Seeking Alpha


Send Message
View as an RSS Feed
View ilc's Comments BY TICKER:
Latest  |  Highest rated
  • The End Of The Second Great Gold Rally [View article]
    "now the Fed is talking seriously about ending QE3 within a matter of months"

    Good luck with that claim/hope, CBP. You'll need it.
    Apr 14 09:03 PM | Likes Like |Link to Comment
  • Even The Bulls Are Becoming Wary: Can We Trust The Market Any Longer? [View article]
    This article makes a number of interpretive mistakes. I have time to touch on only a few.

    The dollar index isn't the least bit useful as a gauge of the dollar's value (or whether it is being destroyed), if the other currencies that make up the index are in crisis (Euro), or/and are being over-printed along with the dollar (yen, pound, Euro to a smaller extent). All these currencies are going down together, against (1) financial assets and (2) real stuff. To be sure, the PM & commodity markets have paused lately (reflecting a world slowdown), but they never move in a straight line anyway. Why isn't gold down at 700, and oil at 60? Ask yourself those questions. The answer is: Inflation.

    Which brings me to the next point: You appear to be stuck on CPI increases, as the measure of inflation. First, CPI only looks at consumer prices (or PPI, producer prices). Inflation can appear in other areas, for example, financial assets. The very rise of the stock market that inspired you to write this article, is inflation. It's right in front of you. "The truth is the stock market is on a Fed induced high", you write. That's inflation.

    Inflation can also appear as "the dog that didn't bark", that is, as missing deflation. In a money- and price-stable economy, some prices would go down, as others go up. Some prices would go down a lot. But we see that residential real estate prices are still above historical norms, despite the bursting of the real estate bubble; in other words, the crash of those prices was arrested. That is another example of inflation at work. Inflation should be viewed as excess expansion of the base money supply (M0), which expansion proves that the currency is a manipulated thing, not a good store of value.

    Most hyperinflations follow the pattern we're seeing: At first, people don't believe it, because it seems like the central bank's money-printing is delightfully "not inflationary" as the money sits in excess reserves, and in people's cash balances / savings accounts, etc. People are pleased by all that "safe" cash, and the "prosperous" rises in their countries' financial markets as some of the cash does leak into those markets. Then a tipping point is reached, where a majority of people suddenly understand that their nation's money is a kind of lie which they must NOT treat as an effective store of value. Then the traditional spending, M2/M3 and CPI increases hit. That tipping point is still in the future for us, but we're getting closer.
    Apr 10 10:40 AM | 1 Like Like |Link to Comment
  • Bond Market Flashes Warning To Stocks: Stocks Don't Listen [View article]
    It's funny. If we had a central bank that were buying $85 billion a month in bonds (raising their prices as well as driving the retail investor to buy stocks), the charts would look just like that.
    Apr 8 10:22 AM | Likes Like |Link to Comment
  • The Fed Is Not 'Printing Money' [View article]
    "any speculation of a reforming housing bubble is absolute rubbish" - If you deny the impact of an indefinitely-sustained $45B/month in MBS purchases - Sure. If you can't see bubbles as they are just forming, and need them to break records and be universally acknowledged before you will admit their existence - Of course. If you ignore what Blackstone has been doing in the housing market, or think their motives are charitable - Right on! Your powers of assertion have shown me up. Especially because you included the word "absolute", which sure sets me straight ;-)
    Mar 26 10:17 PM | Likes Like |Link to Comment
  • The Fed Is Not 'Printing Money' [View article]
    Retired Aviator: That you made me laugh, is a fact. Deal with it. Furthermore, I have detailed comments further down.
    Mar 25 06:23 PM | Likes Like |Link to Comment
  • The Fed Is Not 'Printing Money' [View article]
    Raising reserve requirements, as another Fed tool - OK, that's interesting because it might be healthy, if they did.
    Mar 25 12:55 AM | Likes Like |Link to Comment
  • The Fed Is Not 'Printing Money' [View article]
    "Liquidity can also be withdrawn" - But won't be, for reasons that I have already hinted at.

    "You are making an assumption that growth will eventually be so strong that all those reserves will be loaned out to the economy" - No, it would only take some (not all). Also, you seem to be making an assumption that only CPI inflation counts. I notice several other kinds of inflation. I've already cited the upward-sloping price trends (within the obvious ups-and-downs) in the commodity, bond, stock and other markets, as part of a trend of dollar depreciation.

    "You may have noticed though that credit is tighter these days. Bank purses are not open to everyone and anyone with a pulse to borrow." - I beg to differ. The real estate bubble is re-starting as we speak; even sub-prime mortgages have begun their comeback. (Granted, it's early days and sub-prime mortgages have a way to travel yet, before they reach the availability and quantity of, say, 2006.)

