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Buffett Vs Gross, Or Inflation Vs Deflation - Who Is Right?
Some days ago, Business Week pointed out that "Warren Buffett shortened the duration of bonds held by his Berkshire Hathaway Inc. after warning that deficit spending could force inflation higher." As the article further pointed out, twenty-one percent of holdings including Treasuries, municipal debt,
foreign-government securities and corporate bonds were due in one year
or less as of June 30, Omaha, Nebraska-based Berkshire said in a filing
Aug. 6. That compares with 18 percent on March 31, and 16 percent at the
end of last year’s second quarter. The conclusion: "It may be a sign that Buffett expects interest rates to start rising, maybe sooner than the conventional wisdom." Yet very curiously, as we pointed out, another capital markets titan, Bill Gross with his trillion+ in fixed income securities courtesy of Pimco's numerous asset managers, has done precisely the opposite. As the chart below demonstrates, Gross' flagship Total Return Fund has been doing the inverse of Buffett, and has been actively increasing the duration of his bonds over the past two years, with the current blended maturity profile being the most long-end weighted in years: in fact the percentage of bonds maturing in 3 years or less is now the lowest it has been since October 2008. Using the above logic, it would signify that, unlike Buffett, Gross is now more primed for deflation than ever. In the great inflation-deflation debate, this will be the primetime heavyweight cagematch to watch. Between Buffett's empire and Pimco's FI monopoly, one of the two will have to lose. Our question of the weekend is who will it be?
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I'll say Gross. And Hendry !
That is because you are a clueless fool.
Hardcore deflation leads to hardcore inflation even without a cent of money printing
I suggest you at least read this before you continue throwing the fool taunt around
http://www.jubileeprosperity.com/money-docto-and-counselor/faz9-cash-talks/
Let me ask you a question....
If there was no bailout in 08 and half of corporate America went bust, where would the tax revenue be coming from to service the US govt debt ?(If the debt is not serviced it gets sold off)
The only thing backing the dollar is the debt so we would have had hyperinflation by June of 09 without the bailouts.
Hey Spitzer,
You keep quacking like the aflac duck.
Your theoretical trades are WAY under water.
Your unprovoked name calling reveals your weakness.
Another internet tough guy who would pee his pants
if he had to deal.
on ignore.
Agreed. Deflation is the more likely outcome, so Gross is more likely to be right.
However, Gross also has a lot more to lose if he's wrong. The real value of Gross's bonds could fall to zero if Bernanke chooses the print button when the moment of truth arrives. Buffet's operating company has less downside even if he's wrong.
Disclaimer: I expect Bernanke will choose to stop printing when his back is finally against the wall.
Sancho:
I'm with you if BB is still at the helm. But, when his back is finally against the wall, does it have iron rings, oh about 2 meters apart to attach the two handcuff pairs, do they give him a blindfold and a cigarette? I know that's so un-PC. Did he get a chance to hit the loo before the finally time?
Does he get a chance to try to unwind acording to his theory? Or do they look at Morgenthau '37 and '38 and say, "Mr. Chairman, we have a situation to discuss."
I'm with Gross and Rosie on this, for now.
- Ned
Bernanke did back off from the print button last week.
Well, there ya go. Printing money (whether by printing press on actual paper, or by computer) is one definition of inflation. Some folks consider paying more for corn flakes to be inflation. Before a discussion can begin the terms have to be defined, and they are not. One would have to take the "money" side, and another take the "price" side of the definition(s) in order to debate. There should be 2 different threads, one for each definition.
+1, but not two threads please. The fireworks will be much more interesting if it is to-and-frow in one place.
Might get to >600 posts, maybe set a record. And I'll bring the 100 octane ;-)
- Ned
nope, we don't need money printing to have hyperinflation. All we need is for the bond bubble to burst.
The effective real interest rate for housing is -35% price decline plus 5% mortgage, or 40%..
Buffett + Immelt = errand boys for Bankers
+1 And everybody loses ('cept the bankers).
I have the feeling lately that Buffett has been bent. He is shilling for the men behind the curtain. Just a feeling.
Yes--after all, Buffet endorsed O despite his anti-business positions and history, so clearly emotion or corruption is involved here.
Does it even matter who's right or wrong anymore ? The damage to the innocent is going to be outrageous. Right / wrong, who even cares ....... when the shit hits the fan, it's going to be CHARITY & LOVE that will count .... sincere regards to the wonderful people on ZEROHEDGE .
Buffett and Gross have different drivers than the rest of us as well as better access to information.
I'm going with japanese style stagflation. The elites have had a twenty year experiment going where the country's debt reaches 400% GDP, the population is behaving itself and while grumbling, willing to continue working at less and less in wages. They continue to print and people continue to buy bonds at 1%, though there are many foreign bonds available at better rates. Now, they are foregoing children to maintain a better lifestyle. Kind of like voluntary eugenics.
The upcoming generations of Americans have been TV and video trained for the same outcome and from all appearances, have no desire to rebel against anything. Look around, did you hear of riots in Detroit this summer? It's been hot...no money...falling apart...People have been happy as long as they get some federal enticement-printed debt. Bonds at 1% and less. GoM oilspill? no real complaints and the people of NO are clamoring for more drilling. No job growth for two years, more jobs are being offshored and....no complaints.
This is being extremely well managed, by very intelligent people, people with abundant resources that have been devoted to behavioral studies for 100 years (Aspen Institute, Rand Corp, et al).
People may be angry, but they have no idea where to focus it at. They are confused and looking for the next good pasture. Herd animals/herd instincts being driven by controlled and intelligent predators.
In Japan they do rebel. The younger generation isn't working, and seeks underemployment. The work to reward ratio has gone stale.
Their system will fail, and their old one-party state was recently repudiated. If you know much about Japanese politics, you know that such a move was unprecedented in their post-war history.
We'll see what happens next, of course.
