HEDGING FOR ARMADEGGON

[Dragonfly]

Is this the Brant Economic Journal?

[BaalChatzaf]

Is this the Brant Economic Journal?

So far I have read hardly a word about the -real- economy; the economy of machines, capital and technical (engineering and scientific) expertise. All I have seen is perorations on the symbols of economic activity. The symbols are not the reality. Worse comes to worse, we can go back to bartering and work our way back into operating condition.

The basis of the economy are goods and necessary services; like house building, mining, farming, engineering and such like.

What I have seen is people who behave as though the symbols are the reality and the reality does not exist.

It is all very surreal.

Ba'al Chatzaf

[Brant Gaede]

Is this the Brant Economic Journal?

So far I have read hardly a word about the -real- economy; the economy of machines, capital and technical (engineering and scientific) expertise. All I have seen is perorations on the symbols of economic activity. The symbols are not the reality. Worse comes to worse, we can go back to bartering and work our way back into operating condition.

The basis of the economy are goods and necessary services; like house building, mining, farming, engineering and such like.

What I have seen is people who behave as though the symbols are the reality and the reality does not exist.

It is all very surreal.

This thread is not about "the real economy." It's about the next economy.

--Brant

[algernonsidney]

Gas has went down 15-20% over the last month or so. I would think that would be a good thing for the economy.

[DavidMcK]

It is interesting to me to see on cnbc people clamoring like crazy for more of the poison that is sickening our economy: cheap and easy money. It is wrong to see the financial crisis as just a manipulation of symbols, and we can't go back to bartering as though nothing has changed. A bartering economy can't possibly support 300 million people. I'm not an economist but I've read Hazlitt's 'Economics in One Lesson' maybe 10 times, and not so long ago I ratcheted up my understanding of austrian eco. with Calahan's 'Economics for Real People' which makes the von Mises theory more approachable by non-economists. The bubble of 2006 was the result of Greenspan's reduction of the fed prime rate to 1%, and now we are almost back down to 1% trying to stave of the consequences of the last bubble...a long series of bubbles ending in ??? The difference between now and 1932 is that back then there were very few Fed watchers, and very little comprehension in the board of governors that deflating the money supply was making the bad situation worse. Now we have made fed watching into a popular sport: there won't be any deflation, but every time the economy starts to improve the Fed will try to raise interest rates to keep inflation within bounds and it will be a long and difficult road to restore soundness to the monetary system. A return of the gold standard would be best but seems politically impossible. The budget deficits are working against a sound money supply, so we have entered a new phase of our history, one in which crises and inflation and banking system failures, unemployment and every sort of dislocation are more ordinary than unusual. I read somewhere that Greenspan said that this crises was something that happened only once every 50 years or so; how strange that the person who advocated the gold standard in 'Capitalism: The Unknown Ideal' ended up doing exactly that against which he warned.

http://mises.org/story/3130

A link to 'The Housing Bubble in 4 Easy Steps' short and lucid.

Edited October 11, 2008 by DavidMcK

[Michael Stuart Kelly]

I have only seen one MSM person, Glenn Beck, say that the politicians and economists are clamoring for more of the poison that made the economy sick. All the others think we need more regulation and ignore that it was previous regulations that were jockeyed and milked by greed in the free market, not the free market itself.

Speaking of MSM (but another newscaster), I am a little late in mentioning the following video and it will not mean a damn thing, but it made me feel real good.

Michael

[Brant Gaede]

Michael,

I could only stand 1:19 of his crap. Did I miss anything?

--Brant

[Michael Stuart Kelly]

Did I miss anything?

Brant,

Yup.

The payoff.

Not many people tell a member of the USA Congress to cut the BS, cut the crap, call him a coward and so on, on national TV.

Michael

[algernonsidney]

Well, that did increase my respect for Bill O'Reilley.

[Brant Gaede]

Is this the Brant Economic Journal?

You could say that. It is essentially a continuation of the Financial Mayhem thread started last January by Wolf de Voon. That was mostly him and me going back and forth. We had earlier been doing that sort of thing elsewhere on OL.

