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On FX and Notes from D.C.

Bruce Krasting's picture




 

On FX and Notes from D.C.

By Bruce Krasting

Three weeks ago (Link) I put on a short EURUSD position at 1.3115. It worked for a few hours, and then went south. I sucked wind and damn near got to where I had to cut it at a loss. Today the market got back to where I entered, so I dumped it. While I was at it, I cut half of my long USDYEN position that I’ve had on since the mid 77s. So I took a few bucks off the table.

This was a gutless decision as I am still a believer in the short side of the Euro. But I’m worried about event risk the next few days as the Greek deal goes to completion or disaster. My current thinking is that the deal gets inked, but it doesn’t matter, because the country will go bust by June.

I hope to reload a short Euro position at a better level. The market Gods don’t look kindly on that type of thinking; to punish me for being a wuss, the EURUSD could just as easily make a beeline for 1.25.

Folks have asked me about where I set stops. The answer is I don’t leave stops. They result in bad fills. I do set mental levels where I will take a gain or a loss and I almost always execute my original plans.

I try to play FX with a goal of making 5% or losing 2%. I try to ride winners; I’m good about taking losses. This is a winning strategy in a trending market. It’s a cold loser when markets trade sidewise. The hard part is to be disciplined and stay out of the markets when there is no action.

Note:

I’m not going to report on my FX trades any longer. When and if I have something to say about the FX market, I'll write about it. You can assume that I’m talking my book.

 

 
Out of D.C. Today

 

#1 Smoot-Hawley Redo

The Congressional Budget Office (CBO) is obligated to review and “score” the financial consequences of any proposed legislation. It came out with a report on H.R. 4105. The title page of the Bill:

 

This legislation is about tariffs on China. The CBO concluded that the US Treasury will collect $160 billion over the next ten years if the law is passed. That may sound good to some; I see it as a disaster in the making. If H.R. 4105 passes, it will cost the country Trillions. The history books say that is so.

H.R. 4105 “Applies the duty provisions of the Tariff Act of 1930.”

The 1930 legislation that H.R. 4105 is relying on has a different name in the history books. It is called the Smoot-Hawley legislation. It was the dumbest legislation that could have been passed. It insured that America would remain stuck in a depression for another four years.

Smoot-Hawley worked as intended. From 1930 to 1934 imports fell by 65%. But damn near every trading partner, including England and Canada, retaliated by putting up their own tariffs. The depression spun around the globe as a result.

This time around will be no different. China will retaliate. Too bad the guys in D.C. don’t read history books.

 
 
#2 Stupid Proposal

The Congressional Progressive Caucus (CPC) decided to try to get Edward DeMarco, the Acting Director of FHFA fired:

 

 

The CPC has a point. Edward DeMarco is preventing Fannie and Freddie (F/F) from entering into massive write-downs of mortgages. If it were not for DeMarco, Obama would have done this a year ago.

Fannie and Freddie are sitting on (at least) three million underwater mortgages. Assuming the average size is $250k, and being under water by 30%, the cost of the write-downs would be $250 billion. That’s massive. But we spent $900b on the banks, the Iraq – Afghanistan wars have cost $1.5 Trillion, spending of Social Security will top $700B this year. The one time charge on ~60% of all underwater mortgages is not so big compared to those other numbers.

But where is the “fairness” in this proposal? The $250b is just more borrowed money. This plan passes the buck to the next generation when the debt comes due. What about the 40% who don’t have a mortgage with F/F? What about renters?  Have they no rights at all?

The CPC will fail. DeMarco is sticking around until December. But if Obama wins big, and the Senate turns a deeper Blue, then DeMarco will be sacked. A “more friendly” Director of the FHFA will be installed.

This is an emotive topic. I’m interested in your thoughts. So are the “watchers” in D.C.

 
#3 Crony Capitalism

These charts shows where the $24B of federal subsidies to energy projects went in 2011 and comparisons over the past 35 years:

 

 

 

 

With his focus on alternative energy, Obama has ramped this number up to levels not seen before.

This strategy is a payoff to environmentalists. Obama will tout his spending record this fall. This is a “positive” message; and will probably get him votes.

The flip side is that many of the alternative energy investments are connected to characters that are having swell parties to raise money for O. Think Solyndra.

