Economics is not hard - Part I: Don’t let professional economists tell you otherwise

[ThePythonicCow]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

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MarkL - your attachment is not visible. Apparently it did not upload successfully or some such.

[EJ]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

RdRees, As you've done in other situations, you're carefully selecting time frames to make your arguments. Technically you may be correct that deflation occurred for a short time frame. But if you look at the bigger picture, say 6 months or a year or so (and you don't oh so carefully select them!), disinflation, not deflation occurred on average over time.

Take the time frame that you selected and using your figures sum the inflation and deflation from the numbers you presented here. Summed results over this time frame (which happens to include BOTH periods of the dreaded "deflation") still results in 1.2% CPI increase and 2.7% PPI Increase.

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I think waving around these short period of time you're referring to and yelling "Eric was wrong iTulip needs to face this!!!" is missing what's important and expecting things of economic forecasting that are unrealistic. Personally I think calendar years are good time frames to use as a reference points for these things and so far we have only seen disinflation, not deflation over these more reasonable time frames.

Stick to accusing iTulip of calling for inflation to happen prematurely... and maybe ask him to revise his timing estimates based on current facts.

But overall, over the time period you tendered, over calendar years, and over many other time frames Eric was spot on in sticking his neck out and stating "DISINFLATION, NOT DEFLATION." Just cause a car hits a pothole doesn't mean it's going downhill.

Thank you for the comment. As you point out, there is a real difference between deflation and disinflation. This is the reason I dislike the term “deflation scare.” A thunderstorm and a hurricane are both stormy weather but are two utterly different weather events. You wouldn’t call a thunderstorm a “hurricane scare” would you? One is quick and not broadly damaging while the other is long and broadly damaging. Same with deflation versus disinflation.

Britannica Concise Encyclopedia:
deflation
Contraction in the volume of available money or credit that results in a persistent general decline in prices. A less extreme condition is known as disinflation. Attempts are sometimes made to bring on deflation (through raising interest rates and tightening the money supply) in order to combat inflation and slow the economy. Deflation is characteristic of depressions and recessions.

Several members have asked if I plan to debate deflationists again. I'm not sure it's a good use of time. I've proved them wrong repeatedly for the reasons I’ve explained for 12 years. What can we learn from analysis that's been proved wrong twice in a decade?

I have my own mistakes to work on, such as missing the end of the First Bounce of the Debt Deflation Bear Market by four months, due to a misreading of the political economy. Dwelling on the mistakes of others is a waste of time. Instead, I'm putting my energy into working out The Trade of the Century. It's the culmination of decades of work.

[ThePythonicCow]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

As Charles Hugh Smith suggests, it is better to collect long term, high interest rates on the highest quality long term paper out there -- 20 and 30 year U.S. Treasury Bonds.

Perhaps EJ and Smith are really saying much the same thing, just coming at it from different angles and with different timing expectations (exact timing is always tough.)

Perhaps both of them are consistent with the following three phases:

1. A Ka-phase, or disinflation, during which debt collapse drives people to Treasuries and Dollars.
2. A POOM phase of multi-year significant inflation, during which the U.S. Treasury long bond price falls (imputed yields rise to over 20%.)
3. A multi-decade follow on phase, during which the U.S. Treasury long bond price rises slowly (as it did after Volcker's medicine in the early 1980's.)

The Ka-phase may come in two steps, rather than one. I don't imagine EJ will be too surprised if he got the long term trend right, but underestimated the strength of a move. That is, perhaps we are now entering the second Ka of a Ka-Ka-POOM sequence, focusing this time on the weaker sovereign nations.

The POOM phase would likely be accompanied by a Dollar crisis, in which the U.S. Dollar loses its dominance as the world's sole reserve currency. Perhaps (though I'm not betting big bucks on this) the SDR or Wocu sort of concoction I've been anticipating will become the next equivalent to a world reserve currency. In any event, a substantial portion of the world's huge debt overhang will be resolved during this difficult phase, whether by inflation, default or restructuring.

The multi-decade follow on period, once we've gotten through the "exciting" times of the POOM phase, could be an excellent time to invest in productive businesses and energy solutions.

The long term strengths and inherent advantages of the United States are still rather awesome, in its geography, resources, culture and (if we can clean up some fraud) governance.

I am not betting against it long term, and consider it a no-brainer (given in part my complete ignorance of anywhere else) to stay right here. I'd avoid living in Detroit, the Las Vegas suburbs or the Louisiana Bayou country, however.

