OK, kids, lets have some fun with this one:
When does the ZIRP Fed policy come to an end — later this year, next year, never?
And where does that lead Inflation or Deflation or Disinflation?
Gold goes to: $1500 or $3000 or back to $500 ?
~~~
What say ye?
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Dollar depreciation leads to higher inflation and ultimately forces foreign creditors to question their rationale and indeed their sanity for continuing purchases of U.S. Treasuries." -Bill Gross
Initial Jobless Claims for the week ended Feb 18th totaled 351k, 4k less than expected but the prior week was revised up by 3k to 351k. The 4 week average did fall to 359k from 366k, the lowest since Mar '08. Continuing Claims fell by 52k to the lowest since Aug '08. Also, Extended Benefits fell a net 69k. Bottom line, the data still points to a labor market that continues to improve however lumpy the process feels for many. ...
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February 25th, 2010 at 8:14 pm
ZIRP will not end until we have reached consensus on the next bubble. Once the target bubble is identified, we will have a year of ultra-low rates in order to convince the stragglers that demand is real and that all productivity increases should be channeled into expanding the new bubble until it is self-perpetuating, at which point it will be safe to start a series of 0.25% rate increases over 3-4 years or until the Minsky Moment is again reached, whichever comes first.
February 25th, 2010 at 8:15 pm
2011 – then right back down again (ala Japan) for the next decade or so. They’ve addicted the economy to permanently low interest rates, not much they can do now.
February 25th, 2010 at 8:19 pm
ZIRP off and on for the next 20 years-
deflation wins-
sorry to see BR that you have imagined that the Fed has so much power-
when in fact it is powerless and can only maneuver for the short term-
it cannot control destiny
February 25th, 2010 at 8:20 pm
ZIRP is the siren song of Deflation. It is the petard upon which Helicopter Ben is hoisted. He tends to get it about two years late when he can do enough academic-quality research. He is the “we” that Marshall McLuhan spoke of in The Medium is the Massage: “We see the present through a rear-view mirror. We march backwards into the future.” In the meanwhile, he pees on the Congress’s leg and tells them it’s raining, while Timmy gives it up to Jimmy, as in the great Chase robbery.
February 25th, 2010 at 8:23 pm
Gold is a humbug. All that cash suffocating in Gold should be invested in Intellectual Property to lead the Free World
February 25th, 2010 at 8:27 pm
Kesshite, Barrysan.
February 25th, 2010 at 8:28 pm
speaking of which-
” Japan’s consumer prices fell for a 12th month in January, putting renewed pressure on policy makers to eradicate deflation that hampers the recovery”- Bloomberg
but keep banking on the Fed BR-
they’re all knowing, all seeing-
you know- the same folks who advised- “there is no housing bubble”-
February 25th, 2010 at 8:30 pm
Ahab – what in gods name are you talking about? ;-)
February 25th, 2010 at 8:37 pm
thor-
BR prays at the alter of the almighty Bernanke-
thus his trading strategy-
“don’t bet against the Fed”
Genius! (think the Guinness commercial)
February 25th, 2010 at 8:38 pm
Its more subtle than that — if you fought the Fed — bet against rate cuts in 2000-03, you made money.
This is about QE/ZIRP — and that so much liquidity sloshing in the system, it has been driving stocks higher.
Its been the losing trade to fight that . . .
February 25th, 2010 at 8:43 pm
Not before the 2012 elections.
And when they finally do raise rates, we will see a rerun of the 1937 stock market collapse, as that game will be over.
If there is any strength left in the economy by that point, we may see some serious inflation, depending of whether or not the Fed is able to mop up all that excess liquidity sloshing around — it should be easy, just bring back mark-to-market accounting, and have the Fed take over the failing banksters with their vaults stuffed with excess liquidity (you know, the stuff they are unwilling to lend to the consumer, preferring to use it to buy supposedly riskless Treasuries). Voila! All that liquidity is back in the Fed’s hands once more.
However, it seems unlikely that there will be anything that one could consider to be a “strong” economy, and that Ahab is correct, deflation will triumph, as the global economy spirals smaller and smaller, punctuated by trade wars here and there along the way, as protectionism reasserts itself in the absence of any treaties or regulatory practices discouraging it..
The price of gold depends more on how many currency scares we have on the way to the exit than on any other thing.
This whole mess is gonna take decades to put completely behind us.
February 25th, 2010 at 8:44 pm
When does the ZIRP Fed policy come to an end?
– ZIRP will end when Banksters and the largest and best “well-connected” investors/debtholders such as PIMCO and BlackRock will have sufficiently profited from the Fed-induced rally in bank shares, bank debt, and mortgage “toxic assets” and then finished unloading it to the Fed, Fannie/Freddie, FDIC – i.e. on the back of the taxpayers.
And where does that lead Inflation or Deflation or Disinflation?
– Disinflation now, hyperinflation by the end of 2011 and 2012, when Administration desperate for reelection starts REALLY “stimulating” the economy
Gold goes to: $1500 or $3000 or back to $500 ?
– $200 down before $200 up. $920 , perhaps even $800 before $1300
February 25th, 2010 at 8:46 pm
@Ahab — don’t knock “Fed power” — while it cannot control the economy, it can certainly squash mere mortals such as me and thee. The Fed can be a mighty wind to piss into.
