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Jim Grant Explains How To Hedge Against The Coming Money Paradrop
Submitted by Christopher Gisiger via Finanz Und Wirtschaft,
James Grant, Wall Street expert and editor of the investment journal Grant’s Interest Rate Observer, warns of ever more extreme central bank policies and bets on the comeback of gold.
The global financial markets are under severe stress. The postponed interest rate hike in the United States, the fast cooldown of the Chinese economy and the crash in the commodity complex are causing a great amount of unease among investors. Fear is growing that the world slips into recession. "Central bank policy is intended to paper over the cracks in the systems. Seven years after the outbreak of the financial crisis we’re paying for this with a lack of growth", says James Grant. The sharp thinking editor of the iconic Wall Street newsletter Grant’s Interest Rate Observer draws worrisome parallels between the command based central planning of the Chinese economy and the economic policies in the West. He also doubts that Fed Chair Janet Yellen is the right fit for the top job at the world’s most powerful central bank. Looking for protection he points to gold and shares of gold miners.
* * *
Jim, since the fall of Lehman Brothers seven years have passed now. In what kind of world are investors living in today?
It seems longer ago, doesn’t it? Certain things have not changed. The first of those permanent things is the nature of human beings who operate in markets and their tendency to buy high and sell low. That is just as it was the day before Lehman failed and it’s just as it will be forever. What’s new and different is the larger than life presence of government in our markets, both with respect to regulation and with respect to the management and the production and the manipulation of money.
Are you referring to super low interest rates?
There is nothing so terribly new about very low interest rates. In the 19th century interest rates fell for most of the area from the end of the Napoleonic wars in 1815 to the turn of the 20th century. But something new under the sun might be very well the hyperactivity of our central banks.
But without their interventions we might be even worse off today.
We are living in the age of magical thinking. Governments through central banks have muscled down money market interest rates to zero and in some cases below zero. Not content with that, they have implemented what economists chose to call "the portfolio balance channel". That’s a very fancy phrase meaning higher stock prices in the interest of rising aggregate demand. That was the theory of the Bernanke Fed and it certainly was the theory of the Chinese communists who sponsored the fly away levitation of the Shanghai A-shares. So the world over – and this goes for Europe as well – central bankers have taken it upon themselves to sponsor great bull markets in the hopes of making people spend more because they will feel richer. That was the theory. But they neglected to think through the full consequences of these policies.
The slowdown in China is putting the financial markets under a lot of stress. How bad is the situation?
If I were a member of the ruling elite of the Chinese communist party I would say to myself: "Wait a second, we were just doing what the capitalist West was doing for the sake of economic recovery: Manipulating interest rates, administering asset prices through QE and inducing people through broad winks and nudges to taking risks and thereby seeding bull markets. When things went to smash in 2008 they didn’t arrest short sellers but they did threaten them as well. So what are we doing that’s different?" What China is doing different is that they’re doing it more ham handed. But aren’t there rather obvious analogies between old fashioned marxist central planning of the entire economy and our style of western central banking in which they seek to impose certain outcomes through the manipulation of prices?
Is China set for a hard landing?
I think China is very worrying. The macroeconomic data are largely made up and their methods are almost predestined to fail as the methods of command and control and suppression of the price mechanism are always predestined to fail. And then, on top of that, what’s scary is the reaction of the West: Instead of questioning those principles we talk about that the Chinese are just not as proficient in these techniques.
China was a main concern for the Federal Reserve not to raise interest rates at their recent meeting. Was this the right decision?
I was hoping that they would choose to act if only as a mercy to change the subject. I mean can we talk about something more interesting like the weather? Of course, it’s not just about one quarter of one percent of scarcely discernable monetary tightening. It’s about the idea of something in the way of a normal structure of interest rates in the time to come. But here it is again: Seven years after the fall of Lehman the biggest and supposedly most dynamic, most resilient economy in the world is still not strong enough to absorb that. That is the message from the Fed. So no wonder the markets are worried.
Usually stocks rally when the Fed stays easy. Not this time. Is Fed Chair Janet Yellen still on top of things?
Here is a a very revealing fact: According to the Wall Street Journal when Janet Yellen goes to the airport to catch a flight she arrives hours early. Now, what does that tell you about her personality type? She’s really, really anxious. I think this is a personality type that perhaps is better suited not for high command. If a difficult decision needs to be taken a person who’s so anxious or so much of an impulsive risk minimizer is perhaps not the best qualified to take sometimes a leap into the dark. But that’s what investing and the management of money is everything about: At one point you have to take a leap in the dark because you can’t know the future. So this says a lot about a person who manages the world’s reserve currency without thinking of making too much of it.
So far there are few signs of inflation however. If anything, economists are concerned about deflation.
We see no inflation in the supermarket but we have already seen a great deal of it on Wall Street. Also, what exactly is wrong with low inflation? Many accredited economists and central bankers want us to think that unless the rate of debasement of money is 2% or higher we’re all in danger of some catastrophic economic event. Says who? This is one of these moments in which I feel utterly isolated from mainstream financial and monetary thinking. I ask myself: Are we at Grant’s crazy or are they? I guess we’ll know more in twenty years.
So what’s next for the global financial markets?
The mispricing of biotech stocks or corn and soybeans is of no great consequence to financial markets at large. Interest rates are another matter. They are universal prices: They discount future cash flows, calibrate risks and define investment hurdle rates. So interest rates are the traffic signals of a market based economy. Ordinarily, some are amber, some are red and some are green. But since 2008 they have mainly been green.
You’re saying there’s an accident waiting to happen?
The central banks lifted off the stock market so that aggregate demand is going to rise. But they forgot to consider that aggregate supply is likely also to rise: Oil drillers will have it easier to find financing with which to drill the marginal well and to produce the marginal barrel of oil. This will weight on the market causing lower oil prices which will lead the central bankers in return to print still more money to save us from what they call "the risk of deflation." So it’s seemingly a never ending, circular process of so called stimulus leading to still more stimulus and unconventional ideas leading to radical ideas. I dare to say that we have not yet seen the most radical brainwaves of the mandarins running our central banks.
