Follow Me on Twitter

I was asked if there was an easy way to know when I post something. The answer is yes. I have a twitter account that when something gets posted a tweet is sent. You can find me directly on the twitter website or can go to my section on gold shark and click on follow me.

Hope that helps.

From someone who is more tech savvy than I am:

For everyone else's quick access, the Twitter page is: http://twitter.com/kasparscomments

OR as they say on Twitter:

@kasparscomments

Blog Posts - Where You Can Find Me

Hey all. There are some major changes occurring as far as blog posts go. I have started writing for various websites. Instead of random blog posts (which I still may do occasionally), I will be publishing more regular content that will be picked up by these websites:

Goldshark

Ark Fund Capital Management

Dollar Collapse

321 Gold

Business Insider

Seeking Alpha

Goldshark, Business Insider, and Ark Fund Capital will have everything I publish. The other websites will publish off and on. There are also five other websites pending that may pick up some of my content.

Also - the goal is to become much more regular with writeups once a day Monday through Friday.

I may still post something from here from time to time but it will be inconsistent. Hope to see you on one of the other websites.

Utah Law - Pay your tax in gold or silver??

This is incredible. The Utah house is going to vote next week on allowing US federal government issued gold and silver coins. This is monumental!!!

From foxnews.

The Utah House was to vote as early as Thursday on legislation that would recognize gold and silver coins issued by the federal government as legal currency in the state. The coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative.

The legislation, which has 12 co-sponsors, would let Utahans pay their taxes with gold and also calls for a committee to study alternative currencies for the state. It would also exempt the sale of gold from the state capital gains tax.

So if you had an American silver eagle or American gold eagle it would be considered legal tender in Utah. This would open up all sorts of opportunities for businesses to transact in gold also. This is truly amazing and I am speechless.

In this same article it mentions one of the stupdiest comments Bernanke has ever utterred (and he has said some stupid stupid things over the years).

Bernanke also said that gold couldn't return as the world standard because there's not enough gold in the world to effectively support the U.S. money supply.

Think about that for a moment. Idiotic. It isn't based on amount. It is a function of price. So you adjust the price of gold to make the value of gold to equal the money supply.

Utah apparently isn't the only state to be considering such a move.

Twelve other states have offered similar proposals: Georgia, Montana, Missouri, Colorado, Indiana, Iowa, New Hampshire, South Carolina, Tennessee, Washington, Vermont and Oklahoma.

Gold and silver are quickly moving back to currency status.

Marc Faber - We are Doomed - Buy Gold

Marc Faber recently did an interview with McAlvany Financial Group touching on familiar topics to many of you. Over the weekend I was looking at the world and feeling especially gloomy. However bad it could have been in 2008 and 2009 the government has been able to successfully buy a couple of years and make the inevitable that much worse. Faber touches on some of the investment themes that I have talked about in the past. You can read the entire transcript here. A few highlights.

No surprise here. I think it is obvious. It will happen over multiple years but I think the comparison to a computer rebooting is very accurate. The government, Fed, and Wall St have run the system into the ground and it will have to be completely scraped and reboot will have to occur. And as Faber correctly points out it always ends in war.

I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.

One thing Faber did not mention in this interview that I have heard him say recently is that regardless if your bullish or bearish or a deflationist or inflationist, you should be long term bullish on oil. Because at this point all roads lead to war and oil will move strongly when that happens. Of course he is talking over years and so oil could go down 70% just like in 2008 before rallying again.

And than on gold.

That is why I am advising people to accumulate gold. Can gold have a correction? Yes, there has been a little bit too much euphoria about gold, and we may have a correction, but I do not think we are in a bubble in the price of gold. In fact, I could make a case that gold, at this level of $1400 an ounce, is cheaper than in 1999, when I look at the unfunded liability growth of the U.S., at the credit growth of the U.S., and at the household growth, and at the money printing, and at all the wealth creation that happens in China and Russia.

Finally this is what I think is one of the surest bets in finance over the next decade. How it happens I have no idea. Maybe it is 10k like Faber mentions or maybe the Dow goes to 5,000 or something lower or higher. Either way it makes perfect sense.

