PDA

View Full Version : Asylum Markets of the post FIRE Economy – Part I: Locked Up - Eric Janszen



EJ
12-10-09, 06:03 PM
http://www.itulip.com/images2/insane.jpg
Asylum Markets of the post FIRE Economy – Part I: Locked Up

The past two U.S. economic recoveries were enabled by asset bubbles, first in stocks, then in housing. Monetary and fiscal stimulus was pre-committed by government reflation policy to counter the macroeconomic damage caused when they inevitably collapsed. As we forecast, Great Depression type commodity price deflation didn’t follow. Instead, we have the perverse side-effect of high unemployment, high commodity prices, and low profits. Stocks rise not due to future earnings but asset price inflation directly. Worse, the U.S. economy remains dependent on bubbles for economic growth, to generate incomes to tax, for receipts to finance outrageous government outlays. The economy cannot grow its way out of debt without them.

For the second time in ten years, reflation by government and monetary authorities has the economy growing, but we’re here to ask:
• Fewer foreign lenders are willing to bet on the U.S. economy. Can the U.S. economic recovery, financed by the lending of domestic commercial banks and foreign governments, become self-sustaining before the U.S. government runs out of credit?
• We need a Next Bubble to generate capital gains taxes on asset price inflation and jobs in bubble-supported industries to put the unemployed to work. Will we get one?
• How much can the economy grow before the next Peak Cheap Oil recession, due by 2013?
• Starting from a deep hole in economic output and a shockingly weak fiscal position, what happens to Treasury bond yields and the dollar in the next recession? Will the U.S. be in a position to double down on fiscal stimulus in the next recession, or will it have to fold?
• Market participants can’t differentiate between an organic, private-sector-led economic recovery and a government-financed recovery. When will they smell the end of the government-financed boom, constrained by a combination of fiscal and external debt thresholds?
• The recovery, current course and speed, isn’t generating new tax revenues fast enough to convince foreign creditors that the U.S. can grow its way out of debt. Too bad, because the U.S. has high foreign financing needs. Paradox: if foreign investors don’t bet that the U.S. can grow its way out of debt, it can’t.
• What kind of crash will we get if the Fed is forced to show discipline to foreign creditors and withdraws support too early in the recovery cycle?
• The madhouse market environment of the post FIRE Economy era, after the last reflation, is murder on us buy-and-hold investors. After the latest reflation, major asset classes that previously correlated to each other, positively or negatively, no longer do. Today stocks, bonds, and commodities all correlate to a third factor, monetary stimulus and deficit spending--to reflation policy. How can investors make rational investment decisions when governments, not markets, hold the key to asset prices? All assets except one, that is, the one that is a short on government: gold.
Note: The photos for this article are of the Northampton Hospital for the Insane, copyright © Shaun O'Boyle 2000 on his web site Oboyphoto.com (http://www.oboylephoto.com/state_hospital/index.htm), and republished here with his permission.

I hear from a dozen newly minted, self-styled gold experts who hit the market commentary circuit recently that after 20 years becalmed in silent seas the gold market is now crowded and frothy. A few dare say it’s headed for a crash to “fair market value” in the neighborhood of $100. While a recent dip in prices appears to confirm this view, they’re wrong.

If you’re new to iTulip, or if you’re not but are forgetful, indulge me a few paragraphs of background.

I’ve been in and out of gold investing for nearly 40 years, since my uncle hit the road from Oklahoma City in 1972 and headed south across the rough, flat south Texas desert, through the yukka and dayflower, for the gold shops along the Mexican border where proprietors didn’t care much for the laws forbidding gold bullion ownership by U.S. citizens, on the books since 1933 and repealed in 1975.

He and my father worried then that the Nixon administration aimed to flush the U.S. dollar (a currency lovingly dubbed the "bonar" here at iTulip) down the toilet. They feared wreckage of the economy from inflation, the perennial fallout of war and unfunded social spending programs.

They were right. President Richard Nixon and Fed Chairman Arthur Burns did both. Evidence appeared as rising inflation in 1975, the year gold bullion ownership became legal once again. But my father and uncle saw it coming, and bought gold four years before.

An ounce of gold sold for $58.20 outside the U.S. that year. The Mexican 50 peso weighs 1.2 ounces. The bullion value was $69.84. With a hefty 12% premium, they sold for $79.00, the price marked on packages in red.


http://www.itulip.com/images2/CheapMex50Pesos.jpg






The three coins scanned in their original holders are all that remain of that expedition, inherited by me when my father passed away in the early 1990s. I had more but sold them then.

The 1990s were not years to own gold, during the heyday of U.S. equities markets, fueled by uniquely American grandiosity that capped decades of folly. We recovered from every self-inflicted injury unscathed, from The Great Inflation of the 1970s, to the S&L debacle of the 1980s, to the 1987 stock market crash.

These were the halcyon days of the seemingly indestructible FIRE Economy, with its endless capacity to enrich us all with inflated asset prices, creating millions of jobs yet leaving commodity prices and wage rates untouched. Unemployment fell to low single digits and the economy grew fast while interest rates stayed low to fuel further asset price growth. An economic perpetual motion machine—all output and no input. Just add money. Brilliant.

Judging by October 2009 celebrations when stock indexes retook nominal levels that were first achieved during the FIRE Economy’s peak ten years earlier, an event as vital and momentous as a New Kids on the Block comeback tour, it appears that nostalgia for that heady, joyous era has yet to wear off, nor has its ephemerality been realized, never mind internalized.

Conversely, the countercyclical to the U.S. stock market as a measure of U.S. economic power and vitality—gold—displayed the sad process of dissolution and rot for all to see by rising in price throughout the entire pathetic episode, from the technology stock bubble and crash to the subsequent reflation of the economy via a housing bubble, to the crash that followed that, and the reflation after that, still in progress. All the while, with minor perturbations, gold keeps rising.

Let's draw the line even farther back, past the bubbles, to the early 1970s when the U.S. threw off the discipline of the creditor nation, to maintain a trade balance and international reserves in gold sufficient to cover foreign obligations. Ten chaotic years followed as the global monetary system adapted to the fiat dollar standard. At the end of the decade, as the new order fell into place, the only discipline that remained for the U.S. was to keep commodity and wage inflation low. High asset price inflation didn't count. In fact, it became policy.

You could buy one of the Mexican 50 peso coins off of me for $1,400 today, 18 times the purchase price, purchased before the system developed that ultimately resulted in the Asylum Markets we find ourselves in today.

If I were selling.

Which I’m not.

A Bubble in Ignorance

Why not? Isn’t the gold market a fool-packed bubble? Isn’t gold over-priced at $1,100? Won’t the dollar surge and crash gold prices when the U.S. government comes to its senses, raises interest rates, cuts spending, and otherwise “bites the bullet” politically? Won’t the gold bubble then pop, just as t did after 1980?

The political-economic forces that drive gold’s price cannot be so suddenly reversed. They manifest decisions made more than 30 years ago about the role of the U.S. in the world economy that made sense, at least for the U.S., at the time, but since at least the late 1990s no longer do.

Thirty years of the FIRE Economy, with its asset inflations, deflations, and reflations, its special relationships with foreign lenders who financed the game, its tax and regulatory programs geared to asset special interests, its public debt policy to take from the future and give to the present, brought us here—to the Market Asylum. It’s a place where interest rates cannot be raised, nor lowered, because at rock bottom they sit at the level where the over-leveraged private and public sectors need them to stay. Where taxes cannot be cut because the deficit already stretches even the most entangled creditor’s credulity. Yet no new asset bubbles can free us from the Asylum’s walls because the private credit markets have developed the generational timidity that's typical of all crash survivors.

Fund managers and retail investors alike watch their wardens’ every move from inside the Asylum for signs that indicate their intentions, for even a word from them has more weight than the decisions of one million wards acting according to their own judgment and needs.

It’s not 1980 all over again for gold, with lines of panicky buyers circling a block to buy coins from a dealer—no ETFs in those days—fearing that the price might go to infinity while the purchasing power of their savings, then averaging 8% per year, crashes to zero.

Circumstances for the average family are fundamentally unlike 1980, and even the small community of investors that is not timid about owning gold fails to comprehend how and what it all means.

We are at the end of the FIRE Economy era that produced the boom that supported the rising dollar that displaced gold as the international curency, the world’s oldest and the fallback of governments and central banks when everything goes wrong with international politics. We are at the start of a new phase of global geopolitical evolution, but no one knows exactly what it is.

I have a hunch that the new world that is coming will be better. But before it gets better, it has to get a lot worse because entrenched interests don't give up without a fight.

http://www.itulip.com/images2/longhall.jpgLooking for bargains

If I sell gold today, what shall I buy with the cash that is not as expensive or even more expensive than gold?

In 1980, when gold peaked at $3,000 in 2009 dollars, investors had the option to sell gold and buy a 30-year Treasury bond that was so cheap they'd earn 15% interest until the year 2010. Today, when gold is supposedly a “bubble,” a 30-year bond earns only 4.3%, maturing in 2039. Is that cheap?

What’s cheap? Stocks? Corporate bonds? Real estate? Emerging markets? Commodities? Oil?

In the Asylum Market, all asset classes are correlated to government policy to dish liquidity to minimize the macro-economic impact of the latest crashing asset bubble and halt the process of asset price deflation and default.

Logically, when that policy is finally reversed and liquidity is withdrawn, all asset prices will correct: bond yields rise, gold prices fall, stock prices fall, housing prices fall. But only in the short-term, as we’ve forecast here and seen twice since we started up in 1998.

In the short-term, all assets correlate to government monetary policy. In the long-term, one stands out as negatively correlated to the weakened and weakening structure of our economy, and with it our reduced economic, political, and military position in the world--all that underpins the value of our currency.

Longing to Own Stocks

We’d like to own stocks. But it hasn’t been time to own stocks since March 2000 when iTulip readers got out of the stock market. It’s been time to be in gold since 2001 when iTulip readers read Questioning Popular Financial Advice (http://www.itulip.com/gold.htm).

Our thesis is not the standard gold bug line.

One, the global monetary system is broken and central bankers know it. They won’t sell off their gold and push to price down to $100 because they don’t trust the global central banking system they comprise. They need gold as a fallback.

Two, the U.S. economy is a madhouse of tax, regulatory, and monetary policies geared to special interests. To the Military Industrial Complex add the Banking Industrial Complex, Health Care Industrial Complex, Education Industrial Complex, Real Estate Industrial Complex, and on and on.

Three, I saw the Fed corruptly ignoring bubbles, and expected it to just as corruptly use our nation’s sovereign credit to bail out the bankers that are getting rich off the bubbles. After the bubbles collapse and endanger our economy, reflation policy will imperil the nation’s solvency with emergency spending supports for the macro economy.

Most Americans do not understand that all that stands between a U.S. and some form of sovereign debt and currency crisis is the shared interests of its trade partners, especially China, that I termed Economic M.A.D. (http://www.itulip.com/economicMAD.htm) in 2006, a phrase that has since entered the lexicon of debate at the highest levels of government in the U.S. and China.

