10 Things You Didn’t Know About Orgasm
http://www.ted.com/talks/lang/eng/mary_roach_10_things_you_didn_t_know_about_orgasm.html
http://www.ted.com/talks/lang/eng/mary_roach_10_things_you_didn_t_know_about_orgasm.html
Saturday, February 27, 2010
Friday, February 26, 2010
Keith Olbermann
Amazing and Moving
http://www.msnbc.msn.com/id/3036677/vp/35572842#35572842
In a Special Comment, Countdown’s Keith Olbermann shares his personal experience with a real life 'death panel' situation and scorns the unfairness of health insurance in America.
Keith Olbermann, known for his strong opinions and eloquent but emotional responses to the political issues of the day, used his last minutes on COUNTDOWN, his MSNBC program, to deliver a very difficult but heartfelt discussion of his father's pesonal difficulties during a long hospitalization that started with surgery and ended up with a litany of infections due to improper care. Olbermann began by saying, "Last Friday night, my father asked me to kill him."
Olbermann said his hospitalized father had not awoken since that day and that he is prepared for the possibility his father will not recover. "If he does not recover you will not see me here for a while," Olbermann announced.
His father has just died...
http://www.msnbc.msn.com/id/3036677/vp/35572842#35572842
In a Special Comment, Countdown’s Keith Olbermann shares his personal experience with a real life 'death panel' situation and scorns the unfairness of health insurance in America.
Keith Olbermann, known for his strong opinions and eloquent but emotional responses to the political issues of the day, used his last minutes on COUNTDOWN, his MSNBC program, to deliver a very difficult but heartfelt discussion of his father's pesonal difficulties during a long hospitalization that started with surgery and ended up with a litany of infections due to improper care. Olbermann began by saying, "Last Friday night, my father asked me to kill him."
Olbermann said his hospitalized father had not awoken since that day and that he is prepared for the possibility his father will not recover. "If he does not recover you will not see me here for a while," Olbermann announced.
His father has just died...
Movie Bloopers
“Breakdowns” — of 1936
http://www.youtube.com/watch?v=cY2D51MPs10&feature=player_embedded
Film was expensive then and stoppages were costly. Film now is the least of the expenses and they can make up for it by adding it as “extras” on the DVD. Flubs then cost money, now they can make money.
http://www.youtube.com/watch?v=cY2D51MPs10&feature=player_embedded
Film was expensive then and stoppages were costly. Film now is the least of the expenses and they can make up for it by adding it as “extras” on the DVD. Flubs then cost money, now they can make money.
Wall Street
Messed You Up
Just in case you need another reason to hate Goldman Sachs:
http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/
Just in case you need another reason to hate Goldman Sachs:
http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/
Wednesday, February 24, 2010
Tuesday, February 23, 2010
Talking Revolution
The American Economy: The Wealthy Make The Mistakes But The Hard Working Middle Class Pays The Price
This is how the U.S. economy works much of the time - the wealthy make most of the big economic mistakes but the hard working middle class ends up paying for them. This time around is no exception. The financial crisis of the past several years was caused by Wall Street, but they got bailed out and relatively few of them lost their jobs. However, even though middle class and working class Americans were not the ones who made the mess, they are paying for it dearly. This is especially true when it comes to unemployment. While it is true that jobs are being lost on every level of American society, the reality is that unemployment is hitting Americans on the lowest end of the income scale the hardest.
This is how the U.S. economy works much of the time - the wealthy make most of the big economic mistakes but the hard working middle class ends up paying for them. This time around is no exception. The financial crisis of the past several years was caused by Wall Street, but they got bailed out and relatively few of them lost their jobs. However, even though middle class and working class Americans were not the ones who made the mess, they are paying for it dearly. This is especially true when it comes to unemployment. While it is true that jobs are being lost on every level of American society, the reality is that unemployment is hitting Americans on the lowest end of the income scale the hardest.
The ten percent of Americans that have the lowest household incomes have an unemployment rate of over 30 percent, while the ten percent of Americans that have the highest household incomes have an unemployment rate just about 3 percent....
Does this seem right to you?
After all, we were promised that we needed to bail out Wall Street so that they could help "Main Street".
But that didn't happen, did it?
Instead, it appears that previously bailed out corporations are going back to their old ways of paying out ridiculous bonuses.
For example, the CEO of General Motors is in line to get a $9 million pay package.
What in the world?
A company that was so flat broke that it would have likely collapsed without U.S. government intervention is handing out 9 million bucks to the CEO?
Something is very, very wrong.
And the truth is that working class Americans are getting pissed off.
For example, one Ohio man actually decided to bulldoze his own home rather than let the bank take it in foreclosure proceedings.
Now that is an incredibly destructive and vindictive act, but it just shows how angry some people are getting.
Many working class and middle class Americans feel powerless as the politicians and the wealthy recklessly destroy the U.S. economy.
Sunday, February 21, 2010
Aimee Mullins
Adversity Redefined
http://www.ted.com/talks/aimee_mullins_the_opportunity_of_adversity.html
The thesaurus might equate "disabled" with synonyms like "useless" and "mutilated," but ground-breaking runner Aimee Mullins is out to redefine the word. Defying these associations, she hows how adversity -- in her case, being born without shinbones -- actually opens the door for human potential.
http://www.ted.com/talks/aimee_mullins_the_opportunity_of_adversity.html
The thesaurus might equate "disabled" with synonyms like "useless" and "mutilated," but ground-breaking runner Aimee Mullins is out to redefine the word. Defying these associations, she hows how adversity -- in her case, being born without shinbones -- actually opens the door for human potential.
Saturday, February 20, 2010
The Pain In Spain
Long Live The Euro Zone
By John Mauldin
Germany, Greece, and Spain
Let’s start with a little theater of the absurd. Quoting from a Reuters story (you can’t make this up!):
“Greek opposition lawmakers said on Thursday that Germans should pay reparations for their World War Two occupation of Greece before criticizing the country over its yawning fiscal deficits.
“How does Germany have the cheek to denounce us over our finances when it has still not paid compensation for Greece’s war victims?” Margaritis Tzimas, of the main opposition New Democracy party, told parliament.”
This was during a debate in the Greek parliament on how to handle the Greek debt. And it was echoed by both the left and right political parties. Somehow they forgot about the German government paying 115 million deutschmarks in 1960, not a small sum back then. It seems that many Greek politicians are still in the denial stage of dealing with this crisis.
In Germany, it is becoming increasingly clear that there is little political will to bail out the Greeks without severe austerity measures that will further increase an already deep recession. But I wrote about that last week. Nothing has really changed, except that it has become even less clear how all this will unfold. But whatever happens, there is no positive outcome for the Greeks. Only less bad outcomes.
Well, a few things did happen. The rest of the EU took away the vote on some issues from Greece, and there are noises that if the Greeks do not take severe enough measures, they (the EU) will step in and take over. Now THAT would be an interesting spectacle. Just what the market likes: lots of confusion. Try selling a Greek bond in the midst of a modern Greek tragedy.
There are those, both in Europe and without, who think a default by Greece will mean the end of, or at least do serious damage to, the euro. Count me among the skeptics on that, as a default by California would not do much damage to the dollar. Greece is only about 2.5% of the Eurozone GDP. It would be a problem, and maybe even a crisis, as European banks have large Greek debt exposure; but Germany in fact could bail out its banks a lot more cheaply than bailing out Greece. And Portugal is even smaller.
I wrote in 2003 that I thought the euro (then at $.88) would go to $1.50 (it got to $1.60) and all the way back to parity ($1) over the course of many years. I still think so. It has and will be a long and rocky road. It is still not clear how all of the problems in the eurozone countries will be resolved, and by that I mean the serious entitlement liabilities they will face in the middle of the decade.
Oh, and as a reminder, I wrote last year and at the beginning of this year that the dollar was going to get stronger. I got more than a few people telling me I was, well, wrong, with varying degrees of politeness. (You need a thick skin to write this letter!)
Two Views on the Euro
My good friends David Kotok and Dennis Gartman illustrate the two sides of the euro debate. Dennis has long been a euro skeptic, and of late has been especially forceful as he writes about the problems of the euro. David runs around with serious international thought shapers in Europe. David wrote a letter to Dennis this week, and Dennis responded. I am taking the liberty of reprinting part of that conversation, as it sets up the discussion we will have nicely.
Dennis,
Most of the time you and I are simpatico in view. But this time we are on totally opposite sides. You predict the EUR is toast. I think it emerges from this stronger than ever and that the weaker system is now the deficit-ridden US. I have organized and chaired conferences and seminars in Europe for the last decade as program chair of the GIC, www.interdependence.org. The next one is in June in Paris and Prague, to which I am inviting you with this email.
In the course of this decade those meetings have ranged in location from south (Italy) to Baltic (Estonia) to west (Ireland). All of these meetings were multinational. None of them had language or cultural barriers. All of these various hosts were gracious and hospitable and welcoming. All of them had goodwill among nationals of the various European countries. None of them had internal antagonism.
Come with me in June and see this with your own eyes. Europe wants a hard currency and better economics and knows how to get it. The Greeks will end up better off and the politics will force it.
I am a euro bull. All the best. By the way, I still want you to come fishing with me.
David [Kotok]
Dennis answered.
David,
I’m writing from Calgary this morning. Nice town, and not all that cold. Nice people out here in Canada’s west. I always feel better about the world when I get to the Canadian west.
We do indeed disagree on the EUR, David, and I hope you are right, but I fear you are wrong. These cultural differences are simply too great to be overcome. I have always been a EUR skeptic, and have been surprised that the whole experiment has lasted this long, but the Germans are not going to allow any of their money to be shipped to Athens to defend Greeks who have no pride in their own country [and are] tax-paying scofflaws. The German’s felt put-upon by the rest of Europe when they paid for the cost of reunification entirely, and they have no intention of now paying for Greeks who thumb their noses at law and fiscal responsibility.
Right now, the market’s sayin’ I’m right, and for now I’m going to press the issue until the market tells me I’m wrong, David. It’s all I know to do. Expecting Papandreaou to change his fiscal spots is simply not wise. He has been a profligate all his life; so too his father. It is genetic and it aint’ gona’ change.
Be well, my friend. We can disagree and still be impressed by one another’s work. I know I am.
Dennis Gartman
Who’s right? In an odd way, both of them.
Let’s look at what I think is the difference between my two friends. If you read European papers and briefings by serious economists and euro politicians, the idea of the eurozone breaking up is simply unthinkable to them. So much time and effort was put into creating the euro to begin with that there is a lot of vested interest in keeping it. (And by the way, let me be clear that the world is better off with a viable euro.) When David goes to Europe, as he often does, he meets with the top tier of business, investment banking, and central banking circles. And they assure him they will figure this out. These are the thought leaders who brought the euro together in the first place.
Dennis listens to the trading floors and people in the streets. He was a man born in the trading pits. He rightly looks at the politics of Greece and Germany and says that is a “dog that won’t hunt.”
In the short term, a Greek default will put significant pressure on the European banking system and through that the euro. But it is not the end of the world for the euro. Ultimately, in the grand scheme of things, the value of the euro, within limits, is not significant. If it falls to dollar parity there are winners and losers, of course. European exporters will be delighted. So will be their farmers. If you are a consumer buying goods outside the eurozone, you will not be as happy.
But the valuation of the euro is not in and of itself a reason for the euro to disappear. At one time it was $.82. Then over $1.60. All currencies fluctuate, some more than others. What destroys them is political malfeasance.