February 25th, 2010 at 8:47 pm
Ahab – Got it. Kudos to you for always being man enough to express your opinions directly to BR. A 13 year old girl you are not ;-)
February 25th, 2010 at 8:53 pm
ZIRP will be with us until we see a quarters worth of NF job gains averaging at least 100k per month with signs of growth continuing.
Inflation will be the winner, but we might not see the clear evidence until early next year. We have a flood of money, we have fewer goods available due to capacity reductions in all sectors, including agriculture. All that is missing is velocity of money to turn that pile of printed paper into transactions. Obamatics will solve that problem by increasingly taxing higher incomes to divert money from investment capital formation to immediate consumption via government spending.
Gold – should see $1300 this year and $1500 next year without problem.
February 25th, 2010 at 8:55 pm
Here’s one for you Barry — how far up can the Fed’s ZIRP push the equities markets?
On the Dow … 12,000 14,000 or 18,000?
Or if you prefer the S&P … 1300 1600 or 2000?
Or is there simply no end to “UP”?
February 25th, 2010 at 8:56 pm
2011 sometime? Ben and TurboTax Timmy wish so.
We (the US) are definitely following the Japanese model; hence it would make perfect sense that we will have our own “lost decade(s)” with ultra-low interest rate and no growth.
To combat deflation, the Fed will print money as fact as they can –> Money printing is good for gold.
I speculate gold would reach $2000 within 2010, many gold gurus (ie. Jim Sinclair) predict parabolic upswing moves in January 2011 and beyond. A lot of volatile up/down movements expected until then, possibly gold going down $1000 momentarily, but the central banks somewhere will bid it up immediately over $1000.
February 25th, 2010 at 8:58 pm
It would seem that there is already plenty of froth in this market, when a CNBC bogus rumor spikes AAPL’s market cap by $100B in a matter of minutes.
February 25th, 2010 at 9:02 pm
What’s the deal with the IMF selling off 400M tons of gold? And with most of it being bought by India and China?
Seems like somebody here has made a foolish trade. I just can’t decide whether it’s the buyers or the seller.
February 25th, 2010 at 9:09 pm
The ZIRP is in play for a long time. Only Volcker had the guts to play hardball and let the rates rise where the markets would let them be. Since advent of Green*pan policies interest rates have averaged in the 5-6% rate during his tenure (this is as close to ZIRP as possible especially during the Dot com bubble) . Big Ben is obviously continuing the policy……their policy(or WS policy)……cost of capital should be zero or ZIRP (or as close as possible). The cost of labor in the economy is obviously driven down by globalization and technological advances and innovations (except, the financial services industry which defies gravity). In last 20 years we have pretty much been in ZIRP territory.
Technically, Stagflation that’s where we are and will be. We can claim to be different from the Japanese but our policies are identical. During the last 20 years Japan had survived the ZIRP because the U.S. economy and the rest of the economies were growing at good pace. Japan being an net exporter it did O.K. during that time. U.S. now is in a similar situation. Japan had a ZIRP with their own savings. U.S. is a big global borrower. We, in the U.S., are relying on China and India plus the other EMs to make up for the growth in global consumption that U.S. was in the last 20 years. I think this will work for some time but not for more than a year or two.
Gold can be range bound $1,200 to $1,500 for long time because gold can be manipulated by various forces.
February 25th, 2010 at 9:09 pm
@constantnormal,
IMF needs money to bail out small imploding countries. They HAVE to sell gold. It’s an old news that came out last year. The half went to India, and China/Russia/Brazil would pick up the rest, I think.
February 25th, 2010 at 9:11 pm
@Winston 8:14pm
“ZIRP will not end until we have reached consensus on the next bubble.”
Wake up and smell the coffee. The bus has arrived at consensus station.
We are in the bubble right now, with housing continuing to decline in health, employment shrinking, and (non-financial sector) wages with it. Consumer spending is continuing to pull back, with nations, states, and municipalities flirting with default.
Meanwhile, the stock markets trumpet upward in a non-stop bull market that has persisted for about 10 months with no significant retrenchment. If that’s not a bubble …
February 25th, 2010 at 9:11 pm
thor-
BR has pretty thick skin- pretty sure there is nothing I am saying that doesn’t roll off- or even registers most the time
constant @ 8:46-
the Fed certainly has powers- but think about it- where were they in the housing bubble-
on board- that’s where- they are not forward thinking- but backward reacting-
they can fuck around at the edges- but they aren’t going to change credit destruction and credit contraction-
and true- as mentioned above- there is no velocity-
because people hunker down in lean time regardless of what the USG and Fed would like to have happen
February 25th, 2010 at 9:12 pm
I’m a big fan of Barry R, but I don’t think I’ve ever read or heard him mentioning gold (except for this post). Is he being non-committal on purpose? Just wondering…
February 25th, 2010 at 9:14 pm
@panchog — the word is that China picked up the rest …
http://jessescrossroadscafe.blogspot.com/2010/02/china-to-purchase-remainder-of-imf-gold.html
February 25th, 2010 at 9:14 pm
I recommended Gold in 2002 at $250 — and some time ago, said that $1350 was the intermediate target, with a long term upside to $2000.
I was the keynote speaker at the 2009 Agoracom Gold conference, and posted about it.
You can find all of the gold posts on the blog via the search feature — or just click here.
February 25th, 2010 at 9:18 pm
All the kings horses and all the kings men, couldn’t inflate the housing bubble again!
