Re: Financial topics
Posted: Wed May 27, 2009 11:40 am
I was hoping John would have his latest earnings update, but I am disappointed. I just read where a sizable number of firms had beaten expectations. The question is, how low did they rig expectations to get a number that could be beaten. There is a lot of deception in truth and in numbers. Clearly the fall numbers were presented to paint a picture stocks were cheap. The winter numbers presented to pain a picture that the economy is recovering. I just read Staples earnings were down 33% from a year ago, but they beat expectations. Chances are that all the numbers are fictions.
Being most of you guys are pretty good researchers, I am going to probably tell you something you already know. I have found a site called scribd.com which has a lot of books and other material on it. I found this site because I wanted to see what they had on the web about a book called "None Dare CAll it Conspiracy" by a guy named Gary Allen. His contention was that if you looked, it wasn't so much a conspiracy as they were doing it right in front of us and we were trained to ignore the fact that what was going on was scripted. I read the book a long time ago, like the mid 1990's and it changed my view. That is beside the point. Curriousity caused me to put the name of other books, then other authors in the search. Someone on a page I was a prime writer on, but had recently been banned for calling the Obama people Nazi's because of their treatment of the Chrysler bond holders and some other evil acts I had witnessed, posted a link to a Martin Armstrong on the site. Armstrong has his own time theory, which in some fashion revolves around 72 years and also 8.6 year/ 51.6 year cycles and 224 year cycles, all of which is greek to me. He has a book posted there called the "Greatest Bull Market in History" about the 1920's market that he wrote in the 1980's. He is in prison and being held, according to him because his forecasting model worked so well that the SEC accused him of manipulating markets through his forecasts in advance. In any case, that wasn't my point here, just a mention of a few books that I had found on the site. They download right to your computer.
One of the searches I had made on the site was for Murray Rothbard. Rothbard wrote a book called "America's Great Depression" and was one of the top Austrian Economists of modern times. I found on this site, a book called "The Mystery of Banking", which just happens to be one of the best econmics books I have read. I am only partially through it and he describes the pricing mechanism in a manner that is not only clear, but presents a reverse idea of conventional economics, while not muddying the water much. I am not too far in the book, but I know Rothbard is going to paint banking as the fraud it is, the great inflation of supply and the devaluation of the existing supply by further money creation through lending by the fractional reserve system. This is not a modern revelation, as those that debated the establishment of the Federal Reserve such as Charles Lindberg Sr (father of the aviator) and Representative McFadden knew about central bank inflation through the statements they made. Clearly those behind Central banks knew that the key to long term success was government indebtedness to them, thus the immediate act of World War after the establishment of the Fed. That is another story, as the only purpose of this link is the understanding of what Rothbard writes. I am going to try to cover these ideas on my blog, mainly because I would like to keep up with the extensive writing I do over time and much of it gets lost otherwise, but I will present a few jewels I have found in Rothbards book.
The primary key is that money in itself is never in short supply and the price of a dollar, if you want to price dollars is 2 loaves of bread if bread is 50 cents. But, if bread drops to 25 cents, the dollar really hasn't appreciated, merely the supply/demand constraints of bread have shifted. Also, without inflation or bank credit, it makes little difference if you sell something for a greater number of dollars than you paid for it or fewer numbers of dollars if the purchasing pwoer of what you get back buys more other goods. Having to make a profit has everything to do with the payment of interest and little else, other than to reap the labor you may have put in the game. In Austrian economics, the boom/busts that relate to wild price fluctionations and depressions are all credit related and have nothing to do with actual money.