When Obama does play the “I’m green” card, the Republican PACs will have a field day. The ads won't stop. We might see the “ugliest” election in history.

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Wed, 03/07/2012 - 20:01 | 2234171 Orly
Orly's picture

Oh, okay.  That's fair.  Go ahead and not say anything about 4X.  What am I supposed to do then, huh?  "Not to be off-topic, but..."

Submit muffin recipes?  (I have a great one for carrot cake muffins...just ask...)

That's just great.  Okay, man.  Okay.  Not that anyone cares about 4X anyways- and I told you that was a bad idea at the time.  Did I not?  Yes, I said you might want to hold off on that thing and get long USDJPY.  But, nooooooooooooooooooooooooo......................

Okay, fine.  Okay.  Then how about one for the road?  Okay...

There is a massive (I want to make sure I mentioned massive...) move underway on the AUDUSD pair in that is going to drop the pair precipitously back into a negative channel that was established with a high on 02 May 2011 and a low of the channel established with the low of 14 December 2011.  The resultant channel will have the pair bouncing between 0.94 and 0.98 well into February 2013.

Yeah, that oughta hold you for a while.

Damn!  I never get to have any fun around here!

:(

Fri, 03/09/2012 - 02:42 | 2238771 Bear
Bear's picture

I agree ... In Sydney a USD gets you nothing

Wed, 03/07/2012 - 15:07 | 2233059 dcb
dcb's picture

i chart the speed lines, so when you were going short I entered long again and closed my shorts. I have a udn I entered into two days ago, and added yesterday with a stop at 24.00. I get the next udn blunce up at about  25.87. my short uero position entered into on about the 24/th, was decreased drasticlyon 3/2, (bottom of the speed line, I've buy stops in place regardless of which way it goes with stop losses, (more market neutral today on the position). I do know the way this rigged market works usually is that if you chart weekly new lows suually bounce back so I buy the opposite way on the new low and well. (in summary I trade the weekly channels) long and short.  try using the daily macd histogram I find it works best on currencies better than stockss at least

Wed, 03/07/2012 - 15:09 | 2233066 dcb
dcb's picture

I hate that we seem to have

Wed, 03/07/2012 - 20:08 | 2234192 Orly
Orly's picture

What you said may have been far more informative had it made any sense.

:D

Wed, 03/07/2012 - 14:36 | 2232922 New American Re...
New American Revolution's picture

Tariff's are to be used on countries that exploit an unfair advantage in their currency exchange rate identified by their refusal to let their currency float.   We should have put the bricks to China in 1994, then we wouldn't be one of the worst offenders today like we are.   Tariff's otherwise should be left alone and not used, but again, always used to make accomodation when another country cheats.   To do so now is too little too late, but should still be used against China, but not everyone else.    Tariffs are not a tool of economic policy, but of foreign policy.   The problem in Washington is that like everything today, it is used by unprincipled men to do their personal bidding, and whatever that may be.   But certainly, it has nothing to do with the well being of America.

Wed, 03/07/2012 - 14:26 | 2232868 blunderdog
blunderdog's picture

Everyone's WAYYYYY too caught up in how the mortgages affect them personally.

The fundamental problem is that our asset valuations can't be maintained at our current income levels.  Ultimately there's not too much use dwelling on what's "fair" or "unfair."  The fairness of it all is IRRELEVANT to the problem we now face.

Either:

Asset valuations have to fall very significantly (fucking over the people who were paid up on their mortgages and sinking all the big banks and/or financiers who are dependent on the book value of worthless real-estate)

OR

The USD has to devalue so significantly that the the asset values can be supported, but this means that wages will have climb dramatically (in nominal terms) and the majority of the population will then be able to support their prices.

The hemming and hawing is immaterial.  No amount of desire or pissing and moaning is going to have ANY MEANINGFUL IMPACT on this.

Unless/until this happens, we're just circling the drain. 

The only other possibility is that we dump the dollar and float a new currency.  Do we need to argue for another decade about which path is more disruptive?  Who cares?

