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January Low Economic Content Thread January Low Economic Content Thread

01-12-2010 , 10:11 PM
Quote:
Originally Posted by The 13th 4postle
What are the option A and B columns?
Option A: =(B4-B3)/B3*100

Option B: =(B3-B4)/B4*100
01-12-2010 , 10:18 PM
Does it make sense to get a negative number for GDP growth when the GDP goes up?
01-12-2010 , 10:38 PM
Quote:
Originally Posted by Borodog
Been thinking a lot about the after hours pumping of equities. Heard some commentator saying something a while back like "market cap is up $6T". Where did this wealth come from? Nowhere, of course. The market is being pumped on extraordinarily low volume. Imagaine 100 guys own a copy of a comic book, and two guys decide to start selling a copy back and forth between themselves, $2, $3, $4, $5, and this sales price is imputed to all the other owners. Even though the amount of money actually changing hands is tiny, the total "wealth" that the comic book owners believe they have shoots up rapidly, $200, $300, $400, $500. What a great investment they believe. The problem comes when a significant number of them decide they have to cash out their "wealth" at the same time, say because the economy continues to worsen and they lost their jobs. Suddenly they discover there are no real buyers and there are tens of comic books on the market with no buyers, and the price must collapse.

/rambling
Definitely. Change "comic books" to "Baby boomers on the cusp of retirement looking to all simultaneously begin liquidating IRAs/401Ks for retirement income" and expect virtually the same outcome.
01-12-2010 , 10:43 PM
Also this is why equity wise I typically look first at dividend yield, the company's long term prospects for maintaining that dividend, and then the prospect for appreciation (which imo, outside of the current liquidity fed rally, I feel is universally weak right now).
01-12-2010 , 10:47 PM
Quote:
Originally Posted by Borodog
Does it make sense to get a negative number for GDP growth when the GDP goes up?
after a couple of hours of poker my brain starts to short out.

haha thanks for showing me the light boro.
01-13-2010 , 06:36 AM
US must cut spending to save AAA rating, warns Fitch

Quote:
Fitch expects the combined state and federal debt to reach 94pc of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt. Most fiscal experts view this level as dangerously close to the point of no return for debt dynamics.
Quote:
Stephen Lewis, of Monument Securities, said a US downgrade would rip the anchor from the global system and pose a grave risk to the stability. "This would set off tremors, making all dollar assets less secure. You could argue that the reason why the rating agencies have not already downgraded the US and Britain is that they fear the consequences for the global economy if they pull the trigger," he said.
01-13-2010 , 03:05 PM
Like Fitch would ever risk its government supported Oligopoly by cutting the credit rating of the U.S.

Re: equities, I think you have to be truly insane to put a significant chunk of money in them right now. P/E ratios are still absurdly high, the "recovery" has not been a recovery at all, unemployment is high and going higher, there is massive currency instability, and when people start retiring en mass they are going to liquidate. I just don't get it.
01-13-2010 , 03:19 PM
I find it amazing that there are plausible arguments for the so-called "black swan" appearing first in Japan, China, the UK, the US, Ireland, Greece, Spain, Portugal . . .

Like I said before, all the swans are black. It's just that the Fed is furiously trying to paint them all white.
01-13-2010 , 03:23 PM
Quote:
Originally Posted by Borodog
I find it amazing that there are plausible arguments for the so-called "black swan" appearing first in Japan, China, the UK, the US, Ireland, Greece, Spain, Portugal . . .

Like I said before, all the swans are black. It's just that the Fed is furiously trying to paint them all white.
Something I was thinking about. Black swan could equal the government's ticket to selling the boatload of "safe" T-bills it needs to finance its enormous deficits.
01-13-2010 , 03:25 PM
Yes, I think we talked about that scenario before in one of these threads.
01-13-2010 , 03:38 PM
More AEP on Japan. The discussion of pre-hyperinflation budget deficits is verah innarressin.


http://blogs.telegraph.co.uk/finance...wing-in-japan/
01-13-2010 , 03:43 PM

Quote:
ANALYSIS OF CONFERENCE AGREEMENT ON THE FISCAL YEAR 2010 DEFENSE APPROPRIATIONS BILL (H.R. 3326)

The Conference agreement on the Fiscal Year 2010 Defense Appropriations bill was adopted by the full House on Wednesday, December 16, roughly 24 hours after it became available for public viewing. The Senate is expected to act on the legislation this week. The bill includes $497.7 billion for the Department of Defense’s annual “base” budget (not including funding for military operations in Iraq and Afghanistan). This is roughly $3.4 billion below the Obama Administration’s request ($501.1 billion).

