November 17, 2010, iTulip

Rising October retail sales numbers are being reported as a sign of economic recovery, especially auto sales, but the stock market knows better. We’ve been tracking producer price inflation increases since early 2009 on the expectation that six months to a year after input costs rise in response to monetary policy, consumer prices will rise disproportionately to rising demand as the economy recovers. Retail sales data are not inflation-adjusted and our analysis indicates that the widely reported increase in retail sales to consumer is in fact largely inflation. Consumer price inflation is finally arrived and the stock market doesn’t like it one bit.   More …

November 9, 2010, iTulip

World Bank chief surprises with gold proposal

The world’s largest economies should consider gold as an indicator to help set foreign exchange rates, the head of the World Bank said on Monday in a proposal that threw open the acrimonious currency debate just before a summit of G20 nations.

Writing in the Financial Times, World Bank President Robert Zoellick called for a new monetary system to replace the floating rates adopted in 1971 known as Bretton Woods II.

AntiSpin: On January 3, 2006 I started a site called The Fourth Currency where I asserted:

A return to the Bretton Woods international gold standard created in 1944 is inevitable.

Thirty-seven years ago the world’s economies started on the circular track back to Bretton Woods. We will sooner or later be back where we started, with international transactions guided by a fixed gold price.

So there’s your answer. It was inevitable to me in 2006. Still is.

America’s free ride is almost over. Thank the leaders of both parties who built the FIRE Economy on the foundation of the Dollar Cartel since 1971.  More …

More bad craziness from our economic policy leadership. This is Smoot-Hawley version 2.0.

The Smoot–Hawley Tariff Act of 1930 turned a major recession into The Great Depression by launching a trade war in the middle of a global downturn. World trade fell by 66% between 1929 and 1934. As Milton Friedman said, governments never learn.  More …

Have Real Estate industry subsidies been good for the country? No, they’ve been a disaster. It’s time to roll them back.

Today I received the following email from a conservative friend. As a small L libertarian, what do I think of the new real estate tax? I’m glad she asked for my opinion but I’ don’t think she’s going to like my answer: it’s time to cut taxes on productive economic activity and raise them on non-productive pursuits.  More …

Soros Calls Gold the ‘Ultimate Bubble’
Sep 15, 2010

Billionaire George Soros, whose hedge fund, Soros Fund Management LLC, has been heavily invested in gold and gold-mining companies, told Reuters on Wednesday that gold prices might continue to rise after printing record highs this week, but warned that the precious metal is the “ultimate bubble.�

Reuters: “Gold is the only actual bull market currently. It just made a new high yesterday. In the present circumstances that may continue,� he said at a Thomson Reuters Newsmaker event.

“I called gold the ultimate bubble, which means it may go higher. But it’s certainly not safe and it’s not going to last forever,� he said.

According to Reuters, Soros also said that “after asset classes set new highs there are almost always immediate reversals that disappoint investors.�

Spot gold on Tuesday set a new all-time high of $1,270 per ounce, well above the previous all time high of $1266.50 per ounce.

The gold price Wednesday has traded as high as $1,273.50 and as low as $1,266.80.

AntiSpin: Soros joins a long line of “expertsâ€� on gold who did not identify the bottom of the gold market and buy at $270 in 2001 when we did but entered the market recently after gold had already increased more than three fold in price. Gold cannot have been a bubble for the past nine years. The idea is patently absurd. Gold did not suddenly turn into a bubble just because Soros or anyone else happened to start to notice in 2008 what we noticed and acted on nine years ago, that the gold price was due to rise. Our price target of $2500 to $5000 made then when gold traded at slightly more than 1/10 to 1/20 of that price sounded insane at the time. Now that it sounds likely it’s parroted by a small army of gold market tourists.  More …

August retail sales up 0.4 pct., best in 5 months
Sept. 14, 2010WASHINGTON (AP) — Retail sales rose in August by the largest amount in five months, adding to evidence that a late spring economic swoon was temporary and not the start of another recession.

Retail sales increased 0.4 percent last month, the Commerce Department said Tuesday. It was the second straight monthly increase and the biggest gain since March.

Excluding a decline in autos, retail sales increased 0.6 percent. That followed two relatively flat months and a sharp drop in May.

AntiSpin: Today’s retail sales numbers are misleading. Consumers are not buying more stuff, they are paying more for it. Consumer price inflation is rising. That’s why gold prices spiked from $1250 to $1270 on today’s retail sales news.  More …

August 3, 2010, iTulip

Good news, bad news, and another word of caution for the housing bubble hopeful

I started iTulip.com in 1998 to warn readers that the technology bubble was not just an investor “party� or a neat way to force technology onto the market but was an efficient way to savage the heart and soul of the American economy. In 2005, five years after the bubble collapsed, I was at a Stanford investment conference moderating a VC panel hopefully titled “The Money’s Back.� It wasn’t.

