odin's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/180982/comments http://seekingalpha.com/article/174659-window-dressing-for-the-markets?source=feed#comment-773989 773989 Mon, 23 Nov 2009 16:51:16 -0500 http://seekingalpha.com/article/174101-fed-sends-gold-higher-but-what-is-it-good-for?source=feed#comment-773972 773972
> “Aye, there's the rub” as William Shakespeare might say. A central bank that operates responsibly with the fiat currency they bring into existance at will, over a long period of time, is probably about as rare as pink unicorns.

But as Churchill once said, democracy is the worst form of government except all the others that have been tried. What is the realistic alternative?

> Then the cost of things goes down, much as the cost of computers, TVs and digital cameras have gone down over the years or the features and quality has improved while prices remain stable.

The cost of electronics has not gone down because of the constraints on the money supply. Those are productivity gains that could come about only BECAUSE money was NOT in short supply (though labor arb is the primary reason). When money is scarce, people start hoarding currency and stop borrowing/investing and productive enterprise is severely impacted. Lowering or even keeping prices stable is not an end in itself just as moderate inflation is not the end of the world. Real growth and productive use of money is what matters and that is what will solve our current mess (basically time and growth will help erase these bad decisions as it always has).

> He also had popular speeches in favor of prohibition and against the demon rum. Popular speakers don't necessarily have the best policies, and the fact that someone made a popular speech isn't really a strong argument in favor of something. He was also an advocate of bimetalism with silver sharing the load along with gold as a medium of exchange. He was in favor of a statutory 16:1 exchange rate between silver and gold. His movement was also apparently instrumental in bringing in the Federal Reserve System in 1913 and I think that has been a disaster for our country.
---

I dont endorse WJB as a monetary expert but simply point out the populist argument of the day. The gold standard crushed the debtors and they clamored to get off the gold standard. Today, if we get back on the gold standard, cui bono? Constrain credit and the ability to create money beyond the point of reason, and its the "banking classes" that populists of today vilify now that stand to benefit (and even that as one-eyed men in land of the blind).

We also seem to be confusing fiscal spending with Fed's money creation role. Those two decisions have a link, but they are not the same. If anything, the Fed constantly rails against runaway spending (because those are future taxes in another guise and hurt the Feds ability to maintain both price stability and full employment). People distrust the Fed (a stakeholder in the system) to make decisions about the money supply yet feel very comfortable with randomness of gold supply (hoarders and mining) making the decision for them. I find that position difficult to understand. Would you rather the Fed NOT have the ability to flood liquidity at the tail end of 2008? What would have been the consequences -- how long could anyone have "enjoyed" the spike in gold prices?

> By the way, the booms and busts have been more frequent and more severe since the Federal Reserve was spawned. They were at the helm after all when our country fell into both “The Great Depression” and this “Great Recession”.

I'm not sure about the basis of the argument above. Does that mean that absent the Fed, everything wouldve been okay? Were there no depressions before the Fed was formed? Furthermore, a big reason for this particular bust has been the fact that the Fed was NOT regulating the money creation (via the shadow banking system).

> odin wrote: “One only needs to look at nations that have lost control of their money supply to see the consequences.”
> That's a rather ironic statement given that “nations that have lost control of their money supply” invariably have a fiat monetary system.

Here is the distinction. A car may go out of control. It doesnt mean that having control of the car is a bad thing nor does it mean having control causes it to go out of control. Unless you prove that giving up control of the car to some third-parties (from the Fed to the gold hoarders and miners in our case) is beneficial, I dont see the irony. Just to point out: It took a currency devaluation to regain some of the control of money supply and ease the depression in the 30s (along with confiscation pre-devaluation to prevent hoarding).

>I don't think anyone is advocating hoarding on either side, and I don't think a gold or silver or other similar standard promotes hoarding any more than a fiat currency would. It might seem that way in comparison to a country with a fiat currency that has gotten out of control. When hyper-inflation hits people tend to run out and spend their money as fast as they get it because it will drop in value so rapidly. That really isn't to be desired, however, as it causes many distortions in an economy and results in misery for its citizens.

When credit is scarce, what outcome is there? In the current fractional reserve system backed by a fiat currency, during times of stress, the fed can lower rates to disgorge holders of currency and make it expensive to hoard. If it cannot control rates, how will you prevent hoarding? By fiat (confiscation)?

Hyperinflation is a straw man argument. There are a lot of assumptions to get from today to a hyperinflationary world and we can agree that hyperinflation is a bad thing but nothing points to that case today. Not saying it wont ever happen, but it is not my base case today.]]> Mon, 23 Nov 2009 16:38:24 -0500
> “Aye, there's the rub” as William Shakespeare might say. A central bank that operates responsibly with the fiat currency they bring into existance at will, over a long period of time, is probably about as rare as pink unicorns.

But as Churchill once said, democracy is the worst form of government except all the others that have been tried. What is the realistic alternative?

> Then the cost of things goes down, much as the cost of computers, TVs and digital cameras have gone down over the years or the features and quality has improved while prices remain stable.

The cost of electronics has not gone down because of the constraints on the money supply. Those are productivity gains that could come about only BECAUSE money was NOT in short supply (though labor arb is the primary reason). When money is scarce, people start hoarding currency and stop borrowing/investing and productive enterprise is severely impacted. Lowering or even keeping prices stable is not an end in itself just as moderate inflation is not the end of the world. Real growth and productive use of money is what matters and that is what will solve our current mess (basically time and growth will help erase these bad decisions as it always has).

> He also had popular speeches in favor of prohibition and against the demon rum. Popular speakers don't necessarily have the best policies, and the fact that someone made a popular speech isn't really a strong argument in favor of something. He was also an advocate of bimetalism with silver sharing the load along with gold as a medium of exchange. He was in favor of a statutory 16:1 exchange rate between silver and gold. His movement was also apparently instrumental in bringing in the Federal Reserve System in 1913 and I think that has been a disaster for our country.
---

I dont endorse WJB as a monetary expert but simply point out the populist argument of the day. The gold standard crushed the debtors and they clamored to get off the gold standard. Today, if we get back on the gold standard, cui bono? Constrain credit and the ability to create money beyond the point of reason, and its the "banking classes" that populists of today vilify now that stand to benefit (and even that as one-eyed men in land of the blind).

We also seem to be confusing fiscal spending with Fed's money creation role. Those two decisions have a link, but they are not the same. If anything, the Fed constantly rails against runaway spending (because those are future taxes in another guise and hurt the Feds ability to maintain both price stability and full employment). People distrust the Fed (a stakeholder in the system) to make decisions about the money supply yet feel very comfortable with randomness of gold supply (hoarders and mining) making the decision for them. I find that position difficult to understand. Would you rather the Fed NOT have the ability to flood liquidity at the tail end of 2008? What would have been the consequences -- how long could anyone have "enjoyed" the spike in gold prices?

> By the way, the booms and busts have been more frequent and more severe since the Federal Reserve was spawned. They were at the helm after all when our country fell into both “The Great Depression” and this “Great Recession”.

I'm not sure about the basis of the argument above. Does that mean that absent the Fed, everything wouldve been okay? Were there no depressions before the Fed was formed? Furthermore, a big reason for this particular bust has been the fact that the Fed was NOT regulating the money creation (via the shadow banking system).

> odin wrote: “One only needs to look at nations that have lost control of their money supply to see the consequences.”
> That's a rather ironic statement given that “nations that have lost control of their money supply” invariably have a fiat monetary system.

Here is the distinction. A car may go out of control. It doesnt mean that having control of the car is a bad thing nor does it mean having control causes it to go out of control. Unless you prove that giving up control of the car to some third-parties (from the Fed to the gold hoarders and miners in our case) is beneficial, I dont see the irony. Just to point out: It took a currency devaluation to regain some of the control of money supply and ease the depression in the 30s (along with confiscation pre-devaluation to prevent hoarding).

>I don't think anyone is advocating hoarding on either side, and I don't think a gold or silver or other similar standard promotes hoarding any more than a fiat currency would. It might seem that way in comparison to a country with a fiat currency that has gotten out of control. When hyper-inflation hits people tend to run out and spend their money as fast as they get it because it will drop in value so rapidly. That really isn't to be desired, however, as it causes many distortions in an economy and results in misery for its citizens.

When credit is scarce, what outcome is there? In the current fractional reserve system backed by a fiat currency, during times of stress, the fed can lower rates to disgorge holders of currency and make it expensive to hoard. If it cannot control rates, how will you prevent hoarding? By fiat (confiscation)?

Hyperinflation is a straw man argument. There are a lot of assumptions to get from today to a hyperinflationary world and we can agree that hyperinflation is a bad thing but nothing points to that case today. Not saying it wont ever happen, but it is not my base case today.]]> http://seekingalpha.com/article/174101-fed-sends-gold-higher-but-what-is-it-good-for?source=feed#comment-773953 773953
My key assertion is that by the measure of the ability to buy things (which should, in my opinion, include credit), there has been a big contraction YoY and those headwinds will not go away anytime soon and all the money-printing has not made up for the loss of this buying power. The data in fact shows that the M0 growth is NOT working its way through the system (otherwise, the growth in progressively broader measures like M2 and M3 would be amplified not dampened).

