Financial topics

[jhc811]

Forgot to add, I think long dated Treasuries (i.e. 20 and 30 year T-Bonds) as well Zero Coupons are very good buys as the long term rates will come down as we sink deeper into secular depression. Also it will be good for our govt to be able to roll over the debt into longer dated Treasuries at very low rates (i.e. 1% to 2%) to lessen the burdens of paying interests. Since debt = money, so there is no way for our US Govt willing to pay off those Treasuries as it would contract the money supply, so kind of roll over those debt "forever". The only concern is paying interests.

[OLD1953]

I don't think treasuries contribute to inflation in the usual sense, because they don't circulate freely. To effect actual inflation, money has to circulate. If a printing press in the Treasury ran off a trillion dollars, and that money was taken to the woods and buried and never used, it couldn't contribute to inflation. Treasuries do move around, but not in the usual sense of circulation. If regarded as money, their velocity would be very low. (I'm speaking of extant treasuries here, as you did in "retiring" treasuries. New issues are another matter entirely.)

At this time, I'm just not that excited about debt. This is all changing rapidly, and will change even more rapidly in the near term future. Projecting the future from past economic trends seems futile to me, given that we are on the cusp of generational change.

Between the looming WWIII and the technological singularity, I'm pretty sure we've got bigger worries.

[jldavid47]

I don't think treasuries contribute to inflation in the usual sense, because they don't circulate freely. To effect actual inflation, money has to circulate.

I agree as long as credit is included in the definition of money. There is an interesting graph at

http://www.nowandfutures.com/key_stats.html#total_money.

This shows a calculation of M3 (which the Fed no longer reports but which can be calculated as a continuing series) plus credit, or "total money." For most of the past decade "total money" was growing at an 8-12% annual rate. But price inflation didn't grow at that rate because a lot of the excess credit was being plowed into the financial markets - a liquidity (i.e. credit) driven bubble. As part of the credit bubble bursting, this series has actually started to decline and is currently falling at about a 2% annual rate. This is despite government "stimulus" programs and massive intervention by the Fed. The fact of the matter is that all the government and the Fed have been doing is, in essence, replacing "money" that used to come from expanding credit. People that beat the hyper-inflation drum do not understand this. If the credit bubble were not deflating, the actions of the government and the Fed would be highly inflationary. Right now, their profligate spending can't even keep up with the contraction of credit. The implications of the "total money" graph are deflationary. (And the people who put it together don't even understand that). The other implication is that the giant sucking sound we've been hearing from the financial markets over the past two weeks will continue as total credit dries up faster than inflationary forces can counteract it. 2010 is going to be ugly.

[aedens]

All Politics are local.
As we correctly noted late in the year the new normal which is a misnomer for who has stabilised.
We are seeking value with clear intent in this predicated business cycle. No they do not know either. I can only convey
reduced production to date and no uptick in site. I feel inside that 25 percent of the previous base is permantly decimated.
I can only convey what was posited in forums last year that 40 percent was impeded and only a fraction of that margin
has increased to as stated. I have thought and looked for lucid national direction and have found it wanting. This will be a
long winter. What I have seen over the last few month's all is the fact that it is near the end of a long summer day and the
reality that the turning is yet to come. I do not short as you all know and managed to preserve capital. As for the old 80:20
rule to investments I will once again warn if you do not know your stock better than your wife you are going to learn that lesson.
I have much to read and current papers to discern, as I conveyed, but please understand the effects of gradualism as we are still subject to the lesson it will inflict. Washington's bent of mind is still subject to gap analysis flaw from pragmatic idealism to your future as free Men.
This aversion process is what GD notes and we see. I have pushed back more decisions given the Political aversion and the lack
of per capita reasoning.
Aedens
http://www.zerohedge.com/article/skepti ... ty-paradox

[OLD1953]

I don't think treasuries contribute to inflation in the usual sense, because they don't circulate freely. To effect actual inflation, money has to circulate.

I agree as long as credit is included in the definition of money. There is an interesting graph at

http://www.nowandfutures.com/key_stats.html#total_money.

This shows a calculation of M3 (which the Fed no longer reports but which can be calculated as a continuing series) plus credit, or "total money." For most of the past decade "total money" was growing at an 8-12% annual rate. But price inflation didn't grow at that rate because a lot of the excess credit was being plowed into the financial markets - a liquidity (i.e. credit) driven bubble. As part of the credit bubble bursting, this series has actually started to decline and is currently falling at about a 2% annual rate. This is despite government "stimulus" programs and massive intervention by the Fed. The fact of the matter is that all the government and the Fed have been doing is, in essence, replacing "money" that used to come from expanding credit. People that beat the hyper-inflation drum do not understand this. If the credit bubble were not deflating, the actions of the government and the Fed would be highly inflationary. Right now, their profligate spending can't even keep up with the contraction of credit. The implications of the "total money" graph are deflationary. (And the people who put it together don't even understand that). The other implication is that the giant sucking sound we've been hearing from the financial markets over the past two weeks will continue as total credit dries up faster than inflationary forces can counteract it. 2010 is going to be ugly.

