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  • John Hussman: Release The Kraken [View article]
    I would like to see something like an "iCar". A screen in my car, that like my Apple TV box, would mirror what's on my phone the minute I get in with some modifications for safety when the car is in motion. But otherwise my nav stuff, contacts, Siri, etc is all the same, and no longer will I be stuck with just the offerings from the manufacturer and a web of wires from aftermarket devices.
    May 1, 2012. 05:55 PM | 2 Likes Like |Link to Comment
  • U.S. Economy: The Rhythm Is Gonna Get You [View article]
    What's interesting is that capital is just stored labor. In fact the goal of labor is to store itself. Its a buffer against nonsurvival. In other words, if you are living day to day on that day's labor, all it takes is for one thing to go wrong, and that's the end. The idea that labor should compete with capital is the wrong approach. Lots of capital means lots of capital creation and thus a high standard of living, because then consumption can increase with fear of threats to survival.

    Rules should be written to favor capital creation, which would be rules that favored labor, because labor wants to store itself. If we confuse labor with just consumption, and favor consumption over capital creation, then people without capital are vulnerable and thus more likely to be dependent.

    A while back N Korea reset their currency because the black markets were allowing people to accumulate savings. Savings leads to self-reliance. If your power structure depends on people being vulnerable you don't want them to have savings and thus self-reliance. So what do you do? You reset the currency. Its like one day massive inflation that totally wipes out your savings because the notes you now have are basically worthless.

    The sign of tyranny are policies that favor consumption over capital. Aggregate demand, a consumer based economy, social security, income taxes vs consumption taxes, estate taxes. Think about how much the US system is based on favoring consumption and discouraging capital. You get people dependent by getting them living day to day (labor) vs storing their labor (capital), and you have them at your mercy. Presto a peasant class that will now labor in a perpetually vulnerable state to support the ruling class.
    May 1, 2012. 03:32 PM | 3 Likes Like |Link to Comment
  • The Probability Of QE3 Is Increasing Again [View article]
    Interesting. This is just anecdotal, but I am hearing more and more bond portfolio managers tell me that they are moving out the maturities of what they buy. So instead of a 7 yr bullet, they buy a 10yr bullet, and get maybe 2.50. They figure 2 of those years will be shaved off by ZIRP, and if they are funding this with 30bps money, their worry would be when they think their funding costs would equal their yield. If they figure it would take another 5 to 7 years for that to happen, add that to the 2 years from ZIRP, then you would probably win on 90% of that scenario. Granted its not an exciting spread, but it is better than sitting in 25 bps money funded with 30bps money.

    They figure the risk is offset by the fact that the income means more now than latter, and what it winds up doing is providing more and more buyers for longer dated instruments, and when you have more buyers, you don't need as much yield to attract any more. People who then might have bought those longer dated vehicles shy away because the yields are going down, but they still need yield, so they look to equities.
    May 1, 2012. 02:19 PM | Likes Like |Link to Comment
  • The Fed Will Come To The Rescue But Deliberately Late [View article]
    OK. I see what you are saying. Thanks for responding.

    Overall, I see a CB as a subsidy. In theory it could replace private money medium creation, but in order to do that it has to have a pricing mechanism that creates the allows it to do that. When I read Flow's comments, I see that as an expression of the difficulty that is encountered when you try to replace natural pricing mechanisms with synthetic ones. Endless debate ensues, because the CB has come about by force of law rather than as a price discovery process.

    This is why you see BB pleading with those that set fiscal policy to do this and that. Its akin to having a treasury/finance department for a company issuing stock and debt without any responsibility to the board or shareholders. The note creation is separated from the capital creation.

    So I don't see the Fed so much controlling interest rates, but rather affecting the intersection of supply and demand for capital via the supply and demand for the "risk free" standard setter - treasuries. The only real way to affect interest rates would be to supply more capital, which of course a CB can't do because the only thing that affects the supply of capital is knowledge about production. The creation of money mediums doesn't come at 0 cost because the Fed isn't creating new wealth, it is only working with the wealth that currently exists in the environment.

