Richard Daughty, aka The Mogambo Guru, comments on the sharp rise in raw materials prices.
Further to my recent post on whether gold is overpriced, it's worth pointing out that gold can remain for long periods above trend. Those who mock new buyers of gold may have overlooked this.
UPDATE
Marc Faber: "If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate." (htp: Michael Panzner)
Saturday, February 07, 2009
Murphy: raise interest rates!
A striking article by Robert Murphy on Mises today, about the earlier Depression of 1920-21, and how raising interest rates was the painful, but quick way out.
"... the high rates of the 1920–1921 depression had certainly been painful, but they had cleaned the rot out of the structure of production very thoroughly....Going into 1923, the capital structure in the United States was a lean, mean, producing machine."
"... the high rates of the 1920–1921 depression had certainly been painful, but they had cleaned the rot out of the structure of production very thoroughly....Going into 1923, the capital structure in the United States was a lean, mean, producing machine."
Friday, February 06, 2009
Personal choices
I have always been a great believer in personal choice, as I defended in the recent discussion on drug use.
Sometimes, however, I feel a surge of the draconian autocrat that comes from the Prussian part of my ancestry.
Such is the case today: Nadya Suleman, the mother of the octuplets born this week, is already the mother of six other children. She is unmarried, unemployed, and on disability for a back injury at work 10 years ago. In spite of all of those problems, and the fragile state of the US economy, she found a doctor willing to implant another 6 embryos in her womb (2 split later).
Sometimes, however, I feel a surge of the draconian autocrat that comes from the Prussian part of my ancestry.
Such is the case today: Nadya Suleman, the mother of the octuplets born this week, is already the mother of six other children. She is unmarried, unemployed, and on disability for a back injury at work 10 years ago. In spite of all of those problems, and the fragile state of the US economy, she found a doctor willing to implant another 6 embryos in her womb (2 split later).
Investment Trust success stories
The Telegraph lists 20 ITs that have increased dividends annually for at least the last 20 years.
One factor helping these companies, says the article, is that they are permitted to keep up to 15% as cash in reserve. How much would you, now, be keeping in reserve?
One factor helping these companies, says the article, is that they are permitted to keep up to 15% as cash in reserve. How much would you, now, be keeping in reserve?
A warning for world-improvers
There are so many proposals to improve the world, and such a short supply of humility and plain, ordinary fear of change. Take spelling, for example, and read this logically-refined paragraph:
Kontinuing cis proses, year after year, we would eventuali hav a reali sensibl writen langug. By 1975, wi ventyur tu sei, cer wud bi no mor uv ces teribli trublsum difikultis, wic no tu leters usd to indikeit ce seim nois, and laikwais no tui noises riten wic ce seim leter. Even Mr. Yaw,wi beliv, wud be hapi in ce nog cat his drims fainali keim tru.
For the whole thing, click here. (There are other versions doing the rounds, since the idea is so good.) (htp: Paddington)
Kontinuing cis proses, year after year, we would eventuali hav a reali sensibl writen langug. By 1975, wi ventyur tu sei, cer wud bi no mor uv ces teribli trublsum difikultis, wic no tu leters usd to indikeit ce seim nois, and laikwais no tui noises riten wic ce seim leter. Even Mr. Yaw,wi beliv, wud be hapi in ce nog cat his drims fainali keim tru.
For the whole thing, click here. (There are other versions doing the rounds, since the idea is so good.) (htp: Paddington)
Agreement is not the same as 50:50 compromise
For a technical discussion of how we should adjust our opinions scientifically in debate with others, see Overcoming Bias. This follows an earlier post on the impossibility of disagreeing unless you (rather unreasonably) assume the other person is somehow misinformed, wrong-headed or stupid.
It does look very valuable, though I'd be grateful for a clearer explanation, notwithstanding the participants evidently think they've already given it.