What would put the euro at risk of a bad political decision? A Greek bailout without serious conditions would be the one thing that could be a very bad start to a downward spiral. If Greece is bailed out, then why not Portugal or Spain or Ireland? What about the emergency room crisis that is Austrian banks?
The line has to be drawn, and it has to be a hard line. And basically, what David is saying is that the serious leaders with whom he is in contact get it. But it is not certain how things will play out. Will Greek politicians and unions blink when faced with reality? Polls show that a majority of Greeks now favor making serious budget cuts. And the reality is that they will lose access to the credit markets if they do not make major spending cuts and get some kind of pan-European guarantee for their new debt. Losing access to the credit markets will mean even more (and immediate!) drastic cuts.
The real choice for the Greeks is whether to stay in the monetary union. Of course, leaving and defaulting on their debt also cuts them off from the credit markets. It is a sad reality they face.
The Pain in Spain
That of course brings us to the elephant in the room – Spain. While the eurozone can survive a Greek default or a serious Greek depression, Spain is another story. Spain is a very large country whose deficits, if not brought under control, could in fact tank the euro.
Spanish leaders have been all over Europe, loudly proclaiming that they are not Greece. However, their current fiscal deficit is in the same league (9%), and they have other problems. And just as Dennis and David disagree, this week I had two reports on Spain hit my inbox the same day, from two of the groups I respect the most. And they do not agree abut the future of Spanish debt.
The first was from the European team of the Bank Credit Analyst. I have been reading BCA for decades, and they have a real knack for being right. I pay attention when they write something. They are a serious research firm, and consult with the biggest firms in the world. It is not an exaggeration to say the central bankers pay attention to them.
And they think Spain is going to work out. Let’s look at a few paragraphs from their latest report:
“Listen to the current market commentary and you might be forgiven for thinking that history is repeating itself. We don’t want to minimize the country’s woes. Unemployment has after all just breached the psychologically brutal level of 4 million.
“But much of the analysis is backward looking. What the markets fear has already happened. A rerun of the Greek debt crisis is not inevitable, Spanish bonds are cheap relative to Bunds and many of the cyclical imbalances are on the mend. Spain has already undergone 18 months of painful economic adjustment. The current account deficit in relation to GDP has more than halved to 4.6% from its peak in 2008, when in absolute terms it was the second highest in the world after the US.
“The budget shortfall is beginning to roll over, a reduction plan is in place and the public debt-to-GDP ratio is 60%, barely more than half the Greek ratio. Most importantly, the inflation rate has converged with the euro zone average, one of many indicators confirming the decade-long adjustment to membership of the currency club is complete.
“Spain does not fit well into the caricature of a two speed Europe, with the south on a slow, unsustainable growth path. Its demographic profile is far more propitious to economic growth than Germany or France, never mind Greece and Portugal, and its policy makers are in many instances more vehement about the need for financial discipline. After all, it was Spain which recently attempted to get the EC to agree to penalties for countries that did not hit their economic targets, only to be blocked by Germany. If there is to be a euro crisis, it is not going to be Spain that causes it.
“… The shakeout in the labor market will bring a sharp short term jump in productivity, with policy changes providing additional help thereafter. Immigration creates the potential for Spain to grow its way back.”
It was just a few months ago that I published a report from Variant Perception on the serious problems of Spanish banks. Spain has almost 20% unemployment and the government deficit is almost 9%. They have a trade deficit of 4%. Real GDP is down by 5%. Getting back to growth and a less severe government deficit is going to take some serious willpower from a socialist government. So I was glad to read that someone I respect as much as BCA thinks things will work out.
Then I read a short report by Ray Dalio and the team at Bridgewater. It is hard to get their work, but every now and then someone gets me a copy. I don’t know Ray, but I have serious respect for his work. I am a huge fan. He is one of those men about whom the word brilliant can be used without risk of exaggeration. Bridgewater manages $80 billion or so for some of the largest institutions in the world. (www.bwater.com)
So what do they write about Spain? They are not as optimistic.
“[because of the recession] … the Spanish government decided to run big budget deficits that have been funded with big borrowings, but the more the debt increases, the closer this approach is to coming to an end. As of now, conditions are tenuous but acceptable because most investors a) are used to thinking of Spain as being safe and not having wide credit spreads and b) have been inclined to pick up yield by holding debt that was generally considered safe, so they funded these deficits with narrow credit spreads.
“We do a lot of work estimating what a country’s credit spreads should be in light of its cash flows and asset values and have made more than a few bucks doing this. Based on these criteria, we judge Spain’s actual credit spread to be just about the narrowest relative to what it should be on the basis of its fundamentals — i.e., the spread is 1.4%, and we would assess the fundamentals to warrant it to be 6.5%, on the basis of fundamentals alone.
“We judge Spanish sovereign credit to be much riskier than is discounted because it seems to us that there is a high risk that Spain won’t be able to sell the debt that it needs to fund its deficits, and there is virtually no chance that the government can cut spending (nor does it want to). That is because a lot of debt is coming due; the Zapatero government is weak, very socialist and supported by a collection of factions (e.g., those in states seeking independence); and the Spanish people are now politically fragmented and only care about what money the government is going to give them. Also, the private sector debt problems have largely been kept under the rug rather than dealt with via restructurings.
“In other words, 1) Spain has big debt/deficit problems; 2) it is not dealing with these problems by doing the tough, forthright things to alleviate them; 3) it doesn’t have the printing press to avoid the risk of default (unless the ECB helps them); and 4) it has a narrow credit spread. Situations like this, in the past, have been associated with both debt rollover and capital flight problems.
“… Spain’s external debts, have exploded without a significant offset of external assets. On net, Spain owes the world about 80% of GDP more than it has external assets. As a frame of reference, the degree of net external debt Spain has piled up in a currency it cannot print has few historical precedents among significant countries and is akin to the level of reparations imposed on Germany after World War I. We don’t know of precedents for these types of external imbalances being paid back in real terms.
“On top of the debt that needs to be rolled, Spain’s cash flows (current account and budget deficit) are extremely bad. Spain’s current living standards are reliant not just on the roll of old debt, but also on significant further external lending.
“For these reasons, we don’t want to hold Spanish debt at these spreads.”
And this, gentle reader, brings us to the heart of the problem. These are two very smart research houses with opposite conclusions. Having disagreements is not all that unusual. Disagreements are what makes for horse races and markets.
But the difference is in essence the same disagreement that David and Dennis have. It is one of political nuance. BCA thinks Spain will get its act together, and Bridgewater does not, or at least not until its hand is forced by the markets (my assumption, not theirs).
The amount of pain that Spain must endure to get it fiscal house in order should not be underestimated. Wages are going to have to fall relative to northern Europe for them to be competitive. The dependence on government is going to have to be reduced. This is not going to be easy for a socialist government with a very thin coalition.
And that brings us back to Greece. While Greece can be readily bailed out (assuming they accept large budget cuts) because it is small, Spain is too big to save. The European Union cannot set the precedent that countries that do not set their fiscal houses in order will be bailed out by countries that do.
This is the nature of the End Game I have been writing about. The decisions are now political. How do we unwind the debts and the leverage? How much pain do we postpone and how much do we take on today? It is the same question for much of Europe, Great Britain (serious problems there), Japan (which is a bug in search of a windshield), and the US. We now have a limited number of path-dependent options. By that I mean the political paths chosen by the various governments will dictate the economic path we go down.
How Much Is Too Much?
And to close, I want to show a chart from today’s Wall Street Journal, from a column by Daniel Henninger.
This is the definition of an unsustainable path. Spending has grown 7 times as much in real (inflation-adjusted) terms as median household income over the last 40 years. Like Greece and Spain and much of the rest of the developed world, we will be forced to make hard choices. We cannot afford to do everything that even conservatives would like, let alone liberals. We cannot fight two wars, increase spending on health care, stimulate a faltering economy, and fun a 20% explosion in federal employees in just one year, etc., etc.
Pay attention to Greece and Spain and especially Japan over the next few years. Unless the US gets its fiscal house in order, we will be next. It will not be any easier for us in five years than it is for Greece today.
By John Mauldin
Germany, Greece, and Spain
Let’s start with a little theater of the absurd. Quoting from a Reuters story (you can’t make this up!):
“Greek opposition lawmakers said on Thursday that Germans should pay reparations for their World War Two occupation of Greece before criticizing the country over its yawning fiscal deficits.
“How does Germany have the cheek to denounce us over our finances when it has still not paid compensation for Greece’s war victims?” Margaritis Tzimas, of the main opposition New Democracy party, told parliament.”
This was during a debate in the Greek parliament on how to handle the Greek debt. And it was echoed by both the left and right political parties. Somehow they forgot about the German government paying 115 million deutschmarks in 1960, not a small sum back then. It seems that many Greek politicians are still in the denial stage of dealing with this crisis.
In Germany, it is becoming increasingly clear that there is little political will to bail out the Greeks without severe austerity measures that will further increase an already deep recession. But I wrote about that last week. Nothing has really changed, except that it has become even less clear how all this will unfold. But whatever happens, there is no positive outcome for the Greeks. Only less bad outcomes.
Well, a few things did happen. The rest of the EU took away the vote on some issues from Greece, and there are noises that if the Greeks do not take severe enough measures, they (the EU) will step in and take over. Now THAT would be an interesting spectacle. Just what the market likes: lots of confusion. Try selling a Greek bond in the midst of a modern Greek tragedy.
There are those, both in Europe and without, who think a default by Greece will mean the end of, or at least do serious damage to, the euro. Count me among the skeptics on that, as a default by California would not do much damage to the dollar. Greece is only about 2.5% of the Eurozone GDP. It would be a problem, and maybe even a crisis, as European banks have large Greek debt exposure; but Germany in fact could bail out its banks a lot more cheaply than bailing out Greece. And Portugal is even smaller.
I wrote in 2003 that I thought the euro (then at $.88) would go to $1.50 (it got to $1.60) and all the way back to parity ($1) over the course of many years. I still think so. It has and will be a long and rocky road. It is still not clear how all of the problems in the eurozone countries will be resolved, and by that I mean the serious entitlement liabilities they will face in the middle of the decade.
Oh, and as a reminder, I wrote last year and at the beginning of this year that the dollar was going to get stronger. I got more than a few people telling me I was, well, wrong, with varying degrees of politeness. (You need a thick skin to write this letter!)
Two Views on the Euro
My good friends David Kotok and Dennis Gartman illustrate the two sides of the euro debate. Dennis has long been a euro skeptic, and of late has been especially forceful as he writes about the problems of the euro. David runs around with serious international thought shapers in Europe. David wrote a letter to Dennis this week, and Dennis responded. I am taking the liberty of reprinting part of that conversation, as it sets up the discussion we will have nicely.
Dennis,
Most of the time you and I are simpatico in view. But this time we are on totally opposite sides. You predict the EUR is toast. I think it emerges from this stronger than ever and that the weaker system is now the deficit-ridden US. I have organized and chaired conferences and seminars in Europe for the last decade as program chair of the GIC, www.interdependence.org. The next one is in June in Paris and Prague, to which I am inviting you with this email.
In the course of this decade those meetings have ranged in location from south (Italy) to Baltic (Estonia) to west (Ireland). All of these meetings were multinational. None of them had language or cultural barriers. All of these various hosts were gracious and hospitable and welcoming. All of them had goodwill among nationals of the various European countries. None of them had internal antagonism.
Come with me in June and see this with your own eyes. Europe wants a hard currency and better economics and knows how to get it. The Greeks will end up better off and the politics will force it.
