PDA

View Full Version : How to make $301% in six years with low volatility



EJ
01-02-08, 04:08 PM
http://www.itulip.com/images/Shanghaiobv25.gifBuy gold then do as follows–carefully, chronically, and religiously: nothing

The bank note to the left is a 10 yuan note from the National Coinage of the Republic of China printed in 1914 by the Bank of Communications. I picked it up on a visit to Taiwan in the late 1990s. More on that note and how it fits into today's story later.

In keeping with my "less is more" and "keep it simple" New Year's resolutions, here's how our attentive readers made $301% since 2001:

Step 1: Buy gold (see Questioning Fashionable Financial Advice, Sept. 2001 (http://www.itulip.com/gold.htm))
Step 2: Do nothing

As it turns out, the hardest part of following through on any investment thesis is Step 2. We've lost track of how many readers have written in over the years asking, "You guys have not said much about gold since 2001 except that "What gold bubble? (http://www.gold-eagle.com/editorials_05/janszen101606.html)" piece you wrote in Oct. 2006 when many were fretting about the rapid price rise. When are you going to sell?"

We have been asked this question every couple of weeks for the past six years. It's reasonable to assume that for every person who writes in to ask, 100 wonder about it but do not write in, and of the 100 who have been aware of iTulip's arguments since 2001, a million are not aware and instead have been fretting all this time about "deflation," by which they mean all-goods and services price deflation resulting from a decline in the money supply and the velocity of money, but not to be confused with a debt deflation, which is, in fact, happening. Incredibly, there are millions who continue to fret about "deflation." Their numbers are declining as the reality around them begins to sink in. Today I'll try to put a nail in the coffin of this absurd idea.

Can a run-away monetary "deflation" happen in a world of floating exchange rates and no gold standard? No. Just the opposite.

http://www.itulip.com/images/USdeflationNote.jpgAs we have said ad nauseum since 2001: governments inflate their way out of debt deflation trouble. Always have, always will. The one (count 'em: one) exception was the 1930s asset price and commodity price deflation in the US. It was nearly instantly ended in 1933 when FDR took the US off the gold standard and the dollar money supply was inflated by the Fed (see the image to the left that we extracted from a Fed working presentation). The rapid inflation was created even though thousands of banks had failed. So much for the idea that central banks can't create inflation when the banking system is broken. They can. What they can't do is create money and have it go where they want it to go, nor can a central bank guarantee the foreign purchasing power of a deflated currency. Fact is, as long as a central bank is not constrained by the gold standard, it can increase its balance sheet more or less infinitely.

The only other case of an all-goods price deflation since central banks stopped using gold for either international trade or internal money backing was in Japan as a consequence of the Bank of Japan's bungling of their asset price and debt deflation. Note that the BoJ raised rates from 4.25% to 6% between Dec. 25, 1989 and Aug. 30, 1990, while the NIKKEI fell from 38,916 to 24,166. That's like the Fed raising rates starting March 2008 from 4.25% to 6% in August 2008 while the DOW falls from 13,100 to 8,700. Every reader who believes the Fed will do this, please raise your hand. Anyone? Nobody?


Discount Rate: Japan 1980 - 2007
Bank of Japan raises rates before and during the debt deflation

http://www.itulip.com/images/boj1980-2007.jpg

BoJ raises rates from 4.25% to 6% even as the NiKKEI falls 33%
http://www.itulip.com/images/nikkei1989-1990.gif


Even then, the "deflation" in Japan was never more than 2% in any year, and all the poor "deflating" Japanese economy was able to do during its "lost decade" was take over the US auto industry as the US economy "boomed" with Toyota last year replacing General Motors as the largest auto maker in the world. Lesson learned: don't raise interest rates during a debt deflation, stupid. (In case you are wondering why the BoJ kept rates so high for so long when the US experience in the 1930s provided clear instruction against it, the answer is: to help get Ronald Reagan elected, but that's a tale for another day.)

If not deflation, then hyperinflation?

The US is not on the gold standard so a 1930s style deflation is impossible. The Fed even before Bernanke was hired repeatedly stated (as in the presentation we got the image from) that the Fed will not sit by and allow inflation to fall below zero, so a repeat of the Japanese 1990s "deflation" experience is about zero, unless the Fed decides to crash the US economy on purpose on behalf of some external political entity–and that ain't how we operate.

Besides the 1930s depression in the US and the self-inflicted ongoing debt deflation in Japan, every other instance when a government, its politicians, and their voters have gotten themselves in as much credit driven hot water as the US is in today has done one thing, and over and over. In fact, while the world experienced two (2) deflationary episodes in the past century, how many debt deflations resulted in currency depreciation and all-goods price inflation? The answer: 17.

Germany 1920 - 1923: 3.25 million percent
Russia 1921 - 1924: 213 percent
Austria 1921 - 1922: 134 percent
Poland 1922 - 1924: 275 percent
Hungary 1922 - 1924: 98 percent
Greece 1943 - 1944: 8.55 billion percent
Hungary 1945 - 1946: 4.19 quintillion percent
Shanghai 1949 - 1950: 100 percent
Argentina 1984 - 1991: 5000 percent
Brazil 1984 - 1997: 5 trillion percent
Chile 1973: 600 percent
Bolivia 1984: 14,700 percent
Peru 1981 - 1989: 900 percent
Poland 1989 - 1990: 344 percent
Russia 1992 - 1995: 2,323 percent
Ukraine 1991 - 1994: 10,000 percent
Yugoslavia 1993 - 94: 1 trillion percent

I'm leaving off many minor examples, and that is just in the past 90 years. Go back centuries and several dozens of examples can be cited. Yet the one instance of a runaway price "deflation" in the 1930s becomes for some the model for a modern, post credit bubble US debt deflation. Bizarre.

Will the US experience a hyperinflation? No, that is also very unlikely to occur. Unlike the nations listed above, none had a currency that was a reserve currency. All were politically and economically isolated at the time they suffered the economic shock that set off the hyperinflation. We explored the idea of a technical hyperinflation (more than 100% over five years) in the early 2005 with the article Inflation is Dead! Long Live Inflation! (http://www.itulip.com/forums/showthread.php?p=2080#post2080). But for that to happen, US trade partners will have to repudiate economic and political ties to the US and abandon the dollar. That strikes us highly unlikely, unless President Bush canceled the Constititution and declared himself President for Life. Then maybe we'd have a dollar hyperinflation. So, as we explored in 2006 in Can the U.S.A. have a "Peso Problem"? (http://www.itulip.com/faceofinflation.htm), we do not expect a dollar hyperinflation but rather a period of higher than normal inflation but not as high as Mexico's nor as high as we floated out in our 2005 trial balloon back when many were still wringing their hands about deflation. Our best estimate at this point, as we approach the nexus of the debt deflation crisis, is peak inflation rates of 6% to 9% annual CPI-U or 9% to 12% in pre-1983 inflation measures.

The best reads on this topic that I can recommend are the IMF's Realities of Modern Hyperinflation: Despite falling inflation rates worldwide, hyperinflation can happen again (pdf) (http://www.imf.org/external/pubs/ft/fandd/2003/06/pdf/reinhard.pdf.), the Federal Reserve Bank of Minneapolis Research Department Staff Report 331 Deflation and Depression: Is There an Empirical Link? (PDF) (http://minneapolisfed.org/research/SR/SR331.pdf), and Daniel Leigh's Japan's Monetary Policy and the Dangers of Deflation: Lessons from Japan (PDF) (http://www.econ.jhu.edu/pdf/papers/WP511leigh.pdf.) for those who'd like to read some of the best background reading that we have used over the years.

When to Sell?

When the conditions we spelled out in 2001 and since then as reasons to own gold are no longer true; when events occur that cause a common share in USA, Inc. (http://www.itulip.com/forums/showthread.php?p=7131#post7131) to increase in value. Requires the resolution of the following problems with USA, Inc.'s business model:

Excessive dependence on the finance, insurance, and real estate sector for economic growth
Excessive dependence on government and household debt
Excessive dependence on government spending and employment
Excessive dependence on politically motivated foreign borrowing
Excessive dependence on money growth
Excessive dependence on foreign energy supplies
Excessive dependence on dollar depreciation to forestall recession
Poor distribution of household wealth, income, and liquidity

We've tried to explain this 100 different ways over the past decade to our friends in the business who are somehow stuck on the idea that it's still 1932 when the US was on the gold standard or 1970 when the world was still on an international gold standard. No run-away deflations since then. This is not a coincidence.

If you understood the foregoing and purchased gold in 2001 and did nothing since then versus purchasing an equal value of the DOW, here is where you'd be. High returns with low volatility are what investors dream about, but as I look over the plethora of Year in Review coverage of the markets, I don't see this point highlighted anywhere.


Big returns, low volatility: Gold returns 12 times the DOW
http://www.itulip.com/images/GOLDvsDOW.gif


As an entrepreneur who relies on the viability of USA, Inc. to succeed in business, as a believer in the wisdom of markets over governments most of the time, not to mention my love of my country, I'd prefer the data above to not be so; I don't like gold to be doing well. Its rise is a symptom of dysfunction.

A closer look at the 10 yuan note from 1914 reveals an interesting fact about the relationships among westernized banks in a global economy. The notes were printed by the American Bank Note Company of New York. The Chinese invented printing, so I doubt the challenge was technical. Today, US currency could easily be printed more cheaply in China. Yet somehow I don't think that is likely to happen. Still, when globalization is working, as it was up until the early 1930s, central bank cooperation is high, and the result of that cooperation is well managed currencies, interest rates, and inflation. When those relationships break down–watch out.


Chinese currency during Globalization Version 1.0: Made in USA
http://www.itulip.com/images/AmBankNoteCo.gif (http://www.itulip.com/images/ShanghaiobvLG.jpg)
(Click to see the note close up.)


The San José State University Department of Economics has this to say about the Chinese state banks of that era:
A state bank for China, called the Hu-pu (Board of Revenue) Bank, was established in 1905. By 1907 two other government banks, the Bank of China and the Bank of Communications, were established and authorized to issue bank notes. The imperial government and all subsequent governments looked upon these banks as vehicles for creating money for the government to use to cover its deficits or for any other reason. There were severe penalties imposed for anyone discounting provincial government banknotes.

Despite attempts on the part of governments to abuse their control of the banking system, the banks were able to resist these attempts until the 1930's and the war with Japan. Put away your calculators, money supply counters. It's all about politics. Always has been, and always will be. Don't bother looking at the money supply and inflation statistics; they are not going to be valid when you need them to be because governments cannot play the inflation game in full view. Also remember that "inflation" comes from the Latin word means "blowing up," a succinct characterization of current events.

In closing, one of our readers posted excerpts from Peter Schiff's more recent articles which are beginning to convey similar points as we have been making here. I'd like to welcome Peter to the inflation camp. My only word of warning is that riding gold's post stock bubble reflation curve from $265 in 2001 to $850 today was a lot more predictable and less hair raising then the coming events. At some point central banks are going to have to put the hammer down. The challenge from here is reading the signs that policy is going to change. As things stand, evidence for change is scant, but the need is growing. In the mean time, we'll be keeping an eye out for the Next Bubble.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
__________________________________________________ For the safest, lowest cost way to buy and trade gold, see The Bullionvault (http://www.bullionvault.com/from/itulip)

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 - 2007 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/GeneralDisclaimer.htm)

jimmygu3
01-02-08, 05:32 PM
The US is not on the gold standard so a 1930s style deflation is impossible. The Fed even before Bernanke was hired repeatedly stated (as in the presentation we got the image from) that the Fed will not sit by and allow inflation to fall below zero.

Besides the 1930s depression in the US and the self-inflicted ongoing debt deflation in Japan, every other instance when a government, its politicians, and their voters have gotten themselves in as much credit driven hot water as the US is in today has done one thing, and over and over. In fact, while the world experienced two (2) deflationary episodes in the past century, how many debt deflations resulted in currency depreciation and all-goods price inflation? The answer:

Germany 1920 - 1923: 3.25 million percent
Russia 1921 - 1924: 213 percent
Austria 1921 - 1922: 134 percent
Poland 1922 - 1924: 275 percent
Hungary 1922 - 1924: 98 percent
Greece 1943 - 1944: 8.55 billion percent
Hungary 1945 - 1946: 4.19 quintillion percent
Shanghai 1949 - 1950: 100 percent
Argentina 1984 - 1991: 5000 percent
Brazil 1984 - 1997: 5 trillion percent
Chile 1973: 600 percent
Bolivia 1984: 14,700 percent
Peru 1981 - 1989: 900 percent
Poland 1989 - 1990: 344 percent
Russia 1992 - 1995: 2,323 percent
Ukraine 1991 - 1994: 10,000 percent
Yugoslavia 1993 - 94: 1 trillion percent


My hunch is that most if not all of these have one other thing in common with the two deflationary 'anomalies': goods price deflation in gold terms. In the early 1930s, gold bought more stuff than it did in the '20s. It also happened to have a paper cousin called the dollar that enjoyed this boost in buying power (for a while).

I don't have the data, but I would bet that the buying power of gold increased during the above cited hyperinflations, just as it did in the depression. The paper currencies just didn't take the ride up like the pre-confiscation gold-pegged dollar did. I bet you could get more goods for an ounce of gold in 1922 Weimar Germany than you could have before the crisis started.

Likewise, the gold I bought 2 1/2 years ago now buys almost twice as much stuff as it did then.

jk
01-02-08, 06:22 PM
"be right and sit tight" - famous words from jesse livermore. it's going to be harder and harder to sit tight as gold gets more volatile, so position sizing is important. i.e. find a position with a size [and consequently with volatility] you can live with.

jesse livermore:
“And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine – that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”

akrowne
01-02-08, 07:21 PM
Nice piece, but I can't help but ask: why does it matter if the US experiences price deflation or not? The flight out of US financial economy and else where (and into gold) will just tank the dollar and levitate gold (in dollars and in absolute terms). It's already happening.

Of course, this scenario makes it unlikely that we'll be even remotely close to a genuine CPI deflation; so much of the CPI components are imported (by design) that a dollar decline or even just repegging by certain foreigners will cause prince index inflation---dollar monetary base be damned.

There is one way the Ministry of Truth apparatchiks could fight back... they could reverse the cockeyed weighting of domestic services (health care, education, etc.) and house prices/OER vs. consumer goods, achieving the desired outcome as the former begins to fall and the latter rises.

Can I get a cozy government pension job for that idea? (Oh to be an early-receiver of inflation!)

Chris Coles
01-02-08, 07:23 PM
I believe that this time we have a completely new situation that takes us beyond any previous period of inflation. What has happened during the last decade in particular is that Western monetary authorities, particularly the FED, European Bank and the Bank of England, have lost control of their primary tool; the creation of new money. In the past, before big bang, the only way the banking system could add new money to the system was through the central banks effectively "printing" new money. What has happened is that their enthusiasm for the short term benefits of the expansion of the banking system into the world of hedge funds has blinded them to the perils.

What everyone could see, but either failed to acknowledge, or, refused to believe, was that, in allowing the hedge funds to take the already leveraged funds of the ordinary, normal banking system, (the savers $1 lent out to borrowers say, 7 or 8 times), and, by turning a blind eye to the fact that the hedge funds in turn were creating a, Quote "Wall of Money" Unquote, by taking the already leveraged normal bank loan and again leveraging that another 15 or 20 times...... in the process spewing out all those lovely CDO's.......... that the CDO's were in fact new money.

The hedge funds have been issuing completely new money into the banking system.

And not just new money, but 15 or 20 times more new money than the system was designed to cope with; and not temporarily, just for a week or two, but for nearly a decade, year in year out. THAT was the first problem, but it gets worse, much, much worse.

The second problem, (the one no one is talking about), is that the governments' at the heart of the system here in the West, must have, I repeat, must have..... bought CDO's. Our governments are as deep in the mess as anyone.

So the third problem is obvious, the true value of the CDO's cannot be more than the true value of the original money in the system BEFORE they were issued. So the true imbalance is the full value increase in asset values since this new money creation process started.

That leads us to the fourth problem which we can see happening right in front of our eyes. In trying to prevent a complete collapse, the central banking system is trying to prevent the collapse of the new asset values back to normal values by replacing the valueless CDO's with new issued money in the old traditional sense. They are printing money on a scale never ever seen before.

There is no way out of this. Common sense tells us that we either have a collapse of asset values, or we have inflation in the only "real" assets worth holding in such times, Gold, Oil, Food, and all those very tangible assets that are normally the base against which the whole banking system is lodged up beside for stability.

The central banks have shown their hands by taking the inflationary route and it will be quite some time before the overall effects stabilise. My guess will place a timescale of two or three years before we can be certain that we will have hit full bottom. In any other circumstances, cash is very certainly king in the resulting Downwave and Robert Beckman, author of The Downwave has at long last been vindicated. The Downwave has started. But, if Beckman is correct in his assumptions, house and land prices will return to pre 1939 values. But as others have already noted, this time holding cash as currency is not possible as the underlying problem is the collapse of the banking system and thus the value of the currency.

