Recessions, depressions, panics and other redefinitions - Eric Janszen

[Jim Nickerson]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

Merrill's Rosenberg on the Depression.

You'll find his position has much in common with iTulip, surprising for a Wall Street financial firm, but not for Rosenberg or anyone who has followed him over the years [he's a Canadian who used to toil in obscurity north of the border]. His estimate of another $4 to $6 Trillion of leverage yet to be extinguished - "...it is truly difficult to believe that we are anywhere but in the early stages of this credit contraction..." was almost as sobering as reading iTulip commentary :p

In my opinion, the pdf by Rosenberg should be read by everyone who is worried about imminent inflation.

Thank you very much for finding and posting it.

[Guest]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

A solid call Stockman - only caveat is that silver as a very small market is in fact acutely sensitive to regular scalping raids from the short side. Your fundamental read is spot on in that silver and petroleum today represent deep value and are acutely mispriced, but especially silver is definitely vulnerable to the predations of the institutional shorts, who are few, very concentrated, tightly collaborative, amply funded by "certain institutional interested parties" (whose identity starts with a capital G?) and quite able to continue periodically scalping small longs in this area. Still ... if one keeps one's eye fixed firmly on the five year horizon ... :rolleyes: GRG's posting of the Rosenberg article below also encapsulates wonderfully another very large reason to approach such admittedly steeply underpriced assets as silver and petroleum with all the sobriety of an undertaker (for the short term).

Why only GOLD as alternative investment?

Both Silver and Oil appear extremely oversold relative to Gold at this point. IF you believe that the govt is going to print until they get what they want (lower dollar relative to asset prices) wouldn't the 'diversity' offered by silver and oil make sense along with your gold? Or is it just too early?

It strikes me that even if the economy does respond/strabilize that investors that do want to move out of treasuries/CDs will prefer an economically sensitive asset which cannot be looted away by corporate executives. Silver and oil vs. common stock?

[Fiat Currency]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

Great article GRG55 ... thanks for posting it.

This section at the end, I would think is of most interest to fellow iTulipers.

Anybody care to comment on whether or not they agree with these assertions? :rolleyes:

Risings savings rate will be incredibly deflationary
The process of a secular rise in the US personal savings rate and the dampening effect this will have on aggregate demand will be incredibly deflationary for some time. While fiscal stimulus will indeed cushion the blow, the mathematical reality is that the federal government must lift its share of the economy by 10 percentage points of GDP just to fully offset a I percentage point contraction in consumer spending. While there is growing concern over government bond supply to fund the record fiscal deficit, there is ample room on bank balance sheets for the new issuance, and the Fed has already hinted that it too will emerge as a buyer of Treasuries if market rates were to back up, as they have been for the past few weeks. Moreover, the expansion of the government debt must be viewed in the context of the contraction of private sector debt, and so on balance, the growth in total economy-wide credit has actually slowed to 6% (year-over-year) from nearly 9% a year ago.

We advocate a high fixed-income orientation
Against this background, we continue to advocate a relatively high fixed-income orientation in the portfolio — a focus on safety and income at a reasonable price. That means long-term noncallable government bonds, state and local ovemment bonds, high-quality corporates (and choose those with strong balance sheets, high cash reserves and minimal refinancing needs). And in the equity market, continue to screen for dividend yield and consistent organic dividend growth in non-cyclical industries.

[Techdread]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

And if stocks manage, say, 5% and the dollar tanks?

Stocks are not the only alternatives in the Investment/Speculation world.

Some commodities have fallen by much more than the general stock markets, me I try to buy low and sell high:p.

Oil, Silver, Zinc, Copper, Lead, Nickel and other commodities look like much better bet for long term price appreciation than Gold when the inflation wave strikes.

Hell I think even houses will be a better investment in a couple of years than the Yellow Metal.;)

[Chris Coles]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

Great article GRG55 ... thanks for posting it.

This section at the end, I would think is of most interest to fellow iTulipers.

Anybody care to comment on whether or not they agree with these assertions? :rolleyes:

Risings savings rate will be incredibly deflationary
The process of a secular rise in the US personal savings rate and the dampening effect this will have on aggregate demand will be incredibly deflationary for some time. While fiscal stimulus will indeed cushion the blow, the mathematical reality is that the federal government must lift its share of the economy by 10 percentage points of GDP just to fully offset a I percentage point contraction in consumer spending. While there is growing concern over government bond supply to fund the record fiscal deficit, there is ample room on bank balance sheets for the new issuance, and the Fed has already hinted that it too will emerge as a buyer of Treasuries if market rates were to back up, as they have been for the past few weeks. Moreover, the expansion of the government debt must be viewed in the context of the contraction of private sector debt, and so on balance, the growth in total economy-wide credit has actually slowed to 6% (year-over-year) from nearly 9% a year ago.

We advocate a high fixed-income orientation
Against this background, we continue to advocate a relatively high fixed-income orientation in the portfolio — a focus on safety and income at a reasonable price. That means long-term noncallable government bonds, state and local ovemment bonds, high-quality corporates (and choose those with strong balance sheets, high cash reserves and minimal refinancing needs). And in the equity market, continue to screen for dividend yield and consistent organic dividend growth in non-cyclical industries.

