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Seth Klarman "More Worried About The World Than Ever" Redux
A few days ago we pointed out that Seth Klarman is bracing for yet another lost decade, as the legendary Baupost investor anticipates nothing good out of government incursion in capital markets, and has come up with the best description for the fake and busted and heart attack inducing market yet, comparing it to a "hostess twinkie" (full must read article summarizing his speech at the CFA Institute here). Another must read piece, for those who may have missed it the first time around, is his summary of lessons learned and unlearned from the financial crisis, found here. Today, the WSJ's Jason Zweig has a follow up on Klarman, who, as we noted earlier "is more worried than ever" and concludes that "all we got out of this crisis was a Really Bad Couple of Weeks mentality. I am more worried about the world, more broadly, than I ever have been in my career." And they say Zero Hedge is bearish...
From the WSJ:
To measure Mr. Klarman's importance as an investor, you need only see the value his rivals place upon his words. You could have earned at least a 20% average annual return since 1991—better than twice the performance of the market—merely by buying and holding Mr. Klarman's book, "Margin of Safety": Published that year at a cover price of $25, hard copies now fetch up to $2,400. [a pdf can be found here]
But the professorial Mr. Klarman speaks in public about as often as the Himalayan yeti. He made an exception last Tuesday, when I interviewed him in front of a standing-room-only crowd of 1,600 financial analysts at the CFA Institute annual meeting in Boston. He then made another exception, speaking with me over the phone later to clarify points that he feared had been misconstrued.
Mr. Klarman specializes in buying securities that nauseate other investors. As the credit crisis exploded, he put more than a third of his assets into high-yield bonds and mortgage-related securities. I asked him what he had meant, in a recent letter to his clients, when he compared the financial markets to a Hostess Twinkie. "There is no nutritional value," he said. "There is nothing natural in the markets. Everything is being manipulated by the government." He added, "I'm skeptical that the European bailout will work."
Some members of the audience gasped audibly when Mr. Klarman said, "The government is now in the business of giving bad advice." Later, he got more specific: "By holding interest rates at zero, the government is basically tricking the population into going long on just about every kind of security except cash, at the price of almost certainly not getting an adequate return for the risks they are running. People can't stand earning 0% on their money, so the government is forcing everyone in the investing public to speculate."
"We didn't get the value out of this crisis that we should have," Mr. Klarman told the audience. "For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions." He added: "All we got out of this crisis was a Really Bad Couple of Weeks mentality."
You could have heard a pin drop as Mr. Klarman proclaimed, "I am more worried about the world, more broadly, than I ever have been in my career." That's because you can make good investing decisions and still end up with bad results if you reap your profits in currencies that do not hold their purchasing power, he explained.
"Will money be worth anything," asked Mr. Klarman, "if governments keep intervening anytime there's a crisis to prop things up?"
What is the proper trade according to Klarman?
To protect against that "tail risk," said Mr. Klarman, Baupost is buying "way out-of-the-money puts on bonds"—options that have no value unless Treasury bonds plummet. "It's cheap disaster insurance for five years out," he said.
Later, I asked Mr. Klarman what he would suggest for smaller investors who share his worries.
"All the obvious hedges"—commodities and foreign currencies, for example—"are already extremely expensive," he warned.
Especially gold. "Near its all-time high, it's a very hard moment to recommend gold," said Mr. Klarman.
Mr. Klarman pointed out that his own ideas "on bottom-up opportunities in undervalued securities are more likely to be accurate than my top-down views on what's going to happen in the world at large." In other words, while you might want to insure against a disaster scenario, you shouldn't bet the ranch on it.
And, said Mr. Klarman, one of the best ways to protect against a decline in purchasing power is to buy whatever is "out of favor, loathed and despised." So forget about gold or other trendy hedges. Instead, wait patiently for markets—European stocks, perhaps—to get so cheap that they turn most investors' stomachs. Then you can pounce.
And cheap they will get: there is only so much artifical propping the government can do. What we are far more curious about is the ABX-like trade that Hugh Hendry pointed out he had set up with "15% downside and 75% upside." Since this was disclosed in February, Hendry has kept mum, and has still to provide more information on just what this trade is. And speaking of ABX, and risk-free money, we wonder if readers have had any success with the ABX-Prime market so far?
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I am scared too. Danger everywhere, around every curve and corner.
We got here from too much government spending. All the other fraud, FED work, etc. helped too, but spending was No. 1.
Ugh.
I knew we were spending too much when I repeatedly in recent years observed the DOT here in Virginia putting a fresh, smooth coat of asphalt on highways already clad in a fresh, smooth coat of asphalt...
the state university here put a nice new asphalt shingle roof on a building completed in 1997
Fear is overblown. People/society will go on. It is easy to scare yourself into thinking the world is coming to an end. Yes, shit will hit the fan in one way or the other, but you gotta do what you gotta do. Even people in Argentina and North Korea have some order in their lives. Try to get some insurance that could ease the blow, like hard assets and canned foods.
At the end of the day, the less control you have, the less fear you should have. Whether it's natural disasters, car accidents, hyperinflation, life goes on, until it doesn't. Yes, we all gonna die anyways, try not to take everything so seriously. Life is short, don't forget to enjoy the ride!
Frankly, as scary as all this economic destruction is, I must admit it is also equally exciting.
Well said, dude. I'm getting a little impatient waiting for the party to begin. This can kickin' gets old. Paybacks are due.
I think the both of you are forgetting the human suffering and carnage that comes with economic collapse. Look at the example of N. Korea given, people literally dying in attempts to flee the "orderly" form of society there, not to mention the lack of human rights and dignity in that society. So sure, society will go on, I don't think anyone is saying it won't. But anyone not concerned in the least about what type of society will emerge from the rubble, has a very faint grasp of reality.
