Tuesday, March 31, 2009

Fed vs. Ford

"If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warranty will be safe. In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warranty."

- Barack Obama
The Ford family's rivalry with the Federal Reserve is one of the more interesting sub-texts of the socialist Coup in progress.
“It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

- Attributed to Henry Ford, but he was quoting Andrew Jackson (see quote of the day)
Henry Ford was ahead of his time. He staunchly believed the Federal Reserve was behind the Great War and would cause more world wars for profit. Ford was an advocate of Ben Franklin's idea of land-backed bonds issued by congress to back constitutional U.S. paper.

November 4, 1921, NY Times:

Goldman Sachs Welfare Case

Total Goldman Sachs Employee Compensation: $10,934,000,000
Employees: 30,067
Average Pay: $363,654 (including janitorial staff)

Bailout Money: $10,000,000,000 to avert bankruptcy
Bailout Money funneled to GS through AIG: $12,900,000,000
Total Taxpayer Welfare: $22,900,000,000

Taxpayer loss per Goldman Sachs employee: $761,632

Despite running a massive loss, CEO, Lloyd Blankfein personally pocketed $60,000,000 in taxpayer funds, authorized by Congress and Barack Obama.

Obama = Bush

Unconstitutional Acts Against the People

Military to Raise Debt

Treasury Instead of Congress

Bank Owned and Operated

Sunday, March 29, 2009

Cause and Effect

(Please review: Had Enough? and Elliott Thumbnail (cont) before diving into the following)

Looking at tonight's headlines - "Obama Fires Wagner" - strikes me as a good time to talk about cause and effect.

Some people will blame any market loss tomorrow on Obama getting in the way of business. They will say, the market is compensating for destructive, heavy-handed government meddling which always ruins economies.

Ok, whatever.

The useful part of this "news story" is not any specific scenario, but to ask the bigger question, "what is the cause and what is the effect?" For if we understand the nature of cause and effect, we are more able to predict both, for profit.

Let's assume the market initially declines tomorrow.

I submit that if you asked 100 people, "what is the cause and what is the effect?" almost 100 would say, Obama's actions caused the market to realize that government interventionism is not good for future business; the effect was the market decline.

I say, that is wrong. Reality is the opposite:

The tanking market created Obama's interventionism, and the pre-programmed thresholds of "had enough" caused Obama to act at the same time as everyone else. A much broader collective "sell off" is the cause; Obama's actions, and the corresponding news report, is the effect.

Once you view the news for what it is, the effect of collective pre-programmed human emotional thresholds firing, and not the cause of market action, the easier it will be to identify and profit from cause and effect.

Too many traders lose because they read the news with a backwards perspective. Instead of trying to anticipate what the news might cause, one should ask, what will cause the news?

You are a proficient trader when you know a big story is about to happen, one that will move the market in X direction, but you have no idea what it will be. Then, to everyone's surprise, it happens.

If an asteroid hits the earth that news is causal, but all man-made news is effect.

Once the news is viewed for what it is, pure effect, it is easy to ignore it and move on to the causal trend in play. If you view the news as causal, as most do, you will almost always lose.

FDIC Charges and Defaults

"Can you give some examples where a depositor with an account at an FDIC-insured institution which was below the FDIC maximum insured amount managed to lose money"


First, each and every day, every bank account holder loses the premiums that the FDIC charges all banks to create the reserve base. That is passed on to all depositors in the form of fees. The FDIC is in the process of massively increasing insurance premiums which will be passed on. Insurance companies will always say that no beneficiary has ever lost money, conveniently forgetting all the premiums paid over time.

In the future, who knows how much that will cost depositors. And just like the feigned "outrage" with AIG, congress could charge "banks" (that means depositors) trillions more to cover their ghastly FDIC coverage shortfall.

Second, all of the TARP I and TARP II money was a FDIC default. Dead banks were consolidated instead of closed. This cleaned out stock holders as a substitute for FDIC obligations.

We also saw the rampant theft of $trillions by non-bank ambulance chasers, like Goldman Sachs, who magically turned into a bank to steal the FDIC's TARP funds to float their own business failure. So we have no idea what it will take to bailout the FDIC over and over again in the future, or if two or three rundant bailouts is all they'll get.

Third, anyone who experienced an actual FDIC takeover lost all of the interest from CDs over the time they held them. If the FDIC insured CD is brokered, which many are, CD holders lost most or all of their principal.

We also know the FDIC has never been tested by a depression. They had a $15T coverage shortfall at the $100K limit; I have not seen updated figures since their obligations were massively increased.

Saturday, March 28, 2009

Taxation Deflation

President Obama's pledge to eliminate itemized deductions for the dollar weighted majority is a great example of deflation from a source not often discussed - tax policy. A quick sketch of the deflationary impact of one part of that change, the mortgage interest deduction:

Let's use Barack Obama's Chicago home as a test case.

According to reports, then-Senator Obama paid $1.65M and took a 30Y fixed $1.32M mortgage with no points at 5.94%. With other taxes and insurance, his mortgage payment was about $10,000 per month. Interest paid the first year was $78,000, which amounts to about $6,500 per month. Of that, $60K was deductible as capped by the million dollar rule. The same year, the Obama's reported an Adjusted Gross Income of of $1,655,106 (up from $207,647 the year prior--nice job) which put him in a 35% marginal tax bracket.

All that amounts to a monthly benefit of about $1,750 from the mortgage deduction, adding $290,000 in buying power. But under the President's new tax plan rates jump to 39.5%, so the lack of mortgage deduction plus the tax increase amounts to a loss of $2,000 per month, or $335,000 in buying power.

Under the new plan, his best offer would have dropped from $1.65M to $1.32M, an immediate price deflation of 20%.

We Used to Have Zeros

Nancy wrote: "If it is relevant to your planned posts, I would appreciate having your recommendations for treasury terms"

Hi Nancy,

The reason to convert assets to Treasuries is not the advertised yield, but to preserve and protect your inflated dollars. The important thing when using https://www.treasurydirect.gov/ is to select C of I as your Maturity Payment Destination:

By using C of I as your holding account, you never have to worry about getting your cash back through the U.S. Treasury window. You can use C of I funds to make future T purchases, or redeem part later if needed.

The term you select for each instrument is a personal decision. If you don't need the funds, obviously the longer the better. A lot of people create ladders to get rotating access to longer term funds in some selected time increment. For example, scheduling a 52 week purchase each 1st of the month, then doubling the amount next year, or redeeming funds as the previous year matures.

Ladders are usually more appropriate to plans to generate income, you will have plenty of money to do that later as long as you take action. This is about protection. I recommend slamming as much as you can into any instrument of any term and defunding to C of I. Optimize it later, after it's in the Treasury.

