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Harley Bassman's Model Portfolio For 2011, And Why "It Is Just A Matter Of Time" Before The Fed Creates Inflation
Harley Bassman, who used to head Merrill's RateLab, and who was one of the most erudite sellside voices on rate matters, and doubly so on mortgage issues, and subsequently moved to Merrill's prop side, has kept a low profile recently. Which is why we are happy to present his model portfolio for 2011. Bassman is a firm believer in inflation (synthetic or real), and we for one would pay good money to see the redux of the Rosenberg vs Grant debate in 2011 be Rosenberg vs Bassman. Bassman's conclusion, even though obtained in a circuitous way to our own, is comparable to the Zero Hedge thesis that the Fed will have no choice but to eventually create inflation. "In a nutshell, the FED (with the help of the Govt), is going to
engineer some type of Inflation to reduce the value of both our Private
and Public Debt. Since Inflation is the only solution, it will happen;
it is just a matter of time. Since the entire G-7 is in the same boat,
trading in Euro or Yen is purely a short-term speculation since all
these currencies will be heading south." Where Zero Hedge and Bassman, however, differ, is that we are certain that the Fed will be unable to contain said inflation once it has finally been unleashed, resulting in a complete wipeout of all assets that are directly or indirectly a rate derivative (ref: a very notable reparation paying, post-WW1 central European state), which means all fiat derivatives, leaving only hard assets in the wake.
Bassman's Model Portfolio for 2011
1a) Long "Big Oil" + "Big Pharm" + "Big Tobacco" + etc equities. I am precluded from making naming names, but you know what I like. Mega Cap international stocks with patent and pricing power. P/Es of 13ish (an earnings yield of 7 1/2%) and Dividend of 2 1/2% to 4 1/2%. FED will encourage Retail to reverse out of Bonds and into Stocks.
1b) For "non-stock pickers": Buy the S&P five years Forward at a discount to Spot. Sell Ultra long dated (five to ten year expiry) calls.
2) Buy Brazilian Local Currency Bonds. Yes the "Real" at 1.67 is rich, but the 10 1/2% yield for three to six years will more than offset the Govt's efforts to weaken the Currency. Unlike China or India, Brazil is a "hard asset" country.
3) Buy Russian // Mongolian // Southern Caucus Equities. I want "hard assets", not cheap labor. Yeah, this region is sort of lawless and it is unclear if your legal claim will be upheld. But at some point Russia, etc, will need to bring in Capital and reform is likely. Most importantly, this region is a "negative beta" to the G-7 race to the bottom.
4a) A diverse portfolio of Long-dated Municipal Bonds. You can find a selection of AA bonds in the 10 to 20 year sector that yield 5% or more. Since rates can only rise if the FED is successful in reflating the economy, a higher rate world would tighten Muni ratios. Also, I do not see taxes declining anytime soon. Muni's have a massive negative spread correlation to Treasury rates. Long Muni bonds will simply not sink below 4% on the downside and will start to compress at 5% to 6% on the upside. These "retail" bonds are super sticky at these coupon levels.
4b) Buy Closed-End 35% leveraged Muni Bond funds. Either National or Single State. They trade at a 5% to 8% discount to NAV and sport yields near 6.0%
5) It goes without saying I hate Treasuries, especially 3yrs to 7yrs.
6a) Buy 10yr into 10yr 6.0% swaption payers (puts) at 435bps. This trade is analytically "Positive Carry" for the first three years as 9yr, 8yr and 7Yr payers also struck at 6.0% costs 450bpb, 465bps, and 475bps respectively.
6b) A variation of above: Sell 3y-10y 5.35% payer vs Buy 10y-10y 6.00% pyr for zero cost. This trade is long a 10% delta, so there can be some severe mark-to-market risk. Nonetheless, this trade is a carry monster. Moreover, I do not think we can break T10yr above 4.05% as long as the FED is on hold, which should be sometime into 2012. Pure "roll down" on this package is 175bps for the year and the net delta decays from 10% to 3%.
7) I hate to say it, but I kinda like owning some GOLD. I would execute via either a costless collar trade (buy OTM call vs sell OTM put) or via our famous "Quiet Bull" structure (long call spread funded by short an otm put).
8) And of course, CMM vs CMS for 6 months, now offered at 59 3/4bps
SUMMARY: In a nutshell, the FED (with the help of the Govt), is going to engineer some type of Inflation to reduce the value of both our Private and Public Debt. Since Inflation is the only solution, it will happen; it is just a matter of time. Since the entire G-7 is in the same boat, trading in Euro or Yen is purely a short-term speculation since all these currencies will be heading south. The question is: "When will the non-Western USD/EUR/Yen buyers take actions that will defend their longer-term Purchasing Power ?
If you are reading this note, congrats on having survived the Great Wall Street meltdown. As I have noted, this period is nearly identical the last great Financial Meltdown from 1989 to 1994....and I can assure you, it will end in a similar manner: FED steepens Curve to allow banks to re-cap via carry.
Happy 2011
h/t First Last
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I'll like the infinite return zero risk quadrant please, Alex
Silver Brothas
http://www.youtube.com/user/BrotherJohnF?feature=mhsn
"In a nutshell, the FED (with the help of the Govt), is going to engineer some type of Inflation to reduce the value of both our Private and Public Debt. Since Inflation is the only solution, it will happen; it is just a matter of time."
I'm surprised some people still fail to grasp this. Every sovereign crisis since the abolishment of monetary standards has been solved with inflation.
What government would be foolish enough to act its own death sentence with deflation?
The govs and central banks even say they will inflate. I don't think the deflationists fully grasp that they can print virtually limitless money. They say there is no way to print the amount destroyed, but at a whim Ben can toss out 1*10^4932 dollars. All the derivatives in the world aren't a fart in a hurricane to that notational amount.
I'm grateful for them though. Their shattered portfolios will slow the beast of inflation and give us more time to prepare for the storm. They valiantly give their fortunes to give us more time to get ready.
Deflationists, I salute you!
I've never understood deflationists. Indeed, the Fed can print unlimited amounts, and even more easily than in 1918, Germany: at least back then, it was limited by the amount of paper, ink and factory workers available. Today, all it takes is a computer, and ten seconds of time.