Wed, 03/07/2012 - 13:32 | 2232687 NEOSERF
NEOSERF's picture

Here's my prediction:

Obama gets a second term in a thorough rout of the hapless Republican party GOP (doesn't matter who it is)

Europe continues to flounder badly but refuses to go under even though Germany continues to hold its head under water...Simple enough from Germany's point of view: Strong euro bad, weak Euro good, no euro bad...

Worldwide weather is incredibly bad this summer into the fall causing all sorts of food shortages and spikes..stay away from property insurers...this model doesn't work right now and rates are going to go through the roof for 2013

Wed, 03/07/2012 - 15:53 | 2233221 SAT 800
SAT 800's picture

"---even though Germany continues to hold its head under water." LOL. Der Vater Board, Klaus!.  funny.

Wed, 03/07/2012 - 15:08 | 2233061 swani
swani's picture

Obama will win, hedged by Romney. This is the fix from the Neo-Feudalist class. They know who to back for maximum results and we should know what to expect from these kinds of candidates.  

Wed, 03/07/2012 - 13:29 | 2232673 Amish Hacker
Amish Hacker's picture

Nice pie chart, Bruce. I'm surprised that only 10% of energy-related tax preferences went to energy efficiency. I thought insulation, weather stripping and dual glazing were Stephen Chu's hobby horse, and these projects are "shovel ready" to create jobs, too.

It's also hard to understand why 15% of tax preferences should go to conventional fossil fuels, given that they are enjoying record profits, unless... wait a minute. Do you think political connections played any role in the decision-making process?

Wed, 03/07/2012 - 12:09 | 2232312 Don Smith
Don Smith's picture

Ha!  I read Obama "I'm Green Card" and thought you were talking about his birth certificate.

Regarding #2, I'm in that world and would like to see a haircut on my own mortgage, but, like you, don't see the fairness.  I bought my house and spent 60% of the purchase price rehabbing the place, and it's great, but I am no rube or babe in the woods.  I knew the market was spiking.  But I wanted a house.  I own my debt.  Then again, I'm not $100K underwater.  I'm probably at a wash versus what I owe, but well underwater versus what I spent.  

I don't need to force others to pay for my lost profits.  

Unless, of course, everyone else gets a bailout.  Then I start singing a different tune.  Kind of like POrtugal will if Greece can default with minor consequences.

Wed, 03/07/2012 - 11:52 | 2232199 Stax Edwards
Stax Edwards's picture

 

Always enjoy your insight Bruce.  Here are my thoughts:

Item 1:

China obviously manipulates their currency via the peg to keep it cheap and keep their export business humming.  China also places large tariffs on our exports.  Why should we not implement tit for tat and play some hardball about their currency to boot?  Why is there no outcry at WTO about them placing tariffs on our goods? This is really out of my realm here, but it sure seems one sided from where I sit.  China has the weak yuan, Germany the weak Euro.  It seems we feel we have to run huge deficits to try to weaken our currency.  This current "race to the bottom" is not good.

Item # 2:

For whatever reason I find myself comparing the BP oil well disaster to the financial crisis a lot lately.  I have been thinking a lot about how BP paid billions of dollars out to the people that were affected by the crisis.  I think about the massive PR campaign (argument if this was a good use of funds aside) that BP launched that certainly came across sincere to me stating that they take responsibility for the spill and intend to make it right for those affected. I think about how many people they hired all over the gulf coast to clean the spill (they were not cheap about it, if you wanted a job cleaning up oil, you got one) and how they basically just threw huge amounts of money at the problem and in the end I believe they did make it right.  We can debate how much of that was forced on them and how much was out of their honest to god concern, but that is beside my point. Point is if you had a restaurant within 20 miles of the Gulf Coast (even in Florida) you probably got compensated if you made a case that you somehow lost any business.  I don’t think there was any requirement of “need”, if you were affected BP was willing to pay you for your troubles if you put your hand out.  They erred on the side of too much help, not too little.

Then I start to think about the financial crisis.  What a difference in how the responsible party acts.  The economic impact of the monster that came more or less out of abandoning prudent underwriting affected far more people.  However, in this case, the government felt it was more appropriate to shower those who caused the mess with hundreds of billions in taxpayer funds to make sure they stayed solvent.  Okay, I get it, the financial system had to be saved.  But any concessions by the responsible parties came only after major arm twisting by .gov and even then they do not really cooperate (i.e. they avoid helping via refinancing or writing down principal at all costs).

