Bernanke opens his mouth!

[SaulOhio]

The topic says it all, but I'll keep ranting.

This seems to happen every time the Federal Reserve has a meeting, but especially when the chairman, wether it was Greenspan or Bernanke, mentions the I-word.

I know I don't have to mention, on an Objectivist forum, that this is exactly what you should expect in an economy with fiat currency and central banking, and especially when that central bank is run on a theory of inflation that makes it difficult to tell the difference between real inflation and a general rise in prices caused by natural market forces. But this particular forum is for ranting, so I'll say it anyway. ECONOMIC GROWTH AND INFLATION ARE NOT THE SAME THING! Inflation is NOT a natural part of a free market, and a central bank is NOT needed to control it!

My father used to say that every time Greenspan opened his mouth, he lost $10,000 from his retirement account. He used the Lithuanian word "Issizioja", which implies that Greenspan only had to BEGIN opening his mouth, not even actually say anything, and the markets get jittery. My account is smaller than my father's, since I am still a decade or two from retirement, but I've still lost about a thousand or more today.

#@%!! Bernanke!

@*!!! the FED!

Was that properly in the spirit of this section of this forum?

[Brant Gaede]

The topic says it all, but I'll keep ranting.

This seems to happen every time the Federal Reserve has a meeting, but especially when the chairman, wether it was Greenspan or Bernanke, mentions the I-word.

I know I don't have to mention, on an Objectivist forum, that this is exactly what you should expect in an economy with fiat currency and central banking, and especially when that central bank is run on a theory of inflation that makes it difficult to tell the difference between real inflation and a general rise in prices caused by natural market forces. But this particular forum is for ranting, so I'll say it anyway. ECONOMIC GROWTH AND INFLATION ARE NOT THE SAME THING! Inflation is NOT a natural part of a free market, and a central bank is NOT needed to control it!

My father used to say that every time Greenspan opened his mouth, he lost $10,000 from his retirement account. He used the Lithuanian word "Issizioja", which implies that Greenspan only had to BEGIN opening his mouth, not even actually say anything, and the markets get jittery. My account is smaller than my father's, since I am still a decade or two from retirement, but I've still lost about a thousand or more today.

#@%!! Bernanke!

@*!!! the FED!

Was that properly in the spirit of this section of this forum?

You didn't lose anything unless you sold something. Did you? One of my portfolios is down 1100 today, on paper. One stock is down 5.6%, probably due to options expiration on Friday. Did you criticize the Fed when the Dow went up 283 last week in one day? Are you diversified? Etc.

--Brant

[SaulOhio]

You didn't lose anything unless you sold something. Did you? One of my portfolios is down 1100 today, on paper. One stock is down 5.6%, probably due to options expiration on Friday. Did you criticize the Fed when the Dow went up 283 last week in one day? Are you diversified? Etc.

--Brant

Hey! You want to ruin a perfectly good rant with facts???

Yes, put in perspective, you are right. Unless I sell, its not a loss. I just have to hold on till the market recovers, which it always does. In fact, a down market is a buying opportunity.

It just hurts to see the numbers go down.

However, I just checked my 401-k, and found that the numbers in that account went UP almost 400 dollars. Yes, I am diversified, and the energy, natural resources, and gold funds in my account went up. :logik:

Like I said, don't you hate when facts ruin an otherwise perfectly good rant?

[Wolf DeVoon]

cross-posted from MoA ...some stuff on US Treasury market manipulation:

The Plunge Protection Team was once the stuff of dark legends, its existence long denied. But ex-White House strategist George Stephanopoulos admits openly that it was used to support the markets in the Russia/LTCM crisis under Bill Clinton, and almost certainly again after the 9/11 terrorist attacks. "They have an informal agreement among major banks to come in and start to buy stock if there appears to be a problem," he said. "In 1998, there was the Long Term Capital crisis, a global currency crisis. At the guidance of the Fed, all of the banks got together and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall," he said. The only question is whether it uses taxpayer money to bail out investors directly, or merely co-ordinates action by Wall Street banks as in 1929.