On the contrary. My family emigrated to America from a corrupt, authoritarian hell hole. My point is that you first should worry about things you can control vs things you can't. Instead of worrying about global warming, try not to throw trash in the street or dump sewage into a river. Instead of worrying about economic collapse, try to make sure you and your family take some precautions on things that impact you directly, maybe try to help or educate others, and then just live your life. No one is forgetting about human suffering, but you must also accept that it will continue with or without mass hysteria or you paying extra attention to it. Relax, take a breath, and try living a little without a constant, and overbearing sense of dread. Be conscious of it, use it to make wise decisions, but don't let it paralyze you into a frightened, panicked, rodent.
As for not being concerned about the outcome, I'm actually pessimistically optimistic. Maybe people will finally wake up and realize that everything they've been told to believe, and which they chose to believe it because it was the easier thing to do, has been utterly false. It just may take suffering for people to start thinking. Unfortunately, most people will have to suffer, including many people that do not deserve it.
You are utterly correct. Reality will set in and things will change.
People and society continue on.. my beef is that I want to be part of that continuation. I think that's the problem with statements like that. It's the 1000 foot level instead of the 10 foot level. But you have the rest in tune. Don't let fear get you by being un-prepared. Set yourself up so fear is not a distraction, but a tool.
Anyone that thinks we are living in a real economy is not worth the gas that they guzzle on the way to pick up their unemployment check - oh, I'm sorry that now gets directly depostited into their Wachovia (I mean Wells Fargo) account.
More seriously, I'm glad that big investors (Mr. Klarman and Paulson by way of Au - Gold) are awake....the markets are much bigger than Big Government/Big Brother policies.
Why isn't the rest of America awake?
I think they are petrified. Frozen in place. Whole mobs are waking to the idea that the future is unthinkable.
The baby boomers are screwed -- it's too late in their earning years to "put something away". All governments are bankrupt. All pensions worldwide are bankrupt. The price of all assets is absolutely beyond the bounds of reality. No, there is no place to run.
Because everything is priced too high, we can only "guess" which boat to jump into, knowing they are all sinking. We can't even compute how fast they sink relative to each other, because seemingly random decisions are made on a daily and weekly basis about which boat to shoot with a shotgun.
Welcome to bazookanomics. There is no defense.
silver is not priced too high! Understatement, get some. Best wishes and good luck to all of you. Glad i had the chance to share this space with you all. Our connection may be cut soon in the future and there wont be a chance to say good bye.
"Why isn't the rest of America awake?"
3 reasons:
1. ignorance
2. stupidity
3. faith (the willful suspension of disbelief).
Too many buried heads. Too few accept reality because they think it will affect their happiness. Lack of control over their finances and environment makes people afraid.
George Orwell: Happiness can exist only in acceptance
television , news sound upbeat no matter what. That is a BIG part of the problem, so many lies and most are alone in their views. Others are just to busy or dont care as long as it doesnt bother them.
I wonder how many people understand air, and that they need it!
Let me give you a little inside information about GS. GS likes to watch.
GS a prankster. Think about it. GS gives man instincts. GS gives you this
extraordinary darkpool, and then what does GS do, I swear for GS own amusement,
their own private, cosmic gag reel, GS sets the rules in markets.
It's the goof of all time. Buy but don't hold. hold, but don't sell. sell, but dont think you won.
Ahaha. And while you're jumpin' from PUT TO CALL, what is GS doing? GS IS laughin' their sick, fuckin' ass off!
GS a tight-ass! GS a SADIST! GS an absentee landlord! Worship that? NEVER!
-john milton devils advocate-
got to edit it a little..;)
"By holding interest rate at zero"
The Fed does not hold onto anything. The Truth of the matter is even at the Feds Fund Rate at 0% nobody wants to take on additional credit. The ones that want it, want it fund their cash flow and probably have already defaulted. Yeah, have the Fed jack up the FFR up to 5% and let me know how the mushrooms clouds look up close.
"Everyone has a plan until they get hit" - Mike Tyson
Stupid Mike Tyson figured out what most humans that think they are so smart can't. Humans are getting "hit" by the Truth, they think they can continue to ignore it and it will go away. It's not going to happen, Math always wins.
This guy isn't even as smart as Mike Tyson.
"And, said Mr. Klarman, one of the best ways to protect against a decline in purchasing power is to buy whatever is "out of favor, loathed and despised.""
Yes, keep on thinking you are going to buy your way out of this. There is no magic bean there is no Wizard of Oz. You will lose. The only way you could win or get otu is if you had an infinite number of Wizards of Oz.
Now if this guy would just tell me how you pay interest on $52T with negative growth rate in the credit system, let alone jacking up the FFR, until that time he isn't any better than Cramer,"Buy, buy, buy"! The guy is delusional, there is no out.
Oh Yes, he should be very "worried", to bad he still has failed to figure what Mike Tyson figured out over 20 years ago.
Roger that. When it comes down, it ALL comes down. Flight to safety is a mirage.
I long ago learned that if you want to buy a used car, you don't take advice from a used car salesman. Only an idiot would take advice from a financial products salesman, Unfortunately, there are millions of idiots.
Agreed, Klarman doesn't seem to understand the crisis.
More like Kunstler's Long Emergency. Anyone can play the markets: this is like surfing the wave that flows down the center of the drain.
This is a matter of resource constraints; resources that only make sense when the infrastructure that makes use of them returns a profit. The calculus is there, not in junk bonds.
Mr Mako didn't even mention gold in this rant. People think gold bugs are crazy, I find smart asses that don't understand gold to be even crazier.
What is there to understand about gold? It's a chemical element with an atomic number of 79, it's shiny yellow in appearance and is very malleable.
