Joe, a retired, Kingston, NY commodities trader and Brooklyn College alum, is a drinking buddy. He predicted $1750 gold on Labor Day while he, Mike and Mark Marnell, a left wing attorney, and I were imbibing a 1.75 liter bottle of four-year-old single malt scotch called McClelland's. I picked it up at JK's Wine and Liquor in the Kingston Plaza mall. For only $43 for a jumbo bottle, McClelland's is a good buy.
On that fateful Labor Day Joe predicted $1750 gold this month. It just about hit $1750 the other day, but today it soared to a bid of $1769 (at 2:26 P.M.). The reason is the Fed's announcement of quantitative easing. My brokerage accounts, because of the recent moves in the general stock market coupled with the recovery in metals prices and real estate, are at or near all-time highs. According to Kitco: " Spot gold was last quoted up $37.50 an ounce at $1,769.50. December Comex silver last traded up $1.298 at $34.60 an ounce." The stock market is also buoyant: The Dow is up 224 points, or 1.68 percent, and the S&P 500 is up 1.76% at 1461.
Quantitative easing or QE3 is one more round of money printing. Monetary expansion boosts the stock market because increasing the quantity of money reduces the price of money, the interest rate. A lower interest rate increases the discounted future value of profits. That increases the stock market because stock prices discount future earnings. It is a mechanical relationship. As a result, the Fed has played the Nixon card with Obama: in 1972 Nixon encouraged then-Fed Chairman Arthur Burns to ease so that the stock market would go up; now, Ben Bernanke's Fed is easing and Obama will win the election. Likewise, the Europeans are accommodating Obama. A recent German court decision held that Germany can participate in a bailout of profligate Greece and other southern rim nations. Hardworking Germans can now sacrifice their savings to fund pensions of Greek public sector retirees who have produced little and demand much.
Joe does not have much faith in the stock market. He is right in a fundamental sense: there is no reason to have faith in the structural reality of the underlying economy. The excesses of the Clinton and Bush years are still around, and Obama has done nothing to correct them. Americans, for an unfathomable reason, tend to reelect presidents when the stock market is high. The monetary expansion that increases the stock market harms most of them; in other words, most Americans vote for politicians who directly harm them.
The reason is that the monetary expansion that boosts the stock market devalues wages. As the money supply has expanded since the Reagan and Clinton years, the link between real wages and productivity has been eliminated for the first 40-year period in American history. American workers are no better off today than they were in the early 1970s, but stockholders are much better off. In other words, the income inequality that liberals grieve over is directly due to the policies of Paul Krugman, Woodrow Wilson, Franklin Roosevelt, Richard Nixon, Ronald Reagan, Bill Clinton, George Bush, and Barack Obama. Obama has done nothing to clean up this mess. Historically, he has contributed more to it than anyone else.
The stock market may continue up through the fall and possibly into 2013. Eventually monetary bubbles implode as bondholders realize that their bonds are going to become worthless. As real interest rates start to rise, Fed policy becomes irrelevant. If the Fed continues to print money thereafter, there will be a monetary collapse. Otherwise, there will be rising interest rates and stagflation as the expansion of the monetary base is transformed into cash money.
If real interest rates start to rise, the stock market will not do well, but commodities will because of the inflation. If the dollar remains stable, the increasing money supply will continue to boost the stock market.
I am easing out of the stock market. I had sold the stocks in my pension fund (I still have real estate), which were about five percent of my total stock holdings. I have low-beta (low-risk, high dividend) stocks like Philip Morris, Kimberly Clark, and Heniz in one brokerage account, and higher risk stocks in the other. I will sell the higher-risk stocks over the coming months, except for the gold mine stocks. I hold both the gold index and the Van Eck juniors index. I would like to be able to pick gold mining stocks, but I lack the expertise.
The stock market is likely to continue up into the coming year; thereafter, all bets are off. If you look at a picture of the S&P 500 since 1950 there are two massive peaks in 2000 and 2007; we are approaching the height of those two peaks now. Because of the massive monetary stimulus, the peak could get higher in nominal terms. As the monetary expansion translates into a depreciating dollar the reverse can and will occur.
