Philidelphia Mint creates Frankenalloy coins

The US Treasury continues to search for better ways to debase currency in circulation, particularly the penny and nickel that cost it over $100 million a year.

When it comes to making coins, the Mint isn't getting its two cents worth. In some cases, it doesn't even get half of that. A penny costs more than two cents and a nickel costs more than 11 cents to make and distribute. The quandary is how to make coins more cheaply without sparing our change's quality and durability, or altering its size and appearance.

Evaluations of 29 different alloys concluded that none met the ideal list of attributes. The Treasury Department concluded that additional study was needed before it could endorse any changes.

The metals that have the ideal list of attributes for circulating money are now considered "precious" and far too rare to serve as coin of the realm. Is there reason for pause or concern now that copper and nickel are becoming precious metals compared to the purchasing power of the US dollar?

It is only a matter of time until we follow Canada's lead and create steel (or other alloy) nickels and the eliminate pennies.

Five Cent: Come give me a hug

The acting US Mint Director was in Congress today talking about the future of coins and bills. I've been following the ongoing losses the US Mint takes each year on pennies and nickels. Negative seigniorage is not a great long term plan.

As noted here, I've been hoarding nickels as one of several hedges against the purchasing power destruction of US currency via QE and inflation. The Mint was crowing about reducing production costs of pennies and nickels, but admitted that

"The cost to manufacture and distribute the penny and nickel once again exceeded their face values as it has the last six years".

This is a battle they can't win. The only thing to figure out is the terms of their surrender. The raw material costs of the nickel (75% copper, 25% nickel) already exceed the face value. They can prolong the life of the penny and nickel by changing the metal composition to steel, but even so, they have effectively become useless and should be phased out of circulation as Canada has done with their penny.

In 1964, LBJ warned not to hoard silver quarters as they were replaced with a copper/nickel cladding because the US would keep silver prices low and dump Treasury silver on the market. Today, according to the BLS calculator, a 1964 quarter has the same purchasing power as $1.87. Meanwhile, a 1964 silver quarter is worth $6.04, 24 times the face value, or 320% of what the government claims from inflation alone. The hoarders of silver quarters in 1964 made a killing on government lies and currency abuse. It may not work out this time with copper/nickel, but maybe it will.

CFNAI Red Alert

The Chicago Fed National Activity Index is a composite index built from 85 monthly indicators. A reading of zero is historical trend growth, a reading above zero is faster and below zero is slower growth.

source: http://www.chicagofed.org/webpages/research/data/cfnai/current_data.cfm

The CFNAI came in at -0.56 for October and the three month moving average dropped again in October, also to -0.56. This is the lowest reading on the moving average since 2009, and the 8th negative monthly value in a row. The diffusion index came in at -0.32, a sliver away from the critical -0.35 threshold (see below).

There has only been one other time in recent history when a reading this low did not lead to a recession, and that was in 2003. If this is like 2003, we should see a big improvement soon and head back into positive growth territory. If not, well, Merry F'ing Xmas.

The Chicago Fed background document states that a reading above +0.7 indicates inflation danger and below -0.7 indicates recession danger. In a 2012 Chicago Fed Letter, Scott Brave and Max Lichtenstein found that:

the crossing of a -0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of the beginning (from above) and end of a recession (from below). This threshold was determined using the Berge and Jord a ROC method. Additionally, Brave and Lichtenstein found that, on average, the CFNAI Difusion Index signals the beginning and end of recessions one month earlier than the CFNAI-MA3.

California UI Trust Fund Balance update

The California unemployment rate recently dropped to 10.1%. It is one of only three states with unemployment still in double digits (Nevada and Rhode Island are the other two). Mass unemployment drained the state unemployment insurance trust fund in 2009 and it has never recovered.

California has been borrowing from the federal government to pay unemployment claims since 2009, and was supposed to start paying interest on the loans back in 2010. The interest payments were initially deferred again, but I'm not sure of the current status.

