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1966
Gold and Economic Freedom - Alan Greenspan
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
Forty years later his prediction of doom and gloom is playing out.
2008
Speculators Are Largest U.S. Oil Contract Buyers (Update2)
Dingell, a Michigan Democrat, said Congress should explore ``a full range of options'' to limit speculation, including raising margin requirements for financial speculators to 50 percent, preventing pension funds from investing in commodities and prohibiting investment banks from owning energy assets.
Nostradamus
He is best known for his book Les Propheties, the first edition of which appeared in 1555. Since the publication of this book, which has rarely been out of print since his death, Nostradamus has attracted an enthusiastic following who, along with the popular press, credit him with predicting many major world events.
Greenspan's "Age of Turbulence" book comes to mind.
In contrast, most academic sources maintain that the associations made between world events and Nostradamus's quatrains are largely the result of misinterpretations or mistranslations (sometimes deliberate) or else are so tenuous as to render them useless as evidence of any genuine predictive power.
Tell me that's not how analysts reacted to Greenspan's writing while he was Fed Chairman and I'll eat a bug.
Some scholars believe that Nostradamus wrote not to be a prophet, but to comment on events that were happening in his own time, writing in his elusive way — using highly metaphorical and cryptic language — to avoid persecution.
This could very well be the same person. In order to be sure, I do have one question though. Did Nostradamus actually help create the disasters he warned of?
Q1 GDP Tracking: Movin' on Up
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From BofA:
Since our update last week, *1Q GDP tracking is up two-tenths to 2.1% q/q
saar*. [Apr 19th estimate]
emphasis added
From Goldman:
We left ou...
2 hours ago
12 comments:
Just to clear things up once and for all - speculation and negative real interest rates didn't cause house prices to soar either. It's the laws of supply & demand at work in a free market.
MAB,
I found an interesting comment on risk management today.
Learning to live with risk
http://www.iht.com/articles/2008/06/23/business/risk.php
Risk management, then, should be a process of dealing with the consequences of being wrong.
If that is any indication of our future, our arrogance alone should do us in.
This is an impressive crowd: the Have's and Have-more's. Some people call you the elites. I call you my base. - George W. Bush
Stag,
http://www.thestreet.com/story/10422441/1/advice-even-mild-inflation-should-scare-you.html
I found this article interesting because it is a semi-mainstream source openly discussing our monetary shenanigans. If more people understood how their work/money was being stolen via inflation it would really change the rules of the game. If nothing else, people would better understand the rules of the game.
We're moving towards a whole lot of tipping points. We need more beryllium (aka more responsible journalism).
http://en.wikipedia.org/wiki/Critical_mass
Also, that George W. Bush "base" quote is telling.
MAB,
I read that first link and almost posted it. In an otherwise fairly well-written article I had a problem with the following section.
Suppose you retired with $1 million at age 60 this year. Assuming that amount, conservatively invested, earned 5% annually, you would think it would be plenty to support you for the rest of your life.
Think again.
Just 25 years later, your assets would be worth only $359,245.36 in buying power. And since you could be depleting those assets over your lifetime, you might very well find yourself with little or no buying power as you live longer, and inflation continues, or increases as markets are now predicting.
Think again on thinking again. It doesn't say how much we'd spend a year or what we'd expect inflation to average. This makes the math (good to the penny apparently), commentary, and conclusion useless.
I can say from personal experience that if we earn ~5%, inflation runs ~4%, and we believe our prosperity is mostly an illusion (and therefore don't spend well above our means), we can do much better than the example's conclusion.
The standard financial rule of thumb says we can spend 4% of our net worth a year in retirement. My rule of thumb doesn't believe in a goldilocks future draw down based solely on rear view mirror historical bull market past performance though.
The goal for me is to treat my savings as actual savings. I don't expect to make money off of money. Earning ~5% in a ~4% inflation world with 20% taxes is breaking even. The math becomes simple. I will spend my nest egg based solely on how much I have and how long I expect to live. Die broke.
Since not making money off of money is my expected outcome, hoarding of future needs also continues to make sense to me. There's little harm in locking it in.
Of course, the government can't stand hoarding mentality. I'm just not sure what it can do about it. It has been fighting that mentality ever since it fell off the gold standard over 30 years ago and it is seems to be about out of ammunition.
There's only so much paper money you can throw at a paper money problem. If fighting fire with fire always worked, firemen wouldn't need water.
Stag,
Your situation seems like a no brainer. Do some part-time work if the nest egg starts shrinking faster than anticipated. Might be worth trying even if it's not financially necessary. It could be fun, especially since you would be working without the financial pressure most are under.
The mistake I see so often is that people live right up to the limit of their incomes. As they earn more & more, they spend more & more.