The gold market we entered in 2001 was derelict and abandoned. Eight years later I’m supposed to believe that the gold market is over-crowded because a handful of previously oblivious financial market commentators suddenly noticed that gold prices have been rising every year for eight years.

Big deal. So now I don’t have to dig through the Wall Street Journal to find the gold price. As of this year, it’s right on the front page. Fund managers who aren’t gold bugs are buying it. Gold ads bug us from the TV and radio. To the new gold experts this means gold sentiment is now too bullish. We’re due for a crash.

Have they noticed that the gold ads are about selling not buying gold? One of the predictably horrific outcomes of the policies crafted by special interests that created the economic crisis is that 80% of the population doesn’t have any liquid net worth to invest in gold. Instead, they have to sell gold to pay property taxes and repay debt. Ask your local coin dealer when he sees the most customers come in to sell. He’ll tell you quarter end when real estate taxes are due.

There’s gold bubble alright, in ignorance about gold. Ninety-five percent of North Americans think of gold as a foreign land inhabited by bloodthirsty cannibals who drink lizard blood for breakfast. Of the five percent who aren’t afraid of it and think they understand it, only one percent actually does. They think gold has something to do with inflation. Or the dollar. Or financial risk. They confuse cause with effect, the symptom for the illness.

The propaganda that spreads misguided beliefs about gold is as ubiquitous as it is relentless.

Listen to Wall Street’s sales and marketing: Gold doesn’t pay a dividend. Gold doesn’t pay interest. Never mind that gold has not finished one year below its New Year’s opening price in more than eight years. Instead, to get rich go into debt to buy a house. Debt is wealth. According to economists, houses are cheap again three years after the start of the collapse of the housing bubble, a bubble that the very same economists in 2006 claimed didn’t exist.

Today the government will pay you $8,000 to buy one, the way they paid you $4,500 to buy a new car in October. Look how well that worked out for the auto industry.

http://www.itulip.com/images2/autosales120209.gif





"Cash for Clunkers" produced brief unit sales spike to 1986 unit sales volume before falling back to 1983 levels, back when the U.S. economy was 2/3 its currency size. Current course and speed, the market will not recover to pre-crash levels until 2016.

Wall Street tells you that the S&P with a P/E of 88 is a bargain. Better get in before earnings rise with recovery and prices go up even more.

Gold? Scary. Risky.

Back in 2001, they told us gold was risky because historically the price doesn’t perform as well as stocks in the long term. Now they tell us gold is risky because the price did perform better than stocks in the long term, and that makes it a bubble, say the madmen running the Asylum.

I badmouthed Amazon in 2000 (http://www.bankrate.com/brm/news/investing/20000404f.asp). I was wrong. I underestimated Jeff Bezos. Great opportunity for me to learn from my mistake. What is it about gold detractors that keeps them from learning from their mistakes? They’re education-proof. Brainwashed.

Listen to the propaganda. Stocks and houses? Those are nice, safe investments, the land of milk and honey where good men give up their seats on the bus for old ladies. That’s what Wall Street’s media says, and as long as Wall Street’s government is in power, and until they run out of money to make it so, to inflate housing prices, what they say conforms roughly to fact.

Yet the data over the past ten years contradict the argument that houses are better than gold. But who cares about data? Stocks and houses are what Wall Street's selling. Soon it will be selling carbon credits, as the economy chokes on new taxes and fees on energy use when all we needed to do was tax oil imports and use the revenue to finance projects to reduce transportation inefficiency. But investment banks can’t earn fees on direct taxes by government, so we'll get a byzantine new tax and fee system instead.

Even if you escape Wall Street’s propaganda machine, there’s no getting around government tax and regulatory policy geared to FIRE Economy interests. Stocks and houses are the asset classes that the government subsidizes through tax credits and loan guarantees.

The banks are the other big winners. Savings interest is taxed while interest on debt is deducted from taxes on income. Gee, I wonder why the savings rate since 1980 is so low? The temporary spike since the middle of the recession will end by the middle of 2010.

The U.S. fiscal deficit at 11.2% of GDP, and external debt at 94% of GDP, are nearly twice the maximum 6.4% and 50% thresholds that tripped every one of 70 countries that suffered a sovereign debt crisis since 1970, countries that had the misfortune to owe their debts in foreign currencies. Meanwhile, the only asset you can buy to reliably protect yourself from the inevitable consequence of mad economic policies—gold—is taxed as a “collectible” at 28%.

Gold also happens to be the only commodity that central banks possess. That fact alone makes gold something other than a mere commodity. Do they keep gold on their balance sheets because they are crazy or to protect themselves from each other and the policies of their respective host governments as they pursue popular government spending policies?

Can everyone go bankrupt all at once?

Ten years ago I told you that as the global monetary system started to stop working for all of the players, they’d fall back on the Fourth Currency (http://fourthcurrency.com/). Right on cue, as governments around the world produced an orgy of spending to stimulate the economy out of the worst recession since The Great Depression, central banks recently became net gold buyers.

This lowers career risk for fund managers who wanted to take a gold position anyway and represents an important stage in the process of the decommissioning of the dollar as the world’s primary reserve currency.

Gold’s recent rise has nothing to do with inflation in the 1970s sense, and anyone looking for a carbon copy of 1977 will be disappointed. The rise has everything to do with the value (quality) of the goods and services you can buy with your dollar-denominated income and savings. For evidence, just look at the value of stocks and bonds you can buy with dollars these days.

Or food at grocery stores and restaurants. Inflation, as we pointed out in April 2008 (http://www.itulip.com/forums/showthread.php?p=34140#post34140), is not only rising prices but also a declining quality and quantity of goods and services. It's a less easily observable but equally pernicious process of the erosion of the purchasing power of your labor and savings, the only meaningful definition of inflation that exists.

Deficits will Matter

Don’t worry about the deficit, we’re told. Eleven percent of GDP is no big deal because we don’t have to maintain currency reserves. We owe our foreign debt in our own currency. What if the game changes? It is changing, but it is not likely to change suddenly.

A sudden shift to a multilateral currency reserve system from a dollar dominated one will bury the U.S. If the U.S. is buried then the world is buried, and every member of government worldwide above the level of under-secretary knows it.


http://www.itulip.com/images2/top10foreigntreasuryholdersSept08-Sept09.gif






That’s why China, Japan, the UK, and all the others hold noses and continue to buy U.S. debt. If they don’t the U.S will experience both a liquidity and a solvency crisis, leading to a sovereign debt and currency crisis. If that happens then more than a million U.S. military personnel have to hitch hike home from 700 plus overseas bases in more than 130 countries. The Fifth Fleet has to steam out of the Gulf of Oman, abandoning the Saudis to fervent religious opposition leaders eager to settle old scores with repressive regimes that the U.S. protected, one after another, for 60 years. The lid comes off the whole global pressure cooker, capped by U.S. military power that’s financed by foreign governments that buy our debt and prop up the dollar. A dozen simmering conflicts erupt around the planet at once.

That’s why I don’t buy the dollar crash and hyperinflation story. The dollar has always been a political and not a market-based currency. The world is built on the U.S. dollar. If the dollar collapses so does the world. Hyperinflation will be the least of our problems in that conflagration. We will get another outcome. But what?

The future is hard to see from inside the post FIRE Economy market asylum. It’s frustrating for forecasters. Bubbles, while obnoxious and destructive, were at least predictable.

http://www.itulip.com/images2/lockedup.jpgOur mantra is buy cheap and hold for many years. But inside the Asylum Economy, nothing is cheap, and no asset can be held for long. The fundamental premise of our investment philosophy is thwarted by the end result of years of insane government and central bank policy: assets that are no longer correlated to each other but to government.

Like inmates trapped inside an asylum built and run by madmen, we struggle to adapt. Some of our fellow inmates do not even see the walls around them. They accept the noisy, chaotic confines as normalcy, or perhaps the new normalcy. The aware try to make rational choices from among a limited array of assets that circulate within the asylum’s confines like cigarettes, toilet paper, pills, and shanks inside a prison. Which shall we choose, or can we create a balanced portfolio of 20% cigarettes, 10% toilet paper, 40% drugs, and 30% shanks to keep our savings safe?

My message to the well meaning new gold “experts” is this: it’s not that gold has become such a terrific investment since 2001 when I told readers I was buying it, it’s that the alternatives have gotten so horribly bad since then. The inexorable logic of global geopolitics that developed since 1971—and decades of inbred economic and central banking orthodoxy—has made them so.

The USA’s uniquely privileged geopolitical position has exempted it from economic policy rules by which every other nation must abide. This encouraged the reckless and self-destructive cycle of asset inflations, crashes, and reflations in the U.S. over the past decade. Emergency bailouts and stimulus after two disastrous asset bubbles leave the nation, already burdened with $60 trillion in contingent liabilities, hurdling toward insolvency.

The latest round of post-bubble reflation appears to put the economy on the road to recovery but a dire weakness created by reflation policies lurks below the surface unseen. The recent Dubai default reminds us that not only badly managed banks and industrial companies can go broke, but badly managed governments that bail them out can go broke, too. It just takes longer.


<table valign="top" align="left" border="0"> <tbody><tr> <td>http://www.itulip.com/forums/../images2/3rd_fl_door300.jpg</td> </tr> </tbody></table>Asylum Markets of the post FIRE Economy – Part II: Breaking the Rules ($ubscription) (http://www.itulip.com/forums/showthread.php?p=138349#post138349)

Countries can go broke, too, but countries that issue reserve currencies do not go broke the same as all others. This part of our analysis draws from two IMF papers, "Predicting Sovereign Debt Crises" by Paolo Manasse, Nouriel Roubini, and
Axel Schimmelpfennig, and “'Rules of Thumb' for Sovereign Debt Crises" by Paolo Manasse and Nouriel Roubini.

The latter paper might be more accurately titled, “Rules of Thumb for Every Country Except the USA” because, as we shall see, the U.S. long ago broke almost every rule in the book. If you have ever wondered why the U.S. is different, beyond the abstract notion that the U.S. owes its debts in dollars, this part explains why, and how that may change.

Standard & Poor’s rates sovereign issuers "in default" if a government fails to meet principal or interest payment on external obligation on the due date. That includes exchange offers, debt equity swaps, and buy back for cash.

The first most important criteria for a nation at risk of sovereign credit crisis is external debt. No external debts to default on, no risk of sovereign credit crisis. Take countries such as Japan off the list of suspects. Put countries with large external debts, such as the UK and the US, at the top of the list. more... $$$ (http://www.itulip.com/forums/showthread.php?p=138349#post138349)

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
__________________________________________________

To receive the iTulip Newsletter or iTulip Alerts, Join our FREE Email Mailing List (http://ui.constantcontact.com/d.jsp?m=1101238839116&p=oi)

Copyright © iTulip, Inc. 1998 - 2009 All Rights Reserved

All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer (http://www.itulip.com/forums/../GeneralDisclaimer.htm)<!-- / icon and title --> <!-- message -->

sishya
12-10-09, 08:01 PM
Bravo [Clapping..]. Good article. I sense some anger in EJ's tone.
Very Correct - People are bordering on Insanity now because of Govt's hand

LargoWinch
12-10-09, 09:53 PM
I sense some anger in EJ's tone.


