One Hundred Years of Failure and Counting

Posted on October 28, 2014 by MN Gordon

Quantitative easing is set to expire this month.  That’s the plan at least.  The $10 billion monthly tapers will finally bring the Fed’s QE3 bond buying program down from $85 billion per month to zero.

That’s not to say the Fed will no longer be operating with extreme monetary policies of market intervention.  Remember, the federal funds rate is still at practically zero.  This is something that had never happened until the fall of 2008.

Now, six year later, the federal funds rate is still pressed firmly down to the ground.  According to Federal Reserve utterances, they won’t begin raising the federal funds rate for another six months.  Of course, that could always change depending on what way the wind blows.

The Fed has shown that they are making things up as they go.  They are just winging it.  Should they raise interest rates?  Should they stop expanding the money supply? Continue reading →

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What a Correction Feels Like

Posted on October 24, 2014 by MN Gordon

What a Correction Feels LikeWhat a Correction Feels Like
By Jared Dillian, Editor, Bull’s Eye Investor

Back in the summer of 2007, when I was working for Lehman Brothers, I had a vacation to the Bahamas planned.  This was unusual for me.  Up until that point, in six years of working for Lehman, I had taken about five vacation days—total.  But my wife and I were going to a semi-primitive resort on Cat Island, the most desolate island in the Bahamas.  Interesting place for a vacation.  Suffice to say that it’s plenty hot in the Bahamas in August.

The market had been acting funny for a while, and I had a hunch that there was going to be trouble while I was gone, so I bought the 30 strike calls in the CBOE Market Volatility Index (VIX).  I was betting that volatility was going to go up a lot in a short period of time.  In fact, these options—which I spent a little over $100,000 on—would be worthless unless there was outright panic.  I gave instructions to my colleagues to sell the call options if the VIX went over 35. Continue reading →

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Why China Will Suffer a Hard Landing

Posted on October 21, 2014 by MN Gordon

Global economies are struggling.  Europe’s economy is stalling out.  The Japanese economy’s shrinking at an annualized rate of 7.1 percent.  But we won’t dwell on Europe or Japan at the moment.  For today we set our sights on a Chinese bull’s eye; namely, China’s miracle engine of growth that appears to finally be slowing down.

Naturally, when an economy slows many problems that had been covered up by new growth are exposed.  For example, after years and years of stimulating the Chinese economy with borrowed money, the mistakes and distortions have literally piled up as far as the eye can see.  There’s a gross overcapacity of property.

“According to Chinese data, cities have built enough for 97 million new city residents, but over the past 5 years, only 35 million people have moved into these cities, a gap of 62 million people.  These are the potential ghost cities.”

Typically a ghost city appears following a long period of economic prosperity.  Overtime the fundamentals that supported the prosperity change.  Population flight – like in Detroit where the population peaked out at 1.8 million in 1950 is now at just 688,000 – follows. Continue reading →

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Consumers Don’t Stand a Chance

Posted on October 17, 2014 by MN Gordon

Most economists don’t do any favors for the esteem of their trade.  They take ideas a third grader would know are idiotic and champion them with bluster and bravado.  Hardly a day goes by where some economist doesn’t prove he’s a moron.

Take cash for clunkers.  Everyone, with the exception of brain dead economists, knows that giving people money to scrap perfectly good vehicles is a value subtracting enterprise.  Yet economists cheer on the outward demand for new cars it stimulates…and the boost to GDP.

But if this were really the road to riches, why not give everyone cash to buy a new car?  Automaker factories would be buzzing.  So, too, why not give everyone money to buy a house?  Homebuilder payrolls would swell.  This would work perfectly well…if we were living in fantasy land.

Another popular delusion of modern day economic thought is that wealth is created by borrowing money and spending it…as opposed to saving money and investing it.  Simple logic proves this thinking is false.  Yet economists pursue it anyway. Continue reading →

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