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EJ
08-13-07, 09:46 PM
http://www.itulip.com/images/huntersthompson.jpgThe Hog is in the Tunnel

That's not what the Goldman Sachs fund manager said on the call this AM. He said the hundreds of billions in private equity deals that stopped dead in their tracks and got stuck on the balance sheets of deal underwriters when the market for collateralized loan obligations (CLO) ground to a halt last week were a "rat swallowed by a snake." Another manager said the "deal machinery has ground to a halt." There were lots of mixed metaphors, none quite on the mark, so to speak.

The one that rings true was not used, first popularized by Hunter S. Thompson in "Fear and Loathing in Las Vegas," who February 2005 blew his brains out with a revolver and had his remains fired out of a cannon in the desert at a funeral attended by a few dozen of his closest friends.

The hog is in the tunnel when deals that were flying through The System for years at the rate of over 1,000 in 2006 alone... suddenly stopped. They did not slow.

The rat analogy doesn't work. A rat eating snake eats rats on purpose. The snake digests the rat, eventually. The only part of the analogy that works is what comes out at the end.

The call was an all-star lineup, including Former member of Fed Board of Governors Laurence H. Meyer waxing optimistic on the economy and the outcome of the current crisis compared to the bad craziness that happened in 1998 under his watch.

It was all very comforting, unless you happened to be one of the clients on the call with money in the hedge fund that also made the news this morning. In Goldman's Global Alpha Falls 26% in 2007, People Say (http://www.bloomberg.com/apps/news?pid=20601087&sid=aPuB5px_P6dc&refer=home):
Goldman's largest hedge fund, managed by Mark Carhart and Raymond Iwanowsk, has dropped almost 40 percent since July 31, 2006, said the people, who declined to be named because the fund is private. The Standard & Poor's 500 Index of the biggest U.S. stocks has returned 16 percent during the same period.

"It's hard to imagine how investors can maintain confidence, because their losses have been taking place over a long period of time, starting last year," said Virginia Parker, who helps oversee about $1.8 billion at Parker Global Strategies LLC in Stamford, Connecticut. "There has been a broad range of market climates, and the fund has not demonstrated the ability to excel in any of them."
There's the reason iTulip has refused to even call these funds hedge funds, because they are not hedged. They are long. That's why we call them USIPs (http://www.itulip.com/glossary.htm#USIP), for Unregulated Speculative Investment Pool–if you are long, or are long by any other name.
The combination of precise formulas with highly imprecise assumptions can be used to establish, or rather to justify, practically any value one wishes . . .Calculus . . . [gives] speculation the deceptive guise of investment.”
--Benjamin Graham, 1949
Peter S. Kraus was apparently put on the call at the last minute to deal with the heavy press coverage of today's news.
Goldman Sachs has made the announcement that everyone has been waiting for. The investment bank admitted yesterday that three of its high-profile hedge funds had off-loaded massive equity holdings following days of stock market turbulence.

Hedge funds forced into equities fire sale - The Times (August 14, 2007) (http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2253682.ece)
He was the only employee on the payroll and on the call who sounded genuinely nervous and apologetic about how things were turning out for investors who though they'd put money into a fund to make money, not have it ground up in a ten million horsepower cash dispose-all.

As recently as December 2006, it was all going so well (http://www.itulip.com/forums/showthread.php?t=708).
Investment Banks Post Record 2006 Profit (http://biz.yahoo.com/ap/061214/earns_investment_banks.html?.v=5)
December 14, 2006 (Joe Bel Bruno - AP)

Investment Banks Lehman Brothers, Bear Stearns Report Record Earnings, Bonuses in 2006

Lehman Brothers and Bear Stearns sent a not-so-subtle message to Wall Street on Thursday when announcing 2006 results -- the word "record" appears a combined 37 times in their earnings reports.

Surging stock and bond markets, coupled with an unprecedented level of takeover activity, has turned the big investment houses into corporate cash machines. It is also delivering stratospheric bonuses to top employees, with Goldman Sachs Group Inc. doling out a staggering $16 billion this year.