I find hard to argue your point sishya:


If the dollar collapses so does the world. Hyperinflation will be the least of our problems in that conflagration. We will get another outcome. But what?


Which shall we choose, or can we create a balanced portfolio of 20% cigarettes, 10% toilet paper, 40% drugs, and 30% shanks to keep us safe?

c1ue
12-10-09, 11:59 PM
Mr. Janszen,

Great article - as quality as any of your other work.

While I cannot dispute the logic behind this statement:


If the dollar collapses so does the world. Hyperinflation will be the least of our problems in that conflagration. We will get another outcome. But what?

the difficulty I have with accepting it is that this other outcome assumes logical behavior on the part of the US.

To wit: that the US recognizes its changed position and adjusts its expectations and behavior accordingly.

From my view - this is not a safe assumption. The US is just as likely to accelerate its own demise into hyperinflation via poor or overly populist leadership as it is to maturely accept its changed circumstances.

All it would take is for a leader to tunnel vision on the 'destroy the world if the US goes down' part without equally considering if the world might at some point prefer that outcome to the alternative of being an ongoing hostage to US threats/behavior.

Spartacus
12-11-09, 01:01 AM
I agree with this part but with lots of caveats.


[INDENT][INDENT][INDENT][INDENT]http://www.itulip.com/images2/insane.jpg
Asylum Markets of the post FIRE Economy – Part I: Locked Up

That’s why I don’t buy the notion of a dollar crash and hyperinflation story. The dollar has always been a political and not a market-based currency. The world is built on the U.S. dollar. If the dollar collapses so does the world. Hyperinflation will be the least of our problems in that conflagration. We will get another outcome. But what?

IMHO this has the possibility of setting up enormous, unprecedented moral hazard.

If US policymakers firmly come to believe nothing they do will destroy the US$, what's to prevent them from doing ANYTHING?

And if the foreigners get wind of this mindset, that surely will be enough to motivate them to find alternatives to the US dollar.

I bet the treasury, the FED, and all the foreign equivalents have game-theoried this to death, and that's why the US authorities are not today acting as if they could do anything they wanted.

so in the end it may be true but no one can overtly act as if it is true.

dummass
12-11-09, 09:16 AM
"There’s gold bubble alright, in ignorance about gold. Ninety-five percent of North Americans think of gold as a foreign land inhabited by bloodthirsty cannibals who drink lizard blood for breakfast. Of the five percent who aren’t afraid of it and think they understand it, only one percent actually does."

Yum-yum, delicious lizard blood. :D

Fiat Currency
12-11-09, 11:43 AM
I bet the treasury, the FED, and all the foreign equivalents have game-theoried this to death, and that's why the US authorities are not today acting as if they could do anything they wanted.

so in the end it may be true but no one can overtly act as if it is true.

Well said. Although - I'll bet that the US has a better W.O.P.R. than the other guys ... :D

2605

due_indigence
12-11-09, 04:01 PM
Well said. The USD is a political instrument at least as much as it is an economic one. Pax Americana amounts to propping up a vast network of shady (shakey) regimes. It's like a prisoner's dilemma welded to no honor among theives. The world's despots may hate the USD. But the alternative for them is worse. It's hard to imagine it not all ending badly. And what if someone big panics and races for the casino door?

cjppjc
12-11-09, 07:42 PM
Judging from the number of replies, I am probably not the only one who felt this piece was a little weak.

Chomsky
12-11-09, 08:17 PM
Judging from the number of replies, I am probably not the only one who felt this piece was weak.


Perhaps, though the response to Part II et al. has been somewhat stronger.

ricket
12-11-09, 08:22 PM
I would gladly throw my hard earned money at you for pieces like this. But 5 weeks apart? Mannnnn, Im giving you customer feedback here, thats too far apart. I think you are a very smart dude, and iTulip has had a major impact on my life, but your business model could definitely be more efficient. You are definitely not capitalizing on the moneymaking potential that you are capable of. I guarantee you that if you posted more up-to-date analysis of breaking news events and how that relates to the investment thesis more often than every 5 weeks...you would be rolling in 10x more subscription dollars at this point...and could be buying a hell of a lot more gold with it.

cjppjc
12-11-09, 08:33 PM
Perhaps, though the response to Part II et al. has been somewhat stronger.


Well I wouldn't know. What is the reply count? It sure is short on part 1.

Rajiv
12-11-09, 08:51 PM
Well Part - I was 7 pages - while Part II-IV were 57 pages

LargoWinch
12-11-09, 09:11 PM
Judging from the number of replies, I am probably not the only one who felt this piece was weak.

Can you please explain cjppcj:

1) Why you believe this piece is weak?

and;

2) How is the number of replies is in any way shape or form related to the quality of an article?

cjppjc
12-11-09, 09:45 PM
Can you please explain cjppcj:

1) Why you believe this piece is weak?

and;

2) How is the number of replies is in any way shape or form related to the quality of an article?


1) Maybe I am wrong but it didn't seem to cover any new ground. That might be a hard thing to do. I would not know since all I do is make comments and no original material comes from me. I thought the word I (first person) was used alot. Also if I can spot the grammer and spelling mistakes that's bad.

2) Again, maybe I am wrong but in other pieces EJ has written the replies come fast and furious. Accolades and debate follow. I think this piece wont have as many replies as some of his better work.

I think you like it so much because EJ says gold is not a bubble. I liked that part as well.:)

LargoWinch
12-11-09, 09:54 PM
Well Part - I was 7 pages - while Part II-IV were 57 pages

Yep, totals more than 20,000+ words folks.

That is what is considered a "book" nowadays.

LargoWinch
12-12-09, 08:19 AM
I think you like it so much because EJ says gold is not a bubble. I liked that part as well.:)

Yep, I always enjoy that part; as they say: I have a "vested" interest a bit greater than some but certainly less than jtabeb (the smart one). ;)

Jay
12-12-09, 09:12 AM
My take on the lack of replies is partly based on the realization by most reading it that we, the plebs, are locked into the asylum. The answer to the test is not likely a smoldering wreck of an economy and war, but a smoldering wreck of an economy and massive government intervention and no place to hide. What else is there to say? None of the solutions are pretty, they are all based on government getting bigger and intervening in a way that helps only those in the know and hurt everyone else. They will suck the overcapacity out of the system one way or the other, so of course it will be attepted in a way that increases government power and "stability."

metalman
12-12-09, 10:18 AM
My take on the lack of replies is partly based on the realization by most reading it that we, the plebs, are locked into the asylum. The answer to the test is not likely a smoldering wreck of an economy and war, but a smoldering wreck of an economy and massive government intervention and no place to hide. What else is there to say? None of the solutions are pretty, they are all based on government getting bigger and intervening in a way that helps only those in the know and hurt everyone else. They will suck the overcapacity out of the system one way or the other, so of course it will be attepted in a way that increases government power and "stability."

thinking on this... so few responses... my take...

ej's record is good... not only the 'no deflation' vision... how the system works... or even the calls... the 2001 gold market 'buy & hold' call... got us out of the stock market bubbles in mar. 2000 & dec. 2007... called the housing bubble start in 2002 & finish in 2006... etc... but the nuance... the way it 'feels'... the long term unemployment... the angry & confused populace... the backlash at banksters... the new regulations & fees & taxes... the crappy food at restaurants (high costs/low demand)... & the way we'll adapt/respond.

he said we'll find excuses for our new poverty... call it 'downshifting' or whatever....


O'Toole: While every ounce of common sense I have agrees, emotions run strong. Being involved in foreclosures I have met many people struggling beyond reason to pay for a house they can't afford because being a homeowner is "who they are,” and the alternative, renting, is a failure they simply cannot bear. I'd go so far as to say it’s a fate worse than death to some. I know this sounds dramatic but no matter how hard the upcoming lesson might be, I doubt it will be learned.
Janszen:Yes, you’re being too dramatic. One of my favorite positive features of U.S. culture is its creativity and adaptability. Remember the hippy movement? Its key features were anti-materialism and anti-consumerism. Flaunting wealth was very un-cool. The pursuit of wealth was considered boring and shallow. This was a convenient credo at a time when capitalism wasn’t doing very well and no one had much real income or credit to use to buy anything. Look for a new social movement that makes being downwardly mobile not only socially acceptable but cool, including renting versus owning. In fact, the movement may have already arrived in the concept of “downshifting” and will accelerate in the future. Many people will be forced to lower material expectations, but a whole social movement will support a move away from working 80 hours a week to pay the mortgage and I expect most people will be relieved, and will find themselves much happier with more time for friends, family and themselves. Psychologically the change won’t be as painful as you expect. As usual, you heard it here first!

April 12, 2006 (http://www.itulip.com/forums/../reportfromthefront.htm#N.CA_Housing_Correction)ah, so many years ago... a million years ago when i think back to those days... the boom times.

so... when i read this, i swallow hard... because i think.. 'he's been right before... shit. it's going to get as bad as he says'

but i don't see that hopeful note any longer... but anger... the tone of the article... angry/pissed off. at who? at the perpetrators. he says... 'if it's foreseeable it's preventable'.

'look what our crazy oligarchs did to us! bastards!' :eek:

Prazak
12-12-09, 11:51 AM
Have to agree with Jay on this. It's a large body of data and analysis that in the end pulls together in one place threads and strands that most of us grasp, but which when swallowed in one sitting makes for depressing reading. Takes time to digest, then to process, then to mourn.

ljaycox
12-12-09, 11:56 AM
OK, I found contact information I could not see before due to security settings on my machine> To the man who sent the PM--thank you, when i could get that i saw that my security was wrong for a user friendly experience on this site. It is fixed, and I can send things privately now.
I was trying to help--sorry for the misunderstanding, carry on.

c1ue
12-12-09, 12:05 PM
1) Maybe I am wrong but it didn't seem to cover any new ground. That might be a hard thing to do. I would not know since all I do is make comments and no original material comes from me. I thought the word I (first person) was used alot. Also if I can spot the grammer and spelling mistakes that's bad.

2) Again, maybe I am wrong but in other pieces EJ has written the replies come fast and furious. Accolades and debate follow. I think this piece wont have as many replies as some of his better work.

I think you like it so much because EJ says gold is not a bubble. I liked that part as well.:)

C(j),

I disagree, there is much that is new here.

Specifically the previous pronouncement listed the concept that the stock market would have a downward correction by the end of Q4 2009. From this article (though not necessarily the previous one) it seems clear to me that this concept was based on the idea that the US was going to violate a number of conditions which had caused currency crises in the past.

