The rising cost of money

[John Raabe]

Wasn't that the solution that Bernie Madoff proposed?

Anyway Scott - the check is in the mail. I look forward to the simple life.

[waggin]

I'm torn between two opposing theories: 1) Most of what's going on is being cleverly manipulated from behind the scenes by a group much more powerful than merely the United States of America, or 2) The financial wizards and politicos are in way over their heads, and have no earthly clue how to restore a semblance of stability. Either way, i figure us little guys are probably screwed unless the PTB in scenario #1 decide to leave us peasants alone after achieving whatever it is that they are planning, or the clowns in scenario #2 somehow get lucky and things go back to 'normal' despite their help. At any rate- keep throwing those financial insights out there!

Why not 3), both of the above?  Since this is a building forum, consider the phrase, "Think like water." which is referenced when trying to figure out weatherproofing.  For our financial situation, consider the golden rule, "They who have the gold, make the rules."  These two phrases are quite similar generalizations in my opinion.  It doesn't really matter who you think is in control, be it the politicians themselves, or some nefarious, secretive organization, the money is what speaks the loudest.  In trying to figure anything out, following the money trail will often explain why something works out the way it does.  Most politicians don't have a clue, and they're really only focused on fundraising and re-election, so they follow the "suggestions" of their financial backers.  Ever notice how which ever party is out of power currently blames every single ill on the other party, yet when they're in office, nothing changes?  If you follow the financial contributions, you'll often see the same donors contributing to both parties.  In the end, the elected official is bought and paid for regardless, and anyone who refuses to play by the rules isn't going to get to play at all. 

As far as "normal" goes, I don't think we were living in a situation even remotely "normal."  We as a country have been floating along in a fundamentally unsustainable manner for a long time.  I'm talking decades, with both Republicans and Democrats in office, and the more I learn, the less difference I see in those two parties.  Regardless of which party ends up in office, we as a nation (and individuals) can't all expect to live like Bernie Madoff forever.  Think about someone you know who may have been living on credit cards or home equity loans.  Sooner or later, there isn't another low interest card to transfer the balance to, or the bank won't loan 120% of the house's value.  As a nation, there are advantages that an individual doesn't have, but the mistake is in thinking that ponzi economics will work in perpetuity.

At different times, the DX has meant different things to me.  In the past, I have effectively "shorted" the dollar in ways that were tied closely to the DX when the dollar was falling relative to the other currencies.  An example would be the UDN ETF, or just buying another currency directly.  By selling those instuments, I effectively went "long" the dollar again.  Right now, the dollar is rising against the other currencies in the basket, but really it only means the dollar is the "least worst" right now.  Notice how heavily the Euro is weighted in the index?

Euro - Weight of 0.576
Japanese Yen - Weight of 0.136
British Pound - Weight of 0.119
Canadian Dollar - Weight of 0.091
Swedish Krona - Weight of 0.042
Swiss Franc - Weight of 0.036

The perceived safety of being in US dollars vs. the other currencies is propping up the dollar in relation to the other currencies in the index.  In the end, they're all leaky, sinking ships, and the dollar is just the one that is currently sinking the slowest.  If anyone thinks the US dollar is "strong", I suggest a visit to www.usdebtclock.org , and then doing a little simple arithmetic.  Would you "invest" in that "asset"?

Like others, I am not an investment professional, but I am a bit of a news junkie, and I'm always seeking understanding.  As this crisis has evolved, my thinking has evolved, and more questions have led to more reading...which leads to even more questions!  Count me in for another vote that this is exactly the kind of thing that fits in this section of the the forum.

[Native_NM]

I am a corporate finance executive, and have worked in various industries.  I have made a career out of making others rich.

For 95% of Americans, the path to financial freedom and the best choices are the simple choices:  live within your means.  A home is not an investment.  Don't covet thy neighbor.  There is nothing wrong with shopping at garage sales.  Your kids won't die if they wear JCP instead of Abercrombie.  Credit cards for durable goods only.   Fixed costs (mortgage) based on single income only.  Don't confuse cashflow with wealth.

