At this time of the year, I believe it's a requirement of writing a blog to post some predictions about the coming 12 months. Here's my try.
-The sun will come out tomorrow. Even if you subscribe to the most bearish, apocalyptic outcomes, know that the dust will eventually settle and mankind will move forward. It's probably important to remember that first. And often.
-The Europe situation will finally come to a head. My best guess is boatloads of money-printing by the ECB to try and keep the entity intact. I think it will lead to temporary relief, but not permanent.
-As the focus is then able to shift, I think the first cracks in Japan will start to emerge. It is my intention to get a position to capture some of that move. With my most likely focus on the currency.
-Gold's bull market is not over. Certainly not with all that's still wrong and how it will be "remedied". Accordingly, I think the $2,000 barrier will be crossed at some point during 2012.
-The stock market is a trickier call, with all the potential landmines out there. So, to keep it simple, but to put myself on the record, I think the S&P 500 will close higher on 12/31/12 than on 12/31/11 (or 12/30/11 for all the sticklers out there).
-The U.S. Treasury market will continue to be a beneficiary of the mess everywhere else in the world. So, while I think rates will eventually go substantially higher, this year is probably not that moment.
-We will see 2013. Despite what the Mayans think.
And with that, a happy new year to all. See you when the calendar turns.
Friday, December 30, 2011
Interesting Times Ahead
Bob Murphy poses a question to Paul Krugman and his acolytes, in this post, about their understanding of why the Euro Zone countries are under attack in the bond markets. Is it because of reckless government borrowing and debt levels (Murphy's and the Austrians' position) or because they don't issue debt in their own currency over which they have a monopoly (the Krugman position, using treasury rates in the U.S. and Japan as evidence)?
We have covered this ground before, and as I have remarked I think the reliance on what's going on in the debt markets in Japan (and elsewhere) is misplaced and potentially fatal. Kyle Bass makes a compelling case that either the bond markets or the currency in Japan will fall eventually (he says in the next couple of years). Layer in the Bill Fleckenstein insight, that markets only seem to be able to focus on one thing at a time, and it's logical that the rest of the world has seemingly peaceful debt markets as Europe plays itself out.
In any event, these contrasting positions is what makes markets, but I actually think we'll get a convincing answer this time. Either Japan (and the U.S.) will eventually face the music or not. I fall more into the Bass/Fleckenstein camp, but I also know that there is no rush to stake a position one way or the other yet.
We have covered this ground before, and as I have remarked I think the reliance on what's going on in the debt markets in Japan (and elsewhere) is misplaced and potentially fatal. Kyle Bass makes a compelling case that either the bond markets or the currency in Japan will fall eventually (he says in the next couple of years). Layer in the Bill Fleckenstein insight, that markets only seem to be able to focus on one thing at a time, and it's logical that the rest of the world has seemingly peaceful debt markets as Europe plays itself out.
In any event, these contrasting positions is what makes markets, but I actually think we'll get a convincing answer this time. Either Japan (and the U.S.) will eventually face the music or not. I fall more into the Bass/Fleckenstein camp, but I also know that there is no rush to stake a position one way or the other yet.
Thursday, December 29, 2011
Around the Web
A couple of interesting pieces that I came across today:
-The following is the latest in a series by Lars Christensen that examines the components of inflation (supply versus demand) going decade by decade. Or in this case, the heyday of Volcker. I think it provides a useful way to measure whether loose money is the culprit in any given period.
-This article from The Economist mentions by name many of the bloggers who I peruse daily. And implicitly makes the very valid observation that too many of these folks are emotionally invested in their schools of thought.
And, finally, for anyone who follows the gold market, the price action is flirting with a break below the long term trend line. We've been here before. To repeat myself, again, the fundamentals have not changed. But, that doesn't promise us anything in the near term.
-The following is the latest in a series by Lars Christensen that examines the components of inflation (supply versus demand) going decade by decade. Or in this case, the heyday of Volcker. I think it provides a useful way to measure whether loose money is the culprit in any given period.
-This article from The Economist mentions by name many of the bloggers who I peruse daily. And implicitly makes the very valid observation that too many of these folks are emotionally invested in their schools of thought.
And, finally, for anyone who follows the gold market, the price action is flirting with a break below the long term trend line. We've been here before. To repeat myself, again, the fundamentals have not changed. But, that doesn't promise us anything in the near term.
Ugly New York
I'm not sure why I'm posting about this, but here goes.
I got onto the subway this morning, and upon leaving the station there was a slight commotion in my car. For those familiar with the set-up of the 1 train, I had entered through the middle sliding door, and the incident in question happened closer to the side sliding door. In any event, by commotion, all it amounted to was hearing someone say "Sorry" in a sort of stunned fashion. When I looked up, I saw what I can only describe as a guy who looked a little bit out of it (whether that means drugs, booze or just being loopy, I'm not sure) sitting there, with an empty seat on each side of him. And he was shooting dirty looks up at the people standing by the door, but not doing much else. (As I found out after the fact, he had been lying across three seats and someone told him to get up.)
Anyway, at the next station, I watched get him up and yell "Get the fuck out of my way!". He got off the train and turned around to start yelling at the people standing on the train by the door, to which they reciprocated in kind. He finally stormed off, the doors closed and the train started to pull out of the station. I had a feeling he wasn't done, so of course I watched to see what he would do when we passed him further ahead on the platform, and on cue he lunged at the train to smack the window. Except after hitting the window, he fell.
The train kept going, my particular car was now inside the tunnel, but it suddenly came to a screeching halt. And we heard an announcement that there was a passenger injury. A few minutes later we heard that the train was out of service and the people in the front few cars, where I was, needed to walk back so they could exit. After being in a standstill for about 7 minutes, we finally started to move back towards the station, when firefighters entered our car and told us we needed to stop. The man I had seen had fallen onto the tracks and been dragged into the tunnel. And he was essentially right outside the car where I was standing, underneath the train. Another few minutes passed, they managed to get him up onto the platform, and I continued walking back and was able to exit the train right where a phalanx of firefighters and police officers had formed around him so we (innocent bystanders) did not need to see the grisly results.
I am relieved to say that I saw on the NY Post website that he survived. Still, it is this sort of unpleasant thing that can only happen in New York. And while I grew up here and it's all I know, I also realize that the risk of encountering the crazy guy on the train, or some other unexpected danger, could be right around the corner.
I got onto the subway this morning, and upon leaving the station there was a slight commotion in my car. For those familiar with the set-up of the 1 train, I had entered through the middle sliding door, and the incident in question happened closer to the side sliding door. In any event, by commotion, all it amounted to was hearing someone say "Sorry" in a sort of stunned fashion. When I looked up, I saw what I can only describe as a guy who looked a little bit out of it (whether that means drugs, booze or just being loopy, I'm not sure) sitting there, with an empty seat on each side of him. And he was shooting dirty looks up at the people standing by the door, but not doing much else. (As I found out after the fact, he had been lying across three seats and someone told him to get up.)
Anyway, at the next station, I watched get him up and yell "Get the fuck out of my way!". He got off the train and turned around to start yelling at the people standing on the train by the door, to which they reciprocated in kind. He finally stormed off, the doors closed and the train started to pull out of the station. I had a feeling he wasn't done, so of course I watched to see what he would do when we passed him further ahead on the platform, and on cue he lunged at the train to smack the window. Except after hitting the window, he fell.
The train kept going, my particular car was now inside the tunnel, but it suddenly came to a screeching halt. And we heard an announcement that there was a passenger injury. A few minutes later we heard that the train was out of service and the people in the front few cars, where I was, needed to walk back so they could exit. After being in a standstill for about 7 minutes, we finally started to move back towards the station, when firefighters entered our car and told us we needed to stop. The man I had seen had fallen onto the tracks and been dragged into the tunnel. And he was essentially right outside the car where I was standing, underneath the train. Another few minutes passed, they managed to get him up onto the platform, and I continued walking back and was able to exit the train right where a phalanx of firefighters and police officers had formed around him so we (innocent bystanders) did not need to see the grisly results.