Maybe they're both wrong...TRADE AWAY!!!!!!!!!!!!!!!!!
Yes. Maybe its stagflation, just like the 70's. In which case, renting equities but not owning them is the only logical course of action. Over to you, Leo...
Can't be like the 70s. There was wage inflation then, not now. There was rising aggregate demand from boomers, not now.
http://en.wikipedia.org/wiki/Differential_accumulation
Stagflation in differential accumulation theoryDifferential accumulation theory sees stagflation oscillate inversely with periods where mergers and acquisitions are dominant as a major strategy of dominant capital groups to "beat the market" or exceed the normal, average rate of return on investments. If too many people try to "beat the average" a market imbalance results. Stagflation, which appears as a crisis at the societal level, contributes significantly to differential accumulation at the disaggregate level, that is, of dominant capital groups accumulating faster than smaller businesses. Since the 20th century, the dominant capital group which has benefited from stagflation has been the "weapon-dollar-petrodollar coalition" during periods of Mid-east crises and rising oil prices. These periods have oscillated between periods of relative "peace" during which mergers and acquisitions have been the dominant strategy for beating the average.
Does that sound plausible going forward ? Would seem to suit the prevaling wisdom on ZH...
aw don't give me that shit.
There will be no demand pull inflation, only currency inflation.
Did the Euro zone have "aggregate demand from boomers" when it had inflation in early june ? (the Euro went from 1.5 to 1.2,INFLATION)
Euro CDS rates rising and Euro falling again from 128 to 88, suggesting 2008
Deuxième partie 2008 deja vu.http://www.businessinsider.com/chart-of-the-day-credit-default-swap-spre...
http://stockcharts.com/charts/gallery.html?$XEU
The Euro started falling(INFLATION) when Greece could not service its debt.
So you think the dollar will rise(DEFLATION) when the US economy cannot service the govt debt ?
Structurally, we are far worse off than in the 70s.
Yes, grey hair and hemorrhoids
for the look of experience and feel of concern...
What's really deflating except RE? Most other things (commodities, services) are going up. (Leo, think HST). Heavily indebted boomers who are retrenching before retirement....no demand (from MA and Europe.) Companies with little pricing power. Upcoming demographic issues. It likely won't fit any of the existing pardigms and will establish it's own classification. I look forward to reading about it in 20-30 years.
What's really deflating except RE? Most other things (commodities, services) are going up. (Leo, think HST). Heavily indebted boomers who are retrenching before retirement....no demand (from MA and Europe.) Companies with little pricing power. Upcoming demographic issues. It likely won't fit any of the existing pardigms and will establish it's own classification. I look forward to reading about it in 20-30 years.
One will be right on their holding play and the other will be right on their TBTF play.
+1
IMHO, this is very serious insight. Those are the biggest players, and it is almost like they colluded on the phone to offset each other: One wins, the other gets bailed out with free taxpayer money. Politically, that is *far* easier than bailing out both with taxpayer money.
Of course, neither individual is a genius: Both are making their bet based on "insider info" and "under-the-covers-tips" regarding what's about to go down.
The sad thing is that it has nothing to do with fundamentals: We are all merely speculating about the (somewhat capricious) decisions that will be made in a single meeting by only a few individuals because we live in a centrally planned economy (in every practical sense).
Excellent, LeBalance and mikla. Yes. “We are all merely speculating.” Spectators to the tragedy.
"under-the-covers-tips"
I think Buffet figured out how tenuous the Comex Silver position was in 1998:
http://www.silvermonthly.com/162/analyzing-warren-buffetts-investment-in...
So now that the same thing could happen in Gold he's betting on the dollar taking it up the ass.
Difference being that Carter, Congress, CFTC, COMEX, Court and Fed allowed WEB, unlike Hunts, to corner the market without increasing margins ten-fold.
Perhaps the Barclay SLV sale was arranged at Waddeson Manor.
http://newsmine.org/content.php?ol=cabal-elite/families/rothschilds/buff...
Since 2005 silver outperformed equities three to one.
Doubt that may happen anytime soon, as
precious metals, particularly those with industrial applications, go down during depressions, particularly when the Constitutional gold or silver standard null and void...
http://futures.tradingcharts.com/chart/SV/M
http://www.24hgold.com/english/Gold_silver_prices_charts.aspx?money=Euro#
http://www.jubileeprosperity.com/
There will be no tax payer money that is worth anything to bail out.
Yep, and it matters not if either of them blow up, because (like they have BOTH already had the benefit of being) be bailed out at taxpayer expense.
The Rothchilds' empire will not loose. Rest assured. Both of his agents will make money, just at different times. It is not Gross vs Buffet, it is the Rohtchilds' vs US.
Well said. We are at war. It is us versus them. The problem is, the US public does not realize that these animals have declared econimic war on the people. I fear the US is doomed.
+1
Yup, Rothschilds and their hirelings like the CFR will win unles we ...
Perhaps it was Rothschild vs Rockefeller until British Round Table Rhodes joined Bilderbergs and CFR and Trilateralists where Chelsea and her GS beau were wed...
http://www.cooperativeindividualism.org/aier_on_conspiracy_06.html
Yep. They're all one team and they are playing to win. The only chance we have is a stampede in a narrow canyon. And they keep pushing us into wide pasture...
Uncle Bill is on the teet more than Dirty Uncle Warren so he must, "Do as they say" for all the help during the first legs down. Uncle Bill will respond in step with Dirty Uncle Warren, but only just before the Fed announces. In the end they both lose.
Gross vs. Buff{ett | oon} ?
It's about who "own" the Treasury and the Fed: Gross with his "nuclear option", of Buffett/Goldman, whose stock price determines the wealth of so many US Treasury officials, and who will (or will not!) employ many more of them.
