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AuCoaster

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  • No, The Inflation From QE Is Not Inevitable [View article]
    Deposits do not normally flow in or out of the bank. Funds do.
    Deposits are a liability for the bank, an IOU to the depositor which was created in exchange for the funds received from the depositor.

    Loans are assets for the bank – Not liabilities.
    A new loan adds to the bank’s assets, while the funds disbursed reduce its assets by the same amount.

    When the bank makes a loan, funds flow out of the bank in exchange for an IOU from the borrower. It is a swap of assets, with no net increase in the bank’s total asset amount at that point. If the borrowed funds are deposited back into the same bank, a deposit liability is added in exchange for the asset of funds received. This deposit does increase the assets and liabilities of the bank, “expanding” its balance sheet. If the borrowed funds go to a different bank, then the increase in assets and liabilities occurs at that bank.

    Loans drain bank liquidity. Deposits add to bank liquidity.
    If the borrowed funds come back into the same bank as a deposit, the bank experiences no reduction in liquidity.

    All of this activity can impact the bank’s required reserve amount.

    The reserve requirement is a regulatory standard that exists to protect bank liquidity by forcing the bank to hold (set aside) funds as Vault Cash or on deposit with the Federal Reserve. This requirement also acts to restrict the bank’s volume of lending. In the US, bank loan balances are typically limited to 90% of their deposit amounts. Many countries have much lower reserve requirements. Of course, banks also have capital constraints, and are subject regulatory capital requirements as well.

    US banks are not subject to any reserve requirement on the first $14.5 million, and the reserve requirement is only 3% for the next $103.6 million. The commonly mentioned reserve requirement of 10% is only applicable to amounts in excess of these first two tranches. So, a US bank can loan out up to $14.5 million without holding any funds in reserve, and up to $118.1 million with only a small reserve. Of course, they must still meet their capital requirements.
    May 6, 2015. 01:33 PM | Likes Like |Link to Comment
  • No, The Inflation From QE Is Not Inevitable [View article]
    Spending is what creates inflationary pressure.
    Money sitting in bank vaults or under mattresses does not add to spending.

    While low interest rates should stimulate borrowing to spend, interest rates are not the only factor affecting borrowing activity.
    May 6, 2015. 12:46 PM | Likes Like |Link to Comment
  • No, The Inflation From QE Is Not Inevitable [View article]
    Cullen Roche,

    Banks absolutely DO lend out their deposits.

    A bank's profit is mainly a function of the spread between the rate they pay on deposits, and the rate that they are able to charge on the loans they make. Historically the typical spread has been about 3%.

    If you think that banks can lend money that they do not have, you should open a bank and try it. You will find this does not work.
    May 5, 2015. 10:51 PM | 1 Like Like |Link to Comment
  • 'Sell In May' Often A Big Mistake Historically [View article]
    On average the market rises during May through October.
    But, it rises much more during October through April.
    May 5, 2015. 08:27 AM | Likes Like |Link to Comment
  • 'Sell In May' Often A Big Mistake Historically [View article]
    The "Sell in May" cliché is not based on negative returns.
    On average, May to October is only mildly positive.
    The market gets the vast majority of its gains in the other half of the year. So, many investors feel that it is not worth risk or bother to be in the market during the summer. But, historically May to October outperforms cash. So, being out of the market from May to October would modestly reduce your total return. But, it significantly reduces your risk.
    May 4, 2015. 05:01 PM | 4 Likes Like |Link to Comment
  • A Bear Market Is Unlikely In 2015 [View article]
    As it has dozens of times in the last few years.
    Apr 30, 2015. 04:25 PM | Likes Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    The economic cycles do seem to rhyme...
    following similar patterns in each cycle.
    But, the timing varies dramatically from cycle to cycle.
    Apr 29, 2015. 03:37 PM | Likes Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    Even a broken watch is right twice a day.

    Hussman is in the business of selling fear.

    Of course, there will be another significant decline at some point.
    But, Hussman constantly predicts it as being close at hand.
    He is wrong year after year. If you have invested following his advice you have only a fraction of the wealth that you would have if you had completely ignored him.
    Apr 29, 2015. 08:40 AM | 1 Like Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    Mutual banks are owned by their depositors.
    So, if the mutual bank converts to stock ownership, the mutual owners (depositor) should receive equity.

    Of course, management looks for ways to convert as much as possible to executive stock. Look at the conversion of Peoples Bank in Connecticut for an example of how the executives grab all or most of the equity.
    Apr 29, 2015. 08:30 AM | Likes Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    As for the presidential cycle idea. It overlooks one very important fact.
    The government does have notable influence on the economy through spending and law/regulations. But, Congress controls spending and laws.
    So, if you want to look at correlations between the economy and politics, you should look at congress, not the president.
    Apr 29, 2015. 08:00 AM | 1 Like Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    My last resignation was my retirement.
    So, I can't resign again.

    I also notice that the economy just can't gain any strength since I retired.
    Sorry about that. lol.
    Apr 29, 2015. 07:54 AM | 3 Likes Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    Our primal instinct of fear saved our ancestors from be coming extinct in the wilds. But, it leads us to counterproductive behavior in our world.

    Cash is an asset that is guaranteed to lose significant value over time.
    And the decline in purchasing power will exceed the sum of the crash induced declines in stock prices.
    With cash there is no gain, and all of the downside.
    But, you bleed slowly and steadily, without end.

    Over the last 40 years cash has lost almost 80% of its purchasing power.
    The stock market has risen by more than 2000% in the same 40 years.

    What percentage of your portfolio do you want allocated to a permanent decline in value?
    Apr 28, 2015. 02:04 AM | 4 Likes Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    Those with guns and ammo will get the food and supplies.
    In NYC that will be the street gangs.

    Unless you can shoot back, you will be killed for your food.
    Apr 28, 2015. 01:21 AM | 3 Likes Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    SMA 200 will get you out before the losses are significant, and without so may false exits. Using the SMA 20 crossing the SMA 200 is better, more stable. One can do better than this if watching the economy very closely, as I do. But, the Golden Cross, Death Cross system is a market beater in the long run.
    Apr 28, 2015. 01:17 AM | Likes Like |Link to Comment
  • Preparing For The Next Market Collapse [View article]
    If it really hits the fan, gold will be nearly worthless.
    You will need food, water and medicines, and guns and ammo for protection. Lead and gunpowder will be more valuable than gold.
    Apr 28, 2015. 01:05 AM | 7 Likes Like |Link to Comment
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