For all of fiscal 2006, Lehman Brothers Holdings Inc. reported record net income of $4 billion, up 23 percent from the previous year. Bear Stearns Cos.'s profit for the year soared 40 percent to $2.1 billion. Goldman Sachs said Tuesday its full-year profit soared 70 percent to $9.4 billion, and Morgan Stanley Inc. is set to deliver strong results when it reports next Tuesday.

iTulip AntiSpin: Reading this you'd think that these investment banks had a great year generating revenues from investment banking, but you'd be wrong. For the latest reported fiscal year, Morgan Stanley, for example, generated only 16.4% of revenues from investment banking, 21.2% from asset management, 14.3% from commissions and 12.5% from "other." Where do the bulk of their revenues–35.6% to be exact–come from? "Principle Transactions" as in long-short and other hedge fund strategies.

How about the biggest winner of the bunch, Goldman Sachs, whose full-year profit soared 70 percent to $9.4 billion, which is, by the way, greater than the GDP of Honduras. Investment banking generated 14.8% of revenues, asset management 19.2%, commissions 12%. Hedge fund type investments? A whopping 54% of revenues. What does that make Goldman but a giant hedge fund?

We reported earlier this week that:
Hank Paulson, who made $700 million at Goldman Sachs before taking over the US Treasury this year ... has reactivated a crisis team with a command centre in Washington to cope with the 'systemic risk' in a market melt-down. His worry? 8,000 unregulated hedge funds with $1.3 trillion at hand, and derivative contracts now worth $370 trillion. 'We need to be very careful here,' he said.

A well-sourced article in Washington's Weekly Standard says Mr Paulson fears a "serious crisis that would be a body-blow to the US economy".

Average house prices have fallen from $244,000 in April to $221,000 last month, with more violent corrections in Florida, Arizona, and New England. Builders have warned of a "death spiral" as they slash prices to off-load a glut of unsold homes.

"The US needs a trillion dollars a year just to stand still," says David Bloom, currency guru at HSBC. Modern financial crises have always begun on the peripheries of global economy, setting off a chain reaction. Mr Bloom says the seizure this time will be at the heart of the system as the dollar buckles, pressing down on the "aorta of capitalism".
Eight thousand unregulated speculative investment pools pose a risk of a "serious crisis that would be a body-blow to the US economy"? After running the world's biggest and most successful USIP (http://www.itulip.com/forums/../glossary.htm#USIP), Paulson ought to know.
What would Hunter say?

The hog is in the tunnel.

Full transcript of today's Goldman Sachs call with iTulip Select (http://itulip.com/forums/showthread.php?p=7837#post7837) analysis see Goldman Sachs Client Call - Analyzing Goldman's "Interpreting the Recent Market Moves" (http://itulip.com/forums/showthread.php?p=13760#post13760)

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jk
08-13-07, 10:38 PM
thanks for the recap and analysis of the goldman call.

one caveat, or rather worry that i have. can we really assume the dollar "buckles" from here? mark faber, for one, sees dollar strength ahead. the cot reports show a heavy commercial position in the dollar contract. carry trade unwinding will tend to benefit the dollar at the expense of everything except the yen and swiss franc. deleveraging will hit emerging markets as well as other foreign [developed] markets, with proceeds translated back to dollars. deleveraging will also hit commodities, with proceeds back to cash. richard russell used to write about the all the debt as dollar shorts - people will want liquidity in a credit crunch. if you can't trust many money market funds, you get money flowing to tbills and bank accounts, with velocity dropping through the floor. it seems to me that ka is positive for the dollar.

FRED
08-13-07, 11:09 PM
thanks for the recap and analysis of the goldman call.

one caveat, or rather worry that i have. can we really assume the dollar "buckles" from here? mark faber, for one, sees dollar strength ahead. the cot reports show a heavy commercial position in the dollar contract. carry trade unwinding will tend to benefit the dollar at the expense of everything except the yen and swiss franc. deleveraging will hit emerging markets as well as other foreign [developed] markets, with proceeds translated back to dollars. deleveraging will also hit commodities, with proceeds back to cash. richard russell used to write about the all the debt as dollar shorts - people will want liquidity in a credit crunch. if you can't trust many money market funds, you get money flowing to tbills and bank accounts, with velocity dropping through the floor. it seems to me that ka is positive for the dollar.

Ka is absolutely positive for the dollar and bad for gold. All assets down.

metalman
08-13-07, 11:38 PM
Ka is absolutely positive for the dollar and bad for gold. All assets down.

bats. flying around my head. hate... bats...