What do you think this will look like?
They don’t keep those things as a secret. They talk quite openly about "direct monetary funding" which is what Milton Friedman had in mind when he coined the phrase “helicopter money”. So the next idea is just bypassing the banking system altogether and mailing out checks to the citizens.
Would something like that even work?
All this monetary stimulus does two things in a reciprocal way: It pushes failure into the future and brings consumption into the present. Providing marginal businesses with very cheap credit is inviting companies that have passed their useful days of their commercial lives to pretending some kind of an afterlife thanks to the subsidies from the central banks. But capitalism is inherently a dynamic system based on entrepreneurship and to new inventions. It’s a little bit like the forest for the trees: You need life but you also need death. Without death there is no room for a new generation and what you get is Japan: Standing timbers of ancient age, none of them too healthy. Quantitative easing and artificially low interest rates reduce the dynamics, the growth and the vibrancy of economic life.
Now the fear of corporate failures is growing. You can see that in the widening spreads in the junk bond market.
The junk bond market has been characterized by very loose protections to the creditors. Those protections have been mainly eviscerated or weakened during this cycle of very aggressive lending and borrowing. That’s why I think the recovery rates on junk bonds in default will be lower and the final permanent losses to capital will be higher this cycle. But this should not be confused with the apocalypse. This is how finance works. This is the cycle of psychology of bull markets and bear markets, of boom and bust: There is euphoria and that mellows to complacency and at length it ripens to apprehension and then to fear and finally to abject terror – and that’s when you buy!
So where do you see opportunities for investors right now? Emerging markets for instance have crashed already pretty hard.
We see the beginnings of opportunity in some of the emerging markets. Still, I don’t think this is the moment to get involved broadly. But at least some securities have been marked down to levels at which you can say: "Ok, that’s at least interesting". One of them is Sberbank. It’s a very good bank and it happens to be in Russia, a rather forbidding place at the moment. But Sberbank came through the 2008/09 experience with shining colors, its management is first rate and it has terrific scale. So altogether it’s a first rate bank now greatly under strain owned to the difficulties in Russia. But I think it will survive and do well. Another interesting stock is the Moscow Stock Exchange. Like Sberbank it’s well managed, cheap and a good business. There are also Avianca, an airline in Colombia and Grupo Nutresa, a midcap food distributor and processor which is called the Nestlé of Columbia.
Where else do you see opportunities?
This is a monetary moment. I think we are looking at the beginning of the world’s reappraisal of the words and deeds of central bankers like Janet Yellen and Mario Draghi. What we’re waiting for is a sufficient recognition of the monetary disorder. You see monetary disorder manifested in super low interest rates, in the mispricing of credit broadly and you see it in the escalation of radical monetary nastrums that are floating out of the various central banks and established temples of thought: Negative real rates, negative nominal rates and the idea of helicopter money. So you need some hedge against things not going according to the script and that makes gold and gold mining equities terrifically interesting now.
Are there any gold mining stocks you would recommend specifically?
Anything that the Canadian mining entrepreneur Pierre Lassonde is involved with, is interesting. He is a very unusual mining entrepreneur because he is a businessman first and and geologist second. He wants a return on investment rather than just digging a hole in the ground out of which comes gold. He is involved especially with Euro-Nevada and with a very low priced speculative mining company called Newgold. Barrick Gold is another stock that is an attractive speculation because it is highly encumbered and in the not so distant future it faces a debt drama. But the shares are priced for that and if gold goes higher they have huge potential.
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Ugh. More of the "we need austerity, we need scarcity, we need 'fiscal responsibility'" mantra.
If money were issued into this system to account for demand, such as via a Citizens Guaranteed Basic Income, we would see a miracle the likes of which have never been known to man. It is only the cynicism of old age, disappointment, and moral revanche that could lead someone to even believe they could understand what would happen if that occured.
Austrian austerity has been refuted. It cratered southern Europe, what more do you people want? Cutting public spending in Greece is just causing emigration now and the destruction of their society... "No more free money for you!" isn't building anything, just destroying.
Issue the goddamn currency and distribute it; next to building roads and maintaining the rule of law, it should be a primary mandate of government.
Just say "NO" to "mining equities" they will be nationalized, confiscated and taxed out of existence. Physical gold, physical silver, guns, ammo, food (and some Bitcoin if you're the gaming type ;-)
The monetary reset also makes living on a remote island terrifically interesting right now.
If only we were 500 years ago and the whole world not know could wander off and disappear while the banksters and sheep go at each other. Not this time, nowhere to hide and the primary goal will be to survive the first 30 days of global carnage.
It's NIRP or never.
Bones are about picked clean.
Fed.Gov pensions are next up.
"Fed.Gov pensions are next up"
Interesting you didn't mention the free shit army first as next up. Even USG pensioners spent considerable amount of their lives clocking in and doing something.
Ugh. More of the "we need austerity, we need scarcity, we need 'fiscal responsibility'" mantra.
Yeah.....no one has tried it yet....might be time to give it a shot.
Pretty sure your grandkids will thank you for it.....and mine will too.
"Citizens Guaranteed Basic Income" is nothing more than communism/socialism. It takes a while, but it's failed every single time it's tried, and causes great misery for the people under it. Soviet Union, China of the 50s and 60s, Venezuela, the current USSA, the list goes on and on. Oh but now let's do it on a global scale. What a bunch of BS!
"We see no inflation in the supermarket but we have already seen a great deal of it on Wall Street."
WTF? I want to know what supermarket HE shops at!
What the Fed has done is create the very same circumstances that the EPA and Forest Service has int he American West.
They stopped the grazing and logging which cleared the crap out of the system.
