I live in the USA and I am concerned about the future. I created this blog to share my thoughts on the economy and anything else that might catch my attention.
Q3 GDP Tracking: Around 3%
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From BofA:
Since our last weekly publication, our *3Q GDP tracking estimate is
unchanged at 2.6% q/q saar*. [Oct 11th estimate]
emphasis added
From Goldm...
Going Short
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Well, that escalated quickly. I had already positioned defensively for
2024, overweight cash in a federal money market paying 5.2% (now 5.3%). I
still have...
NVIDIA Revisited
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On August 26, 2023, 5 days before it a new closing hi at 493.55, I wrote a
critical post about NVDA - the stock, not the company. After that, the
stoc...
Stay away from popular tech stocks, part II
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Last August, I wrote a blog post arguing that largest technology and
internet companies -- Amazon, Apple, Facebook, Google, Microsoft -- would
never grow i...
Updating the HF Indicators
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I posted this over on Seeking Alpha.
Not much good seems to be happening, and I am concerned about the low pace
of construction and a likely end to the sho...
Yes, Well, It's Still a Friday Night
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I doubt anyone is still reading the old stuff, but I have a quiet Friday
night and figured, why not a Friday Night Rock Blog?
I found this one recently (...
We have just survived the worst debt-fueled binge since the Roaring '20s. Now two professors at Yale University are suggesting we introduce leverage into a new realm of our lives — our retirement portfolios.
The worst debt-fueled binge since the Roaring '20s was caused by excessive leverage. So what's the advice? More leverage of course. That just figures.
Running the numbers on more than 130 years of stock data...
130 years of stock data is certainly impressive. While we stare into the rear view mirror looking for insight from an era when none of us were even alive, here's something else we might see.
Or how about thisone from 2007? I made every attempt to give the horrific chart an H.P. Lovecraft theme in order to properly do it justice.
Men of learning suspect it little, and ignore it mostly. - H.P. Lovecraft
Let's face it. Lowering our expectations about the future can be painful. There's no denying it. Better to realize the pain up front than have it blind side us though.
Haven't I seen you before? Yes. Did you get many margin calls? Yes. Then why are you back? I don't know. Are you looking to risk your savings? It's possibly. You do know that this is a risky service? [Silence] Would you like a growth stock? Okay. You would have said the same thing about value stocks, wouldn't you? Yes. Would you like to invest in rabbits? Yes. Would you like to buy this lint from my pocket? Okay.
We always read about that china is now running an economy based on bubble and that bubble burst might disrupt the economic growth of the world economy.
I've beenreading about Chinese bubbles since 2007. Okay, sure, maybe some of them popped. That's not important right now though. We need to keep in mind that the Internet is full of wacky conspiracy theories and even crazy people can be right sometimes.
China is looking into the core areas of economic growth and not building an artificial economic growth based on reckless lending and speculative dreams.
Absolutely. There's not one bit of reckless lending and speculative dreaming in China. It's all just calm rational thinking planned out meticulously by the world's smartest central bankers. Just because their stock market trades at less than half of its all time high means nothing. That was a planned Olympic event choreographed with utmost precision.
Don't believe me? Just look at real estate. Where else in the world can you invest in housing and not even rent it out? It can appreciate there even without any actual tenants. That's just pure genius.
China property developers paid coupons as high as 14 percent to issue dollar debt this year, compared with an average 9.2 percent for other companies in Asia and 6.2 percent for U.S. property companies. On average, Chinese property companies are paying a 10.875 percent coupon.
They borrow money at 14%? I know reckless lending when I see it and that's not it. This is definitely China's time to shine.
Screw 'em! This is your time! Now go out there and take it.
Deposits include foreign deposits, checkable deposits, currency, time and savings deposits, and money market fund shares.
Credit Market Instruments' Assets include open market paper, treasury securities, Agency- and GSE- backed securities, municipal securities, corporate and foreign bonds, other loans and advances, and mortgages.
Credit Market Instruments' Liabilities include home mortgages, consumer credit, municipal securities, bank loans n.e.c., other loans and advances, and commercial mortgages.
Tangible assets such as real estate and durable goods are not included, nor are stocks, mutual funds, life insurance, or pensions. Some of that could easily be cashed out for extra spending power, but as seen in recent years, it gets a bit dicey if everyone wishes to do the same. Further, the point of this post is to actually show that tangible assets, stocks, and mutual funds are at risk. I have little doubt that they will eventually be sold at some point to provide at least some future spending power.
I can spend money by withdrawing deposits I have at the bank, by selling the credit market assets that I own (savings bonds), or by simply taking on more credit market liabilities in the form of a loan (payday loan). That is my combined spending power at any moment in time.
This type of spending power is not sustainable though. Every dollar I borrow to fuel my current spending is one less dollar I'll have to fuel my spending at some point in the future.
