Posted on 09/06/2010 9:39:41 PM PDT by DeaconBenjamin
The increasingly popular Jim Rickards once again takes center stage at King World News, this time focusing on the two ever-fascinating topics of market manipulation and hyperinflation. Kicking it off in fine form, Rickards notes that the "markets have ceased to function as they are intended - traditionally a place to exchange values, but more importantly to perform price discovery (people rely on markets to tell them what to do or to at least give them some guidance). What's happened is that all the markets have become so badly distorted that their price discovery function and therefore the information content around it no longer has any value."
The primary culprit in this distortion is, of course, the Fed which is now and has been for over a year, openly (and not so openly when it comes to stocks) manipulating the broader market: "I always like to say if a private sector person does it, it's manipulation, but if the government does it it's policy. So they call it policy and they would say they had reasons for it, but in fact it was massively distorting."
And on the oh so obvious extension from this argument to the "$1 trillion+ cash on corporate balance sheets" theory, Rickards says that this is "not healthy at all, that's a very negative sign because it means that people are afraid to allocate capital because they cannot get good information from the markets. In effect the US and policy intervention from homebuyer tax credit, cash for clunkers, quantitative easing, mortgage purchases have in effect destroyed our markets, they no longer give us valuable information."
Obviously, today's most recent battery of micro fiscal stimuli announced by the administration will merely make the market even more irrelevant as a price discovery and a capital allocation deterministic mechanism: and the more administrative meddling, the more money will sit on the sidelines, and the more retail investors will withdraw capital from risky assets.
If you no longer invest in stocks, you are not alone: "I don't even take the stock market seriously" says Rickards, "and I mean that in all seriousness. Who's in the stock market right? You have indexers and robots. Is anybody else trading the stock market?" Obviously, that is a rhetorical question.
Rickards continues by blasting the now-prevalent, and well-documented high frequency trading feedback loops, that endow the market with a certain broken fractal quality: "the market has become self-referential, an algo playing itself out, almost the way you would run a self-recursive equation on a computer and you get very unpredictable results from very simple equations. It has degenerated into a joke.
"Everyone is looking around for the cause of the Flash Crash: what you find in complex systems is that the cause is almost irrelevant. What matters is that the autonomous agent, the participant, the elements of the system are prone to catastrophic collapse, so once you are in that mode, once you have that scale and that degree of complexity so that you are prone to collapse, the catalyst doesn't matter. If you have an avalanche who cares what snow flake started it, what you care about is the instability of the mountainside.
"The Flash Crash was the warning, I don't think the warning has not been taking very seriously. The markets are not reflecting fundamentals, because there are no more fundamental traders. It is an accident waiting to happen. I recommend to clients that they not be in stocks anymore. I don't take the market very seriously up or down because it has no informational content."
Luckily more and more see through the charade with every passing day.
Rickards covers much more, including the Fed's empty bazooka and the only option left, the nuclear one, hyperinflation, as a function of money velocity exploding, and, of course, gold, on which topic he says the following:
"Gold actually brings me to my second point about Fed policy, we said are they out of bullets. They don't think they are, they think they've got quantitative easing they can do in much larger size. I don't think quantitative easing is a bullet that's going to work. I think that chamber is empty. But the Fed does have a bullet that they may not even realize which I call 'The Golden Bullet.' Which would be basically conducting open market operations in gold in such a way as to devalue the dollar.
"If you're worried about deflation and you want to cause inflation and you're printing money as fast as you can and the inflation is not happening, at some point you have to stop and ask yourself well what else can I do? Well the answer is that you can severely devalue the dollar against gold...So the Fed wakes up one day and as fiscal agent for the Treasury, we're a buyer at $1,495 and we are a seller at $1,505, and that represents a 20% depreciation in the value of the dollar.
And the arguably most interesting observation by Rickards, which follows logical from the prior statement:
"You have to scare the American people into spending money. Right now the American people are more afraid of not having money, they are not afraid of inflation, but if you make them afraid, they will go out and start spending. So what better way than to devalue the dollar 20% against gold, and the way to do that is through open market operations...Well if that happens to be $2,000 an ounce what have you done? You've depreciated the dollar by not quite 50%.
"Well that's pretty powerful stuff if you are trying to get people to spend money and dump dollars. So they are not out of bullets, they have what I call the golden bullet...They have that kind of ace in the hole if they really want to trash the dollar."
As Kohn today said, it is all about expectations... Well, why not make people expect that the dollar they have today will be worth half as much tomorrow versus gold? Fascinating stuff, and one can be sure this is precisely what Alan Greenspan is whispering in the ear of his client John Paulson on a daily basis.
Wake up and smell the coffee.
Since 1984, deficit spending in US is the norm.
Yet inflation has never exceeded 6%. Last few years it is 2 to 3%.
Have you used your God given brain to figure out why inflation has been tame in spite of huge printing of dollars?
ding ding ding
think think think
how come how come how come?
Ok y’all product of unionized public education, let me enlighten you.
Inflation happens when surplus dollars are chasing fewer goods and services.
Yes, we have surplus dollars galore. But we have no shortage of goods and services! China alone has 10 times the manufacturing capacity compared to 1980’s. India has a very large educated work force capable of providing services.
So have all the goods and services available to absorb the excess dollars. Result? Benign inflation. It is simple Econ 101. It is just that some Americans have no clue as to how much manufacturing capability has increased world wide.