Rothbard brought up a really interesting idea, the supply of money and the demand for money. What he said was that people in general didn't have a lot of use for more money than they needed, thus they had a desire to spend down to what they wanted to have. If there as $1 million in the system and there was another million created, the system would adjust to having $2 million, thus prices would double over time. In fact, it would be clear in this situation that the people that got the money first and were first to spend it before the system had to adjust to shortage (rothbard described shortage as a price too low for the good involved and that higher prices solved shortages) of goods and thus the savers were penalized. The $2 million doesn't go away because it has been spent and because prices have doubled, so has the amount of money needed to feel secure for the population in general doubled. This blows a big hole in the money is coming out of one good and into another, as if the price was going to stay in one place long enough for this arbitrage to be done on the street. Thus, the real game is between the Wall Street money changing bankers and the saving public in times like these where cash balances get too high, they buy overpriced stock with it. This is known as asset inflation, something that has us in this mess, but in reverse of how most of us believe.
Rothbard made an interesting point in this description of supply and demand for money that can only be examined in the light of where finance is now. Much is made of the money that the Fed has put into the system, but remember this is between the Fed and the banks and not between the Fed and the banks customers, who are the deposit holders. In some cases, I know they are in fact buying from the public, but again this is saving and not likely money people are going to run down to the store with and buy a SUV. Home equity extraction is where that money comes from. In any case, if I had $1000 in the bank and a $2000 limit on a credit card, I would in essence have $3000 of money, even though $2000 of it wasn't mine. If the consumer finance game was such that once I had to exhaust that $2000, I could get a card with $5000 on it and actually move the $2000 and not have interest for 6 months in return for a 3% fee, then my $3000 prior balance would have been restored with another $1000 extra. This might mean that I could drop my cash balance in the bank to next to nothing, keeping all extra money applied to the card, thinking I could pay it off. But, the psychology is I need a $3000 cash reserve, so there goes my bank balance and now I am a debt slave. Once the available credit on the card drops much below $3000, I either have to seek another card, refinance my house and pay off the credit or I have to curtail spending. If I lose my job, up in smoke goes the credit.
My point is that the marginal debtor/consumer is living in that fashion. Fed policy will do nothing immediately to restore home equity to enable the old game to continue. The government can backstop the mortgage business, but they can't put equity back into the housing market short run. So, the exit of equity refinance, brought on by the housing bubble, which was brought on by excessive mortgage credit, consumer credit and speculation (what comes around, goes around) now has many people realizing they need more cash in their accounts. If the guy who had the security of a moderate line of credit has either lost his job and maxed out his card or lost his credit, then he too has a new need for cash balances. The example above, where the need was $3000, if the $2000 credit limit is gone or to the extreme, he is now maxed out on a $5000 card, he now needs $5000 plus interest to pay that off and if he has lost the use of the card, another $3000 to restore his demand for money.
What this means is that the growth in money supply that is going on is more likely a rise in the demand for money (demand for money is the desired level of cash balances one needs to hold for their lifestyle and likely emergency needs), first by businesses who needed more liquidity, then by others. The counter inflation argument is that those that have lost their credit cards have lost their cash balances and will now save to re-establish the cash balances they had in theory with credit. Since additional money in the system has to be borrowed into existance, not printed as the game is thought to go on. In fact I read something that I believe Armstrong wrote (He wrote a paper you can get off scribd.com or off his princetoneconmics.com website called the Death of Capitalism) which I believe stated that government debt was nothing more than a option on money in the future. But, in any case, one has to realize that all this paper money is liabilities, even the stuff the Fed prints.
In fact, there can be nothing understood about the current situation outside of money, credit, assets and liabilities. Opinions, optimism, Felix the Cat and Ben the Bosses bag of tricks don't matter. It is the assets that anchor the liabilities and in many cases the liabilities are the assets. The consumers liabilities are the asset of the banks and others. The depositors assets are the liabilities of the banks. The FRN's are the liabilities of the Federal Reserve. The entire world is most likely the collateral for the whole game. In part, this is where the wars start. The presence and lack of credit and its effect on populations is something that is extremely hard to understand. Instead it is easier to talk about the man behind the curtain than to recognize that there aren't many good credit risks any more and that all new debt is likely just going to add to the pile of growing bad debt. Believe it or not, contrary to the drum beat of international jawboning, the only recovery possible and the one they are gunning for is the one where the busted, out of credit, US consumer goes to Wal-Mart and the BMW and Toyota stores and loads up again. Unemployed people can't buy their own products. We are now watching one more Wall Street scam where they peddle more debt. Few understand that we not only bailed them out, but we now owe them every dime with which we bailed them out with.
