Monday, November 29, 2010

Cyber Deflation

November 29, 2010
Cyber Monday attracts an estimated 107 million shoppers

That's a 10% increase from last year, the National Retail Federation says.

So why is this deflationary you might ask?
Full time employees: 24,300
2009 revenue: $24,509,000,000
Revenue per employee: $1,008,600
Employees per $100k sales: 0.10

Full time employees: 322,000
2009 revenue: $44,043,000,000
Revenue per employee: $136,780
Employees per $100k sales: 0.73

Full time employees: 161,000
2009 revenue: $23,489,000,000
Revenue per employee: $145,894
Employees per $100k sales: 0.69 requires just 1/7th the number of employees per shopping dollar spent.

The following chart shows the failure of the exponential growth in retail trade employment. I have added an exponential trend line based on the 51 years of data from January 1939 to January 1990.

Click to enlarge.

Now let's look at the difference between the two.

Click to enlarge.

We are now over 8 million jobs below the long-term trend. I think it goes a long way towards explaining the rise in unemployment in general. In fact, if those 8 million jobs actually existed then employment would look fairly normal.

If the Ben Bernanke's, the Paul Krugman's, and the Jim Cramer's of the "new world" think they can create jobs by inflating the price of crude oil, then I would argue that they've got another thing coming. All it is going to do is encourage people to shop from home even more and accelerate the demise of our country's many shopping malls.

September 21, 2010
Mad Money: Low Interest Rates? Buy These Stocks

And because the Fed kept interest rates low and companies are delivering strong earnings, he thinks this is a "greenlight" for the kind of job creation that would help spur an economic recovery.

I turned bearish in 2004 due to low interest rates and rising debt loads. He might not realize it, but he's indirectly telling me to remain bearish.

November 29, 2010
Mad Money: Cramer Picks His Fave Department Store

So what criteria seperates [sic] Macy's from the rest?

In my opinion, over the long-term picking Macy's is a bit like picking your favorite Titanic movie.

Perhaps I am wrong to think this way. In any event, I have been bearish for 6 years. I think it may very well be a permanent condition.

See Also:
Retail Trade Bubble

Source Data:
St. Louis Fed: Retail Trade

Saturday, November 27, 2010

Today's Dose of Propaganda

November 27, 2010
Higher gas prices won't slow most holiday shoppers

What's a few extra bucks? Higher gas prices won't hurt holiday spending much, shoppers say

I bet you are wondering how many shoppers offered an opinion. The answer appears to be two. Here's a summary of the results.

Here's anecdotal evidence that supports the claim.

Cassie Peterson, 25, a health coordinator from St. Paul, said higher prices won't change what she buys for her nieces...

Here's anecdotal evidence that weakens the claim.

In Hartford, Conn., Michael Hardaway, 54, paid $3.10 a gallon for gas for his Chevy Silverado. He said he will reduce his spending on Christmas gifts...

Here's additional anecdotal evidence that doesn't even mention holiday shopping. I therefore had to throw it out of my analysis. It is a useless data point.

"It stinks," said stockbroker Jack Landers, 64, as he paid $3.11 at a service station...

Let's follow the logic here.

1. Higher gas prices will definitely not slow one person's shopping.
2. Higher gas prices will definitely slow another person's shopping.
3. Therefore, "Higher gas prices won't slow most holiday shoppers."

It's hard to fault the analysis (other than the fact that a sample size of two is rather small and error prone). Half is certainly not most. This is fantastic news of course. Higher gas prices won't slow "most" holiday shoppers.

Since this is an Illusion of Prosperity blog I figure I can use that very same anecdotal evidence to offer up some doom and gloom. Brace for it. You might consider sitting down first if you are prone to fainting and/or you work in the retail trade industries.

Anecdotal evidence suggests that higher gas prices slow 50% of holiday shoppers!

Friday, November 26, 2010

More Black Friday Thoughts

November 26, 2010
What recession? Shoppers eat up Black Friday deals

Sharply reduced prices on flat-screen TVs helped fuel many stores' sales, according to Marshal Cohen, market research analyst at NPD Group Inc. Stores were grappling with a glut of TVs heading into the season because they had overestimated consumer demand.

Let's travel back in time to the Black Friday just before the latest recession began (December 2007).

November 23, 2007
Strong Black Friday showing for retail shares on Wall Street

Shoppers wrestle for discounted items at Circuit City, whose stock rose the most since 1980 on a 19% gain.

How did that ultimately work out for Circuit City?

November 10, 2008
Circuit City files for bankruptcy

Struggling electronics chain Circuit City announced Monday that it has filed for chapter 11 bankruptcy.

Simple Advice for Zapatero

November 26, 2010
PM Zapatero says no chance Spain will need bailout

MADRID (AP) — Prime Minister Jose Luis Rodriguez Zapatero said Friday there was no chance Spain would seek a bailout.

Have you considered avoiding the use of the word "bailout" for a few weeks? That might work.

July 15, 2008
Spain's Crisis

Prime Minister Jose Luis Rodriguez Zapatero has admitted that the economy has entered into a 'crisis,' after avoiding that word for weeks.

August 13, 2008
The State of Denial

Zapatero belatedly used the word "crisis" to describe the country's situation last month, touching a nerve with Spaniards...

Okay, okay. Maybe that won't work. Let's try a different angle instead.

Perhaps you could let Rafael Pacheco and David Taguas do all the talking? They both had economic denial down to a dismal science. Perhaps they've still got the touch.

Fine Print Disclaimer:

A sarcastic reference to "they've still got the touch" might mean "touching a nerve" but certainly not a nerve within one's "junk". We're talking about "proud" Spaniards here, not "patriotic" Americans.

