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.

Monday, June 16, 2014

FRED blog recklessly wrong on education employment

The Federal Reserve Bank of St. Louis collects and publishes a lot of useful data and tools to analyze the data. They recently started a blog highlighting interesting pieces of economic data and trends. This week, they talk about education and health care employment and present a nonsensical conclusion with absolutely no evidence. Head. Desk. Whack. Whack. Whack.

There’s little doubt that the prices of education and health care have risen considerably over the past decades. One reason for this is that more and more people work in these fields.
With no other evidence, simple supply and demand suggests that more available labor would drive costs down as more people compete for the jobs. The growth in the number of jobs means something is driving employment up. For health care, it is clearly the aging of the baby boomers, who require more care. For education, I think it is the massive, unprecedented increase in student loans available. That easy credit increased demand, just like easy mortgage credit increased housing demand and drove prices to an insane bubble. Back to health care, an argument can also be made for monopoly pricing practices in both hospitals and doctors, plus the massive federal subsidies of Medicare and Medicaid. Presenting the data is a FRED strong suit, making sense of it sometimes isn't.

Wednesday, May 28, 2014

Morgan Stanley sees all and controls the future

A couple of weeks after having their prediction broken, Morgan Stanley's crystal ball proves all knowing and all seeing. Gold was crushed from the 1300 level to the 1250s in less than two days. I'm starting to get used to the ideas of MMT and the end of all markets (except for labor).

Monday, May 5, 2014

Morgan Stanley prediction fails within 5 days

From this article titled Morgan Stanley: gold price won't see $1,300 again:
The gold price on Tuesday continued to hover below the $1,300 an ounce level, down more than $80 an ounce from 2014 highs reached mid-March. US investment bank Morgan Stanley added to the negative sentiment, forecasting the gold price to average $1,250 this quarter, decline to an average $1,168 in the second half of 2014 and weaken further to $1,138 next year.

And this morning from

There are a dozen failed market predictions like this every week, not all about gold or commodities, from the highly compensated investment banks. The joke is on the thousands of low IQ clients paying for the advice.