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Guest Post: The Unwelcome Impact of Interventionist Monetary Policy In The US
A fascinating insight from Graham Giller of Statistical Trader Blog, who analyzes over 55 years of Treasury data to point to what is the crux of the problems of monetary policy since Greenspan took over the Fed. The Greenspan [and Bernanke] era monetary policy has altered the distribution of changes in interest rates in a way that exchanges a reduction in day-to-day 'normal' variability for a considerably higher (perhaps catastrophically higher as we are finding out this week) likelihood of extreme shocks.
I first made the attached chart in 2004 after attending a lecture by Benoit Mandelbrot, and reading his "Fractals and Scaling in Finance." Mandelbrot's argument based on his early research (in the 60's) on financial price data was that the variance of speculative prices was undefined (i.e. infinite). This has profound implications for quantitative finance as a venture since the error on the mean is proportional to the square root of the variance, and for a distribution with an infinite variance the law of large numbers does not apply ---- i.e. you cannot make precise measurements of the mean as there is no convergence of the sample mean towards the population mean. Mandelbrot's research was done before ideas such as stochastic volatility were created, and in a modern context we do find evidence of stable variance.
However, one of the interesting aspects of his work was to pose the question: how does one measure an infinite statistical moment from a finite data sample, since that finite sample will always give a finite answer? Mandelbrot suggested in his early papers looking at the time series of the cumulative sample moments of the data --- i.e. to measure using all data up to some time and to plot that value as a function of each and every time. If the true parameters of the distribution of the data being measured are unbounded (infinite) then this plot will show no signs of convergence --- the measured datum will march steadily away from zero as each additional data point is added.
Mandelbrot's ideas also apply to higher moments: the sampling error of the variance is determined by the kurtosis (degree of "fat tails") and so on. My plot illustrates the cumulative kurtosis, computed after Mandelbrot, of the daily change in US three month treasury bills. Ever since the arrival of Alan Greenspan's post '87 crash crisis management regime, this plot shows a systematic and steady march upwards in the kurtosis of changes in US interest rates. I find this chilling. This means that, if the truth is as the evidence suggests, that it is not possible to accurately determine the risk of a portfolio of bonds because it is not possible to make reliable measurements of the variance of interest rates. i.e. The whole enterprise of bond portfolio risk management is intrinsically unreliable.
The data also tells another story. Also plotted is the cumulative standard deviation of daily changes in rates. This shows a systematic (but slow) decline in the measured value. This indicates that the true value is below the current value of the cumulative measure and that the cumulative measure is slowly decaying towards that value. So a narrative for what the Greenspan era monetary policy has done to the distribution of changes in rates is to exchange a decreased daily variability for a higher (perhaps catastrophically higher as we have found out) likelihood for extreme shocks.
As you can see the Bernanke era has done little to modify the general trend. In 2006 I sent the chart to Jim Grant together with my prediction that something nasty was lurking in the future. I decided to revisit the analysis today and find nothing has changed. Discussions of the long-term consequences of interventionist monetary policy are increasing (though still not in the mainstream) and this plot shows the fingerprints of such policy writ large.
It is this constant papering-over of the day-to-day cracks (and business cycle) that is supposedly so beneficial for our society (and central planners) as a whole that creates a building tension as the underlying causes grow larger and larger and are never purged until in one fell swoop, the market mechanism finds a way.
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"Greenspan [and Bernanke] era monetary policy has altered the distribution of changes in interest rates in a way that exchanges a reduction in day-to-day 'normal' variability for a considerably higher (perhaps catastrophically higher as we are finding out this week) likelihood of extreme shocks."
Exactly what Taleb has been saying all of 2011 and most of 2010 — if you remove day-to-day volatility from the markets (or life) you get extreme blowups.
Central planning, bitchez.
This Shit is way over my pay grade
I think it means in '87 Greenspan sold his soul to the devil and consigned us all to Hades and the hell fires of infinite fiat.
Oh! Well shit why didn't he just say that instead of confusing us simple folks with all that fancy talk and big words. If I am fucked, please just tell me so.
Japan has used similar inteventionist monetary and fiscal stimulus policy since 1989. Krugman claims the Japanese didn't go far enough, when in truth, they expended record sums on both monetary and fiscal stimulus (Japan has spent more on concrete, asphalt, bridges and public works projects than any other nation in the world - including China - over the last 25 years).
Even more eerily, Japan has had incredibly low interest rates, and extremely low yields on its government bond offerings, for this period.
Further, Japan's total debt and debt as a percentage of GDP has exploded (the U.S. and major European nations are on a similar trajectory as Japan was 15 years ago, at this point), and Japan now has one of the largest debts as a % of GDP in the world.
Krugman and other Keynesians love to claim Japan is the classic example of a "liquidity trap," when in fact, Japan is a critical exhibit in the evidence that Keynesian economic theory is hogwash. If Krugman et al. were correct, Japan would have been on the path to healthy GDP growth, government revenue increases, and reduction in government deficit spending a long, long time ago.
Nikkei = Just under 40,000 in 1989
Nikkei = 8,500 as of today
That's a nominal loss of around 78%, and an inflation adjusted loss of 93%+, over the last 22 years, on a major equity index.
BTFD.
Krugman is an idiot. That is his answer to all of those type scenario's (Japan, Greece, Italy, Spain, Portugal) that fail the stimulus is / was to small. He can never lose with that logic.
There is no Africa site for eBay, so register at eBay.com and choose which African country you are in. You will be required to provide contact details and also verify your email address. Once you have established an eBay account you will need to upgrade it so you are approved as a seller. Thanks a lot.
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personal statement writers
Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Thanks a lot.