Well in their defense a deflationary bust should follow an inflationary boom. However that is under a hard money system. As there is no hard money there is nothing to stop the central bank from injecting enough money to turn the deflation into inflation. But the result is just fueling the problem not fixing anything, making the end of the road readjustment all the more painful. The devil always gets his due. Just look at the tech bubble, should have had a bust then. Instead the CB poured it on and gave us another bubble.
Reading about the inflation Germany it was amazing the amount of men working on the presses. Your right, now the is basically no limit and it's instantly available and transportable around the world. With that in mind I expect it to come at us even faster and harder then it did back then when the levy breaks.
These are all excellent points from the above posters that the clueless deflationary flat-earthers fail to recognize or consider. And I still believe that most of the wildly specious and irrational talk of "deflation" that suddenly sprang up around three years ago is and was a purposeful campaign of deception and disinformation organized directly by the political and financial PTB, designed to deflect attention away from the REAL and obvious danger of inevitable currency depreciation.
"And I still believe that most of the wildly specious and irrational talk of "deflation" that suddenly sprang up around three years ago is and was a purposeful campaign of deception and disinformation organized directly by the political and financial PTB, designed to deflect attention away from the REAL and obvious danger of inevitable currency depreciation."
I believe this too, even if it may sound conspirational to some people. There are psy-ops operations and "community managers" everywhere in the medias, and the Internet is one. Scaring the sheeple into deflation makes sure precious metals and other hard assets will all go to the big boys. Never underestimate the power of messages dropped by trolls on a popular media outlet or blog. If thousands of people read this, then you've won. It's like advertising.
George Soros called gold the "ultimate bubble" on the mass medias, meanwhile he is buying gold by the ton. I know from several sources that UHNW are piling up PMs currently. Of course, Bloomberg won't do any report on it. They prefer talking about African injuries in gold mines to drive the emotional sheeple out of the naughty gold.
Every famous bear (Roubini first) is deflationist. It's no coincidence the only bears allowed to talk in the medias are deflationist. The only exceptions are Jim Rogers and Marc Faber, who have no popularity outside of the specialized financial press.
Everyone talks about Roubini or Krugman, including the mass medias (NYT, CNN, etc.). When Faber makes the headlines of the NYT, the deflationist crowd can wake me up.
While I'll give you the media since they are just puppets for their owners, not so sure about some bloggers. Not that is matters, each person should do their own homework and make a decision. This is why I dislike some in the gold bug camp that push the gold bug view without outlining a base or advocating people do their own research. Hate to say it but sheep get fleeced.
I'd like to see your sources about rich folk piling into gold. I've caught a taste here and there but nothing that I can really pin down. Some hedge fund managers to, but looks like for a while at least they were flirting with disaster, GLD.
Like every really important event, this is not reported by the medias, nor numbered or charted.
You have to know rich folks, and I know the 'old money' has been actively buying gold and other hard assets since nearly 2007. They're just dumping their cash, on whatever. Gold, silver, platinum, titanium, lands, forests, real estate, art, liquors. Before that, they were mostly on stocks. I'm talking about what's happening in France, I guess it's the same in the US.
I'm not saying every rich man is buying PMs, though. 95% of the current rich people will get slaughtered like hogs, and this will be an interesting wealth redistribution to watch. Only the old and not degenerated money circles understand the importance of PMs.
edit: if my memory is good, ZH runned an article on UHNW buying gold a few months ago.
How about the fact that silver was up 80% last year. Did you hear that reported anywhere?
http://www.youtube.com/user/BrotherJohnF?feature=mhsn
Rich people invest to maintain or increase their position in society. Because that is the way they got rich, by being central to a society.
Kind of comments make me think of guns hoarders. Guns hoarders fail to understand that people can buy guns with different purposes, some paying back their guns by their use and the others losing money on guns.
Guns' main use is to back up or ease an extortion scheme. Some people use their guns to extort money (like the US army) In their case, their armament is paid off by the wealth they extract off the extorted.
The others, the gun hoarders, are not only losing their money but they help the other side to grow more effective. Suicide mafia style,concrete shoes and all, but this time, real suicide because self inflicted.
Gold bugs are funny people. Just as they would want their purchasing habits killing people at the other side of the world to be a conspiracy theory brought by the MSM, they love to ignore that in hard currency systems, the control over money supply is achieved through withdrawal from the pool.
Most people's revenues are delivered in fiat. Gold bugs do not circulate their gold and keep hoarding. They take from fiat (in expansion) to hoard in gold.
In a hard currency system, your revenues delivered in gold (or else) would go shrinking and shrinking in a similar context.
Rich people are neither in gold or cash or anything to store value or stuff like that. They are in everything that can help them to maintain their position in society. They would be poorly advised not to be in cash as most people receive their revenues in cash and many assets that can be critical to maintain their social position, are losing faster value than fiat currencies.
Gold is not circulated. To maintain their position, they need to invest. Just like guns owners.
Well, I have to disagree with you somewhat. What drove me to look at gold back in the early 2000's was the revelation that a rich guy (on forbes top ten that year) was building a vault to store "a pile of gold he just bought". I personally saw the vault as my best buddy was the head of security for the man and took me on a tour of the facilities.
Don't think for a second that rich folks are not buying gold. To maintain their station in life they need to retain their purchasing power just like the rest of us.
Their purchasing power comes from their social position.
You reverse causes and consequences.
Of course rich people can invest in gold but not with the purpose of storing value as so many on here would like to sell.
If maintaining the social position requires that a rich person or a group of them sell at a loss their gold, they will with no blinking.
Exactly - but it is part of a balanced portfolio. The media seems to portray gold bugs as people who put 100% of their assets in gold bars that the bury in their backyard or something like that. Sane people will probably have gold as somewhere between 10 and 30% of their assets.
Ever heard of Gresham's law?
Peter Schiff a well-respected economist has been getting a lot of air-time and he's been warning us of hyperinflation.
Peter Schiff a well-respected economist has been getting a lot of air-time and he's been warning us of hyperinflation.
According to "When Money Dies", you'd sit down for a cup of coffee, priced at 5000 marks, only to find the price had gone up to 8000 BEFORE you finished the coffee!