In a money-printing environment, it is very difficult to know what is actually cheap and what is expensive. Is the price of wheat high, or is it low? Inflation-adjusted, it is extremely low. In nominal terms, it is relatively high. I believe that, in March 2009 when the S&P was at 666, the market was actually much cheaper than is generally perceived, because of the money-printing, and I do not anticipate that we will see 666 on the S&P again, in nominal terms.

In other words, they are going to print so much money that the S&P could be at, perhaps, 2000, but in real terms, it could be down below the lows of March 6, 2009. Maybe in gold terms, we could one day reach a ratio of Dow Jones to gold of 1-to-1, as we were in 1980. In other words, the Dow could be perhaps at 10,000 or 12,000, and gold could be at the same level.

JP Morgan Makes Big Move in Gold Market - Someday a Financial Trap?

One of the biggest problems in the last few decades with gold is that you couldn't use it as collateral in normal every day finance transactions. So besides the fact it doesn't earn an income stream or pay dividends, it was also a dead asset in that it couldn't be used to leverage other assets. Well all that is changing.

From JP Morgan Press Release:

J.P. Morgan Collateral Management Offers Automated Use of Gold
First tri-party agent to accept gold

London, 7 February 2011 - J.P. Morgan today announced it is the only tri-party collateral manager to accept physical gold as collateral to satisfy securities lending and repo obligations with counterparties. This comes as more clients look to use gold as a hedge against inflation and to post as collateral.

"The ability to finance and leverage the broadest range of asset classes is important to our clients. Many clients are holding gold on their balance sheets as an inflation hedge and are looking to make these assets work for them as collateral," said John Rivett, Collateral Management Executive, J.P. Morgan Worldwide Securities Services. "By combining our collateral management and vaulting capabilities, we provide clients with greater flexibility in how they mobilise collateral."

The automated use of gold in collateral management is introduced under J.P. Morgan's Worldwide Securities Services global collateral engine initiative. This initiative enables clients to mobilize collateral inventories across multiple geographies and trading activities, regardless of the underlying obligation, to extract maximum value and manage risk.

The firm expects to accept additional precious metals and commodities as collateral later in the year.

This is a huge move by JP Morgan. They announced they will accept as collateral physical gold to satisfy securities lending and repo obligations with counterparties. Over time this seems to be a game changer for the gold market and will allow for a potential large gold bubble down the road. It is also interesting because if we do someday have a massive debt implosion and the system collapses this gives the government (i.e. JP Morgan) a way to repo the US gold holdings held by private investors. It has the potential to be a very keen laid trap. I don't want to imply there is a conscious effort of a keen trap being laid. Just that the trap is being created consciously or unconsciously. Used correctly this is very important for money management and opens up all sorts of possible avenues, but what at the beginning wise men do fools will do at the end. As we have learned rules can change overnight. Someday down the road if the system were to collapse and most of the gold is leveraged and used in various derivatives and swaps etc etc it could very easily end up where the banks and hence the government will end up with most of the gold in the world by taking possession of the collateral. They don't have to consciously scheme at all. It just falls into place. The government doesn't have to look bad confiscating anything because it was part of the collateral arrangement.

Who knows what gold does in the short term. It looks sort of weak technically currently but who knows. Long term this creates the dynamics needed for a big gold bubble. It makes gold alot less useless. I can still own gold and leverage it to own income producing assets.

Tomorrow - An Important Day for the Markets

I haven't talked about the markets in a long time. We are on a runaway train. It doesn't matter much what any data says. I think the next two market days determine whether the trains shifts into a higher gear or gets derailed. Right now nothing is able to stop this market. It seems we are about to break upside resistance where the market would quickly progress higher towards the 1400 range in S&P 500. We have already broek 1300 which is important but we cant get beyond 1310 to 1315 without really leaving 1300 far behind.

It seems shocking (I guess it really shouldn't be) how the market has ignored this Egypt thing. Tomorrow into Monday I think is really important on whether that becomes a stock market issue or not in the short term. Muslim Friday's prayers are tomorrow and I would expect that to get things heated again. Mubarak is picking up his rhetoric that he wont quit before September despite world leaders saying he needs to quit now. We are in the sweet spot for this to become an issue or prove it is a non issue.

Jobs number comes out tomorrow also. I think the only way it is an issue is if it is really strong. In that case the market probably falls in this warped world since Wall St needs liquidity, not positive economic results for Americans.

