Investor Confidence and the Kitchen Sink

EXTRA, EXTRA!!!! Investor confidence gone! Investment Banks and Hedge Fungs lunch on the little guy! SEC has'em all for dessert! You pay, if you play!

Read all about it!!! .

Ok...well, maybe I'm in too much of a post Gatsby mind set today, but CNBC populism always brings a grin to my face. The kind you got as a kid when an adult caught you imitating the mentally challenged. Guilty, but not really sorry.

The point is debate worthy, however. I have spent a great deal of time talking to and arguing with people about the state of the economy and our wholesale financial future going forward. Opinions have rarely been reserved or rational, so I'm looking to hear some cool headed suggestions from you guys.

Here's what I have generally been hearing:

The government and big financial players are in collusion. They are squeezing out the little guy. Depending on which side of the political/ideological isle the person stands its about an 80/20 guilt split. Against regulators for conservatives and against Wall Street for liberals. However, I don't hear any rational suggestions or solutions.

What if...things are just as they should be? What if after many years of boom times, there are no more bubbles to pump and we are forcibly being brought back down to Earth by precisely those 86% represented by the (albeit insufficient sample size) poll numbers?

What if...we are seeing the large-scale play out of mean reversion, not within a trade or a position but with markets themselves? What if we are simply reverting to a finance world that existed prior to the industry expansion of the 70's?

American companies have never sat on so much cash before. This encompasses the multi-billion dollar behemoths and your local grocery in a town of 2,000. Perhaps, until the individual sees some responsibility shown by those who preach it the most, an overall correction for the better cannot happen.

Trillium's relative slap on the wrist ($2.6 million) this past week by FINRA is just another in a long line of seemingly perfunctory actions by regulators to make it seem like they are doing something. But it also reflects the unrepentant risks being taken by firms which they themselves have spent so much time quacking about ending.

About a week after Lehman I was speaking to a guy closely affiliated with the LTCM debacle. He gave me a somber thought that resurfaces at times like this.


Until it all burns down, they won't stop building straw houses

We are still plugging along like Gatsby on a long since un-gilded road.

Perhaps this is precisely how it has to be...

 

Some thoughts:

Demographics - Demographics set trends. Japan and Europe both see negative population growth rates. The US would if it weren't for immigration. Solow growth model says that GDP growth comes from Population growth, growth in the Capital Stock, and technological innovation. The capital stock in the developed world has reached its steady-state (where investment in new capital simply replaces depreciating capital). With little population growth, the only real way for GDP to grow will be from technological innovation. Technological innovation is labor augmenting, which makes workers more productive. Unskilled workers are replaced by technological innovation (Where did tollbooth workers go!?). These people need to reeducate themselves, but we do not see this happening. Thus, we will have persistently high unemployment, as we continue to use technology to replace unskilled labor.

Why is GDP growth so important? http://seekingalpha.com/article/184975-public-pension-funds-move-to-emp… Because many American's retirements are dependent on 8% annual returns for pension funds. These funds basically need to realize these returns in order to meet their liabilities. If they cannot, they will not be able to pay workers. This means either defaulting on these obligations or raising taxes on productive workers (this is a problem that we will go through for the next 15 years). Honestly, I don't see any quick fix for this... I think we will need to (continue to) go through a massive debt-deflation cycle. The only way these funds will be able to meet their obligations will be if they invest in companies that are able to profit in emerging economies. Do you really think that the BRICS will want American companies taking all the profits from their growth and sending it to American pension funds? (Take a look at the energy industry... all the BRICS have formidable competitors taking on American energy companies) Take a look at Roubini's article in Institutional Investor from this weekend (I think its called Paradise Lost)

Of course, deflation isn't always a bad thing. In fact, I'd argue that in nation's where the population is weening, deflation is necessary, since demand for money will decline over time. As the demand for money declines, deflation sets in. Thus, Central Banks should reduce the money supply (or hold it steady) in order to keep the value of their currencies steady.

Just some thoughts... maybe I'll add more in a little bit

looking for that pick-me-up to power through an all-nighter?
 
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
Some thoughts:

Demographics - Demographics set trends. Japan and Europe both see negative population growth rates. The US would if it weren't for immigration. Solow growth model says that GDP growth comes from Population growth, growth in the Capital Stock, and technological innovation. The capital stock in the developed world has reached its steady-state (where investment in new capital simply replaces depreciating capital). With little population growth, the only real way for GDP to grow will be from technological innovation. Technological innovation is labor augmenting, which makes workers more productive. Unskilled workers are replaced by technological innovation (Where did tollbooth workers go!?). These people need to reeducate themselves, but we do not see this happening. Thus, we will have persistently high unemployment, as we continue to use technology to replace unskilled labor.