In the modern world, there is far more credit money than there is physical money or worth of any form. If credit is not included in the definition of money, the definition isn't useful.

The velocity of money has dropped to nothing, and that's as important as the quantity in circulation. 2010 will be worse than ugly, because political forces (farces?) will cause government spending to cut back, therefore the money contraction will accelerate. Then there is the invisible economic bomb waiting in the wings, as the private exchanges that dont' follow SEC rules on reporting are certain to have immense hidden losses that will come out when the contraction hits full swing. This will spill over into the public via investments made on these exchanges by pension funds, states, hedge funds and so forth.

Which brings me up to Aedens statement, there is no value in this market, and cannot be until some clear path to future profit is shown. The three month planning cycle can no longer work, but the long term is so uncertain that any plans based on future projections are futile. Therefore, hoard real physical property and cash until this mess clears up, which will take some time, at least a couple of years. Given the norm of deceit in business today, doing otherwise is dangerous.

[SovietofWashington]

Hi John,

New poster, but long-time lurker ...

A little off the current thread, but I don't know if you saw the article in Friday's NYT business section by Floyd Norris on the recently released NBER report on the history of Securitization in the 1920's .

http://www.nytimes.com/2010/01/29/busin ... gewanted=1

The structure and purposes of the securitization were a little different, but the end result looks pretty much the same. More support for generational theory?

SovietofWashington (see here: http://www.citydictionary.com/WA/Seattl ... gton/5947/)

[aedens]

http://finance.yahoo.com/news/Obama-bud ... 4.html?x=0
Barack Obama urged Congress on Monday to quickly approve a huge new shot of spending for recession relief and job creation, part of a record $3.8 trillion budget that would boost the deficit beyond any in the nation's history while only slowly beginning to put Americans back to work.
http://dealbook.blogs.nytimes.com/2010/ ... hoofinance
A Dodd staffer told dealReporter that the senator is likely to quietly drop or modify many of the recommendations in the Volcker rule to ensure Republican support for regulatory reform. “Chris is retiring so he wants to end his career with an important regulatory reform bill and he wants to make the bill bipartisan,” the staffer told the publication. “He is not going to risk bipartisan support to make the White House happy.”

AKA as FUBAR Quid Quo Pro Politics to the citizens. Maybe he is sincere in reform? As a taxpayer as in life blame the guy who just left the position. Per Capita is never polite or has to be. Tough times ahead is the understatement as the grind
runs its course in so many lifes.

[OLD1953]

At this point, I don't think a bigger budget for any domestic items will go through - though quite a lot of stimulus money is still on the table and hasn't been spent yet (note: a lot of this "spending" is tax breaks for things like buying and installing solar panels). Now, a big increase in military spending would probably make it, but I'm doubtful about the rest. We'll see after Congress has a go at it. Given the removal of the Bush tax breaks, I'd say the deficit will drop no matter what.

[John]

I've been posting these updates for a couple reasons. One is to see if the theory of Maximum Ruin would hold. Another is to create a record of what happens when somebody speculates.

Well, Higgie, the S&P 500 finally closed well below 1080.

Should we start calling you "Right way Higgy?"

John

[Higgenbotham]

I've been posting these updates for a couple reasons. One is to see if the theory of Maximum Ruin would hold. Another is to create a record of what happens when somebody speculates.

Well, Higgie, the S&P 500 finally closed well below 1080.

Should we start calling you "Right way Higgy?"

John

I don't think you should yet. I stopped using the "Wrong Way Higgy" designation a couple weeks ago when my loss dropped well under 10%. Now it's a bit over 6%, so that surely doesn't qualify me as being right in any sense. I remember estimating the percentage probability the S&P would get above 1050 or so to be single digits. With the position I have on currently, it'll swing to profit below 956 and maybe we can do it then.

Another thing we have to keep in mind is if there's a severe financial calamity, that doesn't mean the shorts will get paid. So even if the S&P starts moving in the "right" direction, and my account value increases to the point where my net worth is higher than at the time this speculation was started, Maximum Ruin can still hold true. For those who are reading this and saying the exchanges will guarantee any defaults blah blah blah, I have a one word to say to that: Bullshit.