The Mogambo Golden-Real Estate Project

October 8th, 2010

Japan has taken an interesting approach to preventing people from accumulating so much debt that they default; The Wall Street Journal reports that Japan has a new law “restricting total loans from all lenders to one-third of a borrower’s income.” Hmmm! Criminal penalties for accumulating too much debt? Wow!

In effect, the Japanese are not allowing creditors to sustain a loss by not allowing debtors to amass so much debt that they default so that the government gets less tax revenue, the deadbeat’s credit is ruined, he loses everything, his girlfriend leaves him, he can’t borrow any more money, and he lays around the house all day watching TV and whining about how life is unfair until his own parents throw him out of their house, screaming, “Get a job and get a life, you Lazy Mogambo Moron (LMM)!”

And the ripple effects of default are worse, mostly about how the government gets less tax revenue when the creditor nets this loss against (all things being equal) lower gains at tax-time, which does not even start to get into that whole inflation thing, where the money that was borrowed had the effect of increasing the money supply when it was borrowed, and now the default has the opposite effect, namely, shrinking the money supply when the money disappears when the debt disappears. Yikes! A falling money supply!

So there are lots and lots of reasons why nobody wants debtors to get into financial trouble because of excessive debt, and I have heard them all when creditors turn me down.

And they have more reasons besides those, like that time the bank loan officer said, “No! And get out of my bank, you freaking lunatic!” when he thought I wanted to borrow enough money to buy up all the houses around me for a quarter of a mile in any direction.

The reason that I wanted to buy everybody’s house is so that I would create a “free-fire” zone around the Fabulous Fearful Mogambo Bunker (FFMB), taking a stupid residential area full of stupid people who are not smart enough to buy gold, silver and oil when their government is deficit-spending so much money, which is not to mention the despicable Federal Reserve creating the money that the government borrows, and turning this hotspot of dimwitted, residential lowlife troglodytes into a flat, deserted wasteland, completely barren and free of trees, shrubs, or cover of any kind, depriving my enemies, both real and imagined, of concealment of, again, any kind if they dared approach the aforesaid FFMB.

What the stupid loan officer misunderstood is that I don’t want to borrow the money to buy the houses, but to borrow the money to buy gold, which will rise so much in value when compared to the houses, and to the original loan used to buy the gold, that I can use the gold at its much higher price to both buy the houses and pay off the debt used to buy the gold in the first place, with more gold left over! Whew! What a plan! What an amazing plan! What an Amazing Mogambo Plan (AMP)!

I devised this plan modeled on the heights of the Weimar Hyperinflation in Germany, where one ounce of gold – one ounce! – was supposedly enough to buy up 4 square blocks of prime, downtown-Berlin commercial property!

So, with that kind of massive buying power of gold, I was talking about how much gold am I going to need, at the end of the coming American Hyperinflation, to buy all the houses around me for miles in any direction so that I could tear them down so as to provide any intruder with enough unobstructed firepower to turn them into sudden red clouds of blood and tiny bits of cellular material exploding in all directions?

I was telling him that I won’t need much gold, I figured, because of the treachery of the Federal Reserve creating too, too much money for too, too long so that they federal government could deficit-spend too, too much money, when he suddenly jumps to his feet and acts all upset, shouting, “I’ve heard enough! This is insane! Get out! Get out of my bank, you Raving Mogambo Lunatic (RML)!”

On my way home, I angrily concluded that this shows why banks are in trouble; they won’t loan money to do the only reasonable thing to do, which is to buy gold, silver and oil when your stupid government is stupidly and massively deficit-spending trillions of dollars and your stupid Federal Reserve is stupidly creating trillions of dollars of new money.

As I helpfully told the loan officer on the way out of his office, “You are making a Big Freaking Mistake (BFM), you half-witted lowlife banker trash!”

In the meantime, I will continue to buy gold, silver and oil, and I will continue to urge others to do so, too, and if they don’t, then I know they are as stupid as bankers and neighbors, because the last 4,500 years of history shows that the obvious thing to do is to buy gold, silver and oil, and it’s so easy and obvious that even the laziest, most worthless, low-IQ bum in the whole world, which is either me or someone very much like me, would have to agree, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

The Mogambo Golden-Real Estate Project originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Mogambo Golden-Real Estate Project




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

A Tojo Moment

October 8th, 2010

“This week, Tokyo’s central bankers rediscovered a modicum of their old mojo,” The Financial Times told the world on Wednesday. Typically, the FT reports the dialogue correctly but misunderstands the plot action. But we can correct the sentence with a single capital letter. For what they really discovered was a modicum of their old Tojo.

Japan’s Co-Prosperity Sphere expanded greatly in the ’30s, as the Imperial army marched through Asia. But as its supply lines stretched, Japan became more and more vulnerable to interdiction by the US navy. Rather than restrain its ambitions, Tojo Hideki bombed Pearl Harbor.

One of the eternal puzzles of history is why smart people do such silly and stupid things. We have no answer, but we’re happy to see the Central Bank of Japan, the US Federal Reserve and the European Central Bank swing into action. It should be entertaining. Bankers tend to be boring, prudent and cautious. They hold their pants up with belts and suspenders too. “On one hand this…on the other hand that…” they say, hedging their bets. And every one of them has two arms! What a delight to see these timid pedants take decisive, bold and foolhardy action.

Japan’s economy has been taking on water for the last 20 years. They must be getting tired of it. In the heavy seas following the crash in 1980, they flung out life preservers to its businesses, heaved aboard thousands of soaked enterprises and submerged banks, flushed the seawater out of their lungs, and crowded them onto the lower decks. Then, Japan used all its monetary and fiscal tools to keep the boat above water – including quantitative easing, QE. While the economy never fully recovered, neither did it sink.

In the West, the storm blew up only 3 years ago. Lehman went down. Trillions of dollars worth of assets were washed overboard. But tempest-toss’d and weary, the great ship of modern, degenerate, state-managed capitalism is still bobbing up and down…kept afloat – as in Japan – by pumps and chumps.

And now, their barks riding lower in the water than ever, the admirals grow desperate. The Japanese have vowed to use their QE more aggressively. The amount pledged so far – $60 billion – is trivial. But they say they’re going to target a wider range of financial assets…drive the key lending rate even closer to zero…and keep at it until deflation is defeated. The ECB is committed to spend $63 billion on QE too. It was forced to spend $1.4 billion of it last week to buoy up poor little Ireland, which is in danger of slipping beneath the Atlantic waves at any minute. And Ben Bernanke has told America that it should expect a more muscular approach to QE after the Fed meets on November 2nd.

“Central banks open spigot,” proclaimed The Wall Street Journal.

