This page has been archived and commenting is disabled.

Broken Fences

Bruce Krasting's picture





 

I was down at the barn working on a busted mower when a neighbor jogs by wearing white Nikes and a maroon tracksuit. I wave, he stops, says hello and asks:

“So when are you going to get those fences fixed?”

The guy has a point. The fences are shot. But this is an old barn, and the horses are long gone, so I don’t really give a shit about the damn fences. I tried for a second or two to think of a nasty response; the best I could come up with was:

It’s on the to-do list. It will happen when the S&P hits 1,800!

I don’t think he liked that answer, so he jogged off.

Actually, there was a fair bit of truth to my answer. My spending patterns have changed the past four years. I’m sure that there are many like me. In the aggregate, it is a phenomenon that is extending the economic slowdown.

I believe that one should own equities in an investment portfolio. I think there should be some discipline as to how large a percentage equities should be as share of the total. A long establish rule on this question is that one takes their age, and subtracts it from 100. The result is the percentage that should be dedicated to stocks. For a person who is 20 years old, 80% in stocks was the recommendation. For a guy like me, at age 62, the number falls to only 38%.

After fours years of ZIRP and QE you can take that old formula and kiss it good by. It doesn’t work in June of 2012; it’s not going to work anytime over the next five years. With interest rates now at levels guaranteeing a negative real rate of return well past 10 years, the allocation to equities has to go way, way up in order to have a chance of matching the real rates of return achievable five years ago.

The dilemma that I face is exactly what Bernanke wants me to confront. He wants me to be 100% in equities. He is convinced that higher stock prices are the only way to get the economy moving. At this point in history, I think that his actions are now slowing the economy.

Equity returns are, to say the least, unpredictable. Given that I have now near zero investment income that is “certain” (high grade bonds) I have changed my planning/spending habits. I used to be able to look at a spreadsheet in January, and know that in June my NYS Dormitory bonds were going to pay me $X. So I would note in the calendar to call the contractor (for whatever needed mending) at the end of April. No longer.  All those nice bonds have been called or matured. Now I say to myself:

“If XYZ stock gets to 60, I’ll sell half, pay the taxes and put up the damn new fences in the pony paddock”.

I’m not asking for one lick of sentiment. My point is to describe something that I believe is a big drag on the economy. When I (and others) book a job three months in advance, the contractor can hire more workers knowing when checks will be coming in. My visibility creates the contractors visibility. The predictability of revenue creates the opportunity for economic expansion and job creation.

The Federal Reserve is operating monetary policy using a simple formula:

Lower interest rates across all maturities ALWAYS increases economic growth.

My personal example proves this formula to be flawed. I think the formula is more complicated:

Lowering interest rates across all maturities has both positive and negative consequences. As interest rates approach zero, (with the prospect that they will remain so for years to come) the negative consequences outweigh any benefits.

The idea that lower interest rates are hurting savers is an old one. The question is, "How significant are the negative consequences of low interest rates?" The multi-decade efforts in Japan to reflate an economy with low interest rates is a shining example of policy that has not worked.

I’ve not seen any discussion that attempts to quantify how large a drag on economic activity low rates are. I know that some of the folks at the Fed will read this; my request/challenge to them is that they respond with an answer.

If the Fed did a fair job of looking at this, and took into consideration all of the consequences of the prolonged zero rate policy, it would be forced to conclude that it is now causing more harm then good. I doubt that we will see an analysis from Bernanke's Fed that answers my question. The Fed has no incentive to document the downside of their policies. So much for that “Open Communication Policy” Bernanke keeps selling.

++

Notes: #1

I know that some will be itching to point at dividend stocks as the answer to the need for predictable revenue. Those that tout this approach (especially those on TV) often point to two stocks that are perfect for coupon clippers, AT&T and Verizon.

I think that T and VZ are trading fodder for computers. They are fine stocks to “rent” from time to time in an effort to make a buck. But those that buy this stuff, and then go to sleep thinking their money is safe, are either ill informed or crazy. At 45++ Xs earnings an investor could lose five years of income in any given month.

I can’t wait to hear the howls from retail investors when this lesson is learned (it will be learned). When it does happen, those investors will blame Bernanke for forcing them into inappropriate investments. As well they should.

.

 .

 .  

#2 

Social Security is a good  example of where low interest rates are causing severe pain. The SS Trust Fund is sitting on a wad of cash. The interest on the portfolio was projected to extend the life of the Trust Fund for decades to come. Bernanke's zero interest rate policy will accelerate the death of the Trust Fund by ten years. What's that going to cost us? Trillions is the answer.