Thursday, September 13, 2012
Saturday, September 8, 2012
Thoughts on Coming Economic Dislocation
Money is not just a matter of perception. As the amount of money is increased, the supply forces higher prices or misallocation of resources. Faith in the currency is reduced; people stop working hard because they realize that asset prices (stocks) are increasing, but wages aren’t increasing. Foreign dollar holders realize that the dollar is getting cheaper. Those are not merely perception. They are caused in large part by increasing the amount of dollars.
The chief differences between Ron Paul and Gary Johnson versus Mitt Romney and Barack Obama are (a) a commitment to limiting the money supply and (b) a commitment to reducing the scope of government, which is a corollary of (a). I’m not sure that a monetary collapse can be avoided by anyone at this point, but the public needs to be made aware that the reason for the coming instability is government, not freedom. The response in many places to economic dislocation has been authoritarian.
In two to three thousand years of human history this has happened numerous times, and no one has found a way around it. It happened in Rome, in China (recall the Chinese invented paper money), and it will happen again.
Keynesian economics says that you can stimulate the economy with government spending and monetary expansion, and monetarist (Republican) economics says that you can stimulate the economy with monetary expansion alone. Neither has a plan of action for what to do when the indebtedness and cheap money cause economic dislocations, reallocate wealth to the wealthy, and reduce the standards of living of those whose livelihood is concentrated in cheapened dollars rather than stocks, real estate, commodities, and leveraged assets.
Anyone who works has already been harmed—with a standard of living likely half of what it would have been with a gold standard. Literally half. The productivity gains since 1970 have not been translated into higher wages for the first time in American history. Our standard of living is already much lower than it would have been had Nixon retained the gold standard, raised interested rates, and caused a recession that would have forced up the dollar. There would have been short run unemployment, but real wages would have continued to rise with productivity.
The people who are being hurt are (a) retirees, (b) those who have their wealth in dollars (CDs, savings), and (c) wage earners. The pain will get worse. The way out is to redefine yourself as an asset owner through leveraged purchases of real estate, commodities, and stocks, especially if there is a cyclical correction in the stock market soon.
As a society, the stabilization of the money supply and reduction in government spending has to be done through public choice; the public is not so choosing, so I don’t think there will be a way out as a society until the pain of inflation or other economic dislocation becomes great, when it will be too late.
The belief in something for nothing (for the Republicans, to hedge fund owners, Wall street, real estate owners, stockholders, cronies like Halliburton; and for the Democrats, the same as for the Republicans plus welfare recipients, public employees, and cronies like Soros) is simply too strong in both parties. Both parties (despite the Republicans’ recent platform position in favor of the gold standard) are committed to paper money whose quantity they consistently expand. This started with Nixon and Reagan.
Eliminating it would require sharp reductions in spending and stabilization of the money supply. The problem is that we have already printed $10 trillion dollars and sent them overseas (compared to a massively increased US money supply of $2.6 trillion). If the US stabilizes, perhaps the dollar will continue as the world’s currency, and pain will be avoided in our lifetime. As Giustra points out in the video, this is unlikely because neither party is interested in restraining government, and the public, convinced by the television set, favors the government spending, both domestic and military.
The chief differences between Ron Paul and Gary Johnson versus Mitt Romney and Barack Obama are (a) a commitment to limiting the money supply and (b) a commitment to reducing the scope of government, which is a corollary of (a). I’m not sure that a monetary collapse can be avoided by anyone at this point, but the public needs to be made aware that the reason for the coming instability is government, not freedom. The response in many places to economic dislocation has been authoritarian.
In two to three thousand years of human history this has happened numerous times, and no one has found a way around it. It happened in Rome, in China (recall the Chinese invented paper money), and it will happen again.
Keynesian economics says that you can stimulate the economy with government spending and monetary expansion, and monetarist (Republican) economics says that you can stimulate the economy with monetary expansion alone. Neither has a plan of action for what to do when the indebtedness and cheap money cause economic dislocations, reallocate wealth to the wealthy, and reduce the standards of living of those whose livelihood is concentrated in cheapened dollars rather than stocks, real estate, commodities, and leveraged assets.
