Oldtent Archives 2007 - 2008

First of all, derivatives are not “debt.”  You might call them an “insurance policy”, but that’s about it. 

2nd, I don’t think Sabre’s chart of the “Adjusted Monetay Base” is a particularly good reference to money supply metrics, but I have found a chart of the AMB that seems to counter his chart as potentially false.  Nothing new to the govy/ Fed, though.  Afterall, we have a “strong dollar policy.”

3rd, I think the M3 numbers is the best representation of  money supply, but in order to get to that point we’d have to have a long discussion between the differences between M2 and M3- a discussion that I have never seen take less than weeks in the past.  The Fed quit publishing the M3 statistics…..why? 

4th, you have basically said that the money supply is smaller than 2007, but that seems to be a self fulfilling way to cover you comments on the Dow going higher from 2003- forward.  If you are buying Sabre’s chart, it shows money supply falling off a cliff from 200 forward that does not suggest any increase in money supply to back a rally in the Dow to new highs.  How does your comments jive with that?  You cannot have it both ways.

 I am not like Sabre and have not studied Keynes, nor spleens, nor beans, nor nectarines- but I think a little common sense can take on a long way.  I’ll try to lay out what I see later tonight if I can find time.  Bottom line is that stock markets can and do fall during inflationary times in a very inflationary environments.  The 70’s is a perfect example where the Dow rose to new highs, like today, while the Dow suffered a loss in buying power as it went to new highs.  Did anybody own real estate that dropped in value in the 70’s?  That was a time or a “rolling recession”, but if memory serves different areas of the country ran into big problems at different times.

The 1929 period was a true deflationary period in history.  Everybody sold everything……..and I do mean everything (except for Gold) during that time period.  Yes, the Dow went down too, but everything was sold.  It was a time of a complete panic across the board.  Have you seen anything like this happening today?  If not, then why not if you think we are in a period of outright deflation?  I know, I know…….it is coming……yeah, right.  The Dow has already lost 73% of its purchasing power, but we have not seen the panic that outright deflation caused in 1929.  Why not?  One must remember that somewhere down about 90% in “value”, most of the stocks in the Dow will see buying from foreigners at some level of value so if we have not seen the panic, yet, it tain’t likely to happen in the next 17% loss in value/ buying power.  What are the main differences at play, here?  Outright deflation and massive price inflation are not compatible with each other, and we are seeing massive price inflation at this time after the Dow has already lost 73% of its value.  Instead what we have seen is “deflation scares” where everybody has fairly constantly cried “deflation”, and everybody has constantly shorted the Dow, but prices just keep rising……and rising……and rising…..and rising……and that is exactly how the Fed wants it.  So, we have the issue of rates being low….so is that really deflationary when real rates are much lower than the true inflation rate?  And who says that “credit is tight?”  Is credit tight, or is credit only tight for those who do not have the assets to borrow against.  Is this just a return to the “mean”- back to reality?  So, the Fed opened the credit spigots and created the Real Estate bubble where idiots borrowed much more than they could afford to borrow………2 houses…….3 houses……….that was not an investment venture, but a roll of the dice at Vegas.  Is it deflationary when one rolls the dice at Vegas, or does the House keep your money?  So, the Fed passes out all of this funny money from one side of its mouth to create the Housing bubble frenzy, then when the monster returns to the banks- they trade them govy debt for worthless paper to use as collateral for loans.  Is that deflationary, or is that really inflationary as more dollars are created as those new loans are created? 

Personally, I don’t think we need to dig through all that crap, above, in order to get a feel for inflation versus deflation…..and even if we did, I think that all of the “rules” that have created that mish-mash have gone out the window like the “paper” backing our country called the Constitution.  IMO, a much simpler, common sense approach might be much more revealing if we just throw Keynes, spleens, and beans out the window.  Why?  Well, for one Sabre posted a chart that seems to make no sense as he stated that it is “deflation” in terms of the “Fed Adjusted Monetary Base”, but did we not see the Real Estate Bubble and the Stock market run to new highs right in the middle of that chart?  Was that “deflation?”……….or after the FAMB chart showing “deflation”, but things were inflating wildly, are we now to see some new paradigm where deflation actually occurs while the FAMB chart does summersaults?  Did we just go through a period of “price inflation” while we really had currency “deflation?”  If so, how the heck does that work?

