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  #51  
Old 12-01-2007, 03:23 PM
Borodog Borodog is offline
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Default Re: The differences between 1929 and Today

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All the chicken-little-OMFG-The-Sky-Is-Falling-We're-Already-In-The-Next-Great-Depression talk has be bothered to the point that I did a little review about the Great Depression.

Namely, I had an eye toward debate about the causes. There are some important differences that I think warrent discussion.

First and foremost - Many on this board believe in the assertion that the Great Depression was caused by a contraction of the money supply.

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Uh, no? I don't know anyone on these boards that believes this. Monetarists will tell you that the Fed caused the Great Depression by failing to open the spigots even wider, but the Austrians point out that the original recession was caused by the bursting of an *inflationary* economic bubble. The depression was caused by expansion of the money supply in the 1920s, not its contraction.

Prices were stable in the 1920s (the holy grail of Friedmanite monetarists) in the face of exploding gains in productivity only because of Fed expansion of the money supply. The correction was inevitable. The same thing happened 10 years before, with the extremely deep and sharp recession that resulted from the huge expansion of the money supply the Fed created to help finance World War I. The difference between the two recessions, one deep and sharp and short and forgotten, and the other one deep and long and painful and of mythic proportion in our history, was that government was too slow in reacting to be able to do anything to "help" during the first one. They were better prepared for the nextone, though. Thanks a lot.

The money supply did contract by about a third at the begining of the Great Depression, but that was only due to bank failures *after* the beginning of the recession.

The severity and length of the depression waere then increased by the disastrous policies of Hoover and then FDR to hold wages and prices high in the face of a much smaller money supply, a recipe for mass unemployment and privation.

The rest of your analysis seems to be based on equally flawed economic and historic understanding, or on nebulous differences that are somehow supposed to negate the fact there are still trillions of dollars of malinvestments buried in the economy, Fed policy is only making it worse, and there is a deluge of dollars waiting to pour in when the dam finally breaks.

The collapse of the international fiat money system is inevitable quite simply because it is unstable, and becomes more so over time. It has been unstable from its advent. The first massive intervention required to save it, confiscation of the national gold supply, is not available. The preferred intervention technique of the past 35 years, gold dumping by central banks and the IMF, is no longer available. They don't hold the gold enymore. That card is about played out. Governments cannot constrain themselves from printing money to feed their rapacious appetites, and the inevitable reaction to the loss in purchasing power of the fiat currency is to flee to gold. It has happened before, it will happen again, and this time, perhaps the next, it cannot be stopped.
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  #52  
Old 12-01-2007, 03:28 PM
Moseley Moseley is offline
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Default Re: The differences between 1929 and Today

I am pessimistic about the U.S. economy. We've been living on borrowed money and borrowed time. There is still a lot of wealth, therefore, a lot of people still feel good about the economy, but I think they are deceiving themselves.

The talk on the financial networks is: will it be a soft landing or a hard landing, and the optimists are saying the landing has already occurred and we are on the road to more economic prosperity.

I believe that there is so much misdirected investment and built-in monetary inflation by the Federal Reserve that it is going to translate into price inflation (my wife keeps the books and our groceries and fuel bills have gone up more than 12% per year over the last 3 years).

It's somewhat like the 70's but different in that it is much worse than in the 70's. I expect the economy to weaken while at the same time prices continuing to climb, resulting in stagflation, and the extreme of stagflation is an inflationary depression.

Whether or not it will reach that stage, is yet to be determined, however, we are in for some very serious times, which means that paper assets are the worse kind of investments to be in at this time and hard assets are king. That is why gold is so high. It's been a long time since we seen a switch from paper to hard assets, however, over the last 5 years you can see the switch evolving.
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  #53  
Old 12-01-2007, 03:34 PM
Moseley Moseley is offline
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Default Re: The differences between 1929 and Today

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A much greater problem arises if the OPEC countries try to compensate for lost buying power by raising prices. Thanks to our retarded energy policies (thank you Greenies) we are even more vulnerable than we were during the oil embargo.

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We are pumpin oil out of Alaska like it's goin outta style. Problem is: we are shippin the bulk of it to Japan, at a discount to the market price, in exchange for them financing our deficit.

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que tin foil hat.

please source this. i'm assuming you have data that show that japan's oil purchases from alaska are below market price.

espeically seeing as how oil is pumped out by private institutions and the deficit is a government issue, the govt would have to provide compensation to the companies for selling to japan at below market prices.

try again though

Barron

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The U.S. subsidizes the price difference.

My source: it was on either CNN or FOX about 1-2 yrs ago.

