Financial topics

[Higgenbotham]

That thing from camse is pretty out of date. Iraqi oil production is on the upswing, as is US oil production.

This is the best graphical representation of world oil production I know of. I'm not sure if it's all liquids or oil only.

http://3.bp.blogspot.com/-tjgDUS4sCe8/T ... .13+AM.png

[jdcpapa]

The US runs a trade deficit and normally the rest of the world increases their Treasury holdings every month. However, last month the Foreign treasury holdings went down $17 billion. A new report comes out on the 15th or 16th. If Foreign holdings drop again, I think it will be very significant news. I think they will drop.

Foreign Treasury holdings are up over 11% from June of last year (approximately $429 billion).

[Higgenbotham]

Back to trading.

A couple weeks ago, I posted a stock market correlation to the 1929 crash which would have brought in an initial low on September 1. I decided to wait and try to scale in short around that date instead. So far I only have 15% of a usual short position on.

Covered this 15% position for about 90 points. Next I will play for a rally over the September 1 high. If we don't get that, I will do nothing.

Just shorted silver again on this morning's runup.

Covered my silver short for a 15 cent loss as silver has showed strength all day. I may get short again if there is a short covering panic into the close.

Here, I took my 15 cent loss right at the top of the recent runup and it's now down over $3 from there. There may be a lesson there. Can anyone guess what it is?

...silver has held up pretty well since I started probing for a reversal last week. Last week, it didn't quite hit my upside target around $45 and it looks like it might still be going there, or higher.

Wrong.

[RDRUNR]

Part of the usual hyperinflation situation is that people stop rolling over bonds and get their cash as the bonds come due, and the central bank ramps up cash production. So I have been expecting this. Plenty of people like Pettis and Mish have claimed that the world has to keep buying Treasuries, but I don't think that is true at all. If the world stops buying, then the Fed will buy more Treasuries with newly made money. The more the Fed makes money the less people will want to hold US debt.

I agree, but with a different viewpoint. As people stop buying treasuries and go to cash, the USD will increase in value (demand), the supply (even with all the QEs) will be far short of demand, forcing up again the value of the USD. As the USD raises in value, it will again be seen as the safe haven "no risk" it is, causing a large correction in gold and silver and people rush into the USD (yet) again.

Even before all this, much more money has been lost worldwide than created. (4.3T in stocks lost this year plus 3T in US housing for example).

Thus, you have classic deflation, a very valuable USD and low stock market/PM trade.

[richard5za]

There is an interesting, and up until a quite accurate, stock market technical analyst named Clive Roffey who is now forecasting stocks to fall by at least 50% from current values, if not more, a longish bear market in stocks, and a period of 10 to 15 years, or more, before stocks get back to their 2007 highs.

It was 1954 before the Dow reached its 1929 high so there is a precedent for the prediction.

I agree but analysed differently. I use secular bull and bear cycles for my analysis based on the PE ratio. I am not seeing the end to the current bear market for some years, a PE ratio at the end of the bear cycle of less than 7, and at today's prices combined with a recessionery fall in earnings, a bottom for the Dow between 4800 and 3200; all this at today's prices. If high inflation or deflation takes hold then the the figures will be a different, but low PE ratios remains guaranteed before the bear market is over.

So if the Dow were to bottom somewhere between 2015 to 2020 at say 4000 then a three and a half fold increase back to 14000 (the 2007 peak) could be expected to take 5 to 6 years, which puts us at about 2021 to 2026. This agrees with Roffey's prediction.

In the second half to the end of the 1960's there were mini crashes at different times in different parts of the world. It was not uncommon to go to a dinner party in the 70's and listen to some people saying that never again for the rest of their lives put money into a stock market. Well, I suppose we will be hearing that all over again in due course. But this time it will be worse: Retirement funds are much more heavily invested in stocks now that in the 1960's.

2026 is 15 years away. If I am still alive I will be old!!!

[jdcpapa]

Part of the usual hyperinflation situation is that people stop rolling over bonds and get their cash as the bonds come due, and the central bank ramps up cash production. So I have been expecting this. Plenty of people like Pettis and Mish have claimed that the world has to keep buying Treasuries, but I don't think that is true at all. If the world stops buying, then the Fed will buy more Treasuries with newly made money. The more the Fed makes money the less people will want to hold US debt.

I agree, but with a different viewpoint. As people stop buying treasuries and go to cash, the USD will increase in value (demand), the supply (even with all the QEs) will be far short of demand, forcing up again the value of the USD. As the USD raises in value, it will again be seen as the safe haven "no risk" it is, causing a large correction in gold and silver and people rush into the USD (yet) again.

Even before all this, much more money has been lost worldwide than created. (4.3T in stocks lost this year plus 3T in US housing for example).