Essentially we were not and I am not about how to make money in deteriorating markets, but avoiding losing money. People locked into mutual funds have lost about 40% in one year. People using margin have probably been hurt even more. The CEO of Chesapeake (CHK) has just been margined out of almost all his stock in the company because he brought it and brought it using borrowed money. T. Boone Pickens is down about a billion. For someone like T. Boone that's just the way it sometimes goes. He's quite capable of making that back and more. For McClendon, he made two basic mistakes: leverage and lack of diversification.

Equity markets have continually humbled extremely smart people. You'll see some of them on TV telling you to buy, buy, buy. You'll read Ken Fisher in Forbes telling his readers how sorry he was he didn't see the 20% drop coming, but the thing to do was probably to stay the course, just before the DOW got whacked down 2500 points starting mid-September. It is obvious now that equity markets have been in a primary Bear Market since April 2000 and that all the appreciation between March 2003 and Oct 2007 has been wiped out. My thesis is this Bear Market will continue for up to ten more years and will soon involve bonds.

A Bull Market demands as its foundation the massive destruction of debt created out of prior excesses. The Federal government is doing everything it can to preserve, even expand, debt. Money is available for the credit-worthy to borrow. I have a letter in my hand from Citibank begging me to borrow 5 figures at 2% for six months or 3% for 14 months to be followed by 14%. Initial cost no more than $99. No collateral required. Or $50,000 from Chase for a HELOC. Banks want to lend right now to the credit-worthy and hope they get trapped by the debt. Unfortunately, too many are upside down on their home liens easily 200k or 300k negative equity in California. When these borrowers walk their credit is destroyed even though since they still have income and only rent they can afford to borrow right then. But even so, many will lose their jobs in the coming year. So we have these two titanic forces at each others throat: the business cycle and the Federal government. The cycle is finally winning and cannot be stopped, only slowed down. When the two were working together there was the great economic expansion and Bull Market that started in 1982.

I am glad that there are some readers of OL who are comfortable and safe in their retirements. I am not one of them. I hate what has been happening. I hate shorting stocks. I'd much rather buy the depressed stock of a good company and let it go up by a factor of five for the next five years--I have a couple in mind--than short a stock at 100 and watch it like hawk while I wrestle it down to 70 only to have the SEC ban the evil short-sellers from shorting so it shoots up to 110 instead.

--Brant

Edited October 11, 2008 by Brant Gaede

[Brant Gaede]

What investors should understand is that whatever happens this coming week it'll still be a trader's market. They can buy good companies--not financials--with highly depressed stock prices. They may still go down. So what? Just hang on for the ride. But please understand there has to be absolute stability in the financials for it to once again be an investor's market. and even then I'm talking about equities, not bonds. Some distressed bonds can go through the roof from here. Many not distressed can become grossly distressed and not recover, ever, much. The stability I'm talking about is at least a year away.

People who are in equity mutual funds through all this should keep making their regular contributions. The Great Depression is not going to repeat itself because of gross deflation. Any deflation will be well between mild and gross. It will be followed by gross price inflation, eventually. The excesses of the 1960s--the Vietnam War and the Great Society--were paid for by the stagflation of the 1970s. Americans will now pay for the Iraqi War and the gross monetary inflation of Alan Greenspan and Federal excesses generally with much more to come, with the stagflation of the teens. The high probability of another war involving oil or the Middle East is the potential devastator, if not President Obama. "It's the economy, stupid!" is going to elect him, for when it comes to economic-on-the-ground-making-money the voter isn't going to embrace abstractions about free markets and how fresh-faced, fresh-mouthed Obama won't help but help destroy America.

As for Obama: he's a wild card. I knew what Bush would do before he was elected. I knew Jimmy Carter wasn't going to be worth s__t. Or Clinton. I gave up on Greenspan around 1982 or 83. I know McCain won't be up to the job but if he were to get it Palin might be, eventually. Obama? The man is smart. He's got brains and ignorance. But he is not surrounded by ignorance. As a pol he is making Bill Clinton look like a piker. The only thing is he doesn't understand geo-political power relationships and by the time he learns the country may have been badly bloodied.

Stock up on supplies. When they loot your supermarket or frenzied shoppers have cleaned out the stores, you'll be at home with yours, your loved ones, dogs and guns.