There's a story about Einstein from his time at Princeton. In the lecture room, he discussed his ideas in free-ranging talks, which were so revolutionary and complex that the students begged him to put some formulae on the board so they could follow him properly. He promised he would, and next time gave another dense, extempore peroration, at the end of which he said, "It's as easy as two and two make four". He then walked to the board and wrote "2 + 2 = 4". That's mathematicians for you.
It does look very valuable, though I'd be grateful for a clearer explanation, notwithstanding the participants evidently think they've already given it.
There's a story about Einstein from his time at Princeton. In the lecture room, he discussed his ideas in free-ranging talks, which were so revolutionary and complex that the students begged him to put some formulae on the board so they could follow him properly. He promised he would, and next time gave another dense, extempore peroration, at the end of which he said, "It's as easy as two and two make four". He then walked to the board and wrote "2 + 2 = 4". That's mathematicians for you.
Go drugs!
Gary Becker thinks we should legalize and tax drugs. Look at how this approach has decimated alcohol and tobacco usage, for example.
And the joys to be had from drugs! As the Moroccan saying goes,"A pipe of khif before breakfast is worth a hundred camels in the courtyard." Though I think the Devils' Dictionary needs updating: we need slogans like, "A six-pack of wife-beater in the morning is worth a hundred business calls", "Sixty a day is worth death before sixty", "Dropping a tab is worth the risk of grinning at the backs of your hands for the rest of your life."
So what's it to be, Falstaff or the pain-in-the-mule Puritans?
I think it's to do with work. In the old days, the ordinary person couldn't afford (financially or otherwise) to be almost constantly intoxicated; now, most of us are richer than Roman Emperors: central heating, carpets, hot water, ice cream, multimedia entertainment 24/7, no starvation if you don't work. Once, the Tree of Idleness was for the few surviving old men, who were past it; now, while we still have The Energy of Slaves (ie. machines and fossil fuels) to do the hard stuff for us, we don't know what to do with ourselves.
Freedom makes you fall apart.
And the joys to be had from drugs! As the Moroccan saying goes,"A pipe of khif before breakfast is worth a hundred camels in the courtyard." Though I think the Devils' Dictionary needs updating: we need slogans like, "A six-pack of wife-beater in the morning is worth a hundred business calls", "Sixty a day is worth death before sixty", "Dropping a tab is worth the risk of grinning at the backs of your hands for the rest of your life."
So what's it to be, Falstaff or the pain-in-the-mule Puritans?
I think it's to do with work. In the old days, the ordinary person couldn't afford (financially or otherwise) to be almost constantly intoxicated; now, most of us are richer than Roman Emperors: central heating, carpets, hot water, ice cream, multimedia entertainment 24/7, no starvation if you don't work. Once, the Tree of Idleness was for the few surviving old men, who were past it; now, while we still have The Energy of Slaves (ie. machines and fossil fuels) to do the hard stuff for us, we don't know what to do with ourselves.
Freedom makes you fall apart.
What goes up
Todd Harrison of Minyanville is predicting a big stockmarket rally soon (htp: Kirk Report). Others (Elliott Wave followers, for example) have suggested this will happen, but as part of a longer pattern of overall decline. In other words, a "bear market rally".My feeling? This is (a) a market for bold day traders, and (b) an opportunity for some less adventurous types to cash-out at a less dismal price than they've been offered recently. In fact, I think this situational psychology is part of the process that will help limit the rise and confirm the downward trend.
Restoration, not revolt
"What is a cynic? A man who knows the price of everything and the value of nothing," says Lord Darlington in Wilde's Lady Windermere's Fan. That perfectly describes the man who doesn't understand inflation.
Inflation is The Mogambo Guru's bete noire, and he gives us another comedy riff on that today. His principal cure for it is gold, the stock in trade of another ranter, Jim Willie, who sees the price of the yellow metal breaking out in various currencies (it's soared in sterling, for example).
Both men habitually connect gold, the US Constitution and the decayed professional morals of the politico-judicial elite, and try to stimulate the people to restore the old, good order. In short, they are prophets, and there's plenty more out there at this time.