This was fine for a few decades until the growth of the forests and grasses created the perfect environment for massive fires that wipe out everything, and not just the undergrowth.
When this fucker burns down it is going to take everything with it and not just the weak.
Barrick
Ha ha ha ha ha
https://www.youtube.com/watch?v=IoAurzpR_h0
Yo, Pinto:
Yep, it would be very interesting indeed. Let's see, this week I bought repair parts for plumbing, electrical, and PM filters for the heater.
I guess if the remote island includes bare-breasted beauties, that might be interesting.
Don't get sick, don't need any external communication, you'll b just fine ;-)
- Ned
Very interesting indeed, Ned.
Even more interesting if your wife finds it suspicious that you've selected one such 'get away' island.
Andy Cap ducking the frying pan comes to mind.
Cheers!
Andy Cap ;-)
Bitcoin use will grow organically when people realize the current monetary system is in disarray. Even if fiat currency is currently under stress, central bankers will still keep their jobs by switching to a centralized gold-backed monetary system of sorts.
My bet: Bitcoin getting stronger from the bottom-up and gold-backed currencies getting stronger from the top-down.
...and your internet access controlled by .Gov.
Foolish.
Bitcoin use will grow
Might want to have some chits and widgets as well......just in case.
Bitcoins were created by a man.......man has never created gold.
You'll be able to get your QR code stamped on your forehead or right hand.
My primary concern about bitcoin is access to internet to actually use it, but all the talk of restricting cash, or a cashless society in some countries it will require a permanent, reliable internet connection. This is supported by the fact that the US wants to regulate the internet like a utility because it is essential. Digital national currencies will help to legitimize bitcoin and other 'private' currencies.
Poking fun at those who believe in bitcoin is rather like the talking heads poking fun at goldbugs. You can pay taxes with gold in some jurisdictions, or bitcoin for that matter through snapcard which is a payment processor similar to paypal. If one stores their wallet themselves and fully backs it up then there's no reason why bitcoin could not succeed. The government can't create bitcoin, or tax it, add charges or do anything else to it, so the real question is what are people waiting for, a global finanncial reset before acquiring it?
Big + 1, coinhead.
If the price of gold goes very high, local .govs will tax the gold miners very highly ("Windfall Profits Tax") or just nationalize them.
If anyone already has "plenty" of money, I see no fault in holding up to, say, 1% in Bitcoin. Especially if you're the gaming type.
"I'll give you my gun when you pry it from my cold, dead hands"
-- C. Heston
or was it :
George Taylor: Take your stinking paws off me, you damned dirty ape!
: )
some slack in labor markets remains,
and the effects of this labor m-
slack and the influence
[2 sec]
um
[10 sec]
so some, some labor market, some slack remains in labor markets and the effect of this slack and the influence of lower energy prices and past dollar appreciation have been significant factors, uh, keeping inflation below our goal.
But I expect that inflation will return and the, uh, influence of lower energy prices and inflation below our goal.
[18 sec]
I expect this to occur as the temporary factors that are currently weighing on inflation wane, provided that economic growth continues to be strong enough to complete the return of the economy to full employment.
[1 sec]
and
[1 sec]
to
[10 sec, head nod at 2 nods per second]
to return to full employment, and long-run expectations remain well anchored.
For most FOMC participants, including myself,
[swallow]
um, [gurgle]
we currently anticipate that achieving this conditions [sic]
will likely entail an increase in the federal funds rate [swallow]
later this year [sniff, snort, swallow]
followed by a gradual pace of tightening thereafter. [swallow]
But if the economy surprises us [snort, swallow]
our judgments about appropriate.
[cough, gurgle]
Eexcuse me.
Monetary policy will of course change.
[gag]
So let me stop there. [gag] Thank you. [swallows] [applause, ovation] Mister Yellens? [holding framed picture of Jamie Dimon] You ok? Let me help you off the stage.Too much time on your hands.
And apparently, a standing ovation from the starry-eyed audience.
Yeah genius - that really worked well for the Germans in the 20's and every other time in history it has been attempted. What a fuckweed.
It cratered the whole of developing world, in particular, South and Central America. The rich want to rent seek, and they expect the poor to work to make them rich. Just look at what happened to the housing rental market since 2009!
The rich got zero interest rate money from the banks with guaranty that if they buy mortgage loans from the banks, the FED through the taxpayers will guaranty them a return. They bought 100,000s of housing units for cash and then they jacked up rental rates.
Austerity my ass.
You've got to be kidding. Austerity isnt what caused the problems. Living beyond ones means for decades and overindulging on credit caused them.
When the bill for bringing decades of future growth and consumption from the future into the present via debt finally came due, no amount of austerity or money printing could ease the pain.
You seem to believe in the free lunch school of economics, just keep consuming and never pay the bill because it isn't any fun.
Yup on this point ... When the bill for bringing decades of future growth and consumption from the future into the present via debt finally came due
Now ask the good old USA or any other western nation to pay their bill, just like Greece they would not be able to afford it neither. That is why Greece should have declared bankruptcy, won't pay? More like can't pay.
https://www.youtube.com/watch?v=PIb6AZdTr-A
I think his point is that if that money were "given" to the bottom rather than "lent at interest" via the top then you would not have the future having to pay it back. It would simply mean everything would be same but for the banking system taking a cut along the way. Sound money would be my preference but if they are going to print, distributing it via the bottom makes more sense. The Australian government did exactly that during the GFC - as I recall each child (via the parents - families first and income tested) received a $1K cheque and we largely avoided the carnage at the time ?
Whatever you believe it is surely time to try something different - the status quo approach has not worked.
The US has NEVER paid the bill......the just devalue the currency and keep borrowing more.
There was no austerity - no reduction in government spending. That's why it failed. Likewise the reason capitalism failed is because we never actually tried it.
As for the Citizen Divident and similar ideas - the nutcase spreading them goes by many names here. He gets banned and he comes back. I know him as Ben, though I doubt that's his real name. He likes posting under various 4-letter acronyms.
