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TranceAddict Investors Club @ Marketocracy (pg. 146)
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| Joss Weatherby |
Not sure, I don't mind eitherway... I am going back to school so I will be again the burdern of my parents sooner or later eitherway. :( :p |
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| Krypton |
From my blog...
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(sources at the bottom)
I wrote earlier that inflation is good when considering the current economic realities with which we are facing. Many jumped to the erroneous assumption that I meant inflation is good in any amount. Clearly, high inflation is not good, few would disagree with that. But inflation is a normal function of capital markets. Inflation is prevalent in a fiat or commodities based money system. So those of you who advocate commodities based currency because you think inflation will end should think twice (Ron Paul squad I'm talking to you). One of the Federal Reserve's objectives is to maintain price stability. When inflation becomes high, they takes measures to reduce it. When deflation takes hold, they take measures against that. This objective requires the Federal Reserve have the power to regulate the money market and to inflate or deflate the money supply as needed. This is not Zimbabwe or the Wiemar Republic so please don't even bring up such horrible comparisons.
In my previous post, I noted that deflation was our primary concern, not inflation. The Ron Paul squad yelled and screamed about the Federal Reserve simply doing its job in inflating the money supply. What they refused to consider was the massive capital losses in the economy which threatened a deflationary spiral. The liquidity injected into the economy is offset by the massive loss in capital. This is not inflating just for the purpose of inflating. I have some figures.
Capital Losses:
Subprime writedowns = $435 billion
US stock market losses = $11 trillion
Real estate value losses = $6 trillion
TOTAL CAPITAL LOSSES = $17.435 trillion
Federal Reserve Activities:
Fed balance sheet increase = $2.106 trillion
Troubled Asset Relief Program = $700 billion
Term Asset-backed Securities Loan Facility = $1 trillion
TOTAL FEDERAL RESERVE PURCHASES & GUARENTEES = $3.806 trillion
It is apparently obvious that the amount the Federal Reserve has infused into the economy is far less than the amount of capital lost in the recession. Clearly, inflation is the least of our worries. The Federal Reserve is not preventing a correction, contrary to what the Ron Paul squad repeats ad nauseum. The correction has clearly happened, even with the unprecedented government intervention currently underway. THE MARKET HAS/IS CORRECTED/ING.
Now, the Federal Reserve has essentially tripled its balance sheet holdings. This does have the very real possibility of increasing inflation to levels which we do not want. Luckily, Chairman Ben Bernanke seems to know what he's doing. On his 60 minutes interview, he stated, "When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation." Clearly the Federal Reserve is aware of the inflation risk of their huge increase in their balance sheet holdings.
So why is inflation good or the least of our worries? First, the amount of capital lost is far more than the increase in money supply. Second, the Federal Reserve is aware of the need to deleverage its balance sheet once the economy recovers. We are not on our way to hyper inflation or national bankruptcy or Marxist socialism. There is a lot of garbage out there. Glen Beck and Ron Paul especially. Both of whom have no background in economics. I hope this blog posting answers a lot of questions or persuades some away from the drivel coming from the laissez-faire/Austrian economics advocates.
http://www.bloomberg.com/apps/news?...cPnM&refer=home
http://www.ritholtz.com/blog/2009/0...illion-dollars/
http://www.financialsense.com/fsu/e.../2008/0905.html
http://www.washingtonpost.com/wp-dy...9031802283.html
http://www.cbsnews.com/stories/2009...in4862191.shtml |
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| jerZ07002 |
| quote: | Originally posted by Krypton
I wrote earlier that inflation is good when considering the current economic realities with which we are facing. Many jumped to the erroneous assumption that I meant inflation is good in any amount. Clearly, high inflation is not good, few would disagree with that. |
I can think of a situation in which high inflation is a very good thing. Personally, I would love a period of high inflation. However, for inflation to be good all of the following conditions must be true, a person has:
(1) a large amount of debt (student, mortgage, etc...)
