Dr. "H" explains our Inevitable Impoverishment

[charliebrown]

Re: Dr. "H" explains our Inevitable Impoverishment

dont reproach yourself. this is tricky stuff. the reason I hedged my reply is that i hope someone smarter than myself will tell me that i got it.

b.t.w, read the thread asia will author its own destruction. In it one astute write says that asia could use the treas paper it owns as collateral on natural resource bids. Thereby selling the paper without selling it.
interesting idea. the treasuries may already be "sold"

[Raz]

Re: Dr. "H" explains our Inevitable Impoverishment

StarvingSteve wrote:
"As far as Bernanke's hokis-pokis of bail-outs and paying the questionable managers of companies fabulous--- truly undreamed of salaries like $150 million dollars per year--- the guy and his associates belongs in criminal court with charges. But I blame Obama for letting any Bush cronies remain on into the new administration. (This was supposed to have been a purge of the Repukes and their whole way of thinking.)"

Hi, Steve,

The "Creature from Jekyll Island" (the Fed) was set up by banksters under a Democratic administration (Woodrow Wilson). It was a Democratic administration which first breached Article I, Section 8 of the United States Constitution and robbed the American people by confiscating their gold and giving them worthless fiat in exchange (Franklin Delano Roosevelt). It was a Democratic administration which ended the direct convertability of foreign held US Dollars into gold under the Bretton Woods agreement (Lyndon B. Johnson in 1968). It was a Republican President who finally severed all convertability - even between Central Banks - of US gold for US dollars (Richard Nixon in 1971). And no one did more to politicize the Fed than Nixon, although LBJ did his best to accomplish the same in 1967 when he tried to bully William McChesney Martin into forcing down interest rates to suit his political goals. Martin was one of the finest public servants this nation ever had and I strongly suggest that everyone find time to read about his life and struggle to avoid political pressure and prevent the working people of the United States from being robbed through inflation. See the article attached.

The sad truth is that there is plenty of blame to go around, although I'm far angrier at the Repukelicans over this issue than I am the Demonrats.They had historically been the party of sound money, but when offered political power if they could only keep the masses happy through the next election, they sold out their principles and became a bunch of well-paid prostitutes. The Democrats have rarely cared about balancing a budget and have always been the party of "tax and spend, spend and elect". And to think that Obama and his Chicago Mafia would throw the money changers out of the temple is hopelessly naive.

To me the frightening thing about today's political climate is that other than Ron Paul there doesn't seem to be anyone who really sees and cares that the entire system is likely to crash and burn!

[Mango]

Re: Dr. "H" explains our Inevitable Impoverishment

That's what the other Dr. H(udson) said

http://216.240.133.177/archives32/Ch...809_100000.mp3


No inflation, but he also voted for hope & change.....

Well, that's an interesting link, although a very large download. I started to listen to it and will finish it later, but I don't understand how you're relating or opposing Hudson to Hussman. Little quips in the comments are not enough to translate the meaning for me. For instance, what do you mean and to whom do you refer when you say "No inflation, but he also voted for hope and change..."?

Thanks

[D-Mack]

Re: Dr. "H" explains our Inevitable Impoverishment

Well, that's an interesting link, although a very large download. I started to listen to it and will finish it later, but I don't understand how you're relating or opposing Hudson to Hussman. Little quips in the comments are not enough to translate the meaning for me. For instance, what do you mean and to whom do you refer when you say "No inflation, but he also voted for hope and change..."?

Thanks

I meant Dr Michael Hudson, who said he voted for Obama and now has to realize there will be no change.

When asked by the interviewer about inflation he says that he sees no inflation and talks about deflation.

I listened to it in my car so I'm not 100% sure if I recall it, but I was surprised to hear this deflation talk from him.

[Willette]

Re: Dr. "H" explains our Inevitable Impoverishment

Yah, just like the Bush administration was supposed to be a total repudiation of the policies and personnel of the Clinton years. Never happened. The fact is, they sing this song every election, and it is always a campaign promise (i.e. a lie). The reality is that we have one Incumbency Party that never gets tossed out of power and never changes it's long term policies.

