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Daily Digest - Nov 25

Tuesday, November 25, 2008, 12:15 PM

 

Economy

Turkeys Can't Fly 

'In the space of two months, Ben Bernanke has doubled the balance sheet of the Federal Reserve. He is accepting bubble gum wrappers, old shoes, and Dick Cheney's defaced copy of the Constitution as collateral for loans from the Fed. When Paulson and Bernanke were selling their rescue plan in front of Congress in September they stressed transparency, oversight and openness. The total lack of transparency and oversight were the reason that our financial system came to a grinding halt.' 

Sherman's Comments: Of all my reads yesterday, this one was clearly the best. I hope you enjoy it as much as I did.Quinn really nails the "Negative Wealth Affect," I wasn't one hundred percent on-board with the big 3 numbers but my guess is that his university isn't weathering a storm like Harvard's as the result of his insight. Just a guess.

The Death of Money 

Inflation is an increase in the supply of money (quantity) over and above the demand for money. A loss of purchasing power or value of money follows. 

Deflation is a decrease in the quantity of money (supply) below the demand for money. An increase in the purchasing power or value of money follows.

Either inflation or deflation is constantly occurring in the marketplace as the value of money never remains fixed. It is rare for monetary deflation to occur. Inflation dominates in a world of paper fiat money. This is easily illustrated by the Federal Reserve inflation calculator, which shows the dollar losing 96% of its purchasing power since the Fed was created in 1913. 

Highway to Hell

Total debt in the United States is $53 TRILLION dollars, which is almost 500% of net national income. We owe foreign entities 12.5 trillion or 24% of the total. Does this sound like our standard of living is increasing or decreasing?

We have come to a fork in the road. Ludwig von Mises stated: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved." 

Sherman's Comments:  Another super read. On a side note, I had to re-read the Casey Research newsletter three times this morning. Because of copyright I don't want to quote it word for word but the gist was to "rig" for the worst, their recommendations were 1/3 cash, 1/3 physical and paper gold and 1/3 in selective gold stocks. Most advice I read is 10% cash and 10% precious metals. You might be able to view this news letter by signing up for a free sample with them. These people aren't alarmist, they, like Chris, know their stuff and have incredible insight, so seeing 100% of gold, gold and cash really told me something is going on.

Existing Home Sales

  • Distressed sales account for over 40% of all sales, up from 16% this time last year
  • Existing-home sales fell 3.1%
  • Inventory slipped almost 1% to 4.23 million a 10.2 month supply, remember also that we have 18.5 million vacant homes, REO's and a lot of this stuff isn't included in these reports

Citi resuce boosts stocks 

"Obviously the news out of Citi is welcoming," said Peter Cardillo, analyst for Avalon Partners. "We might be in for another day of gains today, and if that's the case, then we'll have two days of gains." 

Sherman's Comments: I didn't tune into Cramer - because I dislike TV and don't have cable - to hear what he had to say, I can't but wonder if it wasn't a "buy" on Citi though. I just finished Soros's latest book. He, like Eric mentioned in a past post, has a theory about the market. In short - the market is always wrong because it is influenced by bad knowledge, but once the true knowledge gets out it corrects. I can't view 7 trillion, Geithner or Citi as good economic data. Housing, GDP, Consumer Confidence, Durable Orders, Initial Claims and Personal Income. (All this week.)

Treasury, Fed Said toUnveil Plan to Bolster Consumber Financing 

Nov. 25 (Bloomberg) -- The U.S. Treasury and Federal Reserve will unveil as soon as today a lending program to shore up the consumer-finance market, using money from the government's $700 billion rescue, two people familiar with the effort said. 

The Treasury and the Fed will help fund new loans packaged into securities for sale to investors, the people said. Treasury Secretary Henry Paulson, who scheduled a press conference for 10 a.m. New York time, said two weeks ago that he wants to spur lending for automobile purchases and college education while also reducing the cost of credit-card debt. 