I studied economics.  Most people don't recognize that it is not even a real science.  It's as much guessing as anything. The politicians are in the popularity game and most only care about the power.  There are no Democrats or Republicans. 

As I get older and closer to retirement, this site reminds me of the power of simple living. 

Years ago Donald Trump was a billion dollars in debt, and was asked by a panhandler for some money.  He supposedly told him "you are worth a billion more than me."   Ironic that some of the folks on this board living in modest, simple homes are actually richer than the guy in Malibu mortgaged to the hilt.

Live simple, stay liquid, and don't get too worked up about things you can't control.

[glenn kangiser]

Great thoughts.   Thanks, NNM

[John Raabe]

Very wise advice Native_NM   

I'm going to quote you to my two sons.

[rick91351]

WOW Native_NM tell me it aint so.   

[MountainDon]

If only more people would think and act like that advise.

[JavaMan]

Wedge - meaning:   -- a wedge is either an ascending or descinding line, as opposed to a gap which would look like a jump or straight fall.  a wedge can mean a grind up or down, but its directional and steady. 

DX print - meaning: -- a print is the price as it is recorded.  the prices can be called a few things, there is bid and ask.  the bid is what someone is willing to pay, the ask is what some is willing to sell at.  the bid/ask fluctuates up and own with direct buying or selling pressure.  as more buyers show up, the bid increases.  a print is the recorded price the transaction is done at.  It can also be called the tape, or the tick.  It is a singular data point in the stream.  By saying a DX print of 95, I means that at some point I personally think it will get that high on the next extreme swing but that it may not close at that. 

Monday  is probably green - a green day is a up day, or a green tick is where the sale was completed at the ask and not the bid. 

"Inflection Point" - meaning: -- the market swings like a pendulum, and usually goes too far in both directions.  so it sways back and forth.  When there is extreme in either direction you can identify "turns" or inflection points.  For a more scientific answer, in differential calculus, an inflection point is a point on a curve at which the sign of the curvature (i.e., the concavity) changes.

Ahhh, thank you!

I knew about the bid and ask, but  didn't know that an actual sale price was the "print" ... makes sense now!  So when you say 94 or 95 on a wedge, you are saying that it will keep rising from where it is to then (at least), without a significant downturn between the two points, right?

Not so sure about that inflection point, tho - if I understand the original post (that caused all this on my part  ) the dollar rose to 88 on that day.  You stated that the days activities were an inflection point (by the defenition above, a turnaround point) which to my mind would mean that it would start back down, rather than keep going to the mid-to-high 90's (on a wedge).  Altho, by the DifCalc definition, it could still be rising, just at a different rate. (the rate of rise - or "concavity", or sin changing) - correct?

BTW - thanks for the discussion.  I am learning a bunch!

[JavaMan]

I just had to chuckle ....

Here I was, quoting NNM to Beautiful, my wife, in an email (wise words indeed) and it hit me ... I call this place "the builder board" ...


Does that make us all Builderboarders?      Are we all part of some sinister plot to undermine something? if so, what?

Then it hit me that my avatar was Gomez, who invariably was making a killing on some stock that he was invested in!

[peternap]

Looks like we were both wrong Muldoon.

I figured green too. The last hour was a copy of Friday.

[muldoon]

I knew about the bid and ask, but  didn't know that an actual sale price was the "print" ... makes sense now!  So when you say 94 or 95 on a wedge, you are saying that it will keep rising from where it is to then (at least), without a significant downturn between the two points, right?

I thought today would be a reversal from Friday with a down day on the dollar and an up day in the market based on the extreme buying selling from Friday.  According to ino, usd opened at 88.6 and closed at 88.4 something.  My basic premise is that the trend is up for the dollar however it zigs and zags.  Today it zigged and zagged. 

