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  • Stability Of The European Union June 2, 2014 To ??? [View instapost]
    "Like a stock price, it is partly based on trust. "

    Indeed, and consider this, a private company must be price sensitive in order to create its notes (stocks). If a company has a tendency to dilute its stock, people will till to shun it. Thus, there is a market force that makes private notes more valuable than gov notes.

    Govs still have the market to contend with, but a market correction for a fiat currency is often expressed in war or private revolt. The point of free market discipline is to avoid blood shed corrections.

    Also, understanding this also illustrates why stock markets tend to do well in money printing. There is a natural tendency to move out of the undisciplined gov notes and into the more disciplined private notes. Hence, during QE equities go up and rates go up, as people leave bonds and chase the return of equities. This is why, ironically, rates go up during QE even though the point of QE was to lower rates.

    From this I derive the risk-on during QE, equities up and rates up. When QE wanes, stops, or even gets reversed, risk-off returns, which is equities down and rates down.

    Which is what we have seen in Europe as the ECB's balance sheet has shrunk, and what we are seeing being threatened in the US as we even get a whiff that QE might be over. Of course, look at the 10yr since December. We were told all last fall that Taper meant rates would go up. Since Taper began in Jan of 2014, the 10 yr has fallen. It even touched 1.86 last Wednesday.

    People have been conditioned to think a rising equity market means a rising economy, and it certainly can, but if you give people notes that you can create without price sensitivity, then you invoke what I said above, and presto, you get rising equity markets without necessarily having a rising economy. Then the politicians get to say, "look what I have done".

    This is why this system is favored so much by politicians. Its a cheat, but if you understand the cheat, you can make money from it.
    Oct 20 07:21 PM | 4 Likes Like |Link to Comment
  • Could The S&P 500 Fall To 1,625? [View article]
    "Members of the Fed are supposed to be neutral politically, but they are beholding to some degree to those who put them in power."

    "as shown in a recent piece by Robert J. Shapiro,to leave no doubt that the Fed's open-market operations are usually tailored to support the Treasury's funding needs ona month-to-month basis."

    There are those doing work to show that the Fed is far more political than what we have been led to believe. It really should be no surprise.
    Oct 20 07:08 PM | Likes Like |Link to Comment
  • Could The S&P 500 Fall To 1,625? [View article]
    "It isn't what the Fed can or cannot do that matters. It is what the perception of what the Fed can do that drives the market"

    Amen. People's behavior isn't just shaped by reality. Its also shaped by by what they think reality is. For the rest of us, even though we know what they think reality is, isn't real. Their behavior on their perceptions will be real. That is, if you really know what I mean.
    Oct 20 07:01 PM | 1 Like Like |Link to Comment
  • Could The S&P 500 Fall To 1,625? [View article]
    It also sounds like what you are describing is just the emotional element regarding the perceived promise of QE. The ECB has only promised to get back to 2012 levels. What if that takes 2 yrs? What if the Fed lets QE expire, and then waits 6 mos to start QE again?

    You may be right. There are still many a slip twixed a cup and lip.
    Oct 20 06:58 PM | 1 Like Like |Link to Comment
  • Could The S&P 500 Fall To 1,625? [View article]
    Looks like the ECB started QE today. They claim they will return the balance sheet to 2012 levels. It was 3.5 trillion then. Its 2 trillion now. So, that means they should buy about 1.5 trillion.

    You can follow the ECB balance sheet here.

    If they follow through, then we may have seen the bottom. Also, there are still plenty of rumblings that the Fed may hold off on ending the Taper. They may keep buying $10 billion each month.

    Again, if all of this happens, then I think we see equities start to reinflate and the 10yr holds about where it is now.
    Oct 20 06:17 PM | Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    How the Fed will normalize when the time comes (if it comes).
    Oct 20 05:24 PM | 1 Like Like |Link to Comment
  • Can The Fed Come To The Rescue Again If Needed? [View article]
    "It sprang from the panic of 1907"

    Interesting. No one ever talks about LM Shaw. Let's take a quick look.

    Notice what Shaw was doing.

    "To this end, Shaw bought back the government bonds from commercial banks that owned them, increased the number of government depository banks, and in 1902, he told the banks that they no longer needed to keep cash reserves against their holdings of public funds."