    "Also take note of the low level of velocity and the demographic trend telling us of millions of impending retirements are coming over the next years. It is widely acknowledged that growth will remain tepid on that point alone." - I can hardly make sense of that, unless you have in mind a Keynesian / Phillips Curve theory that "demand" drives the economy and it is impossible to have inflation unless "demand" has first pushed the economy near its capacity utilization limits. Even our good host, Calafia Beach Pundit, regards that theory as false (or long since debunked), as you may notice from his other articles.
    Mar 25 12:50 AM | Likes Like |Link to Comment
  • The Bond Bubble Might Surprise You [View article]
    This article leaves out important pieces of the picture. Japan was able to borrow so much, because it was a trade surplus country and world creditor. (I say 'was', because that is beginning to change.) Neither of those apply to the U.S. The U.S. has had a different kind of advantage, in being "the issuer of the world's reserve currency" as the article puts it, but that is also changing, as shown by the growing number of bilateral trade agreements wherein countries aim to bypass the U.S. dollar for trade settlement. The U.S. Treasury market will crack, when (NOT if) the dollar is overthrown as the reserve currency (crashing the world's demand for dollar-denominated bonds). I don't know when that will be, except that I strongly doubt that it will take 15 more years; I could believe, 1, 2, 3, or maybe 5 more years at the outside.
    Mar 24 12:48 PM | Likes Like |Link to Comment
  • The Fed Is Not 'Printing Money' [View article]
    And one more thought: If central banks expanding their balance sheets (and thus banking reserves) *doesn't* boost inflation rates over what they would have been otherwise - which is, again, the thing that people mean when they use the 'printing money' metaphor... then why do central banks state explicitly that one of their purposes in doing such expansions is to boost inflation?

    In other words, what the heck is Japan doing, right now? Is Shinzo Abe delusional, in thinking that he can get the BOJ's balance-sheet expansion to depreciate the yen and raise Japan's inflation to 2%? How about Mark Carney, who hopes to keep up UK inflation and exports with his prospective activities?
    Mar 23 08:36 PM | Likes Like |Link to Comment
  • The Fed Is Not 'Printing Money' [View article]
    "the buck has hardly lost any purchasing power due to QE" - ROFL - Thank you Retired Aviator, you gave me my laugh of the afternoon! :-)
    Mar 23 07:56 PM | Likes Like |Link to Comment
  • The Fed Is Not 'Printing Money' [View article]
    CBP: I am a Follower and avid reader of all your articles, and with due respect, this article is one of the silliest I've seen from you.

    The phrase 'printing money' is meant, by its educated users, as a *metaphor* for the Fed's balance sheet expansion in adding bank reserves. You agree that said expansion is a fact. Therefore: The Fed has indeed been 'printing money', by the metaphor *as its users intend it*.

    There is nothing wrong with metaphor. Perhaps your point here is, or should be, to question the metaphor's accuracy. That is, to pose the questions: Does it make sense to refer to the Fed's expansion of bank reserves by the metaphor, 'printing money'? Is the Fed's expansion of bank reserves inflationary - that is, dollar-depreciating?

    I think the answer to the questions is 'yes'. The price trends of the last several years in food, energy, and even in the financial markets (bonds, equities, and even gold) bespeak a great deal of dollar depreciation.

    But you think the answer should be 'no'. Fine, let's look at your reasons.

    You suggest that adding massive excess bank reserves isn't inflationary, because reserves aren't currency. The excess reserves expand M2 chiefly by the slow-ish process of expanding bank loans and deposits (converting excess reserves to required).

    That's true, but... so what? Do you think banks are never going to expand loans/deposits? As a thought experiment, imagine that the Fed expands its balance sheet to $30 trillion in excess reserves. Would there be any doubt in your mind, at that point, that the dollar had been debauched? That the dollar was a weak, manipulated thing which would not long keep its scarcity-value? That is the point of the whole 'printing money' metaphor. And $30 trillion or just $3 trillion, is only a question of degree.

    You cite the Fed's payment of interest on reserves (IOR) as a tool holding the excess reserves back from loan/deposit expansion. Fine. What do you think will happen when the Fed eventually raises interest rates to fight CPI increases? The Fed will have to also raise the IOR that it pays. The Fed will then incur considerable losses on its income statement. Which it will make up by creating yet more reserves, adding fuel to the fire that it wants to fight.

    You say "The Fed has taken duration risk out of the market and supplied low-risk and highly liquid assets in return." Which means: the Fed has *taken on* a great deal of duration risk. Again, what do you think will happen when the Fed must eventually raise interest rates? Either it will incur considerable losses as it tries to sop up reserves by selling discounted assets, or, to avoid recognizing such losses, the Fed will be forced to NOT sell assets: forced to not sop up reserves, not tighten policy, not fight CPI inflation.

    In all cases, the Fed's balance-sheet expansion of the last 5 years has created a box from which we will not escape; a box in which monetary policy can never again be seriously tightened, because the financial and economic effects of tightening would be politically impossible to accept. This is not 1979; various U.S. balance sheets are vastly worse than 35 years ago; there can't and won't be another Volcker to fight CPI inflation.

