taojaxx

The Consequences of the U.S. Monetary Base Bubble

Amazing that it would take until the 14th post to read some sensible comment on this hastily drafted column. The author of the article has obviously no idea what monetary base is (try to pay your grocery with gold at the check out register...), let alone what it means that banks would keep this much idle excess reserves. Amazing as well that it would elicit so many approving comments. I guess that's the beauty of the market and the source of its wealth redistributing function, from Joe Shmoe's 401 K to Goldman Sachs's Hampton mansion.
;-}

On Nov 09 04:18 PM user396040 wrote:

> There are legitimate reasons to be concerned about inflation at some
> point in the future and higher interest rates as well but I am not
> sure this chart is one of them. As I understand it, the monetary
> base is the amount of reserves the banks hold, including amounts
> which banks have on deposit at the Federal Reserve (e.g. Citibank's
> funds held at the Federal Reserve). Because of the extreme financial
> panic, many banks have been extraordinarily conservative in the deployment
> of cash and have decided to deposit funds at the Federal Reserve
> rather than lend them out. This has led to a big increase in the
> "monetary base" but is not, in itself, deflationary because the funds
> deposited at the Federal Reserve are not really available for anyone
> to spend. If and when conditions improve, the banks will withdraw
> these funds and lend them out or use the deposits as a base for leveraging
> more loans and deposits. I think that the issue of how to play this
> whole thing as an investor is a very interesting one. But what concerns
> me about this blog is that many participants seem to be more interested
> in ranting about public policy than figuring out how to make money
> in this admittedly challenging environment. I sense in some of these
> comments a kind of fencesitter's remorse on the part of investors
> who have missed the rally. As economists often say, bygones are
> bygones; the important question (for at least some of us) is how
> do we make money from here.

In a Q-and-A, Jim Rogers elaborates on which homework Nouriel Roubini didn't do ("all of it ... I have a problem talking about a bubble when assets are this depressed from their all-time highs") and says it's one of the few times he hasn't been short anywhere in the world - there's "a gigantic amount of money being printed and it has to go somewhere."

Not yet tired of that "loads of printed money being unleashed in the system"?
That money so far sits on central banks' bloated balance sheets as banks don't lend.
When they start lending and the economy picks up, central banks will have all the time they need to hike interest rates to ensure no bubble inflates.
Not saying they will do it, as there will be (there already is) pressure against higher interest rates. But they have all the tools to do it. Those printed trillions are only as dangerous as we allow them to be. No foregone conclusion yet.
What Gold tells us is that China/India move away from the dollar as they realize that the US debtor can harm his creditors more than they can harm him.

The Good, Bad and the Ugly: Australian, U.S. and U.K. Economies

TK,
I'm not too good at geopolitics. My reaction would be these are not comparable pairs: Canada US were both on an ascending part of their historical cycles. I'm afraid China is on a historical upswing (after millenias of decay) while Australia is on a downswing after a mere 2 to 300 years upswing.
Hope I'm wrong, by the way, I like Aussies a lot. Like I said, not oo good at this. I already have a hard time firing where a stock will be trading a month out, let alone where a country will stand a decade out.


On Nov 08 09:53 PM Teutonic Knight wrote:

> taojaxx - - -
>
> Perhaps another point of interest that came to my mind is the parallel
> between China/Australia and United States/Canada in the realm of
> industrialization. During the last century of 1900-2000, as America
> ramped up its Industrial Revolution, Canada because of its geographical
> proximity, naturally had become the "Backyard of the United States",
> supplying all sorts of natural resources, - be it timber, paper,
> minerals, oil, natural gas, coal, asbestos, hydro electric power,
> and even fresh water, to name a few.
>
> And during the post-WWII decades of 1950-1970, the United States
> virtually soaked up all Canadian industrial enterprises by setting
> up subsidiaries, branch plants, and assembly plants. For many years
> until of late, this arrangement had worked very well as Canadian
> workers would enjoy almost the same benefits and pay as their American
> counterparts, with the "Loonie" hovering around the 90 cents to the
> US Dollar mark, as if to say Canada is at about 10% discount of its
> US equivalent goods and services in every walk of life.
>
> There is a similarity emerging here with Australia to becoming that
> "Backyard of China". The recent appreciation of the $A and their
> central bank raising interest rate are indicative of such a trend.
>
>
> Just a thought!
>
> TK

For Asia to achieve a robust recovery in a soft-export new world, it will have to tackle two issues, IMF says on its blog: 1) Firms that hoard cash but don't invest. 2) Wealthy households that won't consume.

I agree with teh IMF conclusion about financial sector development (or lack thereof) being a reason for firms to save excessively. Much doubt about corporate governance. Households do not consume because they have no social security, no retirement benefits and a one child policy. Anybody would be crazy to consume in such a situation. Corporate governance has nothing to do with it.

The Good, Bad and the Ugly: Australian, U.S. and U.K. Economies

Australia is growing because China is growing and buys its commodities. RBA hiking rates is like the little kid waving his arms when the orchestra gets loud and thinking he's conducting it. All they'll get is more carry trades, AUD appreciation with little impact on growth as commodities are priced in USD ( and shortly in yuan?).

Heads You Win, Tails You Win!

It has already, it is over 60% owned by Cargill.


