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John Taylor: "Cash Is Now King, Worthless Or Not, So Buy Dollars."
In his latest must read letter, John Taylor picks up where Goldman left off a few days ago, and follows up on the implications of Keynes' savings paradox, which as explained by Goldman, and now by Taylor, has to do with the fact that with the entire world entering an austerity phase and thus cutting off public sources of capital to offset private sector contraction and deleveraging (as per the Current Account equality), the slowdown in economic growth is virtually assured. It also explains why companies are hording cash. The result is a massive schism in perceptions between micro and macro analysts: "the result is that
the vast majority of the analysts that examine individual companies are
bullish and almost all of the macro analysts are bearish, many like us,
and dramatically so." Further adding to the dire macro picture, "because nominal GDP is growing more slowly than the outstanding national
debt is compounding, it is becoming a more oppressive weight on the
“non-S&P” economy, tightening the financial position of small
businesses and the consumer." Which leads Taylor to this simplistic and spot on conclusion: "if consumers build up their savings, we know what happens to retail
sales and the GDP. On top of this the money multiplier comes into play.
With the global banking system suffering under an extremely high load of
worthless assets – whether recognized or not – and being forced to
improve their capital allocation for risk by the Basel II and Basel III
rules, banks must cut back the amount of credit that they make available
to the economy. The multiplier will force global economies to shrink in
the years ahead. Cash is now king, worthless or not, so buy dollars." Brief, succinct and 100% spot on analysis.
Micro Booms, but Macro Slump
July 15, 2010
By John R. Taylor, Jr.
Chief Investment Officer
This week, the US equity market is starting its quarterly earnings ritual and the odds favor a strong performance for the closely followed investor favorites. Although the game is rigged as almost 50% of the corporate managements have adjusted their guidance in the past month trying to lower analysts’ projections down to levels that the companies know they can beat. Despite the opera buffa quality of the process, the S&P 500 companies will still produce a dramatic increase in earnings over the second quarter of 2009. The same can be said of the major European corporations. The increase in corporate earnings and the projection of further increases seems to be universal, and many argue that the positive outlook for thousands of individual companies must sum to an impressive economic recovery.
Despite these positive micro stories, they do not add up to a happy macro outcome. There are several reasons why this is the case, but the result is that the vast majority of the analysts that examine individual companies are bullish and almost all of the macro analysts are bearish, many like us, and dramatically so.
There is a very large segment of the US, Canadian, and European economies that is not part of theglobal equity system and this major fraction of the economies is not doing at all well. Even if theoptimists will retort that moaning about the depressed readings in the National Federation of Independent Businesses (NFIB) reports, the collapse in bank credit, and the sharp decline in the ECRI leading indicators are nothing but anecdotal examples, they should carry at least as much weight as the positive earnings numbers. These smaller businesses represent the lion’s share of the internal and retail economies, while the giants represent almost all of the export and global part of the economies.
The slowdown in the non-S&P sector of the economy is actually reflected in the sluggish increase in the major companies’ top-line revenue, but the tight cost controls that have allowed their reported earnings to keep climbing has exaggerated the decline hitting the independent businesses. The shrinking cost of goods at every Fortune 100 company represents the top line sales of many smaller companies and the take-home pay of thousands of employees. Because nominal GDP is growing more slowly than the outstanding national debt is compounding, it is becoming a more oppressive weight on the “non-S&P” economy, tightening the financial position of small businesses and the consumer.
The macro pessimists actually have academic research firmly on their side. Just two points must suffice here. Keynes famously noted that there was a savings paradox. As I would paraphrase it, if one family saves, it is good for the family, but if all families save, the economy will be ruined. This is happening everywhere. The S&P 500 companies are all saving, by cutting costs – and building giant worthless cash mountains (like they did in the 1930’s) – but this is shrinking nominal GDP as their saved costs are others’ lost earnings. The global economies are all trying to grow by increasing exports, which is the same as saving. If there are no countries stimulating consumption, the world economy will shrink. If all countries try to balance their fiscal books, they are clearly saving. The Eurozone, the UK, and the American states are dramatic examples of this. And if consumers build up their savings, we know what happens to retail sales and the GDP. On top of this the money multiplier comes into play. With the global banking system suffering under an extremely high load of worthless assets – whether recognized or not – and being forced to improve their capital allocation for risk by the Basel II and Basel III rules, banks must cut back the amount of credit that they make available to the economy. The multiplier will force global economies to shrink in the years ahead. Cash is now king, worthless or not, so buy dollars.
h/t Teddy KGB
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No thank you. I'm not in the market for worthless kings.
It seems that most have forgotten about what happened in 2008. When credit is nowhere to be found and dollar guarantees cannot be rolled over, the dollar becomes the final source of liquidity. Unfortunately gold doesn't fare well in this type of environment neither...
+1
I'm not a fan of the current dollar system personally. It does however allow for some interesting opportunities to buy some thing very cheaply in dollar terms if timing is right.
If I'm wrong I have plenty of food supply, energy and my beautiful young bride. There are plenty of ways we can pass the time.
I've been thinking about upgrading. How much did she cost you? Did you buy from Ukraine or Russia?
You are better off renting. Remember the 3 F´s?
That's a rather absolutist statement. What makes you think that gold and currencies will act the same every time? Europe is enacting austerity measures worse than anything we saw in 2008, but gold is off only some 4% from its high.
Further, since the source of the austerity is Europe, wouldn't it make more sense to crown the Euro as king?
Great Britain is the only European country enacting austerity that I know of. Last time I checked, it wasn't a part of the Euro...
Gold was at an all time high when the DOW was at 6500. I don't know why people insist on making ridiculous statements to the contrary. Look at a chart.
We did.