    This is how the equity prices are being affected. One alternative to equities would be interest bearing treas notes, but since the Fed is taking those up and giving noninterest bearing notes in exchange via the banks, the result is more bidders for equities which bids up the price. As long as fiscal policy doesn't regulate earnings down, even at higher multiples the price can be supported.

    This is why I say, that OT is about inducing risk. The Fed may see it as controlling rates, but since the can't supply new capital to really affect that, all they can do is punish or reward demand for certain asset classes.

    This I think damages the overall economy because it damages price discovery for advances in production knowledge. So, ultimately I see it as a consumption subsidy, just like fiscal "stimulus" (I like to replace the word stimulus with wealth transfer), since price discovery has been altered via force, overconsumption of something (equities, real estate, etc) will occur, and the only nature deals with overconsumption that doesn't create more productivity is with austerity (reduced consumption).

    So, generally I think equities up and yields up during the period of wealth transfer because it looks just like wealth creation from the consumption side, but I know a period of retrenchment is probably coming. So if I can buy $20 million of bullets when the 10 yr gets between 2.35 and 2.40 (like in March), then I can sell them for a gain, when it goes back to 1.90 (like now) when recessionaryish pressures take hold again, and people go back to safety.

    Thanks for your response. You are about the only one on hear on the other side of this thing that is really willing to discuss differences. Its very useful.
    May 1, 2012. 02:06 PM | 1 Like Like |Link to Comment
  • Treasuries Update: Checking Up On 'Operation Twist' [View article]
    Perhaps we get "Sterilization" in Sept or Oct to replace OT.
    May 1, 2012. 01:05 PM | Likes Like |Link to Comment
  • There's no middle ground in a debate between Ron Paul and Paul Krugman. Paul: "I don't want the government or Federal Reserve fixing the rate of interest... Governments aren't supposed to run the economy. The people are." Krugman: "I want the market economy to be left as free as it can be, but there are limits. You do need the government to step in to stabilize." (video)  [View news story]
    Noble prizes for peace or economics seem to be awards for "who has come up with the best idea for looting the United States."
    May 1, 2012. 11:52 AM | 2 Likes Like |Link to Comment
  • Stocks pop higher following the strong ISM print. S&P 500 +0.5%, Nasdaq +0.5%. The 10-year note climbs 3 bps to 1.93%.  [View news story]
    So this makes me think the nonfarms won't be all that ugly. Unless of course this has just been utilizing people more efficiently. Still, though nonfarms could come in at around 165k +/-.
    May 1, 2012. 11:44 AM | Likes Like |Link to Comment
  • The Fed Will Come To The Rescue But Deliberately Late [View article]
    How are they appealing to inflation expectations if they aren't growing the balance sheet?

    I guess the induced risk would suggest more lending thus getting reserves into things that will affect the CPI, but then that would suggest their intent was to induce risk and they simply used the mechanics of messing with interest rate by messing with fundamentals. So the purpose then would be to induce risk without growing the balance sheet.

    So if you think inflation expectations fall, then wouldn't you think interest rates would fall?
    May 1, 2012. 10:25 AM | 1 Like Like |Link to Comment
  • The Fed Will Come To The Rescue But Deliberately Late [View article]

    Are you saying that neither the Fed or ECB will do anything else after OT ends?

    I agree they can't improve the economy, but it appears they believe they can. In theory, if they could produce money mediums commensurate with what the economy required, then prices for production would reflect simply supply and demand as driven by technological change. However, this requires a pricing mechanism, and as a part of gov (regardless of the rhetoric to the contrary), CBs are part of gov, and as such they are blind to prices. Since they confuse any sort of consumption with justified consumption, they tend to create money money mediums at rates faster that what the economy would require (part of the aggregate demand fallacy). The result is subsidized consumption, which is basically people consuming irrespective of productivity. This then is the use of gov force to favor one party in a transaction, which is what causes the wealth transfer. You basically get to buy something where the price wasn't arrived at via voluntary discovery.

