Financial topics

[aedens]

http://www.acton.org/actonu/index.php

Chuck Colson, for instance, cautions
Indeed, one of the clearest lessons to emerge from the reactions surrounding the Tea Parties is just how ideological and polemical political discourse has become. When liberals characterize conservatives, they typically invoke images of the extreme margins: close-minded racists, homophobes, and anti-abortionist assassins. As Cal Thomas puts it, “If you don’t like President Obama’s policies, you are a racist who is setting him up for assassination by a neo-Nazi who is waiting in the (right) wings for sufficient inspiration.” But when conservatives characterize liberals, they too tend to use those at the radical extreme to represent the entire movement: rabid pro-abortion advocates, NAMBLA members, and outright socialists.

http://www.acton.org/research/reading/r ... market.php

http://www.acton.org/about/principles.php

Dignity of the Person
Social Nature of the Person
Importance of Social Institutions
Human Action
Sin
Rule of Law and the Subsidiary Role of Government
Creation of Wealth
Economic Liberty
Economic Value
Priority of Culture

The only thing we see is there left and right bent of mind doing what they are told and not think for themselves
spending other peoples money. The time will come when we move no more.

[freddyv]

Oakwood,

I think you are missing one essential component of generational dynamics. GD cannot predict the actions of individuals. GD predictions cannot tell you when or how. I believe the extensive rally in the stock market was due to several entirely unpredictable events. Government stimulus programs, direct treasury and fed intervention, government and corporate propaganda, quantitative easing, and I'm sure others here can add some more. I think all of us were surprised by the events of the past year.

On the other hand, I've been thinking about Isaac Asimov's Foundation series I read a few years ago. It is interesting to watch the politicians pretty much forced to make all the wrong decisions. The politicians and other leaders all really had no other choice (if they wanted to keep their job a little longer)! In the end, with 20/20 hindsight, I think almost everything that has happened so far could have been predicted!

Has anyone else read the Foundation novels?

Joe

Hi Joe,

I just read the first Foundation novel and had many of the same thoughts. So far since mid-2007 I have been pretty sure about the course of the economy and the world as it relates to the big picture and the extremely short term - I played the crashes of 2008 like a finally tuned violin, in many cases - but have often hurt myself with my medium term decisions. I think that is because I am able to step away from the panic in the short term (that's a character trait of mine) but then get too focused on the long term and so I got too bearish, for example, after the move off the lows of March 2009. However once I stood back and used historical data within the context of everything else that I know (such as Generation Dynamics, demographics and expert advice from a wide range of people) I was able to determine that the stock market would almost certain close the gap to the July 2008 lows, just as it has.

That scenerio wasn't foolproof but it met the criteria of all the other theories and data that I saw almost perfectly. How so? For one it would meet the technical "need" for the market to drop in an orderly manner despite any panics along the way. "The Market" I believe, is the only true indicator of our financial health and social mood. It also allowed a great deal more wealth to be destroyed in the long run. Now the Fools of Wall Street can call for numerous bottoms and seem like they know what they're talking about. The geniuses who got wealthy during the boom years will give it all back and then go completely broke trying for that one last, desperate trade to get them back in the game.

It also fits with the path we took during 1929 - 1932, which is to me, the obvious path we are are on for so many reasons, not the least of which is that the stock charts are almost dead on if you just stretch the present chart by about 300%; meaning our entire path to destruction is happening at 1/3 the pace, give or take. Given that our bubble took much longer to blow and is much larger and more ingrained in the (global) economy, it makes sense that the unwind will take longer and be deeper.

My calculations of the trend average of the stock market and historic valuations based on reported earnings, dividends, book value, etc., also make it crystal clear that the stock market has much farther to fall.

BTW, it may seem that I got off-topic because the tool used to predict the future in Foundation was "psychohistory" but I believe that the stock market envelopes such a concept, as it reflects the true social mood at any moment in time about as accurately as any data recording can.

Fred
http://www.acclaiminvesting.com/

[freddyv]

The problem with this chart is the problem with every chart that shows the stock market adjusted for something; the stock market is ALREADY adjusted for EVERYTHING. Stock market data, assuming it is consistent and accurate (why I like the DJIA and DJTA) reflect all the knowns and perhaps even the unknowns including inflation, deflation, social mood, overseas investments (a problem with your monetary base idea, IMO), demographics, peak oil, the price of a haircut in Topeka Kansas, the unemployment rate, the REAL unemployment rate, and a trillion (these's that number again) other things that none of us are smart enough to factor in.