For it is a sign of societal stress that ranters, dreamers and revolutionaries begin to drag out their soap boxes and declaim to passers-by. We had it in the Old Testament, the English Civil War, the American Revolutionary War and most other times that the world was turned upside down.
If buttercups buzzed after the bee
If boats were on land, churches on sea
If ponies rode men and grass ate the cows
And cats should be chased to holes by the mouse
If the mammas sold their babies to the gypsies for half a crown
Summer were spring and the t’other way round
Then all the world would be upside down
There is a difference between civil war, and the revolt of colonies from their distant parent. Having said that, the crisis is now cracking the cement between the States and the Federal Government, as we see in New Hampshire and elsewhere. America, remember history and avoid secessionary talk.
The results of revolution are rarely pretty. Norman Cohn's famous book , about the horrifying aftermath of prophet episodes in the Middle Ages, shows that once the mix is brought to the boil, it becomes very volatile. The outcome is often not what the prophet expected; and always, the people suffer. Rather than overthrow our rulers, it would be far better (if possible) to make them see the danger to us all of continuing their course, and have them turn back.
But can they see it? Do they know the difference between price and value? Will they permit the theft of real wealth by inflation? Or is it, worse still, their intention?
The best we can hope for, is that our leaders are not cynics, and so do not need correction from dangerous idealists.
Inflation is The Mogambo Guru's bete noire, and he gives us another comedy riff on that today. His principal cure for it is gold, the stock in trade of another ranter, Jim Willie, who sees the price of the yellow metal breaking out in various currencies (it's soared in sterling, for example).
Both men habitually connect gold, the US Constitution and the decayed professional morals of the politico-judicial elite, and try to stimulate the people to restore the old, good order. In short, they are prophets, and there's plenty more out there at this time.
For it is a sign of societal stress that ranters, dreamers and revolutionaries begin to drag out their soap boxes and declaim to passers-by. We had it in the Old Testament, the English Civil War, the American Revolutionary War and most other times that the world was turned upside down.
If buttercups buzzed after the bee
If boats were on land, churches on sea
If ponies rode men and grass ate the cows
And cats should be chased to holes by the mouse
If the mammas sold their babies to the gypsies for half a crown
Summer were spring and the t’other way round
Then all the world would be upside down
There is a difference between civil war, and the revolt of colonies from their distant parent. Having said that, the crisis is now cracking the cement between the States and the Federal Government, as we see in New Hampshire and elsewhere. America, remember history and avoid secessionary talk.
The results of revolution are rarely pretty. Norman Cohn's famous book , about the horrifying aftermath of prophet episodes in the Middle Ages, shows that once the mix is brought to the boil, it becomes very volatile. The outcome is often not what the prophet expected; and always, the people suffer. Rather than overthrow our rulers, it would be far better (if possible) to make them see the danger to us all of continuing their course, and have them turn back.
But can they see it? Do they know the difference between price and value? Will they permit the theft of real wealth by inflation? Or is it, worse still, their intention?
The best we can hope for, is that our leaders are not cynics, and so do not need correction from dangerous idealists.
Thursday, February 05, 2009
Stock market could halve again - more evidence
I've been following this alarming idea recently. Now Russell Napier chips in, citing Tobin's Q as a measure to predict a further 55% stockmarket decline within the next five years (htp: Financial Sense).
I had a look at Tobin's Q last April. Are we coming to some gloomy consensus - except for Karl Denninger, who fears it could be worse?
I had a look at Tobin's Q last April. Are we coming to some gloomy consensus - except for Karl Denninger, who fears it could be worse?
Learned fools
Forbes suggests that college education can be financially ruinous. The association of education with wealth only works when both are in limited supply, otherwise the Hedge Schools would have made Irish peasants rich. A silk hat does not make you a Bradford millionaire.
A doctor friend often used to quote some factoid that if the average doctor had left school at 16 and become employed in some capacity suited to his abilities, his hard-studying medical counterpart would never catch up in terms of total lifetime income earned.
