stop the presses! karl denniger discovers ka-poom theory!

[BuckarooBanzai]

Re: stop the presses! karl denniger discovers ka-poom theory!

A few years ago I got into one or two heated discussions with him on his board and got slapped with the "tinfoil" label for arguing that monetization was inevitable. So I stopped posting there.

It's easy to pick on Karl because he makes a big target out of himself. He's very smart but very myopic, i.e. he's not exactly a visionary but given enough time he does get it right. I don't hold his shortcomings against him. What else can you expect from a day-trader? He's certainly good at that. If I was "stupid" like him, I'd be a lot richer.

[gorkypark]

Re: stop the presses! karl denniger discovers ka-poom theory!

Could you elaborate a bit on your comment about gold confiscation?

What would the gov't gain by this action?
How would they do it?
Would there be any warning?

confiscation is unlikely - convincingly refuted in attached blogpost IMO
http://fofoa.blogspot.com/2009/08/co...rent-view.html

[jk]

Re: stop the presses! karl denniger discovers ka-poom theory!

confiscation is unlikely - convincingly refuted in attached blogpost IMO
http://fofoa.blogspot.com/2009/08/co...rent-view.html

i read it, and this "refutation" reminds me of all the assertions a couple of years ago about what the fed would never do [because of all the bad ultimate consequences], but in fact is doing. if the gov't decides it can help perpetuate the financial system, it will confiscate gold again. i don't think it will come to that conclusion, because it wants to maintain that gold is just a relic. otoh, ej has said that ultimately he thinks gold will be remonetized for the settlement of international transactions. if that is the case, there may be a confiscation at that time.

[BuckarooBanzai]

Re: stop the presses! karl denniger discovers ka-poom theory!

i read it, and this "refutation" reminds me of all the assertions a couple of years ago about what the fed would never do [because of all the bad ultimate consequences], but in fact is doing. if the gov't decides it can help perpetuate the financial system, it will confiscate gold again. i don't think it will come to that conclusion, because it wants to maintain that gold is just a relic. otoh, ej has said that ultimately he thinks gold will be remonetized for the settlement of international transactions. if that is the case, there may be a confiscation at that time.

Assuming that Fort Knox has not been emptied, FedGov has no reason to confiscate gold as they have more than enough to run a post-1933-style international gold standard, or post-1945-style gold exchange standard.

1933 was a special turning point in history. Modern legal tender laws make gold seizure a redundant exercise.

On the other hand, if Fort Knox HAS been emptied, that indicates we'll have much bigger problems to worry about than gold confiscation!

[ThePythonicCow]

Re: stop the presses! karl denniger discovers ka-poom theory!

Assuming that Fort Knox has not been emptied, FedGov has no reason to confiscate gold as they have more than enough to run a post-1933-style international gold standard, or post-1945-style gold exchange standard.

1933 was a special turning point in history. Modern legal tender laws make gold seizure a redundant exercise.

On the other hand, if Fort Knox HAS been emptied, that indicates we'll have much bigger problems to worry about than gold confiscation!

Yes, the U.S. has crossed the Dollar Rubicon. It will not return to gold short of a catastrophic failure.

And yes, if Fort Knox is empty, that would be a symptom of bigger problems. However such would not be the first or largest observed symptom of such problems.

[charliebrown]

Re: stop the presses! karl denniger discovers ka-poom theory!

in june there was a spike up in treas ylds to 3.8 or so. maybe that was the result of the chinese being net sellers. rates have moved down again to 3.40. Is asia buying again? who is doing the buying? i'm surprised that there is not a larger move out of treasuries as the stock market is up. i'm surprised the sheeple are not rotating out of treasuries and moving into equities.

[jk]

Re: stop the presses! karl denniger discovers ka-poom theory!

in june there was a spike up in treas ylds to 3.8 or so. maybe that was the result of the chinese being net sellers. rates have moved down again to 3.40. Is asia buying again? who is doing the buying? i'm surprised that there is not a larger move out of treasuries as the stock market is up. i'm surprised the sheeple are not rotating out of treasuries and moving into equities.

i'll save finster the trouble of saying that if all assets are up- stocks, bonds, commodities - even ones which are usually inversely correlated as you point out, it just means the dollar is down. the titanic, the clouds, the birds, blah, blah, blah.;)

[bart]

Re: stop the presses! karl denniger discovers ka-poom theory!

different biz model. a trading related site... visitors gotta go there all day long. now what do i do? sell what? buy what? what's the self proclaimed genius have to say?

a macro site... visit once every 10 years if it's any good

survivalists do better than itulip for traffic...

Now show the iTulip stats that include time spent on site... ;)

[ThePythonicCow]

Re: stop the presses! karl denniger discovers ka-poom theory!

i'll save finster the trouble of saying that if all assets are up- stocks, bonds, commodities - even ones which are usually inversely correlated as you point out, it just means the dollar is down. the titanic, the clouds, the birds, blah, blah, blah.;)

David Goldman, on SeekingAlpha.com has just posted an article making this same point, at Is It a Stock Market Rally or a Dollar Devaluation?.

This article states:

The chart below (click to enlarge) shows the SPX (vertical scale) vs the dollar bullish ETF UUP (horizontal scale) for the year to date:

Fully 80% of the movement in the S&P can be explained by the movement in the dollar index.

Statistical analysis confirms the visual impression that the two variables are moving in lockstep. In the chart below (click to enlarge) we see the rolling three-month correlation between daily returns to SPX and the dollar bullish ETF UUP, which mimics the dollar index DXY.

