Qualcomm: Understanding The Risks Before You Buy [View article]
Well, I took a chance and bought before the earnings. Very disappointed obviously that the stock got hit this hard when the release was overall excellent. I'll stay with it because the fundamentals are all very good with this company.
Outflows from the GLD hit $1B in January and have accelerated in February, now summing to $3.1B YTD. Bulls may take heart - the last time the GLD suffered outflows was mid-summer 2012, just ahead of a big rally in gold prices. AUM in GLD was $72B at January's end. [View news story]
Oh, come on. If more people had been doing what he was doing the bubble would never have gotten as severe as it did.
Non-agricultural commodities sell off sharply across the board. GLD -1.4%, SLV -2.3%, USO -2%, JJC -1.1%. Lumber futures -2.5%. Chatter circulates of a troubled hedge fund being forced to exit. Broad commodity ETF: DBC -0.9%. [View news story]
Overreaction to Fed minutes. Good trading opportunity. Long term I'm still bullish PM's.
The backup in Treasury yields - with the 10-year hitting 2% today for the first time in nearly a year - is a buying opportunity, according to Capital Economics' John Higgins. One datapoint of interest: In 7 major tightening cycles since the early 1970s, the trough in Treasury yields occurred an average 7 months before the first Fed Funds tightening. [View news story]
It all makes total sense that yields would climb, maybe suddenly. Except that Japan's been doing this for 25 years and it hasn't happened to them. I'm no expert, but I have asked and I have yet to have anyone give me an explanation as to why the USA will be different. Japan's 10-year is at about .8%. Our debt will keep climbing like theirs. Our people will keep aging like theirs. Our politicians will remain gutless to change like theirs. Our entitlements will crowd out other investments like theirs. And on and on. What will be the catalyst that will cause all that $9 trillion to start moving out of US treasuries in a big way? I think the operative advice is "don't fight the Fed."
Early notes from the BAML fund manager survey shows respondents at their most bullish in 2 years and the most overweight banks since 2007. Allocations to eurozone equities are the highest in 5 years. The BAML read was notable for much of 2012 for showing extreme bearishness among fund managers, but had turned optimistic at the end of the year. [View news story]
Sounds like they're looking in the rear view mirror.
Bond Bubble: Color, Perspective, And Loss Projections [View article]
German Bunds and Japanese sovereign debt both have yields well below US Treasuries. We could go lower - How about 10-yrs at 1.38 (German) or even .79 (Japan)? Where else is all this central bank money supposed to go? Only governments can spend that much.
Handle With Care: Inflation, Monetary Policy, And A Fragile System Ready To Crack [View article]
Colin - I'd like to hear your thoughts on why we won't simply follow the path of Japan. Aren't there many parallels between their macroeconomics, demographics, fiscal and monetary policy and ours? Yet they have experienced something like 25 years of deflation, haven't they? The Nikkei is one third of what it was in the late 80's, while the yen has appreciated greatly against other currencies. I follow the logic of the debt-bubble, buy-gold argument, and I have believed it and invested accordingly. On the other hand, I cannot reconcile it with what appears to be the best empirical example we have, namely Japan, as to what the future will look like - falling asset prices and low interest rates as far as the eye can see, essentially insolvent banks being propped up by the central bank, with national debt pushing through 200% of GDP while people just keep going along with the con. What will be different here? What will be the catalyst that will get people to abandon the US debt, including the dollar? Knowing that the Fed is simply siphoning money from the populace and giving it to the debtor banks and government, is the answer that the catalyst will be the awakening to the widespread poverty which exists (and which we are already beginning to see?) At that point, won't it be too late for people to shift their assets away from the dollar, since they will have no assets to speak of? By the way, I love your columns. You are one of only a few that I "follow" on SA. Thanks for all your work.
Global Warming Will Push Gold Higher [View article]
What is your source for the assertion that frequency and severity of storms is increasing? I have read a lot of stuff about this and I've never seen anything that confirms that. Some have argued the opposite, in fact.
Severity in dollar losses is increasing because of poor public policy which encourages irresponsible shoreline development by subsidizing it through various federal and state public insurance programs.
That's different than meteorological severity. Heck, Sandy wasn't even a hurricane when it made landfall. The hypesters in the media came up with the label "Superstorm" to make it sound worse than it was.
