B4 the Bell Humpday, Sept. 22, 2004

[Guest yobob1]

Welcome to B4 the Bell.

 

We only allow fair fighting here so please discard your switchblades, brass knuckles, firearms and that D cell battery you have your fist wrapped around. No eye gouging, biting, kidney punches, kicking or hitting below the belt allowed. Please comport yourself with the appropriate decorum level. Considering most of you are sitting there in your underwear, unshaven and chain smoking, I guess that level is pretty low, but please make an attempt

 

Dan who? We have quickly exceeded the attention span of the sheeple so hopefully the Rather blather side-show will go quietly into the archives. That's all it really is. Politics as usual. Rather than discuss the issues that really matter, which neither side wants to do since the reality is so ugly, they will keep throwing out whatever sensational piece of fluff they can dig up. Viet Nam is over. We apparently learned nothing from that fiasco, so move on.

 

Which is more important; forged documents about someone's very mysterious 35 year old military service record or forged documents about uranium that is trumpeted in a State of the Union speech that leads a nation to war?

 

In watching some of Kerry's speeches over the last few days, it appears as though the gloves might have come off. He's hitting Bush where he's vulnerable, namely Iraq and the economy. Now Kerry's (or Bush's) "solutions" don't really cut to the heart of the matter and ultimately all promises made during a campaign are known lies to begin with, but it appears to me as though his campaign handlers may have been holding back for the final push. In retrospect it may have been a planned strategy to take the offensive late enough in the race that the opposition doesn't have a chance to get off the defensive. Then again it might be dumb luck or desperation - we'll never know.

 

In driver's ed they try to teach you to drive "defensively". That's fine for the cell phone juggling, coffee slurping sheeple, or collision fodder as they are sometimes called. If you want to survive and avoid the sheeple, drive offensively.

 

Many stoolies are firmly in the inflation camp. It is my guess that view is the majority position. And I believe that a good portion of those believe that will lead to a hyperinflationary depression which then rolls over and becomes a deflationary collapse. I have a hard time with that scenario for a couple of reasons. In thinking about post WW I Germany that ultimately culminated in hyperinflation where it became necessary to print bills with 6 or more zeros how do you square it? For example, if you had taken out a ten year mortgage of 10,000 DM before the worst of the hyperinflation began and a few years later you're getting paid 10,000 DM a day, wouldn't all of the banks have taken a fatal hit assuming you paid off your debt with hyperinflated currency? Or what if you saved a few 1,000,000 mark bills ( a few hours labor towards the end) and the economy rolled over into radical deflation. Wouldn't you be filthy rich? Obviously the old currency had to be discarded as it had become useless.

 

This is why I think in our case that deflation will occur first. Deflation will destroy the value primarily of non-cash financial assets; real estate, stocks and most bonds or ABSs away from government issue. The loss of value occurs because of the very high default rates which tends to increase the supply of the underlying real asset, such as real estate, stocks or cars at a time when new sales are already falling from saturation and subsequently those assets have to be marked to market. The auto industry has been showing those very symptoms now for a couple of years and real estate is about to in a big way.

 

In our twisted world of happy speak debt has become the primary "asset" of the financials. To me debt is a liability, whether it's your liability on your balance sheet or my liability as a lender until I get my money back.

 

The conventional methods of reinflation are failing to work in the general economy because of two primary factors which are beyond monetary authority. Those are a failure to ignite rising incomes and the inability in most goods and services to increase prices due to competitive pressures primarily from abroad. Those two factors are closely linked in almost a chicken and egg parable. Without increasing wages, higher prices can't be pushed through to the end user. Without higher prices, wages and employment can't be increased.

 

What about energy prices? To me that narrow sector cannot on it's own lead to inflation in the longer run. Reallocation of spending yes, which means lower sales on virutally everything else. Lower sales volumes leads to lower prices in a failing attempt to maintain volume.

 

I remain stupidly in the deflation camp with a nod towards hyperinflation as the possible end-game when fiat finally dies implying the death of the republic.

 

Ok enough mind numbing chatter - on to the games. May the Stool be with you.

