You can fool some people some of the time

Posted by Ray on November 8, 2010 under Main | Be the First to Comment

I believe what the Federal Reserve has begun was completely idiotic and unnecessary which will ultimately hurt the majority of the American people. However, many economists disagree with what I just said. I guess you can fool the people sometimes, but economists can be fooled all of the time. Part of economist’s problem, and why they are so horrible at predicting things, is because they live inside of models and rarely look up. They are also way overpaid for what they do which adds more of a problem with their theories since higher prices do not impact them as fast as it impacts 80% of Americans who live paycheck to paycheck.

Paul Krugman is one of those people who has been far more wrong than right, but for some reason people still listen to him, odd, really, really odd. Mr. Krugman has taken aim at Jim Rogers recently claiming that inflationist’s have gotten the last few cycles’ dead wrong. Really? So, oil going from $50 to $147 never happened. Gold rising to new highs isn’t happening. Food prices going ballistic did not happen then and is not happening now, sure, whatever. The fact is that prices, including food and energy, have moved higher this year and before the collapse of 2008, but Krugman says that did not matter… why do people read him?

It is my opinion that higher food and energy prices helped collapse the system in 2008. As prices rose people diverted more money to the things they needed the most, food and heat which took away from our consumption oriented GDP. After the collapse began we saw these prices ease, a lot, and GDP did pick up after the crossing point was reached. Of course, government intervention helped and many people simply stopped paying much of their debt which has helped GDP since now one cannot pay their bills, not lose their home and now needed a new Kindle or iPad. Now we have rising commodity prices again, but no one seems to think this is bad news. Well, it is.

While mainstream economists talk about “sticky” CPI, excluding food and energy while concentrating on wage inflation as the sole indicator of inflation proves that most economists have lost their minds. Wage inflation does not have to come before food and energy inflation, I am not sure why anyone thinks this is always the case, and if we look back at 2008 we see a similar situation, rising commodities and flat to lower wages. This is a major red flag, but most mainstream economists don’t care. These economists look at me or a Jim Rogers and assume we do not have a clue about what we are talking about. The do not seem to understand that an economy can go from deflation/disinflation to inflation overnight, it happened in Germany. Maybe they are right, but at the same time they are so devoid of reality it is not even funny.

To think food and energy prices do not matter to people is idiotic. It is the same as saying fish can live fine out of water as long as they can hold their breath long enough. With money being diverted to $4 gas or $5 loaves of bread it is clear that we will continue to have deflation in color TV’s which means economists will not see any inflation, anywhere. This is a common sense issue which might fool Wall Street people into believing everything is fine, but Main Street, well, Main Street is not quite that stupid. They know $4 a gallon gas and $5 loaves of bread is bad news. They know that those iPads will be out of reach when a greater portion of their incomes are moving towards those unimportant things… like eating. This is bad news for the economy.

I have no illusions, the market will go up and economists will demand more QE because it is “working”, but this policy is not benefiting Main Street, it is killing it. More and more investors are moving out of stocks which negates the “wealth effect” of magical 9% S&P gains which are based on pure liquidity and not fundamentals. While stocks will move higher I am betting silver and gold will continue to outperform, along with other commodities. This is a catch 22 to the Fed because higher commodity prices is bad for the people, but good for GDP growth, even though it is imaginary growth, but that doesn’t seem to matter as long as the politicians are happy. So much for an independent Fed.

I think the recent views and writings of major economists have proven that they are completely worthless. To think intentionally driving the prices up for the basic essentials in life with high unemployment and flat incomes is barbaric. The worst part is economists all say this is a good thing, what world do they live in? We might get wage inflation out of this at some point, but it will be after price inflation is in full swing and major damage is done to the consumer. I also have no idea how the Fed can reverse this latest policy decision without blowing itself up, I actually believe this is now a permanent policy the Fed is following, just like Zimbabwe.
The biggest question is will Tim Geithner and Ben Bernanke be impeached for lying to Congress when they said they would not monetize the national debt? They should be, the last I checked lying to Congress was frowned upon, but we do now live in bizzaro world.

The Fed is doing everything I feared it would do and they are inflating the country out of its debt, they say they are not, but what credibility can they possibly carry with the people now? On top of that, their actions speak louder than words. When you are intentionally trying to create inflation and write an op-ed about it that makes it harder to say we are not trying to inflate our way out of our trillion’s in debt. Everyone can see what is happening and when Brazil is giving you a smack down, as well as Russia, man, you got problems.

As far as economists, perhaps they should be put on a salary that mirrors the national average in their respective areas so they can understand how higher commodity prices really impact the people. It is easy to say higher prices don’t natter when you make high 6 or 7 figure salaries for playing with computer models, but on a modest 5 figure salary I bet they will see things differently. I am not one of those ‘social justice’ people, but in this case I might make an exception since they are all being complacent in one of the greatest snow jobs ever given to the people. This will do nothing for the people other than create misery and it certainly will not improve the image of Wall Street. We are not a banana republic because we voted in Republican. We are a banana republic because we have idiots in charge of our monetary policy. Stay long commodities.