Deflation - assuming that everything including stocks would deflate - could be VERY costly for Buffet -> page 4 of http://www.berkshirehathaway.com/news/may0208.pdf
In his 2008 Annual BRK Letter, WEB wrote an essay, a variation on overpriced inverse gambler's fallacy, disguised as slam-dunk derivatives reward, offset by the assumed future income value of keeping $63 B of naked put premiums, including Credit Default Swaps and Stock Market Indice bets WEB compared to 100-year insurance premiums and (naked) market puts with 1% risk.
http://en.wikipedia.org/wiki/Gambler%27s_fallacy
Money for Nothing and Chicks for Free or Dire Straits?
http://www.youtube.com/watch?v=dlPjxz4LGak&feature=fvw 6:46
We wish WEB well with that, as we possibly enter the Greatest Debt Deflation Defenestration and Default Driven Depression after almost 100 years of Fed leverage, Glass Steagall-free and Treasury Agency ownership society usury with $1.42 T deficits, $13 T debts, $106 T unfunded government agency obligations bet against by GS Prop Hedgies designing the AAA tranches to fail to enrich GS and one of the Bass Texas family, and $615 T derivatives, 85% funded on the payday cash advance system by usury bankers from dindling IRS income proceeds of the disappearing squeezed underpaid unemployed middle class, while Corporations with $1.8 T of cash and special tax breaks like the GE refund calling themselves overtaxed pay 7% and 0's Budget Director resigned.
Look ma, no belts, feet, hands or suspenders.
http://en.wikipedia.org/wiki/United_States_federal_budget
Who wants to borrow, lend or pay a 5% mortgage on a property depreciating -35% for a real loan shark cost of 40%. No wonder HAMP, PPIP and TARP diid not work out so well for the American consumer or homeowner with falling employment and incomes.
http://www.berkshirehathaway.com/letters/2008ltr.pdf
In the 2008 Annual Report he compared BRK naked puts sold as less than 1% risk of expiring in the money as late as 2028 sold to Goldman Sachs et al, when he would be a mere 108.Subsequently he brought the average duration to 11 years.
It's that 1% risk mean time when things are going punk, that can slow you down, finish you off or puke your company into insolvency at the worst possible time.
http://en.wikipedia.org/wiki/Warren_Buffett
WEB warned from page 17 about extrapolating history, then extolled why he and Charlie were comfortable with counter-party European-style uncollateralized naked puts, although end of year marks to markets wiped out 96% of BRK Q4 earnings and eventually lowered BRK's credit rating.
http://247wallst.com/2010/08/04/buffett-options-laws-of-unintended-conse...
With an average life of 11 years, the last naked put may come due in 2021.
http://news.yahoo.com/s/nm/20100804/bs_nm/us_buffett_options
For what it's worth, here are some objective mathematical Fourier reconnaisance charts of various market assets including real estate, by our brilliant Brown MD NIH friend, a different sort of quant:
http://econocasts.com/
FinReg requires collateral and regulated market trades to price options now, perhaps why WEB paid 0 a DC visit.
Anyone who ever wrote naked options for any period of time learned how fatal they can be.
Even WEB described them weapons of mass financial destruction, giving plenty of his own examples re swimming naked when the tide goes out after some painful insurance derivative unwinds.
Naked unlisted unsecured Options are not insurance, no matter how often the talking TV heads present the pretty risk reward graphics.
Speaking of which, the increasing number of Insurance Companies sitting on veteran death benefits now getting Congressional attention before mid-term elections. And no doubt at least one motivation for Buffett philanthropic conglomeration risk and tax reduction.
As noted elsewhere, silver went up three times after WEB sold it while BRK peaked at 151,650 in December 2007.
BRK/A currently trades at 115,180, down -31%, almost a third since then, despite record earnings and trading smaller split S&P 500 BRK/A shares, some things WEB said he would not do.
http://finance.yahoo.com/echarts?s=BRK-A+Interactive#chart1:symbol=brk-a;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
WEB wanted BNI at $100 in Dec 2009 after it traded at 58.77 in Feb 2009, which shares traded down to 58.77. Hopefully his trader got most of BNI at lower prices.
Thankfully, not all of us had $44 B to buy a Rosebud train set.
http://www.streetinsider.com/Mergers+and+Acquisitions/Buffett+Takes+A+Ride+On+the+Burlington+Northern+%28BNI%29+Railroad,+Announces+$44+Billion+Takeover/5068609.html
http://finance.yahoo.com/echarts?s=BNI+Interactive#chart1:symbol=bni;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Finally, worth noting BRK companies are no magic 8 balls guaranteed 20% CAGR return forever, as WEB frequently warned. They suffered cash flow declines and layoffs after an incredible run making WEB for a time the world's best investor.
Will the person who sell off BRK assets in the next BRK Act III to release hidden value follow in his footsteps or just be a liquidator to pay higher and higher Cap & Trade, Capital and Healthcare Losses and Taxes?
Recall WEB also said after 9-11 a Trillion dollar bioterrorist dirty weapon nuclear event on American soil in a major city is inevitable, and he in on-board for the transaction tax.
http://www.slate.com/id/2067112
http://www.cepr.net/documents/ftt-support.pdf
Our closely-held dividend discount mentors lived well into their 90s.
Again, we wish Warren well and wealthy so he can see how all his financial alchemy turns out...
The muddle-through and stagflation scenarios count on the TBTF mind set, but TBTF only works as long as Uncle Sugar can float paper forever. When that fantasy ends, we will have a credit contraction and general "dislocation" that will be hugely deflationary. There is no other possible outcome, trees don't grow 1000 feet tall no matter how much horse shit you pile on the roots.
politicians will take line of least resistance, so to my mind it will be STAGFLATION----thats the easiest route to manage the social issues and keep the sheeple from getting too disruptive. Easier to fool enough voters with 20% pay increases, while at the same time real incomes plummet.
just like a prizefight for the heavyweight title. "and in this corner..."
unfortunately, as in boxing, it all may not come down to the skills of either participant, but to the perdetermined biases of the "judges."