I am relieved to say that I saw on the NY Post website that he survived. Still, it is this sort of unpleasant thing that can only happen in New York. And while I grew up here and it's all I know, I also realize that the risk of encountering the crazy guy on the train, or some other unexpected danger, could be right around the corner.
Ouch
At halftime, I thought the title of this post was going to be "2-0". The Knicks were only up 6, and they were playing very sloppy, but they seemed to be in control. Then a few minutes into the third, momentum shifted. And the fourth was simply a bloodbath. Where to start. Amar'e and Carmelo didn't have the shot going, but neither decided to take it down low and draw fouls and get their points that way. Chandler was in foul trouble all game, so there was no intimidator (at least he'll be well rested for the Lakers game). Point guard has been elevated from concern to genuine problem. Toney Douglas is a liability -- he's a 2 in a 1's body, and a shooter, but not so often a maker. Landry Fields had flashes, but just as many turnovers.
The only bright spot was Billy Walker's offense off the bench. And Jerome Jordan showed enough in his few minutes to deserve more time spelling Chandler going forward.
At the end of the day though, this team lacks an orchestrator. We knew that going in, but it has simply been blatant through two games. I think Baron Davis will be the answer. But, it will be rough in the mean time.
The only bright spot was Billy Walker's offense off the bench. And Jerome Jordan showed enough in his few minutes to deserve more time spelling Chandler going forward.
At the end of the day though, this team lacks an orchestrator. We knew that going in, but it has simply been blatant through two games. I think Baron Davis will be the answer. But, it will be rough in the mean time.
Wednesday, December 28, 2011
Lebron
The popular pick to win the NBA title is Miami. And through two games, I can understand why. They seem to resemble a team much more this season, as is usually the case with any group of players that gets time together and has a setback like last year's Finals to bounce back and learn from. Still, my own pick has not changed; I outlined the argument in my last post. Instead, I want to elaborate on it a little bit, in light of what I hear from the TV broadcast and studio teams covering the Heat games.
For starters, and as a tangential point, any suggestion that the combo of James/Wade resembles the defensive prowess of Jordan/Pippen is laughable. We always want to frame what's happening now as better than anything that came before. And we do a disservice to the past.
But, back to focus, given the way Lebron has played so far, there is a major improvement on display -- namely, that he is spending more time on the low block. Particularly if his jumper is not dropping. So, if this game-changing transition is really happening, it begs the question, what does it take to stop him? And, for the most part, I think people are paying attention to the wrong end of the court.
To wit, Deshawn Stevenson (currently with the Nets, formerly of the Mavs, Wizards, etc.) has been coined a "Lebron-Stopper". Given Lebron's struggles in the Finals last year, perhaps it is even deserved too. But, if Lebron really has decided to use his advantages on the block, there is no single defender who will be able to do much with him anymore. Which is why the the only way to stop Lebron is by putting him up against someone who is just as adept as he is on the offensive end. And either he gets himself into foul trouble, or his offensive contributions are netted out on the other end by his counterpart. From my seat, there are maybe two guys in the league who present that challenge to him. And one of them plays for the Knicks.
Anyway, the Heat have looked impressive in transition, have an interesting rookie named Norris Cole, and seem to understand what their strengths are as a team. Still, I continue to believe that the Knicks match up well with them. And if they can end up with anyone resembling a point guard this year (I still have faith in Baron), then I remain very comfortable with my prediction.
For starters, and as a tangential point, any suggestion that the combo of James/Wade resembles the defensive prowess of Jordan/Pippen is laughable. We always want to frame what's happening now as better than anything that came before. And we do a disservice to the past.
But, back to focus, given the way Lebron has played so far, there is a major improvement on display -- namely, that he is spending more time on the low block. Particularly if his jumper is not dropping. So, if this game-changing transition is really happening, it begs the question, what does it take to stop him? And, for the most part, I think people are paying attention to the wrong end of the court.
To wit, Deshawn Stevenson (currently with the Nets, formerly of the Mavs, Wizards, etc.) has been coined a "Lebron-Stopper". Given Lebron's struggles in the Finals last year, perhaps it is even deserved too. But, if Lebron really has decided to use his advantages on the block, there is no single defender who will be able to do much with him anymore. Which is why the the only way to stop Lebron is by putting him up against someone who is just as adept as he is on the offensive end. And either he gets himself into foul trouble, or his offensive contributions are netted out on the other end by his counterpart. From my seat, there are maybe two guys in the league who present that challenge to him. And one of them plays for the Knicks.
Anyway, the Heat have looked impressive in transition, have an interesting rookie named Norris Cole, and seem to understand what their strengths are as a team. Still, I continue to believe that the Knicks match up well with them. And if they can end up with anyone resembling a point guard this year (I still have faith in Baron), then I remain very comfortable with my prediction.
Saturday, December 24, 2011
NBA Forecast
The season starts tomorrow, so let's get to it.
The Knicks are going to win the title this year (with requisite disclaimers and caveats to follow). There are really 7 or 8 contenders, but New York is definitely in that mix (at long last). And for reasons that I will discuss, I think they are the ones that emerge in the end.
To be clear, they will not have the best regular season record, much less the best record in the Eastern Conference -- I think that Chicago and Miami (in some order) will take those mantles. Nevertheless, by the time the playoffs roll around, such details won't matter.
What are the things to consider?
1) Baron Davis -- To my thinking, he is the ultimate "X" factor in the league this year. If he recovers from his back injury (a mysterious one at that), the Knicks got an absolute steal. (In a rare instance of subscribing to the conspiracy theory, I actually think his agent played up how long he would be out in order to steer him to the Mecca.) His history is interesting, as he truly does play to his surroundings. When the team around him is mediocre to bad, and the arena is lifeless, he just goes through the motions. When he's with a contender, and the fans are a palpable sixth man, he can be unstoppable. In New York, with this team, at MSG, I think we get good Baron; actually, I think we get really good Baron. And therein lies the solution at point guard for this team.
2) Injuries -- This season is a 66 game sprint. Hardly any rest or practice, so whoever rolls into the playoffs the healthiest will have a decided advantage. And here's where the D'Antoni factor kind of scares me. The other night after the Nets game, he said it was likely he would use a 10 or 11 man rotation. Gosh, I hope so. Because, given that he's in the last year of his contract, I am terrified that he will run Amar'e into the ground to save his own hide. I will take him at his word for now.
3) Defense -- Tyson Chandler is a difference maker. Not just that he is a defensive presence in his own right, but it's clear already that he is truly a leader in the locker room, and will hold everyone else accountable if they don't do their part...including Carmelo and Amar'e.
4) Shooting Guard -- After the first preseason game, I might have gotten a little bit ahead of myself with Iman Shumpert. He clearly has all the skills and the head to be a great player. But, after seeing his shot selection in the second game, it might take a little more time than I originally thought for him to find his groove. Nevertheless, I think the combo of Shumpert and Fields will be good enough. Landry seems ready to do all the things that need to be done when you're playing on the same court as Melo and Stat. I also think that the presence of Shumpert will drive him to be a better player. By the time the playoffs roll around, I expect one of them will have firmly established himself as a legit starting 2-guard in this league.
5) Carmelo Anthony -- I think he is going to be an absolute monster this year. Little known fact: he started out as a point guard, but when he grew to 6'8", he moved to forward. Nevertheless, the point is that he has point guard skills, and given that he will start the season as a point forward, I think he will be able to tear up opponents. He could very easily win the scoring title and have high single-digit rebound and assist averages. But, more than all of that, I think he has a chip on his shoulder when it comes to Lebron. He is one of the few players who simply shows no fear against him, and expects to get the better of the match-up every time they play. That's what I want in my best player.
6) Mid-Season Addition -- The team still has a $2.5MM exception, and I have a sneaking suspicion it will get used on one of the players stuck in China until February or March. Like Kenyon Martin.