Gold peaked in Feb 2009 at 1007.70 before the Dow bottomed in March and declined subsequently to 859.90 in April.
History repeats for those who do not learn from it.
http://stockcharts.com/charts/gallery.html?%24gold
He forgot about the Golden Rule.
He who has the gold makes the rules.
Food For Thought: One of the first things Hitter's military force did was upon invading a country they removed the country's gold holdings.
How much do they want for them dollars and where can I get some? What form of payment do I use for them dollars and once I get some, what's my return?
A S S C L O W N
Sucka' on my balls two times!
People who respond to comments like you have done here should really be automatically banned, even if, in your opinion, JohnnyBravo is the devil himself. Take your hate elsewhere.
more childishness than hate, I suspect. how tedious
$USD target still 115, +38% from here...
http://stockcharts.com/charts/gallery.html?s=%24usd
$USD target still 115, +38% from here...
http://stockcharts.com/charts/gallery.html?s=%24usd
Thank you Zero Hedge, I really appreciate the fact that you put Mr. Taylor comments.... is one of my favorites!
"FX and FX trading lay hid in night:
God said, 'Let John Taylor be!' and all was light"
Alexander Pope will agree
Buy dollars, huh?
Yea, that makes sense. The US will only have to print, oh, 110,000,000,000,000 or so to meet all its current and future obligations. That's not dilutive at all to your current dollar holdings. No, not one bit.
Sorry, TD, but this guy Taylor is stuck in yesteryear, pining for the days of old.
Yeah, I don't get it.
There are all these articles on ZH about how QE 2.0 is imminent and will be to the tune of between 2.5 and 5 trillion dollars. Maybe I don't have a PhD in economics but if you think the FED is going to debase the dollar by printing, yet also advocate buying dollars...uhm I guess I'm just confused.
Kinda' feels like the commentary about Roubini is self-applicable.
There are multiple Tyler Durdens. Deflationist Tyler Durden posted this article.
"...banks must cut back the amount of credit that they make available to the economy. The multiplier will force global economies to shrink in the years ahead..."
The FED can print all the money that they want and keep giving it to the banks but if the banks don't lend it... forget about inflation.
"Cash is now king, worthless or not, so buy dollars."
Mr. Taylor is an FX, fix income guy. I think this is a polite way of saying "...short the shit out of TBT"
In case you don't have the pleasure of meeting Mr. Taylor here you have him... uhhhh what a man!!!!
Mr. Taylor ----> http://www.fx-concepts.com/meetthepeople.php
The treasury department prints anyways but yes the fed can extend all the credit it wants, unfortunately it just becomes caught in the liquidity trap.
Look at Japan. And yes u can make the argument that consumer prices have risen in Japan but it's more a function of the rising real costs of energy inputs on the supply side rather than monetary inflation.
Good man; Stanford Preceptor Sponsor with Academic Senate
along with Michael Boskin...
The world has become dangerous in this way: The Fed can print to handle emergencies, but there is a definite limit on how much it can print before not only the T-market gets no funding, but also the US Corporate bond market. It is fanciful to think they can print away the problems. Yes, the entitlement programs will have to be cut and taxes will have to be raised. But the US will have to do these two until they work. Inflating away the debts (of all sorts) is a dream inspired by the Fed so that people will not panic until we are (somehow) out of the Euro-debt quandary. The administration, too, does not want people to think that the gov cannot possibly deliver on steady benefits, health or otherwise. Cut off foreign funding by causing inflation? End of US economy. We all take our money somewhere else for a decade, one way or another.
If they are printing how would the T-market ever get no funding?
Yes, the entitlement programs will have to be cut and taxes will have to be raised.
We are going to default on obligations to our citizens and then make them give us more of their money. That should go over nicely.
It's sickeningly simple. It'll of course be blamed on some such bank or another, "bastards ruined it for all of us". Pecora commission comes to mind. Better yet the masses will be convinced it's all their fault like what Warren Buffett was saying when talking about the housing collapse on the TEEVEE a few months ago.
We are going to default on obligations to our citizens and then make them give us more of their money. That should go over nicely.
Exactly! Will all of the trolls who come here and tell this board that gold is going down because of deflation please give this some thought. You expect Joe 6pack to make less, pay more taxes, receive less from the government, AND sit around and watch all the banksters, government employess, brokers, hedge fund managers, and traders get wealthy!
HAHAHA! and you trolls say we live in dream land? Maybe gold doesn't "go to the moon", but it'll hold value; FRN's? total garbage; unless you like a boot stamped in your face forever.
Dollars as a trading vehicle is about all I can understand. Yeah, maybe we have deflation for a while and your dollar buys you more; maybe. However, I didn't even mention the rest of the world in this equation and they have to have respect for dollars for this ponzi scheme to keep rollin'. Good luck with that too.
"In October 2009, firearms and ammunition excise tax collection climbed 45 percent from the previous fiscal year, the greatest annual increase in the firearms tax revenue in the agency's history,"
http://in.reuters.com/article/idINIndia-50132620100714
Hey Obama! I found a Green Shoot! Guns and Ammo Taxes! Who wudda thought?
"If they are printing how would the T-market ever get no funding?"
Ever hear of bond market vigilantes like PIMCO?
Treasury Debt compounding faster than the GDP can grow is not inflationary...
"The US will only have to print"
That's your assumption.
It's plausible, maybe even likely, but not a given.
What is true (right now and here) is disinflation.
I was under the assumption we'd been in this period going on 30 years now?
Printing money is so cliche'.
Extinguishing the hundred claims on every underlying dollar of collateral is going to be a real bitch for us all.
Extinguishing the hundred claims on every underlying dollar of collateral is going to be a real bitch for us all
A classic game of who's is it
Every time I see your avatar, it reminds me of my girl's boobs. Then I want to go squeeze them.
