The Game - Part I: Queen of Hearts - Eric Janszen

[charliebrown]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

social security is now cash flow negative, that net buyer of treasuries is now a net seller. I don't see this reversing as the boomers are hitting retirement next year 1945 -- 2010 = 65 years.

What about state, local govts running deficits, no net long term buyers here, pension funds will be net sellers too as boomers start drawing on their pensions.

As an increase in buying, I have heard that institutional money managers are re-thinking their asset allocation and slightly increasing bond/stock ratios in their portfolios.

[jk]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

thanks for sharing.

your result drive the point i raised at post #40 and a question constantly in my mind for the last few months: if we are so certain that inflation(aka deflation in gold), why it is still prudent to only allocate 30% of fund in gold, why not 70%? not to mention the huge risk of a sudden devaluation of $US and other paper currencies?

by leaving majority of fund out of gold, i assume people are trying to catch the last batch of fishes trapped between the rapid currents and swirls at the up stream of niagara falls. before they could celebrate the harvest, the boat load of fish and themselves would unexpectively fall into the bottomless abyss of the waterfall.

looking at finster's FDI index, is there any doubt where the dollar is heading? is it time to put down your anchor made of gold, steady yourself in this dangrous and rapid economic river?

by asking this question, it is clear that you are not CERTAIN, and i'll tell you that neither am i. there is no certainty.

there is also the issue of volatility. for me, part of keeping my pm position the size it has been is to limit the daily to weekly volatility. if i put it all in gold, i think i'd have a high probability of doing well in the long term, but not certainty. and i'd have to be prepared to lose, say, 10-20% in a week. i don't think that will happen either, btw, but it could. i'm not prepared to take those outlier risks.

otoh, my sense of the odds has led me to slowly increase my commodity positions over the past few weeks. along with my current 35% in pm's, i'm now 11% in energy, 3.5% in agriculture. i have no plans to add to my pm's- i'll let the position grow if pm prices rise. if there's a big sell off in pm's, i might add a bit. i do plan to add to my other commodity positions, making 1-2% buys from time to time, as i have been. i haven't yet specified targets for my ultimate allocations, but i know those targets are higher than my current positions.

so, fwiw, that's how i handle the uncertainty.

[vinoveri]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

jk, if you don't mind sharing, what are your preferred vehicles for commodities, etfs, mutual funds, individual stocks, futures? I've dabbled in DBC, DBA etc over the past couple of years, but am beginning to rethink these.

[jk]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

jk, if you don't mind sharing, what are your preferred vehicles for commodities, etfs, mutual funds, individual stocks, futures? I've dabbled in DBC, DBA etc over the past couple of years, but am beginning to rethink these.

i don't mind sharing, but i don't think i have any particular wisdom about these matters. i haven't used futures [directly] for some time - i used to use gsci contracts, sometimes hedging out part of the energy exposure. so now i'm using closed end funds and etf's. my pm's are mostly in the form of cef and gtu, with some gld. my energy investments are mostly in canadian trusts and former trusts, with some dbo. agriculture mostly via dba, with a bit of moo.

[hayfield]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

c1ue, thanks for the explanation, but I'm obviously not bright enough to understand your last 2 paragaphs (or their implications). Are you saying that everything, with respect to the toxic debt, is solved?

OK, so the Fed buys the toxic debt, but doesn't that show up as assets on the Fed balance sheet (not that this has any meaning as far as I can tell, but at least we know those "assets" have not vanished)?

VV, my take from CM's piece: Public companies can (and are) audited. They provide quarterly statements, although often cryptic, for investors to dissect.

The Fed offers little visibility, and even less accountability. It can collect all of the worthless securitized debt it wishes, and pay an outlandish 80 cents on the dollar. The banks clean up their balance sheets and put out a pretty quarterly statements. The Fed hides the junk securities... indefinitely.

But now I'm wondering, what do you suppose happens when a loan, pooled into one of the Fed's junk securities, defaults? Does it simply ignore the default? Or does it do something to try to maximize the value of its securities?

[jk]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

VV, my take from CM's piece: Public companies can (and are) audited. They provide quarterly statements, although often cryptic, for investors to dissect.

The Fed offers little visibility, and even less accountability. It can collect all of the worthless securitized debt it wishes, and pay an outlandish 80 cents on the dollar. The banks clean up their balance sheets and put out a pretty quarterly statements. The Fed hides the junk securities... indefinitely.