I don't make crap up.
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  #54  
Old 12-01-2007, 04:03 PM
DcifrThs DcifrThs is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
[ QUOTE ]
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A much greater problem arises if the OPEC countries try to compensate for lost buying power by raising prices. Thanks to our retarded energy policies (thank you Greenies) we are even more vulnerable than we were during the oil embargo.

[/ QUOTE ]

We are pumpin oil out of Alaska like it's goin outta style. Problem is: we are shippin the bulk of it to Japan, at a discount to the market price, in exchange for them financing our deficit.

[/ QUOTE ]

que tin foil hat.

please source this. i'm assuming you have data that show that japan's oil purchases from alaska are below market price.

espeically seeing as how oil is pumped out by private institutions and the deficit is a government issue, the govt would have to provide compensation to the companies for selling to japan at below market prices.

try again though

Barron

[/ QUOTE ]

The U.S. subsidizes the price difference.

My source: it was on either CNN or FOX about 1-2 yrs ago.

I don't make crap up.

[/ QUOTE ]

just because you don't make it up doesn't mean it is true. CNN & FOX aren't reliable sources. it shouldn't be hard to see whether the US gives the difference in oil prices to companies that sell to japan.

so i'd like to see some kind of source before even considering that. japan's purchases of govt securities aren't as a result of oil but rather as a historic tendency to want to control the level of their currency. further, they have trade surpluses w/ the US so those two are why they have such huge foreign exchange reserves of USDs.

Barron
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  #55  
Old 12-01-2007, 04:04 PM
Moseley Moseley is offline
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Join Date: Jun 2007
Posts: 394
Default Re: The differences between 1929 and Today

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
A much greater problem arises if the OPEC countries try to compensate for lost buying power by raising prices. Thanks to our retarded energy policies (thank you Greenies) we are even more vulnerable than we were during the oil embargo.

[/ QUOTE ]

We are pumpin oil out of Alaska like it's goin outta style. Problem is: we are shippin the bulk of it to Japan, at a discount to the market price, in exchange for them financing our deficit.

[/ QUOTE ]

que tin foil hat.

please source this. i'm assuming you have data that show that japan's oil purchases from alaska are below market price.

espeically seeing as how oil is pumped out by private institutions and the deficit is a government issue, the govt would have to provide compensation to the companies for selling to japan at below market prices.

try again though

Barron

[/ QUOTE ]

The U.S. subsidizes the price difference.

My source: it was on either CNN or FOX about 1-2 yrs ago.

I don't make crap up.

[/ QUOTE ]

just because you don't make it up doesn't mean it is true. CNN & FOX aren't reliable sources. it shouldn't be hard to see whether the US gives the difference in oil prices to companies that sell to japan.

so i'd like to see some kind of source before even considering that. japan's purchases of govt securities aren't as a result of oil but rather as a historic tendency to want to control the level of their currency. further, they have trade surpluses w/ the US so those two are why they have such huge foreign exchange reserves of USDs.

Barron

[/ QUOTE ]

That's an acceptable response. Just don't accuse me of wearing a tinfoil hat.
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  #56  
Old 12-01-2007, 05:49 PM
PLOlover PLOlover is offline
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Default Re: The differences between 1929 and Today

I've heard the alaska japan oil thing before too. 3 minute google search. also if you remember the alaska pipeline was built according to the premise that oil would stay in US. that was in the funding and the law. but that restriction in the law was repealed in 1995 or so.


http://www.counterpunch.org/anwr.html
[ QUOTE ]
An FTC economist had concluded that BP-Amoco was selling oil to Asian refineries at prices lower than it could sell to US refineries on the West Coast, in order to manufacture a US shortage. As evidence the FTC had e-mail traffic passing between BP managers who talked about "shorting the WC [West Coast] market" in order to "leverage up" the prices there. Another BP manager called this scheme a "no brainer". The FTC reckoned that this ploy allowed BP to hike prices at West Coast pumps by as much as 3 cents a gallon.

[/ QUOTE ]
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  #57  
Old 12-01-2007, 07:45 PM
The once and future king The once and future king is offline
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Default Re: The differences between 1929 and Today

DcifrThs

Consider this exercise.

The Fed never announces a cut in a vacuum. It is normally in the context of some negative news for the economy.

Now given all the reasons you have given for why interest rate cuts lead to a positive price action in equities could you postulate how bad the negative news would have to be to counter the upside from an interest rate cut.

I ask because if one looks at the recent history the news has been fairly negative but has never got close to actually leading to a fall (by news I mean assessments from the fed) . In fact the worse the news the bigger the positive price action because the likely hood of bigger and more sustained cuts becomes a greater possibility.

