The Path to Normalization

I thought the Federal Reserve would raise rates in the aftermath of the market crash of 2008. you can see here that they didn’t. The LIBOR rate is often dismissed as a self serving mechanism for bankers to set rates where they would prefer to see them. The LIBOR rate was the more accurate gauge of where the market thought rates should be. Now the Fed Funds Rate has been consistently lower than what the banks think they should be. That seems to be changing.

The players keep changing roles.  

All that hip role playing drove James Dean crazy.  The real question how much damage was done to the economy by going against the market? One thing you can surmise, is that in the event of another crisis everyone will change roles again. Is the Fed ready to push rates higher than what banks think they should be? Does a policy of rate hikes through financial repression (Reverse Repurchase Agreements) signal they are serious about pushing rates higher through 2019? In the next crisis will the Fed raise rates to properly price risk, and maintain stability?

Is the Fed’s problem it keeps getting too far ahead of the curve? Each time since 1999 that the Fed raised interest rates, the markets crashed.  So it might seem that by 2008 they had learned their lesson, never never raise rates again.

fedrates If Greenspan had only dropped rates sharply to zero in 1999 we might have had prosperity. The question is why do rates have to be zero,  to prevent the economy crashing?

historical fed rates

This is the larger chart, so you see that even though the rate hike in the 1994 Bond Massacre resulted in a stock market rally, that was because those rates were still far below their recent levels. Rates in the short term weren’t rising as fast as rates in the long term were dropping.  Looking at this you may surmise that rates are already too high to prevent the markets from folding up.

Advertisements

More Uncommon Fallacies: WOAR!

Every president deserves at least one discretionary military expedition (WOAR) although president Obama had to satisfy himself with continuing the two that he acquired from the previous administration. He did sanction the Syrian regime change policy, and his Secretary of State advocated a No-Fly Zone over that country, but she was defeated when she ran as his successor, and president Trump ordered the CIA (architect of the ISIS movement) to stand down.

Now all manner of Fire and Fury, awaits the regime of North Korea. According to some like CIA insider Jim Rickards, the US and North Korea are on a collision course.  That is uncommon fallacy ninety nine, there will be war but the war will be between China and North Korea, much like the punitive war between China and Vietnam in 1979. Complicated reasons, limited objectives, dubious results.

What war will do for China, is boost GDP and help to verticalize their economy, and perhaps cool off their overheated debt market. What war will do for North Korea is make them a nuclear legacy state of China. North Korea would never consider using nuclear weapons on China, and the terms of this war are implied and well understood by both countries.

They keep their weapons, but under strict Chinese control. The war should be brief, and may or may not entail regime change, and should solve the problem of refugees entering China if the US launches their war first.

Another uncommon fallacy is the way crypto-currency works, which is antithetical to financial markets, or rather the way we assume a digital currency functions. There is no reasonable way to consider a digital currency as a store of value, these currencies only exist to move your assets from one investment to another.  Where it gets interesting is when we consider digital transactions between credit based operations rather than assets. Can I use digital currency to move credit units from a HELIOC to a consumer account to a gold broker and back again? It may take some pondering.

The refugee problem in the Korean war may well be North Koreans crossing into the South. That will set up a new era of tensions over reunification, which is the passive-aggressive foreign policy preferred by the Chinese. Refugees become seeds spread by the wind, and grow up strong and true to their roots.

 

Uncommon Fallacies: Financial Armageddon

Source: Gold And The Coming Collapse: Are We Close To A Major Monetary Event?

Debt is poorly understood. There is the axiom that debt must be repaid, other than bankruptcy or death, this is the case. Government debt never dies, it just gets rolled over. Donald Trump imagined that the rules of bankruptcy as they apply to him could be applied to government debt, which is not possible.  He now represents the issuer of the debt.

There’s also the axiom that market crashes never come when you expect them. A watched pot does boil. Then of course Janet Yellen does not expect a market crash in her lifetime, which if you enjoy the notion of paradox is the perfect indicator that the crash is imminent.

In homage to Machievelli, private debt equals public good. So much seems obvious, whether that debt is for consumption or production. Government debt can do very little for either, and what’s more those debts are never settled. A soldier needs a rifle certainly, but he didn’t need one before, and he won’t need one later and it’s likely he won’t use it anyway.

The notion of an ad hoc economic policy, making personal deals between the executive office, and corporate businesses, reflects some fulfillment of the prophecy, without any of the enlightenment.

recourse debt holds the borrower personally liable. All other debt is considered nonrecourse. In general, recourse debt (loans) allows lenders to collect what is owed for the debt even after they’ve taken collateral (home, credit cards).

