Peddling Loans and Lies to Kids

Posted on April 25, 2014 by MN Gordon

There’s nothing like an abundant flow of money and credit to push prices out of whack.  Borrowing from tomorrow to buy today has the effect of boosting demand.  Prices must rise to equilibrate the boost in demand.

But prices can never quite equilibrate when the supply of money and credit keeps expanding.  On the flipside, the amount of debt supporting the price increases must also run up.  Before long the price structure becomes so distorted that it’s nearly impossible to pay for near anything with cash.

Take housing, for instance.  In most cities it’s impossible to buy a bad house in a decent neighborhood with cash.  An abundance of credit has pushed house prices well above what a middle class income earner – with an aggressive savings plan – can possible store up in cash.

The only hope for a potential home buyer is to take out a loan and sign up for 30 years of debt servitude.  The one consolation for the borrower is, if the Fed keeps the credit expansion game in place as it has over the last 40 years, over time, their burden will be lightened. Continue reading →

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Listening to the Canary

Posted on April 22, 2014 by MN Gordon

Listening to the Canary
By Terry Coxon, Senior Economist

During World War II, the British Royal Air Force (RAF) undertook a plan of misdirection to allow a squadron of bombers to approach an exceptionally valuable target in Europe undetected.  The target was so heavily guarded that destroying it would require more than the usual degree of surprise.

Although the RAF was equipped to jam the electronic detection of aircraft along the route to the target (a primitive forebear of radar was then in use), they feared that the jamming itself would alert the defending forces.  Their solution was to “train” the defending German personnel to believe something that wasn’t true.  The RAF had a great advantage in undertaking the training: The intended trainees were operating equipment that was novel and far from reliable; and those operators were trying to interpret signals without the help of direct observation, such as actually seeing what they were charged with detecting. Continue reading →

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The Next Big Crisis Moment You Can Bank On

Posted on April 18, 2014 by MN Gordon

Donald Rumsfeld has a way with words that is both simple and insightful.  Obviously, not everyone’s valued his intelligence over the years.  From what we gather, they called him Ronald Dumbsfeld when he worked for the Nixon administration.

This name calling never seemed to bother Rumsfeld one bit.  “If you try and please everybody,” he once remarked, “somebody’s not going to like it.”  Naturally, in a world full of frauds and cheats, this is the sort of keen acumen we appreciate.

We hadn’t heard much of Rumsfeld since he left public office.  So we were pleasantly delighted when we happened across his annual letter to the Internal Revenue Service, published earlier this week.  Inside were several well placed gems to marvel over…

“The tax code is so complex,” writes Rumsfeld, “and the forms are so complicated, that I know that I cannot have any confidence that I know what is being requested and therefore I cannot and do not know, and I suspect a great many Americans cannot know, whether or not their tax returns are accurate. Continue reading →

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This Market’s Ready to Implode

Posted on April 15, 2014 by MN Gordon

Until about this time last month, the world was practically flawless.  Stocks were on the march.  They were generally moving onward and upward as the Fed had ordained them.

New Fed Chair, Janet Yellon, was finding her way too…completing the tapering work that Bernanke began.  Despite a minor stumble of words it appeared she’d be able to hold the paper money charade together for at least a while longer.  But then something slipped.

At first no one noticed.  By the time people caught on to what was going on, the growth and technology stocks in the NASDAQ had cracked.  Then the broad S&P 500 faltered. What to make of it?

David Winters, manager of Wintergreen Advisors fund, believes the recent drop in stock prices is a buying opportunity.  “You can get filet mignon for chuck prices,” he said.  Should you listen to him?

If Winters is right, this is this just a brief correction.  Those who buy the dip will be rewarded. Continue reading →

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