H/T: PE from Seattle

.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 06/25/2012 - 16:50 | Link to Comment Big Ben
Big Ben's picture

ZIRP was supposed to reinvigorate the housing market. It hasn't.

What it has done is to crimp the income of retirees. So they cut their spending. And even people who are nearing retirement look at current interest rates and recent equity performance and decide they need a lot more savings than they had previously planned. So they also save more and spend less.

Another thing that ZIRP has done is to make it very cheap and easy for the government to borrow lots and lots of money. This sets us up for major problems down the road when the boomers retire and become net sellers of government bonds.

Mon, 06/25/2012 - 15:39 | Link to Comment earnyermoney
earnyermoney's picture

Should have asked if he was looking for work.

Mon, 06/25/2012 - 06:46 | Link to Comment blueridgeviews
blueridgeviews's picture

When does Bernanke get in front of congress and tell them he is out of amo?

Mon, 06/25/2012 - 05:58 | Link to Comment Cosimo de Medici
Cosimo de Medici's picture

Of all the questions Bernanke gets asked when he appears on the Hill, and all the questions people on ZH suggest asking him (e.g., gas or rope?), nobody---not even Ron Paul who wastes everybody's time with 4 minute fifty second intros before asking something meaningless---has asked Ben this:

"What exactly do you hope to achieve with your policies, why hasn't it worked yet, and why do you think it will suddenly work now?"

Mon, 06/25/2012 - 03:24 | Link to Comment justsayin2u
justsayin2u's picture

The last 2 market meltdowns have made the risk of stocks much less attractive and interest rates are near 0,  Lots of people (retired and under-savers) need the higher returns you can make in stocks but I doubt many will be able to exit before the next crash which seems inevitable given the piss-poor economy we have that is so dependent on state, local, and federal over spending,  For us, we live frugally, save as much as we can, and plan to work a bit longer. 

Mon, 06/25/2012 - 01:21 | Link to Comment walküre
walküre's picture

Bruce, you like so many other financial experts will be out of work soon enough. Sorry, and yes. Think about your retirement plan as a farmer. Don't know how big your property is but you can generate revenue even with just a little acreage. Thank God, you don't occupy one of those exotic bird houses in the city. That's where people will be trapped and left with no choice but to take whatever they've got in bartering equity on the trains out of town and hitting the farmers like myself. I already take jewellery, pms, art, tools and other valuable items in exchange for fresh meats and vegetables. Why bother with FRNs? Looks boring on the walls and is too tough on my ass.

I'm from the old world and I remember my grand parents sharing the stories of the affluent farmers who had steak dinners every night and the barns full of paintings, chandelliers, gold and silver table wares, furniture and so on. The farmers were richer than anyone else during the wars in Europe and the subsequent depressions, hyper inflation and currency machinations.

Think farming, Bruce and fix those fences yourself if you have to. Pay yourself first, remember?

Mon, 06/25/2012 - 00:44 | Link to Comment geekgrrl
geekgrrl's picture

Thought-provoking, as always. thanks Bruce. I think you should have told your nosy jogger neighbor that the fences aren't broken, they're rustic. :-)

Anyway, as a saver, I really despise ZIRP and can only imagine how folks in retirement feel. At least I have an income, so can to some degree "afford" to lose any interest on deposits. But for folks who saved all their lives for a nestegg to be able to supplement their incomes with interest are just being crushed. I have no idea how the Fed can NOT know that they took a viable retirement strategy and made it an un-viable strategy. They are simply taking the money that would be returned to the savers/retirees, and giving it to the banks. It's obscene.

Mon, 06/25/2012 - 00:55 | Link to Comment Dr. Engali
Dr. Engali's picture

Bruce your premise is all wrong. ZIRP is not about growth it's about cheaply funding the government. If you think it's anything beyond that then you need to go take a few history lessons. I suggest starting with Lenin

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”
~Vladimere Lenin~
.

Just in case you don't know what bourgeois means here is the definition according to the Marxist theory:

In Marxist theory, a member of the property-owning class; a capitalist.

Sounds like you fit right into that classification.

Until you honestly recognize the disease every prescription you write is just scribbles

Mon, 06/25/2012 - 00:30 | Link to Comment pauhana
pauhana's picture

We all need to understand that we don't actually own anything.  We are only the temporal stewards of the possessions we call ours, or maybe it is they who possess us.    Those possessions require maintenance, as do the families we create.  The trick is not to waste resources mending a fence for a pony that isn't there.  I just spend a wasted weekend attending high school gradutation parties for two grandchildren whose vapid retorts to my questions about what they will do next indicate to me that those ponies have left the barn and that this is an issue I no longer can do anything about.  They will get the same response from me that I got from them:  "Meh . . . "

Sun, 06/24/2012 - 23:57 | Link to Comment Goldtoothchimp09
Goldtoothchimp09's picture

 

 

You can think of it as a modern feudal system with Banks as King as they literally own the currency.  The serfs pay tribute (interest) to the King for use of the King's currency in our debt-based money system.  It's trickle down economics on the grandest scale.