Sherman's Comment: Ugh, didn't this help us get here?

A near-riot and parliament besieged: Iceland boiling mad at credit crunch 

One young man climbed on to the balcony of the Althing building, where the president appears upon inauguration and on Iceland's national day, and hung a banner reading: "Iceland for Sale: $2,100,000,000" - the amount of the loan the country is getting from the IMF. 

A separate group of 200-300 people gathered in front of the city's main police station, throwing eggs and demanding the release of a young protester being held there.

Police in riot gear used pepper spray to drive back an attempt to free the protester during which several windows at the police station were shattered. The pro-tester was later released after his fine was paid. 

Is Britain going bankrupt? (Ambrose Evans-Pritchard)

 

We face the risk of a rapid downward spiral if we misjudge the threat at this dangerous moment, as we sit poised on the tipping point. Besides, the whole world is now resorting to fiscal stimulus in unison under IMF prodding. Sticking together is imperative. If countries reflate in isolation, they can and will be singled out and punished. That is the lesson of 1931.

 

Russian Analyst Predicts Decline and Breakup of USA

RUSSIAN ANALYST PREDICTS DECLINE AND BREAKUP OF USA
Tue Nov 25 2008 09:04:22 ET

 

A leading Russian political analyst has said the economic turmoil in the United States has confirmed his long-held view that the country is heading for collapse, and will divide into separate parts.

 

Professor Igor Panarin said in an interview with the respected daily IZVESTIA published on Monday: "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse."

 

Sherman's Comments: WAY, WAY 'Out there', even in my book of worst case scenarios. I posted it because when News titles like this hit the top of the "Right" "mainstream" outlets like Drudge it raises an eyebrow.

Sherman's Preface: to Quantitative Easing. I'm not an economist. The first time I heard this term Quantum Physics popped into my mind, if you are like me then here is a simple definition Scroll or Ctrl - F to [8:31]. 

And I think the new buzz word you're going to start hearing from the Fed is going to be quantitative easing where the Fed starts buying more government bonds to keep the interest rate down to a low level, something that they did between 1942 during the war period.  

It is a sign that they will soon monetize money.

On the Fed;s Shift to Quantitative Easing 

Fed Vice Chairman Donald Kohn said today the central bank is simultaneously reducing interest rates and expanding its balance sheet in quantitative easing, while not adopting one strategy ``in favor of another.''... 

``There has been a policy shift, but the Fed is not transparently announcing what it is doing and why,'' said former St. Louis Fed President William Poole, now a senior fellow at Cato. ``Monetary policy works best when the markets understand what the central bank is doing.''....

...Statisticians distinguish two types of errors: type one and type two. Suppose we believe that another Great Depression is about to happen. A type-one error would be to reject our depression scenario when it is true, while a type-two error would be to accept it when it is false.

The US Federal Reserve's policy is about avoiding a type-one error - underestimating the threat of a depression - at all costs. I was quite surprised last week - though perhaps should not have been - when I learnt that the Fed had quietly adopted a policy of "quantitative easing". 

Energy

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13 Comments

BN37's picture
BN37
Status: Bronze Member (Offline)
Joined: May 17 2008
Posts: 39
Re: Daily Digest - Nov 25
Davos wrote:

 

It is a sign that they will soon monetize money.

 

Forgive my ignorance. I don't understand what "monetize money" means. 

Damnthematrix's picture
Damnthematrix
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Re: Daily Digest - Nov 25

Davos, what's the idea behind the oil sources by region?

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Daily Digest - Nov 25

Hi Davos,

Wanted to comment on the oil sources by region pie chart at the end here. That said, I don't even know where to start regarding its distortion of reality -- unless I'm just completely missing its purpose. The first thing that jumps off the page is the fact that North America is claimed to be the number one source of oil in the world. What's up with that?