What else could they do? They think they face a choice: it’s the devil or the deep, blue sea.

The politicians didn’t hesitate for a minute. They passed their stimulus bills in a panic. And now they claim success. Steven Rattner, former advisor to the US Treasury secretary, argued in the FT that TARP “did more to keep America’s financial system – and therefore its economy – functioning than any passed since the 1930s.” Were it not for TARP, he says, AIG, Citigroup and Bank of America would have certainly sunk. Maybe GM and Chrysler too. And the recession would have “spiraled downward.”

Maybe he’s right about that. Even so, it seems like a small price to pay. Besides, how do Rattner, Geithner, Bernanke et al know who should survive and who shouldn’t? The trouble with degenerate, state-managed capitalism is that it lets politicians and policy makers decide these things. Why should a bank survive if it can’t weather a foreseeable storm? Why should an automaker stay in business if it can’t make cars at a profit? Why can’t willing buyers and sellers decide these things for themselves? That’s just how it’s supposed to work. It blows up gusts from time to time and sinks the unworthy and the unprepared. That’s what the deep, blue sea was made for.

But the interveners are neither poets nor philosophers. They’re men of action. In Japan, there is little room for more fiscal stimulus. Japan’s government already owes twice the nation’s GDP. In Europe, the big spenders cannot overcome opposition from the tightwad Germans. The Americans are blocked by politics too. Voters rarely have any idea what is going on. But the TARP plan – which just expired on Sunday – was seen for what it was, a payoff to the bankers at everyone else’s expense.

“You can take your stimulus and shove it,” is the message being sent to the US Congress.

Not only that, the paralysis in Congress could prevent an extension of Bush’s tax cuts. This will be the equivalent of raising taxes during a recession, a repeat of the mistake of 1937, when Roosevelt’s pact with the devil led to higher taxes, more regulation and trade barriers.

Everyone claims to favor the democratic process, but few people want to abide the decisions of the yahoo masses. Fewer still will put up with an honest economy. So, it’s up to the central bankers. Bonzai!

Regards,

Bill Bonner
for The Daily Reckoning

A Tojo Moment originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
A Tojo Moment




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

A Tojo Moment

October 8th, 2010

“This week, Tokyo’s central bankers rediscovered a modicum of their old mojo,” The Financial Times told the world on Wednesday. Typically, the FT reports the dialogue correctly but misunderstands the plot action. But we can correct the sentence with a single capital letter. For what they really discovered was a modicum of their old Tojo.

Japan’s Co-Prosperity Sphere expanded greatly in the ’30s, as the Imperial army marched through Asia. But as its supply lines stretched, Japan became more and more vulnerable to interdiction by the US navy. Rather than restrain its ambitions, Tojo Hideki bombed Pearl Harbor.

One of the eternal puzzles of history is why smart people do such silly and stupid things. We have no answer, but we’re happy to see the Central Bank of Japan, the US Federal Reserve and the European Central Bank swing into action. It should be entertaining. Bankers tend to be boring, prudent and cautious. They hold their pants up with belts and suspenders too. “On one hand this…on the other hand that…” they say, hedging their bets. And every one of them has two arms! What a delight to see these timid pedants take decisive, bold and foolhardy action.

Japan’s economy has been taking on water for the last 20 years. They must be getting tired of it. In the heavy seas following the crash in 1980, they flung out life preservers to its businesses, heaved aboard thousands of soaked enterprises and submerged banks, flushed the seawater out of their lungs, and crowded them onto the lower decks. Then, Japan used all its monetary and fiscal tools to keep the boat above water – including quantitative easing, QE. While the economy never fully recovered, neither did it sink.

In the West, the storm blew up only 3 years ago. Lehman went down. Trillions of dollars worth of assets were washed overboard. But tempest-toss’d and weary, the great ship of modern, degenerate, state-managed capitalism is still bobbing up and down…kept afloat – as in Japan – by pumps and chumps.

And now, their barks riding lower in the water than ever, the admirals grow desperate. The Japanese have vowed to use their QE more aggressively. The amount pledged so far – $60 billion – is trivial. But they say they’re going to target a wider range of financial assets…drive the key lending rate even closer to zero…and keep at it until deflation is defeated. The ECB is committed to spend $63 billion on QE too. It was forced to spend $1.4 billion of it last week to buoy up poor little Ireland, which is in danger of slipping beneath the Atlantic waves at any minute. And Ben Bernanke has told America that it should expect a more muscular approach to QE after the Fed meets on November 2nd.

“Central banks open spigot,” proclaimed The Wall Street Journal.

What else could they do? They think they face a choice: it’s the devil or the deep, blue sea.

The politicians didn’t hesitate for a minute. They passed their stimulus bills in a panic. And now they claim success. Steven Rattner, former advisor to the US Treasury secretary, argued in the FT that TARP “did more to keep America’s financial system – and therefore its economy – functioning than any passed since the 1930s.” Were it not for TARP, he says, AIG, Citigroup and Bank of America would have certainly sunk. Maybe GM and Chrysler too. And the recession would have “spiraled downward.”

Maybe he’s right about that. Even so, it seems like a small price to pay. Besides, how do Rattner, Geithner, Bernanke et al know who should survive and who shouldn’t? The trouble with degenerate, state-managed capitalism is that it lets politicians and policy makers decide these things. Why should a bank survive if it can’t weather a foreseeable storm? Why should an automaker stay in business if it can’t make cars at a profit? Why can’t willing buyers and sellers decide these things for themselves? That’s just how it’s supposed to work. It blows up gusts from time to time and sinks the unworthy and the unprepared. That’s what the deep, blue sea was made for.

But the interveners are neither poets nor philosophers. They’re men of action. In Japan, there is little room for more fiscal stimulus. Japan’s government already owes twice the nation’s GDP. In Europe, the big spenders cannot overcome opposition from the tightwad Germans. The Americans are blocked by politics too. Voters rarely have any idea what is going on. But the TARP plan – which just expired on Sunday – was seen for what it was, a payoff to the bankers at everyone else’s expense.

“You can take your stimulus and shove it,” is the message being sent to the US Congress.

Not only that, the paralysis in Congress could prevent an extension of Bush’s tax cuts. This will be the equivalent of raising taxes during a recession, a repeat of the mistake of 1937, when Roosevelt’s pact with the devil led to higher taxes, more regulation and trade barriers.

Everyone claims to favor the democratic process, but few people want to abide the decisions of the yahoo masses. Fewer still will put up with an honest economy. So, it’s up to the central bankers. Bonzai!