Now we have a quite different problem to address, the hedge funds are still there doing their thing, leveraging away as fast as the central banks are trying to stem the depreciation by inflating the system. We do not have closure on the first problem. I have not heard anyone suggesting that the central banks must stop the hedge funds from creating new money to allow the central banking system to catch up.

As long as the hedge funds can continue to leverage, the primary problem remains. There cannot be closure, the overall problem will remain.

As I see it, we might expect to see the price of gold itself become leveraged 15 or 20 times to replace the loss in the overall system and in that case….. Gold might well reach $8,000.

Food for thought?

WDCRob
01-02-08, 07:44 PM
Sort of a tangential question, but does anyone think that the 24/7/365 'Always On' nature of today's financial 'news' channels and the Internet has changed the nature of the bubbles themselves - to be more bubbilicious than previously?

Especially since everyone can now trade from the comfort of their own living room.

I've got a hunch that if people really do get scared and/or suffer economically the predicted bubble in hard assets may outstrip what we've seen previously. Like I said, just a hunch - I've got nothing to back it with.

Spartacus
01-02-08, 07:55 PM
the FED's irrational fear of deflation,
that asymmetric response which responds

(ka) dramatically and violently to deflation threats
(POOM) lukewarmly to inflation threats

is what ka-POOM relies on for the POOM to be <big><big>POOM</big></big>, not <small><small>poom</small></small>. That's my reading of Eric's thesis.


Nice piece, but I can't help but ask: why does it matter if the US experiences price deflation or not? The flight out of US financial economy and else where (and into gold) will just tank the dollar and levitate gold (in dollars and in absolute terms). It's already happening.

Can I get a cozy government pension job for that idea? (Oh to be an early-receiver of inflation!)

GRG55
01-02-08, 10:08 PM
Sort of a tangential question, but does anyone think that the 24/7/365 'Always On' nature of today's financial 'news' channels and the Internet has changed the nature of the bubbles themselves - to be more bubbilicious than previously?

Especially since everyone can now trade from the comfort of their own living room.

I've got a hunch that if people really do get scared and/or suffer economically the predicted bubble in hard assets may outstrip what we've seen previously. Like I said, just a hunch - I've got nothing to back it with.

My observation of the 24/7/365 "Bubblevision" phenomena is it's focussed primarily on the past bubbles. They spent most of this year promoting the return of tech and agonizing about whether a bottom had been reached in the homebuilders and financials. Very few will figure out what the next bubble is until it's pretty well over.

As EJ points out:

...High returns with low volatility are what investors dream about, but as I look over the plethora of Year in Review coverage of the markets, I don't see this point highlighted anywhere...

metalman
01-02-08, 10:43 PM
Nice piece, but I can't help but ask: why does it matter if the US experiences price deflation or not?

because you can't say like mish does "it's going to get really cold, so wear a bathing suit and a parka". you can't have it both ways. either you are hedging deflation... prechter's bull market in cash... or you aren't. tho i understand the weasel words. these guys have reps to protect. but mish has repeated said the bottom of the dollar is in and then in the next breath to buy gold. don't make sense.


The flight out of US financial economy and else where (and into gold) will just tank the dollar and levitate gold (in dollars and in absolute terms). It's already happening.

nope. this is the second round. ej and the rest of us already caught round 1. looks like we go right into round 2 without a disinflation intermission.


Of course, this scenario makes it unlikely that we'll be even remotely close to a genuine CPI deflation; so much of the CPI components are imported (by design) that a dollar decline or even just repegging by certain foreigners will cause prince index inflation---dollar monetary base be damned.

huh? deflation = negative inflation = minus cpi. any other reference to "deflation" is double talk bullshit.


There is one way the Ministry of Truth apparatchiks could fight back... they could reverse the cockeyed weighting of domestic services (health care, education, etc.) and house prices/OER vs. consumer goods, achieving the desired outcome as the former begins to fall and the latter rises.

they been faking and will keep faking. cpi = 20% over 6 yrs plus while gold is up 300%? riiiiiiiight.


Can I get a cozy government pension job for that idea? (Oh to be an early-receiver of inflation!)

welcome to argentina. but... hey, that's my guaranteed gummit job. now get in line!

jimmygu3
01-02-08, 11:53 PM
My observation of the 24/7/365 "Bubblevision" phenomena is it's focussed primarily on the past bubbles. They spent most of this year promoting the return of tech and agonizing about whether a bottom had been reached in the homebuilders and financials. Very few will figure out what the next bubble is until it's pretty well over.

GRG55, I think WDCRob meant that the media adds air to the bubbles while they are rising, not that they ever recognize them as bubbles. It's a Boom, a New Era, a Paradigm Shift to a Permanent Plateau until it's obvious that it's over and they start calling the bottom.

jimmygu3
01-03-08, 12:15 AM
There is one way the Ministry of Truth apparatchiks could fight back... they could reverse the cockeyed weighting of domestic services (health care, education, etc.) and house prices/OER vs. consumer goods, achieving the desired outcome as the former begins to fall and the latter rises.


You expect healthcare and education to fall? No way.

Continued rigging of the CPI will require unprecedented creativity, but our brave men and women in Washington are up to the task. Maybe they can add a "sour grapes" clause: If we don't like the prices of the goods in our basket, we'll just use a different basket! They've already compared hamburger to steak, so why not a 900sf apartment to a 1000sf apartment, a used car to a new car, or University of Phoenix to Yale? Comparing apples to apples is soooo 20th century.

Jim Nickerson
01-03-08, 01:50 AM
MARK HULBERT
Stocks look better than gold for 2008
Commentary: Contrarians bet equities will outshine gold

By Mark Hulbert (http://www.marketwatch.com/news/mailto.asp?x=109+104+117+108+98+101+114+116&y=Mark+Hulbert&z=marketwatch.com&guid=%7Bee4aea32-6a15-4746-8493-40d2339064ba%7D&siteid=mktw), MarketWatch
Last update: 9:27 p.m. EST Jan. 1, 2008

http://www.marketwatch.com/news/story/contrarians-bet-stocks-outperform-gold/story.aspx?guid=%7BEE4AEA32%2D6A15%2D4746%2D8493%2 D40D2339064BA%7D

Chris Coles
01-03-08, 03:46 AM
As I see it the record is clear, the one thing that drives the whole edifice is access to credit. You need a letter of credit to export, or import, or you again must have access to credit for working capital..... whatever you do industrially, you must have access to credit. So with the credit markets locked solid and with the banks themselves unable to lend to each other, then the expectation of industrial growth is wishful thinking. In my opinion, stock markets are going to be severely hampered by the difficulties of some sectors, not every sector, but some, will be unable to gain normal access to credit and will stall.

I repeat, this is not a normal event. Do not expect normality in anything.

From the Times
January 3, 2008

Another rate cut imminent as new orders slump to two-year low

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3123562.ece

GRG55
01-03-08, 04:35 AM
GRG55, I think WDCRob meant that the media adds air to the bubbles while they are rising, not that they ever recognize them as bubbles. It's a Boom, a New Era, a Paradigm Shift to a Permanent Plateau until it's obvious that it's over and they start calling the bottom.

And my view is, again, that the media remains focussed on the past bubble(s) and doesn't participate in the new one until it's pretty well over. Isn't that why the smart money exits the bubble asset class when the story hits Page One?

I suppose one could believe that the media played a role inflating the housing bubble, to use the most recent experience. Perhaps the final blow-off stage of bubbles is aided by the media, but I think the housing bubble example was pretty well fully inflated about the time the cover stories finally started to appear in 2005.

magicvent
01-03-08, 06:54 AM
In response to a question on a previous post, you indicated that you were going to sell some of your gold holdings when it reached $850. Did you do so yesterday?

*T*
01-03-08, 07:25 AM
1) The hedge funds have been issuing completely new money into the banking system.

2) The second problem, (the one no one is talking about), is that the governments' at the heart of the system here in the West, must have, I repeat, must have..... bought CDO's. Our governments are as deep in the mess as anyone.

3) That leads us to the fourth problem which we can see happening right in front of our eyes. In trying to prevent a complete collapse, the central banking system is trying to prevent the collapse of the new asset values back to normal values by replacing the valueless CDO's with new issued money in the old traditional sense. They are printing money on a scale never ever seen before.


1) Agreed - not just CDOs but swaps and derivatives in general can sometimes have huge principals with relatively little traditional cash changing hands.

2) Can anyone back up this assertion with some facts and examples? On a regional govt level it appears to be true, e.g. the beautifully timed
Banks Sell 'Toxic Waste' CDOs to Calpers (http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=aW5vEJn3LpVw)
and some village in Norway I recall, but is it anything other than isolated cases?

3) Again, can we back this up by facts? It seems implied by gold, oil, agricultural commodities rising but e.g. the much touted $500bn ECB injection was mostly replacing expiring 'old' money, wasn't it? Some of it seems to be illusory; isn't the recent M3 increase due to replacing CP with bank debt for example?

I am ready to believe these assertions as they seem sensible and fit in with my thesis and the iTulip thesis but seeing some supporting evidence for 3) particularly would allow me to position with more conviction. Given the subject of the article, it's all about conviction.

jimmygu3
01-03-08, 10:43 AM
And my view is, again, that the media remains focussed on the past bubble(s) and doesn't participate in the new one until it's pretty well over. Isn't that why the smart money exits the bubble asset class when the story hits Page One?

I suppose one could believe that the media played a role inflating the housing bubble, to use the most recent experience. Perhaps the final blow-off stage of bubbles is aided by the media, but I think the housing bubble example was pretty well fully inflated about the time the cover stories finally started to appear in 2005.
You may be right that when the cover of Time magazine says "Widgets Can't Lose", it's time to sell your widgets. But there are usually thousands of smaller news items in the years and months leading up to that which add to the mania. Not to mention "Flip This House" and other TV shows that tell you you're an idiot for not jumping into the speculative pool.

I'd even go so far as to say that the tech/internet bubble put the 24hr financial news networks on the map. Before that, financial shows were 'boring'. When Yahoo is up 60 points in a day and people have pagers for new IPO releases, finance is more like Vegas. Now that's compelling TV!

Rockefeller got out of the market when he heard the shoe shine boys trading stock tips. I knew Florida real estate was cooked in '05 when my construction-worker nephew told me he was planning to buy pre-construction condos with zero down and then flip them before closing.

Chris Coles
01-03-08, 10:46 AM
Many years ago, to try and impress a good looking librarian, (girl, I might add), I picked out the largest book I could find to borrow. It turned out to be a very detailed treatise on Gold and the use of gold to cover the possibility of future financial difficulties. It was a very good read. (The librarian thought I was an idiot), but the book was well worth the effort.

It taught me to always believe that, when the chips are down, Gold is the final arbiter of wealth. The one place you can put your money and be certain that you cannot, repeat, cannot, ..... lose its value if everything else is losing value.

With regard to my assumptions above, I can only describe them as my instinctive thoughts. If I am wrong, then everything will pan out in a similar manner to all the other events this past 70 odd years. But this time, my instincts are screaming at me there are very real differences.

GRG55
01-03-08, 11:14 AM
Many years ago, to try and impress a good looking librarian, (girl, I might add), I picked out the largest book I could find to borrow. It turned out to be a very detailed treatise on Gold and the use of gold to cover the possibility of future financial difficulties. It was a very good read. (The librarian thought I was an idiot), but the book was well worth the effort...

I am quite sure that my wife also secretly thinks I am an idiot for believing in gold. But as long as I keep allocating some of the gold investment amount to buying her high carot jewelry in the Middle East gold souqs she seems happy to go along with it (for now)...:)

EJ
01-03-08, 11:21 AM
In response to a question on a previous post, you indicated that you were going to sell some of your gold holdings when it reached $850. Did you do so yesterday?

Good question. Two issues: 1) unless evidence presents itself that central banks can reverse course during this debt deflation, I still plan to diversify when gold nears its real $2,000 versus nominal $850 peak, and 2) into assets that I have not yet identified. We have developed a fair number of candidates, but nothing specific as yet; the Next Bubble needs to develop further.

I will add that as the price of gold (not to mention silver and platinum, which I also own) rise to the levels we see today, it's increasingly nerve wracking. These prices and rates of increase present major challenges to the financial system and exert political stresses on governments and central banks. Rising inflation from China to Russia is causing domestic political problems that cannot be tolerated forever.

The most important lesson we learned in 2001 was that governments should not be underestimated; the motive to cooperate to solve systemic problems is much greater than the motive to fight each other. No one who benefits from the system desires systemic failure and the regime change that follows. They may get it anyway, but taking long bets against the house has as many hazards as long bets with the house as the system goes through transition. I maintain that the only way "out" that I can see is for governments to create something new rather than try to fix what is broken directly, that is, rather than try to re-inflate deflating assets, move the game to a new asset arena that is both politically expedient and practicable.

A great wisdom in economics was offered by John Kenneth Galbraith in his later years, reflecting back on his own errors. In A Journey Through Economic Time (1994) he said, "It is my guiding confession that I believe the greatest error in economics is in seeing the economy as a stable, immutable structure." (We're fans of John Kenneth Galbraith here; I had a chance to meet him at my sister's commencement at Harvard. We interviewed his son James K Galbraith in 2006 (http://www.itulip.com/forums/showthread.php?p=4834#post4834).)

The economy is always changing. It's not a building but an amoeba; estimating how it's shape will change is more art than science. So far we've done okay, but the coming years will be especially challenging as crisis intensifies. Change can happen very quickly, as it did in 1980.

bill
01-03-08, 11:41 AM
The feds objective will be to keep the water level in the tea pot just right, not to hot, not to cold, a nice moderate rate of inflation steam until the next bubble is formulated. The fed’s rapid response policy of not allowing deflation at the same time keeping inflation intact is not by accident. If deflation in a certain asset class becomes a concern, implement policy for a more gradual prolong deflation cycle as in real estate.
The focus for the next bubble will be energy technology, energy usage and infrastructure to deliver, $100.00 oil demands it and will be used in part as a political launching platform. The reports, analysis, justifications for such projects and politically positioning must be in place prior to launching such cycles. Keep an eye on companies like http://www.wgint.com/about_us/ as one example for detail bubble formulating policy.

<!-- toctype = X-unknown --><!-- toctype = text --><!-- text -->

Jeff
01-03-08, 12:18 PM
Wow. It just hit $865. How can I be so happy I bought a lot at $350, and pissed I didn't buy more at $600?

brucec42
01-03-08, 12:27 PM
I'm confused. If the inflation adjusted high for gold (previously reached during somewhat similar times) is something like $2,000 and it's currently less than half that, given the current economic problems listed in your book and others like Peter Schiff's, why do you consider it nerve wracking to own gold above $850? Other than the short term blips down on some sort of "good news" that never lasts long, what could force gold down significantly below its current price?

As a complete amateur in all this, I can tell you that the dumb masses have no clue what is going on and eventually all this will come out in the media (I have watched a relative flood of information that mirror what's being said here and in the books in the last 6 months that I never saw before). When that happens, wouldn't they just pile into gold, much as they did tech stocks and real estate before it? I had been searching w/o success for something to invest in with some degree of confidence from about 2001 to last spring and only finally found it after reading your chapter on gold in the book.

Being personally connected through employment and/or stock ownership to companies like Tyco and Krispy Kreme, where they cook not only donuts but books, I can attest to the quote on the website here about investing as a non-insider. Knowing what I know about how business decisions are made at financial institutions, I have zero confidence in financial stocks. Trust me, they're run by mental 11 y/o's who haven't bothered to read the definition of "fiduciary duty".

I was always nervous holding stocks and index funds. It seemed that periodically the market would tank 20% or so and was so vulnerable to "bad news" in the world that you never knew what was going to happen, even if you made all the right calls technically. But with gold I just do not have that feeling. The very prescience of your book and others gives me confidence that I properly understand what is going to happen (a continuing spiral of govn't debt ultimately resulting in currency worth less and less).

I suppose if they find massive new gold deposits or a cheap and easy substitute for oil in the next year, it could go down a lot. But that's highly unlikely.

I guess my point is, where else are people going to go besides things like Gold? With real estate in oversupply, debt harder to get which further depresses it, an end to the debt fueled "boom", etc I don't see economies continuing to grow worldwide, but a realignment (recession) back to normal. So money put into stocks seems scarier to me at this point than gold.

Foreign utility stocks, maybe. But I don't see a bidding war for a German electric company consuming us like the real estate or tech booms.
What other risks are there to look out for?

bart
01-03-08, 12:52 PM
3) Again, can we back this up by facts? It seems implied by gold, oil, agricultural commodities rising but e.g. the much touted $500bn ECB injection was mostly replacing expiring 'old' money, wasn't it? Some of it seems to be illusory; isn't the recent M3 increase due to replacing CP with bank debt for example?