Whether the amplification will occur over time is also a question -- in essence, by forecasting hyperinflation, we are essentially stating that lending conditions are going to improve AND the real economy will not grow fast enough AND that the fed will not pull back to compensate.

My bet is that if real GDP contracts, the velocity of money is going nowhere but down. And if there is growth that employs the full productive capacity of the nation, I dont see how real GDP cannot rise sharply and that the Fed remains inert. And if there are hyperinflation expectations, who wants to lend? In other words, I do not believe the financial system and by extension investors have the will to LEVERAGE as in the past to generate hyperinflation. If the banks are content to take advantage of the steep yield curve (which I believe is the feds intention -- to rebuild the balance sheets of the banks and allow time and growth to negate the toxicity still on the B/S), why do you believe that the velocity of money will go up? The Fed can press the gas hard but if the carburetor is choked for air, we're not speeding down the highway.

I am also skeptical of the political pressure argument. I dont agree that the Fed is entirely independent (nor do I really believe that it just goes along with political whims) but even assuming political pressure, inflation expectations -- esp. high inflation expectations -- play a big role in the electoral platforms. There are more and more people out there on fixed incomes. And they vote.]]> Mon, 23 Nov 2009 16:25:42 -0500
My key assertion is that by the measure of the ability to buy things (which should, in my opinion, include credit), there has been a big contraction YoY and those headwinds will not go away anytime soon and all the money-printing has not made up for the loss of this buying power. The data in fact shows that the M0 growth is NOT working its way through the system (otherwise, the growth in progressively broader measures like M2 and M3 would be amplified not dampened).

Whether the amplification will occur over time is also a question -- in essence, by forecasting hyperinflation, we are essentially stating that lending conditions are going to improve AND the real economy will not grow fast enough AND that the fed will not pull back to compensate.

My bet is that if real GDP contracts, the velocity of money is going nowhere but down. And if there is growth that employs the full productive capacity of the nation, I dont see how real GDP cannot rise sharply and that the Fed remains inert. And if there are hyperinflation expectations, who wants to lend? In other words, I do not believe the financial system and by extension investors have the will to LEVERAGE as in the past to generate hyperinflation. If the banks are content to take advantage of the steep yield curve (which I believe is the feds intention -- to rebuild the balance sheets of the banks and allow time and growth to negate the toxicity still on the B/S), why do you believe that the velocity of money will go up? The Fed can press the gas hard but if the carburetor is choked for air, we're not speeding down the highway.

I am also skeptical of the political pressure argument. I dont agree that the Fed is entirely independent (nor do I really believe that it just goes along with political whims) but even assuming political pressure, inflation expectations -- esp. high inflation expectations -- play a big role in the electoral platforms. There are more and more people out there on fixed incomes. And they vote.]]> http://seekingalpha.com/article/174101-fed-sends-gold-higher-but-what-is-it-good-for?source=feed#comment-768084 768084
What I am trying to get at is we want to track purchasing power (which is not necessarily captured by these narrower measures) vs. goods available for sale. If the broader money in M2 isnt growing as fast as M1, it should tell us something about the growth of this buying power. If MZM is growing but M2 is not, that should also tell us something about the velocity of money. This is what answers the inflation/deflation question. It should be clear that even with Fed's money pumping, the "money supply" available to buy cars, houses etc. is lower than it was at the peak.

I dont think this is where the real debate is. The debate I think is whether the Fed can withdraw liquidity fast enough ONCE the economy recovers (as in we have a contracting money supply driven by a collapsing multiplier and partially offset by the money printing....but if the banks start lending again, if risk appetites rise, will the velocity rise cause so rapid an expansion in money supply that the feds cant compensate fast enough by withdrawing their liquidity programs). I think you will find that a lot of the programs initiated in the past year have been reserve neutral (new money was not created). There is some money printing going on....but (and _this_ is a market view which you are free to disagree with) I believe the fed has the tools to take liquidity out. I'm less sure that there wont be political pressure (as in will apart from ability), but the tools are there.

As to the question of looking at gold via the lens of a medium of exchange: it is no different than a fiat currency managed by a _responsible central bank_. It no more represents wealth creation than does fiat money. Those somehow sanctifying gold because theyve read the Fountainhead have a very superficial understanding of money. If you start pricing gold as if its a medium of exchange, what happens do you think when the world GDP grows but gold supply does not? (There is a popular and populist William Jennings Bryant speech about getting off the gold standard that can clue people in). What happens when world GDP contracts but new gold is discovered? Now, you can say that the central bankers are crooks (they are certainly not infallible but they do have a stake in the proper functioning of the system) but I wonder if its any better to put our faith the boom and busts of the gold supply cycle. One only needs to look at nations that have lost control of their money supply to see the consequences. Furthermore, the value of a currency (gold or fiat) does not come from hoarding. It comes from its ability to buy goods. Sure, if gold is in tight supply, it may rise in price (for a while). But if it causes a widespread contraction in the economy and puts people out of a job and causes riots, what good is it?]]> Thu, 19 Nov 2009 16:56:02 -0500
What I am trying to get at is we want to track purchasing power (which is not necessarily captured by these narrower measures) vs. goods available for sale. If the broader money in M2 isnt growing as fast as M1, it should tell us something about the growth of this buying power. If MZM is growing but M2 is not, that should also tell us something about the velocity of money. This is what answers the inflation/deflation question. It should be clear that even with Fed's money pumping, the "money supply" available to buy cars, houses etc. is lower than it was at the peak.

I dont think this is where the real debate is. The debate I think is whether the Fed can withdraw liquidity fast enough ONCE the economy recovers (as in we have a contracting money supply driven by a collapsing multiplier and partially offset by the money printing....but if the banks start lending again, if risk appetites rise, will the velocity rise cause so rapid an expansion in money supply that the feds cant compensate fast enough by withdrawing their liquidity programs). I think you will find that a lot of the programs initiated in the past year have been reserve neutral (new money was not created). There is some money printing going on....but (and _this_ is a market view which you are free to disagree with) I believe the fed has the tools to take liquidity out. I'm less sure that there wont be political pressure (as in will apart from ability), but the tools are there.

As to the question of looking at gold via the lens of a medium of exchange: it is no different than a fiat currency managed by a _responsible central bank_. It no more represents wealth creation than does fiat money. Those somehow sanctifying gold because theyve read the Fountainhead have a very superficial understanding of money. If you start pricing gold as if its a medium of exchange, what happens do you think when the world GDP grows but gold supply does not? (There is a popular and populist William Jennings Bryant speech about getting off the gold standard that can clue people in). What happens when world GDP contracts but new gold is discovered? Now, you can say that the central bankers are crooks (they are certainly not infallible but they do have a stake in the proper functioning of the system) but I wonder if its any better to put our faith the boom and busts of the gold supply cycle. One only needs to look at nations that have lost control of their money supply to see the consequences. Furthermore, the value of a currency (gold or fiat) does not come from hoarding. It comes from its ability to buy goods. Sure, if gold is in tight supply, it may rise in price (for a while). But if it causes a widespread contraction in the economy and puts people out of a job and causes riots, what good is it?]]> http://seekingalpha.com/article/174101-fed-sends-gold-higher-but-what-is-it-good-for?source=feed#comment-766595 766595
Re: gold investing itself even assuming a return to a de jure if not de facto gold standard:
People also extrapolate the data of a last few years to project supply (the best we can do). True, gold isnt printed, its mined. But what happened to silver as a monetary store of value when silver mines were discovered in the American west? If we are thinking of gold only in terms of a currency, we should know that there IS a growth rate for gold -- will it always be lower than the growth rate of global GDP? Are we so sure there is no more gold to be discovered beyond current mines?

Given that at the moment gold is not a de facto currency, it is worrisome that the demand trend is moving from jewelry buyers (longer-term, sentimental holders) and central banks (longer time horizons, fewer liquidity pressures) to investors (short-term, hot money buyers).... This is highlighted to me, especially by the ridiculousness of certain hedge funds creating "gold funds" or gold-class shares (2&20 really? For a one-way asset allocation decision or as a futures trading commission?)