The idea is to create a time capsule.

Decades from now, when your grandchildren ask for another story about the Great Inflation, that magical time when children awoke to holidays blanketed in toys, families had a room for everybody, and people drove their own cars, you can say, "Not only will I tell you what it was like, I will show you." Then take them to your time capsule, open it and show them more bills than they dreamed existed, most dated 2007.

"What are these things?" a child asks with puzzled eyebrows, pointing to the corner of one bill.

"Those are zeros, little one. During the Inflation, we used to have zeros."

Friday, March 27, 2009

Why Cash?

JAM123 wrote: "Is money once again running for the exits and out of the stock market as measured by the 3M T-bills rate??
Is this a coincidence?"

Hi Jam,

No, I do not think it is a coincidence, but at the same time, it is only macro data. This is the 1 month rate, which is very important but less significant than the 3 month going under 0%.

T bill rates are key to the big picture (in a downturn), because Ts are one of those things big enough not to lie. In other words, not easily influenced by traders.

What does a negative T rate say? That deflation remains the dominant force in play. In my view, it is borderline absurd/impossible to make a case that the currency supply is expanding when people, not only won't or can't borrow, but are wiling to pay a premium (a negative rate) to protect existing capital.

As you know, I think we are feeling the water swell as a large wave of bank failures approaches. The wave is so big that it is hard to know when the swell will crest and break. But once the wave does break, and I think it will, cash could become prohibitively expensive.

As we see today, even Treasury auctions greatly expanded to fund shocking new government spending, are not enough to service our basic demand for cash. This goes to the heart of the deflation argument. If new gov spending is so inflationary, entertain this scenario for a moment: a few billion in daily T auctions meets, let's say, rumors of C or BAC toppling, and the corresponding mad rush to get $10T+ in shaky bank paper through the Treasury window.

Negative rates? Or...
Filename: j0433136.jpg Keywords: business, business sign, business signs ... File Size: 480 KB Provided by: iStockphoto.com
There are many reasons to go to cash early. (1) is the super return cash yields as asset prices crumble pretty quickly; (2) for its unmatched risk:return ratio; (3) is the insurance value physical cash provides against any acute shortage scenario (physical gold is similar in function, but obviously less liquid in an orderly squeeze); (4) is the discussion above--ultimately, there is not enough cash to go around. In other words, because you have to move to cash early.

Thursday, March 26, 2009


While I think we could oscillate for a while way up here, we are technically bounded so a tight stop loss is possible. I am placing a short bet on the Dow now at 7,920 with a stop loss at 8,050.

Wednesday, March 25, 2009

Taxpayer Risk is Uncontained

It strikes me from watching a small amount of TV, that few people on either side of the microphone understand the magnitude of losses we are talking about with forced taypayer assumption of distressed paper. Most people seem to be under the impression that companies like AIG and other dead financials have lost almost everything they own. That is totally wrong. They’ve lost much more than they had, have, ever will have, and more than we could ever pay them.

I expect politicians to be clueless. I expect bankers to be clueless. I hope reporters eventually figure it out. I know citizens figured it out long ago. With the hope of bringing around groups that still need help, I offer this simple analogy to help illustrate potential losses if we buy this sludge:

I have a computer model that tells me no baseball team has ever lost more than 80% of its games in a single season. It crunches all the historical data that we had time to enter, and it tells me than such an event is "impossible" in MLB. Convinced that I am a new age technical genius, I start placing bets that no team in baseball will lose more than 130 games in any given season.

I can't place the bet I want in Vegas, so I create my own derivatives. That is, I derive my own bet structure with third parties, based on outcomes in the established market, and we write up a legal contract to seal the deal.

My bet is likely to win, so the market forces me to accept discounted winnings relative to what I lay down. The market determines that I will win 4.6 cents for every dollar I place at risk. Yay! I don't care. That's 5% per year GUARANTEED.

Best of all, there is an incredible appetite for my contracts. Who is doing the betting? Oddly, it is the people who know the game best: the players, the owners, and the fans. I'm ok with that, because they don't want to win, they actually want to lose. They are using my paper as insurance against a really bad season, which they do not expect, but they throw a few cents at it, just in case.

So I form a company. Cash floods the 94th floor, we have to take the fire escape to get home at night. There are so many crazy losers out there, I hardly have time to drive my Gallardo between contracts. We're making billions, a nickel at a time. It's brilliant.

Pause - The astute reader already recognizes a disconnect. The market has discounted my odds differently than the computer model. Specifically: "Impossible" vs. 20:1. But the data can't lie right? So the market odds are wrong, right?

The players deeply understand the game, they know what can happen even if it has never happened, the computer only knows what has happened. Anyone with an ounce of trading experience at the companies making these bets should have screamed stop! Look at the volume of bets against us. High transaction volume = the CORRECT price. Something is wrong.

But no one, no one, at Bear, Lehman, Goldman Sachs, AIG, and on and on, was good enough to know what any country farmer would have told them for free: there is no such thing as a free lunch. There is no return without commensurate risk, whether you are capable of deciphering that risk or not. That unbelievably simple fact was lost on every key employee at every one of these sham firms. Mind-blowing incompetence, from top to bottom.

So after I borrow my usual $290B from the two other firms doing the same in the NFL and NHL, I lay down my usual levered-up $500B for the 2007 season. I'm off to northern Ireland to kill partridge.

But then something strange happens. The Cubs start to stink. Not the usual stink, I mean they really stink. Halfway through the season, and they've only won 14% of their games! The market can't even figure the value of my paper, no one really knows how to price it, but they all agree it is bad. Really bad. We know we can't lose, but for some reason, our stock price drops 80%. Huh? At this rate, we are going to have to find more collateral to back our loans. This can't be happening.

We hold a company meeting. The old heads laugh, they know how this all turns out, the Cubs pull through. Our computer model proves it happens every single time. Besides, we have 10 leading 25-30 year old sports writers who all agree that nothing bad ever happens to the Cubs, so far as they can remember. So instead of selling our distressed paper for 70 cents on the dollar, a huge and embarrassing loss, we decide to let it blow over.

The season grinds on. Wouldn't you know it, the Cubs actually get worse. Panic descends upon the board room. The Cubs have an 11% record and now there are hardly enough games left to break 20% W's. We decide we have to sell some paper, but even at 20 cents on the dollar, a loss of over $300B for the firm, we get no bids. After all, who wants to buy a high probability loser with liability measured in the many trillions? Who wants to take it on for free?