People that don't understand that credit is what has provide you with your way of life and it's about to go the way of the dinosaur are the craziest people, people that don't understand the a system based on exponential growth is unsustainable are just plain dumb.
There will be millions of people in India with gold in their pocket starving to death by the time this is all over with. You could double their gold holdings and it would stil happen. The system could be based on grains of dirt and eventually the system would run out of dirt and people would be starving to death.
You could times the world's gold supply times 1000 and the system would still collapse and people will still die.
boy oh boy, thanks a lot...now you have the baby crying.
Nothing like a steaming bowl of Mako to go with your morning coffee. Too bad he's probably right.
He's correct. What we are experiencing right now are the birth pangs of the crisis
Buying what was loathed worked in the past because the Fed or GOvt was there to bail everyone out with either cutting rates or increasing deficit. Well Mr Klarman, rates are already at zero and the political "mood" around the globe is turning towards deficit reduction. Hello Herbert Hoover. No more tricks left in the bag. What worked in the past will not work in the future.
Correct. It's over. Cycle has run it's course and the needed power to sustain the system is more than humans can supply.
Well, I wish to hell that it would crash already! I'm running out of popcorn.
Hell fire i am running out of Raccoon!
I think "investing" should be a zero sum game. Company A wishes to raise capital in order to create new capabilities and expand their business. If I agree with their business model I may purchase stock for say 5 ounces of gold per share. If sometime down the road I wish to relinquish those shares back to the company or to another party then I will get back my 5 ounces of gold per and nothing more. As I did not invest my time and effort, but liked the political direction/goal of the company, I am not due moneys over what I put in. If the company increased in value over that time, it was due to its own effort and not mine and the value accrued belongs to it and its employees.
This is a long term stable "stock" model, I think. And, sorry folks, its boring.
Can I lose my five ounces as well? If so, then with no potential upside, I wouldn't invest them at all. If not, then suppose invest in a company that fails. When that happens, *someone* will have to reimburse me anyway. Who will?
Your makret is unworkable. And isn't a market.
Your gold is time and effort. If it weren't, there would be no use for it and no sense in investing it.
In your scenario, if the net result of people investing gold into businesses is that the economy increases in value, that means the value of gold increases along with it. So your 5 oz investment, while it stays 5 oz, is worth more at the end than at the beginning. I.e. monetary 'deflation'. Everybody's money gets more valuable. I agree that this would be a great way to go, but I don't know if I would call it a zero sum game.
Time and effort is meaningless, and more to the point, profitless, under the current central banking regime. When all is said and done, one may make a minor paper profit, which is is less than a real profit once inflation and governmental compliance taxes are accounted for. I ran a smallish ($25-30 million a/r) company for years, and its final years were counted in losses, specifically for these reasons, especially politically targeted surveillance and taxes directed to specific SIC codes--and that was prior to the inheritance tax problem. The major shareholder died unexpectedly (and had been a real control freak, in terms of shares only), which precipitated a sale, thereby losing around 20 jobs in New Jersey and Illinois. This company had begun in the 19th century, and had always been self-funded. If you want a case study in how to destroy capital, it was running a small company of this type in NY/NJ/IL/RI over 150 years.
Agreed, the current system doesn't work (I suppose it works well for the people who control it). I was speaking about a hypothetical 'real currency' system.
Congratulations! Your post had now merited consideration to be in the top ten dumbest posts in the history of Zero Hedge......Harry and Leo thank you, I'm sure.
I'm sorry but that makes absolutely ZERO sense.
Did you even consider what you said before you typed it?
My guess is his cat walked across his keyboard.
I think investing should be a zero-sum game.
Er, why? Did you never read Adam Smith? A man who raises the money to create a pin factory increases the wealth of the community, as pins are now cheap and easy to afford. Certainly, the creator deserves the lion's share of profit, but the investors gave him the wherewithal to follow through on his idea, and as such, deserve some share of the wealth created.
You seem to think of capital as a dead thing, when it is in fact a living thing, capable of being transformed into new factories, new products, new wealth, and a better standard of living for billions. The fact that capital's transformative power is being leached away by the trillions of QE FRN's, euros, and pounds should not blind you to capital's necessity.
Please wake up everybody! Turn off the TV ...it lies
Have had mine turned off for years. Pulled the cable off my house myself. For me, there was a withdrawal period, including a brief relapse. But now I miss the tube not, am thou$ands richer, less irritated, less bullied by the monopolists, better read, more well-rounded, less propagandized. And my home is less cable-ridden.
Best move ever, I had no cable for 9 years when I was deployed overseas. You dont miss it after a while. Now If I could only get my wife to quit watching housewife this and that crap I would be home free.
Kill your television!!
Ned's Atomic Dustbin agrees with you:
http://www.youtube.com/watch?v=yan77UKYcg4
More and more are, which helps accelerate things.
0% is a very good interest rate, if everything else is deflating at a rate much faster than 0%. And 0% offers some of the best characteristics in terms of income tax -- no income tax on interest if you're earning no cash interest and everything else is deflating.
Other than gold and commodities, over the past decade, cash and bonds have been the best performing asset class.
Jason Zwieg is a bit late to the reality party. Anybody who has read him over the years knows that his thinking is conventional in the extreme, constantly making little bitty adjustments in his WSJ columns to the now-discredited Harry Markowitz Efficient Frontier Stock/Bond/Cash Pizza-Pie.
Conventional thinking will get you dead in the next few years; waiting for cheap european stocks (or asian or american ones, for that matter) conveniently avoids the central question of why all stocks are going to get much cheaper: MUCH more expensive, and scarce, capital. A hurricane of global currency devaluations, distress in the bond markets, and panicky investors.