In addition, beginning with its Fiscal Year 2010 budget submission, the Defense Department includes funding for military operations in Iraq and Afghanistan, which were previously funded separately, as part of its annual budget request. For FY 2010, the Administration requested $128.6 billon for “Overseas Contingency Operations,” funds which primarily support continued military operations in Iraq and Afghanistan. The Committee approved $128.2 billion, $348 million below the request.

This bill does NOT include funds to support the “surge” of 30,000 additional troops to Afghanistan proposed by President Obama on December 1, the cost of which conservative estimates place at an additional $30 billion. Thus, despite its earlier intention not to use supplemental appropriations to fund the war beyond FY 2009, the Obama Administration is expected to request additional war funding beyond the $128 billion included in this legislation for FY 2010.
http://www.nationalpriorities.org/ne...priations-bill


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

Obama wants record $708 billion for wars next year

Quote:
WASHINGTON – President Barack Obama will ask Congress for an additional $33 billion to fight unpopular wars in Afghanistan and Iraq on top of a record $708 billion for the Defense Department next year, The Associated Press has learned — a request that could be an especially hard sell to some of the administration's Democratic allies.

The extra $33 billion in 2010 would mostly go toward the expansion of the war in Afghanistan. Obama ordered an extra 30,000 troops for that war as part of an overhaul of the war strategy late last year.

Military officials have suggested that the 2011 request would top $700 billion for the first time, but the precise figure has not been made public.
01-13-2010 , 04:16 PM
I can't remember if I already made this prediction, but I'm calling for debt swaps in 2010.

Quote:
The Feds have to sell nearly $2.5 trillion of debt to cover a massive budget deficit and refund maturing paper, easily the largest cash call in history.

Pile on top of that billions more in offerings from states and municipalities bleeding white. By end 2010 total government debt will rocket to a staggering 350% of GDP. Throw in private debt requirements, like the rolling over of a trillion dollars worth of commercial real estate financing and your garden variety corporate offerings. The rush to borrow has started overseas too, with $75 billion in Eurobonds floated by sovereigns and corporations in the first two weeks of the year alone. It’s clear that the bond markets of all descriptions are going to become very crowded places, driving rates irresistibly higher.

At some point, the world runs out of buyers, and the long bond yields will begin their inexorable climb from the current 4.6% to 5.5%, 6%, and higher.
I envision a scenario where currency swaps become debt swaps. The Fed and Central Bank X each print a pile of funny money. The Fed buys X-notes with dollars, and vice versa. The Fed then uses X-notes to buy X-bonds, while CBX buys T-bills with dollars. The effect, each central bank is monetizing debt with plausible deniability, supporting their bond markets and holding down yields.
01-13-2010 , 04:16 PM
01-13-2010 , 05:08 PM
I'm conflicted. I think TBT is awesome, but am nervous that the Fed will step in w/QE2 and continue to bludgeon the yield on the long bond down. Yields are coming up eventually, but you know, bernankepullingarabbitoutofhishat.jpg and all that may cause some delays.
01-13-2010 , 05:55 PM
Right, which is why I only quoted the above and tried to pick a rabbit, rather than endorsing his conclusions.
01-13-2010 , 06:14 PM
Sometimes people contend Keynes was about fiscal policy and not monetary policy/interest rate intervention, drawing a distinction between monetarist type policy and true Keynesianism fiscal intervention. There is some truth to that, but Keynes was really more about not monkeying around with short term interest rate targets.