On Nov 18 06:36 PM JasonC wrote:

>
> Yes it is absurd, because (1) dollar currency rather than monetary
> base is only $900 billion not $1.7 trillion - you could redeem every
> dollar in existence for gold below $3000 an ounce (2) the Fed owns
> 85 cents of US treasuries, 84 cents of mortgages, 15 cents of agencies,
> and 35 cents of other assets (loans to the banking system, foreign
> exchange, swap lines to foreign central banks etc), on top of the
> 40 cents of gold - for every physical dollar.
>
> Halve those figures if you like to cover all the core deposits rather
> than the physical currency, it remains true that all of the liabilities
> are over-backed by valuable assets. You have to pretend every other
> asset on the sheet is worthless and only the gold worth anything
> to support the idiotic $6300 figure.
>
> If you think $750 billion each of treasuries and mortgages aren't
> worth anything, go ahead and short them; it is a saner bet that expecting
> gold to go to $6300.
>
> And the Fed owns the same position in treasuries today that it did
> the day Bear went broke. It merely rebuilt the position this year
> that it sold off in 2008 as it moved its sheet to direct loans to
> the banking system. Remember those silly stories of last August about
> the Fed "running out of treasuries"? - lol The only new position
> is $750 billion of mortgage backeds. In case everyone just forgot,
> Fannie and Freddie are in receivorship and foreign holders are selling
> off their agencies; the Fed and GNMA have replace them as buyers.
>
>
> Everyone expecting inflation because narrow money is $1 trillion
> higher is ignoring the fact that total assets are $12 trillion lower.
> Why the former is considered more inflationary than the latter is
> deflationary is one of those magical mysteries of monetarist fanatics.
>
>
> No the Fed isn't going to monetize another trillion or three to fund
> the treasury. It hasn't taken a single action since the start of
> the crisis to accomodate the US treasury, which doesn't need the
> accomodating (because its credit is rock solid). All of its actions
> have been in support of the banking system and private credit markets,
> which is case everybody just forgot, are the ones who required it.
> It wasn't treasuries that went begging at 15% offered yields this
> time last year.
>
> Ideology is no substitute for objectivity in finance...]]> Wed, 18 Nov 2009 22:39:50 -0500
Re: gold investing itself even assuming a return to a de jure if not de facto gold standard:
People also extrapolate the data of a last few years to project supply (the best we can do). True, gold isnt printed, its mined. But what happened to silver as a monetary store of value when silver mines were discovered in the American west? If we are thinking of gold only in terms of a currency, we should know that there IS a growth rate for gold -- will it always be lower than the growth rate of global GDP? Are we so sure there is no more gold to be discovered beyond current mines?

Given that at the moment gold is not a de facto currency, it is worrisome that the demand trend is moving from jewelry buyers (longer-term, sentimental holders) and central banks (longer time horizons, fewer liquidity pressures) to investors (short-term, hot money buyers).... This is highlighted to me, especially by the ridiculousness of certain hedge funds creating "gold funds" or gold-class shares (2&20 really? For a one-way asset allocation decision or as a futures trading commission?)


On Nov 18 06:36 PM JasonC wrote:

>
> Yes it is absurd, because (1) dollar currency rather than monetary
> base is only $900 billion not $1.7 trillion - you could redeem every
> dollar in existence for gold below $3000 an ounce (2) the Fed owns
> 85 cents of US treasuries, 84 cents of mortgages, 15 cents of agencies,
> and 35 cents of other assets (loans to the banking system, foreign
> exchange, swap lines to foreign central banks etc), on top of the
> 40 cents of gold - for every physical dollar.
>
> Halve those figures if you like to cover all the core deposits rather
> than the physical currency, it remains true that all of the liabilities
> are over-backed by valuable assets. You have to pretend every other
> asset on the sheet is worthless and only the gold worth anything
> to support the idiotic $6300 figure.
>
> If you think $750 billion each of treasuries and mortgages aren't
> worth anything, go ahead and short them; it is a saner bet that expecting
> gold to go to $6300.
>
> And the Fed owns the same position in treasuries today that it did
> the day Bear went broke. It merely rebuilt the position this year
> that it sold off in 2008 as it moved its sheet to direct loans to
> the banking system. Remember those silly stories of last August about
> the Fed "running out of treasuries"? - lol The only new position
> is $750 billion of mortgage backeds. In case everyone just forgot,
> Fannie and Freddie are in receivorship and foreign holders are selling
> off their agencies; the Fed and GNMA have replace them as buyers.
>
>
> Everyone expecting inflation because narrow money is $1 trillion
> higher is ignoring the fact that total assets are $12 trillion lower.
> Why the former is considered more inflationary than the latter is
> deflationary is one of those magical mysteries of monetarist fanatics.
>
>
> No the Fed isn't going to monetize another trillion or three to fund
> the treasury. It hasn't taken a single action since the start of
> the crisis to accomodate the US treasury, which doesn't need the
> accomodating (because its credit is rock solid). All of its actions
> have been in support of the banking system and private credit markets,
> which is case everybody just forgot, are the ones who required it.
> It wasn't treasuries that went begging at 15% offered yields this
> time last year.
>
> Ideology is no substitute for objectivity in finance...]]> http://seekingalpha.com/article/173240-two-more-myths-about-business-in-china?source=feed#comment-760673 760673
Havent we heard this tune before? Perhaps in this country -- when a hourly wageearner gets the McMansion on a ARM? There are a lot of assumption this young lady is making about the future.

The standard of living is undoubtedly better than it was in the years past. How could it not be? China has grown its aggregate wealth (in latter years, at the expense of the deficit-producing nations) faster than its population. But the question we ask is not if things are better today but if they will be even better tomorrow to the extent that they satisfy people and keep those 86% people equally optimistic? Is this growth sustainable? There are vast expecations that underlie any rise like this. That is the disconnect between what the author is saying and the complaints about China. As news of this young lady's lifestyle and research from experts like Shaun reaches more and more people in China (including the rural areas), they, too, will want to dine at Pizza Hut and get weekly pedicures. Any departure from realizing those expectations is a recipe for unrest. Even with the breakneck current rate of growth, China adds 12M unemployed to its roll. This is not to compare to the level of un/underemployment in the past. Those people in the past had very different expectations for their future and hence did not think that a life spent never having eaten at PizzaHut was such a terrible thing.

Sure there has been growth...but has it resulted from wise investments?. I remember highways just outside of Beijing packed as far as the eye could see from trucks carrying construction equipment. Will the houses and offices that got built find occupants that justify the cost? Is the $200B being spent on railways similar to the money spent in the US on highways after WW2? Only time will tell. There are people, like Shaun, who are in a different profession and take the optimistic view. I ask, realistically speaking, what is the probability that they are wrong? And even if its low, what the cost of being wrong? I risk losing the upside (as I have this year) but I tend to err on the side of caution.


On Nov 14 02:14 AM huangthomas wrote:

> I want to make my criticism as transparent as possible, let me explain
> that "Anna move from Tokyo to Shanghai". Japanese sociologists describe
> the "Anna phenomenon" decades ago. The young single female get free
> loading of room and board from their parents and freely spending
> their income to promote their life style. The same phenomenon move
> from Tokyo to Shanghai or Beijing as the economy develops in China.
> I do not wish to impose any moral judgement to the life style, but
> I do call attention to the fact that the life style is not sustainable.
>
>
> How about the unmarried single male? Well, they are not as lucky
> as single female. They have to consider three zi. They are fang-zi
> (house), che-zi (car) and ying-zi (silver ingot, which means money
> in China) before they can attract any niang-zi (young lady) to marry
> them. I don't really care how and how much money Anna make. It is
> simply a social phenomenon that we have to pay attention to.]]> Sun, 15 Nov 2009 02:57:37 -0500
Havent we heard this tune before? Perhaps in this country -- when a hourly wageearner gets the McMansion on a ARM? There are a lot of assumption this young lady is making about the future.

The standard of living is undoubtedly better than it was in the years past. How could it not be? China has grown its aggregate wealth (in latter years, at the expense of the deficit-producing nations) faster than its population. But the question we ask is not if things are better today but if they will be even better tomorrow to the extent that they satisfy people and keep those 86% people equally optimistic? Is this growth sustainable? There are vast expecations that underlie any rise like this. That is the disconnect between what the author is saying and the complaints about China. As news of this young lady's lifestyle and research from experts like Shaun reaches more and more people in China (including the rural areas), they, too, will want to dine at Pizza Hut and get weekly pedicures. Any departure from realizing those expectations is a recipe for unrest. Even with the breakneck current rate of growth, China adds 12M unemployed to its roll. This is not to compare to the level of un/underemployment in the past. Those people in the past had very different expectations for their future and hence did not think that a life spent never having eaten at PizzaHut was such a terrible thing.

Sure there has been growth...but has it resulted from wise investments?. I remember highways just outside of Beijing packed as far as the eye could see from trucks carrying construction equipment. Will the houses and offices that got built find occupants that justify the cost? Is the $200B being spent on railways similar to the money spent in the US on highways after WW2? Only time will tell. There are people, like Shaun, who are in a different profession and take the optimistic view. I ask, realistically speaking, what is the probability that they are wrong? And even if its low, what the cost of being wrong? I risk losing the upside (as I have this year) but I tend to err on the side of caution.


On Nov 14 02:14 AM huangthomas wrote:

> I want to make my criticism as transparent as possible, let me explain
> that "Anna move from Tokyo to Shanghai". Japanese sociologists describe
> the "Anna phenomenon" decades ago. The young single female get free
> loading of room and board from their parents and freely spending
> their income to promote their life style. The same phenomenon move
> from Tokyo to Shanghai or Beijing as the economy develops in China.
> I do not wish to impose any moral judgement to the life style, but
> I do call attention to the fact that the life style is not sustainable.
>
>
> How about the unmarried single male? Well, they are not as lucky
> as single female. They have to consider three zi. They are fang-zi
> (house), che-zi (car) and ying-zi (silver ingot, which means money
> in China) before they can attract any niang-zi (young lady) to marry
> them. I don't really care how and how much money Anna make. It is
> simply a social phenomenon that we have to pay attention to.]]> http://seekingalpha.com/article/170928-gold-fever-spreads-to-india?source=feed#comment-743184 743184
Regardless of the recent strength in their currencies, the Asians have not forgotten the currency crisis. The stockpiling of $ they are pursuing and the undervaluation of the currency is not stupidity, they are plainly merchantilist policies designed to collect US$. This policy keeps the masses employed, stability in the financial systems and politicians in power.

