A Movie Review: The Social Network

November 2nd, 2010

We don’t go to see many movies. Unless they have a lot of nudity or violence, they bore us.

But The Social Network is not a boring movie. We went to see it because our daughter, Maria, has a small role. It is her major motion picture debut. We went to see her. But what we discovered was an unusually engaging film.

The movie tells the story of the founding of Facebook. It is a “social network,” designed by students at Harvard to make it easy for people to keep up with each other.

“You mean, it will help us get laid,” says one of the characters in the movie…or words to that effect.

Occasionally, we get an email that tells us “so and so invites you to be a friend…” Once, we tried to follow up…we went to Facebook. There, we found a page of questions. We quickly lost interest and gave up. Henceforth, when asked to be a friend, we respond in the negative.

“Dad, you’re making a big mistake,” Jules, 22, opined. “I know a lot of people who don’t even check their email anymore. They communicate exclusively through Facebook. This is a big, big thing. And it’s not going away. E-mail could disappear.”

Maybe he is right. Maybe, in the future, we will publish The Daily Reckoning only on Facebook. But we hope not. We don’t like the concept. We don’t like the company. And we don’t like its shareholders.

“Now, Dad, you’re getting ridiculous. Zuckerberg revolutionized how people communicate. There are half a billion people on Facebook. This is like the invention of the printing press. I guess you don’t like Guttenberg either. You’re just being silly. That’s the point of the movie, by the way.

“Zuckerberg and Parker aren’t exactly nice guys. But that’s the point. You don’t have to be nice to do something great. And doing something great is what is important.”

The movie shows how Mark Zuckerberg and Sean Parker squeezed out – cheated, really – Zuckerberg’s original partner, Eduardo Saverin. Eduardo seems like a decent fellow. He provided a crucial formula early on. Then, he put up the seed money. But he did not see the potential of Facebook in the megalomaniacal terms of Zuckerberg and Parker. Being “cool” was not enough for him; he wanted it to be profitable too. Instead, he approached it more modestly and more conventionally. (Even today, it is not clear how profitable Facebook is.)

In the early days, Eduardo tried to sell ad space on the system in New York, while the other two were going wild signing up customers and getting venture capital backing in California. Once they got big backing, Zuckerberg and Parker had no further use for Saverin, so they cut him out.

“Eduardo was useless,” said Jules, sounding a bit Nietzschean. “He was not adding value. He was a loser. They were right to get rid of him. Eduardo was operating according to the wrong code. An antiquated code. Zuckerberg and Parker knew better. They understood something he didn’t.”

“No. They didn’t really. They were lucky. The project could just as well have failed. Most do. If it had failed, then those two would look like what they really are – a pair of conniving jerks.

“That’s really the lesson. Eduardo did the right thing. He was the winner. The Winklevoss brothers, too.

“And if I had the choice of doing business with Eduardo or with Sean Parker, I’d do business with Eduardo. You don’t know which projects will succeed or fail. You don’t know which ideas will win. But you know you never want to do business with nasty people. Even if you make a lot of money, it’s not worth it.”

“Are you kidding? At the end of the day, Zuckerberg and Parker were billionaires. Now they can be nice if they want to be. Being nice is not everything.”

“No, now they can’t be nice. You can’t undo nastiness. You can confess. You can repent. You can beg forgiveness and give a $100 million to the New Jersey schools. Maybe you’ll be redeemed. Or maybe you’ll be a miserable billionaire all your life.”

Regards,

Bill Bonner
for The Daily Reckoning

A Movie Review: The Social Network 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 Movie Review: The Social Network




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 Movie Review: The Social Network

November 2nd, 2010

We don’t go to see many movies. Unless they have a lot of nudity or violence, they bore us.

But The Social Network is not a boring movie. We went to see it because our daughter, Maria, has a small role. It is her major motion picture debut. We went to see her. But what we discovered was an unusually engaging film.

The movie tells the story of the founding of Facebook. It is a “social network,” designed by students at Harvard to make it easy for people to keep up with each other.

“You mean, it will help us get laid,” says one of the characters in the movie…or words to that effect.

Occasionally, we get an email that tells us “so and so invites you to be a friend…” Once, we tried to follow up…we went to Facebook. There, we found a page of questions. We quickly lost interest and gave up. Henceforth, when asked to be a friend, we respond in the negative.

“Dad, you’re making a big mistake,” Jules, 22, opined. “I know a lot of people who don’t even check their email anymore. They communicate exclusively through Facebook. This is a big, big thing. And it’s not going away. E-mail could disappear.”

Maybe he is right. Maybe, in the future, we will publish The Daily Reckoning only on Facebook. But we hope not. We don’t like the concept. We don’t like the company. And we don’t like its shareholders.

“Now, Dad, you’re getting ridiculous. Zuckerberg revolutionized how people communicate. There are half a billion people on Facebook. This is like the invention of the printing press. I guess you don’t like Guttenberg either. You’re just being silly. That’s the point of the movie, by the way.

“Zuckerberg and Parker aren’t exactly nice guys. But that’s the point. You don’t have to be nice to do something great. And doing something great is what is important.”

The movie shows how Mark Zuckerberg and Sean Parker squeezed out – cheated, really – Zuckerberg’s original partner, Eduardo Saverin. Eduardo seems like a decent fellow. He provided a crucial formula early on. Then, he put up the seed money. But he did not see the potential of Facebook in the megalomaniacal terms of Zuckerberg and Parker. Being “cool” was not enough for him; he wanted it to be profitable too. Instead, he approached it more modestly and more conventionally. (Even today, it is not clear how profitable Facebook is.)

In the early days, Eduardo tried to sell ad space on the system in New York, while the other two were going wild signing up customers and getting venture capital backing in California. Once they got big backing, Zuckerberg and Parker had no further use for Saverin, so they cut him out.

“Eduardo was useless,” said Jules, sounding a bit Nietzschean. “He was not adding value. He was a loser. They were right to get rid of him. Eduardo was operating according to the wrong code. An antiquated code. Zuckerberg and Parker knew better. They understood something he didn’t.”

“No. They didn’t really. They were lucky. The project could just as well have failed. Most do. If it had failed, then those two would look like what they really are – a pair of conniving jerks.

“That’s really the lesson. Eduardo did the right thing. He was the winner. The Winklevoss brothers, too.

“And if I had the choice of doing business with Eduardo or with Sean Parker, I’d do business with Eduardo. You don’t know which projects will succeed or fail. You don’t know which ideas will win. But you know you never want to do business with nasty people. Even if you make a lot of money, it’s not worth it.”

“Are you kidding? At the end of the day, Zuckerberg and Parker were billionaires. Now they can be nice if they want to be. Being nice is not everything.”