While the trust fund balance appears to have bottomed, it is still $9.5 billion in the red. California's state budget is $91 billion, so the trust fund liability is over a 10% deficit by itself. The projected general fund deficit for the current year is only $1.9 billion, so all California has to do is turn that into a surplus for 5 years straight (assuming no interest) to get the trust fund back to zero.

See also:
Is California Recovering Faster?
California: Unemployment Rate falls to 10.1% in October, Payroll jobs increase 45,800

Sometimes a rainbow is better than a pot of gold

It is time for another austerity vote in Greece, with the current prime minister warning of catastrophe if Greece exits the EuroZone.

It seems to me the catastrophe is unfolding at a rapid pace by Greece staying in the EZ burdened by unpayable debt. With 25% unemployment and 5 straight years of deepening recession, you would think the internal political will would appear to force Greece out, but I guess the suffering is not sufficient yet.

People need hope to get up in the morning. The current political economy in Greece does not foster hope, just the hopelessness of trying to get their national debt down to 120% of GDP after 8 more years of austerity. Even that plan is proving to be impossibly optimistic. The prime minister would be better served taking the sage advice of Poison:

Life ain't no easy ride
At least that's what I'm told
Sometimes a rainbow, baby
Is better than a pot of gold

5 Secrets of Marketwatch Headline Writing Now

Marketwatch, a WSJ web site, has sunk to the lowest awful denominator in headline writing. The formula seems to be "5 ways/secrets/moves BLANK is playing EVENT now" OR "How a bull/bear/trader is reacting to EVENT". The key is to motivate pure speculation based on how other speculators are speculating right now.

Here are a couple of examples:

How one superbull would trade the market open

5 money moves a euro realist is making now

5 money moves a prudent speculator is making now
Prudent?! speculator??.

Money moves 5 doomsayers are making now
Did you catch how they tricked you there? This time, it wasn't 5 moves, it was 5 doomsayers. These people are wizards with words!

5 money moves a cautious capitalist is making now

The financial media, hand maidens to the financial industry, paid for by the financial industry, doesn't care whether you are a superbull, a doomsayer, a cautious capitalist, or a prudent speculator. They just want you to churn your money through the grinder to get their vig. Most of their headlines read like this:
SPECULATE! SPECULATE! SPECULATE NOW!

Only in the greatest country in the world.

Labor Force Employment Details

This post inspired by Calculated Risk's Further Discussion on Labor Force Participation Rate.

Total employment is still off about 3.7 million jobs from the peak in 2007, and up about 5 million total jobs (full and part time) from the bottom in 2009. Let's zoom in on the part time jobs.

We are up about 2.6 million part time jobs from the total employment peak in 2007, but we are up about 4.3 million part time jobs for economic reasons. The largest employment growth segment over the last 5 years is part time for economic reasons. If the economy had not replaced so many full time jobs with part time jobs, we would also be down 1.7 million part time jobs (new part time jobs - new part time for economic reasons).

Disclaimer: part time economic blogger for non-economic reasons

CFNAI Yellow Alert

The Chicago Fed National Activity Index is a composite index built from 85 monthly indicators. A reading of zero is historical trend growth, a reading above zero is faster and below zero is slower growth.

source: http://www.chicagofed.org/webpages/research/data/cfnai/current_data.cfm

The Chicago Fed background document states that a reading above +0.7 indicates inflation danger and below -0.7 indicates recession danger. In a 2012 Chicago Fed Letter, Scott Brave and Max Lichtenstein found that:

the crossing of a -0.35 threshold by the CFNAI Difusion Index signaled an increased likelihood of the beginning (from above) and end of a recession (from below). This threshold was determined using the Berge and Jord a ROC method. Additionally, Brave and Lichtenstein found that, on average, the CFNAI Difusion Index signals the beginning and end of recessions one month earlier than the CFNAI-MA3.

The reading for August was -0.87 and the three month moving average was -0.47. These readings are flashing a recession warning.

