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  • On the hour: Dow +1.2%. 10-yr 0%. Euro +0.04% vs. dollar. Crude +0.17% to $98.24. Gold -0.31% to $1383.35. [View news story]
    Time for an update.
    Jun 17 02:48 PM | Likes Like |Link to Comment
  • Daily State Of The Markets: Will We Be 'Talking Taper' Soon? [View article]

    "I guess escape velocity to the fed means a bubble in real estate again"

    Right - bubble in housing and the stock market. Since there won't be any real 4, 5, 6% growth this time (the recession ended in 2009 and growth has never been fast enough), the Fed figures that some kind of "wealth effect" from high stock and house values will have to suffice as the "recovery".

    So what happens when the next recession hits? Wealth effects can disappear in an instant, and with real economic performance already so weak an actual recession will be horrendous.
    Jun 17 01:37 PM | Likes Like |Link to Comment
  • Abenomics - A Dangerous Game [View article]
    I'll take a look at your book.

    For anyone who ever wonders how Japan went from an agrarian society in 1920 to a global technological leader in 2000, look up the name William Edwards Deming.
    Jun 14 12:42 PM | 2 Likes Like |Link to Comment
  • The Fed's Third Mandate [View article]
    "The reality is that the Fed has created a wide gap between stock market perceptions and economic reality, and the sobering process that follows the tapering of monetary stimulus will close that gap"

    I estimate this gap at about 35% right now. S&P at around 1050 would be a solid buy.
    Jun 14 12:31 PM | 1 Like Like |Link to Comment
  • How Schlubs Get Taken By Wall Street Pros [View article]
    Retail trading volumes are down significantly since 2007. The retail player is leaving the game - they know they are being scalped. When its just pros vs. pros and they trade the same $0.001 back and forth 1000 per second eventually the profit will not be there.

    Retail should always use limit orders. If Apple is trading at $440 and you want it, but in an order for $435 and wait a few days - the HFT algos will take it there eventually during a trading day.
    Jun 13 07:43 PM | Likes Like |Link to Comment
  • Abenomics - A Dangerous Game [View article]
    "This is the Japan of two lost decades, the Japan with an aging, shrinking population, and a public debt to GDP ratio of almost 250%"

    "Nobody is sure exactly what has caused Japan's persistent deflation"

    I think you pretty much answered the question in your first paragraph. A shrinking population and no immigration means consistently less internal demand for real estate, stocks, and other assets. In the longer run, say by 2050 if things do not change, you can imagine a Japan with 50 million very rich people living primarily in Tokyo and Osaka that own 99% of all Japanese assets, with the majority of Japanese industrial production taking place outside the country, like Toyota in the US.

    One of the problems for Japan is that even though per-capita GDP is growing, there are less "capita" every year, and the overall GDP barely moves, or shrinks. From a macro perspective this looks like an economic death spiral.

    Japan is probably just the first rich and fully developed country to go through this. In time, all of Europe, the US, China, and even Korea and Brazil will follow. The global population is predicted to peak around 2050 to 2070 at 9 to 11 billion, then start falling, probably forever. If the global population shrinks 1% a year (as Japan's is now), starting in 2050, then by 2150 you're looking at a 60% or more reduction - so maybe 3.5 to 4.5 billion people left.

    I'm sure by then the global literacy and life expectancy rates will be nearly 100% and 100+ years, but there will still be less and less demand for housing, cars, clothing, food, and everything else year after year. By 2250 at the same pace? Only 15% of the 2050 population! Do you think those last 1.5 Billion people are going to live in rural China, central Africa, or the farm states of the US?

    In general education = falling birth rates, particularly education of girls and women. I have a daughter in grade school and when she asks me what the "last grade" is I say medical school when she's 22! In some countries the expectation is now that girls go to school through 6th grade vs. never at all, and this will improve too. So the third-world levels of childbearing will disappear and never return as the literacy rate climbs.

    Japan should either open their doors to huge numbers of educated immigrants, find a way to encourage 3+ children per couple, or just plan for a continuous demand drop from this point on, and not try US-style QE currency debasement that will only make things worse.
    Jun 13 12:48 PM | 1 Like Like |Link to Comment
  • Why The Fed Will Not Taper [View article]
    Unless they can get 30-year mortgages down to 2%, there's probably not much more QE can do for the real economy. The Treasury market is probably going to start creeping up regardless now, unless the Fed really gets crazy and starts buying $200B a month. If they do that though, it's really just an admission that the US economy will never stand on its own feet again, so they won't.

    How sad - if the Fed as much as "thinks about starting to plan how to begin implying that they will soon discuss how to formulate a way to eventually talk about evaluating a future tapering strategy", the market falls off a cliff and everyone freaks out.

    How can they actually buy less than $85B a month? I've suggested that the Fed just announces an automatic tapering policy - say $5B less per month until they're not buying anymore, then sell $5B more each month until they've unwound. That's 17 months of taper, followed by probably five years of unwinding. Then, it will be time for another recession and they can begin the whole QE hokey-pokey again. Actual overnight rates? I'd be surprised to see 3% this cycle before they go down again.
    Jun 12 03:00 PM | Likes Like |Link to Comment
  • Fed Pushes On String As Velocity Of Money Dies [View article]
    The only way that money can be circulated is if someone borrows it and therefore goes deeper into debt. For about half the country, there isn't anything worth buying with the debt, and for the other half, they would love to have the money but they have FICO scores under 500, if they have credit at all. So the money sits and everyone wonders why our debt-based economy is not going anywhere.
    Jun 12 02:14 PM | 3 Likes Like |Link to Comment
  • GM Just Curbed Tesla [View article]
    Others have already made the point, but a Volt competes with a Tesla as much as a Cadillac competes with a Bentley.