Lemme help out...study what guys like Mish or Douchinger say...they in a cute naive childish kinda way expect the rules and the law to be followed. They see a monetary system requiring credit creation to grow, so without that, they assume deflation must be implied. And this is certainly right insofar as credit goes. However, this would cause an implosion; the Fed knows this. The deflationists on TF argued till blue in the face that printing would be akin to the Fed sticking the "gun in its mouth." But deflation is exactly that to everyone in debt and everyone leveraged, including ALL of the Fed member banks and the government with whose charter the Fed operates. The Fed may not go apeshit printing, but it will print enough to stave off the collapse of the monetary system, printing the coupon and whatever interest is needed to prevent a deflationary implosion.
+ 0.5
You only get 1/2 a + because in order to stave off a collapse, the Fed will have to redefine "apeshit printing".
It is funny to see Denniger just rant. Only a fool expects the big boys to play by the rules. The laws are for the serfs, gone are the days of the Magna Carta.
And never quite got why they think it's suicidal to print. It's not like they haven't been printing for decades. Anything to keep the ponzi going as long as possible even if it means eventual death. All doors lead to dollar death, they pick the one that will prolong the agony.
" All doors lead to dollar death, they pick the one that will prolong the agony."
Beautifully summed up.
As I've said on previous posts, all the FED has accomplished since 2008 is postponing the inevitable, gaining more time, and Bernanke is very aware of that. He's a liar, but no dummy. He perfectly knows nothing can save the economy. He has been chosen by the elite to shoulder the public relations side of the thing. He's just a tool. Criticizing Bernanke is like criticizing Obama. Just puppets, tools.
He will print, print up to the final death of the US dollar. The US dollar will die, but the US government will strenghten, and so will the elite. Inflation has always reinforced governments. Deflation always killed them - that's why we have no real example of deflation in history.
On the plus side his delaying tactic is allowing me to get myself and my family ready. Had he pulled the plug in 08 I would be have been totally screwed. So he buys himself and his allies time, but also us little guys who caught on. The pisser is I always knew it would go this way but I figured it wouldn't start till 2016 so 08 was a surprise. Knew housing was a bubble but thought they would just paper over it. Ah the idealism of youth!
As to the US gov strengthening, not so sure. The gov is basically a wealth transfer system to the oligarchy. But it also has it's own fiefdoms of bureaucrats and smaller parasites that will squabble for resources. Without the global inflation tax in full effect I'm not sure social cohesion can be held in the US. It depends in if foreigners(looking at you China) will help the oligarchs oppress the US, or how willing the US Army is willing to suppress the people. I'd say about 50/50 about going either Stalinist police state or bloody civil war as the states try to get out from under the tax burden of the central gov.
"On the plus side his delaying tactic is allowing me to get myself and my family ready. Had he pulled the plug in 08 I would be have been totally screwed."
+++++++
The critical thing to understand is that no new money can get out into the system unless it is owed back in. In other words, it has to be someone's debt. The federal deficits are exploding because the government is the borrower of last resort, and the fact that they are borrowing so much is an indication that no one else can or will borrow.
The subprime crisis indicated the same thing.
Right now the government can float thing for a while by going into the red; but as Greece and other European disasters show, that cannot go on forever, or even for very much longer. Debt levels are already too high.
It's the "can". Americans would love to be able to borrow more to consume, they are just limited because so many of them are bad risks.
My safe deposit box pines
For a 1MM unsecured credit line
For gold and silver I would take deliver
And post default it would be mine
Cooter
That's a contradiction.
If they want inflation, why wouldn't they hasten it by making more credit available to more people, and then print more money to bail out the loans gone bad?
Why would they not actually encourage more bad risk loans if massive inflation is the goal?
I'm legitimately asking, as maybe there's a workaround that seeming contradiction.
They did. What do you think all of the no doc and bad credit mortgage loans did?
Ummmm . . . they have been trying to reflate for two years now (+trillions in stimulus)
I agree that we will have inflation eventually but not before deflation rids the system of the huge overhang of debt.
And they have succeeded. The CPI is not in the red, though more moderate than before. At the slightest sign it is going red, rest assured that Bernanke is going to print like hell.
"not before deflation rids the system of the huge overhang of debt"
There are three ways to get rid of debt: the first is to pay it back with value, the second is to pay it back with money, the third is to default.
Inflation and riddance of debt are compatible. Hyperinflation, basically, pays back all debt.
One point I give you is that we're going to see a deflation on leveraged products such as housing, while having an inflation on necessary products.
Of course, houses are necessary products to the people who live in them.
But you outline something of a nightmare scenario, where the price of what you already have is collapsing, while the price of what you need to buy is increasing.
I hope that's not the case, but it's possible.
"Welcome to my nightmare! I think you're gonna like it. I think you're gonna find...that you belong!" -- Alice Cooper
Isn't that exactly what's already happening today?
They wouldn't do it intentionally. There are circumstances where they can't stop deflation because of widespread debt default at high debt levels.
When this happens the creditors want the government to squeeze the debtors. When the debtors push back the government is between a rock and a hard place: they can piss off the debtors and provoke social unrest and violence; or they can piss off the creditors, by and large the financial class, which funds them and gets them elected.
At first they will risk the social unrest and violence because it's easier for them and because their habit is to be toadies for the financial class. But when the risk begins to be realized, and it gets harder to squeeze the debtors than to say no to the financial class, then they'll do what's easier again. They will always do what is easier. The path of least resistance is the rule.
As long as they favor the financial class, though, the threat is deflation, not inflation, because the financial class is very much opposed to inflation.
There was a brief interruption in foreclosures which has now come to an end. And indeed the financial classes are insisting on resumption and alacrity. This will further aggravate homelessness and government debt even as it depresses consumption and increases inventory.
The elephant in the room is not inflation or deflation; it is the debt. It is unpayable. Since it cannot be paid something else will have to be done.
For more on this, go to:
http://strikelawyer.wordpress.com/2010/12/30/inflation-deflation-debt
And see generally:
http://strikelawyer.wordpress.com/
But could not the debt be paid, via the magic of inflation (and controlling the world's reserve currency and most powerful military)? The trick would seem to be no more, and no less, than keeping some approximation of control over the rate of debasement; like the proverbial frogs in the pot of water, you'd want to bring things along at a relatively slow boil, lest the prey leap from the pot too soon.
this is categorically WRONG and why the deflationists are so misguided.