Should there be a government default, there will be no distributing of the collateral, or reading of the will, because government debt is allowed to extend itself in perpetuity.  It’s a bit like saying “God is Dead!”, it doesn’t change anything. Have we lost confidence in God, or the Central Bankers? Money is a public utility. We never lose faith in electricity, we do sometimes demand a change in management.

In the event of default there is the possibility of payment in kind, mentioned by Bob Prechter at Elliott Wave. If for instance the 30yr Treasury bond defaulted you might get shares in a closed up Chinese factory, since China holds trillions notionally, of these bonds in their reserves.

I know what you are thinking, shouldn’t China be making a claim against US assets in the event of default, closed up U.S. factories? The laws on these things are written in such a way that your deposits in a bank are categorized as a loan. China did not pay for those bonds in currency, they were issued in lieu of the balance of trade payments, to effectively “sterilize” the effect that putting all that buying power, in US dollars, into the hands of Chinese consumers.

So the US Treasury cannot confiscate their deposits, there is no money, and what money there is, we owe to them. In theory anyway that deferred obligation is a deposit, and they do have a claim on the assets those bonds represent, money they were not allowed to spend on US goods, because there were none, and we would not sell them what they really want, sensitive technology. While you as a depositor would lose money, they have real skin in the game.

As a bond holder you are no different in regards to taking less money on your principle in the event of default than any sovereign government who also bought the same bonds. It seems reasonable that we would pay the Chinese in freshly printed dollars at some fraction of the face value of those bonds, but first the depositors have to be bailed in, as it was, and their assets made part of the distribution. To return to the principle of deposits as loans, the Chinese owe us a whole lot in the event of a default in our 30yr Treasury bond.

To get to the notion of the price of Gold relative to the stock market, remember that in any ratio measure, you can get an upward, or favorable outcome, and still lose money nominally. So Gold may outperform the stock market, while both Gold and stocks lose value.

 

 

Gold And The Coming Collapse: Are We Close To A Major Monetary Event?

A few caveats. Whenever you measure a ratio, its always possible to predict a positive outcome and get tagged with a nominal loss. Gold is up relative to the stock market, and both go down.

Hubert Moolman on SILVER and GOLD

Gold And The Coming Collapse: Are We Close To A Major Monetary Event?

By Hubert Moolman

It really should be clear that a major international banking crisis is inevitable, and likely to occur fairly soon. Due to the extreme debt levels, many banks are close to that point of failure.

An event like a stock market crash is likely to push many banks to that point of failure, since the pressure it would create (on cash resources), would expose their inability to fulfill their obligations.

Cash (not bank credits/digits) is still the means by which banks have to settle liabilities and obligations (especially amongst each other). If a bank goes down, it will be due to the lack of cash (not bank credits/digits). It is for this reason that there is a campaign to ban cash (for the general public) or limit the use of it.

The banks are in…

View original post 582 more words

The Common Complaint

How is it that summer in Southern California is more like April? The shivering dog days of summer are a huge disappointment. First someone hit the state Superlotto Jackpot, and then someone hit the Powerball, (MA). The President seems to have exhausted all of the fun that he gets doing his job, a bit early in the season as well. So he does what all bored grown up children do, he went out to play golf.

The path of the totality, reminds me of the line from the Carly Simon song, “You’re So Vain..”

Then you flew your Learjet up to Nova Scotia
To see the total eclipse of the sun
Well, you’re where you should be all the time
And when you’re not, you’re with some underworld spy
Or the wife of a close friend,
Wife of a close friend, and

You’re so vain

Read more: Carly Simon – You’re So Vain Lyrics | MetroLyrics
Narcissism is a collective mania. Trump is only the cheerleader.
What is Narcissism, what is Vanity? I do see that Americans tend to believe it’s all about them. They refuse to consider that the internet is an open connection, for people of all persuasions. People who dislike America for entirely different reasons. The stock market is a global market,  money comes from geographically disparate sources, but we call it the Trump rally.
So the clouds today look a lot like a minor eclipse. I think something really important is about to happen, in economics and finance, politics, society. I am where I should be all the time.
It does occur to me sometimes that we might have a thousand years of nothing. Or as Bernie Schaeffer refers to the likely economic collapse, ” A cold day to last the rest of your life..,” in reference to Ground Hog Day, the movie.
We are certain the eclipse heralds  some  protean changes, at least metaphorically. While it’s merely a cloud over the sun, we call the moon. Something important is about to happen. There is no premise to the situation of the characters in the movie Groundhog Day without the notion that something important is about to happen.
groundhogday
You raise up your head and you ask, “Is this where it is?”
And somebody points to you and says, “It’s his”
And you say, “What’s mine?” and somebody else says, “Well, what is?”
And you say, “Oh my God, am I here all alone?”
But something is happening and you don’t know what it is
Do you, Mr. Jones?
Bob Dylan recently won the Nobel prize for literature, and he remarked that he had to go study that.  Maybe we all become characters in our own books? The process of our own imaginations. Be sure you imagine the right things.