The trends are equally discouraging. The August index was the 6th monthly negative reading in a row, and the 4th negative three month moving average reading in a row. The last time that happened (from a general positive trend) was October 2007, two months before the last official recession started.

368,283,619 Years

368,283,619 years is the amount of time it would take for a person to pay off the Federal debt ($16,012,971,761,294.54) if that person was earning the average hourly wage in the U.S. of $21.74/hour (source: http://www.bls.gov/oes/current/oes_nat.htm#00-0000) and worked 2,000 hours per year (50 weeks, 40 hours a week).

If that number of years doesn't sound staggering, it is roughly one twelfth the age of the Earth.

What if we put the entire work force of the US (128,278,550 people) to work on the debt?

Let's also say that everyone stopped eating, stopped paying for their houses and cars, stopped getting sick, stopped paying student loans, stopped paying for insurance, gasoline, everything. They dedicated 100% of their income to paying off the debt.

Let's also say that the debt stops growing and the US government stops all spending including running the military, and declares that all treasury bonds, notes, and bills will from this day forward pay 0% interest.

In that case, the debt could be paid off in only 2.87 years.

All we have to do is roll up our sleeves, stop eating, and shut down the federal government for 3 years and we can clear up this little debt problem.

Gold Price vs Production, Actual and Conjecture

The first chart shows actual gold prices and production from 1994 through 2011.

sources: USGS http://minerals.usgs.gov/minerals/pubs/commodity/gold/mcs-2012-gold.pdf, and Kitco

It is interesting to me that there was not a big increase in production relative to the increasing price until 2011. Part of that delay may have been the time required to ramp up production in mines. 2012 may not set a new production record because of widespread strikes by miners in South Africa.

Another interesting point in the USGS data is the shrinking estimated world reserves. Using the mean production rate of 2,439 tons per year since 1994, the world has less than 19 years of gold production left before it runs out. The next shows three different scenarios for how production might occur in the future. They are all pure conjecture and I have no reason to believe one is any more likely than another.

If mean production rate continues and no new reserves are found, everything continues smoothly until about 2032, then production goes to zero regardless of price. Production could also ramp higher as price increases, then reserves are exhausted faster, or production could decline as energy prices rise in a falling exponential curve. Of course, something completely different may happen.

The black line shows an exponential price curve based on price data since 1994. I added it just to flesh out the thought experiment, but I have no feeling or conviction that price will behave that way.

note: long gold, but not making any recommendations to buy, sell, or hold.

QE4EVA

There were pundits predicting outcomes on both sides prior to the Fed meeting last week. The mainstream expected a substantial QE3, and contrarians expected nothing more than extension of ZIRP. The Fed exceeded the expectations of both combined by announcing a never ending $40 billion QE purchase of mortgage backed securities plus ZIRP through mid-2015. But the Fed went even farther with plans to increase QE if the labor market did not respond fast enough.

I honestly leaned toward the contrarians with the US presidential election so close, and was shocked at the size, scope, and infinite pledge of fresh money printing. The Fed promised to continue to beat savers over the head until morale (labor market) improves. I am trying to remember a time in history when endless money printing solved an economic problem, but I can't. Every case I am aware of has ended in disaster.

Inflation is never uniformly distributed among products, services, or people. This will create some big winners and losers, but since inflationary pain is usually regressive, mostly lower income losers.

Propublica: Bailout Net to Date: $-197,600,000,000

While both parties crow about their achievements and their grand plans, I thought it might be a good time to check the scoreboard on how the massive financial system bailout was working.

According to the detailed tracking by Propublica, the US government has lost $197,600,000,000 so far, more than three years into the recovery.

While there are some profit points, AIG still owes the government over $23 billion for its existence. Bank of America Countrywide is $663 million in the hole. Blackrock investment fund still owes over $1.2 billion. Chrysler owes over $1.3 billion. Fannie Mae is down $90 billion (and getting worse). General Motors owes $27 billion and GMAC (renamed Ally) owes $10.7 billion. Popular Bank owes $773 million. Wellington investment fund $2.9 billion.