    At the end of the day, your argument amounts to the following: that the Fed's expansion of bank reserves is not inflationary, because it has not created CPI-measurable inflation YET. To my way of thinking, that's no better than arguing that there is no problem with having the bus pointed to go off the cliff, because the bus has not gone off the cliff YET. The problem is that "the yet" must and will come, unless we re-align the bus now, while (or if!) we still can.
    Mar 23 07:49 PM | 2 Likes Like |Link to Comment
  • The Fed Leverages Up [View article]
    The concept of Uncle Ben "borrowing" the money that he issues was a little difficult at first to wrap my head around - since, obviously, he declares the money into existence from thin air, then lends it out to others (by buying their bond issues).

    But I think I can see how him "borrowing" is true, in an economic sense. When Uncle Ben declares dollars into existence, he dilutes the existing dollars (much like a company which over-issues its stock). His new dollars have a certain purchasing power. Where does that power come from, in an economic sense? There are no free lunches: it is effectively looted from the purchasing power that successful businesses and people had otherwise stored in their cash accounts and balance sheets. Uncle Ben uses his newfound purchasing power to bring assets onto his balance sheet, assets that the rest of the world would have held otherwise.

    *IF* Uncle Ben really is going to someday destroy the excess dollars (thus reducing the stock of dollars and restoring the value of the dollars sitting in people's cash accounts and balance sheets), along with returning the assets (selling them back) to the world, then in that sense, he did "borrow" the purchasing power / assets, when he created the temporary dollars and bought the assets.

    Of course, I don't really believe that Uncle Ben will do that. His new dollar issues are here to stay, and he will never "return" the assets (sell them back) to the world. So really, Uncle Ben has stolen (looted) the purchasing power / assets.

    But anyway, this is how I understand CBP characterizing Uncle Ben's dollar creation / asset purchases as having "borrowed" something. IOER of 0.25% is indeed the interest rate that Uncle Ben pays on what he "borrows".

    I question CBP's statement, "It's important to note here that when the Fed issues $1 trillion of bank reserves, it is NOT 'printing money.' That's because bank reserves are not cash and they can't be spent anywhere..." - I thought that bank reserves were cash-equivalent because they are convertible to cash, on the bank's demand. Are they not?

    It's interesting, that banks have the reserves to create massive new loans / deposit money, and haven't been able/willing to. I guess that the banks getting 0.25% in IOER, and a little more on their own T-bond holdings, is, on a *risk-adjusted* basis, a better deal than whatever the banks could earn by lending out their reserves.

    In other words: You can lead a horse to water, but you can't make it drink. The money-making loan opportunities just aren't out there. For whatever reason, no one has confidence in businesses' future value/earnings. I blame Obama's policies for that (which create a threat of future confiscatory taxes and regulations, decreasing the Net Present Value of all businesses), although you could plug in a different explanation if you don't like mine.

    I question the statement, "A hedge fund would also be exposed to the risk that its borrowing costs could rise, thus narrowing or even eliminating the net interest spread it's earning. Happily, Bernanke doesn't have to worry about any of this..." - Uncle Ben *does* have to worry about it. When it comes time to fight inflation, he will have to raise IOER to do so. In other words, when it comes time to fight inflation, Uncle Ben's hedge fund will start racking up losses! At the worst possible time! Uncle Ben will have to declare even more dollars into existence, just to cover his losses. That's why we're headed to an eventual hyper-inflation.
    Dec 30 01:10 PM | Likes Like |Link to Comment
  • Inflation Update [View article]
    Answer to CBP's question: The fiscal and monetary "stimulus" policies are done to to bail out the "Big" special interests, of course. Mainly Big Government, and Big Banking. Also (as a distinctly junior partner) Big Labor, for whose benefit the GM bailout was organized.
    Nov 17 12:32 PM | 1 Like Like |Link to Comment
  • Post-Election Thoughts [View instapost]
    "Barack Obama was simply the agent of redistribution that was always fated to come to power in the wake of a stacked game" - You can't mean that, except in a cynical way. While Obama exploits people's resentment of the 'stacked game' in his rhetoric, his actions have done nothing but protect and extend it - what with his support for Uncle Ben's Crazy Printing, the bailouts, Dodd-Frank which effectively enshrines the TBTF banks, regulatory actions which protect established companies at the expense of newcomers, and more. Obama has been a dream come true for Big Banking, as well as Big Government, neither of which have the middle class' interests at heart. He is the latest in 200+ years of tricks from the BB/BG elite, including FDR who played much the same game.
    Nov 12 10:11 PM | Likes Like |Link to Comment
  • Stock Market: Non-Standard Behavior [View article]
    As to whether this year's market behavior is standard: it could be anomalous, because of the circumstances of Obama's re-election and/or because of Fed policy. (1) QE, Twist, ZIRP and associated speculation have kept stocks elevated artificially, so they may have disconnected from traditional patterns and be due for a correction. (2) Furthermore, there are actually 2 market profiles for an election year, depending on whether the incumbent party wins (a chart that Gary Tanashian publishes). Although Obama did win, he LOST millions of popular votes from his first election (which is unusual) and, some argue, was set to lose the election outright except for Superstorm Sandy (a black swan for the opposition) and a temporary technological edge in being able to micro-target his voters. In short, this year may be part-way closer to an "incumbent party loses" type of profile, even though the incumbent party won.
    Nov 8 10:37 PM | Likes Like |Link to Comment