No. Neither CP nor bank debt is in M3.

The recent spike is due to large increases in Institutional Money Market inflows, Jumbo CD inflows and H.8 deposits (line 17 on the H.8 report).

jk
01-03-08, 01:03 PM
I'm confused. If the inflation adjusted high for gold (previously reached during somewhat similar times) is something like $2,000 and it's currently less than half that, given the current economic problems listed in your book and others like Peter Schiff's, why do you consider it nerve wracking to own gold above $850? Other than the short term blips down on some sort of "good news" that never lasts long, what could force gold down significantly below its current price?

As a complete amateur in all this, I can tell you that the dumb masses have no clue what is going on and eventually all this will come out in the media (I have watched a relative flood of information that mirror what's being said here and in the books in the last 6 months that I never saw before). When that happens, wouldn't they just pile into gold, much as they did tech stocks and real estate before it? I had been searching w/o success for something to invest in with some degree of confidence from about 2001 to last spring and only finally found it after reading your chapter on gold in the book.

Being personally connected through employment and/or stock ownership to companies like Tyco and Krispy Kreme, where they cook not only donuts but books, I can attest to the quote on the website here about investing as a non-insider. Knowing what I know about how business decisions are made at financial institutions, I have zero confidence in financial stocks. Trust me, they're run by mental 11 y/o's who haven't bothered to read the definition of "fiduciary duty".

I was always nervous holding stocks and index funds. It seemed that periodically the market would tank 20% or so and was so vulnerable to "bad news" in the world that you never knew what was going to happen, even if you made all the right calls technically. But with gold I just do not have that feeling. The very prescience of your book and others gives me confidence that I properly understand what is going to happen (a continuing spiral of govn't debt ultimately resulting in currency worth less and less).

I suppose if they find massive new gold deposits or a cheap and easy substitute for oil in the next year, it could go down a lot. But that's highly unlikely.

I guess my point is, where else are people going to go besides things like Gold? With real estate in oversupply, debt harder to get which further depresses it, an end to the debt fueled "boom", etc I don't see economies continuing to grow worldwide, but a realignment (recession) back to normal. So money put into stocks seems scarier to me at this point than gold.

Foreign utility stocks, maybe. But I don't see a bidding war for a German electric company consuming us like the real estate or tech booms.
What other risks are there to look out for?
the issue is for having the stomach to ride out the volatility. it's easy to be confidant when gold has been moving up steadily for the last several years [as pointed out by ej in the post starting this thread].

but if you look at the 1970's chart, for example, you'll see that at one point gold was cut in half. let's halve THAT- suppose gold drops to the low $600's? are you ready for that? is your confidance strong enough that you won't sell some or all of your position? this is the basis of the comment i made earlier in this thread, about the importance of position sizing.

richard russell likes to say that a bull market likes to shake off as many riders as possible on its way up. that's the effect of downside volatility forcing nervous selling, and also of people mistiming things when trying to outsmart the trend by trading - taking profits in the hope of re-purchasing positions after a sell off.

the next leg of the gold bull market, the second leg, will have more volatility. buy what you can live with during the downswings, and then hold on for dear life.

bart
01-03-08, 01:27 PM
Put away your calculators, money supply counters. It's all about politics. Always has been, and always will be. Don't bother looking at the money supply and inflation statistics; they are not going to be valid when you need them to be because governments cannot play the inflation game in full view.



Although your point about politics (from the root words poli meaning all, and tics meaning blood sucking pests of course) is very well taken, I respectfully disagree about money supply and inflation stats being invalid either now or in the future except under extraordinary conditions (like making it illegal to publish economic or monetary stats).


There are more than a few folk like John Williams who have much experience with divining the real facts about the CPI, money supply etc. through the curtain of BS from the BLS and others... and are publishing them broadly.


Then we have the whole concept of time lags that must be taken into account. If the Fed discontinued all the monetary aggregate reporting tomorrow, today's data would still be valid for 12-18 months since that's roughly the amount of time it takes for monetary changes to be reflected in most prices.

c1ue
01-03-08, 02:27 PM
Now we have a quite different problem to address, the hedge funds are still there doing their thing, leveraging away as fast as the central banks are trying to stem the depreciation by inflating the system.

Chris,

Do you have evidence that the hedge funds are still able to access the credit they previously had?

Who would be lending them this money?

If banks are facing solvency crises, I would think loans for leverage would be scrutinized much more than in the past - when the loans were probably not vetted at all.

FRED
01-03-08, 02:28 PM
The feds objective will be to keep the water level in the tea pot just right, not to hot, not to cold, a nice moderate rate of inflation steam until the next bubble is formulated. The fed’s rapid response policy of not allowing deflation at the same time keeping inflation intact is not by accident. If deflation in a certain asset class becomes a concern, implement policy for a more gradual prolong deflation cycle as in real estate.
The focus for the next bubble will be energy technology, energy usage and infrastructure to deliver, $100.00 oil demands it and will be used in part as a political launching platform. The reports, analysis, justifications for such projects and politically positioning must be in place prior to launching such cycles. Keep an eye on companies like http://www.wgint.com/about_us/ as one example for detail bubble formulating policy.

<!-- toctype = X-unknown --><!-- toctype = text --><!-- text -->

A most concise summation of iTulip Select investment thesis! Thanks for the all the heavy lifting, identifying legislation and companies as potential targets for Next Bubble investment.

donalds
01-03-08, 02:29 PM
If I understand things correctly, those who see inflation emphasize money creation, while those who see deflation emphasize credit destruction.

So, while we are experiencing credit/debt deflation, we are also experiencing money inflation. The former reflects the melting of shadow (fictitious capital) credit/debt creation (which has, at least up till now, been substituting for, and exceeding Fed money creation -- just as debt has long now been a substitute for decreasing or at least flat incomes): the deflating of assets as collateral; the later reflects the . . . inflating our way out of debt deflation by reflating deflating assets.

Doesn't the Fed reflating machine (buying Treasuries hand over fist) run the risk of fast eroding the value of the dollar, thus discouraging foreign CBs and private investors from buying Treasuries, leading to higher long term rates . . . canceling out any benefit from reduced Fed interest rate target levels. And doesn't Fed aggressively expanding monetary base risk leading to unneeded reserves piling up in the banking system, causing the Fed fund rate to dive?

Lost in the picture here, as far as I can tell, is the real economy of work and consumption. If a recession, as iTulip predicts, is just around the corner, then are we to expect that with declining consumer demand the Fed is expected to reflate deflating assets? If so, then I guess we'd have to expect renewed debt creation, that is, households falling further into debt as a result of inflating our way out of debt deflation. A paradox, indeed.

c1ue
01-03-08, 02:30 PM
I was always nervous holding stocks and index funds.

Stocks and index funds are a play on nominal growth plus monetary inflation.

Index funds are the low cost play, stocks are the "skill" sales pitch.

If there is a depression, though, this conventional wisdom will be exposed for the scam that it is.

However, if EJ/iTulip is right and there is a successful reflation, then index funds in the right sector will be successful.

Thus as with any choice, you must scrutinize both the macro- and the micro- strategy to arrive at something you can stand by.

Contemptuous
01-03-08, 03:16 PM
Bill -

You wrote:

<< <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 bill http://www.itulip.com/forums/images/buttons/viewpost.gif (http://www.itulip.com/forums/showthread.php?p=23464#post23464)

The feds objective will be to keep the water level in the tea pot just right, not to hot, not to cold, a nice moderate rate of inflation steam until the next bubble is formulated. The fed’s rapid response policy of not allowing deflation at the same time keeping inflation intact is not by accident. If deflation in a certain asset class becomes a concern, implement policy for a more gradual prolong deflation cycle as in real estate.

The focus for the next bubble will be energy technology, energy usage and infrastructure to deliver, $100.00 oil demands it and will be used in part as a political launching platform. The reports, analysis, justifications for such projects and politically positioning must be in place prior to launching such cycles. Keep an eye on companies like http://www.wgint.com/about_us/ (http://www.wgint.com/about_us/) as one example for detail bubble formulating policy.


</TD></TR></TBODY></TABLE>
>>

This is what I remain unable to clearly understand. The equities bubble of the 1990's was a US domestically engineered stock bubble, which spilled over into foreign stock markets but was originally in US assets, due to US credit policies which were then emulated by a few foreign credit markets.

The housing bubble was also a domestically engineered bubble which similarly spilled over into foreign assets.

But any prospective "energy and energy infrastructure" bubble it seems would have to start from domestic US assets - i.e. alt-energy companies, and US based actual energy resources? If it did not start from US domestic assets, then the notion it was emerging as a US FIRE economy bubble becomes open to question. The FIRE economy is a US phenomenon and nowhere is referenced as occurring in direct relation to US FIRE economic impulses in other parts of the world.

If you look around at the bidders globally on energy assets and energy infrastructure, the US effectively is relegated to a secondary (soon to be tertiary!) "owner" of these assets in terms of it's share of the global pie. We "own" a fraction of the overal global energy or it's infrastructure.

How then does a domestically inspired nascent bubble in these asset classes in the US spark a global bubble in them? If it indeed sparks a US bubble in "infrastructure", that's only a US bubble, not a bubble that's echoing throughout the world in these asset classes - unless and until these asset classes undergo a serious demand bid throughout the world which results in their being bid up by countries globally due to increasingly critical global NEED.

Plus America's position as "prime mover" of new global asset bubbles has just undergone some serious degradation in the past seven years. It is not a static percentage of the global pie by any means. Our currency is being repudiated, our market share in many asset categories is shrinking. Therefore for the US to cause another "global" asset bubble it would have to exert it's inflationary effort upon an asset class with some notably tight or solid fundamentals in order to bring the rest of the world along for the new bubble ride as we approach 2010 and move beyond it.

I am unclear how the "US infrastructure bubble" is going to be a bubble on a global scale at all, unless and until the fundamentals of alt-energy, or conventional energy, in fact gain all the attributes of a fundamentally underpinned global bull market - underpinned by their increasingly critical role - and in that case this new asset class bubble would be a hybrid, not a pure "bubble" class at all.

I guess what I'm trying to point out here is that my understanding of the prior "bubble" paradigm as it applied to A) stocks and B) real property, was based on asset classes with no inherent reason to surge to bubble heights other than monetary / loose credit phenomena. Notably, these asset bubbles were borne in America, by means of American domestic assets, and then spread to other parts of the world.

But it appears to me that fitting alt-energy into the next bubble class is introducing an "asset class" with some notably different attributes to stocks and real property in America.

1) Alt energy and energy infrastructure are today rapidly globalising assets or sectors. While US housing and US stocks were wholy owned subsets of the domestic US economy.

2) Stocks and housing in America were by no means "vital" or "essential" assets to the world". US housing if anything was the antithesis of "vital to the world".

3) Alt energy and energy infrastructure are rapidly moving to the forefront as "vital" or "essential" assets to the world. These in effect are not wholly owned subsets of the US economy, but rather are global assets, which will increase in value more closely in proportion to global bids than merely US bids.

Therefore is there not at least a valid argument to be made that if we see soaring prices of alt-energy which seem to validate the notion of an emerging "alt-energy bubble" this bubble is fundamentally unlike the prior two fiat US caused bubbles because it's emerging bid is global, and cannot therefore be reasonably imputed primarily to US FIRE economics?

That's my other perpetual puzzlement. How can US FIRE economics in an era of declining US global economic leadership continue for long to be capable of causing any new global bubbles? I've never understood how US FIRE economics exerts any direct motive force on asset classes which have a fundamental, critical global bid underpinning them. To me the connection seems tenuous. I get increasingly skeptical of the idea that America will have the clout to affect the trajectory of asset classes which emerge as critical to the world, simply because the bid inflating such global essential assets is rapidly outstripping America's share of the whole - and because America is broke and others are holding all the cash to act as prime movers.

With all the cash piles in the BRIC nations and OPEC, and the fact that America's comparative cash pile is rapidly dwindling to "comparatively much smaller" (due to evaporating USD purchasing power and repudiated USD) it seems to me we must defer to all those other countries collective wish or consensus, as to which asset classes will be the next "bubble" - and as the vast majority of those nations dont even have a FIRE economy, those asset classes won't be bubbles at all.

bill
01-03-08, 04:21 PM
Bill -

You wrote:

<< <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 bill http://www.itulip.com/forums/images/buttons/viewpost.gif (http://www.itulip.com/forums/showthread.php?p=23464#post23464)

The feds objective will be to keep the water level in the tea pot just right, not to hot, not to cold, a nice moderate rate of inflation steam until the next bubble is formulated. The fed’s rapid response policy of not allowing deflation at the same time keeping inflation intact is not by accident. If deflation in a certain asset class becomes a concern, implement policy for a more gradual prolong deflation cycle as in real estate.

The focus for the next bubble will be energy technology, energy usage and infrastructure to deliver, $100.00 oil demands it and will be used in part as a political launching platform. The reports, analysis, justifications for such projects and politically positioning must be in place prior to launching such cycles. Keep an eye on companies like http://www.wgint.com/about_us/ (http://www.wgint.com/about_us/) as one example for detail bubble formulating policy.



</TD></TR></TBODY></TABLE>
>>

This is what I remain unable to clearly understand. The equities bubble of the 1990's was a US domestically engineered stock bubble, which spilled over into foreign stock markets but was originally in US assets, due to US credit policies which were then emulated by a few foreign credit markets.

The housing bubble was also a domestically engineered bubble which similarly spilled over into foreign assets.

But any prospective "energy and energy infrastructure" bubble it seems would have to start from domestic US assets - i.e. alt-energy companies, and US based actual energy resources? If it did not start from US domestic assets, then the notion it was emerging as a US FIRE economy bubble becomes open to question. The FIRE economy is a US phenomenon and nowhere is referenced as occurring in direct relation to US FIRE economic impulses in other parts of the world.

If you look around at the bidders globally on energy assets and energy infrastructure, the US effectively is relegated to a secondary (soon to be tertiary!) "owner" of these assets in terms of it's share of the global pie. We "own" a fraction of the overal global energy or it's infrastructure.

How then does a domestically inspired nascent bubble in these asset classes in the US spark a global bubble in them? If it indeed sparks a US bubble in "infrastructure", that's only a US bubble, not a bubble that's echoing throughout the world in these asset classes - unless and until these asset classes undergo a serious demand bid throughout the world which results in their being bid up by countries globally due to increasingly critical global NEED.

Plus America's position as "prime mover" of new global asset bubbles has just undergone some serious degradation in the past seven years. It is not a static percentage of the global pie by any means. Our currency is being repudiated, our market share in many asset categories is shrinking. Therefore for the US to cause another "global" asset bubble it would have to exert it's inflationary effort upon an asset class with some notably tight or solid fundamentals in order to bring the rest of the world along for the new bubble ride as we approach 2010 and move beyond it.

I am unclear how the "US infrastructure bubble" is going to be a bubble on a global scale at all, unless and until the fundamentals of alt-energy, or conventional energy, in fact gain all the attributes of a fundamentally underpinned global bull market - underpinned by their increasingly critical role - and in that case this new asset class bubble would be a hybrid, not a pure "bubble" class at all.

I guess what I'm trying to point out here is that my understanding of the prior "bubble" paradigm as it applied to A) stocks and B) real property, was based on asset classes with no inherent reason to surge to bubble heights other than monetary / loose credit phenomena. Notably, these asset bubbles were borne in America, by means of American domestic assets, and then spread to other parts of the world.

But it appears to me that fitting alt-energy into the next bubble class is introducing an "asset class" with some notably different attributes to stocks and real property in America.

1) Alt energy and energy infrastructure are today rapidly globalising assets or sectors. While US housing and US stocks were wholy owned subsets of the domestic US economy.

2) Stocks and housing in America were by no means "vital" or "essential" assets to the world". US housing if anything was the antithesis of "vital to the world".

3) Alt energy and energy infrastructure are rapidly moving to the forefront as "vital" or "essential" assets to the world. These in effect are not wholly owned subsets of the US economy, but rather are global assets, which will increase in value more closely in proportion to global bids than merely US bids.

Therefore is there not at least a valid argument to be made that if we see soaring prices of alt-energy which seem to validate the notion of an emerging "alt-energy bubble" this bubble is fundamentally unlike the prior two fiat US caused bubbles because it's emerging bid is global, and cannot therefore be reasonably imputed primarily to US FIRE economics?

That's my other perpetual puzzlement. How can US FIRE economics in an era of declining US global economic leadership continue for long to be capable of causing any new global bubbles? I've never understood how US FIRE economics exerts any direct motive force on asset classes which have a fundamental, critical global bid underpinning them. To me the connection seems tenuous. I get increasingly skeptical of the idea that America will have the clout to affect the trajectory of asset classes which emerge as critical to the world, simply because the bid inflating such global essential assets is rapidly outstripping America's share of the whole - and because America is broke and others are holding all the cash to act as prime movers.