This update clarifies that the US has passed that possibility this time. Also that this successful negotiation of a possible currency crisis was not predictable.

This update also analyzes the present 'recovery' in the context of past recoveries to see if the fundamentally risky state the US is in will be upgraded/upgradeable to less risky.

The conclusion from what I can see (in this part as well as the iTulip Select part) is that it is not.

From my part - I do think it is new and useful.

The tone of course is (Hoo Shhhh Come to the Dark Side) now getting close to my own long held views of everything GOTH. And my long held GOTH plan may indeed need to be exercised.

Prazak
12-12-09, 01:40 PM
The tone of course is (Hoo Shhhh Come to the Dark Side) now getting close to my own long held views of everything GOTH. And my long held GOTH plan may indeed need to be exercised.

GOTH? I've consulted a few sources, even going so far as the Glossary on SurvivalBlog (http://www.survivalblog.com/glossary.html), and still can't decipher. Could you kindly elaborate? :)

goadam1
12-12-09, 03:44 PM
C(j),

I disagree, there is much that is new here.

Specifically the previous pronouncement listed the concept that the stock market would have a downward correction by the end of Q4 2009. From this article (though not necessarily the previous one) it seems clear to me that this concept was based on the idea that the US was going to violate a number of conditions which had caused currency crises in the past.

This update clarifies that the US has passed that possibility this time. Also that this successful negotiation of a possible currency crisis was not predictable.

This update also analyzes the present 'recovery' in the context of past recoveries to see if the fundamentally risky state the US is in will be upgraded/upgradeable to less risky.

The conclusion from what I can see (in this part as well as the iTulip Select part) is that it is not.

From my part - I do think it is new and useful.

The tone of course is (Hoo Shhhh Come to the Dark Side) now getting close to my own long held views of everything GOTH. And my long held GOTH plan may indeed need to be exercised.

EJ's insistence of a return to the mean, a return to sensibility, betrays a New England Yankee, Calvinistic idea of virtue, honesty, rewards and punishments. One should never take sin out of any economic model. And unless we elect a "reformer" (of god only knows what stripe), I wouldn't hold my breath.

I sense a throwing in of the towel as Gold becomes a fire plaything. It was the nature of how hard it was and the extra effort it took to own gold that made it special.

Gather around the fire as we burn the rule book. Huddle close as we tell tales of good men gone bad and bad men called heros.

Pay attention and be fleet of feet and you may survive the ride. But don't look for sense, fairness, honesty...

Jay
12-12-09, 06:39 PM
EJ's insistence of a return to the mean, a return to sensibility, betrays a New England Yankee, Calvinistic idea of virtue, honesty, rewards and punishments. One should never take sin out of any economic model. And unless we elect a "reformer" (of god only knows what stripe), I wouldn't hold my breath.

I sense a throwing in of the towel as Gold becomes a fire plaything. It was the nature of how hard it was and the extra effort it took to own gold that made it special.

Gather around the fire as we burn the rule book. Huddle close as we tell tales of good men gone bad and bad men called heros.

Pay attention and be fleet of feet and you may survive the ride. But don't look for sense, fairness, honesty...
Gold as a fire plaything sure, I agree 100%. But I am also sure that they will have one hell of a time keeping the lid on forever. The next leg down and the resultant gold price will be telling. I am of the opinion that GLD is a major tool in keeping down the price. It is not possible for that enormous ETF to have that much gold backing. The futures market doesn't pass the sniff test to me.

The winners always write history. Good or bad, they end up heros in the books. When this chapter closes it will be the same. Who does the writing?

c1ue
12-12-09, 06:46 PM
GOTH? I've consulted a few sources, even going so far as the Glossary on SurvivalBlog (http://www.survivalblog.com/glossary.html (http://www.survivalblog.com/glossary.html)), and still can't decipher. Could you kindly elaborate? :)

GOTH = GO To Hell plan

You've got your main plan. You've got contingency plans.

The GOTH plan is when all the other plans fail. Mine consists of 2 different other nations I can flee to and the gold coins to get me onto the last plane.

flintlock
12-12-09, 09:37 PM
I have a GOTH too!

http://www.itulip.com/forums/picture.php?albumid=18&pictureid=132

raja
12-13-09, 01:09 AM
That’s why China, Japan, the UK, and all the others hold noses and continue to buy U.S. debt. If they don’t the U.S will experience both a liquidity and a solvency crisis, leading to a sovereign debt and currency crisis. <!-- / icon and title --> <!-- message -->
EJ,

The other countries lending the U.S. money may not want the chaos of an insolvent U.S. and all that would entail. But what if they are unable to buy U.S. debt?

Are there conditions under which these countries could not "hold noses and continue to buy U.S. debt"? What are those conditions and how likely are they to occur?

Certainly the U.K. is headed in that direction . . . .

Prazak
12-13-09, 11:45 AM
GOTH = GO To Hell plan

You've got your main plan. You've got contingency plans.

The GOTH plan is when all the other plans fail. Mine consists of 2 different other nations I can flee to and the gold coins to get me onto the last plane.

Ah, thanks. The GOTH plan. Smells like libertarian spirit.

Executed one of those almost two decades ago and laying the groundwork for the next round as we speak.

Chris Coles
12-13-09, 11:54 AM
EJ,

The other countries lending the U.S. money may not want the chaos of an insolvent U.S. and all that would entail. But what if they are unable to buy U.S. debt?

Are there conditions under which these countries could not "hold noses and continue to buy U.S. debt"? What are those conditions and how likely are they to occur?

Certainly the U.K. is headed in that direction . . . .

Before I add my two halfpennyworth, may I make a small point about the numbers posting here. I live here in the UK. My weekends are often spent away from the internet, (There is more to life than a computer screen), and particularly this weekend with the information suddenly arriving via a friend about the YouTube/Davos challenge which I am about to address. I suspect that many others here on iTulip have the same difficulties and as such, I have only now, late afternoon Sunday, discovered EJ's latest submission. The iTulip membership is scattered right across the planet, so please, do not assume that the quality of the reaction to the submission is related to the numbers that post their own opinion. For the record, this is easily as good as anything else EJ has presented and, as someone else has already stated, the word count seems to be at the level of a book.

Turning to the UK; agree that it is very likely that the UK will be unable to purchase $US Treasuries for the very simple reason that they need the same thing here; but this time others to purchase our equivalent, £UK Gilts. Further, the law of unintended consequences may kick in with the traders who are having trouble getting paid their bonuses may turn on us and trash the Gilt market just to get their own back....

Spartacus
12-13-09, 05:00 PM
one must think about this article more than some others - knee jerk responses are less called for

And

some of the knee jerks, the high-volume (number of posts and length of posts) posters are no longer with us

They were not with me for a long time (blessed be the holy ignore-list) so I avoided much noise, but of course lots of people felt they had to reply to those, so I couldn't avoid the reply-noise.

but I think we're finally seeing the effect of their absence. Less noise. Some high volume responders like BART are definitely missed, though.


Judging from the number of replies, I am probably not the only one who felt this piece was a little weak.

Ann
12-13-09, 05:44 PM
one must think about this article more than some others - knee jerk responses are less called for

And

some of the knee jerks, the high-volume (number of posts and length of posts) posters are no longer with us

They were not with me for a long time (blessed be the holy ignore-list) so I avoided much noise, but of course lots of people felt they had to rely to those, so I couldn't avoid the reply-noise.

but I think we're finally seeing the effect of their absence. Less noise. Some high volume responders like BART are definitely missed, though.

The signal to noise ratio has improved.

The cast at iTulip is ever-changing, as are our troubled times.

This article is more pissy than any I recall reading.

Keep up the good fight.

denizens
12-14-09, 06:43 AM
Spartacus - Just my two cents, but if you were any more arch in your (uncannily infallible!) identification of all the knee jerk time-wasters among us, you'd be bending over into a pretzel. :D


one must think about this article more than some others - knee jerk responses are less called for

And

some of the knee jerks, the high-volume (number of posts and length of posts) posters are no longer with us

They were not with me for a long time (blessed be the holy ignore-list) so I avoided much noise, but of course lots of people felt they had to rely to those, so I couldn't avoid the reply-noise.

but I think we're finally seeing the effect of their absence. Less noise. Some high volume responders like BART are definitely missed, though.

mickeyc21
12-14-09, 01:04 PM
What?!
Now we WONT have a collapsing dollar and hyperinflation?! Oh.My.God.
The consistency of the thesis here is non existent.
Any minute now you'll say we are experiencing deflation and pass that off as a long term view. Although I'm sure it will be called "the disinflationary environment we have long called for" to fool the more dim witted of your readers.
You are welcome to change your mind but some of your readers have also had a successful business background and can smell BS from a mile.
Please stop with the "inflation is showing up in the quality of food and restaurant meals". This is the most bizarre assertion I have ever heard regarding inflation and it is also the opposite of what is occurring. Do you ever shop? Every store in the country is having the equivalent of a going out of business sale. The prices on literally every item I can think of is savagely discounted and I have yet to see ONE credible story of reduced quality from yourself or an Itulip member.

FRED
12-14-09, 01:22 PM
What?!
Now we WONT have a collapsing dollar and hyperinflation?! Oh.My.God.
The consistency of the thesis here is non existent.
Any minute now you'll say we are experiencing deflation and pass that off as a long term view. Although I'm sure it will be called "the disinflationary environment we have long called for" to fool the more dim witted of your readers.
You are welcome to change your mind but some of your readers have also had a successful business background and can smell BS from a mile.

We have never, ever, even once forecast hyperinflation. High inflation, yes. Hyperinflation, never. Collapsing dollar? Never. Falling dollar, repeatedly since 1998.


Please stop with the "inflation is showing up in the quality of food and restaurant meals". This is the most bizarre assertion I have ever heard regarding inflation and it is also the opposite of what is occurring. Do you ever shop? Every store in the country is having the equivalent of a going out of business sale. The prices on literally every item I can think of is savagely discounted and I have yet to see ONE credible story of reduced quality from yourself or an Itulip member.

There is an entire thread documenting instances of this type of inflation here: Inflation snapshots: December 2009 (http://www.itulip.com/forums/showthread.php?t=13326)

goadam1
12-14-09, 02:36 PM
We have never, ever, even once forecast hyperinflation. High inflation, yes. Hyperinflation, never. Collapsing dollar? Never. Falling dollar, repeatedly since 1998.



There is an entire thread documenting instances of this type of inflation here: Inflation snapshots: December 2009 (http://www.itulip.com/forums/showthread.php?t=13326)

You have to admit there is a bit of confusing sheepishness in this one.

1. Are you admitting to a bit of American exceptionalism?

2. Are making a call that re-inflation will work at least until the next Presidential cycle?

3. Is Ka-poom seeming less valid to you guys after this re-inflation cycle? Would Ka-poom need another couple of cycles to really happen? Or is Ka-poom just a variation on the bubble cycle?

