The Federal Reserve stopped publishing its M3 data (the widest definition of the money supply) from 23 March 2006, and this occasioned much suspicious comment.
Now, in two posts on his Financial Armageddon website (27 and 29 June), Michael Panzner writes about the lack of transparency in the Bear Stearns sub-prime mortgage debacle, and the failure of credit rating agencies to downgrade Bear Stearns bonds.
It always looks bad if the doctor won't tell you how you're doing.
Saturday, June 30, 2007
A weakening dollar means lower US living standards
Addison Wiggin in yesterday's The Daily Reckoning Australia spells out how the dollar, US debt and declining American living standards are related. Some will contest this proposition fiercely - have a look at the recent globalization thread on Cafe Hayek, for example.
For those who read the bruising commentaries (this seems to be typical of blog-related correspondence), I did look at the articles to which LowCountryJoe referred me, but the first only makes clear what a fiat currency is, and the second theorized that all currencies must originally have had some intrinsic value. Neither of these articles disproves the bears' contention that there is a horrible temptation to inflate fiat currencies for temporary advantage, and that the end result is a flight from those currencies. We shall have to see.
For those who read the bruising commentaries (this seems to be typical of blog-related correspondence), I did look at the articles to which LowCountryJoe referred me, but the first only makes clear what a fiat currency is, and the second theorized that all currencies must originally have had some intrinsic value. Neither of these articles disproves the bears' contention that there is a horrible temptation to inflate fiat currencies for temporary advantage, and that the end result is a flight from those currencies. We shall have to see.
It's an ill wind...
A funny piece by Tim Hanson in The Motley Fool for June 26. He makes the point that travelling to a place may not change the facts, but can change your perspective, and he is bullish on some sectors of China stocks.
As you might expect, given that the outgoing tide of wealth from the West is rising in the East and floating Chinese boats. They will bob up and down, and some may tip over, but that seems to be the trend.
Richard Duncan's worry is that the ever-inflating dollar is causing the markets to operate inefficiently, so that China's rise may be preceded by a crisis that creates a long and deep global slump. I really must post a summary of his book soon.
As you might expect, given that the outgoing tide of wealth from the West is rising in the East and floating Chinese boats. They will bob up and down, and some may tip over, but that seems to be the trend.
Richard Duncan's worry is that the ever-inflating dollar is causing the markets to operate inefficiently, so that China's rise may be preceded by a crisis that creates a long and deep global slump. I really must post a summary of his book soon.
Thursday, June 28, 2007
Richard Daughty becomes spotty
Another entertaining rant from Richard Daughty, aka The Mogambo Guru. He passes on to us a sighting of Hindenburg Omens (see Investopedia definition here), raves about credit creation, and finally breaks out in sunspots...
Apparently several different sunspot cycles can be correlated with variations in marine life productivity, and the biggest threat to the environment since 200 years ago is a predicted global cooling, starting in 2020. Read the Financial Post article here and Melanie Phillips' related eco-contrarian article here.
Apparently several different sunspot cycles can be correlated with variations in marine life productivity, and the biggest threat to the environment since 200 years ago is a predicted global cooling, starting in 2020. Read the Financial Post article here and Melanie Phillips' related eco-contrarian article here.
More on railroads, Buffett, Soros
Further to the last post, the Santa Fe railway is now owned by Burlington Northern (BNI), in which Warren Buffett's Berkshire Hathaway has recently increased its stake to over 10%; and this 2002 article in the Observer reveals that George Soros worked as a railway porter. I expect Soros has his hard-headed reasons for his own investment, but it's hard to rid yourself of the love of choo-choos.
Soros' views as summarised in the Observer article resonate today:
His basic arguments remain the same - that centralised institutions need strengthening as a political counterweight to economic globalisation; financial markets are inherently unstable; and there is an inbuilt inequity, or centre-periphery, problem.
...he is examining the minutiae of the workings of the World Trade Organisation, and statistics on capital flows to developing countries.
...there is no level playing field in the world economy. The rules of the game favour the rich, or 'centre', countries. 'Within the well-developed global markets, the centre has a considerable advantage over the periphery because the centre is in charge. And contrary to the false ideology of market fundamentalism, financial markets do not tend towards equilibrium, they need to be managed. So whoever is in charge has a distinct advantage,' he says.
He says conditions set by the IMF during financial crises tend to reinforce boom-and-bust cycles. 'They push countries into recessions by forcing them to raise interest rates and cut budgets - exactly the opposite of what the US is doing in similar circumstances,' he writes in the new book. [i.e. "On Globalization"]
He is also critical of the US obsession with 'moral hazard' - that intervening in financial crises rewards incompetent investors. Bailing-in private investors has replaced bailing-out crisis-ridden countries, he argues. Such policies are building a 'new Maginot line', fighting yesterday's war against credit crises rather than focusing on the real problem of the calamitous collapse in investment flows to developing countries.