This charts shows spending power as the money we have in savings plus the amount of money we are owed minus the amount of money we owe. That is just about the nastiest chart I could possibly put on my blog. Sorry.
It gets worse though. See that recovery in recent years? Our government borrowed that for us. Technically speaking, at least in my world, it isn't real spending power. It's just more illusionary spending power intended to help prop things up.
There's $5 trillion in new public debt since I turned bearish in 2004. It's long-term spending power that we've permanently lost. If we continue down this path then I can say with 100% certainty that we will reach a point when we cannot borrow any more. We will have simply postponed The Great Depression.
From where I sit, it will not be a black swan event. It will simply be destiny catching up to us, much like it has for Greece. The goods news is, if you can even call it good news, is that I think the entire world is in the same boat. At least we won't be alone.
Let's start with the ballpark idea that our spending power is a combination of money we have in the bank as seen in M2 plus the money we borrow as seen in the total consumer credit outstanding plus the money we borrow as seen in the real estate loans at all commercial banks. It isn't perfect, but it might illustrate a point or two.
It's kind of scary how we fell off the exponential trend line back in 1989, but let's conveniently ignore that for a while. Trust me. You won't even be thinking about it at all by the time you've read the rest of what I have to say.
Let's now factor in the rise of modern mining equipment to meet our spending power needs.
This shows what the aluminum price might be if it all of the world's aluminum was still in existence, we owned it all, and it fully backed our M2, consumer debt, and real estate loans. I've also shown the actual price of aluminum.
And lastly, let's see how stable the system might look under such a scenario. I'll divide the prices as seen in the black line by the actual price as seen in the red line to come up with a ballpark stability proxy. The more stable that ratio is the more stable the system should be, at least in theory.
Let me summarize this a bit for those not quite following along. I know it is complicated. I'm basically suggesting that the growth in the money supply and debt compared to the actual production of aluminum should be enough to actually guess the price of aluminum. That's pretty much what the chart shows from the 1970s to 2008. It just hovers around 7, give or take.
Now for the bad news.
I started with the assumption that our spending power is a combination of the money we have plus the debt we are willing to take on. That's pretend spending power in my world. It's an illusion. I'm retired. I can't spend money like that. My real long-term spending power is the money I have in the bank MINUS the amount I owe.
Cash and credit are not the same things to me. In fact, they are the exact opposites. The more I have now the more I can spend in the future. However, the more I owe now the less I can spend in the future.
Therefore, let's try again looking at cash and credit in a different way. We'll update those three previous charts using a new economic model based somewhat on common sense. We won't think of our spending power as the amount of money we have plus the amount we can borrow. Instead, we'll think of our spending power as the money we have in the bank minus the amount we have borrowed.
Ouch.
Cringe.
Oh my. What a difference a few minus signs make. What are we going to do with all that extra aluminum if this trend continues?
This may seem very complicated, and it is. These are arguably the most complex charts I've done yet. I had to break it into two groups of three to even have a hope of explaining what I am thinking to others, or even myself for that matter.
Unfortunately, these charts are way too simplistic to do our economy justice. This analysis is just a flea on the back of an elephant. It does, however, suggest why I might be more deflationary than most though. A vacuum exists where growth once was, but aluminum production continues on almost as if nothing had happened.
China’s aluminum production capacity will expand 20 percent this year, Neil Buxton, managing director at London-based researcher GFMS Metals Consulting, said May 21. Stockpiles monitored by the Shanghai Futures Exchange have climbed almost 65 percent this year to a record 489,495 tons.
I'm not quite done yet. Here's the worst news of all. I've made the bearish case without even mentioning our national, state, and local government debts. Technically, I should be subtracting that from my long-term spending power too. That's assuming I don't get the unborn grandchildren of others to pay for it of course. Sigh.
I really don't think now would be the best time to be swinging for the fences using leveraged high risk bets. Just an opinion!
You are presented with two boxes that are filled with one cubic foot of a mystery substance. Each box has a note on it.
Box A’s note says the contents have superior electrical conductivity, thermal conductivity, malleability, and resistance to corrosion. The contents have extraordinarily high reflective powers. The contents are used in the spacecraft industry.
Box B’s note says the contents can be very strong, ductile, and malleable. The contents are an excellent conductor of heat and electricity. The contents are known for their ability to resist corrosion. If polished, the contents have the highest reflectivity of any material, including even mirror glass. The contents are used in the spacecraft industry.
It is Monty Hall time. Which box would you prefer? I should probably warn you that this is not a game show and that I am not your game show host. Nothing is free here. Should you wish to purchase a box you may therefore wish to look at the price tags.
Box A's price is $21 million.
Box B's price is $151.
Still deciding? Okay, okay. Look inside the boxes then.
Box A is filled with 1,728 cubic inches of gold. The box weighs 1,206 pounds. At today's prices, it costs $21 million.