“No, now they can’t be nice. You can’t undo nastiness. You can confess. You can repent. You can beg forgiveness and give a $100 million to the New Jersey schools. Maybe you’ll be redeemed. Or maybe you’ll be a miserable billionaire all your life.”

Regards,

Bill Bonner
for The Daily Reckoning

A Movie Review: The Social Network 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 Movie Review: The Social Network




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

Investing in Gold Will Save Your Butt

November 2nd, 2010

When I got back to the office, the place was abuzz, all stemming from how my boss wanted to “see me” as soon as I got back from wherever the hell I was. I knew what it was about. It was about old man Sanderson and the stupid Sanderson account.

The problem was that I had just seen the Britebart.tv video of the megalomaniacal and totally incompetent Harry Reid, Congressional Representative from Nevada and doofus extraordinaire, saying, “But for me, we’d be in a worldwide depression.”

So, inspired, I told Sanderson to stick his problems, and that, “But for me, you would be sued into bankruptcy after using our defective parts, ya moron!”

So I grudgingly went up to her office, and the first thing I see is her stupid secretary, who hates my guts because I once told her to buy gold, silver and oil against the terrible inflation that will result from the traitorous neo-Keynesian econometric nitwits at the Federal Reserve creating so much excess money, especially when the corrupt federal government was monstrously deficit-spending us into bankruptcy.

So, a few days later, I saw her in the hallway, and being a friendly, collegial type of guy, I casually asked her if she had bought any gold, silver or oil so that she could Save Her Butt (SHB) when the devastating inflation and economic collapse hits, which has happened to every lowlife, dirtbag deficit-spending government who tried this stupid crap Every Freaking Time (EFT) in the last 4,500 years.

She admitted that she hadn’t, so I said to her, in a delicate way, like a kindly uncle gently instructing a wayward and ignorant child, “Then you’re a moron! Instead of gold, silver and oil saving your butt, which, by the way, looks big in those pants, it is going to get chewed up by ruinous inflation and economic collapse!”

Well, I figured that she would say, “Thanks for the important information!” since she has beneficially learned – at absolutely no cost to her! – that she is a moron, plus she now knows that those pants make her butt look big. A two-fer!

She did not, as I supposed, thank me. Instead, she’s hated me ever since, and every time I get summoned to my boss’s office, I always ask her stupid secretary, “Have you bought any gold, silver or oil to save that big butt of yours from the raging inflation in prices that will be caused by the Federal Reserve creating so much money?” and she says, “No,” and I say, “Then you’re a moron!” and she replies, “No, YOU’RE the moron!” and I will cleverly reply, “No, YOU’RE the moron!” and she’s yelling back at me, “No, YOU’RE the moron!” which is about when my boss usually comes out of her office and tells us to immediately stop acting like children.

I say, “It’s her that is acting like a child with a big butt! I tell her to buy gold, silver and oil, which is the only intelligent, time-tested, guaranteed thing to do when the loathsome Federal Reserve is creating so much money, but she never does! So she’s the childish idiot, not me!”

Well, my boss, with an angry look on her face, hisses at me through clenched teeth to “get into my office this instant!”

Well, it turns out that she had found out that somebody (meaning me) had screwed up the big order from old man Sanderson, and now the Sanderson account was in danger, and he was really angry.

She says, “What did you do to him to make him angrily cancel his account, threaten to have his lawyers sue us, and make a lot of vague death threats against you personally?”

Well, I told her that the problem was caused by The Washington Post breaking the story that the Commodity Futures Trading Commission is, as was always suspected, corrupt. The headline was “Commodity Futures Trading Commission judge says colleague biased against complainants.”

It turns out that George H. Painter is “one of two administrative law judges presiding over investor complaints at the Commodity Futures Trading Commission,” and he writes that the other CFTC judge, Judge Bruce Levine, had “a secret agreement with a former Republican chairwoman of the agency to stand in the way of investors filing complaints with the agency.”

The seamy corruption was a permanent bias against investors in disputes “as a favor to Wendy Gramm, then Chairwoman of the Commission” to “never rule in a complainant’s favor.”

Damningly, Mr. Painter wrote, “A review of his rulings will confirm that he fulfilled his vow,” and that in the last 10 years, “Levine had never ruled in favor of an investor.” Never!

The important part, for me, was when her husband, the laughable former senator from Texas, Phil Gramm, said he would “pass along a message” but added, “I doubt she’s going to want to get involved in this.”

My boss, by this time, was looking at me with this look of unbelieving incredulousness on her stupid face, her mouth actually falling open in stunned stupefaction. Then she says to me, “What has that got to do with the Sanderson account?”

So, I said, as will probably Ms. Gramm, “I don’t want to get involved in this!”

Then I got up, left her office in a huff, and went out to have a few drinks to steady my nerves, figuring that by the time I get to work tomorrow, she will have smoothed things over with Sanderson and we can all start some crapola “healing process” of forgiving and forgetting.

And her secretary? She’s still a moron who has not bought any gold, silver or oil. Just between you and me, maybe that explains her fat butt! Hahaha!

If so, then my new Mogambo Slogan Of Inspiration (MSOI) is, “Whee! Buying gold, silver and oil is an easy investment, and in doing so, I got a great-looking butt for free, too!”

The Mogambo Guru
for The Daily Reckoning

Investing in Gold Will Save Your Butt 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:
Investing in Gold Will Save Your Butt




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

Investing in Gold Will Save Your Butt

November 2nd, 2010

When I got back to the office, the place was abuzz, all stemming from how my boss wanted to “see me” as soon as I got back from wherever the hell I was. I knew what it was about. It was about old man Sanderson and the stupid Sanderson account.

The problem was that I had just seen the Britebart.tv video of the megalomaniacal and totally incompetent Harry Reid, Congressional Representative from Nevada and doofus extraordinaire, saying, “But for me, we’d be in a worldwide depression.”

So, inspired, I told Sanderson to stick his problems, and that, “But for me, you would be sued into bankruptcy after using our defective parts, ya moron!”

So I grudgingly went up to her office, and the first thing I see is her stupid secretary, who hates my guts because I once told her to buy gold, silver and oil against the terrible inflation that will result from the traitorous neo-Keynesian econometric nitwits at the Federal Reserve creating so much excess money, especially when the corrupt federal government was monstrously deficit-spending us into bankruptcy.

So, a few days later, I saw her in the hallway, and being a friendly, collegial type of guy, I casually asked her if she had bought any gold, silver or oil so that she could Save Her Butt (SHB) when the devastating inflation and economic collapse hits, which has happened to every lowlife, dirtbag deficit-spending government who tried this stupid crap Every Freaking Time (EFT) in the last 4,500 years.

