M3 exploding, real cash is not?

From John Mauldin:

The Chart shows the growth of the various money supply categories. Notice that M3, which the Fed no longer publishes, was rising rapidly through last year. Also notice that M3 is a growing part of the overall money supply. Basically, to get M3, you add Eurodollars, repurchase agreements, CDs to M2. M2 is cash in the banks, savings accounts, money market accounts, etc. What this tells us is that Eurodollars and repos are driving the growth in the money supply.

Can we come to any firm conclusion? Not yet, because the data is still working its way through the system. But the massive actions the central banks are taking plus the growth of the money supply while actual cash is shrinking is a worrisome development. This will be watching.

Seems like the banks are worried about something.

January upside in US and Global markets

A quick seasonal study of January will reflect a few things that are common for the first few weeks of January. I will still reiterate that the END of January / Feb might become very weak again.. The case for a January rally?

1) From New Year’s Eve to the fifth trading day of January, stocks tend to make a run. According to The Wall Street Journal, this annual advance is due to the ‘January Effect.’ (this is best for options trading)

The ‘January Effect’ is simply "a seasonal phenomenon in which stocks that have done poorly during the previous year start the new year off with a bang."

The momentum behind the ‘January Effect’ is caused by year-end selling. Investors who need to create tax losses, recognize capital gains, or raise holiday cash start selling in late December. They are joined by portfolio managers looking for some window dressing to add to their annual returns.

Donald Kiem, a researcher at the University of Chicago, first pointed out the exceptional returns of small-cap stocks during January in the years 1963 to 1979. Since then, history has repeated itself year after year.

2) Overall, big market moves most often occur in January. In fact, since 1972, January is the hottest month for the S&P 500 Index (SPX), producing higher average returns than any other month.

Since 1950, January has delivered positive gains more than 63% of the time. And more than half of the time, those S&P 500 gains were 3.46% or better!

Also since 1950, the Dow’s three best months by percentage gain all occurred in January, delivering returns of 14.41%, 14.19% and 13.87%.

And since 1971, the NASDAQ’s gain in January has averaged an amazing 3.7%, according to the Stock Trader’s Almanac.

3) In election years like the one we’re about to enter, the market bounce you typically see in January is even higher.

Consider these numbers: Since 1972, in the fourth year of the presidential cycle, the S&P 500 has delivered 2.40% gains on average, while the Dow has delivered 2.32% gains on average.
(A 10% stock move could result in gains of up to 100% or more in the option...plus you can buy call options for just a fraction of the cost of buying stocks. - Option Trading involves risk, consult with a licensed professional)

4) Fourth quarter ‘07 earnings – which will begin to be released in just a few weeks – is shaping up to deliver many potential upside surprises.

That’s because expectations for fourth quarter earnings have plummeted in light of the poor showing in the third quarter.

In fact, while "official" 3Q earnings are still being tallied, 3Q earnings growth is currently estimated somewhere between -2.5% and -4.5%, well below what investors were expecting before the announcements began.

And the negative 3Q earnings represented the first quarterly decline in earnings growth in more than 5 years, according to Thomson Financial and The Wall Street Journal.

That has caused expectations for the fourth quarter to drop precipitously. In fact, estimates for average 4Q earnings for S&P 500 companies – which were at 12.4% on August 10, according to Bespoke Investment Group – are now negative at -0.8%, according to Thomson Financial.

5) The Recent Market Correction Could Add Fuel to January’s Fire

Consider what the Stock Trader’s Almanac says: "Since 1964, there have been 16 fall declines of over 10%....Most often, it has paid to buy after fourth quarter or late third quarter ‘waterfall declines’ for a rally that may continue into January or even beyond."

I still feel the First Quarter of 2008 will have the BIGGEST downside risk for the entire year... But this First part of January might be the best upside move we will see in the first half of 2008 until the election season.

Bankers Losses so far

Bankers' write-downs

UBS$13.7 bln
Citigroup*$13.7 bln
Morgan Stanley$10.3 bln
Merrill Lynch$8.4 bln
HSBC$3.4 bln
Bank of America*$3.3 bln
Deutsche Bank$3.1 bln
Barclays$2.7 bln
Royal Bank of Scotland$2.6 bln
Credit Agricole$2.3 bln
Bear Stearns$1.9 bln
Credit Suisse$1.9 bln
JP Morgan Chase$1.6 bln
Goldman Sachs$1.5 bln
Wachovia Bank$1.1 bln
Lehman Bros.$0.8 bln
Total:$72.3 bln

Mad Money Hosts Ron Paul

CNBC had Ron Paul.

Open Money, what is it?

Is this too far fetched, open source money?

Thousands of different currency systems have been built during the past 100 years, with an acceleration the past 20 years (see complementary currencies). Open money is to be understood as the meta-system and standard that will let communities design the currency they need for their own purpose, and interact with one an other at local or global levels. Exactly like what happed with email, html, or http protocol.

