Tweet
For Mega and Jtabeb
Some Notes For All The Super-bears Out There In Internet Land
The linked Post - 2010 Preview: The Wonderful Wizard of USD
Some Notes For All The Super-bears Out There In Internet Land
Apparently running a website entitled ‘FallStreet.com’ for the last 10-years and being objectively pessimistic on the markets is not enough - I still get emails attacking me for being ‘like the herd’, ‘useless’, and for following the ‘status quo’. The latest batch of fan mail came in response to yesterday’s piece, which apparently wasn’t bearish enough for some…
The problem with many of the ‘super-bears’ is that there is no pleasing this crowd (nor should anyone try). Rather, in the land of super-bear the rigged employment figures spell imminent doom, the heavily manipulated price of gold is proof that widespread civil unrest is pending, and anyone who takes issue with these types of theories has been bought. While I don’t disagree with a lot of the facts explored within most of the super-bear theories, I do oppose many of the conclusions.
The World is Competitive and Unfair...So What?
To begin with, there is little doubt that there is a concerted effort to conceal the true depth of the U.S. economic downturn. This is the case whether you care to study the heavily massaged employment statistics, GDP data, or the simple fact that the Fed no longer reports M3. There is also little doubt that the mainstream media avoids any serious interrogation of the financial markets and economy, is myopically bullish, and the cliental they keep is largely inept (i.e. if the ‘experts’ were wrong about the biggest crisis since the Great Depression why are they still the voice today?) Finally, there is no doubt that great effort is exerted by policy makers to ensure that the financial markets have a built in upward bias. This is the case when you look at the actions of regulatory bodies like the Fed, SEC, NYSE, etc., or the politicians, all of which place the goal of market stability (artificial or not) ahead of transparency.
But even with this knowledge in hand, the case for calling for the imminent destruction of the U.S. economy and financial markets is not present. Rather, what the super-bears conveniently neglect to mention or do not readily see is that other policy makers and governments also do their best to conceal, manipulate, and slant their statistics and policies. This isn’t a conspiracy theory so much as the understanding that there is competitive forces at work everywhere, even when it comes to rigging markets, currencies, and economies.
So, the U.S. has been highly successful at keeping its artificial economy going – ...and?? Anyone can collect and produce a body of evidence that paints a negative picture for the financial markets and U.S. economy. The trick as an investor is to make this information actionable based upon current realities.
The Crux of the matter
Whether they realize it or not, every argument for meltdown the super-bears conjure up is heavily reliant on the U.S. dollar. So long as the U.S. dollar lives the prospect of a system-wide financial collapse is off the table (for that matter, so long as all U.S. debt is dollar denominated the prospect of the U.S. turning into Argentina or Zimbabwe is also off the table). If you try explaining this to many super-bears you have hit a wall. I will attempt this feat using super-bearspeak:
Until the worthless USD crashes the manipulated statistics and biased media are important because the sheep that hold worthless dollars are watching and reacting to them!
Super-bears are either oblivious to the above fact or believe that one day everyone else (the sheep) will finally learn the horrific financial truths they have unmasked. If the latter perhaps the super-bears have an agenda in that they are simply recruiting new members?
Whatever the super-bear’s intent, the fact remains that a freely floating worthless USD has been around for nearly 40-years. Will this last another 40-years?
Even Super-Bears Need To Smile
More than 7-years ago I discussed a ‘manipulation paradox’. Obviously a refresher is required:
“...just because the gold market is manipulated this does not necessarily mean that the price of gold is destined to surge when, and if, the manipulation 'ends'. To be sure, if the manipulation in gold were to ever really end there would be no 'price' for gold. Rather, there would just be gold.”
The super-bears may be well served to understand this paradox. It says that if you own gold (as all super-bears do) and you have a paper selling price you are in fact optimistic that the entire monetary system as we know it will not completely implode. It’s OK to be optimistic super-bears – smile! Rest safe in the knowledge that if stocks drop by 99% you will sell a few ounces and try your luck…
As for those super-bears that do not have a paper selling price in mind and/or can not on any level envision any set of circumstances that would ever compel them to sell their precious metals -- what the hell are you doing reading investment commentaries online? Ahh yes, doubt…
Parting Thoughts
.
.
.
.
The problem with many of the ‘super-bears’ is that there is no pleasing this crowd (nor should anyone try). Rather, in the land of super-bear the rigged employment figures spell imminent doom, the heavily manipulated price of gold is proof that widespread civil unrest is pending, and anyone who takes issue with these types of theories has been bought. While I don’t disagree with a lot of the facts explored within most of the super-bear theories, I do oppose many of the conclusions.
The World is Competitive and Unfair...So What?