She admitted that she hadn’t, so I said to her, in a delicate way, like a kindly uncle gently instructing a wayward and ignorant child, “Then you’re a moron! Instead of gold, silver and oil saving your butt, which, by the way, looks big in those pants, it is going to get chewed up by ruinous inflation and economic collapse!”

Well, I figured that she would say, “Thanks for the important information!” since she has beneficially learned – at absolutely no cost to her! – that she is a moron, plus she now knows that those pants make her butt look big. A two-fer!

She did not, as I supposed, thank me. Instead, she’s hated me ever since, and every time I get summoned to my boss’s office, I always ask her stupid secretary, “Have you bought any gold, silver or oil to save that big butt of yours from the raging inflation in prices that will be caused by the Federal Reserve creating so much money?” and she says, “No,” and I say, “Then you’re a moron!” and she replies, “No, YOU’RE the moron!” and I will cleverly reply, “No, YOU’RE the moron!” and she’s yelling back at me, “No, YOU’RE the moron!” which is about when my boss usually comes out of her office and tells us to immediately stop acting like children.

I say, “It’s her that is acting like a child with a big butt! I tell her to buy gold, silver and oil, which is the only intelligent, time-tested, guaranteed thing to do when the loathsome Federal Reserve is creating so much money, but she never does! So she’s the childish idiot, not me!”

Well, my boss, with an angry look on her face, hisses at me through clenched teeth to “get into my office this instant!”

Well, it turns out that she had found out that somebody (meaning me) had screwed up the big order from old man Sanderson, and now the Sanderson account was in danger, and he was really angry.

She says, “What did you do to him to make him angrily cancel his account, threaten to have his lawyers sue us, and make a lot of vague death threats against you personally?”

Well, I told her that the problem was caused by The Washington Post breaking the story that the Commodity Futures Trading Commission is, as was always suspected, corrupt. The headline was “Commodity Futures Trading Commission judge says colleague biased against complainants.”

It turns out that George H. Painter is “one of two administrative law judges presiding over investor complaints at the Commodity Futures Trading Commission,” and he writes that the other CFTC judge, Judge Bruce Levine, had “a secret agreement with a former Republican chairwoman of the agency to stand in the way of investors filing complaints with the agency.”

The seamy corruption was a permanent bias against investors in disputes “as a favor to Wendy Gramm, then Chairwoman of the Commission” to “never rule in a complainant’s favor.”

Damningly, Mr. Painter wrote, “A review of his rulings will confirm that he fulfilled his vow,” and that in the last 10 years, “Levine had never ruled in favor of an investor.” Never!

The important part, for me, was when her husband, the laughable former senator from Texas, Phil Gramm, said he would “pass along a message” but added, “I doubt she’s going to want to get involved in this.”

My boss, by this time, was looking at me with this look of unbelieving incredulousness on her stupid face, her mouth actually falling open in stunned stupefaction. Then she says to me, “What has that got to do with the Sanderson account?”

So, I said, as will probably Ms. Gramm, “I don’t want to get involved in this!”

Then I got up, left her office in a huff, and went out to have a few drinks to steady my nerves, figuring that by the time I get to work tomorrow, she will have smoothed things over with Sanderson and we can all start some crapola “healing process” of forgiving and forgetting.

And her secretary? She’s still a moron who has not bought any gold, silver or oil. Just between you and me, maybe that explains her fat butt! Hahaha!

If so, then my new Mogambo Slogan Of Inspiration (MSOI) is, “Whee! Buying gold, silver and oil is an easy investment, and in doing so, I got a great-looking butt for free, too!”

The Mogambo Guru
for The Daily Reckoning

Investing in Gold Will Save Your Butt 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:
Investing in Gold Will Save Your Butt




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

Josh Brown’s Favorite Financial Blogs

November 2nd, 2010

One year ago, Josh Brown of The Reformed Broker rolled out his personal taxonomy of the financial blogging universe in an incisive and highly acclaimed post, The Periodic Table of Finance Bloggers. VIX and More was pleased to be included in this list, even if there were no signs of volatilium anywhere on his table…

This year the noted analyst and humorist is back again with an updated version of his favorite finance bloggers in Financial Blog Wars. I am glad to say that VIX and More is once again included on the list, but as this year’s theme is Star Wars, this blog is now officially categorized as one of the Droids, whose penchant is for “Technicals, Trading, Charting, Options, and Quantitative Analysis.”

It is always gratifying to be recognized for what is essentially a labor of love, particularly when it comes in esteemed company.

I have not yet attempted to make an all-inclusive list of the various blogging awards that have been bestowed on this blog, but for the record, VIX and More has been mentioned in connection with a number all-star blogging teams in the past, including:

Related posts:

Disclosure(s): none



Read more here:
Josh Brown’s Favorite Financial Blogs

OPTIONS, Uncategorized

Josh Brown’s Favorite Financial Blogs

November 2nd, 2010

One year ago, Josh Brown of The Reformed Broker rolled out his personal taxonomy of the financial blogging universe in an incisive and highly acclaimed post, The Periodic Table of Finance Bloggers. VIX and More was pleased to be included in this list, even if there were no signs of volatilium anywhere on his table…

This year the noted analyst and humorist is back again with an updated version of his favorite finance bloggers in Financial Blog Wars. I am glad to say that VIX and More is once again included on the list, but as this year’s theme is Star Wars, this blog is now officially categorized as one of the Droids, whose penchant is for “Technicals, Trading, Charting, Options, and Quantitative Analysis.”

It is always gratifying to be recognized for what is essentially a labor of love, particularly when it comes in esteemed company.

I have not yet attempted to make an all-inclusive list of the various blogging awards that have been bestowed on this blog, but for the record, VIX and More has been mentioned in connection with a number all-star blogging teams in the past, including:

Related posts:

Disclosure(s): none



Read more here:
Josh Brown’s Favorite Financial Blogs

OPTIONS, Uncategorized

More Stealth Gold Buying, This Time it’s Iran to the Tune of $15B

November 2nd, 2010

Perhaps the only thing more common these days than central banks increasing their gold holdings, is their ability to do it on the sly. Much like Saudi Arabia came out of nowhere to announce it more than doubled its gold reserves to 323 tonnes, Iran recently came out of the blue to announce it’s added about $15 billion worth of gold to its foreign exchange reserves.

According to Mehr News Agency:

“[Central Bank governor Mahmoud Bahmani] said that the country’s foreign currency reserve has gained several billion of dollars as a result of the rise in global gold prices. Bahmani said on October 23 that according to World Bank statistics Iran has $100 billion in foreign exchange reserves.

“Provided that the World Bank statistics are true any country with this amount of reserves would never hit a dead end, ISNA news agency quoted Bahmani as saying.

“It may be possible to exert pressure on a small country with $4-5 billion reserves, but the situation in regard to Iran is different, he said in a reference to efforts by Western countries pressure Iran financially.