These are staggering losses for the taxpayer. The argument from the Fed is that it would have been much worse without intervention, and for a short time, no doubt it would have been. Some viable businesses were saved, but so were money losing, inefficient businesses. The bailout cemented the broken state of the economy in place.

The main incentive in business now is to become so big and financially interconnected that the Fed will print trillions and hand it to you to keep your failed business alive no matter what. Then, you can sit back and collect the bailouts into retirement. Winning!

Unlimited Power!

The European Central Bank agreed on Thursday to launch a new and potentially unlimited bond-buying program to lower struggling euro zone countries' borrowing costs and draw a line under the debt crisis.

Warning: you are entering the sarcasm zone.

Unlimited bond buying means unlimited power!

Now, what Draghi says and what he does may end up being different. The ECB announcement also said that the buying would be sterilized, meaning reserves are reduced or assets are sold to keep to the total money supply the same. The announcement also said the buying would come with conditions. Of course, Greece hasn't lived up to those conditions and money keeps flowing, so the conditions may be mere suggestions.

In response to the ECB bazooka, the S&P rose over 2% to multi-year highs. A lot of paper wealth was created today based on the ECB statement. What I wonder is why no financial geniuses in the past ever came up with the idea of monetizing bad debts of a government to make everyone wealthy. I bet the citizens of Spain, Italy, and Greece are feeling really wealthy now that all of their problems have been solved.

CA UI Trust Fund Balance

The California Unemployment Trust Fund Balance in June, 2012 was -$8.904 billion. The YoY numbers from February, 2012 through May, 2012 showed small improvements, and May showed the largest monthly improvement in the fund balance since 2007. However, June slipped below the June, 2011 number. It's too soon to tell if this is a bottom or a pause before a renewed plunge.

The Fund continues to operate on Federal loans which began accruing interest on January 1, 2011. Unemployment insurance rates, both state and federal have gone up significantly in recent years to begin to return the system to solvency.

Bananas vs. Silver: Purchasing Power

I love bananas. My family usually buys some every week. I especially like the potassium to help me minimize muscle cramps. How do bananas compare with silver as an investment, and how do well do they hold their purchasing power over time?

The video above shows a time lapse of 24 days wherein a bunch of delicious bananas rot into a lumps of black mush. Not very good at maintaining purchasing power over time.

For comparison, a silver dollar minted in 1921 with a face value of $1.00 would have an inflation adjusted purchasing power of $12.80 today, according to the BLS inflation calculator. Here is a 1921 beat up silver dollar that sold for $28.39 on ebay today. There are certainly no guarantees that silver or silver dollars will keep up with inflation in the future, but it is highly likely they will retain some purchasing power.


I would invest in bananas over silver any day, as long as I planned to eat them in either the food zone or banana bread zone. If I wanted to keep some purchasing power so I could eat something on day 14+, I would invest in silver.

(disclaimer: this is not investment advice, I currently have long positions in both bananas and silver)

Mean vs Median unemployment divergence

The median duration of unemployment appears to be rapidly improving, while the mean appears to be stuck at historic highs. While the median is still high, the improvement may be the result of people that have either had their benefits expire (99ers) or chose to drop out of the work force, retire early. The mean may reflect the ongoing, grinding, struggle of the long term unemployed that absolutely must work to survive.

It looks like there are two distinctly different groups of unemployed persons left. Those that have employable skills and those that are work force detritus, still trying but have little hope at this point.

This is all just speculation and opinion, but the divergence is sharp and growing.

Marketable Skills vs Retail Investing

I was going to write a long post about all the time I spent over the last 4 years learning about the economy, investing, and speculating. Then, comparing the annual returns from investing/speculating to selling my skills to employers.

I decided a better way was to directly compare my percentage income from each activity (net of expenses, before taxes).

Income from work: 98.6%
Income from investing/speculating: 1.4%

This became crystal clear to me late last year. The only way I could make a living as an investor is if I started with $100 million. I guess that qualifies me to run a hedge fund, but I'll stick with selling my marketable skills.