As it relates to how the Knicks match up with the other top teams in the East, in a word: well. Particularly with the crew from South Beach. Melo always rises to the occasion against Lebron, and I think Amar'e is pissed as hell that anyone ever thought Chris Bosh was a better get than him last summer. Add in Tyson Chandler, who was a defensive menace against the Heat in the Finals, and things look pretty good. And that doesn't even mention that the Heat still have glaring holes at point guard and center (neither of which Eddy Curry is going to solve).
Anyway, to wrap this all up, let me digress for a moment. One blog that I really like a lot is The Altucher Confidential, written by James Altucher. His background is that of a investor, but that's hardly the point of his posts. Recently, he was talking about lessons he learned from playing poker, and got into something called the "conspiracy theory" -- essentially, it is the analysis of how many things have to happen in order for your desired outcome to occur (clearly a relevant concept for poker or chess). And to quote his example in extending the principle to real life, if you're in love with a married woman, who has three kids and lives 5,000 miles away, then three things have to conspire simultaneously in order for it to work out with her. A tall order. Well, in the context of prognosticating about eventual NBA champions, there could be some relevance also. Clearly, why I think the Knicks will win is predicated on certain contingencies and "if"s playing out in a certain way. But, in the context of sports, that's what usually ends up happening most seasons for at least one team...the eventual winner. And, I truly believe that this year is that year for New York.
Finally, if there is one area where I have ever shown the proficiency and qualities of an investor that I've been harping on lately, it is with the NBA. I love the Knicks, but I have never been unrealistic about their chances. I enjoyed the run to the Finals in '99, but I also knew there wasn't a chance that they would beat the Spurs without Ewing (whose injury in and of itself was what enabled them to make it to the Finals anyway, i.e., small, up tempo ball with Camby in the middle). I knew the Mavs would beat the Heat last year because they were the deeper, more complete team. My gut is usually pretty good about these things. And this year my gut is finally telling me what I want to hear.
So, miles to go, but tomorrow it begins.
The Knicks are going to win the title this year (with requisite disclaimers and caveats to follow). There are really 7 or 8 contenders, but New York is definitely in that mix (at long last). And for reasons that I will discuss, I think they are the ones that emerge in the end.
To be clear, they will not have the best regular season record, much less the best record in the Eastern Conference -- I think that Chicago and Miami (in some order) will take those mantles. Nevertheless, by the time the playoffs roll around, such details won't matter.
What are the things to consider?
1) Baron Davis -- To my thinking, he is the ultimate "X" factor in the league this year. If he recovers from his back injury (a mysterious one at that), the Knicks got an absolute steal. (In a rare instance of subscribing to the conspiracy theory, I actually think his agent played up how long he would be out in order to steer him to the Mecca.) His history is interesting, as he truly does play to his surroundings. When the team around him is mediocre to bad, and the arena is lifeless, he just goes through the motions. When he's with a contender, and the fans are a palpable sixth man, he can be unstoppable. In New York, with this team, at MSG, I think we get good Baron; actually, I think we get really good Baron. And therein lies the solution at point guard for this team.
2) Injuries -- This season is a 66 game sprint. Hardly any rest or practice, so whoever rolls into the playoffs the healthiest will have a decided advantage. And here's where the D'Antoni factor kind of scares me. The other night after the Nets game, he said it was likely he would use a 10 or 11 man rotation. Gosh, I hope so. Because, given that he's in the last year of his contract, I am terrified that he will run Amar'e into the ground to save his own hide. I will take him at his word for now.
3) Defense -- Tyson Chandler is a difference maker. Not just that he is a defensive presence in his own right, but it's clear already that he is truly a leader in the locker room, and will hold everyone else accountable if they don't do their part...including Carmelo and Amar'e.
4) Shooting Guard -- After the first preseason game, I might have gotten a little bit ahead of myself with Iman Shumpert. He clearly has all the skills and the head to be a great player. But, after seeing his shot selection in the second game, it might take a little more time than I originally thought for him to find his groove. Nevertheless, I think the combo of Shumpert and Fields will be good enough. Landry seems ready to do all the things that need to be done when you're playing on the same court as Melo and Stat. I also think that the presence of Shumpert will drive him to be a better player. By the time the playoffs roll around, I expect one of them will have firmly established himself as a legit starting 2-guard in this league.
5) Carmelo Anthony -- I think he is going to be an absolute monster this year. Little known fact: he started out as a point guard, but when he grew to 6'8", he moved to forward. Nevertheless, the point is that he has point guard skills, and given that he will start the season as a point forward, I think he will be able to tear up opponents. He could very easily win the scoring title and have high single-digit rebound and assist averages. But, more than all of that, I think he has a chip on his shoulder when it comes to Lebron. He is one of the few players who simply shows no fear against him, and expects to get the better of the match-up every time they play. That's what I want in my best player.
6) Mid-Season Addition -- The team still has a $2.5MM exception, and I have a sneaking suspicion it will get used on one of the players stuck in China until February or March. Like Kenyon Martin.
As it relates to how the Knicks match up with the other top teams in the East, in a word: well. Particularly with the crew from South Beach. Melo always rises to the occasion against Lebron, and I think Amar'e is pissed as hell that anyone ever thought Chris Bosh was a better get than him last summer. Add in Tyson Chandler, who was a defensive menace against the Heat in the Finals, and things look pretty good. And that doesn't even mention that the Heat still have glaring holes at point guard and center (neither of which Eddy Curry is going to solve).
Anyway, to wrap this all up, let me digress for a moment. One blog that I really like a lot is The Altucher Confidential, written by James Altucher. His background is that of a investor, but that's hardly the point of his posts. Recently, he was talking about lessons he learned from playing poker, and got into something called the "conspiracy theory" -- essentially, it is the analysis of how many things have to happen in order for your desired outcome to occur (clearly a relevant concept for poker or chess). And to quote his example in extending the principle to real life, if you're in love with a married woman, who has three kids and lives 5,000 miles away, then three things have to conspire simultaneously in order for it to work out with her. A tall order. Well, in the context of prognosticating about eventual NBA champions, there could be some relevance also. Clearly, why I think the Knicks will win is predicated on certain contingencies and "if"s playing out in a certain way. But, in the context of sports, that's what usually ends up happening most seasons for at least one team...the eventual winner. And, I truly believe that this year is that year for New York.
Finally, if there is one area where I have ever shown the proficiency and qualities of an investor that I've been harping on lately, it is with the NBA. I love the Knicks, but I have never been unrealistic about their chances. I enjoyed the run to the Finals in '99, but I also knew there wasn't a chance that they would beat the Spurs without Ewing (whose injury in and of itself was what enabled them to make it to the Finals anyway, i.e., small, up tempo ball with Camby in the middle). I knew the Mavs would beat the Heat last year because they were the deeper, more complete team. My gut is usually pretty good about these things. And this year my gut is finally telling me what I want to hear.
So, miles to go, but tomorrow it begins.
Friday, December 23, 2011
Inflation, I Tell Ya!
I just stopped by my local Jamba Juice in midtown. They no longer provide a free boost with my smoothie. And you can only guess about whether the price has gone down.
Tuesday, December 20, 2011
A Link and A Chart
First off, I found the following article about decomposing the 1970s inflation interesting.
Next up, I looked again at the S&P chart and identified an inverse head and shoulders, except this time it is a bigger formation that dates back to May, versus the recent post where I looked at a version that had come about over the past month and a half. My skepticism of technical analysis has grown, but it doesn't mean that it can't serve a purpose and provide a view into how some traders may be thinking about things. So, I leave it to the reader to make her own decision about its utility.
Next up, I looked again at the S&P chart and identified an inverse head and shoulders, except this time it is a bigger formation that dates back to May, versus the recent post where I looked at a version that had come about over the past month and a half. My skepticism of technical analysis has grown, but it doesn't mean that it can't serve a purpose and provide a view into how some traders may be thinking about things. So, I leave it to the reader to make her own decision about its utility.
Good Comment on Someone Else's Blog
On EconLog:
The first half of his statement is pretty funny too -- "stimulus has never driven a county into debt crisis," but certainly all the spending beforehand has.