February 25th, 2010 at 9:22 pm
@constantnormal,
I believe you… since the Chinese Officials have lately been saying “Oh, we are not interested in IMF gold.”!!!
It’s like George Soros saying “Gold is the ultimate bubble” in Davos and buying up GLD back home.
http://www.chinapost.com.tw/china/business/2010/02/25/245886/China-unlikely.htm
February 25th, 2010 at 9:27 pm
@panchog
re: IMF gold. They’re gonna need a lot more gold to sell. If they sold that 400M tons for $1050/oz (the amount India supposedly paid), they only received about $13.4B. It’s gonna take a lot more than that to bailout the mess in euroland.
BTW, is it “tons” or “tonnes”? My calculation could be wrong, but not by a significant amount, compared to the amounts they’re gonna need.
Perhaps the IMF is leveraging up their stake in the CDS casino. (“I’ll put $13B on red 7″)
February 25th, 2010 at 9:30 pm
No BS;
I agree. Stagflation is alive and well. We have 20% unemployment & the latest PPI reading was 3X that which was expected. Forget CPI…it doesn’t measure anything that matters and then is manipulated like hell.
February 25th, 2010 at 9:34 pm
Pat G,
We are in the manipulation phase, which has it’s own life. But his phase always ends badly. Markets are are a whole lot bigger than………..
February 25th, 2010 at 9:38 pm
Well BR,
you call your blog the Big Picture, so beyond Wall Street ant the Fed there is a big world.
Big trouble in Greece, Spain And Portugal, the UK will soon follow.
Unless a leader calls for the end of speculating against entire countries, it will not get better, and there is a good chance we will soon be in the next wagon.
Gold it is, because no matter what the Fed or anyone hiding in a cubicle does, there will be blood, it has already started.
US citizens will watch quietly until they realize it is their turn, and hiding the financial world ill-gotten gains behind some German dictator won’t work this time.
February 25th, 2010 at 9:39 pm
No BS,
I think everyone could use a little truth about now but the powers that be figure we “can’t handle the truth”. It will all come to light in the longrun…
February 25th, 2010 at 9:40 pm
@constantnormal,
The market is not a bubble – treasuries are closer to being a bubble with all the excess reserves poured in.
A real bubble takes tax incentives combined with low interest rates. The only question remainins is whether or not there is enough strength in the economy to sustain a new bubble – it takes lots of borrowing for a bubble to form. I really doubt if there is enough willingness to borrow to sustain a bubble.
My real guess is what I’ve said since 2006 – Japan revisited. Wakari masu-ka?
February 25th, 2010 at 9:44 pm
@No BS 9:09 pm
“We, in the U.S., are relying on China and India plus the other EMs to make up for the growth in global consumption that U.S. was in the last 20 years. I think this will work for some time but not for more than a year or two.”
I agree. What do you think will happen after that “year or two” has passed and those economies either crash or have to take a breather?
February 25th, 2010 at 9:47 pm
For the US. Disinflation followed by stagflation. Both ways, Gold wins. It may correct to $980, which will still be above the 200-Day Moving average, then $1350 by 1010 end and $2,200 by 2011 end.
February 25th, 2010 at 9:51 pm
BTW, I am of the opinion that by 2020, somehow this mess will be mostly resolved. I have not a clue as to how the global economy is going to look at that time, or if we even have basically the same set of nations playing the game.
I can easily see the EU coming apart, and the US of Bananamerica undergoing such extreme changes that you will not recognize it. But the “Great Recession” will have an end, and not 30-40 years out. There is a long history of national economic calamities, and they always end. Sometimes in wars, but more often with a whimper instead of a bang.
But I am not a survivalist, and am making no plans to camp out in an abandoned mine. I have not ruled out leaving the country, however.
February 25th, 2010 at 9:53 pm
Greenspanic never raised until wage inflation set in. Labor wage increases are the enemy to the current system (in their minds at least). If Uncle Ben holds the same line then it will be a long long time before ZIRP ends. Probably when hospitals and nursing homes are offering signing bonuses for workers to take care of all the slobbering boomers will it end
Gold:
It continues to do its thing
http://spectrumcommodities.com/education/commodity/charts/gc.html
February 25th, 2010 at 9:54 pm
beaufou – Very well said, I concur.
February 25th, 2010 at 9:57 pm
Constant – “But I am not a survivalist, and am making no plans to camp out in an abandoned mine. I have not ruled out leaving the country”
I’ve often fantasized about that – where would you go?
February 25th, 2010 at 9:57 pm
Does it matter when Fed policy ends? Have they had any impact whatsoever on “reality” (in Fed’s eye’s delaying or regathering foregone value levels and consumer habits) in the markets?…keep pushing on that string I say.
Deflation – with money velocity going in one direction only, Gold generally goes nowhere but down in such a situation, towards $500 by mid to late 2011 which could be quite the buy.
February 25th, 2010 at 10:10 pm
Anybody else seeing TBP in EPIC size font right now?
@CN: “It would seem that there is already plenty of froth in this market, when a CNBC bogus rumor spikes AAPL’s market cap by $100B in a matter of minutes.”
Re-read what you wrote…I think the point is that the TOTAL MARKET’s cap rose $100B in minutes, not AAPL’s…AAPL would have to nearly double to do that. But the point is no-less outrageous to me.
