Sigmund

Did Jim Chanos Break the Law?

I don't know the particulars of the Chanos allegations. Insider trading and front running reduce to what did you know, when did you know it and what did you do. If Chanos knew something before it entered the public domain and acted on it before it entered the public domain; then, he probably broke a law and/or regulation. Let us suppose that a research report is an analysis of information in the public domain. The conclusions of the reasearch report are not generally held in the public domain. You act on it, have you broken a law and/or regulation, I think not.

Will Government Spending Work?

Certainly jobs are important. Are they the core problem that we must address immediately, No!. What is critical and needs immediate attention is the orderly liquidation of excess debt. Do we have the necessary tools to accomplish that, Yes! Honor the contract! If that means bankruptcy then do the bankruptcy. Will that put a lot of people out of work? Indeed it will, even more than are now unemployed. Will they be unemployed for a long time, yes! The government actions todate have done little to help the problem because the problem is beyond the capability of current actions. All the government is doing now is trying to stall so that the banking system can recapitalize itself. That is where the core problem is, a large number of very big banks are insolvent. They need to be liquidated and/or restructured. Get that fixed and a recovery will be possible. Along the way it would be wise to improve the purchasing power of the dollar. So, if we have to have some form of socialism, lets nationalise the insolvent banks, restructure them and sell them to private equity, and most certainly not the same people who created this mess. As to financial regulation, we need some competent regulators and some rerasonable regulations. If we cannot achive self regulation, then formal laws are clearly a reasonable approach.

The Efficient Market, Debugged

The 'Efficient Market Hypothesis' is bunkum!! There is ample evidence that markets march thru equilibrium points with great regularity. An important cause of this phenomena is that supply tends to be specific in the short run while demand is subjective. Similarly; why do so many price time series demonstrate such high propensity for mean reversion? The sigma for mean reverrting price series is a clear and definitive rejection of the Efficient Market Hypothesis! Interestingly, it does not matter whether one is considering an absolutely free market or a managed one, markets do fail.

Bernanke and Obama's Spending Schemes Could Ruin U.S. Economy

I rather like Kelm's comments. We are now some 70 plus years forward of the 'great depression'. By looking back at that occurence for guidance, we are looking at the wrong clock! In the present we see that we have made loan to parties who could not service the loan. We have created bond structure that in actuality do not mitigate the potential for default but concentrate and increase the probability of default. We have writtem contracts that offerred insurance and in order to avoid the necessity of establishing reserves, we have called the contracts CDS and sold them over the counter creating a shield of extreme opacity. A three year depression is precisely what we need to begin to set the ship right.

Why Bernanke's Theories on Inflation and Unemployment Are Mistaken

The problem we are confronted with is profligate spending fueled by profligate credit. The solution is to extinguish the excess credit. In the process of extinguishing the excess credit we will find that many entities are insolvent. In the liquidation of the insolvent entities it is critical to recognize that uncontrolled liquidation will lead to extreme unemployment, something in excess of 20%. Now because the core driver of the current problem is the fiat currency we have, it falls to the government to step into the equation. Thus; our money and banking problem can only be solved by the government. I recommend that the FDIC nationalise those banks that are insolvent, restructure them and offer a solvent bank to the market. The write down is then shared by all in the form of higher taxes paid by all. Interestingly, it is all who have participated in the profligacy.

The Shedlock-Schiff Affair: A Chronicle

If one has the turn in the market right, one can still lose mightily by not acting appropriately. Very few money managers have been able to protect their clients from the current correction. As noted above Grantham, Mauldin and Roach have been on point as to the economy and the market. Do they have clients that have lost money, they probably do. Preserving capital in a bear market is incredibly difficult and even more so if you are managing large sums of money. To the extent that some investors have placed money with a money manager and they have not closely followed the management of their funds, those folks are entitled to all the loss that can be achieve. It comes to this, you have to think for yourself. Investing is not calculus and statistics, it's arithemetic and common sense!

Jeremy Grantham: We Need to Halve Private Debt

There is money, and there is credit money, or some might say, loanable funds. Credit is the lender's side of the transaction; Debt is the borrowers side. If the borrower is unable to honor the contract, extinguish the debt. Borrower cedes the collateral and lender takes the loss on the liquidated collateral. Where banks are insolvent, nationalize the bank, liquidate the bad assets(loans), sell the balance of the bank to new investors. The rule is: ALL INSOLVENT BANKS ARE SUBJECT TO LIQUIDATION!!