Now I don't mean to imply that this chart doesn't tell us a tale, it does, but it is not THE tale.

Fred
http://www.acclaiminvesting.com/

Although Higgy has started to erode my confidence, I for one still believe that the fed, government, and banks will (successfully) do everything possible to keep the metrics slightly positive in dollar terms over a 90-180 day moving average, despite the 'secular' crash and disastrous consequences for the middle class.

Might as well update the charts to show you again.

dow_adj_1901.jpg

The market crash already happened. There was no 'real' bounce. Real wages got annihilated to prevent unemployment.

I'd say we're into the 1935-1945 era which was touted as a great recovery, but was really just the effect of bimetallism. There is no winning trade unless you are on the reserve board and get first dibs on the new cash.

"I didn't become president to help out a bunch of fat cat bankers on Wall Street" - somebody that doesn't appear to understand the banking system

[Higgenbotham]

Now I don't mean to imply that this chart doesn't tell us a tale, it does, but it is not THE tale.

Fred
http://www.acclaiminvesting.com/

Although Higgy has started to erode my confidence, I for one still believe that the fed, government, and banks will (successfully) do everything possible to keep the metrics slightly positive in dollar terms over a 90-180 day moving average, despite the 'secular' crash and disastrous consequences for the middle class.

Might as well update the charts to show you again.

dow_adj_1901.jpg

The market crash already happened. There was no 'real' bounce. Real wages got annihilated to prevent unemployment.

I'd say we're into the 1935-1945 era which was touted as a great recovery, but was really just the effect of bimetallism. There is no winning trade unless you are on the reserve board and get first dibs on the new cash.

"I didn't become president to help out a bunch of fat cat bankers on Wall Street" - somebody that doesn't appear to understand the banking system

This chart reminds me of something I encountered about 30 years ago. I started a summer job in a manufacturing facility that made complex organic chemicals in glass lined batch reactors. One of the assignments given to our group was to try to determine why they blew up a building every few years. Every few years, the "well mixed" chemicals inside a reactor would somehow overheat and it would lead to a chain reaction where enough pressure was generated to blow the top off the reactor (which was bolted on), the side panels of the building would get blown out, and a fireball would shoot out the side of the building until it burned out. The explosion would demolish most everything within 30 feet or so and invariably an employee or two would get killed or severely injured from either the explosion or the fireball.

Theoretically, according to engineering principles, this was impossible. There were agitators inside the glass lined vessels, which were steam heated (low temperature, in other words). So why was this happening? Nobody really knew for sure, but we thought there were small pits on the glass where eddies would form and create very tiny areas where once every few years the "wrong" proportion of reactants would concentrate and superheat enough to set off a chain reaction that would lead to a reactor blowing up.

Now back to the chart. The chart supposes that monetary base acts uniformly over time or is "well mixed" enough to correlate to stock values within some historical range. I would doubt that's true at this point in time and doubt it will be going forward. One reason is that monetary base until recently has been generated by a normal feedback loop. The recent spike in monetary base, if my understanding is right, was created by the Fed exchanging liquid reserves for illiquid debt instruments that the banks were holding. The Fed is now holding these illiquid debt instruments and they are depleting in value while the reserves the Fed forced into the system have no use (as a multiplier). This is much more complicated than a glass lined batch chemical reactor, but what we have now are essentially "dead zones" in the monetary system where money (in some forms) is depleting while base money is not being mixed into the economy and is useless. The next question would be whether that base money is actually harmful. My guess is probably yes because rather than writing off the illiquid debt instruments and letting the offending banks go through the process of bankruptcy in order to stop the liquidity destruction, Bernanke has unwittingly generated Black Holes of illiquidity in the monetary system that can crop up due to very tiny disturbances (and that is why I said it will be impossible to agree on what caused the ~8 minute 1000 point drop in the Dow the other day - certainly nobody who is "anybody" would dare suggest that it was generated by Bernanke creating a Black Hole of illiquidity caused by dead zones of excess liquidity). Bernanke is essentially a cousin to the academics who said that well mixed glass lined batch chemical reactors can't blow up.