There is nothing "Austrian" about the austerity imposed in Europe. Based on your statement, it doesn't seem like you know the first thing about Austrian economics.
Please go spend some time reading over at:
Cafehayek.com
econtalk.org
mises.org
The system could have saved the banks by paying off the mortgages of the people who bought mcmansions for more than they could afford and that may have resulted in a revolt. See it's one thing if the top pyramid insiders and crooks get the money directly at the expense of everyone else, it's quite a different thing when your neighbor gets a free house that's bigger and nicer than yours, one you had to scrimp, save, and work for.
That's the fundamental problem with helicopter money. It's the kind of unfairness of the system people can see. Bastiat quite clearly laid out that government aims to keep the costs to the people unseen. The banker bailout did that. The reserves stacked up at the fed are unseen.
So how do you plan on distributing the helicopter money? How do you do it fairly? Do you go by income? Do you go by taxes paid? How do you do it so savers don't get screwed even more than they have already been? How do you do it to prevent people from bidding up prices? How do you do it so Joe isn't angry he got nothing while Al got $200,000?
Most people won't see the corporate welfare. They'll see their neighbor's new car and they don't like other people getting free shit they don't get.
And forget about basic income. That's going to wreck corporatism and anger people who work. A basic income with all your time still your own is worth more than working 40-80hrs a week for 2X+ the amount.
https://www.youtube.com/watch?v=XJHK4qKCB3c
oops
They did it here in Australia after the crash in 2008. Those with school age children got $1,000. Those who paid tax got $1,000. Those with income under a certain threshold got $1,000. Or something like that......it's a while ago and I forget exactly, but that's the general idea. Some folks got up to $5,000 coz of all the boxes they ticked.
It provided a nice little boost to spending. Now, of course, we are paying the tax bill!
Everyone the world over is "still paying the tax bill" for increased government debt. We did manage to avoid the carnage seen elsewhere ... no 30% correction in real estate here for example. Credit where it's due. Would you have rather Rudmeister gave it to the banks as was done everywhere else ?
Sounds like those small Bush Jr era tax rebates. Didn't do much of anything because they are small. If I recall correctly most people used them to pay down debt or for a little savings. The people who spent it on new crap turned out to be the kind who get money from the government anyway. I think helicopter money needs to be at least a factor of ten more. Enough to at least buy a decent used car before it starts doing something.
yeah good times, i got $1400 and stil have the oz of gold i got.
we had a little in "cash for clunkers" and first time buyers of homes could get $8k or something like that. we also have people living in homes for years on end without paying a dime
Fucking brilliant! Why hasn't this been tried before?
ucde - Issuing currency and maintaining the rule-of-law would require not printing funny money out of the either, returning to the Gold standard (and Silver), and jailing Jon Corzine. Are you with me?
@Eb
The jailers list is long. I'm with you.
wait - when was there *reduced spending* by governments in Europe?
Pull your head out of Krugman's ass, young man - and read to understand before you read to retort.
Cunt.
Are you really this ignorant or do you just play the role on message boards?
To put it very briefly, you are a moron.
"Austrian austerity has been refuted." So, you're refusing to honestly pay your bills?
Hopium. It's a hell of a drug, son.
Your head is so full of fuck I can't even... haha logging in to see +4 -96 dats right hippy, you keep dreaming about your guaranteed check.
Er, I dont think you can blame the "Austrians" for a privately owned monopoly fiat monetary system of debt based "money". If "money" itself is not a free market , then there is no free market period . Blame Fabian Marxist by force central planners not dead "Austrians". What you propose is just more free shit theft from the producers to the obese TV brainwashed dumbdowned but entitled adult children . Any society not fundamentally based on self-reliant free thinking and free to act lawfully adults is doomed
Krugman's troll account?
MDB's new account?
Mike Norman is that you?
Yes, gold and silver will have their place, but the necessary — i.e., revolutionarty — change that the world needs won't come with a revolution in money:
"Let us begin with a simple premise: you cannot levy taxes on a cryptographic money supply through judicial authority. Bitcoin is untouchable by the nation state and can be used with a veil of cybersecrecy."
https://diginomics.com/bitcoin-will-end-the-nation-state
Utter BS. Bitcoin is, in fact, a handmaiden of the state.
Oh, ye prisoners of linear thinking:
“The greatest shortcoming of the human race is our inability to understand the exponential function.” ? Albert A. Bartlett
Meanwhile, the brilliant freedom-fighter knows better:
https://www.youtube.com/watch?v=_76u8hfrMvk
"Bitcoin is untouchable by the nation state and can be used with a veil of cybersecrecy."
Jeezus H Christmas, son, have you been drinking paint?
No, but you will be when the government introduces negative interests rates and bans cash:
http://www.zerohedge.com/news/2015-09-18/fed-opens-negative-interest-rat...
http://www.dcclothesline.com/2015/04/20/expert-says-banning-cash-the-onl...
Whatcha gonna to then?
Oh, that . . .
https://en.wikipedia.org/wiki/Barter
Hey Dick...
Are you on the Assured Internet Access List (AIAL)?
In my view, both gold and Bitcoin will coexist nicely.
Gold may well end being the lifeboat of the status quo. Lots of countries own lots of gold which needs to be safely stored. So when the fiat era starts fading, countries will be in a prominent position to switch to a kind of gold-backed currency. On the other hand, Bitcoin may well become the currency of the masses, starting from those individuals that try to avoid governments and politicians.