Because he says "stimulus" instead of "government spending" he protects himself against making a ludicrous claim. But he's left with a meaningless statement -- of course "stimulus" that occurs as a suggested cure to a recession doesn't push the country into a debt crisis, it's a drop in the bucket compared to all the spending (which in retrospect seems like too much, because it is based on inaccurate revenue estimates) from before. It's like saying "of course that last laptop I bought didn't push me into bankruptcy, it was only 1000 dollars, and I owe $100k!"
Repeating a common theme in my posting lately, we see more hollow language from a preeminent economist. But I also like it because it speaks to the faulty profit/loss mechanism that goes into most government spending. So on that count as well, the stimulus didn't kill us, but it will probably make things even worse.
The first half of his statement is pretty funny too -- "stimulus has never driven a county into debt crisis," but certainly all the spending beforehand has.
Because he says "stimulus" instead of "government spending" he protects himself against making a ludicrous claim. But he's left with a meaningless statement -- of course "stimulus" that occurs as a suggested cure to a recession doesn't push the country into a debt crisis, it's a drop in the bucket compared to all the spending (which in retrospect seems like too much, because it is based on inaccurate revenue estimates) from before. It's like saying "of course that last laptop I bought didn't push me into bankruptcy, it was only 1000 dollars, and I owe $100k!"
Repeating a common theme in my posting lately, we see more hollow language from a preeminent economist. But I also like it because it speaks to the faulty profit/loss mechanism that goes into most government spending. So on that count as well, the stimulus didn't kill us, but it will probably make things even worse.
Monday, December 19, 2011
Odds and Ends
-What has gotten much attention lately is who predicted what and when. Resulting in the most obvious question (not really resolved, in my opinion) of who has gotten it right and should be listened to going forward. My personal take is that any theory of how to proceed that lacks a robust explanation of how we got here should have points deducted. Conversely, anyone who thinks he was correct on the front end, but has been making bad predictions now, should also spend some time in the penalty box. In relating this dichotomy to actual players, not surprisingly, I am referring primarily to the words and forecasts of economists and politicians -- as compared to investors, that stand to lose lots of money if they're too proud and stubborn to adjust as circumstances change.
Let me take you through an example. The Keynesian thinkers believe that not enough has been done in the realm of fiscal and monetary stimulus. So far, their view that interest rates would not rise, even with great expansion of the money supply, has been correct. Nevertheless, given the proclivity to prioritize the short-term over the long term, it is incredibly premature to claim victory. I say this, in part, because they lack a substantial coherence, to my thinking, in why we are in a recession / depression in the first place (I leave it to the reader to pick his preferred term), suggesting their remedies could cause more of the same problems again. In addition, I find it hard to argue that the general thrust of policy responses has not more closely resembled a Keynesian solution than one that calls for austerity, even if the Keynesians belly-ache that not enough is being done. It also is not terribly difficult to find evidence of these guys undecided as late as 2007 about whether a recession was coming. By contrast, the Austrian thinkers have a decent explanation of how the manipulation of interest rates and expansion of easy money caused the crisis, but they seem to lack any pro-active remedy (much to the chagrin of the mainstream) and have been woefully off in their call for hyper-inflation, much less an upward trend in interest rates.
My takeaway, as I continue to become more and more disenchanted with economics, or really economists, is that they seem to be playing a game of timing over accuracy. One guy's right now, the other guy will probably be right later. And what did either of them teach us along the way?
-Just got my copy of Fortune in the mail. It's the "Investor's Guide 2012" edition. To quote: "And commodities -- well, when you see gold being marketed everywhere, the game's pretty much over." Another year of upside guaranteed now :) They also say to stay away from treasuries. I agree, but not in the same way. I think yields will continue the move down as the Europe situation deteriorates. But that is far from a long-term endorsement -- in other words, they might make sense to rent, but certainly not to buy.
Let me take you through an example. The Keynesian thinkers believe that not enough has been done in the realm of fiscal and monetary stimulus. So far, their view that interest rates would not rise, even with great expansion of the money supply, has been correct. Nevertheless, given the proclivity to prioritize the short-term over the long term, it is incredibly premature to claim victory. I say this, in part, because they lack a substantial coherence, to my thinking, in why we are in a recession / depression in the first place (I leave it to the reader to pick his preferred term), suggesting their remedies could cause more of the same problems again. In addition, I find it hard to argue that the general thrust of policy responses has not more closely resembled a Keynesian solution than one that calls for austerity, even if the Keynesians belly-ache that not enough is being done. It also is not terribly difficult to find evidence of these guys undecided as late as 2007 about whether a recession was coming. By contrast, the Austrian thinkers have a decent explanation of how the manipulation of interest rates and expansion of easy money caused the crisis, but they seem to lack any pro-active remedy (much to the chagrin of the mainstream) and have been woefully off in their call for hyper-inflation, much less an upward trend in interest rates.
My takeaway, as I continue to become more and more disenchanted with economics, or really economists, is that they seem to be playing a game of timing over accuracy. One guy's right now, the other guy will probably be right later. And what did either of them teach us along the way?
-Just got my copy of Fortune in the mail. It's the "Investor's Guide 2012" edition. To quote: "And commodities -- well, when you see gold being marketed everywhere, the game's pretty much over." Another year of upside guaranteed now :) They also say to stay away from treasuries. I agree, but not in the same way. I think yields will continue the move down as the Europe situation deteriorates. But that is far from a long-term endorsement -- in other words, they might make sense to rent, but certainly not to buy.
A Revelation in Newark
In an effort to get way of ahead of myself, I think the Knicks can win the title this year. Specifically, Iman Shumpert really impressed me this weekend. Granted it was a pre-season game. Against the Nets. But, he showed all the skills that you like and a comfort level that belies his years. He could play the point or the shooting guard spot. He seems to have a nice outside shot. And he's an aggressive defender who is also 6'5". We'll see how this post looks in a few months time, but I'm putting it out there.
Friday, December 16, 2011
Thursday, December 15, 2011
Battles and Wars
Forgive me if this comes across a little jumbled, but I'm working my way through another objection that I have to certain economic talk. Essentially, I'm putting myself in the middle of another pissing contest between various heavyweights of the field from the perspective of a non-economist. So, caveat emptor.
One of the constant points of contention between these guys is who made the most prescient calls on the economy, bond rates, CPI, commodities, yadda yadda yadda. To a certain group who I will call the IS/LM Keynesians (it shouldn't be too hard to figure out who I'm referring to), they like to scold their ideological counterparts for predicting hyperinflation and high bond rates in the midst of a liquidity trap. But, it goes further, to the extent that certain well-known investors made the same call bearish call on bonds and interest rates, these Keynesian jokers like to say you'd have made more money following their advice than that of the paid professionals. And, if this was a sprint rather than a marathon, they could comfortably do their victory dance and go home.
But, think through the implications of that last bit. If you followed their lead, and got long treasuries in the past year or two, yes, you would have a capital gain on your investment. But, you'd also be losing purchasing power simultaneously on your coupon (just by comparing the yield on the 10-year against CPI, regardless of whether you think that is a meaningful measurement or not). Lest we forget, the virtue of fixed income is supposed to be the income piece, not the price appreciation on principal. When you then factor in the prescription that these Keynesians are offering -- tons of stimulus to jack up inflation and growth expectations -- they are ultimately giving terrible financial advice. To wit, those bonds will continue to pay the same lousy yield, but the principal component will get beaten down, so there is no longer any trade-off between capital appreciation on the one hand and lost purchasing power on the other. And these guys are not doling out advice through their blogs to professional investors who will know what to do and when to do it. Their readers will buy bonds, thinking they are the safest place to be, and a few years out, they will learn a very hard lesson.
So, caveat emptor indeed.