And, Mr. Klarman, like so many others, mistakes the role that gold will play in the recalibration of the global economic and monetary system, and hence misapprehends and why it is neither "trendy" nor "extremely expensive."
Klarman does not connect the dots between ultimate risks of the ZIRP environment he talks about, the high probability of a sovereign debt catastrophe he wants to hedge against with out-of-the-money bond puts, and a gold price which finally moves explosively higher as investors puke their guts out and move to the king of metals for preservation of their assets.
"Will money be worth anything," asked Mr. Klarman, "if governments keep intervening anytime there's a crisis to prop things up?"
Short answer: no. But gold sure as hell will.
Good commentary. Even Denninger (a smart guy that doesn't get gold) knows that you can't short holes.
Bonds have been in a 30 year bull yet this asshole says that gold is the " trendy investment "
You know, I like and admire Denninger, both for his passion and for his obvious brilliance.
But he does seem to have curious sorts of prejudices--gold being one of them--that somehow get in the way of his thinking, and he stubbornly refuses to look at things from a different angle. I think he will be way wrong on gold, obviously. Time will tell. Place your bets.
The Great Oracle comes out of the cave after long slumber...
'We are in grave danger...avoid the obvious...avoid expensive stuff and purchase that which all others abhor...U$D'
hmmm
They are still digging up gold the wealthy Romans burried in order to survive the collapse. Seems like a lot of them didn't survive long enough to retrieve it.
They are "finding" the caches buried by Goldmanus-Sacsumus.
Pretty funny "55".
good one.
pretty good. Not easy either...
pay attention
there is a frightening truth encoded in this quip
those that had the gold survived longer than than those who didn't.. under the gold now being found in Rome.. sets piles of empty grain buckets , emaciated
bones of those who suffered first . then a pile of ash , then the gold bugs lol
If he has 30% of his investments tied up in high yield and the world is outlawing naked CDS, I can see why he is more concerned than ever before about the/his world.
His quote: "way out-of-the-money puts on bonds"—options that have no value unless Treasury bonds plummet. "It's cheap disaster insurance for five years out," seems naive in a way. If US Treasury bonds plummeted would an exchange even exist - perhaps he could buy them on a foreign exchange but everything is now connected right? Sometimes cheap is cheap for a reason. I liken this to purchasing life insurance despite being an orphan with no family, friends, or pets that you would leave money for (lottery ticket in case of death).
If the US follows the path of Japan, deflation most likely, over the long term treasuries will continue to drop in yield. The issue is lack of growth and that creates a situation where there is little opportunity cost.
In general I agreed with his concept to buy low (within reason - Fannie & Freddie were pretty despised but $1) and sell high with a longer term investment horizon. If European equities do drop on a pan-european margin call, it could be an opportunity to purchase good shares on the cheap (growth, dividends, low debt, high cash, necessities) if you have the cash and if the CB response is to inflate (similar to 09).
I find it impossible to believe that people at this level do not understand the currency role that gold has played in the international monetary system and Exeters inverted pyramid of asset classes. Gold is like gravity in the international financial system although it is not openly talked about. What is expensive, and what is cheap? His advice "one of the best ways to protect against a decline in purchasing power is to buy whatever is "out of favor, loathed and despised." is useful when the status quo continues - obviously buggy whips at one point were despised but we had a new technology that made them obsolete.
Hi Apocalypse Now--the buggy whip theme is so excellent!
there are some truthful moments in klarman's comments but he seems more part of the establishment petrified about the severe and permanent backwardation of gold. his brer rabbit act is not convincing.
gold overvalued? using the logic of thomas aquinas where everything has a fair instrinsic value perhaps, but not using market based analytics which demonstrate a highly manipulated good in a very fragile and corrupt financial world.
the fed/treasury/cia were in full dudgeon attempting to break gold. they have temporarily succeed but this merely makes a good buying opportunity.
anyone can earn 25% or better premium on gold by buying physical gold and demanding delivery.
I agree gold is far from overvalued. Look at the price of gold when the price is adjusted for inflation: http://solari.com/blog/wp-content/uploads/2009/10/1longtermsscpiau1700lo... I'd say we have quite a ways to go before it can be considered expensive.
So he's scared of paper plummeting in value but he recommends paper products over gold? If the system is so corrupt, manipulated, and broken it must change. The paper matirx will be purged from our collective minds and gold will take it's place as the denominator of wealth.
How does the quote go - all that cannot go on forever must eventually stop...the system this guy plays in is coming to an end.
Off topic (but not by much):
I think this is a good time to repost a link to this must watch primer on Republic vs Democracy: http://www.youtube.com/watch?v=MW6AKVyi6As
Thank you for posting that link. That was very interesting to me.
...and to the Republic for which it stands...
It is a tragedy of the absolute worst sort that today's American citizens have no understanding, whatsoever, of the thought processes of our founding fathers. Do what you can, all of you, to remedy this situation. You will sleep better.
Pulled both my children from public schools.. and promptly placed them into a Catholic school. It's the "Suck less" option. The education is far better and I'd pit my 6 year old up against any public school kid any day. But I also keep telling him that just because school is closed for the day, it doesn't mean school is over when he comes home. In that respect, I am very active in his education. Parents need to home school in parallel if they can't home school full-time. It's the only way to ensure that they are getting the education you're paying for.
So it was in the year 2020, Texas textbooks taught Libby Scooter was a war General, Al Gore invented the internet, Karl Rove was the QB of the Patriots, and King George Herbert Walker Bush once had a 100% aproval rating.
They will also write of B.Hussein Obamas impeachment.
seen that linked video before, lots to agree with there
I do take issue with the offhand dismissal of the possibility of anarchy being a workable solution.