Regards,

Bill Bonner
for The Daily Reckoning

A Tojo Moment originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
A Tojo Moment




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

How to Protect Yourself from More Quantitative Easing

October 8th, 2010

Our goal every day in these Daily Reckonings is to give you your money’s worth.

That’s not hard to do, since this service is free. But our daily commentaries take time to read. And it can be very annoying – with starkly unpopular points of view…long, rambling, philosophical perambulations…personal notes of no particular interest to anyone except the author…and aggravating reflections of no interest to no one at all, including the author.

So, what makes it worthwhile?

Well, occasionally we have an insight…a little soupcon…a suspicion that turns out to be right.

Do we have one now? Don’t know. But after much thought, light meditation, praying and heavy drinking…we at least have a hunch.

Here it is: these clowns are going to screw up big time…

We’re talking about the world’s central planners and central bankers and central financial authorities. They are laying the track…they are building the train…they are about to take off…right over a cliff!

There’s a “growing consensus on the need for a new round of buying assets,” says a report in The Financial Times. The idea behind this “consensus” is breathtakingly absurd:

The economy is weak. So you print money. The money pushes up asset prices.
People think they are wealthier. They think there’s a real boom going on.
They invest. They hire. They spend.
Then, there is a real boom!

Do you believe it works like that, dear reader? If you do, you should be an economist. Or a doorstop.

There’s no doubt that printing money can create a boom. But it’s a phony boom, not a real one. And when it blows up…which it inevitably does…people are worse off than they were before.

It’s one thing to introduce small amounts of extra “money” into a growing, prosperous economy. It’s a fraud. It’s a mistake. But it doesn’t blow-up the system. It’s petty larceny; nobody cares.

It’s another thing to introduce large amounts of new currency into a funky, struggling economy.

But that’s what the markets seem to be reacting to – at least, the anticipation of QE – quantitative easing.

Some investors have bought stocks. Some have bought gold. Some have bought Treasury bonds. Those buying stocks and gold are focusing on the inflationary effects of QE. Those buying bonds are focusing on the Fed’s asset purchases themselves; after all, they’re going to be the biggest, flushest, most inebriated buyer at the auction.

But they can’t all be right. Gold buyers expect the dollar to crash. Bond buyers expect it to hold up. It can’t do both.

So who’s right?

Ah…if we knew that…we’d have to charge you for your Daily Reckoning subscription. Nobody knows the answer. But we’ll take a guess.

Stocks headed down yesterday. The Dow lost a modest 19 points. But gold lost $12. Gold is overbought, in our opinion. The dollar is oversold. And the idea of a “recovery” is oversubscribed.

We expect a correction. A great correction.

The economy is weaker and more vulnerable than people think. It is not going to bounce back. So, stock market P/Es are too high. They should sell off. The Fed’s new money will be too timid, at first, to turn it around.

As stocks fall, Treasury prices should go up. Yes, buying bonds – that is, lending to the world’s biggest debtor, who is printing money to buy his own IOUs – seems like a crazy thing to do with your money. But our guess is that crazy will get even crazier before it goes completely mad.

Gold, meanwhile, is probably not going to enter its final rocket stage until this correction is further advanced. Puffing up asset prices alone probably won’t do it.

That said, we confess…we’re no good at short-term timing. So, you want to buy gold now? Go right ahead.

Our suggestion: buy coins. Not ETFs. Not gold stocks.

Why coins? Because then you won’t be tempted to sell them when the price of gold goes down. Analysts are talking about a 10% decline over several months. It could be much worse…say 20% over several years.

Ten years ago, we urged dear readers to buy gold. The yellow metal was low-hanging fruit at $290 an ounce. But now it’s $1,335. It’s higher up on the tree. You’ve got to get on a ladder to get it. Ladders always mean risk.

Is gold going higher? Probably. Much higher. But not necessarily tomorrow, next week, or even next year.

Best advice. If you want to buy more gold, buy coins. Bury them. Forget about them.

Just don’t forget where you buried them!

Bill Bonner
for The Daily Reckoning

How to Protect Yourself from More Quantitative Easing originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
How to Protect Yourself from More Quantitative Easing




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

ETF, Uncategorized

How to Protect Yourself from More Quantitative Easing

October 8th, 2010

Our goal every day in these Daily Reckonings is to give you your money’s worth.

That’s not hard to do, since this service is free. But our daily commentaries take time to read. And it can be very annoying – with starkly unpopular points of view…long, rambling, philosophical perambulations…personal notes of no particular interest to anyone except the author…and aggravating reflections of no interest to no one at all, including the author.

So, what makes it worthwhile?

Well, occasionally we have an insight…a little soupcon…a suspicion that turns out to be right.

Do we have one now? Don’t know. But after much thought, light meditation, praying and heavy drinking…we at least have a hunch.

Here it is: these clowns are going to screw up big time…

We’re talking about the world’s central planners and central bankers and central financial authorities. They are laying the track…they are building the train…they are about to take off…right over a cliff!

There’s a “growing consensus on the need for a new round of buying assets,” says a report in The Financial Times. The idea behind this “consensus” is breathtakingly absurd:

The economy is weak. So you print money. The money pushes up asset prices.
People think they are wealthier. They think there’s a real boom going on.
They invest. They hire. They spend.
Then, there is a real boom!

Do you believe it works like that, dear reader? If you do, you should be an economist. Or a doorstop.

There’s no doubt that printing money can create a boom. But it’s a phony boom, not a real one. And when it blows up…which it inevitably does…people are worse off than they were before.

It’s one thing to introduce small amounts of extra “money” into a growing, prosperous economy. It’s a fraud. It’s a mistake. But it doesn’t blow-up the system. It’s petty larceny; nobody cares.

It’s another thing to introduce large amounts of new currency into a funky, struggling economy.

But that’s what the markets seem to be reacting to – at least, the anticipation of QE – quantitative easing.

Some investors have bought stocks. Some have bought gold. Some have bought Treasury bonds. Those buying stocks and gold are focusing on the inflationary effects of QE. Those buying bonds are focusing on the Fed’s asset purchases themselves; after all, they’re going to be the biggest, flushest, most inebriated buyer at the auction.

But they can’t all be right. Gold buyers expect the dollar to crash. Bond buyers expect it to hold up. It can’t do both.

So who’s right?

Ah…if we knew that…we’d have to charge you for your Daily Reckoning subscription. Nobody knows the answer. But we’ll take a guess.

Stocks headed down yesterday. The Dow lost a modest 19 points. But gold lost $12. Gold is overbought, in our opinion. The dollar is oversold. And the idea of a “recovery” is oversubscribed.

We expect a correction. A great correction.

The economy is weaker and more vulnerable than people think. It is not going to bounce back. So, stock market P/Es are too high. They should sell off. The Fed’s new money will be too timid, at first, to turn it around.