TQ, please don’t accept this as any kind of attack- I just don’t know how you can put all of that together to make any kind of rational sense.  It simply does not compute.  IMO, it does compute if there has really been a massive Dollar Inflation going on, though, and if it has been going on, then the charts of M3 must stand as the standard for Dollar inflation- not the FAMB chart that Sabre showed, linked below.

http://arch0708.goldtent.net/2008/07/10/let-me-make-this-even-clearer/

To me, “clearer” in this case equates to “mud.”  How is today simlar to 1929 and the 70’s?  How is today different from those two time periods?  As far as I am concerned you can through out anything that has been put forward by the govy/ Fed like the CPI, the Fed Reserve charts, the “strong dollar policy”, etc.  File them under potential bullshit.

The Commonwealth Bank upped its interest rates today, blaming the higher cost of doing business, in a move that will hit homeowners already struggling under the burdens of runaway petrol prices and rising inflation.

The Commonwealth Bank is the third bank to increase rates in the past week and the move puts it ahead of its big three peers ANZ Bank, National Australia Bank and Westpac.

(Sydney Morning Herald)

“…at the risk of really getting flamed, i would recommend that everyone sell their juniors and buy bullion.”

Don’t worry… I’ve already intercepted most of those flames for you.  It’s OK… I’ve got a golden firesuit!   

“This is a case again of bad money driving out good.  In this case derivatives have put cash into hiding. This means that private banks are reluctant to lend to miners or other businesses.  This is deflationary.  The money may exist somewhere, but if it is not available as cash for loans to develop businesses, then it reduces the supply of available money.”

================

He he heh…  so that wad of paper cash stashed under my mattress… out of the bank… is deflationary!!    Heh heh hee…   gimme some more!   

made a few nickels today flipping out of NEM that I bought yesterday.  Bot some RGLD that I’ll maybe flip out of tomorrow for more nickels. That is if the creek don’t rise and the 300 mav keeps moving up.

Excellent points you make and very worthwhile pondering. Sooner, rather than later, the margin calls will start going out in increasing numbers. Forced and panic selling. The worst kind. It demoralizes most. Eyes are opened and ears fine tuned. I continue to believe that when it comes to bonds and stocks, the next 90-120 days will be very very ugly. We may even get a real brief doze of deflation here in America. The PMs will shine like never before, though, imo.

Goodnight, everyone.

JBI

. . . . . . . . . . . . . . . . . . .

 thanks for the honesty of your post. I suspect alot of us are battling the same question - dump jrs. for physical or hang on for dear life.

  It seems nuts to me to sell down here, but you have a point and like you I’m down at least 50% on jrs. so to go to physical we need a double just to break even. Tough choices.

  Agree with Butters - LEH looks to be the next to fall. Will be interesting to see which collapses first LEH or FNM and FRE.

  I can’t imagine a scenario with those type of failures how the PPT would be able to prop the markets and the dollar. They couldn’t do it today after the Ben and Hank show.

as credit contracts, the broker loan rate will increase dramatically. stocks purchased on margin will have to run much further to offset the higher interest. i think we all know what that means. the bond market is sometimes hit with panic buying for a safe haven, but is trending unevenly down.

at the risk of really getting flamed, i would recommend that everyone sell their juniors and buy bullion. it appears that the juniors are slush funds for management. the higher expenses of running a small operation, management perks, and the credit squeeze will simply prohibit the juniors from being profitable. the exceptions will be the ones gobbled up by the larger miners or the ones with the same odds as hitting the lottery. a few will have unbelievable returns, but the risk to reward will never be acceptable to me. i had a small stock account ($4000.) that i opened to dabble in the juniors. that account is down 50%. my south african gold mutual fund is up 25% compounded since 1999.

i am currently long silver, short 5 year notes and short soybean meal with close stops. i expect the equivalent of a 50 megaton financial bomb to detonate soon. i hope i can maintain my positions to offset a “small” loss on a significant number of cotton spreads.