(2) a job that provides an income growth coexistent with inflation (although this isn't particularly true for people on the low end of the socio-economic totem pole), and
(3) an insignificant amount savings (although this isn't as important because there are various ways to protect against inflation, such as investing in foreign currencies, owning commodities, and buying inflation protected treasuries). |
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| Capitalizt |
| ah krypt you poor guy... You honestly believe that the government/fed should replace all spending/wealth that is lost during painful recessions? You really believe that there should be no consequences to an unsustainable boom, and that once a bubble bursts, then the spending that occurred during the boom must be continued at all costs? That is not economics my man. That is nonsense. Lack of spending and falling prices send valuable signals through the economy that force people and businesses to adjust their behavior and expectations to a more realistic level. Preventing this by constantly expanding credit/debt is only dragging out the corrective process and and racking up a HUGE bill to taxpayers in the meantime. The "boom" period with large amounts of malinvestment was the mistake my man. It is that we should be trying to avoid in the future.. Falling prices and rising unemployment are simply the market's attempt to correct the stupidity that took place during the boom years. They are symptoms of the market trying to heal itself..to allocate resources towards sustainable projects and away from unsustainable ones that were undertaken during the last credit-induced boom. America swallowed some poison and is now trying to vomit it out. It's not a pleasant experience but if you care about the long term health of the economy, you shouldn't fight this process. You should welcome it. |
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| jerZ07002 |
| quote: | Originally posted by Capitalizt
Falling prices and rising unemployment are simply the market's attempt to correct the stupidity that took place during the boom years. They are symptoms of the market trying to heal itself..to allocate resources towards sustainable projects and away from unsustainable ones that were undertaken during the last credit-induced boom. America swallowed some poison and is now trying to vomit it out. It's not a pleasant experience but if you care about the long term health of the economy, you shouldn't fight this process. You should welcome it. |
how welcoming would you be if you became unemployed as a result of the economic vomit?
Your analogy to vomiting is slightly flawed. When someone swallows poison doctors don't just sit their and allow the patient to vomit without providing any assistance. Doctors normally give the patient charcoal to absorb some of the poison and fluids to keep the patient hydrated. The fed is acting as a doctor to provide assistance to ensure that the poison doesn't kill us. |
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| Capitalizt |
Shiller home price index (1890-2005) adjusted for inflation:
another look..
http://en.wikipedia.org/wiki/File:S...IE2_Fig_2-1.png
The spike at the end is where we were swallowing the poison. It's ridiculous to claim large real estate losses are a calamity because that wealth was illusory to begin with, Trying to replace or compensate for it's disappearance is not only an exercise in futility but completely illogical as well. I know the chart doesn't show most recent data, but by all accounts home values have not fallen more than 20-30% for the vast majority of the country You're a numbers guy krypt.. Do the math. By my calculations that takes us right down to 130-150 which is roughly where we would expect to be had the bubble never occurred. Have we had price deflation over the past year? Yes. But this was simply deflation from OVERINFLATED levels. It makes no sense to debase the US dollar and rape future taxpayers in an attempt to reflate these asset bubbles because they should never have existed to begin with.
| quote: | | When someone swallows poison doctors don't just sit their and allow the patient to vomit without providing any assistance. Doctors normally give the patient charcoal to absorb some of the poison and fluids to keep the patient hydrated. The fed is acting as a doctor to provide assistance to ensure that the poison doesn't kill us. |
No, I think a more appropriate analogy is that they are giving the patient anti-regurgitation drugs, painkillers, and shots of adrenaline to keep him upright, moving forward, and feeling temporarily fine. They haven't done anything about the poison. If anything they have guaranteed the a slow and painful death for the patient by refusing to let nature to take it's course. |
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| Krypton |
| quote: | Originally posted by Capitalizt
You honestly believe that the government/fed should replace all spending/wealth that is lost during painful recessions? |
Never said that.
| quote: | | You really believe that there should be no consequences to an unsustainable boom, and that once a bubble bursts, then the spending that occurred during the boom must be continued at all costs? |
I said in blog..."The Federal Reserve is not preventing a correction, contrary to what the Ron Paul squad repeats ad nauseum. The correction has clearly happened, even with the unprecedented government intervention currently underway. THE MARKET HAS/IS CORRECTED/ING."
| quote: | | That is not economics my man. That is nonsense. |
What's nonsense is an unregulated market.
| quote: | | Lack of spending and falling prices send valuable signals through the economy that force people and businesses to adjust their behavior and expectations to a more realistic level. Preventing this by constantly expanding credit/debt is only dragging out the corrective process and and racking up a HUGE bill to taxpayers in the meantime. |
Really, so the $17+ trillion in capital losses was what?
| quote: | | The "boom" period with large amounts of malinvestment was the mistake my man. It is that we should be trying to avoid in the future.. |
Yea right. The banks are going to self-regulate themselves right?
| quote: | | Falling prices and rising unemployment are simply the market's attempt to correct the stupidity that took place during the boom years. They are symptoms of the market trying to heal itself.. |
Notice how that is happening even with the unprecedented government intervention. Clearly you are wrong in your statement about how government intervention is not allowing the market to correct. Clearly, the market has/is corrected/ing
| quote: | | America swallowed some poison and is now trying to vomit it out. It's not a pleasant experience but if you care about the long term health of the economy, you shouldn't fight this process. You should welcome it. |
lol...Infusing $4 trillion into a system which has lost over $17 trillion in capital losses is fighting the "process"? No.