Uncle Jack
08-14-07, 12:36 AM
I saw an interview with Mark Faber as co-host of CNBC World (Asian morning) and he was stating that the dollar will show strength as emerging market funds and diversified international funds get sold and the dollar gets repatriated.

I agree. Dollar up during Ka.

There is going to be a rush for cash on the sidelines, so to speak, so dollar up.

Hey EJ, I recognized that "bad craziness" line from Hunter. I loved his writing.

qwerty
08-14-07, 12:42 AM
Ka is absolutely positive for the dollar and bad for gold. All assets down.

How about selling short GBP (or AUD, CAD, NZD) against the yen?

Contemptuous
08-14-07, 02:16 AM
I have a question about the validity of secular trend axioms:

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</TD></TR></TBODY></TABLE><!-- / user info --></TD></TR><TR><TD class=alt1 id=td_post_13783><!-- message, attachments, sig --><!-- icon and title --> Re: The hog is in the tunnel
<HR style="COLOR: #99ff99" SIZE=1><!-- / icon and title --><!-- message -->Quote:
<TABLE cellSpacing=0 cellPadding=6 width="100%" border=0><TBODY><TR><TD class=alt2 style="BORDER-RIGHT: 1px inset; BORDER-TOP: 1px inset; BORDER-LEFT: 1px inset; BORDER-BOTTOM: 1px inset">Originally Posted by jk http://www.itulip.com/forums/images/buttons/viewpost.gif (http://www.itulip.com/forums/showthread.php?p=13779#post13779)
thanks for the recap and analysis of the goldman call.

one caveat, or rather worry that i have. can we really assume the dollar "buckles" from here? mark faber, for one, sees dollar strength ahead. the cot reports show a heavy commercial position in the dollar contract. carry trade unwinding will tend to benefit the dollar at the expense of everything except the yen and swiss franc. deleveraging will hit emerging markets as well as other foreign [developed] markets, with proceeds translated back to dollars. deleveraging will also hit commodities, with proceeds back to cash. richard russell used to write about the all the debt as dollar shorts - people will want liquidity in a credit crunch. if you can't trust many money market funds, you get money flowing to tbills and bank accounts, with velocity dropping through the floor. it seems to me that ka is positive for the dollar.
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Ka is absolutely positive for the dollar and bad for gold. All assets down


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I've come across this axiom in several newsletters, and also found it repeated in a number of other places:

<< All major macro market trends will not end until an extreme is reached in the direction traveled. -- Once that extreme is met, like a pendulum swinging, the new trend will start and will not end until the extreme is met in the other direction. We think this rule is critical yet fully understood by very few. When an investor knows the direction of a major trend, and understands it will not end until an extreme is met in the direction traveled, nearly all other news becomes irrelevant. When the financial markets are in apparent chaos, remembering these key rules can bring clarity. >>

If one looks at the very long term charts it seems clear that they are indeed punctuated very clearly by major trend changes, as secular bull and bear markets which carve clear channels. Seen on the very long scales, the intermittent swings within a secular channel become intelligible as corrections, not breakouts into new secular channels.

So if one assumed provisionally there is some fundamental truth in the axiom, how do the precious metals now break down fundamentally from what is only a very recently born bull market? Aren't the metals supposed to be leading indicators?

If a bear market for gold is now envisioned as part of an arriving credit contraction (KA), the above axiom as plotted in the below chart description must be scrapped entirely. This means the clear secular trend channel in this sample chart is simply obliterated within less than a year of having charted it's most critical secular channel breakout. According to this secular chart, the major channel breakout confirmation only just occurred right around the start of 2007.

Six to seven years seems historically an anomaly as a time span for a just confirmed new secular trend to run it's course and then abruptly change into the deflationary scenario of "all assets down" which KA requires. Either one needs to scrap the axiom, or if not scrapping the secular axiom - one must conclude that what is approaching cannot be more than a correction for gold within it's recently established major channel?

If it were a correction:

The broad lines of that channel suggest even silver - the more volatile of the two former currency metals, cannot break down much below $$11.00 - $12.00 Oz. without negating the entire newly confirmed (start of 2007) secular trend channel without summarily voiding the axiom.

$12.00 / Oz silver is indistinguishable from it's present price range, and even that is at the end of a long year of flat consolidation, a highly unusual technical formation from which a significant breakdown should occur. So unless one disavows the entire secular commodities trend carved out since year 2000, there is little plausible "hard down" scenario from here for Gold and Silver, unless the secular trend axiom is voided.

