Diary of a Financier

Top Newsstuffs (December 10-16)

In Bookshelf on Sun 16 Dec 2012 at 07:41

Have it your way…

The hyperinflation “nightmare scenario” draws near | Richard Koo (Nomura)
Father of the balance sheet recession plays inflationista:
When private loan demand (N.B. not supply) recovers, inflation will surge to 500-1000% unless central banks raise reserve rate requirements. US loans may grow 10x (5x in Japan & Europe), because bank reserves proliferated during QE. That’s why his prescription for healing a balance sheet recession is fiscal stimulus–which can be withdrawn via taxes–not monetary.

“It’s Time”: The Gold Bugs’ manifesto | Paul Brodsky (QB Asset Management)
Explains the conspiracy theories, fundamentals & technicals behind gold bugs’ belief in a coming gold standard.
Brodsky himself believes that public entities have naked shorted gold to suppress the price relative to fiat & redistribute bullion to “targeted global parties” in the private sector before a monetary reset–a global, bullion backed SDR (i.e. new gold standard).

Rail traffic weekly: Growth slipping into year end | Association of American Railroads (AAR)
Carloads -3.0% and Intermodal +3.2 (cumulative ytd volume); -1.6% and -0.3 respectively (vs. this week last year).
12 of 20 carload groups posted gains: Petroleum products +59.5%, lumber +18.6 & metallic ores +16.6; grain -15.3, metals -11.9 & coal -9.7.
[Last week’s LA port strikes no longer an excuse: railtraffic is slowing in coordination with the peak in inventories.]

Updating the myth of “cash on the sidelines” | Jim Bianco
After the Fed revised its estimate of nominal corporate cash -22% in 1q12, liquid assets/total assets ratio has slipped lower to 11.2%.
[Bianco reads this as alarmingly low, but I put it in historical context, which says the ratio’s in middle of its 30 year range.]

How Modern Monetary Theory resolves hyperinflation | Pragmatic Capitalism
While MMT says sovereign currency issuers can never reach insolvency (via overwhelming deficits, etc.), the economic school explains that debasement is constrained by hyperinflation–although historically, this has only ever occurred due to severe exogenous shocks like losing a war, pegging currencies (e.g. foreign-denominated liabilities), or overthrowing regimes.

FOMC decision: Fed Funds Rate linked to joblessness, bond purchases expanded | Bloomberg
As expected, Fed will succeed Operation Twist with $45B/mo in unsteralized Treasury purchases at long end of yield curve.
They unexpectedly dropped ZIRP expiration date (formerly 2015) in favor of a conditional unemployment target of 6.5%.
Long term model still assumes unemployment 5.2-6.0%, FFR 4%, inflation 2.0-2.5%.
Bernanke insists a fiscal cliff will be devastating, if even short loved, and the Fed does not have the tools to offset it. FOMC projections assume some amount of fiscal contraction, but not full blown.

Video: Ray Dalio’s (Bridgewater) bearish 2013 outlook | DealBook Conference
Lists the wall of worry: Fiscal cliff will result in some level of austerity, even if sequestration is averted; interest rates cannot continue lower, but the big bond short isn’t yet imminent; QE is now impotent (diminishing returns).

Presentation: “To Catch a Theif” (4q12) | Jeff Gundlach (DoubleLine)
Mentioned half life & diminishing returns from QEs; Gold should be accumulated on recent weakness (not stocks), since it’ll recouple with QE & central bank balance sheet expansion; best equity sectors during QEs were Coal (KOL) & Metals/Mining (XME), worst assets were Treasuries.
Japan is out of policy tools & it can only debase the Yen to help handle its large Debt/GDP, which will now spark inflation; sell JGBs, short JPY & buy Japanese equities (i.e. currency hedged).
Regarding fiscal cliff, real US federal debt dropped in 1920s & flatlined in 1950s-70s thanks to increased income tax brackets–and the economy was great regardless.
Since 2000, +72% increase in tuition vs. -14% decrease in post-graduate income is a recipe for student loan disaster.

Fighting recession the Icelandic way | Bloomberg
In an approach opposite to that of the US & Europe, Iceland has rebounded from its spectacular 2008 default by focusing on consumers, not corporations/banks:
1. They allowed mortgagees to write off debt and restructured debt after means-testing debtors.
2. The government cut spending & raised taxes, limiting deductions on wealthy.
3. They legally prosecuted bankers responsible for the boom/bust corruption.

Insights from Paul Tudor Jones | Ivanhoff Capital
13 original excerpts about investment management from PTJ himself, who shows a real understanding of psychology & technical analysis.

Video: Bernard Lietaer discusses “the blind spot” | naked capitalism
Former President of the Central Bank of Belgium makes a number of assertions, drawn from experience:
1. The modern monetary system persists because of an institutional infrastructure designed to perpetuate the status quo–a covert lobby from central banks themselves (Bank for International Settlements, BIS) to academia (the Nobel Prize of Economics, which is the only such prize fostered by a third party, in this case, the Swedish central bank), who focus research/analysis on the problems within the system, while suppressing taboo discussion on reforming the system itself, which we’re conditioned to accept de facto.
2. The monetary system is a complex network, like those in nature, wherein there’s a tradeoff between diversity & sustainability, which meet at an optimal equilibrium. Due to a lack of diversity, the modern regime (a fiat monopoly) is “fatal.” He suggests local currencies should coexist within national regimes to provide competition & a seamless alternative whenever crises in central bank tender freeze economies.


  1. […] tenors) [Plus, so much of the cash in tied up abroad to avoid repatriation taxes. Previously: Jim Bianco & the […]


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