As stocks fall, Treasury prices should go up. Yes, buying bonds – that is, lending to the world’s biggest debtor, who is printing money to buy his own IOUs – seems like a crazy thing to do with your money. But our guess is that crazy will get even crazier before it goes completely mad.

Gold, meanwhile, is probably not going to enter its final rocket stage until this correction is further advanced. Puffing up asset prices alone probably won’t do it.

That said, we confess…we’re no good at short-term timing. So, you want to buy gold now? Go right ahead.

Our suggestion: buy coins. Not ETFs. Not gold stocks.

Why coins? Because then you won’t be tempted to sell them when the price of gold goes down. Analysts are talking about a 10% decline over several months. It could be much worse…say 20% over several years.

Ten years ago, we urged dear readers to buy gold. The yellow metal was low-hanging fruit at $290 an ounce. But now it’s $1,335. It’s higher up on the tree. You’ve got to get on a ladder to get it. Ladders always mean risk.

Is gold going higher? Probably. Much higher. But not necessarily tomorrow, next week, or even next year.

Best advice. If you want to buy more gold, buy coins. Bury them. Forget about them.

Just don’t forget where you buried them!

Bill Bonner
for The Daily Reckoning

How to Protect Yourself from More Quantitative Easing originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
How to Protect Yourself from More Quantitative Easing




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

ETF, Uncategorized

Robert Engle’s FT Lectures on Volatility

October 8th, 2010

I am still not sure why Brenda Jubin’s Reading the Markets, remains criminally undiscovered, but for those who do not make visiting that blog a daily habit, I feel it my duty to draw attention to some of the excellent work she has been doing lately.

As far as I can tell, Brenda spends part of her free time reading every book ever written about investing and various tangential subjects. Even if this is only a slight exaggeration, her comprehensive review of the investment literature forms a sort of contemporaneous intellectual history of the markets – and for this reason makes it onto my daily reading list.

From time to time, the narrative at Reading the Markets veers in the direction of options and volatility. A particularly valuable contribution has been Brenda’s posting of her notes and graphics on a five-part lecture series given by Robert Engle in July 2007. One post is devoted to each lecture, with the links to her posts below:

Reading the Markets – Notes and Graphics:

Part of the motivation for posting the notes and the graphics is that while the FT Business School – NYU Stern School of Business splash page has captured the links to transcripts of each of the five addresses, the video links on that page are not functional.

With a little sleuthing, however, I was able to find the video links to each of the five lectures and below I have captured the video and transcript in what I hope is a more useful format:

FT Business School – NYU Stern School (original content):

For anyone seeking the key takeaways from this series, I would jump right to Brenda’s comments and graphics. For all the details, the FT-Stern content above is the place to go.

Also worth checking out is the NYU Stern Volatility Institute and its Volatility Laboratory.

Related posts:

Disclosure(s): none



Read more here:
Robert Engle’s FT Lectures on Volatility

OPTIONS, Uncategorized

Robert Engle’s FT Lectures on Volatility

October 8th, 2010

I am still not sure why Brenda Jubin’s Reading the Markets, remains criminally undiscovered, but for those who do not make visiting that blog a daily habit, I feel it my duty to draw attention to some of the excellent work she has been doing lately.

As far as I can tell, Brenda spends part of her free time reading every book ever written about investing and various tangential subjects. Even if this is only a slight exaggeration, her comprehensive review of the investment literature forms a sort of contemporaneous intellectual history of the markets – and for this reason makes it onto my daily reading list.

From time to time, the narrative at Reading the Markets veers in the direction of options and volatility. A particularly valuable contribution has been Brenda’s posting of her notes and graphics on a five-part lecture series given by Robert Engle in July 2007. One post is devoted to each lecture, with the links to her posts below:

Reading the Markets – Notes and Graphics:

Part of the motivation for posting the notes and the graphics is that while the FT Business School – NYU Stern School of Business splash page has captured the links to transcripts of each of the five addresses, the video links on that page are not functional.

With a little sleuthing, however, I was able to find the video links to each of the five lectures and below I have captured the video and transcript in what I hope is a more useful format:

FT Business School – NYU Stern School (original content):

For anyone seeking the key takeaways from this series, I would jump right to Brenda’s comments and graphics. For all the details, the FT-Stern content above is the place to go.

Also worth checking out is the NYU Stern Volatility Institute and its Volatility Laboratory.

Related posts:

Disclosure(s): none



Read more here:
Robert Engle’s FT Lectures on Volatility

OPTIONS, Uncategorized

Current Hourly Price Structure and Insights for the Dollar Index

October 8th, 2010

I wanted to take a moment and remind you of the importance of analyzing price “Structure” when setting up what type of trades you are wishing to take, or how to be positioned for a swing or longer-term trade in a given market.

Price Structure is probably the simplest form of Technical Analysis, but I see so few traders discuss it, or even take the time to do the work to uncover structure.

Let’s review how to identify a market’s “Price Structure,” and find out what that structure is currently on the Hourly US Dollar Index (futures – @DX) Chart.

Hourly @DX US Dollar Index Futures:

(Click for Full-size image)

First, let’s define “Structure” and apply it to the Dollar Index.

From a most basic standpoint, price structure is the progression of swing highs and swing lows over time that “build” (form the foundation of) price trends.

Simple, right?

So what’s the easiest way to identify price structure of a market (or stock)?  That’s right – remove all the fancy indicators and look at the pure price.

I like to do screen captures of charts into Snag-It (or whatever screen-capture program you prefer) and then copy/paste the little lines as I’ve done above.

There’s something about doing the work yourself like that that causes the structure to leap off the chart, though you can see it already without the little bars or lines.

The rules are the following:

  • Don’t count every little squiggle as a swing; only identify key swing highs and swing lows.
  • Show all relevant swing highs and lows; I prefer to use two different colors for highs and lows.
  • Compare the progression of swing highs and lows over time to identify structure.

For a quick review, Up-Trends are officially defined in technical analysis as:

“A progression of higher swing highs and higher swing lows”

while a downtrend is defined as:

“A progression of lower swing highs and lower swing lows.”

By extension of logic, a trend is reversed ONLY when the progression is broken BOTH by a higher high AND a higher low (ending a downtrend) or vice versa – a lower low AND a lower high ending an uptrend.

Has that happened yet in the US Dollar index?

Absolutely not – under no circumstances could you remotely call this an uptrend or even the beginning of an uptrend.

Price would need to make a higher high (go above $78) or this current swing would need to bottom out above the recent swing low at $77.

Until then, any long/buy trade you make, or reversal trade has low odds of success as you fight a dominant trend in force.