Certainly my common sense tells me this is more in line with their real value today, compared to virtually all other asset classes and wildly proliferating currency of all stripes. What I would otherwise consider merely my own bias of the hard value floor under these metals, seems to be to some extent born out by the logic of the secular charts.

Are gold and silver now supposed to embark on a secular breakdown from the below channels - who's bands are very broad and definitive going back fully 27 years? Are they destined to do this to accomodate a KA event which iTulip does not envision lasting more than two or three years? That would be an aberration of the major trend, because at present neither Gold nor Silver are high enough within their broad channels - that is, they don't have room to correct down much at all, without negating the entire 27 year trend change and new channels just established.

The "hard down" scenario to me seems in flat contradiction to their current very low positions within their new secular channels.





http://investmentscore.com/files/a34_Aug_5_07/1_mtl_750_mo_t_July_07_fg.JPG

http://investmentscore.com/files/a34_Aug_5_07/2_gld_750_mo_t_July_07_as.JPG

Contemptuous
08-14-07, 03:33 AM
Clarification - The blue line traced in the above charts is a composite of the average purchasing power of each of the metals versus a basket of primary goods. The black line is the nominal price vs. paper currencies.

Therefore although gold's price may appear high relative to the channel bands in non-inflation adjusted terms, it's purchasing power is very low relative to the inflation all other goods have seen.

Were it to drop in nominal price from here by even fifty dollars, the relative purchasing power blue line average would fall right out of the secular channel and negate the secular trend entirely.

In the case of silver, the purchasing power AND the nominal price are right hard down on the minimums below which it would fall out of it's secular trend. It has one or two dollars per ounce margin below which it would negate it's secular trend.

Purchasing power parity suggests both metals are severely lagging real inflation. I for one find it highly implausible they have any downside at all.

metalman
08-14-07, 10:00 AM
great rant by PAUL B. FARRELL today...

Meltdown 'inside' Wall Street's brain
Seven rules for bull-and-bear predators in a 'brutal, manipulative world'

ARROYO GRANDE, Calif. (MarketWatch) -- Soft landing? Worst is over? Recovery? Buy on dips? Strong economy? Hey, what happened to all the self-serving happy-talk of a month ago? When will we ever learn that the relentless daily onslaught of "news" spun by Wall Street is 99% brainwashing hyperbole and 1% reality, all scripted to manipulate the great American herd of 95 million investors.

http://www.marketwatch.com/news/story/paul-b-farrell-seven-rules/story.aspx?guid=%7BFD6E8E92-1066-48E1-BD24-49D6B2362AB9%7D&dist=hplatest

Andreuccio
08-14-07, 12:26 PM
Ka is absolutely positive for the dollar and bad for gold. All assets down.

In "No Deflation! Disinflation then Lots of Inflation" Eric gives three reasons for not selling gold during Ka: the difficulty in trying to time the market, the possibility of a "random exogenous event" which would send gold up out of reach, (which to me seems like just a corolary of the timing issue), and transaction costs, which he puts at 32% (28% taxes + 2% each way on the trade).

But what if you're transaction costs are 0?

Most of my "gold" is in the form of Fidelity's Select Gold Mutual Fund (FSAGX) in my 403b account. There's no premium for trading, and no taxes. Another chunk is in Streettracks Gold in my Roth IRA, where I'd pay the 4% to get in and out but not the 28% taxes.

Clearly the timing issues still exist, but trying to trade Ka is suddenly a lot more tempting.

I'm also curious how likely it is that Ka will last long enough to even be traded. In the same article, Eric says "The disinflationary phase will last as long as it takes Ben to get and keep short rates a point or two below a falling rate of inflation. Before Ben can pull the "print" lever and head for the ground to pick up air speed, the bond market needs to be worried about deflation. Ben will hold off rate cuts and liquidity injections as long as is necessary to avoid causing a sell-off in the bond market. Can't look too eager, but can't be too slow on the "pull" either."

The CB's seemed to be pretty quick in this last round. They dropped over 1/3 of a trillion dollars into the market within a few days. Just how big is that in relative terms? How much money will Ben and the other CB's have to print to actually set off Poom?