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resume help
This whole analysis is based on the assumption of speculative pricing having an infinite variance (and non-stable statistics, etc.). What if bond prices and associated interest rates were not purely speculative?
what the japanese never tried, unlike the nordic countries in their banking crisis in the latter '90's but like the u.s. and europe currently, is a profound restructuring of the financial sector with debt writedowns and bondholder haircuts. with these changes can come counterparty transparency and the willingness to extend new credit to those actually able to pay it back.
this is not rocket science but it requires politicians and regulators to tread on feet that refuse such treatment and have the political juice to back it up, so far.
Yup. No balls in CONgress. Status Quo Uber Alles.
Place salted cabbage in the crock. Pound down thoroughly. You can use your fist, a potato masher, or the end of a baseball bat. Be sure whatever you use is clean. Brine should begin to form as you pound down the shredded cabbage. Thanks a lot.
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used cars Toronto
If only we could get someone on the six o clock news to make the case you just made. I could be done in five minutes. No one would dare engage in that much truth-telling. No politician, no talking head, no one.
before dipshiticus 1.45, i mean IQ 145 tries to pontificate on this idea i would just like to step in and say;
one graph is going down dippy; (ie. gravitational/real/quantifiable) the other graph is diverging in an upward direction (hopium/unicorn dust) beware the gap dippy,in between the two lines, this is the killing field where ponzi's go to die (or buyers of the bounce). it's pretty simple dippy, you'll get the hang of it soon. sorry what was that, BAC 6.06 at the close. no skittles for you my friend.
beware the gap dippy,in between the two lines, this is the killing field where ponzi's go to die
That was some poetic shit right there, my friend.
This was a really good post and a good reply by spiral eyes.
But his analysis ignores the fact that the Fed switched from targeting monetary aggregates and their growth rates in the Volcker era to focusing on discount/Fed funds rate targets after inflation had been broken by Volcker (whose term ended in 1987).
So it's not really overly instructive to compare one policy regime with another, since they used different policy tools and objective functions.
Since discount rates are changed in step-function fashion after Fed meetings, it might create more kurtosis than a regime targeting M1/M2 growth.
But it's also possible that more chaos gets created by Fed meddling, as the OP, spiral eyes and others have suggested.
It's highly likely that the interventions, in the long run, will create a great deal more chaos, and that's what's truly important here. Central planners can continue to believe that their actions have no negative consequences but the system itself is telling us otherwise. Perpetual control / manipulation is a myth, eventually the market will fall apart.
On the outside it doesn't 'appear' to be a problem but beneath the crunchy outer shell it's all just rotten. When the shell finally buckles under the weight of all the papering over and manipulation it's all over. And when that happens it will happen very quickly.
Spiral Eyes you are exactly correct, Taleb nailed this issue in his paper:
Opacity: What We Do Not See
A Philosophical Notebook, by Nassim Nicholas Taleb
A central bank has several tools at its disposal. It can buy or sell federal agency securities, changing the amount of money available to businesses and people. Another tool is adjusting interest rates on loaned money; increasing them under contraction policy makes borrowing more difficult, and lowering rates is an expansionary tool encouraging businesses to obtain new capital. Thanks for sharing.
Regards,
thesis writing service
Ask yourself, what is the greatest threat to the central planners? The answer is easy: any competing form of currency which could disable their control mechanisms. This was the most important topic of conversation during the FOMC over Tuesday and Wednesday. Today was an artificial prop of the dollar and a formalized attack on PMs and engaged enemies in the currency war. Period. The market drop was an understandable and accepted form of collateral damage. But, ask yourself another question: Who suffered the most, percentage wise, today? S&P? Dow? No, it was PM's and those that support them. (Miners) If you noticed the last-minute Dow prop twenty minutes before close, you will understand what happened today. Gold had to close the lowest. It's a clear message, but one that reeks of desperation.
Now that everyone is stocked and loaded in 'King' dollar, ask yourself a few more questions: When will the herd fully understand the debt dilemma? How long can the debt problem be glossed over before the trader-sheep realize USTs are essentially junk? Where will all that liquid go when 50% of traders decide to pull the trigger?
These are all just questions for you to ponder and come to your own conclusion.
Now that everyone is stocked and loaded in 'King' dollar, ask yourself a few more questions: When will the herd fully understand the debt dilemma? How long can the debt problem be glossed over before the trader-sheep realize USTs are essentially junk? Where will all that liquid go when 50% of traders decide to pull the trigger?
Exactly, once the dust settles with liquidation selling and manipulation drops, and all one is holding is USD's or 2.9% 30 year treasuries, and one realizes that the Government is spending and will continue to spend over $1 trillion + it doesn't have and funding unfunded defict spending becomes evermore problematic, the tide will shift again. Until then, expect choppy fucking waters because the the S + P 500 needs to drop another 50% in my models to shore up enough cash to fund treasury auctions over the next few years.
Don't forget, we are headed to a Dow/Gold ratio of 1:1. So either the Dow will drop down to 500 with Gold at 500 or the Dow will go to 30,000 with Gold at 30,000. So, the only trade, if you want to play it safe is short equity/long gold. Of course, there will be a few bullshit days like this: such is life in volitility.
Clearly the PM's are manipulated. BIGTIME. You've got basically the only competing element that can bring down or expose the fiat fraud bankster game and it is PM's. The US military machine can invade and destroy anyone inside of a week or so, but PM's need constant revisiting and attention - proof that people are more willing to engage PM's and buy them than anything drummed up by Benocide, Timmay, and Obummer.
Read Dave in Denver today, he spells out the manipulation pretty good. I've been watching the LBMA open long enough to see that Comex and LBMA are working together for 2 main reasons: 1) they don't have the physical metal to fulfill all the paper issued, and 2) buying PM's is a vote against fiat, which ends the bankster MO. A vote against fiat is a vote to dispell large banks, credit, term loans, obligatory payment schedules, and interest. They'd lose control, lose power, lose gaming strategy and lose financially. Normal market price discovery of PM's also exposes inflation for what it is - a VERY real problem today.