In our debt-based system - money is ONLY created as loans from the King (banks).  Therefore, the banks solely determine where new money gets allocated (think largest corporate borrowers).  Is it no wonder we have such poisonous concentrations of wealth in our society. 

Now, say the gov't wants to stimulate a lagging economy.  In our system, the money gets allocated to the banks.  In a non-debt based system, you could send a stimulus check to every household and then the stimulus would actually work and get to Main Street. 

Folks, the problem is with the very core of our financial system -  the Banker as King - Federal Reserve system.

Jamie Dimon is using the newly created money to refresh his banks 'excess reserves' so as to maintain bank "solvency" and perpetuate the Banks as King system status quo.
The people get the bill in the form of a devalued dollar (devalued savings, commodity inflation) -- you see, the newly printed money is free for the King Bank but is a costly tax on the population.

It's all a rather simple exercise -- the parasitic banks steal from We the People. But our country is so complacent and dumbed down -- that MBAs and Economics majors are, ironically, the last people to recognize what's going down because they have been indoctrinized and go on television blathering on about the failures of We the People rather than helping the public understand that they are being stolen from. PATHETIC!

Interestingly, Ron Paul has consistently won the 30 and under vote in the primaries.

The young instinctively know that they have been born into debt servitude.  They may not be able to explain all the details - but they know, instinctively, that Ron Paul is fighting for We the People, rather than the status quo system of Fed Bankers as King.

It used to be that only the man of the household had to work to comfortable support a household.  Federal Reserve theft has gradually devalued the dollar so that now, generally, both spouses have to work.

There is nothing 'American' about the FED.  The Constitution says 'all men created equal'  Folks, the Federal Reserve Act of 1913 created a superior class of citizen - the banker class.  the Act gave ownership of the currency and financial system to a cartel of private bankers.  It is, literally, unconstitutional.

The Federal Reserve system is a poison to Americans’ standard of living to the benefit of the banker class.

 

 

 

Sun, 06/24/2012 - 23:04 | Link to Comment world_debt_slave
world_debt_slave's picture

In 1913 we took a little trip...

Sun, 06/24/2012 - 23:05 | Link to Comment world_debt_slave
world_debt_slave's picture

In 1913 we took a little trip...

derp, derp

Sun, 06/24/2012 - 22:53 | Link to Comment Bansters-in-my-...
Bansters-in-my- feces's picture

Fuck the neighbor.thats my 2 steel cents worth.

Sun, 06/24/2012 - 21:30 | Link to Comment Elliott Eldrich
Elliott Eldrich's picture

Perhaps I'm simply stating the obvious, but when we have a fiat monetary system that creates new money only as debt, then aren't we committed to a game that is guaranteed to end with massive defaults? If the economy needs more money to grow, and more money is only created as more debt, then as the economy grows so does the debt, and consequently the debt service, until everyone is paying so much in debt service they cannot continue, and the game ends. This is how I understand debt based fiat money systems operate over the long run.

How to continue the game a while longer? By lowering the cost of borrowing to as close to zero as possible. But that introduces its own problems, as Mr. Krasting has so eloquently pointed out.

The core problem is debt based fiat currency. The solution is to end to Fed and return the power to create currency back to the Department of the Treasury, where it properly belongs. Then, as the economy grows, the government can print more money as needed and SPEND it into the economy, instead of allowing private bankers to print money and then LEND it into the economy. That's how I see it.

Mon, 06/25/2012 - 01:33 | Link to Comment TruthInSunshine
TruthInSunshine's picture

It's my humble opinion that one of Bernanke's main goals was to flood as many banks with as much excess reserves as possible, while also extending extraordinary access to the discount window (offering de facto 0% loans), in an effort to keep as many of them from crashing as possible (I think about 900 have failed since 2008), during a time in which he knew their conventional means of generating income and making profits - via loaning money at higher rates than their borrowing costs - would completely break down.

And here we are, with banks that allegedly survived (so far), stuck with toxic balance sheets, full of shitty ass loans secured by eroding value assets, depending more and more on their excess reserve income and massive amounts of new fees (adding significant revenue to their top line) they are imposing on their customers, praying and hoping that here never comes the day that reverse repo operations really do take place, as that would mean a death sentence for another estimated 2500 banks (maybe more).