You can always move to Mogadishu and give it a try.
http://www.google.com/url?q=http://s0.ilike.com/play%23Dead%2BKennedys:Anarchy%2BFor%2BSale:41022:s40214852.10771985.3371927.0.2.60%252Cstd_555fcfe5e6de483194f612e9e2ee4979&ei=tTr5S-7FKoiKNvmWvVw&sa=X&oi=music_play_track&resnum=1&ct=result&cd=2&ved=0CBMQ0wQoADAA&usg=AFQjCNH-9NOykcppZEj-14qMhkZz406Taw
I see it as a choice
You can have anarchy where everyone is responsible for their own behavior and defense, and yes, given human nature a certain amount of violence as the culture balances itself.
Or you can have centralized control with periods of peace and the rule of law at the cost of reduced liberty and occasional spasms of unimaginable global violence.
It is just more proof that there is no gold bubble when yet another "expert" comes out and declares gold has peaked. These people come out of the woodwork without even once checking what the price of gold did in Iceland, Argentina, Weimar, or even the EU just two weeks ago. They so badly want gold to be a commodity. But it is money. So when the DOW was at 6500, gold was at all time highs. When the EU went into a massive deflationary credit crisis, gold in Euros shot through the roof. And when we print too much money, gold trends upwards. What looks like an expensive gold price is the result of 30 years of gold being held down by central bankers and the final result of them having no gold left to dump. These "experts" take no time to understand the market, they just look at prices and assume dollars are a good yardstick and the price was accurate when it was lower. They aren't and it wasn't.
I can tell you what will happen to this guy's attempt at bottom feeding in markets he doesn't understand. He is not a bank. So all that toxic crap he bought will not be taken off his hands. He will eat it big time as ARMs begin to reset this year. And while he is eating that delicious lunch, the US gov will go into debt shock, making the dollar fall. His losses will be amplified. His puts will decay into nothingness as the Fed buys all the Treasury debt it can at inflated prices with the explicit intent of forgiving it in the future.
This guy is stuck in 1991. You need to be a global economist with a PHD in history to survive these days. If this were a poker game, you'd be playing with a bunch of hobos and the pot would be all IOUs. At some point you have to realize there is nothing left worth winning, and they aren't good for it. Time to leave the table and convert the chips into something of value before they stick you with the bar tab too.
How in the heck can there be a gold bubble when the EU,UK,Japan, and US are in debt to thier eyeballs, and Canada and the AU have property bubbles? China looks like a textbook case of misalocated capitol.
Gold bubble my arse.
Im still investing in lead, seeds, and water purifcation. If nothing else I can shoot untill im 90 and have fresh vegetables. Where was that damm gardening book?
Great post. Hadn't thought about the effect monetization might have on Treasury prices; hence his "hedge" would be worthless and he would STILL be stuck with worthless paper dollars. Once again, gold benefits.
"Worthless Paper Dollars"? Wait to see what hyperinflation does to the price of toilet paper and then we will see if those paper dollars are worthless.
http://www.youtube.com/watch?v=7GSXbgfKFWg
Outstanding!!! Thats why the IMF recently withdrew its gold sale to Eric Sprott, all the cb's know now its a run for the exits and they have turned to buyers of gold themselves..Jpm just announced last week that they are going to open a gold bullion bank in Singapore in the fall..This is going to get very, very interesting indeed..There arent enough chairs, RUN FORREST ,RUN...
Hey Quinvarius, whats you Opinion on Silver..I like to collect all the perspectives I can..Thanks alot in advance..
I prefer gold because I think there are enough gold debts between bankers and governments out there for it to count as a debt backed money as well as a PM. And what I am looking for is an existing currency that cannot be printed. I like silver too. I own some. It probably has more trading potential.
They so badly want gold to be a commodity. But it is money.
Klarman's (and every other gold-poo-poo-er) unspoken assumption is that gold is just another number, another trade. This is true for paper gold, but not for physical. The latter's value (among other things) is that is precisely not another trade. It does not entail:
So, how far out is " way out-of-the-money puts on bonds"?
10%, 20% 30%...?
For the little guy: puts on TLT, 2012s, 55 strike, about $1.50
Rates need to more than double to be worthwhile.
This oil spill is going to absolutely cripple the U.S at a time when they are effectively bankrupt already.
What if they try this "top kill" or whatever and it not only fails but makes the hole bigger?
Any idea what happens if the oil gets too thick for boats to operate in those ports? What happens when a hurricane blows all this oil all over the land?
Coupled with the earthquakes, volcanos, ash clouds over Europe, and now the water turning into oil
...this is fucking biblical.
If it starts raining frogs load up on puts.
http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/homepage/STAGING/local_assets/bp_homepage/html/rov_stream.html
Can I get a link to frogleg futures contracts?
Check this out:
The supply for fish, oysters, shrimp, etc will clearly go down. Not only is blasting one of the worlds most generous fishing grounds bad for the all kinds of species, but the enviroment becomes unfishable (it poses a health risk just to be on a boat in the water) One fifth of the worlds population relies on fish and various marine life as their primary food.
However, what we have seen in the past with disasters like this is that people boycott eating sea creatures because they don't want to eat contaminated food.
So...The people are still going to eat, they just won't eat fish. This is going to mean they will be eating more hogs, cattle, and ag (in general). The demand side of those commodities will be affected disproportinately to the existing supply, thus making a fantastic oppourtunity.
I also assume that water front real estate across the Gulf will take a serious hit, as well as the tourism, and obviously the fishing industry. Like I said above in my earlier post, if this affects the ports it will create extreme trade imbalances.