“He pointed to Iran’s gold reserves and said it had multiplied several times in the past two years. Bahmani went on to say that currently gold consumption in the country is 30 tons per year and if the Central Bank doesn’t add to its gold reserves there will remain ample supplies for the next 10 years.”

Now, along with Saudi Arabia, Russia, and China, Iran is joining the club of surreptitious gold-hoarding nations. There appears to be ample evidence this club won’t stay too exclusive for very long. You can read more details on the story in Mehr News Agency’s coverage of how Iran now has no need to import gold for about a decade.

Best,

Rocky Vega,
The Daily Reckoning

More Stealth Gold Buying, This Time it’s Iran to the Tune of $15B 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:
More Stealth Gold Buying, This Time it’s Iran to the Tune of $15B




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.

Commodities, Uncategorized

More Stealth Gold Buying, This Time it’s Iran to the Tune of $15B

November 2nd, 2010

Perhaps the only thing more common these days than central banks increasing their gold holdings, is their ability to do it on the sly. Much like Saudi Arabia came out of nowhere to announce it more than doubled its gold reserves to 323 tonnes, Iran recently came out of the blue to announce it’s added about $15 billion worth of gold to its foreign exchange reserves.

According to Mehr News Agency:

“[Central Bank governor Mahmoud Bahmani] said that the country’s foreign currency reserve has gained several billion of dollars as a result of the rise in global gold prices. Bahmani said on October 23 that according to World Bank statistics Iran has $100 billion in foreign exchange reserves.

“Provided that the World Bank statistics are true any country with this amount of reserves would never hit a dead end, ISNA news agency quoted Bahmani as saying.

“It may be possible to exert pressure on a small country with $4-5 billion reserves, but the situation in regard to Iran is different, he said in a reference to efforts by Western countries pressure Iran financially.

“He pointed to Iran’s gold reserves and said it had multiplied several times in the past two years. Bahmani went on to say that currently gold consumption in the country is 30 tons per year and if the Central Bank doesn’t add to its gold reserves there will remain ample supplies for the next 10 years.”

Now, along with Saudi Arabia, Russia, and China, Iran is joining the club of surreptitious gold-hoarding nations. There appears to be ample evidence this club won’t stay too exclusive for very long. You can read more details on the story in Mehr News Agency’s coverage of how Iran now has no need to import gold for about a decade.

Best,

Rocky Vega,
The Daily Reckoning

More Stealth Gold Buying, This Time it’s Iran to the Tune of $15B 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:
More Stealth Gold Buying, This Time it’s Iran to the Tune of $15B




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.

Commodities, Uncategorized

It’s a LANDSLIDE! What to do …

November 2nd, 2010

Larry Edelson

It’s all over but the shouting!

According to last-minute polling, Republicans will gain up to 60 House seats, including a very vocal Tea Party caucus.

Meanwhile, incumbents who have held the same seats for decades are being unceremoniously voted out of office. Even seats that have been in Democratic hands for generations are now in jeopardy.

Case in point: John Dingell Jr. (D-MI) has served in the U.S. House of Representatives since 1955, when he won the seat that his father held since 1933. After 77 years in the Dingell family, even that seat is now hanging by a thread.

In the Senate, Democrats will probably lose up to eight seats. They retain a majority … but by such a TINY margin … they effectively lose control to fiscal conservatives in BOTH parties!

Overall, it’s a LANDSLIDE — here’s what that means …

  • Until now, Federal stimulus money has been the number one FUEL driving the economy.
  • The people are kicking Congress OUT of the stimulus business! In fact, even as you read these words, many of the candidates being elected today are already drafting legislation to actually roll back government spending.
  • That means the ONLY way President Obama will be able to pour more stimulus into the economy is through one institution — the U.S. Federal Reserve … and via the ONLY weapon that remains available — the money printing presses.

But money printing is an extremely dangerous tactic — one that has the potential to sour U.S. bond investors worldwide … gut the dollar … and send contra-dollar assets careening higher.

Bottom line: With the conservative sweep of the midterm elections now a fait accompli, the NEXT major shoe to drop is tomorrow’s Fed announcement — the declaration that the central bank will resume money printing to stimulate the economy.

Most likely, the Fed will announce that it will print much less than the $1.7 trillion it printed last time around. If so, look for major corrections in stocks … a short-term correction in gold … and a temporary firming of the dollar.

But make no mistake: Regardless of how much the Fed says it will print tomorrow, it will come under tremendous pressure from the Obama administration to print MUCH MORE.

If the president wants to be re-elected in 2012, he must find SOME way to stimulate the economy. And the U.S. Federal Reserve is now the ONLY stimulus tool the government has left.

That’s why we’re convinced you can count on a plunging dollar, soaring precious metals and wild volatility in the stock and bond markets.

To help you prepare for this dangerous but opportunity-rich new environment, we’ve pulled out all the stops, preparing a whole series of online presentations. But the D-Day we’ve been warning about is here — for markets and for investors. And now, you are truly running out of time.

At 11:59 PM tonight, TWO crucial
deadlines will have come and gone.

DEADLINE #1: The last of our pre-election presentations, “Two New Mega-Trends; Two New Mega-Windfalls” will go offline.

But remember: Both of these opportunities end tonight.

Best wishes,

Larry

Related posts:

  1. Fed President: Bernanke Making “A PACT WITH THE DEVIL”
  2. New buys this week! Your deadline: THIS TUESDAY!

Read more here:
It’s a LANDSLIDE! What to do …

Commodities, ETF, Mutual Fund, Uncategorized

Bank Failures in Slow Motion, Part II

November 2nd, 2010

[Speech given at The Economic Recovery: Washington’s Big Lie, the Supporters Summit for the Ludwig von Mises Institute, October 8, 2010 (Cont’d from yesterday). Click here to view Part I, "Bank Failures in Slow Motion".]

“‘Deposit insurance’ is simply a fraudulent racket.”  – Murray Rothbard

Sheila Bair, the Chairman of the US Federal Deposit Insurance Corporation (FDIC), has said many times that the peak in bank failures would not occur until the latter part of this year. What’s the holdup? Why aren’t more banks being closed more quickly?

1. Maybe there’s nobody left at the FDIC who knows how to make a deal.

After all, the FDIC’s main dealmaker, Joe Jiampietro, left suddenly in August. Jiampietro came to work at the deposit insurer after working at JP Morgan Chase and UBS. He and his partner Jim Wigand sold more than $508 billion in assets including WaMu and Corus. The New York Times reported that Wigand and Jiampietro did good work for the government, “by acting like bankers, not bureaucrats.”

