Smarty_Pants

How and When Will the Fed Reverse the Huge Addition to Bank Reserves?

"Who the hell is going to buy?" - Dave Wrixon

This is the dirty little secret of the Keynesian camp. The only way the FED can really reduce their balance sheet now is to start writing the toxic MBS assets off as total losses.

Naturally the odds of the gub'mint bailing them out at that point are pretty good, so Joe Sixpack will be the one whose standard of living suffers as a result.

How to Play the Gold / Silver Ratio

The simple way to play the gold:silver ratio is to buy equal dollar amounts of each and rebalance periodically (monthly, quarterly, semi-annually, or annually as you desire).

When precious metals (PM) rise, silver usually gains more percentage-wise so you wind up selling silver and buying gold to rebalance. When PM prices fall, silver usually falls more so you wind up selling gold to buy silver.

Over time the number of ounces of both gold and silver you own increases.

What Would GDP Be Without the Fed?

Cash for Clunkers (CFC) - loose translation: "Destroy perfectly good used vehicles so GM can build new replacement vehicles."

Anyone remember the book "Brave New World"?

"Ending is better than mending.* "

* A government slogan encouraging people to throw away old possessions and buy new ones, thus theoretically keeping the global economy strong.

Reality is even worse than the book. The gub'mint only handed out slogans in the book, not the money to spend like we with CFC.

If you want a forecast for future GDP try reading some predictions by Gerald Celente of the Trends Research Institute:

trendsresearch.com/for...

Look over his past predictions and see how amazingly well he has done at hitting the nail on the head, then read what he thinks about the near future.

www.infowars.com/celen...

The gub'mint can massage the numbers all they want. Until and unless they stop printing money to prevent failing businesses to go under, things will continue to worsen over time.

Count on it.

Gold: How the Mainstream Gets It So Wrong

Many good points in both the article and responses.

Anyone who wants to point out the "if you bought gold in 1979" argument should also be giving fair play to the "if you bought the Nasdaq/Dow in 2000" or "if you bought the Nikkei in 1989" arguments.

Nasdaq peaked at 5048, currently trades at 2154 (down 57.4% after 9+ years).

Dow peaked at 11,727 in 2000, currently at 9,972, (down 15% in 9+ years.)

Nikkei peaked at 38,915, currently trades at 10,355 (down 73.4% after 20 years).

Also, if you want to compound dividends, don't forget to 'uncompound' the dividends you sent to Uncle Sam with your 1040 forms all those years. Dividends are taxed as regular income, so recalculate those gains assuming that 25% of the dividends issued aren't reinvested because the taxman took them.

It's not my intent to bash the gold nay-sayers or dividend re-investors. They make valid points. Not all investments are the same, nor are all investors the same.

Let's all try to learn something useful from what others know, even if we don't think it's our first choice for our own funds.

The one point the author makes that's carved in stone is that paper money will always lose value over time as more of it is printed.

"Paper money eventually returns to its intrinsic value - zero."
-- Voltaire (1694-1778)

We're Living Through the Best of Times

"My argument will be, when I am with them in Dallas in December at their conference, "Where are we going to get business-investment spending when banks aren't lending and capacity utilization is at an all-time low?""

It's called SAVINGS. We won't be seeing sizeable amounts of it for quite some time as the public needs to pay down their personal debt first, as the article notes.

Which leads to:
"Lending to small business, the real engine of job creation, is sadly decreasing each month."

At what point in recent history did growth of small business become dependent on borrowing?

There are other options for growing your business, like using profits or selling a piece of the business to someone with savings. These are the businesses forming the backbone of the economy. Profitable and debt free. Any business which REQUIRES borrowing to operate is probably going to have a tough row to hoe for quite some time.

"The psyche of the American consumer has been permanently seared. Consumption and savings habits are being changed as I write."

Or stated another way, 'sanity returns'.


"I can't imagine these people will recklessly monetize US debt."

And thus, the author undermines his own basis of authority. Did you ever imagine that they would run a $1.42 Trillion annual Federal deficit at any time before 2007 with an estimated additional $7.6 Trillion in deficits to follow over the next decade? Probably not.


"even so, the world will be better, far better, in 20 years, with far more opportunities than today."

I'll bet Roman Emperor Arcadius thought along similar lines in 390 AD., a mere 20 years before the Visigoths sacked Rome in 410 AD. After that things were so 'good' that the next 1100 years (ie. the Middle Ages) are widely known for their improved standard of living compared to the Romans (NOT).

Read history. Whenever the ruling class abandons equality before the law and respect for individual rights in order to sustain their rule, you can bet that it won't be long before society's standard of living starts slumping.

The last decade has seen America's rule of law dismantled piece by piece. Until that fact is reversed, the decline will continue.

Ethics Laws Can't Work

"Painter’s essay is excellent, and highly recommended, precisely because he offers no solutions to what is an intractable problem."

Here's a solution:
LET THEM FAIL!!!

Financial ruin and a lifetime of penury for the banksters will set the example for the rest of the 'too big to fail' crowd in DC and on Wall Street.

How Will the U.S. Recover from the Debt Crisis?

"We're freakin' doomed."
- Mogambo Guru

The Power of Unintended Consequences: SuperFreakonomics, by Steven D. Levitt and Stephen J. Dubner

"The economic approach “is a systematic means of describing how people make decisions and how they change their minds;"

As wyvern noted, the Austrian School of economics has utilized this approach for many decades. Those who are familiar with Austrian School economic thought are indeed thinking "nothing new here".

