Sunday, January 4, 2009
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Audited return since Oct 14, 2009
.......Jul 28 ....... .....Total ...........
..n/al......+7.76% Subscribe or Click for Information
Gold and Silver
US$ vs Euro and Yen
(all major currencies are strengthening in unison)
3-Month T-Bill and 10-Year Bond
Welcome to my financial blog
Open Market Forecasts:
Open Trend Forecasts:
CONTACT: fdralloveragain@yahoo.com
Portfolio Watch
.......Jul 28 ....... .....Total ...........
..n/al......+7.76%
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2009
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January
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- TARP = FDIC Default
- Golden Opportunity in Depression
- Statistical Flaws and Other Government Negligence
- The Next Deal
- Federal Reserve Fails Test
- Bailouts Will Never End
- Obama Duped, Already?
- Four Lies a Minute
- The New Millionaire Lifestyle
- Wilshire 5000 by Congress
- Precious Metals Bubble
- An Elliott Thumbnail
- The Almighty Dead Dollar
- TARP II
- The Answer is Simple, Volume
- Follow the Money (Part 3)
- Follow the Money (Part 2)
- Follow the Money (Part 1)
- TRADING ALERT - Treasuries Again
- Two Debts Never Go Away
- Predators to the Rescue!
- Can the Fed Print Currency to Counter Deflation?
- TRADING ALERT - Treasury Footprints in the Sand
- Gold - Money or Currency?
- What if Dollars Were Replaced by Strawberries?
- The Currency Scam
- What is Money?
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- Quote of the Day Archives
- Welcome to my financial blog
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January
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Quote of the Day
"The more we do to you, the less you seem to believe we are doing it."
- Dr. Joseph Mengele, Chief Universal Health Care provider
Quote of the Day Archives
- Dr. Joseph Mengele, Chief Universal Health Care provider
Quote of the Day Archives
Most Recent Comments
Current National Debt
$12.3T Owed
$75T in Mandatory Entitlements
120M Taxpayers (and falling)
$728,000 = Your Share**
**Payoff (does not include interest)
4.63% (Avg) Fed Bank Finance Rate
$75T in Mandatory Entitlements
120M Taxpayers (and falling)
$728,000 = Your Share**
**Payoff (does not include interest)
4.63% (Avg) Fed Bank Finance Rate
About me
- fdralloveragain
- Understanding nature's cycles is the key to successful trading. Cycles of all scales interlock in a dance that is both artistically simple and scientifically complex. Today's predominant cycle will take us deep into an economic depression. It isn't that we as individuals cannot comprehend our fate, it is that we as a group cannot avoid it.
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Market Snapshot
Gold and Silver
US$ vs Euro and Yen
(all major currencies are strengthening in unison)
3-Month T-Bill and 10-Year Bond
Market Trends
Dow:
S&P:
NASDAQ:
Gold:
Oil:
3 Month Treasury:
S&P:
NASDAQ:
Gold:
Oil:
3 Month Treasury:
Welcome to my financial blog
WARNING: This blog contains views that are often unconventional. That's because "conventional wisdom" is designed to take your money
DISCLAIMER: This blog may make specific forecasts, nothing is guaranteed so trade at your own risk. Some content might offend organizations created for the sole purpose of stealing other people's money. If you are offended by the content of this blog, don't read it (and stop stealing other people's money)
Open Market Forecasts:
Issued May 2007 - Short real estate, home builders, bond insurers and leveraged financials
Current Target - Ongoing declines
Issued Oct 2007 - Conservative investors go 100% cash and Treasuries
Next target - Two years of physical cash in home; Ladder short to medium term US Treasuries with the rest; Minimize bank account balances, CDs, and non-treasury bonds; associate high paying bond yields with capital starvation
Issued Oct 2007 - Short Dow (14,100) and broad market indexes
Next Targets:
by 2012 - Dow 3,800
then - as high as Dow 6,000
by 2025 - Dow 800
Issued Oct 2007 - Short Automakers and Airlines
Next Target - More declines, many luxury makes go the way of Duesenberg
by 2020 - pain
Next Target - Gold $475, other PMs with proportionate or greater declines
By 2020 - Gold $225
Next Target - $25
by 2020 - $4
Open Trend Forecasts:
Relentless DEFLATION
Increasing US Dollar buying power as measured by falling real estate prices, stock prices, most asset prices, and falling treasury yields; Periods of excessively negative 3 month treasury yields
Continued transfer of taxpayer funds, high yield preferred stock, risky loan guaranties, and asset holdings to the Federal Reserve and connected bankers in the face of taxpayer clamor; result: increased strain on commercial and consumer credit accelerates deflation
Main Stream Media to continue promoting Federal Reserve and banker agenda: more debt, more debt, more debt
5,000+ bank failures
More bank consolidations intended to shift FDIC insurance obligations to common stockholder losses
FDIC bailout/restructuring that compromises insurance payouts
Massive "New Deal 2.0" in order to transfer maximum wealth from the poor (taxpayers) to the Federal Reserve, connected bankers and corporations, and to benefit politicians; result: same as the original New Deal, economic depression
Supreme Court Increased to 11 Justices by 2015, unless the conservative majority yields first
Higher mileage vehicles go cheap and dirty, not expensive and "Green"
Continuation of 2007+ global cooling
CONTACT: fdralloveragain@yahoo.com
Anonymous wrote:
ReplyDeleteIn reply to KCB.