[Oakwood]

SADHIC wrote: Though the below GD prediction by John is not related to financial topics but I felt it is appropriate to mention here.
John by using GD exactly predicted that the recently fought Srilanka-LTTE war will end in an explosive manner and there will be a deep silence thereafter what exactly happened.

John has made many accurate predictions, particularly in cross-cultural arenas. However, to only look at his correct predictions is like looking at a player who hits 50 home runs and concluding that he he must be a great hitter without knowing his total batting average. What is John's batting average. I was perusing the titles of some of his commentaries and came across this one from 3/26/2003:

JOHN wrote: Is Japan's economy finally near collapse? ...time is quickly running out. More banks are approaching insolvency, and cash reserves are running out. This indicates that a major business collapse in in the offing for Japan....Generational Dynamics predicts that the Dow Jones Industrial Average, currently hovering around 8000, will drop to the 3000s or 4000s some time before 2006, and will not go above 6000 again until after 2015.

Inevitably people are going to be wrong a certain percentage of the time when they make predictions--nothing wrong with that. It just wrankles me when they have the arrogance to proclaim their superiority and then belittle anybody who challenges them.

[Oakwood]

I remember reading a post where John claimed that gold was overpriced and is in a bubble, which has been the prevailing view of the MSM. John suggested that the "real" value of gold was $500 an ounce although he didn't say where or how he came up with this figure. IMO this is totally wrong. Gold is the only asset that has gone up every year for the past 10 years. I believe it has gained around 18 -20% a year on average. Yet for a variety of reasons, you rarely heard a positive mention on CNBC until recently. For the past 5 years at least everybody has been proclaiming that gold is in a bubble. Yet none of the characteristics of a true bubble are there. Does anyone you know talk about gold? Does your neighbor even know the price of gold? Do you know any non-investors who have bought any gold? Gold is still hated, hardly what you see in a bubble. Here's a recent article about whether gold is in a bubble.

$3,000 gold price “may yet prove conservative,” says Rosie

Posted By Prieur du Plessis On May 16, 2010 @ 9:49 am In Gold, Investment |

Although gold bullion is both a commodity and currency, it has lately become the world’s currency of choice, i.e. a vote of no confidence in fiat paper. This is evident in the fact that the gold price has not only just made an all-time high in US dollar terms ($1,249 on Friday), but also in just about every other currency one cares to mention. I illustrated this in a post [1] a few days ago, entitled “Meet the world’s new currency of choice [1]”.

David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates [2], shares my enthusiasm for the “barbarous relic”, as it was once described. “While I am concerned near-term that gold is overbought and could be ripe for a setback; however, unlike the equity market, bullion is in a secular bull market, which means dips, when they occur, are to be bought. Gold can trade down to $1,130 an ounce and none of the trendlines would be broken,” he said.

Here is the real interesting part of his analysis: “More to the point, secular bull markets usually end in parabolic blow-offs and we are nowhere near that point – see the chart below for what long-term trough/peak moves across different asset classes looked like in the past and tell us that gold is now in a bubble. Not a chance. And, as we have said in the past, if central banks were ever to be compelled to hold the same share of gold in reserves to back up their respective monetary aggregates, the gold price would rise to $3,000 an ounce.”



Source: Clusterstock – Business Insider [4], May 14, 2010.

Rosenberg concluded: “Believe it or not, $3,000 an ounce on gold may yet prove to be a conservative forecast. If the gold price to world GDP ratio were to ever scale up to the peak three decades ago, it would imply an ultimate peak of $5,300 an ounce. Even better, if the relationship between gold and the M3 money measure where to revert to the 1990 high, gold would move to $5,700 an ounce. A more cautious projection would merely put gold on the same footing as the CPI, and heading back to the previous peaks in this ratio would suggest $2,300 as the peak in gold – only a double from here. Or perhaps the gold price-M1 ratio is one that should be considered and even here gold would go to $3,100 per ounce under the proviso that prior highs get re-established.”

