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Thursday, October 1, 2009
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Audited return since Oct 14, 2009
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..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
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.......Jul 28 ....... .....Total ...........
..n/al......+7.76%
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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
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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
Isn't Cashzilla more like a frog these days. It appears that each day the dollar's value erodes slightly. I know that it bought more house and S&P 2 months ago. Why is Cashzilla slipping back into his cage? What am I missing?
ReplyDeleteWe have hit the top of the rally- here is proof
ReplyDeletehttp://finance.yahoo.com/tech-ticker/article/346886/10-Year-Bull-Market-Has-Begun-Dow-Will-%22Double-For-Sure%22-Hennessy-Says;_ylt=AmHk5l8xUwBONN.MMscdFiO7YWsA;_ylu=X3oDMTE2MGMzY2E0BHBvcwMxMQRzZWMDdG9wU3RvcmllcwRzbGsDMTAteWVhcmJ1bGxt?tickers=dia,%5Edji,spy,%5Egspc,qqqq&sec=topStories&pos=9&asset=&ccode=
"It appears that each day the dollar's value erodes slightly."
ReplyDeleteIt "appears" that way because, like "carbon dioxide is bad for green plants," the media is paid to help steal your money.
The dollar has risen faster than any time in our nation's history, against all major currencies, and much more so in terms of real buying power, for the past 16 months.
The mentality of inflation is so ingrained into
ReplyDeleteour minds.
FDR,
As this brutal deflationary wave unfolds.
Do you have an exit strategy in a worst case
scenario?
Great Blog
http://www.godzillatemple.com/godsound.htm#monster_gallery
ReplyDeleteMy observation is that this year inflation and deflation was a in a incredible tug of war and as the year wears on, Deflation has more stamina.
ReplyDeleteTwo weeks ago my next door neighbor told me they were selling their house , and what they would take.
Deflation has the lead right now
The dollar fell for seven(?) years and hit bottom in March 2008. It then proceeded to rise by 25% (DXY) in the space of what, eight months? It has since corrected roughly 72% of its gain for a net rise of 7% over 18 months (an annualized gain of 4.6%). In the context of a supposedly moribund world reserve currency this is not inconsequential.
ReplyDeleteBefore condemning the Dollar (as is currently in vogue), one should carefully examine the double bottom pattern that is potentially forming. Until proven otherwise (ie. a decisive break below March 08 low) this pattern, particularly because it has taken a year and a half to form, foretells dollar strength over the next number of years that few can imagine. I would contrast this outlook with the retest of equity market lows which too many people forget, failed miserably in March of this year. From a longer term perspective most of the equity markets have proven they can and will go lower and some much lower. The jury, on the other hand, is still out on the Dollar.
Comparing the world economy in March 2008 with today one might be forgiven for thinking the Dollar should be considerably lower. Those few inquiring minds who are curious enough to ask why this is not so, without a supporting conspiracy theory (<3.0% by latest poll) are likely to be pleased with the outcome of their diligence and patience in the years ahead.
"Do you have an exit strategy in a worst case
ReplyDeletescenario?"
The worst case scenario is that we don't have a catastrophic financial failure that convinces Americans to kick central bank snake oil salesmen out of our country for the third time (1776, 1836, 20??). The private Federal Reserve surviving is more dangerous than Dow 100.
So, if the Fed lives, my plan is to short the market next to their short positions, then try to avoid wealth confiscation enforced by law.
If the Fed dies, all strategies that are long on the USA will pay well.
"The dollar fell for seven(?) years and hit bottom in March 2008."
ReplyDeleteWell, the dollar has fallen 98% since the Federal Reserve Act created a private for-profit monopoly to sell new paper dollars in 1913.
Prior to 1913, it was amazingly stable.
"Deutsche sees gold above $1,100/oz in 2010"
ReplyDeleteDo you think they're getting ready to sell?
I think I finally get it.
ReplyDeleteDollar demand will increase as people are trying to pay down debt. The largests debts are in usd's. Therefore, it will be in high demand and hence a higher price.
FDR wrote: "The dollar has risen faster than any time in our nation's history, against all major currencies, and much more so in terms of real buying power, for the past 16 months."