I for one think there is value to be found at the bottom of cycles, when others panic. But as an Ituliper I got caught up in the Ka-poom and first bounce ideas. You guys seem to be backing away from those calls but in a muddled manner. Or do I have it wrong?

I'll agree that a black swan debt crisis hangs over all of us and 2012 to 2013 is as good a call for another bubble top. But traveling from your 2009 year end wrap up to this post I am a bit lost.

jk
12-14-09, 02:42 PM
You have to admit there is a bit of confusing sheepishness in this one.

1. Are you admitting to a bit of American exceptionalism?

2. Are making a call that re-inflation will work at least until the next Presidential cycle?

3. Is Ka-poom seeming less valid to you guys after this re-inflation cycle? Would Ka-poom need another couple of cycles to really happen? Or is Ka-poom just a variation on the bubble cycle?

I for one think there is value to be found at the bottom of cycles, when others panic. But as an Ituliper I got caught up in the Ka-poom and first bounce ideas. You guys seem to be backing away from those calls but in a muddled manner. Or do I have it wrong?

I'll agree that a black swan debt crisis hangs over all of us and 2012 to 2013 is as good a call for another bubble top. But traveling from your 2009 year end wrap up to this post I am a bit lost.
fwiw, my read is that kapoom is still possible at any time, but is now less likely to be the mechanism that triggers a sharp decline in the dollar. the more likely scenario, pace ej, is a period of stagflation and dollar weakness, followed by an inflationary crisis and recession, triggering a faster devaluation of the dollar.

goadam1
12-14-09, 03:13 PM
fwiw, my read is that kapoom is still possible at any time, but is now less likely to be the mechanism that triggers a sharp decline in the dollar. the more likely scenario, pace ej, is a period of stagflation and dollar weakness, followed by an inflationary crisis and recession, triggering a faster devaluation of the dollar.

Was Ka-poom really possible at this stage of the world and the global economy. It always seemed an outlier to me. A couple of more cycles, maybe?

But to go from ka-poom to essentially another bubble cycle with sovereign wealth as the bubble driver is a big shift. And if I were playing prognosticator, then I would be a little clearer on the change in concept. We were here, we thought it was going here, now we think it is going like this.

jk
12-14-09, 03:30 PM
Was Ka-poom really possible at this stage of the world and the global economy. It always seemed an outlier to me. A couple of more cycles, maybe?

But to go from ka-poom to essentially another bubble cycle with sovereign wealth as the bubble driver is a big shift. And if I were playing prognosticator, then I would be a little clearer on the change in concept. We were here, we thought it was going here, now we think it is going like this.
what do you see as "another bubble cycle"? i didn't read it that way. what is the asset class that will be the beneficiary of this bubble?

ThePythonicCow
12-14-09, 03:56 PM
Was Ka-poom really possible at this stage of the world and the global economy. It always seemed an outlier to me. A couple of more cycles, maybe?I tend to agree with you here.

My take is that the POOM in KaPOOM could happen in the U.S., but only after the U.S. Dollar has been demoted from it's status as the World Reserve Currency. Then we could have a Ka and a POOM, just like an oversized Argentina.

For now, it's KaPLOP, where PLOP (I just made that up) means the Dollar loses its Reserve status. I expect the PLOP sometime in 2010 to 2012. I expect that Americans will be put under more stress first, likely with multiple threats, so that they "accept" their diminished role in world financial affairs.

Spartacus
12-14-09, 04:40 PM
from what I can see ka-poom is happening.

the ka- already happened -
1. the deflation scare that forced
2. the FED, treasury, congress, president to take extra ordinary measures which
3. prevented a run-away, self-reinforcing / recursive deflation

we're just waiting for
4. very high inflation, short of hyperinflation


IMHO Maybe we'll get another ka-
when Bernanke thinks he can raise rates and we get another deflation scare

add: If there were to be another "ka-" (or maybe several) the final "poom" will be much worse.



3. Is Ka-poom seeming less valid to you guys after this re-inflation cycle? Would Ka-poom need another couple of cycles to really happen? Or is Ka-poom just a variation on the bubble cycle?

goadam1
12-14-09, 06:40 PM
what do you see as "another bubble cycle"? i didn't read it that way. what is the asset class that will be the beneficiary of this bubble?

Well, it' relative isn't it. EJ states we could be at s&p 700 but we are not, we are at a inflated or re-flated value. We will have to see what the nominal high for this cycle is. Plus my property is a little off it's bottom thanks to monetization and other fancy tools. Do we get growth? This article and a whole bunch of indicators say we will have growth. Will the growth exceed the debt needed to create it? Very doubtful. But the impact of not creating escape velocity is still to be determined. Meanwhile, there were a heck of a lot of bargains in stocks and bonds at the nominal lows during which we were discussing over shooting the mean, 20% unemployment and government implode

So I doubt the horrors of the next ka will be so scary either. The word won't end. People have faith and will to keep the system running. Physical gold is a nice way to keep money out of the game. But it isn't enough.

jk
12-14-09, 06:49 PM
Physical gold is a nice way to keep money out of the game. But it isn't enough.
i agree, and it's a bit of a conundrum, trying to figure a relatively safe way to play what looks to be a period of sluggish economic growth, tottering along on a diet of stimulus and extend-and-pretend debt. the best i've been able to come up with is energy and agriculture- commodities which can benefit from growth, can get me out of the dollar into real assets, and benefit from emerging markets in particular. my target allocations [i'm not there yet and might revise these before i am] are currently 35-40% pm's, 20%energy, 10%agriculture, 10% em's/globals/multinationals, with the balance of 20-25% still in cash to be used opportunistically. you?

Mega
12-14-09, 07:20 PM
So EJ, your a "Bit negative" on the £............Spill the beans......will it go belly up?.........£1 = $1.......?

Oh do tell.
Mike

MulaMan
12-14-09, 07:33 PM
Gold is one of the few private assets left that you can own. Period.

It is called private property. America was built on it but the retards have destroyed the concept of private property in America.

The civilized world will move on without America - Americans will be shocked.

The U.S.S.R ended with a fizzle, not a bang. Unless you lived there.

The U.S.A with also end with a fizzle, not a bang. There will be an American "Putin" - a criminal class that takes over the country and becomes uber rich while the rest of America realizes thier human potential and becomes the 3rd world nation it already is.

America is filled with retards and so retarded they will be.

Life expectancy in the U.S.A. will equal that of "modern" Russia.

The best "investment" you can currently make is to obtain citizenship in a civilized country and have an escape plan.

goadam1
12-14-09, 07:37 PM
i agree, and it's a bit of a conundrum, trying to figure a relatively safe way to play what looks to be a period of sluggish economic growth, tottering along on a diet of stimulus and extend-and-pretend debt. the best i've been able to come up with is energy and agriculture- commodities which can benefit from growth, can get me out of the dollar into real assets, and benefit from emerging markets in particular. my target allocations [i'm not there yet and might revise these before i am] are currently 35-40% pm's, 20%energy, 10%agriculture, 10% em's/globals/multinationals, with the balance of 20-25% still in cash to be used opportunistically. you?

Me. I've been caught with my pants down on this mess. I built a big cash position from 2006 until now. Waiting. I have about 5% in pm, 20% in some combo of blue chips and multi-nationals (mostly my small business retirement account that has to be passively managed), 5% energy/agriculture and the rest cash (cds, short term tax free munis). Not a great spread. What should I have done? In the Ka I should have bought more metals and dare I say corporate bonds. So the result is those who came of this mind early and sit 30% pms feel pretty okay. I was so caught up in crash mode I missed the boat. I did buy paper gold, some energy and some more blue chips.

goadam1
12-14-09, 07:42 PM
from what I can see ka-poom is happening.

the ka- already happened -
1. the deflation scare that forced
2. the FED, treasury, congress, president to take extra ordinary measures which
3. prevented a run-away, self-reinforcing / recursive deflation

we're just waiting for
4. very high inflation, short of hyperinflation


IMHO Maybe we'll get another ka-
when Bernanke thinks he can raise rates and we get another deflation scare

add: If there were to be another "ka-" (or maybe several) the final "poom" will be much worse.

I have a feeling poom might be relative. We are in a negative interest rate environment now. Plus taxes are going to be the real poom. I figure at least 10% more in taxes by 2012. So it doesn't take a high inflation rate from there to get poomie or into stagflation. We have $3 gas now and 10% unemployment. Imagine how crushing $4 gas would be or 7% mortgages or no zero money down for flat screens.

jk
12-14-09, 07:43 PM
Me. I've been caught with my pants down on this mess. I built a big cash position from 2006 until now. Waiting. I have about 5% in pm, 20% in some combo of blue chips and multi-nationals (mostly my small business retirement account that has to be passively managed), 5% energy/agriculture and the rest cash (cds, short term tax free munis). Not a great spread. What should I have done? In the Ka I should have bought more metals and dare I say corporate bonds. So the result is those who came of this mind early and sit 30% pms feel pretty okay. I was so caught up in crash mode I missed the boat. I did buy paper gold, some energy and some more blue chips.
free advice [and worth every penny]: pick your target allocations and start moving in those directions in small steps [0.5-2.5% at a time] whenever you feel anxous about NOT being there, or can muster the nerve.

Jay
12-14-09, 08:00 PM
from what I can see ka-poom is happening.

the ka- already happened -
1. the deflation scare that forced
2. the FED, treasury, congress, president to take extra ordinary measures which
3. prevented a run-away, self-reinforcing / recursive deflation

we're just waiting for
4. very high inflation, short of hyperinflation


IMHO Maybe we'll get another ka-
when Bernanke thinks he can raise rates and we get another deflation scare

add: If there were to be another "ka-" (or maybe several) the final "poom" will be much worse.
I think most of the rate hike talk is jawboning no matter what has already occurred in Australia. Even when rates finally rise they will be chasing true inflation, and they will be playing catchup for while. Raising rates not only destroys what is left of the labor market, but also increases US debt servicing costs, which is not an insignificant factor. That is a perfect set up for gold. The Fed has been painted into a corner and is playing out the string as long as it can. Rates up and they are screwed; the self-reinforcing recovery is a hail mary pass, so debt will need to be monetized. We may actually get negative rates at some point and our creditors will eventually give up on us. I would think when push comes to shove an emergency meeting is called in secret between all the central banks and they reveal and enact, under threat of global meltdown, their plan. Even if you don't believe this mess is intentional, you have got to give some credence to the possibility of central banks sitting down and forming a currency system which is not necessarily friendly to the sovereign state. Look at the past actions of the IMF and all central banks, what do you think they do if the world economy is in a no-win pickle and comes to them hat in hand? It is not going to be good for Joe Six Pack. I think gold will do well in that environment, the only issue I have is how the central banks play it once the whole world is really in a bind. What do they do with gold? Will they let gold holders sit on their gains?

Jay
12-14-09, 08:07 PM
free advice [and worth every penny]: pick your target allocations and start moving in those directions in small steps [0.5-2.5% at a time] whenever you feel anxous about NOT being there, or can muster the nerve.
I came about halfway through the party, started lurking in 2006, have played it exactly this way, and it has been working for me. I keep taking slow to medium steps and reorganize every month or so.