One core tenent of Keynes' economic theory is advocating permanent and stable low long term interest rates. A reason being long term low rates (i.e. cheap and easy money) are key to long term economic growth in Keynes' view (sort of "eternal demand stimulation.")

Keynes was worried about short-term, counter cyclical monetary policy causing an expectation that interest rates would be raised in the future, leading to a liquidity trap where investors hoard cash during periods of lowered short term rates because they expect rates to rise in the future. In other words, investors would know the Central bank would have to eventually raise rates in the future and act accordingly.

Not surprisingly, managing and influencing "inflationary expectations" is an important monetary policy consideration for modern economists like Krugman and Bernanke who favor short term interventional monetary policy goals.

For Keynes, discretionary countercyclical monetary policy (i.e. moving interest rates in the short term in reaction to economic conditions) can be ineffective, not because it is monetary policy and monetary policy is inherently flawed, but because discretionary countercyclical monetary policy generates uncertainty as to long term rates, causing a liquidity trap.

A low enough long-term rate of interest cannot be achieved if we allow it to be believed that better terms will be obtainable from time to time by those who keep their resources liquid. The long-term rate of interest must be kept continuously as near as possible to what we believe to be the long-term optimum. It is not suitable to be used as a short-period weapon.” (“How to Avoid a Slump,” The Times, Jan. 13, 1937, p.13).

The Keynesian dream = permanently slammed interest rates.
01-13-2010 , 06:30 PM
If you really want to know how literally insane Keynes was, read no further than the rarely discussed chapter 24 of the General Theory:

http://www.marxists.org/reference/su...heory/ch24.htm
01-14-2010 , 10:31 AM
madhedgefundtrader's Don’t bet against the 220 year trend for the dollar: I don't endorse all his investment views, but:
Quote:
...Our first Treasury Secretary, Alexander Hamilton, found himself constantly embroiled in sex scandals. Take a ten dollar bill out of your wallet and you’re looking at a world class horndog, a swordsman of the first order. When he wasn’t fighting accusations in the press and the courts, he spent much of his six years in office orchestrating a rescue of our new currency, the US dollar.

Winning the Revolutionary War bankrupted the young United States, draining it of resources and leaving it with huge debts. Hamilton settled many of these by giving creditors notes exchangeable for then worthless Indian land West of the Appalachians.As soon as the ink was dry on these promissory notes, they traded in the secondary market at 25% of face value, beginning a centuries long government tradition of stiffing its lenders, a practice that continues to this day.

My unfortunate ancestors took him up on his offer, the end result being that I am now writing this letter to you from California—and am part Indian. It all ended in tears for Hamilton, who, misjudging former Vice President Aaron Burr’s intentions in a New Jersey duel, ended up with a bullet in his back that severed his spinal cord. Cheney, eat your heart out.

Since Bloomberg machines weren’t around in 1782, we have to rely on alternative valuation measures for the dollar then, like purchasing power parity, and the value of goods priced in gold. A chart of this data shows an undeniable permanent downtrend, which greatly accelerates after 1933 when we ended the gold standard and moved to a fiat paper currency.

Today, going short the currency of the world’s largest borrower, running the greatest trade and current account deficits in history, with a diminishing long term growth rate is a no brainer.
...

I’m sure that if Alexander Hamilton were alive today, he would counsel our modern Treasury Secretary, Tim Geithner, to talk the dollar up, but to do everything he could to undermine the buck behind the scenes, thus over time depreciating our national debt down to nothing through a stealth devaluation. Given Geithner’s performance so far, I’d say he studied his history well. Hamilton must be smiling from the grave.
01-14-2010 , 11:06 AM
Is a hard gold peg with exchange type standard for a currency also a "fiat currency," as it too exists by virtue of a government decree - the set exchange rate (e.g. $20 per troy OZ gold)?

Maybe in a linguistic sense, but the the limitation of the gold exchange peg is a distinguishing characteristic when thinking about fiat in the economic sense of fiat currency.

Under the gold standard, I could take my $20 and exchange it for an ounce of gold, as could everybody else in the world that wanted to, even simultaneously. Thus the limitation: as long as the printed money supply (i.e. the printed money's value) didn't exceed the 20 to 1 ratio to gold, no price inflation and no exchange of dollars for gold.