Traders who tried to call a bottom yesterday were taught this painful lesson this morning with a 50 cent sudden plunge in the index.

That’s not to say $77 isn’t the absolute low of the move, but we need PROOF of that before trying to fight the trend long (in terms of edge optimization and risk management).

Until a trend is officially reversed, odds favor trend continuity over trend reversal – that is the #1 principle of Technical Analysis (according to Pring, Murphy, Raschke, Dow, Wyckoff, and many more).

Taking the few minutes it takes to draw out a “Structure Grid” like the one above for any timeframe of a market or stock you’re trading.

Doing so and understanding its importance can save you so much money and frustration.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Current Hourly Price Structure and Insights for the Dollar Index

Uncategorized

Current Hourly Price Structure and Insights for the Dollar Index

October 8th, 2010

I wanted to take a moment and remind you of the importance of analyzing price “Structure” when setting up what type of trades you are wishing to take, or how to be positioned for a swing or longer-term trade in a given market.

Price Structure is probably the simplest form of Technical Analysis, but I see so few traders discuss it, or even take the time to do the work to uncover structure.

Let’s review how to identify a market’s “Price Structure,” and find out what that structure is currently on the Hourly US Dollar Index (futures – @DX) Chart.

Hourly @DX US Dollar Index Futures:

(Click for Full-size image)

First, let’s define “Structure” and apply it to the Dollar Index.

From a most basic standpoint, price structure is the progression of swing highs and swing lows over time that “build” (form the foundation of) price trends.

Simple, right?

So what’s the easiest way to identify price structure of a market (or stock)?  That’s right – remove all the fancy indicators and look at the pure price.

I like to do screen captures of charts into Snag-It (or whatever screen-capture program you prefer) and then copy/paste the little lines as I’ve done above.

There’s something about doing the work yourself like that that causes the structure to leap off the chart, though you can see it already without the little bars or lines.

The rules are the following:

  • Don’t count every little squiggle as a swing; only identify key swing highs and swing lows.
  • Show all relevant swing highs and lows; I prefer to use two different colors for highs and lows.
  • Compare the progression of swing highs and lows over time to identify structure.

For a quick review, Up-Trends are officially defined in technical analysis as:

“A progression of higher swing highs and higher swing lows”

while a downtrend is defined as:

“A progression of lower swing highs and lower swing lows.”

By extension of logic, a trend is reversed ONLY when the progression is broken BOTH by a higher high AND a higher low (ending a downtrend) or vice versa – a lower low AND a lower high ending an uptrend.

Has that happened yet in the US Dollar index?

Absolutely not – under no circumstances could you remotely call this an uptrend or even the beginning of an uptrend.

Price would need to make a higher high (go above $78) or this current swing would need to bottom out above the recent swing low at $77.

Until then, any long/buy trade you make, or reversal trade has low odds of success as you fight a dominant trend in force.

Traders who tried to call a bottom yesterday were taught this painful lesson this morning with a 50 cent sudden plunge in the index.

That’s not to say $77 isn’t the absolute low of the move, but we need PROOF of that before trying to fight the trend long (in terms of edge optimization and risk management).

Until a trend is officially reversed, odds favor trend continuity over trend reversal – that is the #1 principle of Technical Analysis (according to Pring, Murphy, Raschke, Dow, Wyckoff, and many more).

Taking the few minutes it takes to draw out a “Structure Grid” like the one above for any timeframe of a market or stock you’re trading.

Doing so and understanding its importance can save you so much money and frustration.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Current Hourly Price Structure and Insights for the Dollar Index

Uncategorized

Profit Taking Squashes Currency Rally

October 8th, 2010

Front and center this morning, we saw a ton of selling pressure in the currencies and precious metals yesterday, starting about mid-morning and going on throughout the day. So…. The dollar rallied on a Thinking Thursday… Does that mean the negativity towards the dollar, the deficits and the upcoming quantitative easing is all swept under the rug? I don’t think so, folks… I truly believe that we had a couple of forces at work yesterday and being the writer my mother always wanted me to be, I’m going to go through these forces for you.

1. Profit taking… And why not? The currencies and precious metals were on the verge of a real breakout, with some very lofty levels… Now, you and me, and the guy down the street aren’t taking part in this profit taking, because we didn’t buy our diversification tools to “trade them”… But the Hedge Funds, Pension Funds, etc. they did…

2. Questions about whether the FOMC is really going to implement quantitative easing (QE) or are they just doing the jawboning in a run-up to the G-7 meeting, so they can accuse everyone else of their problems. Comments from Fed Heads, Fisher and Hoenig suggest that not all of the Fed Heads are in favor of more stimulus. I still believe the FOMC will go to QE… More on that in a bit.

3. Position squaring ahead of today’s Jobs Jamboree… Hmmm… The ADP Employment report yesterday showed a drop of 39,000 in payrolls during September. You have to wonder just how that ADP report will play with the Jobs Jamboree… Personally, I think the BIG BOYS should have squared their positions ahead of the Jobs Jamboree, because I get the feeling that it’s going to be quite disappointing, even more than forecast…

OK… Notice not one of those forces said anything about the end of the dollar selling!

Yesterday, it was all going bad for the dollar, the euro (EUR) had reached 1.40, the Aussie dollar (AUD) and Canadian dollar/loonie (CAD) were nearing parity to the US dollar, and gold reached $1,364.77 while silver was well into the $23 handle… But then it stopped on a dime, and the reversal of these trades was going fast. Now, remember I said that these diversification tools of currencies and precious metals had gone too far, too fast, and a pull back was a possibility? Well… Here you go!

The Asians came back from a week of holidays, and tried to get the currency rally going again, for they had missed all the action this week… And the Chinese renminbi (CNY) was pushed to a level versus the dollar that has not been seen since 1993! But, when the Europeans took over this morning, they wiped out the gains (except in renminbi) the Asians had booked in the currencies.

So… The dollar buying is still in place this morning… HEY! This currency and precious metals buying is not a one-way street! So, listen to me now, and hear me later… Even the biggest dollar bear doesn’t want the dollar to be on the selling blocks every day…

And I would have to think that any sustained dollar rally would have to get some support from yields… And I don’t think that’s happening! The 10-year yield is 2.37%… The 5-year is 1.15%, and once again, we’re back to T-Bills with yields so small that after the broker takes his commission or mark-up, the yield the T-Bill holder receives is negative! The holder actually is paying the government while holding the government’s debt… Now, that’s just mental genius right there, folks… And that’s all I’ll say about that today.