It becomes obvious that only the Government is dumb enough to save us. If they don't, we'll collapse over night, and that will collapse the NFL firms depending on our money, and the NHL too. The sports world is in peril. But we have a great idea. We will cut the taxpayer a phenomenal deal to take illiquid paper off our books for 50 cents on the dollar. We are talking about paper that, historically speaking, never loses. Taxpayers stand to make great money on this thing.

Uncle Sam is thrilled, at first, but then expresses some consternation. Aren't you financial gurus forgetting about something? Hello?? Is anybody home? Oh, plus and we'll make almost twenty $4,000 campaign contributions, and buy you and your staffs dinner in our rotating tower.


Substitute betting against real estate declines of 20% for baseball wins, and you get the picture. It isn't that the free market won't price these "assets" above zero because they are worthless, it is because they will saddle us with untold trillions in future losses. For a few hundred billion in "great deals" up front, taxpayers will lose trillions upon trillions upon trillions upon trillions of dollars.

Be Smart or Be Patient

"I think he's been calling "all-in" short for a long while."

Since Dow 14,100 to be exact. But with triumphant gains come opportunities to lever it up or be patient. If you are late to the party, you have to respect the coiled spring at this juncture.
Be smart (100% cash) or be patient, as I've been saying in commentary, there is always an infinite distance to 0. Our deeply corrupt government corporatocracy will use all of it.

But let's be clear, I have said loudly, since October 2007, that all people with brains should move to cash and Treasuries. The bulk of my cash is in the U.S. Treasury. If you wait for the other $15T in bank deposits to panic, you might have to pay A LOT to convince someone to open the shelter door.

Systemic risk is high. It is very high. Not to mention we are in a market where the government changes the rules daily, pumps the news, pumps futures, pumps indexes, and are generally desperate to save themselves. In this environment, only gamblers dwell. In this context, "all-in" means all you can afford to lose and not notice. Otherwise, take my advice and protect your capital in cash.

If you want to lay down a life-changing bet, ever, then you have no confidence in your own ability. There will be endless opportunities to put it to the man in a market like this one.

Shorting Banks on Welfare

"Does it seem it will be nearly impossible to short bank stocks involved in the new Treasury plan? "

Hi Jayhawk,

I think it makes them much more lucrative shorts in the long run and risky shorts in the short run, which is to be expected from the various EW thumbnails I've sketched here. That is not an ideal situation, but for the disciplined "sell and hold" dollar cost averager, it is a great opportunity--especially if stocks bounce higher this summer, which I expect.

The assets are still worthless no matter how badly they can rip off the governement/taxpayer to overpay for some. Those who think there is enough money in the system to make these leveraged losses go away don't understand the nature of the losses or the nature of the system.

More than ever, the vast majority of a stock's price is the multiple, and the loss of capitalism as an option chops that portion way down.

Government Raiding Charities

President Obama's plan eliminates charitable deductions above that which is taxed below $200K for individuals and $250K for families. The U of Indiana data I've assembled below isn't perfectly aligned to his plan, it breaks down "household" income above the $200K mark and not individual or family income, but it gives an excellent picture of the devastating effect President Obama's plan has on charities.

Some think Obama's plan is a disgrace, and so do I.

For the most part, all of the green colored slices go from fully deductible to nondeductible, reducing the green dollars available to charity by about 40%:

Charitable Giving by Income Level
Source: Center for Philanthropy University of Indiana

Tuesday, March 24, 2009

Obama/Geithner Daylight Robbery

In case it's not already obvious, there is no difference between the two plans except another layer of financing pinned on the taxpayer:




Waiting for the "ALL-IN" call.
I sense everyone is sobering up."

Me too, but the obvious straddle still strikes me as a little too easy. Usually that means the market will oscillate for a little while it works off the time value of traders playing it both ways. I am going to see what the next few days brings.

Another reason not to hurry to short stocks is the high potential for silver/gold to keep breaking south. That remains the best trade in my opinion, and it is where I'm concentrating for now.

I am only talking about high risk short term trades here. The long term outlook, with free market capitalism dead and buried, trillions in leveraged losses continuing to eat away bone, and mega deflation ravaging real estate in particular, make a phased dollar cost averaged "sell and hold"approach a no brainer for at least a decade, probably several.

Also, I want to reemphasize the systemic risk present for the next several years to both long and short positions. The smart money remains 100% cash and treasuries (from increased buying power). Remember, to make a trade you must have a better than even chance of beating a 50-100% annual return on cash to justify exposing any capital to risk.

AIG "Miss"

It is worth examining the recent AIG earnings miss, if only for the entertainment value. After all, every taxpayer in America paid over $2,000 for this penny stock, and we are likely to pay many thousands more before they finally fold.

AIG's Q4 2008:
  • Consensus estimate was a loss of 37 cents per share
  • Actual loss was $62B, or $14.14 per share plus a loss of $153B in taxpayer money paid through Q4 2008
  • Stock price: a buck-and-a-half on the 20th best day in stock market history
What does it mean to devour $215B in 61 business days?

AIG lost:
  • 3.5B per business day
  • $440M per banker hour
  • $7.3M per minute
  • $122,400 per second
The vast majority was paid by you. I can't wait for the Q1 2009 report.

In the time it took you to read this, AIG lost another $5.5M.

Obama Mega-Tax Hike to Crush Real Estate

Commonly reported as "Broad-based gains" foreclosures were up 30% for February and nationwide prices tumbled a stunning 15.5% YOY, as the U.S. real estate market buckled further. 45% of all sales were "distressed." Almost 300,000 homes got a default notice or were seized. U.S. median home price is now $165K, down 25% nationwide from the 2006 price peak of $220K, according to NAR. The only worse month in home price history was last December's 18% YOY decline. Inventories increased by 1.1 months in February to 9.7 months nationwide, January's report was 9.6 months. Sales were down 4.6% as black-box seasonally adjusted, 7% in reality. This was better than January's horrific numbers, so the month was reported as a gainer.

In a rare break from nuzzling the Washington D.C. punchbowl, NAR promised to oppose President Obama's budget proposal to eliminate the mortgage interest deduction on individuals making over $200K after rental incomes, with everything in "its formidable array of resources." Saying,
"If this proposal is enacted it will set of a new round of price depreciation, will cause greater distress on the balance sheets of banks as the collateral value of mortgage backed securities declines. A second credit crisis could emerge before the first one is resolved."
The Obama budget imposes the elimination of itemized tax deductions for individuals with total income above $200K single and $250K married. It also sets your tax rate at 39.6% and without itemization. The new mega tax would includes rental income, wrenching income property ownership into a negative cash flow proposition for many landlords in America.