[Willette]

Re: Dr. "H" explains our Inevitable Impoverishment

Current thinking is that the Chinese are quietly and steadily using the Treasuries as collateral for loans whose proceeds are used to buy up commodities. Thereby they realize the value of those Treasuries without sending up any red rockets by selling them, and the risk has been transferred to those who loaned them the cash. Who the loaners are, I couldn't say, except that it is well known that banks create money by loaning it into existence using the Mandrake Mechanism.

[ThePythonicCow]

Re: Dr. "H" explains our Inevitable Impoverishment

Who the loaners are, I couldn't say, except that it is well known that banks create money by loaning it into existence using the Mandrake Mechanism.

Who has that kind of money (or ability to create such)? Just a few big banks and such.

Maybe this is part of the reason that JPMorgan and friends are so worried.

It could be like the mortgage meltdown. Great sums were lent to people with No Income, No Job, No Assets (NINJA) on real estate collateral that soon thereafter lost value, going underwater. Oops. Now another few trillions might have been lent using Treasuries as collateral. If the interest rate on ten year Treasury Notes climbs, --both-- these loan portfolios would take a huge hit. This would be the second such hit on the mortgage portfolio, as well as the first (that we know of publically) on any such Treasury backed loan portfolio.

The public has seen two major bailouts so far. One was the nationalization of Fannie and Freddie, which have now assumed almost the entire mortgage lending load in America. That nationalization was more or less accomplished in view of the public.

The other bailout was the few trillions that have been leaked by the Treasury and Fed in ways they won't account for to unnamed banks, perhaps directly, perhaps via the AIG bailout which mostly benefited the counter-parties (big banks?) to swaps issued by AIG.

I wonder if any Chinese held Treasuries are entangled in the specifics of that other bailout?

[medved]

Re: Dr. "H" explains our Inevitable Impoverishment

Hussman is occasionally a good read but his investing advise is spotty at best. As long as one reads him as the monochromatic bear he's been for 20 years, you can take away his high level observations without cost.

I agree. I was thinking of putting some money into his funds, and then decided against it. Here is the picture:




A simple asset allocation strategy beats Hussman funds hands down. I do read his stuff from time to time, though.

[santafe2]

Re: Dr. "H" explains our Inevitable Impoverishment

I've only been reading him for four years so you have quite a heads-up on me. Didn't know he was a perma-bear. But I learned the two most important rules of investing long before I ever heard of Hussman - rules which he is also apparently familiar with:

(1) Don't lose money, and (2) Never forget rule #1. :cool:

Yes, he's a good macro guy...as another poster said, a good teacher. My concern is that readers will translate this as Hussman economic advice = good investing advice. My experience is that he's quite average in this area. Although he did teach me in the early 90s to always wonder WWWD, (what would Warren do?).

His don't lose money advice can be found on iTulip on a weekly basis. It's every investor's rule number one. If you double your money after you've lost 90% of your money, you're still down 80%.

I don't want to denigrate Hussman's value as an educator, just soften anyone's opinion with regard to his investing acumen.

[jk]

Re: Dr. "H" explains our Inevitable Impoverishment

hussman is a really smart guy. i've been following him since the EARLY 90's, when i subscribed to his newsletter before he founded his funds. back then he was stuck on value, and kept berating the craziness of the '90s tech/dot.com boom. but as true as his critiques were, he lost money because of the persistance of the irrationality. when he first founded his strategic growth fund he had developed the concept of "market climate" as a factor to weigh along with value. market climate is essentially a measure of animal spirits, i.e. how much are people wanting to take on risk. [as an aside, i'll note that in 2007 jeremy grantham's outfit calculated that risk was being valued so highly, that people were accepting negative predicted rates of return in order to take risk.]

hussman did really well in his first several years with the strategic growth fund. he made serious money during the bear market from 2000 to 2002-3, because he held index puts which produced profits which far exceeded the losses he sustained on his conservative, non-tech stock portfolio. [he never goes net short, but he will go to a balanced long-short position, and hope to make money on the hedge. in 2001 he made14.7%, in 2002 14%, in 2003 21.1%]

through that period i had 30% of my assets in his fund. sometime in 2007, iirc, some anomalous performance during a small market sell-off made me take a closer look at his long portfolio. i then realized that i really didn't like his positions. i liked his market timing, but not his choice of longs at that time. i felt that he didn't "get" the changes going on, that his choices were conventional while i thought we were entering unconventional times. i started selling and got out. in 2008 he lost 9% - a lot better than the indices, but i don't like to lose money.

