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Aurakill
04-20-07, 02:44 AM
This is just what I've posted to my blog today:

This paper appearing on Financial Sense University (http://www.financialsense.com/fsu/editorials/2007/0416.html) deserves serious attention. For one thing it doesn't for a moment indulge in any of the prevalent nonsensical theories of money as 'fiction', 'signs', 'symbolic' etc. In doing so it reasserts the distinction between price and value and correctly identifies gold as the money commodity. One had thought such clarity had died with Classical Political Economy.


The demonstration is accomplished by a series of elegant charting exercises which begins by considering the Dow 1997-2007 which of course is denominated in Dollars. However, "Since January 2002 the dollar has plummeted 31.25%, verses other currencies. This has caused money (gold) to rise measured in currency (dollars) as more and more investors move out of their currency and into real money."


A series of charts is then presented which show the Dow in Gold, Silver and a selection of different currencies. But it is those charts that show the Dow in terms of the values of several commodities, viz. the Commodities Index, Copper, Crude Oil, Industrial Metals and Food that are my favorites.


Part II of the paper critiques the official measurement of CPI where we find another uncommon appreciation of the nature of money; "The true definition of inflation is an expansion of the currency supply (incorrectly referred to as the money supply… currency and money are very different things…" In carrying out this part of the analysis reference is made to the Fed's action in ceasing the publication of M3 and the significance of this move in masking real inflation. Considered together with the contemporary suspension of the publication of repurchase agreements (RPs) the conclusion drawn is that, "... now the Fed has hidden one of the methods used to inflate (Repurchase Agreements), and they have hidden the measurement that would reveal this inflation, (M3)." Real inflation over the period considered is calculated in the order of ~ 60%.


Constructing the missing M3 figures from other data claims to show that, "there is now 70% more currency in the currency supply today than when the Dow peaked in 2000. This means that today the Dow would have to be above 20,000 to be in positive territory."



Do yourself a favor; read the full article.


DDG

Tet
04-20-07, 12:32 PM
The demonstration is accomplished by a series of elegant charting exercises which begins by considering the Dow 1997-2007 which of course is denominated in Dollars.
I'm sorry, is it just me or does anyone really pay any attention to the DOW as a guide to anything? How do you possibly compare an index that has been made up of over 125 different companies in the last 120 years as representing anything? I think using DOW comparisons to anything is more than a bit of a con. Had you picked the single best performer that makes up the DOW each and every year where would you be? I think that's what everyone should be shooting for.

DemonD
04-20-07, 10:12 PM
I'm sorry, is it just me or does anyone really pay any attention to the DOW as a guide to anything? How do you possibly compare an index that has been made up of over 125 different companies in the last 120 years as representing anything? I think using DOW comparisons to anything is more than a bit of a con. Had you picked the single best performer that makes up the DOW each and every year where would you be? I think that's what everyone should be shooting for.

If you had put 1000 USD in the best performing DOW stock in 1957 you would be about $6,000,000 richer (which is still worth something even with our inflation happy monetary policies).

This is why I love stock investing. Using the top 10 S&P 500 stocks over the past 50 years, you see really good blue chip winners that you can build an army of to DRIP and compound your wealth. Altria, Proctor and Gamble, Merck, Johnson and Johnson... and of course the idea is to buy them when they are down to supercharge your returns. This is the heart of stock market value investing (to which I'm a big proponent).

Incidentally Tet one of the best basic places to find what you are "shooting for" is right here http://bmwmethod.com/about.php .

Tet
04-20-07, 10:31 PM
If you had put 1000 USD in the best performing DOW stock in 1957 you would be about $6,000,000 richer (which is still worth something even with our inflation happy monetary policies).

This is why I love stock investing. Using the top 10 S&P 500 stocks over the past 50 years, you see really good blue chip winners that you can build an army of to DRIP and compound your wealth. Altria, Proctor and Gamble, Merck, Johnson and Johnson... and of course the idea is to buy them when they are down to supercharge your returns. This is the heart of stock market value investing (to which I'm a big proponent).

Incidentally Tet one of the best basic places to find what you are "shooting for" is right here http://bmwmethod.com/about.php .

Thanks for the link, I wonder how much you would made had you picked the winner in the DOW every year since 1957? I would imagine a hell of a lot more than $6,000,000. I'm a big believer in stocks, unfortunately I only believe in two to four of them at any one time, or sometimes I don't believe in a stock so much that well, I bet it the other direction.