Anyone who tells me that banks are in anything other than extend and pretend mode, made possible by incredible intervention and excess reserves compliments of Bernanke & Geithner, along with incredibly lax regulation and fantasy-land valuation of assets (thanks to Congress), is really knee or thigh high in the Kool-Aid.

Similarly, given the unsettling trends of high inflation (real numbers), pathetic job growth (with the risk of actually printing negative numbers soon again - even by official and highly massaged measurements via the BLS), incredibly weak demand for loans and incredibly weak willingness/ability to make loans (unless its guaranteed/backstopped by the Fed or Treasury or subagencies of government), anemic retail and manufacturing data, etc., anyone who thinks Bernanke and our own beloved government haven't merely kicked the can at the expense of taxpayers and the organic economy and organic growth, for two long years, to the tune of at least 5 trillion in direct and incredibly inefficient spending (Stimulus, TARP, TALF, QE1 and QE2, etc.), and as much as 12 trillion considering what's yet to be paid back or what the government is still on the hook for in terms of guarantees on loans and toxic asset portfolios it contractually made, only complicating his dilemna and the nation's dilemna, should seriously reassess their level of intelligence or sources of information gathering.

The more that The Bernank pushes on a string (QE, ZIRP4EVER), the more people white knuckle their fiat. Oh, the irony.

It's all the snake eating its own tail.

The Bernank is DESTROYING the desire to consume, as he's freaking the world of savers and the presently liquid out with his absolute abomination of policies, while the non-savers and the majority who have difficulty getting credit have difficulty spending, also (given the banking sectors precarious-dead state of health).

Here is but one of many examples I can cite:  Mr. Smith, who is 78 years old, worked hard his whole life and retired with enough savings that would have, in an ordinary interest rate environment, have produced an income stream from interest on his savings, that would have prompted him to spend far more freely (he may even have already have replaced his 2003 Mercury Grand Marquis by now if not for the fact he is anxious due to his meager/non-existent interest ZIRP income).

So, Mr. Smith buys no new car, hires no one to put a sunroom on his (now radically depreciated home), and gets all of his grandchildren a lump of coal for Christmas this year.

Mr. Smith [and the savers, who ARE the liquidity that will needed to save the world from the next fractional reserve banksters from induced real world economic meltdown], says "[n]o thanks, Ben, I may only have another 5 or 10 years, and I will not invest in LULU or 30 year USTs, bitch."

All thanks to The Bernank.

And the cherry on top is The Bernank is thinking of going all in, doubling down on his failures in the U.S., with a sure fire IMF (i.e. U.S.) and credit swap line liquidity tsunami of USD into the EuroZone Debt Black Hole, which sucks in all capital, never to be seen again.

The alleged great academician, expert on The Great Depression, wizard of monetary policy, etc. etc., who is The Bernank, is a total and complete failure IF the goal of his actions was to help the broadest swath of people.

If his goal was to debase their purchasing power, concentrate more and more wealth in the hands of fewer and fewer Crony Capitalists (the opposite of true capitalists) who know all the right players in what is unquestionably now our Kleptocracy, he's succeeding magnificently.

Sun, 06/24/2012 - 21:30 | Link to Comment janchup
janchup's picture

ZIRP has nothing to do with economic growth and everything to do with the bankster non-stop bow-jobs.

Sun, 06/24/2012 - 20:33 | Link to Comment mendolover
mendolover's picture

They can't raise the interest rate and they know it.  It's too late.  ) :

Sun, 06/24/2012 - 18:47 | Link to Comment fleur de lis
fleur de lis's picture

The Fed has no other function than to cause pain. The first big assignment they got was bankrolling World War 1 and the Russian Revolution. How's that for pain. 

The Fed is not a bank, it is a racket. Rackets are always known for scams, fraud, money laundering, various criminal activites,  and lots and lots of pain. In that regard the Fed fits the bill.  

Sun, 06/24/2012 - 19:31 | Link to Comment Dr. Sandi
Dr. Sandi's picture

Hey, who's causing that RACKET. We've got sheeple here trying to sleep!

 

Sun, 06/24/2012 - 19:59 | Link to Comment fleur de lis
fleur de lis's picture

The Fed racket was signed into law by a bought off President who got tangled up with someone else's wife and was blackmailed by said wife when she needed money. Enter lawyer Samuel Untermeyer who paid the chick about $40k in exchange for Woody's cooperation to establish the Fed and get us into the War and sign policies favorable to the Fed -IRS-  and appoint whatever stooges the shadow government wanted in office.  So basically rather than let news of his affair leak out Woodrow Wilson sold us for $40k, lock, stock, and barrel.