Wigand worked at the FDIC for a couple decades. The fresh blood was Jiampietro. He was the eyes and ears in the markets and advised on the biggest and most complex deals, meeting with bank execs, hedge-fund managers and other big investors to get their feedback on deal terms and other agency policies.

These two started hatching deals with companies like Rialto (a division of homebuilder Lennar). Rialto bought a 40 percent share of $1.2 billion in loans from failed banks for 40 cents on the dollar, with the FDIC carrying a loan for $1 billion at zero interest for seven years.

They also came up with the FDIC’s Securitization Pilot Program. Barron’s reported that the FDIC has $37 billion of bad bank assets to sell, but that the loans would only fetch 10 to 50 cents on the dollar. But US-guaranteed FDIC senior certificates enable “the FDIC to push much of the losses off its books, thanks to the US guarantee of principal and interest.” The notes are backed by loans (remember the ones worth 10 to 50 cents on the dollar) but ultimately the losses could be absorbed by Uncle Sam.

Ex-Federal Savings and Loan Insurance Corporation regulator William Black says the FDIC is selling the equivalent of Treasury bonds without Congressional approval while the deposit insurer should instead be selling off its bad assets. “[This program] hides the economic substance of what’s really happening – an unlimited taxpayer bailout,” Black contends. The FDIC disagrees.

2. Maybe it’s politics.

Bill Bartmann, publisher of the Bartmann Bank Monitor Report, says the FDIC isn’t closing banks faster because of politics.

“The FDIC is waiting until November to drop the other shoe,” Bartmann claims. He says 500 banks will be closed in 2011 after the mid-term elections have been completed.

Are bank failures political? Shorebank in Chicago was kept alive for months: “Senior Obama adviser Valerie Jarrett served on a Chicago civic organization with a director of the bank, and President Obama himself has singled out the bank for praise in lending to low-income communities.” But the politically connected bank was finally seized on August 20th, when the FDIC finally found a single buyer for the failed bank – Urban Partnership, which includes “American Express Co., Bank of America Corp., Citigroup, Ford Foundation, GE Capital’s equity investments arm, JPMorgan Chase & Co., Key Community Development Corp., Morgan Stanley, Northern Trust Corp., PNC Investment Corp., Goldman Sachs Group Inc., and Wells Fargo & Co. Former First Chicago executives who joined ShoreBank in recent months will run the bank.”

3. Maybe the number of bidders for bad banks has dried up.

The juicy deals Jiampietro and Wigand were making last year are over, The Wall Street Journal reports. According to Keefe Bruyette & Woods (KBW), acquiring banks were booking 4.5 percent capital gains on deals done in 2009. That is now down to 2.5 percent.

Investors are halting efforts to bid on the failed banks, saying the economics no longer make sense. A group led by former FDIC Chairman William Isaac recently ended a push to raise $1 billion for bidding on failed banks in the US Southeast, in part because of lower returns on potential deals. Likewise, a group of former Wachovia Corp. executives hoping to launch Charlotte, N.C.-based Union National Bank, recently pulled its federal charter application because bank-failure bargains are becoming tougher to find.

“In the current environment our view is that FDIC-assisted transactions are not really attractive entry points,” the Union National spokesman added.

Meanwhile, many of the early investors who were able to grab bargain deals in the beginning of the crisis say they are done for now. Sunwest Bank in Tustin, Calif., for example, snapped up assets from three failed institutions with discounts as high as 44%. The deals doubled the bank’s assets to $658 million and increased its head count from 68 to 140. Chief Executive, Glenn Gray, said he doesn’t expect to be a bidder again anytime soon, acknowledging how the pricing has changed.

4. Or maybe the FDIC just doesn’t have the money to close banks.

The FDIC Deposit Insurance Fund has already spent over $19 billion this year, which is well above the $15.33 billion prepaid assessments that it collected from banks for all of 2010.

The situation is probably worse than the FDIC is letting on, according to ex-regulator William Black, author of The Best Way to Rob a Bank Is to Own One. “The FDIC is sitting there knowing that it has both the residential disaster and the commercial real estate disaster [and] knowing it doesn’t have remotely enough funds to pay for it.”

Black is not surprised there aren’t more failures, but he says that we should be upset there are not more bank failures. The industry has used its political muscle to get Congress to extort the financial accounting standards board to gimmick the accounting rules so that banks do not have to recognize their losses.

Recent FASB rule changes allow banks to value assets at inflated bubble values that have nothing to do with their real value. As a result, reported bank capital is greatly inflated. According to Black, even insolvent banks are reporting lots of capital. Furthermore, he contends that the FDIC is “intentionally keeping foreclosures down because it knows it does not have enough money to pay off depositors who are insured by the FDIC.”

Maybe that’s why suddenly the expected losses on some of the bank closures in the third quarter were considerably below historical norms. The FDIC estimated the expected losses as a percentage of assets for three banks that were seized on August 20th – Sonoma Valley bank, Los Padres Bank and Butte Community Bank – to be 3 percent, 1 percent and 3.5 percent respectively – a fraction of the average expected percentage loss for 2009 closures, which was 22 percent, and for 2010 closures, which was 23 percent.

Black believes that delaying the seizure and liquidation of insolvent banks will make ultimate losses grow. It’s a “Japanese-type strategy of hiding the losses,” which will result in a lost decade or two.

The FDIC is required to maintain a Deposit Insurance Fund (DIF) of 1.25 percent of insured deposits. As of June 30 of this year, the DIF held negative $15.2 billion, standing behind $5.4 trillion in insured deposits. That’s negative 0.28 percent. In its second-quarter banking profile, the FDIC noted the 10 basis-point improvement in the DIF from the first quarter, when the DIF was at negative 0.38 percent.

However ValuEngine’s Richard Suttmeier calculates that the DIF is currently $33.66 billion in the hole or negative 0.62 percent

But don’t be afraid, Chris Dodd and Barney Frank have taken care of everything. The Dodd-Frank Wall Street Reform and Consumer Protection Act not only made the increase in deposit insurance of $250,000 permanent, but it requires the FDIC “to take steps necessary to attain a 1.35 percent reserve ratio by September 30, 2020.”

So, in a decade, the FDIC will have $1.35 standing behind every $100 you have in the bank – promise – you have Chris’ and Barney’s word on it.

Regards,

Doug French
for The Daily Reckoning

Bank Failures in Slow Motion, Part II 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:
Bank Failures in Slow Motion, Part II




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

Election Day Advice: Vote With Your Feet

November 2nd, 2010

We begin this Election Day issue of The Daily Reckoning with a reminder to all those trigger-happy voters out there: Remember, a vote of no confidence is still a vote and, for true freedom lovers, perhaps the most important one of all.