You gotta know that the final innings will be met with serious efforts to combat the rise in PM's by the banksters. For this reason I'm not too concerned about further manipulation and take downs. It's par for the course and if we want default, shit like today has to go down first. The more it happens, the closer to reset we are.
My take also on this timing of the selloff today is because of what is to come: > default in the EU > bank stocks tumble huge > credit and liquidity crisis > Benocide press release "needing Treasury assistance to help ease the run" > (QE3).
I am buying phyzz as this goes on - don't care anymore. I'm at war personally with the shitty institution of mana, banks, and credit, manipulated and massaged to the point of satanic ritual by a bunch of inbred banksters that can't create wealth of their own unless they rig the game and front run a trade. They need to die. I certainly won't go away nor change my transfer of shitty paper into phyzz, so bring it. It's personal now.
A school interventionist, also commonly referred to as a guidance counselor, is a faculty member at an elementary school, middle school or high school whose job it is to give the students advice whether it is about academics, family, friends or other issues. A school interventionist is there to support students, parents and faculty members and often can serve as a liaison between different parties. Thanks a lot.
Regards,
personal statement writers
What s+p models are you using
Please elaborate on your model comment: "S + P 500 needs to drop another 50% in my models to shore up enough cash to fund treasury auctions over the next few years."
I do realize this may have happened in Japan long stagflation, but still the stock market is just a trading/pricing machine, not an absolute cash-for-equity exchange.
I have written for the better part of the month why gold would sell off hard. The one thing I haven't really talked about is that "operation twist" is dollar positive.
Here's one post I did on September 15th, which has to do with the largest holders of GLD....tada the banks, banks that need money. I actually heard someone on CNBC finally figure this out today.
http://tradeonfire.blogspot.com/2011/09/profile-on-gld.html
Bob your getting smarter every day.
You have me looking at things differently now. Thanks (I think).
I alway thought of the metals exchanges as the primary price driver (with bias somehow from TPTB).
Might I ask how you would weight the GLD ETF versus the Exchanges as an influence?
It seems as if there's a chicken and egg thing going on, or are they just mirrors of each other because the big players don't make a move in one space without moving in the other?
Ah the Velour Fog, have to agree. All I have to ask is who will cover all these deficits, that seemingly stretch infinitely into the future. Just the Federal deficit of the US is mighty, what 3% of global GDP? Meaning 3% of all production in the world must be saved and tossed into the maw every year just for the Federal Gov of the US, not to mention Europe or the state govs or private debt. The cash has to come from somewhere, and if the savings rate in eh world won't match it the CBs will print it. That's all I'm betting on is the CBs and governments will always do what they have always done. Like betting on a sunrise, pretty sure it's coming no matte how dark the night may get.
Like some self-fulfilling mathematical certainty, all of the money has to be positioned where it can be most effectively destroyed. That place is U.S. Treasuries. Such is the nature of the "vengeance of the market forces." Once all of the money is there, the debt bomb goes off and the bodies start hitting the pavement, a giant financial mass-casualty drill. Triage will be easy: they're all dead, a massive fucking black tag sale.
Mr. Market will have his day.
"How long can the debt problem be glossed over before the trader-sheep realize USTs are essentially junk?"
I'm coming to believe the traders won't realise this 'til the shit hits the fan and they're holding toilet paper.
The UST has two significant holes in its armour: dollar debasement, and the US gov'ts finances. Anyone who thinks treasuries are a safe haven right now, whether that's because it's the financial orthodoxy, or cause they're doing shitty analysis is dumb as a sack of rocks.
The bottom could fall out of America very quickly. It might take an oil shock and a joint announcement by OPEC, China, etc that they are going to divest from treasuries for rates on everything from t-bills to 30yrs might go from all-time lows to significantly higher overnight.
China, etc that they are going to divest from treasuries
If China was smart they'd start selling the 2 trillion is surplus (according to their own central bank they need a mere 1 trillion amongst the 3 trillion they hold) before the Federal Reserve loses control of their balance sheet. China will need it, they're gonna have to bail out their entire off balance sheet sovereign debt soon enough--just ask Jim Chanos whom has nailed the story.
The problem for China is where to go? They can't just dump the dollar and buy gold on that level. I doubt they could do it without causing that panic if done in large blocks. Can you imagine the panic if China did a full dump overnight? They basically have to nibble around the edges and try to get set up for what is coming, also having large dollar reserves does give the mass man of china someone to hate, the US who devalued their savings.
They hate Britain more for the opium wars.
Classical Mercantilism.
Wait. It will be wall to wall on their news that the USA cheated them and backed out of their lawful obligations. That all teh problems facing China are really because of the treacherous nature of the West and the USA in particular. Will play well into their nationalism, and since the US will be undergoing an implosion at the time lead to interesting geopolitical area.
Fully agree.
Our only "obligation" to China is to eventually exchange bonds for reserves. We owe them an accounting entry.
I'm pretty sure they've been doubling down on paper (using USD cash reserves) shorts on the COMEX/LBMA and buying physical at the same exact time... albeit a lot of buying happens through tons of different entities. The Chinese government has been openly acquiring gold in ever increasing quantities... Numbers like 1,200%. Wouldn't want to raise any red flags would we?
Just watch. They're backing the PAGE too. All of a sudden, no more physical left... how we gon' keep da' resahve currenceh!? o noz. print!....
It might (this isn't my exact theory, this is "/sarc", gay junkers) be something like this:
WWIII
The problem for China is where to go?
Well, if they were smart they would use the money to buy capital equipment to build factories within China. This would create jobs in China and in the US. The thing that just blows my mind is that China still has plenty of poor people, which means lots of splendid investment opportunities. And the best thing that their dimwit leaders can find to do with their money is to "invest" in US government debt, which means funding US wars, bridges to nowhere, space stations, and tons of other crap which doesn't benefit anyone in the end. While they have so many fantastic investment opportunities in their own country which would create high paying jobs for Chinese that they totally ignore.