Within the last 20,000 years, there was a miles-thick sheet of ice covering what is now Chicago. The earth has warmed up since then, thank goodness.
Even without the weather changing, gold is going up because we are growing our debt at an accelerating pace.
Did we miss a major central bank tightening overnight? The precious metals sector is lit up bright red following the Fed's addition to QE and what looks like the promise of ZIRP for at least 2-3 more years. GLD -1.1%, SLV -2.2% premarket. Copper and oil join in, the red metal -1.4%, and WTI crude -0.6%. [View news story]
The price of gold over the last decade has correlated with the debt level, not inflation.
The Nation's Balance Sheet And Crowding Out [View article]
The 14% is an interesting stat, and I would have guessed much higher. Thanks for pointing that out. But isn't the number trending up? For example, in the last 12 months didn't the Fed buy something like 80% of the new Treasury issues, albeit by rolling over a lot of shorter-term holdings? Also, If the Fed buys mortgage debt from the banks, and the banks use the proceeds to buy Treasuries, then isn't the Fed expansion still financing the Treasury? This string is fascinating to me, and I appreciate all the great insights.
The Nation's Balance Sheet And Crowding Out [View article]
Is the Fed lending and balance sheet expansion included in the "Federal Government" part of the chart? It would be more dramatic to see the Fed and the Treasury shown separately. My takeaway is that there's not enough money to finance government spending without the Fed expanding. Call it what you will, but "crowding out" private sector borrowing sounds like a pretty good description to me.
On The Road To The Endgame: The Farcical Cliff [View article]
Clarification: The Prebate in The Fair TX would cover the taxes on subsistence-level purchases, not the purchases themselves. You could live at the poverty level of consumption and pay no tax.
On The Road To The Endgame: The Farcical Cliff [View article]
Andres17 - Thanks for your ideas and the invitation to respond. Here you go -
I don't agree that the SS tax cap should be eliminated. SS has always been a program under which the benefits someone received were proportional to the taxes that person paid in. FDR was insistent on that point because he knew that politically he could never get SS implemented as a redistribution program. Maybe the politics have changed now, but I think FDR was right about that. Your approach would make the program redistributive from rich to poor - another welfare program - and that would be a mistake.
What's so magical about the Clinton rates? Don't forget those rates included a lower capital gains rate. The Democrat proposal now is to raise those rates, and Obamacare already has. I don't agree with that. I think capital gains taxes should be eliminated or at least kept very low for everyone, and they should be indexed for inflation. Capital gains arise from after-tax profits - why should the profits be taxed multiple times? Long-term capital gains consist to a significant degree of inflation. That portion should not be taxed at all, particularly considering it is the stated policy of the Fed to achieve 2% inflation. Inflation is a tax, and the current scheme is to tax it as well? That's outrageous once you think about it.
The biggest reason Romney's effective tax rate was so low is that he gives away 1/3 of his income to charity and church. I think the charitable deduction is a good idea, especially in the upper brackets because that is where the most potent philanthropy occurs. I do not think that appreciated stock should be deducted at its current value, though. Instead the deduction should be limited to its basis.
All dividend income, as with capital gains, should be tax-free for everyone. Why compromise on that? As you say, dividends are paid out of after-tax money, and double taxation is unfair and corrupt. People need to have a sense that the tax code is fair, and taxing dividends isn't.
My solution on Corporate taxes (given that we have them at all) is simple - have them pay taxes based on GAAP earnings. Completely eliminate any separate tax accounting, whether on inventory, capital spending or whatever. Management would then be prevented from telling investors one thing and the IRS another. They would actually have to sort out and report what their financial picture really is, and they would have strongly balanced incentives neither to embellish nor hide their income.
Most of all I disagree with your tendency toward tweaking all the provisions so that people with higher incomes face different rules. Why? Under a simpler, flatter set of rules and rates the people with higher incomes will always pay much more than people with lower incomes. Isn't that sufficient and ultimately the most fair approach? The tax receipts of recent years (since the Bush rates went into effect) show clearly that people in the upper brackets are carrying an increasingly disproportionate share of the tax burden. This is bad policy for at least two reasons: One, we are relying on a smaller and more volatile percentage of the economy for our tax receipts (this is partly why tax receipts have fallen so much in the financial collapse we have had). Two, it creates the moral hazard of many people demanding goods and services from the public treasury without having to pay for much or any of it. This is the real tipping point we are passing right now - I was glad to see an earlier poster reference Alexander Tyler, who figured out that sad arc of democracy long ago.