To this editor’s mind, the only way to avoid being complicit in the crimes the victorious party will inevitably commit is to wash your hands of the whole affair today. Vote with your feet, in other words…by walking away from the ballot box and tending instead, as Voltaire might say, to your own garden. That way the next time the Republocrats decide to dip into your kiddies’ savings account to prop up this or that corrupt financial institution or to start a greasy war to “win hearts and minds” in some far off land, at least you’ll know they didn’t do it with your implicit backing.

As Doug Casey pointed out recently, “I think it’s like they said during the war with Viet Nam: suppose they had a war, and nobody came? I also like to say: suppose they levied a tax, and nobody paid? And at this time of year: suppose they gave an election, and nobody voted?

“The only way to truly de-legitimize unethical rulers,” the International Man went on to say, “is by not voting. When tin-plated dictators around the world have their rigged elections, and people stay home in droves, even today’s ‘we love governments of all sorts’ international community won’t recognize the results of the election.”

Those looking to affect real change in the system, therefore, might wish to start by refusing to support the existing one. Just a thought…

But by wading into politics we’ve digressed from our non-stated mandate; strayed from our usual beat.

Wait! No we haven’t!

More and more these days do the spheres of politics and economics overlap. Both can and do seriously impact your money. And that’s what these pages are about: your money and, at least of equal importance, your money as a means to achieve your personal freedom.

Welfare/warfare states aren’t cheap to run, Fellow Reckoner. There are bombs to make, bases to build and banks to bail out. Then think of all the people the government pays not to work…the 42 million mouths-worth of food stamps…the money to bribe people to trade in their old cars for new ones…and, of course, the cash to hand directly to the auto companies themselves!

This is by no means an exhaustive list, of course. A “good” politician is never short of something to sell. A new scheme, scam or the like. Let this racket run long enough and pretty soon plasma television ownership becomes a “basic human right” and the overreaching arm of the state takes to telling you what you can and can’t watch on the thing.

Society is full of busybody do-gooders and naval-gazing morons who are happily eating up a larger and larger share of the nation’s once-productive capital. And, as this group grows and grows, they eventually shift from a disheartened minority down on their luck to taking full control of Congress. That’s when the taxpayer checkbooks really come out.

“Just look at what has happened in the last three years,” observed Bill Bonner recently, “total US government spending has gone from $2.5 trillion to $3.4 trillion. Take out this extra government spending and you see that the real economy is smaller today than it was in 2004. All the increases in GDP since then have been increases in government spending – most of which are completely unproductive. The longer this trend continues, the less able the economy is to ‘grow its way out’ of its debt hole…and the closer it gets to final insolvency.”

Initiatives that begin as “state services” invariably end up making us servants to the state. And, in the end, voters only have themselves to blame.

Joel Bowman

for The Daily Reckoning

Election Day Advice: Vote With Your Feet 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:
Election Day Advice: Vote With Your Feet




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

Election Day Advice: Vote With Your Feet

November 2nd, 2010

We begin this Election Day issue of The Daily Reckoning with a reminder to all those trigger-happy voters out there: Remember, a vote of no confidence is still a vote and, for true freedom lovers, perhaps the most important one of all.

To this editor’s mind, the only way to avoid being complicit in the crimes the victorious party will inevitably commit is to wash your hands of the whole affair today. Vote with your feet, in other words…by walking away from the ballot box and tending instead, as Voltaire might say, to your own garden. That way the next time the Republocrats decide to dip into your kiddies’ savings account to prop up this or that corrupt financial institution or to start a greasy war to “win hearts and minds” in some far off land, at least you’ll know they didn’t do it with your implicit backing.

As Doug Casey pointed out recently, “I think it’s like they said during the war with Viet Nam: suppose they had a war, and nobody came? I also like to say: suppose they levied a tax, and nobody paid? And at this time of year: suppose they gave an election, and nobody voted?

“The only way to truly de-legitimize unethical rulers,” the International Man went on to say, “is by not voting. When tin-plated dictators around the world have their rigged elections, and people stay home in droves, even today’s ‘we love governments of all sorts’ international community won’t recognize the results of the election.”

Those looking to affect real change in the system, therefore, might wish to start by refusing to support the existing one. Just a thought…

But by wading into politics we’ve digressed from our non-stated mandate; strayed from our usual beat.

Wait! No we haven’t!

More and more these days do the spheres of politics and economics overlap. Both can and do seriously impact your money. And that’s what these pages are about: your money and, at least of equal importance, your money as a means to achieve your personal freedom.

Welfare/warfare states aren’t cheap to run, Fellow Reckoner. There are bombs to make, bases to build and banks to bail out. Then think of all the people the government pays not to work…the 42 million mouths-worth of food stamps…the money to bribe people to trade in their old cars for new ones…and, of course, the cash to hand directly to the auto companies themselves!

This is by no means an exhaustive list, of course. A “good” politician is never short of something to sell. A new scheme, scam or the like. Let this racket run long enough and pretty soon plasma television ownership becomes a “basic human right” and the overreaching arm of the state takes to telling you what you can and can’t watch on the thing.

Society is full of busybody do-gooders and naval-gazing morons who are happily eating up a larger and larger share of the nation’s once-productive capital. And, as this group grows and grows, they eventually shift from a disheartened minority down on their luck to taking full control of Congress. That’s when the taxpayer checkbooks really come out.

“Just look at what has happened in the last three years,” observed Bill Bonner recently, “total US government spending has gone from $2.5 trillion to $3.4 trillion. Take out this extra government spending and you see that the real economy is smaller today than it was in 2004. All the increases in GDP since then have been increases in government spending – most of which are completely unproductive. The longer this trend continues, the less able the economy is to ‘grow its way out’ of its debt hole…and the closer it gets to final insolvency.”

Initiatives that begin as “state services” invariably end up making us servants to the state. And, in the end, voters only have themselves to blame.

Joel Bowman

for The Daily Reckoning

Election Day Advice: Vote With Your Feet 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:
Election Day Advice: Vote With Your Feet




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

Private Sector Debt Burden About to Get More Burdensome

November 2nd, 2010

Guess what happened yesterday?

Nothing. The Dow rose 6 points. Gold fell $7.

Investors are holding their breath. Why? Because Ben Bernanke is scheduled to make history on Wednesday. Everyone sits on the edge of his chair and wants to know what kind of history he’ll make.

“Some Enchanted Easing,” is how The Financial Times describes it.

The FT thinks the latest quarterly growth figures – 2% – are simply too low for the nation to live with.

“US recovery remains sluggish,” was their headline. “Case for fresh quantitative easing cemented.”

The problem with 2% growth is that it is not enough to lift employment rates. The economy needs to create about 50,000 jobs per month just to keep up with population growth. That’s about what you can do at 2% GDP growth.

But when you’re at nearly 10% unemployment, you need to do better than that. It’s not enough to stay even. Otherwise, you have to live with the drag caused by millions of people without work. These jobless people need to be housed, and fed, and medicated. So you end up with an economy that actually gets poorer.

