Financial topics

[John]

Dear Bertrand,

> The 25 Countries Whose Governments Could Get Crushed By Food Price
> Inflation

> http://www.businessinsider.com/governme ... ion-2011-1

That's a great article.

And if you follow the links, then they point to a couple of other
interesting articles.

** 15 Signs The U.S. Housing Market Is Headed For Complete And Total Collapse
** http://www.businessinsider.com/15-signs ... pse-2010-8



** 12 Places To Go If The World Goes To Hell
** http://www.businessinsider.com/12-place ... 0-9?slop=1

People sometimes ask me where they should move their families to be
safe, and I really don't have an answer. Now I can refer them to
this article.

John

[gerald]

John

" 12 places to go if the world goes to hell"

I will assume the list is a joke, living in some of these places could get nasty real quick - population vs resources issues. Recently I spent some time in Tirera del Fuego, yes it is a beautiful location but the current population is dependent on resources coming in from the outside. It was originally founded as a prison colony because of the relatively hostile climate and it's remote location. Currently it survives on tourism and is the major jumping off point for Antarctica. During the prison colony period much of the natural resources were depleted, the forests were clear cut, what worked then can't be done now. If a person wants to live at a subsistence, almost stone age level there are many places to go. One of the important things one should do is leave the areas between 20 and 60 degrees north latitude, that's where most people live. One should also enjoy eating fish and grubs, and not be bothered by dense clouds of blood sucking mosquitoes or flies, you can't imagine how bad it can be until you have experienced it, it has driven people to suicide.

[burt]

About where to live, I do not know, Europe is not the worst place.
Because I think Pacific will be the territory of the 3rd world war, I would'nt go to Pacific (myself I don't care, but I wouldn't move my family to the Pacific)

About the Stock Market, in the 80's I made the theory that there would be a crash in 1999 (wrong of 1 year, but beeing wrong of 1 year made that I lost a lot of money, because Timing is EVERYTHING) and from that date we'll go from bubbles to bubbles for decades.
That is my theory, I do not know if it is correct or not, we'll see.. it's a theory (based on the human hehaviour of the government).

For me the question is NOT if the Stock Market will crash, but WHERE do men build bubbles YET?

The bubbles mean panic for that bubble not for everything.

Then I repeat myself: It looks to me it is too early for a final crash, what we need for a very important crash is a general movement of the population toward retirement. At that time money will flow back from the stock market (used as a "reservoir" of cash) toward nothing, lets's say this will be in 15 years or so.
AT THAT TIME there will be NO HOPE, no way to go out, today governments can continue their silly game and keep the game afloat.

The points we have to solve today, on my point of view, belong to 3 categories:
- consequences of the "Tunisia unattended change", we'll see within the next 6 months, it could go from scarry to just a bubble of champagne. As John wrote, it depends on which country, but if things turn bad for Egypt AND Saudi Arabia, this could hurt Europe

- Food, this is NOT that we cannot produce the food (we the technology we have we can feed at least 20 billions of people without ANY diffulty), but management of the soil (we build skycrapper on the best soil, we pollute the drinkable water), and the fact that Asia want to consume the say way as the US, which is impossible...

- The financial rottness: you cannot build a fair economy if the banksters are so well retributed for their illness. Within this chapter you have the size of the derivated market (which is held in dollar and keep a value to the dollar)

[Higgenbotham]

Almost everyone I follow, aggrees that a CORRECTION is due, (so do I) this doesn't mean a PANIC, why should there be a crash or a panic (2 differents human acts)???

This fits with one of the points in my list: "Many sentiment indicators near or at records". Nobody (almost nobody anyway) believes this market can go down much, but they want a correction so they can buy. The majority is usually wrong. If HFT had been banned after the flash crash, mark to market restored and banks put into receivership, the Fed reformed or shut down, and other things that need to happen, then I think the stock market would be down, people would be pessimistic and worried about a crash, and the prospects for the market would be better than they are now.

A NO time the Stock market was related to the actual economy, WE HAVE A HUDGE ECONOMICAL PROBLEM

This fits with another one of the points on my list: "ECRI and CMI Indices lagging stock market (this could be interpreted as bullish)". Even if the economy is improving for real, the stock market is due for a big decline because it has gotten to a historically high disparity as measured against the ECRI Index. The stock market is related to the economy in that investors buy an income stream. Speculators don't, but the activity in the Russell 2000 last week indicates that speculators may have hit a wall in the past few days. That's an example of why the combination of items on the list is important, not each item by itself.