Bitcoin was the first. The first always falls on the sword. The coin favored by pedophiles, drug enthusiasts,hackers and tax evaders will never spread en masse. Unfair characterization? Yes, but that's the perception. There will be an alternative currency eventually that will be based on blockchain or some other baseline technology without as many constraints but it'll be backed by something other than confidence. Because in the end despite having programming in place to do away with inflation it's still primarily used as a payment method after 6 years and that bubble already popped. Bitcoin is not a store of wealth and never will be. CITI, goldman all see the money and are developing their own. Where there is money there is regulation. Regulation is going to kill it. All it takes is the US government to freeze all exchanges and mandate that member institutions in the SWIFT network stop processing bitcoin exchange currency transactions. Unlikely? Look at what the UIGEA did to payments processors for gambling transactions (hint hint where does the majority of bitcoin volume come from?) Oh, and that's without even mentioning that there are also hundreds of other alt currencies coming onto the market or already competing with bitcoin.
Just 'cuz u b paranoid, it don't mean that they are not out to getcha'
BitGold and KaratBar to name two.
Good article. I saved his stock recommendations under the title "stocks to buy after the nukes go off."
Nah. It juz says after the helicopters paradrop not when the nukes go off- you silly
Jim Grant is worse than a stopped clock. He never made a correct call in his life, and his newsletter is jibberish. After a collapse, what ever the cause, there will be bargains galore. You don't need to recall his useless predictions.
we eagerly anticipate your explaining your means of holding on to something of value that would make up the payment side of the prospective "bargains galore" transactions.
Pussy Galore, on the other hand will always be in supply for the right price, but that is transactional vs. investment.
Please let us know how to have assets to take advantage of the "bahganz" you project.
Thank you in advance,
- Ned
The facts have not changed over the last 7 years, so why should Grant's analysis? He has not been attempting to predict when events will transpire, just trying to describe what will transpire. If Jim Grant was a sundial, I would take him over your clock any day. Or even an Apple Watch.
Pretty good time for Gold bugs
Jeez, I nearly put my finger on the screen to smoosh your bug!! Funny!!!!
UK Labour Leader Corbyn: 9/11 Attacks ‘Manipulated’ for War, 1990 Iraq War for New World Order
This really says it all, doesn't it?
"Here is a a very revealing fact: According to the Wall Street Journal when Janet Yellen goes to the airport to catch a flight she arrives hours early. Now, what does that tell you about her personality type? She’s really, really anxious. I think this is a personality type that perhaps is better suited not for high command. If a difficult decision needs to be taken a person who’s so anxious or so much of an impulsive risk minimizer is perhaps not the best qualified to take sometimes a leap into the dark. But that’s what investing and the management of money is everything about: At one point you have to take a leap in the dark because you can’t know the future. So this says a lot about a person who manages the world’s reserve currency without thinking of making too much of it."
Janet Yellin DOES NOT HAVE TO CATCH A FLIGHT, she flies a G5 or a Flacon EX....you didn't really think she fly's commercial did you???
Presumably, when others point out that the Fed is now caught in the "boy who cried wolf" trap, you complain that there never was a real boy nor a real wolf!
You saying the plane takes off from her back yard?
There are way too many uncertainties in life and that has to be accepted but when you have the opportunity to operate securely, why not?
This is really crackpot stuff. I completely agree with Grant's critics; he is mostly unintelligible and woefully overly complicating...
I'm not sure if he knows what he's saying, and I've read more than a few of his meanderings.
Look:
Western outsourcing for more than 40+ years decimated the western middle class and the primary means it used to build wealth: good-paying manufacturing jobs in industries, homegrown on the back of domestic science and technology development. The U.S. led in almost every imaginable direction and was in so many ways that counted...second to none. Go take a look at Apollo 11's crew photo with the moon's picture as a background. THAT'S when we were great.
We're not great anymore, and greedy, shortsighted western corporate outsourcing is the primary culprit. That mindless behavior set into motion the loss of American livelihoods built over several generations, and replaced it with mostly nothing. All these dimwitted corporate bastards could think about is how much cheap labor abroad would blow up share prices AND fat cat bonuses. They ruthlessly chased short term profits at the expense of the country's economic future, and couldn't have cared less about it.
The interregnum of the 2000's saw the long term damage finally materializing in constant challenges to job quality and declining incomes. Those routinely slowed the effects of Fed interest rate manipulation (beginning with Greenspan and proceeding thru Bernanke), itself now chronically used to stimulate consumption on those ever-dwindling discretionary dollars. That is, unless credit standards were lowered, TOO.
And credit standards WERE lowered to previously unknown (and unbelievable) dimensions. Financial engineering went nuts creating incredible mountains of debt that fueled, and artificially-inflated, an asset (mostly shacks) mania the world had never seen before.
That should've finished us off, but it didn't. Our incredible denial of the core problem, a fully decimated middle class economy (once the envy of the world), simply could not be acknowledged. That would've been a checkmate.
And so it was...and still is. Only fantastically more indebted, and more impotent to deal with it than ever before. What fucking western outsourcing caused, fucking Fed (and other CB) monetary insanity would entomb.
Today, the once mighty American middle class is practically a ghost of it's former self, and wouldn't even be that without even more "stimulus" bullshit trying to resurrect yet MORE artificial asset inflation (instead of efforts to restore American industry and NEW middle class jobs) as though somehow what's never worked...this time will.
The EM's, and especially China, have been hoping someone in the mighty west would come up with something too.
They practiced the same easy credit bullshit, substituting real top-line growth in exports, that went dead as fast as outsourced incomes left OUR wallets empty, except...
...they blew it all on now-empty, and unused, infrastructure.
For that time, at least, they had 1.3 billion Chinese peasants to keep busy, and that's how they did it. However, that was temporary, and how they expect to keep the same masses busy from here is a very big question mark. Pray the Chinese government, looking to save its own ass, doesn't start pointing the finger back to us.
They wouldn't be fully wrong if they did.
So to sum up this very brief rendition, outsourcing FATALLY damaged our middle class economy, and in so doing, destroyed many others.