Anyone who works has already been harmed—with a standard of living likely half of what it would have been with a gold standard. Literally half. The productivity gains since 1970 have not been translated into higher wages for the first time in American history. Our standard of living is already much lower than it would have been had Nixon retained the gold standard, raised interested rates, and caused a recession that would have forced up the dollar. There would have been short run unemployment, but real wages would have continued to rise with productivity.
The people who are being hurt are (a) retirees, (b) those who have their wealth in dollars (CDs, savings), and (c) wage earners. The pain will get worse. The way out is to redefine yourself as an asset owner through leveraged purchases of real estate, commodities, and stocks, especially if there is a cyclical correction in the stock market soon.
As a society, the stabilization of the money supply and reduction in government spending has to be done through public choice; the public is not so choosing, so I don’t think there will be a way out as a society until the pain of inflation or other economic dislocation becomes great, when it will be too late.
The belief in something for nothing (for the Republicans, to hedge fund owners, Wall street, real estate owners, stockholders, cronies like Halliburton; and for the Democrats, the same as for the Republicans plus welfare recipients, public employees, and cronies like Soros) is simply too strong in both parties. Both parties (despite the Republicans’ recent platform position in favor of the gold standard) are committed to paper money whose quantity they consistently expand. This started with Nixon and Reagan.
Eliminating it would require sharp reductions in spending and stabilization of the money supply. The problem is that we have already printed $10 trillion dollars and sent them overseas (compared to a massively increased US money supply of $2.6 trillion). If the US stabilizes, perhaps the dollar will continue as the world’s currency, and pain will be avoided in our lifetime. As Giustra points out in the video, this is unlikely because neither party is interested in restraining government, and the public, convinced by the television set, favors the government spending, both domestic and military.
Friday, September 7, 2012
Thoughts on Gary Johnson
Above link is to a 2010 interview with Governor Johnson I did for the Republican Liberty Caucus. He has strong small government credentials;
he vetoed more bills than all other governors combined; he got good ratings
from CATO despite having to negotiate a Democratic-dominated state; he has more
executive experience than Obama or McCain had when they were nominated and as
much as Romney; also, his executive experience evidences a strong commitment to
putting the principles of reduced government and freedom ahead of
politics. In contrast, Romney introduced
the same kind of health care plan that Obama introduced; Romney has never been
consistent in any of his principles; Romney has been a major beneficiary of the
Fed-funded financial industry that is the underlying force behind big government
(of which the bailout is the most visible but not the only symptom). There is a comparison between Romney and
Johnson: Romney has spent his life benefiting from and implementing big
government; Johnson started a real business from scratch and has fought big
government.
Mr. Johnson is more honest, as capable, as
moderate, and more committed philosophically to the ideas of freedom than any
candidate other than Ron Paul. He
succeeded at a real business, unlike Romney’s; Romney succeeded at a
crony-capitalist one funded with and dependent on printed government money. Johnson is a real businessman. Romney is a
crony capitalist.
Wednesday, September 5, 2012
Carl Paladino on Sheldon Silver
-----Original
Message-----
From: Carl Paladino
To: Carl Paladino
Sent: Wed, Sep 5, 2012 7:36 pm
Subject: Sheldon Silver and the New York State Press a/k/a Wimps
From: Carl Paladino
To: Carl Paladino
Sent: Wed, Sep 5, 2012 7:36 pm
Subject: Sheldon Silver and the New York State Press a/k/a Wimps
Obviously you are not disposed to call for Sheldon
Silver's resignation or even a Federal investigation
of his corruption. After all, he only embezzled
$103,000 from the State treasury and in the context
of his other high crimes and misdemeanors, what's the
big deal? Silver was only doing what he has always
done. He was bailing out his buddy Vito Lopez. After
all he is Sheldon Silver, the guy who wrote the book on
intimidating the press with the denial of access. Just
ask Liz Benjamin and Jim Vielkind. Is there no one in
the spineless press who has the cohunes to stand up to
this diabolic scoundrel?