If you mean value investing as buying something at a big discount, I certainly look for that, not from the wiggle point of view but from the longer term chart point of view. Always take what the market gives you, so always lock your gains I'd recommend at least once a year. Best of luck.

Aurakill
04-28-07, 04:12 AM
I'm sorry, is it just me or does anyone really pay any attention to the DOW as a guide to anything? How do you possibly compare an index that has been made up of over 125 different companies in the last 120 years as representing anything? I think using DOW comparisons to anything is more than a bit of a con. Had you picked the single best performer that makes up the DOW each and every year where would you be? I think that's what everyone should be shooting for.

Absolutely, but the article I called attention to was making this very point backed up by some very cogent analysis and a novel approach to the data.

The fact remains though that millions of people are swayed by the iconic nature of the DOW. Just watch the scenario unfold in the current period or any historical period for that matter. To ask only one question, what percentage of investors, let alone the general public, knows it's "an index that has been made up of over 125 different companies?" Yet, the psychology underlying the economic decisions of masses of people is impacted by it.

Aurakill
04-28-07, 04:28 AM
If you had put 1000 USD in the best performing DOW stock in 1957 you would be about $6,000,000 richer ...

"IF" ... the bane of all investors, but unfortunately linked inexorably to hindsight which your broker will never take as collateral. If I had taken $1000 in 1957 and rolled it over betting on every great winning horse since that time I would have a lot more that $6m. If you come up with a formula for doing this, let me know.

Incidentally, Motley Fool used to have a system in which the DOW was used. I forget the details but it involved investing in the top ten and dropping them on a rule based on the change of position. At the time it consistently gave a gain in the order of 14%. But I don't think anyone has come up with a sure-fire way of picking DOW winners. Though the remainder bins are full of the debris of those who tried.

Finster
04-28-07, 12:23 PM
I'm sorry, is it just me or does anyone really pay any attention to the DOW as a guide to anything? How do you possibly compare an index that has been made up of over 125 different companies in the last 120 years as representing anything? I think using DOW comparisons to anything is more than a bit of a con. Had you picked the single best performer that makes up the DOW each and every year where would you be? I think that's what everyone should be shooting for.

The main value of "the Dow" (the Dow Jones Industrial Average (DJIA)) here is that it has been in existence for nearly 120 years, facilitating long term historical studies. It doesn't matter much that its components have changed over time; any real investor's portfolio will change over time, too.

But the DJIA isn't perfect for this exercise, either, since it only comprises 30 stocks. They are big and important companies, but nevertheless cannot be said to reflect the aggregate experience of stock investors.

There is another Dow, however, which can. It's the Dow Jones World stock index. It closely represents the aggregate experience of stock investors and of the performance of stocks as an asset class. The drawback of this index is that it has only been published back to 1991. I have extended it back to 1885 by splicing it together with a number of other stock averages in order to give a continuous history extending over 120 years. In addition, I have converted the units from dollars to ounces of gold, took the natural logarithm and normalized it to a value of zero as of January 1, 2000. The result is therefore far superior to Maloney's chart, but - interestingly - nevertheless supports his thesis. Indeed, stocks have been in a secular bear market since early 2000.

http://users.zoominternet.net/~fwuthering/Posts/StockGold.png

bart
04-28-07, 01:02 PM
...
Part II of the paper critiques the official measurement of CPI where we find another uncommon appreciation of the nature of money; "The true definition of inflation is an expansion of the currency supply (incorrectly referred to as the money supply… currency and money are very different things…" In carrying out this part of the analysis reference is made to the Fed's action in ceasing the publication of M3 and the significance of this move in masking real inflation. Considered together with the contemporary suspension of the publication of repurchase agreements (RPs) the conclusion drawn is that, "... now the Fed has hidden one of the methods used to inflate (Repurchase Agreements), and they have hidden the measurement that would reveal this inflation, (M3)." Real inflation over the period considered is calculated in the order of ~ 60%.


Constructing the missing M3 figures from other data claims to show that, "there is now 70% more currency in the currency supply today than when the Dow peaked in 2000. This means that today the Dow would have to be above 20,000 to be in positive territory."
...



Good article and decent points, especially about John Williams at shadowstats.com and his great work on exposing the BS in the CPI.