While the market has looked at this news as unadulteratedly bullish for gold, it was always clear that IMF was not dumping 400 tonnes on gold on the open market. I'm not sure if anything at all has changed with this purchase.

The fact is that trade surpluses will trending down as US savings rate (post the clunker dip) start rising again. The priority of these banks will be to ensure that their respective currencies DONT rise too fast (and that the $ doesnt fall too fast).]]> Tue, 03 Nov 2009 18:03:15 -0500
Regardless of the recent strength in their currencies, the Asians have not forgotten the currency crisis. The stockpiling of $ they are pursuing and the undervaluation of the currency is not stupidity, they are plainly merchantilist policies designed to collect US$. This policy keeps the masses employed, stability in the financial systems and politicians in power.

While the market has looked at this news as unadulteratedly bullish for gold, it was always clear that IMF was not dumping 400 tonnes on gold on the open market. I'm not sure if anything at all has changed with this purchase.

The fact is that trade surpluses will trending down as US savings rate (post the clunker dip) start rising again. The priority of these banks will be to ensure that their respective currencies DONT rise too fast (and that the $ doesnt fall too fast).]]> http://seekingalpha.com/article/168796-china-s-economy-all-gdp-is-not-created-equal?source=feed#comment-730746 730746
Continued structural imbalances and nascent signs of conflict within the governing structure (Xi Jinping failure to make it to the Central Military Commission) do not bode well for the well-being of the world.]]> Mon, 26 Oct 2009 11:56:22 -0400
Continued structural imbalances and nascent signs of conflict within the governing structure (Xi Jinping failure to make it to the Central Military Commission) do not bode well for the well-being of the world.]]> http://seekingalpha.com/article/164251-the-next-major-crisis-brewing?source=feed#comment-698709 698709
While they are changing the mix of what they are buying (agencies etc.), the theory that CBs are buying LESS (in absolute terms) US securities is not borne out by the TIC data. Could Mr. Graham perhaps show us where he got the data showing that the foreign banks are reducing in absolute terms their T-bill purchases? I also dont understand how higher yields induce any CB to buy a T-bill. Did we get deficit nations in Africa scrambling to buy T-bills in the 80s? You only buy a foreign bond if you have a surplus. If you dont, your currency will rise and ceteris paribus, over time, you will run less of a surplus. That is how international economics works.

I wont decipher the chicken-and-egg connections here, but the foreign buyers undoubtedly will buy less treasuries in the future as US saves more, China consumes more, international trade contracts and the US runs a smaller trade deficit, while these surplus nations run a smaller surplus.

There is a choice however of WHAT foreign asset to buy. China has been buying more commodities, some gold....even foreign companies. But I have yet to see convincing evidence (and random comments from various pols in China in news publications is not that evidence) that China believes it should make MORE of these purchases in lieu of US Treasuries. What I have seen is that China is buying more of everything, incl. Treasuries.]]> Thu, 01 Oct 2009 13:17:08 -0400
While they are changing the mix of what they are buying (agencies etc.), the theory that CBs are buying LESS (in absolute terms) US securities is not borne out by the TIC data. Could Mr. Graham perhaps show us where he got the data showing that the foreign banks are reducing in absolute terms their T-bill purchases? I also dont understand how higher yields induce any CB to buy a T-bill. Did we get deficit nations in Africa scrambling to buy T-bills in the 80s? You only buy a foreign bond if you have a surplus. If you dont, your currency will rise and ceteris paribus, over time, you will run less of a surplus. That is how international economics works.

I wont decipher the chicken-and-egg connections here, but the foreign buyers undoubtedly will buy less treasuries in the future as US saves more, China consumes more, international trade contracts and the US runs a smaller trade deficit, while these surplus nations run a smaller surplus.

There is a choice however of WHAT foreign asset to buy. China has been buying more commodities, some gold....even foreign companies. But I have yet to see convincing evidence (and random comments from various pols in China in news publications is not that evidence) that China believes it should make MORE of these purchases in lieu of US Treasuries. What I have seen is that China is buying more of everything, incl. Treasuries.]]> http://seekingalpha.com/article/163444-you-can-spend-your-way-out-of-a-recession?source=feed#comment-691223 691223
Our world operates on confidence and trust. And not just because we have fiat currencies. The level of trade and mutual give-and-take will be greatly reduced if we turned away from such systems. And if we doubt the solvency of the system, no one benefits. Bernanke's monetary lubrication to restore confidence in the solvency of the entire system was well warranted.

Even fiscal stimulus that keeps people productive and out of bankruptcy is welcome. However, we should realize that fiscal stimulus takes a much longer time to work and we should rely less on stimulus checks, _unworkable_ mortgage modifications, continued transfers (why should only certain states benefit from extended unemployment?) that spend massive amounts of future earnings and try to provide an immediate boost.

Ultimately, people over the medium term, do realize that that money spent today that they do not have (either by government or via their own borrowing) must be paid back in one form or another. For governments, it means either via inflation or higher taxation (or via growth). Perhaps some people think that it will only be the rich that will be taxed but thats a fallacy (there simply arent enough of them and they have great incentive and resources to hide taxable wealth). And Inflation is actually a regressive tax. We will get both -- actually also accompanied by spending cuts and higher deadweight losses as politicians try to wiggle their way out of this mess.

So my view is that while we can use a defibrillator to shock the patients heart into beating, there is only so long we can continue to administer that same treatment. There is no way to avoid diet and exercise. We need to spend in areas that generate jobs and also recognize that there will be unemployment pain in the near term. That will generate growth and lessen the pain of both higher taxes, social spending cuts and higher inflation that is to come.]]> Fri, 25 Sep 2009 14:05:08 -0400
Our world operates on confidence and trust. And not just because we have fiat currencies. The level of trade and mutual give-and-take will be greatly reduced if we turned away from such systems. And if we doubt the solvency of the system, no one benefits. Bernanke's monetary lubrication to restore confidence in the solvency of the entire system was well warranted.

Even fiscal stimulus that keeps people productive and out of bankruptcy is welcome. However, we should realize that fiscal stimulus takes a much longer time to work and we should rely less on stimulus checks, _unworkable_ mortgage modifications, continued transfers (why should only certain states benefit from extended unemployment?) that spend massive amounts of future earnings and try to provide an immediate boost.

Ultimately, people over the medium term, do realize that that money spent today that they do not have (either by government or via their own borrowing) must be paid back in one form or another. For governments, it means either via inflation or higher taxation (or via growth). Perhaps some people think that it will only be the rich that will be taxed but thats a fallacy (there simply arent enough of them and they have great incentive and resources to hide taxable wealth). And Inflation is actually a regressive tax. We will get both -- actually also accompanied by spending cuts and higher deadweight losses as politicians try to wiggle their way out of this mess.

So my view is that while we can use a defibrillator to shock the patients heart into beating, there is only so long we can continue to administer that same treatment. There is no way to avoid diet and exercise. We need to spend in areas that generate jobs and also recognize that there will be unemployment pain in the near term. That will generate growth and lessen the pain of both higher taxes, social spending cuts and higher inflation that is to come.]]> http://seekingalpha.com/article/161062-chinas-august-data-confirms-both-optimists-and-pessimists?source=feed#comment-674970 674970
When I think of and hope for rising domestic consumption in China, that is not quite the rise I trust. Consumption by a small segment of the population based on paper wealth is likely to come down just as fast. The consumption that global companies get excited about is broad-based -- driven not just by buying cars and luxury goods but by spending on mass-marketed goods (appliances, apparel etc) -- and based on rising wages and consumer confidence. To some degree, that is the hallmark of Chinese growth story (and while export subsidies did transfer away wealth from the workers to the exporters, its also undoubtedly true that a significant portion trickled down).

As to the risks facing the Chinese (and global) economy due to its export orientation and a point that Prof. Pettis has been making for a while (nations running a surplus are a lot more vulnerable than those running a deficit when there is overcapacity in the system), read these shades of Smoot-Hawley: www.ft.com/cms/s/0/f67...]]> Sun, 13 Sep 2009 17:46:39 -0400
When I think of and hope for rising domestic consumption in China, that is not quite the rise I trust. Consumption by a small segment of the population based on paper wealth is likely to come down just as fast. The consumption that global companies get excited about is broad-based -- driven not just by buying cars and luxury goods but by spending on mass-marketed goods (appliances, apparel etc) -- and based on rising wages and consumer confidence. To some degree, that is the hallmark of Chinese growth story (and while export subsidies did transfer away wealth from the workers to the exporters, its also undoubtedly true that a significant portion trickled down).