--Brant

[Brant Gaede]

I'm getting a bad feeling about what might soon happen in equity markets. I think the general public has yet to really panic out, but is getting the idea that what the Feds do, even if they're going to be the right things, won't be done fast enough.

In the Internet age what might have once taken a year might be reflected in equity prices in a matter of days. Now I'm worried about my thesis of a big grind-down off a snap-back rally. Neither has to happen. There could instead be a big slap-down that'd make what happened last week and last month seem like foreplay. And once slapped down markets could stay down like beached fish clubbed on the head.

Of all major currencies the one most dangerous to hold right now is the Euro. The political/economic stresses that it could be so specially subject to may soon manifest themselves in most unpleasant ways. It's not just inflation but the disintegration of the currency itself. Different European countries under gross stress will have different monetary requirements. The Euro cannot be adjusted for each.

(edit): If one still has equities I'm not suggesting selling them now.

--Brant

Edited October 12, 2008 by Brant Gaede

[Brant Gaede]

It now looks like tomorrow will be an up day as various governments are announcing various interventions with probably more to come before US markets open.

I personally need a two-day substantial rally to think about laying in any shorts.

The public is capable of great denial. Everybody wants a good story with a good ending. When that wears off it's "Good night nurse."

--Brant

Edited October 13, 2008 by Brant Gaede

[Brant Gaede]

Well, I finally listened to it. I like that a Congressman wasn't treated with respect and implicit admiration not deserved.

--Brant

[Brant Gaede]

I revived Woof's "Financial Mayhem" thread in June after Woof had been gone a month. In the life of that thread and this one an astute reader and follower of these yiks and yaks could have saved a hell of a lot of money just by staying in cash, which was the foundation position of almost every post. One of the very few to have shown any appreciation is General Semanticist, who I thought was stuck in Epistemological Land. Ah, ignorance! Mine own. He is obviously more well grounded than people with guaranteed incomes, which I do want them to continue to collect. Most will. I hope, though, no one reading these words owns a private "guaranteed annuity." When the guaranteeing partner to a transaction goes bankrupt people who were guaranteed are now simply screwed. It is gone; they are left.

I went back over the entire thread to where I revived it. I only screwed up when I suggested going long in oil drillers and such, albeit in a rather modest way. They got clobbered. So did my Mom, but I didn't tell her. It wasn't so bad.

Here's a funny and instructive story: When my step-father died in 1997 he left my Mom about 800 dollars of stock in McDermott International (MDR). He had not the stock certificates but was on the books with the company. I phoned the company about replacing those shares and transferring them to Mom. The hoops to jump through and the paperwork were so onerous and my time diverted that I just let it go. Then, ASBESTOS! The value of the shares went down to $100 and even less. I looked it up at the time. Too trivial to bother with for sure so the shares were simply ignored even more. Last July they were worth over $3600. Then the hedge funds started unloading including MDR and oil prices went down and, now, -$20 a share. When Mom is no longer with us I'm simply going to get these shares put into my name and have the brokerage send me the certificates and I will leave them in a safe deposit box for the rest of my life. It's a very good company and I expect it and other like companies to be worth 5X what they are today in 5 years. But please do understand that I might be wrong. That this is not an investment thing with me but a significant family history thing. I do not know when my step-father first purchased them or why, probably plus or minus 20 years ago, more likely plus. I just want to see how they'll tract and reflect the future. Unfortunately, somebody is likely to buy them out while they are cheap--also Shaw Group.

If those shares had been owned on margin they would have been sold by the brokerage many years ago in a margin call. If you own say 100 shares in a company clear and free they cannot be taken away from you no matter what happens to their price. Leverage is for traders, not for investors. Unfortunately, today there is not investing but speculation. Everything an "investor" tries to do is only a speculation with varying degrees of risk, not always evident. So instead of productive work and savings (a speculation too), we get cab drivers looking at computer screens trying to stay ahead of it all. I am not exempt. I have a reading list of hundreds of books. Instead I read financial magazines and Web sites and books and tutorials, not Dosty and the classics and what-have-you. I do admit that this is much more of a rush and I'm enjoying it. Better raw reality than castles in the sky.

--Brant

Edited October 13, 2008 by Brant Gaede

[Brant Gaede]

This is funny. I fell asleep for a while and when I awoke the DOW futures were up over 400.