With all the cash piles in the BRIC nations and OPEC, and the fact that America's comparative cash pile is rapidly dwindling to "comparatively much smaller" (due to evaporating USD purchasing power and repudiated USD) it seems to me we must defer to all those other countries collective wish or consensus, as to which asset classes will be the next "bubble" - and as the vast majority of those nations dont even have a FIRE economy, those asset classes won't be bubbles at all.

Lets follow the link I posted above.
http://www.wgint.com/about_us/
http://www.wgint.com/projects/power/
click on:National Enrichment Facility
copy:Client/Owner
Louisiana Energy Services
google:http://www.google.com/search?hl=en&q=Louisiana+Energy+Services&btnG=Google+Search

http://www.nefnm.com/v2b/index.asp

click on:URENCO
http://www.urenco.com/default.aspx

Urenco concludes two new funding transactions
In the first two weeks of December 2007, Urenco has concluded two new “private placement” debt transactions: the first, an index-linked debt issue for €100 million maturing in 2017 with ABP Pension Funds of the Netherlands; and a further transaction with a group of ten US investors – a fixed-rate $200 million debt issue with maturities ranging from 2015 to 2018. Both deals were completed on a “no financial covenants” basis. For more information, click here (http://www.urenco.com/Funding._investor_update_12_Dec_07_mifBx.pdf.file)

Urenco secures EIB debt facility
Urenco has successfully secured a new EUR 200 million debt facility from the European Investment Bank. This is the first loan to a nuclear organisation to be approved by EIB since the recent publication of the 'Clean Energy for Europe' document. The loan will fund the company's continued capacity expansion planned for the UK and the Netherlands. For more information, click here
(http://www.urenco.com/EIB_debt_facility_24.9.07_approved_WmFui.pdf.file)

My question is who are the group of 10 US investors?

EJ
01-03-08, 04:35 PM
More good questions.


I'm confused. If the inflation adjusted high for gold (previously reached during somewhat similar times) is something like $2,000 and it's currently less than half that, given the current economic problems listed in your book and others like Peter Schiff's, why do you consider it nerve wracking to own gold above $850? Other than the short term blips down on some sort of "good news" that never lasts long, what could force gold down significantly below its current price?

Higher volatility. I suspect that the nearly continuous price climb is over. As I mentioned in the original 2001 article on gold, a 50% retracement is not out of the question. However, this fact threw off gold bulls in 1980s who did not understand that the FIRE Economy was being birthed and that gold was down for the count, for another 20 years. A successful execution of the Next Bubble will allow inflationary money creation to be curtained and cause gold prices to decline. Failure to maintain inflation above zero, ala Japan in the early 1990s, will also do it, but we believe that unlikely.


As a complete amateur in all this, I can tell you that the dumb masses have no clue what is going on and eventually all this will come out in the media (I have watched a relative flood of information that mirror what's being said here and in the books in the last 6 months that I never saw before). When that happens, wouldn't they just pile into gold, much as they did tech stocks and real estate before it? I had been searching w/o success for something to invest in with some degree of confidence from about 2001 to last spring and only finally found it after reading your chapter on gold in the book.

A true asset bubble requires government support via legislation (regulatory and tax), as well as monetary policy. Gold prices may rise, but the government will never engineer an asset bubble in which gold, or commodities in general, are the chief beneficiaries. When you can borrow money from a bank to buy gold and write off the interest from your income taxes as you can with a mortgage on a home, and be taxed at 0% for $500K in capital gains from sales of gold as you and your significant other can for a primary property owned at least two years, maybe we'll have a gold asset bubble. For starters, we need to see gold ETFs re-classified to be taxed like other funds rather than at the higher "collectibles" tax rate. Add it all up, and it's obvious that governments are not enthusiastic about gold ownership. Seems to me the mining lobbies are not in a position to change that, so I'm not going to hold my breath waiting for a gold asset bubble. That does not mean that the price will not rise as it did in the late 1970s, but it will do so in spite of government policy desires, not because of them.


Being personally connected through employment and/or stock ownership to companies like Tyco and Krispy Kreme, where they cook not only donuts but books, I can attest to the quote on the website here about investing as a non-insider. Knowing what I know about how business decisions are made at financial institutions, I have zero confidence in financial stocks. Trust me, they're run by mental 11 y/o's who haven't bothered to read the definition of "fiduciary duty".

Noted.


I was always nervous holding stocks and index funds. It seemed that periodically the market would tank 20% or so and was so vulnerable to "bad news" in the world that you never knew what was going to happen, even if you made all the right calls technically. But with gold I just do not have that feeling. The very prescience of your book and others gives me confidence that I properly understand what is going to happen (a continuing spiral of govn't debt ultimately resulting in currency worth less and less).

The task is to regularly go back and test your assumptions. If the assumptions have not changed, do nothing. If they have, then sell. The difficulty is to be unsentimental and unemotional. That is not human nature. Investors tend to excited about tech stocks or houses or gold. But these are neutral things, objects of speculation and inflation that need to always be seen that way.


I suppose if they find massive new gold deposits or a cheap and easy substitute for oil in the next year, it could go down a lot. But that's highly unlikely.

Very low probability. Gold is unlike oil. Gold only exists as small deposits. Gold comes from stars (http://www.npr.org/templates/story/story.php?storyId=7397200), from space. Tell that to your goldbug friends when they lecture you about fiat money getting printed out of thin air.


I guess my point is, where else are people going to go besides things like Gold? With real estate in oversupply, debt harder to get which further depresses it, an end to the debt fueled "boom", etc I don't see economies continuing to grow worldwide, but a realignment (recession) back to normal. So money put into stocks seems scarier to me at this point than gold.

Foreign utility stocks, maybe. But I don't see a bidding war for a German electric company consuming us like the real estate or tech booms.
What other risks are there to look out for?

This is a superb point and the other reason I have not yet diversified. Into what? Stocks? Real estate? Bonds? I will diversify into Next Bubble assets in the future. We have spent that past several years laying the foundations of understanding that will be a crucial this year in making those calls.

Starting this year, my advisers and business partners have told me that as much as I enjoy conversing with our community on the public forums, I need to restrict myself to the Select area so we can focus in on nailing down these areas of investment.

rabot10
01-03-08, 04:35 PM
Funny the best returns I've gotten on Gold and Silver have been with GoldMoney becouse I didn't trade any of it. Now my Man futures account where I would trade the tops and bottoms in Gold and Silver have about wiped out my gains from GoldMoney lol.

Chris Coles
01-03-08, 05:05 PM
Chris,

Do you have evidence that the hedge funds are still able to access the credit they previously had?

Who would be lending them this money?

If banks are facing solvency crises, I would think loans for leverage would be scrutinized much more than in the past - when the loans were probably not vetted at all.

My first call is to a piece of TV news this evening here in the UK. In my opinion this is quite startling news. But make your own minds up.

http://www.channel4.com/player/v2/player.jsp?showId=10640

I return to earlier news today in The Times London.

"This is not going to be an ‘end of the world year’ at all,” he says. “It is one of the best we have had in the past seven years. Volatility has come back to the market. Equities are up 6 per cent or 7 per cent. China and India have done well. It’s been a good year.

“By their very nature, hedge funds are animals that are designed to use every tool available, every strategy, long and short, including leverage. We have been invested with at least seven funds that have made a return of 50-plus per cent over the past year by being short the sub-prime trade.”

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3111342.ece

The rest I get from diligently reading this trade magazine and associated publications and web sites.

http://www.institutionalinvestor.com (http://www.institutionalinvestor.com/)

metalman
01-03-08, 05:19 PM
My first call is to a piece of TV news this evening here in the UK. In my opinion this is quite startling news. But make your own minds up.

http://www.channel4.com/player/v2/player.jsp?showId=10640


man, you gotta love that cheesy-doomy brit newscasting style. the dark clouds with the lightening going over the house and the "end is near" tone are fab theater. bravo!

that said, the numbers are nuts. what kind of credit crunch you guys got going there, anyway? looks like a horror show. seems to contradict this...


I return to earlier news today in The Times London.

"This is not going to be an ‘end of the world year’ at all,” he says. “It is one of the best we have had in the past seven years. Volatility has come back to the market. Equities are up 6 per cent or 7 per cent. China and India have done well. It’s been a good year.

“By their very nature, hedge funds are animals that are designed to use every tool available, every strategy, long and short, including leverage. We have been invested with at least seven funds that have made a return of 50-plus per cent over the past year by being short the sub-prime trade.”

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3111342.ece

The rest I get from diligently reading this trade magazine and associated publications and web sites.

http://www.institutionalinvestor.com (http://www.institutionalinvestor.com/)

Chris Coles
01-03-08, 05:23 PM
A true asset bubble requires government support via legislation (regulatory and tax), as well as monetary policy. Gold prices may rise, but the government will never engineer an asset bubble in which gold, or commodities in general, are the chief beneficiaries. When you can borrow money from a bank to buy gold and write off the interest from your income taxes as you can with a mortgage on a home, and be taxed at 0% for $500K in capital gains from sales of gold as you and your significant other can for a primary property owned at least two years, maybe we'll have a gold asset bubble. For starters, we need to see gold ETFs re-classified to be taxed like other funds rather than at the higher "collectibles" tax rate. Add it all up, and it's obvious that governments are not enthusiastic about gold ownership. Seems to me the mining lobbies are not in a position to change that, so I'm not going to hold my breath waiting for a gold asset bubble. That does not mean that the price will not rise as it did in the late 1970s, but it will do so in spite of government policy desires, not because of them.


EJ,

I am not so sure that your analysis is correct with regard to governments suppressing the Gold price. My reasoning is that one of the two big players today, India, has a whole nation of Gold bugs. Every single one of them. The Indian government would have every reason to sit back and watch Gold inflate to the roof. You only have to meet an Indian with his wife, out for the day, a Sunday in Houston just under a year ago to see what I mean. His wife was a walking Gold market. She was festooned with it.

Indians see their wealth as being able to show it. Their entire status in their communities depends upon their being seen festooned with as much Gold as they can carry.

http://news.ninemsn.com.au/article.aspx?id=262494

Chris Coles
01-03-08, 05:31 PM
man, you gotta love that cheesy-doomy brit newscasting style. the dark clouds with the lightening going over the house and the "end is near" tone are fab theater. bravo!

that said, the numbers are nuts. what kind of credit crunch you guys got going there, anyway? looks like a horror show. seems to contradict this...


The contradiction is exactly what I am trying to get across. On the one hand there are dire stories of immense tidal forces at work, on the other hand, hedge fund managers are sitting back on their haunches laughing their heads off with glee. Nothing bothers them at all. They are un-touchable in todays market. No regulation. No way of stopping them from continuing to create a "wall of money" and inflate the system, on the way, skimming off a Kings ransom in fees as they go.

Yet, underneath, the whole thing is collapsing..........

I think the UK news is right on the button.

bart
01-03-08, 05:35 PM
I'm confused. If the inflation adjusted high for gold (previously reached during somewhat similar times) is something like $2,000 and it's currently less than half that, given the current economic problems listed in your book and others like Peter Schiff's, why do you consider it nerve wracking to own gold above $850? Other than the short term blips down on some sort of "good news" that never lasts long, what could force gold down significantly below its current price?


In support of EJ's point about gold's volatility, here's a chart comparing the bull to date through last Friday versus the bull from 1966-1980. The similarities are striking... and there are no guarantees too.


http://www.nowandfutures.com/images/gold_dow_cycle1966-1980.png


"History doesn't repeat itself, but it does rhyme."
-- Mark Twain

jk
01-03-08, 05:39 PM
we need to dis-aggregrate our analyses. some hedge funds did well shorting sub-prime, certainly, but my guess is that more of them took a beating. i think the investment banks have been operating, essentially, like giant hedge funds, but with them we have the advantage of [some] transparency. goldman lucked out because one small trading desk shorted cdo's. the other investment banks took big write-offs. we need to stop talking about "hedge fund managers", or swf's for that matter, as if they are all clones of one another.

Chris Coles
01-03-08, 05:53 PM
we need to dis-aggregrate our analyses. some hedge funds did well shorting sub-prime, certainly, but my guess is that more of them took a beating. i think the investment banks have been operating, essentially, like giant hedge funds, but with them we have the advantage of [some] transparency. goldman lucked out because one small trading desk shorted cdo's. the other investment banks took big write-offs. we need to stop talking about "hedge fund managers", or swf's for that matter, as if they are all clones of one another.

But they are all clones of one another. All my life I have read, again and again, about the herd instinct of fund managers in finance. But I take your point.

c1ue
01-03-08, 06:01 PM
JK,

Even with Goldman, I think the jury is still out as to how much they have gained net on subprime.

Certainly the securitization fees and other charges were highly profitable for all concerned, but the Fortune editor example of a subprime MBS was in fact a Goldman created one. This MBS in fact also had a tranche likely owned by Goldman which had already become worthless.

I for one have fruitlessly tried to discern if said MBS tranche was already written off or is part of Goldman's level 2 or level 3 obligations, and more importantly if said MBS is typical or a worst case.

Contemptuous
01-03-08, 06:14 PM
Bill -

If your point is that many players in the upcoming energy infrastructure "bubble" are ex-USA as well as domestic, I fully understand and accept that. Indeed it seems overwhelmingly likely. But that raises the simple question, how can this be a pure 'bubble' if bids on it are already appearing spontaneously from all parts of the world?

US FIRE economy mechanisms cannot be assumed to be the motive force in any acquisitions occurring from multiple origin points worldwide, right? To imply or conclude that all those acquisitions in this sector are occurring due to FIRE economy bubble dynamics (i.e. these are the first outlier evidences of the new 'alt energy bubble') would apparently be an imprecise description.

Rather these bids on alt energy would seem more plausibly prompted by far-sighted investor groups responding to fundamental drivers in that sector. How can what's apparently building up in alt-energy then be described as a future 'bubble' in the same category as the stocks bubble or the housing bubble? This emerging 'bubble' bears all the hallmarks of a bid on technologies and resources that are a direct response to resource problems that are increasingly being percieved as critical to the future global economy.

bart
01-03-08, 06:17 PM
we need to dis-aggregrate our analyses. some hedge funds did well shorting sub-prime, certainly, but my guess is that more of them took a beating. i think the investment banks have been operating, essentially, like giant hedge funds, but with them we have the advantage of [some] transparency. goldman lucked out because one small trading desk shorted cdo's. the other investment banks took big write-offs. we need to stop talking about "hedge fund managers", or swf's for that matter, as if they are all clones of one another.


Indeed, and from the 30,000' level, the straight math says that there's a winner for every loser in the derivatives game, much like futures are close to a zero sum game... and stocks too based on long term track history after inflation adjustments and historical facts like "return to the mean".

FRED
01-03-08, 09:22 PM
Indeed, and from the 30,000' level, the straight math says that there's a winner for every loser in the derivatives game, much like futures are close to a zero sum game... and stocks too based on long term track history after inflation adjustments and historical facts like "return to the mean".

In currency derivatives, it's zero sum. Not so with credit derivatives.

Here's a site entirely predicated on the idea that investment banks are simply hedge funds bloated with too much overhead, and doomed to fail as hedge funds take over: FinTag (http://fintag.com/). They beat the ibanks like a drum. Quite amusing.

metalman
01-03-08, 09:40 PM
Bill -

If your point is that many players in the upcoming energy infrastructure "bubble" are ex-USA as well as domestic, I fully understand and accept that. Indeed it seems overwhelmingly likely. But that raises the simple question, how can this be a pure 'bubble' if bids on it are already appearing spontaneously from all parts of the world?

US FIRE economy mechanisms cannot be assumed to be the motive force in any acquisitions occurring from multiple origin points worldwide, right? To imply or conclude that all those acquisitions in this sector are occurring due to FIRE economy bubble dynamics (i.e. these are the first outlier evidences of the new 'alt energy bubble') would apparently be an imprecise description.

Rather these bids on alt energy would seem more plausibly prompted by far-sighted investor groups responding to fundamental drivers in that sector. How can what's apparently building up in alt-energy then be described as a future 'bubble' in the same category as the stocks bubble or the housing bubble? This emerging 'bubble' bears all the hallmarks of a bid on technologies and resources that are a direct response to resource problems that are increasingly being percieved as critical to the future global economy.

my take is hank the bank paulson headed out to china with the "bonds for sale" sign and was told to piss off. then he went out with the "asset for sale" sign and got some takers after prices dropped. check this...


An Ottoman warning for indebted America (http://www.ft.com/cms/s/6667a18a-b888-11dc-893b-0000779fd2ac.html)

Future historians will look back on the current decade as a turning point comparable with that of the Seventies. No, not the 1970s. This is not going to be another piece pointing out the coincidence of an unpopular Republican president, soaring oil prices, a sagging dollar and an unwinnable faraway war. I am talking about the 1870s.