Thus, you have classic deflation, a very valuable USD and low stock market/PM trade.

Brought to you (in part) by the status of the US$ as a world reserve currency. Otherwise we would likely be "up the creek without a paddle".

[vincecate]

Part of the usual hyperinflation situation is that people stop rolling over bonds and get their cash as the bonds come due, and the central bank ramps up cash production. So I have been expecting this. Plenty of people like Pettis and Mish have claimed that the world has to keep buying Treasuries, but I don't think that is true at all. If the world stops buying, then the Fed will buy more Treasuries with newly made money. The more the Fed makes money the less people will want to hold US debt.

I agree, but with a different viewpoint. As people stop buying treasuries and go to cash, the USD will increase in value (demand), the supply (even with all the QEs) will be far short of demand, forcing up again the value of the USD. As the USD raises in value, it will again be seen as the safe haven "no risk" it is, causing a large correction in gold and silver and people rush into the USD (yet) again.

Even before all this, much more money has been lost worldwide than created. (4.3T in stocks lost this year plus 3T in US housing for example).

Thus, you have classic deflation, a very valuable USD and low stock market/PM trade.

Brought to you (in part) by the status of the US$ as a world reserve currency. Otherwise we would likely be "up the creek without a paddle".

In other cases when people stop buying bonds it is partly that they don't trust the future of the currency, so the currency is on the way down. I think the US dollar will be similar. With inflation few people really want to just hold cash. They will probably put it into something else like commodities or land. As they put the cash into something real the prices start to go up and the value of the cash goes down.

Classic deflation comes from trying to return from an inflated paper money back to valuable gold at some unreasonable exchange rate. Also, in a gold coin system if lots of people start putting gold under their mattress you can get money becoming more scarce and more valuable. But under fiat money there is no precedent for more than about 2% deflation. Governments love to make and spend money to solve the deflation problem. Under a gold coin system prices could go up or down a little bit each year with nearly equal probability but since going to pure fiat money prices almost never go down any more.

The world does not need to keep the dollar as the world reserve currency and there are real moves away from that. No reason to assume it will last forever. Might only be a few more years.

[Higgenbotham]

BIG Money continues to just park in the short-term of US securities helping to keep the yield on the 10-year Treasury note declining further to 2.20 percent from 2.24 percent late Thursday. With Japan being downgraded for its own Sovereign Debt Crisis and Europe unable to really cope with the Sovereign Debt Crisis underlying everything there, the demand for US Treasurys continue to rise for there is no place to put the BIG money right now. You can’t buy the Euro or the Yen and Swiss is not a deep market. Germany and France are being dragged down the rabbit hole while the Greek bonds have fallen to record lows this week on fears that the bailout will fall apart. November is looking very dicey. Interest rates in the US are collapsing because the economic uncertainty is just worse elsewhere.
Consequently, like that driver on an icy road who panics and stands on his breaks only careening the car out-of-control, the Fed’s pledge to keep short-term interest rates low until mid-2013 has illustrated they lost and are simply standing on the brakes just as did Japan but once again expecting a different result. This is simply the triumph of hope over experience. Low rates in theory are supposed to make higher-risk bets such as stocks more attractive. But as I have stated, there is just NO correlation to show this absurd theory worked even just once. However, by making that statement, there is the underlying presumption that they are actually in charge. Implicit within that statement is the idea that THEY lowered the interest rates rather than the market. Interesting concept, but that is simply not true.
In truth, it is the Sovereign Debt Crisis that is causing this trend. Capital is fleeing the immediate areas of concern, and Europe heads that list. Capital is pouring into the dollar and parking. This is the REAL reason for the decline in rates both domestic and international for a variety of reasons. It is the proverbial Flight to Quality that began domestically with the banking crisis and has continued for a number of reasons, Europe to be the latest. After Europe breaks down and Japan finds itself in crisis, then capital will turn against the dollar as it did in the last 1931 Sovereign Debt Crisis.
It is at that time when capital has abandoned everywhere else, clustered in the United States, that it will then turn and we should see the explosive rally in PRIVATE ASSETS with gold perhaps leading the charge on a percentage basis. Not even the gold market is big enough to absorb the excess dollars in the world at any price level that is cognizable in modern terms. This is the PRECISE pattern of the 1931 Sovereign Debt Crisis. The dollar rose to record highs, then after everyone defaulted, capital assumed the USA was next and then the dollar was hit driving gold and stocks up from 1932 into 1937. The whole world does not collapse in a single brief moment. It is a CASCADE failure one domino leading to the next.

http://www.send2web.com/files/Direct%20 ... 6-2011.pdf

"I don't get it," Buffett told FBN late Friday night. In fact, Buffett reaffirmed his belief in the quality of the United States' credit telling FBN, "In Omaha, the U.S. is still triple A. In fact, if there were a quadruple-A rating, I'd give the U.S. that."