    The ultimate expression of this is a theft transaction. The thief creates the ultimate inflation scenario. Instead of getting the same thing for a higher price, you get nothing in return for all you have. This is possible via the application of a gun. This is why a CB can't grow an economy. At the end of the day, the root of its existence is gov force. Legislatures use their grant of force from the populace to create them. So guns cause CBs to come into being. Not voluntary price discovery. As such, a CB is blind to prices, which makes it blind to any tool that would grow an economy. In the form in which CBs exist, the most natural result for them is to transfer wealth.

    As such, the return on production isn't as great, thus the incentive to invest is diminished. Without greater production there is less to consume, and the result is austerity, not as a policy choice but because nature forces it.

    If a CB were senstive to prices and not confused by failed economic ideologies, the real threat would only then be fiscal policies that damaged the economy with subsidies because of fiscal price blindness (they have guns too). Either way, what we have now is a CB system that can only transfer wealth because of its price blindness, but they don't understand that. So they are like a lose cannon on a deck that rolls back and forth with the pitching of the deck (liquidity sloshing around). If you learn to watch how the deck pitches, you can learn which way the cannon is going to roll, and thereby get out of the way.

    So my objective is to observe what the Fed is going to do based on their price blindness and adherence to failed economic beliefs. So while I am concerned with what should happen, right now I am more concerned with what I think will happen.
    May 1, 2012. 10:11 AM | Likes Like |Link to Comment
  • The Fed Will Come To The Rescue But Deliberately Late [View article]
    I've been thinking about 2 scenarios, and I base them on the purpose of OT. OT was about inducing risk without growing the balance sheet. BB was taking heat about commodity speculation driving up commodity prices. So we had riots where we exported food inflation, grumblings domestically about the price of oil, and gold headed towards $2k. So whether the Fed caused this or not, I think it had an impact on BB. So he thought he could kill two birds with one stone. Keep the balance sheet where it is, but take the wind out of the sales of commodity speculation and spur home purchases which would help unemployment (part of the mandate).

    So my first scenario is OT ends in June, but since nothing else has really changed with regards to economic opportunity, people will tend to continue to seek out what appears to be the best bet right now - equities. As such, the demand for LT bonds will diminish because of the unattractive yields, and with fewer buyers for these bonds rates will drift up. I could see 2.50 to 2.75 on the 10 yr by Sept, and with it mgt rates drifting up. When that happens, new weakness in housing appears, and then a threat of weakening employment. Then what makes sense is that BB rolls out OT2, but this time it will be called "Sterilization", and we slowly get back to where we are now by December. If such a course develops I would be looking to sell some bonds if the 10 yr hits 1.85 and then look to replace when the 10yr hits the 2.60 to 2.75 range, and then sit back and wait for it to come back down towards 2.00.

    The other thing that might happen, is OT ends, but capital flight from Europe ramps up and keeps the 10yr from getting above 2.50. There appears to be some heavy EU maturities in Oct, so between June and Oct the 10yr creeps up to 2.50, but then EU turmoil causes more flights to quality and pushes the 10yr back down. As a result of EU bank runs during the flight to safety, the ECB doubles it balance sheet through more LTRO.