This is a an absolute disaster that we may see the ramifications of for generations (depending on how bad this really gets)
There is a commercial fish farm about an hour from me..They raise alot of those type of fish species..Also there is one farmer thats north of me that raises Shrimp in a pond, he turned to that when Tobacco hit the skids..I dont know how well he does, but he is still in business..Im sure it isnt the same as fresh seafood from the ocean but it is an alternative..
There will also be a premium on seafood known to be from somewhere other than the Gulf.
thx for the link.
Its messed up for sure..They are however drilling atleast two wells currently to take the pressure off which will stop it..One has been drilling for 3 weeks now and is in hurry up mode, so there should be a permanent fix in about another 6 weeks or so..I know its not the best news in the world, and still a ways to go, but it will end shortly..The damage however is another story all together..Very tough..
Ok...so let's say 6 weeks.
That would make this incident close to TWICE as bad as the Exxon Valdez which occured in 1989...they are still feeling the effects of that disaster to this day.
I didnt say it was good..It is horrible man.I feel there pain..We are ALL GOING TO SUFFER from this whether your down there or not..Im just not going to sugar coat it over for anybody..Im not in anyway making light of it..I hope the gunk shot works..But I look for another 6 weeks since all else has failed..
Like trying to pee in a thimble in the dark after a six-pack...80% chance of failure and a non-zero chance it will make the spill worse, not better.
Thanks for mentioning the bp spill. Obama announced a bipartisan commission to investigate the spill. I just wonder how (a) they'll find a way to bail out BP or (b) coverup the magnitude of the spill.
The Obama Commission or the warren commission?
I think (a), (b) are both fruitless to discuss at this juncture.
The real question is how Obama will spin this off on Bush.
Easy: faulty valves=Halliburton=Cheney=Bush
Huffington Post will have Bush at the Halliburton valve factory during the manufacting of the part.
Lack of inspections == Bush MMS.
Flaming tornadoes!
fuck yeah!
"But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions."
By the same token, WW II impacted the mentality of Europe for two generations but now that WW II is 65 years behind us, the new generations forget quickly. I think that perhaps Greece as well as all of Europe and the United States have forgotten about how sacrifice and hardship shape our political and economic stategies. After seeing the reaction to minor cutbacks in Greece, I question how the society can be reshaped other than through war and economic hardship which would force austerity whether the people want it or not. When the objective becomes staying alive and having food, the reduction or elemination of one's pension hardly seems as important. Society has a way of correcting itself and it can be done easily and orderly or quickly and violently. It appears we are on the course for the later.
Right, which explains why there is a zero probability of the American people or their feckless representatives making any cuts of any importance to any popular program--Social Security, Medicare, Medicaid come to mind.
Cuts to the Department of Education?? What about "the children"? "Heartless brutes" say the teachers' union and the public sector unions.
Same deal with every other special interest right down to the lowliest functionary in the most ancient department in the Department of Commerce.
What will it take to make us face the music? Total catastrophe? Yup, I believe so.
We are totally screwed.
Of course it has to be total collapse, because everybody has their one pet issue or need. It's like the douche at the comedy club laughing while the comic tears everybody under the sun a new asshole. Then.... he touches on something personal to Douche, like Cancer, or crippled kids. Now Douche is offended. "You crossed the line with that one Buddy."
So Douche is all for "austerity", well, except for public pensions, 'cause Douche works for DOT, and why, "he's been promised that money." So now we can't touch that either. "But everything else is okay."
Ethel, would love to cut entitlement spending, til you explain that she's already received six times the amount of Social Security money that she actually paid in, and she in actuality, is a welfare case. Now it's "Back away from the budget mother fucker!!!"
Everybody's got their hand in the cookie jar, and everybody's willing to remove somebody ELSE'S hand,,,,, but not their own. Game Over.
I doubt you could find one percent of the population that even begins to understand what's necessary to reset this abortion. And even then, half of them will be too fucking scared to pull the trigger, and will kick the can one more time.
Meanwhile another season of American Idol comes to a close.......
Things will go on pretty much status quo until the transfer payments stop showing up in the mailboxes. After that comes the wailing and gnashing of teeth, followed by widespread mayhem.
fwiw, the pdf is a very easy enjoyable read, i'm a few chapters in, fwiw, per klarman, an investment throws off cash, ie, bond or a dividend, since gold does not it is a speculation, speculative, greater fool bet
in his thinking his fear, basically as many of us yell, not enough profit to service the debt globally, somehtings gotta give
How many single-names pay a dividend and have a P/E that isn't laughable?
We got here because there are too many people in the world with not enough to do that is productive. Possibly 3-4 billion of them.
What does "productive" mean?
Is the Haitian woman with 10 offspring productive? Is the Octomom productive? Is Lord Blankfein productive? How about all the millions, thousands of millions who do nothing much all day, every day, but exchange o2 to co2?
Until this impossible situation finds a solution, there really can't be much progress on solving the greater problems of too much spending. Paving a highway that does not need it, to keep some semblance of busy-ness is a cheap version of the government printing money to build better infrastructure, or creating alternative energy sources. These two are both worth all the time and money that needs to be invested because as the infrastructure slowly (but increasing) deteriorates, and oil runs out, there is only one blatantly obvious outcome and that is an apocalypse, a man-made one that could easily be prevented and has the other advantage of putting some of those unproductive billions to work.
Still waiting for the answer.
The Haitian woman with 10 offspring... Well, what is her consumption? How does she drain the resources?
People exchanging O2 to CO2, their consumption is known and not that an issue.
No production process is known without a consumption at its roots.
Once again, this is a consumption issue. If the Haitian woman and her 10 offspring were to die, how much room for consumption would she free?
How much compared to the common US citizen involved in all his consumption activities, one of the biggest being his work which requires a lot of consumption?
A consumption issue is never solved by kicking out people who are already out of the consumption scheme.
