lorddarley

U.S. Dollar Strength and Implications for Gold

I think we are in for massive deflation. If inflation were even a remote possibility, the US treasury would be issuing long bonds at today's "low" rates.

The appetite for long bonds is enormous, due to pension liabilities. So why don't they issue them?

They don't issue the long bonds because they know there is no inflation in the future, and that interest rates will get even lower, and stay low.

It's a great privilege to sit on your backside and collect interest when you do nothing. Billions of people now have money, and would like to collect interest, and do nothing.

Surprise. People will be underemployed and interest rates will stay low for the forseeeable future.

LordDarley

European Policymakers Fire First Shots in Currency War

Except for civil servants with guaranteed pay, tenure, and benefits, it's a race to the lowest common wage for the world's workers.

Cramer's Mad Money - Building Long-Term Wealth (1/19/09)

Does 'diversification' really work?

It does. However, very few small investors have access to real diversification.

For example, did you have access to investments which bet against CDOs? Were you able to bet against declining real estate in Las Vegas suburbs? Can you own collectibles in your retirement account? Can you own Swiss Francs? Are you able to own a tenancy in common in a cattle farm in Hokaido?

Answer: you either did not have access, or you would have been taxed (collectibles) if you did.

What poses as "diversification" for most investors is a variety of long positions in registered securities or high maintenance open end funds. That's not diversification.

LordD

Deflation Is Mostly Behind Us

Agreed. The market (and Congress) are focused on losers who are tapped out and should not have had this credit in the first place.

When the overly bleak perception changes, the many good credits who are non-leveraged, including some of our best corporations, will be lined up to borrow.

They won't be buying the toys, too-big housing, and other non-income producing junk, however.

They will deploy the money into acquisitions and accelerate a necessary process. In spite of Congress, they will put capital with industries which create wealth. Even if job creation does not accelerate at the same pace, public pension plans will reinflate and take enormous heat off of taxpayers.

In short, as soon as people catch their breath, this economy will snap back, although not necessarily to the benefit of losers. Because the press looks backwards, it will miss the story, of course, until it has happened.

LordD

Rogoff: 'Adding a Trillion Dollars in Debt Is Quite Manageable'

<<calculating the total debt as a percentage of income>>

This is simplistic and dangerously misleading. Any good lender would also analyze the quality of income, and its sustainability.

The US "income" is 70% based on consumption. A good portion (and much more, as we retire in large numbers) is based on recycling government entitlements.

LordDarley

Still Blaming the Market Victims

<<If we live in a global economy, and I think everyone would agree that we do, don’t some of the planet’s inhabitants need to be savers?>>

The reasons people save in China and other third world countries is not always "good."

1. They do not have the safety nets for health and old age pension which we have in the US and Europe. To provide the old age security many do not have, third worlders add to the problem by procreating beyond the planet's capacity.

2. Many third worlders do not have access to individual housing at reasonable prices. So, funds accumulate. Go to Singapore or some other Asian marvel. Everyone rents. Is that the world's prefered model?

I'm not endorsing over the top consumption, but the world will be a better place, in my view, if more people own homes, rather than saving money under a mattress. In addition to fiscal reform, countries like China (and Japan) must loosen the land use restrictions which make home ownership unattainable. We got ahead of the curve in the US, but we still have the world's best statistics for home ownership.

LordD

Better Days in Store for 2009

I hope he's right, but his article is simply an opinion. On the flip side, we have a US economy which is based on consumption. The consumption has been financed with gains dating back to our years as an economy with a strong manufacturing base.

When you look at fundamentals, at least 80% of our workforce does nothing that the world really needs. We have huge numbers of government workers, unionized government service providers, packagers of debt (aka banks), lawyers, accountants, and clerical types.

Who needs these folks in a global economy? We are at the beginning of a massive repricing of global talent. Our monolingual, poorly educated workforce has excessive expectations.

LordDarley

The Madoff Magnum Opus

A contrarian view.

Madoff didn't register as an investment advisor until 2006. Anyone investing prior to that date certainly has no right to whine that the government didn't do its job.

Even after 2006, Madoff was not selling Sarbox securities to the public at large. These were limited to "accredited investors." People who got his "insider deals" are belly aching because they weren't protected. Get serious.

When they thought they were making money, these investors were only too happy to keep the general public out of a good thing. To that end, they signed on as "accredited investors", i.e. people who are rich and arrogant enough to warrant that they don't need the protection of government regulation.

The conventional fraud laws will send Madoff to jail. We don't need more laws from the clowns in Congress, which will simply make it more expensive for honest people to do business.

LordDarley






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Buffett Serving Free Lunch? (Part II)

You are assuming that Berkshire stays naked and uncovered for the next 11 years. Come on. As the market rises in the next 11 years (a very good bet) they will purchase other positions to cover whatever risk exists.

The ultimate result will be a much better return than fixed income treasuries. Warren runs an insurance company, not a casino. He has smart people who have undoubtedly thought through a risk management strategy. Not surprisingly, the financial press has only reported a headline" and not explored further.

LordDarley

Paul Krugman + Al Gore = The Way Forward

This really isn't hard, except for the Protestant belief by many of us non-Protestants that you are supposed to work and save, and be punished if you do not.