One of the constant points of contention between these guys is who made the most prescient calls on the economy, bond rates, CPI, commodities, yadda yadda yadda. To a certain group who I will call the IS/LM Keynesians (it shouldn't be too hard to figure out who I'm referring to), they like to scold their ideological counterparts for predicting hyperinflation and high bond rates in the midst of a liquidity trap. But, it goes further, to the extent that certain well-known investors made the same call bearish call on bonds and interest rates, these Keynesian jokers like to say you'd have made more money following their advice than that of the paid professionals. And, if this was a sprint rather than a marathon, they could comfortably do their victory dance and go home.
But, think through the implications of that last bit. If you followed their lead, and got long treasuries in the past year or two, yes, you would have a capital gain on your investment. But, you'd also be losing purchasing power simultaneously on your coupon (just by comparing the yield on the 10-year against CPI, regardless of whether you think that is a meaningful measurement or not). Lest we forget, the virtue of fixed income is supposed to be the income piece, not the price appreciation on principal. When you then factor in the prescription that these Keynesians are offering -- tons of stimulus to jack up inflation and growth expectations -- they are ultimately giving terrible financial advice. To wit, those bonds will continue to pay the same lousy yield, but the principal component will get beaten down, so there is no longer any trade-off between capital appreciation on the one hand and lost purchasing power on the other. And these guys are not doling out advice through their blogs to professional investors who will know what to do and when to do it. Their readers will buy bonds, thinking they are the safest place to be, and a few years out, they will learn a very hard lesson.
So, caveat emptor indeed.
More on Gold
Last night I focused mostly on the fundamental story. Today let's indulge the charts.
Given the recent carnage, it might be the case that you're missing the forest for the trees. Fair enough -- so let's step back then for the wider angle:
Given the recent carnage, it might be the case that you're missing the forest for the trees. Fair enough -- so let's step back then for the wider angle:
Recent Quotables
From Jim Rogers in Hot Commodities:
"...buy a house at the lake in a farm state...or in an oil and natural-gas area...or a mining state...where communities will benefit from the rising prices in metals, energy, and agricultural products."
From Capitalist Exploits:
"...real estate in a rapidly expanding economy offers arguably the best leveraged, risk reward setup to take advantage of the incredible growth taking place..."
"...buy a house at the lake in a farm state...or in an oil and natural-gas area...or a mining state...where communities will benefit from the rising prices in metals, energy, and agricultural products."
From Capitalist Exploits:
"...real estate in a rapidly expanding economy offers arguably the best leveraged, risk reward setup to take advantage of the incredible growth taking place..."
Wednesday, December 14, 2011
All That Glitters
By upbringing, I should hate gold. My father (the smartest guy I know) was burned by it in the early 80s. He wasn't alone. The net result was that he essentially disavowed it and the mere mention of it would cause him agita. And so I was predisposed to feel the same way. I remember moments in my younger years where I would actively route against it. Not quite rational I suppose.
But, that changed. Several years back, as it seemed like the world was ending, I set out to learn why. My research introduced me to thinkers (and investors) who had correctly anticipated what was happening, and could point to a string of mistakes by politicians and the ways in which central bankers had totally mangled things up. And, in appreciating those insights, I learned more about gold. The objective features that make it a compelling place to be, given what had happened and what was likely to come.
The fundamental story is not complicated. It is historically the true monetary asset: no one else's liability and limited in its supply by the constraints around mining it. Aristotle himself identified five traits that make gold money: durability, divisibility, consistency, convenience and value of itself. We know what politicians and central banks are liable to do. We know they prefer inflation and seem to think any form of deflation is bad. Even when mistakes are made, they choose to paper them over rather than deal with the political ramifications of letting events play out to their natural end.
So, when I watch the gold market get slaughtered, I hear pundits, commentators, economists and academics tell me that the great bull run is over. And, yes, while the chart may look a little ugly and banged up, I don't hear anything out of them that tells me how the fundamental story is different. The variables in play that first made it attractive to me several years ago are still there, perhaps moreso now than even then.
But, why is it going down if gold is the real shelter in the storm? In my mind, the reasons are three:
(1) Margin calls, in a levered paper market, where you can have a cascading effect as soon as panic sets in. Add to that, the US Dollar is still viewed as king (for the time being) since the printing press is always at the ready.
(2) Gold is one of the few profitable trades out there this year. As things get worse, the hedge funds, etc. want to lock in those rare winners.
(3) The chart looks like poop now and the artificial intelligence running some of the trading desks is telling everyone the same thing. Heck, by my own naked eye I've been talking about a head and shoulders pattern for a little while. If I can see it, trust me, so can Gig the Computer.
So, yeah, people are selling, and the scorn for gold is only going to be exacerbated for the most recent converts. But, I defy anyone to tell me what's changed in the world. I hear about austerity and I am simply puzzled. Where is it? Guys point to the U.K., but that country is still going to be running a deficit that's 8% of GDP a few years out. In the U.S., the conversation/debate between left and right is still about big deficits and even larger ones. When exactly did the definition of austerity change?
In the end, you own gold as protection. Which is why you take physical possession and avoid any type of leverage around your position. I say that objectively, not as some sort of nut who's stashed away canned goods and guns for Armageddon (the beauty of being an investor again). If I were betting (and I guess I have been for a while now), I think we are nearing the end of this bloodletting. The trend is still your friend. And the fundamentals are practically your best friend. I own it, I will continue to own it. And when the bull market is really over, I will move on.
But, that changed. Several years back, as it seemed like the world was ending, I set out to learn why. My research introduced me to thinkers (and investors) who had correctly anticipated what was happening, and could point to a string of mistakes by politicians and the ways in which central bankers had totally mangled things up. And, in appreciating those insights, I learned more about gold. The objective features that make it a compelling place to be, given what had happened and what was likely to come.
The fundamental story is not complicated. It is historically the true monetary asset: no one else's liability and limited in its supply by the constraints around mining it. Aristotle himself identified five traits that make gold money: durability, divisibility, consistency, convenience and value of itself. We know what politicians and central banks are liable to do. We know they prefer inflation and seem to think any form of deflation is bad. Even when mistakes are made, they choose to paper them over rather than deal with the political ramifications of letting events play out to their natural end.
So, when I watch the gold market get slaughtered, I hear pundits, commentators, economists and academics tell me that the great bull run is over. And, yes, while the chart may look a little ugly and banged up, I don't hear anything out of them that tells me how the fundamental story is different. The variables in play that first made it attractive to me several years ago are still there, perhaps moreso now than even then.
But, why is it going down if gold is the real shelter in the storm? In my mind, the reasons are three:
(1) Margin calls, in a levered paper market, where you can have a cascading effect as soon as panic sets in. Add to that, the US Dollar is still viewed as king (for the time being) since the printing press is always at the ready.
(2) Gold is one of the few profitable trades out there this year. As things get worse, the hedge funds, etc. want to lock in those rare winners.
(3) The chart looks like poop now and the artificial intelligence running some of the trading desks is telling everyone the same thing. Heck, by my own naked eye I've been talking about a head and shoulders pattern for a little while. If I can see it, trust me, so can Gig the Computer.
So, yeah, people are selling, and the scorn for gold is only going to be exacerbated for the most recent converts. But, I defy anyone to tell me what's changed in the world. I hear about austerity and I am simply puzzled. Where is it? Guys point to the U.K., but that country is still going to be running a deficit that's 8% of GDP a few years out. In the U.S., the conversation/debate between left and right is still about big deficits and even larger ones. When exactly did the definition of austerity change?
In the end, you own gold as protection. Which is why you take physical possession and avoid any type of leverage around your position. I say that objectively, not as some sort of nut who's stashed away canned goods and guns for Armageddon (the beauty of being an investor again). If I were betting (and I guess I have been for a while now), I think we are nearing the end of this bloodletting. The trend is still your friend. And the fundamentals are practically your best friend. I own it, I will continue to own it. And when the bull market is really over, I will move on.
Tuesday, December 13, 2011
"Variation is information."