OK… Speaking of China and the renminbi… These threats from US lawmakers to force China to allow a faster appreciation of the renminbi have recently become more strident.  However, as I’ve said over and over again, all this saber rattling is counter productive. I’ve tried to make certain that Pfennig readers clearly understand what’s going on here, with the blame finger waving, because, the simple truth is that a stronger renminbi exchange rate will do little to reduce our trade deficit and our unemployment when other low cost nations are more than willing to take China’s place.

If it makes sense for the Chinese to allow the renminbi to appreciate versus the dollar, then it will… It’s that simple… No saber rattling or blame finger waving by the US is going to change that… The fact that the renminbi has gained almost 2% since the Chinese removed the governor from the currency, is simply a co-inky-dink! You can see the Chinese in the back room laughing their you know what’s off, because the US lawmakers and officials are slapping themselves on the back thinking “they pushed the Chinese to allow the appreciation!”

OK… You’ve all waited patiently…

Well, thanks to a reader, I was given the text of Fed Chairman Ben Bernanke’s speech on Wednesday. The text below is Big Ben’s own words… I have not changed anything. But when you’re finished reading his truthful thoughts, stop and think for a minute that he’s finally singing from my song sheet!

It is remarkable that mainstream media has given this speech no coverage. I repeat, the central banker of the United States says in his own words:

Let me return to the issue of longer-term fiscal sustainability. As I have discussed, projections by the CBO and others show future budget deficits and debts rising indefinitely, and at increasing rates. To be sure, projections are to some degree only hypothetical exercises. Almost by definition, unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. Herbert Stein, a wise economist, once said, “If something cannot go on forever, it will stop.” One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.

So… Now you’re wondering why the mass media has not even shown a clip of Big Ben speaking… Haven’t they gone overboard when he has muttered words about the recession being over and other such nonsense? I think Big Ben deserves to be heard on this subject… He’s doing an Aaron Neville and “telling it like it is”!

Alrighty then… Today’s a Jobs Jamboree, and I think a lot hangs in the balance here… For I see the Jobs Jamboree being a key to the direction of the dollar today, and… Help with the questions about whether the FOMC does QE or not. A stronger-than-expected jobs report would be supportive of no QE and a stronger dollar… A weaker-than-expected jobs report would be supportive of QE and a weak dollar… It’s that simple… Except of course if the report is neither stronger nor weaker than expected… If it’s just a “muddle through” report, then I’ll throw my hands up in the air and wave the white flag, grab my bat and ball, and head home!

Of course in “Chuck’s World” the markets only focus on the Average Hourly Earnings and the Average Weekly Hours because it’s here that we find clues to inflation… Not the “number of jobs created”… For who knows what kind of jobs they were, what they paid, and if they had benefits, or if they will be long standing jobs!

Then there was this… Moody’s Investors Service on Friday placed the Chinese government’s bond ratings on review for possible upgrade. The rating agency plans to conclude its review within a three-month period. And possible upgrades could be in the plans for other emerging markets… In a story on RTT News and Bloomberg, “China and a long list of emerging economies are expected to face strong domestic and foreign pressure to allow their currencies to appreciate soon, when their debt ratings are upgraded, currency experts said. The likelihood of such currencies appreciating against major currencies is one force driving a torrent of capital into emerging markets.”

The emerging markets get a gold star from Moody’s!

To recap… The lofty levels of currencies and precious metals sold off quickly yesterday, and even a brief overnight rally in Asia, was not held by Europe, and the dollar is still stronger today than yesterday morning! Today’s a Jobs Jamboree Friday, and the Jobs Jamboree will be watched closely today, looking for clues to whether or not the FOMC implements QE.

Chuck Butler
for The Daily Reckoning

Profit Taking Squashes Currency Rally originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Profit Taking Squashes Currency Rally




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Lesson in Trading Intraday Arc Trendline Reversal Breaks

October 8th, 2010

Thursday’s intraday activity in the markets gave us a great example of the not-so-common pattern of an Arc Trendline Reversal Break (I’m sure there could be a better name for that), which is a good opportunity to play a reversal trade off a price climax low.

Let’s first see the pattern, learn the concept, and find out how to trade it when it happens again.

First, the bigger picture:

(Click for full-size image)

Now, let’s see the smaller ‘pure price’ image I included in last night’s member report:

In each night’s report, I try to give an in-depth explanation or lesson in a particularly good example of a trading tactic, strategy, or concept (in addition to the “Idealized Trades” section and “Forecasting Tomorrow” portion).

The brief lesson from yesterday was clearly the “Arc Trendline Reversal” opportunity.

The logic goes as follows:

Typically, traders draw linear trendlines and never think to draw arc or sloping trendlines.  Sloping trendlines – that often form arcs – take into account price acceleration and dynamics (price is not always linear).

Anyway, without getting too detailed, the main idea is to observe and connect price highs (or lows for a rising arc) that may be forming an arc pattern in real time.

Then, look for a sharp sell-off (as we saw above) that forms the right side or 90 degree angle (from the top) point.

Think logically – price can do anything, but one thing price CANNOT do is complete a full circle on the chart. Right?  Price can’t go backwards, after all!

So, when price breaks free from a sharply plunging momentum move that has created an arc trendline pattern similar to that above, it’s a good spot to do two things:

1.  Take off any short-sale trades for a profit.  You can always re-enter if price continues to fall after an initial retracement up.

2.  Put on a Reversal style “aggressive buy” trade on the breakout from the arc trendline.

Putting on a new trade to play for a reversal is aggressive and not required, but it is a safe/conservative play to lock-in some profits on an arc trendline break such as this.

Why?

These patterns often highlight short-term capitulations in price at exhaustion points.  It’s similar to a ’sell-climax’ or “V-Spike” reversal where sellers are exhausted and buyers rush in to find ‘cheap’ value.

Either way, the result often is a short-term price trend reversal that you can trade intraday.

When entering on such a trendline break (entry doesn’t have to be perfect), put a stop just under the intraday low and trail it up perhaps under a short-term moving average (20 period EMA for example) or exit the position into the close if price kept on rising for the remainder of the session.

The absolute WORST thing to do would be to get aggressively short at the low, thinking the down-swing will continue forever – odds are it won’t.

Take a look at the pure price pattern for additional insights and helpful trading tactics.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Lesson in Trading Intraday Arc Trendline Reversal Breaks

Uncategorized

Lesson in Trading Intraday Arc Trendline Reversal Breaks

October 8th, 2010

Thursday’s intraday activity in the markets gave us a great example of the not-so-common pattern of an Arc Trendline Reversal Break (I’m sure there could be a better name for that), which is a good opportunity to play a reversal trade off a price climax low.

Let’s first see the pattern, learn the concept, and find out how to trade it when it happens again.