ReplyDeleteYeah. I can tell. For instance, the bag of rice I bought yesterday cost me twice as much in dollars as the same bag from the same vendor cost about 6 months ago.
If this is "deflation" then you can have it.
I do think we're *going* to see deflation, but except for some modest home price drops I haven't seen anything of the sort anywhere around here. And no, increased taxes aren't *nearly* enough to explain it. Rather, I suspect the area I'm in (SF bay area) is one of the few that has gone relatively unscathed, and suppliers are milking it for what it's worth while they can.
"I think I finally get it.
ReplyDeleteDollar demand will increase as people are trying to pay down debt. The largests debts are in usd's. Therefore, it will be in high demand and hence a higher price."
I prefer to look at it the simple way: circulating dollars are destroyed when debts are paid off or go bad. That makes the few surviving dollars more rare, which is the direct an immediate cause of asset repricing like you saw in the Dow today.
The government can borrow too, but they destroy private credit when they do so due to implied taxation plus interest owned, so government borrowing is always net deflationary.
FDR wrote: "I prefer to look at it the simple way: circulating dollars are destroyed when debts are paid off or go bad."
ReplyDeleteThey're destroyed when debts are paid off. They're *not* destroyed to the same degree when debts are defaulted upon!
After all, when you default on a loan, you are explicitly *not* paying it back, so the dollars you got from the loan remain in circulation. Now, the bank may seize the collateral (if there is any) and may even try to sell it (which will reduce the amount of currency by however much of the sale price they're able to apply against the loan).
In the event that the price of the collateral falls such that its price can't cover the entire balance of the loan, then the total event winds up being inflationary relative to the state of things immediately prior to the loan issuance. The fact that the entire thing wasn't paid off means the bank can't loan as much money to others in the future, but that reduces inflation, which is *not* the same thing as being deflationary.
Deflation == currency supply shrinking
Less inflation == currency supply not growing as fast.
I don't understand why FDR uses those two terms interchangeably, when they're *clearly* not the same.
FDR wrote: "The government can borrow too, but they destroy private credit when they do so due to implied taxation plus interest owned, so government borrowing is always net deflationary."
ReplyDeleteBy that measure, all borrowing is deflationary except in the event of a default, since loans always have to be paid back with interest at some point. Money that is being paid back is money that isn't chasing goods and services.
Whether someone borrows money directly or is paid by the government after the government borrows money, the end result is the same.
If the amount of currency that's chasing goods and services increases, it's inflation. If it decreases, it's deflation. Whether that currency is obtained as a result of government borrowing or individual borrowing is irrelevant as long as the currency is placed into circulation.
But inflation or deflation aside, having the government borrow the money yields a much less efficient market since the things people do for government (in exchange for the money the government borrowed) are generally much less productive than the things they do for each other. So in economic terms, it's much better for the borrowers to be individuals than the government.
"By that measure, all borrowing is deflationary"
ReplyDeleteIn the case of government borrowing, a lien is placed against the pool of taxpayers who could have borrowed instead. This has the net effect of reducing leverage, which in turn decreases the currency pool.
"They're destroyed when debts are paid off. They're *not* destroyed to the same degree when debts are defaulted upon!"
ReplyDeleteCurrency is destroyed far more quickly in a default, because full leverage is realized in the red column when both the printed currency plus the owed interest is not returned.
kcb --
ReplyDeletei live in the heart of silicon valley, and my rent is about to drop 10%. so i'm seeing my cost of living drop right now.
KCB please understand that FDR had already mentioned that this deflationary period would see a minor bubble in food and energy prices thus giving a illusion of "inflation" .This should explain ur double payment for a bag of rice.Food and energy prices also come down but they into picture much later during a deflationary cycle.You pose good contrarian questions so do keep posting.It will only clarify the matters and help us all understand the situation better.
ReplyDeleteFDR wrote: "Currency is destroyed far more quickly in a default, because full leverage is realized in the red column when both the printed currency plus the owed interest is not returned."
ReplyDeleteRepeat after me: less inflation is not the same as deflation.