Why is GDP growth so important? http://seekingalpha.com/article/184975-public-pension-funds-move-to-emp… Because many American's retirements are dependent on 8% annual returns for pension funds. These funds basically need to realize these returns in order to meet their liabilities. If they cannot, they will not be able to pay workers. This means either defaulting on these obligations or raising taxes on productive workers (this is a problem that we will go through for the next 15 years). Honestly, I don't see any quick fix for this... I think we will need to (continue to) go through a massive debt-deflation cycle. The only way these funds will be able to meet their obligations will be if they invest in companies that are able to profit in emerging economies. Do you really think that the BRICS will want American companies taking all the profits from their growth and sending it to American pension funds? (Take a look at the energy industry... all the BRICS have formidable competitors taking on American energy companies) Take a look at Roubini's article in Institutional Investor from this weekend (I think its called Paradise Lost)

Of course, deflation isn't always a bad thing. In fact, I'd argue that in nation's where the population is weening, deflation is necessary, since demand for money will decline over time. As the demand for money declines, deflation sets in. Thus, Central Banks should reduce the money supply (or hold it steady) in order to keep the value of their currencies steady.

Just some thoughts... maybe I'll add more in a little bit

We can't model for attitude. To be more specific, the belief that hard work breeds positive results is eroded daily within a system where success is penalized. With every day that passes and every tax raise that takes $ out of the pockets of productive workers, these men and women are (not immediately, but over the span of a few generations) not only likely, but probably going to stop and ask the "why me" question.

"Why should I work, stress and suffer to support you...when I too can go on unemployment?". That is the question that cannot be solved with a demographic table analysis or technological innovations that have not yet occured. This is why I use the "S word" so much lately...

Don't get me wrong, your logic is sound. But logic doesn't live here, anymore:)

 
Midas Mulligan Magoo:
American companies have never sat on so much cash before. This encompasses the multi-billion dollar behemoths and your local grocery in a town of 2,000.

And that cash has never been worth less than it is today.

For what it's worth, I just re-entered my DXD call play from last month (a couple hours ago, I bought October 25 DXD Calls for $1.45). Every time the Dow gets near 10,600 I'll short that shit like it's my job.

 
Edmundo Braverman:
Midas Mulligan Magoo:
American companies have never sat on so much cash before. This encompasses the multi-billion dollar behemoths and your local grocery in a town of 2,000.

And that cash has never been worth less than it is today.

For what it's worth, I just re-entered my DXD call play from last month (a couple hours ago, I bought October 25 DXD Calls for $1.45). Every time the Dow gets near 10,600 I'll short that shit like it's my job.

Shit shorter...finally, a job title and bathroom strategy I can get be proud of!

 

Ah, the death of logic. Reminds me of my favorite quote from Atlas Shrugged:

"There was a time when I looked at the tragic mess they've made of this earth, and I wanted to cry out, to beg them to listen- I could teach them to live so much better than they did- but there was nobody to hear me, they had nothing to hear me with..... Intelligence? It is such a rare, precarious spark that flashes for a moment somewhere among men, and vanishes. One cannot tell its nature, or its future... or its death...."

As for the "S" word, do you mean "State Capitalism" ... because that is the future of the earth

looking for that pick-me-up to power through an all-nighter?
 
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
Ah, the death of logic. Reminds me of my favorite quote from Atlas Shrugged:

"There was a time when I looked at the tragic mess they've made of this earth, and I wanted to cry out, to beg them to listen- I could teach them to live so much better than they did- but there was nobody to hear me, they had nothing to hear me with..... Intelligence? It is such a rare, precarious spark that flashes for a moment somewhere among men, and vanishes. One cannot tell its nature, or its future... or its death...."

secretly hopes for another digression into random Rand quoting

<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
As for the "S" word, do you mean "State Capitalism" ... because that is the future of the earth

adds LIBOR to execution list

...blast boy!!! what I tell you about your logic in my threads?!?!?!

 

I am waiting for the Fed to start doing what it's always done when our country's huge mountain of debt starts to overshadow Capital Hill.

And Eddie- didn't someone come out and say the Hindenburg Omen was confirmed and a crash would follow in a week or two several weeks back when the market was bottoming? That obviously doesn't make anyone wrong this time around when the market is probably a little more complacent about risk, but it's always fun to talk about previous predictions and how they worked out.

 

We're already halfway through and Grandpa Warren is saying the economy is fundamentally strong. No uptick in volatility- no traditional signs of an impending panic (IE: major bankruptcies in the finance sector) like we saw in 2008. Can't rule it out yet, but I have a feeling some of the bulls- or more likely Oxen (people who think the market's probably pretty fairly priced)- are going to be eating some bear lunches at the end of the month.

The market's just bored. We're probably going to be plugging along through the economic doldrums (not storm, not carnival) for some time, and assuming we can just expect earnings growth to keep up with inflation over the next few years, I think the earnings multiple on most stocks is pretty justified right now from a fundamental standpoint- it's at its long-term historical average. Most of the times that P/Es were lower was during higher-rates environments when corporate earnings were typically also growing pretty fast.

 

If you're counting on twenty years of economic stagnation, stocks look like a pretty good deal right now with a 7-8% earnings yield that will generally keep up with inflation. That's a pretty good rate of return net-of-inflation, assuming we can expect P/Es to stay roughly constant. (It would ultimately go up over the long term if P/Es dropped). My long-term assumptions typically have my equities investments earning inflation + 6%, so I don't think the market is a particularly bad deal right now.