The segment of the economic blogosphere that I follow has spent much time lately contemplating the Keynes/Hayek rivalry and each player's appropriate place in the history of macroeconomics. I am relatively new to all this stuff, so I don't feel comfortable trying to opine on the subject. Nevertheless, the following post by David Glasner triggered something, which got me to re-read an article by Nassim Nicholas Taleb and Mark Blyth, which I think well summarizes my general feelings about any recovery strategy that could be described as "Keynesian". With all of that out of the way...
The crux of Glasner's post is that Keynes and Hayek were not nearly as omniscient as Ralph Hawtrey in anticipating the Great Depression, so the back and forth by the disciples of each should be put to bed. Hawtrey, who could be described as a monetarist, identified that a return to the gold standard after World War 1 would result in a painful deflation, as monetary demand for the metal increased (note: Jim Rickards accepts this thesis in his book, but expands on it to suggest that the real problem was not actually the re-monetization of gold, but the decision to try and maintain the pre-WW1 exchange rate). Glasner notes the following:
"The measures agreed upon at the Genoa Conference prevented the monetary demand for gold from increasing faster than the stock of gold was increasing so that the world price level in terms of gold was roughly stable from about 1922 through 1928."
The virtue that Glasner points to, as a by-product of the conference that Hawtrey largely guided, is stability -- the quality often ascribed to the "Great Moderation" that began with Ronald Reagan becoming President. This, in turn, got me thinking about the Taleb article. For those not familiar, much of his work has dealt with how the move towards eliminating all volatility leads to "tail risks" -- low probability, high impact 100-year storm events. As Taleb notes in the article, there is a utility in market/price/asset movement and the goal should not be to remove it entirely, but rather to adopt the attitude "it fluctuates but does not sink". Unfortunately, though, those in a position of power believe they can manage such volatility because of several fatal conceits. He writes:
"But alongside the "catalyst of causes" confusion sit two mental biases: the illusion of control and the action bias (the illusion that doing something is always better than doing nothing). This leads to the desire to impose man-made solutions."
In other words, the human flaw is the desire to explain what is sometimes unexplainable, and to implement ideas based on a faulty knowledge and insight. It is as with the Friedman/Kraus book, in describing the cause of the financial crisis, that the authors could point to a string of regulations, implemented over multiple decades, in response to different concerns at different times, that mixed together to resemble a bad chemistry experiment. The need to do something can have unintended consequences. And so we are here again, with the newest set of policy initiatives meant to overcome the current slump.
My general point is to be wary of more government intervention. Perhaps with the best of intentions, politicians, economists and others try to smooth out life for everyone, but in fact end up doing the opposite. The natural process of letting bad decisions play out to their natural end may increase volatility in the short term, but there is a benefit. As Taleb puts ever so succinctly, the real goal should be to "fail small" and "fail fast" -- sadly, neither outcome is allowed to happen these days.
The crux of Glasner's post is that Keynes and Hayek were not nearly as omniscient as Ralph Hawtrey in anticipating the Great Depression, so the back and forth by the disciples of each should be put to bed. Hawtrey, who could be described as a monetarist, identified that a return to the gold standard after World War 1 would result in a painful deflation, as monetary demand for the metal increased (note: Jim Rickards accepts this thesis in his book, but expands on it to suggest that the real problem was not actually the re-monetization of gold, but the decision to try and maintain the pre-WW1 exchange rate). Glasner notes the following:
"The measures agreed upon at the Genoa Conference prevented the monetary demand for gold from increasing faster than the stock of gold was increasing so that the world price level in terms of gold was roughly stable from about 1922 through 1928."
The virtue that Glasner points to, as a by-product of the conference that Hawtrey largely guided, is stability -- the quality often ascribed to the "Great Moderation" that began with Ronald Reagan becoming President. This, in turn, got me thinking about the Taleb article. For those not familiar, much of his work has dealt with how the move towards eliminating all volatility leads to "tail risks" -- low probability, high impact 100-year storm events. As Taleb notes in the article, there is a utility in market/price/asset movement and the goal should not be to remove it entirely, but rather to adopt the attitude "it fluctuates but does not sink". Unfortunately, though, those in a position of power believe they can manage such volatility because of several fatal conceits. He writes:
"But alongside the "catalyst of causes" confusion sit two mental biases: the illusion of control and the action bias (the illusion that doing something is always better than doing nothing). This leads to the desire to impose man-made solutions."
In other words, the human flaw is the desire to explain what is sometimes unexplainable, and to implement ideas based on a faulty knowledge and insight. It is as with the Friedman/Kraus book, in describing the cause of the financial crisis, that the authors could point to a string of regulations, implemented over multiple decades, in response to different concerns at different times, that mixed together to resemble a bad chemistry experiment. The need to do something can have unintended consequences. And so we are here again, with the newest set of policy initiatives meant to overcome the current slump.
My general point is to be wary of more government intervention. Perhaps with the best of intentions, politicians, economists and others try to smooth out life for everyone, but in fact end up doing the opposite. The natural process of letting bad decisions play out to their natural end may increase volatility in the short term, but there is a benefit. As Taleb puts ever so succinctly, the real goal should be to "fail small" and "fail fast" -- sadly, neither outcome is allowed to happen these days.
Monday, December 12, 2011
Head, Shoulders, Knees and Toes
There is no drawing tool (or at least I haven't figured it out) that allows me to make rounded lines. Nevertheless, slightly ominous...
My MF Global Experience
About 6 to 8 months ago, I considered opening an account with Lind-Waldock so that I could play the gold and currency markets through futures and options. Ultimately, I decided that what I was trying to accomplish couldn't be done, so I never followed through on actually finalizing and funding the account.
In the month leading up to the MF Global bankruptcy, I probably got two calls a week from someone at Lind-Waldock, pressing me to follow through on the account. The timing is rather curious, no?
In the month leading up to the MF Global bankruptcy, I probably got two calls a week from someone at Lind-Waldock, pressing me to follow through on the account. The timing is rather curious, no?
Sunday, December 11, 2011
Eureka
I must confess, there are things out there that puzzle me. In the context of investing, the performance of gold consistent with my expectations, but the movement of bond yields contrary to, is one of them
My thesis, for those who don't know, has been that governments and central banks globally would print money relentlessly. The effect would be substantial currency debasement and rising bond yields, eventually resulting in a crisis scenario for lots of western countries. My main strategy to combat it has been the accumulation of gold and related ideas, assets that would benefit from such recklessness.
So far, the gold has worked. But the performance of bond yields has been unexpected (which is why I have stayed away). I know the Keynesian explanation: we're in a liquidity trap, people are hoarding cash, austerity in Europe is contractionary, the powers that be in the U.S. have not done enough printing and deficit spending, etc., etc. I just don't find that story convincing.
And that's where the Bob Murphy post is helpful. It triggered a thought and gave me a greater context to think about all the moving parts. My conclusion: we have not yet started the race to the bottom in earnest. And that's why certain assets are acting funny.
The interesting dichotomy right now is that countries with printing presses, who have shown a willingness to use them, are benefiting from incredibly low interest rates (think U.S. and Japan). By contrast, the countries of the European Union, who gave up their monetary sovereignty, are getting abused in the markets. The big problem is that they must defer to the ECB, and so far the guys in Frankfurt have not been willing to let the printing presses go in order to deal with the solvency issues of member countries. Thus, in a strange twist, because folks are scared, and more concerned about return of capital than return on capital, we see a difference in treatment that is counter-intuitive.
But, it will not last. There are two possible outcomes to the European situation, both of which will allow this interlude to proceed, finally, to the next and last act.
Scenario 1 - "Racers, start your engines!"
The most likely course of action is that the ECB will eventually relent and begin to print money with verve and vigor. It is the easiest call since it is right out of the Keynesian/Central Planner playbook. The immediate reaction is likely to be a relief rally. But, here's where it gets interesting, and where Murphy's observation is useful. At that point, everyone will be debasing. But, on a relative basis, no one is going to take a definitive lead. So, in effect, the export advantage that is expected won't manifest. But, you'll still have a lot more easy money floating around, which could end up anywhere. That will probably serve as the genesis for a more obvious inflation (versus the more sneaky one that we're experiencing now). And bond investors will start to demand more for their money because their purchasing power is being attacked. And, even if central banks start monetizing even more to keep rates low, they will end up crushing their currency. Not in a way that helps exports, but in a way that blows up their economy.