Even if this was all really caused by a “formula that didn’t work” lets compare that to other professional services if they acted similarly.  If a structural engineer comes up with some “new untested formula” for calculating the forces on a structure and once built the structure collapses the engineer will in all likelihood lose his P.E. license for life, if there are injuries he would face criminal charges, and most certainly his firm would be facing civil suits for damages.  A drainage engineer who uses a “new untested formula” to calculate the hydrology for a new subdivision and the subdivision once built floods would face similar challenges. 

The people who implemented this formula have not lost their credentials to work in Finance.  Hell they didn’t even lose their bonus after they were bailed out on the taxpayer dime.  Even  though the economic effects of their lapse in judgment are far greater than the oil spill I have seen no PR effort on their part to say they will make it right.  In fact, they seem to be more of the opinion this is in no way even their fault.  The reaction from the banks that caused this mess is pitiful and reflects horribly on their industry.  I cannot think of any other single industry who would respond to a huge disaster of their making like this without showing an ounce of remorse or taking any responsibility.  This is amazing to someone who comes from an engineering background.  The way these banks own DC and the FED is an absolute disgrace to our country.  I am a huge supporter of breaking TBTF up and separating commercial banks and investment banks.  I think it is essential.

Which brings me back to point #2.  Yes, I think somehow the buyers from 2005-2007 era who are still in their houses but way underwater need to be given principal writedowns.  The fact is the deadbeats are gone from their houses by now or are deep into foreclosure proceedings. Those still hanging in bought in good faith that ‘market’ prices were exactly that.  Truth is the prices were artificially raised by artificial demand from speculators and deadbeats who really could not afford them financed by banks that had lost their scruples.  They blew up the world, and I personally think they should take a page from BP's playbook and try to make it right.  Writing down principal for people who have hung in there this long is the least they should do.  Means testing is not the proper way to go about making it right.  It is a slap in the face of the prudent.

I could go on, but hopefully “the watchers” get the gist.

# 3: It is sad to see Obama throwing so much taxpayer money in the garbage.  Solyndra is a disgrace.  Obama is going to hear about it in the election.

 

Wed, 03/07/2012 - 15:57 | 2233233 Nobody For President
Nobody For President's picture

Thank you.

You said it SO much better than I could.

If future generations are going to get stuck with the bill for Iran and Afgan wars (paying China back all those 1.6 trillion of Treasuries), we (taxpayers, including those that are still paying on above-water mortgages) should be able to do a one-time 'bailout' of the folks that bought into the american dream of a house (and the greedy-ass 'flippers' that were basically clueless) and wound up dealing with predatory lenders - who got bailed out just fine, thank you.

This may actuallly wind up being a reasonable gubermint 'investment' in that it would give the housing sector a huge lift, and just maybe get real jobs going again. Yeah, I know, Keynesian - so was Tarp, and it sort of worked, and it is getting paid back by a reasonable amount (much to my surprise).

There is a lot of human pain in the underwater mortgage area - where the hell is the banker pain? Lower bonuses? Tears...

The debt to help out the (call 'em) 50% is a lot less than the debt used to help out the 1%. I'll go for it - and the increase in taxes (I pay 'em) that will result, sooner or later.

Fri, 03/09/2012 - 02:49 | 2238796 Bear
Bear's picture

When was 'pain' selected as a criteria for what the gob should do?

Wed, 03/07/2012 - 13:25 | 2232659 Bruce Krasting
Bruce Krasting's picture

Tks for the thoughtful response.

Let's face it. Everyone is manipulating 24/7 these days. You point to the Chines and their exchange rate, I point to the Fed and its effort to manipulate the global credit market? Which is worse?

I say that Smoot-Hawley II is a dumb idea. I hope the knuckleheads in DC don't pass it.

Wed, 03/07/2012 - 15:33 | 2232506 swani
swani's picture

@ Stax Edwards

Solyndra was a drop in the bucket. TALF was 1 Trillion, think of how the TBTF banks, Obamney's favorite employers, fared from TALF. TALF enabled investors to put in the collateral and the government guarantees allowed the TBTF banks to create more than the usual 138X credit from the billions in collateral from investors. The government's guarantee on a trillion in loans to the friends of the TBTF banks with the tax payers as the back stop was another genius move to keep the same ponzi going.