At first sight, the resemblances across 130 years may not seem obvious. The 1870s were a time when conservative leaders such as Benjamin Disraeli, British prime minister, were powerful and popular. It was a time of falling commodity prices, after the financial crash of 1873 and the opening up of the American plains to agriculture. And it was an era of currency stability, as one country after another followed the British lead by pegging to gold.

Yet, on closer inspection, we are indeed living through a global shift in the balance of power very similar to that which occurred in the 1870s. This is the story of how an over-extended empire sought to cope with an external debt crisis by selling off revenue streams to foreign investors. The empire that suffered these setbacks in the 1870s was the Ottoman empire. Today it is the US.and this on hussman...


John Hussman Turns Bullish On Gold (http://seekingalpha.com/article/58803-john-hussman-turns-bullish-on-gold?source=feed)

I've been reading (and admiring) John Hussman's weekly Weekly Market Comment for a couple years now. He seems to be among the most sophisticated, well-balanced, conservative and truly insightful money managers out there who publishes his thinking on a weekly basis. I've learned a lot from him.

Because he is so well-balanced, I was really surprised to see him in this week's commentary somewhat on the same wavelength as your author regarding precious metals:

"In precious metals, the Market Climate remains favorable, and the Strategic Total Return Fund currently has just under 20% of assets invested in precious metals shares. The U.S. dollar, having cleared its oversold condition, may be vulnerable particularly if employment figures are not particularly strong."hey, better late than never, but he missed the easy 315% gain.

jk
01-03-08, 09:44 PM
and this on hussman...hey, better late than never, but he missed the easy 315% gain.
hussman's total return fund has had a variable exposure to gold shares - 10 to 20% - for years.

bart
01-03-08, 09:55 PM
In currency derivatives, it's zero sum. Not so with credit derivatives.

Here's a site entirely predicated on the idea that investment banks are simply hedge funds bloated with too much overhead, and doomed to fail as hedge funds take over: FinTag (http://fintag.com/). They beat the ibanks like a drum. Quite amusing.

From my relatively limited study in comparison to yours or EJ's, the majority of derivatives are in the interest rate area - whether swaps or futures - and they're close to zero sum as best I can tell.
No question that the wacky stuff like CDS, ABS, MBS etc., aren't zero sum though... and often with a vengeance too.

And I can be wrong too, so feel free to correct me... it probably won't hurt as much as when I get Finster'ed... ;)



Love that FinTag site, he has the proper amount of dis-respect for the jock jerks and other lowlifes.
It surprises me a bit that the banks with the worst messes in Tier 3 issues (MS, GS & LEH as the top three) have so far been relatively unscathed.
Ain't "PR" grand? :mad:

FRED
01-03-08, 10:07 PM
A video like we'd make, except after the fact and we didn't make it. ;)


<object width="425" height="355"><param name="movie" value="http://www.youtube.com/v/StIPhBHghU0&rel=1"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/StIPhBHghU0&rel=1" type="application/x-shockwave-flash" wmode="transparent" width="425" height="355"></embed></object>

Contemptuous
01-03-08, 10:14 PM
my take is hank the bank paulson headed out to china with the "bonds for sale" sign and was told to piss off. then he went out with the "asset for sale" sign and got some takers after prices dropped. check this...

Metalman -

Yes you are right, the participation by foreign entities in US emerging 'alt energy' assets < is / or will be > even occurring at the express invitation of "Hank the Bank". However the international participation required to morph this bidding up of assets in alt-energy into a 'bubble' remains far too diffused globally in it's range of separate nation interests to constitute the inputs for a 'bubble'.

There will be nations bidding into these alt-energy assets all for totally different, localised reasons of their own. Only a very few of them have any links to US centric FIRE economy inputs.

It's agreed, there is every reason to believe this sector is going to see an ever increasing bid, even growing into a massive bid. And yes, that bid will be contributed to by many different money pools in the world. But the underpinnings of this bid are profoundly different than were those underpinning the US originated stock and real property bubbles.

It's just my own POV, but I don't think it's going to be the same set of FIRE economy inputs driving the alt energy boom, therefore 'bubble' is a misnomer.

Contemptuous
01-03-08, 10:16 PM
I am a satisfied subscriber to investmentscore.com .

FRED
01-03-08, 10:27 PM
I am a satisfied subscriber to investmentscore.com .

Cool. What do you like about them? We're not fans of trading PMs. Our thesis has been buy and hold for many years. Trading costs money and will rarely make you any on net.

Contemptuous
01-03-08, 11:36 PM
Cool. What do you like about them? We're not fans of trading PMs. Our thesis has been buy and hold for many years. Trading costs money and will rarely make you any on net.

Fred - I agree completely, trading for most of us (except for the "Barts" of this world who make out like bandits) is an expensive way to merely indulge the nervous need to be 'doing something'. I think JK posted a quote of Jesse Livermore's to the effect that the 'sitting' was the part of the process that really is responsible for winning the biggest gains.

Investmentscore.com fully agree with this. They keep the bulk of their holdings permanently invested for the duration of the bull market, and trade only a minor portion to capture gains. And the process by which they do this is to 'scale in' and 'scale out' that portion only as tops and bottoms in bullion moves approach. In other words, they never try to capture a top or bottom, believing this to be impossible.

The advisory service is woefully lacking in weekly commentary. It is indeed a very spartan investment service. What they do is measure the purchasing power of each of the two metals, gold and silver, against a basket of other goods (I have no further idea of the alchemy of this process, but probably Bart or other chartists here could produce a fair approximation).

This provides a running 'investment score' of the metals cheapness or expensiveness at any given time. Real simple. You can add to your positions when at clear intervals, the relative cheapness score baselines, and scale out some holdings when it gets pricier.

Once again, kudos must go to the Charles Mackays and Grapejelly's of this community who adopted this extremely simple investment view years ago (as did EJ). I marvel at the frenetic trading, shorting, straddle trades, and complex incessant portfolio tweaking going on everywhere - these people must enjoy churning portfolios for it's own sake rather than seeking a sober and fundamentally sound way to grow their retirement money in this horrific decade.

bart
01-03-08, 11:44 PM
I think JK posted a quote of Jesse Livermore's to the effect that the 'sitting' was the part of the process that really is responsible for winning the biggest gains.


I have no desire to encourage anyone to do active trading... but that quote from JK is far from a fully accurate and complete picture of what Livermore said.


Here's a few others, and from the book that he himself actually wrote almost 20 years after the book from which JK quoted:


"Speculators in stock markets have lost money. But I believe that it is a safe statement that the money lost by speculators alone is small compared with the gigantic sums lost by so-called investors who have let their investments ride."
-- Jesse Livermore, "How to Trade in Stocks" (page 25)

"From my point of view, the investors are the big gamblers. They make a bet, stay with it, and if all goes wrong, they lose it all."
-- Jesse Livermore, "How to Trade in Stocks" (page 25)



"The only reason an investor or speculator should ever want to have pointed out to him is the action of the market itself. Whenever the market does not act right or in the way it should - that is reason enough for you to change your opinion and change it immediately· Remember, there is always a reason for a stock acting the way it does. But also remember: the chances are that you will not become acquainted with that reason until some time in the future, when it is too late to act on it profitably."
-- Jesse Livermore, "How to Trade in Stocks" (page 71)

“I have long since learned, as all should learn, not to make excuses when wrong. Just admit it and try to profit by it. We all know when we are wrong. The market will tell the speculator when he is wrong, because he is losing money. When he first realizes he is wrong is the time to clear out, take his losses, try to keep smiling, study the record to determine the cause of his error, and await the next big opportunity. It is the net result over a period of time in which he is interested”
-- Jesse Livermore, "How to Trade in Stocks"

“Remember too that it is dangerous to start spreading out all over the market. By this I mean, do not have an “Interest in too many stocks at one time. It is much easier to watch a few than many. I made that mistake years ago and I cost me money”
-- Jesse Livermore, "How to Trade in Stocks"

When you make a trade, you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.
-- Jesse Livermore, "How to Trade in Stocks"

Tulpen
01-04-08, 04:52 AM
In currency derivatives, it's zero sum. Not so with credit derivatives.

It is indeed not zero sum between the two parties of the derivative instrument but if we include the reference entity it is a zero sum.

agisthos
01-04-08, 08:09 AM
If not deflation, then hyperinflation?

The US is not on the gold standard so a 1930s style deflation is impossible. The Fed even before Bernanke was hired repeatedly stated (as in the presentation we got the image from) that the Fed will not sit by and allow inflation to fall below zero, so a repeat of the Japanese 1990s "deflation" experience is about zero, unless the Fed decides to crash the US economy on purpose on behalf of some external political entity–and that ain't how we operate.

Besides the 1930s depression in the US and the self-inflicted ongoing debt deflation in Japan, every other instance when a government, its politicians, and their voters have gotten themselves in as much credit driven hot water as the US is in today has done one thing, and over and over. In fact, while the world experienced two (2) deflationary episodes in the past century, how many debt deflations resulted in currency depreciation and all-goods price inflation? The answer: 17.

Germany 1920 - 1923: 3.25 million percent
Russia 1921 - 1924: 213 percent
Austria 1921 - 1922: 134 percent
Poland 1922 - 1924: 275 percent
Hungary 1922 - 1924: 98 percent
Greece 1943 - 1944: 8.55 billion percent
Hungary 1945 - 1946: 4.19 quintillion percent
Shanghai 1949 - 1950: 100 percent
Argentina 1984 - 1991: 5000 percent
Brazil 1984 - 1997: 5 trillion percent
Chile 1973: 600 percent
Bolivia 1984: 14,700 percent
Peru 1981 - 1989: 900 percent
Poland 1989 - 1990: 344 percent
Russia 1992 - 1995: 2,323 percent
Ukraine 1991 - 1994: 10,000 percent
Yugoslavia 1993 - 94: 1 trillion percentI'm leaving off many minor examples, and that is just in the past 90 years. Go back centuries and several dozens of examples can be cited. Yet the one instance of a runaway price "deflation" in the 1930s becomes for some the model for a modern, post credit bubble US debt deflation. Bizarre.



There is some issues with this analysis EJ. All 17 examples of inflation are either basket case Soviet block countries or South American banana republics.

You can not compare such countries financial systems, which are usually wholly controlled by the state, to ours. Our financial/banking systems are the ones which dictate state/government policy, not the other way around.

The 17 countries listed either had nationalized financial systems, or a smoke and mirrors privatised system that was essentially state controlled in everything but name.

What is the chance that our western banking system will allow the government to bail us out via out of control inflation?
Isnt it the banks themselves that suffer the most during a loss of confidence in the currency?

If you go by the record of how many modern western financial/banking systems have chosen debt deflation over currency depreciation we are 2 - 0 zero in favour of debt deflation.

EJ
01-04-08, 09:37 AM
Thank you for the question.


There is some issues with this analysis EJ. All 17 examples of inflation are either basket case Soviet block countries or South American banana republics.

You can not compare such countries financial systems, which are usually wholly controlled by the state, to ours. Our financial/banking systems are the ones which dictate state/government policy, not the other way around.

The 17 countries listed either had nationalized financial systems, or a smoke and mirrors privatised system that was essentially state controlled in everything but name.

That's why we say hyperinflation isn't going to happen in the US.


What is the chance that our western banking system will allow the government to bail us out via out of control inflation?
Isnt it the banks themselves that suffer the most during a loss of confidence in the currency?The western banking system is getting bailed out of a global debt deflation via monetary inflation now. Is the question, then, what is the chance that it will "allow" the government to continue to do so? 100% The alternative is a runaway deflationary collapse.


If you go by the record of how many modern western financial/banking systems have chosen debt deflation over currency depreciation we are 2 - 0 zero in favour of debt deflation.You are confusing terms. The debt deflation is occurring either way. There are two possible forms of debt deflation: 1) runaway asset price and commodity price deflation caused by and causing (self-reinforcing) a collapse in the money supply and velocity of money or 2) a monetary inflation which increases the nominal value of collateral against which loans were made; the banking system remains functional and the money supply, albeit not in the same sectors of the economy as before, grows via monetization, that is, printing money and buying assets, such as government bonds.

The first question then is how many governments have experienced a runaway asset price and commodity price deflation since going off the gold standard and the answer is: zero.

The second question, then, is has any government been able to engineer a gradual debt deflation via gradual monetary inflation without crashing the currency? I can find instances of periods of high inflation experienced by major economies, as occurred in the US during the Vietnam War era, but none that I'd call "intentional" from a policy standpoint.

My reading of dozens of papers on the Japanese "deflation" experience–written by Japanese economists, not American and British back seat drivers–is that the BoJ was not optimistic about using inflation and currency depreciation as policy tools to fight deflation, thus the reluctance to take advice from western economists such as Paul Krugman to attempt unconventional anti-deflation policies, such as targeting negative interest rates (paying borrowers to borrow) which has worked in nations that have continuous, multi-generational record of currency protection without causing the currency to sell off. The Japanese wipe-out that occurred after WWII was hyperinflationary; the critical cultural result that influenced policy is that a level of inflation that is tolerable in the US and countries that have never experienced a hyperinflationary wealth wipe-out is not tolerable in Japan. The Japanese policy makers' fear is that there is no such thing as a little inflation in the context of Japan's economy, that the yen will sell off as wealth holders exited yen denominated assets in anticipation of inevitable government debasement and hyperinflation. US policy makers appear to believe that dollar depreciation can be modest while a policy of debt deflation via monetary inflation is executed, and have been following that route for over a year.

My forecast of a modest inflation is therefore optimistic. Some of the best research I can point you to on the subject of debt deflation and government efforts to anticipate and manage it is Deflation (pdf) (http://www.itulip.com/Select/deflation1.pdf) by Pierre Siklos, published by Cambridge University Press, 2004. One of his conclusions is that deflationary and inflationary forces have been consistently underestimated by agents of government. History suggests that the Fed, in its diligence to avoid deflation, may get a lot more inflation than it is bargaining for. Note also that all 20 of his examples of deflations studied occurred before 1933, after which the US went off the gold standard.

Chris Coles
01-04-08, 10:10 AM
Thank you for the question.

That's why we say hyperinflation isn't going to happen in the US.

The western banking system is getting bailed out of a global debt deflation via monetary inflation now. Is the question, then, what is the chance that it will "allow" the government to continue to do so? 100% The alternative is a runaway deflationary collapse.

You are confusing terms. The debt deflation is occurring either way. There are two possible forms of debt deflation: 1) runaway asset price and commodity price deflation caused by and causing (self-reinforcing) a collapse in the money supply and velocity of money or 2) a monetary inflation which increases the nominal value of collateral against which loans were made; the banking system remains functional and the money supply, albeit not in the same sectors of the economy as before, grows via monetization, that is, printing money and buying assets, such as government bonds.

The first question then is how many governments have experienced a runaway asset price and commodity price deflation since going off the gold standard and the answer is: zero.

The second question, then, is has any government been able to engineer a gradual debt deflation via gradual monetary inflation without crashing the currency? I can find instances of periods of high inflation experienced by major economies, as occurred in the US during the Vietnam War era, but none that I'd call "intentional" from a policy standpoint.

My reading of dozens of papers on the Japanese "deflation" experience–written by Japanese economists, not American and British back seat drivers–is that the BoJ was not optimistic about using inflation and currency depreciation as policy tools to fight deflation, thus the reluctance to take advice from western economists such as Paul Krugman to attempt unconventional anti-deflation policies, such as targeting negative interest rates (paying borrowers to borrow) which has worked in nations that have continuous, multi-generational record of currency protection without causing the currency to sell off. The Japanese wipe-out that occurred after WWII was hyperinflationary; the critical cultural result that influenced policy is that a level of inflation that is tolerable in the US and countries that have never experienced a hyperinflationary wealth wipe-out is not tolerable in Japan. The Japanese policy makers' fear is that there is no such thing as a little inflation in the context of Japan's economy, that the yen will sell off as wealth holders exited yen denominated assets in anticipation of inevitable government debasement and hyperinflation. US policy makers appear to believe that dollar depreciation can be modest while a policy of debt deflation via monetary inflation is executed, and have been following that route for over a year.

My forecast of a modest inflation is therefore optimistic. Some of the best research I can point you to on the subject of debt deflation and government efforts to anticipate and manage it is Deflation (pdf) (http://www.itulip.com/Select/deflation1.pdf) by Pierre Siklos, published by Cambridge University Press, 2004. One of his conclusions is that deflationary and inflationary forces have been consistently underestimated by agents of government. History suggests that the Fed, in its diligence to avoid deflation, may get a lot more inflation than it is bargaining for. Note also that all 20 of his examples of deflations studied occurred before 1933, after which the US went off the gold standard.