But now I'm wondering, what do you suppose happens when a loan, pooled into one of the Fed's junk securities, defaults? Does it simply ignore the default? Or does it do something to try to maximize the value of its securities?

part of the banks' problems is time: when to recognize losses? with the abandonment of mark to market, things got a lot easier. one thing the banks can do to buy time is to park the junk securities with the fed. the banks get cash that can earn a riskless return as deposited reserves or in treasuries. meanwhile, the securities age in the fed's cellar. perhaps when loans go bad the fed will feed those back to the banks, but in a controlled, delayed stream, allowing the banks time to repair their balance sheets and stretch out the losses. then the banks can deal with the defaults however they usually do. i don't see the fed going into the work-out business.

[cjppjc]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

by asking this question, it is clear that you are not CERTAIN, and i'll tell you that neither am i. there is no certainty.

there is also the issue of volatility. for me, part of keeping my pm position the size it has been is to limit the daily to weekly volatility. if i put it all in gold, i think i'd have a high probability of doing well in the long term, but not certainty. and i'd have to be prepared to lose, say, 10-20% in a week. i don't think that will happen either, btw, but it could. i'm not prepared to take those outlier risks.

You have no idea. I had been more than 75% in minors for long time. The swings will drive you crazy. The down days are huge. Up till 2008 I was able to live with the swings. 2008 brought no swings, just crushing relentless down days, weeks, months. I so wish I had found this site earlier.:mad:

[jk]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

You have no idea. I had been more than 75% in minors for long time. The swings will drive you crazy. The down days are huge. Up till 2008 I was able to live with the swings. 2008 brought no swings, just crushing relentless down days, weeks, months. I so wish I had found this site earlier.:mad:

shoulda, woulda, coulda. it's so easy to second guess yourself. i think pain is our tuition, so we might as well get an education. as i suggested in the post you quoted, i've tried to figure out a strategy that i can live with on an emotional level. i went through an experience similar to what you describe, in the early 1990's. i had been running my investments as a balanced, long-short portfolio and had been doing well, when i hit a streak of volatility that i couldn't handle. up, down, huge percentage swings on an almost daily basis. i sold everything and went to cash so i could calm down, and ended up putting putting most of my money into a piece of land that i couldn't price on a daily basis. [sold the land in 2000.]

[cjppjc]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

shoulda, woulda, coulda. it's so easy to second guess yourself. i think pain is our tuition, so we might as well get an education. as i suggested in the post you quoted, i've tried to figure out a strategy that i can live with on an emotional level. i went through an experience similar to what you describe, in the early 1990's. i had been running my investments as a balanced, long-short portfolio and had been doing well, when i hit a streak of volatility that i couldn't handle. up, down, huge percentage swings on an almost daily basis. i sold everything and went to cash so i could calm down, and ended up putting putting most of my money into a piece of land that i couldn't price on a daily basis. [sold the land in 2000.]

Well I wasn't second guessing myself. It is a waste of time and emotional energy. I just wish I had found this site sooner. I think I would have sold most as soon as TSHTF. Your selling to calm yourself is a great idea. For me I've sold some minors and put the money in CEF. To me that's a load off my mind.:cool:

[metalman]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

meanwhile over in mishmash wonderland...

black swan says:
Today, 16:00:45

“StevieMo made fun of the gold investors, and StevieMo said the US economy was becoming just like Japan's. I don't know if anyone else has noticed, but it looks like Elvis has left the building, followed by StevieMo. So, Stevie, if you're still lurking out there, explain why gold has defied your predictions, and explain this:

"Bottom line, our standard of living here in the U.S. is declining as the purchasing power of our savings and income falls while our government pursues its anti-liquidity trap policy of currency depreciation. This is the opposite of the policies pursued by Japan since the early 1990s when the yen appreciated, wages inflated against goods and services, and living standards improved."

I've been saying it for over a year, so it's nice to have a pro like Eric Janszen stating it so succinctly. Janszen also states:

"As long as the dollar weakens there will be no general price deflation in the U.S."

Mish, since you are a die hard deflationist, inquiring minds would like to see your refutation of EJ's article:

http://www.itulip.com/forums/showthread.php?p=127376#post127376

Mish says:
Today, 18:52:27

“Mish, since you are a die hard deflationist, inquiring minds would like to see your refutation of EJ's article:

http://www.itulip.com/forums/showthread.php?p=127376#post127376

When did I say deflation was about prices

When did ANY deflationist say deflation was about prices?

Janszen is a master at setting up strawman arguments and rebutting them.