Let's take the "worst case": a loan for which none of the balance is paid back and for which the value of the collateral drops to zero before the bank can do anything with it. The money from the loan remains in circulation (except when used to pay off someone else's loan), which means that relative to the time prior to the issuance of the loan, there's more currency in circulation now than there was before. The loan event itself is inflationary.
So what's changed as a result of the default? The answer is: the bank's ability to lend more money. That is, what's changed is the bank's ability to create *more* inflation. Defaults constrain the ability of banks to put more money into circulation.
THIS IS NOT THE SAME AS DEFLATION.
Currency deflation is a reduction of the amount of currency in circulation. It is not a reduction in the ability of banks to increase the currency in circulation. The latter can result in the former, but not by itself.
If you want it in mathematical terms, deflation is when the first derivative of the currency supply relative to time goes negative, and "less inflation" (which is what a default results in) is when the *second* derivative of the currency supply relative to time goes negative. You are equating the two and they're NOT THE SAME.
And to illustrate the difference with, hopefully, some finality, consider the case where everyone takes out a loan until the banks hit their reserve limits, *nobody* pays it back, and all the collateral goes to zero in price (so the banks can't recover anything). By your argument, that should be deflationary in the most extreme way possible. But is it really? Nope. Why? Because ALL THE CURRENCY FROM THE LOANS REMAINS IN CIRCULATION. The banks are entirely unable to issue any more loans because they have all hit their fractional reserve limits as a result of all the defaults. So no additional currency is being issued. And no loans are being paid back so no currency is being removed. This means that the inflation rate is *zero*. NOT NEGATIVE. Zero.
An inflation rate of zero IS NOT deflation!
Here's hoping you see my point...
Anonymous wrote: "KCB please understand that FDR had already mentioned that this deflationary period would see a minor bubble in food and energy prices thus giving a illusion of "inflation" .This should explain ur double payment for a bag of rice.Food and energy prices also come down but they into picture much later during a deflationary cycle."
ReplyDeleteI guess I didn't see that. Thanks for pointing it out.
I do think we're much more likely to see deflation than inflation, but I'm not as certain of it as FDR is, mainly because I see the government as always being a willing borrower and the Fed being dependent on the U.S. government for their ability to project power (military power, in particular) in the world. The U.S. government could easily be a major inflationary force that counterbalances deflation enough to cause average price stagnation.
I'm VERY certain that we will see average wages fall much faster than prices, so even if the absolute prices of goods and services fall, they will become less affordable over time to the average person.
When you get right down to it, price stagnation (or mild price deflation) combined with dropping wages would be the worst possible case, because it would mean that everybody, including those who hold cash, would be hosed. Everybody except the ultra rich, that is. I think it would mean there would be no good, reliable investments for anyone. Arguments to the contrary on that would be welcome.
As someone who has an intimate familiarity with Murphy, it's hard for me to ignore that worst possible case.
FDR wrote: "In the case of government borrowing, a lien is placed against the pool of taxpayers who could have borrowed instead. This has the net effect of reducing leverage, which in turn decreases the currency pool."
ReplyDeleteThis is true if you assume that the Fed/government entity follows the same fractional reserve rules as the rest of the market. But since they make the rules, why in the world would you believe that they would follow them? These are people who will do whatever they please, because there is nobody who is able to enforce any rules upon them.
So in the theoretical world where all banking institutions follow the same fractional reserve rules, I agree with you (though I take issue with your claim that a reduction in available leverage of necessity results in pulling currency off the market. Absent some other mechanism, it does no such thing -- it makes it less possible to put additional currency on the market). But in the real world, where the guys we're talking about make any rules they want, the fractional reserve rules become meaningless, and it therefore becomes impossible to say whether or not government borrowing is more inflationary than lending from private institutions.