I am not sure that either of you are correct. Surely, we are not looking at an asset deflation event? Why? Because this time there are balancing forces we have not seen before. If we look back historically, there has never been a period of change quite like today. During the 1930's for example there was no BRIC community, neither was there in the 1970's or the 1980's. Certainly not like we have at the moment.

In the past, when any economy got into difficulties the difficulties caused a slowdown that spread. Here in the UK we were brought up on the old adage, "when the US sneezes, we catch a cold". But not this time. China is rolling along sucking in every asset imaginable. In fact now it is buying assets on the world market through its Sovereign Wealth Funds and that process is accelerating. It has every incentive to exchange currency for assets as it has no other way to offload the currency it holds.

So there is no certainty that the Fed can manage anything any more and that means this period of uncertainty takes us outside of previous experience. So I say, we have no model to fall back on.

Again, the excellent video, investmentscore.com Fred put up earlier also shows another aspect, that while it appears we are in a currency deflation, the underlying asset VALUE remains.

It seems to me the real question to pose is what is that base value. Where do we set a baseline for asset value? From what date?

Turning to Robert Beckman's book "The Downwave", his evaluation, back nearly 30 years was that the base value was pre-1939 house and land prices.

The wall of money created by hedge funds over the last decade, (something the Fed has had no control over at all), has a very long way to trickle down before we will have any real idea of the true answer to that question.

art
01-04-08, 10:19 AM
At the bottom of this page:
http://www.thepowerhour.com/news/items_disappearfirst.htm

3. After awhile, even gold can lose its luster. But there is no luxury
in war quite like toilet paper. Its surplus value is greater than
gold's.

bart
01-04-08, 10:43 AM
In the past, when any economy got into difficulties the difficulties caused a slowdown that spread. Here in the UK we were brought up on the old adage, "when the US sneezes, we catch a cold". But not this time.

There is always a time lag involved.

The UK housing market is not in good shape and appears to be about where the US was approximately a year ago. The UK and Euro area housing bubble is much larger and prices moved even more than the US since about 2002.

The Northern Rock fiasco was directly related to US derivatives issues, same with various Euro area banks.

The temp repo pools of the ECB show the same patterns as the Fed's since about the year 2000 although they're still expanding where the Fed's isn't.

Your own GDP and CPI (RPI) are showing the same patterns as the US in both the lies and overstated areas.

A slowdown or outright recession is dead ahead for the UK and the Euro area too, and its very likely that it has already started especially for the UK.

FRED
01-04-08, 11:32 AM
There is always a time lag involved.

The UK housing market is not in good shape and appears to be about where the US was approximately a year ago. The UK and Euro area housing bubble is much larger and prices moved even more than the US since about 2002.

The Northern Rock fiasco was directly related to US derivatives issues, same with various Euro area banks.

The temp repo pools of the ECB show the same patterns as the Fed's since about the year 2000 although they're still expanding where the Fed's isn't.

Your own GDP and CPI (RPI) are showing the same patterns as the US in both the lies and overstated areas.

A slowdown or outright recession is dead ahead for the UK and the Euro area too, and its very likely that it has already started especially for the UK.

And as Louis at GaveKal told us last year, due to lack of a euro bond market to use to readily monetize government debt, likely the impact of recession, econ contraction, and asset price deflation in Europe will be deflation. Add to that EJ's theory that CBs tend to follow "culture" set by old currency terrors, the ECB, heavily influenced by Buba (Deutsche Bundesbank), will tend like the BoJ to be currency and inflation hawkish. Bad combo.

FRED
01-04-08, 11:38 AM
I am not sure that either of you are correct. Surely, we are not looking at an asset deflation event? Why? Because this time there are balancing forces we have not seen before. If we look back historically, there has never been a period of change quite like today. During the 1930's for example there was no BRIC community, neither was there in the 1970's or the 1980's. Certainly not like we have at the moment.

In the past, when any economy got into difficulties the difficulties caused a slowdown that spread. Here in the UK we were brought up on the old adage, "when the US sneezes, we catch a cold". But not this time. China is rolling along sucking in every asset imaginable. In fact now it is buying assets on the world market through its Sovereign Wealth Funds and that process is accelerating. It has every incentive to exchange currency for assets as it has no other way to offload the currency it holds.

So there is no certainty that the Fed can manage anything any more and that means this period of uncertainty takes us outside of previous experience. So I say, we have no model to fall back on.

Again, the excellent video, investmentscore.com Fred put up earlier also shows another aspect, that while it appears we are in a currency deflation, the underlying asset VALUE remains.

It seems to me the real question to pose is what is that base value. Where do we set a baseline for asset value? From what date?

Turning to Robert Beckman's book "The Downwave", his evaluation, back nearly 30 years was that the base value was pre-1939 house and land prices.

The wall of money created by hedge funds over the last decade, (something the Fed has had no control over at all), has a very long way to trickle down before we will have any real idea of the true answer to that question.

All due respect to investmentscore.com, but isn't this a video that documents what Ka-Poom Theory said in 2001 was going to happen? Assets may have "value" but they have to be priced in something. EJ's Hard Assets Las Vegas Conference 2007 Keynote Presentation (http://itulip.com/forums/showthread.php?t=1992) explains that gold went up in dollars first as the US depreciated the dollar unilaterally and then in all currencies as all major nations joined in. Gold then went up in all currencies. For all practical purposes, then, is not gold itself becoming the standard of value against which assets are measured, a market imposed return to the international gold standard? (See fourthcurrency.com (http://www.fourthcurrency.com), coming soon.)

bart
01-04-08, 11:59 AM
And as Louis at GaveKal told us last year, due to lack of a euro bond market to use to readily monetize government debt, likely the impact of recession, econ contraction, and asset price deflation in Europe will be deflation. Add to that EJ's theory that CBs tend to follow "culture" set by old currency terrors, the ECB, heavily influenced by Buba (Deutsche Bundesbank), will tend like the BoJ to be currency and inflation hawkish. Bad combo.

Methinks we are actually having fun now, especially with a slight change to Bubba for the Deutsche Bundesbank... ;)

And on a more serious note, EJ's "culture" point is very well taken in both the sense of them fighting the last war and also being a self reinforcing good old boys club that acts exceedingly slowly to factual changes... Volcker of course being the exception along with Reagan for having allowed him to act.

The western central banks seem to act very much as a "cooperating partnership", and I think one of the top 10 stories and questions and dangers over the next 3-10 years is how well (or not) the eastern and middle eastern and emerging country's central banks will play along behind the scenes where it really counts.
Brazil sure seems to be in the cooperating group.

FRED
01-04-08, 12:32 PM
Methinks we are actually having fun now, especially with a slight change to Bubba for the Deutsche Bundesbank... ;)

And on a more serious note, EJ's "culture" point is very well taken in both the sense of them fighting the last war and also being a self reinforcing good old boys club that acts exceedingly slowly to factual changes... Volcker of course being the exception along with Reagan for having allowed him to act.

The western central banks seem to act very much as a "cooperating partnership", and I think one of the top 10 stories and questions and dangers over the next 3-10 years is how well (or not) the eastern and middle eastern and emerging country's central banks will play along behind the scenes where it really counts.
Brazil sure seems to be in the cooperating group.

If you go to the Deutsche Bundesbank web site you'll find they call themselves "Bubba" as an affectionate nick name. Who says central bankers don't have a sense of humor?

As for western central banks getting on, a decent papers on the topic: Past and Future Central Bank Cooperation, IMF, 2005 (http://www.itulip.com/Select/IMFcentralbankcooperate.pdf)

jk
01-04-08, 12:34 PM
bart, isn't today the day a lot of "temporary, year-end" liquidity comes due, both in the u.s. and eurozone? any sense on how it is being handled?

bart
01-04-08, 01:01 PM
If you go to the Deutsche Bundesbank web site you'll find they call themselves "Bubba" as an affectionate nick name. Who says central bankers don't have a sense of humor?

Darn and drat... I was hoping that you didn't know and I'd get extra points. :D




As for western central banks getting on, a decent papers on the topic: Past and Future Central Bank Cooperation, IMF, 2005 (http://www.itulip.com/Select/IMFcentralbankcooperate.pdf)

Thanks, one I hadn't seen or hear about. I suspect it doesn't deal much with the behind the scenes areas but its all grist for the mill.

Chris Coles
01-04-08, 01:04 PM
There is always a time lag involved.

The UK housing market is not in good shape and appears to be about where the US was approximately a year ago. The UK and Euro area housing bubble is much larger and prices moved even more than the US since about 2002.

The Northern Rock fiasco was directly related to US derivatives issues, same with various Euro area banks.

The temp repo pools of the ECB show the same patterns as the Fed's since about the year 2000 although they're still expanding where the Fed's isn't.

Your own GDP and CPI (RPI) are showing the same patterns as the US in both the lies and overstated areas.

A slowdown or outright recession is dead ahead for the UK and the Euro area too, and its very likely that it has already started especially for the UK.


You make my point for me, inadvertently. You are all talking about the effects between the US and Europe. What I am saying is that now we have another grouping that is not on the same paradigm, China, India do not have our problems. They are in a quite different phase that will not become destabilised by our problems. Yes, they might have to change gear, for a while, but their own internal markets are so large and undeveloped relative to ours that they will ride any storm we have to endure.

That is much different to any other period in recent history.

bart
01-04-08, 01:20 PM
bart, isn't today the day a lot of "temporary, year-end" liquidity comes due, both in the u.s. and eurozone? any sense on how it is being handled?

It actually started rolling off on the 2nd and will continue for another week or two.

I don't have much data yet but the US asset backed commercial paper market looks to be settling out fairly smoothly. H.8 interbank loans are at a decent range too and don't look very troublesome.

Borrowings at the discount window hit another new record at about $5.8 billion so it's far from over too (duh).

bart
01-04-08, 01:31 PM
You make my point for me, inadvertently. You are all talking about the effects between the US and Europe. What I am saying is that now we have another grouping that is not on the same paradigm, China, India do not have our problems. They are in a quite different phase that will not become destabilised by our problems. Yes, they might have to change gear, for a while, but their own internal markets are so large and undeveloped relative to ours that they will ride any storm we have to endure.

That is much different to any other period in recent history.



No large disagreements there but it remains to be determined how big the effect on China, India and various other "emerging" economies will be.

I strongly doubt that they'll go into outright recessions, but considering the basic and very large and long term globalization trends and strong links between economies (and even the very large lack of transparency in those economies) I also doubt that the effect will be small... and I have no positions in the area so my money is where my mouth is. ;)

"The four most dangerous words in investing are, 'It's different this time.'"
-- Sir John Templeton

c1ue
01-04-08, 02:46 PM
My reading of dozens of papers on the Japanese "deflation" experience–written by Japanese economists, not American and British back seat drivers–is that the BoJ was not optimistic about using inflation and currency depreciation as policy tools to fight deflation, thus the reluctance to take advice from western economists such as Paul Krugman to attempt unconventional anti-deflation policies, such as targeting negative interest rates (paying borrowers to borrow) which has worked in nations that have continuous, multi-generational record of currency protection without causing the currency to sell off.

Mr. Janszen,

How does the Japanese use of America as a military protector factor into the inflation vs. deflation consideration?

The problem I've always had in talking with Japanese academics vs. Japanese executives is that the executives recognize the relationship with America as an economic factor, while the academics only focus on internal Japan issues.

My belief arising from this conflict is that Japan kept its currency as low as was acceptable to the US, but was restrained by both the economic impact on US corporations (Detroit primarily) as well as consideration of their own aging populace.

The interesting offshoot from this is how this differs from China.

China has little need for US military protection, has a much younger populace, and these days seems more destined to cooperate with Russia due to continued American foreign policy ham-handedness.

It is pathetic that China would be even this close to Russia given the significant history of geo-political tensions over the Amur river area and Siberia in general. After all, Siberia is much closer to China than the 'White Russian' power centers in the West.

EJ
01-04-08, 06:17 PM
Mr. Janszen,

How does the Japanese use of America as a military protector factor into the inflation vs. deflation consideration?

The problem I've always had in talking with Japanese academics vs. Japanese executives is that the executives recognize the relationship with America as an economic factor, while the academics only focus on internal Japan issues.

As the new administration in Japan builds a domestic military and reduces its dependence on the US, it needs the US less for protection, and will be less willing to engage in politically motivated purchases of dollar denominated assets to support the dollar. A weaker dollar is, of course, inflationary. Japan has countered the negative impact on exports to the US by increasing exports to other countries, especially China.


My belief arising from this conflict is that Japan kept its currency as low as was acceptable to the US, but was restrained by both the economic impact on US corporations (Detroit primarily) as well as consideration of their own aging populace.

That is political balance as I understand it.


The interesting offshoot from this is how this differs from China.

China has little need for US military protection, has a much younger populace, and these days seems more destined to cooperate with Russia due to continued American foreign policy ham-handedness.

It is pathetic that China would be even this close to Russia given the significant history of geo-political tensions over the Amur river area and Siberia in general. After all, Siberia is much closer to China than the 'White Russian' power centers in the West.

It is a mistake among some pundits in the US to think China will behave even remotely like Japan as a trade partner. The history and political relationship between Japan in the US and China and the US are near opposites, and China's purchases of US debt are driven by very different motives. China is about China. Period. My theory has been that China seeks to gain leverage to purchase assets they need for their economy.

The alliance developing between China and Russia is complex and significant. That they are overcoming old and deep historical differences is significant. There must be a powerful motive. It is partly economic–China wants Russian oil–and partly political–both China and Russia need economic, political and military allies to balance the US block. This does not necessarily imply animosity toward the US, even though that is increasingly evident from Putin's behavior and rhetoric, but a multi-polar world with one strong super-power is inherently unstable compared to a bi-polar system.

Chris Coles
01-04-08, 08:42 PM
As the new administration in Japan builds a domestic military and reduces its dependence on the US, it needs the US less for protection, and will be less willing to engage in politically motivated purchases of dollar denominated assets to support the dollar. A weaker dollar is, of course, inflationary. Japan has countered the negative impact on exports to the US by increasing exports to other countries, especially China.



That is political balance as I understand it.


It is a mistake among some pundits in the US to think China will behave even remotely like Japan as a trade partner. The history and political relationship between Japan in the US and China and the US are near opposites, and China's purchases of US debt are driven by very different motives. China is about China. Period. My theory has been that China seeks to gain leverage to purchase assets they need for their economy.

The alliance developing between China and Russia is complex and significant. That they are overcoming old and deep historical differences is significant. There must be a powerful motive. It is partly economic–China wants Russian oil–and partly political–both China and Russia need economic, political and military allies to balance the US block. This does not necessarily imply animosity toward the US, even though that is increasingly evident from Putin's behavior and rhetoric, but a multi-polar world with one strong super-power is inherently unstable compared to a bi-polar system.

China and Russia are complete opposites in one interesting respect. Putin has his people eating out of his hand. China on the other hand is expected to abandon the CCP inside the next few years and to follow that up it appears the people of China, certainly the rural population, are strongly against the corruptive influence of the CCP.

They make strange bed fellows.

bill
01-04-08, 09:31 PM
http://www.fpif.org/fpiftxt/4853
Tarique Niazi | January 3, 2008
As U.S. unilateralism has asserted the role of the United States as the sole global superpower, the rest of the world is exploring a variety of ways of pushing back. One is the creation of several new regional security consortiums which are independent of the U.S. One of the most important is the Shanghai Cooperation Organization (SCO), a security alliance led by Russia and China, with several non-voting members including India. Its rising economic, political and military profile this year can serve as a useful lens through which to view this geopolitical pushback. It is based on promoting a multipolar world, distributing power along multiple poles in the international system, such as the United States, Europe, Asia-Eurasia and the Middle East,1 (http://www.fpif.org/fpiftxt/4853#ref1) while also promoting the multilateralism of international cooperation.2 (http://www.fpif.org/fpiftxt/4853#ref2) In recent years, Russia and China have stepped up their advocacy for a multipolar-multilateral alternative.

c1ue
01-04-08, 10:31 PM
The interesting part about Russia - Putin aside - is that Russia has been and continues to develop major economic ties with Europe.

I cannot say where I get this information from, but there are major efforts underway in Russia to actively cooperate with Europe on fronts as diverse as value-added wood & paper, to scientific exploration, to the more well known nuclear and oil/natural gas areas.

The interesting corollary to this is that Putin is in fact not so much about making Russia into a US style economic and military hegemony, so much as Russia taking its historically desired place as the bridge between East and West.

This in turn brings it into direct conflict with America - which recently has been the center of all things.

If this thesis is true, then Putin's behavior makes much more sense: that Russia must defend itself against American military and economic maneuvering in order to gain space to secure its own goals.

As for the CCP - the rurals dislike the CCP not so much for ideology, but for the fact that the CCP has been empowering the urban population at the expense of the rural ever since Mao bit the dust.