But there is one monster waiting behind the curtain. And that is foreign trade deficit. We are importing much more than we are exporting. A lot of that deficit is due to oil imports. If our leaders do not push us towards extracting internal energy sources, dollar has only one way to go...down. And that will cause inflation in US dollar based goods and services. But strong currency countries will not experience inflation in the next decade or two.
As for the stock market near term, expectations of republican gains will keep a bullish bias until election. Market reacts to expectations. So if my hypothesis is correct, it is not wise to stay out of stocks now. If democrats retain house and senate, market will plunge badly.
What’s wrong with TV? Are you some type of leftist environut who finds it bad for the trees? You obviously have a computer. Why is that not mind numbing trash? Lots of stupid stuff on there.
>>Put cash in pre 64 coins.<<
Where do you buy pre ‘64 coins?
The market is not “cheap” by historical standards, and it never got as cheap as it usually does at the bottoms of markets.
The SP500 got only about as cheap as PE 10:1 in March of 2009, and the history of markets at real bottoms is about 7:1 or so.
With so much of the market action being driven by algo’s and HFT’s, it is very difficult to make predictions of where the markets are going or could go. We’ve been trapped in a range since about April. This is the type of market that short-term traders love - up and down, up and down, just chopping sideways. But you’d better be pretty darn good at trading and knowing when to cut losses and reverse course.
And investor’s market, this is clearly not.
Deflation hasn’t done Japan any good. And they’ve had a major 20 year dose.
I think his point was that any country is in serious trouble when a large percentage of the population is not productive and contributing.
Plenty o’slackers & freeloaders in Canada, too.
Well there’s also the more than 50% tax rate increase on investment income coming next year. That will push people to take whatever profits they can this year. So I have to believe there are major forces trying to raise stock prices so stocks can be dumped before the end of the year with maximum return.
But...
I could be wrong...
Bingo! The stock market is now nothing more than a playground for HFT algos. It's hard to believe that there are still suckers investors who are trying to play within the system. The whole thing is stacked against you. All we have now is just the last few death rattles of a capitalist market.
Because you don’t have agents, cops and sheriffs that for a paycheck will take peoples stuff away and sell it at auction, to pay other people they promised a return. I’m talking wealth investors who loaned money, including union pension plans teamed up with wealthy individuals, all of whom buy politicians, who then supply the reasoning via legislation for guys that like to walk around with guns and have a nice paycheck.
You don’t have that going for you. That’s not your place in the food chain. You, me, us, were bait fish, made to be consumed to support higher cultural predators.
saving
I have had similar thoughts. The problem is that our “leaders” just care about the next election. The long term good loses in the shuffle.
It will be a flip.
Even with all the advisers the Democrats can muster, ideology seems to trump even political survival for this guy. He cannot and seemingly will not let go of the idea of government control and micromanagement of everything, even if it all comes crashing down on his own head and the heads of his cadre.
I don’t think the Congressional Democrats are going to go along with these newest attempts to pretend to cut taxes while just trying to provide fig leaves while keeping the professional leftist base. Any that do will simply prove they are Pelosi-whipped spineless ideologues.
He’s still going to face a major flip in Nov., but i agree that even Prof. O will be forced to create non-green jobs in order to help the economy.
You could be right. However I am not a big fan of tin foil hats.
You could be right. However I am not a big fan of tin foil hats.
Thing is, they have to balance the independents against the progressive base. If they try to triangulate, the far left is going to foam at the mouth and stay home or try to run candidates from their position.
Bills need bipartisan sponsors, don’t they? The Young Guns are not as likely as McCain and friends to sign on to something to save the donks. I think the conservatives can talk sense to the caucus for this election.
So far, zerO shows no impulse to moderate and he would not likely be swayed by Chuck.
Lose/lose, for the donks.
But when the bubble burst, and the stock market benchmark index, the Nikkei 225, shrank from 39,000 to 9,000 in the 1990s, prices didn't fall accordingly. Many landlords, farmers, and suppliers stubbornly held their prices firm, believing consumer demand would recover - which it never did.Today, even amid Japan's worst downturn since the war, minshuku owners still expect a family of four to pay 12,000 yen, despite 25 years of wear and chronic vacancy as city-folk stay home instead of taking weekend breaks.
http://www.atimes.com/atimes/Japan/LD07Dh01.html In japan you had massive inflation in the 80's due to monetary policy and economic growth. In the 90's the bubble burst. You had deflation of assets and wages yet prices remained firm in most of the economy (sound familar?) It is only in the last year so after the government has pumped money into their economy for a decade to keep prices stable has deflation of prices started in earnest. Wages are still going down as companies try to retain profits margins. the governmental intervention of Japan's economy over the last decade or so is the cause of Japan's problems.If government wishes to alleviate, rather than aggravate, a depression, its only course is laissez-faire—to leave the economy alone. Only if there is no interference, direct or threatened, with prices, wage rates, and business liquidation will the necessary adjustment proceed with smooth dispatch. Any propping up of shaky positions postpones liquidation and aggravates unsound conditions http://mises.org/daily/1099 by leaving an economy alone you allow prices to find the point where demand matches supply. what Japan shows is that deflation will come no matter what you do. By Japan spending trillions of Yen in wasted governmental policies they postponed defaltion for a decade and made the final deflationary event steeper and harder than was needed. trying to avoid deflation prolongs recessions and leads directly into decade longs depressions.
so true our “leaders” have lost the love of country replaced by personal gain
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