[a warren]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

I have finally worked out The Trade of the Century. It's taken my lifetime. I've hidden it in plain sight but only one in a million will see it.

Can you please expand on this point? I understand you are forecasting Poom (high inflation) and think the bond market has long bonds priced with ridiculously low interest rates. But you can't time Poom. So whats the trade?

[Chris Coles]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

One more point -- assets that lie fallow are just potential income.

What matters more are assets that are being hard worked by serfs, slaves or renters to pay their dues, rents, taxes, mortgages or other such regular income streams.

Spending one's assets for living expenses only seems attractive to us short term thinking proletarians, who were born broke and expect to die broke. Long running families avoid this as India farmers avoid eating their seed. Long running locks on reliable income streams are the source of spendable income and the fuel for further wealth and power accumulation.

Perhaps it will help if I give you a "live" example of this form of choice. A couple of years ago, I was placed under pressure, particularly on the basis of it being better to get something now, rather than wait..., to sell my patent portfolio. The idea being promoted by various attorneys, (one of which presented me with the most angry man conversation I have ever witnessed; red faced and spitting mad at my refusal is an understatement), as well as by an auction house at auction, for a predicted by the auctioneers value of perhaps slightly more than $1 million. Instead, I decided that I was happy, given present circumstances, to stay poor, almost debt free and wait. Instead turning the period into useful thinking time allowing me to add to my thinking and writing about the subject of gravity and of course, The Capital Spillway Trust which latter thinking has all now been presented to the UK government. (No I am not holding my breath, but they have to add it to their thinking).

There is good reason to believe that at some point in the future, I may be able to realise a much better value for for the patents, particularly due to being able to follow through with a claim against the European patent Office that abandoned me when I could not pay their fees in 1992; which my UK patent attorney still to this day believes might work out with a grant of the full European patents. Add that prospect to my ongoing firm belief that, for example, my suggestion that the FCC may owe me a royalty on their multi-billion 3G and 4G sales of spectrum and a number of other strategies in mind, the long term might bring in a much better result.

Yes, I might reach the grim reaper before then, but the value then gets passed on to whomever they are left to. So in which case I can smile from my grave. But the general result is always the same, It is a clear choice between selling for a pittance now or waiting for an indeterminate result. But one thing is very clear indeed. If you take the pittance, there is no possibility of any better tomorrow. If anyone can afford to wait it out, the potential never decreases; the value embedded always remains.

[Chris Coles]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

I have finally worked out The Trade of the Century. It's taken my lifetime. I've hidden it in plain sight but only one in a million will see it.

For what it is worth, in my opinion, the best way forward is to exchange the currency for work done by the long term entrepreneur. Think; what changes a desert into productive soil? Answer is water. Question; what is the economic equivalent? Answer is Free Enterprise equity capital. The Trade of the Century will be timing the exchange between a concentration upon money value to an investment strategy centred upon entrepreneurial value. Precisely why I am happy to sit this phase of the economic cycle out; I absolutely intend to be an entrepreneurial part of the next wave.... when, .... when.... it comes to fruition.

[MarkL]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Entropy is one of the more immutable laws of the universe. I'm sure the forward march of technology has erased the embedded value of many vacuum tube patents. In addition, in the USA, patents only have a certain legal lifespan, after which their value disappears. Sometimes a bird in the hand is worth MORE than two in the bush and waiting is NOT the best move.

[Chris Coles]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

You misunderstand. It is true the use potential disappears; but the embedded value by others infringement during their issue period does not.

[Chomsky]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

I have finally worked out The Trade of the Century. It's taken my lifetime. I've hidden it in plain sight but only one in a million will see it.

Well, there's your provocative statement of the week, er, of the century. I assume this trade will be the core of the investment vehicle you are working so hard on.

[EJ]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Can you please expand on this point? I understand you are forecasting Poom (high inflation) and think the bond market has long bonds priced with ridiculously low interest rates. But you can't time Poom. So whats the trade?

I went public in March 2000 with my decision and my reasoning for getting out of NASDAQ and into Treasury bonds, with my decision to get into gold in 2001 and my reasons for doing so. My forecast for a 40% decline in the broad stock market in Dec. 2007 was based on my view that the first year of a debt deflation bear market was to start in 2008 but I noted it less publically at the time, only to subscribers.