If they were smarter, they'd start buying huge interests in companies in America and Europe from which to pilfer secret sauce (at least any they don't already enjoy in China).
What good is capital equipment and factories in China if there's no one to sell to because you stopped buying their shitty bonds?
As far as I can see they have already started this process, with great stealth. They hold significant cash reserves, and are accruing a lot of gold.
Chanos is right about the fact that there is a housing bubble, but I tend to agree with Jim Rogers, who is overall very bullish on the underlying state of China as the productive heartland of the world, and has actually lived in Asia, unlike Chanos.
Bottom line: China controls a significant chunk of farmland, productive apparatus, supply chains, huge FX reserves, and a massive labour market that hasn't been depleted by Glee and American Idol.
Their entire plan was to outlive the US Treasury bonds they hold.
I'll also note that the Chinese are well represented at USA's important technology universities. Most of the couples I see are white man - Chinese woman. I've no problem with the racial issue. Probably a good thing on many levels. But USA technology class is getting becoming much more asian.
Long asian agricutural real estate, bitchez.
http://www.youtube.com/watch?v=AguQZ21qmuM
The flaw in your premises is, that you're assuming that the average trader (or bot) spends any time on midterm thinking, let alone longterm thinking. Of course, this counterargument doesn't contradict the "they're doing shitty analysis is dumb as a sack of rocks"..... on the other hand, considering how there is no longterm consistency anymore at all, that may even make sense.... as long as one assumes that the dealers in the casino play fair.
Bottom line: Speculation is for lusers. You may on average make more gains in a real casino, because contrary to the market, those ARE strongly regulated to minimize cheating.
Exactly right. It's a pity the up-click isn't working on your post.
You just do not understanfd the dynamics of the treasury market.There is only one catagory of buyer of long term treasuries .Primary dealers and other speculators who are going to flip their holdings to the FED..So indirectly the FED is the only buyer.Now what happens to the fed if the speculators succedd in driving the yield much lower towards 2%.The Fed will then be stuck buying 100 billion dollars of very long term paper at unbelievably high prices .That would also mean that the Fed would also be buying billions of MBS at vary low interest rates.These MBS would have a much lower chance of being refinanced then average due to the very low rates and consequently would have a much longer maturity tahn the average MBS.Now these might be ok onvestments if we remain in a 30 year depression.But if the Fed is successful ther FEd is going to be sitting on a huge losses and will completely handicapped in the future.this move by the FED is among the stupidiest in financail history because it has an extremely high chnace of bakfirng big time
I don't think so.
dow -3.51%
s&p -3.19%
gold -2.54%
Not to mention gold put in the lows somewhere around 10-10:30 this morning.
Right
Right
Dead Wrong
Check your closing figures again.
As a long/short market participant, based on the east coast, I go by NY spot. I don't care what anything does while I'm asleep. I only go by the open to close (London am fix before market open and pm fix is middle of the day). But, if you'd prefer not to take my word for it, check Kitco (the gold buggers around here are crazy for it). NY Spot.
http://www.kitco.com/market/
9/22/2011 change -44.3 -2.49%.
I stand by my figures. And the low of the day was between 10:00 - 10:30 a.m., NOT 3:30 - 4:00 p.m.
No, you hopped on Kitco for an inaccurate quote, like most do. Don't you know Nadler works for them? For shame.
I'll make it easy for an NY'er, grab a calculator and do the following:
9/21/11 NY Close: 1805.50
9/22/11 NY Close: 1736.20
If you need more help, let me know....
...Also, please take the proper time to read what I wrote and indicate to me where I suggested that the low spot price of gold occured in the afternoon. Thanks!
GLD = -2.62% today. During stock market hours gold outperformed the stock indices. Same as in the 2008 crash.
Here's CME spot.
http://stockcharts.com/h-sc/ui
open 1782.3 close 1739 change -43.6 -2.45%
Done with this...pull any Kitco-Canadian chart out of your ass, the underlying FACT is that at 1600hrs EST, Gold closed the lowest, percentage-wise, of any other asset class and that is what was plastered across all CNBS and MSM outlets. Seriously, done.
I won't argue your facts and time. However, I would point out that gold is "closed" at 5:15-6:00 pm EDT Mon-Fri and 6 pm Fri until 6 pm Sun.
Otherwise, gold (indeed most commods) trade round the clock.
Would you argree?
Continuous commodity futures, gold is that trade also.
Agree. Just getting tired of the scared noobs(and trolls) these days. Comments are still valuable, becoming less so as ZH is "invaded."
John, let me ask you a question: Am I an invader? ('Cause that would be funny, do you remember the .blogspot days?)
Try this: http://equityprivate.typepad.com/
Hmmmmm......
Absolutely yes, continuous trading Sunday night through Friday night, I know it very, very well. But, my OP was geared toward US mentality, action, and most importantly: display. The 'reveal' that was perpetuated throughout MSM and MSI (Main Stream Internet: i.e. MarketWatch, Bloomberg, etc....) at the NY close this afternoon was that Gold (representing PMs as the frontrunner of an asset class) closed at the highest percentage of all the 'fails', thus reinforcing my OP's inherent questions.
I can't say if you are an invader. The newly registered "members" have markedly increased in numbers of late. (no, I don't think you are an invader, you have presented correct facts.) I am not bainting you ain any way. I am no troll.
Again, as I wrote, I cannot question correct facts. I pay little attention to the MSM whatever. I look at the numbers, and those are fact.
Oh look. gold! 1750!
(well, I will unmute CNBS when Kayla come on, it's just my thing. And she is mine dammit.)
:)
Chill bro.
You've got to look at the same time period.