    Buying back gov bonds from banks? That's known as QE.

    "He resigned on March 3, 1907"

    March of 1907?

    Guess what happened in October of 1907 once Shaw had left and his QE ended.

    "starting in mid-October"
    Oct 20 05:15 PM | Likes Like |Link to Comment
  • Can The Fed Come To The Rescue Again If Needed? [View article]
    "Look at how things were in 2008 and Q1 of 2009. There was no light at the end of the tunnel. It was the Fed that at least restored confidence in the market."

    But it was the Fed that caused the crash in the first place. You don't lionize a rapist who is also an abortionist.
    Oct 20 05:09 PM | 2 Likes Like |Link to Comment
  • Warning Label For Federal Reserve: QE4-Viagra May Cause Fatal Dollar Heart-Attack - Besides, Whatever The Fed Does, The Market Will Not Stay Up [View article]
    Well, the ECB just started their QE. They claim to be adding 1.5 trillion to their balance sheet. Add to this rumblings from the Fed that QE might not be over just yet, and we could get some of the lost ground back. What you would really like to see to give you hope for "higher highs" is both the Fed and the ECB were going to add 1.5 trillion each. A 5 trillion Fed balance sheet and an ECB balance sheet of 3.5 trillion would probably be good for a 2500 S&P and a + 3% US 10 yr. However, based on the current plan, it would probably get us around 2100 on the S&P and back into the high 2s for the 10 yr.
    Oct 20 05:03 PM | Likes Like |Link to Comment
  • Stability Of The European Union June 2, 2014 To ??? [View instapost]
    "Irish government decided last week to get rid of a tax loophole "

    Yeah, I saw that the other day. I rather think someone else decided for them.

    Its a shame really. Just makes you wish somebody, somewhere would take a stand against all this tyranny and insanity.

    However, I really love the fact that they innovated and are maybe finding a way around it. If they really were listening to me though, they would just get rid of the corporate taxes all together.

    For one thing, as I noted earlier, in a fiat system, taxes don't "fund" the gov. Funding the gov is only true when the gov doesn't own the money medium. When money, is say, gold, the gov actually has to collect it in order to spend it. Under fiat, the tax becomes inflation, and its a virtually inescapable tax. So, there's not point in collecting the central bank notes that the gov already owns, but they do anyways, which just goes to show they aren't the experts they claimed to be.

    However, the real benefit in getting rid of a corporate tax is the savings from all of the compliance efforts. The US for example has what's known as section 382. That's the change of control provision that limits ownership changes so that any NOLs will be nuked if such a chang occurs. So...that throws up a barrier for a change of control, and thus new capital for struggling businesses that would otherwise have a good chance for success, don't get that help and therefore often fail. Without corporate taxes, all that just evaporates.

    I saw a great saying on another thread the other day...

    "Capital and labor just want to be loved."

    Ireland seems to have figured this out to an extent. They just need to give in to their love affair.
    Oct 20 04:24 PM | 5 Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    "The FOMC expects a consensus will form in 2015. Don’t bet on it. When we get there, they will all be looking at their 2016 and ‘17 numbers. There’s little reason to expect any of those who have been looking for growth-any-day-now to back down just because another year has passed without it. Optimally, those with the best forecasts should emerge to lead the policy discussion, but the fact that members currently are holding onto their 2014-will-be-stronger-... predictions -- only possible to do by ignoring the first quarter -- shows just how reluctant they are to admit they are wrong, or more importantly that being wrong might affect the accuracy of their forecasts going forward."
    Oct 20 02:54 PM | Likes Like |Link to Comment
  • Stability Of The European Union June 2, 2014 To ??? [View instapost]
    "we shouldn't stop funding government "

    You need to wrap your head around this. Its an extremely important point and will improve your analysis of investments and gov a hundred fold.

    When a country monopolizes bank notes via a central bank, and then basically outlaws all other money mediums, the result is the gov has basically monopolized money. Money is a claim on labor. The gov has basically consolidated all the money claims on labor under the gov's roof. By doing so, it has converted those notes into a general claim on the labor of the populace. In other words, the notes have value to the extent the populace can produce assets that can satisfy those notes.

