wdhalgren

Chinese Are Likely to Halt Purchases of U.S. Treasury Debt

It's interesting that the communist Chinese are using their excess earned dollars like a private equity fund, buying copper mines and oil rights. Meanwhile the capitalist US is using our unearned (newly printed) dollars to buy homes for the masses (mortgage subsidy) and new social programs.

America's founding fathers would be saddened. But, hey, they're just a bunch of dead old men. Who needs 'em when we have modern intellectual giants like Barney Franks calling the shots?

Santelli's Rant: A Watershed Moment?

This is essentially a debate about the personal responsibility of capitalism versus the risk pooling of collectivism. In the end, socialism always fails for the same reason, disincentives to act financially responsible. Amazingly, we've decided to run another test case to see if 21st century technology and modern liberalism can create an effective iteration of this failed economic model. I hope that history will accurately record that free markets were not the cause of our demise.

This Rally May Have Legs - Bespoke

Imagine that, a money manager (Bespoke) who thinks the market is going up. To what address should I mail my check?

Seriously, when the American people finally re-learn that advice from the investment community is ALWAYS self serving, then we will have made progress in returning to a more efficient form of capitalism. Namely, one in which people are diligent in deploying their capital, instead of blindly "investing" their hard earned savings in trading vehicles that they don't understand, under the tutelage of money managers whose incentives aren't necessarily aligned with the investor.

Wall Street marketing language has been force fed to the public for so long that it has become accepted as fact. The true fact at this point is that the investment establishment has learned how to leverage the savings of average Americans into a payoff system that enriches money managers through boom and bust. Even worse, our financial system augments these cycles because the upside of leverage pays to the financiers and corporate insiders, while the downside accrues to bottom rung investors. Meanwhile, they front run their clients at every opportunity and generally shear the sheep who floke to them in droves.

I am a fiscal conservative, but that doesn't mean I blindly accept the system of stock options, bonuses, insider trading that predominate the investing landscape. This is not a new realization, as the bubble of the late 90's erased any doubts I had about how the game was being played. Unfortunately, more government control is not the solution, in fact it played a large part in creating the problem. Letting investors pay the price for their lack of due diligence is the best course, but that seems unlikely until the whole thing is irreparably broken.

Why Gold Is Losing Its Shine

"Gold is about to get a lot cheaper"

Danny, Danny, Danny. The only thing that's about to get cheaper is the dinners you buy for your little girlfriend, assuming you have acted on the silly ruminations above.

Tsunami of Cash Just Waiting to Be Invested

Just to make sure I have your scenario straight, let me summarize what you said. People will take some of their money out of that tsunami of money market cash and "put it to work" in the market. For every dollar they "put to work" by buying a stock, the seller takes a dollar out of the market and "puts it on vacation", most likely into a money market fund. Voila, the tsunami has stayed exactly the same size, completely unaffected by the transaction.

And just to be fair, the exact same thing happens whether the market is rising, falling, or flat. Money "on the sidelines" is not impacted by stock market transactions, because every buyer has a seller and every seller has a buyer. Money market funds are not used up, or accreted by the level of stock prices, because money cannot "flow into" the market. If we woke up with a cure for death tomorrow, and the Dow opened at 100,000 on the first trade, no money need have changed hands, or "flowed in from the sidelines".

Your impregnable floor is a fantasy and "sideline cash" is a mythical construct of the wall street marketing machine. Now, go do your bottoms up homework and you might get lucky and pick a winner or two.

Another 'Make It or Break It' Hurdle for Gold

Gold doesn't rust, tarnish or corrode. It's not subject to property tax, management fees, upkeep costs. It can't be diluted by issuance of new shares. No CEO is skimming the profits from gold, or collecting billion dollar bonuses from its performance. No Wall Street analyst can challenge its fundamentals; gold was at the heart of finance back when the wolves and bears roamed Wall Street's neighborhood.

Gold has no competition; it is the world's only hard currency. Small enough to use for exchange, durable enough for daily use, rare enough to be a store of value. Ben Bernanke can't create gold with a snap of his fingers, and if he tries to dump it from a helicopter all he'll achieve is to give away his supply of wealth. The value of gold has been relatively stable for thousands of years, as fiat currencies have come and gone. Every civilization, every recorded culture has recognized gold as a store of value. That will never change.