 

 

Gold and silver about unchanged, platinum and palladium down 1.5% and 7% respective.

 

A one year look at Uncle Buck. You draw your own conclusions - I know what mine is.

 

Interestingly, Bloomberg is showing the effective fed fund rates this morning at 1.5 with yields falling across the board. Hmmm, I thought the fed just raised to 1.75????? And for that matter why did the dollar fall when rates were raised? Aren't higher rates supposed to be supportive of a currency?

[Hiding Bear]

Tanks yobob1!

 

The MoGauge is out - the credit bubble is still hanging on by its fingernails per the latest report.

 

A very interesting article on the roots and effects of hyperinflation, in this case hyperinflation is not necessarily of the CPI kind:

 

?

Weimar and Wall Street

 

Critics of investor behavior during stock market buying panics are focusing on the over-valuation of shares in relation to the earning power of companies. Investors during the 90s were guilty of irrationality if we look only at the expansion of prices ratios between financial assets and consumption goods that was taking place. But understood as a panic response to the calculational chaos introduced by a rapidly depreciating monetary unit we can see the stock buyers of the 90s in the same boat as the Germans of the Weimar era, trying to spend money rapidly becoming worthless.

 

While the monetary madness of the 90s gave us hyperinflation in stocks, during the last few years the effects of money printing have been seen more in the housing market. As the stock bubble deranged relative prices between financial assets and consumption goods, the inflation of housing is driving home prices to unsustainable levels relative to wages and prices.?  Partly by artifice, partly by luck, the effects of an over heated printing press have not been felt full-on in wages and consumption goods. But Al and his band of counterfeiters at the Fed are rapidly running out of asset classes large enough to soak up the flood of greenbacks without setting off a visible inflation. If the dollars start to flow into goods and wages, then Weimar, not Wall St. will be the next destination.

 

http://www.gold-eagle.com/gold_digest_04/blumen092104.html

 

Aden Sisters give two thumbs up to gold:

 

Gold has been quiet lately, but not to worry. The Summer consolidation time looks like it's coming to an end. Gold shares broke out today on the upside. They're likely leading gold as they often do and once gold gets going, it'll be important to see if it reaches a new bull market high.

 

Gold's Big Picture: Impressive

 

If it does, gold will be showing great strength as it will be entering a stronger phase in the ongoing bull market. And when you stand back and look at gold's big picture, you can see a potentially explosive rise coming in the years ahead (see Chart 1).

 

http://safehaven.com/article-1992.htm

[The brown one]

Ok totally OT but today a flight in which the singer Cat Stevens was travelling to Washington was grounded at Maine after comparison of the passenger list with a list of terrorists revealed that Cat Stevens( aka ? Yousef since converting to the Muslim faith many years ago) was on the terrorist list!!! Bwahhhaaaa.

 

He was escorted from that plane and put on another flight back to London from whence he came! UFB!

 

Bet the USofA feels a lot safer now!

[DrStool]

Gold Knocking On The Door

 

HUI Pushes It Open

 

Your Golden Stool, including short and long term updated charts and price targets, is loaded. Even if you are not a goldbug, you should check out the Golden Stool. It's in your Anals daily. Take a subscribatory and download the Golden Stool RIGHT NOW!

 

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[machinehead]

In thinking about post WW I Germany that ultimately culminated in hyperinflation where it became necessary to print bills with 6 or more zeros how do you square it?

 

For example, if you had taken out a ten year mortgage of 10,000 DM before the worst of the hyperinflation began and a few years later you're getting paid 10,000 DM a day, wouldn't all of the banks have taken a fatal hit assuming you paid off your debt with hyperinflated currency?

Fair question, but we can't project our imprudent habits on the people of three generations ago. In the U.S. in the Twenties, mortgages were typically 5-year balloons, at no more than 50% LTV, and people paid them off to get debt-free.

 

In 1923 Weimar Germany, the middle-class bourgeoisie were net creditors. They had high savings, kept in banks. The urban middle class were mostly renters, so they didn't have offsetting mortgage debt. Mortgage debt just wasn't pervasive in society then, as it is now. Families in Europe owned houses for decades and passed them down by inheritance -- there was virtually no debt.