To begin with, there is little doubt that there is a concerted effort to conceal the true depth of the U.S. economic downturn. This is the case whether you care to study the heavily massaged employment statistics, GDP data, or the simple fact that the Fed no longer reports M3. There is also little doubt that the mainstream media avoids any serious interrogation of the financial markets and economy, is myopically bullish, and the cliental they keep is largely inept (i.e. if the ‘experts’ were wrong about the biggest crisis since the Great Depression why are they still the voice today?) Finally, there is no doubt that great effort is exerted by policy makers to ensure that the financial markets have a built in upward bias. This is the case when you look at the actions of regulatory bodies like the Fed, SEC, NYSE, etc., or the politicians, all of which place the goal of market stability (artificial or not) ahead of transparency.
But even with this knowledge in hand, the case for calling for the imminent destruction of the U.S. economy and financial markets is not present. Rather, what the super-bears conveniently neglect to mention or do not readily see is that other policy makers and governments also do their best to conceal, manipulate, and slant their statistics and policies. This isn’t a conspiracy theory so much as the understanding that there is competitive forces at work everywhere, even when it comes to rigging markets, currencies, and economies.
So, the U.S. has been highly successful at keeping its artificial economy going – ...and?? Anyone can collect and produce a body of evidence that paints a negative picture for the financial markets and U.S. economy. The trick as an investor is to make this information actionable based upon current realities.
The Crux of the matter
Whether they realize it or not, every argument for meltdown the super-bears conjure up is heavily reliant on the U.S. dollar. So long as the U.S. dollar lives the prospect of a system-wide financial collapse is off the table (for that matter, so long as all U.S. debt is dollar denominated the prospect of the U.S. turning into Argentina or Zimbabwe is also off the table). If you try explaining this to many super-bears you have hit a wall. I will attempt this feat using super-bearspeak:
Until the worthless USD crashes the manipulated statistics and biased media are important because the sheep that hold worthless dollars are watching and reacting to them!
Super-bears are either oblivious to the above fact or believe that one day everyone else (the sheep) will finally learn the horrific financial truths they have unmasked. If the latter perhaps the super-bears have an agenda in that they are simply recruiting new members?
Whatever the super-bear’s intent, the fact remains that a freely floating worthless USD has been around for nearly 40-years. Will this last another 40-years?
Even Super-Bears Need To Smile
More than 7-years ago I discussed a ‘manipulation paradox’. Obviously a refresher is required:
“...just because the gold market is manipulated this does not necessarily mean that the price of gold is destined to surge when, and if, the manipulation 'ends'. To be sure, if the manipulation in gold were to ever really end there would be no 'price' for gold. Rather, there would just be gold.”
The super-bears may be well served to understand this paradox. It says that if you own gold (as all super-bears do) and you have a paper selling price you are in fact optimistic that the entire monetary system as we know it will not completely implode. It’s OK to be optimistic super-bears – smile! Rest safe in the knowledge that if stocks drop by 99% you will sell a few ounces and try your luck…
As for those super-bears that do not have a paper selling price in mind and/or can not on any level envision any set of circumstances that would ever compel them to sell their precious metals -- what the hell are you doing reading investment commentaries online? Ahh yes, doubt…
Parting Thoughts
.
.
.
.
The same day President Richard Nixon closed the "gold window” Ron Paul entered politics. Dr. Paul has been fighting to end the Federal Reserve ever since - he has been supporting a bill to audit the Fed since 1976. In 2009 Congressman Ron Paul’s bill to audit the Fed was included in the Wall Street reform bill and passed by the House. Only the Senate* stands in front of Congressman Paul’s heroic battle to audit the secretive act of the central bank wizards.
If the judges handing out awards for person of the year knew of Ron Paul’s story he would surely qualify. Unfortunately, Dr. Paul did not receive last year’s Time person of the year award, and the honor was instead bestowed upon Fed Chairman Ben Bernanke. Mr. Bernanke, a banker, won the award because he supposedly invented novel schemes to save the financial world.
That Bernanke wins any award is, of course, the height of absurdity. After all, it is not as if Bernanke went door-to-door selling chocolate bars in order to amass the trillions in bailout dollars he and his accomplices committed to backstopping irresponsible debtors and shoring up artificially inflated asset prices. Rather, and at risk of over simplifying, he printed the money. As for the argument that Bernanke found new ways to inject liquidity into the financial markets, how quickly people forget that Bernanke’s predecessor, Alan Greenspan (another Time cover boy), was also a pioneer in this area. To be sure, not only did Greenspan cut interest rates quickly and raise them super-slowly, he was also a key proponent of putting the Fed’s good name on the line on behalf of insolvent debtors (perhaps the most notable instance being LTCM). Moreover, thanks to Greenspan’s doctrine of self-regulation, financial institutions were permitted to acquire dangerous amounts of leverage, guaranteed-to-blow-up mortgages were widely written, and a cornucopia of highly secretive and highly speculative bets were made on highly unregulated markets. Bernanke’s direct intervention into specific markets notwithstanding – something that has been done many times before (i.e. Japan) – the ominously innovative pro-liquidity tricks established by Greenspan set the precedent.