It seems that the US dominating the world, many people feel the nostalgia of the good old times when the Indians were sacrificed to fund the US project.
Problem is as following: where to find the new Indians?
The Haitian woman with 30 off spring does not fit the bill.
Hadn't thought about it in terms of consumption, interesting viewpoint when looked at from the perspective of finite resources.
I guess my point was more about an energized, incentivized human race many of whom (if our financial resources were not monopolized by a few investment bankers for their own personal aggrandizement) would be able to overcome the problem presented by, say, peak oil.
There is no doubt in my mind when I see the awesome accomplishments of man to date that there are sufficient numbers of us with all the brains, power, and creativity to innovate our way to increased consumption without taxing existing resources to the limit, to the point that the planet just kicks us off.
Anony- great post. I've been thinking about this same question (what is productivity?) I certainly don't think the layers of lawyers and accountants in the government is productive. For example, if they create so many burdensome laws that an entrepreneur cannot efficiently start a pizza shop (pizza is productivity because everyone eats it), have we destroyed productivity? I think so.
What makes this worse is the tax code. Big banks and finance companies have armies of lawyers and accountants working the tax code (1031 exchanges, merger advice). This is a product that only big companies will buy in order to put the burdens of government on the wage earners. The large corporations can just move overseas (Accenture, Transocean), while the middle class is stuck with the bill.
The middle class in this country is doomed. Credit is not going to small companies, we've incentivized unemployment, borrowed up to our ears from the Chinese, and created an economy of French fries, hair cuts and wal-mart greeters. A debt crisis changes everything - higher interest rates will destroy the pension systems of municipalities and Social Security. When we all become serfs, we will beg for the microchips (the 'ads' will say "get this implant and you get an flat screen TV with no payments for a year!!").
One ray of hope is "odious debt." My apologies for linking to wikipedia.
http://en.wikipedia.org/wiki/Odious_debt
All true. If money changes hands, it's 'productivity' and more GDP, even if it's J.M. Keynes digging up buried banknotes.
I'll raise you one more.
This morning I picked up some cheese breads at the local bakery and noticed that the price is the same, but the breads are noticeably smaller. My question is this: how much money is spent adapting to inflation? The bite in the butt is that this expense is counted as productive work.
Steve lies-man explains June 2007http://www.youtube.com/watch?v=0YNyn1XGyWg
Nothing has changed from above scenario. New words and MSM propaganda prevails. Think PIIGS.
Bird and Fortune - Subprime Crisis http://www.youtube.com/watch?v=mzJmTCYmo9g
Comedy is soooooooooooooo apparent. Joke is on the Central Bankers. Their second round will not go so smoothly. Winks
I digested the piece on Klarman whilst perusing my WSJ this morn at Starbucks. Also in today's WSJ is a piece on a billionaire investor going all-in Au. "I've reached a point where I feel the only asset I have confidence in is gold," Mr. Kaplan said in an interview at Tigris's midtown Manhattan headquarters..."
http://online.wsj.com/article/SB1000142405274870416770457525878370287577...
Which genius are you gonna believe?
These thugs in Government are going to claw back a huge percentage of the capital gains to pay some bills. The Tax-man cometh like the grim reaper.
1 for you 19 for me
"When you make enough that they're taking that much, they still leave an awful lot" - Phil Collins
But since the value of gold is constant and its the dollars value that is depreciating, there are no capital gains...
I am sure our friends in the IRS will find that a compelling argument.
Just give away your gold quietly to your kids...
Yes indeed. Everyone yada's about no-counterparty, 5000 years of history, etc. (all true), but fewer talk about the anonymity of Au. In a surveillance world, what's the market value of privacy?
I am sure they would!
Interesting to think about it though. We are paying a tax due to a collapsing fiat currency..
"We are paying a tax due to a collapsing fiat currency."
Shhhhhhhhh.
I think I hear helicopters.
You've exposed the core central truth about non-redeemable paper ticket currencies. Run Hulk, Run!
Might work if you argue the losses in your cash depositi equivalents offset the gains in your PMs.
Tha's the argument I'm going to use when I pay off my mortgage with a 1/2 Eagle.
If you wait a little longer you might be able to pay it off with a 1955 half dollar.
Gold would be a good option if we would have inflation, but we don't.
20 bucks to go to the movie ,, popcorn drink extra,
every thing in your life is going up in price , talk about a gesture in futility
Movies can be found for cheap to nothing. Pretty much anything can be found for sickening bargain.
Also, hamburger is cheaper than steak.
Ahh, dumpster, mon amis. Nice to see that you as well going beyond the gold threads.
Your writing is essentially Haiku. Very visual. I would say "Bravo!", but that would remind us of those things under bridges.... So, I will leave it at "Well done sir!" and that is that.
Yo! I'll take the gold, thanks. Wankers can take the paper...
I just heard about the $20 movies today! Some interview with Jeffrey Katzenberg trying to justify that price. Whew...I think I'll pass on that.
I remember when you could get concert tickets for $20. And I'm not that old.
Thankfully I am not that hip that I have to see movies when they first come out. I just wait for Redbox $1. rental, and most I watch aren't worth the buck.
Buy shit that's out of favor.... hmmm what a novel concept - never would have thought that back in 1990 when I bought gold maples for a 100 bucks an ounce. My wife thought I was a friggin nutbar as I dug up my back yard with my dog to bury the shit in jars.
(I was scared shitless that someone would find out and kill me).
I had nothing to fear cause my neighbours were getting their houses broken into by theives who wanted their nintendo's or whatever they were called back then.
It was only after 2001 that I stopped buying the shit. Christ the dealers were friggin begging to buy 100's of 1 ounce silver and gold maples for 2 bucks ans $140 bucks each or less. Pretty soon my yard became what we now call mogul land in my house. We cross country ski on them - it's fun actually.