A sarcastic reference to "patriotic" is intended for those who see themselves as defenders "against presumed interference by the federal government" especially in regards to "individual rights". It is not intended for TSA workers or those who voted for the Patriot Act.

Thursday, November 25, 2010

Black Fridays (Musical Tribute)

Black Friday (1869)

Black Friday, September 24, 1869 also known as the Fisk/Gould scandal, was a financial panic in the United States caused by two speculators’ efforts to corner the gold market on the New York Gold Exchange.

Black Friday (1881)

The Eyemouth disaster was a severe European windstorm that struck the southern coast of Scotland, United Kingdom, specifically Berwickshire, on 14 October 1881. 189 fishermen died, most of whom were from the village of Eyemouth. Many citizens of Eyemouth call the day Black Friday.

Black Friday (1939)

The Black Friday fires of January 13, 1939, in Victoria, Australia, were considered one of the worst natural bushfires (wildfires) in the world, and certainly the single worst in Australian history as a measure of land affected.

Black Friday (1978)

Black Friday is the name given to September 8, 1978 (17 Shahrivar 1357 AP) and the shooting of protestors by security forces in Zhaleh (or Jaleh) Square in Tehran, Iran. The deaths and the reaction to them has been described as a pivotal event in the Iranian Revolution when any "hope for compromise" between the protest movement and the Shah's regime was extinguished.

Black Friday (2010)

“I believe it’s going to be the biggest Black Friday we’ve had,” Toys “R” Us Inc. Chief Executive Officer Jerry Storch said in a Nov. 24 telephone interview. “Everyone has been focused on decreasing prices and these prices may never be repeated.”

See Also:
The Full List of Black Fridays

Wednesday, November 24, 2010

The Sarcasm Report v.70

Is Your Broker Looking Out for Your Best Interest?

Ask your broker what he plans to do if the market suddenly crashes, or if it begins to significantly increase. He should have an answer readily available.

It would be my hope that my online broker does absolutely nothing. I probably won't be that lucky though. They'll no doubt send me an email telling me about upcoming free seminars to theoretically enhance my trading profits.

Is he only using index funds? While index funds are very inexpensive, in the current market environment, they are not your best investment option.

One way to boost returns in a flat market is to increase the fees spent on stock market funds. No doubt about it.

The stock market is currently "range bound," meaning that it will experience volatility within a certain range, up and down, over the next few years (similar to the 1970s).

We can simply take the stock market's current trend and extrapolate it forward? For the first time in recorded history, we now know exactly what the market will be doing over the next few years? Genius!

While indexing will not produce outsized returns, the right active manager will take advantage of that volatility and actually make your account grow.

If hindsight shows that the market was truly range bound for several years, then hindsight will also show that for every dollar that the "right" active manager makes there will be a dollar that the "wrong" active manager loses.

Here's some free advice. Invest a small portion of your nest egg in rabbits' feet and four-leaf clovers before trying to pick the "right" active manager. I doubt it would help but it certainly couldn't hurt!

Tuesday, November 23, 2010

Street Sliding USA (Musical Tribute)

It snowed in the Seattle area last night. Keep in mind that this is footage from just one street. Similar sliding can be seen at other streets no doubt. For example, be sure to check out Wall Street.

Be sure to check out the transit bus at 2:45 too. Somebody call the Transportation Security Administration. There's definitely been a breach in security!

Sunday, November 21, 2010

Our Gold-Plated Economy?

November 19, 2010
Black Friday's dirty little secrets

Because of surging gold commodity prices, jewelry manufacturers are paying much more for the precious metal than last year. So one way that jewelers are keeping their own costs, and retail prices down reasonable for consumers, is by selling more gold-plated or gold-filled jewelry.

Many advertised deals on gold jewelry will use phrased such as "gold-filled" or "gold-overlay." This is not the same as solid gold, said Kevin Adkins, a graduate gemologist.

"When you see those terms, know that you're buying silver with a plate of gold coating over it," said Adkins.

Is it any wonder silver has been doing much better than gold over the last three months? Score one for the silver bugs. In my opinion, silver isn't cheap at these prices. However, at least it doesn't cost $20,000 per pound.

November 19, 2010
Rep. Brad Miller: “Protecting bank solvency has been a goal of Treasury that I do not share”

The belief here is that the servicer is intentionally avoiding any modifications on those loans so their parent company doesn’t have to write down the second lien.


We have to make sure the systemic risks are not concealed from us.


I can’t imagine how they could do a stress test without looking at all the potential liabilities.


There is no possibility of another bailout. Not any possibility Congress will come riding to the rescue. Even if the alternative is an economic cataclysm. This may ultimately give us the opportunity to see how resolution authority works.


measuring layer thickness on gold plated surfaces

"gold plate" = 20 microinches

A microinch is one millionth of an inch. Gold plate is therefore 1/50,000th of an inch. I bet we could gold-plate our entire economy with that, lol. Sigh.

Blue Red Robin

November 18, 2010
Red Robin Downgraded

The company expects negative same store sales and cost inflation in the fourth quarter of 2010. We thus remain apprehensive regarding the stock in the near term, given eroding margins and lagging same store sales due to a decline in traffic.


Moreover, the stiff competition from other resturants...

What's Ben Bernanke's solution to the problem?

1. Decrease same store sales.
2. Increase cost inflation.
3. Increase stiff competition.


That's not what he's saying he's trying to do but let's think this through.

1. Ben Bernanke believes that devaluing our currency should lead to more investments. He wants more growth. All things being equal, more investments in the restaurant industry should lower same store sales and increase competition.

2. Ben Bernanke believes that devaluing our currency should lead to more inflation. He wants more inflation. All things being equal, that should lead to higher commodity prices and increased cost inflation.