I'm actually a little more bearish than you on the economy in the medium term, though I would note that secular bear/bull cycles in any semblance of a modern economy- going back to the late 1800s- tend to last 15-20 years and we're 10 years into a secular bear.

This thread is admittedly a bit over my head, but I don't understand when deflation is ever a good thing - even in countries with a shrinking population. Why buy today what I can buy tomorrow for less?
It's usually not a good thing. I guess imported commodities deflation is good- but deflation is a big problem when it's growing the real value of our debt and we're already near historical highs on the federal debt.
 
IlliniProgrammer:
If you're counting on twenty years of economic stagnation, stocks look like a pretty good deal right now with a 7-8% earnings yield that will generally keep up with inflation. That's a pretty good rate of return net-of-inflation, assuming we can expect P/Es to stay roughly constant. (It would ultimately go up over the long term if P/Es dropped). My long-term assumptions typically have my equities investments earning inflation + 6%- typically a 9-10% nominal return over long periods, so I don't think the market is a bad deal right now.

I'm actually a little more bearish than you on the economy in the medium term, though I would note that secular bear/bull cycles tend to last 15-20 years and we're 10 years into a secular bear.

This thread is admittedly a bit over my head, but I don't understand when deflation is ever a good thing - even in countries with a shrinking population. Why buy today what I can buy tomorrow for less?
It's usually not a good thing. I guess imported commodities deflation is good- but deflation is a big problem when it's growing the real value of our debt and we're already near historical highs on the federal debt.

We'll be locking horns about P/Es in a day or two, wait for that post, you're the intended target:)

 
IlliniProgrammer:
If you're counting on twenty years of economic stagnation, stocks look like a pretty good deal right now with a 7-8% earnings yield that will generally keep up with inflation. That's a pretty good rate of return net-of-inflation, assuming we can expect P/Es to stay roughly constant.

God love you, IP, because we all do. If you want to make your money on stocks over the long term, history says you're going to do fine. I just think there's a lot more opportunity in the short term as government trips over its dick because nothing they've tried has worked thus far.

When you're cashing in on those 7-8% returns 20 years from now, I'll probably be in a mud hut in South America, assuming the cirrhosis hasn't taken me by then.

IlliniProgrammer:
You guys are sounding awfully Austrian, right now.

That might be the nicest thing you've ever said to me.

 

@Julian.

Simply put, deflation gives the upper hand to savers and shits on those who borrow, live of credit cards, treat the system as a giant welfare check, etc...

So our current (as Eddie pointed out) Keynesian, printing press loving, pseudo commie administration is rendered powerless in such a case. They can't use their monopoly money machine to stimulate the economy. Let's forget that this a stupid policy to begin with...deflation ends the mere possibility of using monetary policy to stimulate the economy as a whole. This is why deflation is being treated like the end of the world. Because it is for Keynesian idiots.

As for buying for less tomorrow, how exactly do YOU do that, (I'm alluding to major purchases) when YOUR actual dollar value is falling as fast or faster than you make your money (remember, this is under the assumption that you are a young man, without a large trust fund)???

Think about it...an inverted pyramid must collapse. Deflation's nothing more than a system cleansing itself of unpleasant toxins.

 
Best Response

Disagree a little with Midas and Eddie.

There's nothing wrong with anything up to moderate inflation as long as interest rates keep up with it. We had inflation in the '80s and '90s, but the key here was the fed made sure savers made more off of interest than they lost off of inflation. You guys are sounding awfully Austrian, right now.

When you get double-digit inflation, though, you really have a fundamental breakdown in the currency. The system just doesn't work well when money loses 1% of its value in a month. At that point, people stop trusting it quite as much.

Think about it...an inverted pyramid must collapse. Deflation's nothing more than a system cleansing itself of unpleasant toxins.
What is your take on the deflation that led us into the first four years of the Great Depression- and the inflation that was used to pay down the federal debt in the 40s and 50s?

I think there's two kinds of inflation- the kind driven by the government, and the kind driven by banks borrowing money into existence and increasing the velocity of money. We're seeing that stuff get unwound, but I think some running of the printing press while that happens is all right in the meantime.

 
IlliniProgrammer:
Disagree a little with Midas and Eddie.

There's nothing wrong with anything up to moderate inflation as long as interest rates keep up with it. We had inflation in the '80s and '90s, but the key here was the fed made sure savers made more off of interest than they lost off of inflation. You guys are sounding awfully Austrian, right now.

I'm big on economic history myself; were there some way to subside off it and not have to spend my day talking to liberal idiot utopians, a PhD would have been definite...that having been said, history does not always repeat itself. Sometimes old history ends and new history begins. We are not the country we were in the 80's and 90's. Sometimes a country has to lose what Austria lost after WW1, for clean logic like Hayek's to surface.

Thanks for the compliment.