The greatest absurdity is that the only announcements from the fed the markets hates to hear is that there is an inflation danger (hence inhibiting interest rate cuts).
"There is a danger of inflation this month so this month we wont be inflating."

Contradictions and absurdities infest the system of money at the moment imo.
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  #58  
Old 12-01-2007, 08:39 PM
DcifrThs DcifrThs is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
I've heard the alaska japan oil thing before too. 3 minute google search. also if you remember the alaska pipeline was built according to the premise that oil would stay in US. that was in the funding and the law. but that restriction in the law was repealed in 1995 or so.


http://www.counterpunch.org/anwr.html
[ QUOTE ]
An FTC economist had concluded that BP-Amoco was selling oil to Asian refineries at prices lower than it could sell to US refineries on the West Coast, in order to manufacture a US shortage. As evidence the FTC had e-mail traffic passing between BP managers who talked about "shorting the WC [West Coast] market" in order to "leverage up" the prices there. Another BP manager called this scheme a "no brainer". The FTC reckoned that this ploy allowed BP to hike prices at West Coast pumps by as much as 3 cents a gallon.

[/ QUOTE ]

[/ QUOTE ]

and what does this have to do w/ the japanese funding the govt deficits?

Barron
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  #59  
Old 12-01-2007, 08:53 PM
DcifrThs DcifrThs is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
DcifrThs

Consider this exercise.

The Fed never announces a cut in a vacuum. It is normally in the context of some negative news for the economy.

Now given all the reasons you have given for why interest rate cuts lead to a positive price action in equities could you postulate how bad the negative news would have to be to counter the upside from an interest rate cut.

I ask because if one looks at the recent history the news has been fairly negative but has never got close to actually leading to a fall (by news I mean assessments from the fed) . In fact the worse the news the bigger the positive price action because the likely hood of bigger and more sustained cuts becomes a greater possibility.

The greatest absurdity is that the only announcements from the fed the markets hates to hear is that there is an inflation danger (hence inhibiting interest rate cuts).
"There is a danger of inflation this month so this month we wont be inflating."

Contradictions and absurdities infest the system of money at the moment imo.

[/ QUOTE ]

there are two things you need to understand that you don't EDIT: seem to (from your above post).

1)a reduction in the likelihood of rate cuts are not only caused by increased inflationary pressures but also as a result of decreased downward economic pressures. so if the fed announces that the rate cut won't happen, it maynot be just because inflationary pressures are too high. it may also be because growth expectations were too low.

2) mathematically, a rate cut means more in terms of % gain than a rate hike means in terms of % loss.

to test this, take a 30 year coupon bond and ignore principle. look at the coupon payments annually (for simplicity). imagine $100 payments for 30 years at 5% interest. at par, these payments are worth $1537.245.

with a 10% rate cut, the value of these payments goes to $1628.889, or a 5.9616% gain.

with a 10% rate hike, the value of these payments goes to $1453.37 or a 5.4559% loss.

so a rate cut SHOULD be more meaningful than a rate hike.

also, you should consider that a rate hike to the Dow means less than to the S&P500 since the S&P500 is more broad based. the Dow includes only those companies that have better access to lower ovreall costs of capital. in other words, a rate hike would have less effect proportionally speaking on the dow's cost of capital than it does the S&P due to both industry considerations and individual company considerations.

this last part is based on my own extension of my understanding of the markets though (the dow vs. s&p cost of capital) so let me know if i've mispoken here or made a logical mistake.

the first two issues though i'm fairly certain of (especially the 2nd since that is simply bond convexity extended to equities)

thanks,
Barron

EDIT: it would be an interesting study to see mathematically, what difference rate change probabilities *should* have on various selections of stocks and what those probabilities actually result in in terms of price changes of these indices.

it may certainly be the case that the market overreacts/underreacts in certain cases (you'd have to control for the reason behind rate change expectations in the fed fund futures/options markets which wouldn't be hard imo)

it seems to me though that your bias (like mine - though i've been trying to decrease it - and everybody's) really shines through in your posts.
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  #60  
Old 12-01-2007, 09:08 PM
The once and future king The once and future king is offline
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Default Re: The differences between 1929 and Today

Hmm

One thing I need to understand that I dont is how the above post answers my question in any way.

The question is quite clear.

How negative must be the contextual reason given for a rate cut be to overcome the upside derived from a rate cut?

Looking at recent price action in relation to announcements from the fed, the negative context would have to be total catastrophe to overcome the upside.

Bottom line is that I think the disconnect between the negative context and the consequent (often extreme) upward price action e.g bad=good demonstrates that the markets are irrational.

As for Bias, well I have no investment intellectually and emotionally either way. I dont care what is right, I do care at reaching conclusions that are right whatever they may be.

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