The US dollar, on the other hand is a recent invention. It can be created and destroyed with ease. There is no limit on the quantity of dollars available, save the good judgement of our government. Some make the argument that the exchange rate between gold and the US dollar will fluctuate over time. No reason to deny that. But, the history of the US dollar is one of declining value, particularly since it was removed from a gold standard. It follows the same path of every preceding fiat currency. There is too much temptation to manipulate, distribute, dilute its value.

Which brings us to the present. US dollars are no longer treated as a store of value, but as a tool used for the manipulation of the economic cycles. Our government uses the dollar as a way to implement political ambition. The federal reserve creates new money and loans it to the banks, who in turn mutiply it by an order of magnitude and lever it up in hopes of achieving instant wealth. Our population plays the market, "putting their money to work" despite the fact they have no idea what they're buying or what they're paying for it. Our last defense for the dollar is that foreign countries must hold it so that we can continue to buy their products.

Maybe the charts are negative for gold. Maybe central banks and governments do see it as a threat and are trying to manipulate the price lower. Maybe traders have overleveraged into the new gold ETF and will be forced out. I have no way of knowing what the near term holds. But, given the recent desperate use of our dollar currency, my inclination is to err on the side of quality and durability.

Feds to California: Drop Dead

Of course Obama will bail us Californians out. We need money for free health care and bi-lingual education for the illegal aliens who mow our lawns and pick our strawberries. We need money for the octomom's who breed our next generation. We need money to help pay our energy bills; these windmills aren't as cheap as the oil lying of our coast you know. We need money to afford our homes, have you seen the prices in the bay area? We need money for water, it doesn't rain much here and the upkeep on all this nice landscaping's a bitch.

We support the democrat party loyally, just like the UAW did and we expect, no demand, our fair recompense from the rest of you guys for that loyalty. And while your at it, throw in a little extra so we can enjoy our weekends at the Indian gaming establishments. All work and no play makes Jack a dull boy.

The U.S. Is Spending Its Way Out of the Recession

My family is following this policy on a personal level. Due to unforseeable circumstance, we are near bankruptcy. We haven't made a house payment on our new home in 9 months, but thankfully Fannie Mae is letting us live rent free at present. Our credit cards are maxed out and unfortunately we're behind on payments there too. I'm hoping Barney Frank can finally muzzle those greedy credit card companies so they'll leave me alone. Obviously I can't make the payments on my 2009 Ford, much less my wife's 2008 Lexus. I have no idea how we'll meet the kids private school tuition of 15K for next year. Retirement, college, health care, fuggedabout it.

All of that was starting to get a little depressing, but I've been watching CNBC and reading about green shoots. Bernanke and Obama and Geithner say we're turning this thing around. They're investing in America and they want me to do my part. I can definitely see the logic, I mean if I quit spending just because I'm dead broke, how will everyone else make a living? My brother-in-law loaned me 5,000 bucks to get us through this tough period. So, we've decided to take a long vacation to Vegas and blow it out. I think this is where we turn it all around. Wish me luck.

Price of Gold Says Nothing About the Dollar

This article says nothing about anything.

We Can't Talk Our Way Out of This Market Mess

"Unless we start to get improved readings on the economic statistics at some point....the negatives will unfortunately overwhelm the thin “green shoots” investors are currently grasping."

It doesn't matter whether we get improved data or not. Price manipulation can paint a nice picture, for a while. But we've spent the better part of a half century degrading our ability to compete. Regulation, social welfare, bureaucratic entanglement, politically correct education system, tort lottery, environmental terrorism --- all of this has created a sclerotic and corrupt economic system that rewards pandering to the government above every other endeavor. There is no evidence of a willingness to reverse the functional decline, which means our debt load cannot be paid. Our lenders understand that now.

Today's Market: Irrationality at Its Best

Investors have grown accustomed to brief recessions, accompanied by brief dips in the stock market, followed by government fiscal and monetary stimulus, and then a rapid rebound and it's off to the races again. You seem to be leaning that way again. It could happen, but we may be better off if it doesn't play out that way.

This is a crisis of too much debt. There are only two solutions, pay down the debt or inflate away the debt. If we choose to pay it down, then we are looking at a prolonged economic contraction during which the stock market will probably go sideways at best. Stocks are certainly not acting irrational if that is the scenario that occurs.

The other solution is to make the pain of all this debt go away with a wave of the government's hand, i.e., inflation via printing press. It's quicker, debt becomes manageable, fewer unsightly bankruptcies, no panicky shareholders because the stock market returns to the old familiar trading patterns. Every coroporation has a visible goal again; lobby the government for a competitive advantage, something they already know how to do well. Solution #2 seems so comforting. We've learned to love our easy money. This seems to be the path you foresee and I don't necessarily disagree.