I continue to remain bearish on our overall "resturant" industry.

Some might argue that "Resturants" is not actually a word. However, if we can't trust the financial experts to give us 100% accurate information 100% of the time, then who can we trust? ;)

Saturday, November 20, 2010

It's Time for the WABAC Machine

November 26, 2009
John Paulson's Future Performance: No Guarantees

Post-2007, the perception of Paulson went from career underachiever to seer. He is now celebrated, and his recent stakes in Citigroup(C), Bank of America (BAC) and gold are seen as green lights to other investors to buy.

If Paulson told us tomorrow that Martians were going to invade us next month, there would be a run on Martian army gear.

Buy Martian army gear now or forever be priced out!

Survivorship bias leads to celebrating the winners and -- usually -- overinterpreting their moves leading up to their success and trying to apply these actions to future situations. At least no one in the mainstream media has yet called John Paulson "the next Warren Buffett."

This would be one reason to question the premise of my blog of course. I have survivorship bias tendencies. No doubt about it. I'm simply trying to survive this ongoing financial crisis.

Remember Eddie Lampert? That's what Business Week and countless other magazines called him back in 2004. Although many still defend Lampert as smart, his past five years of performance have been very disappointing, and his Sears Holdings (SHLD) investment specifically has been ... early.

Oh we remember Eddie Lampert here. Let me assure you of that.

May 8, 2008
Our Pillars of Retail Strength

I refer you specifically to the comments. It is a day that will live on in heckling heckling heckling infamy (heckling the heckler who heckled the heckling of Sears).

Stock price then: $93.45
Stock price now: $63.75

But hey, Sears will be open on Thanksgiving Day this year. If that isn't proof that Sears is a "Pillar of Retail Strength" then I don't know what is.

November 20, 2010
Is shopping now the new Thanksgiving? No thanks

As you may have heard, Sears will now be open from 7 a.m. to noon on Thanksgiving, so you can rise at dawn and start slapping down the plastic. Yes, beat those ever-escalating post-Thanksgiving prices! This changes everything.

See Also:
WABAC Machine

Source Data:
Yahoo: SHLD

Hoardable Asset Bubbles

November 16, 2010
China experiencing a runaway garlic price bubble

"From 2007 to April 2009 you could buy garlic for as little as 4 jiao [6 cents] a kilo, but now the price is about 13 yuan [$1.90]," said Wang Nianyong, director of the information office of the Beijing Xinfadi wholesale market.

That's a 3000% increase.

The government has already fined at least one company for hoarding, and has announced its intention to investigate unnatural price surges. China is the world's top producer of garlic.

November 19, 2010
A New Bulb Bubble

Firstly, you have mostly market speculators taking advantage of farmers without access to a wide range of information. Most farmers are still only receiving 1 – 1.5 Yuan per kilo for garlic, as speculators hoard the supply and release only small quantities to the market at a time, keeping the price elevated and demand high.

That being said, the farmers are still averaging three times more income from garlic this year than last year.

But the problem is, even though there’s a shortage of available garlic, many farmers are reluctant to plant bigger crops. The reason? They simply can’t afford the higher price of the seeds, and they don’t want to be left with goods they can’t sell.

Can't afford the seeds? It sure sounds like a tulip bulb craze to me. Someone, somewhere, will find a way to create more garlic seeds someday. I'm 100% confident of that.

In my opinion, if there is a provable bubble in one hoardable hard asset then there is probably a bubble in other hoardable hard assets. Just something to think about if you are a gold bug.

October 9, 2007
A Survey Of Hard Asset Investing Vehicles: Part 2

Technically, ETNs are senior unsecured debt notes that are designed to track the performance of different indexes ... including commodity indexes. They are bought and sold just like stocks, using a regular old brokerage account. They can also be leveraged, borrowed, and shorted just like ETFs.

Why does the term "Hard Asset Investing Vehicles" send shivers down my spine? Is it that I don't wish to own things that can be leveraged, borrowed, and shorted at a time when "deleveraging" is the word of the decade? Is it that the article was written just before the recession? Or is it the "investing vehicle" part that makes me cringe?

Structured investment vehicle

A SIV may be thought of as a very simple high quality, virtual bank.

Sounds good so far.

Though the assumption of ever increasing housing prices was the fundamental problem, there were other mathematical / statistical problems too.

You've got to be quite the speculator if you are choosing to hoard garlic AFTER it has risen 3000%. Right? Hoarding gold and silver after a 400% rise may be similarly speculative. Time will tell.

At these prices, garlic is only a safe store of value if vampires actually exist.

There have been 7 million views of the following video.

This tutorial will show you how to look like a haunting vampire. Inspired by Anne Rice's beautiful vampires. They're evocative, bewitching, desirable and haunting. Read Interview With The Vampire..I love Vampires. From anime like Vampire Hunter D, Blood: The Last Vampire and the games Castlevania Symphony of the Nights.

All we really have is an Illusion of Vampires.

This should not be confused with "life blood" suckers though. Wall Street still has plenty of those.

September 25, 2008
Debate continues in congressional bailout hearing

BEN BERNANKE: So all this esoteric Wall Street stuff doesn't have any meaning to people on Main Street but it connects very directly to their lives. Credit is the life blood of the economy. If the credit system isn't working then firms cannot finance themselves, people cannot borrow to buy a car, to send a student to college, to buy a house.

"Esoteric Wall Street stuff" has been an extremely dangerous investment over the last decade.


understood by or meant for only the select few who have special knowledge or interest

And lastly, how can we know if there is a Wall Street commodity bubble? They don't exactly ring the bell at the top. Surely a warning sign would appear though.