I do read a lot lately about the economy and the stock market having no relationship. I look at that as people trying to understand why stock prices are so high. People tend to look at price, believe that price is correct, then try to understand why price is correct. Price is correct in a free market, but that's not what this is.

Vince and I discussed a different measure of the stock market, which is how many ounces of gold it takes to buy the Dow. By this measure, the Dow is performing as poorly as the economy is, maybe worse (down 80% in 11 years).
http://www.sharelynx.com/chartstemp/DowGoldRatio.php

[vincecate]

Vince and I discussed a different measure of the stock market, which is how many ounces of gold it takes to buy the Dow. By this measure, the Dow is performing as poorly as the economy is, maybe worse (down 80% in 11 years).
http://www.sharelynx.com/chartstemp/DowGoldRatio.php

If we imagine that each paper currency (dollar, pound, yen, etc) tripled their base money in the last 3 years then the relative value of the paper currencies could nearly hold constant and you could hide a factor of 3 drop in the stock market. Increasing the base money supply takes awhile to show up as inflation in the CPI. First to react is the non-printable money (gold, silver) and international commodities, (rice, wheat, etc) which are up.

This is not entirely hypothetical.

[weak stream]

Vincecate writes: "If we imagine that each paper currency (dollar, pound, yen, etc) tripled their base money in the last 3 years then the relative value of the paper currencies could nearly hold constant and you could hide a factor of 3 drop in the stock market. Increasing the base money supply takes awhile to show up as inflation in the CPI. First to react is the non-printable money (gold, silver) and international commodities, (rice, wheat, etc) which are up."
This is what Dr. Ben and the rest of the idiot savants at the Fed don't understand. There was some very detailed analysis of these connections/sensitivities/relationships written by Ludwig Von Mises which is very enlightening. "On the Manipulation of Money and Credit" is available for free download pdf from the bottom of Ludwig Von Mises' Wikipedia page. As our modern day Fed economists try to convince us that this is too complicated of a system to predict, Von Mises creates a amazing degree of precision and debunks modern economic assumptions with ease. It is essential reading, in my view.

[vincecate]

There was some very detailed analysis of these connections/sensitivities/relationships written by Ludwig Von Mises which is very enlightening. "On the Manipulation of Money and Credit" is available for free download pdf from the bottom of Ludwig Von Mises' Wikipedia page.

Thanks. A URL for this is:
http://mises.org/resources/3361

Today's Hussman article has a very good explanation of the fix the Fed is in. When interest rates go up people won't be so casual and slow with their money, so the velocity of money will go up. He calculates that if treasury bills get to 4% and the Fed does not take out money prices will be more than double.

Mish recently noted that the Fed stands to lose money big time on all these toxic assets and even government debt when interest rates go up. Mish (a staunch deflationist) says the Fed can just hold the debt till maturity so it won't take a loss. The flaw in this is that the Fed will need to sell some of this stuff, at a big loss, to withdraw some cash from the system (this is their mythical exit strategy). When they sell they will take a huge loss, so they can not possibly take out as much money as they put in. In fact, if they actually sell any they will have to take the loss, so their books look much better with the current "mark to fantasy" that all the banks are using. So I doubt they will actually sell any (no exit strategy at all).

If you put Hussman and Mish together, neither of which is a hyperinflationist, you get close to the hyperinflationist case. I highly recommend reading both of these and thinking about the implications of the two together.

http://www.hussmanfunds.com/wmc/wmc110124.htm
http://globaleconomicanalysis.blogspot. ... lenin.html

Update: I ended up making a post on my blog about the Hussman and Mish articles.

http://howfiatdies.blogspot.com/2011/01 ... ation.html

[Higgenbotham]

If you put Hussman and Mish together, neither of which is a hyperinflationist, you get close to the hyperinflationist case. I highly recommend reading both of these and thinking about the implications of the two together.