Box B is filled with 1,728 cubic inches of aluminum. The box weighs 169 pounds. At today's prices, it costs just $151.
Some of you are going to point out an obvious fact that is missing in my analysis. The world has been in love with gold for 5,000+ years. Why hasn't there been a similar love of aluminum? I would respond with a shoulder shrug and an often overlooked bit of information as seen in one of the links below.
1. Aluminum was was not "discovered" until 1808. It would therefore have been impossible for the world to have been in love with aluminum for 5,000+ years.
2. The world has not been in love with computers for 5,000+ years either, and yet here we are relying on them to debate the price of gold's true value.
3. The world does love aluminum. Big time. We just don't seem to realize it these days. We'll drink a can of Coca Cola and/or Pepsi and just toss the empty can right into the recycling bin, and for some out a car window or straight into the garbage. Not a thought is given of its true value to us.
It's just an opinion of course, but at $21 million per cubic foot, I think gold has become very expensive relative to the other things I could be filling that box with if I was looking to lock in a current standard of living long-term. At just $0.06 per troy ounce, I could fill it with things I need and use every day: canned goods, aluminum, and/or toilet paper.
The Fed and the government quite effectively advertise their efforts to inflate the supply of money and credit. But deflationary forces, to most eyes, are invisible. I thought I would point some of them out.
Most worrisome is that the market mayhem is bringing back memories of fall 2008, when stocks plummeted as bank lending froze after the collapse of brokerage Lehman Bros.
Dollar index makes biggest monthly gain since October 2008
I turned bearish in the summer of 2004. I remember walking my dog around a local lake. The sun is a powerful force. It had me questioning my bearishness. I had to remind myself that the sun was also out during The Great Depression though. It may not seem like it when we look back at the grainy black and white footage of that era, but it really was.
This post inspired by G.H. who referred to the first song in the comments. I really do wish I could see clearly now. Unfortunately, the future still looks cloudy to me. I just don't think we can borrow our way back to prosperity. I hope I am wrong.
To choose the right steward of your money, do your homework, cast a wide net, check references and avoid these 7 big mistakes.
Not one mention of using a mirror? Interesting. I bring this up because I doubt the person in your mirror could manage risk any worse than the trained professionals at Citigroup and AIG did. They were the cream of the crop.
LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Board of directors members included Myron Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences.[2] Initially enormously successful with annualized returns of over 40% (after fees) in its first years, in 1998 it lost $4.6 billion in less than four months following the Russian financial crisis and became a prominent example of the risk potential in the hedge fund industry.
The mirror is so easy even a child can do it. It doesn't even require a management fee. Give it a shot. You've got nothing to lose that the very best of the best couldn't lose on your behalf.
"We're built to work in every environment," Immelt told investors. "The point I want to make about GE is who we are. We give investors a chance to sleep at night knowing that you're going to get consistency and visibility."
Look, I can be a CEO. Now, my whole company is great. I can do anything good. I like anything. I like my stock. I like my money. I like my growth. I like my...
"He wants growth and he's going to use the financial firepower of GE to get it," said Dick Henderson, an analyst with Pershing. It is a strategy that has worked very well for GE in the past, he said.
In my opinion, the only person you can truly trust to be a proper steward of your prosperity is you. There are just too many others looking to make your prosperity their prosperity.
Moreover, Betterment has a different way of charging for its services than most brokers. Rather than charging commissions, Betterment simply takes a 0.9% annual management fee from your assets.
Betterment simply takes. What more is there to say? You know I'm not going to end here though. I'm just getting started.
Invest once. After 30 years, that 0.9% annual management fee would have taken 24% of your assets. Here's the math.
0.991 ^ 30 = 0.76
On the bond side, the service offers a single investment: iShares Barclays TIPS Bond (NYSE: TIP). That's also a useful fund, although it's unfortunate that the service doesn't offer at least one ETF with traditional rather than inflation-indexed bonds in its portfolio.
Oh oh. I feel the need to offer some profanity here. I apologize in advance because here it comes.
WTF!!
Here are your choices.
1. You can buy TIPS directly from the government for free. There are no fees to purchase. There are no annual fees to maintain your account.
2. You can buy TIPS through Betterment. They will serve as your primary middleman. They will take 0.9% for themselves per year. They'll take that money and invest it in the TIP bond fund. The bond fund will serve as your secondary middleman. TIP will take 0.2% for themselves per year. The TIP bond fund will then buy TIPS on your behalf.
Which plan do you really think is the "better" way to save?
Mung beans are three times more expensive than in January; garlic is up 20 fold as speculators and wholesalers corner the market.
Zhang Wuben's TV lectures on the healthful properties of mung bean water have become enormously popular nationwide in the past three months. His claims to be a qualified nutritionist have been debunked by investigative journalists, but thousands of Chinese are believed to be following his advice to boil three pounds of mung beans a day and drink the resulting broth instead of water in order to ward off everything from lung cancer to high blood pressure.
