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  • Interesting Times For All Commodities And Investments!! Chapter 101 ..... [View instapost]

    Think about what money is for a moment. Money is a contract for exchange. You could sit down with another party and write out a contract (a note), but that starts to get expensive for every exchange you want to do. An exchange that happens over and over eventually has commonly understood terms. It starts to become like saying "ditto", and thus you don't need the entire contract (which is a note), you just have a representation of the contract (like a coin).

    Over human history this is what we have commonly come to understand as money. The mediums that represent the money contract we have shrunk down to a contraction in the form of some medium that represents the underlying idea of the money contract, what you call "a transfer of wealth".

    Markets developed these abriged contracts to facilitate exchange. Money mediums originally started out as commodities. Salt is a great example. Everyone used salt, so the guy that made animal skins and the guy that grew corn would both get salt from the guy that made salt. Eventually animal skins and corn were priced in terms of salt. Roman soldiers were paid in salt, and a bad soldier was "not worth his salt"(which is where we get this expression). The problem with these types of mediums is that they biodegrade, like tobacco or rice (which have also been used as money mediums).

    This gave rise to precious metals to replace commodities like rice and salt. Of course PMs must be guarded, and banks arose as specialists in guarding PMs (among other things). When you "deposited" your gold, you received a receipt, what we know as a bank note. Then the notes began to trade like gold, which means notes became money mediums. As long as people had faith in the note that was tendered, the note was "as good as gold".

    What was really going here is that gold was selected by the market as the most prized money medium, but the rise of banks added a wrinkle wherein the "receipts" (bank notes) started to become suspect if the holder could not exchange the note for gold.

    Again, though, think why people wanted the gold. They didn't want to live in it or eat it. They wanted it because the markets had chosen gold as the most desired money medium. It didn't rust, it didn't wash away like salt or rice, and it couldn't be counterfeited like a bank note.

    Still, though, the gold wasn't the desired asset. What was really desired was the asset that gold could be exchanged for, which are the only real assets, those things that sustain and improve human life. So, when you put gold in a bank, the note you received is a claim on the gold which is a claim on assets, so the note is a claim on assets as well. In other words they simply represent ownership rights in real assets.

    So, in a globally consolidated balance sheet, all the due to froms and their representations (an account receivable, a stock certificate, or a piece of gold) would really be just representations of the claim on assets (really a claim on labor - labor creates assets) that they represent. Real assets, things we eventually utilize for life via consumption, would be on the "asset" side and ownership rights would be on the "liability or capital side" (which is really just the ownership rights side).
    Jan 14, 2015. 04:29 PM | 1 Like Like |Link to Comment
  • Interesting Times For All Commodities And Investments!! Chapter 101 ..... [View instapost]
    "So while we generally think of the bank as a holder of assets they can also be considered holder of liabilities. "

    This has always been the case. It just depends on whose balance sheet you are looking at. On a bank's balance sheet, a deposit is always a liability. The individual making the deposit has a balance sheet that shows an asset that we call "cash".

    Of course, what is "cash". Its like gold. You can't eat it, live in it, or wear it, yet we call it an asset. Both gold and notes are money mediums. People value them because they can be exchanged for things you eat, live in, or wear.

    In other words, money mediums are receivables of the ultimate goods that matter to a human and their goal of a high standard of living. As such, "Cash" and "AR" are really the same thing. They are all claims on labor, and their value is derived by the value of the labor that will ultimately make the things that people consume.

    Here's another way to look at it. If you consolidate the economy of the entire world in one big balance sheet, gold and central bank notes would not show up as assets, they would show up below the asset line. The top part of the balance sheet would be all the real things (food, clothes, factories, etc) and the bottom part would be all the ownership claims on those assets. Gold, stock, bonds, central bank notes, would all be the mediums that simply represent the claims on those assets.
    Jan 14, 2015. 02:55 PM | 1 Like Like |Link to Comment
  • QuickChat #276, November 27, 2014 [View instapost]
    "December retail sales were awful, though the fourth quarter as a whole was not bad. Headline sales fell 0.9%, ex-autos sales were down 1.0% and sales ex-autos and gas fell 0.3%. when gas prices are sharply lower, sales-ex gas should rise (people spending at least some of their savings at the pump) but sales ex-gas fell 0.4%. Ex-autos and gas were unrevised in October and November.