 

The Weimar inflation cleaned out the middle class by making their bank savings accounts worthless. The borrowers -- whoever they were (industrial companies?) -- got their loan principal reduced to nothing by inflation. As long as the banks' assets and liabilities were matched to lose value at equal rates, their main problem was shrinking assets and earnings (in real terms), not insolvency.

 

Toward the end, the Weimar banks were probably carry traders, putting their assets into gov't bonds at escalating rates, while paying depositors lower and lagging fixed rates. But the parabolic acceleration overturned the whole system.

 

Today, gov't is both the largest debtor and the owner of a printing press. If I had a printing press, I would print the money to pay my bills, and so would you. History shows that the sheeple will accept that money when the gov't owes it to them. The choices confronting the gov't in the next 20 years are inflation or default. I lay 100-to-1 odds on inflation.

[rog]

Morgan Stanley misses by, as they say on bloomberg, a wide margin

 

ERS of $0.78 vs. $0.96 exp

REV of $5.42b vs. $5.81b exp

[Bearbones]

I remain stupidly in the deflation camp with a nod towards hyperinflation as the possible end-game when fiat finally dies implying the death of the republic.

Nice opening, Yobob.

I concur with your assessment of the current state of things and the end game. In a post some months ago I said that rising commodity prices are not necessarily inflationary, that a strong bond market and higher commodity prices can coexist. This occurred during much of the 1929-1949 period. Today's investor only remembers the consumer inflationary period, when capacity utilization was high and financial regulation was heavy. That's gone. We are living in a time where few, if any, investors have experience. They keep looking behind them expecting their past to repeat itself. We may be reliving a past time, just not one of our experience. The post WW II period was a golden one for stocks because they were cheap, as the investors of that era expected a replay of the Depression which was the dominant event of their lives. Today's investor expects the return of consumer inflation and a bull market, the dominant events of their lives.

We are truly hostage to our experience. The ones who can rise above their experience, who do not attempt to paint the current state of affairs with the colors of their limited vision, will do well. The rest will simply be frustrated as they keep looking for yesterday's events to replay themselves.

[KeyboardProspector]

Interestingly, Bloomberg is showing the effective fed fund rates this morning at 1.5 with yields falling across the board. Hmmm, I thought the fed just raised to 1.75????? And for that matter why did the dollar fall when rates were raised? Aren't higher rates supposed to be supportive of a currency?

I saw that last night and was stumped. Unfortunately the Bloomberg quote only prints a snapshot instead of an average. Right now it reads 1.75.

 

The NY Fed gives an weighted average of the Overnight Fed Funds every morning:

 

date daily Range std. dev.

09/21 1.70 1 1/4 2 1/2 0.18

09/20 1.64 1 17/32 2 0.05

09/17 1.58 1.44 2 1/4 0.10

09/16 1.61 1 15/3 2 3 0.19

 

volitility signaled by the St Dev.

 

Link

[Stool in a Pool]

Ok totally OT but today a flight in which the singer Cat Stevens was travelling to Washington was grounded at Maine after comparison of the passenger list with a list of terrorists revealed that Cat Stevens( aka ? Yousef since converting to the Muslim faith many years ago) was on the terrorist list!!! Bwahhhaaaa.

 

He was escorted from that plane and put on another flight back to London from whence he came! UFB!

 

Bet the USofA feels a lot safer now!

"Hell hath no fury like a bureaucrat."

[zensmoke]

Keep your 'effing hands out of the cookie jar, I tell you.....!!!!

 

 

DJ Fannie Mae Says SEC Conducting Informal Inquiry >FNM

  By Dawn Kopecki

 

  Of DOW JONES NEWSWIRES

 

 

  WASHINGTON (Dow Jones)--The Securities and Exchange Commission has launched an informal inquiry into Fannie Mae's (FNM) accounting practices prompted by an eight-month investigation by its main regulator that found evidence of earnings manipulation, the company disclosed Wednesday.