I am a euro bull. All the best. By the way, I still want you to come fishing with me.
David [Kotok]
Dennis answered.
David,
I’m writing from Calgary this morning. Nice town, and not all that cold. Nice people out here in Canada’s west. I always feel better about the world when I get to the Canadian west.
We do indeed disagree on the EUR, David, and I hope you are right, but I fear you are wrong. These cultural differences are simply too great to be overcome. I have always been a EUR skeptic, and have been surprised that the whole experiment has lasted this long, but the Germans are not going to allow any of their money to be shipped to Athens to defend Greeks who have no pride in their own country [and are] tax-paying scofflaws. The German’s felt put-upon by the rest of Europe when they paid for the cost of reunification entirely, and they have no intention of now paying for Greeks who thumb their noses at law and fiscal responsibility.
Right now, the market’s sayin’ I’m right, and for now I’m going to press the issue until the market tells me I’m wrong, David. It’s all I know to do. Expecting Papandreaou to change his fiscal spots is simply not wise. He has been a profligate all his life; so too his father. It is genetic and it aint’ gona’ change.
Be well, my friend. We can disagree and still be impressed by one another’s work. I know I am.
Dennis Gartman
Who’s right? In an odd way, both of them.
Let’s look at what I think is the difference between my two friends. If you read European papers and briefings by serious economists and euro politicians, the idea of the eurozone breaking up is simply unthinkable to them. So much time and effort was put into creating the euro to begin with that there is a lot of vested interest in keeping it. (And by the way, let me be clear that the world is better off with a viable euro.) When David goes to Europe, as he often does, he meets with the top tier of business, investment banking, and central banking circles. And they assure him they will figure this out. These are the thought leaders who brought the euro together in the first place.
Dennis listens to the trading floors and people in the streets. He was a man born in the trading pits. He rightly looks at the politics of Greece and Germany and says that is a “dog that won’t hunt.”
In the short term, a Greek default will put significant pressure on the European banking system and through that the euro. But it is not the end of the world for the euro. Ultimately, in the grand scheme of things, the value of the euro, within limits, is not significant. If it falls to dollar parity there are winners and losers, of course. European exporters will be delighted. So will be their farmers. If you are a consumer buying goods outside the eurozone, you will not be as happy.
But the valuation of the euro is not in and of itself a reason for the euro to disappear. At one time it was $.82. Then over $1.60. All currencies fluctuate, some more than others. What destroys them is political malfeasance.
What would put the euro at risk of a bad political decision? A Greek bailout without serious conditions would be the one thing that could be a very bad start to a downward spiral. If Greece is bailed out, then why not Portugal or Spain or Ireland? What about the emergency room crisis that is Austrian banks?
The line has to be drawn, and it has to be a hard line. And basically, what David is saying is that the serious leaders with whom he is in contact get it. But it is not certain how things will play out. Will Greek politicians and unions blink when faced with reality? Polls show that a majority of Greeks now favor making serious budget cuts. And the reality is that they will lose access to the credit markets if they do not make major spending cuts and get some kind of pan-European guarantee for their new debt. Losing access to the credit markets will mean even more (and immediate!) drastic cuts.
The real choice for the Greeks is whether to stay in the monetary union. Of course, leaving and defaulting on their debt also cuts them off from the credit markets. It is a sad reality they face.
The Pain in Spain
That of course brings us to the elephant in the room – Spain. While the eurozone can survive a Greek default or a serious Greek depression, Spain is another story. Spain is a very large country whose deficits, if not brought under control, could in fact tank the euro.
Spanish leaders have been all over Europe, loudly proclaiming that they are not Greece. However, their current fiscal deficit is in the same league (9%), and they have other problems. And just as Dennis and David disagree, this week I had two reports on Spain hit my inbox the same day, from two of the groups I respect the most. And they do not agree abut the future of Spanish debt.
The first was from the European team of the Bank Credit Analyst. I have been reading BCA for decades, and they have a real knack for being right. I pay attention when they write something. They are a serious research firm, and consult with the biggest firms in the world. It is not an exaggeration to say the central bankers pay attention to them.
And they think Spain is going to work out. Let’s look at a few paragraphs from their latest report:
“Listen to the current market commentary and you might be forgiven for thinking that history is repeating itself. We don’t want to minimize the country’s woes. Unemployment has after all just breached the psychologically brutal level of 4 million.
“But much of the analysis is backward looking. What the markets fear has already happened. A rerun of the Greek debt crisis is not inevitable, Spanish bonds are cheap relative to Bunds and many of the cyclical imbalances are on the mend. Spain has already undergone 18 months of painful economic adjustment. The current account deficit in relation to GDP has more than halved to 4.6% from its peak in 2008, when in absolute terms it was the second highest in the world after the US.
“The budget shortfall is beginning to roll over, a reduction plan is in place and the public debt-to-GDP ratio is 60%, barely more than half the Greek ratio. Most importantly, the inflation rate has converged with the euro zone average, one of many indicators confirming the decade-long adjustment to membership of the currency club is complete.
“Spain does not fit well into the caricature of a two speed Europe, with the south on a slow, unsustainable growth path. Its demographic profile is far more propitious to economic growth than Germany or France, never mind Greece and Portugal, and its policy makers are in many instances more vehement about the need for financial discipline. After all, it was Spain which recently attempted to get the EC to agree to penalties for countries that did not hit their economic targets, only to be blocked by Germany. If there is to be a euro crisis, it is not going to be Spain that causes it.
“… The shakeout in the labor market will bring a sharp short term jump in productivity, with policy changes providing additional help thereafter. Immigration creates the potential for Spain to grow its way back.”
It was just a few months ago that I published a report from Variant Perception on the serious problems of Spanish banks. Spain has almost 20% unemployment and the government deficit is almost 9%. They have a trade deficit of 4%. Real GDP is down by 5%. Getting back to growth and a less severe government deficit is going to take some serious willpower from a socialist government. So I was glad to read that someone I respect as much as BCA thinks things will work out.
Then I read a short report by Ray Dalio and the team at Bridgewater. It is hard to get their work, but every now and then someone gets me a copy. I don’t know Ray, but I have serious respect for his work. I am a huge fan. He is one of those men about whom the word brilliant can be used without risk of exaggeration. Bridgewater manages $80 billion or so for some of the largest institutions in the world. (www.bwater.com)
So what do they write about Spain? They are not as optimistic.
“[because of the recession] … the Spanish government decided to run big budget deficits that have been funded with big borrowings, but the more the debt increases, the closer this approach is to coming to an end. As of now, conditions are tenuous but acceptable because most investors a) are used to thinking of Spain as being safe and not having wide credit spreads and b) have been inclined to pick up yield by holding debt that was generally considered safe, so they funded these deficits with narrow credit spreads.
“We do a lot of work estimating what a country’s credit spreads should be in light of its cash flows and asset values and have made more than a few bucks doing this. Based on these criteria, we judge Spain’s actual credit spread to be just about the narrowest relative to what it should be on the basis of its fundamentals — i.e., the spread is 1.4%, and we would assess the fundamentals to warrant it to be 6.5%, on the basis of fundamentals alone.
“We judge Spanish sovereign credit to be much riskier than is discounted because it seems to us that there is a high risk that Spain won’t be able to sell the debt that it needs to fund its deficits, and there is virtually no chance that the government can cut spending (nor does it want to). That is because a lot of debt is coming due; the Zapatero government is weak, very socialist and supported by a collection of factions (e.g., those in states seeking independence); and the Spanish people are now politically fragmented and only care about what money the government is going to give them. Also, the private sector debt problems have largely been kept under the rug rather than dealt with via restructurings.
“In other words, 1) Spain has big debt/deficit problems; 2) it is not dealing with these problems by doing the tough, forthright things to alleviate them; 3) it doesn’t have the printing press to avoid the risk of default (unless the ECB helps them); and 4) it has a narrow credit spread. Situations like this, in the past, have been associated with both debt rollover and capital flight problems.
“… Spain’s external debts, have exploded without a significant offset of external assets. On net, Spain owes the world about 80% of GDP more than it has external assets. As a frame of reference, the degree of net external debt Spain has piled up in a currency it cannot print has few historical precedents among significant countries and is akin to the level of reparations imposed on Germany after World War I. We don’t know of precedents for these types of external imbalances being paid back in real terms.
“On top of the debt that needs to be rolled, Spain’s cash flows (current account and budget deficit) are extremely bad. Spain’s current living standards are reliant not just on the roll of old debt, but also on significant further external lending.
“For these reasons, we don’t want to hold Spanish debt at these spreads.”
And this, gentle reader, brings us to the heart of the problem. These are two very smart research houses with opposite conclusions. Having disagreements is not all that unusual. Disagreements are what makes for horse races and markets.
But the difference is in essence the same disagreement that David and Dennis have. It is one of political nuance. BCA thinks Spain will get its act together, and Bridgewater does not, or at least not until its hand is forced by the markets (my assumption, not theirs).
The amount of pain that Spain must endure to get it fiscal house in order should not be underestimated. Wages are going to have to fall relative to northern Europe for them to be competitive. The dependence on government is going to have to be reduced. This is not going to be easy for a socialist government with a very thin coalition.
And that brings us back to Greece. While Greece can be readily bailed out (assuming they accept large budget cuts) because it is small, Spain is too big to save. The European Union cannot set the precedent that countries that do not set their fiscal houses in order will be bailed out by countries that do.
This is the nature of the End Game I have been writing about. The decisions are now political. How do we unwind the debts and the leverage? How much pain do we postpone and how much do we take on today? It is the same question for much of Europe, Great Britain (serious problems there), Japan (which is a bug in search of a windshield), and the US. We now have a limited number of path-dependent options. By that I mean the political paths chosen by the various governments will dictate the economic path we go down.
How Much Is Too Much?
And to close, I want to show a chart from today’s Wall Street Journal, from a column by Daniel Henninger.
This is the definition of an unsustainable path. Spending has grown 7 times as much in real (inflation-adjusted) terms as median household income over the last 40 years. Like Greece and Spain and much of the rest of the developed world, we will be forced to make hard choices. We cannot afford to do everything that even conservatives would like, let alone liberals. We cannot fight two wars, increase spending on health care, stimulate a faltering economy, and fun a 20% explosion in federal employees in just one year, etc., etc.
Pay attention to Greece and Spain and especially Japan over the next few years. Unless the US gets its fiscal house in order, we will be next. It will not be any easier for us in five years than it is for Greece today.
Friday, February 19, 2010
The Daily Show
Why is Jon Stewart No. 1? Because no one can match his reach, and his daily impact on the 25-40 demographic (which put its man in the White House). Because he invariably asks tougher questions than much of the “mainstream” media. Because we don’t see Paul Krugman going on Fox to do battle, head-to-head, with Bill O’Reilly. Because he will make fun of Obama when Obama needs to be made fun of. And because he has, with his humor and intelligence, captured better than anyone the hypocrisy and absurdity of our media and politics.
The Road To Hell...
Illusion and Reality
By David Rieff
In his history of Florence, the Renaissance historican Guicciardini admonished his readers not to mourn the fact that their city was in decline: “All cities decline,” he wrote. Rather, if it was justifiable regret they were after, they should instead mourn the fact that they “had the bad fortune to be born when their city was in decline.”