This cannot be recovered from. And all the Grant (and other's) economic gibberish about this market or that stock is bullshit. That has to take place in the context of a larger global market which, as we see, is permanently damaged beyond repair. So, don't listen to these people. From here on out, it's pure games and stratospheric risk most can't afford, and certainly, needn't take. Use what you have to prepare for what's coming. It's far better to keep the few coins you have, than to risk them at an irrational roulette wheel, warped and stacked against you. Until currency is made worthless, you're going to need every one you have.
If all the debt, and warping, asset-inflating insanity thus far employed, can't restore even the lunacy we had...after 7 YEARS...it's toast.
m
Well stated! No need to add more, except perhaps the words of Lord Acton of long ago..... The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.
The German people tried what Lord Acton recommended in the 30,s and 40,s and look what happened to them , they were genocided almost to the point of complete extermination if the bankers Morgenthau plan had been fully implemented. These people are even more powerfull now, Germany is fully captured (the mass gang rapes of most German women traumatised and subjudgated them generationally) and the white European tribes who offer the only real potential threat to them are slowly being "peacefully" genocided by deliberately engineered dilution via immigration . Russia appears to be the only potential opposition but we have yet to see if that is mere good cop bad cop theatre.
md4-- I agree with your analysis, but is it truly impossible to reconstitute the middle class if we had both the political will and the wrenching away of political control from the oligarchs? Not saying it would be easy or instantaneous, but why is it impossible? Not being rhetorical, just posing the question.
Yes, it is.
To begin with, we lost our manufacturing and developmental soul. You can't order an Edison or an Alexander Graham Bell to arrive on schedule. The transistor, the accidental creation of three Bell Labs scientists, was pure science. Bell wasn't pressuring these researchers to cook up something to juice the next fiscal year's profits, activist shareholder dividend, or, c-suite fat cat bonus. It was science...that led to new technology...that THEN led to production.
It doesn't work that way anymore.
The space program itself was the greatest incubator (next to military hardware development) the world ever knew. Today, it is a mere shell of what it was.
When we outsource R&D, technology development, and manufacturing, we LOSE our ability to do these things. We don't need to produce progeny for those environments, so, we don't. Instead, we produce mindless entertainment, and stupid and violent video games that teach us nothing worth knowing.
It took generations to build what western corporate bastards gave away for a few quarters benefit, but, it damaged us for at least two, maybe three generations. And that's if we got to work on it TODAY.
We can't do that in our present, seriously-crippled condition. How the hell are we going to work on warp drive and time machines, when we're in justified fear of going Mad Max at any time?
And finally, we gave the world our secrets. You can't take back knowledge imparted. A substantial part of the world can do what we used to do, better, faster, and cheaper than we did. Hat's off to them too. They did what the short sighted corporate bastards told them to do, and did it well.
What those same bastards DIDN'T do, is sow NEW seed corn here at home at the same time.
That's the critical missing link between our past and future. If 40+ years of outsourcing had piggybacked 40+ years of retooling and retraining, things would've been a lot different today. What makes western corporate behavior mindless and possibly, criminal, is their REFUSAL to see the inevitable endpoint of their madness through the short term profit tunnel vision they STILL possess. As if what they've done for so long isn't enough, they continue even now.
They simply don't care.
And never have any of them been held accountable for what they've done to so many...
m
What makes western corporate behavior mindless and possibly, criminal...
They are sociopaths.
Currently, any professional job that can be outsourced is moving to asia very fast. It will make the next few quarters look good for some public companies. The giant sucking sound was manufacturing, now it is all the remaining decent paying jobs. Generations to recover is correct.
a dying/dead middle class has spawned a generation or two of unmotivated, virtually useless citizens. game over until the collapse and maybe rebuilding
The interregnum of the 2000's saw the long term damage finally materializing in constant challenges to job quality and declining incomes. Those routinely slowed the effects of Fed interest rate manipulation (beginning with Greenspan and proceeding thru Bernanke), itself now chronically used to stimulate consumption on those ever-dwindling discretionary dollars...
Not to worry. Everything will be FINE, The US just has to start ANOTHER war and bomb some more countries. (Sarc)
Couldn't agree more.
No one addressed lying and stealing, so there must not be any of that going on. Geez, oh my lying eyes.
It's safer to buy the pure gold coins or bars and put them in a safe place. Miners have too many middle men and CEOs who award themselves yuuuuuuuuuuuge bonuses while their companies perish.
And stay away from boats or you might axcidently lose all yoru metal!
If the large bloc (nation-state or globalist) agenda is the prime contributor to the problem, when poeple decide to change course, why will they follow an equally global mindset? Wouldn't a very local worldview be equally probable, which would make gold less attractive than alternative assets, including strong local relationships/businesses?
I think he meant Franco Nevada rather than Euro nevada. Euro nevada was around at the time of the original franco nevada.
WE CAN FUND OUR GOVERNMENT!
(here's how ...)
https://www.youtube.com/watch?v=iKS-pcyNERQ&feature=youtu.be
https://petitions.whitehouse.gov//petition/generate-revenue-new-and-inno...
Does a single board of directors mean global corporations are centrally planned?
Of course they are (I run a similarly "centrally planned" green building startup), the problem being that because the economy is centrally planned — http://orrinwoodwardblog.com/2013/12/02/central-banking-equals-central-p... — global corporations can "compete" in ways that small businesses can't, including regulatory capture to increase the costs of market entry, sometimes prohibitively. Archaic building codes, which are part and parcel of the hidebound construction industry, are a perfect case in point.
I am interested in hearing some examples of archaic building codes.
Helicopter money mentioned again ... and a little principle.
Central banker mails to me 100K as a cheque in the post saying go out and spend my son, go out and spend. Then he turns and sniggers inside walking away BECAUSE HE DID NOT TELL ME HE WAS GOING TO CTRL-P 1 TRILLION TOMORROW.
That is the principle the central banker will use in conjunction with the helicopter drop because anything less would be to start to restore my rights as a citizen and NOT AN ECONOMIC SLAVE.