I know people that have almost no savings despite having been in the top 1% income bracket for a decade. No joke. If these folks lost their high paying jobs tomorrow, they would likely be bankrupt in a year. Here's one slays me - people I know spent 20K/yr/child to send their kids to nursery school. The frickin place had interviews - for the kids AND the parents. The families totally stressed about the whole process too. It's absolutely beyond me.
I'm in a wall street town and it's shocking how nobody here saw the credit bust coming. I'm certain most of theses high earners can't imagine a decade long economic slump like we had in the 1970s. Twenty years of uninterupted prosperity may end up being a curse for many. I've never heard anyone around here talk about how the 1970s stagflationary depression brought NYC to the bring of bankruptcy. Residential & commercial real estate got crushed.
I still see to much hope. Your "second half recovery" jokes tell the story for me.
MAB,
I know people that have almost no savings despite having been in the top 1% income bracket for a decade. No joke.
I know someone who made a lot more money (about six times more) than me off the investment that retired me. Most of that money has already been spent. Meanwhile, adjusted for inflation I'm in roughly the same financial condition I was in 1999. Hindsight has been rather kind to me, all things considered.
Twenty years of uninterupted prosperity may end up being a curse for many. I've never heard anyone around here talk about how the 1970s stagflationary depression brought NYC to the bring of bankruptcy.
The Suze Ormans of the world love municipal bonds though. You get more money without more risk, since the bonds were insured. Don't you see? Now we just need insurance for the municipal bond insurers. In the future we can insure the insurers of the municipal bond insurers. Awesome insurance opportunities await us!
My biggest concern is that I'm not enough of a financial survivalist. As scary as this sounds, what if I'm not bearish enough? Extrapolating into the future is bad enough on its own (and clearly doesn't always work). Extrapolating into the future when there are known feedback loops (falling housing causes less prosperity causes falling housing and so on) makes things look even more dire though. I have no idea how much those feedback loops will kick in, but it sure doesn't look good. I won't be a buyer on the dips. About the only thing that could turn me bullish again is seeing Mad Money and/or Fast Money fall off the air due to sagging ratings. Until then, I'm done.
Our "resilient" economy and the global economy is a giant web of interconnected spaghetti. We're already starting to sing its hoarding theme song.
On Top of Spaghetti
On top of spaghetti,
All covered with cheese,
I lost my poor meatball,
When somebody sneezed.
It rolled off the table,
And on to the floor,
And then my poor meatball,
Rolled out of the door.
It rolled in the garden,
And under a bush,
And then my poor meatball,
Was nothing but mush.
The mush was as tasty
As tasty could be,
And then the next summer,
It grew into a tree.
The tree was all covered,
All covered with moss,
And on it grew meatballs,
And tomato sauce.
So if you eat spaghetti,
All covered with cheese,
Hold on to your meatball,
Whenever you sneeze.
Too bad meatballs are perishable. I'd hoard more.
Stag,
Your comments about Mad Money & Fast Money remind me of one of my favorite financial quotes.
“For as long as I can remember, veteran businessmen and investors – I among them – have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips. The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. There are no safeguards that can protect the emotional investor from himself.”
- J. Paul Getty
You just can't compete with stupidity. Patience.
One more thought. The fed has drawn so many people into the fray that I'm not sure there is actually a way to protect wealth anymore.
MAB,
One more thought. The fed has drawn so many people into the fray that I'm not sure there is actually a way to protect wealth anymore.
Late last night I got a stock tip watching one of the financial news networks. Research in Motion (RIMM) is pretty much a sure thing. I apparently should have taken the advice. The stock apparently trades cheap at a mere P/E of 63 and a market cap of $80 billion. RIM was up 1.3% today. My loss.
Just one problem. I turned on the TV just after the market closed. Dennis Kneale was telling me that the nearly 9% after hours drop was an overreaction to RIM's earnings report. He had other things to say, but all I could hear was "blah, blah, blah...."
You just can't compete with stupidity. Patience.
Patience paid a relative 7.7% today (9% non-loss minus 1.3% non-gain).
This brings me to an amusing quote.
Gold, Stocks and Stagflation
http://seekingalpha.com/article/81599-gold-stocks-and-stagflation
The word stagflation is creeping back into the national vocabulary, and I heard “Disco Inferno” last weekend. I’m not sure if these are omens, but I’m not gonna wait to see Dennis Kneale in a leisure suit before I make a plan.
Another amusing quote.
It took massive, very real changes in policy to end stagflation. Don’t expect Hawkish jaw-boning and Swiss army knife-rattling to have a sustainable impact.
We might get a disinflationary downturn (i.e., 1974-1976), but I tend to agree with the long-term picture. I may not be embracing gold these days (based on current price), but I am embracing long-term growth problems and long-term stubborn inflation (stagflationary).