Buffett and his main man Munger are good at price discovery on distressed equity value plays. Their guy Sokol is an excellent fixer, too. But me thinks Gross has a broader perspective on the Fed's desperate attempts to reflate versus consumer austerity and the lending lockdown, the inevitable increase in tax burden in '11 and '12, the Boomer majority moving quickly into non-consumption mode, unavoidable public sector spending pullbacks, cash hoarding , massive debt paydown , absorption of excess capacity, etc.
It comes down to two guys who believe different things about the Fed's prowess. Buffett won't fight the Fed and Gross will.
I think that once you're so big that you need to control the Fed or the government in order to protect your portfolio, you're fucked.
Whether you're fighting the Fed or trying to cajole it to do your bidding, you're going to lose in the long run...
It puts you in the position of struggling to become the Duce of the market. And the market doesn't like being commanded what to do. It strikes me as pathetic grasping for influence that PIMCO has to take over the Op-Ed pages of just about every major newspaper week after week in a desperate attempt to subordinate the small-time looters in Congress to their ends.
It's easier to understand America if you think of it as a feudal system, and strip away all the stupid rhetoric about democracy and public-spiritedness.
PIMCO has a huge pile of tickets that grant it a legal control of a big chunk of loot. They're asking for a larger stake. But all they can threaten is the nuclear option. They can't negotiate in a granular fashion - it's all or nothing, and it's unlikely that they can pull that off.
But those bonds are just promises... and promises are ultimately worth shit.
Rain, I'll see you a Munger and raise with Mohammed El.
I concur. Bill and Mo are consistent with Rosie's "curve flattening" view, and with ZIRP, that moves the long end down.
What was the Debt-to-GDP ratio at end of 1946? ... looking. dang, only like 70%. This from McNews, so we know it is true ;-) (just the top of the search).
http://www.usatoday.com/money/economy/2010-01-13-economic-recovery-depre...
and the scrip to get out? Growth.
But with this crowd, growth is "unsustainable."
1946 out of power party campaign theme: "Had enough?"
- Ned
The issue is not so much deflation or inflation as inflation control.
Most of the regulatory apparatus and our tax system is set up to control and direct inflation.
Gross has taken a hard line on government expenditures. He wants to cut government spending to harden up the dollar as quickly as possible.
Buffet also obviously doesn't want to destroy the dollar (it would wreck BRK), but his businesses rely on the continuation of the government as it is. His insurance businesses in particular rely on state regulation and implicit bailout guarantees.
He came out in favor some months back of a bailout package directed at the municipalities. Like Gross, he's said bluntly that current bond ratings and his asset allocations are based on the assumption of continued TBTF policy.
They both need a certain degree of inflation, but they want to make sure that the inflation is going in the "right" place - into their pockets.
I think they're both fucked. Not even the Illuminati can get our inept and corrupt government functioning in a sustainable fashion. It'll be tough for them to maintain the orderly hierarchy of looting.
This is like comparing apples to oranges. Wild Bill bought the long end because he knew that this is where Benny would be buying next and he will be there to sell them to him at a slightly higher price, of course. As everybody else on the planet will sooner or later.
Good ole Uncle Warren on the other hand realizes that de-leveraging doesn't necessarily mean deflation. And given the Fed's track record he knows that the printing will eventually continue. In his mind much sooner rather than later.
So, they are both right and they will both win. After all, how the hell do you think they both got where they are?
Stagflation is the most likely scenario. Uncle Sam will borrow and print to avoid the calamity of deflation. Remember, many states and their pension funds must be propped up to avoid social unrest. The deflation scare is just that and what do you want to bet, Bill Gross has repurchase agreements with the Fed?
call it whatever you like. The rich will be richer and the poor poorer. Life is a bitch.
Bill Gross runs a hedged bond fund. Not many folks realize that.
I assume yours is a humorous comment, but just to clarify: hedged by what?
He's hedged by California Gurls:
http://www.youtube.com/watch?v=CTVJTt-Gfx8
Re the lyric, There's carcinogenic, toxic Blue Plague BPA, chlorine, corexit, crude, fluoride, hydrogen sulfide, MBT, methane, pesticides, pharmaceuticals, tolulene in the water, air, land and seafood despite corporate government claims to the contrary. 74% of the spill has not miraculously diappeared under a relentless PR campaign by BP Government...
http://www.youtube.com/watch?v=VuMj7KruXk0&feature=player_embedded 3:46
http://worldvisionportal.org/wvpforum/viewtopic.php?f=52&t=940#p2272
http://www.epa.gov/bpspill/dispersants.html
http://www.guardian.co.uk/environment/2010/aug/03/gulf-oil-spill-chemica...
http://www.jubileeprosperity.com/
Stagflation is the best case scenario. Just like Japan is the best case scenario. We'll have both deflation and inflation combined. Presenting Indieflation (In_De_Flation). Lotsa Luck.
in the shorter-term the yield curve is going to pancake. When people realize that the odds are in favor for initial weekly claims to be above 600,000 my next March, the curve will flatten...
Which one of those two men is a senile old fart?
At Buffets age, he had best start worrying about his INVESTORS.
Like Tyler's byline on Survival,he may outlive me, but the actuaries are not in his favor.
Isn't this whole discussion about which end of the Titanic will sink first?
More like which end of the titanic will hit the bottom intact.
We don’t know what other bets they’re making with derivatives, but it’s not necessarily just an inflation play/deflation. Other events can spike rates.
In October 1930, not long after deflation began to appear in earnest, Baa bond yields started climbing even as yields on Aaa’s continued to decline for another year or so, until they too jumped in Sept/Oct 1931. Spreads widened out from an average of 119 bps over the first 9 months of 1930 to 564 bps in May 1932. Rates and spreads fell after that until early 1937, when Baa yields climbed and spreads again widened as the country fell into a ‘depression within a depression’. Interestingly, in 1937 Aaa yields only rose for 3 months before resuming their secular decline.