[Raz]

Re: Dr. "H" explains our Inevitable Impoverishment

[quote=jk;99471]hussman is a really smart guy. i've been following him since the EARLY 90's, when i subscribed to his newsletter before he founded his funds. back then he was stuck on value, and kept berating the craziness of the '90s tech/dot.com boom. but as true as his critiques were, he lost money because of the persistance of the irrationality./quote]

Thanks for your post, jk.

"Stuck on value while berating craziness" is an argument for Technical Analysis. Always look to the fundamentals, but never ignore the technicals. Many may disagree, but after thirty years of investing and trading both equities and commodities that's MY opinion.

Investing without Technical Analysis is like driving a car with one eye closed.
Investing without Fundamental Analysis is like driving a car with both eyes closed!:eek:

[Slimprofits]

Re: Dr. "H" explains our Inevitable Impoverishment

forgive me if I'm wrong but I think the point Dr. H is trying to make is that in order for the asian savers to liberate their savings they have to find a buyer. Even if their savings is in highly liquid t-bills, someone still has to buy the t-bills, before the proceeds can be used to purchase something else like commodities or stocks.

Who has the money to buy 1.x T in treas. paper? If you don't have cash, your going to have to to sell something to get money to buy the t-bills in the first place thus putting downward pressure on that asset. (oh my brain hurts)

I have read somewhere that the average maturity of the asian holdings is something like 6 years and trending down so any selling of these assets will really start chewing into the price. The only bulk buyer I see is the fed and their QE engine.

Thus it is not the asian changing their savings to stocks, or comodities, it is the fed that will print the money in order to let them.

Did I get that right?

Hussman actually attacks the concept in this very article. You nailed it though too. I keep hearing this phrase, especially on CNBC, "cash or money on the sidelines."

I incorrectly assumed that they meant something that was highly liquid. In fact they're talking about the money in money market securities.

Hussman:

The second fact is that as a result of more than a trillion dollars of new issuance of Treasury securities with relatively short durations, it is a tautology that there is a mountain of what is mistakenly viewed as “cash on the sidelines” invested in these securities. This mountain of “sideline cash” exists and must continue to exist as long as these additional government securities remain outstanding. It is an error to view outstanding debt securities as if they are “liquidity” poised to “flow back into the stock market.” The faith in that myth may very well spur some speculation in stocks, but it is a belief that is utterly detached from reality. The mountain of outstanding money market securities is the result of government debt issuance that must be held by somebody until those securities are retired. It is not spendable “liquidity” – it is a pile of IOUs printed up as evidence of money that has already been squandered. The analysts and financial news reporters who observe this enormous swamp of short-term money market securities, and talk about “cash on the sidelines” as if it is spendable in aggregate immediately reveal themselves to be unaware of the concept of equilibrium and of the nature of secondary markets (where there must be a buyer for every security sold, and a seller for every security bought).

If you sell your stocks or bonds or money market securities, they don't cease to exist. Somebody else has to purchase them. Somebody else has to hold them. As I've said numerous times, if Ricky wants to sell his money market funds and buy stocks, then his money market fund has to sell money market securities to Nicky, whose cash goes to Ricky, who uses the cash to buy stocks from Mickey. In the end, the cash that was held by Nicky is now held by Mickey. The money market securities that were previously held by Ricky are now held by Nicky. And the stocks that were once held by Mickey are now held by Ricky. There is exactly as much “money on the sidelines” after these transactions as there was before. Money doesn't go into or out of the stock market – it goes through it. Prices don't move because supply exceeds demand or demand exceeds supply. In equilibrium, the two are identical because that's exactly what a trade is. Prices move because the buyer is more eager than the seller, or vice versa.

[Guest]

Re: Dr. "H" explains our Inevitable Impoverishment

Vinoveri - I've been referring to a 350%-400% rise in the DOW / S&P between now and 2017. I would expect it obviously to get off to a very bumpy start. Given the rock solid expectation everyone here has (justified IMO) that inflation will be something beyond the bland stuff Hussman is countenancing, I remain puzzled by the vociferous ridicule that gets heaped onto the idea of a US stock market bubble ermerging fairly well in synchrony to the emerging inflation.