"Now, for the claim you people are making to be true, that there's no currency inflation due to defaults and bad bets, there must be a flaw in the above analysis, some mechanism that causes the defaults and bad bets to remove currency from the system without involving repayment of loans. So: where/what is it?"
January 1, 2007. Bank A bets with Bank B that housing prices will have come down for at least 10 % (calculated from now on) by end 2008. If after those 24 months housing prices have decreased for at least those 10 %, Bank A gets a fixed amount of 100 millions of dollars of Bank B. The same applies to the contrary if housing prices won't have decreased at least 10 % at the end of the period. Then Bank B would receive those 100 millions from Bank A.
End 2007. Housing prices have come back 6 %.
As Bank A is very sure of its prognosis and its calculation models, it assesses the propability of winning the bet at 75 %. On its balance sheet, bank A therefore values its rights out of the bet against Bank B at 50 millions dollars. At the end of the fiscal year, those 50 millions increase Bank A's annual profits.
But what with regard to Bank B? One would suspect that the bet had caused a loss of 50 millions of dollars to Bank B, right? Well, surprise! Bank B uses different prognosing- and valuation models than those Bank A uses. In fact, bank B is quite optimistic housing prices will rise again very soon and calculates the odds of winning the bet at even. Therefore, it does book neither additional profit nor loss on its balance sheet.
BREAK. Here comes the astonishing lesson to be learnt. Although both banks have acted in accordance with valid accountancy rules, the banks' total assets, when added up, have increased by 50 millions - millions 'out of thin air' and only due to different valuation models, although no new money/currency has been printed!
So, at the end of fiscal year 2007, there is a virtual increase of the amount of currency in the SYSTEM of 50 millions of dollars!
Well, guess what happens next? During 2008, housing prices decline further, and by the end of 2008, they have declined more than 10 %.
Bank A receives 100 millions of cash from bank B, which means that Bank A can book an additional profit of 50 millions for 2008.
Bank B has to pay 100 millions to compensate Bank A and has to book an according loss of 100 millions.
We see that now, the total amount of currency in the system has decreased again, for 50 millions, and come back to the niveau of begin 2007 once more.
CONCLUSION?
Well, the conclusion is that everything depends on the time-frame. If you look at the development of the amount of currency in the SYSTEM from begin 2007 to end 2008, all in all nothing has changed. However: if you look at it year per year, you will realize that during 2008, the amount of currency has actually decreased significantly.
In my (very simplified) example, I have chosen a very short two-year period for the bet. However, imagine that hundreds of banks around the world have made hundreds of thousands similar bets as the one described, but with regard to much higher amounts of money, and most importantly, with a much longer 'life'-time. As it is a fact that banks use different valuation and accounting models, it now becomes obvious that the world has seen an enormous and artificial increase of (virtual) currency over at least the last decade. Now, however, that more and more bets reach the end of their lifetime and at the same time develop in the way most of the banks have not expected (='turn bad'), this increase will automatically be corrected and brought to the niveau before the virtual currency increase on the major scale started.
Funnily, there is NOTHING to do about it. I hope this explains why bets going bad decrease the amount of currency in the system.
I guess since this is the proper place for this conversation, I should respond here with what I responded in the original thread:
ReplyDeleteBut asset valuation and *currency* aren't the same thing! Asset valuation is an item on a balance sheet. It doesn't have any real value until the asset is sold: exchanged for money. In other words, it has *indirect* value in terms of currency.
Currency itself is the direct medium of exchange used by the society in question. The amount in existence is the sum of deposits plus the amount of physical cash in circulation. In normal times, it is created when a loan is made and destroyed when the loan is paid back. The only other way to destroy it is for a fractional reserve institution to disappear without paying out all its deposits first. During the Great Depression, that's exactly what happened to a lot of banks, and the end result was massive currency deflation.
So the flaw in your example is the 50 million dollar valuation of the bet. The fact that it's put on the balance sheet means *nothing* with respect to the total amount of currency in the system, because a bet valuation is not itself currency: it does not appear as a deposit nor is it cash on hand.
This is critical: an asset IS NOT THE SAME as currency!
If you tell me that we are experiencing price deflation (which means that the value of assets as denominated in the prescribed currency is decreasing), I'll agree with you all day long.
That is *not* the same as currency deflation! Currency deflation literally means that money is being removed from the system. And unless I'm mistaken, the *only* way that can happen in a fractional reserve system is for a loan to be paid back with cash.