Now I believe that I have worked out the next big trade. This is separate from thepostcatastropheeconomy portfolio that I've alluded to that we plan to launch before the end of August and the hard assets play to diversify out of Treasury bonds that we will also cover as soon as we're ready. This is a speculative bet like shorting tech stocks in March 2000 or the S&P500 in Dec. 2007 or going long gold in 2001 but much, much bigger. However, unlike before I'm not going public with it. In fact, only a handful of specialists under NDA will even understand what the positions are about that constitute the trade until the trade plays out a number of years from now. I'll update the community when we're farther along with it. I can tell you this: looks at least as crazy as buying gold did in 2001.

[Chomsky]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

I went public in March 2000 with my decision and my reasoning for getting out of NASDAQ and into Treasury bonds, with my decision to get into gold in 2001 and my reasons for doing so. My forecast for a 40% decline in the broad stock market in Dec. 2007 was based on my view that the first year of a debt deflation bear market was to start in 2008 but I noted it less publically at the time, only to subscribers.

Now I believe that I have worked out the next big trade. This is separate from thepostcatastropheeconomy portfolio that I've alluded to that we plan to launch before the end of August and the hard assets play to diversify out of Treasury bonds that we will also cover as soon as we're ready. This is a speculative bet like shorting tech stocks in March 2000 or the S&P500 in Dec. 2007 or going long gold in 2001 but much, much bigger. However, unlike before I'm not going public with it. In fact, only a handful of specialists under NDA will even understand what the positions are about that constitute the trade until the trade plays out a number of years from now. I'll update the community when we're farther along with it. I can tell you this: looks at least as crazy as buying gold did in 2001.

Thanks for the elaboration. Good luck with the trade! Let the Kremlinology of your cryptic statements begin! I'm sure the iTulip community will be buzzing about this for some time, carefully parsing your words.

[jpatter666]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Thanks for the elaboration. Good luck with the trade! Let the Kremlinology of your cryptic statements begin! I'm sure the iTulip community will be buzzing about this for some time, carefully parsing your words.

I'm actually fairly pleased to hear this. Might fit in well with our decision to pay everything off including the house. Not having to worry too much about shelter (yeah, I know, property taxes) or anything else, we'll be in position to put some madness money down depending on what we hear.

After all, to win big, you have to be prepared to risk big. If you aren't prepared to risk big, you don't belong in the game.

Sounds like we'll be preparing for some exciting iTulip times ahead!

[Chomsky]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

I'm actually fairly pleased to hear this. Might fit in well with our decision to pay everything off including the house. Not having to worry too much about shelter (yeah, I know, property taxes) or anything else, we'll be in position to put some madness money down depending on what we hear.

After all, to win big, you have to be prepared to risk big. If you aren't prepared to risk big, you don't belong in the game.

Sounds like we'll be preparing for some exciting iTulip times ahead!

I'm guessing the move is NOT to sell gold and buy cocoa, because if it is, EJ is too late:

http://www.dailyfinance.com/story/in...-buy/19560642/

[c1ue]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

For what it is worth, in my opinion, the best way forward is to exchange the currency for work done by the long term entrepreneur. Think; what changes a desert into productive soil? Answer is water. Question; what is the economic equivalent? Answer is Free Enterprise equity capital. The Trade of the Century will be timing the exchange between a concentration upon money value to an investment strategy centred upon entrepreneurial value. Precisely why I am happy to sit this phase of the economic cycle out; I absolutely intend to be an entrepreneurial part of the next wave.... when, .... when.... it comes to fruition.

Mr. Coles,

Again, I admire the thrust of your work.

But again, I will note that the mere presence of free market capital will not resolve the hangover from the past decades of FIRE economy.

An increase of free market capital is an increase in the numerator of the economic equation (capital), but the problem right now is a denominator issue.

Even ignoring the massive debt service burden faced individually and collectively in the US, the cost of labor due to housing, taxation, health care, etc is so high that it is simply not possible for American workers collectively to be competitive.

And it is clearly possible for a 1st world nation to be competitive: Germany has shown that you can have a high standard of living AND be a net exporter. The German economic model which has netted out a competitive economy despite (or because of) national health care, no mortgage interest subsidies, 'socialist' taxes, etc etc is a clear disconnect from the 'red in tooth and claw' of neoliberal free market economics.

The path - for there is no solution - towards a better future will involve the myriad painful adjustments to back out the FIRE economy's domination of the US economy.

The longer this takes, the more painful.

Not to mention the greater likelihood of a demagogue or warlord in the model of Chiang Kai Shek or Julius Caesar.

[jk]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

i'll just note that niether buying gold, nor buying treasuries, nor shorting the equities market required consultations with specialists bound by non-disclosure agreements. i do not assume this trade will be accessible to many or most or any reader here.

p.s i'll bite. something in the energy sector?