Monday, September 22, 2014

Greenspan Says Construction Dead in the Water

greenspan: U.S. economic rebound has been hindered by a slump in the construction industry.

reality: The construction rebound has been hindered by a slump in the economy. 

And greenspan was the one who started it all, back in the 1990s and 2000s.

Alan Greenspan's Nine Reasons "Why The Economy Stinks"

Hey Greenspan, why aren't you on that list?

Here's one sentence from him that is right though:

“The whole structure of the industry is the mechanism by which you’re converting consumption into savings, and the only way the economy can grow is to SAVE (emphasis mine).”

Wars help the economy??

Didn't economists say that wars help grow the economy? Jokers! 

C.Bank chief says Ukraine 2014 GDP may shrink by up to 10 pct - agency

Failure of Japanese keynesian experiment

Why are the failures of keynesian-style spending programs in Japan ignored? No idea.

Imf sources:

“Between 1992 and 1995, Japan tried six spending programs totaling 65.5 trillion yen. In April 1998, the government unveiled a fiscal stimulus package worth more than 16.7 trillion yen, almost half of which was for public works. Again, in November 1998, another fiscal stimulus package worth 23.9 trillion yen was announced. A year later (November 1999), yet another fiscal stimulus package of 18 trillion yen was tried. Finally, in October 2000, Japan announced yet another fiscal stimulus package of 11 trillion yen. Overall during the 1990s, Japan tried 10 fiscal stimulus packages totaling more than 100 trillion yen, and each failed to cure the recession. What the spending programs have done, however, is put Japan’s government in poor fiscal shape.”

Yellen caught lying

"Federal Reserve Chair Janet Yellen says “it could take until the end of the decade” to shrink the Fed’s record investment portfolio to more normal levels."

Aww come on... somebody ought to have asked her during the conference... to shrink the balance sheet to normal levels within 5 years means that the Fed has to sell $700b worth of bonds per year. Who is going to buy? 

Global Finance Chiefs Said to Warn of Growing Economic Risks

Right diagnosis, but wrong prescription as usual.This senseless focus on boosting 'demand'.

cheapening the currency doesn't work

There you go. Who still buy into the idea that a cheap currency is good for trade?
As I've explained numerous times, a cheap currency ultimately transfers purchasing power from your importers and the general population to your exporters. A few exporters benefit at the expense of the rest of the population.

Trade is about trying to export less and import more. You want to work less in exchange for more stuff from other nations. To cheapen your currency just to be able to export more does not make any sense, except to the mainstream analysts and economists. It means you have to work more in exchange for less, because now your imports become more expensive!

That's the idea. Some people will dismiss it as a mere 'theory'. Well fine. Show me an example in history when cheapening your currency has been good for the economy overall.

Inflation and rates

Krugman wants 4% inflation (well, it's already beyond 4% if the calculations have been honest), Some want 5-6%. But they forget that this will push treasury yields way up and put the govt in huge trouble. There is no free lunch.... The market now believes inflation to be only 1.7%, and 10 year yield is 2.64%, 30 year yield is at 3.36%. Where will yields be if the market believes that inflation is 4%?

On another note, it is likely that the Fed will not voluntarily raise rates because they have to know that this will crash the bubble economy, and put the government in a very uncomfortable position with their debts. So, expect the Fed to come up with more excuses to keep rates low and even come up with a new QE in the months to come.

Greenspan brought rates down to 1% and left them there for 2 years. He had to raise them slowly over the next 4-5 years to try not to collapse the artificial boom in housing. He thought this will give the market enough time to adjust. BAD bet. He should have raised rates much sooner to prick the bubble. Better yet, he should never have lowered rates in the first place. There's no free lunch. Look at the damage it did.

Bernanke/Yellen had kept rates down at 0% for SIX years now. Again, they never learn. Again, they hope the market will adjust without incident. Yellen is most likely not going to raise rates voluntarily because she will prick the bubble economy. It is more likely that the market will eventually force them to raise the rates. But expect the carnage that will follow.

Tuesday, September 16, 2014

Warren Buffet's wealth in terms of gold/commodities Update till 2013

Would have been better if invested in commodities.

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