China's show of confidence in Europe let the market resume a rally that stalled late Wednesday following a report that the Chinese government was considering cutting its European debt holdings. If that were true, such a move would have signaled that China didn't think Europe would be able to contain the crisis. The agency that manages China's $2.5 trillion in foreign reserves denied the report.
Europe and Mung Beans. Mung Beans and Europe. They go together like two peas in a pod. Confidence games for the win.
The S&P 500 hit 1103.06 today. That's a 3.3% gain in just one day. Very impressive!
Just 97 more points and we'll cross theS&P 500's Rubicon for the 24th time.
He was going down a grade making 90 miles an hour When a whistle broke into a scream He was found in the wreck with his hand on the throttle Scalded to death by the steam
The route between Monroe and Spencer was rolling terrain and there were numerous danger points due to the combination of grades and tight radius curves. Signs were posted to warn engineers to watch their speed.
The Southern Railway placed blame for the wreck on engineer Broadey, disavowing that he had been ordered run as fast as possible to maintain the schedule.
I have therefore temporarily turned on comment moderation. This is a first for me so let's hope I can figure out how this works. Let's also hope I can turn it back off once the spammer realizes he/she is not welcome here.
Feel free to post whatever you like about anything you like and as long as it doesn't contain umpteen references to watch and/or handbag products then chances are I will approve it as soon as I read it.
Consider it a grand experiment to see just how often I am on my computer. Hahaha!
Any SPAM related jokes would be especially amusing right now for those with a sense of humor about this.
With my colleague Jiwon Vellucci, we found, to start, that more than one-third of recent immigrants come from Europe and Asia, while less than 57 percent have come from Mexico and other Latin American nations.
That is such an interesting way to word it. I think it pretty much sums up any potential biases within the article.
Let's say Mr. Shapiro and I won the lottery together. Can't you just picture him saying...
Let's split the winnings fairly. I'll take less than 57% for myself. That will leave you with more than one-third!
Hey, just a thought.
The evidence regarding the impact of immigration on wages also turns up some surprising results. First, there’s simply no evidence that the recent waves of immigration have slowed the wage progress of average, native-born American workers.
Rumor has it that obscenely highly paid CEOs are making the "average" native-born American workers seem better off than they really are. Has that been factored into the analysis?
"This is crazy. This is just crazy. First class tickets. Country clubs, Admirals Club? This is ridiculous,” said Ken Berger, president and CEO of Charity Navigator, which provides independent analysis of non-profit organizations.
How about "average" native-born American teenagers? Has that been factored in?
"The decline in teenage employment is very worrisome because a large body of research shows that those who do not work as teenagers often fail to develop the work habits necessary to function in the labor market later in life," said Steven Camarota, the director of research at the Center for Immigration Studies who co-authored a study about the issue.
Overall immigration – both legal and illegal – is a major factor in the steady decline in U.S.-born teenage participation in the summer workforce, according to a report issued Wednesday by Camarota's organization, an anti-illegal immigration think tank that believes in restricting legal immigration.
"A Drought of Summer Jobs, Immigration and the Long-term Decline in Employment among U.S. Born Teenagers" shows charts comparing various occupations and states. Before the current recession, the summer labor force participation of U.S.-born teens was decreasing, the report says.
Karen Gibbs, editor of the Gibbs Perspective, recently told attendees of The MoneyShow Las Vegas that Black Swan events aren’t as rare as they once were.
In 2007, Nassim Nicholas Taleb wrote The Black Swan: The Impact of the Highly Improbable. In it, he argues that most of the really big events in our world are rare and unpredictable.
Taleb lists three criteria for such an event: It must be a surprise to the observer; it must have a major impact, and [will be] eventually rationalized by hindsight as predictable.
By definition, black swans cannot be everywhere.
For example, several weeks ago I was watching TV and the screen froze. This surprised me. It had a major impact on my television viewing experience. I later rationalized it in hindsight as being predictable. I do use Comcast after all, lol.
That met Taleb's definition of a black swan event.
When my Internet and phone failed to respond last night and it was roughly the third time this month that service was out, it really did not surprise me much.
Once something becomes predictable, then it no longer qualifies as a black swan event.
The Greek economic crisis is yet another Black Swan event, although those studying the situation saw legal accounting sleight of hand mask the country’s profligate spending, cheap money and few, if any, financial controls.
No, it isn't. If those studying the situation could see it coming then it definitely was not a black swan event. They did not need to rationalize it later as being predictable. They were predicting it.
As long as governments engage in fiscal irresponsibility, [however,] the global economy will be buffeted by fear. To paraphrase Mr. Taleb, until governments can refute rumors, expect more black swans.