As for the debate about BR, some of his recent posts on housing, states’ problems, market valuations had me saying “certainly he is turning bearish now”…yet no dice. I can’t argue with his results this last year, but I just cannot empathize with a philosophy that says I suspect things are so terrible out there, but I can ride a free money rally and get out before it is too late. It’s that type of mindset, enabled by Greenspan, that leads to a normalized market P/E that, since 1990 or so, now bottoms at levels that used to be highs. It will end so badly someday.
February 25th, 2010 at 10:12 pm
Mmmmm… ZIRP. Both the cause AND solution to all the world’s problems…
With apologies to Homer Simpson…
February 25th, 2010 at 10:12 pm
ZIRP or near-ZIRP continues until the next doomsday cycle crashes to its next bottom.
The public will be so outraged that there will be no bailouts of the financial sector.
Banksters will be lucky to get foodstamps.
The last hurrah of the Keynesian’s will be to promote the Fed writing every taxpayer a check for $25000, direct deposit, no trees involved.
This will set off an inflationary boom that wipes out the insolvency troubles of commercial real estate.
Gold drops to $998 and then explodes to $10,000+. The stock market goes into massive gyrations but proves to be safer than paper.
GLD issues certificates creating a new private currency traded through account to account transfers of discount brokers who compete for the business of entire supply chains.
Governments are marginalized. Keynesians are locked up in old folks home.
February 25th, 2010 at 10:17 pm
constantnormal Says:
February 25th, 2010 at 9:44 pm
What do you think will happen after that “year or two” has passed and those economies either crash or have to take a breather?
First off, I’m not claiming to know all. Bur we have seen the progression in last 2/3 years especially since 2008.
We all know manipulation happens,will happen and will always happen, because there are people or institutions who have reasons (good or bad) and are in a position to do that and will do that because of their belief that they are doing the right thing and will be good for the US of A (e.g. CNBS … all good all the time….)
I don’t think it will be a breather for these economies.
I say this because…..
China’s got a good balance sheet but their income statement is questionable…….. even if good enough.
India is very dependent on the local economy but equally dependent on the U.S. and the european economies. In Asia it’s got a lot of competition.
Brazil, Russia and the other EMs combined are still not big enough to compensate for the U.S. slowdown (that’s my bet and I could be wrong but I will put my money on it).
In a short time the U.S. economy has to be driver again (that’s why I say a year or two…). If this does not happen we are going to take a breather for a while. The U.S. is still the key for next few years. Beyond it’s anybody’s guess.
Probably that’s why you guys are better traders….. but the macro does not look good. I’ve tried very hard to come up with positive analysis…… it’s just not there.
February 25th, 2010 at 10:20 pm
Zero real interest rates my not end for a very long time. My guess is that real rates will stay very low or even significantly negative. A ski jump move into real positive territory may indicate armageddon.
February 25th, 2010 at 10:27 pm
What ZIRP will eventually led to is continued steepening of the yield curve, so that no bank will ever need to make a loan again…just take the free money and lend it back to the gov’t at 4% or higher on the long end. There’s a name for this…ryhmes with the star of Happy Days…Fonzi.
February 25th, 2010 at 10:29 pm
@Thor
Canada would be immensely attractive to me, as they as a wonderful people, and (so long as I stay out of Quebec) I would not have to learn another language. But Canada is too intertwined with Bananamerica for me to be comfortable. If we make a big enough splash in our dissolution, it will ruin Canada. They cannot police their border with us any more than we can our border with them.
I doubt that Europe will survive its current difficulties — at least not in the form of the EU, and as separate nations they will all slowly slide into becoming lesser nations. They are not willing to completely subjugate their national identities in favor of becoming the EU (they need a better name), and so they will be unable to make the necessary local sacrifices to ensure that the union survives. But perhaps in one of the Nordic countries … they seem likely to be able to deal with just about anything.
I’d love to move to New Zealand, but they are simply not allowing immigrants. Australia is likely to (continue to) have extreme problems from climate change, and they have just too damn many poisonous insects, snakes, and fish for my comfort.
In South America, Chile has a certain appeal, with a sound banking system, a decent economy and a government that actually banks surpluses against the inevitable troubled times (imagine that!). I’d have to learn a new language, but my wife grew up there, so I have an edge. Plus, in the event of a nuclear war or other conflict utilizing WMD, I’d be a bit further off the beaten path (not expecting this, but it is something to consider).
Of course, ideally, I’d like to win the lottery and move to Hawaii, with a house that is self-sustaining (rain water capture & purification, solar panels w/ grid backup + batteries), and at a respectable elevation. It would have to be a large lottery. And I’d make every effort to disappear from the official records.
If I were a sailing person, I’d live on a boat.
February 25th, 2010 at 10:30 pm
and to back up my theory (including poor syntax):
“According to a Wall Street Journal report ($) Wednesday, bank lending in the U.S. saw its sharpest drop since 1942. The latest data on lending, released in a quarterly report from the Federal Deposit Insurance Corp., show the banking industry is still struggles to regain its footing even though the economy begins to rebound from the massive recession.”
http://www.cbsnews.com/blogs/2010/02/24/business/econwatch/entry6238210.shtml
February 25th, 2010 at 10:32 pm
@Steve Barry 10:10 pm
Oh. nevermind (hides face in embarrassment)
February 25th, 2010 at 10:36 pm
Constant – brilliant! Agree with you on Canada, they’re too close to the fire. Have been to NZ and love it, very friendly people, beautiful scenery, isolated, but you’re right, they do not look too kindly on wealthy foreigners coming there and jacking up their land prices.