Luckily, she's home.
Time for a boob attack. LOL
LOL
My wife seriously needs a reduction, natural 36D on a 135lb frame. Yeah they'll be hanging to her knees as soon as we have our first kid. I love being held down and attacked by the WMD squad in the meantime though.
My girl is a natural 36DDD, and she is a little bit big for the bra. She's 5'2!
I also worry about gravity eventually. I also feel badly for her back pain.
Reductions cost about 6 grand, I've heard. You looked into it at all with her?
This former 32G sez: More than 7K if you live in the northeast and use a good surgeon. It's worth it. But wait a few years after you're done with all the babies.
Now we can go back to to discussing the fire sales, and the cash we will use to take advantage of them. Cash is king once we're fully prepped for the Synthetic Armageddon with our guns, gold and grub.
I hate math questions that give me a four digit answer (i.e., a negative three digits), because this thing only accepts up to three digits. Fix please!
Amen
Pics or you two are full of shit.
i luv that avatar . . . . .absolutely luv it. can't get enough. please keep posting. a n y t h i n g ! !
i was referring to 'Muir' avatar
Sure, but every one of America's strong sovereign competitors are under a similar debt load, and will have to dilute their currencies too. Remember how the G8 decided to provide "stimulus" the second to last time they met? They are trying to coordinate inflation so it is as painless as possible to everyone.
Under a "long term" point of view, who cares if a today dollar is worth 1000$ tomorrow dollars? Dollars are cheaper to print than pennies and dimes are to mint, anyway. As long as the decline in value is gradual and smooth across developed countries, there's only a few years of tight credit to go.
On the other hand, it will be difficult to overtake America's productive capacity in absolute terms. Germany, for example, has plenty of capacity. It will beat us in marginal terms. But it won't make a huge difference to the value of a devalued dollar versus a devalued Euro. China is a different can of worms, and might be the prisoner that squeals.
"On the other hand, it will be difficult to overtake America's productive capacity in absolute terms. "
You got to be kidding? We don't MAKE a damn thing anymore! A society of paper-pushers who have off loaded their manufacturing to venues of cheaper labor. Germany MAKES things! Achtung baby, that's a fact. And who says those wise Germans won't ditch the Euro, haul out all those old DM's then have been hiding in the bowels of their banks and supplant the USD as the one-eyed man in the land of the blind?
The Saudis would need to agree to take DMs for oil. Until Germany has a gold horde to backup the DMs or the carriers, spies, political pull of the US to keep things a certain way in the ME don't count the dollar out.
In 20 or 30 years? Sure but geo-politics plays a big role that we seem to be ignorning when talking pure economic theory (like that has mattered over the last 3 years).
All the inflationistas who keep junking the simple obvious truth of defacto deflation appear to be living in an expensive past. Wait til gold hits $1110 and $550...
http://stockcharts.com/charts/gallery.html?s=%24gold
The report focuses on risk assets. There is no mention of gold. One way to paraphrase JT is that in a global race to the currency bottom, the USD will be first... or last depending on how you look at it. And yes, gold will do well as the race goes from the third to the final lap and after.
Gold priced in oil has been getting blown away for over 10 years. It all comes down to energy. Whether we like it or not oil is priced in dollars and gold is mostly a risk asset.
"And yes, gold will do well as the race goes from the third to the final lap and after. "
What TD said: the 'tell' on that one is how more and more often these days Au spot moves with the USD, and not inversely. Most notably if the USD breaks to the upside. Because anyone stuck right now with holdings in USD knows that the endgame is to get out while the getting is still good, and anything that briefly propagates the myth of value in the world's 'soon to be former' reserve currency is an opportunity to load up on real assets. So bring on the deflation, disinflation, stagflation, reflation, inflation, youflation whatever you likes to call it: FIAT is effed up the hoop.
Regards
"these days Au spot moves with the USD" - all you need to do is take a look at the markets as you type to realize that you're wrong about this. I believe that you are referencing the sell-off in gold a couple of weeks back during the massive euro short squeeze? - This is the exception rather than the norm. Also, check out yesterday's dx and au activity (specifically the spike in gold that TD posted a manipulation post in regards to) for additional confirmation...
Note the 'more and more often' caveat above Abiggs. And Au has been behaving this way for a lot longer than a 'couple of weeks', with ever increasing frequency. You open up your charts to include Nov.2008 until today, you'll see or you're blind. And yes, I do find it exceptionally pleasing that Gold is finally coming back into its own as a currency sans debt, thank you for asking. Look for that 'sans counter party risk' thing to become the norm in the very near future when it comes to choosing criteria employed to define 'money'.
Regards
Skunky, here is what I am seeing yesterday and today: http://img84.imageshack.us/img84/8851/todayf.png
Unfortunately my simpleton charts do not go back all the way to Nov 2008, I was hoping that you could help me out my aristocratic friend - just so we're comparing apples to apples...
.
"Gold is finally coming back into its own as a currency sans debt"
Let us all know when Safeway gives you change for a Gold or Silver Eagle for a loaf of bread...
You're absolutely right. For now, the average clerk working part-time for minimum wage and no benefits at your multinational Power Centre's 'Food Flood' or 'Best Consume' isn't likely to know your specie from your fiat, but it's a very different story at your local Farmer's Market or privately owned/operated corner store. The people in those businesses have some saavy, they have to. Oh, and shopping at those places is much better for the local economy, last time I checked. And these examples just refer to small transactions. When it comes to major purchases, if you are an owner/seller you'd be an idiot not to take credit backed by real collateral. I can name a few asset classes that would do just fine in that case...PM's are definitely in that category. Gold is fungible, to say otherwise is uninformed at best.