I've heard it said that after the Revolution, the French trained thousands more lawyers, in order to devalue the profession.
Man to the plough;
Wife to the cow;
Girl to the yarn;
Boy to the barn;
And your rent will be netted.
Man tally-ho;
Miss piano;
Wife silk and satin;
Boy Greek and Latin;
And you'll all be Gazetted.
A doctor friend often used to quote some factoid that if the average doctor had left school at 16 and become employed in some capacity suited to his abilities, his hard-studying medical counterpart would never catch up in terms of total lifetime income earned.
I've heard it said that after the Revolution, the French trained thousands more lawyers, in order to devalue the profession.
Man to the plough;
Wife to the cow;
Girl to the yarn;
Boy to the barn;
And your rent will be netted.
Man tally-ho;
Miss piano;
Wife silk and satin;
Boy Greek and Latin;
And you'll all be Gazetted.
Global monetary inflation and the threat to peace
Last week, I suggested that we could be entering an era of competitive currency devaluation. Now, Mish sees it happening in Russia, Mexico, Indonesia - and hints of intervention in Japan. The Canadian National Post predicts a drop in the US dollar, too (htp: Jesse).
Can the Euro -already strained by member countries moving in different directions - take this pressure? A friend told me recently of an old restaurant incident involving people he knew, where first one "did a runner", then another, so that the last man left at the table was stuck with the whole bill. This is a game that punishes the virtuous.
Gold is supposed to be a haven in such conditions, but is already above its long-term post-1971 trend, as I show here. So the bold investor might buy in now, knowing it's high but hoping it'll go higher (or fearing that other things will go lower still). Others say silver, or oil, or agricultural land. "The best lack all conviction, while the worst / Are full of passionate intensity."
These are tricky times. As in revolutions generally, it's hard to see which faction will be victorious, but loss, injustice and confusion are certain: "we are here as on a darkling plain / Swept with confused alarms of struggle and flight / Where ignorant armies clash by night."
This may seem over-dramatic; but when money ceases to be dependable and deadly dull, everything else becomes much too exciting. If the middle classes suddenly find their savings wiped out by inflation, their assets generally devalued and their businesses and employment under threat, watch out.
Can the Euro -already strained by member countries moving in different directions - take this pressure? A friend told me recently of an old restaurant incident involving people he knew, where first one "did a runner", then another, so that the last man left at the table was stuck with the whole bill. This is a game that punishes the virtuous.
Gold is supposed to be a haven in such conditions, but is already above its long-term post-1971 trend, as I show here. So the bold investor might buy in now, knowing it's high but hoping it'll go higher (or fearing that other things will go lower still). Others say silver, or oil, or agricultural land. "The best lack all conviction, while the worst / Are full of passionate intensity."
These are tricky times. As in revolutions generally, it's hard to see which faction will be victorious, but loss, injustice and confusion are certain: "we are here as on a darkling plain / Swept with confused alarms of struggle and flight / Where ignorant armies clash by night."
This may seem over-dramatic; but when money ceases to be dependable and deadly dull, everything else becomes much too exciting. If the middle classes suddenly find their savings wiped out by inflation, their assets generally devalued and their businesses and employment under threat, watch out.
Civil liberties in Britain further eroded
Taking a photograph of a public servant, even if it's to record his wrongdoing, is to be illegal. That's if the photograph is 'likely to be useful to a person committing or preparing an act of terrorism'. How could you prove it wasn't?
Nazi comparisons are horrid cliches; yet my mother watched Nazism take hold as she grew up in rural East Prussia. Tyranny advances step by step, and one of its most useful allies is a natural disinclination to believe where it is heading.
Another ally of the tyrant is woolly language used in law - the freedom of the individual is in the precision of the language that grants powers to his incomparably mightier government.
Nazi comparisons are horrid cliches; yet my mother watched Nazism take hold as she grew up in rural East Prussia. Tyranny advances step by step, and one of its most useful allies is a natural disinclination to believe where it is heading.