Being most of you guys are pretty good researchers, I am going to probably tell you something you already know. I have found a site called scribd.com which has a lot of books and other material on it. I found this site because I wanted to see what they had on the web about a book called "None Dare CAll it Conspiracy" by a guy named Gary Allen. His contention was that if you looked, it wasn't so much a conspiracy as they were doing it right in front of us and we were trained to ignore the fact that what was going on was scripted. I read the book a long time ago, like the mid 1990's and it changed my view. That is beside the point. Curriousity caused me to put the name of other books, then other authors in the search. Someone on a page I was a prime writer on, but had recently been banned for calling the Obama people Nazi's because of their treatment of the Chrysler bond holders and some other evil acts I had witnessed, posted a link to a Martin Armstrong on the site. Armstrong has his own time theory, which in some fashion revolves around 72 years and also 8.6 year/ 51.6 year cycles and 224 year cycles, all of which is greek to me. He has a book posted there called the "Greatest Bull Market in History" about the 1920's market that he wrote in the 1980's. He is in prison and being held, according to him because his forecasting model worked so well that the SEC accused him of manipulating markets through his forecasts in advance. In any case, that wasn't my point here, just a mention of a few books that I had found on the site. They download right to your computer.
One of the searches I had made on the site was for Murray Rothbard. Rothbard wrote a book called "America's Great Depression" and was one of the top Austrian Economists of modern times. I found on this site, a book called "The Mystery of Banking", which just happens to be one of the best econmics books I have read. I am only partially through it and he describes the pricing mechanism in a manner that is not only clear, but presents a reverse idea of conventional economics, while not muddying the water much. I am not too far in the book, but I know Rothbard is going to paint banking as the fraud it is, the great inflation of supply and the devaluation of the existing supply by further money creation through lending by the fractional reserve system. This is not a modern revelation, as those that debated the establishment of the Federal Reserve such as Charles Lindberg Sr (father of the aviator) and Representative McFadden knew about central bank inflation through the statements they made. Clearly those behind Central banks knew that the key to long term success was government indebtedness to them, thus the immediate act of World War after the establishment of the Fed. That is another story, as the only purpose of this link is the understanding of what Rothbard writes. I am going to try to cover these ideas on my blog, mainly because I would like to keep up with the extensive writing I do over time and much of it gets lost otherwise, but I will present a few jewels I have found in Rothbards book.
The primary key is that money in itself is never in short supply and the price of a dollar, if you want to price dollars is 2 loaves of bread if bread is 50 cents. But, if bread drops to 25 cents, the dollar really hasn't appreciated, merely the supply/demand constraints of bread have shifted. Also, without inflation or bank credit, it makes little difference if you sell something for a greater number of dollars than you paid for it or fewer numbers of dollars if the purchasing pwoer of what you get back buys more other goods. Having to make a profit has everything to do with the payment of interest and little else, other than to reap the labor you may have put in the game. In Austrian economics, the boom/busts that relate to wild price fluctionations and depressions are all credit related and have nothing to do with actual money.
Rothbard brought up a really interesting idea, the supply of money and the demand for money. What he said was that people in general didn't have a lot of use for more money than they needed, thus they had a desire to spend down to what they wanted to have. If there as $1 million in the system and there was another million created, the system would adjust to having $2 million, thus prices would double over time. In fact, it would be clear in this situation that the people that got the money first and were first to spend it before the system had to adjust to shortage (rothbard described shortage as a price too low for the good involved and that higher prices solved shortages) of goods and thus the savers were penalized. The $2 million doesn't go away because it has been spent and because prices have doubled, so has the amount of money needed to feel secure for the population in general doubled. This blows a big hole in the money is coming out of one good and into another, as if the price was going to stay in one place long enough for this arbitrage to be done on the street. Thus, the real game is between the Wall Street money changing bankers and the saving public in times like these where cash balances get too high, they buy overpriced stock with it. This is known as asset inflation, something that has us in this mess, but in reverse of how most of us believe.