As I wrote, I am not arguing fact and time. What I wrote stands: commodities are traded around the world, all week long, they give us a break on the weekends so we can recover :)
Interesting theory Zap. Knowing that PAGE, the new Pan Asian Gold Exchange is supposed to go online in October and knowing that there is a exponentially increasing awareness that either US sovereign debt default as a result of a depressionary deflation scenario or a long term continual debt monetization process by the central banks will both result in the accelerated devaluation of fiat currencies it might make sense to put on a full court press to take precious metals down. I tend to believe that long term the dollar and debt are toast and of course in the binary world of default or devalue that appears to be the box the central planners are locked into that they will choose devaluation and they know what is coming and they are simply playing a defensive action in the PM's to delay the day of reckoning.
Few are talking about the impact on the US sovereign debt levels under a depressionary scenario. It seems clear to me that deficit and debt bloon as GDP and thus tax revenues plummet as a result of large scale deflation and associated depression. That puts the US sovereign debt into a default very quickly as does a substantial rise in the interest paid on the US sovereign debt service.
Nothing has changed in the macro picture and the story behind gold and silver's rise. The MOPE and spin keep changing but the truth remains the same.
All the talk about gold not being a safe haven in the mainstream are consistent with your theory. Unfortunately for the central planners, their attempted attack on the PM's will not come close to solving their primary problem which is that all fiat systems have failed over time and gold and silver have always been the true forms of money that presere wealth. That is supported by the fact that the Chinese and other natiions much older than the United States know this, are patient and are rotating out on every Western Manipulated take down. Reading through a lot of GATA material enables one to understand that there are funds that work along with the bullion banks in the gold suppression scheme to short the miners, and especially the Juniors to help support the capping and suppressive actions.
Once the Pan Asian Gold Exchange comes on line next month, COMEX and the London based LMBA and now LME will have increasingly less leverage to manipulate prices through futures margin calls and other tricks.
I've held gold and silver since long before the 2008 meltdown and I didn't sell then and I'm not selling now. If you haven't spent any time on the GATA site, I would recommend it to give a broader context. I'm not a gata member but I find their reasoning compelling as I do your theory.
None the less, for me, today was more about the broader market sell off, which settled in dollars and pushed the dollar higher and in general caused a broad based algorithmic sell off in commodities. Commodities can drop a lot but in the end gold and silver are actually real money, unencumbered by insolvent counterparties and un-repayable debt.
Step back and look at the long term charts and even the very long term charts and factor in inflation based on Shadow stats not the department of BS and take comfort in knowing your macro understanding is correct and two of the most beautiful chart patterns you've ever seen.
Duffminster
Yes Duff, short term, it looks deflationary (doesn't that make Mish smile), but printing is the only way out, unless, of course, we're truly on the precipice of the end game, which I personally do not believe. There are so many more cans to 'kick down the road'. Why not continue to pull the levers that enable the ongoing looting? Inflate, deflate, inflate, dip, rise, keep the profits moving, (for those in the know) rinse, repeat, rinse, repeat...then be on Saint Barts (I'm taking Kayla with me JohnG) in a heavily defended compound when the cards come tumbling down.
I already told ya m'fer, she's mine. Don't you be goin' there. Talk to the hand. :)
John, I'll Roshambo you for her. :)
Also Duff, I believe that PAGE won't have any effect on the current manipulation program, but Tmosley would know better than me, so I will defer to him. (if he's around)
It will because as he and I have pointed out many times previously... the contracts are 100% allocated physical.
I repeat ... 100% allocated physical.
Yup, no fraud or graft in China, none whatsoever.
And Andrew Maguire has really been spot-on thus far, right?
OK then:
http://www.dgcmagazine.com/blog/index.php/2010/05/24/metals-trader-andre...
I just hope that it's not too hard for us english speakers to trade on.....
Wondering (and thinking about) taking a class on Mandarin. At least reading ability.
If I have to buy dirt in China, OK, but make senese of this:
http://www.panasiagoldexchange.com/
Not me, for now. Make some Asian friends? (that I trust?)
I have read that plans are to open PAGE internationally by Jan. Still loooking at it.
One thing I do know, is that it WILL break the LBMA/Comex monopoly. And I'm all for that.
LOL!
I smite thee on bothe cheekes with myne lintprrof nylon darkroom gloves.
I insult thee in the highest, most egregious manner.
Thou art the filth of this earthly world.
I challenge thee to a duel.
I shall slice and dice thee with an (uncooked mind you) sharpened linguine noodle.
I have a file to sharpen it with..
I choose as my second my ferocious doberman sized (at least he thinks he is) dachsund Master Spunky.
He chooses as his second Sasha, who will definitly rip thine throat out for pleasure.
You test me sir/madam (whatever)..... retreat!! I tell you retreat!
She IS mine. You have no choice. Escape with thine life whilst thee can.
Thou art forewarned.
(JFC it's been a long day!)
Sure has been a long day John. Time to recharge for another vomit-inducing rollercoaster ride tomorrow. 'Night.
And Kayla says: "FTW!!" as we jet off to Fiji!!!
See ya round!
what question? even a "pm-er" would admit sound money creates the proper environmnent for private sector lending and equity growth. the fact that this author appears offended by the fact that interest rates are at or near zero and yet this still can create a condition whereby sound money is being created is of no consequence. "It's just an interest rate" and maybe it just happens to be...well...really phucking low that's all. The oddity that Zero Hedge is not applauding this market correction speaks volumes. The Fed took away the punch bowl...annddd??????....ahhhh, i see "still not good enough." What's that? Unless the market is at a nominal zero "there's always some conflabjuratativeness" going on? Okay. I got it. Anywho... how 'bout those Yankees!!!
http://www.youtube.com/watch?feature=player_detailpage&v=1BZc-zBgM3E
WHAT! YOU GOTTA PROBLEM WITH A GUY IN A DRESS WHO FLIES PHUCKER?
Central planning is poor planning.
outstanding post
I second these sentiments. This post was one of my top 10 favorites that ZeroHedge has run on its main page. I'm an old econometrician, and these observations carry significant meaning (and implications) to me. BRAVO!!!!!