The Obama budget cites their 33% increase on capital gains and the new mega tax on real estate as fundamental to move toward universal health care coverage.

Stock holders, home owners, and landlords with gross incomes over $200K single/$250K married have until December 2009 to liquidate holdings, including IRAs and 401Ks, to avoid paying the new penalties.

Central Bank M.O.

It is important to understand the modern central bank's Modus Operandi:

Permit dissension; disallow action.

By preventing the pot from over-boiling, they keep you in it.

Monday, March 23, 2009

Nothing New Under the Sun

President Andrew Jackson possessed no formal education. What follows is an excerpt from his Eighth Annual Message to the People. Red highlights reflect my emphasis and may facilitate skimming. For readers with a formal education who have no idea what he is talking about, "specie" means hard money, gold and silver coins or bullion.

I offer this post for three reasons:
  1. To illustrate that U.S. citizen struggles against fraudulent financiers have not only been commonplace, but relentless
  2. As an indictment of expensive public and private eduction in America; Jackson's intellect proves that price tags play no role in a quality education
  3. As a lesson on the origins and purpose of our Constitution not taught elsewhere

"The influence of an accumulating surplus upon the credit system of the country, producing dangerous extensions and ruinous contractions, fluctuations in the price of property, rash speculation, idleness, extravagance, and a deterioration of morals, have taught us the important lesson that any transient mischief which may attend the reduction of our revenue to the wants of our Government is to be borne in preference to an over-flowing treasury.

I beg leave to call your attention to another subject intimately associated with the preceding one -- the currency of the country.

It is apparent from the whole context of the Constitution, as well as the history of the times which gave birth to it, that it was the purpose of the Convention to establish a currency consisting of the precious metals. These, from their peculiar properties which rendered them the standard of value in all other countries, were adopted in this as well to establish its commercial standard in reference to foreign countries by a permanent rule as to exclude the use of a mutable medium of exchange, such as of certain agricultural commodities recognized by the statutes of some States as a tender for debts, or the still more pernicious expedient of a paper currency.

The last, from the experience of the evils of the issues of paper during the Revolution, had become so justly obnoxious as not only to suggest the clause in the Constitution forbidding the emission of bills of credit by the States, but also to produce that vote in the Convention which negatived the proposition to grant power to Congress to charter corporations -- a proposition well understood at the time as intended to authorize the establishment of a national bank, which was to issue a currency of bank notes on a capital to be created to some extent out of Government stocks. Although this proposition was refused by a direct vote of the Convention, the object was afterwards in effect obtained by its ingenious advocates through a strained construction of the Constitution. The debts of the Revolution were funded at prices which formed no equivalent compared with the nominal amount of the stock, and under circumstances which exposed the motives of some of those who participated in the passage of the act to distrust.

The facts that the value of the stock was greatly enhanced by the creation of the bank, that it was well understood that such would be the case, and that some of the advocates of the measure were largely benefited by it belong to the history of the times, and are well calculated to diminish the respect which might otherwise have been due to the action of the Congress which created the institution.

On the establishment of a national bank it became the interest of its creditors that gold should be superseded by the paper of the bank as a general currency. A value was soon attached to the gold coins which made their exportation to foreign countries as a mercantile commodity more profitable than their retention and use at home as money. It followed as a matter of course, if not designed by those who established the bank, that the bank became in effect a substitute for the Mint of the United States.

Such was the origin of a national bank currency, and such the beginning of those difficulties which now appear in the excessive issues of the banks incorporated by the various States.

Although it may not be possible by any legislative means within our power to change at once the system which has thus been introduced, and has received the acquiescence of all portions of the country, it is certainly our duty to do all that is consistent with our constitutional obligations in preventing the mischiefs which are threatened by its undue extension. That the efforts of the fathers of our Government to guard against it by a constitutional provision were founded on an intimate knowledge of the subject has been frequently attested by the bitter experience of the country. The same causes which led them to refuse their sanction to a power authorizing the establishment of incorporations for banking purposes now exist in a much stronger degree to urge us to exert the utmost vigilance in calling into action the means necessary to correct the evils resulting from the unfortunate exercise of the power, and it is hoped that the opportunity for effecting this great good will be improved before the country witnesses new scenes of embarrassment and distress.

Variableness must ever be the characteristic of a currency of which the precious metals are not the chief ingredient, or which can be expanded or contracted without regard to the principles that regulate the value of those metals as a standard in the general trade of the world. With us bank issues constitute such a currency, and must ever do so until they are made dependent on those just proportions of gold and silver as a circulating medium which experience has proved to be necessary not only in this but in all other commercial countries. Where those proportions are not infused into the circulation and do not control it, it is manifest that prices must vary according to the tide of bank issues, and the value and stability of property must stand exposed to all the uncertainty which attends the administration of institutions that are constantly liable to the temptation of an interest distinct from that of the community in which they are established.

The progress of an expansion, or rather a depreciation, of the currency by excessive bank issues is always attended by a loss to the laboring classes. This portion of the community have neither time nor opportunity to watch the ebbs and flows of the money market. Engaged from day to day in their useful toils, they do not perceive that although their wages are nominally the same, or even somewhat higher, they are greatly reduced in fact by the rapid increase of a spurious currency, which, as it appears to make money abound, they are at first inclined to consider a blessing.

It is not so with the speculator, by whom this operation is better understood, and is made to contribute to his advantage. It is not until the prices of the necessaries of life become so dear that the laboring classes can not supply their wants out of their wages that the wages rise and gradually reach a justly proportioned rate to that of the products of their labor. When thus, by depreciation in consequence of the quantity of paper in circulation, wages as well as prices become exorbitant, it is soon found that the whole effect of the adulteration is a tariff on our home industry for the benefit of the countries where gold and silver circulate and maintain uniformity and moderation in prices. It is then perceived that the enhancement of the price of land and labor produces a corresponding increase in the price of products until these products do not sustain a competition with similar ones in other countries, and thus both manufactured and agricultural productions cease to bear expectation from the country of the spurious currency, because they can not be sold for cost.

This is the process by which specie is banished by the paper of the banks. Their vaults are soon exhausted to pay for foreign commodities. The next step is a stoppage of specie payment -- a total degradation of paper as a currency -- unusual depression of prices, the ruin of debtors, and the accumulation of property in the hands of creditors and cautious capitalists.

It was in view of these evils, together with the dangerous power wielded by the Bank of the United States and its repugnance to our Constitution, that I was induced to exert the power conferred upon me by the American people to prevent the continuance of that institution. But although various dangers to our republican institutions have been obviated by the failure of that bank to extort from the Government a renewal of its charter, it is obvious that little has been accomplished except a salutary change of public opinion toward restoring to the country the sound currency provided for in the Constitution.

