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  • Who Does The Fed Serve?  [View article]
    The Fed services the public - in the sense that my stallion services my mare - and serves whatever the majority of voting members political/financial agenda happens to be. Right now, that is big banks and the party in power, the incumbent party.
    Jan 13, 2014. 11:23 AM | Likes Like |Link to Comment
  • The Government-Dominated Bond Market  [View article]
    Absent recent (since 2008) government intervention, we would be looking at 1930s style deflation/depression. But trying to stop QE, once at its recent pace, is like trying to keep a bicycle upright going up a hill while not pedaling.

    To the left is QEinfinity and asset accumulation among the wealthy. To the right, deflation/depression. In another direction is the French solution of throwing sand in the gearbox, encouraging productive people and business to leave. Some would say the US has been on that path since 1971. I expect deficits to start to widen in 2014, as austerity hits China and the US. At some point in the game of musical chairs, the music stops.
    Nov 27, 2013. 12:38 PM | Likes Like |Link to Comment
  • More Thoughts On Macro Investing  [View article]
    When Berkshire was small, Buffet was more of a stock picker. Now that Berkshire is huge, Buffet is more of a market timer. Note that he rarely sells stocks. Instead, he uses generated income and waits for times when some stocks are at their best prices, which tends to be when stocks in general are relatively cheap. So he still has to believe that the stocks he picks are bargains at the time he picks them.
    Nov 7, 2013. 03:48 AM | Likes Like |Link to Comment
  • The Rules Of The Game Matter...A Lot  [View article]
    Part of the rules include: Who makes the rules, who can change the rules, who enforces the rules, what are the penalties for breaking the rules, who can effectively ignore the rules.

    Example: leading up to the 2008 crisis, there were many banks and non-banks making poor loans. After 2008, some of the banks were "punished" by receiving loans at near-zero rates, while a very few individuals were prosecuted. The GM bankruptcy did not follow the published rules. Starting in 1Q 2009, banks no longer mark-to-market. So knowing what the stated rules are is only a small part of playing to win financially.

    Also, there are so many rules that banks and the government are likely violating some subset of the rules on a daily basis. It's similar to offensive holding - only the more egregious breaking of the rules is likely to result in consequences, and even then only if the ref is looking.
    Sep 19, 2013. 03:20 PM | Likes Like |Link to Comment
  • Noah Smith Declares The Synthesis Lost  [View article]
    On your bullet points: I agree with all except for interest rates not rising because of government spending. Even there it requires a long and unpredictable lag, and an end of kicking the can.

    Interest rates depend on many factors, but tend to move in one direction for years to decades, so when interest rates have moved from 1.43% to 2.88%, one or more of the underlying reasons has changed. Because Chinese and other Third World productivity has been increasing, inflation has been low, leading to interest rates being low.

    But now Chinese wages are rising, and productivity is reaching soft limits, so we can expect higher inflation and higher interest rates. Demographics point to deflation in residential real estate and inflation in consumer goods, and thus to further deleveraging. However, a rise in interest rates means more paper wealth once short-term rates get over 3%, for those holding short-term paper. Net: Europe is looking at deflation until the breakup of the Eurozone, while the US and Japan are looking at inflation. Note that official statistics on inflation are misleading, due to political/financial pressures to minimize official reported inflation.
    Aug 22, 2013. 03:47 AM | Likes Like |Link to Comment
  • Monetary Realism Means Choosing Knowledge Over Ideology  [View article]
    My take is to examine the difference between euinvestment and malinvestment. When actors get accurate, timely signals from the system (capitalism) then resources tend towards - not exact, just a tendency - best purposes. When actors get inaccurate, untimely signals, then actors do not have the information necessary to move resources to their best purposes, and resources tend to move away from best purposes.

    Example: manipulation of interest rates lower tends to increase house and commercial construction until many resources have been wasted. See S&L crisis of the early 1990s, subprime crisis of 2005-2010, Chinese crisis (unfolding) etc.

    Example: regulators dictate use of ethanol as fuel. Food prices increase, fertilizer use increases, crop rotation decreases, crop monoculture increases, all leading to less stability in the system and increased costs for both food and fuel, and increased risk of famine.