As to the risks facing the Chinese (and global) economy due to its export orientation and a point that Prof. Pettis has been making for a while (nations running a surplus are a lot more vulnerable than those running a deficit when there is overcapacity in the system), read these shades of Smoot-Hawley: www.ft.com/cms/s/0/f67...]]> http://seekingalpha.com/article/160567-5-reasons-to-avoid-the-gold-rush?source=feed#comment-669280 669280
While its nice to think (just because the CCP says so) that China will put a floor under gold to escape the dollar, the exit trade _is_ a risk. The simple truth is China cant exist in a vacuum. The reserve currency is still the prerogative of military and economic strength and China is decades away from overtaking the US in both arenas. They will have to contend with an inverted demographic pyramid thats probably stronger than the one in Japan. They will have to deal with the health impact of two decades of heavy pollution. They will have to deal with a generation of wealth transfers from workers to exporters. China is a big nation -- one with many natural resources and bright people and it has a bright future, but these are real problems that are on the same scale as the ones that plague the US. Its relationship with the US is symbiotic. The moment China stops funding the C/A deficit is the moment it stops accumulating a surplus and its when US stops needing that funding (In a simple two economy model: US imports less, period. Its not a choice, its a tautology). Does it really make sense for China to do anything but make symbolic gestures against the USD unless it wants a domestic crisis on its hands?

Now, if collapse of society is where your bet is, then, by all means, push all chips into gold. (though probably not the ETF)

But inflation? Look at the performance of gold vs. consumable commodities (oil particularly) in the 70s. Gold isnt my first choice when I think of high inflation.]]> Wed, 09 Sep 2009 15:41:01 -0400
While its nice to think (just because the CCP says so) that China will put a floor under gold to escape the dollar, the exit trade _is_ a risk. The simple truth is China cant exist in a vacuum. The reserve currency is still the prerogative of military and economic strength and China is decades away from overtaking the US in both arenas. They will have to contend with an inverted demographic pyramid thats probably stronger than the one in Japan. They will have to deal with the health impact of two decades of heavy pollution. They will have to deal with a generation of wealth transfers from workers to exporters. China is a big nation -- one with many natural resources and bright people and it has a bright future, but these are real problems that are on the same scale as the ones that plague the US. Its relationship with the US is symbiotic. The moment China stops funding the C/A deficit is the moment it stops accumulating a surplus and its when US stops needing that funding (In a simple two economy model: US imports less, period. Its not a choice, its a tautology). Does it really make sense for China to do anything but make symbolic gestures against the USD unless it wants a domestic crisis on its hands?

Now, if collapse of society is where your bet is, then, by all means, push all chips into gold. (though probably not the ETF)

But inflation? Look at the performance of gold vs. consumable commodities (oil particularly) in the 70s. Gold isnt my first choice when I think of high inflation.]]> http://seekingalpha.com/article/160406-trading-the-theme-du-jour?source=feed#comment-666755 666755
We talk of Fed $-printing. Arent the Chinese doing the same thing at a much more accelerated and an even more unsustainable pace?

Against gold because of inflation? But are wages going up? Unemployment going down? (i actually believe employing will be a a leading rather than a lagging indicator in this cycle) Re-leveraging into asset speculation is no inflation. That is the only recovery I see and likely to end up the same way as the earlier experience -- in tears.

The Chinese have NO choice but to buy dollars if they wish to keep employment levels remotely close to where they are. Even small economies dont turn on a dime, let alone the worlds 2nd largest suddenly turning its export-focus and promoting domestic consumption in a short time-frame. Repatriating physical gold, jawboning about dollar worries are just that -- noise.

I would not be surprised if DXY ended the year in the mid-80s. If ever the world gets back to full productive capacity and near-full employment levels AND the central banks all over the world keep easy money policies that result is more than just asset bubbles (especially widespread shortages in food and energy), then and only then will I worry about high inflation (and invest not in gold but in those commodities and the equities of companies that produce/service them).

However, I cant put weight scales in the voting booth and am content to stay on the sidelines through these rallies.]]> Tue, 08 Sep 2009 13:20:39 -0400
We talk of Fed $-printing. Arent the Chinese doing the same thing at a much more accelerated and an even more unsustainable pace?

Against gold because of inflation? But are wages going up? Unemployment going down? (i actually believe employing will be a a leading rather than a lagging indicator in this cycle) Re-leveraging into asset speculation is no inflation. That is the only recovery I see and likely to end up the same way as the earlier experience -- in tears.

The Chinese have NO choice but to buy dollars if they wish to keep employment levels remotely close to where they are. Even small economies dont turn on a dime, let alone the worlds 2nd largest suddenly turning its export-focus and promoting domestic consumption in a short time-frame. Repatriating physical gold, jawboning about dollar worries are just that -- noise.

I would not be surprised if DXY ended the year in the mid-80s. If ever the world gets back to full productive capacity and near-full employment levels AND the central banks all over the world keep easy money policies that result is more than just asset bubbles (especially widespread shortages in food and energy), then and only then will I worry about high inflation (and invest not in gold but in those commodities and the equities of companies that produce/service them).

However, I cant put weight scales in the voting booth and am content to stay on the sidelines through these rallies.]]> http://seekingalpha.com/article/159817-the-shanghai-market-calls-the-tune?source=feed#comment-660761 660761 www.timesonline.co.uk/...) is significant and worrisome.

From a psychological perspective, it reinforces the idea that despite other signs that may be impacted by governmental interference, the ordinary people are concerned about their future, nervous about the changes that may come and distrustful of the government to solve their problems. It is in such environments that random rumors grow bigger than life and cause headaches for governments and force them to make sub-optimal choices.

Of course, this is just one incident and I wouldnt want to let the imagination run wild solely on this story but I keep my ears open for similar signs of discontent and fear (which to me portend tougher economic times)]]> Thu, 03 Sep 2009 15:30:04 -0400 www.timesonline.co.uk/...) is significant and worrisome.

From a psychological perspective, it reinforces the idea that despite other signs that may be impacted by governmental interference, the ordinary people are concerned about their future, nervous about the changes that may come and distrustful of the government to solve their problems. It is in such environments that random rumors grow bigger than life and cause headaches for governments and force them to make sub-optimal choices.

Of course, this is just one incident and I wouldnt want to let the imagination run wild solely on this story but I keep my ears open for similar signs of discontent and fear (which to me portend tougher economic times)]]> http://seekingalpha.com/article/159774-volatile-trading-conditions-continue?source=feed#comment-660529 660529
Dont get me wrong, gold bugs. Gold plays a very healthy role in any diversified portfolio. Its the overweight bias in this environment that I question. ]]> Thu, 03 Sep 2009 13:12:50 -0400
Dont get me wrong, gold bugs. Gold plays a very healthy role in any diversified portfolio. Its the overweight bias in this environment that I question. ]]> http://seekingalpha.com/article/158207-what-happens-in-china-doesn-t-stay-in-china?source=feed#comment-649256 649256
We wont repeat the level of loan growth in China (the numbers have been hashed to death all over this site) but just as a comparison: the M2 YoY is growing at 28.2% in China. The equivalent number is 8.5% (4% seasonally adj) in the US. In light of these numbers, tell me how China has more of an ability to CUT rates.

The problem with China is not lending -- it is to whom they are lending. Continuing to support and subsidize export-oriented industries is simply building overcapacity and will lead to souring loans. Small and medium enterprises catering to internal demand are actually getting starved for credit. This is not making things competitively. This is a wholesale transfer of wealth from the workers in China (by reducing their buying power) to the exporters in China.

You can continue to keep your currency artifically low, keep interest rates low, and continue to allow asset inflation but we have seen how that script ends.

This is not intended to bash China (and China does have a bright future) but to point out a growing problem that threatens the stability of everyone (again) less than a year after the credit crisis. Now if you have been a "domain speculator", perhaps you do revel in the highs and lows of speculation and undoubtedly many make their fortunes during these times but then lets call it speculation and not couch it in pseudo-economic terms.


On Aug 26 02:06 PM Dave Wrixon wrote:

> Yes, and you are another one that has no clue what he is talking
> about.
>
> The whole point of reserve ratios initially was to ensure the stability
> of banks. In other words it ensure that they were not creating too
> much money out of thin air.
>
> In China's case they actually use them to control the money supply,
> in a similar way to which both we and they use interest rates to
> control the money supply. If Western nations had as interest rates
> and reserve ratios as high as the Chinese their economies would sink
> without trace. This simply underline the real financial strength
> in China and shows that, however, much of a bubble you think the
> Chinese might have on their hands their ability to unleash money
> into the system without getting a penny into debt is almost unlimited.
> Of course the reason they have this power is that they make things
> and they make things very competitively. This is why we are lead
> to believe that their economy is on the point of collapse!
>
> Do you guys have any idea how silly you sound?]]> Thu, 27 Aug 2009 13:48:30 -0400
We wont repeat the level of loan growth in China (the numbers have been hashed to death all over this site) but just as a comparison: the M2 YoY is growing at 28.2% in China. The equivalent number is 8.5% (4% seasonally adj) in the US. In light of these numbers, tell me how China has more of an ability to CUT rates.

The problem with China is not lending -- it is to whom they are lending. Continuing to support and subsidize export-oriented industries is simply building overcapacity and will lead to souring loans. Small and medium enterprises catering to internal demand are actually getting starved for credit. This is not making things competitively. This is a wholesale transfer of wealth from the workers in China (by reducing their buying power) to the exporters in China.

You can continue to keep your currency artifically low, keep interest rates low, and continue to allow asset inflation but we have seen how that script ends.