@"here it comes again"
We know that BRK has huge index put short positions going out to 2018. SPX, FTSE, DAX (I think).
- Ned
(I used to have a Tee-Shirt from Enterprise that ended "Our Screws Never Stop.")
Good point. I didn’t think of all those puts they sold. Maybe prepping to put up collateral for finreg, or even close out positions rather than do that?
2028, average duration 2021 when WEB will be 91...
I believe that the coming collapse will "bomb us back to the stone-age". Smart money will go towards capital-formation for new businesses - that is, ONLY IF the laws of the land ALLOW for new businesses (think "taxation-to-kill-business").
Think "elimination of personal property rights."
For the greater good, of course. nothing personal.
- Ned
I wonder if the Indiana retired cops are still pissed at Ruth Buzzy and the UAW?
The problem for Buffet and Gross is that they both are in too deep to get out of their positions without dire consequences for their financial health.
It does appear that they are on opposite sides of the equasion which makes them financially determental to each other depending on their actions.
Yes, who controls the Money and the Economy? The Banks, Buffet or Gross? Certainly not the FED.
We are going to get a massive dose of both IMO. Current period of massive deflation carries through into next year, then we will get a massive dose of inflation as Benny Boy has to fight having left interest rates so low for too long as Hoenig is warning against.
Watch the money multiplier, currently below unity at 85%.
Beware precious metal deflation until then...
I also think that the government will be forced to issue gold and silver coins as currency. Research "The Road To Roota Theory" for more information and evidence of this.
http://www.roadtoroota.com/public/190.cfm
Flacon,
Not sure about forced. Not sure about the government. Point well taken, though, been discussed here, though.
http://www.zerohedge.com/article/michigan-says-enough-fed-takes-matters-...
http://www.zerohedge.com/article/hinde-capitals-ben-davies-gold-market
etc.
- Ned
From the US Government "NEW MONEY.gov" web site (yes, you read that correctly: "NEW MONEY"):
http://www.newmoney.gov/media/release_07212010.htm
"Latest News
"
Keep in mind, they want to turn the internet off for up to 4 months. So backdating Feburary would take us to October. Is there going to be an "Oktober Surprise"?
Keep in mind, they want to turn the internet off for up to 4 months.
I read the link, but could not find the above statement. Could you provide the source
for this? Thanks!
It's Joe Lieberman's "Internet Kill Switch", and I am not kidding!
http://www.youtube.com/watch?v=ttvuSqaxF-c
Listen to what he says: "we have to stop all foreign internet traffic". "cyberterrorism can incapacitate our BANKS and FINANCIAL SYSTEM.".
BANKS?! FINANCIAL SYSTEM?!
As for the duration of 4 months, I can't find the link to it but I believe that it's in the bill - which just recently PASSED it's committee vote!
AVP, and, the top of my google search for: '"internet kill switch" collins', cuz Suzie and O'l Joe really really care for how we might be treated. They're so concerned for all of us.
http://patdollard.com/2010/08/internet-kill-switch-aims-of-bill-unclear/
Imagine Plouffe getting PO'd about the meet-up of a Tea Party organization! Why they might have to form the "Tea Party Underground."
Imagine being long /ES and losing all of your connections.
- Ned
http://www.newmoney.gov/equipman.htm
"Businesses that make cash-handling equipment, or Banknote Equipment Manufacturers (BEM), are encouraged to begin taking steps to ensure machines will accept the new design when it begins circulating."
A machine that handles $100 notes ??? Heck, even the ATM's only disburse $20 !
Is it just me being overly paranoid ?
How can Buffett lose on this trade? If inflation skyrockets he rolls over his debt into higher % debts. If deflation occurs he rolls over his debt into lower % debt. He's not a fixed income manager. He's just parking cash that he will no doubt redeploy for much greater returns than the 1 or 2% that his cash yields. Whatever the outcome he will have the liquidty to pounce on the distress either way and make a multiple of any loses incurred on this play.
he will no doubt redeploy for much greater returns than the 1 or 2% that his cash yields.
Based on recent Bank, BNI, Concoco and other PR-spun escapades with a negative real return relative to silver the last decade, where exactly is the real evidence, other than faith healing and true belief?
We are in a Deflation cycle now, that will turn into Inflation........
Sooner or later the rates go up, or the money hits the streets, if neither happens,welcome to Japan # 2, in a hell of a lot worse shape.
Dos, yes, but no time soon imho. - Ned
http://en.wikipedia.org/wiki/Differential_accumulation
Stagflation in differential accumulation theory
Differential accumulation theory sees stagflation oscillate inversely with periods where mergers and acquisitions are dominant as a major strategy of dominant capital groups to "beat the market" or exceed the normal, average rate of return on investments. If too many people try to "beat the average" a market imbalance results. Stagflation, which appears as a crisis at the societal level, contributes significantly to differential accumulation at the disaggregate level, that is, of dominant capital groups accumulating faster than smaller businesses. Since the 20th century, the dominant capital group which has benefited from stagflation has been the "weapon-dollar-petrodollar coalition" during periods of Mid-east crises and rising oil prices. These periods have oscillated between periods of relative "peace" during which mergers and acquisitions have been the dominant strategy for beating the average.
Does that sound plausible going forward ? Would seem to suit the prevaling wisdom on ZH...
The equity M&A banksters aren't out for the count just yet...
Agree, DosZap. Who says we can't have both?
What has me the most concerned is that once any sort of recovery begins, the credit maket loosens up, and interest rates rise. Right now, I think we're spending 14% of US tax receipts on interest, and we've been accumulating this humongous national debt meanwhile. What happens when rates rise, as they must, and will, sooner or later? The longer this hangs on, the worse that's going to be. I see no way this can end well. What can they be counting on?
And that's not even counting the black swans we don't happen to know about just yet.
under either scenario..there only two winners....and they will prevail....gold and silver..6000 years of history...but most of the sheople will only learn this after the fact.....