"less inflation is not the same as deflation"
ReplyDeleteActually it is, since like all pyramids the scheme needs to expand to stand still.
kcb --
ReplyDeleteAnd to illustrate the difference with, hopefully, some finality, consider the case where everyone takes out a loan until the banks hit their reserve limits, *nobody* pays it back
i think when considering the limiting case, you're correct. however, in a system where each day some amount of loans are paid off, you get deflation unless the banks can make sufficient new loans to compensate. defaults cripple the ability of banks to do this.
so if everyone decided to simply default, we would get zero inflation as you said. if everyone decided to pay off their loans, we'd get very negative inflation (deflation down to just the currency in circulation, basically). however, to the extent that anyone actually pays off a loan, the money supply is contracting if the banks aren't lending because some people are defaulting.
just thought of another example of how loan defaults that cripple the banks are deflationary:
ReplyDeleteconsider a business that has a credit line with a bank. in many cases such lines have a claw back provision, that allows the bank to withdraw the line at its discretion. as banks need more capital to make up for defaults, these forced loan *repayments* increase. increased loan defaults can therefore lead to increased loan repayments, which are deflationary.
FDR wrote: "Actually it is, since like all pyramids the scheme needs to expand to stand still."
ReplyDeleteMaybe, but now you're talking about the *effects* of deflation versus the effects of less inflation, and that is a discussion that I think would be worth having in its own right.
It may be that the effect of deflation is equivalent to that of a reduction in inflation with respect to the ability of the entire scheme to serve its purpose for those who built it. That is, it may be that the two are the same as far as the Fed bankers are concerned.
But I expect that's not what really matters to most readers here (though I clearly cannot speak for them, only for myself). Correct me if I'm wrong, because only the speaker knows exactly what he intends, but the primary message you've been bringing to the readers of this forum is that the value of held cash will increase over time during this part of the economic cycle, just like it did during the Great Depression.
It's a message I think has good chance of being correct, but because both the rules and the situation are different this time around, it's not guaranteed (what in life is?).
With respect to the effectiveness of holding cash, the difference between "less inflation" and "deflation" is crucial. If all we get is a little less inflation but we do not get *deflation*, then holding cash becomes a *losing* proposition in every way except as insurance against your bank going under. That's not the message you've been bringing us. Rather, your message has pretty consistently, from where I stand, been that prices *in dollars* will fall very, very far, and that depends on actual deflation as I defined it earlier. The difference between "deflation" and "less inflation" matters very much for that.
Don't get me wrong: I think there's a good chance that we'll see actual deflation, but the people who are behind this are not the type to intentionally repeat history in such a way that those who study history can gain an advantage from it. And they have much more "interesting" tools to use this time around than they had last time, namely a completely floating currency backed by nothing at all, a near-complete stranglehold over the federal government, and a federal government in very much a leading role with respect to the ability to project military power across the globe. This combination didn't exist during the Great Depression. Because the situation is different now, the actions of the Fed bankers will almost certainly be different this time around even if their motivations are identical to what they were before.
Anyway, the bottom line is that I think the issue of "less inflation" versus "deflation" needs to be treated with the same amount of care that you'd treat the difference between the Dow growing at a slower rate versus the Dow dropping -- surely your investment strategy would be different between those two scenarios, no?
notgreat wrote: "however, to the extent that anyone actually pays off a loan, the money supply is contracting if the banks aren't lending because some people are defaulting."
ReplyDeleteand: "consider a business that has a credit line with a bank. in many cases such lines have a claw back provision, that allows the bank to withdraw the line at its discretion. as banks need more capital to make up for defaults, these forced loan *repayments* increase."
I think it's difficult to say how much of a negative impact on the inflation rate your first case is relative to the case where the loan that was defaulted upon is instead being paid back. Certainly defaults will discourage the banks from lending but by how much? That's the real question, I think. You and I are in agreement: the question is the balance of loan issuance versus loan payments.
Your second case is a much more interesting case, and one I hadn't heard of before. To the extent that defaults cause banks to force repayments from other borrowers at a rate greater by more than the rate at which the defaulted loan would have been paid back, I agree it's deflationary.
It's very important to note that it's entirely possible to get deflation rates greater than what you'd get in the case of defaults simply as a result of a marked drop in demand for loans. The overall deflation rate will, of course, arise from a combination of all these factors we've been discussing, but I think it's important to note that there is probably some rate of defaults beyond which the deflation rate will *decrease*, as a result of the remaining solvent borrowers not being able to make up the difference with their loan payments. This may be counterintuitive to some, but it makes sense after you realize that defaults are not *of themselves* deflationary.