Well, it probably stems from the fact that the creators of the chart are including Canada's oil sands in their totals as opposed to just their conventional supplies along with some of the most easy to access sands. Including oil sands, Canada has about 180 billion barrels of proven reserves. However, as pointed out by the US EIA, over 95 percent of said reserves are in oil sands and not conventional. That bears repeating despite the previous italicization: over 95 percent of said reserves are in oil sands and not conventional.

The EIA has more to say regarding these oil sands:

Quote:

 

Despite the excitement surrounding the development of Canada’s oil sands reserves, there are still several difficulties that could impede the future development of the industry. Analysts predict that the production of synthetic crude from oil sands is only economically viable with relatively high crude oil prices. While further advances in oil sands technology could reduce production costs, it is likely that synthetic oil production will continue to be dependent upon high crude oil prices.

Second, the oil sands industry is heavily reliant upon water and natural gas, which is necessary in both the extraction of bitumen from oil sands and the upgrading of bitumen to synthetic oil. Even though there have been some efforts to reduce this dependence on natural gas, any increase in natural gas prices or sharp reduction in natural gas supply would have critical repercussions for the oil sands industry.

The shocking truth regarding Canada and Mexico is that both countries only have about a decade's worth of conventional crude left at today's rate of production. And this doesn't even take into accout the effects of the Export Land Model.

Next up. Since when does the Middle East have only 17% of the world's oil reserves? According to BP Statistical Review, Oil and Gas Journal, and World OIl, the Middle East has more than half of the world's reserves.

I could go on, and will if prompted to, but in short I vote for removal of the chart.

Davos's picture
Davos
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Re: Daily Digest - Nov 25

Hello MainCoonCat & DamTheMatrix:

The chart of imports caught my eye, I should have linke to the site I saw it on.

http://econompicdata.blogspot.com/2008/11/oil-consumption-by-region.html

I don't think they are doing anything with shale, it was my recall that shale isn't doable unless the prices were above ?80 or 100. I forgot the number. I'm pretty certain this is just imports for US.

 

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Daily Digest - Nov 25

Hi again Davos,

As I pour over charts and stats here it's dawned on me what that pie chart you posted must be. It's oil sources by region for the United States in 2007 -- I think, though still not 100% positive. However, that none-too-small detail should obviously be added if that's indeed what it is otherwise the chart is useless. So it should read something like "Oil sources by region for the United States in 2007." 

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Daily Digest - Nov 25

I could go on, and will if prompted to, but in short I vote for removal of the chart.

Me too.  It's like saying that because a US flag is planted on the Moon, the US owns most moon rocks....  so what? 

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
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Posts: 488
Re: Daily Digest - Nov 25

Okay, that's what I thought. We just simultaneously posted. Thanks for the response.

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - Nov 25

Hello BN37:

Printing Money mouth they will just print and print and print (create electronically) and create what they need out of thin air... From the above link to the definition of Quantitative easing.

"So that’s why monetization is the route and printing money is the route
that we're going to go down because there’s just no way to pay for
these bailouts and these bailouts are going to get bigger.  The
stimulus programs are going to get bigger and the spending programs of
all sorts are going to get bigger; and not to mention the existing
growth of the entitlement programs, especially Medicare and Social
Security and retirement programs.  So that’s why I think we are on the
road to dinner at Zimbabwe.  [17:32] "

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Daily Digest - Nov 25

It's simply amazing that week after week more shoes drop and more bailouts are sprung and more money is promised. We're now into the trillions. Have we perhaps hit the exponentially exponential part of the hockey stick graph? In three weeks from now will total monies pledged for the crisis somehow be 10 trillion, and then 15 trillion by Obama's swearing in? Then the only thing left is insta-collapse, as countless others have referenced, that point when the cartoon character has walked off a precipice but hasn't yet started to fall simply because they do not know they've walked off a precipice. At some point that has to happen, some kind of collective realization of the absurdity and surrealness of it all.

jrf29's picture
jrf29
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Posts: 453
Davos, check your assertions
Quote:

Because of copyright I don't want to quote it word for word but the
gist was to "rig" for the worst, their recommendations were 1/3 cash,
1/3 physical and paper gold and 1/3 in selective gold stocks.....These people aren't alarmist, they, like Chris, know
their stuff and have incredible insight, so seeing 100% of gold, gold
and cash really told me something is going on.