Zeit,
Yep, only problem is, this is Global.
WE will see a new currency, and it will be partially Gold based.
My money is on NO individuals will be allowed to own Gold.
Period.........It will be Nationalized.
So, winning with PM's, is going to be WHO's the most devious, and has connections.( the penalties for holding, will be likely life imprisonment, and loss of all property).
Our Thieves, will Declare a state of National Emergency........
Can't have any SELF determination,or wealth in the peons hands.
Do you really believe the population will put up with that a second time?
Yes they will, because 75% of people in this country don't own shit -- they will turn on the "evil hoarders" and support all manner of punitive taxes. Look at Kolyfonia for the example. The asshat electorate votes for taxes because most of the voters are exempt from paying them.
John Forbes (who served in Vietnam) Kerry's second wife's first husband's trust fund managers agree with your assessment. - Ned
asshat is my senator, no fault of mine, though.
Which, of course, is the problem with modern democracies: my neighbor can vote money out of my pocket. The entire system degenerates into institutionalized theft, with the government acting as intermediary and taking their cut. In the long-term it is unsustainable. No one should be able to vote on a tax that he himself will not have to pay.
Going from $10 to $1265 in 6000 years is a CAGR of .08%,
a rather low return for a rather long holding period.
On the other side of asset allocation, 25-year zero coupon bonds yielding up to 14.7% beat the S&P500 four times since 1981.
http://www.forbes.com/2008/02/22/treasury-bonds-inflation-pf-guru-in_ags...
People who bought long T bonds in April are already up from 114.34 to to 132, a 4.875% current yield plus 15% for a total return of 19.875% so far, much better then the negative liquidating stockmarket.
http://stockcharts.com/charts/gallery.html?$USB
http://stockcharts.com/charts/gallery.html?$TYX
Having noted that, Big4 Weekly Asset Allocation Model Portfolio, up 1297% year-to-date, sold long bonds and Euros:
http://www.jubileeprosperity.com/
We have more oil or oil equivalent than most of the
other countries out there.
http://alfin2300.blogspot.com/
We could manufacture like crazy but don't because of regulation, liability, and bureaucracy.
The government workers are making more then the avrage joe on the street ( not the avg zh reader I hope ).
We support the biggest military in the world and literally blow up our money. I know war is good for the economy but lets get real on that one.
A carton of cigs cost about .75 to 1.25 $ to manufacture and package and deliver to a retail store. We pay a minimum of $27.00
So enforced imports of energy and manufacturing along with guns to keep the rules in place along with a bunch of intellectuals and bureaucrats making a bunch of money and in control of the printing presses. with a debt of 8.7 trillion that interest has to be paid on and no more stealing from ss to offset there spending. overall interest down to 3.1% on debt.
China , saudi arabia or just about anyone gets tired of fiancing us and rates go up or just a matter of time and they keep piling on debt and they will print money like crazy.
Assets may fall for awhile but eventually everythinghas to go up or blow up unless they truly stop trying to control everything meaning cutting the size of the gov and getting rid of so many laws to slow down the workers and I do not think us regular Americans are ready for that kink of freedom yet, everyone has something they are afraid of so they want there part of the gov to protect them.
Sorry long way of saying I think inflation wins hands down when we lose that safe-haven aspect or screw something up world wide.
Buffet and Gross probably see exactly the same scenario unfolding, they just differ in the timing. I put my money on Gross for now. Buffet is usually right, but he is also usually early.
El,
your Avatar is Child Abuse!.
Better watch the Goon Squads.:>)
Gross: he is expecting the Fed to move out the duration curve and buy those longer rates down.
Buffett's bonds are not going to go any higher but probably not any lower either. Neither one can "get out" of positions that large at any rate.
+1
Both are mere examples of "go for broke" because there is no other option.
In essence, each position is premised upon the assumption that, "the system will continue to exist". Good luck with that.
Of course, there *will* be a system in some form. However, one cannot hedge against arbitrary seizure by a desperate government (talk to bond holders, corporations, and private investors in Argentina in 2001).
Neither Buffet nor Gross will be able to service their existing liabilities. They are bankrupt now. Further, the system in which they exist is not viable (e.g., the parent governments are themselves insolvent). The only reason we pretend to talk about Buffet and Gross is because liabilities are fraudulently accounted to squeeze out months or weeks of additional ponzi (deliberately and intentionally so, with consensus by regulators and governments).
Speculation on their posturing is like an "intellectual twinkie" -- fun to chew on, but no nutritional value.
@mikla
LOL -- I love it!
If Bill Gross and Warren Buffett got drunk and made a baby, that's probably what it would look like.
"Tell him about the Twinkie."
"What about the Twinkie?"
+100000
A popular opinion on this thread is that we'll have deflation first followed by inflation. A bicycle innertube can be inflated, deflated, inflated, etc. as long as the tube remains whole. I suggest we wait and see what's left to inflate after deflation has run its course before forecasting inflation / hyperinflation. A breakdown of your economic, financial, government and social systems would be equivalent to having a big hole in your innertube. Some suggest these systems are already broken or breaking down. Deflation will exacerbate existing problems. There may be nothing left to inflate.
Hilbilly, I've been of this view since late '08 when I was introduced to the concept of a CDO. What happens to a company's balance sheet when an asset that they are valuing for something suddenly becomes worth zero? The money has vanished (I love the economists calling this a "jump condition"). Can't figure out how to get to inflation except through the new food stamp credit cards. They support the CA casino business and the fish mongering business near Boston (to my personal observation this afternoon, two lobsters, thank you very much).
You just named Big Ben's nightmare.
- Ned
A slow deflation over the next 3 years. The Fed eventually gives up.
(The peasants notice nothing)
A quick deflation over 6 months.
(The peasants are revolting)
A military coop.
