Menu

Michael Gracie

Quantitative easing explained: “Is this an episode of The Twilight Zone?”

Couldn’t pass this up…

Rather than trying to revive the deflation as a cure meme, I’ll just thank Mish.

MG signing off (to buy more 50lb bags of rice)

Peter Schiff: Americans bought too much, with money they didn’t have

I don’t lend much credibility to information garnered from Comedy Central, but this one was good…

The Daily Show With Jon StewartMon – Thurs 11p / 10c
Peter Schiff
thedailyshow.com

I can’t say I agree with Mr. Schiff on hyper-inflation being right around the corner. I believe he is vastly underestimating how far Americans can and will go to reduce their standard of living. You need not concern yourself with how much credit is being poured into the system if there is no actual demand.

He’s certainly hit the bullseye on this though: stimulus, on credit, is having the opposite effect from what was intended. Look no further than the recent spike in oil prices to understand why. That alone could be the recovery’s undoing.

(h/t The Big Picture)

UPDATE: Arthur Laffer says get ready for inflation and higher interest rates. The latter isn’t going to do much for housing – driven by market expectation (i.e. the selling off of Treasuries we’ve seen as of late), it is leaving Bernanke & Co. in one hell of a quandary.

Oil Watch – 05/07/08

After hitting a low of $40.85 on February 17th, the contract for June delivery (now the near term) has rallied to a 65 day high of $58.07 as of this morning.

crudeoilweekly

Of course, we’re supposedly heading into the summer (read: prime time) driving season, so some jump is to be expected. But what’s strange about this 40%+ rally is that crude oil inventories are rising dramatically:

Yesterday’s EIA inventory data did not warrant the price developments seen in the futures markets. It is an odd situation indeed when a 605,000-barrel build in crude stocks is interpreted as bullish by a market already awash with 375 million barrels of crude in storage and another 40 million barrels or so anchored out in the Gulf of Mexico.

We’ll note that some folks are worried about inflation hitting en masse as a result of the arbitrary printing of US dollars to fund fanciful (and unaccounted for) government spending. The Theater O’ Greenback hasn’t yet heard the call to exit stage left, but maybe traders should be looking at this oil stockpiling as an expectation signal.

No matter – if oil continues its march, consumers won’t be joining the summer of love. And any chance of the recovery the powers that be are trying to convince them is well in hand will be swirling in a tanker parked off the Gulf Coast.

US Government launches bold plan for pensioner genocide

“Screw you, AARP” – Ben Bernanke and Tim Geithner, March 18, 2009

The AP wind up:

With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most — if not all — of next year.

The decision to hold rates near zero was widely expected. But the Fed’s plan to buy government bonds and the sheer amount — $1.2 trillion — of the extra money to be pumped into the U.S. economy was a surprise.

Surprise, surrprise, surrrprise.

You heard that right, boys and girls – the government is now exchanging its debt for money that it prints, and buying bonds from wholly-owned subsidiaries in exchange for yet more cash. Never has anything struck a resemblance closer to taking money out of the right pocket and sticking it in the left. I guess the Chinese weren’t particularly impressed with the government’s assurances.

A premonition from Guy Kawasaki that may just be humor, but might not be too far from becoming reality:

Going down to the casino to eat. May cost me $500.

The bullishness at the printing press may put a temporary halt to the wealth destruction we’ve become accustomed to, but creating $1.2 trillion out of thin air has a high probability of turning inflation worries into nightmare.

If you thought you were now retirement-poor as a result of the decimation your IRA/401k endured in the last few quarters, imagine what already retired folks who live on fixed incomes are going to think when a loaf of bread costs $15. What home value they have left, now being extracted in bulk through the magic of reverse-mortgages, is being used to pay jacked-up supplemental insurance premiums and co-pays.

If universal coverage doesn’t wind up killing them, now starvation will.

News you gotta have to end your week – 1/30/09

Or your month

  • TechCrunch’s Mike Arrington is ‘taking a break’ from blogging, and running for his life. While the latter part seems pretty serious, the editor of the venerable Silicon Valley news resource is also blaming a Wall Street Journal property and one of Nick Denton’s gossip columns for some of his woes. And if that’s not enough, Ted Dziuba has called Arrington on the carpet regarding the part of the story dealing with a purportedly known felon who also purportedly owns a gun. We haven’t heard the last of this.
  • Blackstone’s Steve Schwarzman says it’s a wonderful time for buyouts. Henry Kravis too says private equity isn’t dead. It may not seem all that obvious, but these guys have a point – valuations are dropping right along with forecasts, which will in part make up for the fact that nobody can borrow like they used to. Further, I think this will play well with the middle-market buyout houses too – I’m sure there are a lot of business out there which the owners (often the founders) would trade a pile of liquidity for right about now.
  • Of the top performing branded pages on Facebook, only two are really brands. I take that back – if you are selling Barack Obama or Homer Simpson collectibles, you should be jumping for joy right now. And not to be outdone by the furious ‘business competition’ (read: frivolous attention mongering) which always exists among venture-backed startups, Facebook itself is the 8th ranked branded page on Facebook.
  • Les Jones asks what if we had inflation, and nobody showed up for the party? The hyperinflation question is being bounded about, and at the same time so is the deflation meme. I suspect that when and/or if the dollar takes such a whacking that an iPod costs $1,000, people are just going to quit buying iPods. Same goes for TVs, autos, etc., although they’ve pretty much quit buying most of that stuff already. I think the tougher question regarding which way prices go is whether or not the US can provide its own staples – a gallon of milk at $20 would be a real problem.
  • Talk of Google’s mysterious GDrive offering is bouncing about again – it’s file access anytime, anywhere. Meanwhile, Joel Spolsky says don’t ever rely on Google Apps for anything mission critical, or even keeping your coffee dates straight. I won’t be using either, regardless of the reliability. And while I don’t believe Google is going to disappear anytime soon, Mark Glaser is warning on Facebook/Twitter dependence, using alternate reasoning for those two ‘businesses’.
  • Last but not least:

