Saturday, December 13, 2014

U.S. Debt vs. Gold Price

I haven't posted a debt vs. gold chart in a long time and thought I'd dust off the data. A few observations:

- Gold is cheaper now (compared to US debt) than it was when Nixon decoupled the dollar from gold in 1971
- It is still slightly above the exponential trend, which appears to flatten around 0.5
- The 2011 bubble was nothing compared to 1980. Wowza!
- I haven't bought gold in a while, nor have I sold it
- still holding enough to catch the last plane to Guangzhou if the whole US goes Ferguson

Monday, December 8, 2014

For he's a jolly good fallow

source: St. Louis Fed

I updated my graph of M0 and M1 money stock to use hot colors (red and orange) since they are hot, hot, hot. The velocity of M1 and M2 use cool colors (blue and green) because they are cool and getting colder. We have lots of money and money potential, but no one wants to move it around. To bankers everywhere, I offer congratulations by singing "For he's a jolly good fallow".

Thursday, December 4, 2014

What if we priced truth in gold?

The FRED (Federal Reserve Economic Data) blog had a post this morning titled "What if we priced food in gold?".

There are several problems with the premise and conclusion, but what interests me more is what signal the Fed is trying to send with this post. Why does the Fed feel compelled to make a point about gold price fluctuations when gold has not been used as currency in the US for 81 years? Has the Fed been flooded with emails asking why we can't use gold to buy groceries? It seems out of the blue.

Let's look at the retail price of bread in New York, NY in dollars using FRED's data. I used all of the available data which runs from 1913 to 1943.

There were some big monthly swings in price. You must account for the supply and demand of bread along with the supply and demand of dollars with the active continuous intervention in the market in both the supply and price of dollars (something the Fed lists as a plus to price stability). For even more instability, let's check out the median price of a new home in US dollars from 1963 to present. This one looks like Mr. Toads Wild Ride!

Friday, October 31, 2014

Donating cash to charities is for fools

$4.4 trillion that could have gone to charity

For individuals, cash is a scarce commodity. I have to earn it by working, and only get to keep what is left over after taxes are taken out from the federal government, state government, and local government. For central banks, cash is an infinite resource that can be created and distributed at the will of a small group of people. The Federal Reserve balance currently stands at well over 4 trillion dollars. Four trillion that was created without work, by simply deciding to create it and spend it on various assets. Theoretically, there are laws that specify where that created money can be spent, but those laws have been bent and broken since 2008 to support failed hedge funds, failed insurance companies, failed banks, failed brokerages, failed mortgages, and more. Really, there are no apparent limits.

I am all for charities, and I am willing to donate material goods and time to certain causes, but it makes no sense to donate something that is infinite, but made artificially scarce for me. Looking at the balance sheets of central banks around the world, you get a sense of what is important. For the Bank of Israel, it's Apple stock. For the Bank of Japan, it's Japanese treasury bonds and stock ETFs. For the Bank of England, it's corporate bonds, and for the Federal Reserve, it's mortgages and treasury bonds. They could just as easily have credited the bank accounts of charities.

Future solicitations I get for cash donations from a charity I will refer to the Federal Reserve for a portion of their divine trillions of cash from the void.

Tuesday, September 9, 2014

Twitter Fritter v.4

I am a little late posting Twitter's second quarter results. For the second quarter, Twitter racked up a GAAP loss of $145 million, even as their revenue increased to $312 million. They still haven't figured out how make a dime of profit. From reading their financial results on the web site, they have figured out how ignore certain expenses in their non-official financial reports:
Non-GAAP Financial Measures
To supplement Twitter's financial information presented in accordance with generally accepted accounting principles in the United States, or GAAP, Twitter considers certain financial measures that are not prepared in accordance with GAAP, including adjusted EBITDA, non-GAAP net income (loss), adjusted EBITDA margin and non-GAAP EPS. Twitter defines adjusted EBITDA as net loss adjusted to exclude stock-based compensation expense, depreciation and amortization expense, interest and other expenses and provision (benefit) for income taxes; and Twitter defines non-GAAP net income (loss) as net loss adjusted to exclude stock-based compensation expense, amortization of acquired intangible assets and the income tax effects related to acquisitions.
In other words, my cash flow looks great if you ignore my mortgage and the 3 vacations I took last month. And yet the stock is soaring. Twitter has convinced investors it can print money indefinitely, just the US government, and as long as investors buy their stock, they can.

Wednesday, August 27, 2014

Interest rates trapped, "It" is winning

The above chart shows 10-year treasury bond yields for the US, Japan, and Germany through the end of 2013 (the last values FRED has for Germany). The downward trend continued through 2014 and this morning, the German 10-year bond yield dropped under 1%.

What seems clear is that massive government debts lead to falling and flatlining interest rates. QE doesn't help because it suppresses rates through central bank purchases. Ending QE doesn't help because then the underlying macro weakness manifests a pent up deflationary wave. Current policies of round robin central bank QE are not working to ignite inflation and only add to the massive debt burdens. As Illusion of Prosperity has been saying for a long time, it is only getting harder to make money from money. Dr. Lacy Hunt from Hoisington Management cited numerous academic studies showing the impact of high levels of debt on growth. The most reliable and unbiased sources I can find don't see sustained rising rates or growth in the foreseeable future.

It is possible that some new policy might break this cycle. A true central bank helicopter money drop should theoretically create a broad increase in consumption in real goods and services and not just financial products. A fiscal money drop similar to what George W. Bush tried in 2008 should have the same kind of effect but with the additional negative effect of increased debt for funding. There are political and legal issues with either of these policies that may prevent them from even being tried.

So far, Bernanke's famous paper describing how he would prevent "it" from happening here has not worked. At best, "it" has been temporarily delayed, but "it" is still out there and "it" is winning.

Thursday, July 17, 2014

IDEA effective unemployment rate


The Institute for Dynamic Economic Analysis (IDEA), lead by economist Steve Keen, produces an unemployment rate measure based on the pre-crisis stable participation rate of 66.2%. It then adjusts the published BLS numbers for U-3 and U-6. Using this methodology, the current U-3 rate is just under 10%. See the full explanation on their web site.

While the participation rate will change over time, and the demographics of aging baby boomers does put downward pressure on the participation rate, I don't believe demographics or other explanations put forward fully explain the sudden crash in participation rate. A more reasonable explanation is that people are retiring earlier, applying for disability more, and staying in school longer or going back to school because the job market has forced them. I personally know people in each of those situations, and also people that have taken part time work because they could not find full time work.