(The patriots cheer, as we've preserved our slow-motion eagles and flag propaganda.)
Massive inflation as we go through currency issues after currency issues.
(The patriots blame it on "those people and what they did to this great and glorious country")
Civil War.
see, if you put the military in with the chickens, they won't bother anyone ;-) - Ned
Opps
(HA! Too funny. )
You know I read and hear a lot about this upcoming inflation or even deflation leading to hyperinflation. We won't see any inflation for sometime to come. Everybody does however agree that we are drowning in both public & private debt. You want to study the correlation of stimulus, QE, inflation and deflation in a debt ridden society? Well look no further than Japan.
Japan has been spending wildly for over 20 years now and I bet they forgot how to spell inflation. Debt has the same effect on the economy that plaque does in a blood vessel. It slows the circulation.
Change your habits, maybe have some surgery and in most cases the patient fully recovers. Don't change your habits, ignore surgery and the patient eventually dies. The US and all other debt ridden countries must change their habits and undergo financial surgery or go the way of Japan.
For starters the US needs to speed up the debt default process that they are successfully stalling and let the bankrupt companies in America be dissolved, broken up or sold to those who are responsible business people. We will continue to slog along and experience more deflation than inflation over time. The only inflation that occurs in a debt de-leveraging environment is inflation caused by speculators bidding up "other" asset classes. More commonly commodities.
That is all bullshit.
Look at Europe, why was the Euro inflating when it was on the cusp of debt distruction ?
why did Europe experince inflation even before the trillion euro bailout was introduced ?
What are you talking about, Europe experiencing inflation prior to the bail out? They haven't experienced any inflation at any level that of that being debated here in the US. We (the US) have always experienced inflation over time. That's another topic for another discussion. The discussion here is what is going to happen as a result of the policies being followed by the US and the rest of the world.
Inflation is a result of everyone, everywhere loosing faith in the value of the dollar. Just look at the plight of the US dollar since it's introduction. I guess you could call this "controlled" inflation. Now what we haven't experienced is everyone throwing in the towel and giving up on the dollar all together. This is a long way from happening. The powers to be will shift to a world currency before this happens. Which, I would say is far more likely than hyper inflation. Notice I said "hyper", not just a spike in inflation.
(2) Too much money chasing too few goods. Actually this really isn't even inflation. It's just prices adjusting to demand, which is what happens when speculators chase commodities. This can howerver morph into a catalyst to real inflation.
What ??? You don't think the Euro going from 1.5 to 1.2 is currency inflation ?
Answer this question, Did oil and gold get more expensive or cheaper for Euro earners when the Euro went from 1.5 to 1.2 ?
Why did Europe experince this inflation ? Because Greece could not service its debts. Notice how the Euro was on the cusp of debt distruction and they got inflation, not deflation.
When the contracting US economy can no longer service the US debt, the debt will get sold off. The dollar is backed by the debt so the dollar will selloff also. When the dollar sells off it loses value(INFLATION) Just like the Euro did.
You are taking a snapshot of what a 60 to 90 day window and declaring that Europe is experiencing bad inflation. That's just not sensible.
"When the contracting US economy can no longer service the US debt".
The US can theoretically "always" service its debt. That's the nature of our monetarysystem. Ben, we need more ink! OK Timmy I'm coming.
Plus the bond boys (and gals I suppose) know that the US will do whatever it takes to keep them comfortable. Even if that means screwing its citizens. Which they will are are going to do. So pucker up Spitzer, your going to get screwed like the rest of us.
What I am trying to get through everyone's head is tha europe was experiencing currency inflation, not demand pull inflation.
Yes, the US will do what they think it takes but so did the Romans and the Persians ect. They will not be able to keep it together. It is mathematically impossible.
Only the currency never finds its way into the real economy. Isn't this what the BOJ does, they print up currency and park it in dummy Money Market accounts, then retire that money when it is no longer needed? This is what happens I suppose when you can no longer monetize debt, which is the essence of the Fed/Treasury T Bill hand-off scam. Most currency is notational anyway, the velocity of money is crashing, while M1 is rising faster than M3 (shadow), but that's just the tail of the dog.
...
Global inflation + Local Deflation = Stagflation with lower standards of living.
just the opposite. US debt denominated in dollars will be sold off and the dollars will flood the US.
Lower standard of living for whom? So we pay more for gas (please go up I like less idiots on the road), food, etc. I'll be able to buy some sweet ass stuff for pennies on the dollar if we keep this up very soon and in 5, 10 years be richer than ever.
I'm thinking flagellation!
Finally we get to see Buffet swimming naked...Go Grossy
Oddly tho, if he's shortening up on his bonds it won't matter to him.
Perhaps he's going to buy a hellazillion dollars of TIPS and retire.
https://self-evident.org/?p=839
Didn't TIPS recently go negative?
I've been with bad Billy since January (cashed out of my junk bonds).
I voted in the poll for we're past the point that it matters, but you'd have to be dumb as a stump to expect any serious amount of actual consumer price deflation, with so much firepower set up against it and all the major media prepared to justify any amount of collateral damage.
You can all yak about deflation or inflation. The fact is that money was given by the bucketfull to banks in the great depression to lend and stimulate (this is factual and go look it up).
People were so fearful of debt becuase everyone los ttheir homes that they wouldn't take loans out. The banks on the hand wouldn't lend it anyway finding govt t-bills a better choice.
Sound familiar? Velocity of money has plumetted and will only get worse IMHO. Deflation it is.
Those touting hyperinflation are squid collaborators. Nothing more. They are setting you up to buy inflation assets. All the while they buy govt t-bills.