This is not intended to bash China (and China does have a bright future) but to point out a growing problem that threatens the stability of everyone (again) less than a year after the credit crisis. Now if you have been a "domain speculator", perhaps you do revel in the highs and lows of speculation and undoubtedly many make their fortunes during these times but then lets call it speculation and not couch it in pseudo-economic terms.


On Aug 26 02:06 PM Dave Wrixon wrote:

> Yes, and you are another one that has no clue what he is talking
> about.
>
> The whole point of reserve ratios initially was to ensure the stability
> of banks. In other words it ensure that they were not creating too
> much money out of thin air.
>
> In China's case they actually use them to control the money supply,
> in a similar way to which both we and they use interest rates to
> control the money supply. If Western nations had as interest rates
> and reserve ratios as high as the Chinese their economies would sink
> without trace. This simply underline the real financial strength
> in China and shows that, however, much of a bubble you think the
> Chinese might have on their hands their ability to unleash money
> into the system without getting a penny into debt is almost unlimited.
> Of course the reason they have this power is that they make things
> and they make things very competitively. This is why we are lead
> to believe that their economy is on the point of collapse!
>
> Do you guys have any idea how silly you sound?]]> http://seekingalpha.com/article/158207-what-happens-in-china-doesn-t-stay-in-china?source=feed#comment-646353 646353
China can also import all the commodities it wants (and doesnt want), but someone will have to buy the products it creates with those commodities. There are some who believe that the vast middle class in China will replace the US consumer. I, on the other hand, do not believe that that middle class is as able or willing to consume like an US consumer (we are not talking about people making $40-60K/yr). Granted that there is more car-buying and appliance-buying at the upper end of the middle-class, but that is not where the bulk of the population is and that segment will be massively hurt in any real-estate or equity pullback to demand much of anything.

I am also not sure how anyone can "afford" bubbles or policy mistakes. One could actually say that the US with a bigger, more diversified economy can better withstand systemic shocks than smaller, export-centered, centrally planned economies with a lot less wiggle room when it comes to providing growth (employment) to its population.

While a 6% growth rate is stellar for the US (on a $14T economy), if China grow at a rate much lower than 7-8%, it has a stability problem on its hands. The massive number of people entering the workplace and finding no employment will create an explosive situation. Even with 8% growth, China will add about 12M job-seekers to its unemployment figure.

However, I am not sure that a fall in Chinese buying equates to a $-fall. If China buys less USD, it is because the US current account deficit has gone down (US net imports to China have gone down). Now, China can unilaterally appreciate the RMB against other currencies (which will devalue the USD of course) but the value of USD (against most global currencies) will be fine. In fact, that revaluation will point to a further collapse in US imports and as pointed out, if this is coincident with a crisis, the global demand for USD will go up and not down.]]> Tue, 25 Aug 2009 19:46:31 -0400
China can also import all the commodities it wants (and doesnt want), but someone will have to buy the products it creates with those commodities. There are some who believe that the vast middle class in China will replace the US consumer. I, on the other hand, do not believe that that middle class is as able or willing to consume like an US consumer (we are not talking about people making $40-60K/yr). Granted that there is more car-buying and appliance-buying at the upper end of the middle-class, but that is not where the bulk of the population is and that segment will be massively hurt in any real-estate or equity pullback to demand much of anything.

I am also not sure how anyone can "afford" bubbles or policy mistakes. One could actually say that the US with a bigger, more diversified economy can better withstand systemic shocks than smaller, export-centered, centrally planned economies with a lot less wiggle room when it comes to providing growth (employment) to its population.

While a 6% growth rate is stellar for the US (on a $14T economy), if China grow at a rate much lower than 7-8%, it has a stability problem on its hands. The massive number of people entering the workplace and finding no employment will create an explosive situation. Even with 8% growth, China will add about 12M job-seekers to its unemployment figure.

However, I am not sure that a fall in Chinese buying equates to a $-fall. If China buys less USD, it is because the US current account deficit has gone down (US net imports to China have gone down). Now, China can unilaterally appreciate the RMB against other currencies (which will devalue the USD of course) but the value of USD (against most global currencies) will be fine. In fact, that revaluation will point to a further collapse in US imports and as pointed out, if this is coincident with a crisis, the global demand for USD will go up and not down.]]> http://seekingalpha.com/article/158117-struggling-with-divergences?source=feed#comment-646310 646310 Tue, 25 Aug 2009 19:26:30 -0400 http://seekingalpha.com/article/155676-unemployment-historical-chart-sends-scary-message?source=feed#comment-627216 627216
Furthermore, with youth unemployment figures much higher, I bet that a lot of young people are headed back to graduate education and are not counted in this figure.

(Anecdotally, to support both statements above:I had a conversation with a young lady recently who was lamenting the fact that she could not get unemployment benefits when she quit her job to go to post-graduate school. Far be it from me to tell her that she is technically not "unemployed" or the irrationality of expecting to be "bailed out" for something she was doing to further her own career).]]> Wed, 12 Aug 2009 15:46:54 -0400
Furthermore, with youth unemployment figures much higher, I bet that a lot of young people are headed back to graduate education and are not counted in this figure.

(Anecdotally, to support both statements above:I had a conversation with a young lady recently who was lamenting the fact that she could not get unemployment benefits when she quit her job to go to post-graduate school. Far be it from me to tell her that she is technically not "unemployed" or the irrationality of expecting to be "bailed out" for something she was doing to further her own career).]]> http://seekingalpha.com/article/153666-why-gold-could-hit-1-300-this-year?source=feed#comment-616505 616505
Having said that, gold has a valid place in a well-diversified portfolio. ]]> Wed, 05 Aug 2009 12:39:44 -0400
Having said that, gold has a valid place in a well-diversified portfolio. ]]> http://seekingalpha.com/article/153410-debate-continues-about-the-validity-of-china-s-economic-data?source=feed#comment-613871 613871
If the Shanghai market unravels, will there be contagion effects in commodities and real estate in Asia (undoubtedly)? Will this contagion spread to neighboring or other emerging markets (shades of the Asian crisis)?

And what impact will this have on local population (esp. if the average Wang or Lee has been speculating in these markets and borrowing to fund his position)? Unrest in China? Military adventurism in the Pacific?

What about the impact on US retailers whose profits are largely derived from labor arbitrage (Walmart)? What impact on consumers who have gotten used to cheap goods? ]]> Mon, 03 Aug 2009 20:42:16 -0400
If the Shanghai market unravels, will there be contagion effects in commodities and real estate in Asia (undoubtedly)? Will this contagion spread to neighboring or other emerging markets (shades of the Asian crisis)?

And what impact will this have on local population (esp. if the average Wang or Lee has been speculating in these markets and borrowing to fund his position)? Unrest in China? Military adventurism in the Pacific?

What about the impact on US retailers whose profits are largely derived from labor arbitrage (Walmart)? What impact on consumers who have gotten used to cheap goods? ]]> http://seekingalpha.com/article/153288-china-s-growth-far-less-than-meets-the-eye?source=feed#comment-613090 613090
There have been a lot of comments deriding the dollar and the intention of China to stockpile commodities as alternate currency.

The problem here re: China's intention to pressure the USD down is that (a) Chinese yuan, being pegged to the dollar, also moves down in relation to other nations. So those who claim that $ weakness is a bad thing, should also assess the yuan along those lines. It weakens along with the USD (b) China holds massive USD reserves. So essentially by weakening the USD, it will have bought the USD at high prices and will hold/redeem at lower prices. (c) The Chinese economy is still very export oriented (evidenced by the fact that consumption-led growth is actually declining relative to investment-led growth). Vast numbers of Chinese are employed by this sector. The US, relatively speaking on the global scale, is the consumer of all these exports. A weak USD will make Chinese exports less competitive.
Weakening the USD is the last thing China wants. While it might engage in a lot of rhetoric, the politburo is smarter than trying to cut its nose off to spite its face.

Secondly, just like any currency, the value of a commodity is based on the demand for it. Does it make sense for China to expend its resources acquiring these commodities _if_ it expects reduced consumer demand for it? It would be acquiring it at higher prices than what would be supported by economic demand. The reasons one would keep buying commodities in the face of uncertain demand is if one expected shortages in the future (i.e. strategic reasons to protect supplies during war, protectionism etc) or for speculation (tactical reasons to trade it). I suspect the latter case here.


On Aug 03 12:31 PM Graham and Dodd Investor wrote:

> The troubling thing about Chinese growth is that it is coming at
> the "wholesale" level (new loans), rather than "retail" (consumer
> spending). The former is a spigot that can be turned off as easily
> as on.]]> Mon, 03 Aug 2009 13:13:45 -0400
There have been a lot of comments deriding the dollar and the intention of China to stockpile commodities as alternate currency.

The problem here re: China's intention to pressure the USD down is that (a) Chinese yuan, being pegged to the dollar, also moves down in relation to other nations. So those who claim that $ weakness is a bad thing, should also assess the yuan along those lines. It weakens along with the USD (b) China holds massive USD reserves. So essentially by weakening the USD, it will have bought the USD at high prices and will hold/redeem at lower prices. (c) The Chinese economy is still very export oriented (evidenced by the fact that consumption-led growth is actually declining relative to investment-led growth). Vast numbers of Chinese are employed by this sector. The US, relatively speaking on the global scale, is the consumer of all these exports. A weak USD will make Chinese exports less competitive.
Weakening the USD is the last thing China wants. While it might engage in a lot of rhetoric, the politburo is smarter than trying to cut its nose off to spite its face.