One minor thing to keep in the back of your mind as the warm narcotic of fiat money once again flows through the arteries of this system. There is nothing about printing money, or excessive credit, or government largesse and power, that create more wealth. Wealth is created by individual persons working hard to better themselves. All those stories about "pump priming" and "paradox of thrift" and future "fiscal responsibility"...., rationalizations used by addicts to justify one more score. Just get us through this rough patch, make us feel better again, and then we'll have our mind right for the hard work of going straight.

If you're hoping for a quick market rebound, be careful, even if it helps your personal situation in the short term. This may be the dose that finishes America off.

Will the Dollar Decline Forever?

Of course the dollar won't go down forever. Eventually it will reach some level of intrinsic value. Think of all the things dollars can be used for: fuel, scratch paper, wallpaper, bathroom tissue, bedding material. The possibilities are endless. Hold onto those dollars, they will certainly be useful for something.

Roubini and Other Doomsayers Will Be Proven Wrong

"there will be no noticeable inflation until the economy is well on its way to recovery. When the economy does begin to show signs of healthy growth, the Fed can always at that point mop up any excess liquidity there is through open market operation."

I've seen others make this statement, including fed officials. Does anyone actually believe that? What's the most recent precedent; Paul Volcker? Greenspan and Bernanke haven't mopped up any liquidity in 20 years. Instead they've created serial investment bubbles through prolonged excess liquidity and creation of the next bubble is currently in progress. You can continue to preach "trust in fed" if it pleases you, but the congregation has left the building.

Bernanke Fires a Shot Across Summers' Bow

There are underlying problems, built up over decades, that cause the trade imbalances we have with the rest of the world. Balancing trade should involve making America competitive again in the global marketplace, not erecting artificial barriers to imports.

1. Tort reform -- the legal system in the US is a huge expense for American businesses, in terms of fighting lawsuits and preventing them. Our global competitors don't have to deal with a legal lottery system and are thus able to operate more efficiency. If we really want to play on an even field, we can to start by putting about 2/3rds of the lawyers out of business.

2. Lower taxes -- There is no quicker way to improve competitiveness than to lower corporate taxes. On the other hand, raising corporate taxes will further destroy our ability to compete globally. Very straightforward.

3. Regulation -- The US government has become a heavy burden for American businesses, big and small. Complying with regulation is just another form of tax. Our regulatory system is often punitive and pernicious, and does not need to be that way. Make it simpler, less invasive, and businesses will operate more efficiently.

4. Environmental regulation -- deserves a special category because it has become especially onerous. Adds greatly to the cost of energy production, which impacts every product made in America. We haven't built a nuclear plant in decades, while dependence on foreign oil grows. Haven't developed our coal resources, oil resources, gas resources. We better do it now before the foreign oil producers have us by the throat.

5. Weaken labor unions -- Unions are counterproductive. Trying to compete globally using a unionized labor base is a non-starter. The bargaining power granted to unions over the last 80 years is unreasonable and unfair to the owners of the company, and it destroys profitability over the long term. In a free marketplace between workers and employers, everyone will benefit from increased productivity and profitability.

If we truly want free and balanced global trade, those are some good places to start. If we just want balanced trade without having to make the tough structural reforms, then erect trade barriers. The result will be trade wars, massive inflation and increasing inefficiency in US production. The rest of the world is not going to compete with one hand behind their back, as we have chosen to do.

Reports of Economy's Demise Are Greatly Exaggerated

Instead of allowing the most massive private credit expansion on record unwind, politicians around the globe have determined that the best course of action is to convert private debt into public debt. All of the positives that you note are the result of that process.

If governments intended to allow the natural course of over-indebtedness, then they would have permitted bankruptcies to occur and economies to gradually heal through natural selection of prudent actors. Instead, we've taken a less immediately painful course of action, one which thwarts the laws of nature by promoting the welfare of the incautious at the expense of the cautious. Reward the grasshopper, while grinding the ant under our heel.

The end result of this will be the impoverishment of individuals who placed their trust in the US dollar. People who labored their entire lives to accumulate adequate retirement savings will become destitute during their final years due to inflation. Meanwhile, debtors will be handed a free pass and encouraged to have another go at the public expense.

Humans aren't rocket scientists, as a general rule, but if you hit us once between the eyes with a two by four, next time we will duck. Global governments are currently fashioning the most perverse system of financial disincentive imaginable. What follows will make the term "moral hazard" seem quite inadequate.