If I may intrude a new thought here. One of the primary problems the FIRE economy is going to have to face as its influence winds down is the simple fact that a feudal mercantile economy totally relies upon the input of savings into mercantile banks as bank deposits. They in turn can never match what was always seen as the long term average return on those pre FIRE economy savings of about 8% gross gained from dividends paid out to the owners of the equity shares the citizens had purchased as "savings".

To overcome this disparity, the FIRE economy had to rely upon using capital gains as the working mechanism to provide an income to savers. But as we can all now see, that strategy has completely collapsed.

What everyone must realise is we cannot continue to use the existing strategies, and, for that matter, the associated institutional framework. Trying to revive a bankrupt financial institutional strategy is going to be no different to trying to revive a bankrupt business model. If it is built upon sand, it is going to collapse no matter what you try and do to stop it.

We have to face the fact that there is a need to debate exactly what is needed to replace the failed FIRE economic strategy.

In the long distant past, during the immensely successful Industrial Revolution, interest rates were not on the horizon at all. Often the best rate you could get was 1.5%. Why? Because money was useless, as money, it only had increased value from investment into equity capital producing dividends.

To achieve a complete change in direction we need to return to the ethos that produced the last industrial revolution and that will need completely new institutions and related infrastructure and rules.

As some of you know, I am working on debating the long term strategy from a grass roots viewpoint but had introduced a pause to think the next part through before posting. keep an eye out early next week for my next post into "The Road Ahead From a Grass Roots Viewpoint. http://www.itulip.com/forums/showthread.php?t=7480

[Chris Coles]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

Stocks are not the only alternatives in the Investment/Speculation world.

Some commodities have fallen by much more than the general stock markets, me I try to buy low and sell high:p.

Oil, Silver, Zinc, Copper, Lead, Nickel and other commodities look like much better bet for long term price appreciation than Gold when the inflation wave strikes.

Hell I think even houses will be a better investment in a couple of years than the Yellow Metal.;)

You may be correct, in the short term. But the real movers and shakers, governments, have suddenly realised that there is a huge downside to speculation in commodities, citizen unrest and substantial reductions in tax income from a destabilised economy. So I for one will not be surprised to see some new rules to suppress speculation, (as opposed to true free market trade), in commodities in such a manner that your investment model may be substantially impaired. I might be so bold as to add; in the not too distant future.

[stockman]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

You may be correct, in the short term. But the real movers and shakers, governments, have suddenly realised that there is a huge downside to speculation in commodities, citizen unrest and substantial reductions in tax income from a destabilised economy. So I for one will not be surprised to see some new rules to suppress speculation, (as opposed to true free market trade), in commodities in such a manner that your investment model may be substantially impaired. I might be so bold as to add; in the not too distant future.

I fear this as well. For now I use these ETFs- on the long side my primary invetsment is the GLD, I added the SLV when silver broke out vs. the cyclicals (transports); I am watching the USO to add if it also breaks out vs. the transports. I trade the inverse ETFs on a short term basis on the equity markets. It makes sense to me that 'they' will want to eliminate those short funds #1; then elimate those commodity ETFs #2. Possibly the first step would be to disqualify these ETFs for tax deferred retirement plans- then raise the tax on gains in taxable accounts- OR they could begin taxing gains (at a higher rate) on these investments whether or not they are held in qualified plans. I guess I'll cross that bridge when I come to it, for now they are convenient vehicles.

My larger 'alternative investment' is in farm land. I don't think they'll take that away... then again there are a lot of things happening that I didn't expect to see.




"Zimbabwe- President Robert Mugabe’s government announced a plan on Tuesday to “nationalize” all Zimbabwean farmland. More than 5,000 White farmers have been forced to leave, many butchered and raped by the savage blacks." June 9th, 2004

Mugabe.jpg

[stockman]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

Lukester- thanks for that insight.

I have held the gold ETF for a while; just added the silver ETF. They both have outperformed stocks-

SLV and NYA log 012909.png

Since 1991 it appears to me that silver outperforms gold when risk appetite picks up. So it tends to do better (than gold) when stocks are also gaining. I think these charts show the relative oversold level of silver and the relationship to the equity market. FWIW

Silver and Gold 012909.jpg
nya 012909.png

If oil can break out relative to the transports (as silver has) I'll add that to the mix. Currently I hold 15% gold; 5% silver; 15% short stocks; 65% cash.

[Techdread]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

You may be correct, in the short term. But the real movers and shakers, governments, have suddenly realised that there is a huge downside to speculation in commodities, citizen unrest and substantial reductions in tax income from a destabilised economy. So I for one will not be surprised to see some new rules to suppress speculation, (as opposed to true free market trade), in commodities in such a manner that your investment model may be substantially impaired. I might be so bold as to add; in the not too distant future.