If the government began printing mad more money, than I might exchange 20 for an ounce of gold but I would probably demand more than $20 if I exchanged it again. The ounce of gold didn't change, its still an ounce. The dollar went down because there are many more of them (monetary inflation).

This gold exchange ratio is the premise that is explored in much more depth Gibson's Paradox and the Gold Standard. Obviously its way complex and highly technical and broader than the simplistic discussion above but also pretty amazing.

Here is an older article by Reginald Howe, the attorney who brought the first federal lawsuit alleging manipulation of the gold price (That lawsuit was dismissed on technical grounds in U.S. District Court in Boston in March 2002 - 38 page Order) discussing this paper: August 13, 2001. Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices
01-14-2010 , 04:23 PM
What is going on in Iceland? This is simplistic, but is it accurate?

Quote:
Another little known fact might see the light of day:
It is now estimated that Landsbanki, the mother-corporation of Icesave has got indeed enough assets, which when they are sold slowly will return more than enough money to pay for the reimbursement of the saving-account depositors.
However, after printing themselves enough Pounds or Euros, the British and Dutch governments paid out the depositors of Icesave themselves – immediately, without waiting even until any preliminary numbers were in.
Then they called the whole thing “a loan” to Iceland.

And now the British and Dutch government is blackmailing the Icelandic government into paying back that “loan”, nobody asked them for, with interests and on a long term basis. And of course “repayment” will have to be in Pounds and Euros, which Iceland cannot just print.
http://notsylvia.wordpress.com/

Last edited by ajmargarine; 01-14-2010 at 04:29 PM.
01-14-2010 , 04:28 PM
another summary:

Quote:
A historical moment occurred in Iceland on January 5th 2010 when the president chose to block a bill from the parliament to repay 3.6 billion pounds ($6.3bn) to the British and Dutch governments and passed the responsibility of accepting or rejecting the bill on to the people of Iceland. This bill was the second one intended to clear up the Icesave dispute. 23% of eligible voters had signed a petition pleading with him to do just that.

A media and governmental spin of fear mongering is occurring every day now in order to coax the Icelandic people into passing a vote out of fear and thus accept this bill that would put the nation into debt slavery for the unforeseeable future. The government insists that the nation will face isolation and boycott from the international community if they will not pass the bill.

However, this tiny nation of approx. 320,000 people has a good case for saying it won't pay and even better case for saying it can't.

Under EU law and EEA law, it's debatable whether Iceland is obliged to pay. The total bill amounts to hardly more than a third of Britain's annual aid budget. If they insist on the nation to pay the full amount it could cripple the nation who is far from recovering from the total financial and banking collapse of 2008. EU member states have flexed their muscles by putting a blockage on the IMF program unless Iceland agrees on paying the full Icesave amount with staggering interest rate.
01-14-2010 , 06:40 PM
More comic book thoughts.

The problem is that people all over the world are all holding assets that they believe are stores of purchasing power and wealth generators that are bubbled compared to their underlying value, their ability to preserve and generate purchasing power. So the total "market value" of all the various equities and debt instruments is impossibly large compared to the producivity of the underlying companies or economies. As people realize this there will be a rush out of these assets (for example the sovereign debt of Greece) in an attempt to preserve the purchasing power that debt supposedly represents. Some purchasing power will be wiped out, but some will find it's way into other assets, heightening their bubbles.

As people flee these assets by selling them, purchasing power flows into currencies, strengthening them. But this can be disastrous, as servicing debt demoniated in the currency becomes that much more expensive and difficult. The most liquid asset in the world is the world reserve currency, the dollar. As people or institutions try to flee a significantly sized dollar denominated asset, the resulting runup in the dollar could cause defaults on dollar denominated debt to spread like a virus. Wiping out dollar denominated debtors, including the US government, state and local governments, American corporations, banks, and ordinary citizens and their bank accounts. This would be cataclysmic, and the current political order would not survive.