Treasuries' True Risk

Rising prices are, indeed, generally the expression of inflation. More to the point, inflation most commonly occurs when there has been a debasement of the money supply. Now, how does one debase a fiat currency? If the response is by printing more money; then, we will be quibling about degree. Is it merely inflationary, or, is Weimar Republic? As to safe rates, the flight to safety has driven interest rates well below where prudence would otherwise dictate. What we are confronted with is a 'safe rate' that has a high probability of not being secure. Indeed, several treasury instruments are priced at premiums and should interest rates increase, even your capital will be at risk. Now, given the debt that the government is commiting to would you buy term paper from anyone that had a low interest rate. So, here we are the great constitutionally empowered federal republic looking no better than a 'banana republic'. The great problem confronting us is: who will buy the paper the government will have to sell and at what price(rate)? Wholesale bankruptcies and restructures would have been more painful, but better in that the degree of loss would have been smaller and the currency would be more credible.

Gold Loses Its Shine

During periods of rampant increases in the monetary base, gold tends to increase in price. Thus, the market tends to view gold as a hedge against potential general price increases. Viewed another way, the market sees gold as vehicle to be used to preserve purchasing power. Other commodities and securities can be viewed the same way. As a commodity, gold uses are largely limited to electronics and jewelry. In the current situation it appears to me that every portfolio should have a large percentage dedictaed to investments that provide for the preservation of purchasing power. Price charts that are equilibrated in gold are very interesting. I would be inclined to track and velocity of the monetary base and the rate of change in excess reserves. The price declines that have been recently incurred are more a result of liquidations to delever. The process in force at this time is that of repairing balance sheets. So, it is my view that every safety deposit box should have an ingot.

The Origin of Financial Crises

I consider the efficient market hypothesis to be bunkum! I am older than dirt and my experience is that financial markets tend to appear to be mean reverting around rates of return. I do note a minor caution, the mean rate of return appears to be increasing at a moderate rate. As to Cooper's book, I may, or may not read it. If your review is on point, I wont read it. What I do see before us all is the fact of our fiat currency and the fact that it has been a 'reserve' currency for so long. How will we extricate ourselves from this mess that we have created?

Welcome to 'Ermflation'

Looking for culprits? Begin with the mirror. In great or small ways we all are all responsible. By action and inaction the body politic has managed to spend more than we can reasonably repay. So now we must do a bankruptcy and extinguish the excess quantity of loanable funds; i.e., outstanding loans. The quickest way to do so is by not providing solvency to insolvent institutions and enterprises. That means a very deep recession, quite probably a depression. Call it what suits you sensibility, a deep contraction is only the beginning of what needs to occur.

How Will Obama Deal with the Federal Deficit?

I note that the body politic is beginning to curtail its credit purchases and loan balances. Would someone please step up and say, hey let's start making things again. Things like energy efficient transportation. Let's start building nuclear power plants. Let's start being more rigorous in the schools. Let's stop money grubbing and start making things; let's be great again!

Is the U.S. Solvent?

The problem that the world is confronted with is rather like certain weeds and mushrooms in an otherwise lush garden. The roots are deep, large and hard to eradicate. We have excess money supply, largely credit; thank you Mr. Greenspan, is that needs to be extinguished. Now comes the Treasury, The Fed; and soon, Pres Elect Obama. Hark I see a problem, please join with me and we shall throw money at it. The money won't buy very much, so, we'll have to throw a lot at it. Lovely stuff, paper money, in flash it turns into trash. It occurs to me that if you want a dollar to be worth something, you might want to consider making it redeemable in gold at say $3,000/oz.

Keynes vs. Von Mises

Spot on! Really good piece of exposition that goes to heart of the current problem. A following piece would address the probable hyperinflation that we are facing.

2009 Outlook and Beyond: Let Truth Be Your Guide

The truth is that the body politic has spent more than it can repay. The resolution of that truth is bankruptcy. When debt is extinguished, we will have the opportunity to expand. Until then then it will be a lot of noise.