I am waiting for a mainstream American conservative commentator confronted by America’s decline to show similar maturity. Instead—with the admirable exception of some of the agrarian pessimists whose work can be found on Web sites like Front Porch Republic, some serious Christian conservatives like Rod Dreher, Patrick Deneen, and Daniel Larison who seem philosophically very much in the line of the philosopher Alasdair MacIntyre, and a few economic determinists like Niall Ferguson—as far as I can tell, the American Right remains as wedded as ever to its view that if America is in decline, it is because—in the “highbrow” version most eloquently represented in the work of Robert Kagan—of a failure of nerve on the part of the (liberal) elites; or—in the “populist” version of the Palin’s, Bachmann’s, Limbaugh’s, and Beck’s—because these elites are profoundly anti-American and are either engineering or at the very least failing to stem the country’s decline, so that they can transform the country into the collectivist polity that they have always secretly favored.
When they think of collectivism, the country that the conservative mainstream usually has in mind is France, which is not only one of the most successful capitalist countries in the world, but a country that actually is still committed to maintaining its manufacturing base—something that those seeking to maintain America’s global preponderance might have thought integral to its continuation. This is testimony not just to the provincialism, but to the outlandish magical thinking in which the American Right now is entangled, like a dolphin trapped in the tuna net of an industrial fishing vessel.
But the populism of fear, as anyone who has read their Hofstadter (or even their Perry Miller) knows full well, is hardly a new phenomenon in America. Limbaugh is contemptible, but Father Coughlin was far, far worse, and more importantly, much more dangerous since his views were sympathetically received by many of the important plutocrats of the time. And Michele Bachmann or Jim DeMint, for all their goofy fulminations, wield little power by the standards of a Senator McCarthy or Congressman Ichord.
In reality, it is not the populist Right that is the novelty, but the policy intellectuals of the right-wing elite. In their writings, they seem to have manumitted themselves from both the tragic nature of reality—something one might have thought people who identify themselves as conservatives would have had more difficulty doing—and the inevitability of decline of all civilizations. Late in his life, the writer William Saroyan said that for the longest time he thought that he wouldn’t die, that “God would somehow make an exception in my case.” Those who believe the American century can be infinitely prolonged seem to be under a similar misapprehension. It is as if they had taken Ecclesiastes 1:4 to read not, “One generation passeth away, and another generation cometh; but the earth abideth forever”, but rather “America’s preponderance abideth forever.” But it really doesn’t work that way, does it?
This is what makes all the harping of the conservative policy intellectuals on the Obama administration’s supposed failure of will to maintain American hegemony so strangely other-worldly. The material evidence may all go the other way, but that evidence seems to carry no weight. Look at the Right’s refusal to accept the central importance of America having become a debtor nation that is dependent—for the continuation of the current financial status quo so favorable to the United States—on continued massive Chinese investment in our bond market. That is, to the same China that these same conservative policy analysts reproach the Obama administration for not confronting. But somehow it is imagined you can play a zero-sum game with your principal creditor.
It would be one thing if the hawks on the Right were pushing as hard for raising taxes as they are for the long war against jihadism, or the need for the U.S. to continue as the world’s (in their eyes benevolent) hegemon. But they do not do this. Do they honestly believe these wars pay for themselves? The answer is probably not. What seems to me more likely is that they have become idolators of the will, assuming the overweening salience of Hegel’s famous contention that “Consciousness precedes Being.” That may be a useful club to have used against the Marxists, but today it leads to illusion, not clarity. For the will is really beside the point, if, by will, you mean some utopian presumption that what you want and what you think should happen trumps reality.
By David Rieff
In his history of Florence, the Renaissance historican Guicciardini admonished his readers not to mourn the fact that their city was in decline: “All cities decline,” he wrote. Rather, if it was justifiable regret they were after, they should instead mourn the fact that they “had the bad fortune to be born when their city was in decline.”
I am waiting for a mainstream American conservative commentator confronted by America’s decline to show similar maturity. Instead—with the admirable exception of some of the agrarian pessimists whose work can be found on Web sites like Front Porch Republic, some serious Christian conservatives like Rod Dreher, Patrick Deneen, and Daniel Larison who seem philosophically very much in the line of the philosopher Alasdair MacIntyre, and a few economic determinists like Niall Ferguson—as far as I can tell, the American Right remains as wedded as ever to its view that if America is in decline, it is because—in the “highbrow” version most eloquently represented in the work of Robert Kagan—of a failure of nerve on the part of the (liberal) elites; or—in the “populist” version of the Palin’s, Bachmann’s, Limbaugh’s, and Beck’s—because these elites are profoundly anti-American and are either engineering or at the very least failing to stem the country’s decline, so that they can transform the country into the collectivist polity that they have always secretly favored.
When they think of collectivism, the country that the conservative mainstream usually has in mind is France, which is not only one of the most successful capitalist countries in the world, but a country that actually is still committed to maintaining its manufacturing base—something that those seeking to maintain America’s global preponderance might have thought integral to its continuation. This is testimony not just to the provincialism, but to the outlandish magical thinking in which the American Right now is entangled, like a dolphin trapped in the tuna net of an industrial fishing vessel.
But the populism of fear, as anyone who has read their Hofstadter (or even their Perry Miller) knows full well, is hardly a new phenomenon in America. Limbaugh is contemptible, but Father Coughlin was far, far worse, and more importantly, much more dangerous since his views were sympathetically received by many of the important plutocrats of the time. And Michele Bachmann or Jim DeMint, for all their goofy fulminations, wield little power by the standards of a Senator McCarthy or Congressman Ichord.
In reality, it is not the populist Right that is the novelty, but the policy intellectuals of the right-wing elite. In their writings, they seem to have manumitted themselves from both the tragic nature of reality—something one might have thought people who identify themselves as conservatives would have had more difficulty doing—and the inevitability of decline of all civilizations. Late in his life, the writer William Saroyan said that for the longest time he thought that he wouldn’t die, that “God would somehow make an exception in my case.” Those who believe the American century can be infinitely prolonged seem to be under a similar misapprehension. It is as if they had taken Ecclesiastes 1:4 to read not, “One generation passeth away, and another generation cometh; but the earth abideth forever”, but rather “America’s preponderance abideth forever.” But it really doesn’t work that way, does it?
This is what makes all the harping of the conservative policy intellectuals on the Obama administration’s supposed failure of will to maintain American hegemony so strangely other-worldly. The material evidence may all go the other way, but that evidence seems to carry no weight. Look at the Right’s refusal to accept the central importance of America having become a debtor nation that is dependent—for the continuation of the current financial status quo so favorable to the United States—on continued massive Chinese investment in our bond market. That is, to the same China that these same conservative policy analysts reproach the Obama administration for not confronting. But somehow it is imagined you can play a zero-sum game with your principal creditor.
It would be one thing if the hawks on the Right were pushing as hard for raising taxes as they are for the long war against jihadism, or the need for the U.S. to continue as the world’s (in their eyes benevolent) hegemon. But they do not do this. Do they honestly believe these wars pay for themselves? The answer is probably not. What seems to me more likely is that they have become idolators of the will, assuming the overweening salience of Hegel’s famous contention that “Consciousness precedes Being.” That may be a useful club to have used against the Marxists, but today it leads to illusion, not clarity. For the will is really beside the point, if, by will, you mean some utopian presumption that what you want and what you think should happen trumps reality.
Jingoism, like war itself, will always be with us. But the actual words of the Victorian music hall song that gave birth to the term, are worth quoting here:
We don't want to fight but by Jingo if we do,
We've got the ships, we've got the men, we've got the money too
Memo to our modern idolators of force, exceptionalism, and the will: Follow the money. Debtor nations do not get to be global hegemons for very long, no matter how skilled their armed forces may be.
We don't want to fight but by Jingo if we do,
We've got the ships, we've got the men, we've got the money too
Memo to our modern idolators of force, exceptionalism, and the will: Follow the money. Debtor nations do not get to be global hegemons for very long, no matter how skilled their armed forces may be.
Gold
Is Gold a Crowded Trade?
(Paul Brodsky & Lee Quaintance run QB Partners, a private macro-oriented investment fund based in New York.)
Investing in gold is tough because it challenges the investor to come to terms with the faults of his or her government, and then to act upon them. It requires the admission that there is risk in holding cash. This is counter-intuitive to this generation’s vintage of financial asset investor accustomed to thirty years of a credit build-up alongside declining interest rates.
There is certainly much more chatter in the press than in years past surrounding gold, and there certainly is more US retail investment (through ETFs) than there has been. That has been reflected to some degree in its rising price, no doubt. An ounce of gold has risen from about $250 in 1999 to current levels, having moved higher in each year and making it one of the best performing assets over the last ten years. So then, is a person that pays $1,100 an ounce today top-ticking the market by entering a crowded trade that has little upside and great downside?
We don’t think so.
Do your own research. Call your investment advisers and ask them what percentage, if any, they recommend investors allocate towards precious metals. Ring up prominent friends with substantial portfolios and ask them how much gold they have as a percentage of their portfolios. What about your fund managers overseeing, say $50 billion? Are they actually long $2.5 billion to $5 billion in precious metal plays? Our guess is that the figures in both cases will be very small, say 5% to 10% (if any at all).
Let’s extend this thinking. If people you know have only dipped their toes in the water and are doing more watching than investing in gold, then the past ten years of price appreciation must have come from elsewhere. Did it come from institutional investors? No, not in any great way. Most mutual and pension funds that report their holdings don’t own any gold – zip – other than very minor positions in precious metal mining stocks (and these stocks usually comprise less than 1% of their holdings). Hedge funds? Yes, it seems hedge funds have been buying gold but of those that have, most have less than 10% of their holdings in precious metals.
What about foreign central banks, Middle-East sheiks, Russians, ultra-wealthy families around the world? Yes, we would argue they “get the joke” and have been diversifying their wealth out of their home currencies and fiat currency-denominated assets into this scarcer currency.
Currently there is about $55 billion in global gold and silver ETFs – that’s it. (Does that qualify to be in the top ten of the any single issue in the DJIA?) It is estimated that all the gold mined in the last 5000 years is about 130,000 metric tons (each tonne converts into about 35,274 ounces). It’s a cube that would be roughly the size of a tennis court.
So let’s say there are 4.6 billion ounces of gold above ground, which means that at about $1,100/oz, the total global market value of all mined gold is currently worth a little over $2 trillion. By comparison, US Treasury debt was approaching $13 trillion, last we looked and we believe total US equity market capitalization is about $11 trillion. And then there are other bond markets (at least $8 trillion) money market funds, etc. There is also real estate.
In the US alone there is estimated to be about $65 trillion in present value private sector credit outstanding and trillions more in unfunded government obligations. And then there are the financial assets (stocks and bonds), real estate and public sector obligations for the rest of the world.
Global central banks are trying to keep it all afloat by printing even more money (by making more debt). The response by central banks to declining velocity has been and will continue to be the same as their responses to credit deflation – they will continue to print money. They may give it to their fractionally reserved banks that may then use the money multiplier to distribute more credit and in turn raise systemic velocity, or they may give it directly to debtors in the hope they will spend like drunken sailors again.
There is enormous embedded inflation already and more to come. The high-powered money has already been created; it is leveragable and it is there to increase velocity. Higher prices must follow.
Will the Fed and other central banks withdraw liquidity? No, never. They never have and they never will regardless of how many tools they proclaim are in their toolbox to do so. If money velocity picks up leading to rising consumer prices, it will also lead to rising market-priced interest rates. They may decide to cut back their monetization, but they will not drain money.