Also, your argument in no way shape or form refutes the 'tell'.
Regards
PS
Is the 'A' in your moniker an initial for the name Anthony? (I know an 'ATG')
Liquidity is the name of the game - gold gets sold off by default...
Au contraire: not if your creditor is willing to skip the middleman (aka. debt ridden counter party risk laden FIAT) and take payment in Au. Watch, that'll be all the rage in 2010, 11, 12, 13, 14, etc. etc.
Germany's on the phone: they want their gold back.
The CPC doesn't tell a billion of their citizens to load up on something and then just sit back and watch it to lose 75% of its value. That wouldn't only be political suicide there, it would literally be suicide.
Regards
Your theory is interesting yet highly subjective and unrealistic - to accomplish this, one would have to disregard both history and reality. If you choose to do that, all power to you but prepare for an unpleasant awakening...
Thanks. We all eventually have an unpleasant awakening, "On a long enough timeline..." and all that cal, but relative to a lot of people I am an exceptionally lucky individual, so come what may, it's highly likely that me and mine will always have a roof over our heads and enough to eat (arable land and such).
Gold has eventually punished fiat currencies for all of recorded history, every last one, without exception. So I don't believe that I am disregarding anything there. Reality says that only an idiot would possess a paper promise that constantly reaffirms its intrinsic worthlessness rather than a hard asset as liquid as Au (you yourself have noted its fungible properties); so 'reality': Check.
More reality related to the argument: CPC controls vast swaths of USD denominated products, not a comparatively large percentage of reserves (disclosed anyway) in gold, they have repeatedly encouraged their citizens to purchase precious metals... can you see a way that they might try to preserve the value of assets they've recommended for their people if 'deflation' out west tries to take it down? (Hint: see above what will happen to them if they don't).
I think I took care of both points there quite nicely, don't you?
As for being subjective, well, everyone has to have a point of view, no?
Regards
One who brags about their luck will see it escape them when one least expects it...
CPC is great with their "vast" swaths of usd denominated products but I will bet on the sure shots, in this case being the Central Banks. You can go ahead and wait 2 lifetimes for your gold scenario to play out, maybe you can decorate your casket with it if all else fails.
All counters were covered rather concisely as well.
Keep up the subjectivity,being a dreamer doesn't hurt until the alarm clock goes off...
I wasn't boasting about my luck, that was all gratitude. But yeah sure, who knows...
That 'tell' I pointed out isn't just a dream of mine, anyone who wants to look can see it. You missed it? Not really my problem, that, now is it?
And meh, that CPC thing is just a possibility with its own level of probability. It could hardly hurt of course, but I don't imagine they want to speed things along too quickly anyway. Really, it not happening doesn't even affect the scenario's outcome because even without the Chinese more and more who are buying are catching on to the monetary attributes of Au. IE they are demanding delivery in greater numbers; which you have to admit is becoming more and more popular in the small but powerful circle, including central banks, that recognize that gold is not merely another commodity. C'mon, you know despite all the rhetoric to the contrary CB's never really stopped associating gold with money, otherwise why else would they bother with it, US included?
Note: By bother, I mean egregiously manipulate Au/Ag's pricing via fraud to support the delusional value of the world's 'soon to be former' reserve currency. But those days of naked shorting are numbered I think, 'cause a Trillion USD still drains a whole heck of a lot of Physical, even today. I might recommend you pick some up too while Oz lasts.
Regards
You're right, GF. Brilliant monetary theories don't mean much when people insist on payment in real money.
Exackery! All the babies get dumped out with the bathwater. And THAT is the time to accumulate.
Perhaps not. The explanation of held savings, if true (and it appears it is), will create a global contraction and this will create deflation.
The problem I see is this: when all this money comes out to scoop up the deals- inflation will take off. So, when do you scoop in to buy the deals?
What do you do with all the excess capacity you will be buying, if their are no markets for the products? Can you afford the maintenance and taxes?
Especially if inflation does take off, making it even more difficult to find buyers. At this moment, gold will shine as a protector of wealth as we will all have to wait for the dust to settle on new currency values as numbers reset across the globe based on currency in circulation, degree of credit destruction and a nation's ability to create wealth.
I just wish I knew how tall the first hill on the roller coaster is, because the longer it takes, the wilder the ride.
Well this is not going to go down well with ZH goldbugs.
Been saying this for a while, junk away.
Some here want fiscal austerity to be the norm in the US, no more government stimulus, no bailouts of pensions and their "precious" to go to $5800.
Dream on.
If these come to pass, physical gold would be $300.
Granted, an ounce would buy a lot.
full disclosure: I own Vienna Philharmonics
Muir, I don't think you realize just how dangerously close we are to the Keynesian endgame/meltdown.
I do like your tits, however.
Turd, and you do not see how close we are to a total deflationary collapse.
You have certain cognitive bias' at work here common to many.
Read carefully what I wrote in reply to your post (had not read this)
And again, I own gold Philharmonics (safety deposit box no annual fee courtesy of our great banking system)
p.s. Thanks big boy.
You seem to be looking past the fact that the dollar is backed by debt, so in your "deflationary" collapse, the collateral for the dollar loses value too. It's a circle jerk. How can the dollar gain value when the assets backing it are collapsing? I'm going to use common sense and say it can't.
And I am going to look at recent History and say that it has occurred.
And I'm gonna say 2008 this ain't.
In a zero yield environment it's the cash dollar that gains in value as credit collapses thereby eliminating access to said assets. If debt as a proxy for commerce begins to collapse the cash dollar becomes a proxy for the input of commerce (oil).
Common sense tells me oil is worth something.
Common sense tells me oil is worth something. Umm, duh.