 
IlliniProgrammer:
Think about it...an inverted pyramid must collapse. Deflation's nothing more than a system cleansing itself of unpleasant toxins.
What is your take on the deflation that led us into the first four years of the Great Depression- and the inflation that was used to pay down the federal debt in the 40s and 50s?

I think there's two kinds of inflation- the kind driven by the government, and the kind driven by banks borrowing money into existence and increasing the velocity of money. We're seeing that stuff get unwound, but I think some running of the printing press while that happens is all right in the meantime.

Here's my take, IP and it won't be the sort of answer you're looking for. Though I think you will be able to understand me just fine.

The period after the German hyperinflation of the 20's to the end of WW2, brought about the greatest collateral damage to world wealth in modern history. TONS of wealth (mostly in gold, but also in lives) was lost and/or pillaged. America is the ONLY country on earth that escaped this period without CATASTROPHIC economic losses. As a matter of fact, the only two other large nations that didn't feel the violent effects of the war were Canada and Australia. Following WW2 ALL...yes...ALL of the world's money which was fit for investing found it's way to American shores and poured into American industry.

For that reason, I do not think that you can compare monetary policy of that era and this. Back then, we actually had the raw resources, industry and labor pool to support a system like the fed. Today we don't and in fact today, the only thing holding the dollar together are the armed forces. If you don't believe me, I can show you my passport and you will clearly understand where the rationale comes from.

From 1946-1990, the entire world was torn up and rebuilding itself from the ground up. ONLY America had the ability to dictate its own fate and dictate it did. But there was also no viable competition. The Soviets essentially bled out what was left over from the Romanovs from the previous 300 years, but that was that. It was never enough to compete and this is why the Berlin Wall fell.

Today, we face competition from all parts of the globe and with greater economic integration, cannot get away with sitting on our asses. I look at government sponsored monetary policy as a public narcotic which stimulates inactivity and passivity.

In the final analysis, the world you are using as a reference point is simply not the world we live in.

To make it clear, I am not predicting any gloom and doom. In fact, I think we'll be okay. With a far reduced living standard going forward, but still a better place for the average person to live than any I've seen or heard of.

What I am saying is that the system of state run economics is doomed to fail as it is the antithesis of human nature and survival.

Call me an Austrian Darwinist, if you will.

 

Ok, but again, you can't be bearish on both USD and equities at the same time. Something has to give here. I think these guys have a point on the mid-term outlook- at least against USD:

http://zealllc.com/2010/ostrich2.htm

In any case, given that the consumer is in much better shape than he was in 2008 and exports are picking up, I am going to stick to stocks that do a good job of tracking inflation- or at least the inverse performance of the USD. If I were going to be buying significant amounts of gold as anything more than a trading position, I'd be buying a Canadian Visa, a 30-acre island on the Ontario side of Lake Huron, a huge cache of canned goods, and whatever self-defense supplies would be legal there, first. Then, after all of that, I'd buy gold.

It's a speculative asset that barely keeps up with inflation over the long-term. Kinda like single family homes.

 
IlliniProgrammer:
Ok, but again, you can't be bearish on both USD and equities at the same time.

Actually, you can buddy. It's true, if you live in a country where the currency is being devalued, you generally don't notice it until the bitter end. But step outside the United States, and you can absolutely see stocks and the dollar falling concurrently.

Your argument is that a falling dollar makes American goods more attractive to foreign consumers, which benefits American companies and is ultimately reflected in a rising stock price. But the number of American goods has declined drastically in the last 50 years. There is nothing (aside from Hollywood and technology) that we produce which couldn't be produced (or isn't already being produced) cheaper and more efficiently by countries without the overhead of the U.S.

If it makes you feel any better, Europe is in far worse shape, and the Germans are waking up to the fact that they've linked their economic destiny to the likes of Greece and Spain. I wouldn't be buying European stocks, either.

But to say the dollar and the stock market can't decline at the same time is naive. I'm afraid a few more years of double digit unemployment and an impotent central bank is going to prove that for me.

 
Edmundo Braverman:
Your argument is that a falling dollar makes American goods more attractive to foreign consumers, which benefits American companies and is ultimately reflected in a rising stock price. But the number of American goods has declined drastically in the last 50 years. There is nothing (aside from Hollywood and technology) that we produce which couldn't be produced (or isn't already being produced) cheaper and more efficiently by countries without the overhead of the U.S.
Do you have any facts to support this? In reality, the US is the world's largest manufacturer and its manufacturing output has grown 60% in real terms since 1990:

http://investing.curiouscatblog.net/2010/02/17/usa-china-and-japan-lead…

Our current manufacturing output is greater than it was in 1970, as well. Yes, American manufacturing workers were expensive a few years ago. But Chines workers are demanding more, and when you factor in US infrastructure and capital investments, the US worker is starting to look pretty competitive against just about anyone today when workers in "cheap labor" countries are rioting for higher pay- and generally getting it.