We can look at price inflation contemporaneously or we can throw the ball ahead of the receiver. The result will be the same. The defense is blitzing; Jerry Rice is standing all alone in the end zone; Joe Montana is going to get sacked….but the ball is already in the air.
(Paul Brodsky & Lee Quaintance run QB Partners, a private macro-oriented investment fund based in New York.)
Investing in gold is tough because it challenges the investor to come to terms with the faults of his or her government, and then to act upon them. It requires the admission that there is risk in holding cash. This is counter-intuitive to this generation’s vintage of financial asset investor accustomed to thirty years of a credit build-up alongside declining interest rates.
There is certainly much more chatter in the press than in years past surrounding gold, and there certainly is more US retail investment (through ETFs) than there has been. That has been reflected to some degree in its rising price, no doubt. An ounce of gold has risen from about $250 in 1999 to current levels, having moved higher in each year and making it one of the best performing assets over the last ten years. So then, is a person that pays $1,100 an ounce today top-ticking the market by entering a crowded trade that has little upside and great downside?
We don’t think so.
Do your own research. Call your investment advisers and ask them what percentage, if any, they recommend investors allocate towards precious metals. Ring up prominent friends with substantial portfolios and ask them how much gold they have as a percentage of their portfolios. What about your fund managers overseeing, say $50 billion? Are they actually long $2.5 billion to $5 billion in precious metal plays? Our guess is that the figures in both cases will be very small, say 5% to 10% (if any at all).
Let’s extend this thinking. If people you know have only dipped their toes in the water and are doing more watching than investing in gold, then the past ten years of price appreciation must have come from elsewhere. Did it come from institutional investors? No, not in any great way. Most mutual and pension funds that report their holdings don’t own any gold – zip – other than very minor positions in precious metal mining stocks (and these stocks usually comprise less than 1% of their holdings). Hedge funds? Yes, it seems hedge funds have been buying gold but of those that have, most have less than 10% of their holdings in precious metals.
What about foreign central banks, Middle-East sheiks, Russians, ultra-wealthy families around the world? Yes, we would argue they “get the joke” and have been diversifying their wealth out of their home currencies and fiat currency-denominated assets into this scarcer currency.
Currently there is about $55 billion in global gold and silver ETFs – that’s it. (Does that qualify to be in the top ten of the any single issue in the DJIA?) It is estimated that all the gold mined in the last 5000 years is about 130,000 metric tons (each tonne converts into about 35,274 ounces). It’s a cube that would be roughly the size of a tennis court.
So let’s say there are 4.6 billion ounces of gold above ground, which means that at about $1,100/oz, the total global market value of all mined gold is currently worth a little over $2 trillion. By comparison, US Treasury debt was approaching $13 trillion, last we looked and we believe total US equity market capitalization is about $11 trillion. And then there are other bond markets (at least $8 trillion) money market funds, etc. There is also real estate.
In the US alone there is estimated to be about $65 trillion in present value private sector credit outstanding and trillions more in unfunded government obligations. And then there are the financial assets (stocks and bonds), real estate and public sector obligations for the rest of the world.
Global central banks are trying to keep it all afloat by printing even more money (by making more debt). The response by central banks to declining velocity has been and will continue to be the same as their responses to credit deflation – they will continue to print money. They may give it to their fractionally reserved banks that may then use the money multiplier to distribute more credit and in turn raise systemic velocity, or they may give it directly to debtors in the hope they will spend like drunken sailors again.
There is enormous embedded inflation already and more to come. The high-powered money has already been created; it is leveragable and it is there to increase velocity. Higher prices must follow.
Will the Fed and other central banks withdraw liquidity? No, never. They never have and they never will regardless of how many tools they proclaim are in their toolbox to do so. If money velocity picks up leading to rising consumer prices, it will also lead to rising market-priced interest rates. They may decide to cut back their monetization, but they will not drain money.
We can look at price inflation contemporaneously or we can throw the ball ahead of the receiver. The result will be the same. The defense is blitzing; Jerry Rice is standing all alone in the end zone; Joe Montana is going to get sacked….but the ball is already in the air.
Thursday, February 18, 2010
$$$
How Much You Got
Interesting (USA) data set from Dave Rosenberg:
• Households own $18.2 trillion of residential real estate, even after the value destruction of the past three years.
Interesting (USA) data set from Dave Rosenberg:
• Households own $18.2 trillion of residential real estate, even after the value destruction of the past three years.
• Households own $18.1 trillion of equities, despite the vicious bear market.
• Households own a near-record $7.7 trillion of deposits and cash — earning next to nothing in yield.
• Households own $4.6 trillion of consumer durable goods.
• Households own $3.5 trillion of corporate bonds and municipal/agency paper.
• What do households own in Treasury notes and bonds? Try $800 billion.
Pretty fascinating stuff . . .
Pretty fascinating stuff . . .
Wednesday, February 17, 2010
No Regrets
Counterfactual Thinking
http://www.youtube.com/watch?v=etd9yn9L1Mg&feature=player_embedded
The power of counterfactual reflection on life’s pivotal moments. According to new research by management professors Laura Kray and Philip Tetlock, counterfactual thinking — considering a ”turning point” moment in the past and alternate universes had it not occurred — heightens one’s perception of the moment as significant, and even fated. Armed with a sense that life may not be arbitrary, counterfactual thinkers, the study suggests, are more motivated and analytical in organizational settings.
http://www.youtube.com/watch?v=etd9yn9L1Mg&feature=player_embedded
The power of counterfactual reflection on life’s pivotal moments. According to new research by management professors Laura Kray and Philip Tetlock, counterfactual thinking — considering a ”turning point” moment in the past and alternate universes had it not occurred — heightens one’s perception of the moment as significant, and even fated. Armed with a sense that life may not be arbitrary, counterfactual thinkers, the study suggests, are more motivated and analytical in organizational settings.
Laugh
Till It Hurts
Dear Laughter Lovers,
One of the first joke books, dating from fourth century B.C., was the Philogelos—which means “laughter lover” in Greek. It has 265 jokes that I’m sure killed back then, but most now are either lethally lame or incomprehensible. Examples:
No. 53. An intellectual was eating dinner with his father. On the table was a large lettuce with many succulent shoots. The intellectual suggested: “Father, you eat the children; I'll take mother.”
No. 64. An intellectual bought a pair of pants. But he could hardly put them on because they were too tight. So he got rid of the hair around his legs.
The jokes in the Philogelos have eggheads, incompetents, fools, gluttons, jokesters, drunks, misogynists, and people with bad breath, but, surprise, no animals. Not one. No quipping New Yorker cartoon dogs, or cutesy cats. And the vast potential of LOLcats remained untapped for millennia.
Why no animals? I’m blaming it on Aristotle, who in his Poetics said, “Only man between animals can laugh.” Later, in his Grammatics, he changed the “between” to “among,” and everyone pretty much agreed with him after that.
A couple of millennia later, but still way before LOLcats, the essayist William Hazlitt essayed that “Man is the only animal that laughs and weeps; for he is the only animal that is struck with the difference between what things are, and what they ought to be.”
Dear Laughter Lovers,
One of the first joke books, dating from fourth century B.C., was the Philogelos—which means “laughter lover” in Greek. It has 265 jokes that I’m sure killed back then, but most now are either lethally lame or incomprehensible. Examples:
No. 53. An intellectual was eating dinner with his father. On the table was a large lettuce with many succulent shoots. The intellectual suggested: “Father, you eat the children; I'll take mother.”
No. 64. An intellectual bought a pair of pants. But he could hardly put them on because they were too tight. So he got rid of the hair around his legs.
The jokes in the Philogelos have eggheads, incompetents, fools, gluttons, jokesters, drunks, misogynists, and people with bad breath, but, surprise, no animals. Not one. No quipping New Yorker cartoon dogs, or cutesy cats. And the vast potential of LOLcats remained untapped for millennia.
Why no animals? I’m blaming it on Aristotle, who in his Poetics said, “Only man between animals can laugh.” Later, in his Grammatics, he changed the “between” to “among,” and everyone pretty much agreed with him after that.
A couple of millennia later, but still way before LOLcats, the essayist William Hazlitt essayed that “Man is the only animal that laughs and weeps; for he is the only animal that is struck with the difference between what things are, and what they ought to be.”
(From the Desk of Bob Mankoff)
Joy
Make Someone Happy
I believe that if, at the end of it all, according to our abilities, we have done something to make others a little happier, and something to make ourselves a little happier, that is about the best we can do. To make others less happy is a crime. To make ourselves unhappy is where all crime starts. We must try to contribute joy to the world. That is true no matter what our problems, our health, our circumstances. We must try. I didn't always know this, and am happy I lived long enough to find it out.
Monday, February 15, 2010
Sunday, February 14, 2010
Greenspan
Rand
(related great one hour lecture by Eliot Spitzer: http://fora.tv/2010/01/26/Eliot_Spitzer-The_Cataclysm_of_2008-2009 )
Very sharp quotes from Paul Samuelson in The Atlantic on Easy Al, and the ability of markets to self-regulate:
“The craze that really succeeded the Keynesian policy craze was not the monetarist, Friedman view, but the [Robert] Lucas and [Thomas] Sargent new-classical view. And this particular group just said, in effect, that the system will self regulate because the market is all a big rational system.
Those guys were useless at Federal Reserve meetings. Each time stuff broke out, I would take an informal poll of them. If they had wisdom, they were silent. My profession was not well prepared to act.
And this brings us to Alan Greenspan, whom I’ve known for over 50 years and who I regarded as one of the best young business economists. Townsend-Greenspan was his company. But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can’t take the cult out of the boy. He actually had instruction, probably pinned on the wall: ‘Nothing from this office should go forth which discredits the capitalist system. Greed is good.’ (emphasis added)
I also like this take on assuming rationality in bubbles:
“However, unlike someone like Milton, Greenspan was quite streetwise. But he was overconfident that he could handle anything that arose. I can remember when some of us — and I remember there were a lot of us in the late 90s — said you should do something about the stock bubble. And he kind of said, ‘look, reasonable men are putting their money into these things — who are we to second guess them?’ Well, reasonable men are not reasonable when you’re in the bubbles which have characterized capitalism since the beginning of time.”
“The craze that really succeeded the Keynesian policy craze was not the monetarist, Friedman view, but the [Robert] Lucas and [Thomas] Sargent new-classical view. And this particular group just said, in effect, that the system will self regulate because the market is all a big rational system.
Those guys were useless at Federal Reserve meetings. Each time stuff broke out, I would take an informal poll of them. If they had wisdom, they were silent. My profession was not well prepared to act.
And this brings us to Alan Greenspan, whom I’ve known for over 50 years and who I regarded as one of the best young business economists. Townsend-Greenspan was his company. But the trouble is that he had been an Ayn Rander. You can take the boy out of the cult but you can’t take the cult out of the boy. He actually had instruction, probably pinned on the wall: ‘Nothing from this office should go forth which discredits the capitalist system. Greed is good.’ (emphasis added)
I also like this take on assuming rationality in bubbles:
“However, unlike someone like Milton, Greenspan was quite streetwise. But he was overconfident that he could handle anything that arose. I can remember when some of us — and I remember there were a lot of us in the late 90s — said you should do something about the stock bubble. And he kind of said, ‘look, reasonable men are putting their money into these things — who are we to second guess them?’ Well, reasonable men are not reasonable when you’re in the bubbles which have characterized capitalism since the beginning of time.”
Saturday, February 13, 2010
Madness
Love
"Love is a temporary madness. It erupts like an earthquake and then subsides. And when it subsides you have to make a decision. You have to work out whether your roots have become so entwined together that it is inconceivable that you should ever part. Because this is what love is.