The Hussman article is very good. The Fed pushed a lot of food and energy inflation into the system in the second half of 2007 and the first half of 2008. That left less money to pay for other things and people were unable to take on more debt or, in many cases, to pay their debts. Now the Fed can no longer push inflation into the system by lowering interest rates, so they implemented the QE2 scheme. The economy and the consumer are not as strong as they were in 2008 and the consumer doesn't have access to the base money that's been created. Probably at some lower price level (mostly thinking of gasoline) than we had in 2008, the consumer will likely once again run into trouble. The recent Gallup spending survey is saying that time could be now. In addition, the states and municipalities are running into trouble and will likely be unable to take on more debt or to pay their debts in many cases. Whether Bernanke's actions can lead to hyperinflation soon, say within the next year or two, will depend on how soon the consumer and the state and local governments are unable to take on more debt or to pay their debts. If Bernanke continues to print money at this rate and these entities are able to sustain their debts for another few months, it may be a question of whether the politicians step in and curb Bernanke. If the politicians don't step in, it could get very tricky because there could be bursts of inflation, followed by surges of bankruptcies, followed by receding inflation. The cycle could then repeat. Once the bankruptcies are done for the most part, then hyperinflation will run rampant. I don't see any way of stopping it if things get to that point.

PS The above describes how I think hyperinflation can come about the soonest, within about 1-2 years. I don't believe this will happen, but it could.

[burt]

Hello,

Austrian theory is a theory, and with the character of Mises (very one sided, considering he was the only one to be right) it sure has to be adapted.

Then we have to make classes of problem to be able to think:
Before that:
- What I appreciate on this blog is, apart form the fact that it is open-minded and give argument for thinking the world where we live, is that John have very strong argument on politics
++ "Generational Theory" gave me a clear answer on one of the question I had : "Why, by the hell, did US population aggreed with Reagan, the man who killes the economical system we had all over the world?"
++ Higgenbotham, each time I read your post, I have to think a little bit more (+others too)

I use this site for trying to think better my little problems and for trying to make classes of problems (see below: first classes, then problems, then interactions ... I'd be happy of your thoughts on that)

- But John was completly wrong on the stock market and his ONLY argumentation on the RER is quite poor +each time the stock market has a "small clash" he panics and predicts the end of the world, why?

Then the classes:

- The debate "inflation-deflation", for me it has to be sudbivided into classes of assets : Food, Financial(Stock Market, Bonds and derivatives), Debt (public and private), Houses.
It is not very productive on the individual level, because it doesn't give any clue on what to do (specially if the writer stays too general)
I believe that Gordon TLONG is write "Inflation on what you need, Deflation on what you get", and so it means that live will become harder for the average people, but for me?

- The Central bankers problem (as they are linked to banks, even if they were not corrupted with the link to their "brothers" the bankster, they would have a problem: How to generate Credit and Productivity and Inflation at a desired rate on EACH asset and... they have so many constrains and political constrains (it would be very "non-political acceptable"(sorry for the expression) to say that Expanding Credit is NOT the way to make Economy better, so even if they know what to do, they cannot, on one side, and on the other one, they have only access to the way "Money" in general is generated, not the way it is allocated.

- The different type of Credit (House, Private versus Commercial, Investment, Spending, Speculating) and how they evoluate

- MY little private life, how to survive in this crazy world

- The stock market in itself

I'm NOT a Central Banker, I'm NOT a bankster, I'm NOT in charge of making the general Economy better for people, so I leave them with their problems, I'm just looking on how to survive...

Stock Market:

As Prechter first wrote (for me), and a long time ago, it is Wrong to link Stock Market and Politics and Economy, for him it belongs to a "social mood process", I like the Idea, but Prechter is mostly wrong on the Stock Market and has an obsessionnal Bear view (almost as obsessionnal as John).
I'm certain that we have a hard financial problem, BUT it can be hidden for a very long period of time.

Now just an article of Nadeem WALAYAT (just to give anther different view to this site), I follow this guy for some years, and he is right for a long time now, and people who are right have my preference...
http://www.marketoracle.co.uk/Article25805.html

Regards to all

[burt]

Just to say it is dangerous to see a country as a whole, as an individual I have to ask myself if where I live is a good place, and I do not really care about if my country is doing well (this is not completly true, because of the laws that polician build at the level of the country and because I follow John in saying that we are in a Crisis era wher people go away from the political "Center" toward a slow but inexorable move to the "extrem" and THIS will differ from country to country, not region to region).

http://finance.yahoo.com/real-estate/ar ... estate-buy

So, for me, Home pricing is something you have to take care from an very local point of view.

On a general political and economical point of view I begin to ask myself if it is not time to come back to "Small is beautiful" (and local thinking too).

Regards