    In essence what the above process has done is to convert the monopolized money mediums (ie Fed Res notes) into stock certficates. Therefore the system of the gov collecting gold in order to spend or private bank notes in order to spend has disappeared. That means the IRS is a useless organization. Any "collecting" of Fed notes to "fund" the gov is an illusion. Its the same thing as a company collecting treasury stock or outright cancelling stock. The result of those transactions only changes the ratio of notes to assets, thus changing the value of the remaining notes. It doesn't "fund" anything.

    Think of it this way. The gov is just a sub of the American people, who are the parent. The gov tax revenue is the populace's tax expense, but when you consolidate the two, the tax revenue and expense disappear, and all you have left is the income and expenses of the populace. So, what really funds the gov is the real productivity of the American populace.

    We could get rid of the IRS tomorrow, and the debt and deficit would keep going up, but the increase in productivity from not having to waste production time on the stupid IRS would produce the assets that would give those notes value. People from around the world would still line up to get US notes. To add to this, if you cut spending and gov policies that encouraged people to be less productive, the asset production would go up even more, the gov would issue less notes, and the remaining notes would have even more value (all this while there is no IRS).

    So, wasting our time debating the differences on policy about how to do something that is totally irrelevant is a pointless exercise. The gov will always be funded by the productivity of the operation divisions knowns as the American economy. As long as we produce assets faster than we produce notes, those notes have value.

    Ask yourself this, do you worry when Apple's equity accounts rise. Those equity accounts represent a debt to the owners. No one worries about this debt because people realize that an Apple note (stock is just a note) gives you a claim to a powerful asset producer. The same is true for US notes.

    So, since this is the model we have, we need to stop talking in terms of a private money medium model where the gov has to collect the medium in order to "fund" itself. I'm not advocating for any of this, mind you. I just saying this is what we have. Until we change, we could at least utilize its full potential given we are not allowed the other, better alternative.

    [This was all from another thread]
    Oct 20 11:55 AM | 5 Likes Like |Link to Comment
  • Stability Of The European Union June 2, 2014 To ??? [View instapost]
    I'm going to post something I put on another thread. It explains my approach in determining what is risk-on and what is risk-off.

    Keep in mind, central bank notes are used to bid up assets. Without them, assets can't be bid up. In other words, they deflate.

    Now, think about this, austerity in Europe has been about some minor reductions in the rate of spending increases, but they have also been engaged in tax increases (France for example).

    One of the great myths is that gov regulators are experts. The idea from the so called Progressives is that the experts would be put in charge, and all the chaos would go away. Then PHDs and sophisticated politicians (I guess like Strauss Khan) would take us all under the omnscience wings and save us from ourselves.

    Now, after saying that, think about what these govs are doing by "raising taxes". They are taking central bank notes out of the system, at the same time the ECB balance sheet was shrinking. As I said earlier, without those notes, assets can't be bid up. So, essentially, raising "taxes" in such a scenario is destroying central bank notes, and thus we get deflation, which of course the so called experts were going to make sure never happened again.

    So, what's been happening is the bungling by the so-called experts causing asset inflation and deflation, hence my terms risk-on and risk-off. By watching these buggers you can get a pretty good sense of the direction of equities and interest rates. The ups and downs of the markets, suddenly aren't so mysterious anymore.

    Now, here's my comment for why I say this is the case.
    Oct 20 11:54 AM | 4 Likes Like |Link to Comment
  • What Is Austrian Business Cycle Theory? [View article]
    And another little hint at QE4

    "Adding to the Fed speak we had Boston Fed President Eric Rosengren this morning offering the view that “we should” consider QE4 if the economy weakens"
    Oct 20 10:47 AM | Likes Like |Link to Comment
  • Stability Of The European Union June 2, 2014 To ??? [View instapost]
    I also noticed they said they are planning to move the balance sheet back to 2012 levels. That appears to be a 1.5 trillion shift.

    You can track the ECB balance sheet here.

    Compare it to the Fed's balance sheet. Notice how the ECB's balance sheet has shrunk whereas the Fed's has kept growing.
    Oct 20 10:02 AM | 4 Likes Like |Link to Comment