It's likely that money will follows the same path that happened to medias and communication tools: they were once centralized, limited in numbers, expensive, owned and controlled by the few, closed systems. Now they are distributed, peer-to-peer, global and local, open. The same is about to happen to money.

Therefore in the next few years the world should expect to have millions of currencies. Just like it has today millions of medias, TV channels, blogs, discussion groups, etc. Each participant will join the currencies he/she needs for his/her own purpose.

Advantages of open money

  • Decentralized: no need for a centralized issuer like a bank, which means no threats from a centralized power.
  • Free: no interest is practiced because there is no issuer that makes a business of it. The only cost is the one of the infrastructure, which is a flat marginal cost, not an exponential one like in the interest.
  • Peer-to-peer: the total quantity of money in the community is determined in realtime by peer-to-peer exchange. There is no centralized authority that determines how much, where and when the quantity of money should be allocated. These can be seen as distributed fractal feedback loops to regulate the system and make it resilient.
  • Controlled by the people: the rules of circulation, credit limits, taxes, decision making processes, etc, are controlled by the community itself. These settings can be configured via software.
  • Sufficient: because based on mutual credit?, i.e. there's never a lack of money since it is created upon the needs/wants streaming.
  • Holoptical: transparent between users, and users have access to the meta level of the system to understand and regulate its whole equilibrium.
  • Adapted to all needs and all communities: whether communities are based on a local territory or a virtual one, each community exists because it has a circulating offer/demand within it. It can be time exchange, objects, services, knowledge... in a competitive or collaborative economy. Mainstream currencies only serve competitive markets, open money serves whatever market since it is sufficient and can be applied in any context.
  • Connected to any "real" or "virtual" value: any community currency can be based on a "real" value (time, gold, kilowatt, kilo of potatoes, oil, distance...) or a "virtual" value (i.e. no relation to anything in the real world, it is just a unit of exchange used by the community).
See for yourself and be the judge

The Money Syndrome

A scholastic post of US history compliments of Helmut Creutz

In the beginning of the eigthies a series of breakdowns of banks in the countryside occured in the USA when ten thousands of highly endebted farmers had to sell their properties at auctions and the returns couldn't cover the credits. The same happened at the end of the eighties to savings banks and a number of regional big banks. It was caused by Reagan's extended limits for credits on real estate meant as a stimulus for the economy. Consequently their value shot up and enabled further grantings of loans. When the speculative balloon burst, many of the outstanding claims could not be called in. According to a report in the Frankfurter Allgemeinen Zeitung (FAZ) from Oct. 21/92, »1'492 (=12%) of almost 12'000 business banks were close to bankruptcy and another 1'179 actually insolvent«. In the beginning of 1993 Prof. Udo Reifner reported in ›Bank Watch‹, an information service of the Institut für Finanzdienstleistungen, that the breakdown of those banks »will cost the American taxpayer depending on different estimations between 500 to 1'200 billion DM until the end of the nineties.« But as he further writes, problems also heap up in our country, for instance »the crooked position of German big banks like the Bank fuer Gemeinwirtschaft (BfG), the DG-Bank and the BRZ which can only with pains be covered by payments of billions of DM from third parties interested in the German market... or from the funds of small co-operative banks«. The security funds have already been reduced by 2.6 billion DM, and since the contribution to these funds are only 0.03 to 0.06 DM per 100 DM deposit, the securing of depositors is here limited, too.

Sound Familiar?

Monetary History Revisted....

Every so often, i find myself reading through history for answers and insight that could serve purpose in a modern world. I believe many may not be familiar with the following:

Freigeld (German for free money) or Schwundgeld (depreciative money) is a monetary (or exchange) unit, which follows the economic concept of Freiwirtschft (free economy). The concept was invented by Silvio Gesell.

The name results from the idea that there is no incentive to store the money, as it will automatically lose its value after some time (depreciate). It is claimed that as a result, interest rates will drop to almost zero, preventing any form of Inflation.

Gesell argued that saved money will keep its value, while goods - which are not consumed - will loose value by getting old, rot or deteriorate. To keep the value of the money and goods synchronised, the issued money should loose value in regular intervals. Therefore the holder of the money has an incentive to spend the money before it depreciates, which will foster consumption and economic growth.

During the Great depression in 1929 Austria and Germany was hit by a deflation, preventing economic growth and prosperity. The effects were also felt in Wörgl - a place of 4600 people, out of which more than 400 were unemployed. Since no help seemed to be available from the central bank the local council decided to try and tackle the problem themselves.

As the money was flowing again the businesses began to prosper, the town got tax income, which it used to employ more people and repair and improve streets and communal property and equipment. This lead to further economic activity.