Buffett told me tonight that Berkshire Hathaway's T-bill exposure is significant.

"We just filed our 10Q and we have $47 billion in cash and cash equivalents. Well over $40 billion of it is in short end T-bills. (Tonight's S&P downgrade) doesn't tempt me to sell. We'll stay right there."

http://www.foxbusiness.com/markets/2011 ... z1UH8OEHg4

Looking at the stats, I see enough higher risk parked money to spur at least another 2 years of movement to US Treasuries if conditions warrant.

[Higgenbotham]

I was recently interviewed and asked how is it possible that my reports have exceeded the 400,000 circulation level more than half that of the New York Times according to the independent forms that audit the web? The journalist interviewing me had spoken to many readers in the industry and concluded I write about things nobody else seems to do. The questions caused me to think about what was taking place. It is true that the markets are being driven alternatively swayed by the laws of supply and demand, and by the clamors of political faction. The future expectations are much less shaped by hope than by fear while the firm edifice of Western civilization, once raised and preserved by the wisdom of ages, is crumbling as the image of a free constitution preserved with decent reverence, has devolved onto the arbitrary executive powers of government. Common sense has just vanished.

After much reflection on this subject, I concluded that the reason for perhaps obtaining one of the largest readerships in the financial world stems from the fact that this subject matter is NOT even taught in university.

WHO CREATES MONEY?
To a large extent, there is still much confusion regarding the creation of MONEY. Some people still think the government actually creates MONEY as if this were ancient times. When I say MONEY is no longer TANGIBLE but it is VIRTUAL many seem to fail to grasp just how much the world has changed. In ancient times, the state minted the coins AFTER 600BC attempting to certify the weight to facilitate commerce. However, government quickly learned that there was profit to be made which is known as the “seigniorage” referring to the difference between the intrinsic value of the metal and the declared value. In such a world, money supply was predominantly created by the state, discounting leverage from banking and counterfeiting.
Today, that is about as far removed from the way the economy functions as the next inhabitable planet. In the example I used that if a foreign investor buys domestic real estate, he is in fact increasing the domestic money supply. The conversion of his local currency to the domestic currency is NOT dictated by some FIXED quantity created by the central bank. It is just electronic. Nobody actually prints anything and the central bank does NOT create even an electronic currency. It is just a book entry. Because the foreign investor is bringing in cash and buys a TANGIBLE object (real estate), the net amount of cash in the domestic supply of money increases the same when the Fed bought US bonds under QE2.
Banking also LEVERAGES the economy by creating MONEY. If you have $1,000 on deposit and I borrow $1,000, we both now have accounts reflecting $1,000 each. Again, the state did NOT create that money. It is once more a book entry. This is how a BANK PANIC will take place. You go to the bank trying to get your $1,000, but the bank actually lent it to me. As long as you do not try to take out that $1,000, everything is fine and dandy.
Therefore, MONEY is not TANGIBLE and it is purely VIRTUAL! The idea that MONEY is supposed to be some TANGIBLE object actually ended in 600BC once government got involved and began to manufacture a profit from creating money. As long as the economy is free, then you are free to keep your wealth in whatever object you desire be it gold or real estate. MONEY is NOT a store of value for it has always fluctuated rising in purchasing power in recessions (NOW) and declining in booms.

[RDRUNR]

Classic deflation comes from trying to return from an inflated paper money back to valuable gold at some unreasonable exchange rate. Also, in a gold coin system if lots of people start putting gold under their mattress you can get money becoming more scarce and more valuable. But under fiat money there is no precedent for more than about 2% deflation. Governments love to make and spend money to solve the deflation problem. Under a gold coin system prices could go up or down a little bit each year with nearly equal probability but since going to pure fiat money prices almost never go down any more.

The world does not need to keep the dollar as the world reserve currency and there are real moves away from that. No reason to assume it will last forever. Might only be a few more years.

Vincecate, while I do not have proper numbers to reference, I am positive we "world/USA" has already had a much greater than 2% deflation in this current recession. Take a look at the tens of tillions of dollars lost in RE, market, investments, companies and stocks vs the 1.4T created from QE (and not 40% is even spent yet). I just can't see anything but "More wealth has been destroyed than created" numbers. So there is the precedent you asked for IMO.

The odds of having a gold backed system again that is backed by reason and insanity (non-greed) with today's generations, virtually impossible. You would also have to take gold off the stock market so it doesn't go up or down in value but is set. Personally I think food and oil shouldn't be traded either.

There is absolutely nothing to replace the USD as a world currency right now (I've heard) for the next 20 years or so. Something like 10 trillion a day is exchanged through USD, there is no other currency that can replace that volume.