    Weakness in building materials could be the first indication of slower residential investment in oil states. For four years, the same number of building permits were filed in Houston as in California.

    The fourth quarter ended on a weak note, but started strong. Sales ex-autos and gas rose 5.0% at an annual rate in the quarter, the same as in Q3. Hence, it may no longer be safe to assume consumers spent some of the additional windfall from cheaper gas, they at least appeared o spend as much of it as they did in Q3.

    The report was not entirely bleak. There were increases in furniture sales and sales of food and beverages increased. People spent more at restaurants and bars and spent more on health and personal care products, too.

    Bottom line: A weak finish for fourth quarter retail sales suggests consumers may not be quite as happy about lower gas prices as thought. With consumption forecasts likely to be revised lower, look for GDP estimates to be revised down too, likely to about 2.7%. As for the Fed, they won’t worry about one month’s weakness. Only if consumption is weak in Q1-15, too, will it give them pause."

    Maybe the jawboning from the Fed won't be so strong on the 28th.
    Jan 14, 2015. 11:45 AM | 5 Likes Like |Link to Comment
  • QuickChat #277, January 7, 2015 [View instapost]
    ECB QE is the next big factor to push us back in the direction of risk-on. LTRO resulted in equities up and a slight up tick in interest rates (though it was actually more of a floor). The plan for ECB QE is about a trillion. If they could pull that off, then we will have more support for asset prices.

    QE is basically a tax that transfers wealth from the general populace to the financial markets. So to protect yourself and be part of those getting richer while others get poorer, you need to be in the financial markets.

    Remember we also told interest rates would go up when Taper began and finally finished, but when Taper began and finished rates fell as risk-on disappeared. The reason is a central bank is a consumption subsidy, just like infrastructure spending is (overpaying for roads and bridges that cost twice what they should, take twice as long to build as they should, and get built in the wrong places because of politics).

    Consumption subsidies get measured in earnings, earnings translate to higher stock prices, higher stock prices imply growth, that draws people from safety, and presto equities and bond rates go up (just like what we have seen during QEs - because a central bank is a consumption subsidy).

    So, without Fed and ECB balance sheet expansion (all we have is BOJ and they just aren't big enough), risk-off is re-emerging.

    What we have to look to next is more indications that both the Fed and the ECB will start expanding their balance sheets again. There is an FOMC meeting on the 28th. We may get hints of what they will do then.
    Jan 14, 2015. 10:24 AM | 2 Likes Like |Link to Comment
  • QuickChat #277, January 7, 2015 [View instapost]
    "even if they let them repatriate it tax free they won't bring that much home."

    The so called experts wanted a central bank system so that taxes would no longer be needed to "fund" the gov. Then they get the monetary system they wanted and these so called experts are still pumping up rhetoric that makes people still think taxes "fund" the gov. Idiots in congress indeed, which also include the idiots at the Fed Res, the idiots in all the regulatory agencies (incuding the DOTs) and all the idiots that vote for them and then complain about them being idiots.

    We were told the Fed would end all economic downturns, and then when it didn't, we were told we need more of the thinking that created the Fed to deal with the economic downturns we were told the Fed would cure.
    Jan 14, 2015. 10:12 AM | 7 Likes Like |Link to Comment
  • Additional Bullish Portents For Treasuries [View article]
    The 10 yr was at 1.78 this morning. BOJ QE isn't doing much, and we don't have ECB QE, so we are seeing the typical QE off pattern here. The overall size of the Fed balance sheet may provide some floor, but where is the question. Economic data is still soft, Europe still has its issues, and we still have the impacts of Ocare and Dodd Frank to deal with in 2015.

    I have been slightly biased to risk-on since taper ended, but I was counting on more agressive action from the ECB.