First, the bigger picture:

(Click for full-size image)

Now, let’s see the smaller ‘pure price’ image I included in last night’s member report:

In each night’s report, I try to give an in-depth explanation or lesson in a particularly good example of a trading tactic, strategy, or concept (in addition to the “Idealized Trades” section and “Forecasting Tomorrow” portion).

The brief lesson from yesterday was clearly the “Arc Trendline Reversal” opportunity.

The logic goes as follows:

Typically, traders draw linear trendlines and never think to draw arc or sloping trendlines.  Sloping trendlines – that often form arcs – take into account price acceleration and dynamics (price is not always linear).

Anyway, without getting too detailed, the main idea is to observe and connect price highs (or lows for a rising arc) that may be forming an arc pattern in real time.

Then, look for a sharp sell-off (as we saw above) that forms the right side or 90 degree angle (from the top) point.

Think logically – price can do anything, but one thing price CANNOT do is complete a full circle on the chart. Right?  Price can’t go backwards, after all!

So, when price breaks free from a sharply plunging momentum move that has created an arc trendline pattern similar to that above, it’s a good spot to do two things:

1.  Take off any short-sale trades for a profit.  You can always re-enter if price continues to fall after an initial retracement up.

2.  Put on a Reversal style “aggressive buy” trade on the breakout from the arc trendline.

Putting on a new trade to play for a reversal is aggressive and not required, but it is a safe/conservative play to lock-in some profits on an arc trendline break such as this.

Why?

These patterns often highlight short-term capitulations in price at exhaustion points.  It’s similar to a ’sell-climax’ or “V-Spike” reversal where sellers are exhausted and buyers rush in to find ‘cheap’ value.

Either way, the result often is a short-term price trend reversal that you can trade intraday.

When entering on such a trendline break (entry doesn’t have to be perfect), put a stop just under the intraday low and trail it up perhaps under a short-term moving average (20 period EMA for example) or exit the position into the close if price kept on rising for the remainder of the session.

The absolute WORST thing to do would be to get aggressively short at the low, thinking the down-swing will continue forever – odds are it won’t.

Take a look at the pure price pattern for additional insights and helpful trading tactics.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Lesson in Trading Intraday Arc Trendline Reversal Breaks

Uncategorized

Central Bankers’ Global Race to the Bottom

October 8th, 2010

Mike Larson

Well, that pretty much seals the deal. I’m talking about the latest, lousy batch of employment data. The ADP Employer Services report out Wednesday showed the economy shedding 39,000 jobs in September — the biggest decline since January and far below the Bloomberg forecast for a gain of 20,000.

Barring some huge surprise from this morning’s Labor Department report, the QE2 is poised to set sail. That was only reinforced by Chicago Fed President Charles Evans, who said “unemployment is too high” and inflation is “low,” and by New York Fed President William Dudley, who late last week called current economic conditions “unacceptable.”

The Fed’s goal is clearly to debase the U.S. dollar in order to create inflation. Or in the infamous words of now-Chairman Ben Bernanke from November 2002 …

“U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

“By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

“We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

The Cost of Competitive Devaluation

The Fed would have you believe this is good for America. That a country whose massive debts are majority-held by foreigners will never have a problem selling bonds — even as its central bank drives down the value of those bonds (in foreign currency terms).

My take? Let’s look at what the Fed’s war on your wealth has accomplished …

In the past several weeks, soybeans have surged up to 23 percent, crude oil has gained 30 percent, copper has jumped up to 39 percent, and wheat prices have soared as much as 97 percent.

The dollar? It has dropped more than 12.5 percent since June, making it more expensive to buy foreign goods and travel overseas. And gold? It has surged about 17 percent.

The Fed's policy has pushed the dollar down and gold up.
The Fed’s policy has pushed the dollar down and gold up.

Yes, stocks have rallied — but only roughly as much as the dollar has declined. In other words, you’ve basically made no “real” gains in terms of purchasing power!

Stated another way, the Fed’s ridiculous monetary policy is creating “bad” inflation. Prices for many raw commodities are going up. So are costs for the companies you buy goods from. But your wages likely aren’t keeping pace because of the lousy labor market. And your savings accounts and fixed income securities aren’t yielding squat.

Or as Nobel Prize-winning economist Joseph Stiglitz recently told Bloomberg:

“Fed policy was supposed to reignite the American economy, but it’s not doing that … the flood of liquidity is going abroad and causing problems all over the world.”

Worse, We’re Not Alone!

It’s bad enough that our central bank is heading down the dangerous road to currency debasement. What’s worse is that other central banks are doing the same darn thing!

The Bank of Japan tried to suppress the yen by intervening massively in the currency markets a few weeks ago. Then this week, it lowered its benchmark interest rate to 0 percent from 0.1 percent and announced a new QE plan. It’s going to spend 5 trillion yen, or about $60 billion, to buy assets.

Not just any old assets like government bonds either. The BOJ said it will buy “long-term government bonds, treasury discount bills, commercial paper (CP), asset-backed CP (ABCP), corporate bonds, exchange-traded funds (ETFs), and Japan real estate investment trusts (J-REITs).”

Yes, you read that right …

The BOJ is now going to start indirectly buying commercial real estate and stocks. I have to wonder, are Beanie Babies next? What about iPods? Or hey, if tuna prices plunge, maybe BOJ policy makers could show up at the famous Tsukiji Fish Market and go nuts buying there!

Don’t forget the Bank of England either. BOE policymaker Adam Posen advocated for more QE there in late September. The Brits are currently buying 200 billion pounds (about $317 billion) worth of government bonds to artificially prop up the market and suppress the value of the pound.

Meanwhile, central bankers in other Asian countries outside of Japan are selling the heck out of their own currencies to try to keep them from appreciating rapidly against the buck.

That’s happening in Brazil, too …

A weaker real makes Brazilian exports more competitive.
A weaker real makes Brazilian exports more competitive.

Brazil’s finance minister Guido Mantega just warned of a global “currency war,” and doubled the tax on foreign purchases of Brazilian bonds in an attempt to stem the flood of hot money into Brazil’s markets and currency, the real.

Lastly, there’s China, perhaps the world’s biggest currency manipulator. It’s continuing to hold down the yuan despite intense international pressure.

Chinese Premier Wen Jiabao just told a business conference that “if the yuan isn’t stable, it will bring disaster to China and the world.” He added that European officials should quit bugging him, saying “Europe shouldn’t join the choir to press China to allow more yuan appreciation.”

Protecting Yourself from the
Fed’s War on Your Wealth!

Bottom line? Practically every central banker in the world wants to drive his currency into the gutter. I’ve never seen anything like it — and mark my words, it isn’t going to end well!

