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

[raja]

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

The reason you won't disclose for a few years, like you did with the tech stocks & gold, is that your Trade of the Century is limited in supply. What's one of the few things limited in supply? Land!

Not land . . . .

Land is subject to inflation tax whenever you sell it. Your profits, which you are hoping will compensate for inflation, will be taxed by the gov't . . . so you'll still be a net loser.

Gold will be a losing investment for this reason . . . but in the future he who loses less will be the winner.
And gold has other merits that make it worthy of being part of one's portfolio.

The only non-losing inflation-hedge investments are income-producing ones that you never have to sell.
But even that's not a sure thing, for they, too, can be subject to gov't theft in ways not yet known . . . .

In short, big guys win, little guys loses. It's the way of the world. Very hard to beat the system.

[raja]

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

The banks own lots of mortgages, and I imagine that many of them are fixed rate.
If there is high inflation, it will kill the banks, because people will be paying their loans back pennies on the dollar.

If inflation/deflation is a political decision, why then would TPTB opt in favor of inflation?????

[ThePythonicCow]

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

If inflation/deflation is a political decision, why then would TPTB opt in favor of inflation?????

Good question. I agree that it would seem that TPTB wouldn't want to hold such a losing asset. I suspect most mortgages were either held by Fannie, Freddie, and other GSE's, who were motivated by quite different goals than long term capital appreciation, or the mortgages were securitized and derived and sliced and diced, with their interest rate risk swapped with some other sucker. The winners collected the fees and the short term gains they could control; the losers paid the fees and got stuck with the long term loses they didn't even understand much less control.

P.S. -- However if I were a Power That Be, I would not want to hold large quantities of long U.S. Treasury bonds at present. I'd wait until that round of inflation EJ is forecasting has spiked long bond rates to something like 20% before buying them in large quantities.

[ThePythonicCow]

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

In short, big guys wins, little guys loses.

So ... next we see EJ, will he be obese?

[raja]

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

Thanks for you answer, Bovinator. However, I did a quick google to see just how much the banks were invested in mortgages and found this:

The total stock of mortgages outstanding in the US is about $10 thousand billion . . . . Given that the overall stock of mortgages still outstanding on the balance sheets of commercial banks is around $3.6 thousand billion . . . .

http://www.voxeu.org/index.php?q=node/1714

That's $3.6 trillion in mortgages owned by the banks. So, if there were a high inflation rate persisting over several years, as EJ predicts, that would not be beneficial to TPTB.

So, my original question stands: If inflation/deflation is a political decision, why then would TPTB opt in favor of inflation?????

EJ (or somebody) might want to answer this question to defend his Ka-Poom theory, otherwise I'm going to go over to the Dark Side (the deflationistas).

[flyer38]

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

I am sorry flyer38, but you do sound like a Realtor peddling Olympic-Village-Vancouver condos... VancouverGoinUp is that really you?

Forget the last Olympics! Get in on the ground floor of the 2016 Olympics in Brazil, hurry before it's too late for this once in a lifetime opportunity! They also have a soccer world cup in 2014, so you'll double opportunities.

How would you like to spend the next few years making lists of things you're going to do with all the money you have.

Seriously though, why else would EJ say that he won't share his trade of the century, unless it has something to do with the availability of the investment?

Unless him and Fred are working on inventing some revolutionary energy breakthrough thingy, and dont' want anyone to front-run them at the Patent Office.
Any ideas?

[flyer38]

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

Not land . . . .

Land is subject to inflation tax whenever you sell it. Your profits, which you are hoping will compensate for inflation, will be taxed by the gov't . . . so you'll still be a net loser.

Gold will be a losing investment for this reason . . . but in the future he who loses less will be the winner.
And gold has other merits that make it worthy of being part of one's portfolio.

The only non-losing inflation-hedge investments are income-producing ones that you never have to sell.
But even that's not a sure thing, for they, too, can be subject to gov't theft in ways not yet known . . . .

In short, big guys win, little guys loses. It's the way of the world. Very hard to beat the system.

If the land itself produces income, then you don't need to sell it to post a profit. That's why I ventured a guess that it's farmland.

[we_are_toast]

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

Unless him and Fred are working on inventing some revolutionary energy breakthrough thingy, and dont' want anyone to front-run them at the Patent Office.
Any ideas?

A low Delta T sterling engine, low cost carbon nanotube battery, or a plateless battery where the charge is stored in the electrolyte.

[raja]

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

If the land itself produces income, then you don't need to sell it to post a profit. That's why I ventured a guess that it's farmland.

I don't have any experience in this area, just heresay from living in a farming area . . . but the impression I get is that renting farmland is not very profitable. Now farming, on the other hand, could be a different story . . . or not. I hear about farmers struggling a lot.

[ThePythonicCow]

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

I hear about farmers struggling a lot.

Farming is rough these days (has been rough for much of the last century.) On the other hand, industrialized and subsidized agriculture is doing quite well, thank-you, and making a handsome profit producing all that fine food fake poisonous crud that fills our grocery stores and restaurants (fast food or sit down.)

[jk]

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

it's true, tptb and the elite who own all the bonds will never allow inflation. in fact, that's why there wasn't any inflation in the 1970's.

[bart]

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

Thanks for you answer, Bovinator. However, I did a quick google to see just how much the banks were invested in mortgages and found this:

http://www.voxeu.org/index.php?q=node/1714

That's $3.6 trillion in mortgages owned by the banks. So, if there were a high inflation rate persisting over several years, as EJ predicts, that would not be beneficial to TPTB.

So, my original question stands: If inflation/deflation is a political decision, why then would TPTB opt in favor of inflation?????

EJ (or somebody) might want to answer this question to defend his Ka-Poom theory, otherwise I'm going to go over to the Dark Side (the deflationistas).

Very simple answer - its a hedgeable risk and has been hedged.

The huge majority of the $600+ trillion of world derivatives are in the interest rate areas.

[ThePythonicCow]

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

Very simple answer - its a hedgeable risk and has been hedged.

Yup. That's what I was trying to say with my phrase "with their interest rate risk swapped with some other sucker", but you said it much clearer. Thanks.

[Jay]

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

Very simple answer - its a hedgeable risk and has been hedged.

The huge majority of the $600+ trillion of world derivatives are in the interest rate areas.

Someone has to be on the other side of the trade. If TSHTF I think the whole derivatives game breaks down into chaos. Everything will be frozen.

[bart]

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

Someone has to be on the other side of the trade. If TSHTF I think the whole derivatives game breaks down into chaos. Everything will be frozen.

We live in (sometimes potentially way excessively) interesting times.


And do consider that there will be a huge amount of netting in that scenario - perhaps as high as 50%.