Andreuccio
08-14-07, 12:36 PM
The CB's seemed to be pretty quick in this last round. They dropped over 1/3 of a trillion dollars into the market within a few days. Just how big is that in relative terms? How much money will Ben and the other CB's have to print to actually set off Poom?

I see at least part of the answer to my question here:

http://www.itulip.com/forums/showthread.php?p=13410#post13410

Clue1 and Bart point out that these are only short term loans and thus are not inflationary.

jk
08-14-07, 12:40 PM
note the reference in ej's report on the goldman call to meyers saying the fed might cheapen borrowings at the discount window to forestall having to drop the target for fed funds. i think bernanke well knows that he's on a tightrope, and will wait til there is significantly more pain in the markets before dropping rates. thus gold could have a significant "correction," as it did in the early 70's when it lost 50% of its value prior to taking off big-time.

if he drops rates too soon the dollar will sell off and long rates rise. if he waits then the flight to safety/deleveraging effects will bolster the dollar and drop short treasury rates and possibly long tbond rates thereby. this will give him a margin of comfort when [he thinks "if"] he has to cut policy rates.

i'm stuggling, as are others here, about whether to trim my current pm positions or just ride it out.

BiscayneSunrise
08-15-07, 07:21 AM
Ka is absolutely positive for the dollar and bad for gold. All assets down.


Ka is positive for the dollar, bad for assets? Short foreign currencies??


WHOAH!! Wait a minute.

I thought Eric has said that Ka happens too quickly to trade? If that is the case, now is the time to be loading up on all the Poom long trades, right?

By the way, shouldn't it be BOOM, not poom?

Greg

FRED
08-15-07, 09:23 AM
Ka is positive for the dollar, bad for assets? Short foreign currencies??


WHOAH!! Wait a minute.

I thought Eric has said that Ka happens too quickly to trade? If that is the case, now is the time to be loading up on all the Poom long trades, right?

By the way, shouldn't it be BOOM, not poom?

Greg

For the first time since the correction began, every Asian (http://finance.yahoo.com/intlindices?e=asia) and European (http://finance.yahoo.com/intlindices?e=europe) stock market, except for the Swiss Market, is in the red going into morning trading in NY. Gold corrected by about a similar amount as stocks. This seems to be the pattern that we have seen during corrections over the past year or so, and may confirm the outlook that just as all assets rose in a correlated way during the boom, they will all correct together for a period as well.

The reason why we are holding PMs versus selling going into this Ka-Poom cycle is that the inflation environment is much less benign to currency depreciation based reflation efforts this time around versus the post 2000 correction/disinflation period. The dollar and interest rates are also starting off from a much lower base.

Jack Crooks has some thoughts today (http://www.itulip.com/forums/showthread.php?p=13884#post13884) on where he thinks the dollar is likely to go short term, in spite of structural issues. These are similar to those we made back in April in Too Many Dollar Bears? (http://itulip.com/forums/showthread.php?t=1271)

BiscayneSunrise
08-15-07, 10:24 AM
Fred,

Thanks for the quick response.

Since I am new to the site, I am unfamiliar with some of the jargon and acronyms used here. Could you remind me the meaning of the acronym PM, as in you are now holding PM's?

Andreuccio
08-15-07, 10:57 AM
Could you remind me the meaning of the acronym PM, as in you are now holding PM's?


Excellent. This one I can answer. PM's are Precious Metals. I'm just glad you didn't ask about "currency depreciation based reflation efforts".

BiscayneSunrise
08-15-07, 11:58 AM
Excellent. This one I can answer. PM's are Precious Metals. I'm just glad you didn't ask about "currency depreciation based reflation efforts".

LOL!! That was my next question. I think it means throwing money from helicopters to prevent deflation.

Also Fred, I hope you don't mind if I am putting words in your mouth but I think you go on to say that the economy is much more prone to runaway inflation this time vs. 2000 if the Fed throws too much money at the problem.

FRED
08-15-07, 12:03 PM
Excellent. This one I can answer. PM's are Precious Metals. I'm just glad you didn't ask about "currency depreciation based reflation efforts".

Even before The Great Depression, it was understood that serious recessions and depressions are demand crises, characterized by a serious decline in purchases of goods and services in the economy by consumers and businesses. This tends to induce self-reinforcing processes: falling demand leads to falling production leads to falling employment leads to falling demand.