But I take issue with his interpretation and definition of inflation. At the very least, it doesn't match or come close to any in any dictionary dictionary. It also shows a lack of full understanding of money... believing that currency, which is less than 2% of M3 plus the different forms of credit, is too short sighted.

I also take issue with Mr. Maloney's statement about reporting of repurchase agreements having ceased. It's misleading at best since all but one of the repo stats are still available, and indeed one of them is used in both my and Mr. Williams M3 reconstruction. The various repo data is available in the H4.1, TOMO, POMO and H8 Fed reports, and I track some of them on my Fed watch (http://www.NowAndFutures.com/fed_watch.html) page.




I also maintain a weekly reconstruction of M3 on my Key Stats (http://www.NowAndFutures.com/key_stats.html) page and there's also an article (http://www.NowAndFutures.com/articles/20060426M3b,_repos_&_Fed_watching.html) showing how I did it... along with the raw data in an Excel sheet. To the best of my knowledge, I was the first to reconstruct and publish it... and haven't managed to break my arm patting myself on the back yet. ;)

Sapiens
04-28-07, 01:23 PM
I also maintain a weekly reconstruction of M3 on my Key Stats (http://www.NowAndFutures.com/key_stats.html) page and there's also an article (http://www.NowAndFutures.com/articles/20060426M3b,_repos_&_Fed_watching.html) showing how I did it... along with the raw data in an Excel sheet. To the best of my knowledge, I was the first to reconstruct and publish it... and haven't managed to break my arm patting myself on the back yet. ;)

Bart,

Amazing page your Key Stats, thanks for sharing it.

-Sapiens

bart
04-28-07, 01:41 PM
Bart,

Amazing page your Key Stats, thanks for sharing it.

-Sapiens

You're most welcome Sapiens, glad it was of use. It gets more traffic than any other page on my site due to the M3 reconstruction.


I don't promote my site much here or elsewhere but many of the areas touched on here and in that Maloney article are covered in various other pages like my CPI lies (http://www.NowAndFutures.com/cpi_lie.html), False data (http://www.NowAndFutures.com/false_data.html), Wiemar (http://www.nowandfutures.com/us_weimar.html), Argentina (http://www.nowandfutures.com/us_argentina.html) , Forecasts (http://www.nowandfutures.com/forecast.html)
and even my first and only attempt so far at "real" economics with some work on Predicting a financial crisis (http://www.nowandfutures.com/financial_crisis.html). At last count, there are over 2000 pages I maintain... with varying degrees of success.

Tet
04-28-07, 02:12 PM
Thanks for the chart, not much of an indicator for those reading charts as to the direction we're headed. Two clear lower lows and two clear higher highs. Hard to use gold in these comparisons as well, from 1885 to 1933 an ounce of gold is $20, from 1933 to 1972 gold is $35 an ounce. The creation of the Petrol D0llar in the 1970's seemed to settle on gold at $250-300 an ounce. We seem to be in Forty-year periods of rebalancing, do we settle at $600 an ounce from here?

From gold's confiscation in 1933 we run a ten year period of the market continuing down until it bottoms and starts it's run. After Nixon closes the gold window we have about the same period of time before the market bottoms and goes on to a huge gain. Now we sit seven years removed from the market collapse and gold's run higher, according to your chart these gold moves last seven to ten years. The moves higher have lasted from 20-25 years for the market. I'm more inclinded to believe we are getting ready for a 20-25 year period of a move higher, than I'm inclinded to believe that the move lower continues much longer.

Now when I look at the World Bank, IMF, Paris Club and the foreign holders and creators of d0llars, what are they going to do with them? Hell even Ecuador just kicked out the World Bank. South America isn't borrowing, in fact South America is creating their own bank, Africa is getting better terms from Russia and China, Asian Tigers aren't borrowing d0llars, what are all these banksters going to do with their loot if they can't find any suckers to lend d0llars to? The IMF sits with just $9 billion in loans outstanding, with no new takers. Banks aren't consumers, they only have a few choices of where to park their loot if they can't run their extortion racket of providing loans. Buy bonds, buy real estate or buy stocks are the only choices that I know of to get rid of d0llars and banks have got to get rid of d0llars since d0llars are a liability on a banks balance sheet. Just a few months ago we read that George Soros bought stocks late last year. I'm going to bet a large enough portion of D0llar repatriation flows into over priced piece of shit stocks and it would be best to collect some of these stocks now while you still can before they are really, really, over priced piece of shit stocks. Fear and Greed or Greed and Fear is how the market works, Wall Street has been playing the Fear card for the last seven years, watch what happens when they play the Greed card, I'd say that's the one they are about to put down. TWT.