Secondly, just like any currency, the value of a commodity is based on the demand for it. Does it make sense for China to expend its resources acquiring these commodities _if_ it expects reduced consumer demand for it? It would be acquiring it at higher prices than what would be supported by economic demand. The reasons one would keep buying commodities in the face of uncertain demand is if one expected shortages in the future (i.e. strategic reasons to protect supplies during war, protectionism etc) or for speculation (tactical reasons to trade it). I suspect the latter case here.


On Aug 03 12:31 PM Graham and Dodd Investor wrote:

> The troubling thing about Chinese growth is that it is coming at
> the "wholesale" level (new loans), rather than "retail" (consumer
> spending). The former is a spigot that can be turned off as easily
> as on.]]> http://seekingalpha.com/instablog/174885-graham-summers/19830-five-reasons-the-market-could-crash-this-fall-pt-1?source=feed#comment-607574 607574
I've seen the same example repeated many authors. It seems to be the dead horse du jour. I still fail to understand the connection between the HFT program earning a rebate and financial collapse. If the HFT program trades inside the market (between the bid/ask), how is it evil personified? Isnt it making the market MORE efficient? If it "takes" a penny away (which I still dont understand how one forces an investor to trade at a higher price. If you dont like the price and want to risk opportunity cost trade-off: Put in a limit order and walk away. You will not pay more.), isnt it "giving" a penny more to the seller? When there is a solid, perhaps undisclosed block waiting to trade on one side, why should the other side necessarily sell (in this example) at a lower price? The HFT sniffer has done the market a favor by moving the price in the right direction.

Secondly, invoking GS as a boogie-man seems to settle all arguments these days. The real "victims" of HFT are the "tape-readers" -- the brokers who cant keep up with the automation. Did not "good traders" try to sniff out order flow and momentum before HFTs came along? (In other words, these complaints smack of hypocricy). If we start banning technology, I am sure that the wider spreads will make GS just as profitable (likely much more as there is only a limited supply of exchange seats or market makers that GS can corner. Anyone can co-locate a server and get the same access as GS has to exchange data -- the limiting factor is that they dont have the necessary expertise to build profitable algorithms). The real losers if such luddite policies are implemented will be investors.

Thirdly, if taking away the HFT volume brings financial armageddon, then why are going about vilifying them? I have yet to see any empirical evidence that they increase intra-day volatility (I would tend to think that increased liquidity and smoother markets with fewer gaps would reduce it). If the markets melted (and by extension volatility rose), does it not make sense that HFTs are incentivized to trade more (more opportunities to make money within the gaps) and by providing a smoother instead of gapping market, they provide a counter-cyclical impact?

Lastly, in the good old days before ECNs, did the specialists and brokers not trade "for profit"? Did they somehow "invest" and hold even multi-hour views about what they traded? Then why do we expect HFT programs to be altruistic?

And by HFTs I do assume that you dont mean stat-arb funds like RenTech that do take positions and do "invest" (based on correlations) even if the investing horizon might be measured in minutes.

No comment on the rest of the post. ]]> Thu, 30 Jul 2009 04:02:36 -0400
I've seen the same example repeated many authors. It seems to be the dead horse du jour. I still fail to understand the connection between the HFT program earning a rebate and financial collapse. If the HFT program trades inside the market (between the bid/ask), how is it evil personified? Isnt it making the market MORE efficient? If it "takes" a penny away (which I still dont understand how one forces an investor to trade at a higher price. If you dont like the price and want to risk opportunity cost trade-off: Put in a limit order and walk away. You will not pay more.), isnt it "giving" a penny more to the seller? When there is a solid, perhaps undisclosed block waiting to trade on one side, why should the other side necessarily sell (in this example) at a lower price? The HFT sniffer has done the market a favor by moving the price in the right direction.

Secondly, invoking GS as a boogie-man seems to settle all arguments these days. The real "victims" of HFT are the "tape-readers" -- the brokers who cant keep up with the automation. Did not "good traders" try to sniff out order flow and momentum before HFTs came along? (In other words, these complaints smack of hypocricy). If we start banning technology, I am sure that the wider spreads will make GS just as profitable (likely much more as there is only a limited supply of exchange seats or market makers that GS can corner. Anyone can co-locate a server and get the same access as GS has to exchange data -- the limiting factor is that they dont have the necessary expertise to build profitable algorithms). The real losers if such luddite policies are implemented will be investors.

Thirdly, if taking away the HFT volume brings financial armageddon, then why are going about vilifying them? I have yet to see any empirical evidence that they increase intra-day volatility (I would tend to think that increased liquidity and smoother markets with fewer gaps would reduce it). If the markets melted (and by extension volatility rose), does it not make sense that HFTs are incentivized to trade more (more opportunities to make money within the gaps) and by providing a smoother instead of gapping market, they provide a counter-cyclical impact?

Lastly, in the good old days before ECNs, did the specialists and brokers not trade "for profit"? Did they somehow "invest" and hold even multi-hour views about what they traded? Then why do we expect HFT programs to be altruistic?

And by HFTs I do assume that you dont mean stat-arb funds like RenTech that do take positions and do "invest" (based on correlations) even if the investing horizon might be measured in minutes.

No comment on the rest of the post. ]]> http://seekingalpha.com/article/150332-california-s-risky-bet?source=feed#comment-598528 598528
We will then get back(?) to the debates about "rich-poor" divides, about inner city schools and whether certain segments are disadvantaged by economics/geography.

There is no complete solution but part of it also lies in brining transparency to costs/benefits. Eliminate open-ended pension (excepting some hazardous jobs which force early retirement: on the beat cops, firemen etc) and post-retirement health benefits and RAISE current pay.

Let the employees make decisions, as we all do, about savings and consumption rather than counting of benefits that over the long-run may not even be there (and are dependent on the largesse of FUTURE taxpayers). Let taxpayers see what the services they use and vote for really cost (rather than kicking the can down the road) as well as the impact of keeping wages artificially low (when you run out of qualified teachers and other public servants).

During gun-to-the-head negotiating going on, its easy to take pay cuts and extract promises of future pay-raises or increased pension benefits (as was done in this deal) but what about the situation a few years down the road?



On Jul 22 02:05 PM Alan Young wrote:

> The deal will probably fail, as it illegally seeks to "borrow" money
> from local government to pay state debts.
>
> A much more elegant solution could be crafted with an amendment to
> the state constitution. Unpeg the state budget from the horribly
> inflated costs of K-12 schools and other local services, but (vital!!)
> restore the power of local government to raise taxes to support those
> services (currently constrained by Prop. 13 and requires 2/3 vote
> on a referendum).
> WIth this adjustment, localities wanting low taxes and poor services
> can have them, and those wanting high taxes and services can have
> them, while the state budgeting process would be simpler by an order
> of magnitude.
>
> As it stands, the state is being destroyed by the insistence by both
> sides on enforcing their version of social engineering on everyone.
> This will not end well, at least not anytime soon.]]> Wed, 22 Jul 2009 16:51:23 -0400
We will then get back(?) to the debates about "rich-poor" divides, about inner city schools and whether certain segments are disadvantaged by economics/geography.

There is no complete solution but part of it also lies in brining transparency to costs/benefits. Eliminate open-ended pension (excepting some hazardous jobs which force early retirement: on the beat cops, firemen etc) and post-retirement health benefits and RAISE current pay.

Let the employees make decisions, as we all do, about savings and consumption rather than counting of benefits that over the long-run may not even be there (and are dependent on the largesse of FUTURE taxpayers). Let taxpayers see what the services they use and vote for really cost (rather than kicking the can down the road) as well as the impact of keeping wages artificially low (when you run out of qualified teachers and other public servants).

During gun-to-the-head negotiating going on, its easy to take pay cuts and extract promises of future pay-raises or increased pension benefits (as was done in this deal) but what about the situation a few years down the road?



On Jul 22 02:05 PM Alan Young wrote:

> The deal will probably fail, as it illegally seeks to "borrow" money
> from local government to pay state debts.
>
> A much more elegant solution could be crafted with an amendment to
> the state constitution. Unpeg the state budget from the horribly
> inflated costs of K-12 schools and other local services, but (vital!!)
> restore the power of local government to raise taxes to support those
> services (currently constrained by Prop. 13 and requires 2/3 vote
> on a referendum).
> WIth this adjustment, localities wanting low taxes and poor services
> can have them, and those wanting high taxes and services can have
> them, while the state budgeting process would be simpler by an order
> of magnitude.
>
> As it stands, the state is being destroyed by the insistence by both
> sides on enforcing their version of social engineering on everyone.
> This will not end well, at least not anytime soon.]]> http://seekingalpha.com/article/148906-china-s-helicopter-wen-world-champion-of-money-printing?source=feed#comment-589307 589307
However, the reality seems that the easy money is getting channelled in financial speculation (equities and commodities). Inventories are building. This seems to be causing some demand "push", as this is being interpreted as "green shoots" by the entities in the middle of the chain (or even supporting consumer optimism).