rno

news.goldseek.com/GoldenJackass/1215756540.php

The USTreasury Bond market can be confusing. Price inflation in the United States is intentionally made confusing. That keeps the public ignorant and poorly prepared to interrupt grand larceny and elite control of the printing press, the result of which has been a few decades of hidden confiscation of Middle Class work, wealth, and dreams. Long-term bond yields have many fundamental reasons why they should fall lower in the United States. They are interwoven and integrated. The USEconomy is being killed by rising costs, in no way justifying higher borrowing costs

My personal observation of the entire inflation debate is one of awe, for the ignorance is beyond description. Neither the public nor the financial community has a clue what inflation is, how it affects the USEconomy, how it should price bonds, how it produces imbalances. A smirk comes when an email hits my inbox asking about inflation versus deflation. My answer usually covers a few key economic items and how each is subject to rising prices or falling prices.

Lost is the meaning of inflation, which is the increase in money supply

above

and beyond economic growth (what is the present economic growth)

The Shadow Govt Statistics folks do great work.

www.shadowstats.com/article/292

(third time posted does any one read this ,, ????)

first three sentences

!)Inflationary Recession Is in Place

2)Banking Solvency Crisis Has Opened First Phase of Monetary Inflation

3) Hyperinflationary Depression Remains Likely As Early As 2010 ment )

willie return
One can rely on them to provide clean data series during dirty times for economic growth (shown below) in the Gross Domestic Product,

for the price inflation,

for the unemployment rate,

and for the money supply growth rate.

Notice the chronic USEconomic recession that began to show in 2001, and has returned in 2004. It coincides with the stock bust in 2000 and the emergence of China in 2003. As their savings account has grown to over $1800 billion, the impoverishment of the United States has dovetailed in occurrence, as debts rose in staggering fashion. As long as China & India are prominent players, expect continued recession and extremely

willie has no more credibility with sabre

TQ, I agree that things are not looking good for stock markets across the globe. The Australian All Ordinaries is just one example. Others are looking even worse.

Here is the Index (Australia) mentioned in the link you posted. Its 50 DMA is now below its 200 DMA and both its 50 and 200 DMAs are below its the 300 DMA. All three are declining. Simple observation, but probably no need to complicate the matter with anything else. A bear market it is. And its direction/trend is unmistakable.

JBI

LOL

FGC, if they give them a waver, it will give them time..to dump it on someone maybe. Fanny May et al. If the banks stop lending to mines will that maybe stop the physical coins from being made and cause a shortage? Just guestimating, or they will use it to hedge their gold/ silver if they do lend.

I got Au at avg $320 and Ag at avg $15. many years ago, not as good as Ment and others, but +100% overall on portfolio despite the recent  75% decline in some juniors still keeps me smiling.

If inflation/hyper - when I want RE or whatever in future I flick a coin to the seller who will scramble for it.

If deflation - same thing.

Who gives a rat’s about what currency is operating at the time.

$1,500? See you there.

Until then, keep listening to………….

youtube.com/watch?v=_8LFDFXQy4Q

Still one of my all time favorites.

JBI

Bill H:

To all; while watching the House testimony of Ben Bernanke and Sec. Paulson, I just had to laugh. I didn’t catch which representative who asked the following questions. Did the Fed still have room on its balance sheet to handle another Bear Stearns? If they ran out of room would they monetize the debt? Did they have room to further the “term auction facilities”?

What a complete joke! Mr. Bernanke said that the Fed had “plenty of room” on their balance sheet, he passed over the monetization question because of “all the room” they have on their balance sheet. He went on to say that the Fed has not lost a penny on their loans to banks and that these were only loans, not purchases. Bull! My questions are as follows: if you have already burned through more than half of your balance sheet, are you willing to go to the wall and use it all up? If you are willing to use the entire balance sheet [virtually guaranteed] are you willing to double, quintuple, or expand tenfold the amount you’re willing to lend as life support to a brain dead banking system? As for not losing a penny, Robin Williams couldn’t have delivered Mr. Bernanke’s punchline without breaking out in laughter. The Fed has accepted crappy paper worth, I don’t know maybe 30 cents on the dollar, and in return gave the banks Treasury securities. If the paper was worth a damn in the first place, the “troubled bank” A. wouldn’t be troubled, and B. wouldn’t need to use that particular security because it wasn’t “crappy” and could be sold. At some point in time, SOMEONE WILL EAT THE LOSS that has ALREADY taken place. If the banks take the losses they file bankruptcy. If the banks file, the Dollar implodes. If the Fed eats the losses, the Dollar implodes. The losses have already, and are continuing to take place. The Dollar is imploding. A bright 4th grader could figure this out!