Five years later it still isn’t. Today Thomson Reuters published its PricewaterhouseCoopers/National Venture Capital Association MoneyTreeâ„¢ Report and Data: only three technology market segments show positive growth over 1999 investment levels with the remaining segments still off 13% to 98% more than a decade after the bubble peak.  More …

July 29, 2010, iTulip
Six years ago today the Brookings Institution released a report Sustained Budget Deficits: Longer-Run U.S. Economic Performance and the Risk of Financial and Fiscal Disarray that speculates the outcome that we outlined in our 1999 theory of a final asset price deflation and reflation cycle that pushes the U.S. economy over the edge into a debt and currency crisis. Where are we six years later?  More …

June 28, 2013, iTulip

• Late gold investors on board since 2008 exit market as the USD again becomes GAGFO as Europe, Japan, and China falter
• Credit Bubble temporarily reflated
• Stock market temporarily levitated
• U.S. oil import trade deficit and dollar crisis temporarily averted
• Housing market temporarily… you get the idea

Six months. That’s how long we’ve wrestled this greased pig, this drunken monkey, this long, stinky cat running for its life barely inches ahead of a pack of rabid coyotes.

These markets. This economy.

Sheesh.

The problem is not in understanding human nature. That never changes.

We want. We hope. We kid ourselves.

We fuss about the house. Fix the broken gutter, the rotted trim, the chipped paint, the cracked concrete step. But our hair is on fire.

We don’t notice. No one told us and there are no mirrors on Planet ZIRP.

No, we understand human nature. Humans want and what we want more than anything is to be told what to believe.

A story that makes sense of the world, that puts it all together in logical order with a happy ending.

The good and hard working, the brave, the smart, and the righteous, will prevail.

“We� deserve to win, don’t we?

Except those are not the rules on Planet ZIRP.

I get this all the time. The questions.

What’s with the stock market? Bonds? Housing? Gold?

My answer: Do you really want to know?   More …

January 23, 2013, iTulip

How did the doomers get 2012 so wrong? They spied the Mayan calendar and saw end-times December 21. Less credulous eyes saw the 13th Mayan Baktun, each Baktun lasting 144,000 days, ending on December 21. To the instant that end was followed by the 14th Baktun. This, the new and current Baktun that we are in, will end in another 394.3 years. Then another Baktun will start. On and on forever, as was the Mayan’s philosophy of time.

Lesser doomsday scenarios also failed to materialize for the same reason: careless analysis.

The euro zone didn’t disintegrate, Japan’s bond marked didn’t blow up, China’s economy didn’t melt down, oil prices didn’t crash, and the U.S. economy did not collapse into a second Great Recession.

Defying expectations of doom, the benign economic events of 2012 set the stage for complacency in 2013, despite lingering post-financial crisis anxiety. Above the distant clatter of war sabers in Asia and a metastasizing Islamic extremist threat in North Africa, the comforting hum of recovery dominates the sphere.

The housing market correction that began in 2006 leveled off in 2012. Prices begin to rise as long-term unemployment finally eases. The kids move back out of Mom’s and Dad’s house where they took refuge after the crisis. New households begin to form again and relocate to new jobs that are at last appearing.

The debt ceiling standoff will end in a stalemate as did the fiscal cliff. The ECB will pledge more funds to prevent a liquidity crisis in the euro zone next time one arises. Barring war, China will continue to shuffle paper and fib its way to meet growth expectations.

All of these salubrious trends, taken together, may not be enough to excite the animal spirits into speculative fervor but will be enough to lull investors into the kind of complacency that can later lead to bullish optimism and all of the errors of judgment entailed.

What could possibly go wrong, outside of the unlikely event of Japanese and Chinese warships or fighter jets bumping into each other as they contest awkwardly for the Insecure Nations Sovereign Defense Vigilance Prize in the East China Sea?  More …

November 5, 2012, iTulip

• 1936 political cartoon depicts the Democratic Party whistling past a graveyard of tombstones carved with themes echoed by the Republican Party in the 2012 election

• $11 billion debt increase due to New Deal policies is today $183 billion adjusted for 66 years of inflation

• Actual debt increase during President Obama’s first term: $6 trillion or $360 billion in 1936 dollars

• 1936 unemployment rate 15%, down from a 1933 peak of 25% versus 8% today from a peak of 10% in 2010

The 2012 presidential election bears a striking resemblance to 1936 election. Both followed on the heals of economic crisis precipitated by a credit bubble and bust. But FDR cut unemployment nearly in half by spending 1/3 as much as the Obama administration has spent to cut unemployment by only 1/5th, from 10% to 8%. The worst of both worlds: massive pubic debt from fiscal stimulus but without the jobs.  More …

Election as Forcing Function - Part I: On Track for a Bond Market Panic

September 13, 2012, iTulip

• No QE3 but the Fed throws Bill Gross a bone
• The world’s largest public housing project
• When is a bond not a bond? When it’s money.
• Who just bought a pile of gold?