Not so sure about that inflection point, tho - if I understand the original post (that caused all this on my part  ) the dollar rose to 88 on that day.  You stated that the days activities were an inflection point (by the defenition above, a turnaround point) which to my mind would mean that it would start back down, rather than keep going to the mid-to-high 90's (on a wedge).  Altho, by the DifCalc definition, it could still be rising, just at a different rate. (the rate of rise - or "concavity", or sin changing) - correct?  BTW - thanks for the discussion.  I am learning a bunch!

Looking at the chart when I wrote that I expected a serious downturn this week, but before we got there I thought it would surge back up a bit before doing that.  Obviously, you can't go by my thoughts     To be clear I am not in the prediction business.  Never claimed to be. 

[glenn kangiser]

I just had to chuckle ....

Here I was, quoting NNM to Beautiful, my wife, in an email (wise words indeed) and it hit me ... I call this place "the builder board" ...


Does that make us all Builderboarders?      Are we all part of some sinister plot to undermine something? if so, what?

Then it hit me that my avatar was Gomez, who invariably was making a killing on some stock that he was invested in!

The Builderboarders..... as we plot and steer the direction of world events...

[Native_NM]

Anyone with a few minutes should read this:

http://www.constitution.org/tax/us-ic/schiff/moltz.pdf

[muldoon]

native_nm, thank you your your post above.  Your most recent post however makes me want to comment.

It is a piece I have read before, written by Irwin Schiff. 

http://en.wikipedia.org/wiki/Irwin_Schiff

Irwin A. Schiff (born 1928) is a prominent figure in the tax protester movement. Schiff is known for writing and promoting literature that claims the United States income tax is applied incorrectly. He has lost several civil cases against the federal government and has a record of multiple convictions for various federal tax crimes. Schiff is serving a 13-plus year sentence for tax crimes (with his location listed as the Terre Haute Federal Correctional Institution). His projected release date is 7 October 2016.[1] Irwin Schiff is also the father of stockbroker and US senate candidate Peter Schiff.

In this piece, he essentially makes the case that a king has extracted our wealth.  That by using dollars we have declined because the greedy have stolen the value of those dollars.  I would just like to point out that the greedy are within our own populace.  We have no king, we are self governed.  Our greatest conglomeration of people has been the baby boomers.   Those are the people who have gained the very most from such policies.  With 401ks packed to the gills based on profits from outsourcing, from overseas, from Mexico. 

I think about my street, and the house a few doors down in foreclosure.  He was a preacher from Guatemala, bought an A-arm mortgage, with god knows what documentation, and heaven only knows what reset interest rate that killed him eventually.  He was a nice enough guy, very polite wife and children.  But he bought a house he could not afford.  Was he evil?  probably not.  Was Ms. Pharoan the lady who browkered the mortgage deal evil, I doubt it.  She was the same nice lady that did our 30year fixed convential loan back in 2002.  She is still in the neighborhood, she serves on the PTA with my wife at the elementary school.  I have had her brownies and they are excellent.  Sure she profited from such an arrangement, but so did everyone else.  So did the county, the insurance company, the mortgage company that is likely bankrupt now, and on down the line. 

Everyone wants to blame the king.  The "elite" of the world.  It's some conspiracy that destroyed us. 

Well, maybe not.  Maybe our own collective greed clouded our vision of what was an was not a risky venture.  I see this daily.  I see it hourly.  Until we collectively can look in the mirror and see that where we are as a nation is collectively our own fault, it cannot be reversed. 

I do not believe a tax protester has the answers.  I do not believe a man in prison, who placed many others in prison for falsely leading them down a path of self righteous greed has the answers.  I believe the answers lie at our own feet.  And it begins with righting the wrongs of our past, and with enforcing our laws as they are written.  I think we need to start with out big banks, our regulators, our politicians, and then down to every level where fraud and lies were present on a daily basis.  The problem with such an approach is that if we did it, it would lead to a total economic collapse.  That for decades, the positive growth we all have come to accept has been on the back of fraud and lies.  With that, the entire nation has "prospered".  We all have the technology advances that led to, the advances in medicine, technology, science and way of life.  Is it reversible?  I don't know.  I dont even know if it is inevitable at this point. 