November 11, 2010
Eliot Spitzer's Favorite Prostitute Is Now A Commodities Trader

One of Eliot Spitzers' favorite prostitutes has ditched the escort business to become a commodities trader on Wall Street, WSJ's Deal Journal reports.

Friday, November 19, 2010

RPT Conspiracy Theory? (Musical Tribute)

Many have heard of the Plunge Protection Team (PPT).

Has anyone heard of the Rubicon Protection Team (RPT)?

The S&P 500 closed last Friday at 1,199.21. The S&P 500 closed today at 1199.73. What an awful week this has been for ongoing Rubicon jokes. Not one closing breach of the 1200 level this week? Not one? Oh the humanity!

November 12, 2010
Confirmed Rubicon Sighting! (Musical Tribute)

Let's cross our fingers for the bulls next week. We're looking for a 0.79 gain on the S&P 500. It may seem like a trivial task for an index walking the line but is anything in this economy really ever that simple?

We needed 0.79. We only got 0.52. It teases us that one does.

Rubicon Protection Team (RPT)

The Group was established explicitly in response to events in the Illusion of Prosperity blog surrounding May 3, 2010 ("Black Rubicon Day") to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence".

Oh well. I'm a glutton for punishment apparently. Here we go again.

Let's cross our fingers for the bulls next week. We're looking for a 0.27 gain on the S&P 500. It may seem like a trivial task for an index walking the line but is anything in this economy really ever that simple?

Mr. Wint: If at first you don't succeed Mr. Kidd?
Mr. Kidd: Try, try again, Mr. Wint.

Thursday, November 18, 2010

Nightclub on Asteroid Sells for $635,000

I know what you are thinking. Surely this must be a sign of an ongoing property bubble. It's actually a great deal more bizarre than that though.

Internet estate agent sells virtual nightclub on an asteroid in online game for £400,000

Jacobs, who grew up in London, now plans to use the proceeds of the sale to further his Neverdie Studios enterprise which employs 13 people to create and design new planets for the Entropia Universe.

It is a pretend nightclub on a pretend asteroid. It sold for slightly more money than Michigan's Silverdome that sits on 127 acres and seats 80,311 people.

High-school student Mike Everest from Durango in Colorado and his mother made $35,000 (£22,000) by building and selling weapons on Entropia in 2006 - he used most of the money to pay for his siblings’ college fees.

Should you ever find yourself in a similar position here's a bit of advice. Do not to mention that you sold $35,000 worth of pretend weapons when boarding a plane unless you want your junk searched .

May the bull market in illusionary prosperity continue!

Wednesday, November 17, 2010

The Sarcasm Report v.69

November 11, 2010
Fed plan nudges Treasury rates lower

The Fed announced a $600 billion bond-buying package last week that is aimed at lowering interest rates and encouraging spending.

November 16, 2010
Rising Yields Help Fed Raise Inflation Expectations With QE2

“Ten-year Treasury yields will begin to pick up slightly now, and be in a continuous higher trend,” said Fabrizio Fiorini, head of fixed income at Aletti Gestielle SGR SpA in Milan, who manages about $8 billion in assets. “You have to discount that the Fed will be successful, so you should be selling Treasuries.”

Allow me to summarize the thinking here.

QE2 is driving interest rates down. This will encourage spending. This is the Fed's plan.

QE2 is driving interest rates up. This will raise inflation expectations. This is the Fed's plan.

In other words, no matter what happens to interest rates we'll be able to point to the Fed's plan as a success.

Genius! And to think that I once thought the Fed was rather impotent. God how I love the hard science of economics to prove me wrong.

A Bull Market in Excessive Risks

Financial Risk

Capital Risk - Check!

Capital risk is the risk that the initial amount invested may be lost (also known as "the capital").

Currency Risk - Check!

Currency risk is the risk associated with the foreign currency movement affecting the value of an asset if the invested assets are being held in that currency.

Liquidity Risk - Check!

Liquidity risk is the risk that an investment may not be easily traded, otherwise known as liquid, (e.g. commercial property) or the market has a small capacity and may therefore take time to sell.

Business Risk - Check!

The risk that a company or project will not have adequate cash flow to meet financial obligations; thus causing the business to file for bankruptcy.

Credit Risk - Check!

Credit risk, also called default risk, is the risk associated with a borrower going into default (not making payments as promised).

Equity Risk - Check!

Equity risk is the risk that stock prices and/or the implied volatility will change.

Interest Rate Risk - Check!

Interest rate risk is the risk that interest rates and/or the implied volatility will change.

Commodity Risk - Check!

Commodity risk is the risk that commodity prices (e.g. corn, copper, crude oil) and/or implied volatility will change.

In sharp contrast, the following link is a comprehensive list of all safe havens. I can say without reservation that each and every one of them will guarantee you nights filled with blissful sleep as you ride out the economic storm.

Safe Haven List

The Land of the Free? (Musical Tribute)

How bad has it become? The following video doesn't seem all that shocking any longer. Let's just put it that way.

Airplanes are already far safer than traveling by car. We're told we now need to have our "junk" searched though just to be even safer though. We should be outraged.

All your junk are belong to us.

Any society that would give up a little liberty to gain a little security will deserve neither and lose both. - Benjamin Franklin

CPI Conspiracy Theories Continue

The CPI came out today and it was relatively modest (up 0.2% month over month on a seasonally adjusted basis). Meanwhile, the core inflation number used for predictive purposes was running very lean. How lean?

Annual Core Inflation Drops to 0.6%, the Lowest Ever

The nation's struggle to prevent deflation is apparently only just beginning.

Did I mention that I'm still deflationary? Meanwhile, Market Ticker has opted to home in on egg inflation instead. Fascinating.