Sun, 06/24/2012 - 17:07 | Link to Comment QuickFrozen
QuickFrozen's picture

All the problems because the bullish trend of Chinese slaves stopped.

Sun, 06/24/2012 - 17:55 | Link to Comment covert
covert's picture

more waste, fraud, abuse, corruption is getting really popular.

http://covert.ias3.com/expose/

Sun, 06/24/2012 - 16:26 | Link to Comment boeing747
boeing747's picture

Bruce You still can fix your fence by selling gold at $1800/oz, or leave it this way so sheeples can escape from your barn unharm.

I believe oil may go all way to $60. Why? because at this price, russian economy brain-deads and can not rescue Syria anymore. Also elites can store all oils before proping them up.

Sun, 06/24/2012 - 16:13 | Link to Comment GAAPpreNixon
GAAPpreNixon's picture

What the fed does should more correctly be call DISease rather than "ease". I get just a little tired of the stream of euphemisms coming out of econo-sphere la-la land designed to perpetuate credible snake oil.

And Bruce is ignoring the jacking up of property taxes across the USA for over a decade based on a false notion of the "wealth effect" on real estate. The bubble has burst but the property taxes can eat you alive once your income stream is destroyed by fed DISease.

If people had gone with GAAP guidlines and never purchased a house that cost more than 2.5 times their annual income, we would never have gotten into this shit.

Think about the median income in the USA now and multiply that by 2.5. THAT's where house prices are headed, regardless of the bullshit that low interest rates can reflate it. Housing prices are a function of the income of people that buy them. Everything else is fed distortion and media manipulation.

Forget equities, they are going to dive back to about 7,000 Dow regardless of money printing.

As to muni bonds, what hope do we have for better interest rates when the big banks have now been exposed (see Matt Taibbi) as rigging the bids accross every town and city across the USA for the last decade or more to keep the coupon rates low?

When the MAFIA is in charge, all those nice spread sheet projections are an illusion.

Forget the fences, Bruce. You can always share home grown veggies with that neighborhood jogger that is about to get poor.

Sun, 06/24/2012 - 19:33 | Link to Comment blueskies123
blueskies123's picture

Forget equities, they are going to dive back to about 7,000 Dow regardless of money printing.

So, I'm guessing that the dive back to 7,000 happens sometime over the next few months, or in 2013?  What's the timeframe?

Seems like the Fed is going to keep kicking the can down the road by doing a CTRL-P until it can't anymore.

Market drops of more than 2% ARE NOT ALLOWED, and SHORTS will be FRIED!

Sun, 06/24/2012 - 15:17 | Link to Comment Goldtoothchimp09
Goldtoothchimp09's picture

Bruce - not to single you out...but i find it striking

Boomers my be considering how they might "put up the damn new fences in the pony paddock"

Young people are wondering how the hell they will ever be debt free and have some much as a thousand bucks saved up...??????


 


Sun, 06/24/2012 - 20:38 | Link to Comment Bruce Krasting
Bruce Krasting's picture

I've owned a farm (of sorts) for 30 years. I will have to sell it in the near future. The lines crossed a few years ago. ZIRP etc. contributed to it, expenses rose much faster than the CPI says.

The thing is, I like it here. But there is no way to "wait this one out". So I'll have to redirect my life.

I feel like a big loser. That make you feel better?

 

PS It's called maintenance. If you own property, things break. When things break, you fix them. Including fences in a field.

Sun, 06/24/2012 - 23:54 | Link to Comment Goldtoothchimp09
Goldtoothchimp09's picture

sorry Dawg... that's why I said i didn't mean to single you out individually...

It's STILL STRIKING to young people that Boomers are lamenting things like that when young people have NO money and No financial hope with the debts the boomers put onto their backs.

Sun, 06/24/2012 - 19:31 | Link to Comment Bear
Bear's picture

 

This discussion is so fascinating as the torch is being passed from one generation to another. My parents thought that I (a boomer) was none too responsible as their parents had thought of them and as I think of my kids ... four kids, one married and no grand children.

Hard work, a good partner, and a good attitude will make you successful, whether you make a lot of money or not. Don’t believe the lie and illusion that acquired wealth is required (or even helpful)  to be successful (or happy) … each generation is presented with enormous challenges and fantastic opportunities. Your time is coming … maybe not in the next seven lean years, but beyond that bottom you will see abounding opportunities if you are ready.