Mish

fatboy says:
Today, 17:57:59

“black swan.
that itulip article on the game of currency devaluation is dead on correct. i was fooled by the liquidity trap argument for a year, but came to my senses a few months ago. what sold me was actually reading bernanke's writings and seeing with my own eyes. the game in a fiat,debt nation is currency devaluation, slowly hopefully. totally trumps the deflation argument of money and credit creation/destruction. i have been sold, and that article re inforces it. thanks for the heads up and your keen insights. maybe mish will address the article too. do you agree the trade for an entity, individual or corp is long gold,silver, stocks on asset side and lots of debt in us dollars.(us based entity). thanks again,
fatboy

bwah ha ha!

[Chris Coles]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

There is only one way to increase local community prosperity over the long term, re-invest savings as equity capital back into new business ventures.

[maTTz]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

What's a good strategy for an Australian?

some notes:

*AuD rising against the USD
*Gold down in AuD since Feb '09 (ie gold isn't going up, it's USD that's going down)
*stock market reacting just to sentiment which seems bullish at moment
*property market starting to find it's feet, once again just sentiment
*interest rates at the beginning of an up cycle

I'd like to borrow money in USD and invest it into precious metals (low interest rate in USD and also a currency that is being devalued) or even buy a house with it (from a lesser of 2 evils type perspective). But I'm not sure what mechanisms exist to take out a loan within Aussieland in USD... can anyone offer insight on alternative solutions for those of us in the Great Southland?

[Down Under]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

What's a good strategy for an Australian?

some notes:

*AuD rising against the USD
*Gold down in AuD since Feb '09 (ie gold isn't going up, it's USD that's going down)
*stock market reacting just to sentiment which seems bullish at moment
*property market starting to find it's feet, once again just sentiment
*interest rates at the beginning of an up cycle

I'd like to borrow money in USD and invest it into precious metals (low interest rate in USD and also a currency that is being devalued) or even buy a house with it (from a lesser of 2 evils type perspective). But I'm not sure what mechanisms exist to take out a loan within Aussieland in USD... can anyone offer insight on alternative solutions for those of us in the Great Southland?

If you think gold is something you want to own, then I'd buy it in AUD from the Perth Mint. As you correctly point out, gold is well off it's AUD high of something like 1,550; hence, it's relatively cheap in AUD terms.

If the Chinese bubble bursts, then the AUD could fall significantly. So, in a sense, you're selling the AUD whilst it's at a twelve month high. Sure, it'll probably go higher, but if I had no gold, then in AUD terms it's a good buy at this time.

[Jay]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

If you think gold is something you want to own, then I'd buy it in AUD from the Perth Mint. As you correctly point out, gold is well off it's AUD high of something like 1,550; hence, it's relatively cheap in AUD terms.

If the Chinese bubble bursts, then the AUD could fall significantly. So, in a sense, you're selling the AUD whilst it's at a twelve month high. Sure, it'll probably go higher, but if I had no gold, then in AUD terms it's a good buy at this time.

If you have no gold, any time is a good time to buy some or you might get a nasty surprise at some point.

[Sharky]

Re: The Game - Part I: Queen of Hearts - Eric Janszen

What's interesting to me is that this same Game was played in the 1920s. In fact, it may have been the trigger that led to the crash of 29 and to the subsequent depression.

What happened is that the US lowered interest rates well below market rates, as a way of supporting the economy of the UK, which was having severe problems. As a result of the low rates, dollars moved from the US to the UK, where rates were higher. That's very similar to what's happening today: low rates are causing dollars to move offshore.

The other thing that happened in the 20s, though, was an unintended consequence: the weak dollar destroyed corporate earnings, and the market crashed. Then the gold-backing of the dollar made it temporarily impossible for the politicos to dig themselves out of the hole they made, so they made gold possession illegal and forcibly devalued the dollar.

The important thing here, though, is that they didn't devalue the dollar in a vacuum. They devalued it internally to the US, to match the degree to which is had already been devalued internationally as a result of the low interest rates and currency flows.

With that history, it still seems likely to me that we'll see a repeat on the stock market side. Many inflationists seem to think that inflation is good for corporate earnings. News flash: not true. Ditto a weak dollar. Domestic expenses might decline, but foreign expenses and energy costs will increase at a faster rate.

How will Americans react to a long-term decline in their standard of living? If history gives us any clues, the answer is: "not well." One of the most reliable causes of social violence has been to give people a taste of freedom and wealth, and then take it away. Those who never taste it are much less likely to protest.