Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

[metalman]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

For the first time since I've arrived on this (bulletin) board I find one detail on which I'm in complete agreement with EJ ... That is really strange and disturbing

if ej's calls are generally correct
and $#* generally disagrees with ej
then $#* is generally wrong

if $#* agrees with ej on a specific call
then it is probably wrong :rolleyes:

And back to Lukester's question. I haven't seen yet anywhere a solid and complete argumentation for for a long term dollar bull.

and you won't.

[c1ue]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

In my view, Russia is headed for a repeat except starting from a much higher inflation basis. The war in Georgia caused a surge in capital flight; the central bank has had to defend the ruble and is quickly exhausting foreign exchange reserves in the process. Meanwhile, oil and gas prices are falling, reducing the ability of Russia to earn foreign exchange.

Russia is set up for a major currency crash. You heard it here first.

A currency crash is possible - I'm seeing even dollar denominated CDs with 10% interest rates in the major banks in Russia.

The capital flight is also quite real.

However, my question is this: Russia had a $76B currency account surplus in 2007, and 2008H1 is at $104B. Even a zero or slightly negative currency account situation in the rest of this year won't reverse this.

Russia also doesn't owe that much, debt is only 7% of GDP.

Your thesis is that Russia's defense of the ruble will cause Russia to clean out its foreign exchange warchest - $581B according to wiki, and that the result will be a dramatic fall in the ruble's exchange rate value.

How would the ruble's fall in value hurt the nation though? Given its CAS and also relative lack of debt?

After all, the entire Russian money supply is probably around 12 trillion rubles = 480 billion dollars at 25 rubles/$.

And FDI was around $80B in 2007.

I can see how a liquidity crunch would slow down the economy - but outside of the really big companies there just isn't much borrowing.

[jk]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

we had a deflation scare early this decade and we've been due for another.

re analyses of "the dollar" : if by this term one means the dollar index, it is important to recall that the index is 50% euro, so that saying the dollar is to rise is pretty much to say the euro is to fall. with the ecb holding rates firm and the recent announcement of a severely increased haircut for paper placed at the ecb, the european banking system is in a world of hurt.

it is not hard to imagine a scenario in which "the dollar" is rising, but [some-not official- measures of] inflation are rising too, and so is gold. this, in fact, was the case in 2005.

[Supercilious]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

if ej's calls are generally correct
and $#* generally disagrees with ej
then $#* is generally wrong

if $#* agrees with ej on a specific call
then it is probably wrong :rolleyes:

Metalman this is another example of parish-hiltonish logic.

Not being in "complete agreement" is not equal to "generally disagrees" and so far since I've arrived on this board I had disagreements with EJ only on the subject of oil bubble.

But let's not divert this thread with the subject of oil bubble. You can explain me why the price of oil is now $250/bbl and still climbing on the thread called We have an oil bubble: the proof which, because was in disagreement with the official position of this forum, was edited into: Do we have an oil bubble? ;)

A person who is convinced he is right on a subject, theoretically should have nothing to about fear dissenting opinions and wouldn't use the admin powers to do cheap censorship dressing .... ;)

But going back to the long therm dollar bull. The strongest argument against it can be explained in one word: Bernanke .

[metalman]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Metalman this is another example of parish-hiltonish logic.

Not being in "complete agreement" is not equal to "generally disagrees" and so far since I've arrived on this board I had disagreements with EJ only on the subject of oil bubble.

But let's not divert this thread with the subject of oil bubble. You can explain me why the price of oil is now $250/bbl and still climbing on the thread called We have an oil bubble: the proof which, because was in disagreement with the official position of this forum into: Do we have an oil bubble? ;)

A person who is convinced he is right on a subject, theoretically should have nothing to fear dissenting opinions and wouldn't use the admin power to do cheap censorship dressing .... ;)

good man! you said you were scared because you found ONE item here you agreed with. implies you disagree with others... 'generally'

so much emotion in numbers short term.

'i'm right because i said blah then and then this and that....'

goddamn! a guy can make a fortune trading hubris

[Supercilious]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

For the first time since I've arrived on this (bulletin) board I find one detail on which I'm in complete agreement with EJ ... That is really strange and disturbing

Metalman, what part of "complete" you don't understand ?

Should I draw a picture, a Ven diagram or sumthin' ? If you are out of arguments don't try to take cheap and childish shots and please stop diverting this interesting thread with ... whatcha call it ? ... lady doth protest

[oddlots]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

I'm so glad EJ chimed in. I re-read most of the flation / deflation materials over the past few weeks. And then I read Lukester's post and questions and felt almost like I was back at square one.