If debt collapses, dollars become a proxy for oil. Why?
Cash dollar is all you have left which is backed by our incestuous relationship w the saudi oil guys.
The dollar floats freelybut must have some fundamental underpinnings. In an expanding global economy where oil is required to fuel production, export and trade and since oil can ONLY be purchased with USD's, then oil becomes the proxy by virtue of it's role and requirement. As oil consumption increases, so does inflation of USD's to support oil purchases globally. This is why the USD could not be replaced as a reserve currency since Bretton Woods and cannot be substituted with anything else without the same liquidity and expansion potential.
In a contracting global economic environment, credit availability or demand makes outstanding dollars more valuable and hammers the price of commodities down (oil) BUT if oil consumption is driven down to crisis levels (depression), then dollars must find an alternative defacto inverse peg (proxy) to reference/translate it's value. That's where the full faith and credit of the US government steps in.
So the relationship between USD and oil or USD and gold are not permanently fixed by definition meaning they are not inversely proportional at all times and therefore are not fixed proxies. It all depends on the use at any given time and the USD's global acceptance. For instance, if a world war was to break out and the US is the sole superpower, then it would also suggest that the global perception of US strength becomes the proxy for the USD.
Which would be as intended. Gold would preserve the purchasing power, but have a lower nominal value.
exactly!
So while access to credit and therefore consumption collapses precipitating a supply collapse you may not even be able to purchase the things you NEED such as food at any cost no matter if you have dollars or gold. Each could hyperinflate against food, for instance, or gasoline.
However I am more inclined to own dollars, if gold is currently at 1200 and drops to 300 you have still lost 75% in dollar terms so the dollar is really the place to be until you see everyone else pouring in a concerted "safe haven" kneejerk rush. The key is to be the smart money (why are banks hoarding so much excess reserves?) and diversify into precious metals and energy storage when the dumb money attempts to pile into dollars.
No matter what, if you don't have at least 180 days of supplies on hand you're really asking for financial suicide. Hungry people do desperate things when they have nothing left to sell orlose. Being able to get out of town on an extended fishing trip isn't the worst hedge one could imagine.
I hate to, but you'll a, never see the rush until after it happens, and b, even if you do, within hours of the rush starting, ALL the gold will be gone.
He who panics first panics best. those who follow the crowd do so to their own peril.
I mean, jeez, you don't think the dumb money was piling into dollars in 2008? All this deflationary crap already happened, and it's not likely to happen the same way again--too many people are expecting the same thing.
Your comments are a product of your imagination. Please state relevant facts if you'd like to contest somebody's point of view.
"you don't think the dumb money was piling into dollars in 2008?" - that was hardly the reality considering liquidity was practically nonexistant
"All this deflationary crap already happened, and it's not likely to happen the same way again" - actually it is only beginning
The government cannot service its interest or roll its paper in such a climate. Simply put, the probability of real austerity is negligible because it simply mathematically will not work for any of the entities involved in it. The USG *cannot* balance its books without going through deflative default and collapse first.
ExactlyTrav.
Nothing you said contradicts what I said.
Nothing.
I'd quibble with "negligible" probabilities.
This tail is pretty fat, and really it's not even that much out of the money probability.
"If these come to pass, physical gold would be $300.
Granted, an ounce would buy a lot."
Works for me. Gold is to keep you from being robbed blind. The people who want to retire rich from it are in for the wrong reason. Of course, as you say, if you're the only one in the neighborhood who *hasn't* been robbed blind, you pretty much *are* rich.
The people who want to retire rich from it are in for the wrong reason.
Is that role reserved for digital assets? Gold ≠ get rich?
Yes. Rich in digits is honorable. Only a knave would aspire to be rich in gold and silver. We should be thankful there are those who condescend to inform us peasants of the rules.
I'm with ya. I've been touting the same message for years now.
Big clue here is corporate savings (cash stock). It's between $1-$1.5T. That's trillions guy's. What does that tell you?
Couldn't I diversify into silver and gold, and maybe some nice high yielding Australian bonds?
If you hedge your currency risk.
GD, do these idiots who say this stuff think the Fed/USG are actually going to LET deflation destroy the both of them?
They believe with every fiber in their being that inflation is the savior and inflation is their business.
Deflation will not be any good for levered institutions like banks either; why would they want that? When austerity really bites, people will beg Jebus to print
Yeah, well all that is true.
But you make it sound as if they are competent and no surprises can come along and upset plans.
I think its not entirely inconsistent to advocate cash in the short term, knowing that the next time things really go bad and deflation (the normal order for a recession) really takes hold, that only then will the Fed really crank up the printing presses. You're more or less playing a game of chicken with Bernanke and Yellen...how long will they let credit collapse and prices drop before throwing a printing party. The safe move is just to get into gold silver now.....but if you can time it right.....I have no faith in myself to do so, and just buy the metals now...
Chicken is right. I'm hoping for further beatdowns in the POG as we embark on GD 2 Part 2, but if Bernokio beats me to the punch I'm going to be pissed.
The midterms, which matter because it's the government responsibility to create jobs and/or take the blame for high unemployment... Or, whatever.
So, there'll be bickering over QE2.0 versus Bush Tax Cuts. In the end, I suspect both will win/lose and QE1.x will take place while some tax cuts are left to expire.
As usual everyone will remain mired in their miserable grayness of being.
August is cash only month. If you think the low volume melt ups are ridiculous. Wait until earnings fever ends, everyone goes on vacay with their stop losses in place and clever algos pecking at each other's eyeballs. Yeah, no thanks.
Cash for now.
Maybe oil later. maybe
At the point it appears we are swimming in energy I will be taking delivery of all I can get my hands on.
For tomorrow...