Yes, that’s part of the problem. The way the economy is rigged up, the private sector has to support a big public section…one that gets heavier every day. If growth is sluggish, the whole economy slips, even with positive GDP numbers. Without powerful growth the feds don’t collect much in taxes…and run huge deficits. This increases the debt burden on the few people who are carrying all the load – people working in the private sector at non-zombie, wealth-producing activities.

And here’s a shocker… The debt level per private sector worker – the people who have to pay the bills – will nearly double between 2007 and 2015. Yes, a new study done by a former IMF economist found that government debt levels are soaring – in the “rich” nations. They are soaring at a particularly fast rate in the USA, which will go from the 11th heaviest debt per private sector employee in 2007 to the third heaviest by 2015.

What’s going on? The Baby Boomers are retiring. They’re making a big transition from being a source of financing to becoming a source of spending. Instead of paying the bills, in other words, they’re becoming the people for whom the bills are paid.

And that will leave the typical private sector worker in 2015 with $68,500 as his share of the government debt. We’re not talking fiscal gap here. This is debt…interest bearing debt.

It doesn’t include, for example, state level pension liabilities…which now tote to over $5 trillion alone. Nor does it include all the other unfunded liabilities and promises of state, local and federal governments – which, according to Laurence Kotlikoff – come to more than $200 trillion.

Without robust “growth”…those liabilities too are going to come crashing down on the heads of the feds…and everyone else.

Which brings us back to poor Ben Bernanke. His seat must be so hot it scorches his derriere.

“Fed poised for biggest decisions in decades,” says another FT headline.

“Given the committee’s objectives, there would appear, all else being equal to be a case for further action,” Ben Bernanke said himself a few weeks ago.

And so, he’s going to go for it. How much? Probably open-ended. How soon? Probably right away. How effective? Whew…you’re asking too much, dear reader.

But what the heck, we’ll take the bait. How effective will the Fed’s new money-printing be?

It will be a total failure. A disaster.

Bill Bonner
for The Daily Reckoning

Private Sector Debt Burden About to Get More Burdensome 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:
Private Sector Debt Burden About to Get More Burdensome




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

Private Sector Debt Burden About to Get More Burdensome

November 2nd, 2010

Guess what happened yesterday?

Nothing. The Dow rose 6 points. Gold fell $7.

Investors are holding their breath. Why? Because Ben Bernanke is scheduled to make history on Wednesday. Everyone sits on the edge of his chair and wants to know what kind of history he’ll make.

“Some Enchanted Easing,” is how The Financial Times describes it.

The FT thinks the latest quarterly growth figures – 2% – are simply too low for the nation to live with.

“US recovery remains sluggish,” was their headline. “Case for fresh quantitative easing cemented.”

The problem with 2% growth is that it is not enough to lift employment rates. The economy needs to create about 50,000 jobs per month just to keep up with population growth. That’s about what you can do at 2% GDP growth.

But when you’re at nearly 10% unemployment, you need to do better than that. It’s not enough to stay even. Otherwise, you have to live with the drag caused by millions of people without work. These jobless people need to be housed, and fed, and medicated. So you end up with an economy that actually gets poorer.

Yes, that’s part of the problem. The way the economy is rigged up, the private sector has to support a big public section…one that gets heavier every day. If growth is sluggish, the whole economy slips, even with positive GDP numbers. Without powerful growth the feds don’t collect much in taxes…and run huge deficits. This increases the debt burden on the few people who are carrying all the load – people working in the private sector at non-zombie, wealth-producing activities.

And here’s a shocker… The debt level per private sector worker – the people who have to pay the bills – will nearly double between 2007 and 2015. Yes, a new study done by a former IMF economist found that government debt levels are soaring – in the “rich” nations. They are soaring at a particularly fast rate in the USA, which will go from the 11th heaviest debt per private sector employee in 2007 to the third heaviest by 2015.

What’s going on? The Baby Boomers are retiring. They’re making a big transition from being a source of financing to becoming a source of spending. Instead of paying the bills, in other words, they’re becoming the people for whom the bills are paid.

And that will leave the typical private sector worker in 2015 with $68,500 as his share of the government debt. We’re not talking fiscal gap here. This is debt…interest bearing debt.

It doesn’t include, for example, state level pension liabilities…which now tote to over $5 trillion alone. Nor does it include all the other unfunded liabilities and promises of state, local and federal governments – which, according to Laurence Kotlikoff – come to more than $200 trillion.

Without robust “growth”…those liabilities too are going to come crashing down on the heads of the feds…and everyone else.

Which brings us back to poor Ben Bernanke. His seat must be so hot it scorches his derriere.

“Fed poised for biggest decisions in decades,” says another FT headline.

“Given the committee’s objectives, there would appear, all else being equal to be a case for further action,” Ben Bernanke said himself a few weeks ago.

And so, he’s going to go for it. How much? Probably open-ended. How soon? Probably right away. How effective? Whew…you’re asking too much, dear reader.

But what the heck, we’ll take the bait. How effective will the Fed’s new money-printing be?

It will be a total failure. A disaster.

Bill Bonner
for The Daily Reckoning

Private Sector Debt Burden About to Get More Burdensome 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:
Private Sector Debt Burden About to Get More Burdensome




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

Australia and India Raise Rates

November 2nd, 2010

Yesterday was busy here on the desk, with the normal flurry of Monday trading combined with a number of calls to the desk regarding our MarketSafe CD which will be closing out shortly. But the currency markets were fairly quiet ahead of the elections today. But as I pointed out yesterday, trading yesterday was nothing more than the quiet before the storm, as the currency markets were rocked overnight with surprise rate announcements by both Australia and India. I warned you that this week was going to get interesting.

The big news overnight was the Reserve Bank of Australia’s announcement that they would add another quarter point to their benchmark interest rate in order to steer their economy clear of inflationary pressures. The move pushed the Aussie dollar (AUD) to above parity for the first time in nearly 30 years. I pulled a chart of the Aussie dollar which shows that it moved through $1.00 on July 30, 1982 and hasn’t revisited this level since. 1982 was a great year for yours truly, as I was enjoying my last year in high school, listening to Billy Squier and watching MTV. For those of you who don’t believe the Aussie dollar can move above parity, it had traded all the way up to 1.49 back in 1973 (when Chuck was enjoying his senior year in high school!) But we will have to wait a while before we see those kind of levels again as the Aussie dollar couldn’t hold the $1.00 level last night and moved back just below parity as of this morning.