This is why Ben Bernanke will print as many dollars as are necessary to avoid this, and the deflationists are wrong. Certainly, as people flee an asset, that asset deflates, often catastrophically. But unless the money supply falls, this will never spread into widespread consumer deflation, and this will never happen, because Ben Bernanke will never allow it.

So as countries around the world sacrifice their real economies to keep their zombie economies alive, more and more sovereigns and corporations will collapse, with people fleeing into was is liquid in the short term and what they believe is safest in the long term. That means runups in the dollar and then "quantitative easing". That means a huge bubble in UST. It may mean that Uncle Sam might have absolutely no problem floating his debt if **** is coming off the hook all over the world, sovereigns are defaulting, equities are crashing, etc. This does NOT mean that Ben will not be monetizing the debt; he will. He will just be doing it indirectly. This of what is being done with agency debt write now: institutions are selling the Fed their MBS, and taking the newly printed dollars and buying UST. This is exactly the sort of process I am talking about. The Fed is ahead of the game here, supporting values by buying the assets up rather than allowing them to collapse and make the crisis explicit, but it's the same thing. People are escaping these asset classes to classes they believe are safer, at least in the short term. The end result of this policy of course is that the Fed monetizes all the world's dollar denominated just and ends up with an enormous ballance sheet filled with toilet paper that there is no market for. Guess what happens then.

Ultimately all of this simply must lead to the remonetization of gold.

/rambling incoherence
01-14-2010 , 07:05 PM
I Boro
01-14-2010 , 07:14 PM
Quote:
Originally Posted by Borodog
More comic book thoughts.

The problem is that people all over the world are all holding assets that they believe are stores of purchasing power and wealth generators that are bubbled compared to their underlying value, their ability to preserve and generate purchasing power. So the total "market value" of all the various equities and debt instruments is impossibly large compared to the producivity of the underlying companies or economies. As people realize this there will be a rush out of these assets (for example the sovereign debt of Greece) in an attempt to preserve the purchasing power that debt supposedly represents. Some purchasing power will be wiped out, but some will find it's way into other assets, heightening their bubbles.

As people flee these assets by selling them, purchasing power flows into currencies, strengthening them. But this can be disastrous, as servicing debt demoniated in the currency becomes that much more expensive and difficult. The most liquid asset in the world is the world reserve currency, the dollar. As people or institutions try to flee a significantly sized dollar denominated asset, the resulting runup in the dollar could cause defaults on dollar denominated debt to spread like a virus. Wiping out dollar denominated debtors, including the US government, state and local governments, American corporations, banks, and ordinary citizens and their bank accounts. This would be cataclysmic, and the current political order would not survive.

This is why Ben Bernanke will print as many dollars as are necessary to avoid this, and the deflationists are wrong. Certainly, as people flee an asset, that asset deflates, often catastrophically. But unless the money supply falls, this will never spread into widespread consumer deflation, and this will never happen, because Ben Bernanke will never allow it.

So as countries around the world sacrifice their real economies to keep their zombie economies alive, more and more sovereigns and corporations will collapse, with people fleeing into was is liquid in the short term and what they believe is safest in the long term. That means runups in the dollar and then "quantitative easing". That means a huge bubble in UST. It may mean that Uncle Sam might have absolutely no problem floating his debt if **** is coming off the hook all over the world, sovereigns are defaulting, equities are crashing, etc. This does NOT mean that Ben will not be monetizing the debt; he will. He will just be doing it indirectly. This of what is being done with agency debt write now: institutions are selling the Fed their MBS, and taking the newly printed dollars and buying UST. This is exactly the sort of process I am talking about. The Fed is ahead of the game here, supporting values by buying the assets up rather than allowing them to collapse and make the crisis explicit, but it's the same thing. People are escaping these asset classes to classes they believe are safer, at least in the short term. The end result of this policy of course is that the Fed monetizes all the world's dollar denominated just and ends up with an enormous ballance sheet filled with toilet paper that there is no market for. Guess what happens then.

Ultimately all of this simply must lead to the remonetization of gold.

/rambling incoherence
You know what this sounds like? The paradox of thrift on crack.

      
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