I’d probably opt for Scandinavia, although having not been there, it seems like they have very stable, isolated, society. Small populations too, and probably all keen to get higher skilled immigrants (or is that just wishful thinking?).
In the end though, I know I’ll be here. Flawed as it is, this is my home.
February 25th, 2010 at 10:37 pm
Incidentally, at last year’s Daily Reckoning annual conference, that was one of the questions someone asked: “Where do we leave the US to go to ?”
The answers: Thailand and Costa Rico
February 25th, 2010 at 10:45 pm
Way to bring out the Gold zealots BR.
ZIRP ends when they put Volker in charge. He is the only one with the guts to take the pain quickly, flush out the shit and start from a stable footing.
Bernanke has no spine. Geithner has no spine. Congress has no spine.
The pain will happen. It is only a question of when.
The end result is the same – some people will have to recognize a substantial loss.
February 25th, 2010 at 10:45 pm
Canada…
40% plus export to the US
February 25th, 2010 at 10:50 pm
Haigh Says:
“The last hurrah of the Keynesian’s will be to promote the Fed writing every taxpayer a check for $25000, direct deposit, no trees involved.”
________________
I’m in agreement with everything but the amount. It’ll be more like $500,000. Along with a price freeze (but not on wages) for a year or so. All accounts – up and down the chain – will be settled. The income gap will close, somewhat.
February 25th, 2010 at 10:50 pm
Oh, and gold will go off the charts.
February 25th, 2010 at 11:17 pm
Stagflation… Depression… Recession… Recovery… Recession… Recovery… Recession… Double Dip… Depression… Recession… on and on, ad infinitum.
Gold? Who cares. Doesn’t work for you. Can’t eat it, can’t sleep in it. Could get confiscated or regulated too.
Wealth is land, real estate, viable businesses, energy.
February 25th, 2010 at 11:18 pm
Steve Barry,
Yes I also have the “Epic Fonts” issue, which seems to pop up every few weeks for me. It seems to be a problem only with IE8 not Firefox or Chrome. I reported to the Webmaster but there seems to be no knowledge of why. Pleased to hear someone else confirming the same problem because I know that my rig is not the problem.
~~~
BR: Its an IE issue — stick with Firefox!
February 25th, 2010 at 11:22 pm
@Fritzskelly 10:45 pm
Does Volcker have enough years left in him to outlast the willingness of Bernanke, et al to put the nation through the wringer? Who would step up if Volcker is not there? Perhaps Sheila Bair? There are not a lot of people with the street cred to defy the banksters, and Volcker is the only one with the right experience.
Oh … there is another — Bill Black. And as much as the financial industry and Congress hate him, things would have to be pretty bad (gross understatement) for them to allow him to drive the bus. Of course, things will get as bad as necessary to bring out the person needed for the task at hand. Black lacks central banking experience, but that part is easy — it is having the spine to do what is required that is the major requirement, and he is tested and proven in that regard.
February 25th, 2010 at 11:24 pm
Leaving the Country?
Problem for you Yanks is that you can’t escape the 1040 even if you do, unless you surrender US nationality. Perhaps introducing a fee for the quick surrender of US nationality might be a new source of revenue?
February 25th, 2010 at 11:29 pm
The thing is that the money from QE is only going to some select banks and nothing to main street. Depending on what those big banks decide to do with this money (how they will invest it) we will have inflation in some areas where they invest (oil, gold, green energy, yo name it…) and defaltion in others where is more difficult to make a quick buck and one has to plan long term like manufacturing etc. It is all a big game between a few that the Fed QE has made even more powerful. We are all priced out, so expect jerky stagnation for the foreseable future until some great amercian becomes president of this great country that is the US and has steel balls to stand up and reform our corrupt financial system. For those willing to go to Canada, forget about it, they are still in hyper blown real estate bubble. The worse is yet to come there!
February 25th, 2010 at 11:32 pm
@philipat
You mean legally. Becoming a new person is always an option, everywhere. And the expense of doing so is less than leaving everything behind. Getting your assets out of the country is the hard part. But it’s doable.
February 25th, 2010 at 11:34 pm
The Israelis have a nice number in second hand Passports at present I understand?
February 25th, 2010 at 11:35 pm
@ mad Albanian
It takes more than a great president. The nation would have to be in ruins before Congress will allow anyone to lead. And of course, eventually it will be.
February 25th, 2010 at 11:47 pm
Zirp will end when the Fed is burned down by the populace, on it’s way to Wall street, right after DJIA <3600 and everybody's 401k and retirement has blown up to bits.
Then after that civil unrest, wars and rumours of wars. This Country has a population that is armed to the teeth, when the social fabric (whatever it is) crumbles, violence will be swift, merciless and futile.
I could be back in Belgium by that time, I know the place much better than the US, but my beloved wife will probably never want to leave. We're doomed, DOOOOMED.
February 26th, 2010 at 12:11 am
The Fed funds rate will be bumped up to 50 b.p. in Q3 or Q4 of this year.
As for “inflation”, much depends on semantics. I see the CRB index climbing steadily for at least the next two years, and probably the next five; it’ll climb at a much faster rate than core CPI. “Core CPI”, on the other hand, will stay tame; 2.5 years from now, core CPI will be under 4% and quite possibly under 3%.