Those that applaud Bernanke’s ‘new’ methods of printing money as ingenious are not unlike a crowd watching a David Copperfield show – it’s not really magic people, its sleight of hand! Surely Bernanke’s bag of tricks are not so ground-breaking as to blind everyone to the fact that manipulating long-term interest rates, purchasing more than a trillion dollars in mortgage securities, and (perhaps only indirectly) manipulating stock prices – that all this is unlikely to resolve the underlying structural problems that led to this mess in the first place?
But alas, befuddled by Bernanke’s art of misdirection, there is a widespread acceptance that if Bernanke didn’t do what he did, things would be much, much worse. Quite frankly, the only statement deemed significant by the believing and bewildered crowd is, ‘The financial system would have collapsed without the Fed!’ All this despite the fact that a discerning observer can see that Bernanke is dealing cards from the bottom of the deck.
What about the notion that ‘the system’ itself is prone to the threat of collapse because of the Fed? For that matter, what about the fact that Bernanke has done nothing to alleviate but has instead likely exacerbate the ever escalating and menacing cycle of boom-bust? Apparently these glances behind the wizard’s curtain are better left largely unexplored, at least until the next financial crisis…
Anti-U.S. dollar scheming ahead of the next crisis
With Bernanke and company taking on the role of hedge fund managers in 2009, and Obama embracing the idea of trillion plus dollar deficits, the world is increasingly questioning the longer-term sustainability of the U.S. dollar and the fundamental soundness of the U.S. economy. And with emerging markets acquiring greater clout, the U.S. centric vision that has dominated since Bretton Woods has become more tenuous. On the surface this tension has given voice to a more sustained verbal protest against U.S. dollar hegemony, greater protectionist forces, and the onset of creative dissent (i.e. Chinese companies refusing to honor derivatives contracts). However, more concerted rumblings that threaten to shake the foundations of global power have also begun to emerge.
Perhaps the best example of this attempted realignment of global power can be seen in the BRIC countries’ attempt for greater control over the IMF decision making process. While these efforts have not as yet produced radical change, they did, albeit briefly, acquire the attention of financial market participants. Specifically, currency market volatility spiked as China and Russia touted the possibility of an IMF supported supranational reserve currency to replace the dollar, and the dollar dove when the IMF agreed to release a greater-than-token amount of Special Drawing Rights (The end result on this front was that in August 2009 the IMF released SDR of 161.2 billion). Against the backdrop of soaring asset prices, the SDR developments didn’t catch many headlines. However, it was an important stepping stone in that it sets up a precedent for future monetary alterations.
Many other smaller movements also threatened to undermine the hegemonic influence of the U.S. dollar. In the case of the long discussed petrodollar, Saudi Arabia, Kuwait, Bahrain, and Qatar are set to launch the ‘Gulfo’ this year. While hardly an immediate threat to the U.S. dollar, the Gulfo, like SDRs, nonetheless represents a longer-term constraint to the U.S. dollar’s reach.
Finally, there is gold, which broke all-time (un-adjusted for inflation) highs in 2009, and is expected by many to continue its surge higher. Having been net sellers since 1988, central banks began accumulating gold in 2009, and the auction of gold from the IMF, which many feared would suppress the price of gold, was quickly absorbed as 212 metric tons were purchased by India, Sri Lanka and Mauritius (the surprise being that many believed it would be China buying IMF gold). With China and other states pledging to purchase more gold to diversify reserves, the likelihood of a serious meltdown in the price of gold has been taken off the table. And with so many countries lining up to borrow enormous sums of money, the potential for a further melt-up in gold is present…
The overall contrast this suggests, if otherwise unclear, is that as Bernanke and U.S. policy makers are fighting to maintain the status quo, much of the rest of the world is questioning and preparing for the breakdown of hegemony. Should these anti-U.S. dollar preparations increase further they represent a potential catalyst for the next crisis.
The Boom Before The Bust?
.
.
.
.
.
If the judges handing out awards for person of the year knew of Ron Paul’s story he would surely qualify. Unfortunately, Dr. Paul did not receive last year’s Time person of the year award, and the honor was instead bestowed upon Fed Chairman Ben Bernanke. Mr. Bernanke, a banker, won the award because he supposedly invented novel schemes to save the financial world.