And anyone who thinks this is an Obama only problem,  or a Bush only problem, please, people ,stop drinking the Sheeple Kool-Aid from the mainstream media. This is a systemic problem with both parties 100% beholden to the same handlers/employers- the monopolists;TBTF banks (hello bail outs, no jail time for crimes against humanity like the stealing of billions from rancher's and other hard working people's 'segregated' accounts by JP Morgan during the MF Global collapse), free flowing interest free money for life, TALF, TARP, Freddie and Fannie buying TBTF toxic trash for profit), Big Pharma (hello Romney Care, Obama Care), Monsanto (hello FDA making the regulations so expensive for independent farmers, it gets rid of competion for Monanto), ext, ext, ext.

In a Banana Republic, monopolistic interests run the Regulatory Agencies (FDA, EPA, SEC, ext) and the Puppet Politicians (Clinton, Bush, Obama, Romney) that help them exploit the productive classes for their own gain.

Voting for either party isn't going to change a goddamned thing. If you still believe that it will, you may as well start believing in Santa Claus again. You might as well just ask him to bring manufacturing jobs back to America and do things like put an end to all Federal and Income Taxes that are currently going to pay for the biggest welfare recipients of all- the TBTF banks. We'll definitely get these things accomplished faster by asking Santa.

 

 

Wed, 03/07/2012 - 11:59 | 2232263 chunkylover42
chunkylover42's picture

Why should we not implement tit for tat and play some hardball about their currency to boot?

because if we forced China to stop pegging their currency they would have less of a reason to keep buying US Treasury debt.

Wed, 03/07/2012 - 12:42 | 2232494 fledermaus
fledermaus's picture

But see the recent zero hedge story on it they are dumping treasuries now...  So that argument is gone now...

Wed, 03/07/2012 - 12:13 | 2232330 Don Smith
Don Smith's picture

I don't think China is currently buying our debt.  I thought they were net sellers right now...  The Fed's buying it all through the PDs.

Wed, 03/07/2012 - 12:23 | 2232384 chunkylover42
chunkylover42's picture

Foreign Central Banks are the largest buyers of US Treasuries, and while China might be a net seller (good call, I think you're right there), they are still massive holders.  There's a difference between net selling and dumping onto the open market.

Wed, 03/07/2012 - 12:08 | 2232305 Stax Edwards
Stax Edwards's picture

The ultimate implication of that being that .gov will do wrong by its citizens just to secure offshore funding for itself, correct?

Wed, 03/07/2012 - 12:21 | 2232373 chunkylover42
chunkylover42's picture

would you expect any different?  of course, the feds will spin it by saying that continuing to fund itself is in the best interest of the populace, completely ignoring the fact that getting overextended in the first place most certainly was not.

Wed, 03/07/2012 - 11:37 | 2232159 Clowns on Acid
Clowns on Acid's picture

Hey Bruce - Good stuff. "No one made a loss taking a profit"....simple stuff....but hard to follow.

W/o QE3 USD must strengthen vs EUR....but then again Newton's Law is considered old fashion by the Fed.

Instead of an applwe it will be an anvil that falls on the Fed's (and US economies) head.

Wed, 03/07/2012 - 11:09 | 2232028 Hedgetard55
Hedgetard55's picture

"bet  the farm".

 

He didn'nt bet the farm, he chopped it up and gave it away to his cronies, Chicago style.

Wed, 03/07/2012 - 13:43 | 2232727 frieswiththat
frieswiththat's picture

"Chicago...bang bang"

Wed, 03/07/2012 - 11:50 | 2232217 LawsofPhysics
LawsofPhysics's picture

Jush like Mr. Bush.  Still believe the two-party lie do ya?  Gooooood sheep.  People look at Afghanistan and Pakistan and India and say that these countries are essentially "clan" or "tier" societies where corruption is the norm and organized independent groups of families or people with specific religious or ethnic backgrounds have their own little private armies who really control things.  Given the diversity of the U.S., the not-so distant scars of the civil war, history of agression, vets returning home to the unemployment line, and the well-armed nature of the populace, these countries haven't seen anything yet.  Going to be fun for America moving forward.