Think about 2008...what happened there? EVERY SINGLE BANK on the planet was about to go tits up. Those corporations ARE the financial class!
It is telling that during a relatively mild deflation, every major actor in the "financial class" was about to go BK. This is why the Fed began to print; they don't give a shit about US, but when their membership is about to get vaporized, then they spring to action.
They relieved all of their members of their trash paper and the Fed will eat the losses on these products because the Fed can eat infinite losses so long as its FRNs are worthful.
Debts CANNOT be purged; this is a one-way system.
Correct. The pack of rabid dogs that they are were thrown red meat before they turned on each other -- barely in the nick of time.
That would be any country that gave up its currency to join the Euro.
It's just part of the game. They have deflation one time for a nanosecond and then they keep harping on it.
Same thing with the hope and change crap. They stay their hand for one or two ghandi archetypes and then they try to hold everybody else up to that standard. Giving 10 brutalities for 1 or 2 reasonables.
But my all time favorite they are passing around is the "there's rules". I've seen it on many instances. Yes there are rules. YOU JUST DO NOT FOLLOW THEM YOU COUNTERFEITING, THEIVING, LYING, STEALING, CHEATING BASTARDS. They only follow them when they believe someone will hold them to it.
So I want the oligarchy to say it. Say there's rules. One more time. I fucking DARE YOU.
And the 99% of the population suffers from not being able to afford food or fuel whilst the other 1% eats cake
Not sure about 99% -- maybe 90%. But 90% of the remaining 10% can't trade swaptions, or (easily) purchase Brazilian bonds or Caucasus equities.
Another spot on observation. The last time it happened in France the results were not good. Which begs the question: what element was taken out of the drinking water around the Bastille in the ensuing 3 centuries to convert angry peasants into sheep. If the answer is the Bismarkian welfare state, that would be interesting as welfare states are bankrupt everywhere: the US will never fund NPV $120 trillion in future entitlement payments absent a collapse in the reserve currency. Perhaps people just haven't grasped it.
I don't see how the US funds future entitlements in their current form - with or without inflation. I'm referring to health care in particular.
It won't because it can't.
Inflation is a form of stealth default on those caught long out on the curve, or for those who will receive defined benefits. Health care costs will skyrocket with inflation, so inflation will not bail out that entitlement mess. There simply will be less offered, there will be a default on the empty promises.
It boggles my mind that the government has not tried to stretch out the average maturity of debt.
Running the same practical logic through ALL the government programs meant to feed, shelter, and otherwise care for folks - compounding the problem by adding in all the retirement / pension obligations - etc. - and we have a bonified recipe for lots of cold, hungry, sick people in the very near future. The Fed might cause economic (hyper)inflation, but overall we are heading for a population deflation in short order.
Peak Oil
meet
Peak Population
Peak Population meet NSSM 200.
It was pluto came around to flip their cake.
And just what makes you think they can't contain the inflation. The mormons are working on understanding magnets. It's just a matter of time and they'll have magenetic containment up.
http://artoftrolling.memebase.com/2011/01/03/mormon-troll-jebus-is-not-h...
"what element was taken out of the drinking water around the Bastille in the ensuing 3 centuries to convert angry peasants into sheep"
It's the TV.
The Roman ruling class would no doubt be awestruck at the heights to which our "rulers" have taken bread and circuses.
Tyler-
I've played with the (arrogant) Frogs, just a skosh. I'm convinced that the element taken out of the society was the devastation of the WW I poilu--poor bastards were truly cannon fodder (well, 20th century same-same).
Result (after the mutinies) was a) disrespect of "authority" and b) excessive babe population. Since we know that a soldier who "won't fuck won't fight", and these were the survivors, well...
Then add the '40s Jedberg insurrection and "Le Grand Charles avec le Grand Nez" and voila. No real interest in a common interest.
I'm inclined to comment with my narrow experience, because, well, I spit out my seltzer when you wrote:
d'ya think?
- Ned
But when the government defaults is that inflation or deflation, or is it something else?
We're in uncharted territory. We have never had debt levels this high, and we have never approached a crisis like this in a world wide floating currency environment.
The floating currency regime is what's at risk, ultimately. But does that mean inflation? Hyper-inflation, maybe, but that could as easily result from a prolonged period of deflation as inflation.
Gold is still good. Because as the massive international default in all fiat currencies becomes more and more certain, the smart money will abandon those currencies for the only alternative left.
Since the whole worldwide banking system is tied together, I would wager it is deflationary no matter what. It is a wholesale destruction of debt on a massive scale that would ripple through all balance sheets.
I do think that various currencies, for thier own reasons will have to adjust (be forced to adjust). Especially as the hot money moves through paths of least resistance, heating up any country or region where a carry-trade offers returns.
Agreed on PMs. Not a trade. A ticket to the other side hopefully.
"A ticket to the other side hopefully."
Exactly.
If the government defaults, it's currency becomes worthless. This is hyperinflation.
Nothing at all.
Just like Nobles in old times could transfer wealth from their serfs (and their serfs exclusively) to help going through harsh times, the western middle class can transfer weath from the rest of the world to ease their difficult times.
People being squeezed out of their wealth to support ways of life of others are not to be found in the West.
Blood from a stone. You can ask for price increases, but folks are starting to reel. Blue Cross just announced it is increasing many California individual policies as much as 59% - if Jerry Brown approves. Rode a bus the other day and a nice lady said she sold her car because she could not afford it. Never heard that before in America. The tent city recently demolished by the city fathers is building back up on the lawn of a local church. Adds a new tent each week.
Good luck to everyone.
My wife works at a large clinic run by a LARGE provider. Their health care plan is going up 55% next year. There are a lot of nurses there who work part time simply to get the insurance coverage. A memo was sent out last week for those whose wages would no longer cover the cost to stop into Admin and make their arrangements to pay the difference so that no lapses in coverage occur.
Have a nice day.