In the acts of several of the States prohibiting the circulation of small notes and the auxiliary enactments of Congress at the last session forbidding their reception or payment on public account, the true policy of the country has been advanced and a larger portion of the precious metals infused into our circulating medium. These measures will probably be followed up in due time by the enactment of State laws banishing from circulation bank notes of still higher denominations, and the object may be materially promoted by further acts of Congress forbidding the employment as fiscal agents of such banks as continue to issue notes of low denominations and throw impediments in the way of the circulation of gold and silver.

The effects of an extension of bank credits and over-issues of bank paper have been strikingly illustrated in the sales of the public lands. From the returns made by the various registers and receivers in the early part of last summer it was perceived that the receipts arising from the sales of the public lands were increasing to an unprecedented amount. In effect, however, these receipts amounted to nothing more than credits in bank. The banks lent out their notes to speculators. They were paid to the receivers and immediately returned to the banks, to be lent out again and again, being mere instruments to transfer to speculators the most valuable public land and pay the Government by a credit on the books of the banks.

Those credits on the books of some of the Western banks, usually called deposits, were already greatly beyond their immediate means of payment, and were rapidly increasing. Indeed, each speculation furnished means for another; for no sooner had one individual or company paid in the notes than they were immediately lent to another for a like purpose, and the banks were extending their business and their issues so largely as to alarm considerate men and render it doubtful whether these bank credits, if permitted to accumulate, would ultimately be of the least value to the Government. The spirit of expansion and speculation was not confined to the deposit banks, but pervaded the whole multitude of banks throughout the Union and was giving rise to new institutions to aggravate the evil.

The safety of the public funds and the interest of the people generally required that these operations should be checked; and it became the duty of every branch of the General and State Governments to adopt all legitimate and proper means to produce that salutary effect. Under this view of my duty I directed the issuing of the order which will be laid before you by the Secretary of the Treasury, requiring payment for the public lands sold to be made in specie, with an exception until the 15th of the present month in favor of actual settlers.

This measure has produced many salutary consequences. It checked the career of the Western banks and gave them additional strength in anticipation of the pressure which has since pervaded our Eastern as well as the European commercial cities. By preventing the extension of the credit system it measurably cut off the means of speculation and retarded its progress in monopolizing the most valuable of the public lands. It has tended to save the new States from a non-resident proprietorship, one of the greatest obstacles to the advancement of a new country and the prosperity of an old one. It has tended to keep open the public lands for entry by emigrants at Government prices instead of their being compelled to purchase of speculators at double or triple prices. And it is conveying into the interior large sums in silver and gold, there to enter permanently into the currency of the country and place it on a firmer foundation. It is confidently believed that the country will find in the motives which induced that order and the happy consequences which will have ensued much to commend and nothing to condemn.

It remains for Congress if they approve the policy which dictated this order to follow it up in its various bearings. Much good, in my judgment, would be produced by prohibiting sales of the public lands except to actual settlers at a reasonable reduction of price, and to limit the quantity which shall be sold to them. Although it is believed the General Government never ought to receive anything but the constitutional currency in exchange for the public lands, that point would be of less importance if the lands were sold for immediate settlement and cultivation. Indeed, there is scarcely a mischief arising out of our present land system, including the accumulating surplus of revenues, which would not be remedied at once by a restriction on land sales to actual settlers; and it promises other advantages to the country in general and to the new States in particular which can not fail to receive the most profound consideration of Congress.

Experience continues to realize the expectations entertained as to the capacity of the State banks to perform the duties of fiscal agents for the Government at the time of the removal of the deposits. It was alleged by the advocates of the Bank of the United States that the State banks, what ever might be the regulations of the Treasury Department, could not make the transfers required by the Government or negotiate the domestic exchanges of the country. It is now well ascertained that the real domestic exchanges performed through discounts by the United States Bank and its 25 branches were at least 1/3 less than those of the deposit banks for an equal period of time; and if a comparison be instituted between the amounts of service rendered by these institutions on the broader basis which has been used by the advocates of the United States Bank in estimating what they consider the domestic exchanges transacted by it, the result will be still more favorable to the deposit banks.

The whole amount of public money transferred by the Bank of the United States in 1832 was $16,000,000. The amount transferred and actually paid by the deposit banks in the year ending the first of October last was $39,319,899; the amount transferred and paid between that period and the 6th of November was $5,399,000, and the amount of transfer warrants outstanding on that day was $14,450,000, making an aggregate of $59,168,894. These enormous sums of money first mentioned have been transferred with the greatest promptitude and regularity, and the rates at which the exchanges have been negotiated previously to the passage of the deposit act were generally below those charged by the Bank of the United States. Independently of these services, which are far greater than those rendered by the United States Bank and its 25 branches, a number of the deposit banks have, with a commendable zeal to aid in the improvement of the currency, imported from abroad, at their own expense, large sums of the precious metals for coinage and circulation.

In the same manner have nearly all the predictions turned out in respect to the effect of the removal of the deposits -- a step unquestionably necessary to prevent the evils which it was foreseen the bank itself would endeavor to create in a final struggle to procure a renewal of its charter. It may be thus, too, in some degree with the further steps which may be taken to prevent the excessive issue of other bank paper, but it is to be hoped that nothing will now deter the Federal and State authorities from the firm and vigorous performance of their duties to themselves and to the people in this respect.

In reducing the revenue to the wants of the Government your particular attention is invited to those articles which constitute the necessaries of life. The duty on salt was laid as a war tax, and was no doubt continued to assist in providing for the payment of the war debt. There is no article the release of which from taxation would be felt so generally and so beneficially. To this may be added all kinds of fuel and provisions. Justice and benevolence unite in favor of releasing the poor of our cities from burdens which are not necessary to the support of our Government and tend only to increase the wants of the destitute.

It will be seen by the report of the Secretary of the Treasury and the accompanying documents that the Bank of the United States has made no payment on account of the stock held by the Government in that institution, although urged to pay any portion which might suit its convenience, and that it has given no information when payment may be expected. Nor, although repeatedly requested, has it furnished the information in relation to its condition which Congress authorized the Secretary to collect at their last session. Such measures as are within the power of the Executive have been taken to ascertain the value of the stock and procure the payment as early as possible.

The conduct and present condition of that bank and the great amount of capital vested in it by the United States require your careful attention. Its charter expired on the third day of March last, and it has now no power but that given in the twenty-first section, "to use the corporate name, style, and capacity for the purpose of suits for the final settlement and liquidation of the affairs and accounts of the corporation, and for the sale and disposition of their estate -- real, personal, and mixed -- but not for any other purpose or in any other manner what so ever, nor for a period exceeding two years after the expiration of the said term of incorporation".