Wed, 03/07/2012 - 12:36 | 2232466 Hedgetard55
Hedgetard55's picture

Fuck you, shit for brains.

Wed, 03/07/2012 - 15:40 | 2233180 Nobody For President
Nobody For President's picture

This does not add much to the discourse here.

I know it's a fight club, but there was some (weird) intelligence behind it (re-watch the movie).

If you disagree with the gentlemen, state your case, 

 

you ignorant, fucktard asshole.

Wed, 03/07/2012 - 13:42 | 2232722 Theosebes Goodfellow
Theosebes Goodfellow's picture

@Lawso'Physics:

I do believe that Hedgetard55 either disagrees with you vehemently or is propositioning you whilst insulting you. I would disregard both unless you find the latter erotically stimulating.

Wed, 03/07/2012 - 13:16 | 2232614 LawsofPhysics
LawsofPhysics's picture

"Brilliant" response. LOL!

Wed, 03/07/2012 - 10:46 | 2231940 AN0NYM0US
AN0NYM0US's picture

understatement

" We might see the “ugliest” election in history"

 

but what is truly ugly is 4 more years of Mitt Obama

Wed, 03/07/2012 - 11:53 | 2232232 LawsofPhysics
LawsofPhysics's picture

There you go.  There is only one party.  Representatives of the central bankers.  The "tenants" of the Corporation of the United States have no representation.  Just like my tenants have no say on the rent.

Wed, 03/07/2012 - 10:08 | 2231798 steve from virginia
steve from virginia's picture

 

RE: Obama spending on renewable energy: the entire subject from top to bottom is cast in a dishonest fashion. The only way to 'solve' the energy problem in this country is by way of stringent energy and resource conservation.

Both the president and the Energy Secretary know this, both went to college (presumably).

Spending $250billion on conservation -- and raising gasoline prices to $50/gallon and electricity prices to $1/kwhr would both solve the energy problem overnight but would also remove pressure from other areas of government policy such as the need for military overseas.

Drivers and auto manufacturers would bitch but so fucking what. These interests have had an all-out cocaine party for 75 years, enough is enough.

Until this country -- and the rest of the countries -- get serious about conservation ... circumstances will do the heavy lifting. There will be conservation rammed up the collective asses of the modern world, starting with that pile of magnetic pile sitting at the end of the everyone's driveway: it will be off to the junkyard.

Make no mistake about it, $125/barrel crude is too valuable to burn up for nothing. Don't believe me, look to Greece. It's coming to a town near you.

Wed, 03/07/2012 - 10:13 | 2231813 Sean7k
Sean7k's picture

Your solution is to create a huge tax for the government to use? Did you go to college? 

Governments don't solve problems, they create them. Free markets will reslove any issues- one way or another.

Wed, 03/07/2012 - 16:14 | 2233306 swani
swani's picture

Sean 7K

Yes, but in order for markets to act like free markets, they must be allowed to be free. If the government is helping to manipulate prices by giving the Federal Reserve banks carte blanche to control our money supply and the green light to create debt that the tax payers are forced to swallow. How do we solve this problem?

 

Wed, 03/07/2012 - 15:35 | 2233166 Nobody For President
Nobody For President's picture

" Free markets will reslove any issues- one way or another."

Sure you didn't mean to type "reslave"?

The problem with this (Austrian) statement is that there is No Such Thing As A Free Market. (Just like TINSTASF Lunch)

"Free markets" mean the rich can, and do, buy the lawmakers and the 'laws' (rules and regulations) that govern the so-called free markets. Example: USA today where there are plenty of laws to strangle small business, restrict trade, RIAA, implementation of Barney Frank bill, the tax code that allows GE to pay zero taxes, and get a credit, on ~4 billion profit - pick your favorite.

 

The only free market is your very local barter/trade market, which is doing pretty well rurally, cause a lot of broke-ish folks don't have a hell of a lot of choice. Try a long drive from the city you are in to a small country town - look for the garage sales, just for openers - maybe the suburbs will work.

Most ZHers talk about gold gram markets, which probably don't exist very much in the US. (Though there are some.)

Try Mariuana ounces...(ounces are SO much more US than grams anyhow.)