In the meantime, you can protect yourself by continuing to hold contra-dollar hedges like those recommended in Safe Money Report.

I’d avoid long-term bonds, preferring instead to keep my maturities short. And gold? I’m a bull long-term. But I’d look to take some profits here given the massive, recent run and the risk that other countries will push back aggressively at the Fed’s dollar-debasement strategy.

Until next time,

Mike

Related posts:

  1. While Fed Dilly-Dallies, Central Bankers Overseas Get To Work
  2. While Fed Dilly-Dallies, Central Bankers Overseas Get To Work
  3. While Fed Dilly-Dallies, Central Bankers Overseas Get To Work

Read more here:
Central Bankers’ Global Race to the Bottom

Commodities, ETF, Mutual Fund, Real Estate, Uncategorized

Central Bankers’ Global Race to the Bottom

October 8th, 2010

Mike Larson

Well, that pretty much seals the deal. I’m talking about the latest, lousy batch of employment data. The ADP Employer Services report out Wednesday showed the economy shedding 39,000 jobs in September — the biggest decline since January and far below the Bloomberg forecast for a gain of 20,000.

Barring some huge surprise from this morning’s Labor Department report, the QE2 is poised to set sail. That was only reinforced by Chicago Fed President Charles Evans, who said “unemployment is too high” and inflation is “low,” and by New York Fed President William Dudley, who late last week called current economic conditions “unacceptable.”

The Fed’s goal is clearly to debase the U.S. dollar in order to create inflation. Or in the infamous words of now-Chairman Ben Bernanke from November 2002 …

“U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

“By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services.

“We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

The Cost of Competitive Devaluation

The Fed would have you believe this is good for America. That a country whose massive debts are majority-held by foreigners will never have a problem selling bonds — even as its central bank drives down the value of those bonds (in foreign currency terms).

My take? Let’s look at what the Fed’s war on your wealth has accomplished …

In the past several weeks, soybeans have surged up to 23 percent, crude oil has gained 30 percent, copper has jumped up to 39 percent, and wheat prices have soared as much as 97 percent.

The dollar? It has dropped more than 12.5 percent since June, making it more expensive to buy foreign goods and travel overseas. And gold? It has surged about 17 percent.

The Fed's policy has pushed the dollar down and gold up.
The Fed’s policy has pushed the dollar down and gold up.

Yes, stocks have rallied — but only roughly as much as the dollar has declined. In other words, you’ve basically made no “real” gains in terms of purchasing power!

Stated another way, the Fed’s ridiculous monetary policy is creating “bad” inflation. Prices for many raw commodities are going up. So are costs for the companies you buy goods from. But your wages likely aren’t keeping pace because of the lousy labor market. And your savings accounts and fixed income securities aren’t yielding squat.

Or as Nobel Prize-winning economist Joseph Stiglitz recently told Bloomberg:

“Fed policy was supposed to reignite the American economy, but it’s not doing that … the flood of liquidity is going abroad and causing problems all over the world.”

Worse, We’re Not Alone!

It’s bad enough that our central bank is heading down the dangerous road to currency debasement. What’s worse is that other central banks are doing the same darn thing!

The Bank of Japan tried to suppress the yen by intervening massively in the currency markets a few weeks ago. Then this week, it lowered its benchmark interest rate to 0 percent from 0.1 percent and announced a new QE plan. It’s going to spend 5 trillion yen, or about $60 billion, to buy assets.

Not just any old assets like government bonds either. The BOJ said it will buy “long-term government bonds, treasury discount bills, commercial paper (CP), asset-backed CP (ABCP), corporate bonds, exchange-traded funds (ETFs), and Japan real estate investment trusts (J-REITs).”

Yes, you read that right …

The BOJ is now going to start indirectly buying commercial real estate and stocks. I have to wonder, are Beanie Babies next? What about iPods? Or hey, if tuna prices plunge, maybe BOJ policy makers could show up at the famous Tsukiji Fish Market and go nuts buying there!

Don’t forget the Bank of England either. BOE policymaker Adam Posen advocated for more QE there in late September. The Brits are currently buying 200 billion pounds (about $317 billion) worth of government bonds to artificially prop up the market and suppress the value of the pound.

Meanwhile, central bankers in other Asian countries outside of Japan are selling the heck out of their own currencies to try to keep them from appreciating rapidly against the buck.

That’s happening in Brazil, too …

A weaker real makes Brazilian exports more competitive.
A weaker real makes Brazilian exports more competitive.

Brazil’s finance minister Guido Mantega just warned of a global “currency war,” and doubled the tax on foreign purchases of Brazilian bonds in an attempt to stem the flood of hot money into Brazil’s markets and currency, the real.

Lastly, there’s China, perhaps the world’s biggest currency manipulator. It’s continuing to hold down the yuan despite intense international pressure.

Chinese Premier Wen Jiabao just told a business conference that “if the yuan isn’t stable, it will bring disaster to China and the world.” He added that European officials should quit bugging him, saying “Europe shouldn’t join the choir to press China to allow more yuan appreciation.”

Protecting Yourself from the
Fed’s War on Your Wealth!

Bottom line? Practically every central banker in the world wants to drive his currency into the gutter. I’ve never seen anything like it — and mark my words, it isn’t going to end well!

In the meantime, you can protect yourself by continuing to hold contra-dollar hedges like those recommended in Safe Money Report.

I’d avoid long-term bonds, preferring instead to keep my maturities short. And gold? I’m a bull long-term. But I’d look to take some profits here given the massive, recent run and the risk that other countries will push back aggressively at the Fed’s dollar-debasement strategy.

Until next time,

Mike

Related posts:

  1. While Fed Dilly-Dallies, Central Bankers Overseas Get To Work
  2. While Fed Dilly-Dallies, Central Bankers Overseas Get To Work
  3. While Fed Dilly-Dallies, Central Bankers Overseas Get To Work

Read more here:
Central Bankers’ Global Race to the Bottom

Commodities, ETF, Mutual Fund, Real Estate, Uncategorized

The Number One Reason Brazil Could be Headed for a Pullback

October 8th, 2010

The Number One Reason Brazil Could be Headed for a Pullback

Brazil is emerging as one of the great stories of the 21st century. Sound economic policies and abundant natural resources have led to sustained economic growth. And investors are racing to get in to this Samba party — the iShares Brazil (NYSE: EWZ) exchange-traded fund (ETF) has risen nearly +20% since late August.

Thus far, Brazil's government has played its hand perfectly, combating inflation while stimulating growth. But the road ahead is bound to get much trickier, and it's not at all clear that all the key metrics can keep moving in the right direction.

Commodities, ETF, Uncategorized

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