NM, I mean no disrespect, but just as you posted your opinion, I am doing the same. 

[waggin]

Money is still cheap for some; it's just not us.  No matter how much deflation (of the money supply as measured by M1-M3) we have through debt destruction or slowing velocity, I can't see the Fed closing the discount window that allows the GS's, JPM's, and MS's to borrow at just above zero %, and we'll still have derivatives.  Here's a great article on derivatives which includes an example we can relate to. 
http://www.kitco.com/ind/Lewis/jun092010.html
This section is especially relevant:
The Bet on Dan

The example above is exactly how the derivatives market works. If you paid close attention, you'd notice that a loan of $200 is now worth either $400 or $500, depending on who is the winner of the wager. The two counterparties, Jim and Bob, have made a wager worth multiples of the actual real life event in their own form of the derivatives market, and now they have more at stake than what the loan is actually worth. 

Now, both are highly intelligent people. Jim knows he could pay Dan $200 to pay Bob a week late than agreed and make out like a bandit with a $200 profit.  Bob knows he could give Dan the $200 to pay him back, and he could make a $300 profit from Dan's wager. 

Now, with these bets in place, they'll each try to buy Dan off, just as banks and other institutions buy the power of government and central banks, effectively changing the game in their own favor and making a gold mine in the process.


This is now what passes for economic activity.  IMHO, to avoid having derivative positions ever see the light of day, unlimited funds will continue to be provided at low cost to the firms that trade in derivatives.  Since they're all bank holding companies now anyways, they're entitled to all sorts of other perks too!  As long as there is access to virtually free money for the favored institutions, this will continue to distort pricing and activity and render fundamentals for virtually everything moot.  The same folks also understand technical analysis and can take large enough positions to move things in their favor, making trying to play against them a losing game.  One way or another, money will continue to "cost" more for us, as more and more (of our) money is needed to fund the leveraged gambling of the big players listed above.

[Native_NM]

The analogy might not be the best, but the underlying principle is essentially accurate from an economic therory standpoint.  The King of course is a metaphor for big government.  I'm not a tax protestor, and believe a progressive system is the only fair tax system.  The system we currently have, however, is broken. 

The balance of your post is essentially consistent with my viewpoint. 

[ScottA]

Maybe our own collective greed clouded our vision of what was an was not a risky venture.  I see this daily.  I see it hourly.  Until we collectively can look in the mirror and see that where we are as a nation is collectively our own fault, it cannot be reversed. 

A few free chips to get the suckers into the game is a common tactic. Let them win a couple of hands then clean them out. Standard poker scam. It works because many people are greedy. Does that make it less crooked?

[OlJarhead]

When you first take narcotics I'm sure it feels good too, but eventually it catches up and you find yourself in a gutter -- or some such thing.

My point is that while something might have seemed good to some or even most it might have been very bad, even evil.  Though I think naive is more likely.

The CRA pushed sub primes.  This was/is a government program pushed by progressives.  Sub primes started the ball rolling in the latest mess but are really only a portion of the bigger issue:  progressive thinking.

Progressive taxation = nonsense.  It isn't 'fair' in any shape, way or form and that sort of thinking comes straight out of the 'progressive' play book (even if you don't know it).  Fairness is perhaps somewhat subjective but I think if you really want to talk 'fair' then fair is when each pays an equal portion of their income regardless of what that income is.  Don't get me wrong, I'm not a flat taxer or fair taxer, in fact I'm a 'no individual' taxer but that's another story (and don't give me that old byline "but businesses will make you pay" because they do anyway, doesn't matter so my position is no individual taxation at all which has many many benefits that I won't go into in this thread for time constraint reasons).

Socialism fails, always will, always has, period.  Progressivism = socialism.  Once you get past that then you can actually get to the root of the problem.  If you can't get passed the "but grandma couldn't survive without social security" or "but poor people without credit need to buy houses too" phase then there is no point in trying to explain how the crash of our economic system is rooted in the progressive mindset of "we must take from you in order to help them" and will always result in this kind of corruption, greed and ultimately collapse.