The term used in von Mises' book Human Action was "Praxeology", which was coined over a century ago.

From Wikipedia: en.wikipedia.org/wiki/...

"Praxeology is a framework for modeling human action. The term was coined and defined as "The science of human action" in 1890 by Alfred Espinas in the Revue Philosophique, but the most common use of the term is in connection with the work of Ludwig von Mises and the Austrian School of economics."

If you want to get a good understanding of economics, get a copy of von Mises' book Human Action and slug your way through it.

mises.org/resources/3250 (The Human Action homepage. It's FREE.)

Is the Fed Really Printing Money?

"Inflation redistributes wealth from the rich and the “fat cat” bankers to people living paycheck to paycheck and to debtors. Want to screw over the wealthy, the banks, and the credit card companies? Tell Bernanke to send the printing presses into overdrive." -

Ah, that explains why President Robert Mugabe is having such a hard time making ends meet in Zimbabwe while his citizenry are living high on the hog.

Printing money helps the bankers and politicians because they get to use the new money FIRST, before its appearance drives up the prices of things in the economy. By the time the extra money 'trickles down' to the average Joe, prices have already been increased because the banksters and politicians bid them up while spending that 'extra' money.

The people who get the shaft from inflation are small savers and those who lend at fixed interest rates (not credit cards, whose rates float just above some index like the libor, which would rise during serious inflation).

A closer look at the M2 chart also shows an increase from around 7700 to around 8300 in the past year which works out to a 7.8% increase. Not exactly what one might call 'moderate' given that gub'mint COLAs were set to 0.0% recently.

Note that M2 has increased by over 31% (from 6300 to 8300) in the past 5 years or roughly a 5.7% annual rate of increase. (I don't recall hearing any sort of gub'mint report for CPI increasing anywhere near that rate.)

It also appears that the most recent part of the chart, while decreasing, is still above the straight line made by extending the data on the left of the chart. We're still working out the effects of the huge 'bubble' of money the gub'mint threw at the bank problem in the last two years, we haven't begun to address the long term accumulation of extra money we've been printing in the past decade.

There are more inflationary effects to come. Wait and see.

FDIC Forecasts More Bad Loans and Bank Failures

And to think it only took them 2 years to realize that there are systemic problems in their industry.

Alas, in the world of gub'mint nothing succeeds like failure. Surely the FDIC budget will multiply accordingly.

Jobs Created, Jobs Saved

Each job saved has further indebted the taxpayers of this country by more than $1/2 Million.

That's supposed to be a good thing? We could have just given each employee whose job was 'saved' a tidy $100,000 in cash (tax free) and it would have cost less than $3.1 billion, a savings of over $12 billion for the taxpayers.

Even if we gave them that money and burned an additional $6 billion, we'd come out ahead of where we are today.

Volcker: Fed Needs to Start Draining Liquidity

"send in Snake Plisskin to kick ass... " - debtacid

I heard he was dead.

Beware Unquestionable Financial Beliefs

Has anyone done any analysis on the impact of fewer workers in the work force?

The median income level can remain unchanged even when half the workers are fired if the unemployed are ignored in the data. The chart may be depicting an apples vs. oranges comparison over time.

Taxpayers' costs in the global crisis have been exaggerated, says Goldman Sachs (GS) chief economist Jim O'Neill: “It’s suddenly become very trendy to be the toughest person around, whether you’re in the private sector, or in government, or opposition, as to what we’re going to do about the deficit ... We need to get growth back, and then we can have a more sensible look at what the true fiscal position is.”

Does anyone know how big a bonus Goldman gave to Jim O'Neill this year?

{sarcasm on}
I couldn't imagine his opinion would be biased in asserting that the cost to taxpayers is small if his bonus was large.
{sarcasm off}

The 10 Best U.S. Dividend Stocks

For investors with a large lump of cash still sitting around you can generate significant income by selling puts on these dividend paying stocks while you wait for a "good" price to buy in.

The secret is to pick a put option at a strike price below the current price which expires in the next month or so. Sell that put and keep enough cash on hand to buy the stock if the put is exercised at the strike price.

If the price doesn't go down, the put expires and you get to keep the premium (kind of a dividend). If the price does go down and the put is exercised, you own the stock at the put's strike price (and you keep the premium too). As long as you're happy to buy at the strike price, you're buying a good dividend paying stock at a discount to a price you're OK with.

Example:

WMT is trading at $49.97 as of the close on 10/9/09. There are November 09 options which expire in about 6 weeks. If you think that WMT is a good buy at $47.50, you can sell the Nov $47.50 puts for about $42 each (1 option per 100 shares) by setting aside $4750 in cash in your account.

If WMT doesn't drop below $47.50 before it expires on Nov 20, you get to keep that $42 premium for nearly a 1% return (in 6 weeks) on the $4750 you set aside. You can then repeat the exercise with December puts.

If WMT drops to $47 near expiration on Nov 20. Your put may be exercised and you will buy 100 shares of WMT for $4750, but you get to keep the $42 premium, so your net cost is actually $4708 for 100 shares of a stock you decided would be a good buy at $47.50.

It takes a bit more work, but if the stock price just waffles around the same price, you can collect significant premium income waiting for the price to decline to your buy point.

The difficulty is finding a broker who will let you sell puts backed by enough cash to purchase the shares at the strike price. They are out there if you look.