If there is ever a time to hoard essentials, it is during bad times. Times seem pretty darned bad to me. The illusion that times weren't bad in the aftermath of the dotcom bubble collapse and that our economy is amazingly resilient (even as we abuse it in an attempt to prove the point) is finally starting to wear off.
I would even argue that this isn't a new downturn. It is simply the previous one that we pushed off into the future (just like we push Medicare and Social Security problems into the future). I'm reminded of an article I read about the time I turned bearish in 2004. It was pretty much a thank you letter to Greenspan. Greenspan's recovery plan bought us time. It allowed a quiet exit and the time needed to prepare for what would come next. That's exactly how I felt (although my thanks were as hollow as the author's). I can't find the article. Too bad. Hindsight would make it an especially amusing read.
Stag,
The fed (and most everyone else) is convinced that we won't have a 1970s style wage price spiral. The fed it seems is "banking" on this. The fed's negative real interest rate policy is definitely weakening the dollar. This should be inflationary and help alleviate our trade deficit. But what if the rising wage part of the plan is flawed?
It's certain that government employees will get cola increases. I know union membership is down since the 1970s, but gubbmint payrolls are much bigger. An Obama presidency is unlikely to shrink the government's payrolls either. Also, maybe many of the illegal workers will head home if the cost of living here rises and the economy tanks. Americans aren't as likely to work for the same low wages as the illegals.
I still think interest rates creep higher and and equity prices grind lower (in real & nominal terms). Housing is toast.
MAB,
In order to be a long-term deflationist you have to believe that you can bury paper dollars in your back yard and they will someday be worth more. In my opinion, that theory does not pass the smell test.
About the closest that strategy has ever come to paying off since the Great Depression was the "prosperous" 1990s. And when I say paying off, I really mean you still would have lost big.
This should be inflationary and help alleviate our trade deficit. But what if the rising wage part of the plan is flawed?
What if the trade deficit part is also partially flawed? Oil does climb as the dollar falls. We need oil seemingly more than others need what we're selling.
Further, I would contend that at least some of the wages have already been paid indirectly. I earn no wages yet I'm a Costco hoarder just the same. The dollars are already out there floating around looking for non-homes. I found the following link looking for a reply. I sure do agree with it.
Icebergs
http://www.cornerstoneri.com/comments/Icebergs.htm
What is the Greenspan Doctrine? It is the experiment that Mr. Greenspan embarked on where he threw money at whatever problem there was. (It is sort of like going shopping when you have a fight with your spouse. Makes you feel better for a while, but you eventually have to face the music.) Asian currency crisis - lower rates; Russian Debt default - lower rates; Y2K - lower rates; Mother-in-law coming over - hide the good scotch and lower rates.
By the time the new century rolled around, the world was awash in Dollars. Every time the Fed lowered rates, they encouraged more debt to be piled up by domestic consumers pushing millions of new Dollars into the system and devalued the currency a little bit each time. So while Wall Street applauds the Fed lowering interest rates to help their own pocketbooks, remember, what the Fed has been doing is eroding the value of those pieces of paper with presidents on them in your pocket.
Here's my favorite quote though.
And like a husband caught cheating on his wife, everything was going smoothly until it hits the fan. And then there is no turning back.
Our central bankers have been cheating and man is it ever hitting the fan right now.
Below are some of the major, macro problems facing the US investor and how to invest accordingly.
Overvalued stock market – Hedge positions/Bear market funds
Rising interest rates – Shorten maturities/bond market hedges
Declining Dollar – Foreign bonds/International Equities/Gold
Inflation – Commodities/Gold/TIPs
None of these are guaranteed to work every time with every short term move in the market. These are long term trends we are talking about and long term solutions. So don’t expect gold to go up every time the Dollar drops.
I don't own stocks. Rising interest rates would eventually help me as a saver. The declining dollar doesn't hurt me directly since I'm not a world traveler. That leaves me with the last problem. Inflation is the primary risk to my nest egg. That's what I have chosen to protect myself against as best as I can (in theory anyway). As you know, I have chosen TIPS in recent years. Before that it was gold and silver. Gold and silver aren't necessarily the best hedge against "service" inflation though, especially after their big runup.
Stag,
From your comment above:
I would even argue that this isn't a new downturn. It is simply the previous one that we pushed off into the future
That would solve the "jobless recovery" conundrum.
MAB,
That would solve the "jobless recovery" conundrum.
Here's a new "peak" catch phrase for what might happen next.
Peak Recoveries
The dead cat was pumped up with helicopter helium for the 2002-2007 bounce. Now the sheer weight of gold is holding it down.
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