Finster
04-28-07, 04:07 PM
Thanks for the chart, not much of an indicator for those reading charts as to the direction we're headed. Two clear lower lows and two clear higher highs.

The take-away from the chart for me is the establishment of a pattern of stock prices oscillating about a slightly upsloping trend line in a cycle of roughly thirty five years. Prior to the establishment of the Fed the cycles were much shorter and much shallower; we seem to have traded a degree of mild short-term volatility for a much more violent long-term volatility. If this pattern continues, we can expect stocks to decline in terms of gold for several more years by a factor of anywhere from two to eight times.


Hard to use gold in these comparisons as well, from 1885 to 1933 an ounce of gold is $20, from 1933 to 1972 gold is $35 an ounce. The creation of the Petrol D0llar in the 1970's seemed to settle on gold at $250-300 an ounce. We seem to be in Forty-year periods of rebalancing, do we settle at $600 an ounce from here?

The chart tells us little or nothing about dollar prices for either stocks or gold individually. What it does is factor the dollar out of the equation. Like A/B x B/C = A/C. If the dollar is B, it’s gone from the result. Because the authorities can do just about anything they want to the value of the dollar, pricing stocks in terms of dollars leaves us vulnerable to capricious changes in the denominator. Price stocks in gold, however, and suddenly a clear pattern emerges. Broad, regular swings in the price of stocks related to gold.

In dollar terms, if the pattern continues, stocks will decline steeply while the price of gold more or less trades sideways. Or stocks will trade more or less sideways while gold trades much higher. Or gold will decline while stocks decline much more. Or stocks will rise while gold rises much more. Or anything in between. My guess is that the pattern will manifest itself pretty close to the second way; that is, stocks will trade more or less sideways for several more years while gold advances severalfold. But that part is just a guess based on the 1970’s precedent.

Aurakill
04-30-07, 03:18 AM
But I take issue with his interpretation and definition of inflation. At the very least, it doesn't match or come close to any in any dictionary dictionary. It also shows a lack of full understanding of money... believing that currency, which is less than 2% of M3 plus the different forms of credit, is too short sighted.

Slip of the keys here makes what you intended to say unclear; did you mean to write "... believing that [it is] the currency...?"

Apart from the fact that the amount of currency in circulation can vary for technical reasons and not be inflationary, (i.e., variations in the total value of goods, their volume and the velocity of circulaton of the currency), I'm not sure that Maloney would hold to the the view that the money supply consists of the currency alone which I think is how you are reading him.

There is a lot of hogwash written about money, especially that which took off in the aftermath of the decoupling when the issue of the denomination of the dollar in gold became hopelessly confused with the convertibility of the dollar into gold, the latter being possible at any time just as much as the dollar can be converted into any other commodity; it's called buying:
$1 buys or = x tea, y copper, z gold ...... Barring variations in the value of gold, (which by all accounts has remained pretty stable over the long term apart frrom large historical expansions to the supply: New World, California, Yukon etc.), the dollar price of gold is an a definite indication of the purchasing power of the dollar and thus of inflation. Gold, in other words, has and will remain the money commodity. This is a fact brought home by every new crisis.


PS. I'm not sure if any dictionary, including dictionaries of economics are necessarily definitive in the matter of money; the dicts. of econ. especially will give whatever definition apertains to the school which the compiler avows, when they do not simply give descriptive accounts of the money supply as defined within specific jurisdictions.

D.D.Grant

bart
04-30-07, 11:41 AM
Slip of the keys here makes what you intended to say unclear; did you mean to write "... believing that [it is] the currency...?"

Apart from the fact that the amount of currency in circulation can vary for technical reasons and not be inflationary, (i.e., variations in the total value of goods, their volume and the velocity of circulaton of the currency), I'm not sure that Maloney would hold to the the view that the money supply consists of the currency alone which I think is how you are reading him.