    Example: (France) drastic increase in marginal tax rates. Results: emigration of high earners, immigration of low earners, higher unemployment, especially among youth, social instability, increase in hostility among various groups by age, religion, wealth, leading to political risk, which when high enough, leads to greater risk of war.

    Second and third order effects, including probabilities and lag times, need to be considered when facing fiscal and monetary policy choices. For the most part, only short-term political effects are considered, due to political cycle times.

    Medium-term risk: return to authoritarian governments in Western Europe, coincident with fragmentation of the Eurozone. Timeframe: 2013-2021.
    Jul 5, 2013. 03:42 AM | 3 Likes Like |Link to Comment
  • Japan Isn't Bankrupt  [View article]
    The demographics of Japan say the yen will continue to fall for 30 years. Europe is much the same. Canada and the U.S. have better demographics due to net immigration, but for the U.S. in the last 5 years, that is close to zero.

    So for the next 30 years, foreign exchange is likely to be driven by commodities imports/exports. Canada and possibly Australia win here. Interest rates are low because population growth is low. In Europe, population growth, ex-immigration, is negative. Empty houses are deflationary for housing, but not for food/energy.
    Apr 5, 2013. 01:46 PM | 2 Likes Like |Link to Comment
  • A Slow Motion Run On European Banks Will Benefit Gold  [View article]
    Counterparty risk is deflationary, by itself. It is similar in effect to getting a margin call. Only this is hitting the savers who were trying to play it safe.

    Gold is down because all that money in accounts in Cyprus just went poof! It's grand for Cyprus, only now they are out of other people's money. Count on Greece to hit it one more time, along with Spain, Portugal, Italy, and soon France.

    And the biggest part isn't the loss of paper capital but human capital. Many of the top young people in Italy are leaving, for the U.S., South America, Singapore, and a few other destinations. This happens on a multi-decadal scale. It's why West Virginia has been poor for generations, why city cores in the U.S. have been dying since 1965 - almost 50 years running - and why there is no political will to fix it. Vote with your feet, and you're not there to complain.
    Apr 3, 2013. 10:42 AM | Likes Like |Link to Comment
  • Initial, Continued, And Extended Unemployment Claims - March 7, 2013  [View article]
    Perhaps you should add SI DI to this list of long-term unemployed.
    Mar 9, 2013. 01:55 AM | Likes Like |Link to Comment
  • The Most Worrisome Charts  [View article]
    It's too late politically for a pure austerity solution in the eurozone, the U.S. and Japan. Default is coming, via partial default (best solution), default, or hyperinflation (worst solution).

    The result, however, will be similar to a pure austerity solution. See the old Soviet Union 1990-2000 for details. Pensions, whether public or private, and retirement medical care will be hardest hit. Other government-paid employees, including teachers, medical, and military/defense, will also watch incomes fall.

    Main question is timing. I figure 2015-2021 to be the time span, with Europe first and the U.S. last, due to different demographics and political structure. Strong possibility of domino fall, due to cross-holdings of bonds and trade. China won't be pretty, either.

    From an investment standpoint, best to hold a combination of essentials, real estate, and some paper (food stocks and Canadian currency seem extremely likely to outperform). No way the whole market can fit through that door, as real losses need to be recognized.
    Mar 4, 2013. 07:30 PM | 2 Likes Like |Link to Comment
  • The Big Picture For The Week Of February 17, 2013  [View article]
    Looks good. HNZ was a value stock and is now almost fairly priced.

    I could wish for higher volume on RRGR. At least the spread has been reasonable.
    Feb 17, 2013. 02:40 PM | Likes Like |Link to Comment
  • Conspicuous Correlation: Retail Sales December 2012  [View article]
    The housing market was peaking when the 2005 bankruptcy law came into effect. The combination of the two hit housing early and the stock market later. While the bankruptcy code hasn't officially changed since then, millions of houses and rental units have been delinquent for 3 months to 5 years without foreclosure. Note that for rental units I am referring to owner delinquency, as simple non-payment of rent is still handled quickly in many parts of the country.