From across the pond, David Fuller (FullerMoney [5]) added: My guess is that gold is no more than about halfway through its secular bull market, in terms of time. However this is certainly not a bankable forecast. I maintain that most very long-term forecasts are extremely inaccurate, mine included, and based on little more than trend extrapolations. My long-term view is based on the length of the previous secular bear market for gold (21 years) and earlier long-term commodity cycles. Last but certainly not least, there is the breathtaking issue concerning unprecedented printing of paper money by all countries or the central banks of their respective currency unions.”

However, gold should be bought only on pullbacks, which are inevitable from time to time when faced with a short-term overbought condition as at the moment.

“Additionally, the overhanging possibility of further bullion sales from the IMF remains. Cyclically, gold’s seasonal window of superior performance is beginning to close. Close observers of the gold cycle will know that the 2008 peak occurred in March and the 2006 peak in May. Finally, the biggest long-term threats to the gold bull trend will be higher interest rates. One could add that gold is expensive for jewellery and industrial uses, which is true, but investment demand is the crucial variable today and most likely in the future, at least until this secular bull trend ends,” said Fuller.

http://www.investmentpostcards.com/2010 ... sie/print/

[OLD1953]

And tantalum was 1200$ per ounce not many years ago. I've a couple pounds of tantalum wire (used for some electrochemical experiments) sitting on a shelf in my home.

The point is that tantalum has an important industrial use, and thus a very variable price (and a closed market). Gold is used for extremely fine wire in electronics, but an ounce makes 50 miles of that ultrafine wire. Gold therefore has a price that varies slowly.

The price of gold is up for historical reasons, and no other. The world will not return to a banking system that uses gold as deposits. Moreover, gold deposits ensure nothing, gold can be adulterated, faked, borrowed against on high margin, etc., just as any other asset can. Why not quote platinum, or silver or rhodium? Silver (and I own a good bit of that as well) has had a much greater percentage price run up than gold since the turn of the century. Platinum and silver have both been used for money, but they lack that magical cachet that gold has.

Certainly, if all currencies collapsed, then we'd see some sort of return to commodity backed monies - but that's about as likely as rolling boxcars 20 times in a row while playing dice. It can happen, but it's not a very probable outcome. Far more likely we'll see the southern European nations leaving the common currency as soon as the loan monies run out, and trying to pay in inflated fiat - which very likely will lead to that war in Europe - unless WWIII starts up first.

Unless we make some very bad choices over the next few years (and it's getting more and more difficult to make those choices politically right now) the dollar will survive in good order.

Which brings me to another point about gold - almost nobody makes money from gold speculation. Paper profits are made in gold by the billions, most certainly, but individuals who take physical delivery do not intend to sell, and they never sell at the market peak. They always hang on until the price is back down again.

And gold is getting mention on the financial news now as in "you should add gold to protect yourself". Gold "kits" for your "old damaged jewelry" are on every channel, every night. There's plenty of discussion of gold going on, that sheer panic buying hasn't struck doesn't mean gold is not in a bubble.

I'll just leave this by pointing out that last time we were pushed inflation hedge "investments", the price of high quality certified diamonds went to a peak that was utterly ridiculous. When that market collapsed the value of top grade diamonds dropped by about ten to one. Investing in commodities of any kind, inflation hedge or otherwise, is never a guaranteed return or even a break even.

[John]

Oakwood -

The things you've quoted are perfectly ok within the rules that I've
set for myself on this web site.

The whole point of the Generational Dynamics forecasting methodology
is that you can match up short-term and long-term forecasts. Without
using any methodology, short-term forecasts are generally no better
than guesswork (50%); but by combining them with Generational Dynamics
long-term forecasts, the probability of making a correct short-term
forecast is much higher than 50%. However, it's not 100%.

** Generational Dynamics forecasting methodology
** http://www.generationaldynamics.com/cgi ... cast090503

I've posted thousands of articles on this web site, almost all
containing short-term forecasts of one kind or another. You've found
a couple of dozen places where the long-term forecast was correct, but
the short-term forecast wasn't correct. Such a low number of
incorrect short term forecasts is well within what I would expect.
(And by the way, the prediction in the Japan article was made before I
even developed the Generational Dynamics forecasting methodology.)

Here is the claim that seems to have set off your string of tirades:
"As far as I know, there is no web site or analyst or journalist in
the world with anything remotely close to the predictive success of
this web site. Assuming that's true (and I believe it is), then this
is the only web site in the world that will tell you what's really
going on in the world. That was true in the past, and it's still true
today."