We better grow up.

Work and savers made their money in an economy where others borrowed and spent. How else could a thrifty shop owner make money? We all inadvertantly abetted this wastrel lifestyle, even if we were savers.

Objectively, it's just money. How it is processed is more about lifestyle and religious bent, rather than hard facts.

The truth is that because of the contraction in lending -- there are not enough willling lenders, and not enough able borrowers -- our money supply has contracted wildly. We need to expand it again, or we will have a cataclysmic contraction.

Print the money. It will not cause inflation. The printed money will replace the money which is not circulating through the system. Without printed money, we will return to an era where doctors earned $25,000 per year, lawyers earned less, and a good factory worker earned about $7,000. It sounds poetic, but that's a recipe for a 15 year disaster.

Print the money.

LordD

The Shallowest Generation

This was an extraordinarily superficial article. People are people. The boomers, like every generation, have heros and villains. For the most part, of course, they are just plain average, caring more about self and family than "the common good." That's human nature, not a character flaw.

The boomers were the first to create the politics of youth, which stood up to an older establishment. They resisted the Viet Nam (of Kennedy, Johnson, and Nixon). They bled in Chicago. They were murdered in Ohio. They then grew up, put on suits, and went to work.

Throughout their careers, they have paid vast sums into social security to support their parents, the "great" generation," in comfort well beyond what they had saved. They also support millions of immigrants and people of different ages who can't (or won't) work.

They now are told there is nothing for them, except what they have saved. So they will keep working, because hard work --they should be called the workaholic generation -- is a trait of the boomers. They cannot retire at 62 with a fishing pole like so many of their parents, or like so many of the government workers who are humorously called civil "servants."

No one generation can take credit or be blamed for the present, which is a product of centuries. Nostalgia about the past is silly, and a flaw of every current generation since the beginning of time. We should focus on the present and how to make it better. Whether there is a place in our future for the ideals of the previous "great generation" -- patriotism and love of God-- is a question for Generations X, Y and Z.

LordD

Raw Data Report: Quiksilver, American Eagle Outfitters, Macy's

Shares of AEO at today's price are an absolute gift.

In Defense of the U.S. Taxpayer: End Deferred Compensation and Its Tax Subsidy

There is some wisdom to this post, but also a bit of unfortunate populism.

The tax "subsidy" of deferred compensation is a chimera. Corporate and individual rates are essentially the same. A corporation cannot deduct deferred compensation until it is paid. In the year of deferal, the executive des not pay tax (but the corporation pays tax on the deferred amoutn). It's a wash for the Treasury.

I'm in favor of eliminating deferred compensation, but it's more for "fairness" rather than Treasury collections. Under Dept. of Labor rules, it's not allowed to defer compensation unless you are a "top hat" employee. Theoretically, that prevents average people from subjecting deferred compensation to the risk of corporate bankruptcy. In the real world, it gives the "top hats" exclusive rights to a tax planning technique not available to the masses.


LordDarley

The suggestion that equity grants be

America Needs a Turnaround Plan

Raising tax rates will not necessarily raise tax collections, which are at an all-time high. Entitlements have to be cut.

Which politician has the nerve to tell voters:

1./ the sacred cow of Medicare must require larger co-pays from the middle class. No one has paid enough into the system to justify 2-3 decades of transplants, implants, and obscene waste to prolong a the final months of life.

2/ tort recovery for medical malpractice must be eliminated, and replaced by an arbitrated system without recourse to the courts. Getting the lawyers out guaranties a less safe (but more affordable) system. It will still be better than any other country's system.

3/ candidates must be taxed on political contributions in excess of federal limits, and the excess in political warchests must be refunded after applicable elections. Elected office should not be big business. That leads to a corrupt decision-making process that is at the heart of our problems.

4/ elected service should not be credited towards federal or state pensions. (See # 3.) Elected office should not be a career.

Hell, I (and you) have got a long list of "untouchables."

The right president would get us started on a path of announcing a program of fiscal and political reform that would convince the world (and our citizens) that we can be the masters of our destiny.

We won't do that, of course, so the world's marketplaces will decide instead. That won't be pretty.

LordDarley




2./

Fannie and Freddie Did Not Cause This Crisis

The problem is with leverage and derivative products. It's not just the fault of too many subprime loans and the irresponsibility of the securitization process.

I'd lay much of the blame with the SEC and the 2004 decision to permit investment banks with brokerage units to borrow more than permitted. That is the cause of 30:1 leverage and obscene risk-taking.

I would also fault the total lack of regulation of insurance company parents, who seem to have skipped state and federal regulation altogether in a rush to issue "insured" products that were technically not "insurance." It's those products, with swaps and instruments originally intended to limit risk ($40 trillion, or so, give or take), that are causing the meltdown concern, not the few trillion we may expect from defaulted ALT-A and subprime mortgages.

The total failure of the regulators to have seen this coming means that we will now have a lot of well-meaning regulation in future which will stifle economic growth.

And I doubt that new regulators will be any smarter than their predecessors in addressing the next crisis: the default of municipal and state governments on issued debt. Just as with Fanny and Freddie, the politicians will be afraid to touch this until it explodes.

LordDarley