 

  The Office of Federal Housing Enterprise Oversight presented a lengthy report to the company's board on Monday detailing severe accounting deficiencies and violations of generally accepted accounting principles at Fannie, including:

 

  -problems in accounting for its massive derivatives portfolio and hedging activity,

 

  -improper "cookie jar" reserve accounting,

 

  -deferring expenses to achieve earnings targets and

 

  -lax internal controls.

 

Dow Jones Newswires

[Stool in a Pool]

Signs from the Periphery: Japan's trade surplus drops 26%

 

"A recent surge in oil prices pushed up the value of imports to the second highest monthly amount on record, but a finance ministry official said: ?Oil prices have come down from their peaks, so the effect of higher costs on the surplus should ease after August.? "

 

?

[machinehead]

Steve Saville quotes Printer Ben Bernanke's Sep. 9th paper:

 

If the Federal Reserve were willing to purchase an unlimited amount of a particular asset, say a Treasury security, at a fixed price, there is little doubt that it could establish that asset's price. Presumably, this would be true even if the Federal Reserve's commitment to purchase the long-lived asset was promised for a future date. Conceptually, it is useful to think of the Federal Reserve as providing investors in that security with a put option allowing them to sell back their holdings to the central bank at an established price.

 

Unconventional measures

 

Ben discretely paints this bond pegging as something the Fed could do. But I think they ARE doing it.

 

So ... Fed-sponsored derivatives are multiplying. We've had the "Greenspan put" on the stock market since 1987. Now we have the "Bernanke put" on the bond market.

 

Lovely. Just lovely.

 

How come they never write any calls?

[zensmoke]

+DJ Wendy's Sees $1.31/Lb. 2004 Beef Costs From $1.15 In '03

[KeyboardProspector]

Ok totally OT but today a flight in which the singer Cat Stevens was travelling to Washington was grounded at Maine after comparison of the passenger list with a list of terrorists revealed that Cat Stevens( aka ? Yousef since converting to the Muslim faith many years ago) was on the terrorist list!!! Bwahhhaaaa.

 

He was escorted from that plane and put on another flight back to London from whence he came! UFB!

 

Bet the USofA feels a lot safer now!

"Hell hath no fury like a bureaucrat."

Those peace loving hippy freaks!!

 

Isn't it amazing how so many of the children of the sixties have turned into their parents!!!! (Don't trust anyone over 30, right?)

 

And the consciencous objectors (ala Representative Chris Shays) are now ardent supporters of sending someone elses kids in harms way.

[Hiding Bear]

In thinking about post WW I Germany that ultimately culminated in hyperinflation where it became necessary to print bills with 6 or more zeros how do you square it?

 

For example, if you had taken out a ten year mortgage of 10,000 DM before the worst of the hyperinflation began and a few years later you're getting paid 10,000 DM a day, wouldn't all of the banks have taken a fatal hit assuming you paid off your debt with hyperinflated currency?

 

The Weimar inflation cleaned out the middle class by making their bank savings accounts worthless. The borrowers -- whoever they were (industrial companies?) -- got their loan principal reduced to nothing by inflation. As long as the banks' assets and liabilities were matched to lose value at equal rates, their main problem was shrinking assets and earnings (in real terms), not insolvency.

 

Industial companies, and those families associated with those companies, were the only ones able to borrow during the hyperinflationary period. However that group had strong political associations with the government - and actually greatly prospered for a few years as inflation wiped away their debt.

 

You would have though that the middle class would have been up in arms over the loss of purchasing power, which was tremendous as wages failed to keep up with prices. Eventually as we know, there was blood in the streets, but it took some time for the backlash to develop.

 

In the article I linked above, the author implies the same thing - it will take some time before Joe Sheeple realizes he is being fleeced by inflation. So far, with the accelerating manipulation of government inflation statistics, Joe Sheeple has hardly noticed inflation is setting him back - or maybe otherwise thinks it is a temporary Iraq war related thing. It is not.

 

The $70 trillion federal debt beast has to be fed, and inflation is the easiest way to feed it without resorting to huge tax hikes that will get everyone up in arms.