    We do have a FOMC meeting on the 28th, so maybe we get some jawboning from that will keep me slightly biased towards risk-on.
    Jan 14, 2015. 09:26 AM | Likes Like |Link to Comment
  • The Great Unwind: What Will Rising Interest Rates Mean For Bank Risk Exposures? [View article]
    "But this low interest rate environment can't last forever, and a growing stable of research points to rising interest rates"

    I saw 1.78 on the 10 yr this morning.
    Jan 14, 2015. 09:12 AM | Likes Like |Link to Comment
  • Daily State Of The Markets: Bears Got It Wrong Again (On Bonds) [View article]
    The 10 yr was at 1.78 this morning.
    Jan 14, 2015. 09:09 AM | Likes Like |Link to Comment
  • Where the 10-Year Is Headed Now [View article]
    This morning the 10 yr was at 1.78.
    Jan 14, 2015. 09:06 AM | Likes Like |Link to Comment
  • The Treasury Bull Market Is Over; Inflation Will Take Center Stage [View article]
    "I believe that bond yields will trend higher for long term and so will interest rates in the United States."

    The 10 yr is at 1.78 this morning.
    Jan 14, 2015. 09:04 AM | Likes Like |Link to Comment
  • Dear Dr. Yellen, Forget About Inflation, Deflation Is The Real Concern [View article]
    "Truly laughable statement by you to say people are conditioned by my statement of facts."

    But you haven't offered any facts. You can't dispute the Fed actions of the late 20s, and you can't dispute who Hoover and FDR were.

    You do point out the suffering gov't action caused, but you leave out it was the gov't action that caused it in the first place. That's like congratulating a mugger for taking his victim to the hospital. So, all you are doing is repeating a specious dogma that is trying to imply causations that don't exist.

    Unitl you learn to consider all the factors and realities in the market, the value of your commentary on investing threads is questionable.
    Jan 9, 2015. 01:36 PM | Likes Like |Link to Comment
  • Dear Dr. Yellen, Forget About Inflation, Deflation Is The Real Concern [View article]
    "deflation retards economic growth and instills a mind set that investment and spending today is better left until another time."

    This is total propoganda nonsense. Such a statement has no connection to reality or logic. It is always trotted out by people who aren't educated on these subjects, thus they wind up believing such bilge.

    If deflation means no one will buy anything, then why are people buying computers and flat screens lik there is no tomorrow.

    The problem with your line of reasoning is that you are contriving a scenario that does not exist. The reality of the world is much different than the fantasy that has been implanted between your ears.

    The desired scenario is for everyday consumable to deflate on a regular basis, and the people and assets that cause those consumables to deflate will inflate.

    In other words the people and machines that can make food cheaper and more plentiful on a regular basis are represented by stocks that constantly go up in value because the assets they represent go up in value.

    This is the whole point of technology, to work less and have more. What good is it if everything is always going up all at the same rate. Simply spending faster does not mean you are working less and having more.

    The other problem you have, is that you just keep repeating your dogma rather than offering up any facts or history that supports your position. This is why your analysis has no predictive value with regards to investing.

    Your dogma makes you blind to the sudden broad deflation that gov regulation (aka central banks - they are just price fixing for money) has with regards to causing the broad sudden drop in all prices. It is these contrived collapses by gov intervention that are causing the very problems you say need to be solved by the gov intervention that caused them in the first place.

    Jan 9, 2015. 01:04 PM | Likes Like |Link to Comment
  • QuickChat #276, November 27, 2014 [View instapost]
    ECB is still working towards QE.
    Jan 9, 2015. 09:19 AM | 2 Likes Like |Link to Comment
  • Dear Dr. Yellen, Forget About Inflation, Deflation Is The Real Concern [View article]

    Yeah, the threat to watch out for is the Fed making some other drastic move like the did in 1929 or from 2004 to 2007. In essence what they do is dry up notes. At a 30k ft level the ratio of notes of the entire economy to assets of the entire economy shrinks. One expression of notes to assets is consumer credit. Another is excess reserves at the Fed. Another is Treas notes.

    The Fed is the fount of all bank related notes in our system, so when the fountain pulls in its flow, that will cascade through the system. That means assets in the economy have a harder time being bid up in price via extra notes. When people see falling asset prices, they panic. The reason is they have been conditioned by guys like Net to panic. That creates the flight to safety, and then interest rates fall.

