means that efforts at reform are pointless. It would be really stupid not to plug the holes that have been uncovered ("fool me twice...").

JWG

24 Fundamentals of Market Bottoms

Thu, 07 Aug 2008 22:23:58 -0400

Good summary/overview of the big picture. I hope you will revisit this monthly, even if briefly, to do a "scorecard" on the status of your 24 factors

Don't Bet Against Chinese Demand Growth Just Yet

Fri, 01 Aug 2008 22:32:38 -0400

Lane,

I'm a Jane Jacobs fan too, and I think your application of her logic is correct, at least if you view things on a sufficiently long time scale.

However, IMHO you sound a bit too much as if you believe that there is no business cycle in China. There surely is. I expect that, like usual, it will feature financial busts -- more than usually spectacular, given the scale of everything in China -- followed by huge and ham-handed government interventions, which imply slow and long drawn out recoveries. Michael Pettis offers some reasons to believe that the Chinese financial system is in more than the usual amount of trouble right now.

Also, just as happened repeatedly in the US in the 1800's, foreign investors will frequently get thoroughly screwed. When things get messy, the government has to step in, and that means allocating pain and bail-out money. That's inherently political, and you don't want to be a fully invested foreigner just then.

Investing is never easy. Everything you say about China could have been said about the US in September 1929. But one would have waited a long time to break even if one bought just then -- forever, in the case of many individual issues.

Jim G

FCC Slaps Comcast's Wrist, Sets Net Neutrality Precedent

Fri, 01 Aug 2008 21:52:43 -0400

Larry,

Do I understand this correctly: The FCC has said that Comcast and other internet service providers

(A) cannot charge more or less for bandwidth on the basis of which protocol or application is using it; but

(B) may still charge more for bandwidth at certain times of the day, or for bandwidth in excess of the quota one subscribed for, or for different QOS (quality of service) levels?

And I also wonder if they can offer VOIP as part of a bundle in such a way that they effectively subsidize it (to compete unfairly with "parasitic" VOIP vendors like Vonage). For instance, that your monthly subscription fee covers X amount of bandwidth but bandwidth used by *their* VOIP doesn't count toward quota? (Whereas it must be so counted if it is a third party VOIP provider).

I'm betting some of these questions are still gray zone open issues, but anything you can tell us about this would be welcome.

Thanks
Jim G.

Interactive Brokers: There's Still Money in Financials

Thu, 17 Jul 2008 11:11:37 -0400

"Tom Peterffy ... is relentless in the pursuit of excellence for his company."

I use IBKR as my online broker. I'm a software engineer with a lot of experience in writing apps like their trading platform, TWS.

It's just not a quality job. It is buggy, quirky, defies normal conventions for UI design, and doesn't agree with its documentation. Many of these defects are quite typical of a bunch of enthusiastic coders with no professional IT management to establish proper processes for Q/A, priorites, standards, and so on.

Checking their careers page it became clear that their software staff are mostly russians (i.e. cheap) and living all over the place. Again, it doesn't look like a professional IT organization.

Overall I think their software is only just useable. It may be, of course, that they don't care, because TWS is not central to their business model. Perhaps they mainly expect people to use third-party add-ons like Ninja Trader. Or perhaps, as other posters suggest, executing trades for the commission revenue is not where they make their money. So if you are an investor, you might argue that the quality of TWS does not matter. Nevertheless, it sure doesn't look like relentless pursuit of excellence to me.

So I'd like to ask Charlie Bottle why he wrote that.

Thanks

New PowerShares Nasdaq BuyWrite ETF Is at Odds with Itself

Wed, 18 Jun 2008 01:54:27 -0400

Reminds me of something I read long ago about the buy-write strategy in general: it's a way to hedge against capital gains.

10 Notes on the Crude Oil Fixation

Mon, 16 Jun 2008 10:45:23 -0400

"unscrupulous politicians (not quite an oxymoron)"

You meant "not quite redundant" of course...

Politicians, even those still encumbered by the odd scruple, may be morons but they are not oxymorons.

Playing the Agriculture Game

Thu, 15 May 2008 09:54:34 -0400

Brad,

You wrote that "All instruments tracking a futures index, ETFs and ETNs alike, must contend with the effects of contango and backwardation".

I don't see why that would be so for ETN's. As you say, they don't own the asset, so they don't have to roll anything forward, so why would they be losing/gaining any roll yield?

Thanks

Why Gold is Likely to Keep Moving Higher

Thu, 10 Apr 2008 22:47:22 -0400

For Michael Kosares:

Great article. Two questions.

First, why do you regard the producers as "forced" to buy out their forward hedges? If they deliver their production to satisfy their short positions over time, they are not losing money; they are not even making less money than they expected when they planned out their hedges. At most they have a case of seller's remorse, no? So why are they "forced" to buy out the hedges?

But perhaps the producers aren't "forced" to buy at all. Perhaps, after years of selling forward into a market they regarded as overpiced, they are simply capitulating at last to the general bullishness. In other words, they are buying in their hedges simply to participate fuly in the generally-expected further price appreciation from here. If so, then what we are seeing is the commercials, traditionally the most skeptical players, capitulating to the general buying frenzy. You may call it new demand, but once they're in too, who's left to buy?

Which brings us to my second point and question. One simply cannot translate fundamental analysis to a justification of a price level without considering the amount of speculative money in the game. With enough hot money, the price departs from any rational relationship to fundamentals. You can argue that fundamentals will reassert themselves eventually, and that is true, but as Keynes said, the market can remain irrational longer than you can remain solvent.

So what I miss in your article is any analysis of how much of all this "demand" is speculative. If the Chinese central bank switched some reserves from dollars into gold, I would guess that they are likely to lock the gold up and forget about it. That is real demand. But producers buying in their hedges is a trading activity, which reverses the moment they perceive that the upward trend is broken. And what about that mountain of money (including a lot of mine!) in ETF's like GLD? I'd bet that most of that money is in pretty weak hands (like mine!).

So if you post for us again, I'd like to see some more effort to understand how much gold is being bought for speculation, compared to normal trading volumes, real consumption, changes in bank reserves, etc.

Thanks

GC

Gold and the Dollar: Value is in the Eye of the Beholder

Sun, 02 Mar 2008 23:55:45 -0500

Or laisser faire, for that matter.

Metal Price Suggests It's a Good Time to Be in Gold Stocks

Wed, 20 Feb 2008 20:14:25 -0500

The first chart is the ratio of "Barrons' Gold Mining Index to the underlying cash commodity (gold)" The second is "oil/OSX" and its x-axis is annual, "since 1997". It's all in the article...
AC

Read This Before Buying E*Trade

Mon, 18 Feb 2008 17:17:08 -0500

Excellent, thank you. Like you I bought a starter position, impressed by the insider "statement" buys. As Soros says, "Invest, then investigate!" Tomorrow I'm outtahere.