One of the things I keep catching in myself is a tendency to oscilate between arguments premised on free-market principles and arguments based on a recognition that the markets are heavily influenced by actors without immediate "profit" motivations (think Central Banks.) Part of my recurrent confusions seem rooted in this unconscious flip-flopping.

It seems to me that Crooks assumes that the actions of individual actors are behind the moves in the dollar and goes looking for an explanation that would explain this in free-market terms. A deflation call is the outcome. Perhaps he has looked at the scale of interventions and concluded they are not significant. There are, however, indications to me that there has certainly been such intervention and it seems strange that Crooks doesn't address it.

Regarding the dollar stabilisation we have evidence here:

http://www.itulip.com/forums/showthr...45185#poststop

I noticed that in the recent Times piece about the China's Central Bank running out of reserves the whole recycling process of it's buying of foreign bonds involved at least 1/8 of its entire economic output last year I think. I don't know if that's huge but it sounds huge. Combine that with the ESF intervention cited by Bart and the piling on of momentum traders and I think you can have major moves instigated by co-ordinated government policy.

Given the magnitude of the interventions I would be suspicious of any analysis that doesn't address the issue. At the very least it seems kind of facile for Crooks to be dismissing any explanation of the rally in the dollar beyond one rooted in free-market-forces as a conspiracy theory kind of argument. It's common knowledge that dollar denominated Chinese export earnings and petrodollars are recycled into US debt. How is this a conspiracy? In fact if you look at the share of US financial assets in private versus government hands as a trend it's at a cylclical low of private ownership suggesting to me that the most relevant actors in the markets for US debt at the moment are government actors. (Now if Crooks was saying that trend was turning, that the judgement is being made among our "masters" that its time to bottom fish the dollar because that ratio's topping out, that would be interesting.)

Of all the deflationist arguments I have always found the question of the transmission mechanism for reflation most interesting. I think in a free-market model the Austrian emphasis on credit and how its drying up leads to the inevitable bust makes perfect sense. And its convincing because it's simple and comprehensible. But I always end up concluding that the Austrians are assuming what they're actually arguing for: there is no free-markey in money. In practical terms the fact that the government is sending American citizens money in the mail should give you a clue. The fact that the central banks in the OECD countries are taking on lots of toxic collateral would be another clue. They will monetise anything.

Will it work? I think things become really interesting when you realise that it's not in the central bank's interest to have that question answered too easily. Thus the deflation scare is part and parcel of the reflation playbook. Partly this is a practical question as the rebuilding of balance sheets will clearly take time even if regulatory forbearance and all the crazy level III accounting can accelerate the process. But more fundamentally it's a question of a methodolgy of discipline: can I the schoolteacher let the boys get enough out of hand that they'll play the commodities trade just enough to suck some money into the institutions I need re-capitalised before I give them a good whipping care of a dollar rally. Now that's a conspiracy theory.

New slogan: "It's the political economy stupid."

[Supercilious]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

can I the schoolteacher let the boys get enough out of hand that they'll play the commodities trade just enough to suck some money into the institutions I need re-capitalised before I give them a good whipping care of a dollar rally. Now that's a conspiracy theory.

Basically that is what I also suspect as I've previously said:

My working model is based on the concept of a financial love triangle:
#1 The fed keeps selling treasury paper in order to keep the bad spending habits in fashion and generate profits in #3

#2 The central banks of mercantilist countries (with China the main culprit) gulp quickly all that deluge of T-bonds (in order to maintain their currency pegs) and try to recycle it into higher return investments or hedge against soaring prices of energy and other commodities (price increases which are making manufacturing and basic subsidies painful or unsustainable).

#3 Wall Street investment banks and commodities funds take the influx of recycled T-bonds from #2 and, for nominal fee, they blend it with some of their own excess of bad debt paper and invest it in (oil) futures, basically selling to EM's central banks (from #2) some sort of funny futures based paper (some equivalent of subprime CDO's but the low risk of investment is justified by the premise of never ending increase of commodities/oil prices). Of course, WS banks always make a good profit by selling worthless (but good looking) paper, and besides that, they create another bubble i.e. another money destruction bonfire, which allows the Fed to sell more government securities (as explained in #1) and continue the cycle.

The big question is if there is a true collusion between the Fed and Wall Street in order to clean the vaults of the Central banks with huge $ reserves...