Predictions from the rearview mirror are closer than they appear
(Giggle)
Cooter
Could it be said this is already going on with banks getting 0.25% overnight rates and lending out at 3-4% to retail? Or does this imply something bigger and more lucrative?
and a lot at 16% to 60%!
"lending out at 3-4% to retail"
where?
Government employees have fat pensions and mastercards.
Inflation seems like the path of least resistance, but the average maturity of government debt will complicate matters. Success in one area will be failure in another. No easy solutions, as it should be.
I kinda disrespect a guy who supposedly is all about inflation but who likes big pharma and muni bonds - how did those plays work out in the '70s?
Yet he kinda apologizes for wanting a piece of gold or two - maybe- via derivatives!?
Glad I never heard of him previously and hope he doesn't make a reappearance on ZH.
and no food, soft commodities, AG, base metals or other PMs??
http://www.bloomberg.com/news/2011-01-05/global-food-prices-climb-to-record-on-cereal-sugar-costs-un-agency-says.html
Yeah, he is all over the "moderate inflation" thing. Base assumption is that the Fed is wildly successful in keeping the ponzi running, and risk therein is manageable. Bets I simply am not willing to make. Would rather roll the dice on an equity play with Harry a la Zimbabwe!
Yeah. The proposed way to invest is not within the grasp of most ordinary folk; and even if it were, they would not know what to do in the particular markets. A load of crap for me. I have not the slightest interest in engaging the Ponzi face to face. I'd be bringing the proverbial knife to a gun fight.
So keep buying equities is what I'm reading. Why is it that I've been saying this for months and get nothing but junks? This guy says it and it's gospel.
Have you considered it's your delivery?
Some people can tell jokes, some can't! :>D LOL!!
Q."Why is it that I've been saying this for months and get nothing but junks?"
Could be 2 reasons Harry here are my best guesses:
A1. Because your reasoning for buying is totally different from the reasons outlined above. You keep talking up the coolaid drinking economic recovery that does not exist. Bassman is talking about buying equities before the FIAT system implodes.
A2. Because you are a tool and no body likes you.
it's probably a bit of both
Why are we required to validate you? Tis it not enough to laugh all the way to the bank?
Cooter
You are 100% right.
You've said a lot of stupid shit. Most people figure you probably got it from your professor who gave you an A.
Harry, the very comment you just made provides the answer to your own question. Groveling here for "validation" is like walking into a biker bar and proclaiming your love for the Prius. Get a grip -- and some self-esteem.
The true government policy is: Create inflation and talk deflation. That "spread" separates fools from their money.
The Fed is gonna have to add at least two more zeroes to QE2 to even get close to negating all the CDS's time bombs...
So when will home prices skyrocket due to hyperinflation? LOL!!!
How about wages? When does hyperinflation cause wages to skyrocket?
There are a few holes in the inflation case. The government doesn't always get what they want. They want inflation but will they get it? LOL!!!
Did the government want the housing bubble to collapse? Did they want unemployment to skyrocket? Did they want the stock market to crash in 2008?
Goldbugs are counting on The Bernank to bail their stupid asses out just like the housing lemmings thought the government would never allow their home prices to go down.
There is nothing novel, unique or snowflake-like about our current situation.
The Dying of Money
This time is never different.
Now on page 289 of microscopic print. A terrific mind but essentially a statist: ". . . gold, is a barbarous relic of the nineteenth century." (p185)
This series of excerpts, all from one paragraph is actually what caused me to choose my avatar:
"A capital tax is a tax paid out of income but measured by the voluntary excercise of the privilege of holding property . . . the privilege of holding property is a deep and powerful motivating force . . . It is this unique privilege that caused capitalistic systems to succeed and capitalistic systems can continure to reap ample harvests from this fertile source." (p201)
vs Bastiat: http://atlasnetwork.org/wp-content/uploads/2010/10/bastiat_eng_logo11.jpg
For Bastiat, property ownership is a fundamental right--this is exactly the foundation of his criticism of socialism. For Parsons, property is a state granted privilege and as such subject to revocation.
Socialism is plunder: http://goo.gl/BnnJf
Still, a brilliant book and an education in monetary economics!
Thank you for posting this link -- I have been meaning to read this.
In this particular case though, the Fed (and the Govt) is gonna be playing catch-up with their printing presses, since NONE of the lower classes will have enough FRNs to buy the necessities, much less more housing or iPads.
"There are a few holes in the inflation case. The government doesn't always get what they want. They want inflation but will they get it? LOL!!!"
Print enough, and you will have it. Now or in 20 years. At the slightest recovery of the Japan economy, for example, every Yen sleeping in the balance sheets of banks will flow into the economy and cause hyperinflation - or, if the Japanese government begins to directly finance itself with printed money, like that was the case in Weimar Germany or 1946 Hungary, you will have it too. The Japanese example of deflation is not an example at all.
"Did the government want the housing bubble to collapse? Did they want unemployment to skyrocket? Did they want the stock market to crash in 2008? "
No, no, and no. But mostly because they didn't predict it and couldn't take the appropriate measures. Now that they've realized the problem, rest assured they will reinflate stocks (gosh, they're already doing it!). Housing is just less important for the economy than equities, and that's why the government efforts go to stocks currently.
And of course, equities are important inasmuch as they backstop so many state and municipal pension plans, most of which are wildly insolvent but can artificially be made to appear "healthy" due to a combination of creative accounting and a Fed-induced stock bubble.
You win the kewpie doll... or would you prefer a stuffed bear from the bottom shelf?
It cost $1,400 on average to deliver a baby in 1978. Today it costs between $7,000 and $15,000. What do you mean there is no inflation?
OT
I would like someone to make a "National Home Foreclosure Clock" adding up all the foreclosures since 2007. No one on the internet has one.
National Home Foreclosure Clock
Making Americans homeless on the continent their forefathers conquered, one family at a time.
You know what? Fuck them. They signed their names to mortgages your father, my father, their fathers would have never signed.
Reading "The Big Short" by Michael Lewis should change your attitude...
The FED can keep pushing on string but they can not create inflation. Sooner or later the reality of end demand have to be dealt with.
I aint buy'n nuttin. It's a scam.
missed ya!