That Bernanke wins any award is, of course, the height of absurdity. After all, it is not as if Bernanke went door-to-door selling chocolate bars in order to amass the trillions in bailout dollars he and his accomplices committed to backstopping irresponsible debtors and shoring up artificially inflated asset prices. Rather, and at risk of over simplifying, he printed the money. As for the argument that Bernanke found new ways to inject liquidity into the financial markets, how quickly people forget that Bernanke’s predecessor, Alan Greenspan (another Time cover boy), was also a pioneer in this area. To be sure, not only did Greenspan cut interest rates quickly and raise them super-slowly, he was also a key proponent of putting the Fed’s good name on the line on behalf of insolvent debtors (perhaps the most notable instance being LTCM). Moreover, thanks to Greenspan’s doctrine of self-regulation, financial institutions were permitted to acquire dangerous amounts of leverage, guaranteed-to-blow-up mortgages were widely written, and a cornucopia of highly secretive and highly speculative bets were made on highly unregulated markets. Bernanke’s direct intervention into specific markets notwithstanding – something that has been done many times before (i.e. Japan) – the ominously innovative pro-liquidity tricks established by Greenspan set the precedent.
Those that applaud Bernanke’s ‘new’ methods of printing money as ingenious are not unlike a crowd watching a David Copperfield show – it’s not really magic people, its sleight of hand! Surely Bernanke’s bag of tricks are not so ground-breaking as to blind everyone to the fact that manipulating long-term interest rates, purchasing more than a trillion dollars in mortgage securities, and (perhaps only indirectly) manipulating stock prices – that all this is unlikely to resolve the underlying structural problems that led to this mess in the first place?
But alas, befuddled by Bernanke’s art of misdirection, there is a widespread acceptance that if Bernanke didn’t do what he did, things would be much, much worse. Quite frankly, the only statement deemed significant by the believing and bewildered crowd is, ‘The financial system would have collapsed without the Fed!’ All this despite the fact that a discerning observer can see that Bernanke is dealing cards from the bottom of the deck.
What about the notion that ‘the system’ itself is prone to the threat of collapse because of the Fed? For that matter, what about the fact that Bernanke has done nothing to alleviate but has instead likely exacerbate the ever escalating and menacing cycle of boom-bust? Apparently these glances behind the wizard’s curtain are better left largely unexplored, at least until the next financial crisis…
Anti-U.S. dollar scheming ahead of the next crisis
With Bernanke and company taking on the role of hedge fund managers in 2009, and Obama embracing the idea of trillion plus dollar deficits, the world is increasingly questioning the longer-term sustainability of the U.S. dollar and the fundamental soundness of the U.S. economy. And with emerging markets acquiring greater clout, the U.S. centric vision that has dominated since Bretton Woods has become more tenuous. On the surface this tension has given voice to a more sustained verbal protest against U.S. dollar hegemony, greater protectionist forces, and the onset of creative dissent (i.e. Chinese companies refusing to honor derivatives contracts). However, more concerted rumblings that threaten to shake the foundations of global power have also begun to emerge.
Perhaps the best example of this attempted realignment of global power can be seen in the BRIC countries’ attempt for greater control over the IMF decision making process. While these efforts have not as yet produced radical change, they did, albeit briefly, acquire the attention of financial market participants. Specifically, currency market volatility spiked as China and Russia touted the possibility of an IMF supported supranational reserve currency to replace the dollar, and the dollar dove when the IMF agreed to release a greater-than-token amount of Special Drawing Rights (The end result on this front was that in August 2009 the IMF released SDR of 161.2 billion). Against the backdrop of soaring asset prices, the SDR developments didn’t catch many headlines. However, it was an important stepping stone in that it sets up a precedent for future monetary alterations.
Many other smaller movements also threatened to undermine the hegemonic influence of the U.S. dollar. In the case of the long discussed petrodollar, Saudi Arabia, Kuwait, Bahrain, and Qatar are set to launch the ‘Gulfo’ this year. While hardly an immediate threat to the U.S. dollar, the Gulfo, like SDRs, nonetheless represents a longer-term constraint to the U.S. dollar’s reach.
Finally, there is gold, which broke all-time (un-adjusted for inflation) highs in 2009, and is expected by many to continue its surge higher. Having been net sellers since 1988, central banks began accumulating gold in 2009, and the auction of gold from the IMF, which many feared would suppress the price of gold, was quickly absorbed as 212 metric tons were purchased by India, Sri Lanka and Mauritius (the surprise being that many believed it would be China buying IMF gold). With China and other states pledging to purchase more gold to diversify reserves, the likelihood of a serious meltdown in the price of gold has been taken off the table. And with so many countries lining up to borrow enormous sums of money, the potential for a further melt-up in gold is present…
The overall contrast this suggests, if otherwise unclear, is that as Bernanke and U.S. policy makers are fighting to maintain the status quo, much of the rest of the world is questioning and preparing for the breakdown of hegemony. Should these anti-U.S. dollar preparations increase further they represent a potential catalyst for the next crisis.
The Boom Before The Bust?
.
.
.
.
.
Comment