  • Moldy Chum finds the final connection between golf and fly fishing, which means there is still hope for you fly fishing folks looking for AMEX and Buick endorsements.
  • And finally…

  • A new study finds alcohol makes men better in the bedroom. Last week we had to be rich. Now we just have to be drunk?
  • Adieu.

    We Are Facing an ‘Inflation Holocaust’

    Snippets from Jim Rogers:

    The way to solve this problem is to let people go bankrupt. “Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we will start over. This is the way the world has worked for a few thousand years…

    The current rescue plans, which will force governments to issue more debt, print money and flood the markets with liquidity, will flare up inflation after the crisis is over and will create worse problems…

    We had the worst excesses we had in credit markets in world history. We’re going to have to take some pain…

    Many people bought 4-5 houses with no money down and no job… you think we’ll just say well, that’s too bad, we’ll start over and nobody loses their job? Be realistic.

    And this:

    We’re setting the stage for when we come out of this of a massive inflation holocaust.

    Jim Rogers has been right about as much as Nouriel Roubini, which is to say an awful lot. I do, however, find it somewhat odd that their prospective remedies seem to differ quite a bit.

    Short case for a soft landing

    While everyone frets about the latest jobs report, maybe there is a silver lining in those clouds…

    There is considerable softening in housing demand (as well as abundant inventory) in developed countries, meaning both shrinking need for raw materials there and some additional demand decline as a result of diminished perception of wealth.

    Could the world deflate it’s way out of a financial crisis? Don’t know, but at the minimum I’m having a harder time seeing a case for the continued price spirals we’ve become accustomed to.

    U.S. Interest Rates & Inflation

    Inflation is a nasty bug:

    To reiterate, the last time Producer prices were this high, the Fed had rates up in the double digits — not at 2%…

    Here’s a chart of the prime lending rate (as published by the WSJ) during “modern economic times” (each color change represents a rate change – click for larger view)…

    prime-lending-rate

    I’ll bet few running around today remember how ugly things were in the midsts of that mountain-in-the-middle. But Paul Volcker was scrambling (and let’s note that he has been more vocal as of late too).

    Producer prices have been rising for a while, but they held off passing on costs to consumers. That game is over. So, the highly leveraged are getting killed by plummeting home prices and the savers are getting killed by just about everything else.

    And you can thank your Federal Reserve for that.

    News I missed while I was intermittently visiting hell

    Hell = golf course

      From betting on the game when the other team doesn’t show…

    • Bridgewater Associates say financial losses from the credit meltdown will hit $1.6 trillion. That means we’re just a few pitches into the second inning in this mess. (h/t Paul Kedrosky)
    • In 2008, autumn seems to be coming early (and looking a lot like 1987). I’ve mentioned this already.
    • Retailers won’t be able to hide rising prices in the revenue line forever – consumer spending is invariably linked to the housing market. (h/t Calculated Risk)
    • From pointing fingers is old hat, and old hats fit nicer than new ones…

    • European politicians are conflicted over how to deal with bloggers. Might I suggest they send a patsy to quiet them down?
    • Some social networks are having trouble monetizing their traffic. Forget the problem of short attention spans amongst teenagers – blame Google.
    • Global warming hysteria has a new friend, the plasma TVs everyone bought with their second mortgage loan.
    • And from technology is my oyster, now give it a sniff before you eat it…

    • How does a thriving technology company morph itself into General Motors? Become extremely bureaucratic about minutia. ADDED: Make sure that minutia is completely irrelevant too.
    • Voicemail is dead. I agree, not because of fabulous web services, but something much simpler – caller id and internal phone contact lists.
    • Email is in trouble too? I’ll agree with that as well, but not because of the newfangled services that exist today. Too few people are ever going to want their communication publicized, and too many are shifting platforms for Outlook to be a long term handicap. Someone is going to rise to the occasion for the mainstream user.

    Sleazy Friday Links

    Getting ready for the weekend

      Topping the sleaze charts:

    • Government officials got big loan discounts from Countrywide. “Friends of Angelo” included, who else, but the heads of congressional banking and finance committees. Note – these folks voted for a government mortgage bailout plan, and no wonder – they’re getting foreclosed on.
    • Voted “Best Value From Your Stimulus Check”:

    • To hell with retail purchases – get “more bang” for your stimulus check dollar. A new “core inflation” measure is just around the corner…ex food and energy and sexual favors.
    • And last and least:

    • A judge recuses himself from obscenity case over a purportedly obscene website, but it seems what was truly obscene was the media’s lack of fact finding standards. The media will continue to cry about the internet killing them, never understanding the simple truth – their product is for shit.