I'll stay long equities (mainly index EFT's with a skosh of Bank ones) until the bull turns (been long for 22 months) . But then again, I'm a sheeple with an IQ not much higher than my shoe size--LOL. I realize it'll end someday and consider myself being a "blind squirrel" by being long during most of the first part of the current bull market.
How will you know when the bull turns? After you're down 50% from current levels? LMFAO!!!
I sure hope not 50%! I'll probably bail if the market were to fall 20% which given how fortunate I've been in the last 2 years I'd still be up substantially from where I started. I wasn't so lucky when the internet bubble burst so hopefully I learned my lesson back then.
Hope the robo-traders will acknowledge your bailing out within a few milli-seconds, otherwise, too bad, so sad (for you!)
6b) Why not sell that 3y-10y @ 100 bp OTM and collect ~300bp upfront?
Not saying Mr. Bassman is wrong, just what is the risk in taking the premium?
I can tell you with 100% certainty that I won't be doing any of that crap.
1973 gold was $35. After we lost Vietnam and defaulted on the gold window it took under 10 years for it to hit a blow off top of $850.
2001 after they blew up the Trade Towers and started invading countries gold was $300ish. That tells me this cycle has a lot of legs left before the blow off top comes. Slow and steady bull market. If this one lasts 20 years the blow off top could be well over $10,000 and it may very will topple governments. 2021 the gold price will be much higher than $1400...unless we go under another confiscation phase in America.
When the price hikes in energy and food really hit hard, all I know is somebody is going to be shot. I just hope they know who to focus their anger on...
My father said that we were in a new bull market because the Dow goes up and it is "the" sign of the economy. He said Gold and commodities just popped and will go down and the reason other commodities are going up is because we are in a "recovery". Dude, I don't know what to believe anymoe. sigh...
Look for a job, unless you have skills in demand and exp then good luck (nepotism doesn't count here). Is that a recovering economy? Why are food prices moving up in a recovering economy? Americans can't possibly be shoving that much more down their gullets then during the housing boom.
Commodities is still a good place to hide. Jim Rogers is right. If there is a recovery the world will need commodities. If there is no recovery the central banks will flood the world with paper money and commodity prices will move up.
If there is a recovery the world will need commodities.
Would not the demand move the prices up in a good economy? So how do you know that the rise is do to a recovering economy or an inflationary one. Btw, do stocks move up with inflation? the dow has been going nuts.
Are companies expanding operation? Are they building new facilities and aggressively rolling out new product lines and expanding production? In some places yes, but you see that most of America and Europe is hanging on and waiting for the next gov move. So they are not consuming these resources at a far higher rate then last year, but prices are up. So either the economy improved and did tell anyone or all the openly admitted money printing is having the desired inflationary effect.
For economic conditions we see poor employment in the developed world (Some exceptions from the commodity nations), and big inflation out of China. Everyone is printing money, so prices will move up with or without more demand. Some things could still go down from their bubble levels, like housing.
Stocks do move with inflation but not the place to be. Track down a copy of When Money Dies. The stock market in Germany went NUTS in the early 20s, but measured in dollars(gold at the time) the stock owners lost 90% of their purchasing power. Do not get confused with rising nominal prices and true value. If say gold goes to $2000 amidst rising commodity prices ask yourself is that because of
1. Radical and wealthy gold bugs.
2. Gold is just that much more valuable in the booming global economy
3. The currency is dieing.
Inflation has been the norm since before I was born. Look at car prices in the 70s and today. Or heaven forbid college prices. We will always have the central banks sheering us, only need to ask if it's going to be worse going forward then it was in the past. When things are set to go crazy it will actually look like a recovery. This is Mises' crack up boom. The people will dump their dollars to buy things, but it represents a lose of faith in the currency not organic demand.
Believe someone else; and not your father. He is wrong. This may be emotionally difficult, but it is necessary. The statement that the Dow is the sign of the economy, indicates a kindergarten / mass media level of "knowledge"; eg. no knowledge at all. Commodity prices rise, right now, because of the availability of very low interest money, in bulk, to large players; eg. for inflationary reasons. Yes, stock markets tend to follow, or even anticipate inflation; but they are not good for an offsetting investment to inflation. Watch the gold price for ninety days and then come to your own conclusion; your father is clueless.
You can't reduce the debt load unless inflation is running faster than the creation of new debt. Currently that would be near 17% or so. A takeover of the government would happen way before that happens.
It's impossible for inflation to run faster than the creation of new debt, because inflation is the creation of new debt, because that's what new money is.
The limit we are running up against is that the creation of new money, i.e., the creation of new debt, cannot only not be repaid, but cannot even be "serviced", because we're more than maxed out servicing the debt we already have.
You can't inflate your way out of the problem unless there is more room to add debt that can be serviced. The system does not allow for the creation of new money unless it is also new debt.
Checkmate. The debt will have to be reduced through a cancellation event, one way or the other.
But hasn't the Fed been buying UST paper with new money not backed by debt--just conjured out of nothing?
If it is so clear that the FED wants inflation, then one must also believe that they have suddenly acquired
competence that has been lacking in recent history. My take is that they have so royally screwed things up that
there is no other eventual outcome but ruinous deflation, despite what they may want to see transpire.
Market keeps getting stronger.
Summation Index still going up.
In fact, a weak EUR/USD and AUD/USD is actually helping stocks.
Note how the S & P 500 is getting stronger in foreign currencies.
How are you using this information to your advantage?
What happened to your pending distressed gig? I guess there was no need for a "chartist".
Looks like early November again
You ain't got a hair on your ass if you don't post a one-year gold chart -- fool.
The inflation's already here:
http://finviz.com/futures_performance.ashx?v=16
And the Fed won't be able to engineer another commodities crash this time.
The Fed is trying to create "selective inflation" in housing, bonds and stocks, while simultaneously trying to suppress other asset prices. And failing miserably.
I can't even begin to calculate what all this manipulation costs, but I know in the end it will make the next collapse that much more devastating.
When Rough Rice starts moving up on that chart, all of Asia is gonna be praying for the return of Godzira!
"In a nutshell, the FED (with the help of the Govt), is going to engineer some type of Inflation to reduce the value of both our Private and Public Debt. Since Inflation is the only solution, it will happen; it is just a matter of time.” - Harley Bassman
Inflation, “just a matter of time?” You’ve got to be kidding.