But to say the dollar and the stock market can't decline at the same time is naive. I'm afraid a few more years of double digit unemployment and an impotent central bank is going to prove that for me.
Oh absolutely- I have no doubt that with the phillips curve moving inward- as a natural part of the secular bear market portion of the cycle, the misery index will increase and likely remain high for the next fifteen years, although that has no direct bearing on equities performance. Ultimately, gold has no earnings, pays no dividend or rent, and has no guarantee of tracking inflation. But with P/Es at a pretty reasonable level- and inflation actually helping to drive earnings for most business that hold any kind of inventory or hard assets- it would be a surprise to see gold outperform stocks- with dividends- over ten to fifteen years.

In some ways, we've got the same story as the late 1970s and early '80s- we're bound to have some inflation and we're in the second half of a secular bear market. The difference this time is that Asia is running out of cheap labor and has a rising consumer class that wants to spend their hard-earned money. This is a huge boon for commodities, US manufacturing, and Asian retailers.

 

[quote=IlliniProgrammer]Ok, but again, you can't be bearish on both USD and equities at the same time. Something has to give here. I think these guys have a point on the mid-term outlook- at least against USD:

http://zealllc.com/2010/ostrich2.htm[/quote]

Again, it's a matter of faith. You are a technical guy. Remember our "softs" vs. "techs" chat. You believe in numbers. I'm not adverse to technical analysis, but I have to warn of a moment when you cross over from technical analyst to "chartist". Heads and shoulders, dips and dodges have just never been my analytic cup of tea. I prefer to see something tangible behind a model beyond algo. How do you model for fear???

The zeal guys do have a point, a rock solid one at that. However, the irrationality and fear that we're seeing can wipe out all good theorems. The ultimate difference between the Depression of the 30's and the Depression we may or may not be part of right now (only time can tell us for sure) is that back then people fought, took ass kickings and got up. Today we go to a therapist, pop a pill and blame someone else.

The idea behind posting the original article is that IF we have a market which is only engaged by the sophisticated investor, then we're chopping off the heads of many liquidity providers and position takers who are absolutely crucial to every day market functions. Remember, most people invest for sure returns. Even though it may be dumb, the average guy will pull all his money out of the market if he's insecure. Project that out over millions of investors and you have the scenario that the Depression generation has been living in regards to its distrust of markets, since the 30's.

 

People bought homes they couldn't afford, cashed out equity in their homes that didn't really exist, had negative savings rates, borrowed and spent until their eyes bleed and now it is someone else's fault. I suppose banks are no longer in the business of dispassionately lending money and now should act as peoples parents and only give them loans when the banks know they need them. Suppose Bush took that surplus and paid down the deficit, do you think people would of been cool with that? I remember the chants that the surplus was "our money" and the govt should give it back.

Let them eat cake. People caused this, people pissed and moans and pushed their representatives to keep the party going and now they are blaming it on everyone else. You can only live in dream land for so long before you wake up.

No one is lending. I wonder why. People are saving and paying down debt. I wonder why. No one is buying anymore. I wonder why.

This is just what the doctored ordered.

 
What I am saying is that the system of state run economics is doomed to fail as it is the antithesis of human nature and survival. Call me an Austrian Darwinist, if you will.
Well, I'm from the Chicago school, and I buy into a little of that but not everything.

What is your take on the fact that there isn't enough gold or silver in the world to form a viable currency for the US? That machines, food, cars, and everything else in the economy is worth so much these days that we'd have to have a massive velocity of money to use gold as a currency- such a massive velocity of money that we'd likely have a number of financial crashes. And that's just for the US currency.

Maybe we could use a basket of commodities. Maybe. But fiat currency has worked pretty well around the world for the past 40 years, and it's survived for at least two years after a financial crash. We tried the gold-backed system- that's what got us into the Great Depression- we ran out of gold supply around the turn of the century, and finally reached the limits of borrowing money into existence in 1929. By the way, the per-capita inflation-adjusted GDP back then was about $10,000 per person, less than 1/4 what it is now.

We can artificially limit ourselves to a 1925 economy if we want, but we have the resources and technology to have a pretty sustainable $40K/year economy. The catch is that we need a bigger currency supply than gold to have that.

 
IlliniProgrammer:
What I am saying is that the system of state run economics is doomed to fail as it is the antithesis of human nature and survival. Call me an Austrian Darwinist, if you will.
Well, I'm from the Chicago school, so hopefully we can have a civil conversation.

What is your take on the fact that there isn't enough gold or silver in the world to form a viable currency for the US? That machines, food, cars, and everything else in the economy is worth so much these days that we'd have to have a massive velocity of money to use gold as a currency- such a massive velocity of money that we'd likely have a number of financial crashes. And that's just for the US currency.

Maybe we could use a basket of commodities. Maybe. But fiat currency has worked pretty well around the world for the past 40 years, and it's survived for at least two years after a financial crash. We tried the gold-backed system- that's what got us into the Great Depression- we ran out of gold supply around the turn of the century, and finally reached the limits of borrowing money into existence in 1929. By the way, the per-capita inflation-adjusted GDP back then was about $10,000 per person, less than 1/4 what it is now.