(sung to the DMX song)
V-X-X... ride or die... arf arf... whatch'all niggaz want... arf arf... whatch'all niggaz want...
V-X-X.
By the way, I think it'd be good to look at the VXX tomorrow if the S&P breaks 1088 decisively.
I wouldn't initiate a long position until below 1088 though. Looks like it's about to happen.
Rising wedge on S&P was backtested today, and is forming what looks to be a descending triangle. Confirmation trendline is below 1088.
Low PPI/CPI figures should get us through your 1087-88 level, and disinflation is what this thread is actually about.
So for once you are on topic, well done sir.
But but but...: this contradicts the yuppie dream! If we have deflation, or inflation OR both, then yuppie lifestyle milestones become out of reach! Bring back The Great Moderation! Please! We'll all be good citizens and Shop till we Drop !
ROFL. Bring back the 'moderate' economy so we can be as immoderate and immodest as possible in our consumption -- without worry.
Yes. That is true. I explaned that a year ago on MarketWatch' "community" board. World banks have too many correspondent accounts in dollars to reject this currency. When the real financial mess will start, nothing could substitute PAPER NOTES of dollar - for the purpose of everyday commerce.
Exactly so Dr. Physical currency ranks above everything but physical gold on Exeter's pyramid.
Dr. Physical Fiat and his friends are looking like so many dead-leaves at a leaf-blower party.
That bottom tier in the Exeter pyramid looks like a pile of bricks -- well impervious to the leaf-blowers...
Help me out here. If deflation become more pronounced, how long will this situation exist? What is the exit strategy? When can we pass the curve and wouldn't we expect to see inflation begin to escalate? Interesting discussion. Thanks for the comments.
Deflation? Are you talking finance deflation or energy deflation?
http://economic-undertow.blogspot.com/2009/11/finance-deflation-or-energ...
Deflation will worsen until morale improves.
Seriously - it's really that simple.
The Fed just told us -
at least 6 years...
Gold gold and more gold.....Think asset price deflation and monetary inflation. Asset price inflation has already happened. There will be no goods on the shelves in the next 8 months. Shortages. This due to MONETARY INFLATION nothing more. Read about the Argentina crisis that will be us. Too bad we have no manufacturing left to produce our own goods. We will not default to our foreign creditors in todays dollars we will be paying them in freshly inked dollars. The only way gold stays at 1200 is if they do a 1 new dollar for 3 old dollar currency split. I believe oil will be priced in gold hence going to the moon except i don't think u can make money in oil stocks. Its all about a major devaluation of the dollar at this point. This is coming in the next 8 months we will find out. Buy gold!!!!! 72 year economic consumer confidence bottoms in april of 2011. The oil spill is and intentional diversion so everyone gets on board to go with electric cars when oil is 15 dollars a gallon because Russia wants gold and not dollars....its all about the bankers
"Too bad we have no manufacturing left to produce our own goods."
And how long do you think that will last as demand raises its head and trumpets in the New Normal? We will begin to see manufacturing return once all the excess is wrung out of the system. It is not like everything just disappears during a Depression. Essential items will always be in demand and there will be folks who will be able to buy, the true Green Shoots of a new economy. What essential items can YOU provide for the New Normal? Will you be a pioneer or a consumer of Government cheese food?
"Gold gold and more gold.....Think asset price deflation and monetary inflation."
So gold is not an asset?...
"Keynes famously noted that there was a savings paradox. As I would paraphrase it, if one family saves, it is good for the family, but if all families save, the economy will be ruined."
This is a load of shit. If the author is basing his thesis on this load of shit, then his thesis must be also a load of shit. 100% spot on my arse.
And what's this shit? "If all countries try to balance their fiscal books, they are clearly saving."
To save you must first produce. This article is 100% shit.
Looks like somebody got burned on Gold. Keep saving though, it's going to be fun watching you try to spend the nuggets at Wal-Mart while Tyler is here going "Well, I never said you should throw away your cash, I was just saying.... "
Look, idiot. There isn't a person on the damn planet right now who got burned by gold. It is 4% off of its all time high.
Economic growth is 100% based on savings, because savings is what creates capital investment. Without capital investment, there can be no economic growth. Period.
Government spending is always destructive, because they strip the market of savings that could otherwise be used for capital investment. Cutting government spending is always the best way to increase capital investment. This stuff isn't rocket science.
Idiot, before you consider insulting people, consider that gold has had a negative yield over the last 100 year, meaning more than a single person got burned holding it in their portfolios...
It seems that you didn't read the post prior to commenting - Economic growth cannot happen when all participants are saving. There needs to be a healthy mix of savings and consumption (which is not happenening) in order for an economy to grow - "this stuff isn't rocket science", but obviously you couldn't grasp it neither...
Idiot, before you consider insulting people, consider that gold has had a negative yield over the last 100 year, meaning more than a single person got burned holding it in their portfolios...
It seems that you didn't read the post prior to commenting - Economic growth cannot happen when all participants are saving. There needs to be a healthy mix of savings and consumption (which is not happenning) in order for an economy to grow - "this stuff isn't rocket science", but obviously you couldn't grasp it neither...
Idiot, before you consider insulting people, consider that gold has had a negative yield over the last 100 year, meaning more than a single person got burned holding it in their portfolios...
It seems that you didn't read the post prior to commenting - Economic growth cannot happen when all participants are saving. There needs to be a healthy mix of savings and consumption (which is not happening) in order for an economy to grow - "this stuff isn't rocket science", but obviously you couldn't grasp it neither...
Yikes - so that's what happens when you click "save" more than once...
Sorry guys
The savings paradox is pure BS.
What happens when you save money? You put it in the bank. What happens to that money? It gets loaned out and spent. Savings drive the economy!