Love is not breathlessness, it is not excitement, it is not the promulgation of promises of eternal passion. That is just being "in love" which any of us can convince ourselves we are. Love itself is what is left over when being in love has burned away, and this is both an art and a fortunate accident.
Your mother and I had it, we had roots that grew towards each other underground, and when all the pretty blossom had fallen from our branches we found that we were one tree and not two." -St. Augustine
Love is not breathlessness, it is not excitement, it is not the promulgation of promises of eternal passion. That is just being "in love" which any of us can convince ourselves we are. Love itself is what is left over when being in love has burned away, and this is both an art and a fortunate accident.
Your mother and I had it, we had roots that grew towards each other underground, and when all the pretty blossom had fallen from our branches we found that we were one tree and not two." -St. Augustine
Friday, February 12, 2010
The Euro
vs Dollar
arthur.i Says:
February 13th, 2010 at 12:44 am
arthur.i Says:
February 13th, 2010 at 12:44 am
I live both in Europe (France and Spain) and the U.S. IMO, the euro in the short term may or may not weaken BUT it will not collapse. From my perspective the U.S. dollar is in far worse condition going forward. My assets are split, approx, 50/50 btw dollar and euro. I will receive my social security down the road in dollars so a strong dollar would be good for me since I spend on average 11 months of the year in Europe.
The European union consists of 27 countries representing close to 500 million people. Highly educated, highly skilled societies which are extraordinarily civilized and cultured, with strong and deep family connections, infastructure that is unrivaled on a world level including both old – monuments and buildings, and new – high speed rail lines, Internet connections, cell phone coverage, socialized (don’t be frightened, it is better that our government overseas health care then Allstate Insurance) modern medicine and cutting edge clean/green energy production. Tourism, even in last years sick economy is up in 09 I think about 2.3 percent. Paris alone had 75 million visitors spending on average 500 Euros… Europe has been here a long time – it ain’t going anywhere.
Hugh Hendry comes across as a thug. I would to enjoy seeing this a-hole take a real haircut.
We Are All Austrians Now
Posted: 12 Feb 2010 06:15 AM PST
Paul Brodsky & Lee Quaintance run QB Partners, a private macro-oriented investment fund based in New York.
~~~
We Are All Austrians Now
Things are different this time, as they always are. The great difference between today’s capital markets and those since World War II is that government is taking an overtly active role in them. The consequences of this ongoing political intervention are substantial – on investor expectations, on asset pricing, and on the perception of market risk.
The growing influence of the political element in today’s markets has de-valued the investment experiences of market participants over the last thirty years. As the quote on the Einstein poster that hangs on our office wall says; “imagination is more important than knowledge.” So true. Trying to divine value or even technical trends from extrapolating past market cycles is a risky proposition. Still, the great majority of investors are still trying to do this, which presents opportunities for those willing to break free.
Should we be surprised that 2009 winners were summarily discarded in January? (Precious metal stocks declined about 25% from their December highs through January 31 while base metal futures were liquidated with extreme prejudice during the last week in January.) No, the severity of that correction is not surprising given the magnitude of their previous run. In fact, we should be thankful. Valuable real assets were shaken from weak-handed investors with luke-warm conviction and from cycle-minded momentum players.
We repeat our view that “a return to normalcy” as defined by most contemporary economists, policy makers, market strategists and financial asset investors is not forthcoming. Developed economies are not experiencing the downside of a typical post-WWII cycle, even if one were willing to label the current environment “a deep recession”.
We remain in the early stages of a currency crisis that is being further exacerbated by highly inflationary monetary policies and ad hoc regulatory changes. Confused investors, policy makers and professional chatterers, struggling to recognize familiar economic or market clues, are desperately trying to retro-fit troubling events into familiar patterns.
Voters seem to get it. We think the upset election in Massachusetts, for example, was a continuing revolt of an increasingly angry and politically agnostic public that intuits a disconnection between generally accepted public policies and the lack of sustainable public benefits that would accrue from them. Until they are satisfied, voters of all persuasions will insist that our politicians be as liquid as our portfolios. It was inevitable that fundamental macroeconomic forces would begin to be manifest in the political sphere, and logical that it would show up at the ballot box first. After all, voters are more sensitive to the real economy than politicians and financial asset investors.
We see hefty doses of irony and opportunity in the recent “flight from risk”. We think the majority of investors are wired (or structured) to continue to seek nominal absolute or relative returns above all else, rather than positive real returns within a highly inflationary environment.
As a result, they are unable or unwilling to accurately distinguish between truly safe and truly risky assets in the current environment. This mischaracterization is leading them to poor asset selection, general economic mal-investment and substantial opportunities for investors seeking real returns
We think investors’ knee-jerk compulsion last month towards familiarity will prove costly. We agree that imperceptible future political and economic outcomes should force capital into safe havens. However, the current perception of “risk assets” defines the precise sectors to which we think investors should be migrating during chaotic times.
The long term capital-at-risk spectrum in a global paper money currency system during a period of substantial monetary inflation should generally be:
We view recent market re-allocations to paper-denominated cash and bonds as a trap. The current generation of financial asset investors are used to (or paid for) seeking interim financial returns above all else, and so they have a tendency to equate (baseless, diluting paper-denominated) cash with safety. While paper cash may decrease the risk of nominal loss, it greatly increases the risk of future purchasing power loss within an inflationary environment. So, while it can be emotionally trying to convert baseless paper to scarce resources with fluctuating daily prices (as we have done), we think it will be far more painful over time to invest using the wrong metrics.
Financial assets denominated in diluting paper must offset that diminution of value to provide a positive real return. Treasury just increased the US Monetary Base by 135% over the last 18 months and all signs point to further dilution.
Further, the vast majority of investors continue to erroneously link economic contraction to deflationary asset values because they do not consider the impact of money printing on nominal asset prices. Curiously, even those investors that acknowledge the substantial future impact of past and current monetary inflation seem unwilling or unable to get beyond their bias for cash or to own bonds because they expect contracting output.
While we think economic malaise and political dissention in developed economies can continue into the foreseeable future, (and have tactically positioned ourselves for such), we also think markets will rise or fall independently of such chaos. Why wouldn’t they? When viewed from a monetary perspective, asset values rise or fall in nominal price terms with money and credit growth in the system. Value is another matter entirely. We see a decline in the nominal prices of unencumbered real assets in January as a gift.
Professional Wrestling
Is professional wrestling more a sport or a business? What about politics? (Need we ask?) It is easy to liken the business of politics to professional wrestling — both need a good guy and a villain to keep their constituents interested and generate revenues. Their game is to have each of us pick a side and root for it to protect our interests, whatever they may be. Wrestling is harmless, though.
Through the process of adverse selection politicians have almost universally become businesspeople. There does not seem to be a statesman anywhere near Washington today, not even a courageous personality. The door to power seems wide open for the first legitimate public servant truly willing to take personal risk to stand up to moneyed interests, regardless of where he or she sits on the political spectrum. (Third party, anyone?)
Politicians and policy makers within one nation – even the US – are ill-equipped to handle changing global economic incentives, especially when those incentives have been greatly warped by past pricing subsidies. Natural incentives among economic participants conflict too much with political imperatives, which focus on doing no harm in the near term and on punishing those who may (legally) behave in their best interests at the cost of the greater good.
While we must admit that fiscal and monetary policy makers responsible for substantial government intervention over the last two years helped “save the system”, you should not be surprised that we feel the system, as it is, should not have been saved.
Congress hasn’t seemed to figure out yet that whipping boys Alan Greenspan, Hank Paulson, Tim Geithner and Ben Bernanke did their jobs exceedingly well. (Or maybe they do know that?) Treasury, the Fed, and the US banking system made and distributed enough dollars and dollar-denominated credit to make Wall Street the center of the global economy, which (temporarily) increased nominal US consumption and GDP, US employment, US government tax receipts and US political campaign contributions.
The 800 pound gorilla now sitting in the Senate chamber is the indisputable truth that past and present policy makers are not the problem — the system is. (And the gorilla’s 1200 pound sister is the indisputable truth that Congress was supposed to oversee the Fed and the GSEs.) Lost in the commotion is that these very same politicians were responsible for synthesizing that temporary growth and are now literally to blame for today’s problems. The focus of politicians’ time now is to redirect blame and argue where the new money and credit should go, not whether it should have been created in the first place.
This is the biggest and best clue about the future. Regardless of rhetoric to the contrary, politicians and policy makers will encourage as much money and credit creation as is necessary to keep their seats. Even “fiscally conservative” Republicans have no stomach for economic contraction that would temporarily raise unemployment and reduce tax revenues. Like Democrats, Republicans most see their responsibility as public servants to administer sound fiscal policies by inserting their will on the private economy, rather than letting economies and markets sort matters out on their own.
Democrats have a conceptual edge in this fight because their historical platform is more accepting of a) economic intervention and b) monetary inflation. Since donors to “fiscally conservative Republicans” have already accepted these first two planks, arguing against distributing the new money and credit to those suffering would place any politician, regardless of flavor, in an untenable position (as both Republicans and Democratic debtors/voters are suffering).
If politicians are concerned only with the short-term, and policy makers are supposed to care about the long term, then what happens when policy makers become politicians? Not only do policy advocates on both sides of the political aisle fear contractionary forces and unemployment trends, they have accepted that the solution to reverse these trends can only be to put increasing credit in the hands of consumers.
Last month Majority Leader Reid said that his support for Bernanke was conditional. To merit confirmation, he said Bernanke “must redouble his efforts to ensure middle class families can access credit”. You just can’t make this stuff up. Our public servants want to further saddle us with even more debt so we can consume mostly foreign-made goods. (Ignorance is not a crime. Nor, it seems, is usury grounds for censure.)
Beyond the political posturing can there be any doubt that a reconfirmed Ben Bernanke will drop dollars on debtors if need be? When push comes to shove, politicians will inflate away the burden of private sector debt repayment (by shifting the burden to the public sector), thereby temporarily stimulating the economy. Any policy maker that gets in the way or doesn’t act fast enough will be replaced.
We anticipate unsettled political and economic environments to continue as long as the political dimension tries to kick the can further down the road. The longer this persists, the more frayed societies will become. Ultimately, meaningful change — in asset pricing, market incentives, the current global monetary regime and even the global economic architecture – will be re-defined, naturally or by fiat. Today’s crop of meek bought-and-paid-for politicians and policy makers will look foolish to all.
C’mon Barack!
Yes, Mr. Nixon, we have all been Keynesians for the past 39 years. Go ahead, Mr. Obama – make us Austrians now.
Debt promotion and distribution is not a fundamentally sustainable business model or a blueprint for a sustainable economy because it creates no capital and it shifts wealth from potential capital producers in the private sector (at all income levels) to financial intermediaries, to government, and to foreign capital producers. Legislators and policy makers still do not seem to grasp this, or they are unwilling to behave as though they do.
If Barack Obama were to adopt a more Austrian approach to economics he could make the US economy globally competitive again, (and sustainable to boot), and would encourage the global economy to function harmoniously.
The Austrian School views economies through the prism of natural economic incentives. It relies on the tendency of people to work for capital and then save it for the goods and services they want to consume. Money itself becomes a store of value.
Government policies and intervention would be acceptable, when need be, but only upon approval of the people. The government’s role would be relegated to protector of laws and property rights. It would also be an honest broker when natural imbalances from capitalism occur, as they always do. However, government would not be preeminent and, as it is today, omnipotent.