When Jerry Brown was sworn in as governor of California in 1975, the annual tuition for the average in-state UC student was $647. Now, as Brown became governor again this week, the annual UC student tuition averages $11,279. You know what? That’s inflation.
And here’s the latest in inflation, from 2011 – The Year of Catch 22 by Jim Quinn, posted on ZH 01/02/2011:
“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.”
The expectations of most when reading Ben’s words were that his helicopters would drop the dollars across America. What he has done is load up his helicopters with trillions of dollars and circled above Wall Street for two years continuously dropping his load. Bernanke’s quantitative easing, which will triple the Fed’s balance sheet by June of 2011, began in earnest in early 2009. The price for a gallon on gasoline was $1.62. Today, it is $3.05, an 88% increase in two years. Gold was $814 an ounce. Today, it is $1,421 an ounce, a 61% increase in two years. In the last year, the prices for copper, silver, cotton, wheat, corn, coffee and other commodities have risen in price by 30% to 90%.
Quantitative easing has been sold to the public as a way to avoid the terrible ravages of deflation. The fact is there are less jobs, lower wages, lower home prices, zero returns on bank deposits, higher fuel costs, higher food costs, higher real estate taxes, higher medical insurance premiums and huge jaw dropping bonuses for the bankers on Wall Street. Somehow the government has spun this toxic mix into a CPI which has resulted in fixed income senior citizens getting no increases in their pitiful Social Security payments for two years. You can judge where Ben’s Helicopters have dropped the $2 trillion. Quantitative easing has benefited only Wall Street bankers and the 1% wealthiest Americans. The $1.4 trillion of toxic mortgage backed securities on The Fed’s balance sheet are worth less than $700 billion. How will they unload this toxic waste? The Treasuries they have bought drop in value as interest rates rise. Quantitative easing’s Catch 22 is that it can never be unwound without destroying the Fed and the US economy.
The USD dollar index was at 89 in early 2009. Today, it stands at 79, an 11% decline, which is phenomenal considering that Europe has imploded over this same time frame. Bernanke’s master plan is for the USD to fall and ease the burden of our $14 trillion in debt. He just wants it to fall slowly. Foreigners know what he is doing and are stealthily getting out of their USD positions. This explains much of the rise in gold, silver and commodities. The rise in oil to $91 a barrel will not be a top. The Catch-22 of a declining dollar is that prices of all imported goods go up. If the dollar falls another 10%, the price of oil will rise above $120 a barrel and push the economy back into recession. Then there is the little issue of at what level of printing and debasing the currency does the rest of the world lose its remaining confidence in Ben and the USD. (end)
Boy, I can’t imagine what prices will be like when inflation finally does “happen.”
I'm new to this but why is the DOW going up? Is it fake? POMO or sumthin?
Deflation is drivin’ that baby up.
“Ben Bernanke and his QE2 stimulus for poor Wall Street bankers is pumping $75 billion per month ($3 to $4 billion per day) directly into the stock market. Since Ben gave Wall Street the all clear signal in late August, the NASDAQ has soared 25%.” Jim Quinn
I thought we were facing inflation? I'm guessing you can have both?
My deflation quip was just tongue in cheek, Flapjack. Sorry! Inflation, according to Shadowstats, is running hot, more than 8%, making the real price of money somewhere around minus 7%. (Calculate the price inflation at 8% by Shadow Government Statistics. Subtract 8% from the cost of money at 1% and the real price of money is –7%.) That means paper-based financial asset such as savings are losing 7% value per year while the true Consumer Price Index (CPI) is rising. Not good for the average American--particularly babyboomers, the first who are turning 65 this year and retiring.
But as to your question, yes, there can be both inflation and deflation at the same time--but from the inception of the Fed in 1913, the nation has been on a steady diet of inflation. As a consequence, the dollar has lost 95-100% of its value in that time period.
Greenspan (last Fed chairman) has openly talked about the "wealth effect". It means that when the stock market is up people feel more wealthy and free to spend, which should increase demand and the economy. So it's in their interest to keep it up. Also with all the super cheap money floating around some is going to go into speculation of all kinds.
Don't trade in this market, or buy in, unless you learn about it and know what your doing. Some guys like Robo can make a living doing it but a lot of people just lose their money in the casino.
A hot stock market makes those imaginary 8% returns on all those retirement funds more credible -- couldn't that be the real reason?
It's not going up. It's simply inflating. If you sell the stocks you buy less. Same thing with gold. It's not going up its simply signaling the devaluation of the dollar. You don't get rich owning gold. You just avoid getting poor. You can do it some in the stock market it's just they skim some of the goody off the top which is why robo has his panties in a wad. He's getting his ass handed to him.
" Same thing with gold. It's not going up its simply signaling the devaluation of the dollar. You don't get rich owning gold. You just avoid getting poor."
Which is why we should all be buying more silver. Gold is insurance. Silver is an investment UNTIL is approaches its historical value to gold.
Which is absolutely right. But the coin shop I use never has any. When I want to buy some it's picked clean and when I don't because of extra bills after selling gold or a rare want to buy something extra.... But I promise I'll buy 10 to 20 ounces a month from now on whenever I sell an ounce of gold.
The FED objective is to increase stock prices not create domestic employment. Historically, higher stock prices means the economy is strong. Its different this time with the global economy and when the liquidity ramp ends equities will fall. Remember, the FED is creating about $40 billion per week for 15 weeks of money ($600 billion) from nothing (we are about 1/2 done). 1400 SPX is possible in th next month. Then the inflationary impact and margin compression issues will start to be reported. Something for nothing will not result in real wealth creation. The poor will be hit the hardest within 6 months.
Exactly. Listening to deflationists I often wonder, where do you live ? My "favorite deflationist"; an entertaining nut, says on another blog that crude oil will be $40/barrel, "soon". I think the basic deflationist has a house deeply underwater, lost most of their retirement in their 401K program, and more or less "has" to believe this stuff. Neverthless it's a bit startling to see it in print.
so with all this new inflation, how's that Chicago parking meter 75 year sell out lease going to look???
Are native american indians running that city?