Sean - I agree that "Free Markets" would eventually sort out stuff. They just don't exist anymore on a large scale, and NEVER WILL as long as there are central banks. OK?

Wed, 03/07/2012 - 16:03 | 2233250 Sean7k
Sean7k's picture

Free markets have nothing to do with the rich buying political power. That has to do with the police power of the state. Rules and regulation have nothing to do with free markets either- they are merely intervention. You seem to understand the terms, but then use them inappropriately.

There are markets and occasionally some are freer than others. The market still has some effects and eventually will not be denied- which is why Greece is having a bond problem. Just ask Argentina that has been ruled against on bonds from ten years ago. 

My comment addressed the increased taxation that would result from Steve's suggestion. To the extent we choose to use them. a free market solution is much better than a governmental one, yes? Intervention merely obscures the market for any product and makes the eventual adjustments more difficult to measure and therefore stalls investment in the type of technologies needed to resolve the energy issues.

We choose, everyday, to eliminate free markets incrementally, through executive, congressional and judicial actions that are accepted by the people. There are free markets- black markets and these will probably increase- as you noted in rural areas. Further, CB's do not determine whether free markets exist, legal tender laws do. Government regulation does- at the hands of those that can afford to buy it. 

CB's are just the machinery of fascism. You can always gum up the works.

It is ignorance that deters free markets and the solution is one we can all work towards achieving.

 

 

Wed, 03/07/2012 - 17:06 | 2233510 blunderdog
blunderdog's picture

In a properly "capitalist" world, the rich have no use for buying political power, because politics becomes irrelevant.

Control of capital is a far more effective means of controlling people than trying to get them to agree to your rules.  The historical demonstration was the feudal system.

I know, I know, it sounds great.  But it was really only any good for the handful of folks who had all the money.  Hint: you ain't one of them.

Wed, 03/07/2012 - 17:46 | 2233670 Sean7k
Sean7k's picture

In a "properly capitalist world" there would be little to no government, thus politics would be irrelevant- unless there is a police power of the state. 

You cannot control capital in this world either. Your feudal system was a form of government with a police power of the state. Little different from today. 

Flash back to 1834 until 1900. Even with regular bank and government intervention- the markets were freer and capital was more spread out. The standard of living grew substantially. Capitalists understand that in order for their capital to earn something, poeple must have disposable income. Capitalists are captives of the economic system as a whole. 

Steve Jobs couldn't sit at home and just hoard his money if he wanted to make money. He needs to put it to work and in doing so, he creates jobs, opportunity and consumption. 

Capitalism is what eliminates poverty.

Wed, 03/07/2012 - 17:53 | 2233694 blunderdog
blunderdog's picture

Police power can't compete with financial interests, though. 

If you want to prevent people from robbing your home, which is more effective: a police department, or a concertina-wire perimeter staffed by your security force?

I'd bet you'll probably see your dream come to fruition in the coming years.  Believe me--the capitalists have *always* wanted to put the politicians out of business.  The 18th through 20th centuries were a very brief period of the ascendance of power and means of the individual. 

Wed, 03/07/2012 - 11:54 | 2232245 LawsofPhysics
LawsofPhysics's picture

Are these the same "free markets" that believe in bailouts and picking winners and losers?  Go fuck yourself if you think there has been a "free" market in this country for the last hundred years.  fucking idiot.

Wed, 03/07/2012 - 15:23 | 2233123 Sean7k
Sean7k's picture

If free markets haven't existed for the last one hundred years ( for which i agree) then how could they have bailed out banks and picked winners and losers? 

Any markets are better than giving the money to government through taxation. 

You're not too bright.

Wed, 03/07/2012 - 10:35 | 2231887 steve from virginia
steve from virginia's picture

 

Look sportsfan, I personally don't really care. Taking place right now is a tax-free paradise: a flat-broke country to whose inhabitants $1 gas is $100,000 gas.

When you don't have any money you don't buy any gas and a car is a really shitty place to live.

I'm also realistic to know that the stupid humans will burn everything they can stick into a gas tank for 'lifestyle purposes only'. Somebody -- a 'leader' -- has to tell them not to do it.

Maybe if the government would actually DO something it would actually solve a problem for once.