Gold will get to $1500 within three years, and quite possibly within two. It’ll certainly get to $3000, but it may take more than 5 years to get there.
February 26th, 2010 at 12:46 am
@ inquiring mind,
“You can’t eat gold, what is it good for?”
You could sell your one ounce of gold coin and pay for 1-2 month of your grocery bill.
For the past 5,000 years (that we know), gold and silver have existed as “money” and “currency” to store wealth and as a medium of commercial exchange, even in completely separate cultures in all of the continents.
Gold and silver has out-lived any other currency in human history. Gold coin that Julius Caeser may have used is still “good as gold” today. You can’t say that about his paper money.
Precious metals are “precious” because there are finite and limited amount of gold/silver above ground. You can’t print it like US$. It is an asset with no counter-party risk.
Helicopter Ben disparages gold at every chance he gets. Well, if it is so useless, why don’t we sell them all & balance the budgets?
Should I continue???
February 26th, 2010 at 12:57 am
Disclosure: I was a big gold bug from $300 to $1000…now I’m off the bandwagon for a bit. I whole-heartedly agree that gold would make a fantastic currency…doesn’t decay…is sub-dividible…is rare…is dense…must be extracted with great effort, therefore cannot be inflated. I would fully support a gold-backed currency someday. That said, during a massive deflation, gold will deflate as well…deflation to me is concurrent with (maybe due to?) a lack of uses for currency as we need to de-leverage and save at this point, not spend…we don’t need more money.
February 26th, 2010 at 1:04 am
It’s hard to say that the gold bugs have been brought out since most of the posters here are regulars. I’ve been a gold bugger for quite a while now. Since if figured, like everyone else now it seems, that if the economy recovers there will be inflation. If it doesn’t there will be more crises and more QE etc uncertainty either way the price of gold should rise.
February 26th, 2010 at 1:05 am
@SB
Doesn’t that depend on the reasons behind the deflation? If there is a total breakdown of trust in all paper money, then Gold will perform irrespective of a lck of inflation, despite the best efforts of Central banks. If the US will not default,which would be inconvenient and embarassing to say the least, it will have to debase the currency and inflate its way out of the mess, so medium to longer term, Gold still makes sense.
February 26th, 2010 at 1:13 am
@philipat:
To believe that the Fed can inflate its way out of the mess, somehow implies that this will turn out well for them (but maybe bad for most people). In this case, in some twisted irony, the optimist hopes the current system collapses so that the people may get some comfort in the end, at the expense of the Fed. Then by all means, launch a new gold-backed currency. In the meantime, we need less currency, thus less gold.
February 26th, 2010 at 1:32 am
Here are some helpful points:
1) Gold is a “barbarous relic” and unhelpful. Its a suckers trade.
2) Gold was 10 shares of SPX in 1980… today it is 1 share… in 30 years it WILL be 1/10 share… AND spx pays divs. Def of “suckers trade”.
3) “Wealthy society” is obsessed with security. The asian savers (Japan and China) are obsessed with security. Returns will ONLY accrue to risk takers.
4) Deflation is a natural consequence of 2 very human phenomenon:
a) slowing population growth. for the first time in history, pop is about to be stable… imagine the ramification for inflation from advancing technology and stability with stable/shrinking population… its MASSIVE.
b) NO WAR. The % of economic resources devoted to standing armies and war has been steadily declining for 100s of years. It is reaching its logical conclusion with the current period of globalization. Almost ZERO countries carry significant standing military forces. Its meaningless is a modern world. As Eisenhower said, “there is NO alternative to PEACE”.
Welcome to modern society. Japan is in front of US on the curve. But American society is far less risk averse.
The next growth wave will be the biggest EVER.
February 26th, 2010 at 2:50 am
cognos – I think you need to factor 30-50,000 troops stuck in Iraq for years to come (read Ricks).
February 26th, 2010 at 6:30 am
agree with a few of cogs points
again imho, most stuff is meaningless
a. protectionism, had another round this week of stuff your steel up your arse to china from both canada and us, this is detrimental too china seeing how they built steel plants like we did new walmarts in the 90′s
b. more benefits to certain corporations so they can hire, yet, they won’t
c. civil unrest in the pigs
d. politicians shyte in pants, finally think wtf have we been doing
e. round robin talks of who will lose what and how with massive government spending cuts, and i mean massive
f. a new sense of patriotism to save the country
i am an optimist, i believe we are turning japanese, yet, we are not very asianists, i believe it will finally dawn on folks that perot had a point, volker has a point, ron paul has a point
in an analysis of the economic advantage of nations we are still factually number 1 and if we just acted like it good times would be ahead not behind us
as screwed up as we are politically other countries are much much much worse china is a ticking time bomb imho when your growth in sales in exponential and alot of fluff a few ticks of protectionism is like a lit fuse
it will become every nation for themselves for awhile to reset the excess my side is already destined and i have faith in it
February 26th, 2010 at 6:34 am
ZIRP is here but for one reason: the Syndication model is the new Humpty-Dumpty. I prefer to believe he was pushed before he fell to obscure executing the Shock Doctrine; until then the credit highway is
presenting an AMI (acute myocardial infarction). Gold and War and paper derivative (equity and commodity) ETFs are huge sponges soaking up Cash better spent on developing new ideas and IP.