Anyway yes, buy shit when your wife or husband thinks you're a friigin case.
You'll know you are doing the right thing when they object.
BTW - I sold a bunch to my friends who can't get any now. The friggin Germans are buying up every last ounce there is - anywhere.
I sold 1000 ounces of silver for 27 bucks an ounce on Ebay.
Also, my wife thinks I'm a friggin genious now so that tells the top is nearly in.
That's a nice deal. Where was your buyer located out of curiosity?
Check out the headline article on Huffpo, with Marie Antoinette, no less, as the cover piece!
Screw that ...plus one for the Bull
For the past few months I have been trying to explain to her how dire this situation is and how unnatural the way our government operates and have had long winded rants regarding the value of the dollar and why gold is so crucial and usually she has given me the whole, "Oh boy here he goes again..guess he forgot we live in America".
Then today I made her watch the Gold for Bread Zimbabwe video..and like magic she understood precisely what I had been saying in recent months.
Be patient with the lady... no one wants to hear that the world is about to go apeshit. People would rather believe that they're correct than face the truth (and the consequent pain).
Just skip the gold and go straight to storing the "bread" part. Food storage first, ammunition second, gold further down the list.... With this list she will really go nuts, so have her read "One Second After" and "Patriots".
your only way out of this is a big war..
reality bites...
did not take long for me to get flaged...
you tell me sir, what is your nations major exports?
USA is no doubt the greatest nation in world, and I would like to keep it that way
but I think your administration got too much of cold war koolaid, and got to have a big conflict to keep them working...
and make no mistake, I do support you, just not the way u are at the moment,
driven by banksters, wlstreet and military complex
Lock and load , bro
Good observation, and one I haven't seen of thought of before. There's a guy named Amerman on some gloom sites who sells a DVD course. Basically he says to buy real assets with non-recourse loans (i.e., real estate in certain states) and wait for the hyperinflation to let you off free and clear. He notes that you'll have no tax to pay, as the tax system counts on gradual inflation.
His mind runs along the same track as yours, just the opposite direction.
Three Gs: Guns, gold and gasoline.
I can only fit so much gasoline in my bunker ... what do you suggest there Mad Max ?!?!?!?!?
on Sat, 05/22/2010 - 20:15
#368186
You know, I like and admire Denninger, both for his passion and for his obvious brilliance.
But he does seem to have curious sorts of prejudices--gold being one of them--that somehow get in the way of his thinking, and he stubbornly refuses to look at things from a different angle. I think he will be way wrong on gold, obviously. Time will tell. Place your bets.
************************************
I agree Denninger is good and I never understood his dislike of Gold-until I read his theory on the GDP#1--
He said-
What good did gold standard do to stop the depression-it didn't work then-so why would it work now--
He's wrong and that's where he makes his mistake-
We "did not" have a gold standard in 1929-
We had a "gold exchange standard"
He needs to study further back in time--to understand this-
"True Gold Standard" was scrapped in 1922 in Genoa Italy-
World governments/bankers--agreed to "re-price" Gold-
Almost double--Instant 100% Inflation-by the stroke of a pen-
That was the main reason the inflationary 20's kicked in-
Gold-or rather the "manipulation" of true gold standard-was what "caused" the GDP#1-
Few know of this little talked about (now ancient) intervention in the money supply-but it happened and to this day--has never been corrected-
Also-more to Klarman's post--
He is obviously seeing 5 years of deflation in the near term-which I agree with-but-why would he not like gold?
Deflation is what makes gold shine-always has-realitive to CPI-
And it's never about the price of gold-it's always about--what Gold can buy-as in buying power--
http://4.bp.blogspot.com/_nSTO-vZpSgc/RbZwf5lgCXI/AAAAAAAAAN0/WJYO6dh-og...
get to a methadone clinic ASAP
The most arcane theory on the monetary role of gold comes out of Fekete and FOFOA. Since I am a bear of relatively small brain, a lot of it shoots right over my head.
Fortunately, rescue comes in the simplest of concepts. As JP Morgan was alleged to have said in testimony before Congress: "Gold is money, and nothing else" (which he should have said even if he didn't.) Anyway, the concept of gold as the purest form of money ("unit of account, medium of exchange, and store of value" resonates with me as it seems with a lot of other people.
Even those gold skeptics will admit that in a deflation, you want to be in cash (or Treasuries if the U.S. government were sound, which it is not) since deflation crushes debtors, drives prices down, and makes cash (i.e. "money") more valueable. Since gold is the ultimate "money" gold will work well in a depression, as we are about to find.
Anybody in Austria or Germany in the 1920s can attest to the value of gold in a hyperinflation.
So, it occurs to me that the only time that the dollar-benchmark performance of gold is indistinguishable from that of fiat is when things are ideal from an economic standpoint--which isn't often, and certainly is not the case now.
Thank you to all ZH contributors. The smartest stuff on the net is right here.
I am in the bunker loaded up with cans of beans and extra water ..... I am officially safe as the world implodes .
I guess Chavez and Mugabe and castro are right , the rest of us suckers are wrong
Thinking through life in the bunker, hiding from the radioactivity, bioterror plague, invading hordes, rioting citizenry, investment bankers, IRS agents... seems to me fresh vegetables will be the hardest to get. Solution: Keep a bulk supply of seeds to sprout. Alfalfa, broccoli, radish. A prudent addition to any emergency supplies store, imho.
Worth a look: a prescient view from 2005
http://www.designs.valueinvestorinsight.com/bonus/bonuscontent/docs/Klar...
The March 2009 lows won't hold.
Updated DOW daily and weekly charts:
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1