Scenario 2 - The Kyle Bass Story
The second outcome is that the ECB lets the sovereigns default. For simplicity's sake, I will call this scenario the Kyle Bass Story. He notes (as do Rogoff and Reinhart in their book) that there is a domino effect that comes into play once a single country goes down, increasing the probability that it will happen to others. The current belief system gets destroyed and the basis for the "safety trade" is questioned. And so it will start with Greece or Portugal. But then it moves to larger European states, and then eventually it move east to Japan, and finally it crosses the Pacific and lands at our doorstep. It is not an all-of-a-sudden thing, but the progression will speed up once the first sovereign goes.
--------------------
Okay, so the above is how I am rationalizing the current reality. Still, I feel pretty comfortable with what I've outlined. Whether you think its the first or second scenario, we're still simply in the build-up phase. The standard assumptions have not been put to the test yet because the critical decisions are still to be made. So, what does all of it mean? I think it means that those who are claiming victory because bond yields are still low are a bit premature. And, as an investor, you must be paying attention, because the situation is fluid and facts and circumstances will continue to evolve.
My thesis, for those who don't know, has been that governments and central banks globally would print money relentlessly. The effect would be substantial currency debasement and rising bond yields, eventually resulting in a crisis scenario for lots of western countries. My main strategy to combat it has been the accumulation of gold and related ideas, assets that would benefit from such recklessness.
So far, the gold has worked. But the performance of bond yields has been unexpected (which is why I have stayed away). I know the Keynesian explanation: we're in a liquidity trap, people are hoarding cash, austerity in Europe is contractionary, the powers that be in the U.S. have not done enough printing and deficit spending, etc., etc. I just don't find that story convincing.
And that's where the Bob Murphy post is helpful. It triggered a thought and gave me a greater context to think about all the moving parts. My conclusion: we have not yet started the race to the bottom in earnest. And that's why certain assets are acting funny.
The interesting dichotomy right now is that countries with printing presses, who have shown a willingness to use them, are benefiting from incredibly low interest rates (think U.S. and Japan). By contrast, the countries of the European Union, who gave up their monetary sovereignty, are getting abused in the markets. The big problem is that they must defer to the ECB, and so far the guys in Frankfurt have not been willing to let the printing presses go in order to deal with the solvency issues of member countries. Thus, in a strange twist, because folks are scared, and more concerned about return of capital than return on capital, we see a difference in treatment that is counter-intuitive.
But, it will not last. There are two possible outcomes to the European situation, both of which will allow this interlude to proceed, finally, to the next and last act.
Scenario 1 - "Racers, start your engines!"
The most likely course of action is that the ECB will eventually relent and begin to print money with verve and vigor. It is the easiest call since it is right out of the Keynesian/Central Planner playbook. The immediate reaction is likely to be a relief rally. But, here's where it gets interesting, and where Murphy's observation is useful. At that point, everyone will be debasing. But, on a relative basis, no one is going to take a definitive lead. So, in effect, the export advantage that is expected won't manifest. But, you'll still have a lot more easy money floating around, which could end up anywhere. That will probably serve as the genesis for a more obvious inflation (versus the more sneaky one that we're experiencing now). And bond investors will start to demand more for their money because their purchasing power is being attacked. And, even if central banks start monetizing even more to keep rates low, they will end up crushing their currency. Not in a way that helps exports, but in a way that blows up their economy.
Scenario 2 - The Kyle Bass Story
The second outcome is that the ECB lets the sovereigns default. For simplicity's sake, I will call this scenario the Kyle Bass Story. He notes (as do Rogoff and Reinhart in their book) that there is a domino effect that comes into play once a single country goes down, increasing the probability that it will happen to others. The current belief system gets destroyed and the basis for the "safety trade" is questioned. And so it will start with Greece or Portugal. But then it moves to larger European states, and then eventually it move east to Japan, and finally it crosses the Pacific and lands at our doorstep. It is not an all-of-a-sudden thing, but the progression will speed up once the first sovereign goes.
--------------------
Okay, so the above is how I am rationalizing the current reality. Still, I feel pretty comfortable with what I've outlined. Whether you think its the first or second scenario, we're still simply in the build-up phase. The standard assumptions have not been put to the test yet because the critical decisions are still to be made. So, what does all of it mean? I think it means that those who are claiming victory because bond yields are still low are a bit premature. And, as an investor, you must be paying attention, because the situation is fluid and facts and circumstances will continue to evolve.
Heads I win, tails...well, you know
I think Bob Murphy points out an interesting inconsistency in Keynesian thinking in this post. The gist of which is -- the Keynesians apparently realize that not everyone can be exporters at the same time, but seemingly miss how the same logic could apply to their argument about everyone everywhere devaluing their currency.
Saturday, December 10, 2011
1973
I recently made the case that the Knicks should spend their time and dollars on pursuing Dwight Howard over Chris Paul. The baseline assumptions were two-fold: (1) the team was not interested in pursuing any of the 2011 free agents; and (2) the priority had to be big man and defense over point guard and more offense.
Needless to say, then, I am very happy with the soon-to-be-completed signing of Tyson Chandler. He is literally the perfect compliment upfront to Stoudemire and Anthony. Someone who is focused on defense and rebounding and is a true center.
The weak spot is now in the backcourt, where the team is thin at both guard spots. I am relatively comfortable with the Fields/Shumpert combo at the 2, but point guard is truly the question mark -- Toney Douglas is the only one on the team. Therefore, where you have seen teams that play center-by-committee, the Knicks will inevitably play point guard-by-committee this season. The pick-up they seem to have focused on for now is Mike Bibby, who showed himself to be an underwhelming force in the playoffs last year for the Miami Heat. But, in making trade-offs, I will endure it if it means solidifying the front line.
My prediction/guess is that Steve Nash is now the object of desire next offseason. He lives in New York during the summer and might be amenable to signing the mid-level in order to get a final shot at a championship with his beloved Coach D'Antoni and pal from Phoenix, Amar'e.
All in all, a good week for my favorite basketball club. And, with any luck, 1973 will soon be updated to 2012 or 2013.
Needless to say, then, I am very happy with the soon-to-be-completed signing of Tyson Chandler. He is literally the perfect compliment upfront to Stoudemire and Anthony. Someone who is focused on defense and rebounding and is a true center.
The weak spot is now in the backcourt, where the team is thin at both guard spots. I am relatively comfortable with the Fields/Shumpert combo at the 2, but point guard is truly the question mark -- Toney Douglas is the only one on the team. Therefore, where you have seen teams that play center-by-committee, the Knicks will inevitably play point guard-by-committee this season. The pick-up they seem to have focused on for now is Mike Bibby, who showed himself to be an underwhelming force in the playoffs last year for the Miami Heat. But, in making trade-offs, I will endure it if it means solidifying the front line.
My prediction/guess is that Steve Nash is now the object of desire next offseason. He lives in New York during the summer and might be amenable to signing the mid-level in order to get a final shot at a championship with his beloved Coach D'Antoni and pal from Phoenix, Amar'e.
All in all, a good week for my favorite basketball club. And, with any luck, 1973 will soon be updated to 2012 or 2013.
Where there's a will...
The more I read about Burma, the more I think it's a truly compelling investment opportunity. It's got resources up the wazoo and a government that's looking to reform and grow the economy. Nevertheless, how to gain exposure is not so obvious -- it doesn't take more than a google search to find out that the country is subject to sanctions by the U.S., which, for all intents and purposes, makes any investment by U.S. citizens next to impossible.
But, here's where the research angle comes in. I spent some time reading the specific laws and related commentary by a certain department of the U.S. government. It would appear that a loophole might exist -- more specifically, a clause whose favorable interpretation by high-priced lawyers could provide the indirect ticket in. So, without getting bogged down in the details, it's probably worth a pretty penny to figure out what the term "predominantly derived" means.