1- For most people, it is not wise to invest in places where there is no rule of law -
2-
Hell Yes the FED will be succesful in initiating inflation. Its already started with the prices of commodities up 70%+ over the past year. Food riots in the undeveloped poor countries will happen this year. Oil over $125/bbl and gasoline at $5/gallon will cause civil unrest. Interest rates will rise and housing prices will drop another 20%. Yes 5% of of population who own 95% of the assets will become richer but the misery and hunger for the 50% of world's population resulting from these insane policies does not seem consistent with the liberals caring agenda.
The Bernank makes a good point about all the money he is suffing into TBTF banks. Until it is loaned out in mass, you have no inflation. Hasn't Japan been trying to stoke inflation for over 20 years now?
Consider this... Chinese workers will make iPhones for $20 / week. The great equalization of wages from globalization has a long way to go. Don't look for inflation to show up in wages any time soon.
The best we can get is biflation.
Can the Chinese make oil for $90/barrel?
We've done this before. Don't believe the CPI; perform your own CPI.
What % of your monthly budget is housing expense. What was its rise from Dec 31, 2009 to now?
Compute the weighting. Now look at your car and what you paid for it in whatever year. What would the equivalent brand/model cost new today (assuming you bought your present car new). Compute the % that is of your monthly budget and to what extent it rose in 2010.
Those two items are going to swamp out the big gasoline, health care and food cost increases. That's not inflationist or deflationist talk. That's just math.
Where is the best place to look for futures. I keep seeing crappy places
Let me throw a thought out for consumption -
Inflation utterly crushes creditors, which happen to be banks and financial institutions.
The higher the inflation, the higher the losses on the money paid back on the loan.
If you have very, very high inflation (but not even remotely close to hyperinflation), the banks and creditors will be rendered insolvent in yet another manner.
If inflation runs at a real clip of - let's just use 10% to make the numbers easy - the bank loses money on the loan, in real dollars, by year 10, all things being equal. Actually, the bank could lose money in year 5 or 6, and that's assuming the loan actually performs.
So a sustained rate of real inflation at anything remotely close to 5% (not even 10%), destroys banks.
This is true even in a low loan environment that transitioned from a high loan one, as we've now found ourselves in.
Two points.
1. Who gets the money first? That's right the banking system. So they get the all important first spend.
2. These banks are not depositors. They are not actually creditors, they take deposits from others and lend them out picking up a spread. Citibank or JPM didn't save up their pennies to loan out to J6P for a house.
So in inflation they get that sweet first spend. They also get more money to lend out and pick up the spread. If depositors are wiped out they are still protected.
how high do you think inflation will go this year and next?
First the CPI is cooked so my guess will be different then that number.
Conservative: 7%
Average: 12%
High: 20%
Those are just guesses and I'm not a pro (I'm actually just a grad student/software dev). But I expect strong commodity prices to drive the food and energy sector, which translates into rising products costs for us little guys. It could also get much higher next year if we start up the crack up boom (panic out of money into hard assets), then all bets are off. For the following year I would expect even higher inflation then in 2011. The Fed is trapped now they have to pump more and more money into the system or it will outright collapse in on itself. This money will leak out in speculation into various markets and assets, as well as people gambling because of artificially low yields on savings. We the people will be the last to touch the new money so it hurts us the most.
If I'm guessing right your a young guy like me. I'd stock up on a little extra food and then look at getting gold/silver and taking possession depending on your financial situation. If I'm just some Internet nut then you eat the extra food and you have a few gold silver baubles to tell your kids about. Also do your own homework, there are a lot of links around read up on it to make sure that it makes sense to you. If you are convinced that inflation is coming it's easier to talk to others after you have done your own homework. I'm of the Austrian persuasion so I would highly recommend mises.org and lewrockwell.com
Banks get the first spend? Get real Dude. That first spend is sitting on the sidelines in a line item called Excess Reserves. Better go buy some more gold. I just saw another Gold commercial on TV. Slimeball in the polyester suit said now is a good time to buy gold.
Yeah, just don't buy the Au from the slimeball, shop around!
Not if you have an advanced notice, and buy hard assets, pms, that way you can weather the storm, and maintain value. Actually that is what is happening. Do you think jpm or gs have vaults full with dollars? Or gold in Zurich? They are doing this to the people, so they can actually prepare for it, they are not masochists. In Eastern Europe there was huge inflation in the 90s, a few banks failed, the owners became millionaires. There should beno confusion between the owners and the organization itself, is the former Lehman ceo starving? Or former Aig ceo? Sleeping under cartons in an alley, dont think so. The ignorance of the masses amazes me, guess thas what 50 years of water fluorization do.
If one were to assume that it is a goal of The Federal Reserve to save the banking system, under any form, as an ongoing concern, allowing long-term, high inflation works diametrically against this goal.
One would literally have to believe that The Federal Reserve is willing to allow, or even abet, the destruction of the banking system as we now and have known it, if one believes that The Federal Reserve won't, at some point, preferably earlier rather than later, work to mitigate inflation via monetary policy if deep, sustained inflation rears its ugly head.
Two more points:
1) I don't know what is "in the cards," and I'm not divining tea leaves. But it is true that just as banks as creditors would be destroyed by high inflation, it's also true that foreign interests holding large amounts of Treasury Notes would be seriously harmed by high inflation, IF they also don't produce massive inflation in their domestic economies, to offset things on a relative basis; and
2) We've seen this movie before, at least in partial form, in the 1979-1982 period, when interest rates skyrocketed, commodities and PMs (especially silver and gold) skyrocketed, and U.S. 30 Year Treasuries paid 20% (those buying them at that point tripled their money or more, by selling those notes 4 or 5 years later, when the yield was closer to 8%). I realize there are different maco and microeconomic issues at play, however, now.
Explain to me where the deposits come from? Why are the banks harmed by inflation, because it weakens the purchasing power of the loans? That money is technically the depositors and the banks pick up a spread. Does Jamie Dimon mow lawns to save up to loan out money for mortgages?
If anything inflation and printed money form the Fed helps them. Lets them pay off their depositors, the banks creditors, and keep the purchasing power of the money they had.
They will save the banks and they will use inflation to do it. Even if they have to print of money and drop it from helicopters on to Dimon's lawn.