If everyone is saving, it means everyone is fueling investment in new business and capital goods, lifting the long-run growth curve and wages rates in the economy. If everyone is saving, it means people are going to be a lot wealthier 10 years from now than they would be if they consumed today.
Now, if those savings are spent on consumption goods (houses, cars,etc.) it's not as good for the economy, but the "savings paradox" is paradoxically still blown out of the water.
Why aren't people investing in new businesses today? Why are they not investing in capital goods? It has nothing at all to do with savings and everything to do with debt levels and government intervention. Hoarding of cash is a symptom, not the problem.
The Keynesian solution to the flu would be to notice the sick patient sitting in bed and order him to run 100 meter sprints all day long, because that's what you do when you're healthy.
"What happens when you save money? You put it in the bank. What happens to that money? It gets loaned out and spent. Savings drive the economy!"
Untrue since at least 2008.
Banks broke...
But they can alway get some more for free. They don't just want to bleed all your fiat, they want any hard assets you might have left too. As everyone knows, they desperately need them.
RE:"With the global banking system suffering under an extremely high load of worthless assets – whether recognized or not – and being forced to improve their capital allocation for risk by the Basel II and Basel III rules, banks must cut back the amount of credit that they make available to the economy."
Hrrm, what if those 'capital allocation' requirements are simply transferred as ones and zeroes to them by their respective Central Banks? You know, to them a bailout by any other name still smells just as sweet.
Regard
As if everyone is going to start looking for a @#$%^&* WalMart if things get squirrely. That's pretty funny.
+1 point up! Amazing how those who are not "in" on gold get hammered by those who are? Gold will go down with everything else in DEFLATION. Waiting for a better price to start my accumulation. And I don't buy the theories that there will be NONE to be found when I do! .... and at a better price than what is found today.
by the way gold in a major cup and handle. go miners and physical none of that gld crap another banker gimmick....only if u have over 1000000 can you redeem and that looks like its ripe for the government to pluck after soros and paulson take theres......
"It also explains why companies are hording cash."
Bull. The companies have been hoarding that cash for decades, but nobody noticed until it became politically useful to do so.
Do you think all that money magically appeared after December 2007, when the recession started? Most of the pile of money was built up in the good years, not the last couple of very lean years. Think it through, people.
The primary reason why these companies are hoarding cash is because most of them are too big to spend it in acquiring something large that will net them a near term gain in stock price, and they can't issue the cash to shareholders as a dividend without (1) seeing their stock price reduced by the same amount, and (2) for growth companies like MSFT, "confirming" that they're out of ideas, thus depressing the stock price far beyond a mere offset of the dividend.
Public companies are not run like real companies. They're run to simulate a financial instrument that grows in value in perpetuity so suckers like us will pay a premium for future value that may never come to be.
The real question from a GDP perspective is not how much money these companies have saved over the last couple of decades, but how much money they are spending these days as compared to prior years.
Taylor is a MORON.
During the great depression, the dollar was 100% backed by gold. Other sovereigns defaulted on their debt and fled to the dollar, so the dollar rose in value because it was good as GOLD...
Now the dollar is only paper money, backed with nothing, only BIGGEST DEBT of the human history. You must be a real fool to buy dollars or other fucking fiatmoney.
There will be no deflation, but HYPERINFLATION like Argentina defaulted on their debt, nothing more.
BUY PHYSICAL GOLD!
How are you going to have hyperinflation when the velocity of money is shrinking and nominal wages are stagnant.
Outside of an abosolutely massive supply side shock or insane commodities speculation hyperinflation is extremely unlikely.
The USD is backed by its nuclear arsenal, hundreds of military bases worldwide and the convenient happenstance that the bulk of global wealth and trade is denominated in its terms.
"Velocity Of Money" is a plug number. It is not stable. It can therefore go from zero to 60 faster than your sports car. Velocity is one of those bogus concepts from orthodox academia - like "efficient markets" or "CAPM". It means nothing.
The relationship betwen the "real" economy and "money" is tenuous, unstable and unknown. Kind of like the relationship between the number of ounces of gold in existence to the gdp growth in Japan. Sure you could divide one by the other at any point in time and get a number - call it the the Japan Gold Velocity if you like. It does not mean that this ratio has any meaning or predictive power.
he heee. I personally follow the SPX/Buffalo ratio. This is the ratio of the S&P 500 to the number of Buffaloes in China.
A person walking towards a cliff confidently states "I can't fall off the cliff, I'm not accelerating downwards right now". He stepped off the cliff, and was never seen again.
As a hint, the same thing happened in Wiemar Germany. There was a year of deflation, and then prices started rising by 100% per year, then 300%, then 500%, then 1000%, and so on.
How hard is it for you to think of 5 plausible scenarios by which this could occur?
Was oil really worth $150 a barrel 18-24 months ago?
Physical gold is a gamble. It might be a new paradigm in economics. Or it might be a bubble driven by irrational greed and fear, and which will pop in a period of deflation. I think of it this way. If I were holding gold, I'd be screaming abuse at anyone who says to do otherwise as well. A ponzi scheme needs new investors.
Well said.
You can't ponzi a product with a finite supply. Unless you use paper gold - which is reason why you buy physical.
+1000
Every product has a finite supply.
"Taylor is a MORON...There will be no deflation, but HYPERINFLATION like Argentina defaulted on their debt, nothing more. BUY PHYSICAL GOLD!"
Good luck with that. Send us a post card from down under when you get there...
ben bernanke says we have tools to mop up the extra liquidity.....in non fed speak its called GOLD
Not so fast, (this to Mr. Ben Bernanke).
http://seekingalpha.com/article/139588-u-s-treasury-owned-gold-what-can-...