However, it is the sustainable consumer demand that matters and it is yet not clear to me that it is there -- whether from the Chinese consumer (which is ultimately NOT the auto-buying upper middle class nor the nouveau rich speculating in real estate nor is it the workers and students who are borrowing to buy stocks but the vast majority of Chinese households who would want to spend _earned income_ on various goods and services) or from the deleveraging and increasingly frugal US consumer.

Every good decision-maker (and investor), as MacroMan aptly points out, should consider the possibility that he is wrong and hedge accordingly. I wonder if the Chinese establishment has considered this case where they are wrong and the easy money does NOT trickle down to the workers, that jobs do not get saved, and whats worse, causes a crash in financial assets where people are playing with borrowed money. Anyone remember the agitation for govt support of the markets in 2008 when Chinese markets were falling?]]> Wed, 15 Jul 2009 13:11:55 -0400
However, the reality seems that the easy money is getting channelled in financial speculation (equities and commodities). Inventories are building. This seems to be causing some demand "push", as this is being interpreted as "green shoots" by the entities in the middle of the chain (or even supporting consumer optimism).

However, it is the sustainable consumer demand that matters and it is yet not clear to me that it is there -- whether from the Chinese consumer (which is ultimately NOT the auto-buying upper middle class nor the nouveau rich speculating in real estate nor is it the workers and students who are borrowing to buy stocks but the vast majority of Chinese households who would want to spend _earned income_ on various goods and services) or from the deleveraging and increasingly frugal US consumer.

Every good decision-maker (and investor), as MacroMan aptly points out, should consider the possibility that he is wrong and hedge accordingly. I wonder if the Chinese establishment has considered this case where they are wrong and the easy money does NOT trickle down to the workers, that jobs do not get saved, and whats worse, causes a crash in financial assets where people are playing with borrowed money. Anyone remember the agitation for govt support of the markets in 2008 when Chinese markets were falling?]]> http://seekingalpha.com/article/148776-trolling-for-high-quality-equity-income?source=feed#comment-588318 588318
This, in and of itself, does not mean that one shouldnt troll for dividend income. As the savers (baby-boomers) retire, they will be on the hunt for yield and will pressure companies to increase their payout ratios in one form or another.

However, the tax implications are important to consider as they too will impact dividend payout ratios.
]]> Tue, 14 Jul 2009 19:49:27 -0400
This, in and of itself, does not mean that one shouldnt troll for dividend income. As the savers (baby-boomers) retire, they will be on the hunt for yield and will pressure companies to increase their payout ratios in one form or another.

However, the tax implications are important to consider as they too will impact dividend payout ratios.
]]> http://seekingalpha.com/article/148074-what-does-the-lack-of-volatility-mean-for-markets?source=feed#comment-583919 583919
But I do believe that if the status quo in China were to be threatened, an external conflict is one of the key levers that the government and the army can push to drum up nationalist fervor. Still, the US will hardly be the first target.

Japan, given its economic and demographic trajectory and the historical context between the two nations, lies square in those cross-hairs. (It is no coincidence that at no point in the long history of these two ancient civilizations have they _shared_ power at the top in Asia. One or the other has dominated).

It is hard to imagine wars starting openly between nation states in the future. However, there is a lot of potential for small conflicts to get out of hand and the pain thresholds to be heightened. (Austria-Hungary/Germany did not attack Britain and France to start WW I)

On Jul 10 05:17 PM LilBob wrote:

> Regarding the Raytheon and Lockheed comment. The US economy is so
> dependent on China right now, we could never go to war with them.
> We even get the majority of our pharmaceuticals and enormous quantities
> of pharmaceuticals from Japan. The US wouldn't even be able to keep
> our own Hospitals running without cheap Chinese medical supplies.
> With the way that this country has grown so incompetent at controlling
> costs in health-care, JUST a cast for a broken arm would cost $15,000
> without China supplying us. (Currently an arm cast in this country
> only runs around $5000, honestly couldn't believe that when I saw
> the bill a cousin of mine received.)]]> Sat, 11 Jul 2009 20:03:18 -0400
But I do believe that if the status quo in China were to be threatened, an external conflict is one of the key levers that the government and the army can push to drum up nationalist fervor. Still, the US will hardly be the first target.

Japan, given its economic and demographic trajectory and the historical context between the two nations, lies square in those cross-hairs. (It is no coincidence that at no point in the long history of these two ancient civilizations have they _shared_ power at the top in Asia. One or the other has dominated).

It is hard to imagine wars starting openly between nation states in the future. However, there is a lot of potential for small conflicts to get out of hand and the pain thresholds to be heightened. (Austria-Hungary/Germany did not attack Britain and France to start WW I)

On Jul 10 05:17 PM LilBob wrote:

> Regarding the Raytheon and Lockheed comment. The US economy is so
> dependent on China right now, we could never go to war with them.
> We even get the majority of our pharmaceuticals and enormous quantities
> of pharmaceuticals from Japan. The US wouldn't even be able to keep
> our own Hospitals running without cheap Chinese medical supplies.
> With the way that this country has grown so incompetent at controlling
> costs in health-care, JUST a cast for a broken arm would cost $15,000
> without China supplying us. (Currently an arm cast in this country
> only runs around $5000, honestly couldn't believe that when I saw
> the bill a cousin of mine received.)]]> http://seekingalpha.com/article/148074-what-does-the-lack-of-volatility-mean-for-markets?source=feed#comment-582684 582684
You cant continue to buy up assets (mining or real estate or whatever) if you continue to build up an unstable world. In spite of the fiscal and monetary stimulus in China, the benefits are not accruing to the rank-and-file. The money is being used for speculation by the noveau rich in China. (Auto sales are up? Hallelujah! But how is unemployment doing? Food prices? Wages? Exports? Are the factory workers buying up these autos? What about new and newly unemployed grads?)

Inevitably, as global appetite for all things Chinese falls (falling trade, falling credit and inability to accomodate a weak yuan subsidy), some of the speculative projects will fail. Bets on rising commodities based on "green shoots" of Chinese demand will fail. Bets placed with renewed enthusiasm in real estate markets will fail. In the foreseeable future of an aging, tapped out consumer, the world will not grow fast enough to accomodate such foolish investments.

(Idle speculation alert)
This is a recipe for great unrest in the future as unemployment rises. And this will not be a Tiannenmen Square composed of disgruntled students or elites. Any bets on what the powers that be in China will do then? Watch out Japan. Its not so much gold, but Raytheon and Lockheed that are in for bumper times.]]> Fri, 10 Jul 2009 16:03:10 -0400
You cant continue to buy up assets (mining or real estate or whatever) if you continue to build up an unstable world. In spite of the fiscal and monetary stimulus in China, the benefits are not accruing to the rank-and-file. The money is being used for speculation by the noveau rich in China. (Auto sales are up? Hallelujah! But how is unemployment doing? Food prices? Wages? Exports? Are the factory workers buying up these autos? What about new and newly unemployed grads?)

Inevitably, as global appetite for all things Chinese falls (falling trade, falling credit and inability to accomodate a weak yuan subsidy), some of the speculative projects will fail. Bets on rising commodities based on "green shoots" of Chinese demand will fail. Bets placed with renewed enthusiasm in real estate markets will fail. In the foreseeable future of an aging, tapped out consumer, the world will not grow fast enough to accomodate such foolish investments.

(Idle speculation alert)
This is a recipe for great unrest in the future as unemployment rises. And this will not be a Tiannenmen Square composed of disgruntled students or elites. Any bets on what the powers that be in China will do then? Watch out Japan. Its not so much gold, but Raytheon and Lockheed that are in for bumper times.]]> http://seekingalpha.com/article/147109-if-goldman-sachs-secret-sauce-is-compromised-what-happens-now?source=feed#comment-576638 576638

On Jul 06 07:46 AM Free Mind wrote:

> I have just one issue here... Why on earth is this guy uploading
> such sensitive material from his workplace? He could have saved it
> on a usb disk and uploaded from wherever else (a cybercafé for instance).
>
>
> For being a computer wiz, that does not talk favorably of his intelligence.
> Or is there more to the story than meets the eye?]]> Tue, 07 Jul 2009 02:19:47 -0400

On Jul 06 07:46 AM Free Mind wrote:

> I have just one issue here... Why on earth is this guy uploading
> such sensitive material from his workplace? He could have saved it
> on a usb disk and uploaded from wherever else (a cybercafé for instance).
>
>
> For being a computer wiz, that does not talk favorably of his intelligence.
> Or is there more to the story than meets the eye?]]> http://seekingalpha.com/article/146561-the-market-giveth-and-the-market-taketh-away?source=feed#comment-575095 575095
Yes, mortgage resets, commercial loans, credit card receivables are all on the horizon. But we have a secular turn towards higher savings and nothing fills a banks coffers as a steep yield curve and people willing to hand over their cash savings for paltry rates. (Granted the financials will be trying to make money by making do with only 10x leverage).]]> Mon, 06 Jul 2009 00:26:50 -0400
Yes, mortgage resets, commercial loans, credit card receivables are all on the horizon. But we have a secular turn towards higher savings and nothing fills a banks coffers as a steep yield curve and people willing to hand over their cash savings for paltry rates. (Granted the financials will be trying to make money by making do with only 10x leverage).]]>