| quote: | | The spike at the end is where we were swallowing the poison. It's ridiculous to claim large real estate losses are a calamity because that wealth was illusory to begin with, Trying to replace or compensate for it's disappearance is not only an exercise in futility but completely illogical as well. I know the chart doesn't show most recent data, but by all accounts home values have not fallen more than 20-30% for the vast majority of the country You're a numbers guy krypt.. Do the math. By my calculations that takes us right down to 130-150 which is roughly where we would expect to be had the bubble never occurred. Have we had price deflation over the past year? Yes. But this was simply deflation from OVERINFLATED levels. It makes no sense to debase the US dollar and rape future taxpayers in an attempt to reflate these asset bubbles because they should never have existed to begin with. |
There is far more to it than simple real estate values.
| quote: | No, I think a more appropriate analogy is that they are giving the patient anti-regurgitation drugs, painkillers, and shots of adrenaline to keep him upright, moving forward, and feeling temporarily fine. They haven't done anything about the poison. If anything they have guaranteed the a slow and painful death for the patient by refusing to let nature to take it's course.
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You'r advocating the patient just die. Just let the economy die. Yea, tell that to the American people when hits the fan and their bank is insolvent. |
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| Capitalizt |
| quote: | Originally posted by Krypton
I said in blog..."The Federal Reserve is not preventing a correction, contrary to what the Ron Paul squad repeats ad nauseum. The correction has clearly happened, even with the unprecedented government intervention currently underway. THE MARKET HAS/IS CORRECTED/ING."
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The correction is still happening, but the intervention is prolonging it and bankrupting us in the process.
+$9 trillion in projected deficits over the next decade according to the CBO + the $4 trillion on the fed's books which isn't counted in these figures + TRILLIONS in additional bailout liabilities + the baby boomers retiring en masse over the next decade sucking the entitlement system dry.. Man oh man, there's gonna be hell to pay for our big government ways.
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What's nonsense is an unregulated market.
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Lack of regulation was a factor but not the cause of the bubble. I think you know that.
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Really, so the $17+ trillion in capital losses was what? |
Illusory wealth built on credit expansion and overleveraging. It should never have existed so it shouldn't be replaced..just like the trillions lost in the dot com boom. Pets.com shouldn't have been worth as much as Target..so when it lost 99% at the end of the bubble.."billions...zomg!", it was not a calamity.
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Yea right. The banks are going to self-regulate themselves right?
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When did the discussion become about regulation?
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Notice how that is happening even with the unprecedented government intervention. Clearly you are wrong in your statement about how government intervention is not allowing the market to correct. Clearly, the market has/is corrected/ing |
I never said the market wasn't correcting. Clearly it is TRYING to correct, and clearly the government is standing in the way..bailing out out fatcats, raping taxpayers, and guaranteeing the destruction of the dollar in the future.
| quote: | | lol...Infusing $4 trillion into a system which has lost over $17 trillion in capital losses is fighting the "process"? No. |
"Infusing"..lolol. As if $4 trillion in real wealth can be created at the stroke of a pen.. As if $4 trillion in digits can somehow equal $4 trillion in real goods and services created by the productive sector of the economy. I think you know this is the same nonsense that got us into this mess in the first place krypt.
| quote: | | You'r advocating the patient just die. Just let the economy die. Yea, tell that to the American people when hits the fan and their bank is insolvent. |
I'm trying to prevent the hitting the turbine on a Boeing 747..which looks inevitable at this point. Interventionist policies are just making the fan go faster and faster |
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| Nrg2Nfinit |
im still tracking your portfolio capitalizt.. have you sold your shares yet? im tracking a 4.36 % return on your picks
gld
csco
ung
csco is seeing 38% gains though which is great though |
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| Capitalizt |
| quote: | Originally posted by Nrg2Nfinit
im still tracking your portfolio capitalizt.. have you sold your shares yet? im tracking a 4.36 % return on your picks
gld
csco
ung
csco is seeing 38% gains though which is great though |
You forgot SLV..thats my favorite. :) I sold UNG for a loss and CSCO for a gain..I just wasn't confident in either pick given the crazy economic news, but I still made around 3% on them combined. I'm hanging on to the other two permanently though. I don't even look at them any more because I'm sure they will be a double in 3-5 years and up 500%+ within 10 years. SLV might even be a ten bagger ;) |
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| Krypton |
I keep mine up. I'v recovered a huge amount of my losses and still beat the market spectacularly. About to do another valuation to see which ones have reached intrinsic value.
http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa/ps/FundPublicPage/source=HcDoBdBcEgMiPlKnMaKiAbDd |
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