Huge tax isn't the correct term, a gigantic, enormous, monstrous tax.  Do you have any idea how much petroleum waste must be cut? (Hint: about 16-17mbpd). And it is going to happen, easy way or hard way whether you or anyone else likes it or not.

Why do you think people over here are 'suggesting' to stockpile food?

 

Wed, 03/07/2012 - 14:29 | 2232902 Encroaching Darkness
Encroaching Darkness's picture

(Paraphrasing Darth Vader) I find your faith in government disturbing.....

What will the government do with your extra tax money? (Hint: Solyndra, Lightsquared, First Solar, Fannie & Freddie, Fast & Furious (gunrunner), Pigford, PDAA, ACORN, NBPP, AIG, .....) Why do you want to vastly expand the waste, fraud, theft and abuse?

And who will be most disadvantaged? Those on fixed incomes, the poor, the working poor, those who commute at all, farmers, truckers, and anyone who uses heating oil to heat their homes......

You cannot give any government more money and expect good results.

"Maybe if the government would actually DO something it would actually solve a problem for once."

NO. They will make it worse, faster, and with more money than they would have had. Starve the beast, before it eats you up, once and for all!

Wed, 03/07/2012 - 11:08 | 2232018 Hedgetard55
Hedgetard55's picture

If $50 per gallon is good, $500 would be better.

Wed, 03/07/2012 - 10:09 | 2231795 Sean7k
Sean7k's picture

I've been working on a theory. There are too many disturbing and confusing trends in markets. With the accumulation of massive debts in all first world countries and declared minimum inflation percents, along with gold and silver prices failing to reflect risk nor money supply issues, what if there is a real setup forming?

When was the last time fx levels moved off of 130 and 79? The Yen? The renimbi is tied to the dollar. 

Banks in europe are hoarding the LTRO funding, by a complicit ECB, instead of supporting the sovereign bonds that keep them in power. Hoping to keep firepower for a future action?

ISDA refusing to honor defaults? 

Who would buy US bonds at these rates? Even forced to, the primary dealers must be receiving some other payoff.

How about a global devaluation. coordinated by central banks to insure fairness and the use of "experts"? With currecy levels at current levels, you devalue all currencies to a percentage of debt to GDP, writing off huge amounts of debt and tie it all to a new SDR international currency?

The asset depreciation alone would create a huge transfer and loss of wealth from the middle class. Real assets would have the best chance to retain any value, but who owns these? CB's own gold and control silver. Large commercial and residential land portfolios are the hands of banks and CB's.

The accepted devaluation could be tied to a new global tax to insure the payment of debt, ala 1913 personal income tax.

As the details would require "experts" , the opportunity for banks to restructure the system in their favor are legion.

If you are going to have a reset- you want to have a plan. When you create money out of nothing, you can't lose when it is devalued. Especially when you have taken the time to buy the proper assets. 

There are too many inconsistencies in current economic trends to not see the invisible hand of massive manipulation for some greater purpose. 

 

 

Thu, 03/08/2012 - 01:31 | 2234906 swani
swani's picture

Sean 7

I agree 100% with your hypotheses. This is exactly what these people are trying/planning to do.

Wed, 03/07/2012 - 10:05 | 2231783 DB Cooper
DB Cooper's picture

Thanks Bruce.  I always appreciate your thoughts.  The best consistent poster on ZH.  I know that putting the details on your trades is also bad in the eyes of the "market gods".  Everytime I tell my wife I'm doing good on a trade it is a sure settle signal.  If I don't it immediately turns against me.  Now I keeep mum and I understand why your doing the same.  You're exactly right on stops too  -  been burned too many times by the stop hunters.

My wife and I bought a restaurant/pub in June 2007 (probably the top of the RE market) and it's done well through a lot of hard work.  I'm sure we can sell it for what we bought it, but only because of the business we built and the work we've done.  So really a lot of our work has been for naught you could say.  We love the business so we wouldn't change a thing, but I will not be happy if others who bought at the same time get debt forgiveness on our backs.  You make a bad trade and you have to live with it (learn from it).

 

Wed, 03/07/2012 - 10:03 | 2231775 stickyfingers
stickyfingers's picture

We might see the “ugliest” election in history.

I don't know Bruce, maybe that's something we can leave our children, along with all the debt.

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