This was the first move by the RBA in 6 months, and caught most economists off guard. RBA Governor Glenn Stevens said the economy has “relatively modest amounts of spare capacity” and citing risk of inflation rising again over the medium term in his statement following the rate increase. Australia’s economy has been enjoying what looks like a very sustainable level of growth with unemployment at just 5.1% and inflation running at a modest 2.8%. But pressure on commodity prices has the RBA worried about inflation risks, and prompted RBA Governor Stevens to take action. This is one reason the Aussie dollar has been such a long-time favorite of the desk; the RBA has done a fantastic job of being proactive, and steering their economy through the global downturn.

The move by Australia also helped their sister currency, the New Zealand dollar (NZD), which moved solidly above 0.77 cents. The kiwi was also helped by a report which showed wages in New Zealand increased which could force a move on the part of New Zealand’s central bank. The kiwi may be a good alternative for those investors who feel they already have too much of their portfolio invested in the Aussie dollar. Both countries look to continue raising their rates, and commodity prices should stay strong with the growth in the Asian region.

Shortly after Australia announced their interest rate move, India joined in with a similar 0.25% move. India’s move was squarely aimed at reducing what is the fastest inflation rate among developed nations. Consumer prices rose just under 10% in India during the month of September. Reserve Bank of India Governor Duvvuri Subbarao said he expects inflation to slow to just 5.5% during the first quarter of 2011 and the economy to expand 8.5%. But he also sounded a word of caution to currency speculators, throwing cold water on any expectations of further rate tightening in the immediate future. The Indian rupee (INR) has gained just 4.8% versus the US dollar in 2010, versus an 11.52% jump by the Aussie dollar. Part of the reason for the lagging performance of the rupee is that interest rates in India remain well below those offered in Australia and Brazil. But growth rates in India, and the sheer size of their economy has many investors comparing it to China instead of Brazil or Australia. And when you make the comparison between China and India, interest rates in India do look attractive.

The moves by Australia and India highlight something that I touched on yesterday: the global economy is on two very distinct paths right now. Countries in Asia are back on a growth path (many never left it!!) and have clearly entered a tightening mode in order to prevent inflation from growing out of control. The economies of the US, Japan, and parts of Europe are still languishing in a no-growth mode with policymakers looking to start another round of stimulus efforts. So where would you rather put your money: in economies that are growing and where you can get higher interest rates; or in economies that are stagnant with interest rates near zero. It is a pretty easy question to answer, isn’t it? This obvious answer is what is propelling the higher yielding currencies of Australia, New Zealand, India, and Brazil up versus the US dollar and euro (EUR).

But the rush into these currencies is a bit worrisome, as “hot money” is never stable and is starting to inflate what could eventually turn into a bubble. Nouriel Roubini, the NY University professor who correctly predicted the housing crash, highlighted this growing bubble in a conference early today. Roubini said, “Prices may be running ahead of economic fundamentals” but also said the “party” can go on for a while. Interest rate differentials will continue to flood these markets with cash, and their central banks will need to try and keep their currencies from appreciating too quickly. One way these central banks can try to control the currency is by building up reserves, which can be used in currency interventions, and as I pointed out yesterday, India has done just that. But Chuck has always warned that currency intervention only works in the short-term, and even countries with some of the largest reserve pools (Japan) have trouble fighting the currency markets. While I appreciate where Roubini is coming from, I agree that the party can go on for a while, and we might as well participate (I’ve never been one to miss a good party!!)

Back here in the US we have finally arrived at Election Day. Hopefully everyone will take the time to get out and vote. I know I am planning to stop by the polling place on my way home. I may have led many to believe I wouldn’t be voting with my statement yesterday when I said that it really doesn’t matter who has the helm of a rudderless ship; but I feel it is my civic duty to vote, and hope that everyone else gets out to vote also. While I do believe the debt that has accumulated over the past several years is pushing the US economy in a scary direction, which will not be avoidable, I still want folks in congress who will at least recognize that we have accumulated this debt and need to do something about it!! You have to start attacking this debt much like you eat an elephant, one bite at a time. And I would like to see members of our congress push up to the table.

But the elections are still not taking center stage in the markets here in the US. That ground is being held by the FOMC, which is set to announce the size of its new stimulus effort tomorrow afternoon. There is not really any question over whether or not they are going to announce the stimulus measures, but the questions are now just how large the stimulus will be. Most believe they will announce $500 billion of new bond purchases spread out over the next few months, but many (including Chuck) believe the actual amount will be much larger. The currency markets have “baked in” a 500B figure, so if the stimulus is anything less, we could see a rally in the US dollar. If they come clean and announce a number that is closer to what I think it will eventually turn out to be, the dollar will be sent to the woodshed. After all, if the FOMC is flooding the markets with US dollars, the value of every dollar has got to go down (according to the laws of supply/demand).

I would expect the Fed to take a cautious approach with QE2 and just announce a $500 billion package, knowing that they will likely have to come back and announce a further package sometime later. And who knows, if the dollar continues to drop (as I believe it will) our exports may actually turn the economy back around and start to pull us out of this malaise. But that theory would stand a much better chance if we still made things in the US! I think the process will be longer, as we will need innovation and the creation of new products and new markets overseas to really increase our exports enough to make a difference.

Hong Kong’s Monetary Authority was recently granted authority to invest in bonds and stocks on the Chinese mainland, giving them the ability to further diversify their currency holdings. The Hong Kong dollar (HKD) has been pegged to the US dollar for a number of years, and recent moves indicate that this peg may be scrapped in favor of a link to China’s currency. Chuck mentioned this possibility earlier this year, and many investors have been purchasing Hong Kong dollars as a surrogate to investing in the renminbi (CNY). Hong Kong’s financial markets are more advanced than those on the mainland, and there is definitely a possibility that China will decide to let the Hong Kong dollar float prior to releasing the peg on the renminbi. With a peg to the US dollar, Hong Kong’s monetary policies are tied to the US, but their economy is more closely aligned with China. We have seen a tremendous jump in the cost of forward contracts in the Chinese currency, indicating the markets believe the Chinese will take further steps to loosen their grip on the renminbi. A first step could be to let the Hong Kong float.

The metals are largely unchanged from yesterday, but they could be impacted by the election returns here in the US. The metals are seen as “safe haven” buys, and the questions surrounding the elections and the size of the FOMC stimulus efforts could definitely produce some volatility in the metals markets.

To recap, both India and Australia raised rates, starting off what will be several rate announcements in the coming days. US elections will take place today, with a change in the ownership of the house predicted. FOMC will be announcing their rate decision (most likely no move) and the size of the QEII. And finally, China may be looking to let the Hong Kong dollar float prior to releasing their tight grip on the value of the Chinese renminbi.

Chris Gaffney
for The Daily Reckoning

Australia and India Raise Rates 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:
Australia and India Raise Rates




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

Copyright 2009-2015 MarketDailyNews.COM

LOG