Did anybody hear Cramer crying that he had to show ID to walk down Wall Street.
He said he did not ever have to do that after 9.11
Must be getting bad in the city.
he flashed his wallet on air once that i saw. let's see him do that on the street.
http://www.deepcapture.com/jim-cramer-is-a-complicated-man/
cramer, redux. i heard david faber talking on cnbc monday i think and he asked cramer does he remember when he used to call him when cramer had his hedge fund? i find that interesting. why would someone at cnbc want to talk to a hedgie? cramer is a crook and he should be in jail...
Yep.
Holy CIT! They be checking for financial terrorists now?
Ooops, there's the Bernank again.
Who says it it unwelcome?
Bring it On!
Need vol......can't trade flat-line....
Excellent stuff ZH! Benoit Mandelbrot via the quoted blog...I have read early Mandelbrot theory's on markets, so good, and a timely critique (1960's) on whole failed determinism aspect in most sciences. Economics has yet to realize (particularly Keynesian) that markets should not be meddled with, prices cannot be determined and intervention distorts market values (prices/rates etc).
Very good post.
so basically what you are saying is that we need to get rid of the FED? correct?
yeah. The FED will go oneday...who knows when?
well the Fed's been around a while...tis true. And they did nothing in 1929 per the zero hedge mandate. Obviously i'm a HUGE fan of doing nothing...pretty much ever actually (while giving the appearance of doing something of course!) Of course there are times when...well, even the little people have to do something. It's very frustrating actually. Do we tell them? You know..."do something little people!" or do we posit instead? in other words...something more along the lines of a rhetorical question: "do something little people!"???? perhaps we claim "something should be done here!" and then...it will be done! then again...
http://www.youtube.com/watch?v=iYCjqmbsmYA&feature=player_detailpage
Whut? .... :)
I've been repeating "buy gold, buy gold: for years and have been ridiculed to the point of just remaining silent. Even my own brother called me today and asked my how my gold was doing.
He (and most others) just won;t get it until thier hungry and there is open warfare in the streets.
Makes me sad.
(and no, it's not possible to wake sheep.)
END THE FED!!!!
"...how does one measure an infinite statistical moment from a finite data sample, since that finite sample will always give a finite answer?"
Easy. You make the shit up!
Global Warming Hockey Stick
there is nothing complex about what is happening. a blind man can see it.
fooking Jews. why should not call them what they are, wall street whores !
I believe Mandelbot is dead. Can you redirect your anger to living 'Palestinians'?
Whatever a 'Palestinian' is. Some dude that can fire Iranian rockets, perhaps?
Noodle.
what was it schlomo sand said? ah, that palestinians are about a thousand times more probable of being jewish than he ever thought about being? now if they can just get statehood and be left alone by the terrorist state of israhole, which is highly unlikely at this point.
How about that GOLD, Bitch!
wait... so if bernanke says he is gonna keep interest rates low... and he is going to sell short term treasuries (which would tend to increase interest rates on that maturity), he is gonna have to print the money to buy the same treasuries he is selling (eating his own vomit) to keep the yields down, right?
isnt this just another act in a shell game?
an indirect way of saying "i'm gonna monetize more short term us debt"?
it will have that effect but it won't work quite as you have suggested. Longer term maturities pay higher interest. By shifting to the long end QE2.5 (aka reinvesting interest payments) gets a maximum wallop. During this time the bernank will also be suckling the big banks in myriad ways.
ok, so you are saying money bernank gets to reinvest from qe2.5 proceeds (since 30yr bonds affect morgage market) > money bernank expects to spend on shorter term bonds to keep rates down per operation twist.
thanks.
Shalom.
the primary dealers will buy the short term treasurys and sell their now overpriced long term treasurys for easy stealth bailout money. then they'll dump them back to the fed via repo's. this is just another way to (re)capitalize banks in a non-explicit manner. otherwise there's really no point. there's talk of setting up for mortgage re-fi programs, but that could have been done with rates at pre-twist levels.
No
The proceeds of the open market sales are applied to the open market purchases and thereby the effect is net dollar neutral.
To paraphrase the Great Einstein: Money is neither created nor destroyed, merely reallocated from one maturity instrument to another.
PS That's why the stock markets tanked... they wanted additional net stimulus. The Bernak screwed his own expectations pooch, so to speak.
yeah it's all even alright.
http://www.youtube.com/watch?v=MczAqe_s8AQ&feature=player_detailpage
So we now have to resort to Mandelbrot sets to analyze the markets? Come on. The more complex the system, the more prone it is to manipulation. Trade should be a simple set of basic equations based on supply and demand. Anything more complicated is simply someone trying to manipulate the market in their favor.
Another aspect of the markets today (and I think this will eventually be a positive result of what we're experiencing right now) is that current economic models will evolve into models of human thought/emotion. The mathematical modeling that economists and investors are developing are nothing more than a mathematical modeling of human emotion. Hopefully a scientist somewhere is picking up on this and evaluating the merits of these various mathematical analyses of the markets.
Navy, Austrians are dong that today.
You know, Human Action and all that jazz.
Ever since the arrival of Alan Greenspan's post '87 crash crisis management regime, this plot shows a systematic and steady march upwards in the kurtosis of changes in US interest rates. I find this chilling. This means that, if the truth is as the evidence suggests, that it is not possible to accurately determine the risk of a portfolio of bonds because it is not possible to make reliable measurements of the variance of interest rates.
The increase in kurtosis coupled with the decrease in standard deviation is a reflection of the over management of the Treasury market. This is most clearly seen in the spike on the chart during the early part of Volcker's tenure. Since Greenspan, the Treasury market has been constantly managed, along with expectations, resulting in the smooth upward trajectory in kurtosis. This decreases the overall daily standard deviation as the Treasury market is more tied to what one man says and does rather than the economic conditions themselves. This Wednesday is just an extreme example, with more to come.