 

In fact, Casey Research has been predicting a collapse of the US Dollar for years. Decades, actually. Doug Casey is a permanent alarmist. In 1979, he published "Crisis Investing: Opportunities and Profits in the Coming Great Depression," and ever since then has been loudly warning of impending doom every day and every year.

Not that we aren't facing crisis times right now, and the culmination of years of mistakes. We may even be facing the decline or destruction of the dollar as a major world currency. But to use such statements as the one above as your best evidence is irresponsible and reckless. The way you phrase it, it creates the clear impression that Casey's position represents a telling and significant recent change of attitude for Casey & Co. If Casey has "incredible insight" then why has he and his staff been loudly making the same prediction for the last 20 years? Eventually, through sheer perseverance, he will be right, of course. But that is not the point. He has recommended the 1/3 / 1/3 / 1/3 investment plan before.

Vouching for another person's credibility while declining to provide direct evidence is a tricky thing, and if you're not careful, doing so can bite you in the butt. Every time you give a sponsion, you are putting your own credibility on the line. If you give sponsions out like popcorn, then sooner or later you will end up vouching for the wrong person, and destroy your own credibility in the process.


P.S. United States Copyright law does not prohibit the quoting of parts (even substantial parts) of another's work for bona fide purposes of critique or review, as long as you are not putting your name on it and republishing it yourself with an intent to supercede the copyrighted work. It comes under the doctrine of fair use, is guaranteed by copyright law, and is fundimental to the intelligent discussion and review of published works. The copyright holder of a work cannot deny you this right.

 

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - Nov 25

Jrf29: 

Thanks. I did not know Casey has been calling this for 20 years.

From ALL the reading I do, and all these newsletters his struck me as the least 'alarmist' out of all the alarmist.  But you are right. 20 years is a long time. A friend of mine is a liscensed broker but doens't practice, he told me of this in scenario 1995. Seems like it can just take a while to play out, if in fact that is wht it is doing and I'm thinking it is but I will certainly temper my comments, you raise super merrits and I don't want to misslead anyone.

Take care 

capesurvivor's picture
capesurvivor
Status: Platinum Member (Offline)
Joined: Sep 12 2008
Posts: 963
Re: Daily Digest - Nov 25

Hi Davos, 

One thing we have to keep in mind is that people have made lots of $$$ forecasting disaster and ruin of the U.S. for decades. That they should finally be approaching correctness...well, not too surprising.  Chris has positioned himself as an educator, rather than an exploiter, from my view, and has considerably more credibility to me, supporting his expositions with actual facts.

 

Casey is one of a group of nuts that made good $$ appealing to people's fears when there was a lot less justification.

 

Keep on writing.

 

SG

gregroberts's picture
gregroberts
Status: Diamond Member (Offline)
Joined: Oct 6 2008
Posts: 1024
I have an idea, God help us!

I sent an email to admin today...

Hello,
 Since we are in an information war of sorts we should treat it in the same way as a real war, soldiers have sectors assigned to them so everyone is not shooting the same person and we should try to do the same thing with the Crash Course.

 I would guess that many people would want to send the CC to Congress but really only one copy per Congressperson is necessary, same with the states, cities, and local govts. These would be the best places for the CC to go first and then these  copies would trickle down to friends and families of the politicians.

My suggestion is we could set up sectors for people to volunteer to send the CC to so as not to waste them. I live in Northern California near Redding and I could take this sector but we would have to determine the boundaries. Also we could help out those in large cities if they cannot afford to buy sufficient quantities. Not sure how this could be setup but there are a lot of smart people on this site and I'm sure we can figure it out.

Thank you for your time
Greg

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