Consumer Credit minus Federal Student Loans

The headlines on Consumer Credit releases the last few years have been misleading, since they are mostly reported using seasonally adjusted numbers and expressed as a percentage change from the previous period. Here are some examples...

June consumer credit up for tenth straight month
Consumer credit at highest in nearly three years
U.S. Consumer Credit Expands by $6.46 Billion

At least some of the stories are starting to catch on that almost all growth has been directly due to Federal government student loans.

source: FRB G.19 consumer credit outstanding NSA (http://www.federalreserve.gov/releases/g19/Current/#fn7b)

Total consumer credit has mostly flat lined since 2007. When you remove student loans, it has shrunk by wide margin. The next chart shows the inflation adjusted consumer credit levels in 2007 dollars. In real terms, consumer credit has declined significantly over the last 5 years, and if you remove student loans, it has declined by more than 20%. That is the real story on consumer credit. I am not even adjusting for population growth over the last 5 years.

I can understand the argument that the government should ramp up student loans at a time when segments of the population need new skills. It would have helped, though, to not make the student loan laws more harsh and loans not dischargable with the 2005 bankruptcy law changes. It's almost like lenders set a trap for students in 2005 in anticipation of the crash in 2008. Almost.

Postal Service Defaults on Retiree Health Payment

The Postal Service skipped a $5.5 billion payment due to the Treasury for Retiree Health benefits that was due on August 1, 2012.

They plan to skip another $5.6 billion payment due September 30 unless Congress either gives them the money or changes the law.

From my limited understanding, the Postal Service Retiree health plan is over funded, so this won't have any immediate impact on either services or retiree benefits. There is plenty of trouble down the road for both unless the service is restructured to account for the lower volume of mail being sent.

Skipping this payment mirrors what a lot of corporations do by skipping pension fund contributions, and eventually defaulting on their pensions. Unless health care costs reverse trend and start dropping, the retiree health plan will some day run out of funds. Who knows how long it will last.

With all the other fiscal cliff issues dead ahead in this election year, it seems like Congress wants to delay doing anything with the Postal Service until at least next year.

Hoarders!

Looks like a lot of people have been hoarding US dollars, in both physical cash and checking accounts. Since the 2008 credit fraud crash, M1 money has grown quickly and steadily. Note that cash and checking deposits both earn effectively 0% in interest in today's world of ZIRP, but people still prefer to hold them.

The growth in M1 pales in comparison to the growth in the monetary base, M0. It appears that the Fed has an even greater appetite for dollars than the US population. The M1 multiplier fell off a cliff.

Despite all the extra dollars that everyone has, they are not being spent very quickly. The velocity of M1 has fallen dramatically and continues to slide. Another episode of hoarders.

Compulsive hoarding (or pathological collecting) is a pattern of behavior that is characterized by the excessive acquisition of and inability or unwillingness to discard large quantities of objects that would seemingly qualify as useless or without value.

To Infinity...and Beyond!

From Brussels With Love: The EU welcomes the opportunity to pour 100 billion euros into the black hole that is Spain, while forcing austerity on the population with increased taxes and job cuts. (/sarcasm off).

Death Spiral...in Spain?

Mike Shedlock titled a post on this blog Death Spiral in Spain; Six Spanish Regions Seek Aid; Bankrupt Spain to Bail out Bankrupt Regions

Is this the start of a wave of Death Spirals? Hey, I was talking about death spirals long before they became trendy in Europe.

The Magic of Compound Interest (2012 edition)

During a recent discussion with Stagflationary Mark about negative interest rates on short term government bonds, he referred me an article by Richard Russell on the magic of compound interest using 5 year US treasury notes or T-bills and the importance of starting early to save for retirement.