I doubt if there will be much if any down tomorrow. I hope it lasts for another day. I'm hoping for at least 1500 up in two days.

Nighty, night.

--Brant

[algernonsidney]

This is funny. I fell asleep for a while and when I awoke the DOW futures were up over 400.

I doubt if there will be much if any down tomorrow. I hope it lasts for another day. I'm hoping for at least 1500 up in two days.

Where do you get this information? What are DOW futures?

[Brant Gaede]

This is funny. I fell asleep for a while and when I awoke the DOW futures were up over 400.

I doubt if there will be much if any down tomorrow. I hope it lasts for another day. I'm hoping for at least 1500 up in two days.

Where do you get this information? What are DOW futures?

CNBC.

http://bloomberg.com

http://www.usafutures.com/dowjones.htm

--Brant

Edited October 13, 2008 by Brant Gaede

[Brant Gaede]

Markets are up nicely. I hope they hold and are up tomorrow too. I want some recovery and stability up to the election. After the election things should do nothing but go to hell. Hopefully the public won't understand how basically ineffective all these very expensive interventions are going to be and things get rosier enough to get McCain elected. The country has been hollowed out of its industrial core because of taxes and regulations. This has been obscured somewhat by the "service economy" which is going to be greatly vitiated, permanently. US companies with extensive industrial operations abroad will probably do best in the long term. The chickens are coming home to roost on the boomers' "we-don't want-or-need" children generation. Their retirements are being destroyed. So too familial support in their old age will not be there. They will die alone. That might happen to me too, even though I am a little older than any boomer and even though my not having children was not in my case a choice I made but out of the circumstances of my life. No matter.

--Brant

[algernonsidney]

So too familial support in their old age will not be there. They will die alone. That might happen to me too, even though I am a little older than any boomer and even though my not having children was not in my case a choice I made but out of the circumstances of my life. No matter.

University of Arizona girls are hot. You get a new batch of them every year. It's time to get out there.

[Brant Gaede]

So too familial support in their old age will not be there. They will die alone. That might happen to me too, even though I am a little older than any boomer and even though my not having children was not in my case a choice I made but out of the circumstances of my life. No matter.

University of Arizona girls are hot. You get a new batch of them every year. It's time to get out there.

Too great an age differential. Besides, there is no room left in my life for children.

--Brant

Edited October 13, 2008 by Brant Gaede

[algernonsidney]

Too great an age differential. Besides, there is no room left in my life for children.

After I posted that, I checked your profile. My response is:

SO WHAT?

You are a man. Never apologize for that. Who are you not to have a great relationship with a woman? Who are you not to give them a lot of happiness? If you have the conviction that age is meaningless, she will share that conviction as well. You are a smart man--use your brain. Get out there and approach women on the street, in the store, in coffee shops. Just get out there. You will have some blowouts, of course. As Ross Jeffries says: "The difference between winners and losers is that losers haven't failed enough." Get out there and fail--become a winner. You are a man--it's your job!

[Brant Gaede]

Calm down. There's the 98% you don't know about me. College girls don't interest me anyway.

--Brant

[Michael Stuart Kelly]

Dow closed at 936???

When I saw it on the news a couple of hours before closing, it was around 600-700.

Does anyone notice that this is a pattern with the drops, also? The entire day goes up to a point, and right at the end there is a large surge in the predominant direction.

This is more than irrational exuberance or fear. I wonder who or what is behind this, I wonder... There's some major manipulating going on backstage.

In Brazil, there is a saying that when you see a turtle in a tree, you can be sure someone put it there. It sure as hell didn't get there by itself.

Michael

[Brant Gaede]

Dow closed at 936???

When I saw it on the news a couple of hours before closing, it was around 600-700.

Does anyone notice that this is a pattern with the drops, also? The entire day goes up to a point, and right at the end there is a large surge in the predominant direction.

This is more than irrational exuberance or fear. I wonder who or what is behind this, I wonder... There's some major manipulating going on backstage.

In Brazil, there is a saying that when you see a turtle in a tree, you can be sure someone put it there. It sure as hell didn't get there by itself.

Michael

It closed up 936.

--Brant