CPI: Where Are My Zero-Inflation Eggs?

The food index has risen 1.4 percent, with both the food at home index and food away from home index rising the same 1.4 percent.

If you believe that, I've got a bridge to sell you.

It never ends. Okay, I pretty much believe that. Where's my bridge? I am just not seeing the overall inflation in food prices that he sees.

Here's a glimpse of a few of the better sales this week at my local Albertsons.

* $0.27 per pound turkey
* $0.47 per 15.25 ounce can Green Giant vegetables
* $0.88 for 10 pounds of potatoes
* $2.50 for 1.5 quart Dreyer's Ice Cream
* $0.79 for 16 ounces of Barilla Pasta (if I buy 10)

Don't take my word for it though. Let's sum up a virtually eggless turkey dinner.

Cost of Classic Thanksgiving Dinner Up Slightly in 2010

AFBF’s 25th annual informal price survey of classic items found on the Thanksgiving Day dinner table indicates the average cost of this year’s feast for 10 is $43.47, a 56-cent price increase from last year’s average of $42.91. This year’s meal is actually $1.14 cheaper than what shoppers paid two years ago, when the total was $44.61.

That's a 1.3% increase over last year as seen in their informal price survey. From what I can see at the grocery store this year, that sounds about right to me.

The 1.3 percent increase in the national average cost reported this year by Farm Bureau for a classic Thanksgiving dinner tracks closely with the organization’s 2010 quarterly marketbasket food surveys and the federal government’s Consumer Price Index (available online at

Indeed it does.

It's not Albertson's turkey at 27 cents per pound (the survey is not based on sale prices) that truly amazes me though. It's the spaghetti. A very, very long standing rule of mine is that if I am buying spaghetti for $1 per pound then I am getting a very good price. Today's price is just 79 cents.

Remember that spike in wheat prices we just had? Spaghetti is made of wheat. Right? So where is the inflation in spaghetti prices?

November 16, 2010
Wheat Falls Most in Three Months on Commodity Rout, Favorable U.S. Weather

Chinese Premier Wen Jiabao said today that the cabinet is drafting measures to counter rapid price gains. The nation may impose price limits on food and toughen punishment of those found speculating on agriculture futures, the China Securities Journal reported, citing an unidentified person.

Normally I am not a believer in price controls but perhaps they have a point. Here's a chart of long-term wheat prices courtesy of Index Mundi.

Click to enlarge.

The Fed is attempting to create the second wheat bubble in just the past four years and the Chinese don't seem to appreciate it all that much. It's almost like they've got a billion or more people to feed. Go figure.

Monday, November 15, 2010

Alan Blinder's Defense of Bernanke

In Defense of Ben Bernanke

Alan Blinder says:

What the Fed proposes to do is neither foolproof nor perfect. Frankly, it's not the policy I would choose.

Great defense, lol.

As I've written on this page, I'd like the Fed to purchase private securities and to reduce the interest rate it pays on reserves, even turning it negative. The latter would blast reserves out of banks into some productive uses.

Some productive uses? Some?

Perhaps we can build even more banks, shopping malls, restaurants, and houses. They'll fit in quite nicely with the massive glut we already have. Won't even notice them no doubt. Will they be productive? Who knows? Who cares?

I ate at the Yankee Diner in Renton, WA on Saturday (it had been years since my last visit). It was about 6pm. We got "rock star" parking near the front door. We had our choice of many, many available tables. You know what they really need? More competition. I suggest Ben Bernanke works on a way to build "some" restaurants right up next to them. Prosperity for all!

This is not to be confused with the Yankee Diner that was once in Ballard, WA. It's gone.

May 14, 2007

The Yankee Diner - CLOSED

Now closed, and will eventually be the location of a Silver Cloud Inn, I am missing the Yankee Diner on these gorgeous days we've had recently.

January 22, 2008
Work to start on Silver Cloud

The project, a 170-room, six-story Silver Cloud hotel, was approved with a number of conditions attached, such as the hotel must serve primarily people who work in the industries that it will surround.

Inns? Yes! We clearly needed more inns to serve the local community's workers. Our economy must have really been booming for that to happen. In hindsight, let's see how that worked out though.

October 28, 2010
Development of Ballard's first major hotel back on track

Earlier this month, Diamond Parking and Pacific Fisheries Shipyard were asked to remove their vehicles from the parking lot in front of the shuttered diner at 5425 Shilshole Ave N.W. by Nov. 15, according to a number of sources, including Pacific Fisheries General Manager Doug Dixon. The groundbreaking date has been given variously as Dec. 1 and Dec. 15.

That's fantastic. It took more than three years just to get those cars out of the parking lot in front of that shuttered diner. That said, construction is apparently back on track now though thanks to the Fed doing the exact same thing it was doing back in the middle of the decade. As Yogi Berra would say, "It's déjà vu all over again."

Way to go Ben Bernanke! Stick with what (doesn't) work(s)!

View Larger Map

Once those cars are all gone from the parking lot, the sky is the limit!

Soros Unloads More Gold

Soros trims positions in gold and miners

In a quarterly securities filing on Monday, Soros Fund Management reported it owned 4.7 million shares of the SPDR Gold Trust (GLD.P) at the end of the third quarter, down from 5.2 million at the end of June.


Mish: "Midas Crush" - MarketWatch Attempts to Explain "Why Gold is a Bad Investment"

The bottom line to me is that "gold is money". We know that gold is money because it acts like it.

Gold is money because it "acts" like money? That's the proof?


8. false show; pretense; feint


Money is any object that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.

Can I pay my bills with gold? No. So how exactly does gold act like money? I must sell gold first in order to get the actual money that is needed to pay my bills. In order to do this I must "speculate" that I will find a buyer who will pay me what I think gold is worth.