The one thing to be sure on all this central banker planned world they will create bigger and bigger bubbles to preserve themselves until some day in the future it collapses.
Oh to live in a world of truthful economics whereby there can never be a collapse because only honest trading is allowed. NO FRIGGIN BUBBLES!
Helicopter money will not generate any bubbles because to compensate they will raise taxes from somewhere else.
EDIT: You may say: "Well, they can cut taxes". Yes, but they'd rather send helicopter money first and then raise taxes. No bubble, just implosion.
the dichotomy between NIRP and helicopter money is an interesting one, first they bail you in, then they mail you a check? my read is that NIRP is relative, rates vs inflation, rates lower so savers lose money, and then they mail you the check which is really script for the APPLE store. that much i get, the gold miners i get too, but they can go low and slow for a long long time. if you buy regular notes far enough out you may earn enough to cover the lag with inflation or just buy TIPs, and cover them with FRN, just to keep yourself fully hedged. or just go zero hedge.
TIPS? Just consider who is 'measuring' the CPI to calculate the index for TIPS. What is their incentive to do so accurately? The time for TIPS is past. the game is rigged.
dupe, sorry
In saner times, when demand was recognised as the driver of the economy, the US consumer was seen as the engine of the global economy.
With growing inequality, the US consumer has seen real wages stagnate since the 1970s. His consumption was maintained, first with debt, and then the illusion of wealth due to a house price bubble. He used his ever increasing house price as an ATM to borrow against to maintain consumption.
In 2008 things changed, the US consumer was maxed out on debt and his house was falling in price.
The once wealthy Western consumers have all had a similar experience.
Demand for Chinese products collapsed and China tried to keep things going with debt, hoping the West would soon be back on its feet.
With supply side economic theory being the order of the day, all the help has been put in at the top with nothing trickling down, because it doesn’t.
Capitalism trickles up though the following mechanism:
a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.
With almost no welfare state in China its consumers constantly have to save for a rainy day, limiting their own consumption.
The world’s belief in supply side economics and trickle down is exactly the opposite of how Capitalism actually works, its demand driven and money trickles up.
Prepare for more solutions based on the opposite of how Capitalism actually works.
QE puts money in at the top, where it stays, blowing asset bubbles.
We never had these problems before supply side economics.
QED.
We know China is not doing well.
Why is China not doing well?
Lack of demand for its exports from the West.
So this is a reflection of the global economy.
Why is demand for its exports low?
Banker’s have achieved excellent market penetration with their product, debt.
Debt – jam today, penury tomorrow.
Debt has a long sting in its tail.
But surely interest payments just circulate within the economy?
a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.
The rich don't need loans and the bankers have identified the market for their product, those with insufficient capital.
The debt sits with those least able to afford it and the payments go to those that can consume no more and just spend their money inflating asset bubbles.
Adios, global economy.
The current ideas of debt fly in the face of 5,000 years of experience.
Today we think all debt is going to be paid back and none of it needs to be written off.
Debt always gets out of control and ancient societies dealt with it in two ways:
1) Banning of all interest on loans (usury as it was called)
2) Debt jubilees where all debt was forgiven
Compound interest is an exponential function and quickly runs off to infinity if there is not prudent lending (there never is).
We used to have recessions to remove bad debt from the system through default and bankruptcy.
Central Bankers removing recessions with loose monetary policy was always a recipe for a debt based disaster.
"He also doubts that Fed Chair Janet Yellen is the right fit for the top job at the world’s most powerful central bank."
It is a political job. Virtually none of them are suited to run the FED.
"All this monetary stimulus does two things in a reciprocal way: It pushes failure into the future and brings consumption into the present."
Wait till the future arrives in the present. Failure will be now and consumption will be past.
awsome post
We had unregulated, trickledown Capitalism in the 19th Century.
We know what it looks like.
1) Those at the top were very wealthy
2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
3) Slavery
4) Child Labour
The beginnings of regulation to deal with the inhuman monster that is the businessman seeking to maximise profit, the abolition of slavery and child labour.
Where regulation is lax today?
Apple factories with suicide nets in China.
A leopard never changes its spots.
The rich are very greedy and will do anything to line their pockets.
Then don't work for them. Nobody forces you to. Start your own business and stop complaining.
Let me guess - you pay the baby sitter a living wage, as well as your paper boy and the kid who mows your lawn. You yourself would NEVER pay for labor that is not enough for someone to live on. Oh no, you pay $20 an hour plus full benefits and a retirement plan at a minimum for shoveling snow and raking leaves. We all know it because you believe in what you are saying.
I don't know why the downvotes,
Obviously, you're not drinking the Kool-Aid.
This would go a long way to fixing the problem if people would just draw their own lines in the sand and stick to it. Poverty by choice is better than poverty by force and it will achieve results eventually.
Why work hard? And poverty by choice? Not when someone earning $15/hour has more disposable income than someone earning $33/hour due to govt handouts. http://humanevents.com/2012/11/28/poverty-pays-better-than-middle-class-...
This actually got a lot more thumbs up on here than down? That is incredibly unusual on here.
We are slowly going back there since the end of the Cold War. No citizens in an individual country (even a 'democracy') have an effective recourse either since their solutions stop at their borders.
Your view of the relatively free, sound money based 19th century economy couldn't possibly be more misguided.
Yes. In fact, the paternalistic policies that Batman espouses in his other writings are ultimately what has led us to the debt troubles we now find ourselves in. But he can't see that.
We all know it's more of the same. Just bigger each time.
Print ever larger amounts to minimize debt.
History has many instances of this occurring.
Fed's consumption and debt over savings and production.
It's going to get nasty before it ends.
Barrick is the last major miner I would touch. Else good interview.
What is the problem with Janet arriving hours early for her flights?
Anyone who works in airline check-in is completely sick of people who arrive late for their flights but it was somehow not their fault.. "How was I to know there would be traffic"
If you have a mission critical deadline you allow for anything that could delay you. If that delay doesn't happen then you arrive early.