If fiscal irresponsibility leads to fear, then it should come as no great surprise to us that more fiscal irresponsibility will simply lead to more fear. How could this surprise us? We'd be predicting it.
About the only way our current situation could lead to a true black swan event would be if all this fiscal irresponsibility did not lead to more crises. What if it led us on a path to true prosperity and world peace instead? What if the "extend and pretend" policies really did work?
It would match all three of Taleb's conditions.
1. It would very much surprise all of us. 2. It would have a very positive impact on all of us and our well being. 3. It would no doubt be rationalized in hindsight as predictable.
I doubt very much we will get that black swan, but you never know. Perhaps Mr. Fusion is invented soon and it leads to a bright future world of unlimited cheap energy? It could happen. I'm just not betting on it, especially in the short-term.
If history is a guide, we can expect nuclear fusion to power our homes 40 years from now though. Why 40 years? It was 40 years away in the 1970s and it still probably is!
The old joke, that practical fusion is 40 years away and always will be, is no longer funny.
Party pooper! I still think it is funny.
Update:
Watchtower has pointed out in the comments that what we are seeing might be black crows, and not black swans. That makes a lot more sense to me, especially since they can be seen in great numbers.
As seen atWikipedia, "Crows, and especially ravens, often feature in European legends or mythology as portents or harbingers of doom or death, because of their dark plumage, unnerving calls, and tendency to eat carrion (including those of humans)."
The large volume of water flowing in to and out of the Bay of Fundy modifies the landscape surrounding it.
Meanwhile, advancing and retreating tides and the associated waves have eroded the base of the rocks at a faster rate than the tops, resulting in their unusual shapes.
The crow is up 10 votes to 1 over Dennis Kneale. I'm going to attempt to even the odds here, or at the very least provide more information to the voters still on the fence.
On the one hand, almost everyone loves an underdog. Let's hear it for Dennis Kneale! Hurray!
On the other hand, the DJIA has dropped below 10,000 again. That can't be helping Dennis "permabull" Kneale's popularity. It's also possible that the mean-spirited bloggers will continue to jeer his optimism from the dark and cozy safety of our mothers' basements. Who really knows for sure?
Kneale is offended that these "mean-spirited bloggers" would be "jeering" at his optimism from the "dark and cozy safety of their mothers' basements," and invites them to come on and hash it out with him.
And lastly, this isn't all about Dennis Kneale. The world does not necessarily revolve around him. The crow also deserves some airtime.
Notice how the crows and ravens choose not to fight when they know they can't win. They are smart that way.
May 24 (Bloomberg) -- A bartender at my neighborhood pub recently asked me how the Shanghai stock market was performing. I said it was at about 2,600 points. He jumped and said, “No! The Communist Party wouldn’t let that happen.”
He spent the next 10 minutes trying to convince me that the Communist Party would make the market rise to 8,000 in the next three to five years.
Ms. Wang, the wife of a successful Beijing businessman who gave only her surname, has purchased four homes in recent years. There's the apartment she and her husband live in, and three others they hold as investments. All three are vacant; she's making no attempt to rent them out. No property taxes are assessed in China, and so there's no financial penalty for simply buying and holding. The rental market in Beijing, in comparison to the red-hot real estate market, is fairly weak, and besides, renting out those apartments -- putting them to use and risking some wear and tear -- could diminish their value. So they remain pristine and empty.
Gold
May 17, 2010
Canny investors in China sense a storm is coming and they are taking shelter in gold. There is a sense of urgency in the crowds packed...
Canny investors? Packed crowds? Where have I heard that before? Stocks, real estate, gold... it's all good... until it isn't.
Zhu Qiuxia, for one, is not worried about a bubble. The power grid worker has put all her savings into shares, and is planning to keep them there until the Olympic Games next year, when she plans to put her original principal back in the bank and continue to speculate with the profit she's made.
"When you loot at recent trends, there are signs of renewed weakening in home prices," he said in a statement.
This is discouraging for American homeowners who have seen the value of their largest asset deteriorate significantly over the last three years. If the home prices dip again, consumers may curb their spending and threaten the nascent economic recovery.
Looting can indeed be discouraging for American homeowners. No doubt about that.
I created the following chart shortly after I turned bearish in 2004. It was the first economics chart that I posted publicly. It could be seen in my Yahoo profile. I also posted this chart on the first day that I started this blog.
It's on a log chart. Constant growth rates therefore show up as a straight line.
In the spirit of what ifs, what could cause the stock market to head back down to the green line? Where do I start?
1. Near record low unemployment. Bulls love it. I wonder what would happen if it reverts to the mean. 2. Near record profit margins. Bulls love it. I wonder what would happen if it reverts to the mean. 3. Credit crisis. Don't think many people love that, myself included. 4. Housing crisis. Let's see. Rising inventory, falling sales, falling prices, rising foreclosures, rising inventory, falling sales, um, I think I just fell into a feedback loop. Sorry about that. 5. Banks. Need I say more? Just how many do we really need? 6. Payday Loan Centers. Didn't I just cover this one as #5? Just how many do we really need? 20,000+? Seriously? 7. China. Just how many more paper dollars can we ship them in exchange for cheap goods? Let the grand experiment continue!