Following a financial crash that destroys money and renders financial institutions insolvent, such as in 1929 and 2000 in the US and 1990 in Japan, it is critical that the money destroyed be replaced before many financial institutions fail, because once they fail the machinery for getting money into the economy is broken. This is why the institution of the Fed's discount window exists, to extend short term loans to give banks time to either work with other parties on plans to recover or shut down in an orderly fashion. This is what is happening now.

The other condition which leads to a collapse in demand is a lack of access by consumers and businesses to loans, due to tightening credit standards as the pool of credit-worthy borrowers shrinks and banks lower risks to capital, and also due to disinflation, which drives the real rate of interest up. Another self-reinforcing dynamic can take hold: the hoarding of cash as price expectations shift from inflationary "buy it now before the price goes up" to deflationary "buy it later because it will be cheaper." This is occurring in the housing market today, and as it relates to financial assets is the definition of a bear market. Only after the money supply has been allowed to contract for several quarters does deflation begin to show up in the prices of goods and services.

There are several things governments can to stimulate demand and prevent these negative self-reinforcing dynamics. One critical policy move is to increasing the rate of money supply growth so that the rate of inflation does not turn negative. The Fed does this by lowering short term interest rates. The primary lesson of The Great Depression, and of the Japanese experience with deflation since 1990, learned by the Fed and is that rate cuts need to be deep and rapid enough to prevent the rate of inflation from falling below zero–as the Fed did this in 2001–because once inflation reaches zero or turns negative, the Fed is stuck with only unconventional policy options to stimulate money growth, such as targeting negative interest rates–literally paying consumers and businesses to borrow money. This has only been tried once or twice in history, and actually worked quite well.

Other policy moves to stimulate demand, that is, reflate the economy include currency depreciation, deficit spending, and tax cuts. All of these taken since 2001.

c1ue
08-15-07, 01:15 PM
According to John Paul Koning at Mises, the Fed took payment of $38B+ in MBS, and could be gearing up to do this permanently:

http://www.mises.org/story/2676



Back to Friday's MBS purchases. Historically, the Fed's open market operations have been confined to US Treasuries. Clauses 3 to 6 of the Guidelines for the Conduct of System Operations in Federal Agency Issues ensured that Federal Reserve operations could not engage in temporary purchases of securities issued by federal agencies like Freddie Mac and Fannie Mae.[2] (http://www.mises.org/story/2676#_ftn2)
In an August 1999 Fed meeting officials temporarily suspended clauses 3 to 6, giving themselves the authority to freely purchase Ginnie Mae–, Freddie Mac–, and Fannie Mae–issued MBS on a provisional basis without hindrance on size and timing. The reason given: it needed full reign to inject money into the banking system in preparation for the year 2000 crisis.[3] (http://www.mises.org/story/2676#_ftn3) The period for which the temporary suspension was to extend was from October 1, 1999 through April 7, 2000.
The year 2000 crisis proved a dud. But rather than removing the temporary suspension on buying MBS, the Fed renewed the suspension in 2000 and 2001 before permanently striking off clauses 3 to 6 in 2002. In recent Fed documents, only clauses 1 and 2 are listed.


While the purchases are only temporary — the cash must be returned by Monday — one wonders how long before the Fed grants itself the power to buy MBS permanently.

Andreuccio
08-15-07, 01:29 PM
Fred:

What I really like about iTulip is the high level of discourse and honest evaluation of investing issues coupled with the willingness of yourself and others here to explain difficult economic concepts to those like me who don't have a background in the field. It is very much appreciated.

When I first started reading stuff here, I found myself referring to Wikipedia about three times per post to figure out what things meant. Now it's down to about once every fifth post. (I actually did have a pretty good idea, for example, what currency depreciation based reflation efforts were, though I joked that I didn't. I probably wouldn't try to explain them to anyone else, though. And I certainly couldn't bring the historical background to it that you did here.)

I'm currently looking for a basic econ primer. Anybody have any suggestions? Something along the lines of iTulip for Dummies, or Economics for Dummies, or some such. I figure the more I can educate myself, the fewer questions I'll have to ask, making it less likely I'll wear out my welcome.

Thanks again.





the Fed is stuck with only unconventional policy options to stimulate money growth, such as targeting negative interest rates–literally paying consumers and businesses to borrow money. This has only been tried once or twice in history, and actually worked quite well.