XXX
We see no inflation in the supermarket... lol Where does he shop? Does he eat beef?
Never trust a guy who wears a bow tie
A mine is a hole in the ground. The discoverer of it is a natural liar. The hole in the ground and the liar combine and issue shares and trap fools.—Detroit Free Press, 1881
I'll take the real thing, after the flim flam.
"in the mispricing of credit broadly and you see it in the escalation of radical monetary nastrums that are floating out of the various central banks and established temples of thought"
Perhaps Grant meant monetary nostrums.
I used to like Grant but he's been wrong for so long that one has to reconsider his approach. It's not working. We do not have 'normal' market conditions; BUT, did we EVER have them? I think not.
What, after all, is 'normal.'
Making biotech drugs benifit the human condition cheaply they are entrepreneurial. They
drives down inflation. Big pharma gets financing for me too drugs
Bankers decide with interest rates high, who gets the green light to develop. With interest rates low investors decide.
The dot com "bubble" before the Greenspan prick gave us the comunication that we have today.
Bankers arent entrepreneurs. They stick with Zerox, MSFT, AT&T, big blue chips. They gave us sub prime
Jim Grant is in the pocket of blue chip big pharma big banks
Jim is talking his book. He'll be right, he just stinks at the timing.
Men in bow ties. Maybe I'm a dunce but somehow, I just don't take them seriously.
it's pee wee hermans fault
I went long NUGT last week. Not a large positon but maybe I'll add to it.
Jim Grant states "We see no inflation in the supermarket but we have already seen a great deal of it on Wall Street"
I am not sure how this myth about no inflation in food prices started, but it sure as hell isn't true. Jim Grant obviously has not shopped for groceries in the last 5 years.
Yes. I would say in general that economic bloggers have bought the FED line (lie) about inflation. I'm also bothered by this because no one seems to rationally consider basic living costs exclusive of energy (which, granted is cyclical and transitionary so it maybe shouldn't be counted). And that doesn't even truly measure healthcare and educational costs.
Healthcare inflation in the US hasn't been that bad the past few years actually on the whole at least compared to historical norms. The big issue is that employers continue passing through large costs on to their employers.
Maybe you should actually read the site... http://www.zerohedge.com/news/2015-09-25/obama-promised-healthcare-premi...
Yeah,it's only gone up, what, ten times or so. No big deal, no real inflation. Moving in...
It disguises as lower amounts and inferior products. Take for example a bag of chocolate chips. The last 8 years the weight went from 16 to 14 to 12 to 10.5 ounces while the price has "only" increased slightly. And if you buy processed food the list of food like ingredients is long and nasty. Real food is not getting any cheaper. It's reflective of the real cost of inflation.
that was just awful imo
she shows up 2 hrs. early, so she can go through the nsa pat down,'GROUPED" several times.
When the forced labor FEMA work camps go operational in 2016,activities such as mining,and hydraulic fracturing, will become profitable again..Until that time,Godman Sachs will insure that no-one makes a dime of profit longing oil,silver,or gold..All commodity futures will have their price set by GS,at a value $.01 cents beneath the cost of production,in order to drive out all competition..
The markets are sooo not free/rationale. He called TBT a few years back. In normal times, maybe. His was a huge miss
Gold, gold, gold, gold, gold, gold, gold, gold, yawn.
Jim Grant is brilliant!
Who could'a known gold would be re~hypopthecated at a 1:240 ratio inside of ten years?
Hong Kong Crickets much? Yeah, watch the opening SSE slide tomorrow.
Jim Grant a better translator needs. Since when does not Jim Grant english speak?
Coming from the "resident" PUD Whacker?
Let's talk reality. You come to Zero Hedge for vindication? Let's dance
Ask me how the "already" weak Asian "short term" bond yields are collapsing before the ES and DoW futures markets are available to hedge?
It's not Winter yet? I'm retarded
It appears the original text may have been in German, that's all.
UUmm, The Muslims are coming...
Direct monetary funding or helicopter money is already in place it is called socialism, that is how we got in trouble. Another medicine for a cure caused by the medicine.
You have to be an economist not to understand that.
Jim, you lost me when you said:So far there are few signs of inflation however. If anything, economists are concerned about deflation.
We see no inflation in the supermarket but we have already seen a great deal of it on Wall Street.
Obviously you are out of touch, or you certainly don't do your own shopping. Ever. And also obviously you believe the tailored figures the FED goes by. Therefore your analyses and predictions are crap. As in garbage in and garbage out. I pity the suckers that pay you good money to do their thinking for them.
I think he meant there is little sign of inflation as reported by the government.
A road-map for gold for the next 15 days
http://goldenopportunitytrading.blogspot.com
One of ZH's past StAR HF Icons now goes CONTRARIAN to ZH's doom and gloom on stocks :
"We may be entering the end of a dark period for the Stock market; not the beginning !"
So says Hugh Hendry.
One guy who has his Stawk's tail UP !
All those BEARS predicting a melt down of the stock market have it ALL WRONG ???
What gives ?? This HF scion now roaring like a lion !
There will be a contraction, after the contraction, the economy will still continue to collapse but the market will skyrocket as the dollar collapses. Look at Venezuela, their stock market has gone way up while people have trouble finding sosp and TP
I agree - we'll have a contraction/deflation as everyone rushes to sell anything not bolted to the floor to cover their bad bets. Once people realize there still is not enough paper money in the world to cover the $700 trillion derivatives/shadow banking fiasco - then we'll see the dollar, euro and other major currencies collapse. Unfortunately when the central banks throw more money at the problem, it won't help this time - and will only make it worse. Keep your powder dry my friends.
The central bankers will throw fiat to their friends, who'll be buying firesale price family heirlooms, distressed assets, etc...
from a cash starved consumer desperate to service debt. The world is not enough!!! Muh-ah-ha-ha-ah-haha!!!
ha
ha