So unless that 50 million dollars appears as a deposit, it can't be counted as currency. If it *does* appear as a deposit, then from what loan did it originate?
"Currency itself is the direct medium of exchange used by the society in question."
ReplyDeleteCurrency is only a small part of exchange used by the society. Most of our transactions go thru plastic, a debt instrument.
Merchants get paid thru credit. Before you pay off your debt, net currency in circulation increases thru your credit, which means inflation. Once you pay off your bill, that money is gone, circa deflation.
Hope this helped...
Anonymous wrote: "Currency is only a small part of exchange used by the society. Most of our transactions go thru plastic, a debt instrument."
ReplyDeleteYes, but don't you see? In a fractional reserve banking system such as ours, even *currency* is a debt instrument. Almost all of it is issued as a result of loans -- debt.
And credit cards are issued by banks, so I expect the debt issued on them follows the same fractional reserve rules that other types of loans follow.
Anyway, I don't see how credit cards, or their use, change the argument regarding currency inflation/deflation at all...
Great comments gentlemen. Allow me to add my two cents. While A and B dickers about their little zero sum shell game of bookkeeping asset devaluation, perhaps there is a third variable. Who was forced to pay off the bet to B on behalf of A? Could it be C - the consumer (taxpayer)? So C now has less real savings, and therefore has less demand for products and the loansharking of both A and B who depended upon C to take loans to instigate currency inflation. Thus, C arrives generates another variable - D. Anyone want to guess what D stands for?
ReplyDelete-PPT
KCB.
ReplyDeleteGreat posts. I think the confusion resides on the fact that banks lend AGAINST their balance sheet. An inflated balance sheet therefore means currency inflation.
A $100M optimistic valuation times the 10x multiplier ratio, allows the bank to continue to maintain a $1.0B in loans outstanding that it would otherwise need to close (or raise capital) to stay within its reserve requirements.
Abrazos,
ARM
"Anyway, I don't see how credit cards, or their use, change the argument regarding currency inflation/deflation at all..."
ReplyDeleteAgreed. Credit card usage illustrates how deflation can occur, as currency is taken off the table when consumer pay back their balances.
Anonymous wrote: "Agreed. Credit card usage illustrates how deflation can occur, as currency is taken off the table when consumer pay back their balances."
ReplyDeletePrecisely. And that is just like any other loan. Credit cards are no different except that they are not collateralized. If the borrower defaults on his credit card, the bank has no collateral he can sell to reduce the loan balance.
If people are paying back their credit cards at a faster rate than they're using them to purchase goods and services with, then that obviously represents a deflationary scenario.
But the situation we face today isn't that at all (more precisely, the deflationary situation you describe isn't the dominant one today). What we're facing is huge amounts of credit card *default*. And as with any other loan, when a credit card is defaulted upon, the money that was issued for the loan remains in circulation. That is *not* deflationary: it's *inflationary*!
"And as with any other loan, when a credit card is defaulted upon, the money that was issued for the loan remains in circulation. That is *not* deflationary: it's *inflationary*!"
ReplyDeleteCorrect, the loan remains in circulation but credit has evaporated, thus putting a strain on future net buying power.
You may have defaulted on yesterday's debt and thought you got away with it, but your bad credit has already prevented you from generating future debt, resulting in a devastating deflationary spiral.
Anonymous wrote: "You may have defaulted on yesterday's debt and thought you got away with it, but your bad credit has already prevented you from generating future debt, resulting in a devastating deflationary spiral."
ReplyDeleteDeflationary only if the loans currently on the books are paid back!
Suppose everyone, in a concerted effort, defaulted on their loans, and instead used the cash they received to pay each other for goods and services, and to take out and repay loans under a self-enforced full-reserve banking system.
Would the end result be a deflationary spiral? Not at all! Instead, the currency supply would stagnate. There would be neither currency inflation nor currency deflation.
"Future buying power" is, when applied to loans, something of a misnomer. Because loans inject money into the supply, they cause the price of everything to increase, thus reducing the future buying power of money currently in circulation.
And, in fact, much of the point that FDR has been making with respect to the system we have is that it is really a net *drain* on the economy. Loans by their very nature are inefficient, because they force the borrower to pay more for something than he would if he paid for it with his own funds.
So you can argue that people who default on their loans won't have as much access to credit as they would otherwise, and that's true enough, but with respect to currency inflation/deflation, it's relevant only to the degree that it causes a shift in the balance of loan payments (outgoing versus incoming).
If we have currency deflation right now it's only because people are paying back their loans faster than they're taking them out. Given the reluctance to lend at the moment, it's not hard to imagine that the balance is deflationary. But defaults are driving it only to the degree that they are causing additional reluctance to lend.
Hi FDR,
ReplyDeletePlease excuse my ignorance here - there is still inflation and deflation of assets under a gold-backed currency system isn't there? (I know gold-backing stops currency inflation / deflation but what about other assets).
Thanks.