On Jul 21 10:55 AM Topgun wrote:

> True, and MOS is going to be taken over one way or the other.

Sovereign wealth fund China Investment Corp. agrees to buy a 40% stake in Chinese private-equity firm Citic Capital Holdings.

Why would a sovereign wealth fund buy domestic assets? In plain English this is nationalization. Maybe Citic indulged in some kind of subprime binge and the Chinese taxpayer is called on to help?

Vale May Bid for Mosaic: Let the Great Potash War Begin

Ryan,

Thanks for responding. My point is this argument about population growth is so general, I view it as useless for our purpose: it assumes similar oligopolistic supply structure and no extra discoveries whereas as we speak current pricing triggers development and Brazil for example announced one such discovery.
As to the link with the real estate bubble, POT from $45 to $226 back to $50 (so multiplied by 5 and subsequently divided by 5.5) seems to me to fit the definition of a bubble.
As you said, best of luck in your investment. After 30 years in this investing business, I have found that the major success factor was precisely that: luck. It oftentimes comes alongside hard work ("the harder I work, the luckier I get"), but not always.


On Jul 18 02:19 PM Ryan Barnes wrote:

> To Taojaxx: Yes, I read all the same reports that you have in the
> past 24 hours. Yes, Vale denied interest in MOS, just like every
> acquirer in the past 20 years has done when faced with a potential
> leak.
>
> And yes, inventories are up at Potash Corp, and Agrium has announced
> price cuts in the range of 20%; this is why share prices have been
> cut in half as I mentioned. As to the broader thesis of global demand
> for protein being higher...if you think that's comparable to real
> estate, that's your right...I just don't see any comparison.
>
> The increased demand for real estate was based on the increased access
> to cheap credit, making ever larger patches of the demograpic quilt
> feel that owning a home was their "right". That part of the fundamental
> equation has changed. The increased demand for proteins in a growing
> population has not changed to date, and I don't see anything stopping
> it.
>
> Best of luck to all in your investing efforts.

Vale May Bid for Mosaic: Let the Great Potash War Begin

In case you don't know, Vale denied they were interested in buying MOS.
Similarly, AGU just cut the listed potash price from $770 to $512 per short ton, and POT announced that North American potash inventories were uo 152000 tons in June, bringing them 115% hgher than the average level of the last 5 years.
As to the world needing proteins, this is the pump argument overused last year to justify ridiculous valuations for fert stocks which were subsequently cut in half, in 3 or in 4 from peak to trough.
Reminds me of the "they don't build real estate anymore" we've been satiated with during the bubble heydays.

Ben Stein, Predatory Bait-and-Switch Merchant

This Stein guy also has an agenda to push as well: Some might remember his creationist plea. What he was best at though was his ultra bullish stance right into the market crash.

T. Boone Pickens' Epic Wind Fail

You won't need your money by then, so better blow it into something worthwhile.


On Jul 11 01:06 PM ebworthen wrote:

> Hi commercials reminded me of Ross Perot.
>
> My take was that he was at the point where old men lose their edge
> and have over optimistic thoughts and plans because they have one
> foot in the grave.
>
> Warren Buffet is there too.
>
> I hope I die before I get to that point, or am sitting in a rocker
> looking wistfully into the distance instead of blowing my money.

'The Crash of 2008 and What It Means' by George Soros

So, the value of a theory lies in the possibility of expressing it in equations, right?
If that's your thinking, I wish you lots of luck in academia, as the markets might not be nice to you.
I agree with you though that reflexivity is simply another name for feedback loops.


On Jul 11 11:15 AM manya05 wrote:

> Reflexivity? most people would call it a positive feedback loop,
> and the concept is as old as control theory, which has been around
> for decades. Until you put some meat into it (a quantification that
> can be expressed in equations), it makes for nice cocktail conversation,
> but not much else.

Book Review: Hedge Funds (An Analytic Perspective)

Was that meant to e a review? Did you read more than a couple pages? Looks like the NJ seashore distracted your attention from the equations.

Book Review: The House of Dimon, by Patricia Crisafulli

Didn't read the book but if it is 200 and some pages of accolades to JD, then this article is another few lines of the same.
What strikes me is that this is the description of somebody whose entire career was devoted to the build up of C and JPM, which are at the root cause of the current crisis, one of he largest failures in financial history, Nevertheless, somebody found time to write a eulogy to the individual and SA devotes a whole article to praise the book...

Justin Fox on Regulatory Reform and Market Irrationality

Funny how the debate gets hijacked by pro/anti regulation ideologues.
Markets do not exist separately from market participants and reflect their rationality/irrationality of the moment. There is no market steady state of any sort: it is an ongoing process where supply/demand most of the time tends to rationally discount all known information and some of the time simply discounts the fad of the moment, hence the bubble with positive feedback trading (the higher it goes, the more I buy).
As to the dotcom being based on equity and real estate on debt hence the difference in impact, that's not true: dotcom was based on debt as well (ever heard of margin accounts?). The dotcom simply hit household as banks didn't own inflated stocks and only marginally financed stock speculators. Real estate hit banks' mortgage portfolios big time and their subprime holdings, crippling the financial sector and cutting off credit to the whole economy. It's like being hurt in the arm or leg (dotcom) and being hurt in the lungs or heart (subprime).