The experiment was so successful that neighbouring villages started to accept and use the new money as well. The unemployment increased during 1932 and early 1933 by 10%, while in Wörgl it dropped by 25%. The "Miracle of Wörgl" was widely publicised in the press and many delegates came to the area to see it work. Many other regions were interested in adopting the system.


1973 Inflation records broken

U.S. Nov. PPI up 3.2%
core prices up 0.4%

Actually, if you take the new measures out and use the same statistical record keeping methods that include things like real estate, we blew threw those numbers years ago. So the rates are actually much greater today then 1973. This is headline sentiment news, and its about time.

Wholesale energy prices rose 14.1% in November, beating the prior record growth of 13.4% in January 1990. Gasoline price growth also hit a record -- reaching 34.8% -- up from the prior record of 28.8% in April 1999.

Strategic Energy and Economic Research Inc. "I think we're going to see greater effects in the coming months. This is a black day for [Federal Reserve Chairman] Ben Bernanke."
Thursday's data could support concern, Lynch said, that the U.S. economy will enter a period of stagflation -- a combination of slow economic growth, high unemployment and rising prices.


Why Pandit heads Citi

So why would Citi get this guy to run the bank??

Well, for one Vikram S. Pandit was head of: Co-founder, Chairman of the Alternative Investments Unit, Chief Executive Officer of the Alternative Investments Unit and Head of Institutional Clients Group

Why is that important. Becouse Citi needs new investors to feed its massive need for capital fund raising. Nothing like newly minted overseas billionaires who have an appetite for American Companies who are a phone call away from the CEO's desk. So we shall see, but remember the key executives like Bob Rubin, still hold positions of power....

Fed Funds Predictions...2008

With the sell off in the markets today, the central bank of the US is faced with a double dilemma - cutting rates and Eurodollar value, or keeping rates as high as possible to help finance our multi billion dollar deficits (capital attraction).

Thanks to John Mauldin and the bond guys, we have this to ponder......

The ultimate destination of Fed Funds is dependent on the state of the domestic economy which, in turn, will be influenced by the direction and level of U.S. housing prices. Chairman Bernanke and his divided band of governors will have to feel their way along this treacherous path with canes in hand--not totally blind, but significantly hampered by a lack of historical context which might point the way to the ideal rate via precedent as opposed to feel. Nonetheless, there are theoretical guidelines which may help to validate or invalidate current assumptions reflected in Fed Funds futures contracts which currently forecast an ultimate floor of 3¼% sometime late in 2008. Traditionalists would point to the "Taylor Rule" which formulaically computes a neutral Fed Funds yield based on divergences of real GDP and inflation from "potential" and "target" levels. Since these levels are somewhat variable and subjective, there is no one number that a computer can spit out, but nonetheless, using reasonable assumptions, neutral Fed Funds levels somewhere in the 4% "+ or ?" range are produced. Assuming the Fed would have to drop below neutral to stimulate a faltering economy, the 3¼% Fed Funds futures forecast does not seem unreasonable.

The average real short-term rate using this methodology over the past 8 years has been 1½%. Commonsensically, this 1½% real rate is the neutral rate that has pumped life into our new finance-based economy with its complicated shadow banking system. It is logical to me therefore, to assume that 1½% is the neutral rate required to keep the future Shadow oiled and properly functioning. If so, then 2% core inflation and 1½% real Fed Funds require a drop to at least 3½% just to maintain current momentum. To restart a near recessionary economy we may need to eventually go down to 3% or lower.
So we shall see

Boiler Room Revisted? Ron Paul Coins?

You would think that the pervasive nature of hubris could go away but every decade it comes back like the black plague....

How it starts:

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

This is how it ends up...

and this is what the US Goverment does to Libertarians:

Yea, ebay has something for you too!

And the thoughts on a guy who will probably end up in Jail....

U.S. stocks plunge as Fed action disappoints

but why would the market fall?

"There are some players out there who were hoping or estimating they would cut a little bit more," said Stuart Freeman, chief equity analyst at A.G. Edwards & Sons Inc.

"Obviously the market would have responded positively to a half (point cut in the Fed funds target rate) and a half (point cut in the discount rate, or even a quarter (in the Fed funds target rate) and a half in the discount rate," said Freeman.


A third of Workers born in 1990 will retire BROKE, GAO

So much for retiring wealthy in the US....

"Today's workers will more likely struggle to make ends meet during retirement than previous generations," said Rep. George Miller, D-Calif., who had requested the report. "While Social Security faces long-term challenges that must be addressed, this GAO report makes it clear that the real retirement security crisis is the lack of savings in private retirement plans."

The EBRI report found certain characteristics were associated with a lower level of participation in a retirement plan, such as being non-white, younger, female, never married, having a lower educational attainment, lower earnings, poorer health status, no health insurance through an employer, not working full time, not working full year, and working in service occupations or in farming, fisheries, and forestry occupations.


Buffett meets with Clinton in California

The Big Question asked to Warren, was..." Why are you a Democrat?"