February 26th, 2010 at 6:37 am
Cognos, are you a believer in the cyclical theories of Dent and to a smaller degree Prechter. And what is your time frame for the new big wave up? I still see 5 to 10 years of business consolidation and deflation. The heavy development phase of the alternative energies going on now; BloomEnergy, Polywell Fusion for examples will be hitting acceptance right around the time the wheat is finished separating from the shaft in this cycle. The decrease in energy costs will help power the next revolution. The age of individualism: personalized medicine, self sufficient homes, etc… I need to copy right that concept.
February 26th, 2010 at 6:38 am
cognos Says:
1) Gold is a “barbarous relic” and unhelpful. Its a suckers trade.
2) Gold was 10 shares of SPX in 1980… today it is 1 share… in 30 years it WILL be 1/10 share… AND spx pays divs. Def of “suckers trade”.
Over 30 years, you are correct. But that’s hardly what I could call a trade. The key to a winning trade is timing.
Over the last 10 years you get a very different view. SPY has returned -8.42% on a ten year hold, gold (continuous contract) has returned 278% as of yesterday’s close. Five years SPY has given you a whopping 0.82% and the yellow stuff has given 154%. One year adm yhr picture changes again — SPY has given a 53.2% return and gold is a mere 17.4%.
For trading, like most things, gold is not a “sucker’s trade”, but an issue of timing.
February 26th, 2010 at 6:39 am
Excellent run of comments!
I am going to try to do the evening Open Thread at least 2X a week — probably Tues & Thu.
February 26th, 2010 at 6:41 am
OT FWIW, I too have the ginormous font issue, but only on the main page and any comments. Think Tank, Disclosure, Contact, etc. are all normal.
February 26th, 2010 at 7:31 am
“When does the ZIRP Fed policy come to an end — later this year, next year, never?”
I’ve got this hunch that the rate hikes will come sooner than many think. Maybe later this year – but teeny tiny rate hikes that will be in *ranges* like they have now. It wouldn’t surprise me that at the end of this year that the FFR rate will be “in a range” between .25%-.50%. I think the FFR “tool” is going to be less relevant and what the Fed does with their balance sheet and interest on reserves, etc., will become more relevant. Keeping the rates too low tends to encourage commodity price hikes from speculation which directly impacts disposable income and chokes off demand shooting yourself in the foot.
February 26th, 2010 at 7:52 am
Fed will watch the unemployment rate, I think Barry has had a few charts on the historical action on rate hikes and unemployment rates. I think it will be a while at ZIRP especially as other Sovereigns debt problems take the forefront and the King dollar crowd is muzzled.
Deflation is here now and for the mid term 9-12 months.
Gold should hold its own unless everything collapses in a deflation heep. This would be a bet against the Fed and other CB policies.
It looks to me as if all the professional money is betting on the so called ‘Lehman gap’ being filled so that will be top of this liquidity driven, technical bull move.
February 26th, 2010 at 8:08 am
2006 was the year worldwide oil production plateaued.
2008 was the year that reality ate it’s way up the demand destruction chain until it started chewing on the guts of the world’s debt bubble eventuating an orgy of worldwide demand destruction.
2010 is the year that production plateau eases over into permanent decline as the worlds major economies are attempting to re-inflate the debt bubble.
To ignore this bedrock reality is fiscal and economic insanity.
Fiat currencies worldwide will succumb to this reality over the coming decade as the debt based economic ‘system of the world’, to paraphrase Neal Stephenson, collapses in on itself.
It’s the irresistable force of energy price inflation smashing into the immovable object of debt deflation.
Stagflation with a vengeance.
And ZIRP is not long for this world.
February 26th, 2010 at 9:15 am
Barry Ritholtz Says:
February 25th, 2010 at 8:38 pm
Its more subtle than that — if you fought the Fed — bet against rate cuts in 2000-03, you made money.This is about QE/ZIRP — and that so much liquidity sloshing in the system, it has been driving stocks higher.
Its been the losing trade to fight that . . .
reply:
————–
True, but only if the markets are rising from extremely depressed levels, or credit is flowing and readily available for junk investing and there is a demand for junk investing using borrowed money, or recessions are inventory based as opposed to balance sheet based.
You are assuming if A caused B yesterday , then A causes B all the time under every condition. This is the thinking of lizards and suckers.
For ZIRP to continue working, you need the promise of good times ahead. All we have at this time are sales side pundits (who sound a little negative now), algos that manipulate stock prices, and inept headline writers.
ZIRP will remain as long as the price of everything is propped up on the fiscal side, the GSEs support the bulk of the mortgage market AND lose money doing it, and the Fed Magoos remain the buyer of only resort for junk investments of prior days. ZIRP fits right in there.
February 26th, 2010 at 9:20 am
“This is about QE/ZIRP — and that so much liquidity sloshing in the system”
There is no liquidity sloshing in ‘the system’ unless you have a very limited view of the system. I’m sure the punch bowl on the Titanic was sloshing, too.
February 26th, 2010 at 9:28 am
The banks who do hold liquidity made a big mistake by running stock prices up so high so fast. They priced Joe 6 out and he won’t be getting in at this level… so they have no sucker in the game. They will have to feast off each other, which is zero-sum.