To be continued...
But, here's where the research angle comes in. I spent some time reading the specific laws and related commentary by a certain department of the U.S. government. It would appear that a loophole might exist -- more specifically, a clause whose favorable interpretation by high-priced lawyers could provide the indirect ticket in. So, without getting bogged down in the details, it's probably worth a pretty penny to figure out what the term "predominantly derived" means.
To be continued...
Wednesday, December 7, 2011
Quote of the Day
From the incomparable Kyle Bass:
The Republicans and Democrats each have 100 foot putts, with 40 feet of break and 20 mile an hour winds. And they look at each other and they say: "Good?" "Good."
The Republicans and Democrats each have 100 foot putts, with 40 feet of break and 20 mile an hour winds. And they look at each other and they say: "Good?" "Good."
Tuesday, December 6, 2011
Burma
I just caught an interview online where Jim Rogers called Myanmar the best long trade in the world right now -- comparing it to China in December 1979. Unfortunately, it is not something that Americans can do much about right now.
Monday, December 5, 2011
Charts
First the S&P:
Seems to be in a range, that is gradually getting narrower and narrower. That often is the prelude to a more definitive move one way or the other. If I were guessing, I'd say up. The trigger, QE3.
Next up, gold (through GLD):
As soon as I gave the all-clear, gaps a many showed up, meaning either they close (and we get a pretty well-defined head and shoulders), or the conventional wisdom gets thrown out the window and the move up is ready. Again, I think QE3 is coming, which makes me err to the upside.
Seems to be in a range, that is gradually getting narrower and narrower. That often is the prelude to a more definitive move one way or the other. If I were guessing, I'd say up. The trigger, QE3.Next up, gold (through GLD):
As soon as I gave the all-clear, gaps a many showed up, meaning either they close (and we get a pretty well-defined head and shoulders), or the conventional wisdom gets thrown out the window and the move up is ready. Again, I think QE3 is coming, which makes me err to the upside.
Sunday, December 4, 2011
Maybe Oliver Stone Gets It
I have probably seen the movie Wall Street 50 times -- I like it very much...at the least first half (the second half is pretty depressing).
Anyway, perhaps because I have become more sensitive to certain ideas, I noticed something pretty interesting during my most recent viewing. You may recall the character Lou Mannheim (Hal Holbrook) -- he is functionally the voice of reason and Bud Fox's conscience in the movie. Well, below is his first line when he gets introduced to the audience:
"...country's going to hell faster than when that son of a bitch Roosevelt was around. Too much cheap money sloshing around the world. The biggest mistake we ever made was letting Nixon get off the gold standard..."
Anyway, perhaps because I have become more sensitive to certain ideas, I noticed something pretty interesting during my most recent viewing. You may recall the character Lou Mannheim (Hal Holbrook) -- he is functionally the voice of reason and Bud Fox's conscience in the movie. Well, below is his first line when he gets introduced to the audience:
"...country's going to hell faster than when that son of a bitch Roosevelt was around. Too much cheap money sloshing around the world. The biggest mistake we ever made was letting Nixon get off the gold standard..."
Saturday, December 3, 2011
Like I was saying...
From Jim Rogers in Hot Commodities:
"I'm not certain about anything. "Certainty" is an incomprehensible word to any rational and responsible investor. Only political ideologues, religious fanatics, and other madmen believe they have all the answers. Happily, you need neither omniscience nor certainty to get rich. All you have to do is pay attention to where the opportunities are in the markets, keep an eye out for major changes that might affect them, and then act rationally and responsibly."
"I'm not certain about anything. "Certainty" is an incomprehensible word to any rational and responsible investor. Only political ideologues, religious fanatics, and other madmen believe they have all the answers. Happily, you need neither omniscience nor certainty to get rich. All you have to do is pay attention to where the opportunities are in the markets, keep an eye out for major changes that might affect them, and then act rationally and responsibly."
More Reads
I enjoyed Currency Wars by Jim Rickards. Broadly, it tries to forecast the future of the dollar, by placing special emphasis on the currency wars of the past hundred years. The most compelling part for me was his description of a system that allows for flexibility in the money supply, to adjust to shocks, but that still maintains the stabilizing features of the gold standard. He argues that it's true the money supply was not expanded, when it should have been, during the Great Depression, making the situation worse -- but the blame placed with gold is misguided. Governments and central bankers were trying to maintain the pre-WW1 price, when they should have at least doubled it, to account for the money expansion that had occurred because of the war. Not something I've heard before. Otherwise, chapter 9 is useful for its summation of the biggest schools of economic thought.
Friday, December 2, 2011
Spending Cablevision Money, The Redux
Basketball is back. And already talk in New York has turned to how another superstar can be added to the fold.
While I haven't thought about the Knicks much yet, there are two things that I did contemplate:
1) Whether using the new iteration of the amnesty clause on Renaldo Balkman made much sense.
2) Whether Chris Paul was the target to go after with any incremental cap space.
As it relates to the first issue, my concern was always that since Amare's contract could not be insured, due to past knee injuries, there was no reason to rush to any decision on use of the escape valve, just in case he happens to go down. I am comforted by a recent ESPN article that suggested a similar logic has been making the rounds at MSG.
With respect to second point, I always thought, if you're gonna dream, you might as well do it big. So, I was happy to see the following article that makes the case for how snagging Dwight Howard is not a total pipe dream. That outcome is what makes the Knicks unbeatable against a Big 3, Big 4 or Big 10. I suspect it won't happen, but at least we're talking about a non-zero percent chance, especially if the Knicks front office tackles the idea with a similar mind to Ian O'Connor.
While I haven't thought about the Knicks much yet, there are two things that I did contemplate:
1) Whether using the new iteration of the amnesty clause on Renaldo Balkman made much sense.
2) Whether Chris Paul was the target to go after with any incremental cap space.
As it relates to the first issue, my concern was always that since Amare's contract could not be insured, due to past knee injuries, there was no reason to rush to any decision on use of the escape valve, just in case he happens to go down. I am comforted by a recent ESPN article that suggested a similar logic has been making the rounds at MSG.
With respect to second point, I always thought, if you're gonna dream, you might as well do it big. So, I was happy to see the following article that makes the case for how snagging Dwight Howard is not a total pipe dream. That outcome is what makes the Knicks unbeatable against a Big 3, Big 4 or Big 10. I suspect it won't happen, but at least we're talking about a non-zero percent chance, especially if the Knicks front office tackles the idea with a similar mind to Ian O'Connor.
Brilliant
From Kyle Bass:
"Imagine a team of mountain climbers all strapped together for safety as they ascend a treacherous peak. While they are all holding on to the mountain there is no additional strain placed on each other. Now consider what happens if one climber, let's call him Stavros, slips and loses his grip. He places added strain on the remaining climbers. One climber might not make a difference, but as Seamus, Pablo and Jose each lose their grip they not only add extra total dead weight to the team but also increase the amount each other climber has to carry, until finally Francois, Luigi and Takehiro let go and poor Jurgen, and Uncle Sam are left trying to keep the whole team on the mountain."
"Imagine a team of mountain climbers all strapped together for safety as they ascend a treacherous peak. While they are all holding on to the mountain there is no additional strain placed on each other. Now consider what happens if one climber, let's call him Stavros, slips and loses his grip. He places added strain on the remaining climbers. One climber might not make a difference, but as Seamus, Pablo and Jose each lose their grip they not only add extra total dead weight to the team but also increase the amount each other climber has to carry, until finally Francois, Luigi and Takehiro let go and poor Jurgen, and Uncle Sam are left trying to keep the whole team on the mountain."
Thursday, December 1, 2011
Faber on Gold
"...each time a politician or a central banker opens his mouth, I feel more and more certain that gold is the perfect hedge against stupidity, arrogance and incompetence."
Another Mongolia?
On several of the sites that I follow, Myanmar has come up as a potential investment opportunity down the road. Conceptually, this idea is the sort that I get very excited about. So, I will research.
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