CI: Hope you enjoyed your summer.
EJ: I did, thanks. Hope did too and took my advice from June to rest up. I’m expecting a long, cold winter.

CI: For this interview we’ll cover the state of the U.S. economy, talk about the Fed and QE, gold, housing, and the state of household balance sheets here in Part I. In Part IIwe cover a smorgasbord of topics, ranging from the euro to Peak Cheap Oil and conclude with your ideas about how the 30 plus year bull market in bonds ends (aka the Janszen Scenario). We’ll start with your June 2012 prediction for new QE3 until “The White of Their Eyes,” that is, not until a clear and present crisis will the Fed act. That is absolutely contrary to the universal belief that QE3 will be announced on September 13th. Bill Gross has staked his reputation on a QE3 announcement today. Do you still expect the Fed to hold back on the 13th? Also, after languishing in the low $1,600 range all year gold finally broke above $1,700 last week. Is that just gold hoping for more cash from the Fed along with stock market investors after the jobs report came out?
EJ: Six out of ten dentists and economists say the gold price rise was caused by the announcement of bad US employment numbers. The markets interpreted the BLS report, on top of other data that show the U.S. economy slowing, as a virtual guarantee of a QE3 announcement on the 13th. As I explained back in June, it isn’t going to happen. No Fed action before the election unless there is an acute crisis. In recent weeks the financial media has talked itself into a major announcement from the Fed on Thursday. I think Gross took the lead or has been the most outspoken. I think they are going to be disappointed. We may get a minor tweak to policy, like an extension of an existing program, but nothing new. However, the impact of that disappointment will not be the same for the stock market as for the gold market because stock prices and gold prices moved at different times and for different reasons over the past two weeks. Gold will move but not as much as stocks. Keep in mind that short-term forecasting is not my forte, but that’s how I see it.

CI: Gold did not rise on September 4 on QE3 hopes?
EJ: The problem with the theory that a bad jobs numbers report was the gold price rise catalyst is that if that were the case the dollar (USD) price of gold should have risen more than the euro (EUR) price because a promise by the central bank print more money should cause the dollar to weaken relative to the euro (EUR), which had recently strengthened versus the USD anyway because of the ECB’s promise to buy euro bonds until the cows come home to ease the euro zone liquidity crisis. Instead gold went up in both EUR and USD in equal amounts at the same time. (more…)

June 19, 2012, iTulip

• Macro fatigue
• Bull market in gold misinformation
• Scared into Bonds

Editor’s Note: At the suggestion of several iTulip subscribers we have renamed Ka-Poom Theory the Janszen Scenario. We will use both terms for the next several articles before switching over to Janszen Scenario.

CI: The main memes in the financial media since we last talked are synchronized global slowdown, falling stock markets, gold bear market then not, euro breakup, China weakness and stimulus, and QE3 anticipation. And “fiscal cliff.”
EJ: Anything to fill the time between the last shoe to drop and the next, I suppose. The anticipation is driving everyone nutty. A friend told me the other day he’s suffering from “macro fatigue.� I don’t think he’s alone.

CI: Eye of the storm? How much longer until the next big crisis?
EJ: Eye of the storm is one way to put it, but it’s already been a very big eye. The leading wall of the hurricane receded and the trailing wall has approached for three years now. A wall of sorts in Europe isn’t hard to make out but it’s part of the escalation process that’s been going on for years and may go on for years more. Hard to tell if it concludes in a 2008 level liquidity crisis as the world’s central banks expect in three weeks or three months or another three years. If we’ve learned anything by running this site since 1998 it’s that even the most clearly foreseeable disaster in the making takes longer to arrive than the cruelest imagination can conceive. It’s summer. Time to stop and smell the roses. The IMS will collapse soon enough. What’s the hurry?  More …

April 30, 2012, iTulip

What would Robert Triffin (1910 - 1993) say about Ka-Poom Theory? This two part section of our multi-part Ka-Poom Theory Update Two series delve into the works of Belgian economist Robert Triffin. We summarize his in-depth critique of the international monetary system (IMS), his vision for a workable alternative in the 1960s and 1970s, and exhaustively quote and comment on his long-lost and forgotten final book, “IMS: International Monetary System or Scandal?”

The book includes petulant protests penned in the final years of his life in the early 1990s as he observed the danger of an epic monetary crisis growing yet ignored by the international central banking community. He became disillusioned with “powerful politiciansâ€� and “special interestsâ€� that in his opinion thwarted IMS reform efforts for decades, reforms urgently needed to avert catastrophe. A fresh global monetary crisis has been building for 20 years since his last warning in 1992 a year before his death. Imbalances in the IMS have reached a breaking point over the years following the American Financial Crisis, and Triffin’s analysis or the problem and his admonitions are more relevant than ever.  More …