Would could go wrong, did go wrong.
Here's an updated chart that I created today.
First the good news. We're back to the long-term growth trend line. The market may be fairly valued now. I say may be.
Now the bad news. The market was on the long-term growth trend line in 1969. We put a man on the moon that year. As seen in the chart, it did not stop us from having 15 straight years of lousy stock market performance though.
I'm not done with the bad news yet. Unlike 1969, about the only thing we're shooting up into space this year is our national debt. It is not sustainable.
I'm still not done. In order to justify being on the long-term exponential growth line that's been in place for 80+ years, then you must continue to believe in the long-term exponential growth story and a return to business as normal. I must admit I'm not all that much of a believer these days. At best, I think growth will slow. At worst, well, watch out below.
Canada might be America's neighbor to the north, but it has a bubbly real estate market, even as the U.S. market continues to limp along. Consider these eye-raising facts: Canada's real estate prices have increased on average 40% in the last year while incomes have dropped.
Gold trades at $1,180.60 per troy ounce. Aluminum trades at $0.9068 per pound. There are 14.5833333 troy ounces in a pound. The current gold to aluminum price ratio is therefore 18,987 to 1.
A 747-400 consists of 147,000 pounds (66,150 kg) of high-strength aluminum.
Selling just 7.75 pounds of gold will now allow you to buy all the aluminum needed to make a 747-400.
Although I did ride gold and silver from 2004 to 2006, I have no interest in owning either gold or silver at these prices.
I will repeat what I said in my Silver to Aluminum Price Ratio post (see link below).
I've mentioned in the past that if I was running my portfolio like a hedge fund then I would buy toilet paper and aluminum foil and sell precious metals.
Gold was one notable exception to the downward trend in metal prices, reaching an all time high of $1,215.21 per troy ounce in early December 2009. Iron ore was among the largest to decline and decreased by nearly 50 percent in production quantity and value over the last year.
China's policies have travelled the path of least immediate resistance - monetary expansion and asset inflation. The main purpose behind asset inflation is that the government can tax it. It provides a place for people to chase their get-rich-quick dreams and is popular as long as the market goes up. It also offers insiders who have disproportionate influence to play the game at the expense of little people. It is no coincidence that China's policies have been so pro-asset-inflation in the past few years.
What more is there to say? Oops. There is more to say.
Beijing can still cope with the consequences of the bubble bursting, given its enormous assets. But it may be harder to handle if the bubble continues for two more years. To rein it in, Beijing must raise interest rates quickly. Some worry that raising rates would increase the pressure for currency appreciation, but this is probably not true. The yuan is not undervalued. When the subsidy to manufacturing for asset inflation is removed, it could be equivalent to a 20 percent appreciation in the exchange rate.
What? All those investors who piled into Wisdom Tree's CYB back on5/14/2008aren't going to make a killing someday? Andy Xie, tell me it isn't so!
The investment seeks to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese Yuan relative to the U.S. dollar. The fund normally invests in a combination of U.S. money market securities with forward currency contracts and currency swaps which is designed to create a position economically similar to a money market security denominated in Chinese Yuan. The average portfolio maturity is 90 days or less. It does not purchase any money market securities with a remaining maturity of more than 397 calendar days. The fund is non diversified.
It's got the safety and return of U.S. money market securities (minus 0.45% annual fund expenses) with the potential risks and rewards of forward currency contracts and currency swaps. What's not to like? I don't know about you, but I can't seem to get enough forward currency contracts and swaps into my retirement nest egg. *sarcasm*
Perhaps the typical CYB investor knows exactly what he or she is doing though.
My goal is to settle in china maybe permanently. So I may have to convert half my money. I will buy only because I think I will not be able to retire in USA, very high cost of healthcare and having no job is making me think about moving to china; maybe become citizen of china if I start to like it there.
Please just shoot me if I ever think of moving to China. I have absolutely nothing against the Chinese people but I would not want to be a citizen. What if the government discovered my blog?
Amnesty International has documented widespread human rights violations in China. An estimated 500,000 people are currently enduring punitive detention without charge or trial, and millions are unable to access the legal system to seek redress for their grievances. Harassment, surveillance, house arrest, and imprisonment of human rights defenders are on the rise, and censorship of the Internet and other media has grown.
"We didn't get the value out of this crisis that we should have," Mr. Klarman told the audience. "For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions." He added: "All we got out of this crisis was a Really Bad Couple of Weeks mentality."
Indeed!