UK Telegraph via Google cache

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If the Fed or Treasury or some slush fund did buy stocks, it would inject liquidity or more total money into the financial system or money supply... You could not keep something of this size secret. Period. The orders would have to be entered somewhere. The theory is that Goldman Sachs or Citibank (or pick a firm) is part of this conspiracy. That means that multiple traders and officers would have to be in the know. You cannot mask trades of that size because it would essentially be the largest hedge fund in the world. Someone would spill the beans. Can you imagine the signing bonus from a book publisher if you could prove the existence of the PPT?

John Mauldin (2003)

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During the late Feb-Mar drop, someone noted that late on the day of the drop, the Fed loaned a couple of brokerage houses $40B. These brokers then went into the thinly traded overnight market and bought DJI futures. Then, when traders saw this "bullish" activity the following morning, they figured the drop was largely over. This was reported by at least two regular contributors to Seeking Alpha, one of whom reproduced a copy of the Fed loan record in his article. So, make of that what you will.

comment by Eric Balkan, August 5, 2007

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For the past several years, we have seen repeated “out of the blue” short-covering rallies just about the time a decline seems to be gaining some momentum. Our suspicion has been that the “Working Group” established by law in 1988 to buy markets should declines get out of control has become far more interventionist than was originally intended under the law. This group has since been dubbed the Plunge Protection Team. There are no minutes of meetings, no recorded phone conversations, no reports of activities, no announcements of intentions. It is a secret group including the Chairman of the Federal Reserve, the Secretary of the Treasury, the Head of the SEC, and their surrogates which include some of the large Wall Street firms. The original objective was to prevent disastrous market crashes. Lately it seems, they buy markets when they decide markets need to be bought, including equity markets. Their main resource is the money the Fed prints. The money is injected into markets via the New York Fed’s Repo desk, which easily showed up in the M-3 numbers, warning intervention was nigh. This past November, the Fed announced with little comment and no palatable explanation that it would no longer report the M-3 number after March 2006... Without the useful resource of M-3, we need to find other tools to monitor when the PPT is likely to intervene, and kill shorts.

Robert McHugh (2006)

=====

John Embry and Andrew Hepburn provide a valuable entry into the world of finance. The two analysts illuminate the shadowy trail of the "Plunge Protection Team" in its apparent mission to rig the American stock markets. Their account is backed up by considerable indirect evidence, as well as statements by credible insiders. If their account is correct, it means that US markets look a lot like the Japanese markets that were long derided for being subject to repeated official manipulation. A more important conclusion may be that US markets are even shakier than many believe.

Asia Times (2005)

Edited August 11, 2007 by Wolf DeVoon

[Brant Gaede]

It seems central banks aren't going to allow deflation, which is much worse than inflation. Inflation is somewhat limited because of fiat money competition: wealth flows out of weak into stronger currencies. The US currency tends to remain relatively weak because the country is perceived as a safe haven and because foreign countries use exported dollars to buy US bonds. In the 19th century wealth flowed into this country into investable, productive assets. In the 21st it flows out into consumer goods which comes back only to flow out again in the form of more consumables (trade deficits) making the country, generally, poorer and poorer. When an individual lives beyond his means the consequence is bankruptcy. When a country as a whole does, the consequence is inflation and a lower standard of living. An investor can protect himself with international diversification (which can be found in many US stocks, but that's not enough) with a gold kicker. For general catastrophe one needs physical gold (and a lot of other things) on hand.

--Brant

[Wolf DeVoon]

It seems central banks aren't going to allow deflation, which is much worse than inflation. Inflation is somewhat limited because of fiat money competition: wealth flows out of weak into stronger currencies. The US currency tends to remain relatively weak because the country is perceived as a safe haven and because foreign countries use exported dollars to buy US bonds. In the 19th century wealth flowed into this country into investable, productive assets. In the 21st it flows out into consumer goods which comes back only to flow out again in the form of more consumables (trade deficits) making the country, generally, poorer and poorer. When an individual lives beyond his means the consequence is bankruptcy. When a country as a whole does, the consequence is inflation and a lower standard of living. An investor can protect himself with international diversification (which can be found in many US stocks, but that's not enough) with a gold kicker. For general catastrophe one needs physical gold (and a lot of other things) on hand.

--Brant

I'm in Prudent Bear fund and gold. Folks I listen to say that there's no way to halt a coming DJI decline this year and next. The wild card is possible regional Mid East war, a general catastrophe indeed... Iraq war czar: Consider a draft

W.

