Friday, December 21, 2012

Galbraith's Bezel

So I recently saw the film "Prometheus".  Its interesting, no doubt, (R. Scott does not make uninteresting anything) but the suspension of disbelief was unfortunately punctured by several instances that would only make sense if humans were not humans.  But I will not spoil things for the uninitiated.  Keeping an open mind with respect to multiple interpretations is a healthy thing.

And so that wonderful spacecraft known as "Galbraiths Bezel" is about the land squarely upon the AU platform.  There will be much braying about the definition of a "safe" asset from people who put a significant portion of their savings (and it appears to me that the retail investor, as always, is left holding the bag) into gold and securities and financial instruments with a claim on the returns derived from gold holdings (yes, it is laughable that anyone would simply trust gilded financial institutions to buy and hold anything when prices drop substantially).

So here come the lawsuits.  Oh, I could name some of the culprits most likely to receive indictments/wells notices/congressional summons/etc.  But who wants to provide spoilers to a rapidly unfolding plot?  Just sit back and enjoy.

Tuesday, December 18, 2012


Gold is showing weakness.  If you took my advice years turns out using "real life" risk metrics you would of had a rough time!  Still, this atavistic fascination with something produced by other countries (thereby guaranteeing its non-use by the U.S. in terms of a currency or "store of value") has had a great run.  But all those shops you see in everydayUSA promising Gold as a great investment should have tipped you off that the smart money has left this trade long ago.

A restless night for Shalom...

...this is not the kind of result Bernanke wants to see.   More evidence that the monetary channel of "stimulus" is broken, something I have repeated here for years.  This is a major reason why deflation is should be of primary concern to the U.S. economy, and its interesting to note the policy recommendations and "debates" concerning solvency continue to get first-page treatment from the media and the political class.

But my use of "the political class" should clue you in to why that is, dear reader.

So perhaps he is sleeping very well tonight indeed.

Deposits at U.S. banks exceed loans by an unprecedented $2 trillion as the threat of a slowing economy tempers borrower demand and lenders preserve tightened standards.
Cash deposited at firms from JPMorgan Chase & Co. to Bank of America Corp. expanded 8.7 percent this year to a record $9.17 trillion through Dec. 5, Federal Reserve data show. That outpaced a 3.7 percent gain in loan assets to $7.17 trillion. The gap between what banks take in and lend out has surged since October 2008, the month after Lehman Brothers Holdings Inc. collapsed, when loans exceeded deposits by $205 billion.

Thursday, December 13, 2012

In an seemingly innocuous...

...yet highly pretentious article (read below...I have no idea how that sentence cleared the editors), it appears the IMF has decided to play a game that is analogous to the U.K.'s antiquated Knighting system e.g. granting a title that is meaningless but somehow bestows promotional value to the recipient.

There are no true "reserve currencies" without a powerful military.  It has always been thus.  A "new era in world money"?


LONDON (MarketWatch) — The Australian and Canadian dollars, the
world’s leading commodity-rich currencies, are being formally
classified as official reserve assets by the International Monetary
Fund, marking the onset of a multi-currency reserve system and a new
era in world money.

In a seemingly innocuous yet highly portentous move, the IMF is asking
member countries from next year to include the Australian (US:AUDUSD)
and Canadian dollars (US:USDCAD) in statistics supplied by
reserve-holding nations on the make-up of their central banks’ foreign
exchange reserves. The technical-sounding measure, reflecting growing
diversification of the world’s $10.5 trillion of reserves, is likely
over time to exert wide-ranging impact on world bond and equity

Sunday, December 09, 2012

For those...

...who are shocked (SHOCKED!) by the recent indictments/arrests/inquiries/etc. of prominant Hedge Fund managers, I direct you to this post by yours truly.

Tuesday, December 04, 2012

Where are they...

...a continuing series.

Where are the pundits who called for shorting Treasuries and informed the unwashed masses that a debt crisis was imminent?

Not on this blog, which has consistently pointed out the unique position of the U.S. relative to the rest of the world.  Global debt is not a fungible item only differentiated by price and yield.  There are massive liquidity and instability risks that ONLY (at the present time) the U.S. can ameliorate.

From Bloomberg:

Even as U.S. government debt swells to more than $16 trillion, Treasuries and other dollar fixed- income securities will be in short supply next year as the Federal Reserve soaks up almost all the net new bonds.
The government will reduce net sales by $250 billion from the $1.2 trillion of bills, notes and bonds issued in fiscal 2012 ended Sept. 30, a survey of 18 primary dealers found. At the same time, the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co.

Monday, December 03, 2012

A paper...

...discussing the unique characteristics of U.S. debt relative to the alternatives currently available.  This is precisely what I have been arguing with respect to the Date Rating Agencies.  There is no more unique "currency" in the world than U.S. debt and the following snippet from the paper echoes points made here for the last 5 years:

My only addendum would be that the author understates the soft power of U.S. debt and its coercive effects.

From Hamilton’s time to the present, the U.S. national debt has been viewed as much more than a means to finance the government beyond the means offered by taxation and money printing. By creating a class of creditors dependent on the federal government for debt payments, it became a cement of the American union of states. It was a currency that could be used to pay for shares in the first central bank as well as for the purchase of the Louisiana territory. It attracted foreign capital to an initially capital-poor nation. It furnished an outlet to return federal budget surpluses to the nation’s capital markets. It was used to back currency issues of national banks. It could be tailored to provide investors with appealing types of assets, to their own and the government’s advantage.
In our own time, the U.S. debt is once again held widely around the world. Perhaps it could become a cement of the world economy, as it once was a cement of the American union. Such an outcome depends, however, on whether it is managed as carefully and creatively as it was during the first two centuries of U.S. history.