    The Volt is an ugly, small, outdated, "nerd-mobile" that screams "Government Motors Subsidy", and shares interior parts with GM's sub $15,000 economy cars. The real street value of a brand new Volt is probably around $22k - equal to the also-nerdy Prius.

    The Tesla is a stylish and completely integrated vehicle that (for now) appeals to the $200k+ income set in California. Are they practical as an only car? Maybe not, but that's not the point.

    Tesla stock is overvalued because it went up 100% in a few weeks. General Motors cutting prices on unwanted 2007-tech leftovers has nothing to do with any TSLA movement.
    Jun 11 03:43 PM | 4 Likes Like |Link to Comment
  • Gold: Time To Short [View article]
    I agree with the author that man's "obsession" with gold is a bit silly - what's it really good for besides looking at (and maybe a few high-end electronics uses)?

    But silly or not, at least at this point nearly EVERY human on the planet would value and protect any and all gold in their possession. So unless this changes, gold will probably continue to be valued and desired as a store of wealth by humans for the next 5000 years, as it has the last.

    One thing would change my mind in an instant:

    If the Federal Reserve Bank of New York, holder of the world's single largest concentrated gold hoard, suddenly threw open the doors to their vault and invited the public to haul away all that useless clutter, perhaps declaring that they "no longer buy into the illusion of gold's value" and will be storing something else there, perhaps baseball cards or old collectible Apple II computers. That would really lay waste to gold's value, and it might be priced like a real commodity from that point on.

    So what are the chances that the FRBNY will give up valuing gold anytime soon?

    I do also agree that gold might see $1000 or less soon. But this recent spike to $1900+ is probably more like the 1974 spike in your "inflation adjusted gold price" chart, rather than the 1980 spike. Let's get five to eight years of 10%+ inflation like the late 1970s and see where metals prices go. I'm a buyer under $1000, and twice the buyer at $500 if it ever gets there again.
    Jun 11 03:26 PM | 6 Likes Like |Link to Comment
  • Deflation - Would It Really Be All That Bad? [View article]
    Food inflation or deflation is usually very hard to detect, because there are so many other costs involved.

    The actual wheat, salt, and oil content of your box of Triscuits probably make up about 15 to 20% of the cost - the rest is marketing, packaging, transportation, etc. A change in any of those can influence the price significantly.

    What you need to look at is basic food - milk, eggs, flour, raw fruits and vegetables. I've been monitoring these things for the last four to six years, and haven't seen any lasting inflation in any of them. Milk went up about 25% in 2009 or 2010, then dropped back below the 2008 price, and has stayed there since. Meat has seen real inflation, but sales prices usually remove all of it.

    I've been shopping for a pickup truck for the last few months. A very basic long bed regular cab work truck.

    In June 2001 I bought a Chevy Silverado for about $14000 (sale price). A similar 2013 vehicle costs about $18000 now - a 29% increase in 12 years (with compounding - about 2.1% inflation per year). But the 2013 is a better vehicle - side airbags, stability control, longer maintainance intervals, longer warranty, better build quality. 2.1% a year for all these things is not bad - still an increase in price but hardly excessive.

    Electronics of course are in free-fall deflation all the time, considering what you actually get. In 2000 a 42" plasma flat screen was a $4000 proposition. Now, a 55" LED LCD with twice the resolution of the old 42" is about $600. Cameras, DVDs, computers, phones - easily 20% a year "deflation" when content is taken into account.

    The only real inflation most people have to worry about is housing, medical care, education, and energy costs, but for some people these things can be 50% or more of a budget.
    Jun 11 03:12 PM | Likes Like |Link to Comment
  • Abe's Three Arrows Or Japan's Hail Mary Pass? [View article]
    "The Nikkei rallied back from the 8,000 level in no time. It reached 15,000 before pulling back momentarily"

    Really that's your description of what's happening to the Nikkei? It's dropping 4, 5, 7% in a day and then rebounding, but by no means has it stabilized. Tomorrow the Nikkei could be up 500 points or down, and then the opposite on Thursday. "Momentarily" means that the pullback is already over.
    Jun 11 02:45 PM | Likes Like |Link to Comment
  • S&P 500: Is The Correction Over? [View article]
    Are you talking about the Dow, the Nasdaq, or the Nikkei?
    Jun 10 03:16 PM | Likes Like |Link to Comment
  • The Perils Of Low Mortgage Rates [View article]
    Based on the truth of what you're saying - that rising mortgage rates will put real pressure on house prices, it's likely that as rates rise to a more normal range (6% to 8%), prices might not go anywhere for the next 5, 8, even 10 years. Current price + inflation at best.

    Where the real money can be made is the next time rates start dropping again. The reverse trend - going from 7% to 5% 30-year rates, will allow (desirable) houses to appreciate by 25 to 30% in that rate-lowering timespan. THAT will be the time to sell out and then wait until the cycle rolls around again. Last time, this would have been 2006 or 2007, with purchases in 2010, 2011.
    Jun 10 12:37 PM | Likes Like |Link to Comment
  • S&P 500: Is The Correction Over? [View article]
    What "correction"? The market dipped 4.6% from its intraday high on May 22 to the bottom a few days ago. Aren't "corrections" usually defined as 10% drops?

    Seems like something can't be over if it hasn't happened yet. 10% off the peak is closer to 1500 than 1600.
    Jun 10 12:23 PM | 1 Like Like |Link to Comment