Would a society that accommodates a freer economic model be the death knell for today’s working class? No, in fact due to the unfathomable and growing debt assumed by developed societies over the last thirty years, the prospects for today’s working class look far bleaker than they would if the working class could earn and save at a global wage that reflected a global equilibrium.
Liberals should be screaming for such a system because it swings power back to the worker and away from the more successful among us that have access to credit. Conservatives should endorse it too because it encourages a more objective society.
Austrian economics was discredited under the twentieth century dominance of Keynesianism, which allows governments to actively insert itself into otherwise naturally functioning private economies.
Politicians and policy makers that control government have conflicting incentives, which introduces subjectivity into more organic economic incentives. Over time, this politically-synthesized subjectivity tends to grow in relation to commercial incentives. The 1971 abandonment of the Bretton Woods system of monetary discipline (abolishing the gold exchange standard), which then allowed governments and banking systems to create as much money and credit (claims on money) as they wished, was a consequence of the subjectivity that active government brings to economies.
Once this subjectivity was accepted and became internalized by most all economic participants, Keynesian societies had to rely on the self-policing of governments (i.e. the human politicians that comprise them) and banking systems.
We can see how that turned out. Who wouldn’t want the power to make money from thin air and spend it as they see fit? The current economic system in the developed world is now corrupted beyond repair, especially given the more natural commercial and economic incentives being practiced and followed in emerging economies. Those of us in the West and in Japan can’t delude ourselves any longer.
Keynesianism replaced true capital with infinite money and credit, which in turn produced general economic mal-investment. It is a system that should be and will be discredited, as the Austrian School was last century.
Austrian economics clearly defines the distinction between money and credit. Further, it argues quite persuasively that growth in unreserved credit ultimately inflates assets, goods, input, and wage bubbles. At the core then of a Keynesian business cycle lies an unreserved credit cycle. Unreserved credit extension creates the illusion of wealth-creating opportunities that further invites mal-investment.
The ultimate reconciliation of credit inflations must be credit deflation that must then be offset by further monetary inflation. (This explains today’s environment.) Under a hard money system, credit deflations would prevail. Under a notional paper money system, monetary inflation prevails. Under either scenario, however, debt deflates in real terms.
Austrian School advocates are frequently identified as proponents of a monetary gold standard. This is really just a subset of their monetary views, which sees the free and unchecked extension of unreserved credit as the ultimate travesty. In today’s society, the monopoly power granted exclusively to banking systems in the developed world is terribly misused during periods of credit expansion. History clearly bears this out. In the end, it is the modern saver who bears the burden during the ensuing credit deflation.
We should change the game and transfer power back towards the private sector. Politicians could then argue about what they feel would be the optimal uses of their tax receipts, such as defense or national health care. Or, we can continue on as we have.
Burning Matches
All global currency values now rely solely upon confidence in global public policy. The current global monetary regime has become a confidence game that people in positions of power are foisting upon the disparate masses. Too harsh, you say? We don’t think so. The current powers-that-be are not operating in the best interests of people across all income levels and they should be called out on it.
The current system ensures no capital will be produced among the most indebted economies, which in turn implies there will be a transfer of wealth to less indebted economies.
All global economies no longer have currencies that act as stores of value, which means that paper currency holders cannot save. One cannot gain future purchasing power by placing earnings in a savings account. Alternatively, one cannot afford to pull his or her wealth or liquidity out of market-based investments without suffering a decline in purchasing power. Worse still, deeply indebted developed societies need even more money to repay outstanding claims (as well as to pay taxes). With risk-free interest rates way below the rate of monetary dilution, no matter where we put our savings we are all holding burning matches.
Have you asked yourself why interest rates are so low when the demand for money is so high? Could it be because governments and banks need the money and have the power to borrow it (from the people) and manage its pricing?
The people have no choice in the matter. Most Americans, for example, have not accumulated unencumbered purchasing power. Or, if they once had it, they have subsequently had to re-allocate it from savings to equity – in homes and corporate shares. (This re-allocation was entirely rational given that saving it over the last twenty years would have provided negative real rates of return when compared to the loss of purchasing power brought about by monetary and credit inflation.)
The net effect is that the great majority of Americans would have negative net-worths, were we to subtract the value of our liabilities from the current liquidation value of our assets. And given US demographics, it seems obvious that the natural pace of diminishment of our liabilities (through amortization) will not be fast enough to produce positive net-worths were we all to stagger our equity liquidations over the next 10 years.
***
We know it is unrealistic to expect global leaders to stand idly by while economies naturally shrink to sizes capable of sustaining longer-term output and employment levels, even if such economic pain would bring global economies out of its contractionary cycle quicker. Given the already very high levels of public and private debt as percentages of annual output and assets, (about 600% and 200% respectively), it stands to reason that without policy intervention, output and assets would shrink/devalue in nominal terms. Public discontent would surely rise, in turn compelling further political intervention.
We shouldn’t expect Paul Volcker to save the day. He was able to raise interest rates to drain the system three decades ago because developed countries were not nearly as levered then. The US budget deficit was about 2.5% of GDP in 1980 as opposed to about 13% today. More importantly, the private sector was nowhere near as indebted and in fact had net savings. Today’s global economy presents a very different set of circumstances.
The insidious cycle of monetary inflation is upon us and there is no way out. The best argument we know for being absolutely sure that monetary policy makers will not withdraw Monetary Base or credit from the system is because they have not done it yet. In their eyes, there will always be an economic imperative to do no harm in the short term. Applied to today’s highly leveraged developed economies, monetary and credit contraction equals output contraction.
The alternative — further credit promotion without end — is unconscionable because it makes the problem worse. Yet that is the plan. Politicians across the spectrum have tacitly agreed that the most rational and expedient way out is to destroy currencies slowly so that debtors do not suffer sudden bankruptcy brought about by overwhelming credit deflation.
If policy makers and politicians want to keep control over their economies (a presumption we are willing to make), then they don’t have a choice but to destroy their currencies in some way, shape or form.
And so we think policy makers are embracing currency debasement with gusto. They are transferring paper-denominated credit from private to public balance sheets and they are doing so on a global basis. We are experiencing global currency devaluations in absolute terms (vis-à-vis natural and sustainable resources); yet these devaluations are being masked because relative currency valuations are being held comparatively constant through policy intervention. This is not the ranting of conspiracy theorists because we can see FX capital flows and the re-pricing of global resources.
***
There is a solution. Mr. Obama, de-value the dollar formally and simultaneously peg it to gold. In doing so, you and other policy makers in the developed world would be able to arrange terms and manage the outcome of a new monetary regime and a sustainable global economy.
As we wrote last July:
Potential Endgame: A Managed USD Devaluation
As we first hypothesized last fall (2008), we think there is a growing likelihood that policy makers will see the handwriting on the wall for the US dollar and act to preempt the utter economic chaos they will have wrought from copious money printing. The pragmatic solution would be to formally devalue, and peg, the US dollar to gold.
It would work like this: The Fed would monetize gold at a substantial premium to its current nominal price. As we quantified through the SGP (the Shadow Gold Price, which uses the Bretton Woods monetary discipline to value paper money to gold), the gold price peg would have to approximate $6000/oz to remediate all past monetary inflation. (Since this discussion in July 2009, that price has risen to about $8,000/oz.) We doubt this would occur. It would be more likely that the Fed would announce a public tender for privately held gold at, say, $3000/oz. Any gold tendered would be funded with the creation of new Federal Reserve Notes.
While this would be massively inflationary it would also be discrete in its application. In other words, once the Fed acquired enough gold from the free market at $3,000/oz, a gold price peg for the dollar could be established and maintained. The solvency of the banking system would be reestablished by such measures, as most assets would appreciate in nominal dollar terms to the point that loan books, etc. would once again be fully-secured.
The positive consequences of formally devaluing and pegging the dollar to gold would be obvious: the burden of repaying public and private sector debt would be inflated away versus the higher nominal revenues, wages and public tax receipts, and by pegging it to gold the US dollar would again gain credibility in the world – and probably increase its reserve status.
The negative consequences would be that dollar holders and creditors (bond investors and banks holding debt as their assets) would find the value of their cash/assets diminish substantially in real terms. Pension funds, bond funds and banks would be hurt.
So what? It is happening anyway, only more slowly. Remember, there are only two ways the financial system can de-lever in today’s environment:
1.Asset/collateral values contract or,
1.Monetary reserves increase
In the first instance, the highly levered banking system is most likely to be wiped out. In the second, the currency is most likely to be ultimately wiped out.
Dollars can gain absolute purchasing power value only if less of them exist tomorrow than today. If fewer dollars were to exist tomorrow, then dollar denominated debt currently outstanding could not be repaid (in fact many more dollars must be printed to pay off future claims on already existing debt). Therefore, dollars cannot gain value in real terms unless no more are printed AND unless dollar-denominated debt is defaulted upon.
That will never happen. Voters will never proactively sacrifice their balance sheets or lifestyles in the short term so they will never let their politicians drain reserves.
Beyond the loud proclamations, there will be no relief forthcoming from Washington given the current regime. Maybe policy makers are just trying to suspend reality as long as they can, hoping something from another dimension provides enough cover to press the economic reset button (as World War II did in the 1930s)? We just don’t know.
To prevent a contracting economy and contracting wealth then, policy makers will continue to contrive new dollars so that they can, in effect, refinance current claims. This process creates even more debt. Thus, the public will eventually figure out that their dollars are debt that cannot be repaid. Dollar holders will stop working.
Mr. Obama, this is your moment. This is your time. This is your place. You are The Man and this would be change we could all believe in.
Best,
Lee & Paul
Paul Brodsky Lee Quaintance
Thursday, February 11, 2010
Serendipity
Chance EncountersA dear friend and mentor of mine died hours ago. I just recieved a FB message from one of his many grandchildren announcing his passing away. Although he was 98 years old, it still surprises you. I felt like a hammer struck me in the chest. And whilst I wallowed in my tears a chat window opened up:
7:45amLindsay
Hey!
7:45amArthur
hi
7:46amLindsay
how are you?
how is sunny spain?
7:46amArthur
very sunny and I am good. How are you>=?
7:47amLindsay
I am very good thanks!
7:47amArthur
where are you?
7:47amLindsay
Montreal
7:47amArthur
oh...cold that is...beautiful city
loved my visit there
7:48amLindsay
yes, it is very cold right now
freezing
ur very lucky to have the sun
7:49amArthur
me gusto much el sol
i have lived for a very long time in warm places, first L.A. and now southern Spain
have you been to Spain?
7:50amLindsay
I was in Barcelona a few years ago
7:50amArthur
so you know the vibe here...Barcelona is great
7:51amLindsay
ya its amazing. Very friendly people, beautiful city filled with art.
7:51amArthur
Spain is like that. do you speak French?
7:51amLindsay
Oui
7:51amArthur
cool
i have spent a lot of time in France...it is only 12 hours by car
7:52amLindsay
my first language is English, I speak English at home and with friends, I am almost fluent in French though.
7:53amArthur
well, i would not say that i am fluent in French, but i do speak it and I can understand it and I really enjoy watch the news in French
satellite dish here
7:55amLindsay
I like the language, most people here speak it so I am surrounded by it most of the time.
you used to live in LA?
7:56amArthur
yes, and worked
have you been?
7:57amLindsay
yes, I love it down there
7:58amArthur
i bet you love the weaher???
why not move there then?
sorry about my spelling...just woke up
7:58amLindsay
The weather is good there.. I would move there maybe, eventually
what did you sed to do down there?