What caused the spike in kurtosis in 1973-74?
There were major legislative changes impacting banks and S&Ls. Same in 81 (the second spike). That's my guess, though it can't be proven.
That was the result of a significant change in the implementation of monetary policy referred to as the Saturday Night Massacre. Paul Volcker, recognizing that inflation and expectations therefore were running amok, out of control as a result of egregiously expansive monetary policy, abandoned the targeting of the Federal Funds Rate as the indica of the monetary policy transmission mechanism.
In order to more directly curtail monetary growth, the targeted item(s) were a direct target level (stock and flow) of M1 M2 and Monetary Base growth rates and levels.
Doing so thereby allowed open-market forces to completely set the level of Federal Funds allowing changes in Velocity to be the transition mechanism. Thus, interest rates embarked upon a period of volatility never before experienced in modern recorded history.
And not only did it create additional volatility but in respect of the volatility component, the entire term structure of rates shifted upwards (higher income level) to compensate for the increased risk (price volatility)
T'were Glorious Trading Days.
T'was Real Man Trading
Thank you for answering my question!
You're welcome.
And Paul didn't come in until '79. Either way, impossible to disentangle effects in time series statistically.
The phrase "Saturday Night Massacre" usually refers to Nixon's firing on 10-20-1973 of Archibald Cox and the subsequent resignations of Elliot Richardson and William Ruckelhaus.
That caught my eye too.
"The 1973–1974 bear market was a bear market that lasted between January 1973 and December 1974. Affecting all the major stock markets in the world, particularly the United Kingdom,[1] it was one of the worst stock market downturns in modern history.[2] The crash came after the collapse of the Bretton Woods system over the previous two years, with the associated 'Nixon Shock' and United States dollar devaluation under the Smithsonian Agreement. It was compounded by the outbreak of the 1973 oil crisis in October of that year. It was a major event in the 1970s recession."
http://en.wikipedia.org/wiki/1973%E2%80%931974_stock_market_crash
It would be interesting to see what Fed Reserve policy changed/response was, did they start printing more money to fix it?
3rd president of US (1743 - 1826)
That's because bond prices are measured in dollars which are zero maturity Fed bonds which are supposedly given their value by the bonds the Fed holds as 'assets'.
What does kurtosis mean?
http://www.investopedia.com/terms/k/kurtosis.asp#axzz1YjbZ9TRs
Treasuiry curve has less meaning now since the market does not create the shape, the Fed's manipulation does forcing it in the direction it seeks.
No longer does a "flat curve"...or "inverted curve"...or whatever mean anything in particular other then what the Fed forces it to look like.
I wish ZH would do a story on the T-curves and what they might mean today (or not mean).
I disagree, the treasury curve is very meaningful. It is signaling vast profit at the long end, though I agree the Fed is 'forcing it' but so what? As I said above, UST bond prices are measured in US dollars, the obligation of the Fed, of course the UST curve's direction is influenced by the Fed.
Expect even more profit to be given at the long end, profit at the short end has all been given.
Incidently, the fall in the gold price in '08 was at the same time the Fed was agressively bidding up (giving profit at) the short end. Coincidence?
I'm not as smart as the rest of you rocket scientists, but I do know that by creating easy money, Greedscam and Bernanke shortcircuited the normal mechanism that would have curtailed deficit spending by the fed.gov - rising interest rates on Treasuries, and the attendant financing costs. Instead these fools enabled the insane deficit spending, and here we are - on the edge of collapse.
really? where's the easy money then?
http://www.youtube.com/watch?v=TCyQOJxWOkA&feature=player_detailpage
After a new bill is proposed, the party bag will land on the laps of planners. Gold will rocket. US is banking on global currency control.
Agree. Interventionst monetary policy fuck with Mother Nature, AKA reality and true price discovery.
Thus the instability we see these days.
Keynsian economics gone bad.
Fuck the Bernank,
Greenspan as well, flip flopping Randian bitch that he most definitly is.
I am not sure if we will have a market crash tomorrow or not but one thing is certain, we are going to have a crash on Friday.....from outer space! Fragments of a dead NASA satellite (the size of a school bus) are going to rain down on the earth. The combined impact mass is expected to be about 530 kilograms, and impact will be along a 500 mile stretch anywhere between 57 deg N and 57 deg S latitudes.
The scary thing is that NASA is not sure where the fragments will fall. Oops....
Who benifited from this Green - Bernack whale of a tale?
BANKS
Yup -they needed the money so they could bring down debt in the system and lend to SME's - totally justified! But what did they do - bet again, with leverage and take bonuses on un-earned profits (again)! Shoot the Tossers!
The US $ as the ultimate and only safe haven? The ultimate fake out. By April 2012, market will break above 1250 and be at near all time highs by O's election. Choppy for 6 months, then QE3,4,5 etc. Just in time for the O election in Nov. Name one reason the world's central bankers will not stimulate next year??
The US $ as the ultimate and only safe haven? The ultimate fake out. By April 2012, market will break above 1250 and be at near all time highs by O's election. Choppy for 6 months, then QE3,4,5 etc. Just in time for the O election in Nov. Name one reason the world's central bankers will not stimulate next year??
Plenty of continued USD strength ahead. The AUDUSD pullback offers an opportunity to join the downward trend. AUDUSD Market Report http://bit.ly/rr0vEZ
to put it short - we are in an unstable equilibrium (low inflation) which is being kept by ever increasing two opposit forces (deflationary pressure from debts and inflationary pressure from Fed QEs). At some point one of the forces will break the other and we will have either high deflation or high inflation
some people think the fed is not a US government institution, why it seems more and more are thinking this way..
that is a threat the Fed masters must pour water on
bloomberg had talking heads this evening refer to the the fed as like the supreme court an institution that should never be attacked politically..