Mission Accomplished

We know George Bush is a fighter pilot because he acted like one. Right?

Friday, November 12, 2010

Apparent Silver Consumption Per Capita

As seen within the historical mineral statistics link:

Apparent consumption data represent the total quantity of silver that was consumed for industrial, art, and coinage purposes.

The price for 2008 was $528,700 per metric ton. That works out to $16.44 per troy ounce. Today's price is $26.04. That's a 58% increase in the last 2 years.

If you think the world (China in particular) can continue to afford silver at $26.04 per troy ounce then by all means keep buying silver. You might want to look at what silver consumption looked like during our Great Depression and its decline during the 1970s before deciding entirely though.

Just a thought.

Source Data:
USGS: Historical Mineral Statistics
Kitco: Silver Price
Census: Historical US Population
St. Louis Fed: Population

Cartoon Physics Update

August 22, 2010
Cartoon Physics for the Win!

My long-term prediction is therefore just about as simplistic as simplistic could be. Hello stagnation. It's just a gut call. I don't have much supporting evidence to back it up. Just add one part deflation to one part stagflation and that's what you get though.

The DJIA closed today at 11,192.58.

This is just not right at all. My earlier cartoon calculations clearly show that the stable stagnationary orbit should have been at the 10,500 level.

In my opinion, we're now at serious risk of re-entering the earth's atmosphere at too high a speed and at the wrong angle of attack.

Atmospheric reentry

Due to the Earth's surface being primarily water, most objects that survive reentry land in one of the world's oceans. The estimated chances that a given person will get hit and injured during his/her lifetime is around 1 in a trillion.

Unfortunately, the odds of a given person not being underwater are about $1 in a trillion dollars .

Confirmed Rubicon Sighting! (Musical Tribute)

November 4, 2010
Crossing the S&P 500's Rubicon v.24 (Musical Tribute)

Here's a list of dates when the S&P 500 crossed above the 1200 level.

There were 24 of them going all the way back to 1998. I won't bore you with the gory details. I will say that we've just setup the necessary conditions for a 25th crossing though! O frabjous day! Callooh! Callay!

The S&P 500 closed today at 1,199.21.

Let's cross our fingers for the bulls next week. We're looking for a 0.79 gain on the S&P 500. It may seem like a trivial task for an index walking the line but is anything in this economy really ever that simple?

See Also:
Sarcasm Disclaimer

Thursday, November 11, 2010

Cramer's Gold

November 11, 2010
Cramer's 'Mad Money' Recap: Gold Rush (Final)

NEW YORK (TheStreet) -- "Gold is not just another commodity," Jim Cramer told the viewers of his "Mad Money" TV show as he once again urged investors to put up to 20% of their portfolios into gold.

Unlike other commodities such as oil, grain or copper, gold is a currency, he said, adding it's what people buy when they don't trust their own currency. Cramer said it's what the Chinese and the Indian people buy first when the discover newfound wealth. "No one who's bought gold since 2001 has lost money," Cramer told viewers.

Well, there you have it. No one who's bought gold since 2001 has lost money. Fantastic news. Gold is clearly the winner of the new world. Out of curiosity, why was it absent from his list 10 years ago?

February 29, 2000
Winners of the New World

So, whom does that eliminate? First, any company that is a commodity producer simply can't be owned, no matter what. The New Economy makes those be simply a function of low-cost producer with no ability ever to raise price. This, of course, is the crying shame of the way the Fed is trying to break the economy because the only place that could stand for a little inflation is in the deflationary commodity industries.

Heaven forbid someone started stockpiling commodities back in 2000. What a stupid move that would have been in hindsight. As we know, the deflationary commodity industries were definitely no place to be putting money. Those who hoarded oil? Fools!

Can you even imagine the horror of buying Pan American Silver Corp. in 2000? I sure can't.

That's why, despite the 80% increase in the Nasdaq last year, we are looking at another record year now.

Yes sir. The Nasdaq was the only thing worth owning. No one who bought the Nasdaq since 1991 had lost money.

So there you have Cramer's advice. Buy tech in 2000. Buy gold in 2010. You cannot lose.

Don't let Alcoa concern you. The metal known as gold isn't at all like the metal known as aluminum. Gold is "mad money". Everyone knows it (with the possible exception of the credit card industry and its misguided assumption that you must pay your bills in actual legal tender).

Call of Duty

New 'Call of Duty' blasts last year's sales record

New 'Call of Duty' video game hits $360 million in 24 hours, blowing up entertainment record

In my opinion (as a self-admitted long-term video game junkie and one who made a career as computer game programmer), this is not irrational exuberance or a fad. At $60, a game such as this costs just 1/25th of an ounce of gold and provides many, many hours of enjoyment.

Games just keep getting better and better thanks to rapid increases in productivity miracles brought on by new technology. From where I stand, that's real prosperity.

Might want to rethink that gift of gold Christmas idea this year though. Just a hunch.

Wednesday, November 10, 2010

Silver to Aluminum Price Ratio v.2

Click to enlarge.


See Also:

Silver to Aluminum Price Ratio

Source Data:
USGS: Historical Mineral Prices
Kitco: Spot Silver Price
Kitco: Spot Aluminum Price

Cisco Deja Vu (Musical Tribute)

In what follows I have color coded various sections from both 2007 and 2010 for your amusement.

September warning flags are in red.
November revenue misses are in green.
November stock price crashes are in blue.

September 12, 2007
"A Replay of Internet Boom"

In a keynote address the VMworld conference in San Francisco, Chambers said virtualization is spearheading "a second phase of innovation," in an identical replay to what happened in the mid-90s, when the number of Internet users skyrocketed.