Rothbard made an interesting point in this description of supply and demand for money that can only be examined in the light of where finance is now. Much is made of the money that the Fed has put into the system, but remember this is between the Fed and the banks and not between the Fed and the banks customers, who are the deposit holders. In some cases, I know they are in fact buying from the public, but again this is saving and not likely money people are going to run down to the store with and buy a SUV. Home equity extraction is where that money comes from. In any case, if I had $1000 in the bank and a $2000 limit on a credit card, I would in essence have $3000 of money, even though $2000 of it wasn't mine. If the consumer finance game was such that once I had to exhaust that $2000, I could get a card with $5000 on it and actually move the $2000 and not have interest for 6 months in return for a 3% fee, then my $3000 prior balance would have been restored with another $1000 extra. This might mean that I could drop my cash balance in the bank to next to nothing, keeping all extra money applied to the card, thinking I could pay it off. But, the psychology is I need a $3000 cash reserve, so there goes my bank balance and now I am a debt slave. Once the available credit on the card drops much below $3000, I either have to seek another card, refinance my house and pay off the credit or I have to curtail spending. If I lose my job, up in smoke goes the credit.
My point is that the marginal debtor/consumer is living in that fashion. Fed policy will do nothing immediately to restore home equity to enable the old game to continue. The government can backstop the mortgage business, but they can't put equity back into the housing market short run. So, the exit of equity refinance, brought on by the housing bubble, which was brought on by excessive mortgage credit, consumer credit and speculation (what comes around, goes around) now has many people realizing they need more cash in their accounts. If the guy who had the security of a moderate line of credit has either lost his job and maxed out his card or lost his credit, then he too has a new need for cash balances. The example above, where the need was $3000, if the $2000 credit limit is gone or to the extreme, he is now maxed out on a $5000 card, he now needs $5000 plus interest to pay that off and if he has lost the use of the card, another $3000 to restore his demand for money.
What this means is that the growth in money supply that is going on is more likely a rise in the demand for money (demand for money is the desired level of cash balances one needs to hold for their lifestyle and likely emergency needs), first by businesses who needed more liquidity, then by others. The counter inflation argument is that those that have lost their credit cards have lost their cash balances and will now save to re-establish the cash balances they had in theory with credit. Since additional money in the system has to be borrowed into existance, not printed as the game is thought to go on. In fact I read something that I believe Armstrong wrote (He wrote a paper you can get off scribd.com or off his princetoneconmics.com website called the Death of Capitalism) which I believe stated that government debt was nothing more than a option on money in the future. But, in any case, one has to realize that all this paper money is liabilities, even the stuff the Fed prints.
In fact, there can be nothing understood about the current situation outside of money, credit, assets and liabilities. Opinions, optimism, Felix the Cat and Ben the Bosses bag of tricks don't matter. It is the assets that anchor the liabilities and in many cases the liabilities are the assets. The consumers liabilities are the asset of the banks and others. The depositors assets are the liabilities of the banks. The FRN's are the liabilities of the Federal Reserve. The entire world is most likely the collateral for the whole game. In part, this is where the wars start. The presence and lack of credit and its effect on populations is something that is extremely hard to understand. Instead it is easier to talk about the man behind the curtain than to recognize that there aren't many good credit risks any more and that all new debt is likely just going to add to the pile of growing bad debt. Believe it or not, contrary to the drum beat of international jawboning, the only recovery possible and the one they are gunning for is the one where the busted, out of credit, US consumer goes to Wal-Mart and the BMW and Toyota stores and loads up again. Unemployed people can't buy their own products. We are now watching one more Wall Street scam where they peddle more debt. Few understand that we not only bailed them out, but we now owe them every dime with which we bailed them out with.