I apologize for some of the members of my generation in the secularizing of your generation and in creating an elite class of academia, banksters, and leaders who are more focused on self aggrandizement than the nurture of next generation (you). That being said, we are not all this way … we have our bad apples and your generation will too. I wish you well in your future pursuits and … Be Ready … seven fat years may follow the seven lean years

 

Sun, 06/24/2012 - 23:06 | Link to Comment Jena
Jena's picture

Exactly right to Bear and Dr. Sandi.  

In every generation there are good and bad examples.  I'm glad I don't see the bumper stickers reading "I'm Spending My Kid's Inheritance" as they drive down the highway on their way back home in the spring.  I'm also glad I don't hear how much the kids expect to inherit when the folks kick the bucket.  

It's your responsibility to figure out a way to make a life that is decent and not be a rat in a cage just because that's how TPTB expect you to be.

We don't get any time back.  Whether this is how you planned things to be, this is life now.

Sun, 06/24/2012 - 17:40 | Link to Comment Dr. Sandi
Dr. Sandi's picture

It's all the evil Boomers vs. entitled Young People.

I'm so fucking tired of this whining that I could puke up the undigested remains of the Young People I killed and ate last night.

Humans are greedy bastards who acquire what they can acquire as they go through life. They use some of it to buy SUVs, cottages, baby food and other shit that they don't really need.

They use some of their booty to feed their useless kids in the hope that they might someday grow up and be of some value to somebody.

A tiny bit of the stuff these Boomers acquired stuck to their fingers over the years if they're lucky. Maybe they'll even have a fence AND a horse if they're really lucky.

Unlike the common wisdom, most Boomers weren't rich in their 20s or 30s. In fact, they were most likely just dumb assed Young People without a pot to piss in. Now they're dumb assed Boomers with a pot that's filled with piss, hoping they can find Young People with the strength to empty it for them.

The straw man who's destroying each of our lives can be glimpsed in the mirror. But even that view is constantly changing. Maybe he's a Boomer now, but he sure looked like one of those Young People not that long ago.

Stop ragging on the Boomers or they'll put the voodoo curse on you at their next regularly scheduled Boomer meetup.

Mon, 06/25/2012 - 01:40 | Link to Comment gotobeating
gotobeating's picture

Dr. Sandi,

As I pick the remains of Millenials from my blood stained teeth, I must take exception with your comment for one simple reason: the Boomers abandoned every value they had as young people and became more self absorbed than their parents. The country we had was in large part dismantled by them and turned into a swap meet for financiers.

 

Sun, 06/24/2012 - 14:22 | Link to Comment DrData02
DrData02's picture

Bruce,

Exactly!  Now bring in the multipliers to the feedback loop: Cuts to pensions (-x% spending ), Increase in health-care insurance costs (-y% spending), and others.

Death spiral.

Generally Bernanke's "solution" would be to offset ALL of the above by easing credit!  That is: ALL these people running out of money are supposed to borrow EVEN MORE money!!! 

Bubble MUST burst.

This can not end well....

 

Sun, 06/24/2012 - 14:16 | Link to Comment Careless Whisper
Careless Whisper's picture

New formula: Take the percentage you Trust the Federal Reserve Banking Cartel and subtract it from 100. That's the percent your portfolio should be in physical gold.

 

Sun, 06/24/2012 - 20:41 | Link to Comment Bruce Krasting
Bruce Krasting's picture

Very good!

bk

Sun, 06/24/2012 - 14:04 | Link to Comment SKY85hawk
SKY85hawk's picture

Hi Bruce,

I stopped 'investing in stocks' 3 years ago.

Why not follow "the trend is your friend"?    Why pay taxes on investment income, if you don't have to?

I'm convinced that  BUY AND HOLD is dead!!!!

I'm not much of a writer, but this trending thing works pretty well.

1- Transfer 401-K or IRA money into a Roth-Ira every year.

              If you're not working, you'd be surprised how much can be transferred each year. 

             Conversion Taxes get consumed by Deductibles & other stuff.  

              Just take last year's Turbo-tax and add a Roth Transfer of x dollars. 

              Move the conversion amount up and down until you aren't paying more in taxes, or the increase is acceptable.

2- Invest in 2 of 4 ETF's    -     !NOT FOR BUY AND HOLD!!!!

             Study 4 ETFs.  ERX (long energy) ERY (short energy)

                    AND   FAS (long finance) FAZ (short finance)

              The longs  move in opposite direction to the Inverse(short) funds!

              Now, ERY & FAZ are trending up.