Cash is king and will be for a long time
Thoughtful points, but it really is different this time. Much more deflation in housing and CRE prices, and 99% of the banks in the US will be broke. The FED, the club for the biggest bankers, will not allow it. It will be countered by heavy money printing. Remember, in the 30's we had a gold backed currency (at least vis a vie foreign central banks) which limited the FED's ability to print $ (too much printing and we would have lost gold, instead of adding to our gold stocks). This continued until Nixon revoked gold covertibility in August, 1971. Now, with no gold convertibility, the FED is not restrained from printing to infinity. The problem will be that it will be like pouring gasoline on a pile of paper (actually the dollar is linen)--once there is sufficient spark we will all be witness to a towering inferno.
Perma-deflationists beware, because we don't know what that spark (black swan?) will be and when the conflagration begins. It could be as soon as the Fed announces an additional one trillion $ addition to its balance sheet. Gold, imo, sees this coming.
P.s. If you knew me you would know I am not a squid collaborator.
Ya know, someone really ought to have a chat with Nixon 'bout this.
Just sayin.
Money given by the bucket full to banks in the great depression? I don't know which Fed you're talking about, because the US Federal Reserve Bank after 29 tried to maintain the gold peg despite downward pressure on the dollar, causing a protracted run on the dollar for conversion into gold, massively de-monetizing the economy. Then later after multiple waves of bank collapses, the Fed finally tried re-monetizing, but not by nearly as much as the economy had been de-monetized since 1929. This is the cornerstone of Friedman's monetarist explanation of the depression. You go look it up.
It's true for now that this not an inflationary environment, because banks don't want to lend out the $1.2 trillion of cash they are sitting on, and it is mostly sitting in reserves accounts at the Fed earning 0.25% interest, where the Fed just sits on it, thus keeping it from going through the money multiplier and expanding M2. As long as the economy's weakening, it seems unlikely banks are going to change their minds.
But we don't know what banks would do if the Fed renewed quantitative easing (merely shifting from mortgages into government debt is not QE), or cut the rate paid on reserves balances. A lot of people seem to think that QE2 would inevitably be nearly all converted into accumulation of cash by banks in their reserves accounts, because that's what happened with 90% of QE1. The important thing to understand is that it is entirely up to the commercial banks what portion of QE turns into cash accumulation and what portion is turned into currency, increased required reserves and broad money. Their decisions would depend on all sorts of factors, including the severity of the downturn that we would presumably have to be in before QE2 was enacted, and whether or not they think they already have enough cash. That's why I think up to double-digit stagflation would be a very likely result of QE2.
And if there's no austerity by 2012 and the Fed were to try to monetize this level of deficit plus debt repayments, that would cause hyperinflation. Or you could get severe deflation if the Fed abstained forcing the government to suddenly eliminate the deficit and default on debt repayments. The difference would be almost immaterial, except to people who wagered on one or the other outcome, which frankly strikes me as a geek's gamble.
http://keynesianfailure.wordpress.com/2010/08/13/qe2-the-overblown-herohorror-stories-and-the-mediocre-reality/
The parallels are pretty fascinating. Only difference is today $$$ aren't backed *officially* by gold.... *yet*
besides who owns the squid - duh
LIKE MOST RIDDLES FOR THE AGES, THE ANSWER LIES JUST BENEATH THE SURFACE AND WILL SEEM OH SO OBVIOUS IN HINDSIGHT. HOW ABOUT THEY ARE BOTH RIGHT. GROSS WINS THE FIRST FEW ROUNDS UNTIL THE EMERGING MARKETS PUT DEMAND PRESSURE ON COMMODITIES AND INFLATION EXPLODES WITH BUFFETT TAKING THE FINALE. BUFFETT COULDN'T BUY THAT MUCH GOLD WITH ALL THAT TRASH CASH SO HE BOUGHT A GOOD OLD FASHIONED OLIGOPOLY THAT WILL RAILCAR CHEAPER THAN TRUCKING THEN AND WILL ALSO PLAY INTO THE CHINA GROWTH STORY AND IS ALSO A SURVIVOR IN ANY ARMAGEDDON TYPE EVENT SO HE HAS ALL BASES COVERED.
+1
As I've said before, it's either assets to ashes or debts to dust.
Or inflation and deflation cancel each other other, leading to flat prices, or flatulation.
well put. you should write the entry for investopedia.
Nice... Very nice.
inflation for the billionaire excess, er, execs, deflation for everyone else.
Just because Gross is buying long term debt doesn’t mean he’s in it for the long term. Gross knows he has more influence over Fed actions right now than any three Buffets combined. He’s positioning to play that strength until it starts to fade. Then, he’ll start dumping those long-term treasuries faster than he would a girlfriend who just got herpes. Gross is a trader and short term player. Like many in his league, his real edge is market power, not superior market intelligence. Buffett is a true investor, albeit a scavenger. He’s in it for the long haul. With few exceptions, he rides the train to the end of the line. I’m with him; I say inflation in the long term.
I suppose they have good traders working for them.
In 5 years I bet their net from these positions is within .5% of each other.
I'm going with the bond guy on this one.
In the end both dudes will be rich as hell, the rest of us upper 2-3% will be better off, the middle-class HOSED, and the piss poor/illegals will just have more company. Gross now, Buffet (and Gross when he switches strategies in a year or two). Win-Win
Inflation is like toothpaste; once out of the tube it is quite impossible to put back in. Ergo, reflate all input costs (materials) for housing until average house price exceeds mortgage lien amount. Homeowners and banksters win and Obama wins second term for saving America. Farmers are happy too as wheat moves north of $30/bu. and the euro trades at $2.60 U.S.....Buffett wins over Gross with a TKO in the 57th round.
Updated DOW and SP500 charts:
http://stockmarket618.wordpress.com
Buffets richer, ergo smarter, ergo inflation, ergo Go Gold!
Bofadem! d comes before i.
Nah, no such thing as price inflation. There is monetary inflation and price increases. Using prices to determine level of money supply is flat wrong. Prices change for all sorts of reasons beyond money supply, but there are only two sources of monetary inflation: printing and credit. When debt is defaulted, money supply shrinks. And don't forget the dollar is not a parochial currency, its world wide.
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