Jay
12-14-09, 08:12 PM
The best "investment" you can currently make is to obtain citizenship in a civilized country and have an escape plan.
I always wonder about those with this sentiment. It strikes me as escapist and depressing. Do you have no family, no friends, no community? I am here in the US for the long haul. I'm going to play it as well as I can financially, while living amongst my friends and family. I hope wherever you run to the grass is greener.

Spartacus
12-14-09, 08:12 PM
Spartacus - Just my two cents, but if you were any more arch in your (uncannily infallible!) identification of all the knee jerk time-wasters among us, you'd be bending over into a pretzel. :D

heh ... I wasn't trying to be cute ... names not needed as I feel no need to explicitly insult anyone

Besides, no one that I plonked for that particular reason is still posting here (they may be reading of course)

cjppjc
12-14-09, 08:45 PM
Spartacus - Just my two cents, but if you were any more arch in your (uncannily infallible!) identification of all the knee jerk time-wasters among us, you'd be bending over into a pretzel. :D


heh ... I wasn't trying to be cute ... names not needed as I feel no need to explicitly insult anyone

Besides, no one that I plonked for that particular reason is still posting here (they may be reading of course)


You couldn't make this up.:D

Jay
12-14-09, 08:54 PM
You couldn't make this up.:D
I'm trying to stay out of it, but it sucks me in! I just deleted a smarmy reply to this thread about 30 minutes ago but you tempt me cjppjc! :D;):D

cjppjc
12-14-09, 09:16 PM
I'm trying to stay out of it, but it sucks me in! I just deleted a smarmy reply to this thread about 30 minutes ago but you tempt me cjppjc! :D;):D


You certainly show more restraint than I do. The best is earlier predictions are turning out well. And Nero3 with his sugar and railroad calls is no longer heard from.

Spartacus
12-14-09, 09:51 PM
You couldn't make this up.:D

Looks like I've unwittingly made a joke. Or was my attempt at not naming names too convoluted & twisted? (and everyone thinks they know the names anyway). I can be dense sometimes, especially when sleep deprived.

I hope I'm not its butt.

Anyone want to clue me in?

jiimbergin
12-14-09, 10:01 PM
Me. I've been caught with my pants down on this mess. I built a big cash position from 2006 until now. Waiting. I have about 5% in pm, 20% in some combo of blue chips and multi-nationals (mostly my small business retirement account that has to be passively managed), 5% energy/agriculture and the rest cash (cds, short term tax free munis). Not a great spread. What should I have done? In the Ka I should have bought more metals and dare I say corporate bonds. So the result is those who came of this mind early and sit 30% pms feel pretty okay. I was so caught up in crash mode I missed the boat. I did buy paper gold, some energy and some more blue chips.

I also came in late (I did have a small amount of gold and junk silver left from the late 70s that I never sold), but I have managed to get up to about 40% of my net worth (not counting my real estate) in pm. Only about 12% in physical, the rest in GTU and CEF. I have an additional 10% in GLD and SLV for trading purposes. I keep buying physical often, in fact some just arrived today from APMEX. I am sure I will be buying more physical in the next few days.

Chris Coles
12-15-09, 03:35 AM
Please stop with the "inflation is showing up in the quality of food and restaurant meals". This is the most bizarre assertion I have ever heard regarding inflation and it is also the opposite of what is occurring. Do you ever shop? Every store in the country is having the equivalent of a going out of business sale. The prices on literally every item I can think of is savagely discounted and I have yet to see ONE credible story of reduced quality from yourself or an Itulip member.

Well I call: My experience here in the UK is that reduced quality is exactly what is happening. Sainsbury's are an excellent example. Their "Greens" now come in the same package but with about 20% less cabbage in the pack. (for example). I could list many examples. I live alone for the time being and have to do all my own shopping. Reduction in quality, or quantity is happening all through the food industry. My first instance was Turkey burgers, that I used to like with 56% turkey, but when they reduced the turkey to 42% and removed the fresh herbs and replaced them with chemical taste effects I went right off them and have not returned again. Moreover, the manufacturer has moved the entire production facility to Poland and foisted their new product on them as something new to be enjoyed. Poor sods, they too will have a shock when the burgers end up with 30% turkey....

I can only speak for myself, but where I am, today, there are many signs of lower quality or quantity throughout the food industry.

ThePythonicCow
12-15-09, 04:08 AM
Anyone want to clue me in?Sorry, mate. There seems to be a world-wide clue shortage. I'm suffering from it here as well. :)

Jaminon
12-16-09, 09:44 AM
Long time listener first time caller...<meta name="Title" content=""> <meta name="Keywords" content=""> <meta http-equiv="Content-Type" content="text/html; charset=utf-8"> <meta name="ProgId" content="Word.Document"> <meta name="Generator" content="Microsoft Word 2008"> <meta name="Originator" content="Microsoft Word 2008"> <link rel="File-List" href="file://localhost/Users/jameshacking/Library/Caches/TemporaryItems/msoclip/0clip_filelist.xml"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:AllowPNG/> </o:OfficeDocumentSettings> </xml><![endif]--><!--[if gte mso 9]><xml> <w:WordDocument> <w:Zoom>0</w:Zoom> <w:TrackMoves>false</w:TrackMoves> <w:TrackFormatting/> <w:PunctuationKerning/> <w:DrawingGridHorizontalSpacing>18 pt</w:DrawingGridHorizontalSpacing> <w:DrawingGridVerticalSpacing>18 pt</w:DrawingGridVerticalSpacing> <w:DisplayHorizontalDrawingGridEvery>0</w:DisplayHorizontalDrawingGridEvery> <w:DisplayVerticalDrawingGridEvery>0</w:DisplayVerticalDrawingGridEvery> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:Compatibility> <w:BreakWrappedTables/> <w:DontGrowAutofit/> <w:DontAutofitConstrainedTables/> <w:DontVertAlignInTxbx/> </w:Compatibility> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:LatentStyles DefLockedState="false" LatentStyleCount="276"> </w:LatentStyles> </xml><![endif]--> <style> <!-- /* Font Definitions */ @font-face {font-family:Times; panose-1:2 0 5 0 0 0 0 0 0 0; mso-font-charset:0; mso-generic-font-family:auto; mso-font-pitch:variable; mso-font-signature:3 0 0 0 16777216 0;} @font-face {font-family:Cambria; panose-1:0 0 0 0 0 0 0 0 0 0; mso-font-alt:"Times New Roman"; mso-font-charset:77; mso-generic-font-family:roman; mso-font-format:other; mso-font-pitch:auto; mso-font-signature:3 0 0 0 16777216 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin-top:0cm; margin-right:0cm; margin-bottom:10.0pt; margin-left:0cm; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-ascii-font-family:Cambria; mso-fareast-font-family:Cambria; mso-hansi-font-family:Cambria; mso-bidi-font-family:"Times New Roman";} @page Section1 {size:612.0pt 792.0pt; margin:72.0pt 90.0pt 72.0pt 90.0pt; mso-header-margin:36.0pt; mso-footer-margin:36.0pt; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style> <!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin; mso-bidi-font-family:"Times New Roman"; mso-bidi-theme-font:minor-bidi; mso-ansi-language:EN-US;} </style> <![endif]--> <!--StartFragment--> I am UK based and now finally able to take some modest positions and have a couple of questions; Gold: Is this a level ($1134) still worth getting in at? If yes, what is the best ETF to use? What’s a good percentage for gold in a portfolio?
RMBY exposure/Chinese bonds, seem like a good idea? Any other happy thoughts towards building a portfolio today? Many thanks<!--EndFragment-->

ocelotl
12-16-09, 12:18 PM
We have never, ever, even once forecast hyperinflation. High inflation, yes. Hyperinflation, never. Collapsing dollar? Never. Falling dollar, repeatedly since 1998.



There is an entire thread documenting instances of this type of inflation here: Inflation snapshots: December 2009 (http://www.itulip.com/forums/showthread.php?t=13326)


It all depends on definitions. Most of the people that have called hyperinflation are thinking of Zimbabwe or Argentina or Weimar Republic. I've posted here the term "rampant inflation", that is the one we had here in Mexico from Dec. 1973 to Jul. 1997. My personal definition about it marks a 20% sustained yearly inflation as a minimum, and a maximum of about 200%.

And, for people thinking right now in getting to Mexican Pesos due to recent strength, the only ones I recommend are the ones defined in the 1905 monetary law, and shown by EJ at the beginning of this thread, and yes, my gold stash is in that form.

FRED
12-16-09, 03:40 PM
It all depends on definitions. Most of the people that have called hyperinflation are thinking of Zimbabwe or Argentina or Weimar Republic. I've posted here the term "rampant inflation", that is the one we had here in Mexico from Dec. 1973 to Jul. 1997. My personal definition about it marks a 20% sustained yearly inflation as a minimum, and a maximum of about 200%.

The high inflation modeled here over the years is 100% over six years, with inflation reaching 20% to 30% in the peak year (see Inflation is Dead! Long Live Inflation! (http://www.itulip.com/forums/showthread.php?p=2080#post2080), Dec. 2005). The model is informed by periods such as the Mexican inflation you mention, as well as the Russian and U.S. inflation eras. A 100% wage inflation over six years will be sufficient to, for example, wipe out all mortgage debt, and allow for a reset of household balance sheets as did The Great Inflation of 1975 to 1980.

None of our models have every forecast inflation exceeding 30% in a single year.


And, for people thinking right now in getting to Mexican Pesos due to recent strength, the only ones I recommend are the ones defined in the 1905 monetary law, and shown by EJ at the beginning of this thread, and yes, my gold stash is in that form.

The article The Face of Inflation (http://www.itulip.com/faceofinflation.htm) that explores the Mexican inflation era you refer to is worth an occasional revisit.

BiscayneSunrise
12-16-09, 07:21 PM
Fred,

Just wondering how you see wage inflation developing?

Even with a weakened dollar, manufacturers continue to outsource jobs overseas to escape an increasingly onerous regulatory and tax environment. And with what jobs are left, unions seem too weakened to strong arm big raises.

Except for finance and government employees what employees have the power to get 100% COLA raises?

flintlock
12-17-09, 08:15 AM
Fred,

Just wondering how you see wage inflation developing?

Even with a weakened dollar, manufacturers continue to outsource jobs overseas to escape an increasingly onerous regulatory and tax environment. And with what jobs are left, unions seem too weakened to strong arm big raises.

Except for finance and government employees what employees have the power to get 100% COLA raises?

I can't see wage inflation developing. Of course they'll continue the outsourcing trend. Maybe some at the top will see wage inflation, but unless they re-start FIRE, not a chance for the rest . Too many people. Too little need for people vs rapid technology growth combined with outsourcing. We can't grow our way out of this mess anymore. At least not on a global scale. All the US could hope to do is stave off disaster for a while by becoming protectionist about its dwindling blue collar job base( highly unlikely). So I expect a full blown Socialist state by 2012. I Expect higher taxes to more than eat up any wage inflation anyway.