    I'm not advocating for anything the Fed is doing, I just saying that certain realities will happen based on the realities of the actions the people at the Fed engage in. Since they are operating under a dogmatic, fundamentalism that is based on specious reasoning rather than deductive reasoning, they hold the potential to seriously damage our financial wealth.

    My goal is to see life for what it is, rather than what some fanatic tells me it is, and find ways to protect myself. Realizing that the Fed is one of the major factors for sudden asset deflation and then reinflation because of the bungling of idiot gov regulators is one way you learn to protect yourself.

    This is why back at the end of 2013 when Taper was about to take affect and everyone was saying rates were about to go up, I was saying rates were about to go down. And, now, that the Fed is rumbling about raising the DR or shrinking its balance sheet or both, that signals to me that I need to get ready to position for risk-off. We will just have to see if they really do it or are just jawboning.
    Jan 8, 2015. 05:47 PM | 2 Likes Like |Link to Comment
  • Dear Dr. Yellen, Forget About Inflation, Deflation Is The Real Concern [View article]
    Deflation of everyday consumer prices and the cost of capital is a good thing. Those things raise the standard of living. You get to have more and work less. The great depression was gov stealing people's wealth, and then using the travail it caused them to gain even more control over them which made it far more difficult for them to get their wealth back. FDR created a protectionist system where he and his cronies would get rich while everyone else was made poorer. We have had the same thing since 2009.

    Its important to remember that the great depression was another market collapse that was caused by gov action. Strong had died in 1928. Strong was Morgan's man at the NY Fed, which is where Morgan was. So, even though Strong was not the Fed chair, he may as well have been. Strong had kept the DR rate low, but when he died, Young took over, and the tenor of the Fed changed. In 1929 the Fed started righting papers about how they thought the stock market was too high and that they needed to do something. Ironically this is the year in which Irving Fisher made his famous claim that the stock market had reached a permanently high plateau.

    During the Fall of 1929, the DR was raised from about 3% to about 6%. A similar thing happened from 2004 to 2007 (which is when the S&P started to fall apart). In Oct of 1929 the DR rate hit 6%, anybody remember what happened to the stock market in 1929? The Fed did just what it said it would do, it reduced the value of equities. So far from being some random cycle caused by so called "out of control free markets", it was the Fed that caused the market crash in 1929. The the interventionist Hoover (Hoover was no free market guy. In fact he and FDR were involved in the ACC

    ) and FDR took the opportunity based on their ignorance of what the Fed had done to rush in and do just what was done starting in 2009 - work to keep prices and wages up. The result was the cost of production did not justify the risk, so the addtional production that was necessary to replace the wealth the gov had cost people did not occur.

    The product of all this incompetence was the stock market crash, followed by the great depression. We have had a similar result since 2007, when the Fed started to crash equities in 2007 and which culminated in 2009. What followed was more intervention, which was really just an attempt to keep prices and wages up. The result was muted production and economic data that is more consistent with a malaise, just like the 1930s and early 40s.

    The lesson in all this is don't fall for the propoganda that without gov, deflation will kill us all. Gov is typically the one causing the sudden drop in asset prices. That then gives them the execuse to come in and regulate business even more, at the behest of their special interests that fund their campaigns which then in turn destroys their competitors (an equity index made up of protected businesses will absolutely go up). The result is subsidies for financial markets, wherein the markets will be reinflated, thus making the rich richer and the poor poorer.

    What you want to do is to recognize what is going on, instead of what Netblue tells you is going on, and structure your investing to take advantage of this.

    In general you want to sell at the peak (just before the Fed raises the DR, shrinks its balance sheet etc), move to bonds, then when the collapse happens and people flee to safety, rates will be lowered, your bonds will have gains, then sell your bonds for gains right before the DR is lowered or QE is started, take the cash, and go back into equities at the bottom. Then when the Fed reinflates, you will be inflated right along with it.

    Anyway, that's the general idea. The specifics on how you do this have to be worked out based on your own personal situation. What you will be doing is to make yourself one of the ones getting richer while everyone else gets poorer. Its sad I know, but the people voting for this nonsense are doing it to themselves. Don't be one of the suckers that gets fear mongered into doom and gloom deflation talk.
    Jan 8, 2015. 03:22 PM | 2 Likes Like |Link to Comment