Is the teacher just not paying attention when the schoolboys (Wall Street) are raiding the lunchpacks (stashed US debt) of the kindergarten kids (mercantilist/China, opec and other EM Central Banks), or is he actively encouraging the process in order to keep the kindergarten kids hungry and in constant need for buying more sandwiches (treasuries) from him?

That is my big question....

[Starving Steve]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

How can the dollar rally long-term if interest rates are negative in real terms? Why would I put money in the bank to lose purchasing power? Clearly, the dollar can not rally for very long with Bernankee running the Fed, and the deflation thesis is wrong over the long-term.

Realizing what the central banks are up to, i.e, realizing that they have begun a competitive devaluation of all world currencies, I have done (and am about to do) several things to save my ass:

1.) I have stayed in oil and gas trusts which pay handsome returns, albeit at a depreciation of my principal;

2.) I have started to make long-term useful capital improvements to my log cabin, regardless of the fact that real estate values are in a death-spiral;

3.) I have begun to cherry-pick high dividend-paying stocks, regardless of the fact that the stock markets are in turmoil;

4.) I will soon be buying bullion and calling the bluff of the central bankers, regardless of the fact that this is trying to catch a falling knife;

5.) I will be replacing my fuel efficient car with an even more fuel efficient car in the years ahead, possibly a hybrid-diesel four-cylinder car;

6.) I will be shopping for rental income property in California, possibly as soon as summer 2009. Everyone has to live somewhere, regardless of deflation or inflation. ;)

[oddlots]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

Basically that is what I also suspect as I've previously said:



The big question is if there is a true collusion between the Fed and Wall Street in order to clean the vaults of the Central banks with huge $ reserves...

Is the teacher just not paying attention when the schoolboys (Wall Street) are raiding the lunchpacks (stashed US debt) of the kindergarten kids (mercantilist/China, opec and other EM Central Banks), or is he actively encouraging the process in order to keep the kindergarten kids hungry and in constant need for buying more sandwiches (treasuries) from him?

That is my big question....

Sorry I missed your earlier post...

God you think I really understood that metaphor (simile, as a hedge.) OK I think the other CBs are more like other teachers in the (now) headmaster's school and yes I think the headmaster (OECD, but particularly US / UK CBs) is after the parents' (as opposed to the kindergarten kid's) riches on a relative basis and everyone benefits, but to varying degrees over time. But lets leave the metaphor...

I don't see where the US has the leverage suggested by the phrase keeping "the kindergarten kids hungry." I know, I know "our dollar, their problem" but I can't help but think that this system creates a lot of centrifugal force. (Basically because it runs aground on the twin shoals of western consumer fatigue and inflation induced margin compression in the EMs) In other words, the best that can be hoped for is an orderly collapse and re-ordering rather than a continuation of the original game after an interval. If 72 % of US GDP is consumption based and Joe 6P is in a credit (crack) induced comma, I would think the world's forbearance is going to be a little strained going forward. (Not that we're not all adults at the table (or should be) and didn't benefit from Joe 6P's Wall Street enabled self immolation.) Strained also because they have their own Joe 6Ps (translation to Mandarin?) who want a job, much less credit. So I think if we are EM central banks we swing to: 1) putting the dollar recycling on a slow burner at the back of the stove (call it maintenance) 2) get serious about that pan-asian currency plan so we never have to explain to anyone again that providing granite countertops to every North American house flipper was part of the great 5 Year plan 3) come up with our own new deal to make up for collapsing asset prices (stocks, real estate.)

Thinking very impressionistically, I even think that the Pickens plan for US sourced energy is part of the same swing. As the incentives to imbalance the world wane there will be a mutual turning inward for reasons that are as much about the relative stemming of international money flows as anything else. The "great symbiosis" of dollar re-cycling seems to be on the wane.

[EJ]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

we had a deflation scare early this decade and we've been due for another.

re analyses of "the dollar" : if by this term one means the dollar index, it is important to recall that the index is 50% euro, so that saying the dollar is to rise is pretty much to say the euro is to fall. with the ecb holding rates firm and the recent announcement of a severely increased haircut for paper placed at the ecb, the european banking system is in a world of hurt.

it is not hard to imagine a scenario in which "the dollar" is rising, but [some-not official- measures of] inflation are rising too, and so is gold. this, in fact, was the case in 2005.

I'm intrigued by this concept of a "deflation scare." Who's term is it? It's generally a bad idea to embed in the theory of a market process a presumed emotional reaction of market participants to some stage of the process that the theory seeks to define. Uninformed market participant may mistake a period of disinflation that occurs after an asset price inflation but before reflation kicks in for the onset of deflation. Their reaction may be fear of deflation, but that confuses the process – in iTulip parlance Ka-Poom – with the market participant's reaction to a stage of it.