Thus the very real backlash does not necessarily mean the CCP is toast; in fact it would be child's play to bring back the propaganda that tossed Chiang Kai-Shek out of China in the first place - that the financial and economic oligarchs in China are abusing their place in the system.

This is made somewhat more difficult by the fact that some of the CCP are in this oligarchy, but that's what reformers are for...

rj1
01-04-08, 11:00 PM
I took some money out of my savings in the fall last year and bought some gold merely as a diversification measure to maintain my savings' value as the dollar fell. So I'm not looking "get rich" so much as "breaking even in real terms". The way I look at it, if I maintain the value of my savings while everyone around me loses money, I did a pretty good job.

Here's my one personal problem with what we all think is going to happen.

While I understand everything is pointing toward doom and gloom, I can't see how D.C. will allow something to happen that results in their loss of power. I don't know what it is, but Bernanke and Paulson are going to do something to stop this commodity appreciation.

I guess what I am asking is "What do we think D.C. will do in response, even if we think it will not work?"

FRED
01-04-08, 11:19 PM
I took some money out of my savings in the fall last year and bought some gold merely as a diversification measure to maintain my savings' value as the dollar fell. So I'm not looking "get rich" so much as "breaking even in real terms". The way I look at it, if I maintain the value of my savings while everyone around me loses money, I did a pretty good job.

Here's my one personal problem with what we all think is going to happen.

While I understand everything is pointing toward doom and gloom, I can't see how D.C. will allow something to happen that results in their loss of power. I don't know what it is, but Bernanke and Paulson are going to do something to stop this commodity appreciation.

I guess what I am asking is "What do we think D.C. will do in response, even if we think it will not work?"

We have stayed awake nights pondering this question. Remember, we bought gold in 2001, and the question has been asked since then at $300, $400, $500, $600, $700, and $800: "What will 'they' do to make this trend reverse?"

"They" are causing the trend, as we expected. So, the question is, "What can 'they' do next that is not as predictable as this was to us in 2001?"

We ponder. We interview. We read. We argue. For years!

So far we have not turned anything up. Reading magazines written in the late 1970s and early 1980s, we saw how the gold bulls missed the cues of what the Fed was going to do–slam the US and the world through to massive recessions. That US sneeze, by the way, had this economic impact on Latin America:

Peru 1981 - 1989: 900 percent inflation
Argentina 1984 - 1991: 5000 percent inflation
Brazil 1984 - 1997: 5 trillion percent inflation
Bolivia 1984: 14,700 percent inflation

That will not work in the current environment–the leveraged global economy will implode–but we can't think what will work.

Next week we start a "What are we missing?" thread over on the Select area to propose a few scenarios to discuss. Maybe we arrive at the conclusion to stay the course, or to diversity somewhat. We shall see.

Rajiv
01-05-08, 12:17 AM
Next week we start a "What are we missing?" thread over on the Select area to propose a few scenarios to discuss. Maybe we arrive at the conclusion to stay the course, or to diversity somewhat. We shall see.

Factor the following into your equation -- what would happen if "cold fusion" or tapping into "zero point energy" becomes a reality and that the "they" are convinced that one of these has a extremely high chance of success. See my post (http://www.itulip.com/forums/showpost.php?p=23561&postcount=1) in the energy segment on magnetic power inc (http://magneticpowerinc.com/). See also Blacklight Power (http://www.blacklightpower.com/)

Contemptuous
01-05-08, 01:24 AM
Rajiv -

"Universally avaliable cheap energy for the world", brought to you by a tiny California technology startup company!??

That would indeed be a world changer. I wonder though - how in hell could this turn out to be an American pioneered technology when we are supposed to be GONZO? And isn't it arriving about twenty years too early? :rolleyes:

I thought the US was slated to be officially cast as the "donkey's rear-end, energy glutton, has-been nation" for the next couple of decades? Doesn't the "collapsing USD hegemony and resulting global pariah nation" script say the US is supposed to dutifully slide into mangy has-been status at this point?

How are we supposed to slide credibly into "mangy has-been" status like everyone wants and expects, and become a bonafide banana republic, after coming out with a world-saving new energy technology? The Swedish Nobel committe would be all over us!!? :confused:

Chris Coles
01-05-08, 05:54 AM
Factor the following into your equation -- what would happen if "cold fusion" or tapping into "zero point energy" becomes a reality and that the "they" are convinced that one of these has a extremely high chance of success. See my post (http://www.itulip.com/forums/showpost.php?p=23561&postcount=1) in the energy segment on magnetic power inc (http://magneticpowerinc.com/). See also Blacklight Power (http://www.blacklightpower.com/)

I have to be quite careful with what I write on this page at this exact moment in time.

An author is in the final stages of publishing a book that re-writes the physics textbook. A new model for the atom. Ideal Gas Law completely disappears. New model for Nucleosynthesis. New structure for the proton. Shows how the electron and Positron form from that structure. Describes the source of the photon. Shows the Neutron is not any form of a particle. And, to top it all, describes the potential for a clear path forward to the possibility for the control of gravity, inertia, drag and shock waves.

The book was to have been distributed for review before Christmas, but has been delayed at the printers by the holidays. It should be on the book stands by Easter. The author is not American, but English.

To divert your attention from that, may I also ask you to look at this Japanese inventor Hokei MINATO who has been DELIVERING electric motors using 20% of the normal power of an electric motor for several years already. Not PDF files with wish lists, but REALITY.

http://www.rexresearch.com/minato/minato.htm

He also has devices that seem to produce more energy output than that put in and his patents are readily available on the US Patent office web site.

When I have more news I can release, I will give it to you.

metalman
01-05-08, 09:39 AM
I have to be quite careful with what I write on this page at this exact moment in time.

An author is in the final stages of publishing a book that re-writes the physics textbook. A new model for the atom. Ideal Gas Law completely disappears. New model for Nucleosynthesis. New structure for the proton. Shows how the electron and Positron form from that structure. Describes the source of the photon. Shows the Neutron is not any form of a particle. And, to top it all, describes the potential for a clear path forward to the possibility for the control of gravity, inertia, drag and shock waves.

has to happen some day. was in an apple store the other day looking at those itty bitty iphones that run video and hold hours of movies and and maps with gps in real time and, of course, communication and i'm thinking... oh, yeh. i've seen these before... star trek 1960 something.

some day we will manipulate gravity and make new propulsion systems that today are far fetched.


He also has devices that seem to produce more energy output than that put in

but not that... not that no one has tried. picked this up from energy and money...

http://www.itulip.com/images/perpetualmotion.jpg

perpetual motion machine!

rj1
01-05-08, 10:34 AM
I have to be quite careful with what I write on this page at this exact moment in time.

An author is in the final stages of publishing a book that re-writes the physics textbook. A new model for the atom. Ideal Gas Law completely disappears. New model for Nucleosynthesis. New structure for the proton. Shows how the electron and Positron form from that structure. Describes the source of the photon. Shows the Neutron is not any form of a particle. And, to top it all, describes the potential for a clear path forward to the possibility for the control of gravity, inertia, drag and shock waves.

The book was to have been distributed for review before Christmas, but has been delayed at the printers by the holidays. It should be on the book stands by Easter. The author is not American, but English.

Very interesting.


He also has devices that seem to produce more energy output than that put in and his patents are readily available on the US Patent office web site.

Perpetual motion machines are impossible. It's like saying a central bank can print more money and it has no effect on the value of the money that already exists. :D

Usually perpetual motion machines are great theories, but all machines have thermal energy (friction, heat loss) which is a parasitic energy form and requires its replacement by a new energy source of some kind.

jk
01-05-08, 11:29 AM
Very interesting.



Perpetual motion machines are impossible. It's like saying a central bank can print more money and it has no effect on the value of the money that already exists. :D

Usually perpetual motion machines are great theories, but all machines have thermal energy (friction, heat loss) which is a parasitic energy form and requires its replacement by a new energy source of some kind.
nah, all you have to do is import energy from the next universe over within the multiverse! :rolleyes:

p.s. i think this thread has gotten a little far afield.

Chris Coles
01-05-08, 11:40 AM
nah, all you have to do is import energy from the next universe over within the multiverse! :rolleyes:

p.s. i think this thread has gotten a little far afield.

In a very real sense your responses are very interesting. One of the basic aspects of the debate about investing is where the next investment will come from. No doubt the same things were said about the idea of flying, or the idea of travelling faster than sound.

But if the whole basis of your thinking dismisses the new, then all you have is the dregs of the past.... as they slowly dissipate.

Minato is a very real individual who lives amongst the most innovative social group on the planet; Shinjuku. You should all spend a week there soaking up the sight and sounds of the place. His US patents give great detail of how the whole thing works and are very credible.

Chris Coles
01-05-08, 11:58 AM
nah, all you have to do is import energy from the next universe over within the multiverse! :rolleyes:

p.s. i think this thread has gotten a little far afield.

So let us get right back on track with this that has just surfaced from the Fed. I highlight the most interesting part.

"First, we have tried to provide more information than usual to reduce uncertainty and clarify our intentions. This effort is particularly noticeable with respect to open market operations--beginning in August, we have been especially forthcoming about the operations we were undertaking to manage actual or potential disturbances in money markets. Second, we have attempted to let people know when our views of the macroeconomic situation had changed materially between FOMC meetings. For instance, we issued a FOMC statement about the changing balance of risks on August 17 and Chairman Bernanke delivered a speech in late November after market conditions had deteriorated again. And third, we have tried to be open in our balance-of-risks portion of our announcement about our perceptions of the shifting degree of uncertainty in the outlook caused by the recent turmoil. In both September and December we said that the uncertainty was so great that we couldn't usefully characterize the balance of risks; at the end of October, when markets looked as though they were settling down and spillovers beyond the housing sector might be limited, we thought we could characterize "rough balance."

Because the situation has been so fluid and so uncertain in its effects, the speeches of individual FOMC participants have given varied interpretations of the developments and their implications for policy. The resulting dispersion of messages has bothered market participants seeking clear, unambiguous guidance about the views of the central bank. The public should understand that the FOMC members do not coordinate schedules and messages, and that members' views are likely to be especially diverse when, as in the current situation, circumstances are changing quickly and are subject to many different analyses.

http://www.federalreserve.gov/newsevents/speech/kohn20080105a.htm

Note from me:

They are not in control and, indeed, in my humble opinion, cannot gain control due to the ongoing problem, previously highlighted, of the hedge funds issuing new money that is completely outside of the control of the Fed.

Rajiv
01-05-08, 12:19 PM
Lukester,

I have been following these companies for quite a few years now. There are still residual issues with the technologies, -- but it appears that they are coming closer to commercialization -- however we do not have any real products out there -- and we do not know what other issues there may be with these technologies.

And as for them being US companies -- remember that these efforts or not taking place only in the US -- much work on these has also been done in Japan, France and Russia

As Chris Coles talked about Minato in Japan

FRED
01-05-08, 04:19 PM
So let us get right back on track with this that has just surfaced from the Fed. I highlight the most interesting part.

They are not in control and, indeed, in my humble opinion, cannot gain control due to the ongoing problem, previously highlighted, of the hedge funds issuing new money that is completely outside of the control of the Fed.

From our upcoming treatment of the Fed's Zero Rate World Playbook:

In conclusion…

We’ve seen that open-market purchases of Treasury bills–the Fed’s standard method for stimulating the economy over the past 40 years–become ineffective as short-term interest rates approach zero.

With Treasury bill rates so near zero, the Fed will need to be open to alternatives to standard policy and stand ready to vigorously pursue them if the economy remains weak. In the event it must act alone, the Fed’s best policy option is probably open-market purchases of longer-term government bonds. Efforts to influence longer-term Treasuries are not unprecedented: they were fairly common in the 1940s and early 1950s. But that’s not to say that reorienting Fed policy would be problem-free: there are good reasons why the Fed usually aims its efforts on the short end of the yield curve.

If standard policy options are exhausted, the Fed’s quiver is by no means empty. But the arrows that remain are less familiar and, perhaps, not quite as straight as the ones that have already been fired.

Federal Reserve, May 2003

Get ready for a cloud of bent arrows.


They used to be allies. Now they are enemies.

See the Great Battle unfold.

Fed versus Credit Markets: The Last Defense
<object width="425" height="355"><param name="movie" value="http://www.youtube.com/v/tmSIf6vUuCM&rel=1"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/tmSIf6vUuCM&rel=1" type="application/x-shockwave-flash" wmode="transparent" width="425" height="355"></embed></object>

Chris Coles
01-05-08, 04:52 PM
From our upcoming treatment of the Fed's Zero Rate World Playbook:


In conclusion…



We’ve seen that open-market purchases of Treasury bills–the Fed’s standard method for stimulating the economy over the past 40 years–become ineffective as short-term interest rates approach zero.



With Treasury bill rates so near zero, the Fed will need to be open to alternatives to standard policy and stand ready to vigorously pursue them if the economy remains weak. In the event it must act alone, the Fed’s best policy option is probably open-market purchases of longer-term government bonds. Efforts to influence longer-term Treasuries are not unprecedented: they were fairly common in the 1940s and early 1950s. But that’s not to say that reorienting Fed policy would be problem-free: there are good reasons why the Fed usually aims its efforts on the short end of the yield curve.



If standard policy options are exhausted, the Fed’s quiver is by no means empty. But the arrows that remain are less familiar and, perhaps, not quite as straight as the ones that have already been fired.Get ready for a cloud of bent arrows.


They used to be allies. Now they are enemies.


See the Great Battle unfold.


Fed versus Credit Markets: The Great Battle


Fred, we underestimated you. Reminds me to keep my eyes open and my back to the wall on long dark nights. Wow!!

I will give some thought to the Fed's dilemma, but at first sight, they are caught between the proverbial rock and a hard place. But thanks for forewarning us about next week. Sounds like something to look forward to.

raja
01-06-08, 10:11 PM
It's been suggested that the government will reflate the economy by creating new bubbles in alternative energy and infrastructure. But I don't see how that will very effective in restoring the economy . . . .

The bubble in real estate was huge, affecting many sectors of the economy. It permitted consumers to pull lots of money out of their homes and spend it. Jobs and economic activity were boosted in many sectors: building construction, real estate sales, financing, home furnishings, building supplies, landscaping, etc.

It seems to me that a bubble in infrastructure and alternative energy will provide some boost, but it will have a far less significant effect in keeping the consumer spending and stimulating economic activity as a whole, and therefore will not be effective in reflating the economy.

jk
01-06-08, 10:43 PM
It's been suggested that the government will reflate the economy by creating new bubbles in alternative energy and infrastructure. But I don't see how that will very effective in restoring the economy . . . .

The bubble in real estate was huge, affecting many sectors of the economy. It permitted consumers to pull lots of money out of their homes and spend it. Jobs and economic activity were boosted in many sectors: building construction, real estate sales, financing, home furnishings, building supplies, landscaping, etc.

It seems to me that a bubble in infrastructure and alternative energy will provide some boost, but it will have a far less significant effect in keeping the consumer spending and stimulating economic activity as a whole, and therefore will not be effective in reflating the economy.
my thought is that the housing bubble was intensive throughout the ango-saxon countries as well as spain, and a few other countries to a lesser extent. infrastructure and alt energy will be less intensive in terms of its direct penetration into the economy but will be global in extent. i am curious about others' thoughts on this matter.

zoog
01-07-08, 12:36 AM
(My highlighting)


It's been suggested that the government will reflate the economy by creating new bubbles in alternative energy and infrastructure. But I don't see how that will very effective in restoring the economy . . . .

The bubble in real estate was huge, affecting many sectors of the economy. It permitted consumers to pull lots of money out of their homes and spend it. Jobs and economic activity were boosted in many sectors: building construction, real estate sales, financing, home furnishings, building supplies, landscaping, etc.

It seems to me that a bubble in infrastructure and alternative energy will provide some boost, but it will have a far less significant effect in keeping the consumer spending and stimulating economic activity as a whole, and therefore will not be effective in reflating the economy.


my thought is that the housing bubble was intensive throughout the ango-saxon countries as well as spain, and a few other countries to a lesser extent. infrastructure and alt energy will be less intensive in terms of its direct penetration into the economy but will be global in extent. i am curious about others' thoughts on this matter.

The first thought that came to my mind was the WPA (http://en.wikipedia.org/wiki/Works_Progress_Administration).


...the largest New Deal agency, employing millions of people and affecting most every locality. ... The program built many public buildings, projects and roads, and operated large arts, drama, media and literacy projects. It fed children, redistributed food, clothing and housing. ... added up to the largest employment base in the country...If the recession becomes severe enough that unemployment approaches Great Depression levels, I believe the government will step in to provide work, shelter, food, education, and entertainment (bread and circuses). We will hear political rhetoric about how alternative energy and new infrastructure are the keys to overcoming the recession, increasing our security, maintaining our independence, etc. "We will rebuild this nation!" and so forth.

c1ue
01-07-08, 11:11 AM
my thought is that the housing bubble was intensive throughout the ango-saxon countries as well as spain, and a few other countries to a lesser extent.