You could have heard a pin drop as Mr. Klarman proclaimed, "I am more worried about the world, more broadly, than I ever have been in my career." That's because you can make good investing decisions and still end up with bad results if you reap your profits in currencies that do not hold their purchasing power, he explained.
I have and will continue to urge caution even in inflation protected Treasuries and I-Bonds. I buy and hold them until maturity. I know what I will be getting more than likely and it isn't much. I will even lose money after taxes if inflation does pick up, due to the taxation.
"All the obvious hedges"—commodities and foreign currencies, for example—"are already extremely expensive," he warned.
Especially gold. "Near its all-time high, it's a very hard moment to recommend gold," said Mr. Klarman.
I believe that. I have stated here that $1000 gold was expensive. I've been wrong so far in the eyes of the market but I do continue to believe it. "Obvious" is just another word for "sure thing". I do not believe insure things.
Markets are constantly in a state of uncertainty and flux and money is make by discounting the obvious and betting on the unexpected. - George Soros
The obvious almost never works in the long-term, because by the time it has become that obvious it is too late to invest.
Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception. - George Soros
“At these prices all aluminum producers in China are losing money,” said Jia Zheng, a trader at Soochow Futures Co. “So far we haven’t heard of any output cuts yet. Producers will try to maintain output for a long as they can because it is costly and time-consuming to restart idled capacity.”
We've been in this business a long time. With our experience, we're going to have ideas for change combinations that probably haven't occurred to you.
A lot of people don't realize that change is a two-way street.
How do you make money doing this? The answer is simple. Volume.
Mr. Consumer Mr. Producer Mr. Investor Mr. Banker Mr. Central Banker
The Props
$10 in cash 10 pounds of widgets
Act I
The curtains open. Mr. Consumer buys 10 pounds of widgets from Mr. Producer for $10. Mr. Producer gives the $10 to Mr. Investor. Mr. Investor deposits $10 in Mr. Banker's bank. Mr. Central Banker smiles. The curtains close.
Act II
The curtains open. Mr. Producer goes to Mr. Banker. He says, "Look at those widget prices. $1 a pound! If you loan me $20 then I can produce 20 more pounds and we can both be happy." Mr. Banker looks at the numbers and likes what he sees. Loan approved! Thanks to fractional reserve banking, Mr. Banker loans $20 out even though he only has $10 in deposits. Mr. Producer produces 20 pounds of widgets. Mr. Central Banker smiles. The curtains close.
Act III
The curtains open. Mr. Consumer goes to Mr. Banker. He says, "I'd like to buy 10 pounds of widgets, but I don't have any money. If you loan me $10 then I can buy 10 pounds of widgets and pay you back later." Mr. Banker looks at the numbers and likes what he sees. Loan approved. Thanks to fractional reserve banking, Mr. Banker loans another $10 out even though he only has $10 in deposits. That's $30 in loans to $10 in deposits. Mr. Central banker smiles. The curtains close.
Act IV
The curtains open. Mr. Consumer pays Mr. Producer $10 for 10 pounds of widgets. Mr. Producer deposits $10 in Mr. Banker's bank. Mr. Central Banker smiles. The curtains close.
Act V
The curtains open. Mr. Banker calls Mr. Consumer. Mr. Banker says, "You haven't paid me the $10 you owe me." Mr. Consumer says, "I have no money. I could give you 10 pounds of widgets though." Mr. Banker hangs up and calls Mr. Producer. Mr. Banker says, "You still owe me $10. Have you got it?" Mr. Producer says, "Um, well, there's a bit of a problem. Mr. Consumer only bought 10 pounds of widgets. I could give you the extra 10 pounds of widgets I still have though." Mr. Banker panics. He thinks to himself, "What the @#$% am I going to do with 20 pounds of widgets? I need the @#$%ing $20 back!!" He calls Mr. Central Banker. Mr. Central Banker frowns as he prints $20 in new money and bails out Mr. Banker. Crisis averted. The curtains close.
Epilogue
The curtains open. There is now $30 sitting in cold hard cash sitting on the table. There are 30 pounds of widgets sitting on the table. There's a sign above it that says, "Even with the bailout causing $20 of freshly printed money to suddenly exist, widgets are still worth $1 per pound. Deflation averted. Hyperinflation averted." Mr. Central Banker smiles. The curtains close.
You will note that the printing of the $20 did not create inflation in this example. That $20 was already thought to exist. The initial creation of the credit is what propped up widget prices. Otherwise, 30 pounds of widgets with just $10 of actual money in circulation would imply widgets should be 67% cheaper.
So how can deflation happen in our world? There's a key sentence back there that needs more thought.
"Mr. Central Banker frowns as he prints $20 in new money and bails out Mr. Banker."
What if our Mr. Central Banker doesn't actually print all $20? Or what if he instead simply loans money to the Mr. Bankers? Or what if he tells Mr. Bankers to pretend the losses never actually happened? Or what if it is all of the above?