I'll be looking forward to this. Nothing like getting paid to borrow money. My favorite play up until now has been taking out high balance 0% interest loans on my credit cards and putting them into 5% MM accounts, although I fear this will be drying up soon, and the recent discussion here of MM funds and MM accounts has me a bit spooked. It plays havoc with my credit rating, but since I don't expect to be in the market for a house in the next few months, I can live with it.

Jeff
08-15-07, 02:59 PM
As the great man himself once said, "When the going gets wierd, the wierd turn pro." This should be an interesting ride.

Contemptuous
08-15-07, 06:36 PM
Fred -

Can you expand on this comment ?

<< why we are holding PMs versus selling going into this Ka-Poom cycle is that the inflation environment is much less benign to currency depreciation based reflation efforts this time around >>

What I understood in layman's terminology was (perhaps) : " due to a much higher level of realized inflation today (higher CPI, Commodity prices, etc.), currency reflation efforts now will be much weaker in their effect (inflating already inflated cash pools) and also politically less acceptable, (opening door to runaway inflation) than in 2000 " ?

So if your statement observes that reflation efforts now will be much less effective to stimulate consumption or economic activity, and/or much less easily available to the Government politically as an option - can you expand on why this restricted set of options for the Fed adds up to a "continue to hold" for precious metals?

The conventional wisdom would seem to suggest that any diminishing of the Federal Reserve's reflation capability via further currency debasement today would spell a greater risk of deflation?

If this is correct, is your "continue to hold PM's" stance implying that you consider precious metals holdings to provide a two-way protection, against the Fed both succeeding or failing at it's reflation efforts? Or otherwise what am I misunderstanding as the reason for your recommendation?

If this is not your view, can you further clarify why holding rather than trading bullion is recommended when the "environment is much less benign to currency depreciation"?

And if you would also expand on iTulip's position on the following ? :

We read everywhere that global growth remains exceedingly strong due to an unusual confluence of many large countries entering the most robust stage of industrialization at this time. Historically such coordinated large area growth inflections don't cease abruptly, but most often complete their transitions across the span of a decade or even two. So industrialization of very large economic blocs might be an example of a very large trend in motion which must complete it's move prior to the assertion of any equally large counter trend.

Does iTulip view this very robust global growth, which is also exerting a strong inflationary impulse worldwide, to be a sigificant factor in how any deflationary developments may play out within the US economy should Fed reflationary effects prove weak in 2007, as described above?

China, for all the considerable imbalances in growth, is surpassing the US this year in it's contribution to global GDP growth - both at around 15% of the global net. At 12% annual GDP growth, another year or two of such growth coupled with comparable a sizable number of other developing nation's GDP growth may markedly diminish the likelihood of any deflating US GDP to exert the determining influence on global growth through the remainder of the decade?

To what extent does iTulip still view the US as the consumption motor which will deflate all the rest, as it deflates? Is this increasingly mitigated by rapid growth abroad? What about when US GDP shrinks to 10% of global GDP, and the BRIC countries et. al grow to 25% - this could be a reality within three or four more years.

Thank you!

Contemptuous
08-15-07, 07:05 PM
I think Adrian Ash - over at Bullion Vault in the UK writes very crisp and enjoyable financial news articles. Interestingly, (perhaps he's selling his company just a wee bit, but always with his usual flair) in his most recent post, he's equating bullion as the 'senior cash' equivalent.

If this were so, it might clarify the holding of Bullion through either inflationary or deflationary events as being the most "liquid" and "cash-like" of assets.

What I've understood so far however is that Bullion = Cash has NOT been, and is not likely to be iTulip's view? This is something I imagine a lot of readers would appreciate understanding iTulip's position on?

His most recent article is on Safe Haven, here:

http://www.safehaven.com/article-8190.htm

FRED
08-15-07, 07:16 PM
Fred -

Can you expand on this comment ?

<< why we are holding PMs versus selling going into this Ka-Poom cycle is that the inflation environment is much less benign to currency depreciation based reflation efforts this time around >>

What I understood in layman's terminology was (perhaps) : " due to a much higher level of realized inflation today (higher CPI, Commodity prices, etc.), currency reflation efforts now will be much weaker in their effect (inflating already inflated cash pools) and also politically less acceptable, (opening door to runaway inflation) than in 2000 " ?