We can artificially limit ourselves to a 1925 economy if we want, but we have the resources and technology to have a pretty sustainable $40K/year economy. The catch is that we need a bigger currency supply than gold to have that.

Chicago's a hamlet of Vienna, we're doing just fine.

There's nothing wrong with fiat...IF...it is backed by actual productive labor. We have done everything we can to export labor from the U.S. with the ragged tale of keeping "expertise" and "knowledge" positions, while telling kids it's completely fine for them to do whatever they want, major in phys. ed. and finger painting...and everything will be fine. What you've suggested is achievable, but only if that fiat is "driving" so-to-speak...only if people are working and an integrated idea of labor as a good thing is being pushed. We are steadily moving away from the notion that people should work and quickly moving towards "please sir, i'm so hungry and you have so much...". In this scenario, fiat leads to disaster.

Also, we didn't "try" the Gold backed system, "it" was (essentially) economics for hundreds of years prior to the U.S. and a mere inheritance by America itself. I don't believe gold was the trigger to the Depression in America (if you want to cross-correlate with Germany I'll buy that to an extent). I believe it was more so, Roosevelt's acquiescence to the socialist/fascist sympathies of the times. Remember his ultimatum to the Supreme Court over labor law rulings? I think there's a lot from that era which is ignored. Including how one man tap danced over the Constitution during an unprecedented 12 year administration.

I have never bought the gold, silver supply shortage argument for one reason. Aluminum. I think you know what I mean, but will elaborate if you want.

A basket of commodities is indeed a good idea, but just like the notion of a world currency is something that requires penultimate cooperation between divergent cultures and governments. This can only be enforced via rigorous military policy. Read over what I just wrote, doesn't that sound like global fascism?

Hasn't someone tried that already in the past century?

See why I'm conflicted?

 
The zeal guys do have a point, a rock solid one at that. However, the irrationality and fear that we're seeing can wipe out all good theorems. The ultimate difference between the Depression of the 30's and the Depression we may or may not be part of right now (only time can tell us for sure) is that back then people fought, took ass kickings and got up. Today we go to a therapist, pop a pill and blame someone else.
I don't see anything fundamentally relevant to the economy, though. Some could argue the same thing about the Swiss or the French, but their economies wouldn't have made a fundamentally bad investment during most of the past 100 years- besides maybe 1913 and 1938 for France.

At the end of the day, irrationality and fear mean you've got to remain liquid, but it has nothing to do with the long-term solvency issues.

I think the wise investor looks at a company, says it's 50% undervalued, and he buys. A bear complains, "But it could go down 50%!" The investor responds, "Great! It's paying a 5% dividend that I'll reinvest, because the firm is fundamentally sound." He's not trading in a margin account- his investments just sit there. He tends to buy when other folks are in a state of fear and stocks are cheap and stops buying when it gets overpriced. If things get way too far into a state of euphoria, he might even sell some.

For an investor, the long-term fundamental value of an asset is more important than what the market thinks of it tomorrow. It's a strategy that's served me well over the past several years- despite a major panic by the market.

I'm not sensing as much fear about the economy right now as I was back in August, but I'm not seeing any euphoria or cause to sell, either.

 
IlliniProgrammer:
Some could argue the same thing about the Swiss or the French, but their economies wouldn't have made a fundamentally bad investment during most of the past 100 years- besides maybe 1913 and 1938 for France.

Have you considered that the Swiss may have been such a good investment because their currency was backed by gold the entire 20th century and gun ownership and marksmanship is compulsory for men ages 20 to 50?

Currency backed by gold and a well-armed and well-trained populace tends to reduce government shenanigans, which is precisely why the U.S. has made a concerted move away from both.

 

Damn, I spend an hour off the forum and I miss an incredible thread.

MMM, let me know next time you are in NY... I'll need to make sure I avoid bumping into you so as not to be removed from that hit list in the wrong way

looking for that pick-me-up to power through an all-nighter?
 
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
Damn, I spend an hour off the forum and I miss an incredible thread.

MMM, let me know next time you are in NY... I'll need to make sure I avoid bumping into you so as not to be removed from that hit list in the wrong way

That'll teach you to live the crib...btw, I'm outside!

 
Midas Mulligan Magoo:
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
Damn, I spend an hour off the forum and I miss an incredible thread.

MMM, let me know next time you are in NY... I'll need to make sure I avoid bumping into you so as not to be removed from that hit list in the wrong way

That'll teach you to live the crib...btw, I'm outside!

Haha I was at class. Either way, I don't think I could have added much value to this conversation... I may love this type of thread, but I don't think I'm ready to sit at the grown-up table of economic discussion.

looking for that pick-me-up to power through an all-nighter?
 