Before the expiration of the charter the stock-holders of the bank obtained an act of incorporation from the legislature of Pennsylvania, excluding only the United States. Instead of proceeding to wind up their concerns and pay over to the United States the amount due on account of the stock held by them, the president and directors of the old bank appear to have transferred the books, papers, notes, obligations, and most or all of its property to this new corporation, which entered upon business as a continuation of the old concern.

Amongst other acts of questionable validity, the notes of the expired corporation are known to have been used as its own and again put in circulation. That the old bank had no right to issue or re-issue its notes after the expiration of its charter can not be denied, and that it could not confer any such right on its substitute any more than exercise it itself is equally plain. In law and honesty the notes of the bank in circulation at the expiration of its charter should have been called in by public advertisement, paid up as presented, and, together with those on hand, canceled and destroyed.

Their re-issue is sanctioned by no law and warranted by no necessity. If the United States be responsible in their stock for the payment of these notes, their re- issue by the new corporation for their own profit is a fraud on the Government. If the United States is not responsible, then there is no legal responsibility in any quarter, and it is a fraud on the country. They are the redeemed notes of a dissolved partnership, but, contrary to the wishes of the retiring partner and without his consent, are again re-issued and circulated.

It is the high and peculiar duty of Congress to decide whether any further legislation be necessary for the security of the large amount of public property now held and in use by the new bank, and for vindicating the rights of the Government and compelling a speedy and honest settlement with all the creditors of the old bank, public and private, or whether the subject shall be left to the power now possessed by the Executive and judiciary. It remains to be seen whether the persons who as managers of the old bank undertook to control the Government, retained the public dividends, shut their doors upon a committee of the House of Representatives, and filled the country with panic to accomplish their own sinister objects may now as managers of a new bank continue with impunity to flood the country with a spurious currency, use the $7M of Government stock for their own profit, and refuse to the United States all information as to the present condition of their own property and the prospect of recovering it into their own possession.

The lessons taught by the Bank of the United States can not well be lost upon the American people. They will take care never again to place so tremendous a power in irresponsible hands, and it will be fortunate if they seriously consider the consequences which are likely to result on a smaller scale from the facility with which corporate powers are granted by their State governments."

- Andrew Jackson,
December 5, 1836

#20 !

20 Biggest Days for the Dow
% Change
1 3/15/1933 15.34
2 10/6/1931 14.87
3 10/30/1929 12.34
4 9/21/1932 11.36
5 10/13/2008 11.08
6 10/28/2008 10.88
7 10/21/1987 10.15
8 8/3/1932 9.52
9 2/11/1932 9.47
10 11/14/1929 9.36
11 12/18/1931 9.35
12 2/13/1932 9.19
13 5/6/1932 9.08
14 4/19/1933 9.03
15 10/8/1931 8.7
16 6/10/1932 7.99
17 9/5/1939 7.26
18 6/3/1931 7.12
19 1/6/1932 7.12
20 3/23/2009 6.84

During the Great Depression
Adjacent to Biggest Crash Ever
Leading the Greatest Depression


The Head of the Snake

[A Citizen Translation by FDRAllOverAgain]