So if your statement observes that reflation efforts now will be much less effective to stimulate consumption or economic activity, and/or much less easily available to the Government politically as an option - can you expand on why this restricted set of options for the Fed adds up to a "continue to hold" for precious metals?

The conventional wisdom would seem to suggest that any diminishing of the Federal Reserve's reflation capability via further currency debasement today would spell a greater risk of deflation?

If this is correct, is your "continue to hold PM's" stance implying that you consider precious metals holdings to provide a two-way protection, against the Fed both succeeding or failing at it's reflation efforts? Or otherwise what am I misunderstanding as the reason for your recommendation?

If this is not your view, can you further clarify why holding rather than trading bullion is recommended when the "environment is much less benign to currency depreciation"?

And if you would also expand on iTulip's position on the following ? :

We read everywhere that global growth remains exceedingly strong due to an unusual confluence of many large countries entering the most robust stage of industrialization at this time. Historically such coordinated large area growth inflections don't cease abruptly, but most often complete their transitions across the span of a decade or even two. So industrialization of very large economic blocs might be an example of a very large trend in motion which must complete it's move prior to the assertion of any equally large counter trend.

Does iTulip view this very robust global growth, which is also exerting a strong inflationary impulse worldwide, to be a sigificant factor in how any deflationary developments may play out within the US economy should Fed reflationary effects prove weak in 2007, as described above?

China, for all the considerable imbalances in growth, is surpassing the US this year in it's contribution to global GDP growth - both at around 15% of the global net. At 12% annual GDP growth, another year or two of such growth coupled with comparable a sizable number of other developing nation's GDP growth may markedly diminish the likelihood of any deflating US GDP to exert the determining influence on global growth through the remainder of the decade?

To what extent does iTulip still view the US as the consumption motor which will deflate all the rest, as it deflates? Is this increasingly mitigated by rapid growth abroad? What about when US GDP shrinks to 10% of global GDP, and the BRIC countries et. al grow to 25% - this could be a reality within three or four more years.

Thank you!

We should probably bring Stagflation Godzilla back to tell the story.

There is very little that the Fed can do at this point. That's why Greenspan left. Everyone we talk to... Mayer, Hudson, Challenger, etc... across the political spectrum believe that we are in for a grinding stagflation, best case, as the dollar gradually loses its status as a reserve currency.

Selling crap MBS paper to EU funds was the last straw. Negative EU political opinion of the US because of the Iraq war pales beside their contempt for the corrupt ratings agencies that helped sell MBS paper the way Arthur Anderson helped sell tech stock crap in the 1990s. But it's worse than that. They've really had enough. The US-centric economic and financial system that took generations to build may be repudiated, along with the dollar.

You can thank Greenspan (http://www.itulip.com/aginterview.htm).

Contemptuous
08-15-07, 08:27 PM
Fred -

Can you expand just a bit on iTulip's position regarding the gold = cash notion Adrian Ash mentions?

iTulip says these are not equivalent. A lot of people here hold precious metals as a general hedge, probably primarily because of it's being not directly correlated to the equity or bond markets. What's iTulip's general-purpose stance on the viability of precious metals to hedge the onslaught of Greenspan's crap from either deflation or inflation?

Is the question moot because what we are facing will be an inextricable mess of both?

This may be of great interest to many people here.

Thank you.

FRED
08-15-07, 08:59 PM
Fred -

Can you expand just a bit on iTulip's position regarding the gold = cash notion Adrian Ash mentions?

iTulip says these are not equivalent. A lot of people here hold precious metals as a general hedge, probably primarily because of it's being not directly correlated to the equity or bond markets. What's iTulip's general-purpose stance on the viability of precious metals to hedge the onslaught of Greenspan's crap from either deflation or inflation?

Is the question moot because what we are facing will be an inextricable mess of both?

This may be of great interest to many people here.

Thank you.

The question to ask is: which assets will retain purchasing power?

If you used current income to purchase gold in 2001, deferring purchases of gasoline, you can now guy gasoline with that gold and get the same quantity of gasoline as you could have purchased if you'd bought it back in 2001. But when you buy gasoline out of current income today, you purchase less than half the gasoline you could with the same income in 2001.

This is going to go on for a long time, except next cycle EU and Asian CBs will not buy tech stocks or MBS or any other crap to support the dollar. So it will be even worse.