 I use Bollinger bands to make Buy/sell decisions. I do not trust the crazy man inside my head that wants/needs to Predict the future!

              ie. When ERX's Bollinger is on the low side, ERY's is near the top.  Buy ERX and Sell ERY.  

              There are times, like now, when ERY is rising and ERX s/b avoided.

              I set Limit Sells at 25% gain for half of each position.   

                                     You can't be right all the time, sometimes I lower the limit mid-day..

             Use Economic Order Quantities & Take short term profits, frequently. 

                                     There's nothing wrong with taking 'small' profits.

When you're over 59.5 you COULD have lots of tax free income!

At 59.5+ you can put in 6,000 each year from any income. No deduction, but no Future tax bite.

There are many other leveraged ETFs, I just like the way these 4 Etfs.  

 

I hope you find my thoughts helpful.

T.

 

 

Sun, 06/24/2012 - 14:01 | Link to Comment Rene-Paul
Rene-Paul's picture

What is the exact mechanism that the SSTF turns their Special Treasury Bonds into cash and thus a direct deposit?; and is this a debit to the general fund? Where does this lead to?

IMHO; get some chicken wire and a few hens.

Brgds,

Rene

 

Sun, 06/24/2012 - 13:23 | Link to Comment 24KGOLD FOIL HAT
24KGOLD FOIL HAT's picture

Jim Sinclair said this May something like "I would have done the same thing Bernanke did.  If easing wasnt done- poof."  Jim says they are stuck.  All they can do is ease, whether QE or swaps to ECB.  US real growth is the only cure.  Real growth isnt just around the corner; more like miles down the road.

Bruce said it well: Further on up the road.

http://www.youtube.com/watch?v=VoTAFd_7xQY

 

 

Sun, 06/24/2012 - 16:37 | Link to Comment Seer
Seer's picture

"Real growth" is D E A D!  There is no more expansion possible.  Sure, some will catch some coins falling out of the pockets of folks who are upside-down, but on the whole the ONLY trend is contraction.  I think that we owe it to the future generations to stop stealing all the resources from them so that they have a chance to create something that can transcend all the BS that we've helped to erect.

Mon, 06/25/2012 - 01:44 | Link to Comment gotobeating
gotobeating's picture

The bathtub is full. Traditionally we've used war to empty it. We have to find a new way to create wealth and utilize capital. It's not communism, or socialism, but capitalism is also looking like an easily gamed system.

 

Sun, 06/24/2012 - 13:10 | Link to Comment whisperin
whisperin's picture

Bruce,

I think you have a valid question. I haven't seen any article that addresses your point. One of most interesting points any response should have is a treatment of the growing demographic imbalance toward retirees as this group is growing daily. My point is that they are not just hurting a category refered to as savers but that this category is growing fast so the harm they are imposing is growing rapidly. This doesn't even take into account that the Fed's actions could jeopardize the solvency of insurance companies etc.

On the search for yield how about selling some puts on the issues you'd like to own but at a strike 10% lower than the current price? Preferably it would be on those dividend payers you're most comfortable with. It won't be much but you will get something and if the stock does get put to you at least the dividend will kick in. Of course there are risks to this too. Take care and good article.

Sun, 06/24/2012 - 12:54 | Link to Comment jimmyjames
jimmyjames's picture

Would it even make a difference to the yield curve-even if Bernanke did raise rates?

Seems that the bond market itself will decide when and if rates go up or down-

Greenspan found out that the FFR does not always influence the long end-

http://bit.ly/s86T8y

Sun, 06/24/2012 - 12:44 | Link to Comment Lionhead
Lionhead's picture

BK, I'll offer no investing advise, but I'm glad to see you enter the side that has opined for months that ZIRP is killing the economy. In fact, it is. Seniors get zero income lowering growth, bond investors will get crushed when interest rates return to some normal range, stock investors are caught in a HFT paradigm of headline chasing on every bit of market noise that causes churning volatility. None is conducive to investing with confidence of any normal, historical returns. You say the FED reads your work; well, they haven't been listening have they? What is their handiwork? A liquidity trap of epic proportions, dysfunctional markets distorted beyond belief, no confidence in their abilities, & worst of all HOARDING with no velocity of money going on. Great job FED Chairman & Board Members. You will be rewarded someday when your organization is discredited & dismembered. Not to mention the losses you'll be facing as interest rates move against you to blow up your balance sheet. The last news conference with Bernanke shows the "emperor has no clothes." He dodges a question by a Japanese reporter that mentions the liquidity trap he's created. He responds to other reporters by saying something along the lines of we're not sure of the benefits or risks of using more of the same policies. Obviously, those self same policies are failed & if expanded will result in more HOARDING until hyper-inflation sets in after we're done with the current bout of deflation. Thanks Mr. Chairman, for another well done job of a failed monetary 'experiment.' Please sir, 'experiment' in your faculty lounge, not in the real world. So, to those still reading, after the Federal Reserve System blows itself up in a might blaze of glory, those still standing with precious metals in their pockets will be able to transition back into the new system of currency, whatever that may be. Remember folks, the Black Hole in Treasury Bonds that's being created will suck in many investors who are willing to suffer negative interest rates on whatever currency they still retain. Since those bonds are a mere derivative of the currency, they will loose all their wealth. Stay nimble, protect your wealth, & remember one ancient bromide, "more money has been lost chasing yield than at the point of a gun."