Edited August 11, 2007 by Wolf DeVoon

[Michael Stuart Kelly]

In order to understand all this, I have been doing some hunting and pecking around. The best I have come across as an introduction so far is a free online video: Money as Debt. There is also an excellent but much longer free online video called The Money Masters. See links and info here.

These videos completely turned my way of thinking about money and central banks around.

Now I am reading Maestro: Greenspan's Fed And The American Boom by Bob Woodward. Now that the Fed is no longer mysterious black hole in my mind (or an institution so evil and corrupt one wonders how it stays in place, or even a government agency, which it is not), I am finding Woodward's book a fascinating account of the inside workings from the perspective of the chairman. I read some reviews and those who do not like this book fall into 3 categories: (1) those who do not like its politics, (2) those who do not like economics in general, and (3) those who complain that they wanted more details about this or that event. In general, all agree that Woodward praises Greenspan, but not many find this a major fault. All also agree that the book is highly informative and includes many excerpts from transcriptions of Federal Reserve meetings.

I keep hearing that the chairman wields enormous power, etc. He does, but what is usually not mentioned is the shackles on how much he can do. His wiggle room is tiny. Greenspan increased his wiggle room by convincing the voting members of the Fed to allow him to use a device called an "asymmetric directive" between FOMC (Federal Open Market Committee) meetings, which is basically the power to increase or decrease by himself the federal funds rate (essentially, the interest rate for supplying money although it is more complicated than that). He also started using conference telephone calls at any time to make decisions.

I am greatly enjoying this book.

I have not yet read Rothbard's article on the Fed, The Origins of the Federal Reserve, but it is on my reading list.

Michael

[Brant Gaede]

It seems central banks aren't going to allow deflation, which is much worse than inflation. Inflation is somewhat limited because of fiat money competition: wealth flows out of weak into stronger currencies. The US currency tends to remain relatively weak because the country is perceived as a safe haven and because foreign countries use exported dollars to buy US bonds. In the 19th century wealth flowed into this country into investable, productive assets. In the 21st it flows out into consumer goods which comes back only to flow out again in the form of more consumables (trade deficits) making the country, generally, poorer and poorer. When an individual lives beyond his means the consequence is bankruptcy. When a country as a whole does, the consequence is inflation and a lower standard of living. An investor can protect himself with international diversification (which can be found in many US stocks, but that's not enough) with a gold kicker. For general catastrophe one needs physical gold (and a lot of other things) on hand.

--Brant

I'm in Prudent Bear fund and gold. Folks I listen to say that there's no way to halt a coming DJI decline this year and next. The wild card is possible regional Mid East war, a general catastrophe indeed... Iraq war czar: Consider a draft

W.

You might hedge your pessimism with Berkshire Hathaway B shares. The company is undervalued and has 46 billion to put to work buying good companies cheaply if things go to heck and hell. But no dividend. You can additionally hedge with Microsoft, Cisco, McDonald's, Yum and Bidu. These are long-term investments, not trades. The single best for you I listed would be Berk. I generally avoid this kind of commentary, but I think the world is getting better and better, overall. Objectivism has pessimistic roots and I think it got to Rand. The beauty of Berkshire is it will work unless a giant asteroid hits earth. (Are you building a spaceship in Costa Rica? )

--Brant

PS: This is for Wolf. He owns gold and Prudent Bear. If you don't, it's not for you. And if you go out and buy Prudent Bear, you might be too late. The only stock I would generically rec. is Berkshire, which by itself is not enough for anybody who doesn't already own it for the last ten years and has some gold too. None of these are income investments.

Edited August 12, 2007 by Brant Gaede

[Wolf DeVoon]

You might hedge your pessimism with Berkshire Hathaway B shares. The company is undervalued and has 46 billion to put to work buying good companies cheaply if things go to heck and hell. But no dividend. You can additionally hedge with Microsoft, Cisco, McDonald's, Yum and Bidu. These are long-term investments, not trades. The single best for you I listed would be Berk.

Thanks, Brant. You're quite right, there needs to be an upside strategy, because there will be an historic buying opportunity in the next 12-18 months. Present value of stock investment skyrocketed in 1931-32. When I have another chunk of money, Berkshire B is very tempting.

I agree, we shouldn't give financial advice on OL.

W.