My Plan for Bad Bank Assets
[My plan for you]
The private sector will set prices. Taxpayers will share in any upside.
[Decided: We will use your money to buy your things.]
[Federal Reserve Kingpin with the keys to your treasure]
The American economy and much of the world now face extraordinary challenges, and confronting these challenges will continue to require extraordinary actions.
[During bull markets, regulators fall sleep at the wheel. This is not a bull market.]
No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk. Those decisions have caused enormous suffering, and much of the damage has fallen on ordinary Americans and small-business owners who were careful and responsible. This is fundamentally unfair, and Americans are justifiably angry and frustrated.
[The Federal Reserve, your government, and commercial banks successfully counterfeited a mountain of paper currency with 40:1 leverage on your bank deposits and government debt. We were raking in amazing profits by lending it back to you at interest, then you had to ruin it by asking for your deposits back. Now there will be enormous suffering. I'm not worried, because we are not going to get hurt--you are.]
The depth of public anger and the gravity of this crisis require that every policy we take be held to the most serious test: whether it gets our financial system back to the business of providing credit to working families and viable businesses, and helps prevent future crises.
[We will apply the most serious test to every action we take: "Is it good for bankers?"]
Over the past six weeks we have put in place a series of financial initiatives, alongside the Recovery and Reinvestment Program, to help lay the financial foundation for economic recovery. We launched a broad program to stabilize the housing market by encouraging lower mortgage rates and making it easier for millions to refinance and avoid foreclosure. We established a new capital program to provide banks with a safeguard against a deeper recession. By providing confidence that banks will have a sufficient level of capital even if the outlook is worse than expected, more credit will be available to the economy at lower interest rates today -- making it less likely that the more negative economy they fear will take place.
[We have reincarnated FDR's "National Recovery Program." It created a depression for our exclusive benefit in the mid-to-late 1930s. We spent hours coming up with a trickier name to sell it to President Obama, the "National Recovery and Reinvestment Program."]
We started a major new lending program with the Federal Reserve targeted at the securitization markets critical for consumer and small business lending. Last week, we announced additional actions to support lending to small businesses by directly purchasing securities backed by Small Business Administration loans.
[With subprime securitizations selling for few cents on the dollar, we have decided to buy the very best deals using your money. Go ahead and default, see if we care, we can sell your ridiculous mortgage for a dime on the dollar and still double our money. The good news is that we'd rather sell it for A LOT more, so don't expect us to move unsold inventory in your neighborhood at a 90% discount until short term demand dries up.]
Together, actions over the last several months by the Federal Reserve and these initiatives by this administration are already starting to make a difference. They have helped to bring mortgage interest rates near historic lows. Just this month, we saw a 30% increase in refinancing of mortgages, which means millions of Americans are taking advantage of the lower rates.
[Sure, we could measure "mortgages" easier than "mortgage applications," but then we couldn't count three to five applications for every denial. Come on, everyone knows there's no money to lend.]
This is good for homeowners, and it's good for the economy. The new joint lending program with the Federal Reserve led to almost $9 billion of new securitizations last week, more than in the last four months combined.
[$9B is a lot of money in the face of a $700T leveraged currency global meltdown.]
However, the financial system as a whole is still working against recovery. Many banks, still burdened by bad lending decisions, are holding back on providing credit. Market prices for many assets held by financial institutions -- so-called legacy assets -- are either uncertain or depressed. With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.
[Commercial banks can't resell the overpriced reserves I sold them at 6% to 2%, back when I was head of the lead Federal Reserve Bank of NY, let alone leverage that all that cash up. Suckers!]
Today, we are announcing another critical piece of our plan to increase the flow of credit and expand liquidity. Our new Public-Private Investment Program will set up funds to provide a market for the legacy loans and securities that currently burden the financial system.
[We have replaced your stupid Constitutional Republic with "Announcements."]
The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.
[We are going to saddle your unborn children with trillions in new debt to plow-under your vacant, rotting subprime neighborhoods to turn them into something we can sell. Shut up or we'll lend your children even more to turn it into a prison for you, if you ever stop paying on the house that used to stand there. Or maybe we'll loan them money to build a nuclear reactor, or something really expensive that we can sell to people borrowing from our branches in China or the Middle East.]
This program to address legacy loans and securities is part of an overall strategy to resolve the crisis as quickly and effectively as possible at least cost to the taxpayer. The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses. Our approach shares risk with the private sector, efficiently leverages taxpayer dollars, and deploys private-sector competition to determine market prices for currently illiquid assets. Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.
[Now that we have lost your bank deposits to high-stakes, over-leveraged, wild speculation, we are ready to share risk with you. Capitalism works a lot better when you don't ask for your deposits back, so we have decided you are socialists now. If you try to prolong the conversion, we'll rape you with a depression like we did to Japan.]
Moving forward, we as a nation must work together to strike the right balance between our need to promote the public trust and using taxpayer money prudently to strengthen the financial system, while also ensuring the trust of those market participants who we need to do their part to get credit flowing to working families and businesses -- large and small -- across this nation.
[Your new job is to "promote the public trust" and pay the bankers who own your government so we may start redistributing your money in your best interest. Your best interest, obviously = our best interest, since you gave us your money and we lost it. If you give it to us again, we promise to lend it back to you.]
This requires those in the private sector to remember that government assistance is a privilege, not a right. When financial institutions come to us for direct financial assistance, our government has a responsibility to ensure these funds are deployed to expand the flow of credit to the economy, not to enrich executives or shareholders. These provisions need to be designed and applied in a way that does not deter the participation by the private sector in generally available programs to stabilize the housing markets, jump-start the credit markets, and rid banks of legacy assets.
[After you pay us what money you still have, of course we don't have to lend it back to you. Are you kidding? You have no jobs. How would you pay us back?]
We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation's commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.
[If your stubborn Forefathers would have let Alexander Hamilton immediately and permanently reinstate the king's bank in America, we wouldn't have to hurt your children now.]
For all the challenges we face, we still have a diverse and resilient financial system. The process of repair will take time, and progress will be uneven, with periods of stress and fragility. But these policies will work. We have already seen that where our government has provided support and financing, credit is more available at lower costs.
[Remember, more financing is your goal. For those already broke, your government has agreed to subsidize the interest rates you will pay to us. This should ease your pain.]
But as we fight the current crisis, we must also start the process of ensuring a crisis like this never happens again. As President Obama has said, we can no longer sustain 21st century markets with 20th century regulations. Our nation deserves better choices than, on one hand, accepting the catastrophic damage caused by a failure like Lehman Brothers, or on the other hand being forced to pour billions of taxpayer dollars into an institution like AIG to protect the economy against that scale of damage. The lack of an appropriate and modern regulatory regime and resolution authority helped cause this crisis, and it will continue to constrain our capacity to address future crises until we put in place fundamental reforms.
[Let's forget about this silly thing called capitalism. LEH and AIG proved we can easily debauch your currency and buy off your government officials. They have already sold out; resistance is futile.]
Our goal must be a stronger system that can provide the credit necessary for recovery, and that also ensures that we never find ourselves in this type of financial crisis again. We are moving quickly to achieve those goals, and we will keep at it until we have done so.
[Remember your goal is more financing. We will stop at nothing to achieve it.]
Mr. Geithner is the U.S. Treasury secretary.
[Can you believe it?]

Sunday, March 22, 2009

Elliott Thumbnail

Ok, bottom line up top: I don't think wave 5 is over yet.

The first complete wave is often a great model for unfolding waves of the next higher degree. It isn't rocket science or magic, it is a simple truth of statical sampling: small sample sizes can be used to predict the behavior of larger populations. Whether it is a voter sample or a focus group, experience shows that testing the programming of a smaller group has meaning when applied to the entire population. That is Elliott Wave in a nutshell.

That said, I broke away from the wave 1 sample of behavior when I forecast Dow 6,500 as an initial estimate for a minimum wave 5 plunge. Why? Because I felt wave 1's truncated 5th was an anomaly. In other words, as a small scale statistical sample, it was indicating something that did not fit with a much larger body of evidence, which is, that wave 5 usually matches wave 1 in scale and scope, after wave 3 extends. So the greater probability was with the larger body of experience, not the small sample that sat it front of our eyes.

Now, we are faced with a similar issue. Is the larger degree 5th wave over, after only 3 divisions and a rather smallish scale? Or, is it just developing normally? My take is that it is plain old normal. It shouldn't stress anyone out that even if we pick a four leaf clover in our first small sample, we need not find a field of four leaf clovers in the next larger sample.

Second thing:

As Elliott patterns grow over time, they scale up, most often in accordance with strong Fibonacci relationships. The reason is not obvious. This is hard to explain, but the basic wave pattern, at the human level, isn't what changes. One human will always do pretty much the same thing. The thing that makes prices patterns scale up, so that, say, a wave pushes 1.618 times farther than a previous wave, is actually the growing number of participants.

Fibonacci ratios describe how groups scale up and down, that is why they apply to so many building blocks in nature:

(0 + 1 = 1) shows what happens when somebody appears with a good idea, they can push as hard as they can push, so the outcome is 1, infinitely larger than the previous outcome of nothing.

(1 + 1 = 2) shows what happens when two people join forces. The outcome is simply double 1.

(1 + 2 = 3) shows what happens when the new group joins the previous unit of significance. The outcome is 1.5 times the previous outcome.

(2 + 3 = 5) shows what happens when the new group joins the previous unit of significance. The outcome is 1.6 times the previous outcome.

(2 + 3 = 5) shows what happens when the new group joins the previous unit of significance. The outcome is 1.67 times the previous outcome.

(3 + 5 = 8) shows what happens when the new group joins the previous unit of significance. The outcome is 1.6 times the previous outcome.

(5 + 8 = 13) shows what happens when the new group joins the previous unit of significance. The outcome is 1.625 times the previous outcome.

(8 + 13 = 21) shows what happens when the new group joins the previous unit of significance. The outcome is 1.615 times the previous outcome.