Another ally of the tyrant is woolly language used in law - the freedom of the individual is in the precision of the language that grants powers to his incomparably mightier government.
Wednesday, February 04, 2009
Tuesday, February 03, 2009
Shoot the B******s
A piece by the columnist and Nobel-prize winning economist Paul Krugman: http://www.nytimes.com/2009/02/02/opinion/02krugman.html?_r=1&em
To me, it gives a strong argument for temporary state ownership.
To me, it gives a strong argument for temporary state ownership.
Shares: why bother?
The Contrarian Investor raises an issue I've been pondering recently: in today's financial climate, are stocks and shares old hat? They're only a market in what companies are willing to let the public invest.
If I were a rich entrepreneur who'd been smart enough to get into cash a year or two ago, I'd be looking to take my company back into private ownership, or buy another for a suitcaseful. Who wants to be told what to do by shareholders with bees in their bonnets, institutional investors looking to maximise profits like, NOW, and other goons? It's like being in a three-legged race with the fat kid.
Venture capital - is that the place to be?
If I were a rich entrepreneur who'd been smart enough to get into cash a year or two ago, I'd be looking to take my company back into private ownership, or buy another for a suitcaseful. Who wants to be told what to do by shareholders with bees in their bonnets, institutional investors looking to maximise profits like, NOW, and other goons? It's like being in a three-legged race with the fat kid.
Venture capital - is that the place to be?
Monday, February 02, 2009
IN- vs. DE- and an upcoming opportunity
Jesse echoes my hunch: deflation now, inflation soon-ish, with high interest rates for a bit. At that latter point, get your annuity and /or bonds, and benefits as rates subside. A guess, but it's comforting to see wise owls coming to the same conclusion.
You now have our investment gameplan for what is likely to be the rest of Jesse's life.
No, no "Jesse"; live long and prosper.
You now have our investment gameplan for what is likely to be the rest of Jesse's life.
No, no "Jesse"; live long and prosper.
Number crunching - fractional reserve banking
Supposedly, banks lend 10 times (or more) what they have on deposit. Yet in June last year, it was estimated that total UK consumer borrowing (mortgages, loans and credit cards) stood at £1.444 trillion, and in October savings and deposits reportedly totalled £1.17 trillion - a ratio of c. 1.2 to 1.
By contrast, total U.S. household debt at the beginning of last year was estimated at $14.4 trillion, and in October the Mises Institute reckoned the True Money Supply to be $5.5 trillion, a ratio of around 2.6 to 1.
On the face of it, the American consumer is in twice as dire a state as his British counterpart.
I expect that's an oversimplification - but simplicity is in very short supply. I'd like to understand more, but I can't find reliable, user-friendly data on where all the money and debt is. There's far too much secrecy, complexity and obfuscation in this business.
By contrast, total U.S. household debt at the beginning of last year was estimated at $14.4 trillion, and in October the Mises Institute reckoned the True Money Supply to be $5.5 trillion, a ratio of around 2.6 to 1.
On the face of it, the American consumer is in twice as dire a state as his British counterpart.
I expect that's an oversimplification - but simplicity is in very short supply. I'd like to understand more, but I can't find reliable, user-friendly data on where all the money and debt is. There's far too much secrecy, complexity and obfuscation in this business.
Gold overpriced?
Gold's price since President Nixon closed the gold window on Aug 15, 1971 has been generally higher than in the era up to then, but still very variable. If we adjust it for inflation as measured by the Consumer Price Index (CPI) in the USA, and take September 1971 as being a "1", the mean and median values since then are of the order of 2.8 - 2.9.Currently the gold/CPI ratio is about 4, which is somewhat above trend, though nowhere near the spikes of the early 80s. So I'd regard gold's price as a bit high for getting in now, unless you're speculating, which is not my game. But if you got in 9 years ago, well done, and I guess you'll want to hold for some time yet.
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