There is a lot of hogwash written about money, especially that which took off in the aftermath of the decoupling when the issue of the denomination of the dollar in gold became hopelessly confused with the convertibility of the dollar into gold, the latter being possible at any time just as much as the dollar can be converted into any other commodity; it's called buying:
$1 buys or = x tea, y copper, z gold ...... Barring variations in the value of gold, (which by all accounts has remained pretty stable over the long term apart frrom large historical expansions to the supply: New World, California, Yukon etc.), the dollar price of gold is an a definite indication of the purchasing power of the dollar and thus of inflation. Gold, in other words, has and will remain the money commodity. This is a fact brought home by every new crisis.


PS. I'm not sure if any dictionary, including dictionaries of economics are necessarily definitive in the matter of money; the dicts. of econ. especially will give whatever definition apertains to the school which the compiler avows, when they do not simply give descriptive accounts of the money supply as defined within specific jurisdictions.

D.D.Grant
Home Foreclosures Blog (http://www.home-foreclosures.blogspot.com/)


Yes, I did accidentally skip a few words there and I should have finished the thought with something like "...believing that currency, which is less than 2% of M3 plus the different forms of credit, is too short sighted a view to describe what money is and is misleading at best."

It does indeed still appear to me that Maloney is saying that currency is significantly more important than it is at best, with statements like "the Fed has pumped so many more dollars into the currency supply" and "The true definition of inflation is an expansion of the currency supply...". He does make mention of M3 and even notes that it's closer to actual inflation, but I still maintain that connecting inflation with currency as he attempted in that definition is still incorrect and quite unclear, and misleading at the very least.

He is outright incorrect about repos being discontinued too.

I also submit that, although definitions of money do vary across the various economic schools, setting aside all dictionary definitions of inflation over the decades does not lead towards a resolution of the issues.

Aurakill
05-01-07, 03:27 AM
It does indeed still appear to me that Maloney is saying that currency is significantly more important than it is at best, ... I still maintain that connecting inflation with currency as he attempted in that definition is still incorrect and quite unclear, and misleading at the very least.

He is outright incorrect about repos being discontinued too.

I also submit that, although definitions of money do vary across the various economic schools, setting aside all dictionary definitions of inflation over the decades does not lead towards a resolution of the issues.

Well, here's me so busy finding the mote in my brother's text that I unwittingly, (read working in the early hours), shifted the definition question to 'money' whereas it had originally concerned 'inflation'. The Theory of Money, in respect to the fundamental concepts as opposed to 'monetary theory' etc., is something of an obsession of mine; it's slowly killing me. And since I am convinced that a satisfactory such theory must be of the commodity money variety I was naturally attracted to that thrust of Maloney's paper which I shall return to in the light of your remarks for a more careful reading of its other aspects.

It may be the case that "setting aside all dictionary definitions of inflation over the decades does not lead towards a resolution of the issues." However, neither will piling them up. But of course you wouldn't disagree with that.

bart
05-01-07, 12:36 PM
Well, here's me so busy finding the mote in my brother's text that I unwittingly, (read working in the early hours), shifted the definition question to 'money' whereas it had originally concerned 'inflation'. The Theory of Money, in respect to the fundamental concepts as opposed to 'monetary theory' etc., is something of an obsession of mine; it's slowly killing me. And since I am convinced that a satisfactory such theory must be of the commodity money variety I was naturally attracted to that thrust of Maloney's paper which I shall return to in the light of your remarks for a more careful reading of its other aspects.

It may be the case that "setting aside all dictionary definitions of inflation over the decades does not lead towards a resolution of the issues." However, neither will piling them up. But of course you wouldn't disagree with that.

Cool... and I couldn't agree more on the challenges of a workable and clear theory of money and theory of inflation. It's by far the most difficult area that I've ever tackled and I frequently feel I'm walking through molasses.

Finster
05-01-07, 07:56 PM
Cool... and I couldn't agree more on the challenges of a workable and clear theory of money and theory of inflation. It's by far the most difficult area that I've ever tackled and I frequently feel I'm walking through molasses.

You just need to look in the right place (http://www.itulip.com/forums/showthread.php?t=924)...

bart
05-01-07, 08:20 PM
You just need to look in the right place (http://www.itulip.com/forums/showthread.php?t=924)...

Sorry - got a 666 error - full logic not found... ;)

And seriously, I'll be writing an article in the area later this year which will even be broader than your missive/essay... assuming someone else doesn't find enough round tuits and get there before me.