The United States Treasury Department recently issued a report on the total amount of US Treasury-Owned Gold. As of April 30, 2009 the US Treasury held a total of 261.5 million fine troy ounces of gold. The Treasury report uses a book value of $42.22 per troy ounce to calculate the total value of gold held at approximately $11 billion. Based on the current market price, total gold holdings of the US Treasury amount to approximately $238.5 billion.
It is interesting to note that although the US dollar used to be a gold-linked currency, the current market value of gold held by the US Treasury is now nothing more than pocket change on the Federal balance sheet. In today’s new financial world, here’s a short list of what the U.S. government could buy with the entire U.S. gold stockpile of $238 billion.
* cover the interest due on $9 trillion of government debt for one year.
* buy General Electric (GE), American Express (AXP) and McDonald's (MCD)
* cover 40% of the $599 billion in bank losses expected by the US Government over the next year
* pay for 6.6% of next year’s $3.6 trillion dollar US spending budget
* cover less than half the cost of the TARP program
* pay for 35% of the 2010 U.S. defense budget
* cover less than two years of war costs in Iraq and Afghanistan
* cover the cost of a stimulus check of around $800 for each American
-------------------------------------------------------------------
US government's spendings are leveraged 1:30. This calculation is based on the amount of gold, that can be sold in a case of "liquidation" of USA and payment of all US government's debts.
"US government's spendings are leveraged 1:30. This calculation is based on the amount of gold, that can be sold in a case of "liquidation" of USA and payment of all US government's debts."
Therefore government default and economic deflation favouring scarce cash dollars in US future...
so the less gold they "say" they have the better the united states is he can revalue one time to 50000 pay of the foreign creditors with that based on that small amount. Then confiscate the gld and whatever is left in fort knox and revalue back down to 15000 and raise rates just after.
They can revalue gold and say how much they have out of thin air. Whatever the formula is except it but the end game is gold one way or another.....Even after the banks own all the property if a new currency is required it can't go fiat to fiat it would have to go soft to hard currency.
If they want to overthrow the government, then deflation might do the trick.
Don't count it out!
The end game is this gold is the new reserve currency all other currencies will bounce off the price of gold and interest rates will be be dictated by gold if it gets overheated. Believe Alan Greenspan as this is a once in a century event and gold is going to be set so high initially your head will spin....as our country becomes 3rd world it will be gold 15000 and dow 15000. However the dow has somemore downside to go before we are the new peso.......Get your gold now........
Remember asset deflation....monetary inflation......hyperinflation is a FX event (currency event) not an economic event. Buy gold
Correction. Hyperinflation is more of a political or social event. The impending currency crisis is the effect.
They have all the cash, they have all the gold. The cash is for when rates go back up. They now have zero risk. After the great revaluation of gold they will buy the nj turnpike the tunnels and bridges even the highways. The utilites they already have my water company and they'll charge you. They own the country. They backed the truck up and now we will be their slaves. All the little guys will be jumping back in the stock market once it has bottomed and getting taxed at the new rates next year. New Taxes equals stock market up while the real economy is shot. This will be the green energy decade let the next bubble begin. because we can't have another oil spill. The timing is impeccable as was 9/11 when the depression really started. The past decade was the decade of national security and houses. Remember some countries may want gold for crude oil......
Do present times not expose the fallacy of Keynes' savings paradox. The proper response to this paradox is So what? Businesses and households are saving for a reason - anxiety and concern about the future. If Governments go out and raise more debt when everyone and his parrot knows debt is the problem it only heightens that uncertainty and induces more saving.
Excessive debt is the symptom of misallocated resources. So government debt-raising is not only counter-productive it allows the running sore of misallocated resources to persist. Indeed, since a good deal of the money is spent through government bureaucracies this guarantees that the misallocation will be aggravated.
Dollar is getting smoked again today. EUR at 1.28 handle? WTF? I guess DOW to 15k is a must to get Obama back in the good graces?? lol
Hospitalize Paul Krugman in an Asylum Paul Krugman has lost his mind. Everybody knows it but nobody seems to admit it. He thinks that money grows on trees (or the printing press to be precise) and is actively calling for actions that will...
KEYNSIAN PRIEST http://williambanzai7.blogspot.com/2010/07/wonders-of-world-of-fraud-key...
OH MASTER.... I'LL MAKE YOU AN OFFER OH GREAT ONE.....
I'll rip-out the beating hearts of every KEYNSIAN WORSHIPPER alive out by making the ultimate sacrifice before the sun rises.
Make sure you get someone to videotape it.
Taylor is a genius, literally, a gifted and blessed intellect. In my opinion, all he is sayng is that day old cold pizza (dollars) are better than shellaced tantalizing delights presented by ZIRP and phony recipes. Taylor also said we won't recognize America in the not too distant future. Therefore, sustain yourself with empty calories for now as they are better than ingesting poison, and in the near future a far more healthier exchange will present itself. Exchange now and you might receive a blanket with a smallpox infection.
Here's an interesting analysis you can do in your own neighborhood. I already did it in mine.
Contact your local business broker and inquire about buying small businesses, i.e. the "real" economy. Peruse the listings and analyze the valuations.
If your neighborhood is like mine (Greater metro NY NJ), you will find that valuations for typical small businesses are in the range 1-3x cash flow to capital. Why so low? If you are on ZH you already know.
What are the comparable equity valuations in the public markets? About 12-30x cash flow to capital.
Still think stocks are "cheap"?
Gold and silver miners are cheap. The rest will get cheap or worthless when the market finds the bottom of this ski jump. The big unknown for me is, will the short squeeze in precious metals come before or after the market dives. Which means, do we sell on highs and buy back on dips, taking the risk of having no positions when the moonshot has left earth orbit?