    So the Fed may not have to do anything if the ECB does it for them. Either way, I anticipate a period when rates creep up a little more this summer but then get pulled back down. All the while, I could see a pull back in equities but with a rally once a CB delivers, and I could see it being the ECB rather than the Fed.
    May 1, 2012. 08:34 AM | 2 Likes Like |Link to Comment
  • There's no middle ground in a debate between Ron Paul and Paul Krugman. Paul: "I don't want the government or Federal Reserve fixing the rate of interest... Governments aren't supposed to run the economy. The people are." Krugman: "I want the market economy to be left as free as it can be, but there are limits. You do need the government to step in to stabilize." (video)  [View news story]
    Gov can regulate with regards to force and fraud via its grant of force. It cannot regulate with regards to price because it's grant of force makes it price blind. Free markets are free when they are free of force and fraud, not when they are free to do what ever they want. That occurs when gov is not limited. Then it's force becomes the agent of theft.
    Apr 30, 2012. 10:30 PM | 2 Likes Like |Link to Comment
  • The Fed Will Come To The Rescue But Deliberately Late [View article]
    What do you think happens when ot ends?
    Apr 30, 2012. 10:06 PM | Likes Like |Link to Comment
  • The Fed Will Come To The Rescue But Deliberately Late [View article]
    When you say a few billion, do you mean a few hundred billion?
    Apr 30, 2012. 08:14 PM | 3 Likes Like |Link to Comment
  • Still No Recession On The Horizon [View article]
    "monetary system you're operating under, it always gets things just right."

    It recognizes the reality that gov has guns, and since it has guns, it has no incentive to learn. What it will have is an incentive to transfer wealth based on political biases. Wealth transfer is a disincentive to produce, and productivity is what justifies consumption. Money and money mediums are just products. When they are subject to production based on learning, they will be produced at a rate that is commensurate with what people have collectively learned about their production.

    Does this mean that everyone gets everything they've every wanted at no cost? No, that's the fraud that is used to justify gov monopolization of money. What it means is that the economy functions at peak capacity based on what people have learned about production. Gov with its guns can do nothing about increasing learning. Gov's grant of force is only useful as a deterent against illegitimate force. The only way gov could improve production is if it had some secret store of knowledge granted to it by the populace that it could inject into the economy in order to increase its growth. If people in gov had secret stores of knowledge, then they wouldn't work for go. It wouldn't pay enough, and of course if the public already had the knowledge, why would they need to grant it to the gov?

    When gov interferes in price sensitive issues (like how many money mediums should be in produced) with its price blindness created by its grant of force from the populace, the only logical outcome is wealth transfer (this is why a thief uses a gun). The result when people don't understand this is constant aruging about the reasons why a CB can't seem to get money medium creation right (like the EU and the ECB).

    The issue isn't about a system of perfect money medium creation vs a system that will totally fail, but rather who in the economy is best to address price sensitive issues? Your choice is between people without guns that must learn about production (money and money mediums are a product), and people in gov that have guns and thus do not need to worry about production.

    No, surely if you try hard enough, you can figure it out.
    Apr 30, 2012. 06:22 PM | 1 Like Like |Link to Comment
  • Spain's provisional GDP data comes in at -0.3% Q/Q and -0.4% Y/Y, better (surprisingly) than the expected -0.4% Q/Q and -0.6% Y/Y.  [View news story]
    Exactly my point. Who got them into that system? Who designed it? Again, it was supposed to be designed by the experts. The PHDs and top gov officials whose price blindness will somehow make their market knowledge superior to people who must live and die by prices. If they designed a faulty system before, they will do it again. They have no reason to design that makes them responsible for their mistakes because the people designing the system have access to guns. They won't pay for their mistakes. The average citizen will pay for it, with a reduced standard of living.

    Just because the US has a fiscal and monetary union, where one state can subsidize another and not really know it, didn't mean that we didn't have a huge real estate bubble that was popped by the Fed and resulted in the loss of 8 million jobs. If the gov regulators had been worth their salt, none of that would have ever happened, and the reduction in the standard of living for these people would not have occured either.

    Inflation is not a no cost option. It means years of suffering for the average person via a lower standard of living or a frozen standard of living via lost economic opportunities.

    This will definitely make the rich richer and the poor poorer. This is what tyrannical economies always do.
    Apr 30, 2012. 02:33 PM | 1 Like Like |Link to Comment