*used to do
7:59amArthur
entertainment, agent and them manager of actors, actresses and a hand full of writers, couple of muscians...
what do you do in Montreal?
8:00amLindsay
I'm finishing my grad degree in marketing and I am also launching a handful of websites
8:00amArthur
cool
i love webstites
8:01amLindsay
ya, its an exciting time for me right now, lots going on
8:01amArthur
what is the one that you are most excited about?
8:01amLindsay
Clothing Brand
then Real estate website
8:02amArthur
well when they are up, let me now i would love to check them out...
it is 2:00 AM in Montreal. Can't sleep?
8:03amLindsay
I will definitely!
I cant sleep :(
lol
happens every once in a while
8:04amArthur
that's ok
8:04amLindsay
Well, Im going to try to get some sleep
8:04amArthur
it is good for you, you know
8:04amLindsay
ya for sure
enjoy the sunny day!! Take it all in for those of use who are freezing!! :)
8:05amArthur
stop thinking...that will put you to sleep fast
i will take some sun for you
8:05amLindsay
ya my brain is too active lol
8:05amArthur
sweet dreams lindsay
thinking is the root of all distress
8:05amLindsay
thank you! Good night/ morning for you
8:05amArthur
ciao!
8:06amLindsay
ciao
Bob Mankoff
From the Desk of Bob Mankoff - February 10, 2010 6:03 PM
From: "New Yorker"
To: arthurimparato@yahoo.com
Dear Dears,
I’m feeling a great deal of affection for all of you. That is why I’m addressing you in this affectionate way. Also, Valentine’s Day is coming up, and expressing affection is cheaper then sending all of you chocolates.
I’m not being ironic here, because, if I were being ironic, I would be saying the opposite of what I mean, and you would understand that I mean the opposite of what I say. Like, if you were fat, and I called you “Tiny,” you certainly wouldn’t take that as a compliment. Also, it wouldn’t be very nice, but it would be somewhat nicer then me calling you “lard-ass.” That would be outright ridicule, such as I employed in this cartoon:
For which, by the way, I want to “apologize” to all the “people of size” I may have “offended.” I’d send you chocolates, but, frankly, you don’t need that any more than you need ironic quotation marks. Look, you’re fat, not stupid like the guy in this cartoon:
Making fun of people, rightly or wrongly, has been a staple not only of cartoons, but of all forms of humor as long as there have been forms of humor, and probably even before that.
I’d speculate that a fat man falling hard on his padded posterior has always been funny and always will be, especially if he’s carrying a big box of chocolates. It’s funnier with a fat man than a skinny man because 1) he’s got all that padding so he won’t really get hurt, and 2) I’m skinny.
Part of having a good sense of humor is being able to laugh at your own misfortunes, but that never comes as naturally as laughing at someone else’s.
When we aim to be funny, it’s always easiest if we have a target.
The justification for all this malevolent mirth, going way back to Aristotle, is that by holding up idiocy to ridicule we might reduce it. That we might, as it were, “laugh folly out of existence.” Syllogistically, a la Aristotle, it might be put something like this:
1) People behaving stupidly will be mocked.
2) People don’t like to be mocked.
3) People will stop behaving stupidly.
That didn’t pan out, did it? Many mocking millennia have passed with no diminution in idiocy, so maybe we need to come up with a new defense of derision, a manifesto of “the rights of ridicule” that would also deal with its wrongs, or maybe not. In any case, that can wait until after Valentine’s Day. Meanwhile, share the “love.”
Cheers,
Wednesday, February 10, 2010
How Does It Feel
This Is Near Where The Rubber Meets The Road(This is Sarah Palin, on the right, according to the left, if she were to win in 2012, campaigning for her second term - 2016)
Cute very often turns into shit. You been there, you done that.
Will Durst Sarah Palin had crib notes inked on her hand while giving a speech where she criticized Obama for using a teleprompter. Hypocrite, or retro- techno geek?
Lisa Recker Master Thespian!
Elizabeth Masloff she was in my back yard yesterday....wonder who I know that went?
Kathy Thompson She was just going un-plugged. It didn't work so good for her with Guitar Hero, either.
Jamie Waterman "Corpse-man".
Arthur Imparato She uses a cheat-sheet to remember her core principles. We knew she was an idiot, but..good grief.
Toni Eis Original palm pilot...
Thaddeus Maximus It's a new twist on talk to the hand.
Jamie Waterman Ok....which would you rather have? A political commentator who makes a couple of crib notes on their hand, or a President who can't seem to be able to say hello without a Teleprompter? Thought so. On the other hand......this President can't even pronounce "Corpseman" WITH the Teleprompter!! And yet MSNBC and every dolt out there wants to make a big deal out of some hand written notes. Sad how the far left has become so out of touch.
Jamie Waterman Considering Palin is just a commentator and not running for anything I don't see why so many on the left get so worked up over her. It obviously can't be because they see her as a threat, do they?
Miles Doug Kehoe She relied on a few key prompt words as compared to almost total dependence on a teleprompter. She made eye contact with her audience as well. I'd say advantage Palin.
Why isn't the press all over Obama fo saying "corose man" ? Why aren't comics all over Obama for saying "corpse man"? Perhaps they are... or will be...
Thaddeus Maximus So let me see if I've got this straight, @Jamie and @Miles would prefer President Palin over President Obama?!?!?! I think you guys are looking for the Dennis Miller fan page.
Jamie Waterman Thaddeus, I never said that and only a moron would get that from my post. Palin is a COMMENTATOR only, and that's pretty much all she should aspire to at this point. I do, however, take issue with those who fawn all over Obama and think he's so intelligent when he cannot even say "corpsman" correctly. THe media would have been all over Palin, or G.... See MoreW. Bush, for that matter, if they mispronounced it. THAT hypocracy is what I have a problem with, and the point that you seem to be missing.
Hope you understood that because I really can't explain it any simpler for the morons who don't get that.
Thaddeus Maximus Wow @Jamie, you revel in the loquacious A-hole role eh?
Jamie Waterman Gee, Thad, and here I thought you could do better than that. Sorry to have overestimated you and your intelligence.
Thaddeus Maximus Jamie smites me, I must go and weep.
Miles Doug Kehoe Thaddeus, you a little boy who needs a government to take care of him. Some day you might grow up to be a real boy and understand concepts like Freedom, Liberty and Limited Government. Someday you may have real heroes like Thomas Jefferson and James Madison instead of Big Government people like Obama, who will confiscate from others to provide for you. Perhaps you can join the co-dependant party :)
Thaddeus Maximus Still weeping... mostly from the laughing.
Miles Doug Kehoe As we are laughing at you :) Who's taking care of the little boy tonight? Government going to tuck you in Thaddy? Government going to fight your fights tomorrow? There, there Thaddy, Big Government will take care of you :)
19 hours agoThaddeus Maximus Wonders why you two toadies are here? Thinking someone here is going to have an epiphany and come around to your myopic point of view? Good luck with that...
18 hours agoMiles Doug Kehoe The concepts of Liberty, Freedom, Independence, Justice and Limited Government are far from myopic. Hard to be a toadie when one believes in individualism.
18 hours agoMiles Doug Kehoe And as far as people having an epiphany, I'd take a closer look at Massachusetts Thaddy!
Jamie Waterman Thaddeus, I am not trying to convert anyone, especially someone, like yourself, who's consumed too much of the Kool-Aid. I am just pointing out the liberal hypocrisy. It's just too bad that people like you (And to some extent, Will, although I know he's a comedian/commentator, so it's to be expected) cannot seem to see or understand that. Instead, you get all pissy when someone like Miles or I point it out and yet offer nothing substantive to back up your bull$hit. To people like you, Obama can do no wrong and will keep screaming "He's only been in office (insert relevant amount of time here)! We just need to give him more time!!!" and will continue to scream that months if not years after he leaves office.
The ball is in Obama's court and has been for over a year, and that year he's accomplished little to nothing at all.
You can whine that it's all the fault of the evil Republicans, but then you fail to acknowledge that Democrats have squandered the biggest majority in recent history. You cannot put that on Republicans. You cannot polish a turd, and that's pretty much what Dems presented in the health care bill, so far Obama's larges policy failure. Never in recent history has one side so solidified against the other. Once again you cannot put that on Republican shoulders.
Now, with all that, do I hope to change any minds? Of course not, as your mind is made up.
Thankfully, for the rest of us, there are many in the electorate who still think for themselves and I guarantee you you'll see that in November. ...ANd, to quote Sarah Palin..."Hows that Hopey Changy stuff workin' out for ya'?"
Thaddeus Maximus Hopes you are getting paid by the word.
17 hours agoSue Ann Smith @Will, I was bemused that she had to remind herself about tax cuts.
17 hours agoElizabeth Masloff so Jamie what do you do for a living, just curious?
15 hours agoRon Farnsworth Somebody told me that Jonnie Carson used to write notes on his hand all of the time. Remember how he used to shield his eyes from the lights whenever he would look up into the audience?
13 hours agoRichard Quintanilla http://www.colbertnation.com/the-colbert-report-videos/264042/february-08-2010/sarah-palin-uses-a-hand-o-prompter
Arthur Imparato The government has been massively failing its people. It all started with with Ronald Reagan. Clinton was a joke. Bush was the worst President in the history of this country. Obama is not doing what was hoped of him. The entire congress has become a frozen block of sh*t, unable even to pretend anymore to do something. And now, even the Supreme Court has gone off the rails and handed Big Business something that they themselves never dreamed would be possible. We have no one representing the people of this country. No one. We are all alone now.
People who look to Palin to ride in on a white stallion and "fix what's wrong" with this nation are imbeciles and nincompoops. They lack any semblance of actual intelligence on an level.
Palin is a great threat to our nation. She would make GWB look like a rocket scientist. She is a spineless self-serving trollop, a real media whore. The Palin's are dirty rotten liars, they think they can fool us with their bullsh*t. They remind me of balloon boy's parents. ... See More
She is dangerous because really stupid people like her and most of our country is made up of dumb fat uneducated slobs. She herself is dishonest, foolish and self-centered. She is a moron and potentially capable of leading a band of brainless nincompoops to a place that we do not want to see nor even know about.
While we all get spun around about teleprompters and words written on hands, our nation is coming apart at the seams. The people in Washington, all of them from both sides of the aisle are failing their country. They are all owned, lock stock a barrel by Big Business. And believe me, Big Business loves us to fight over word assisted aids.
Michael Iapoce Waterman, your argument is truly laughable. Obama HAS been in office just a year, during which he's gotten absolutely no cooperation from Republicans on anything. Want to talk about hypocrisy? Republicans are now voting against bills they orginally co-sponsored! Once Obama is for it, they're against it--and screw principles, the American people, and anything else other than political gain. And how about Republicans taking credit for local stimulus projects after they voted against the stimulus? (Some Republican should write a book--"Profiles in Cowardice"). Bush had eight years to destroy the economy--and did a heck of a job. He inherited a budget SURPLUS and quickly turned it into the biggest deficit in history with tax cuts for the wealthiest and a war based on lies. The economy has already begun to turn around...but it will take more than a year to undo the Bush damage.
Elizabeth Masloff Clintons war plan is like his sex life, wham bam thank you mam...and then let's talk about it forever!-The Bushs are always at war-- from day 1....it never ends...which one do you want?
Arthur Imparato A country divided serves only our Overlords, They Who Have All The Money.
Wake Up. Please, for the children.
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