Glad you brought up the outsourcing along with increasing taxes and regulations. That is a vicious cycle. Lowering taxes on business and easing regulations would indeed help save jobs here. But now we see why deficit spending is bad. We can't AFFORD to lower the taxes now. The credit is maxed out. Ross Perot was right way back when he ran for President. The deficit would catch us one day with our pants down.

goadam1
12-17-09, 08:48 AM
100% wage inflation.This is awesome news. It suggest an Inflationary boom. I hope so. I wonder how many businesses will see sufficient demand without the undercutting effects of tech and globalization. Maybe an engineer Google wants or Geriatric Oncology will see it. I doubt my business won't . I've had seen lower gross and net for 3 years running. And just think i'll surely be paying at least 7% to 10% more in taxes and fees.


The high inflation modeled here over the years is 100% over six years, with inflation reaching 20% to 30% in the peak year (see Inflation is Dead! Long Live Inflation! (http://www.itulip.com/forums/showthread.php?p=2080#post2080), Dec. 2005). The model is informed by periods such as the Mexican inflation you mention, as well as the Russian and U.S. inflation eras. A 100% wage inflation over six years will be sufficient to, for example, wipe out all mortgage debt, and allow for a reset of household balance sheets as did The Great Inflation of 1975 to 1980.

None of our models have every forecast inflation exceeding 30% in a single year.



The article The Face of Inflation (http://www.itulip.com/faceofinflation.htm) that explores the Mexican inflation era you refer to is worth an occasional revisit.

BiscayneSunrise
12-17-09, 09:38 AM
Right. That's why I was asking what iTulip saw that I wasn't.

Here is a recent Tom Friedman piece. No wage inflation there either:

The Do-It-Yourself Economy

By THOMAS L. FRIEDMAN
Published: December 12, 2009
In case you haven’t noticed, the U.S. economy today is actually being hit by two tsunamis at once: The Great Recession and the Great Inflection.



The Great Inflection is the mass diffusion of low-cost, high-powered innovation technologies — from hand-held computers to Web sites that offer any imaginable service — plus cheap connectivity. They are transforming how business is done. The Great Recession you know.

The “good news” is that the Great Recession is forcing companies to take advantage of the Great Inflection faster than ever, making them more innovative. The bad news is that credit markets and bank lending are still constricted, so many companies can’t fully exploit their productivity gains and spin off the new jobs we desperately need.

Two examples, one small, one large: The first is my childhood friend, Ken Greer, who owns a marketing agency in Minneapolis, Greer & Associates. The Great Recession has forced him to radically downsize, but the Great Inflection has made him radically more productive. He illustrated this by telling me about a film he recently made for a nonprofit.

“The budget was about 20 percent of what we normally would charge,” said Greer. “After one meeting with the client, almost all our communication was by e-mail. The script was developed and approved using a collaborative tool provided by www.box.net. Internally, we all could look at the script no matter where we were, make suggestions and get to a final draft with complete transparency — easy, convenient and free. We did not have a budget to shoot new footage, yet we had no budget either for stock photography the old way — paying royalties of $100 to $2,000 per image. We found a source, istockphoto.com, which offered great photos for as little as a few dollars.

“We could easily preview all the images, place them in our program to make sure they worked, purchase them online and download the high-resolution versions — all in seconds,” Greer added. “We had a script that called for 4 to 5 voices. Rather than hiring local voice talent — for $250 to $500 per hour — we searched the Internet for high-quality voices that we could afford. We found several sites offering various forms of narration or voice-overs. We selected www.voices.com. In less than one minute, we created an account, posted our requirements and solicited bids. Within five minutes, we had 10 to 15 ‘applicants’ ” — charging 10 percent of what Greer would have paid live talent.

“Best part,” he said, “within minutes we had sample reads, which could be placed into our film to see if the voices fit. We selected our finalists, wrote them with more specific instructions and within hours had the final read delivered to us via MP3 files over the Web. We could get any accent or ethnicity we wanted. For music, we used a site called www.audiojungle.net,” where he could sample thousands of cuts of music and sound effects with the click of a mouse, and then buy them for pennies.

By being able to access all these cheap tools, Greer got to focus on his value-add: imagination. The customer got a better product for less money. But he didn’t create many new jobs. For that, he needs the economy to pick up. “If we could only borrow a buck and invest,” said Greer, “we’d all be rolling again.”

Farooq Kathwari, the longtime C.E.O. of Ethan Allen Interiors, had to accelerate reinvention of his company for the same reasons. In the last year, he reduced his work force by 25 percent, consolidated several U.S. manufacturing plants, including transferring all upholstery manufacturing into a large state-of-the-art facility in North Carolina, enabling Ethan Allen to substantially decrease its production time. The most labor-intensive upholstery work is done in the company’s new plant in Mexico, and the components are shipped to the North Carolina facility for completion.

“Five years ago,” said Kathwari, “it would take about 20 hours of labor time to make a high-quality custom sofa. Now, due to our investments in technology and a smaller work force that is more highly skilled, the labor time to make this sofa is about three hours.”

Everywhere he can, Kathwari says he is leveraging technology to cut costs and improve quality to retain his competitive position in world markets. This enabled Ethan Allen to maintain sufficient cash to survive. “We now produce all our advertising programs in-house, including national television commercials, at a fraction of the cost we spent a few years back — just as your friend is doing,” said Kathwari. “Our associates recognize that reinvention is vital to our survival.”

Given its new state of hyperefficiency, any uptick in business would really help Ethan Allen’s bottom line and stimulate hiring, but that requires credit markets to loosen for its customers and store owners. Said Kathwari, “Credit is still a vital issue, and it is not happening at the grass-roots level — or when it is, it is very expensive.”

Strange times: The Great Recession and Great Inflection are making our companies ultralean, innovative and productive. But with credit still constricted, we’re like a superfit track star with a weak heart. We’ve got to get credit pumping to our industrial muscles again.

Spartacus
12-17-09, 10:18 AM
ask about the current suggested allocation in the "ask EJ" forum


Long time listener first time caller...

dummass
12-17-09, 12:17 PM
Right. That's why I was asking what iTulip saw that I wasn't.

Here is a recent Tom Friedman piece. No wage inflation there either:

The Do-It-Yourself Economy

By THOMAS L. FRIEDMAN
Published: December 12, 2009
In case you haven’t noticed, the U.S. economy today is actually being hit by two tsunamis at once: The Great Recession and the Great Inflection.



The Great Inflection is the mass diffusion of low-cost, high-powered innovation technologies — from hand-held computers to Web sites that offer any imaginable service — plus cheap connectivity. They are transforming how business is done. The Great Recession you know.

The “good news” is that the Great Recession is forcing companies to take advantage of the Great Inflection faster than ever, making them more innovative. The bad news is that credit markets and bank lending are still constricted, so many companies can’t fully exploit their productivity gains and spin off the new jobs we desperately need.

Two examples, one small, one large: The first is my childhood friend, Ken Greer, who owns a marketing agency in Minneapolis, Greer & Associates. The Great Recession has forced him to radically downsize, but the Great Inflection has made him radically more productive. He illustrated this by telling me about a film he recently made for a nonprofit.

“The budget was about 20 percent of what we normally would charge,” said Greer. “After one meeting with the client, almost all our communication was by e-mail. The script was developed and approved using a collaborative tool provided by www.box.net. Internally, we all could look at the script no matter where we were, make suggestions and get to a final draft with complete transparency — easy, convenient and free. We did not have a budget to shoot new footage, yet we had no budget either for stock photography the old way — paying royalties of $100 to $2,000 per image. We found a source, istockphoto.com, which offered great photos for as little as a few dollars.

“We could easily preview all the images, place them in our program to make sure they worked, purchase them online and download the high-resolution versions — all in seconds,” Greer added. “We had a script that called for 4 to 5 voices. Rather than hiring local voice talent — for $250 to $500 per hour — we searched the Internet for high-quality voices that we could afford. We found several sites offering various forms of narration or voice-overs. We selected www.voices.com. In less than one minute, we created an account, posted our requirements and solicited bids. Within five minutes, we had 10 to 15 ‘applicants’ ” — charging 10 percent of what Greer would have paid live talent.

“Best part,” he said, “within minutes we had sample reads, which could be placed into our film to see if the voices fit. We selected our finalists, wrote them with more specific instructions and within hours had the final read delivered to us via MP3 files over the Web. We could get any accent or ethnicity we wanted. For music, we used a site called www.audiojungle.net,” where he could sample thousands of cuts of music and sound effects with the click of a mouse, and then buy them for pennies.

By being able to access all these cheap tools, Greer got to focus on his value-add: imagination. The customer got a better product for less money. But he didn’t create many new jobs. For that, he needs the economy to pick up. “If we could only borrow a buck and invest,” said Greer, “we’d all be rolling again.”

Farooq Kathwari, the longtime C.E.O. of Ethan Allen Interiors, had to accelerate reinvention of his company for the same reasons. In the last year, he reduced his work force by 25 percent, consolidated several U.S. manufacturing plants, including transferring all upholstery manufacturing into a large state-of-the-art facility in North Carolina, enabling Ethan Allen to substantially decrease its production time. The most labor-intensive upholstery work is done in the company’s new plant in Mexico, and the components are shipped to the North Carolina facility for completion.

“Five years ago,” said Kathwari, “it would take about 20 hours of labor time to make a high-quality custom sofa. Now, due to our investments in technology and a smaller work force that is more highly skilled, the labor time to make this sofa is about three hours.”

Everywhere he can, Kathwari says he is leveraging technology to cut costs and improve quality to retain his competitive position in world markets. This enabled Ethan Allen to maintain sufficient cash to survive. “We now produce all our advertising programs in-house, including national television commercials, at a fraction of the cost we spent a few years back — just as your friend is doing,” said Kathwari. “Our associates recognize that reinvention is vital to our survival.”

Given its new state of hyperefficiency, any uptick in business would really help Ethan Allen’s bottom line and stimulate hiring, but that requires credit markets to loosen for its customers and store owners. Said Kathwari, “Credit is still a vital issue, and it is not happening at the grass-roots level — or when it is, it is very expensive.”

Strange times: The Great Recession and Great Inflection are making our companies ultralean, innovative and productive. But with credit still constricted, we’re like a superfit track star with a weak heart. We’ve got to get credit pumping to our industrial muscles again.

Hey BS,

I enjoyed reading your post, do you recall where you got it? I didn't see a link.