But hey, buy the buck, sell all your gold and vote for progressives if you think that will work.  Me personally?  I hope everyone with an 'I' after their name gets voted out (both D's and R's) and the new crop stalls, kills programs, and cuts back but then I probably was slipped a mickey by someone and am with Lucy in the sky with diamonds.

[Pox Eclipse]

Socialism fails, always will, always has, period.

That will come as a surprise to Canada.  And Australia.  And Denmark.  And Ireland.  And...

In fact, according to a study by the Heritage Foundation (not exactly a "progressive" crowd!), of the ten countries deemed highest in economic freedom, eight of them have socialized medicine.

Just saying socialism always fails doen't make it so.  It helps if there is some basis in reality.  And there is not.

[muldoon]

jarhead, I agreed with much in your post.  almost all of it to some extent but when I hit this sentence you lost me.

"But hey, buy the buck, sell all your gold and vote for progressives if you think that will work.  "

buying the buck or selling gold has nothing to do with politics.  this is a mathematical equation here, not politics.  You still seem to under the impression that there is a magical printing press and that everyone is or soon will be pushing around a wheelbarrow full of money.  I dont think that is in the cards.  I think the value of dollars goes up because they get harder and harder to come by.  Many of the jobs are not coming back, wages are not coming back, tax receipts are not coming back, bonds are not coming back, liar mortgage loans are not coming back, ez-credit cards at 1% interest are not coming back. 

with that you see spending contraction at all layers, from consumer to producer to city, county, state and federal levels.  there is no money, thats the only thing one has to accept to "buy the buck". 

as for politics,

"Socialism fails, always will, always has, period. "

Given a long enough timeline, everything fails.  communism fails, socialism fails, capitalism fails, regulatory agencies fail, intelligence agencies fail, mms failed.  But what was the real driver here? 

corruption.  on paper capitalism works, on paper communism works, on paper socialism works.  they are are just different ways of granting opportunity and spreading wealth.  All of them have proven to fail from corruption a greed after a period of time.  Greece created the idea of a democratic government, they have been in default more years in the last 200 years than not.  What failed was a lack of enforcement of laws.  the haves and the have nots. 

Personally, I prefer the systems that rewards those whom pull themselves up and don't like the systems that are intent on bringing successful people down for the benefit of others.  That being said, voting every incumbent out of office no matter which "alleged" affiliate to D or R sounds like a fantastic plan to me.  They are all criminals and should be dealt with as such. 

[OlJarhead]

Socialism fails, always will, always has, period.

That will come as a surprise to Canada.  And Australia.  And Denmark.  And Ireland.  And...

In fact, according to a study by the Heritage Foundation (not exactly a "progressive" crowd!), of the ten countries deemed highest in economic freedom, eight of them have socialized medicine.

Just saying socialism always fails doen't make it so.  It helps if there is some basis in reality.  And there is not.

it's all a matter of how you read the tea leaves I guess -- for example, Canada is going the other way these days and seriously working to de-socialize medicine...why?  Because they are going broke trying to pay for the socialized medicine they've had -- it failed....

We're not a free country any longer (in many ways have not been for a hundred years or more) so comparing what we are today to say, Canada is sorta like comparing Socialism to Fascism.  Birds of a feather really.

While the world goes broke trying to pay for entitlements we can debate all of this till we're blue in the face, but going broke it is.

[OlJarhead]

jarhead, I agreed with much in your post.  almost all of it to some extent but when I hit this sentence you lost me.