The article features a startling table of investment returns, showing that you really only have to save for seven years to secure your retirement if you can earn 10% on your savings. I have recreated the table below:

.	Richard Russell's DOW theory magic of compound interest (original)
.
.		Investor A		Investor B
.	Age	Contribution	Year End Value	Contribution	Year End Value
.	8	0	0	0	0
.	9	0	0	0	0
.	10	0	0	0	0
.	11	0	0	0	0
.	12	0	0	0	0
.	13	0	0	0	0
.	14	0	0	0	0
.	15	0	0	0	0
.	16	0	0	0	0
.	17	0	0	0	0
.	18	0	0	0	0
.	19	0	0	2000	2,200
.	20	0	0	2000	4,620
.	21	0	0	2000	7,282
.	22	0	0	2000	10,210
.	23	0	0	2000	13,431
.	24	0	0	2000	16,974
.	25	0	0	2000	20,872
.	26	2000	2,200	0	22,959
.	27	2000	4,620	0	25,255
.	28	2000	7,282	0	27,780
.	29	2000	10,210	0	30,558
.	30	2000	13,431	0	33,614
.	31	2000	16,974	0	36,976
.	32	2000	20,872	0	40,673
.	33	2000	25,159	0	44,741
.	34	2000	29,875	0	49,215
.	35	2000	35,062	0	54,136
.	36	2000	40,769	0	59,550
.	37	2000	47,045	0	65,505
.	38	2000	53,950	0	72,055
.	39	2000	61,545	0	79,261
.	40	2000	69,899	0	87,187
.	41	2000	79,089	0	95,905
.	42	2000	89,198	0	105,496
.	43	2000	100,318	0	116,045
.	44	2000	112,550	0	127,650
.	45	2000	126,005	0	140,415
.	46	2000	140,805	0	154,456
.	47	2000	157,086	0	169,902
.	48	2000	174,995	0	186,892
.	49	2000	194,694	0	205,581
.	50	2000	216,364	0	226,140
.	51	2000	240,200	0	248,754
.	52	2000	266,420	0	273,629
.	53	2000	295,262	0	300,992
.	54	2000	326,988	0	331,091
.	55	2000	361,887	0	364,200
.	56	2000	400,276	0	400,620
.	57	2000	442,503	0	440,682
.	58	2000	488,953	0	484,750
.	59	2000	540,049	0	533,225
.	60	2000	596,254	0	586,548
.	61	2000	658,079	0	645,203
.	62	2000	726,087	0	709,723
.	63	2000	800,896	0	780,695
.	64	2000	883,185	0	858,765
.	65	2000	973,704	0	944,641
.
.		Less Total Invested	-80,000		-14,000
.
.		Net Earnings	893,704		930,641

Awesome! Both investors retire with almost a million dollars. Investor B cruised after age 25, not having to invest a single dollar more.

But what happens if you can't earn 10% a year on your money? Instead of 5 year notes, let's go to the long end of the curve in 2012 and load up on 30 year treasury bonds at 2.6%. How do our investors fare now?