Also, we didn't "try" the Gold backed system, "it" was (essentially) economics for hundreds of years prior to the U.S. and a mere inheritance by America itself. I don't believe gold was the trigger to the Depression in America (if you want to cross-correlate with Germany I'll buy that to an extent). I believe it was more so, Roosevelt's acquiescence to the socialist/fascist sympathies of the times. Remember his ultimatum to the Supreme Court over labor law rulings? I think there's a lot from that era which is ignored. Including how one man tap danced over the Constitution during an unprecedented 12 year administration.
Roosevelt didn't take office until 1933. During that time, the GDP dropped by over 25%, unemployment hit 33%, all while the Fed twiddled its thumbs and followed the Austrian tradition of not printing money just because there's an economic crisis. Roosevelt's swearing-in occured in the same month as the bottom in the DJIA.

Roosevelt did a number of un-libertarian things I'm not happy with, but he also got the fed to effectively print money and ended the banking panic- something that was desperately needed.

There were a lot of things that happened in 1929, but I think the biggest was that we had a panic at right around the same time that the world ran out of enough gold to run the global economy- we were stuck in this cycle of the velocity of money contracting but us not being able to print any money to simply keep the dollar's purchasing power from growing too fast. This ultimately drove layoffs, bartering, and a general lack of money. Had we not printed more money, we would have gone back to a 1914 velocity of money, a 1914 money supply, and a 1914 GDP/economy. Roosevelt was also wise to have the federal government spend some money on basic government infrastructure that would help reduce inflation in the future- effectively allowing the Philips curve to expand further out during the next economic boom.

 
IlliniProgrammer:
Also, we didn't "try" the Gold backed system, "it" was (essentially) economics for hundreds of years prior to the U.S. and a mere inheritance by America itself. I don't believe gold was the trigger to the Depression in America (if you want to cross-correlate with Germany I'll buy that to an extent). I believe it was more so, Roosevelt's acquiescence to the socialist/fascist sympathies of the times. Remember his ultimatum to the Supreme Court over labor law rulings? I think there's a lot from that era which is ignored. Including how one man tap danced over the Constitution during an unprecedented 12 year administration.
Roosevelt didn't take office until 1933. During that time, the GDP dropped by over 25%, unemployment hit 33%, all while the Fed twiddled its thumbs and followed the Austrian tradition of not printing money just because there's an economic crisis. Roosevelt's swearing-in occured in the same month as the bottom in the DJIA.

Roosevelt did a number of un-libertarian things I'm not happy with, but he also got the fed to effectively print money and ended the banking panic- something that was desperately needed.

There were a lot of things that happened in 1929, but I think the biggest was that we had a panic at right around the same time that the world ran out of enough gold to run the global economy- we were stuck in this cycle of the velocity of money contracting but us not being able to print any money to simply keep the dollar's purchasing power from growing too fast. This ultimately drove layoffs, bartering, and a general lack of money. Had we not printed more money, we would have gone back to a 1914 velocity of money, a 1914 money supply, and a 1914 GDP/economy. Roosevelt was also wise to have the federal government spend some money on basic government infrastructure that would help reduce inflation in the future- effectively allowing the Philips curve to expand further out during the next economic boom.

Numbers don't always tell the whole story. The Depression hit hardest in the period from 36-40. It was in fact a different type of Austrian school that pulled America out of the Depression. The day an Austrian born Nazi fuhrer marched into Warsaw. Make no mistake about it, WW2 ended the Depression, not Roosevelt's welfare state.

 
Midas Mulligan Magoo:
Numbers don't always tell the whole story. The Depression hit hardest in the period from 36-40. It was in fact a different type of Austrian school that pulled America out of the Depression. The day an Austrian born Nazi fuhrer marched into Warsaw. Make no mistake about it, WW2 ended the Depression, not Roosevelt's welfare state.
I'm not sure I agree with the first statement- things were pretty awful in 1932-33. I agree with the second. WWII drove most printing presses throughout the world even faster- which contributed to an even greater money supply. That money supply- and the economic output for a war- even if it was manufactured goods going off to get shot to pieces on the battlefield- was what ended the Great Depression.

Roosevelt's welfare state didn't end the Great Depression if you define it as ending when nominal or real GDP eclipsed 1929, but I think most reasonable people will agree that the FDIC and the foundation for Bretton Woods with a US currency policy were major components of the recovery. We can argue about what actually got us out of the Great Depression, but I think everyone will agree that it would have been impossible to get out on a 1929 gold-based currency supply- unless we wanted to try and run the country on barter.

 
<span class=keyword_link><a href=//www.wallstreetoasis.com/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
Well, will war drive us out of this depression as well?

I don't want to delve into the conspiracy theory direction. But if you analyze certain aspects of our foreign policy post Cold War it would seem that there are those who are very interested in seeing such a scenario. For my money, it's the only thing that can guarantee growth and a long term financial standard we've grown accustomed to.

The one thing I have yet to touch on yet in my discussion with Illini is that I am still not sure we ever recovered from the Depression, so much as the whole world was so ravaged that it was a case of "us adding via the entire world's subtractions".

War has always been a key economic tool. Not enough discussion about that in Macro 101. This is the principal reason empires invade...but let's not go Animal Planet...yet:)

 

An intelligent economic discussion.... Wtf?