You must remember this period of time

Posted by Ray on June 29, 2010 under Economy | Be the First to Comment

All the talk about the double dip recession is being blamed on not enough stimulus, but that is not true since there is a lot of money being spent right now because of the stimulus. The final spending of the stimulus funds will end this year, right near the elections ironically enough, but it is clear it did not work. We now have Paul Krugman out railing about a deflationary depression because governments are cutting back stimulus efforts. My question to him is, if stimulus is the answer and we are spending it now why are we seeing disinflationary forces? His excuse does not hold water. It is the massive government intervention that is causing the problems, not a lack of stimulus, but too much stimulus.

I am in disbelief how anyone could not have seen these problems coming, the signs were everywhere. Employment was the best indicator, but look at money velocity, what you can piece together at least, and declining credit combined with higher foreclosures, bankruptcies and weak retail sales it is clear as day that at best we stabilized at less bad and at worst we are heading for really tough times. This is not something I wanted to happen I think you would be hard pressed to find anyone wishing pain and suffering on anyone, but the signs were all there. Not to mention the implications of Europe tightening its belt and trying to force China to revalue its currency, talk about insanity, we took it to the next level.

So, Krugman may be right and we may have a deflationary depression, but I am sure it will last for only a little while. Because Bernanke will not stand for a deflationary depression, which is ironic considering Ben is the Great Depression expert and he is creating another one, and he will print our way out settling for an inflationary depression. The unfortunate part is Mr. Krugman has the reasons wrong for the depression we are in and he doesn’t seem to understand that you cannot cure debt problems with more debt, it just doesn’t work. Our debt is so large that is will now be a complete drag on GDP which means lower growth, the new normal anyone? Again, his reasoning is flawed because we just spent $1T, give or take between all the programs, on stimulus and we are not even done spending and he is calling this a deflationary depression because there is no stimulus? Maybe he likes to confuse the less informed or something, but talk about being wrong, wow.

My point is that you need to remember today, what is going on, the money that is being spent, what politicians are saying and blaming because they will, whichever party, will point to right now saying we should have done more or we should have done less. The fact of the matter is we are doing both, stimulus is declining and we are not adding more to it, and keep in mind that the data we are all looking at is still coming from April or May when much more money was being spent. All that data, even further back then April, is also showing significant decline in economic activity when the stimulus was running full speed ahead. To clarify, just because the spending is slowing now don’t blame the negative data on that since the data was generated prior to the slowdown in stimulus spending. Furthermore, employment never recovered or even showed significant improvement given the price tag.

Will the decline of stimulus spending hurt? Yes, a lot, but it needs to stop somewhere. The problem with the stimulus is that it is cruel because it extends the bad periods much longer than they should have lasted by blocking the markets from finding a true bottom. The more you spend, the more it distorts reality and lures people into a false sense of security, but when it stops the real pain begins because those fooled may have to lay more people off and readjust for a post stimulus world. So not only do the long-term unemployed receive the proverbial shaft, but newly hired employees may also receive the same treatment after they thought they caught a break.

Right now you can see what worked and what did not, but in a few months many might not remember. They may point to the 5.6% GDP print and say remember how good things were then? Well, they weren’t that good to the unemployed or those in bankruptcy or losing their homes, but that is how it will e framed and there will be cries for more stimulus. Those cries must be rejected and the only government stimulus that must continue is unemployment insurance. You cannot dump millions of Americans who are not unwilling to find a job it is that no jobs exist for them.

We tend to have very short memories and forget things quickly because of who knows what, I blame TV. You cannot forget what is happening right now because if you do they might talk you into another round of stimulus or God knows what else. We are in trouble, I know this, but we tried Krugman’s way and it failed, let’s give it the “let’s not give it the college try” and see what happens. Besides all of that, we simply cannot afford more spending especially for mediocre results, I am being generous here. While Krugman is grabbing the headlines for using the “D” word, let’s not forget I started using the term depression months ago based on the employment figures, food stamp numbers and the way foreclosures and bankruptcies were growing because I was paying attention and not traveling to my vacation house in the tropics unlike some BY Times economist.

Cit Group

Posted by Ray on July 14, 2009 under Main | Be the First to Comment

We talked about Cit last week and the issues they face moving forward. Clearly the firm is in trouble and as soon as their $2B line of credit is used up they will have to either raise cash or get help from the Fed or government. Geithner said yesterday that he is watching the situation and indicated that the government is in a position to help if need be, well that is what I got out of the comments.

Regardless, we knew their were problems and this should not be a surprise for investors. The big question is should the government intervene? I do not think so at this stage. I know it is painful and investors could loose big time, but it is the way the market needs to sort through those who can survive and those too weak to survive.

We cannot continue to bailout every firm that “needs” it. Frankly, bailing out everyone is not possible and we the people have not received any benefit from these bailouts. Interest rates have increased, minimum payments on credit cards increased, costs for goods and fees have goner dramatically up and we are making less. These bailouts are for business, not the people.