.	Richard Russell's DOW theory magic of compound interest (2012 edition)
.	Using 30 year US treasury rate of 2.6%
.
.		Investor A		Investor B
.	Age	Contribution	Year End Value	Contribution	Year End Value
.	8	0	0	0	0
.	9	0	0	0	0
.	10	0	0	0	0
.	11	0	0	0	0
.	12	0	0	0	0
.	13	0	0	0	0
.	14	0	0	0	0
.	15	0	0	0	0
.	16	0	0	0	0
.	17	0	0	0	0
.	18	0	0	0	0
.	19	0	0	2000	2,052
.	20	0	0	2000	4,157
.	21	0	0	2000	6,317
.	22	0	0	2000	8,534
.	23	0	0	2000	10,808
.	24	0	0	2000	13,141
.	25	0	0	2000	15,534
.	26	2000	2,052	0	15,938
.	27	2000	4,157	0	16,353
.	28	2000	6,317	0	16,778
.	29	2000	8,534	0	17,214
.	30	2000	10,808	0	17,661
.	31	2000	13,141	0	18,121
.	32	2000	15,534	0	18,592
.	33	2000	17,990	0	19,075
.	34	2000	20,510	0	19,571
.	35	2000	23,095	0	20,080
.	36	2000	25,748	0	20,602
.	37	2000	28,469	0	21,138
.	38	2000	31,261	0	21,687
.	39	2000	34,126	0	22,251
.	40	2000	37,065	0	22,830
.	41	2000	40,081	0	23,423
.	42	2000	43,175	0	24,032
.	43	2000	46,350	0	24,657
.	44	2000	49,607	0	25,298
.	45	2000	52,949	0	25,956
.	46	2000	56,377	0	26,631
.	47	2000	59,895	0	27,323
.	48	2000	63,504	0	28,034
.	49	2000	67,207	0	28,762
.	50	2000	71,007	0	29,510
.	51	2000	74,905	0	30,278
.	52	2000	78,904	0	31,065
.	53	2000	83,008	0	31,872
.	54	2000	87,218	0	32,701
.	55	2000	91,538	0	33,551
.	56	2000	95,970	0	34,424
.	57	2000	100,517	0	35,319
.	58	2000	105,182	0	36,237
.	59	2000	109,969	0	37,179
.	60	2000	114,880	0	38,146
.	61	2000	119,919	0	39,138
.	62	2000	125,089	0	40,155
.	63	2000	130,394	0	41,199
.	64	2000	135,836	0	42,270
.	65	2000	141,420	0	43,369
.
.		Less Total Invested	-80,000		-14,000
.
.		Net Earnings	61,420		29,369
.
.

Ouch! This time investor A came out way ahead, but both are still in very big trouble. A lifetime of saving has left them without enough to retire comfortably. Maybe they would have done better speculating in stocks or betting on horses.

Just for fun, what happens if we stuck with safe 3 month T-bills, waiting for higher interest rates?

.	Richard Russell's DOW theory magic of compound interest (2012 edition)
.	Using 3 month T-bills at 0.1%
.
.		Investor A		Investor B
.	Age	Contribution	Year End Value	Contribution	Year End Value
.	8	0	0	0	0
.	9	0	0	0	0
.	10	0	0	0	0
.	11	0	0	0	0
.	12	0	0	0	0
.	13	0	0	0	0
.	14	0	0	0	0
.	15	0	0	0	0
.	16	0	0	0	0
.	17	0	0	0	0
.	18	0	0	0	0
.	19	0	0	2000	2,002
.	20	0	0	2000	4,006
.	21	0	0	2000	6,012
.	22	0	0	2000	8,020
.	23	0	0	2000	10,030
.	24	0	0	2000	12,042
.	25	0	0	2000	14,056
.	26	2000	2,002	0	14,070
.	27	2000	4,006	0	14,084
.	28	2000	6,012	0	14,098
.	29	2000	8,020	0	14,112
.	30	2000	10,030	0	14,127
.	31	2000	12,042	0	14,141
.	32	2000	14,056	0	14,155
.	33	2000	16,072	0	14,169
.	34	2000	18,090	0	14,183
.	35	2000	20,110	0	14,197
.	36	2000	22,132	0	14,212
.	37	2000	24,157	0	14,226
.	38	2000	26,183	0	14,240
.	39	2000	28,211	0	14,254
.	40	2000	30,241	0	14,268
.	41	2000	32,273	0	14,283
.	42	2000	34,308	0	14,297
.	43	2000	36,344	0	14,311
.	44	2000	38,382	0	14,326
.	45	2000	40,423	0	14,340
.	46	2000	42,465	0	14,354
.	47	2000	44,510	0	14,369
.	48	2000	46,556	0	14,383
.	49	2000	48,605	0	14,397
.	50	2000	50,655	0	14,412
.	51	2000	52,708	0	14,426
.	52	2000	54,763	0	14,441
.	53	2000	56,819	0	14,455
.	54	2000	58,878	0	14,469
.	55	2000	60,939	0	14,484
.	56	2000	63,002	0	14,498
.	57	2000	65,067	0	14,513
.	58	2000	67,134	0	14,527
.	59	2000	69,203	0	14,542
.	60	2000	71,274	0	14,557
.	61	2000	73,348	0	14,571
.	62	2000	75,423	0	14,586
.	63	2000	77,500	0	14,600
.	64	2000	79,580	0	14,615
.	65	2000	81,662	0	14,629
.
.		Less Total Invested	-80,000		-14,000
.
.		Net Earnings	1,662		629
.
.