"But hey, buy the buck, sell all your gold and vote for progressives if you think that will work.  "

buying the buck or selling gold has nothing to do with politics.  this is a mathematical equation here, not politics.  You still seem to under the impression that there is a magical printing press and that everyone is or soon will be pushing around a wheelbarrow full of money.  I dont think that is in the cards.  I think the value of dollars goes up because they get harder and harder to come by.  Many of the jobs are not coming back, wages are not coming back, tax receipts are not coming back, bonds are not coming back, liar mortgage loans are not coming back, ez-credit cards at 1% interest are not coming back. 

with that you see spending contraction at all layers, from consumer to producer to city, county, state and federal levels.  there is no money, thats the only thing one has to accept to "buy the buck". 

as for politics,

"Socialism fails, always will, always has, period. "

Given a long enough timeline, everything fails.  communism fails, socialism fails, capitalism fails, regulatory agencies fail, intelligence agencies fail, mms failed.  But what was the real driver here? 

corruption.  on paper capitalism works, on paper communism works, on paper socialism works.  they are are just different ways of granting opportunity and spreading wealth.  All of them have proven to fail from corruption a greed after a period of time.  Greece created the idea of a democratic government, they have been in default more years in the last 200 years than not.  What failed was a lack of enforcement of laws.  the haves and the have nots. 

Personally, I prefer the systems that rewards those whom pull themselves up and don't like the systems that are intent on bringing successful people down for the benefit of others.  That being said, voting every incumbent out of office no matter which "alleged" affiliate to D or R sounds like a fantastic plan to me.  They are all criminals and should be dealt with as such. 

As the euro drops the dollar rises, as the euro gets stronger the dollar weakens...it's a mirage because both are actually weak and getting worse.

That is not to say that you cannot make money betting on one or the other but as FIAT currencies can't survive forever, and as they appear to be very near the end I tend to look to those few who seem to have called it all along (more then any others anyway) like Roubini, Faber, Cellente etc....the dollar can't survive the massive printing (and yes 'printing' is no more then a term these days since paper money represents only a small portion of the total with electronic money being the lions share) and the FED discount window and our debt continue to make it easy to create more and more and more dollars...sooner or later we have to pay the piper.

Hopefully you sell yours before the piper walks in.

That's all I'm sayin'

[Native_NM]

I don't like to argue politics, and I'm really here to learn about building a small house, but...

A progressive tax system is actually out of the conservative play book.  Conservatives know that unchecked capitalism would swing the pendulum so far to the right it would end up on the left, resulting in less freedom.

As a high income professional, I expect to pay a little more.  I am fortunate, and would not mind paying more if I knew it was not squandered.   What we have now is a system that does not tax proportionaly.  I think everybody needs to pay something - even the lowest income workers.  So many pay nothing in federal income tax, yet still get to vote.  Years ago we had "taxation without representation."  Now we have almost half the country that has "representation without taxation."  If I paid no income taxes, it would be easy for me to vote for a new expensive program that some "rich guy" is paying for.  Everyone needs to pay something.   The fallacy that the rich (or big companies) pay nothing and should pay more is actually out of the progressive playbook: 90% of all tax receipts are paid by the top 5%.  We need to flatten the curve.  It can still be progressive.

My wife and I live pretty frugal (not cheap, just frugal) and consider ourselves fortunate.  We are fiscally conservative.  I could probably afford to hire somebody to build me the cabin I wanted if I pushed a few things around.  That is counter to the way I was raised and I live.  Self-sufficiency is as important a trait to teach your kids as math or science.  The biggest problem facing America today is an entitlement mentality, in my opinion.  It was self-reliance and freedom that made America great.  I hope it is not too late to reverse the trends of the last 40 years.

[NM_Shooter]

Now we have almost half the country that has "representation without taxation."  If I paid no income taxes, it would be easy for me to vote for a new expensive program that some "rich guy" is paying for. 

This is an excellent point.  The mice in this country who are contributing the least (or nothing at all) are getting all the free cheese.

Too bad there is not a way to earn "points" towards voting.  We have an overwhelming amount of non-contributors who are voting themselves benefits.  Hmmmm... what was that quote about democracy and voting into the treasury payout?

I wonder what Greece thinks of how well socialism is working out? 

[MountainDon]

Every adult citizen should get one vote.

Then as you pay more and more in taxes you should get extra votes.   Or something along those lines.