November 7, 2007

Cisco Sees "Lumpy" Demand

NEW YORK (Reuters) - Cisco Systems Inc (NasdaqGS:CSCO - News) CEO John Chambers said on Wednesday his company was hit by "dramatic decreases" in orders from U.S. banks, triggering concerns about its growth prospects and sending its shares plunging.

For what it is worth, the recession officially started one month later.

September 15, 2010
Cisco's first dividend coming this year

Tech companies have traditionally not paid dividends so they can put the money back into research and development.

November 10, 2010
Cisco's dismal outlook stuns Street

NEW YORK (Reuters) - Cisco Systems Inc (NasdaqGS:CSCO - News) gave a dismal revenue outlook, stunning investors who had hoped for proof of a recovery in technology spending and sending major tech stocks tumbling.


Shares of the company crumbled to $21.47 in after-hours trade. They had gained around 20 percent since hitting a year's low at the end of August, as the tech sector rallied on hopes of a recovery in spending.

Guess what? I'm still deflationary.

Tuesday, November 9, 2010

Total Household Liabilities

The following chart shows the exponential growth of the total household and nonprofit organization liabilities adjusted for both population and inflation.

It does not include government debt.

Click to enlarge.

First the good news. We're back to the red exponential trend line that's been in place for 50 years.

Now the bad news. That exponential trend line represents a 3.3% annual growth in inflation adjusted consumer debt per person. How can anyone possibly think that is sustainable long-term?

Here's some bonus bad news. If the trend line is considered average growth then we should keep in mind how averages work. In order for an average to make sense, we must spend as much time below an average as above it. In other words, just because we made it back to the average does not necessarily imply that we're done falling.

As a side note, I started this "Illusion of Prosperity" blog right at the peak. Go figure.

See Also:
MaxedOutMama: Hah!

Source Data:
FRB: Flow of Funds Accounts
St. Louis Fed: Population
St. Louis Fed: CPI-U

Monday, November 8, 2010

The Sarcasm Report v.68

17 people currently rate the following post as excellent.

Give the gift of Gold the holiday season

By giving Gold you will teach your children a valuable lesson in life, how to save!!! See their faces light up on Christmas morning when they open a box of Gold. The smile in their faces will be something for you to cherish to be sure.

Here's some bonus advice to enhance the experience.

Fill an empty Playstation 3 box with $1,400 worth of gold. That should add up to around one ounce at today's prices. You may need to add some crumpled up newspaper so all that gold does not rattle around too much.

On the outside of the box write a note hinting that the following games may also be included.

1. Call of Duty: Black Ops ($60)
2. Medal of Honor ($50)
3. Star Wars: The Force Unleashed ($50)
4. NBA 2K11 ($50)
5. Fallout: New Vegas ($50)
6. FIFA Soccer 11 ($50)
7. Final Fantasy XIII ($30)
8. Assassin's Creed: Brotherhood ($60)
9. Super Street Fighter IV ($20)
10. Red Dead Redemption ($50)
11. Need for Speed: Hot Pursuit ($60)
12. Gran Turismo 5 ($60)
13. Castlevania: Lords of Shadow ($50)
14. Resident Evil 5 ($20)
15. Madden NFL 11 ($50)
16. God of War III ($40)
17. Little Big Planet: Game of the Year Edition ($30)
18. Borderlands ($30)
19. Rock Band 1 ($10)
20. Rock Band 2 ($20)
21. Rock Band 3 ($60)

Make sure you also write "or their equivalent" somewhere on the note. Life is all about disclaimers and you'll want to be teaching that too.

That's a $1,200 value (including the $300 Playstation 3) plus sales tax.

I can only imagine the expression on the child's face when the package is opened to reveal that the box was instead filled with all that gold. The child's face lighting up and the accompanying smile will be a wonder to behold. You will no doubt be reminded of it each and every Christmas for the rest of your life.

And don't forget the coal for the stocking over the fireplace Mr. Scrooge! Coal is a great source of energy when times turn tough.

The Sarcasm Report v.67

CNN: Paper or plastic? How to pay for the holidays

Here are our options apparently.

1. Cash
2. Debit cards
3. Credit cards

I just wanted to make sure the word got out. Many families are struggling this year thanks to high unemployment and nearly unbearable debt loads. Figuring out how to pay for the holidays can therefore be difficult.

That's not all. Knowing how to pay for the holidays is an important first step in understanding how we are going to pay for our national debt.

Click to enlarge.

It would seem likely that we will pay for it with a combination of cash, debit cards, and credit cards too. That's good to know. I can't speak for you, but I'll be sleeping much better tonight.

Sunday, November 7, 2010

The End (Zone) Times Are Here

I live in the Seattle area.

The Seahawks have adopted an "Illusion of Scoring" game plan today.

Here's the score at the end of the first half.

Giants: 35
Seahawks: 0

If this isn't a sign that Seattle area housing prices are still too high, then I don't know what is.

We've already lost our
NBA team and now our football team is playing like a baseball team, lol.

Saturday, November 6, 2010

Behold the Wonder of Technical Analysis!

US Dollar: Very bullish
Euro: Very bullish
Yen: Very bullish
Canadian Dollar: Very bullish
Australian Dollar: Very bullish
Swiss Franc: Very bullish

US 30-Year Treasury Bond: Very Bullish

Hard Assets:
CRB: Very bullish
Gold: Very bullish
Oil: Very bullish

DJIA: Very bullish
S&P 500: Very bullish
Nasdaq: Very bullish
Dow World Index: Very bullish

Congratulations Ben Bernanke!