My thoughts are in line with yours.

In the previous round of alt-energy bubble debates - I pointed out that nuclear power plants, bridges, and what not take years, sometimes decades to build.

Even with the wonderful new legislation - there is nothing stopping the greens from suing new nuclear construction to a halt.

I had a friend (RIP) who used to work as a nuclear construction engineer; he had lots of stories on how the industry was sued to death in the post 3 mile island era.

He also talked heavily about how construction of nuclear power plants is much more skill-intensive than normal construction - for obvious reasons.

I wonder how much of this expertise still remains after 20 years of inactivity. Enough for dozens of new plants? I suspect not.

bill
01-07-08, 11:37 AM
Even with the wonderful new legislation - there is nothing stopping the greens from suing new nuclear construction to a halt.

I had a friend (RIP) who used to work as a nuclear construction engineer; he had lots of stories on how the industry was sued to death in the post 3 mile island era.

He also talked heavily about how construction of nuclear power plants is much more skill-intensive than normal construction - for obvious reasons.

I wonder how much of this expertise still remains after 20 years of inactivity. Enough for dozens of new plants? I suspect not.

Don't fight the DOE
http://www.ne.doe.gov/newsroom/2007PRs/nePR122107.html
“These instructions enable sponsors of new nuclear power plants to begin the process of addressing certain barriers to building the nuclear generating capacity necessary to meet our Nation’s growing energy needs,” DOE Assistant Secretary for Nuclear Energy Dennis Spurgeon said. “Federal risk insurance provides an mechanism to spur construction of new nuclear power plants that will help power our economy with advanced technologies and confront global climate change.”

Chris Coles
01-07-08, 12:20 PM
My thoughts are in line with yours.

In the previous round of alt-energy bubble debates - I pointed out that nuclear power plants, bridges, and what not take years, sometimes decades to build.

Even with the wonderful new legislation - there is nothing stopping the greens from suing new nuclear construction to a halt.

I had a friend (RIP) who used to work as a nuclear construction engineer; he had lots of stories on how the industry was sued to death in the post 3 mile island era.

He also talked heavily about how construction of nuclear power plants is much more skill-intensive than normal construction - for obvious reasons.

I wonder how much of this expertise still remains after 20 years of inactivity. Enough for dozens of new plants? I suspect not.

The argument has been won. The French generate some 80% of their electricity from Nuclear and the UK buys a significant part of its needs from the French. Another summer Arctic Ice Melt like the last will finish off every critic and start a push to nuclear like we have never seen. Perhaps the real reason why the US is so against Iran and its nuclear ambitions is they do not want the competition when the big push to the new nuclear age gains momentum.

Forget the greens, they cannot answer the questions raised by the expanding energy needs of society if the ice melt continues.

bill
01-07-08, 12:44 PM
The argument has been won. The French generate some 80% of their electricity from Nuclear and the UK buys a significant part of its needs from the French. Another summer Arctic Ice Melt like the last will finish off every critic and start a push to nuclear like we have never seen. Perhaps the real reason why the US is so against Iran and its nuclear ambitions is they do not want the competition when the big push to the new nuclear age gains momentum.

The group:
http://www.gnep.energy.gov/

GRG55
01-07-08, 02:10 PM
My thoughts are in line with yours.

In the previous round of alt-energy bubble debates - I pointed out that nuclear power plants, bridges, and what not take years, sometimes decades to build.

Even with the wonderful new legislation - there is nothing stopping the greens from suing new nuclear construction to a halt.

I had a friend (RIP) who used to work as a nuclear construction engineer; he had lots of stories on how the industry was sued to death in the post 3 mile island era.

He also talked heavily about how construction of nuclear power plants is much more skill-intensive than normal construction - for obvious reasons.

I wonder how much of this expertise still remains after 20 years of inactivity. Enough for dozens of new plants? I suspect not.

France's Areva, Japan's Toshiba (Westinghouse) and GE seem to have thriving businesses as nuclear engineers, suppliers and constructors.

rj1
01-07-08, 08:39 PM
France's Areva, Japan's Toshiba (Westinghouse) and GE seem to have thriving businesses as nuclear engineers, suppliers and constructors.

I have a couple friends that work for Areva here in the States in Lynchburg, VA and Charlotte, NC. They seem to be a thriving company.

I know they're pushing for looser nuclear regulation. Enviros are fighting it. (I wish enviros would either make up their mind or what they want or just disconnect their houses from the electrical grid and go candles.)

raja
01-07-08, 08:47 PM
The first thought that came to my mind was the WPA (http://en.wikipedia.org/wiki/Works_Progress_Administration).

...the largest New Deal agency, employing millions of people and affecting most every locality. ... The program built many public buildings, projects and roads, and operated large arts, drama, media and literacy projects. It fed children, redistributed food, clothing and housing. ... added up to the largest employment base in the country...
"Millions" of people sounds like a lot, but the actual figure was approximately 8.5 million. About 7 million Americans are currently unemployed. If unemployment doubled from 5% to 10%, an 8.5 million increase in jobs would only put half the people back to work.

The question for me remains: Can the U.S. economy be reflated by infrastructure and alt energy spending, or not.
I can see how a program like the WPA would put lots of out-of-work people back to work, but I wonder if building parks, roads and public structures, or creating alt energy projects, would have the same kind of reflation effect as the real estate bubble which has such a broad effect on the finances of consumers and on the economy as a whole?

grapejelly
01-07-08, 09:06 PM
"
The question for me remains: Can the U.S. economy be reflated by infrastructure and alt energy spending, or not.
I can see how a program like the WPA would put lots of out-of-work people back to work, but I wonder if building parks, roads and public structures, or creating alt energy projects, would have the same kind of reflation effect as the real estate bubble which has such a broad effect on the finances of consumers and on the economy as a whole?

we should look for massive public works and make-work projects that will continue making all of us poorer and poorer and prolong the recession/depression.


It is already a depression in places like Michigan....lots of places like that and more and more all the time.

Spartacus
01-07-08, 09:32 PM
It is already a depression in places like Michigan....lots of places like that and more and more all the time.

Which raises the question, how much worse will those places, already hit hard, get, when the entire country comes down from its current heights ?

IOW, it's the old "a rising tide lifts all boats" thing in reverse - will the ebbing tide lower Michigan and others much lower?

Jay
01-07-08, 10:36 PM
The form of the reflation will depend on whether a republican or democrat wins the presidential election. A WPA public works program would be impossible for the neocons to even think of. Imagine the Bushies paying someone to rake leaves in a park. They would instead push for corporations to do the work, using government funds, probably trying to privatize whatever they work on for fire sale prices. I doubt Hillary would go for a WPA program either, but who knows. Buffett always said that a toll bridge was one of the best investments you can make. I can see a lot more tolls out of this.

c1ue
01-08-08, 12:13 AM
Folks,

All this talk about the WPA is nice and all, but keep in mind that the US did not exit the Great Depression - at least in terms of unemployment - until World War II (1942).

From this perspective - the WPA and FDR's vaunted 'New Deal' did nothing to break the US out of the Great Depression...until the gold standard got toasted.

I put up a post some time ago talking about this: from Wiki (Boo Google)

http://en.wikipedia.org/wiki/Economic_history_of_the_United_States#Great_Depres sion:_1929-1941



<TABLE class=wikitable><TBODY><TR><TH style="BACKGROUND: #eeeeee">Table 2: Depression Data<SUP class=reference id=_ref-1>[2] (http://en.wikipedia.org/wiki/Economic_history_of_the_United_States#_note-1)</SUP></TH><TH style="BACKGROUND: #eeeeee">1929</TH><TH style="BACKGROUND: #eeeeee">1931</TH><TH style="BACKGROUND: #eeeeee">1933</TH><TH style="BACKGROUND: #eeeeee">1937</TH><TH style="BACKGROUND: #eeeeee">1938</TH><TH style="BACKGROUND: #eeeeee">1940</TH></TR><TR><TD align=middle>Real Gross National Product (GNP) <SUP>1</SUP></TD><TD align=middle>101.4</TD><TD align=middle>84.3</TD><TD align=middle>68.3</TD><TD align=middle>103.9</TD><TD align=middle>103.7</TD><TD align=middle>113.0</TD></TR><TR><TD align=middle>Consumer Price Index <SUP>2</SUP></TD><TD align=middle>122.5</TD><TD align=middle>108.7</TD><TD align=middle>92.4</TD><TD align=middle>102.7</TD><TD align=middle>99.4</TD><TD align=middle>100.2</TD></TR><TR><TD align=middle>Index of Industrial Production <SUP>2</SUP></TD><TD align=middle>109</TD><TD align=middle>75</TD><TD align=middle>69</TD><TD align=middle>112</TD><TD align=middle>89</TD><TD align=middle>126</TD></TR><TR><TD align=middle>Money Supply M2 ($ billions)</TD><TD align=middle>46.6</TD><TD align=middle>42.7</TD><TD align=middle>32.2</TD><TD align=middle>45.7</TD><TD align=middle>49.3</TD><TD align=middle>55.2</TD></TR><TR><TD align=middle>Exports ($ billions)</TD><TD align=middle>5.24</TD><TD align=middle>2.42</TD><TD align=middle>1.67</TD><TD align=middle>3.35</TD><TD align=middle>3.18</TD><TD align=middle>4.02</TD></TR><TR><TD align=middle>Unemployment (% of civilian work force)</TD><TD align=middle>3.1</TD><TD align=middle>16.1</TD><TD align=middle>25.2</TD><TD align=middle>13.8</TD><TD align=middle>16.5</TD><TD align=middle>13.9</TD></TR></TBODY></TABLE>

FRED
01-08-08, 12:30 AM
Folks,

All this talk about the WPA is nice and all, but keep in mind that the US did not exit the Great Depression - at least in terms of unemployment - until World War II (1942).

From this perspective - the WPA and FDR's vaunted 'New Deal' did nothing to break the US out of the Great Depression...until the gold standard got toasted.

I put up a post some time ago talking about this: from Wiki (Boo Google)

http://en.wikipedia.org/wiki/Economic_history_of_the_United_States#Great_Depres sion:_1929-1941



<TABLE class=wikitable><TBODY><TR><TH style="BACKGROUND: #eeeeee">Table 2: Depression Data<SUP class=reference id=_ref-1>[2] (http://en.wikipedia.org/wiki/Economic_history_of_the_United_States#_note-1)</SUP></TH><TH style="BACKGROUND: #eeeeee">1929</TH><TH style="BACKGROUND: #eeeeee">1931</TH><TH style="BACKGROUND: #eeeeee">1933</TH><TH style="BACKGROUND: #eeeeee">1937</TH><TH style="BACKGROUND: #eeeeee">1938</TH><TH style="BACKGROUND: #eeeeee">1940</TH></TR><TR><TD align=middle>Real Gross National Product (GNP) <SUP>1</SUP></TD><TD align=middle>101.4</TD><TD align=middle>84.3</TD><TD align=middle>68.3</TD><TD align=middle>103.9</TD><TD align=middle>103.7</TD><TD align=middle>113.0</TD></TR><TR><TD align=middle>Consumer Price Index <SUP>2</SUP></TD><TD align=middle>122.5</TD><TD align=middle>108.7</TD><TD align=middle>92.4</TD><TD align=middle>102.7</TD><TD align=middle>99.4</TD><TD align=middle>100.2</TD></TR><TR><TD align=middle>Index of Industrial Production <SUP>2</SUP></TD><TD align=middle>109</TD><TD align=middle>75</TD><TD align=middle>69</TD><TD align=middle>112</TD><TD align=middle>89</TD><TD align=middle>126</TD></TR><TR><TD align=middle>Money Supply M2 ($ billions)</TD><TD align=middle>46.6</TD><TD align=middle>42.7</TD><TD align=middle>32.2</TD><TD align=middle>45.7</TD><TD align=middle>49.3</TD><TD align=middle>55.2</TD></TR><TR><TD align=middle>Exports ($ billions)</TD><TD align=middle>5.24</TD><TD align=middle>2.42</TD><TD align=middle>1.67</TD><TD align=middle>3.35</TD><TD align=middle>3.18</TD><TD align=middle>4.02</TD></TR><TR><TD align=middle>Unemployment (% of civilian work force)</TD><TD align=middle>3.1</TD><TD align=middle>16.1</TD><TD align=middle>25.2</TD><TD align=middle>13.8</TD><TD align=middle>16.5</TD><TD align=middle>13.9</TD></TR></TBODY></TABLE>


This graph from the Fed presentation shows it, too.


http://www.itulip.com/images/USdeflationNote.jpg

GRG55
01-08-08, 12:47 AM
I have a couple friends that work for Areva here in the States in Lynchburg, VA and Charlotte, NC. They seem to be a thriving company.

I know they're pushing for looser nuclear regulation. Enviros are fighting it. (I wish enviros would either make up their mind or what they want or just disconnect their houses from the electrical grid and go candles.)

The eviro's would probably get excited about the fact that paraffin is a hydrocarbon... :rolleyes:

bill
01-08-08, 03:06 PM
The group:
http://www.gnep.energy.gov/


New Group?

http://news.yahoo.com/s/afp/20080108/sc_afp/g8summitclimatewarmingjapan_080108191614

The Yomiuri Shimbun reported Sunday that the G8 summit would propose setting up a new international organisation to study countries' energy-saving measures.
The world body would provide emerging economies with the environmental know-how of developed countries, Japan's best-selling newspaper said.
The new organisation would be funded by Japan, the United States and European countries, with the International Energy Agency in Paris being eyed as a possible location for the new body's headquarters, the Yomiuri said.
The energy agency official, however, denied the report, saying: "It is true that we plan to discuss a wide range of energy-saving topics but we don't have any plan to set up such a new body."

http://www.yomiuri.co.jp/dy/world/20080106TDY01305.htm

Chris Coles
01-10-08, 01:10 PM
<TABLE cellSpacing=0 cellPadding=0 width=629 border=0><TBODY><TR><TD colSpan=3>New nuclear plants get go-ahead

</TD></TR><TR><TD vAlign=top width=416><!-- S BO --><!-- S IBOX --><TABLE cellSpacing=0 cellPadding=0 width=208 align=right border=0><TBODY><TR><TD width=5>http://newsimg.bbc.co.uk/shared/img/o.gif</TD><TD class=sibtbg>http://newsimg.bbc.co.uk/media/images/42575000/jpg/_42575545_sizewell203pa_index.jpg
Sizewell B, the UK's newest reactor, was built in the 1980s
http://newsimg.bbc.co.uk/nol/shared/img/v3/inline_dashed_line.gif

<!-- S IMED -->http://newsimg.bbc.co.uk/nol/shared/img/v3/icons/audio_text.gifGreenpeace view (http://www.bbc.co.uk/mediaselector/check/player/nol/newsid_7180000/newsid_7180300?redirect=7180339.stm&news=1&nbram=1&bbram=1&nbwm=1&bbwm=1&asb=1)
<!-- E IMED -->
</TD></TR></TBODY></TABLE><!-- E IBOX --><!-- S SF -->A new generation of nuclear power stations in the UK has been given formal backing by the government.


http://news.bbc.co.uk/1/hi/uk_politics/7179579.stm
</TD></TR></TBODY></TABLE>

Ant
03-07-08, 11:30 PM
Next week we start a "What are we missing?" thread over on the Select area to propose a few scenarios to discuss. Maybe we arrive at the conclusion to stay the course, or to diversity somewhat. We shall see.

Was this thread started? If so, could anyone point me towards a link? I would be very interested in participating and am currently unable to find it.

It is a testament to just how valuable I find this site and its discussions that I keep coming back despite the fact that it runs on the oh-so-annoying vBulletin software ;)

FRED
03-08-08, 01:17 PM
Was this thread started? If so, could anyone point me towards a link? I would be very interested in participating and am currently unable to find it.

It is a testament to just how valuable I find this site and its discussions that I keep coming back despite the fact that it runs on the oh-so-annoying vBulletin software ;)

It will be published under the title "Doomer Hedgies" shortly. The interviews expanded and the commentary grew. Will send out an alert when it's done.

vB has it's good points and bad points to be sure.

GRG55
03-08-08, 01:38 PM
It will be published under the title "Doomer Hedgies" shortly. The interviews expanded and the commentary grew. Will send out an alert when it's done.

vB has it's good points and bad points to be sure.

"Doomer Hedgies" eh...:confused:

Sounds like a biographical account of the manic-depressive, SSRI compound-ingesting sub-set of the 2 & 20 crowd. :p

Ant
03-11-08, 06:05 AM
It will be published under the title "Doomer Hedgies" shortly. The interviews expanded and the commentary grew. Will send out an alert when it's done.

Cool - I'll keep an eye out for it. Thanks Fred!