February 26th, 2010 at 10:53 am
That’s very cheery, spigzone…NOT! But, don’t worry, we’ll all buy those “wireless” fuel cells that run on pixie dust. ALL IS WELL!! ;-)
February 26th, 2010 at 12:54 pm
@BR, I stand corrected.
@ Cognos, “Gold is a barbaric relic” is indeed a talking point… for CNBC, Helicopter Ben and the rest of Keynesian economists.
Look up the gold chart for the past 30-40 years (see below). Gold was indeed “sucker’s trade” in 80-90′s, but it is in a secular bull market since 2000, thanks to all the Keynesians like Greenspan and Bernanke.
http://www.kitco.com/charts/historicalgold.html
February 26th, 2010 at 1:01 pm
Re: Deflation and the lost decades.
I was a high school kid in Tokyo Japan 20 years ago. As a night-shift waiter, I made 1,000 yen per hour.
Today in Tokyo, you are lucky if you get paid 900 yen per hour for the same work I did then.
Deflation is painful, and it’s the government’s worst nightmare because they cannot tax the perceived increase in purchasing power among its citizens.
It’s a giant tug of war, deflation (bubble bursting) vs. inflation (sponsored by money printing). We don’t know who wins, but I bet the Fed will try their hardest to create inflation to combat deflation. That’s why I bet my money is on gold. It’s not an investment, it’s a form of “catastrophic insurance” for me.
February 26th, 2010 at 2:28 pm
With deficits as high as they are now and growing, ZIRP is here to stay. What would happen to Japan if their interest rates went up by 2-3%? All their tax revenue would go toward interest payments. High goverment debt equals ZIRP. And that means deflation for us, just like in Japan.
Higher gold requires inflation but inflation will generate higher interest rates at some point. That would make it hard to finance the growing gov’t debt. This is why Benny is complaining to congress they need to get their fiscal house in order. If they did that, he could really crank up the printing press and inflate away the Banksters debt problems without bankrupting the nation. For now, his hands are tied. The Fed is a parasite, but it’s smart enough to know not to kill it’s host.
February 26th, 2010 at 9:15 pm
The Fed changes their statement at their August 10th meeting, implying rates begin in 2011. The governors go on a media spree making sure the markets get it.
German and French equities will outperform the US and Japan in that stretch as the low euro goes right to their main exporter’s bottom line.
Greece is about as important to European growth as Desiree Roger’s is to Obama’s re-election agenda.
http://online.wsj.com/article/SB10001424052748703940704575089910262805920.html?mod=googlenews_wsj
February 27th, 2010 at 1:27 am
cognos, great post. I want to add a few things I just learned/thought of.
1. We often hear gold bugs say fiat currencies go to zero, but what about gold. From FT, “A 15th century gold bug who’d stored all his wealth in bullion, bequeathed it to his children and required them to do the same would be more than a little miffed when gazing down from his celestial place of rest to see the real wealth of his lineage decline by nearly 90 per cent over the next 500 years.”
2. The limited supply argument. The total supply of gold in the world is added to every year. That is not the case with land, so why own gold over land?
3. Another gold bug case is the U.S. government is trying to inflate its way out of its debt, but a very astute observer noted that much of the U.S. government obligations (Medicare, social security, TIPS) are indexed to inflation.
4. Gold’s price is not rational compared to platinum. Last year, at one point, gold’s price almost matched that of platinum even though platinum is 30X rarer. Platinum should be priced much higher or gold much lower to more accurately represent each metal’s scarcity. Given all the TV ads hawking gold, it’s clear which of the two metals has been overhyped.
February 27th, 2010 at 5:01 pm
Barry, its not ZIRP that matters. In your parlance, it would be ZRIRP, for our friends at the Fed don’t care about nominal, but real interest rates. And for that matter the Z doesn’t stand for zero, but 0-2% (just don’t ask them to admit to that in public). From a policy perspective, that interest rate policy will not change anytime soon. But something tells me you wanted to know when the nominal rate will change. Well, it will change when two things have happened, (1) the Fed has unwound what it wound up beginning in 2007 (the Discount rate connection to the Fed Funds Rate an the various TARP programs) and (2) when their internal inflation forecast changes. The Fed recently adjusted the DR/FFR relationship (but it still needs two more quarter bumps). The other funding programs are going to expire (mostly already announced). This will happen by the end of Q2 (since your asking). Thus, our first rate increase will be at the Sept 21st meeting (after the Q2 GDP release at the end of Aug). The Fed will believe we will have three consecutive quarters of growth behind us and will switch from today’s passive reduction of liquidity to a more active reduction of liquidity in the system. The first move will be a reestablishment of the hard 0.25% rather than today’s 0-0.25% range. The only caveat to this course is if we see a meltdown in commercial real estate between now and then.
February 27th, 2010 at 5:09 pm
I truly do not understand the gold obsession many have. How many things can you actually trade gold for?
When we talk about the worth of gold what terms do we use to describe it? DOLLARS!
Trade gold if you want, it can provide you a way to make more DOLLARS but dont ascribe too much importance to it. And for Petes sake do NOT wish for a currency that has a fixed exchange rate with gold. That would be a definite step backwards in terms of monetary system sophistication.
On the ZIRP policies, I hope they are with us forever. We need to get our Fed governors more important jobs than meeting every once in a while and trying to “control” (futilely) our money supply. Why dont they actually try and oversee and regulate the activities of their member banks.