Reggie Middleton is an investor and analyst who owns BoomBustBlog.com. He was one of the earliest to warn of the impending downfall of Lehman Brothers and Bear Stearns. Middleton told me, “If the FDIC had more money and manpower, it would be closing a lot more banks.” Middleton also said, “Many of America’s 8,000 banks are insolvent or close to it because of mark to market accounting.” Because of accounting rule changes, banks are allowed to value toxic assets for whatever they think they are worth, not what they actually are worth. Some call this “mark to fantasy accounting.” Middleton warns, “There is more risk now (in the banking system) than during the Lehman crisis because the pool of banks is smaller.”
Stocks finished sharply higher Friday in a whiplash rally that saw an early swoon, a big morning upswing that faded completely and then late buying that appeared seemingly out of nowhere.
Seeing as how the DJIA closed at 10,620.16 last Friday and closed today at just 10,193.39, there may indeed be an alternate description for today's rally. It's probably too early to say for sure though.
No cats were harmed during the making of this video.
I was asked this question by a reader in an email and it is one I think about quite often. Rather than just answer it in private I thought I'd do it here.
I just don't know how to value stocks these days. There seems to be two things driving them and I'm not a fan of either.
1. I'm not a believer in debt based stock markets. It reminds me too much of the Great Depression. We're pumping so much new unsustainable government debt into the system as an attempt to simply prop things up. That does not comfort me.
2. I'm not a believer in commodity based stock markets. It reminds me too much of the 1970s. I was tempted to buy stocks when the prices were lower, but I was even more tempted to buy things like oil and palladium. In hindsight, as impressive as the stock market rally was from the bottom, the rally in oil and palladium was even greater. That does not comfort me.
In my opinion, we're combining the deflationary Great Depression and the inflationary 1970s to form a relatively tame inflationary enviornment. Unfortunately, two wrongs are not going to make a right. Both eras were known for their high unemployment and that's exactly what we've been getting.
If you could show me a relatively sustainable US debt path and relatively stable commodity markets then I do think I could own stocks again. We seem to be further away from that environment now than when I turned bearish in 2004 though.
Here are two things we know for sure.
1. The rate of recovery from this current recession has been anemic at best. At the pace we are currently on, it could be many years before we fully recover.
2. If we slip into another recession before we've fully recovered from this one, things are going to get really ugly.
The DJIA was roughly 10,150 when I exited in 2004. It sits at roughly that level now. It's been 6 years of nothing. We could easily get 10 more years of nothing. I'm not saying we will. I'm simply saying that we could.
Despite a chorus of voices claiming otherwise, we aren’t Greece. We are, however, looking more and more like Japan.
I will end this on one of my favorite quotes. I use it often.
It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. - George Soros
If I buy stocks and I am right to do it then I will be better off in the future than I am now. I don't really need to be better off though. I live a modest lifestyle and I have no great material wants. Having twice as much money will not double my happiness.
If I buy stocks and I am wrong to do it then I will probably need to go back to work at some point. Further, if I am wrong to buy stocks now then unemployment could be even higher in the future than it is now. That would not be an ideal environment for me to find a job that I may desperately need.
All things considered, owning stocks is just not worth the risk to me.
What gives? Sears has a good brand name historically for some items, such as appliances and tools, and has been known for low prices. It's got some good locations. But sometimes it seems like the company isn't even trying. Sears has been struggling for years and behaves as if it's not sure if it wants to be a retailer, or if it prefers to be an investment vehicle for hedge-fund investor Eddie Lampert.
What's a CEO to do these days if he can't report financial information and he can't hide financial information? That's sure some conundrum!
I refer you to the comments though. That's where the fireworks took place. Here's a sample.
I can't believe the previous comments are supposed to be taken seriously. First off, Eddie Lampert was recognized as a whiz a decade before buying Kmart. Second of Lampert is still a whiz his return on Kmart and on Sears even with the recent decline beats the market hand over fist.
Either you guys are joking or you like to buy high and sell low. Not my style. Lampert and Sears will prove to be fantastic investments over the next 10 years. Over the next 10 minutes? who knows and who cares?
SHLD closed that day at $93.45. It now sits at $88.70. The future continues to look bleak.
In hindsight, it would seem that mab's comments and my comments were actually intended to be taken seriously, we weren't joking, neither of us were looking to buy high and sell low, and the time span of the heckling was intended to last longer than 10 minutes. It has, after all, been two years so far.
A toast to you mab! Thanks for believing in the Illusion of Prosperity. We both bucked Eddie Lampert's long-term "sure thing" trend using nothing more than sarcasm and common sense. Who could have guessed?
But hey, as watchtower recently pointed out, Sears now offers cash-for-gold services. That's *sure* to revive their business model, because nothing says satisfied customer more than selling one's wedding ring to pay the rent. When times turn hard, count on the harder side of Sears!
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