Considering Silver's past, the press should be asking
if it was quiet money to keep Vito's mouth shut about
other topics? We'll probably never know the answer to
that because the press will let the good old Albany
establishment boys bury the issue with a Special
Prosecutor investigation that will go on forever
and result in nothing. Whenever politicians want
to bury an issue they appoint a Special Committee or
Prosecutor.
Silver acknowledged "a mistake was made." Was it an
intentional mistake? The confidentiality clause, his
long history of making such "mistakes" and the BS that
other elected officials knew lead one to believe that
it was an intentional and unforgivable mistake.
What more do you need to demand his resignation?
Silver is a poster child for term limits. 18 years
of intimidation, arrogance, illusion and theatrics
that the establishment boys call "skill." He rules
the entire State government with an iron fist. We'll
never see Tort, Malpractice or Workers Comp reform
while he's there. He gets a load of
money from his personal injury law firm, and under
the rules he has written, he is not required to
disclose it. We'll never see reform of the Wick's law,
Taylor Law or Tri-borough Amendment which punish the
taxpayers with mind boggling costs. We'll also
never see initiative and referendum which would
give the taxpayers a real voice in their government.
Silver thinks that three men in a room with one
alpha dog works good for him.
Mike Gormley's expert from someplace else tells us that
Silver is out of the weeds because all his actions were
known to the Comptroller and Attorney General. What
Mike didn't say is that both of them owe their jobs to
Sheldon Silver and have been his puppets for years. That
doesn't work for the people Mike. The "Joint Commission
on Public Ethics" was personally picked by Silver. That
also doesn't work for the people Mike.
We know the press is just peachy with things as they are.
The status quo suits you so well because it keeps the
taxpayers dumbed down and cheap brainless staff keep your
profit margins up. You can sell the people of New York just
about any garbage. They eat it up. They accept mediocrity
and failure because the press has told them that they can't
do anything about it. Those who can get out. Meanwhile
guys like Silver keep the entitlements rich to bring more
dregs to New York to enhance the effort for a permanent
democratic majority. Silver recently showed just how
far he has gone off the reservation by proposing that New
York State taxpayers give financial aid to educate any
illegal in America. Who wants to stick around to pay
for that burden?
Corruption is rampant in Albany because Shelly Silver is
not only involved and complicit but he also protects the
criminality of his followers when one of his bottom fish
gets caught with dirty hands.
Silver's attitude has now evolved to the absurd. He
alone can violate the rules of the Assembly and disburse
taxpayer money with impunity and without prior consultation
or approval. He uses taxpayer money to ensure loyalty. What
possible theory could justify the use of taxpayer money to
resolve a sexual harassment allegation? What other actions
of this man will raise the red flag? Why is a downstate
District Attorney, who associates with the good old boy
establishment RINO's, selected as the Special Prosecutor
instead of a more objective upstate DA who would be less
inclined to belabor the proper dissection of an 18 year
career of arrogant larceny and intimidation. If anyone
else embezzled $103,000 the press would be calling for
the construction of a gallows prior to giving him or her
a fair trial.
The question is why is this particular government
official above the law. For anyone else in government
it would be embezzlement. For Shelly it's just another
day of taking care of his friends and family club.
The press could get by its cowardly image if it followed
its role model,NY Times, and jumped at this opportunity
to take down the man that even his friends refer to as the
demon.
Silver is vengeful and his retaliation is unmerciful. For
me, as the greater fool, it's a call to arms. For spineless
cowards like the editors and reporters (and publishers) of
the New York State press it would be an earth-shattering
bold change of policy. It would require actual research and
a major effort to connect the dots and we all know the
reluctance of the Albany press corps [Tom Precious of the
Buffalo News included.] They don't like controversy and
are only capable of tweaking up feel good press releases.
Here in Buffalo there would probably be a big problem for
Stan Lipsey who's friends and family club members Jordan
Levy and Howard Zemsky may be found on Silver's dance
card when the Feds start following the money. Do they do
each other big favors? Are investment tips the quid pro
quo for handsome multi-million dollar subsidies from the
taxpayers for their projects? The money comes from one
of Shelly's "off the books" vehicles like his private
stash of taxpayer cash which some refer to as the
Dormitory Authority.
He who lives by the sword will die by the sword.
If you agree with the above, forward it to your
friends and family.
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