Charlottesville Rampling

Measure: Charlotte Rampling

All news is entertainment and a portmanteua is a word made from two words, in this case a name, Charlottesville Rampling. portmanteauwords

Sometimes a picture can say more than mere words. An expression. That’s how the two words arrive. Charlotte Rampling is my favorite actress to not be nominated for an Oscar in her role as Dorrie, in Stardust Memories, 1980. That film was a darkly funny play on the notable excesses of some European filmmakers, and their angst over the mystery of existence. To make light of these things is to somehow overcome their appeal. Charlottesville is the recent site of social unrest, tragedy, and violence. In the grand scheme of things what happens there isn’t important, but it is has been an event we will all remember. What we take from this, is the emotion, or the emotion of the players.

We might choose to internalize these emotions, put them in neat boxes where they remain contained, or perhaps we raise a fist, in a cathartic show of support, for one group or the other.  Not to demean the somberness of this tragedy, I do wonder what would have happened if a group of Southern history professors had shown up to defend the statues of their Confederate hero’s.

The nominee for Supporting Actor (or actress as they used be called) must have a substantial amount of time in the film, and must have a role in the plot. A lot of good performances have been left along the road over the years. Some have managed almost magically to climb to the top, John Cassavetes in the Dirty Dozen, 1967. He had to separate himself from 11 other aspiring Supporting Actors. Break it down scene by scene and you notice that in almost every scene the action begins with Victor Franco, and travels through his character. He manages to almost make it to the end of the film, he was more than good enough. He won the Oscar, perhaps a tribute to his other work, like Edge of the City, 1957, where he plays an Army deserter who befriends a black longshoreman, and is killed in a fight to defend him from the racist gang foreman.

There was Murray Hamilton, who played Mr. Robinson in The Graduate, 1967, who made an impassioned rant to Benjamin, in the boarding house.  A small but precise and memorable emotional outpouring.  He was not nominated either. These events and others we remember, which have no place other than our collective memory, which passes along with us, in time, although the wounds in the South seem as though they were never meant to heal, until one day when the Union is dissolved, from apathy no doubt, will they be sealed over.

How to Fix Healthcare

This is admittedly short and missing key details. Why not lower the Medicare age to 55? This solves the problem for insurance companies who have trouble finding young healthy people to pay their premiums which the insurance company spends on older and sicker folks. Since Healthcare legislation is not what it says it is, it has nothing to do with your health, it has to do with your money.  It’s an insurance problem, and missing from all this is the sad fact that by the time most folks get to their first medicare physical they already have chronic problems and conditions which should have been addressed ten years earlier.

By lowering the minimum age they could allow new healthcare recipients a chance to pay forward from their SSN account. At the same time they could raise the SSN retirement age, which is something the actuarial tables suggest is justified. People live longer and with Medicare at 55 they will live even longer.  If you are disabled, on SSI, which is a pre-existing condition, you transfer automatically.

There is a myth out there that Medicaid is free. Medicaid is again, not a healthcare program, it is an asset confiscation program. They pay your grossly inflated hospital bills, and then collect your assets. Yes doctors love the indigent, they can order every test and the insurance company will never reprimand them for not making an attempt at honest price discovery, (getting three independent estimates).

Medicare is not perfect, because an elderly person who needs medical equipment can get a voucher, the market in used wheelchairs and walkers and hospital beds is non-existent. I know I have a garage full of these things. Medicare provides some nursing care but after that runs out you are thrown into the Medicaid charade, the fact that the GOP wants to repeal Medicaid to me only says one thing, they are dangling the repeal out there like bait in order to gather campaign contributions for the midterm elections. I expect those cuts to mysteriously be rescinded, Medicaid is not a free ride.  It is a subsidy for insurance companies who take premiums from healthy people and then hand them off when they get really sick and cannot afford the payments.

The real irony is that most of us spend more healthcare funds on dental work after age 55, and the state of dental insurance is a real mockery of the insurance business model. Most policies limit you to around twice what you have paid in the way of premiums annually with limits on what you can use this year, and what might have to wait.

If you have ignored your teeth until age 55 you should probably have them all pulled. It’s far more important, but Medicare at 55, would be a good thing.