All my comments presume basically the same failing tax structure that we have now - taxing work, earnings, savings and investment. What I really believe is that all of this needs to be eliminated in favor of a consumption tax. That is the approach of The Fair Tax. It would eliminate ALL federal taxes and replace them with one flat consumption tax on new retail goods and services. A quarterly "prebate" to every consumer would cover the cost of subsistence living and add a degree of progressivity to the program. Prices would not go up by the amount of the tax, and over time not at all from the tax, because all the other tax costs built into prices today would be gone.
On The Road To The Endgame: The Farcical Cliff [View article]
The reason most focus on entitlements over defense is that they are a much bigger part of the federal budget, and they are growing much faster. All the talk about Iraq/Afghanistan is a distraction, fiscally speaking. Both those wars together, inception to date, cost about as much as one year of current deficits (between $1 and $1.5 trillion). Iraq was a huge bungle for many reasons, but its dollar cost was not the worst of them by far. All that said, I agree with you that defense should be cut and we need a new set of strategies for projecting US power globally to protect our interests.
Qualcomm: Understanding The Risks Before You Buy [View article]
What To Do With Gold And Silver? [View article]
Outflows from the GLD hit $1B in January and have accelerated in February, now summing to $3.1B YTD. Bulls may take heart - the last time the GLD suffered outflows was mid-summer 2012, just ahead of a big rally in gold prices. AUM in GLD was $72B at January's end. [View news story]
Non-agricultural commodities sell off sharply across the board. GLD -1.4%, SLV -2.3%, USO -2%, JJC -1.1%. Lumber futures -2.5%. Chatter circulates of a troubled hedge fund being forced to exit. Broad commodity ETF: DBC -0.9%. [View news story]
The backup in Treasury yields - with the 10-year hitting 2% today for the first time in nearly a year - is a buying opportunity, according to Capital Economics' John Higgins. One datapoint of interest: In 7 major tightening cycles since the early 1970s, the trough in Treasury yields occurred an average 7 months before the first Fed Funds tightening. [View news story]
Early notes from the BAML fund manager survey shows respondents at their most bullish in 2 years and the most overweight banks since 2007. Allocations to eurozone equities are the highest in 5 years. The BAML read was notable for much of 2012 for showing extreme bearishness among fund managers, but had turned optimistic at the end of the year. [View news story]
Bond Bubble: Color, Perspective, And Loss Projections [View article]
Where else is all this central bank money supposed to go? Only governments can spend that much.
Handle With Care: Inflation, Monetary Policy, And A Fragile System Ready To Crack [View article]
I follow the logic of the debt-bubble, buy-gold argument, and I have believed it and invested accordingly. On the other hand, I cannot reconcile it with what appears to be the best empirical example we have, namely Japan, as to what the future will look like - falling asset prices and low interest rates as far as the eye can see, essentially insolvent banks being propped up by the central bank, with national debt pushing through 200% of GDP while people just keep going along with the con. What will be different here? What will be the catalyst that will get people to abandon the US debt, including the dollar? Knowing that the Fed is simply siphoning money from the populace and giving it to the debtor banks and government, is the answer that the catalyst will be the awakening to the widespread poverty which exists (and which we are already beginning to see?) At that point, won't it be too late for people to shift their assets away from the dollar, since they will have no assets to speak of?
By the way, I love your columns. You are one of only a few that I "follow" on SA. Thanks for all your work.
Global Warming Will Push Gold Higher [View article]
Severity in dollar losses is increasing because of poor public policy which encourages irresponsible shoreline development by subsidizing it through various federal and state public insurance programs.
That's different than meteorological severity. Heck, Sandy wasn't even a hurricane when it made landfall. The hypesters in the media came up with the label "Superstorm" to make it sound worse than it was.
Within the last 20,000 years, there was a miles-thick sheet of ice covering what is now Chicago. The earth has warmed up since then, thank goodness.
Even without the weather changing, gold is going up because we are growing our debt at an accelerating pace.