I did not realise ETFS moved the price of commodities i thought they just followed the index price of the commoditity in question:confused:
I'm more scared that the US government might pull the plug on AIG:mad:

And if things get real bad which they will, whats to stop them from banning the ownership of Gold?

[stockman]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

Gold tonnes 012909.png

"They've been busy over at the SPDR Gold Shares ETF (NYSEArca:GLD), adding about 15 tonnes to the trust over the last week, breaching the 800 tonne level for the first time ever."
http://seekingalpha.com/article/1155...hes-800-tonnes

[raja]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

And if things get real bad which they will, whats to stop them from banning the ownership of Gold?

I'm planning on starting a thread discussing the gov't threats to gold . . . perhaps today or tomorrow.

[Steve]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

Is it too late to invest in 10 year treasuries or should I stay at the short? I'm late to the party and wondered how to allocate the cash portion of my portfolio - other than gold. Suggestions the itulip community would be appreciated.

[periclesp]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

I'm no economist, but I seem to remember from an economics class that a recession can be defined as 2 quarters of economic contraction, accompanied by inflation. A depression can be defined as an economic contraction (I don't remember if duration is part of the definition) accompanied by deflation. It seems the difference has to do with whether aggregate demand is collapsing or not. Are there any "A" economics students out there who can clarify these definitions and if they have any actual meaning? Do the past couple of months of deflation mean something significant? Is this cause for alarm?

[metalman]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

I'm no economist, but I seem to remember from an economics class that a recession can be defined as 2 quarters of economic contraction, accompanied by inflation. A depression can be defined as an economic contraction (I don't remember if duration is part of the definition) accompanied by deflation. It seems the difference has to do with whether aggregate demand is collapsing or not. Are there any "A" economics students out there who can clarify these definitions and if they have any actual meaning? Do the past couple of months of deflation mean something significant? Is this cause for alarm?

the article explains panic, depression, recession... the term for a contraction changes as economists who work for the gov't to downplay it. not related to inflation or deflation. hudson explains... Eric Janszen interviews Dr. Michael Hudson
recommended...

Eric [Janszen] (EJ): Let’s talk about the economy. The National Bureau of Economic Research (NBER) finally announced in December that we’ve officially been in a recession for an entire year. What an odd recession it has been. There’s still an awful lot of lending going on. Clearly housing has been hammered but if you go to the malls they’re still busy. It just doesn’t seem like recessions what they were in the old days.

Michael Hudson (MH): One of the National Bureau’s leading indicators is the stock market. It’s supposed to turn up in recessions because companies aren’t investing in new production facilities. If you’re not buying capital goods or property, you’re putting your money into the financial system. Savings end up providing the credit to bid up stock prices.

That’s the past pattern, but stock prices aren’t been going up at all these days. This recession isn’t following the pattern that the National Bureau’s founder, Wesley Mitchell, was describing when he put together his set of leading and lagging indicators 70 years ago. So the NBER is at sea if it tries to find correlations with past business cycles. We’re not in a more or less automatic “cycle” at all – a cycle that will almost automatically turn into a boom like clockwork. The economy has hit a wall – in this case a debt wall. Each business upswing since World War II has taken off from a higher level of debt to income, profits and asset prices. It’s like trying to drive with the brakes on. Right now the financial debt-deflation brake has been pushed to the floor.

EJ: The definition they came up with was simply “two quarters of negative GDP growth.”

MH: That shows how superficial their approach is. The National Bureau was founded to make forecasts. Its staff fed in a mass of statistics, hoping that a pattern would emerge. The result became its leading and lagging indicators – average correlations from many cycles to get a “normal” pattern, assuming that the economy is a self-regulating system. That was Mitchell’s theory and Schumpeter had the same idea in his book on Business Cycles, drawing a smooth sine curve.

Popular wisdom and journalism in the 19th century talked about crashes, not cycles. A long upswing would end in a sudden downturn – a scalloped ratchet pattern. It takes a long time to save up money, but you can lose it in a hurry. But the National Bureau views the GDP and national income as being almost on automatic pilot, rising and ebbing in a consistent pattern. They follow a “one pattern fits all” logic. Instead of saying, “We’ve been a recession, what a surprise,” they should be explaining how this recession is different from others.

EJ: It discredits any institution to tell people things a year after it was obvious to everybody. Not forecasting something is bad enough, but not being able to look in the rear-view mirror and see things clearly is even worse.

MH: If we’re in a recession, what does it mean? We’re in a phase change where the economic relationships, proportions, leads and lags do not operate as they did in the past. So any mathematical model that’s based on this sequence is going to be junk mathematics. The last time we had junk mathematics we had the big financial crises that we’re bailing out today.

[Spartacus]

Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

As the post below yours points out for Gold, some ETFs purchase the commodity outright & warehouse / vault it

Some of the Gold, Platinum and Silver ETFs specifically. Most other commodities of course are too voluminous to practically store a billion dollars worth.

I did not realise ETFS moved the price of commodities i thought they just followed the index price of the commoditity in question:confused:
I'm more scared that the US government might pull the plug on AIG:mad:

And if things get real bad which they will, whats to stop them from banning the ownership of Gold?