    So the economy could do better, short-term, by a revision of bankruptcy law, or worse, short-term, by an increase in foreclosures. Long-term, uniform and speedy enforcement of the rule of law (including foreclosures, no robosignings, paying of title transfer fees rather than claiming MERS owns everything) will increase output as it trims down malinvestment. There will always be malinvestment as long as there are people and governments.
    Jan 16, 2013. 03:25 PM | Likes Like |Link to Comment
  • After Factory Explosion, A Big Retail Pump On Neptune  [View article]
    Acasti (ACPHF) trades by appointment, has a book value of .17 per share, and a return on equity of -71.8%. Both Acasti and Neptune will need to raise more funds. The recent filing of a securities fraud lawsuit against Neptune may make it harder to sell new shares, whether or not the suit has merit. Neptune has stated that the lawsuit is totally without merit.

    APO.V, the Canadian symbol for Acasti, does trade more - 37,000 shares/day last 3 months. And NEPT holds warrants for 6.75 million APO.V shares, currently at 2.22, to buy at 2.30. So there is time value in the warrants. Plus NEPT already owns 57% of Acasti,more than 40 million shares (48 million according to previous poster). So there is both a bull and a bear case in NEPT.

    But trying to sell 48 million shares into a daily volume of 37,000 tells me NEPT can't just convert its stake in Acasti into cash - even if there is a big drug trial success soon.
    Jan 3, 2013. 04:03 PM | Likes Like |Link to Comment
  • Probable Versus Possible  [View article]
    Think of the U.S. government, or any government, as a stock company. Then physical U.S. dollars (but not checking, savings, T-bonds, etc.) are the shares of stock in the company. Since voting is not by shares, but by universal suffrage, there is no premium in holding physical dollars. So people are as happy holding checking, savings, T-bonds, etc.

    The other major difference in U.S. dollars vs. shares in a corporation is that large numbers of people keep score in U.S. dollars because so many contracts are denominated in U.S. dollars. If/when inflation gets severe enough that people want to keep score in gold, Swiss francs, Canadian dollars, etc. then and only then the U.S. dollar stops being money for more and more people.

    U.S. fiscal and monetary policy since 2007 has tried to stop the natural deflation from the end of the housing boom, with mixed results and large distortions in relative prices as a major result. If/when housing goes back to having expected gains of more than 5% per year, the psychology changes, while fiscal and monetary policy will lag as usual, continuing to fight the previous crisis.

    Net: I don't expect nominal S&P of 666, but inflation-adjusted S&P could easily drop more than is priced into the markets. In the 1970s, inflation almost got out of potential control, and it took peak interest rates of over 20% to control it. This is definitely not priced into the markets. If it were, housing demand would be much stronger, and banks would be unwilling to lend for housing at current rates, because they couldn't resell the loans at a profit. But I could easily go broke trying to call the turn, and in between the "fiscal cliff" and healthy growth, we could get to neutral fiscal policy in 2014. Flipside, the combination of healthy growth and the cliff is considered unlikely by the markets.
    Dec 13, 2012. 12:53 PM | Likes Like |Link to Comment
  • What Investing For The Long Term Is All About  [View article]
    Massive battle between savers and spenders. Right now, on the political side, the spenders are winning big. Four years, increase in the cash portion of the federal debt of $6 trillion. NPV of federal promises made and earned in the range $120 trillion - $222 trillion.

    On the business side, savers are winning. Massive cash positions by major corporations, unwilling to invest in the U.S. either directly or by buying shares in their own or other companies' stock.

    On the personal side, age over 30, savers are winning. Massive paydowns/writeoffs of homes, credit cards, etc. Auto sales are picking up, so we may be near the end of this deleveraging cycle.

    Age under 30, spending. Big increases in student loans. High unemployment, relatively low wages compared to student debt. Considering the low birth rate from 1970-1990, it's even worse than the raw numbers indicate. But plenty of jobs open in retail, trucking, and health.

    Pressure on U.S. financial assets should be expected until about 2037, due to demographics - peak birth year 1957 reaches age 80. So, many in the over age 50 group will be like the horse in Animal Farm, working until we drop.
    Dec 11, 2012. 07:02 AM | Likes Like |Link to Comment