(13 + 21 = 34) shows what happens when the new group joins the previous unit of significance. The outcome is 1.619 times the previous outcome.

...and so on, until we form nature's irrational number and golden ratio, Phi, or:

1.6180339887498948482045868343656381177...and so on...

Ok, so what?

So my point is, are more or less people aware of the depression now than suspected it in Oct 2007? I'm going to go out on a limb and say... ...more?

If true, wave 5 should be very inclined to scale up, and scale up properly. Nature tells us that when wave 3 extends (lots of like-minded participants), wave 5 typically scales to match wave 1. This is a guideline, not a rule.

Does the general scale of wave 5 match wave 1? I say no, in my opinion, wave 5 is not finished developing.

Saturday, March 21, 2009

Stocks vs. Gold

From a historical perspective, it is hard to imagine a worse place to put your money than the stock market.

Gold being a static asset typically preserves your buying power, but no more. Since Ancient Rome, one ounce of gold has typically traded for a fine man's suit (or Toga), a pair of well made shoes and a belt. This relationship has held true through the brief but storied history of the United States, as well.

Quick stats:
1932 - Gold $20/oz
2008 - Gold $1000/oz

1932 - Dow 40 (P/E = 6)
2007 - Dow 14,300 (P/E = 20)
100:1 (adjusted for earnings at peak)
50:1 (adjusted for earnings, today)
The Dow doesn't really tell the story of owning stocks, since like all rotating indexes, it is designed to be a sales pitch. All IPOs are, after all, an exit strategy for the private owners who feel the company's electric growth period is over. Like all indexes, as Dow stocks perform badly, they are quietly replaced. The current Dow only has one stock (GE) in common with the 1932 Dow, the other 29 were kicked out or went broke. So in simple terms, the 1932 Dow went from 40 to below 10 (GE's current price). Realistically, 10 is too low since not all of the 29 dogs have gone broke. On the other hand, 10 is way too high since 10 today, according to gold, is worth about 20 cents.

Another way to compare stock performance to gold is to price the stocks in gold. In 1929, the Dow was worth about 20 ounces of gold, today it is worth about 8 ounces, a 60% decline. That doesn't account for index rotation. If you were lucky enough to buy the only Dow survivor, GE, one share cost about an ounce of gold in 1932, today you can sell it for .01 ounces, a 99% price decline before splits.

To figure split-adjusted performance, we can use the Dow index itself by adjusting for the component's weight. If we look at GE again, its component weight is 1.04% or about 75 Dow points, which is a 2009 dollar basis after splits. So assuming you bought the single darling of the Dow, at the rock bottom of the market in 1932 and held it until today, the stock price has fallen from an ounce of gold to .07 ounces of gold, a 93% loss in buying power.

Updating the Dow's performance, minus the usual sales pitch:
1932 - Dow 40 (P/E = 6)
2009 - 1932 Dow 75 (GE P/E = 6)
2:1 (as of today, in dollar terms)
1:29 (as of today, adjusted for loss of buying power)
Dividends make a difference, but are also eaten by rampant inflation and many stocks don't pay a dividend.

Food for thought, using catalog prices:
1932 - New V8 Ford $800
2009- 1932 V8 Ford $32,000 (typical auction price)
40:1 (plus transportation value)

1932 - Sears 6 room house $2,800
2009 - 1,500 sq ft house, $150,000 @ $100/sq ft
50:1 (plus shelter value + tax deduction for a banker loan)

1932 Stetson Hat - $4
2009 Stetson Hat - $150
38:1 (plus no sunburn)

1932 - Console Radio - $75
2009 - Stereo Walkman - $5
1:15 (plus entertainment value)

1932 - Colt .45 Pistol - $25
2009 - 1932 Colt .45 Pistol - $1,500
60:1 (plus dead enemies)

1932 - Wool Blanket - $1
2009 - Two Snuggies - $36 after shipping and processing
18:1 (minus free book light)
The worst performing catalog-commodity is the "tech sector" radio. But a 1932 radio in good condition fetches about $500 today.

I guess it shouldn't come as a big surprise that buying the paper stock sales pitch in 1932, at the bottom of the market, was one of the worst things you could do with your money and actually underperformed a wooden box of vacuum tubes.

Update Posted: Illegal to Grow Own Food

Update posted:

Illegal to Grow Own Food

Friday, March 20, 2009

The Wrecking Ball

...is FDR's catch phrase, "bold, persistent, experimentation."

Watching Obama, Bush, Paulson, Dodd, Frank, Pelosi, Bernanke, and Geithner wreck the United States is pretty painful. But at least 500M Americans haven't lost their jobs. We are now in the jaws of the worst depression our country has known, worse than the 1830s, worse than the 1930s. What lessons can we learn from those events?

Andrew Jackson conquered the 1830s depression with a model for the ages. He personally executed the central bank in town square. The end result was so positive that the Industrial Revolution burst forth. Ding, dong, the Wicked Witch was dead. Industrialized post-Jackson America was the only modern nation without a central bank pilfering its national treasure, we quickly became the wealthiest nation on earth.

In 1932, life still seemed normal, though prices had become depressed. That illusion did not last. FDR, who unlike Jackson was a dupe of the latest reincarnation of the king's bank, the Federal Reserve, accidentally (or intentionality) destroyed America on their behalf. The next 20 years were hell on Earth. What happened?

FDR's greatest mistake wasn't toilet-flushing some $500B on wantonly wasteful New Deal programs, directly aimed at enriching the world's wealthiest bankers. No, at least people could plan for the swindling of our innocent children.

FDR's greatest mistake was something much simpler, it should sound familiar to all of us: arbitrarily changing the rules of American capitalism, almost daily. Businesses were left with no choice but to give up on feasible profit. Amity Shlaes, author of The Forgotten Man, once put it this way,
The New Deal centerpiece, the National Recovery Administration, helped some businesses compete and criminalized others for the same behavior. Sometimes Roosevelt goaded federal prosecutors into harassing corporate executives. Other times, he schmoozed the same execs at the White House. In 1936, FDR pushed through deficit spending. In 1937, he was Mr. Budget Hawk.
FDR freely admitted that he had no earthly idea what he was doing. Shlaes relays a story from Treasury Secretary Henry Morgenthau, who in November of 1933 asked Roosevelt why he decided to raise the price of gold by 21 cents that Friday? FDR replied, "Because it is three times seven."

Is it any wonder FDR ruined the world economy and plunged our nation into war? The untimely slaughter of nearly 100M people should be a lesson to us that bold, persistent, experimentation is no joke--but so far, no dice.

The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

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