OK I found it here: http://www.nytimes.com/2009/12/13/opinion/13friedman.html

Jaminon
12-17-09, 01:27 PM
Thank you.

ask about the current suggested allocation in the "ask EJ" forum

raja
12-17-09, 10:12 PM
The high inflation modeled here over the years is 100% over six years, with inflation reaching 20% to 30% in the peak year (see Inflation is Dead! Long Live Inflation! (http://www.itulip.com/forums/showthread.php?p=2080#post2080), Dec. 2005). The model is informed by periods such as the Mexican inflation you mention, as well as the Russian and U.S. inflation eras. A 100% wage inflation over six years will be sufficient to, for example, wipe out all mortgage debt, and allow for a reset of household balance sheets as did The Great Inflation of 1975 to 1980.

None of our models have every forecast inflation exceeding 30% in a single year.

The article The Face of Inflation (http://www.itulip.com/faceofinflation.htm) that explores the Mexican inflation era you refer to is worth an occasional revisit.
EJ predicted a 5-year period of inflation, with rates at 10%, 20%, 40%, 20%, 10%.

metalman
12-23-09, 11:30 AM
Today the government will pay you $8,000 to buy one, the way they paid you $4,500 to buy a new car in October. Look how well that worked out for the auto industry.



http://www.itulip.com/forums/../images2/autosales120209.gif



"Cash for Clunkers" produced brief unit sales spike to 1986 unit sales volume before falling back to 1983 levels, back when the U.S. economy was 2/3 its currency size. Current course and speed, the market will not recover to pre-crash levels until 2016.

New-home sales crater as subsidy wanes (http://www.marketwatch.com/story/new-home-sales-crater-as-subsidy-ends-2009-12-23?reflink=MW_news_stmp)WASHINGTON (MarketWatch) -- Sales of new homes fell 11.3% in November to a seasonally adjusted annual rate of 355,000 as a popular tax break for first-time homeowners was set to expire, the Commerce Department estimated Wednesday.

It was the lowest sales pace since April and followed months of steadier sales boosted by the tax break that was set to expire on Nov. 30.

c1ue
12-23-09, 12:17 PM
Tom Friedman is a moron.

His first example: completely misleading and useless.

When I get more batteries for the digital camera (rechargeable Energizers only lasted 3 or 4 charges :mad:), I'll post my 'Skin Magazine Index' for the past 3 years.

Page count for October through December 2007: about 500 total
Page count for October through December 2008: about 400 total
Page count for October through December 2009: about 240 total

Given a few pages are devoted to articles, advertiser indices, 'about us', etc etc it is clear that the economy has slammed this magazine.

Advertising is down at least 50% from 2007 peak and likely more; advertising prices themselves also are likely lower.

Skin Magazine is a free publication for skin care professionals: salons and what not. This is a very high margin business oriented toward the high end consumer. Clearly this isn't insulating either the salon segment nor its service industry/manufacturer sources.

Tom Fried-brain's second example: outsourcing to Mexico. A token upstate New York facility but otherwise sending even more jobs outside of the US.

jtabeb
12-29-09, 02:51 AM
from what I can see ka-poom is happening.

the ka- already happened -
1. the deflation scare that forced
2. the FED, treasury, congress, president to take extra ordinary measures which
3. prevented a run-away, self-reinforcing / recursive deflation

we're just waiting for
4. very high inflation, short of hyperinflation


IMHO Maybe we'll get another ka-
when Bernanke thinks he can raise rates and we get another deflation scare

add: If there were to be another "ka-" (or maybe several) the final "poom" will be much worse.


My bet is that 2010 USA = Argentina 2001. Plan accordingly.

All the classic signs are there. Supply is going going... Prices are at liquidation levels ... and no new supply coming on line to back-fill inventories.

This IS WHEN YOU GO SHOPPING for durable goods, as EJ pointed out. You will EITHER not find what you need or NOT be able to afford it next year.

Ka In progress, Poom immediately following. And I mean tick-tock, get your shopping done, now!

I look at tools, computer parts, hardware, all the kinds of long term items you need to sustain yourself. Know what, it ain't there.

Inventories are very low making it hard to find items. Prices are all over the place. If a store is going out of business, Quality items are priced DIRT CHEAP. If they are not liquidating, prices are very high. Price depends on which store you buy from (liquidation sale vs not). The only price reductions (read good deals on quality items) from firms closing out inventory for bankruptcy. Inventories of remaining items are running thin with no replacements to refill exhausted supplies.

When this residual supply runs out, POOM HITS, and the supply is almost gone. Sudden stop is only a heartbeat away.

Don't believe me, go shopping for durable quality stuff, you'll see exactly what I mean.

Monetary Policy hasn't hit supply shock YET. It soon will. That's what I figure will trigger our POOM, and from everything I can see, that supply is damn near gone.

(Note: I am not talking about crap Walmart stuff, I'm talking about SNAP-ON Tools and the like. From my vantage point I am seeing EXACTLY the phonomenon EJ described in his Argentina article, PRECOLLAPSE).

Get ready, sooner rather than later, we hit our supply shock and get run over by our monetary policy.

ThePythonicCow
12-29-09, 03:15 AM
Inventories of remaining items are running thin with no replacements to refill exhausted supplies. I had reason to buy some steel warehouse shelving two weeks ago. As I backed my truck up to the dock to pick it up at the warehouse, they had my shelves on their forklift at the loading dock ready to load on my truck.

I asked them how they knew who I was, as they had never seen me before and I had not identified myself or shown my paperwork yet.

They said "easy -- you're our only customer pickup today." They then allowed as they were going out of business and I got half price, cash only, on an extra shelf.

Chris Coles
12-29-09, 05:05 AM
I had reason to buy some steel warehouse shelving two weeks ago. As I backed my truck up to the dock to pick it up at the warehouse, they had my shelves on their forklift at the loading dock ready to load on my truck.

I asked them how they knew who I was, as they had never seen me before and I had not identified myself or shown my paperwork yet.

They said "easy -- you're our only customer pickup today." They then allowed as they were going out of business and I got half price, cash only, on an extra shelf.


What immediately came to mind was the thought; "what if" China closed its trade doors in the same manner that Germany did before WW2? The US would be stuffed. Period. Worth bearing in mind??

Chris Coles
12-29-09, 05:31 AM
I can't see wage inflation developing. Of course they'll continue the outsourcing trend. Maybe some at the top will see wage inflation, but unless they re-start FIRE, not a chance for the rest . Too many people. Too little need for people vs rapid technology growth combined with outsourcing. We can't grow our way out of this mess anymore. At least not on a global scale. All the US could hope to do is stave off disaster for a while by becoming protectionist about its dwindling blue collar job base( highly unlikely). So I expect a full blown Socialist state by 2012. I Expect higher taxes to more than eat up any wage inflation anyway.

Glad you brought up the outsourcing along with increasing taxes and regulations. That is a vicious cycle. Lowering taxes on business and easing regulations would indeed help save jobs here. But now we see why deficit spending is bad. We can't AFFORD to lower the taxes now. The credit is maxed out. Ross Perot was right way back when he ran for President. The deficit would catch us one day with our pants down.
With all due respect, that is a quite incorrect conclusion. Indeed, that has been my viewpoint for some decades, backed up by repeated presentations of papers to the contrary. The underlying problem of insufficient employment, ergo, insufficient job creation; is a direct result of the failure to establish a free marketplace for the capital required to create the jobs. Instead, what we have today is a system, (venture capital, merger and acquisition and private equity), all linked to the major investment banks; that flatly refuses to permit competition with existing investment. It is this refusal to permit new job creation, unless they are in complete control, that has, IMHO, caused the collapse of the financial system that we see all around us today.

Indeed, is why I put together all my previous papers, including some placed here on iTulip, into my free download book The Road Ahead from a Grass Roots Perspective www.chriscoles.com/page3.html (http://www.chriscoles.com/page3.html) and is why I have, as of last night, put up an entry for the YouTube/Davos Debate competition. http://www.youtube.com/watch?v=wVWhgdL6Tt8

Please look out for me if I get past the first stage and put forward for a public vote. http://www.weforum.org/en/index.htm

The Davos Debate starts here: http://www.youtube.com/davos

Perhaps someone else from the iTulip community will also "have a go"???

mickeyc21
12-30-09, 06:23 PM
There is an entire thread documenting instances of this type of inflation here: Inflation snapshots: December 2009 (http://www.itulip.com/forums/showthread.php?t=13326)[/QUOTE]

This thread is at the extreme end of unconvincing. There are only three documented examples of reduction in quantity supplied and prices kept the same - which is clearly a price rise. Comically there is also an example of the opposite where the poster proves a drop in prices unintentionally.
My local supermarket (all of iTulip's examples for some reason are food related) has yellow stickers for items on sale. It is a challenge to find an item not discounted. The entire supermarket is a sea of yellow stickers.
You and your readers seem to be confusing a small number of producers or service providers desperate attempts to remain in business as evidence of inflation. If my personal costs in every area are declining then the inputs for US businesses are declining too. The Chinese restaurant cutting corners is buying cheaper groceries just like I am.
It is typical for a failing business to do things like this. Failure breeds desperation.

mickeyc21
12-30-09, 06:35 PM
Well I call: My experience here in the UK is that reduced quality is exactly what is happening. Sainsbury's are an excellent example. Their "Greens" now come in the same package but with about 20% less cabbage in the pack. (for example). I could list many examples. I live alone for the time being and have to do all my own shopping. Reduction in quality, or quantity is happening all through the food industry. My first instance was Turkey burgers, that I used to like with 56% turkey, but when they reduced the turkey to 42% and removed the fresh herbs and replaced them with chemical taste effects I went right off them and have not returned again. Moreover, the manufacturer has moved the entire production facility to Poland and foisted their new product on them as something new to be enjoyed. Poor sods, they too will have a shock when the burgers end up with 30% turkey....

I can only speak for myself, but where I am, today, there are many signs of lower quality or quantity throughout the food industry.

Hi Chris,
You live around 5,500 miles away from me in a different country with a different currency. I can't judge for myself what is happening in your market and wont attempt to.
The points you raise seem to be more part of a longer term trend towards selling inferior food products. This has been going on for my entire life however and is not a response to Fed money printing in the US, which is iTulip's argument.

ocelotl
01-04-10, 07:50 PM
The high inflation modeled here over the years is 100% over six years, with inflation reaching 20% to 30% in the peak year (see Inflation is Dead! Long Live Inflation! (http://www.itulip.com/forums/showthread.php?p=2080#post2080), Dec. 2005). The model is informed by periods such as the Mexican inflation you mention, as well as the Russian and U.S. inflation eras. A 100% wage inflation over six years will be sufficient to, for example, wipe out all mortgage debt, and allow for a reset of household balance sheets as did The Great Inflation of 1975 to 1980.

None of our models have every forecast inflation exceeding 30% in a single year.



The article The Face of Inflation (http://www.itulip.com/faceofinflation.htm) that explores the Mexican inflation era you refer to is worth an occasional revisit.

That same article was my entrance to the site... :o
http://www.itulip.com/forums/showthread.php?t=105

Chris Coles
01-05-10, 10:36 AM
And this brings the discussion right back to the question: Which nation, over the next, say, five years, is going to be the best location for a product design, manufacturing and distribution business where one will own and control all aspects ?