Secretary Paulson was asked about Fannie and Freddy. He responded by saying it is better not to talk about individual companies so as not to create fear. Hold on now! Fannie and Freddy are both GSE”s. GSE stands for GOVERNMENT SPONSORED ENTITY. How could talking about a government agency be a problem? These two are said to need at least $75 Billion just to keep their doors open. Being the bright 4th grader that I am, I have the solution! Since the Fed has so much room on its balance sheet, the Treasury can go across the street and borrow the $75 large from the Fed. No problema.

Bear Stearns was the #5 investment bank by size. Lehman Bros., now rumored to have problems is #4. This is climbing the ladder directly to Ben Bernankes office. How hard is it to understand that every bit of bad, shocking, insolvent, news, drives directly toward the Fed and thus the Dollar. [I just heard the word “Orwellian” on CNBC] it had to happen sooner or later! Ok, bottom line, all of this is so bad for the Dollar, thus exponentially good for Gold and Silver. No matter what happens short term, selling even 1 ounce of metal at this point would be foolhardy. They spelled it out for us today. Regards, Bill H.

James Mc
Bill, As you know I have maintained for the past 10 years the implosion of Fannie and Freddie was not a question of if, but when. I have watched these government-sponsored entities (a deliberately ambiguous moniker) morph, and then transcend all sanity. Fannie and Freddie originate 80% of all mortgages in the U.S., most of which few others would touch. If it weren’t for this multi-trillion dollar government economic stimulation there would be virtually NO new homes built. Now Fannie and Freddie are finally getting their comeuppance, but unfortunately we the people will be made guarantor of their nightmare. The word “nationalization” is being used in reference to a government take over of these behemoths. Nationalism is yet another clever euphemism to mask the truth. It is a bailout, a transfer of liability from the private sector to the public, and another huge blow for the dollar.
As Congress blubbers on about what to do they never ask a single pertinent question about FNM and FRE. What about their claims of having delta derivative hedges on their loan portfolios? Why isn’t there any critical examination of their derivatives portfolio and counter-party risks? Why doesn’t Fannie or Freddie have a business model for projected foreclosures based on the ARM resets coming over the next 2 years? How can you trust ANY information coming out of FNM and FRE when they can’t even produce a clean audit? How will lenders thousands of miles away deal with the millions of foreclosures swamping local governments? Why would you increase loan limits to a lender who by even a Fed-head’s account is now insolvent?

If you tally all the mortgages TRULY needing foreclosure the year-over-year rate is triple what was reported today. Many people are still living in homes they haven’t made payments on for over a year. Millions more are seriously delinquent, but not in foreclosure. Millions more are just waiting to walk away at the first sign of trouble. What isn’t being recognized is the physical impossibility of local government and courts of law to even administer the foreclosure crisis. Even if a lender gets a foreclosure judgment it could be months or years getting it through local dockets. Lenders like FNM and FRE also face community backlash against the epidemic of abandoned homes and blight. Shoving more homes into the foreclosure pipeline only worsens the plight of existing homeowners in their community.

The Fed can’t raise interest rates if for no other reason than it will blow up Fannie and Freddie’s derivatives. It would be catastrophic to stress their derivative portfolios when they are locked in against fixed-term mortgages. Any mortgage rate increases on future ARM resets will further exacerbate foreclosures. The money needed to bail out these GSE’s by itself should double the price of gold. Any attempts to suppress gold’s trajectory at this point is pure folly. The Working Groups have an impossible situation: maintain their rigging of equities, bonds, gold, and silver, while the rest of the world is cashing out of U.S. paper, and loading up on hard assets. The task is extremely untenable. A brave new world could arrive shortly after the new president gets sworn in.
James Mc

www.reuters.com/article/marketsNews/idINSYD25084520080710?rpc=44