Technical analysis clearly shows that you've single-handedly created the foundation of a perfect prosperity miracle. No matter what investors do now, they will apparently be richly rewarded. Why did I ever doubt you?

Technical Analysis

Whether technical analysis actually works is a matter of controversy.

It works. Just wait. You'll see. Real prosperity is coming our way in huge chunks of ooey-gooey goodness!

I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer. - Warren Buffett

Nobody is flipping these charts upside down though. Ever. There's nothing but prosperity from here on out.

Super-goldilocks for the win!

Friday, November 5, 2010


November 5, 2010
Mobius, Citigroup See Record Emerging-Market Stock Rally as Economies Grow

“The weak, but not recessionary, macro situation in developed countries is a ‘super-Goldilocks’ environment,” Dennis, Citigroup’s New York-based emerging markets strategist, wrote in the report. “The underlying conditions that have driven markets higher over the past few months remain in place and are likely to do so for several more quarters.”

Sure thing! Woohoo!

“I’m pretty optimistic,” Mobius said. “I don’t see any risks any time soon. These things can last for years and years.”

Can't lose! Woohoo!

November 21, 2007
Happy Thanksgiving

Three More Years of Goldilocks? - Larry Kudlow

Thursday, November 4, 2010

Wolf Creek Pass (Musical Tribute)

GLD rose 3.39% today.
SLV rose 5.70% today.

The oil to natural gas price ratio is 24.5 to 1 (WTI Cushing Spot to Henry Hub Spot). Amazing.

I have included the median ratio in the chart as a red trend line. How is the current ratio even remotely rational long-term? Energy is energy.

My only explanation is that Ben Bernanke grew up listening to the same music I did.

Well, Earl put down his bottle, mashed his foot down on the throttle, and then a couple a boobs with a thousand cubes in a nineteen-forty-eight Peterbilt screamed to life.

We woke up the chickens.

As hard as this is to believe, I still lean deflationary once the dust settles. Mountains work both ways.

November 4, 2010
Hooters Shows Why Deflation May Never Go Away: William Pesek

Anyone who still thinks falling prices are a cyclical phenomenon isn’t looking closely. It’s secular, and the sudden ubiquity of discount outfits shows how Japanese consumption has become a race to the bottom of the pricing spectrum.

Source Data:
EIA: Natural Gas Wellhead Price
EIA: Cushing, OK WTI Spot Price FOB

Ben Bernanke's Street Creds

A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily. - Ben Bernanke, October 2000

Ben Bernanke says that a Wall Street bust does not necessarily hurt Main Street.

And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. - Ben Bernanke, November 2010

Ben Bernanke says that a Wall Street boom definitely helps Main Street.

Don't you see what this means? We have a way out of the mess we are in!

In order to maximize the help to Main Street all we need to do is continually create booms in the stock market and then allow them to bust. In other words, we will simply repeat what we've been doing for the past decade. Perfect!

Here's a chart to show the theory.

Note that each time Wall Street's health improves, Main Street's health is "boosted". Each time Wall Street's health declines, Main Street's health is "not necessarily" affected all that much.

Using Ben Bernanke's theoretical economic model, I estimate that it will take 4 serious Wall Street crashes in order to get Main Street to 100% health. We're halfway there. We just need more patience.

Sarcasm Disclaimer: This post is full of it.

Crossing the S&P 500's Rubicon v.24 (Musical Tribute)

Here's a list of dates when the S&P 500 crossed above the 1200 level.

1. 12/21/1998
2. 4/18/2001
3. 7/12/2001
4. 7/26/2001
5. 12/14/2004
6. 12/21/2004
7. 2/4/2005
8. 2/11/2005
9. 2/24/2005
10. 6/1/2005
11. 6/9/2005
12. 6/13/2005
13. 6/28/2005
14. 7/5/2005
15. 7/8/2005
16. 10/31/2005
17. 9/16/2008
18. 9/18/2008
19. 9/25/2008
20. 4/14/2010
21. 4/20/2010
22. 4/29/2010
23. 5/3/2010
24. 11/4/2010

Lucky #24! This monumental occasion calls for a mazurka!

Chopin Mazurka Op.24, No.1 was "played by Krystian Zimerman at the 1975 Competition where he was also the winner."

We're all winners now (again). Woohoo!

Chopin's Mazurkas

His mazurkas, like the traditional dances, contain a great deal of repetition: repetition of certain measures or groups of measures; of entire sections; and of an initial theme.

See Also:
Crossing the S&P 500's Rubicon v.23
Sarcasm Disclaimer

Source Data:
Yahoo: S&P 500 Historical Prices

Wednesday, November 3, 2010

Our Fed's Intended Economy (Musical Tribute)

That's just their intended economy of course. Here's an alternate song just in case they blow it.

QE "Anticipation" (Musical Tribute)

Fed Is Poised to Aid Economy, but Impact Is Cloudy

"Quantitative easing will accomplish nothing beyond flooding the banks with cash which they will use, if at all, for speculating rather than lending."

Federal Reserve to buy $600 billion in bonds

“They are trying to break through the fear,” said J.P. Morgan Chase economist James Glassman.

Doubts persist about whether the plan will work, but many feel the Fed had little choice but to act.

Hippocratic Oath

I will apply dietic measures for the benefit of the sick according to my ability and judgment; I will keep them from harm and injustice.

Something needed to be done to keep us from harm and injustice. I can't think of a better option than feeding banks extra cash at our expense so that they can speculate on things such as heating oil as we head into the colder months.

As a side note, I have mentioned here more than a few times that I am not a believer in commodity driven stock markets. Most seem to be okay with that though. We'll just have to see how that works out long-term. Again.

Source Data:
EIA: Spot Prices for Crude Oil and Petroleum Products