At any rate, all of this maybe mute because it all requires political will and sacrifices that the coming generations of "me's" may simply not understand or be willing to make. I spoke to a senior economist at one of the biggest mf companies about this and it seemed like they still all prayed on an orderly cleansing that was depending on political will.

A wishful hailmary at the end of the game, however, generally results in an interception not a touchdown.

Midas uses the proper words here "We have all grown accustomed too". Entitlement is a killer.

 
Czech-yo-premiz:
An intelligent economic discussion.... Wtf?

At any rate, all of this maybe mute because it all requires political will and sacrifices that the coming generations of "me's" may simply not understand or be willing to make. I spoke to a senior economist at one of the biggest mf companies about this and it seemed like they still all prayed on an orderly cleansing that was depending on political will.

A wishful hailmary at the end of the game, however, generally results in an interception not a touchdown.

Midas uses the proper words here "We have all grown accustomed too". Entitlement is a killer.

Damn straight; unless you are on a college campus, you will have difficulty debating economics with anyone. Politics and popular economics appeal to the lowest of the low.

I am not cocky, I am confident, and when you tell me I am the best it is a compliment. -Styles P
 
Czech-yo-premiz:
An intelligent economic discussion.... Wtf?

At any rate, all of this maybe mute because it all requires political will and sacrifices that the coming generations of "me's" may simply not understand or be willing to make. I spoke to a senior economist at one of the biggest mf companies about this and it seemed like they still all prayed on an orderly cleansing that was depending on political will.

A wishful hailmary at the end of the game, however, generally results in an interception not a touchdown.

Midas uses the proper words here "We have all grown accustomed too". Entitlement is a killer.

Damn straight; unless you are on a college campus, you will have difficulty debating economics with anyone. Politics and popular economics appeal to the lowest of the low.

I am not cocky, I am confident, and when you tell me I am the best it is a compliment. -Styles P
 

BROTHERBEAR JUMPS INTO THE MIDDLE OF THE DEBATE

He kicks IlliniProgrammer straight in the ball bag and reminds him that it is 'Capitol Hill' with a fucking 'o.'

He confuses Edmundo with a woman due to his large breasts and French lifestyle, and chooses to keep his pimp hand strong.

He then karate chops the hell out of Midas Mulligan Magoo. Magoo--too fast for Brotherbear--manages to spin away, bringing a roundhouse kick to Brotherbear's face. Brotherbear has a special immunity to roundhouse kicks (owing, of course, to his decendency from Chuck Norris), and counters with a Street Fighter-style, Sagat 'tiger uppercut' to Magoo's face. The crowd then taunts Magoo shouting, "IN THE FACE!"

Out of nowhere, Goro appears and screams, "MORTAL KOMBAT!' Not understanding the situation, Brotherbear's roommates chorus 'FINISH HER!' Confused by the odd sexual reference, Goro leaves himself open for a Johnny Cage ball bag smash.

Brotherbear manages to diffuse the debate, school IlliniProgrammer, and win the original Mortal Kombat title in one post.

USA! USA! USA!

 
brotherbear:
BROTHERBEAR JUMPS INTO THE MIDDLE OF THE DEBATE

He kicks IlliniProgrammer straight in the ball bag and reminds him that it is 'Capitol Hill' with a fucking 'o.'

He confuses Edmundo with a woman due to his large breasts and French lifestyle, and chooses to keep his pimp hand strong.

He then karate chops the hell out of Midas Mulligan Magoo. Magoo--too fast for Brotherbear--manages to spin away, bringing a roundhouse kick to Brotherbear's face. Brotherbear has a special immunity to roundhouse kicks (owing, of course, to his decendency from Chuck Norris), and counters with a Street Fighter-style, Sagat 'tiger uppercut' to Magoo's face. The crowd then taunts Magoo shouting, "IN THE FACE!"

Out of nowhere, Goro appears and screams, "MORTAL KOMBAT!' Not understanding the situation, Brotherbear's roommates chorus 'FINISH HER!' Confused by the odd sexual reference, Goro leaves himself open for a Johnny Cage ball bag smash.

Brotherbear manages to diffuse the debate, school IlliniProgrammer, and win the original Mortal Kombat title in one post.

USA! USA! USA!

Best thing I've read since I last proofread myself. But you couldn't use the sack smash on Goro, 'cause dat foo had no nuts, he'd just grab your JCVD lookin' azz and play door-knocker on your grizzly grill.

Thanks for the

, now back up...didn't you see my quarter up against the screen?!?!?!

 

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Dolor non et dolores sequi praesentium quisquam accusantium dolorem. Architecto vel ut facilis quia excepturi molestiae veritatis. Sed culpa amet quod et debitis veritatis voluptatem. Voluptatem praesentium quia vel provident sit ratione in. In voluptatibus eos eum possimus dolore quasi consequatur. Pariatur unde quod provident voluptate quia voluptatem quia. Quibusdam consequatur vero iste autem porro animi asperiores quam.

I am not cocky, I am confident, and when you tell me I am the best it is a compliment. -Styles P

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