Despite your tirades, you've still never touched this claim. Out of
thousands of articles on this web site, you've found a few incorrect
short-term forecasts, which is to be expected. But you haven't
identified any other web site with anything close to the predictive
success of this web site. And I don't mean just the one thing of
guessing the DJIA correctly; I mean a web site or service that tells
readers what's going on in the world on a wide variety of matters,
and makes correct predictions on everything.

Here's a list to get you started:

** ** List of major Generational Dynamics predictions
** http://www.generationaldynamics.com/cgi ... redictions

(This list is two years old and needs to be updated.)

Actually, if you did find another site that was anywhere close to this
one in predictive success, I'd be very excited, because I'd want to
figure out their methodology. As far as I know, every other
forecaster in the world has no methodology whatsoever except to make
guesses based on "experience." Thus, services like Stratfor or media
like the BBC make predictions that are usually no better than
guesswork. I don't claim to have any such "experience," which is why
I apply the Generational Dynamics methodology relentlessly, whether I
like the results or not. That's why the predictive success is so much
higher than anyone else's.

So please provide a list of one or more web sites with a better
predictive success than this one. I'd love to see it. If you can't
do that, then this web site will remain as the one with the highest
predictive success in the world.

John

[Oakwood]

OLD1953 Wrote: Which brings me to another point about gold - almost nobody makes money from gold speculation. Paper profits are made in gold by the billions, most certainly, but individuals who take physical delivery do not intend to sell, and they never sell at the market peak. They always hang on until the price is back down again.

If you put your money in the stock market 10 years ago and held on you didn't make any money either. Buy and Hold is dead for the time being (it will come back eventually). Back around 1999 you could've bought 4 American gold Eagles for about $1250; now you can buy one. Right now we are in about the 10th year of a commodity bull market. These cycles last about 20 years. During these cycles the stock market either goes down or treads water. See Jim Rodgers' book Hot Commodities for a great explanation and a fantastic chart that should convince you. But gold is a special commodity, of course. Silver is both a monetary and industrial metal, so it is affected by the state of the economy. Platinum and palladium, likewise, their market is much smaller. They will also do well for the next 10 years. I know that John believes we are headed for widespread deflation, like the 30s. I'm not going to get into this well-worn argument, but I believe the Fed has only one choice: Inflate or Die. Ultimately we will see hyperinflation. Probably not Weimar style hyperinflation, but enough to double the value of gold from here. How else is the govt going to honor its obligations, or is it going to default? Since 1913 the US dollar has lost more than 95% of its purchasing power while gold has gained in value. Would you rather hold gold, which has been steadily gaining in value or stocks, US dollars, euros, T-Bills (which also continue to lose value), a house (values continuing to decline), bonds (also losing value)? Tell me, where are you putting your money? Give me a price and I'll consider buying that tantalum from you--I'd rather own it than that these worthless pieces of fiat green paper in my wallet (seriously).

[John]

We're getting way off topic for the Financial Topics thread, so I've
moved ridgel's posting to "A summary of John's forecasts and
explanations," in the Generational Theory section, which seems more
relevant.

http://generationaldynamics.com/forum/v ... ?f=10&t=92

Today's big market selloff seems to have put a lot of pundits into a
state of shock. The recent narrative has been first that Greece's
economy is too tiny for a default to affect the American economy. Now
the narrative is that, despite Merkel's apocalyptic speech, Europe's
economy will easily survive the current crisis, without having too
much effect on the US economy. The greater narrative is that we've
learned a great lesson from the Lehman failure, and that now we know
exactly how to prevent any further crisis.

The only major exception I know of is David Tice. He was on Bloomberg
TV for a long time this afternoon, and he's predicting a crash, based
on Von Mises theory and the Austrian school. I found it interesting
that he predicted that the "fair value" for the S&P is around 500,
that the market will overshoot and fall to 400. Those figures are
similar to mine, and I wonder how he arrived at them. Perhaps he's
read my "real value of the stock market" posting, or perhaps he
arrived at them independently the same way I did.

And Higgie, I'm sure you've noticed -- the S&P is back below the magic
number of 1080.

John