Per every component of ten year's long iTulip theory, the notion of a stock bubble to accompany out of control (very high) inflation is hardly a revolutionary concept. But it seems any hint of this suggestion sends the 2009 crop of "hard headed stock market skeptic" (means permabear BTW) iTulipers into conniptions. They blow a fuse just thinking about the absurdity of this notion, or at least that has been my impression from the rain of rotten vegetables coming down on my head for suggesting it. :rolleyes:

Anyway, this scenario would call for a DOW up at 32K by say, 2015 or 2016. File this absurd notion away somewhere. Then fall out of your chair in astonishment in five years when you stumble across this note. It is as I said, hardly a revolutionary idea, if we are heading into sharply rising inflation. It's the "moribund stock market, as far out as the eye can see" types rather, whose positions will be looking a little strained, if we get headline inflation ramping at 15%. But dont' tell them about it today, as they will explode into belligerent dismissals. ;)

They meanwhile will doubtless have a lookout perched up on the watchtower, ready to sound the all-clear countenancing a rising stock market, when "sound fundamentals" have reasserted themselves.

Anyway this scenario suggests a 350% rise in a major US index. Accepting that as a hypothetical, one has to do one's own estimation of how much of this encompassed pure inflation of the dollar unit, and how much of it may be an expression of "overshoot" wherein equities gain an inflation hedge premium over and above the dollar unit's decay. I know, the notion of a stock rise above the inflation rate "breaks the rule" wherein the rise should be purely nominal. Maybe the inflation is 350% in this scenario.

One thing seems likely, the inflation pressure latent today with global monetary system disintegration, concievably is a good deal greater than the 1970's stock "bear market".

Thanks Raz. Great article and archive of knowledge.

It looks like Hussman's worst case is inflation like the 1970's, i..e, a doubling of prices over the course of a decade, which is "only" a ~7% per annum inflation for a decade, but more probably via EJ-like scenario 12-15% pa over 5 years.

And if I recall, EJ has said that developed economies can function at inflation <20%.

What does this say for the stock market going forward? Lukester's bull in nominal terms?

[metalman]

Re: Dr. "H" explains our Inevitable Impoverishment

Vinoveri - I've been referring to a 350%-400% rise in the DOW / S&P between now and 2017. I would expect it obviously to get off to a very bumpy start. Given the rock solid expectation everyone here has (justified IMO) that inflation will be something beyond the bland stuff Hussman is countenancing, I remain puzzled by the vociferous ridicule that gets heaped onto the idea of a US stock market bubble ermerging fairly well in synchrony to the emerging inflation.

we're all saying the same thing to you luke...

did you consider the 2002 -2007 dow 2x rise a 'bull market'? gold did twice as well.

real returns. where are we going to get real returns? we're 'searching for real returns in an unreal world'.

'if stocks up 88%, inflation up 100% and gold up 160%'

in stocks you lose 12% gold make 60%. will the last cycle repeat? if not, why not?

[Guest]

Re: Dr. "H" explains our Inevitable Impoverishment

There is no "market". There are only individual stocks. The assertion that "gold handily outperformed the market" is "tripe" ( I should have used the more decorous words "potentially notably inaccurate") because there are dozens and HUNDREDS of stocks that rose 500%-800% in the 2002-2007 market.

I'm suggesting iTulip's references to "stock markets capped by inflation" may be deploying a bit of a broad brush on this distinction. Meanwhile, the proponents of $5000 gold are on the slightly woolly fringe of observers, no? More plausible estimates for gold are in the near-$3000 range. Consequently, this is not the most flexible benchmark to validate an assertion that stocks universally remained rigidly capped to gold's gains.

Therefore it seems we are NOT all "saying the same thing". As per the above comment, the "stock market" may rise, X, while multiple of it's components rise ten times X.

we're all saying the same thing to you luke...

did you consider the 2002 -2007 dow 2x rise a 'bull market'? gold did twice as well.

real returns. where are we going to get real returns? we're 'searching for real returns in an unreal world'.

'if stocks up 88%, inflation up 100% and gold up 160%'

in stocks you lose 12% gold make 60%. will the last cycle repeat? if not, why not?