Something ominous is at work here. Typically, a stronger dollar goes together with a stronger stock market. That is what we observe prior to the bank bailout last fall. Starting in the third quarter of 2008 and going to the present, the correlation turns sharply and persistently negative. A cheaper dollar means higher stock prices, as US assets are marked down for global investors.

What we have is not a stock market rally but an adjustment to global market prices. Fully 80% of the movement in the S&P can be explained by the movement in the dollar index.

That is a profile well known to emerging market investors. Whenever the Brazilians would pull another currency devaluation, stock prices rose to compensate, as tradeable assets floated up to world market prices. The bank bailout has made Americans poorer relative to the rest of the world and created the illusion of a stock market recovery.

That does not necessarily mean that inflation will return to the US, as some analysts believe. Foreign investors are not likely to buy homes in Cleveland (although the dollar devaluation certainly should help real estate prices in New York or San Francisco). And the combination of high unemployment and deferred retirement (greeter jobs at Wal-Mart (WMT) will be in great demand) will keep wages down. The price of international tradeables, though, will affect US inflation, which is why I continue to recommend classic commodity hedges (including gold and oil) rather than TIPS.

[ThePythonicCow]

Re: stop the presses! karl denniger discovers ka-poom theory!

Putting on my tin foil hat, I would guess that the shift to a strong inverse correlation between the dollar and U.S. stocks, beginning in late 2008, shown in my preceding post above, is not caused by normal market actions of investors trading up U.S. stocks to compensate for a weaker dollar.

Rather I suspect that this inverse correlation holds on shorter time scales than usual, by which I mean day by day if stocks go up, dollar goes down, and vice versa. To get such a consistently tight coupling, I suspect that the infamous market manipulator JPMorgan, Goldman and Associates is trading back and forth between the forex markets and the stock market, intending since March 2009 to drive stocks up.

... just another conspiracy theory.

[jk]

Re: stop the presses! karl denniger discovers ka-poom theory!

Putting on my tin foil hat, I would guess that the shift to a strong inverse correlation between the dollar and U.S. stocks, beginning in late 2008, shown in my preceding post above, is not caused by normal market actions of investors trading up U.S. stocks to compensate for a weaker dollar.

Rather I suspect that this inverse correlation holds on shorter time scales than usual, by which I mean day by day if stocks go up, dollar goes down, and vice versa. To get such a consistently tight coupling, I suspect that the infamous market manipulator JPMorgan, Goldman and Associates is trading back and forth between the forex markets and the stock market, intending since March 2009 to drive stocks up.

... just another conspiracy theory.

great find, btw, cow! we knew finster's observation was right, but it's nice to see those correlations calculated. and the correlation doesn't have to be manipulation. as pointed out by that very article, the fact that the dollar's going down is no secret. when you realize it's your ship that's sinking, not the clouds rising, you start looking around for lifeboats.

[medved]

Re: stop the presses! karl denniger discovers ka-poom theory!

Could you elaborate a bit on your comment about gold confiscation?
What would the gov't gain by this action?

It will gain improvement of their reserves required by the new international currency system (i.e. they will refill Fort Knox with gold). In 1998 South Korea asked its citizens to donate gold to help repay IMF loans. US will do the same, but this "donation" will be forced.

How would they do it?

Obviously, taxes on gold sales will go up very fast. They are already much higher, than regular capital gain tax. Also, regulation fanatics will add more and more new and complicated rules to any profitable PM/commodities trade. Eventually (already?) this tax system will become so twisted and insane (e.g. reqirement to pay taxes on gold in gold), that no normal person will be able to comply with it. In other words, any gold owner will always be at risk of violating this or that moronic rule or missing some idiotic tax. The media will write articles about "hoarders" making insane profits while “poor” people lose their homes. The gold trade will mostly happen in the black market. The gov’t will catch and punish people doing “big” trades and make example out of them. The “little” people will finally realize, resistance is futile and exchange their gold for gov’t bonds via some “amnesty” program.

Would there be any warning?

You just read one ;)

[ThePythonicCow]

Re: stop the presses! karl denniger discovers ka-poom theory!

Interesting post, medved. I appreciate your paranoia of gold confiscation.

Could you extend your musing to the case of gold held in a BullionVault account? How might the U.S. government shut the door on profitable exit from such holdings faster than a moderately alert U.S. holder of modest amounts could exit profitably?

[medved]

Re: stop the presses! karl denniger discovers ka-poom theory!

Interesting post, medved. I appreciate your paranoia of gold confiscation.

Could you extend your musing to the case of gold held in a BullionVault account? How might the U.S. government shut the door on profitable exit from such holdings faster than a moderately alert U.S. holder of modest amounts could exit profitably?

We just saw a good example of UBS. Why would BV be different? Is not it clear, that people holding their gold at BV are trying to hide something? :rolleyes: Before you know it, BV and similar attempts will have bundles of strings attached to their operations.

The blodthirsty dogooders will not confiscate your gold, they will regulate it out of your hands. Another reason to regulate it to death will be a spectacular failure of the official (paper) gold market. The only place, where you will be able to make a decent profit on gold trade will be the black market.

The only people that insist on unimpeded gold trade are hoarders or terrorists :rolleyes:

[ThePythonicCow]

Re: stop the presses! karl denniger discovers ka-poom theory!

The only people that insist on unimpeded gold trade are hoarders or terrorists :rolleyes:

Ah - ok. Just hoarders and terrorists need worry. Cows are safe and trust their government to respect contracts and the rule of law :rolleyes::eek:.

Thanks, medved.