Hopefully we don't have any deflation scares around here.

[jk]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

I'm intrigued by this concept of a "deflation scare." Who's term is it? It's generally a bad idea to embed in the theory of a market process a presumed emotional reaction of market participants to some stage of the process that the theory seeks to define. Uninformed market participant may mistake a period of disinflation that occurs after an asset price inflation but before reflation kicks in for the onset of deflation. Their reaction may be fear of deflation, but that confuses the process – in iTulip parlance Ka-Poom – with the market participant's reaction to a stage of it.

Hopefully we don't have any deflation scares around here.

a "deflation scare" is what happens during ka - fed heads et al giving speeches and issuing statements and writing papers about the risk of deflation and how to avoid it. a deflation scare is the fear generated by disinflation as the zero bound comes into view. a deflation scare leads to the actions by which ka is turned into poom.

[EJ]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

a "deflation scare" is what happens during ka - fed heads et al giving speeches and issuing statements and writing papers about the risk of deflation and how to avoid it. a deflation scare is the fear generated by disinflation as the zero bound comes into view. a deflation scare leads to the actions by which ka is turned into poom.

But who is scaring whom? The Fed scaring FCBs? The Fed scaring private investors? I find this concept very confusing.

Ka-Poom defines a process of the global political economy in our floating exchange rate world as asset inflations rise and fall and central banks and private capital vie for protection and advantage. Are you saying that FCBs will sell US assets out of fear of deflation in the US?

[jk]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

But who is scaring whom? The Fed scaring FCBs? The Fed scaring private investors? I find this concept very confusing.

Ka-Poom defines a process of the global political economy in our floating exchange rate world as asset inflations rise and fall and central banks and private capital vie for protection and advantage. Are you saying that FCBs will sell US assets out of fear of deflation in the US?

you're reading too much into what i'm saying. look at what was going on earlier in the decade. bernanke gave his famous "making sure it[deflation] doesn't happen here" speech in november 2002. the fed was issuing statements referencing "the probability of an unwelcome substantial fall in inflation." [that was understood in the msm as code for "deflation."] there was a lot of public talk about deflation triggered by the ongoing disinflation and the fear of the zero bound. the resultant action at the fed was the rather rapid drop in the fed funds rate to 1%, then triggered the next bubble. so fear of deflation triggered inflationary policy actions.

"a deflation scare," as i meant to use the term, didn't refer to the fed scaring anybody. it referred to the economy and financial system scaring the fed [among others]. rather like the current goings on in the credit system are scaring the fed, among others.

[EJ]

Re: Jack Crooks Calls For Deflation And Long Term Bull Market USD. [wtf]

you're reading too much into what i'm saying. look at what was going on earlier in the decade. bernanke gave his famous "making sure it[deflation] doesn't happen here" speech in november 2002. the fed was issuing statements referencing "the probability of an unwelcome substantial fall in inflation." [that was understood in the msm as code for "deflation."] there was a lot of public talk about deflation triggered by the ongoing disinflation and the fear of the zero bound. the resultant action at the fed was the rather rapid drop in the fed funds rate to 1%, then triggered the next bubble. so fear of deflation triggered inflationary policy actions.

Yes, I wrote about this in 2001 and plunked down a lot of money on it in PM bets based in it. Not many went along with the idea at the time – was ridiculed by a Globe business reporter – which was good for me because it meant that I was betting against a widely held fiction, my kind of trade. But based on conversations I have with hedge fund managers now everyone is waiting on the reflation trade this time, so I don't see how it will work again. This is the main reason I have not traded it this time and have suggested that "Ka" and "Poom" are for all practical purposes simultaneous now.

"a deflation scare," as i meant to use the term, didn't refer to the fed scaring anybody. it referred to the economy and financial system scaring the fed [among others]. rather like the current goings on in the credit system are scaring the fed, among others.

The Fed is an institution, not a person. It decides according to its antecedents: organizational structure, policy framework, history, leadership, internal politics, group dynamics, philosophical orthodoxy, and so on. Institutions are never scared; things are either going their way or not. Now they are betting that recession will take care of their inflation problem. They think that all they have to do is not meet the rising demand for money while at the same time managing the debt deflation and asset price deflation to keep it from spilling over into the "real" economy.

They are not going to stop monetizing assets. Wonder who Greenspan's "the Fed is not a magic piggy bank" comment was aimed at.