LOL the end is near for this monster at the heart of finance and power
Oh, the name was carefully chosen, but we all know that.
It's a dying hydra, and hydra die hard.
Who's going full retard now?
http://www.youtube.com/watch?v=wI4tevra8Lg&feature=player_detailpage
Not sure if this has been brought up yet or not-
Greenspan also allowed Sweeps to become a Banker tool to inflate credit because savings deposits could could not accommodate the demand for credit because of the 12-1 reserve requirements-
Sweeps being the procedure of flushing checking deposits into savings account deposits nightly and then using those savings deposits as lending reserves at of course-the 12-1 reserve requirement-
http://bit.ly/fwSixb
1)There are 96M people over age 50 who are not spending(postponing building that retirement home, etc) because their income if retired or expected income if nearing retirement has been trashed by the Fed. If each of the 96M people age 50+ spent another $3000 that would equate to a 2% increase in employment at $100k per job. But they can't do this with interest rates at 1%.
2) The near retirements are also not retiring due to the future income uncertainty. If 20% of the 60-65 population delays retirement, that amounts 2 percent hit on employment assuming the job would become available to others.
3)The $300 B trade deficit with China amounts to 3M jobs at $100k per job or another 2% hit on the employment rate but you can't do much about this.
Items 1) and 2) can be solved by the stoping the fed from destroying interest rates and could drive the unemployment back to 5%. (9%-2%-2%)
I prefer this simple approach to all the econometric analysis. I know 1) and 2) will work as we and most our friends have stopped spending and delayed retirement due to the fed.
Let me tell you something about that 100 Million or 1/3 of america.
Thats the amount of people LIVING ON Pensions and/or SS and/or annuities and/or 'other entitlement/retirment' sources of funds.
The stock market is DONE. Therefore the Pensions are DONE and so are annutities/401K's/IRAs/etc.
As I have said before, END THE PENSIONS, END THE PROBLEMS, well, its about to be forced upon us all.
The slavery Americans have endured for a very long time is about to come to an end.
Massive deflation and eating of the rich. Hope your hungry.
Math doesn't lie.
The fat part of the 401(k)/Pension/ERISA/Retirement Plan brigade has begun retiring now, and will continue to do so for about 11 years. For each of these people who retire, demographically speaking, there are a) fewer younger individuals to replace them, and b) even fewer younger workers that have similarly structured and as generous 401(k)/Pension/Retirement Plans (in fact, a massive number of these younger workers have no such similar plans offerered by their employers).
Equity markets are about to lose a massive chunk of the churn and burn money that has fueled the growth of financial markets (and which have yielded catastrophic returns, adjusting for inflation, management fees, and especially, survivorship bias).
Everything I know about economics I learned by the time I reached kindergarten. Like the first time I tried to buy a piece of candy at the corner drug store by using Monopoly money I snuck out of my sister’s board game. This article is all about the use of intricate mathematics to perpetuate the self-delusion that fiat money actually has value, and that this illusory value can somehow be managed. Very fascinating if you like jigsaw puzzles to nowhere, which is exactly where we are headed.
Yes, you learned that you MUST USE the 'fiat' US DOLLAR to purchase things at the store. Whether its 1969 , 2011, or 2039. You must use whatever (so called) 'monopoly money' that is 'in fashion' at the time of purchase. All you clowns who think we are going to a pm standard of some sort are f()cking clueless man.
and btw, gold is going in the shitter so have a nice day.
and btw, gold is going in the shitter so have a nice day
*********
Another one who missed/"couldn't see" the run and for sure will be a buyer into the eventual blowoff--
Yeah. I'm going to keep tracking him.
When he's like "I WOULD BUY GOLD NOW! SELL EVERYTHING YOU OWN AND BUY AS MUCH AS YOU CAN! IT'S ONLY 50,000/oz AND THAT'S CHEAP!"
I'll be selling.
lulz.
/sarc
"you MUST USE whatever monopoly money that is in fashion at the time of the purchase.....
What a tool. You better get that chip surgically removed from your brain before its too late. Talk about following the fashionable crowd as they take a slow 40-year walk off a cliff. If we were not forced to use Fed notes, they would have no fucking value. Thats how it works, mutant. We have no control over government because they can spend as much as they want, because we've given them permission to print our trade medium out of thin air.
And if gold goes in the shitter, you better get out of my way, cause I'm diving in after it.
mandlebrot, freaking genius. i love watching his basic story/bio .
he said a number of great things, but one thing he said i really loved.
it was something like, if you want to understand the structure of a complex system, you must not look at the system but look at what it took to create the system-----obviously this bottom up approach, the fractal approach to geometry of complex shapes, which has proben to be the most reliable way to create simple models of the way nature creates many structures---------would be hard to apply to economics,
why? because numbers like GDP, central bank interest rates themselves, inflation calculations, etc....these are all top down numbers and ideas.if you think of variance as resulting from bottom up interactions of many institutions colliding with bottom up manipulations of the many big dogs of the markets, including the biggest dogs called central banks and the national treasuries they use as piggy banks------then you realize bottom up variance is just human gamesmanship. and human gamesmanship----like the weather can be predicted in general ( i.e.----read history and watch civilizations repeat the same mistakes and hit the same catastrophes ) ....but the specifics, the details of when and how and particular 'free' market ends and is nationalized in part or whole....well .....chances of rain are 50%. :)
thanks for that!
I have thought for a long time that the government's (mainly the Fed, but Treasury also) actions on the economy are like the wind on the Tacoma Narrows Bridge.
Rather than taking action to dampen the oscillation (reduce the volatility), every action they take makes the next event bigger still. As their actions get more and more desperate, market volatility increases until the whole thing collapses.
http://www.youtube.com/watch?v=3mclp9QmCGs
Kertosis, heteroscedastisity, convergence, standard deviation, quantification....CDOs, CDSs, ABS....... LTCM, AIG, bankruptcy.