Did we miss a major central bank tightening overnight? The precious metals sector is lit up bright red following the Fed's addition to QE and what looks like the promise of ZIRP for at least 2-3 more years. GLD -1.1%, SLV -2.2% premarket. Copper and oil join in, the red metal -1.4%, and WTI crude -0.6%. [View news story]
The Nation's Balance Sheet And Crowding Out [View article]
This string is fascinating to me, and I appreciate all the great insights.
The Nation's Balance Sheet And Crowding Out [View article]
On The Road To The Endgame: The Farcical Cliff [View article]
On The Road To The Endgame: The Farcical Cliff [View article]
I don't agree that the SS tax cap should be eliminated. SS has always been a program under which the benefits someone received were proportional to the taxes that person paid in. FDR was insistent on that point because he knew that politically he could never get SS implemented as a redistribution program. Maybe the politics have changed now, but I think FDR was right about that. Your approach would make the program redistributive from rich to poor - another welfare program - and that would be a mistake.
What's so magical about the Clinton rates? Don't forget those rates included a lower capital gains rate. The Democrat proposal now is to raise those rates, and Obamacare already has. I don't agree with that. I think capital gains taxes should be eliminated or at least kept very low for everyone, and they should be indexed for inflation. Capital gains arise from after-tax profits - why should the profits be taxed multiple times? Long-term capital gains consist to a significant degree of inflation. That portion should not be taxed at all, particularly considering it is the stated policy of the Fed to achieve 2% inflation. Inflation is a tax, and the current scheme is to tax it as well? That's outrageous once you think about it.
The biggest reason Romney's effective tax rate was so low is that he gives away 1/3 of his income to charity and church. I think the charitable deduction is a good idea, especially in the upper brackets because that is where the most potent philanthropy occurs. I do not think that appreciated stock should be deducted at its current value, though. Instead the deduction should be limited to its basis.
All dividend income, as with capital gains, should be tax-free for everyone. Why compromise on that? As you say, dividends are paid out of after-tax money, and double taxation is unfair and corrupt. People need to have a sense that the tax code is fair, and taxing dividends isn't.
My solution on Corporate taxes (given that we have them at all) is simple - have them pay taxes based on GAAP earnings. Completely eliminate any separate tax accounting, whether on inventory, capital spending or whatever. Management would then be prevented from telling investors one thing and the IRS another. They would actually have to sort out and report what their financial picture really is, and they would have strongly balanced incentives neither to embellish nor hide their income.
Most of all I disagree with your tendency toward tweaking all the provisions so that people with higher incomes face different rules. Why? Under a simpler, flatter set of rules and rates the people with higher incomes will always pay much more than people with lower incomes. Isn't that sufficient and ultimately the most fair approach? The tax receipts of recent years (since the Bush rates went into effect) show clearly that people in the upper brackets are carrying an increasingly disproportionate share of the tax burden. This is bad policy for at least two reasons: One, we are relying on a smaller and more volatile percentage of the economy for our tax receipts (this is partly why tax receipts have fallen so much in the financial collapse we have had). Two, it creates the moral hazard of many people demanding goods and services from the public treasury without having to pay for much or any of it. This is the real tipping point we are passing right now - I was glad to see an earlier poster reference Alexander Tyler, who figured out that sad arc of democracy long ago.
All my comments presume basically the same failing tax structure that we have now - taxing work, earnings, savings and investment. What I really believe is that all of this needs to be eliminated in favor of a consumption tax. That is the approach of The Fair Tax. It would eliminate ALL federal taxes and replace them with one flat consumption tax on new retail goods and services. A quarterly "prebate" to every consumer would cover the cost of subsistence living and add a degree of progressivity to the program. Prices would not go up by the amount of the tax, and over time not at all from the tax, because all the other tax costs built into prices today would be gone.
On The Road To The Endgame: The Farcical Cliff [View article]
All the talk about Iraq/Afghanistan is a distraction, fiscally speaking. Both those wars together, inception to date, cost about as much as one year of current deficits (between $1 and $1.5 trillion).
Iraq was a huge bungle for many reasons, but its dollar cost was not the worst of them by far.
All that said, I agree with you that defense should be cut and we need a new set of strategies for projecting US power globally to protect our interests.