Soros' views as summarised in the Observer article resonate today:
His basic arguments remain the same - that centralised institutions need strengthening as a political counterweight to economic globalisation; financial markets are inherently unstable; and there is an inbuilt inequity, or centre-periphery, problem.
...he is examining the minutiae of the workings of the World Trade Organisation, and statistics on capital flows to developing countries.
...there is no level playing field in the world economy. The rules of the game favour the rich, or 'centre', countries. 'Within the well-developed global markets, the centre has a considerable advantage over the periphery because the centre is in charge. And contrary to the false ideology of market fundamentalism, financial markets do not tend towards equilibrium, they need to be managed. So whoever is in charge has a distinct advantage,' he says.
He says conditions set by the IMF during financial crises tend to reinforce boom-and-bust cycles. 'They push countries into recessions by forcing them to raise interest rates and cut budgets - exactly the opposite of what the US is doing in similar circumstances,' he writes in the new book. [i.e. "On Globalization"]
He is also critical of the US obsession with 'moral hazard' - that intervening in financial crises rewards incompetent investors. Bailing-in private investors has replaced bailing-out crisis-ridden countries, he argues. Such policies are building a 'new Maginot line', fighting yesterday's war against credit crises rather than focusing on the real problem of the calamitous collapse in investment flows to developing countries.
Buffett, Soros, railways - a thought
Many years ago, I read a series of books by a financial expert calling himself "Adam Smith". In one, he spoke to an investment manager who had bought a holding in a railway, I think the Santa Fe, and asked him why so, since the company was somewhere around bankrupt. The manager replied that he was looking at the value of the tangible assets still owned by the company - land, rolling stock etc.
Railways tend to own a lot more land than the bit the rails run on. Is this a reason for Buffett and Soros to have gotten into that kind of business?
Railways tend to own a lot more land than the bit the rails run on. Is this a reason for Buffett and Soros to have gotten into that kind of business?
Not yet, the crash - Puru Saxena
Puru Saxena submits "The Solitary Bear" in today's Daily Reckoning Australia. He agrees with Marc Faber that there's bubbles in equities and commodities, but thinks we have some years yet before the crisis hits.
This is because he can't see central bankers having the virility to raise interest rates sufficiently to curb inflation, which is rotting savers' money (the "solitary bear" market being cash). Why the reluctance? "The central banks know full well that with debt at its current level, such drastic measures would probably cause a global depression, widespread unemployment and social unrest. So, they will try and avoid or delay this outcome as much as possible..."
We're practically forced to invest in something. The danger, particularly for small guys, is not knowing when to head for the exit, ahead of the rest of the panicky crowd. It's a tough one:
"...investors will have to become more selective when making decisions and deploying their capital. For maximum success and safety, I would urge you to invest your capital during pullbacks whilst avoiding overstretched markets. Despite all the talk of "doom and gloom", this strategy should continue to deliver reasonable returns in the period ahead."
I wonder whether the "gloom and doom" is in part an oblique reference to Marc Faber, whose website is self-deprecatingly named gloomboomdoom.com. See Faber's comments in the Market Oracle round-table discussion yesterday (previous post) - he, too, admits he can't call the turn but forecasts a continuing rise in equities (except maybe emerging markets) relative to cash - but not a rise in real terms. Faber is looking, I suspect, for quiet bargains in commodities and resources, e.g. low-priced agricultural land.
This is because he can't see central bankers having the virility to raise interest rates sufficiently to curb inflation, which is rotting savers' money (the "solitary bear" market being cash). Why the reluctance? "The central banks know full well that with debt at its current level, such drastic measures would probably cause a global depression, widespread unemployment and social unrest. So, they will try and avoid or delay this outcome as much as possible..."
We're practically forced to invest in something. The danger, particularly for small guys, is not knowing when to head for the exit, ahead of the rest of the panicky crowd. It's a tough one:
"...investors will have to become more selective when making decisions and deploying their capital. For maximum success and safety, I would urge you to invest your capital during pullbacks whilst avoiding overstretched markets. Despite all the talk of "doom and gloom", this strategy should continue to deliver reasonable returns in the period ahead."
I wonder whether the "gloom and doom" is in part an oblique reference to Marc Faber, whose website is self-deprecatingly named gloomboomdoom.com. See Faber's comments in the Market Oracle round-table discussion yesterday (previous post) - he, too, admits he can't call the turn but forecasts a continuing rise in equities (except maybe emerging markets) relative to cash - but not a rise in real terms. Faber is looking, I suspect, for quiet bargains in commodities and resources, e.g. low-priced agricultural land.
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