Oh my! The total of all interest earned from both investors combined over their entire working lives is less that $2,500. They both can now compete to be a Wal*Mart greeter, if they are better qualified than the other seniors. Surely they could have done better speculating in almost anything! (Caution: you are entering the sarcasm zone!)

Cash Out Auto Financing

The financial system is still rife with fraud and fantastical deals. Or maybe it is even worse than during the housing bubble as financial frauds are done in broad daylight with no consequences (MF Global, PFGBest, JPM "hedging", etc).

Here is something new I got in an email today from my credit union. An offer to finance 120% of a new or used automobile. Terms:

• Finance up to 120% of the MSRP or RNADA value!
• Flexible repayment terms!
• Online approval in minutes!

You get three different exclamation points and credit in minutes! (bonus exclamation point). I wonder if I could do a cash out deal on a used car. Caution, you are entering the sarcasm zone.

Euro banks getting real stress tests

Every time the Eurozone, or any country does a bank stress test, you can be certain it's a slobbering pack of lies. The last Eurozone bank stress test complete in July, 2011, had only 8 banks fail based on their Tier 1 capital ratios.

Those eight European banks not strong enough to withstand a prolonged recession need to raise 2.5 billion Euros in capital, an industry health check aimed at reviving investor confidence showed on Friday.

The entire Euro banking system only needed 2.5 billion Euros, and that was only in the case of a prolonged recession. To date, I am unaware of any official recession being called in Europe. Mild slow down is how I've read it from official sources.

Today, two independent auditors released results showing that just Spanish banks need from 16-25 billion Euros, 6 to 10 times the amount needed for all of Europe last year. That is, unless those banks face an adverse scenario, in which case they will need up to 62 billion Euros, 25 times the amount needed by all European banks from the stress test last year.

Since every stress test is a slobbering pack of lies, the real capital needs of Spanish banks alone is probably around 250 billion Euros, roughly 100 times as much as all European banks supposedly needed last year.

Real stress tests are coming, and the liars will break under the pressure.

Gold vs. US debt linear regression update

The R-squared is 0.93.

Best fit price is 1,679.80.
One sigma below is 1,597.07.
One sigma above is 1,762.53.
Two sigma below is 1,512.79.
Two sigma above is 1,846.81.

Usual and customary disclaimers. Correlation is not causation. This is not investment advice.

Charlie Munger says that gold is only useful to Jews in the 1930s.

Warren Buffett says stocks beat gold, but he has been wrong for the last 11 years in a row. Maybe Buffett will be right this year.

Taps for TIPS

My good friend, the 20-year TIPS yield, sadly went negative today at minus 0.03 percent. He will be missed by positive yields everywhere.

See also: Death of 20 year TIPS

People on Disability MoM change

sources:
http://www.ssa.gov/policy/docs/statcomps/ssi_monthly/2006/table01.html
http://www.ssa.gov/policy/docs/statcomps/ssi_monthly/2007/table01.html
http://www.ssa.gov/policy/docs/statcomps/ssi_monthly/2008/table01.html
http://www.ssa.gov/policy/docs/statcomps/ssi_monthly/2009/table01.html
http://www.ssa.gov/policy/docs/statcomps/ssi_monthly/20010/table01.html
http://www.ssa.gov/policy/docs/statcomps/ssi_monthly/2011/table01.html

I've read several articles recently that suggested the number of people filing for disability claims under Social Security soared as the 99 weeks of unemployment benefits ended in numerous states. When I looked at the data, all I found was a mild uptrend. I didn't see an explosion of people on disability.

I am not making any claims about the health of economy or otherwise, just that I don't see any big trend changes.