So much for change and hope we were promised by the president.

Bank of Japan

Posted by Ray on July 7, 2009 under Main | Be the First to Comment

The BOJ is extending emergency credit to companies, I guess this is a green shoot? The problems are still here and they are global. Japan was in rough shape, but they were still better off than we were before this thing started. Regardless, more intervention from governments will not help. Bloomberg story Below:

Bank of Japan Considers Extending Credit Policies (Update3)

By Masahiro Hidaka and Mayumi Otsuma

July 8 (Bloomberg) — The Bank of Japan may extend its emergency-credit programs as soon as next week as policy makers await evidence that banks are increasing lending to companies.

Officials may want to decide on the matter months before the programs expire at the end of September to quell any speculation they’re ready to scale back their efforts, said Masaaki Kanno, who worked at Japan’s central bank from 1974 to 1999 and served as a senior adviser on research and statistics. The Bank of Japan’s board next meets July 14-15 in Tokyo.

The debate reflects concern that the world’s second-biggest economy will struggle to emerge from its deepest postwar slump, and is a contrast from the U.S., where the Federal Reserve has already taken steps toward ending emergency-credit measures. BOJ Governor Masaaki Shirakawa this week said many companies are still struggling to borrow, after the bank’s quarterly Tankan survey last week showed access to credit remains constrained.

“Policy makers may conclude the bank had better decide on the extension this month if they need to do so anyway,” said Kanno, who is now chief economist in Tokyo at JPMorgan Chase & Co. “Making such an announcement in July can work as an anchor to prevent premature speculation about an exit policy.”

The Bank of Japan started purchasing commercial paper and corporate bonds this year, after lowering the overnight lending rate to 0.1 percent in December. Policy makers also offered unlimited loans to commercial banks at 0.1 percent in exchange for approved collateral. The three programs are scheduled to expire on Sept. 30.

Tankan Report

The Bank of Japan’s Tankan report showed on July 1 that the nation’s largest companies still consider their access to financing at close to the lowest level on record, and small firms perceived banks as reluctant to lend. Lending growth at Japanese banks slowed in June for a sixth straight month, a report showed today.

The Tankan also showed businesses plan deeper spending cuts than three months ago. Large firms estimate profit will fall 20 percent this year, almost twice the March forecast.

Another report today showed that machinery orders unexpectedly fell 3 percent in May from April, as sliding profits forced companies to cut spending on plant and equipment. The median estimate of 25 economists surveyed by Bloomberg was for a 2 percent increase.

The Nikkei 225 Stock Average dropped 1.9 percent at 10:02 a.m. in Tokyo. The yield on the benchmark 10-year bond fell two basis points to 1.285 percent, the lowest in more than three months.

Policy Makers

Bank of Japan policy makers have said they aren’t confident yet whether a recent rebound in exports and output will be sustained.

“The Tankan results turned out to be worse than expected, and there are no reasons in sight to be optimistic about the economy’s outlook,” said Teizo Taya, a former central-bank board member and now adviser to the Daiwa Institute of Research in Tokyo. “There is no merit for the Bank of Japan to adopt an exit policy too early.”

In the U.S., the Fed last month announced it will let one of its emergency-lending programs expire later this year, and trim two others.

Fed policy makers also said in their June 24 statement that they “currently anticipate that a number of these facilities may not need to be extended beyond February 1.” At the same time, they pledged to extend the terms of the remaining credit programs beyond February “as needed to promote financial stability and economic growth.”

Special Programs

Shirakawa said last month that Japan’s central bank will make a judgment on its special programs “by the end of September in a predictable manner to market participants” based on an assessment of the economy, financial markets and funding conditions for businesses.

“There is some speculation that the BOJ may want to be pro-active and indicate an extension of the programs rather than waiting for either next month or September,” said Marc Chandler, head of currency strategy at Brown Brothers Harriman & Co. in New York. “On balance, the BOJ most likely will have to extend the programs, probably until next March, but look for a decision in August, not next week.”

The Bank of Japan already extended the emergency-credit policies at its February board meeting, one month before the initial expiration date of March 31. That example led some analysts to anticipate the bank will again make its announcement a month before the expiration.

Gains Momentum

That view gained momentum in May after minutes of the BOJ’s April meeting showed one board member said the bank should consider ways to unwind the emergency measures should the economy recover in line with the bank’s forecast.

Board member Atsushi Mizuno said in May that it’s necessary for the bank to have discussions on how to unwind the emergency steps even while the global economy remains fragile.

There may not be much point in waiting, said Naomi Hasegawa, a senior bond strategist in Tokyo at Mitsubishi UFJ Securities Co.

“It’s not conceivable that environments for corporate financing will improve just over the next one month,” Hasegawa said. “Rather, tension in financial markets may rise” if the bank postpones its decision.

An early decision would also allow policy makers to avoid acting in the middle of a potential general-election campaign. Prime Minister Taro Aso, whose support fell below 20 percent in recent polls, has to call the vote by mid-September.

Story here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aLbuNJtGl6ZI