Sun, 06/24/2012 - 15:43 | Link to Comment John_Coltrane
John_Coltrane's picture

Hoarding is a natural human response to a break down in trust and confidence.  That's what I'm doing with my capital right now.  Animal spirits won't return until Ron Paul is in the White house and Bernake and the FED is relegated to the ash heap of history-so I'm not holding my breathe.

There can be no sound economy without sound money.

Sun, 06/24/2012 - 13:37 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

When the "fix" for the system destroys the system, you either have incompetence or malevolence. These boys in banking all have a mess of book learning so I come down on the side of deliberate malevolence.

the only way to get every one to buy in on a new even more devious and destructive economic system is to destroy the old one.

An electronic currency is, I am sure waiting in the wings, while Bernanke burns down the house to keep it warm inside.

An electronic funnel is so much more efficient in the modern age, a feeding tube for the vampire squids that guarantees the most efficent, cheapest way to steal the assetts of the world and funnel it to the few.

incompetence or design? You decide...

Sun, 06/24/2012 - 16:47 | Link to Comment Seer
Seer's picture

The premise is that the System was workable as designed.  If you believe, such as I do, that the System is not designed to operate in a no-growth environment, then the fault cannot be in the failings of any tweaks or corrections, be they done with benevolent intent or sinister intent.

Humans have NO concept of how to manage themselves with no growth.  Contraction will squeeze out the BS, reality will always win: that which is not sustainable won't be sustained.

Sun, 06/24/2012 - 15:58 | Link to Comment Papasmurf
Papasmurf's picture

Absolutely... engineered.

Sun, 06/24/2012 - 12:43 | Link to Comment Unbezahlbar
Unbezahlbar's picture

10,000 Baby Boomers a day enter the ZIRP retirement zone.  It won't be pretty.

Sun, 06/24/2012 - 12:39 | Link to Comment barliman
barliman's picture

 

When I watched Bernanke's press conference this week, I was struck by the disconnect between him and his sycophants in the financial media.

Bernanke may actually be as naive, arrogant and incompetent as our worst fears have suggested.

He seems like someone slowly waking from dream to discover reality is the nightmare. His naivete deluded him into believing the politicians would put together bipartisan "short, medium and long term plans which adequately stimulated the economy in the short term while putting in place the necessary changes to achieve budgetary responsibility."  The reality of the situation is he provided free monetary crack to the Washington budgetary whores who only care about the fix they can get NOW.

His arrogance convinced him the Federal Reserve under his leadership would be able to use both the conventional (interest rates) and non-conventional tools (QE, ZIRP, TWIST) to "reflate the economy into a period of sustained economic growth". The reality of the situation is everything the Federal Reserve has done  under his stewardship has turned into long term negative liabilities with only marginal intermediate value.

His incompetence is the reason he has not seen the trap he was building for the world and why he ignored others who tried to show him why his tools would not work. The reality is Bernanke's efforts over the last four years have burned the bridges necessary to retreat from dead end road he has followed.

On Wednesday, Bernanke seemed frustrated by the same leading questions from the sycophants looking for the tiniest sliver of when QE3 will be announced so they could forward the news to the financial and political crack whores.

My thought is Bernanke may be toying with the idea of making the financial and political crack whores go cold turkey until he sees some substantive action on the medium and long term problems.

I believe he has finally realized the only person currently scheduled to go to the gallows when things go bad is Ben Bernanke.

barliman

Sun, 06/24/2012 - 12:32 | Link to Comment Abrick
Abrick's picture

Keep believing that your paper profits are real. The real drag on the economy is 30-40 years of retirement/working on busted mowers and tinkering with a stock or treasury portfolio. The smart, healthy people should be productive, the rentier economy is the problem. The lucky boomers just need to blame someone else for the fact that the policies they have supported are now biting them in the ass.

Do NOT follow this link or you will be banned from the site!