Republicans - Already a Failure

That didn't take long. From Bloomberg

House Budget Committee Chairman Paul Ryan announced plans today to cut government spending by $35 billion from last year’s levels as Republicans backed away from campaign promises to slash expenditures more deeply.

and

The government’s deficit is projected to reach $1.5 trillion this year.

and

Republicans promised in their “Pledge to America” issued during the 2010 midterm campaign to roll back non-security discretionary spending to pre-Obama 2008 levels, which would have saved $100 billion compared to what the administration proposed last year in its budget request. Republicans scaled back their plans largely because the government’s fiscal year is almost half over.

The plan amounts to a rejection of calls by the Republican Study Committee, a bloc of self-described fiscal conservatives who had demanded party leaders stick to plans to cut $100 billion this fiscal year. Democrats said the scaled-back cuts still went too far.

$35 billion cut? We are running a 1.5 trillion deficit, total appropriations budget is 1.055 trillion, the total government budget is 3.7 trillion and the Republicans are declaring a victory on 35 billion cut? That is a freaking rounding error!!!

The tea partiers have already been marginalized by the establishment. They are great freinds of the Republicans when it is popular to be so and put in the corner when what they stand for actually becomes an issue. While we don't need Egypt it will take some massive protests to really get things changing.

Billy Walters - Gambling or Maybe Investing Legend?

CBS had a great 60 minutes piece on Billy Walters - the legendary sports betting individual in Vegas. While watching the piece, it struck me how Vegas has turned into a better "game" than Wall St. I hate to "gamble" but the word gamble needs to be better defined. Gamble in my mind means pure chance where a player is guaranteed over the long term to lose. The probabilities are guaranteed over the long term to work against the player. Playing blackjack is a gamble. Craps, lottery tickets, slot machines is gambling. Sports betting and Texas hold em may or may not be gambling. Gambling one does because one has to much money, one has gambling issues, or the pleasure one receives over the long term from the fun involved is valued higher than the money lost so it makes sense on an individual economical basis.

Unfortunately, Wall St. is turning more and more into a gamble. The reason? Because Wall St. sets the rules. If Wall St. still jacks up, they than change the rules. They also have a "mob boss" - the U.S. government, helping enforce these changes. Billy Walters has found a system and has worked within the rules of the system to win and make money. The rules are not being changed on him mid bets.

One other interesting note. Walters admits there are shady characters in Vegas but per person he has met many more shady individuals connected to Wall Street than Vegas.

Anyway - very interesting video below. There are actually several bonus videos at the CBS website.

Hussman - Best December Read Award

I thought the piece below was the best thing I read this month. It isn't based on technicals or speculation. Just long term valuation standards and facts. One thing that should have become apparent in 2010 is that there may be absolute truth, but at least in the financial world in the short term, truth is relative.

I encourage you read the entire Hussman piece.

Hope every has a great New Year!!

Why are Treasury yields rising despite hundreds of billions of Treasury purchases by the Federal Reserve? There are two possibilities in the current debate. One is that the Fed's policy of purchasing Treasuries has scared the willies out of the bond market on fears of higher inflation, and that the policy is a failure. The other is that the policy has been such a success at boosting the prospects for economic growth that interest rates are rising on anticipation of a better economy.

From our standpoint, neither of these explanations hold much water. On the inflation front, the recent bond selloff has hit TIPS prices as well as straight Treasuries, which isn't something you'd expect to see if inflation expectations were being destabilized. And although precious metals and other commodity prices have been pressed higher, the commodity run can be more accurately traced to negative real interest rates at the short-end of the maturity curve, coupled with a downward trend in long-term yields that has now reversed dramatically (more on that below). I've long argued that unproductive government spending and profligate fiscal policy are ultimately inflationary (regardless of how the spending is financed, and particularly if it is monetized), but I continue to view persistent inflation as a long-term, not near-term concern. A rise in T-bill yields of more than 15-25 basis points would change that assessment. Until then, velocity can be expected to collapse in direct proportion to changes in the monetary base, with little impact on prices.

As for the notion that the Fed's targeted Treasury purchases have directly aided the economy, the argument requires bizarre logical gymnastics. It demands one to believe that although the purchases were intended to stimulate the economy by lowering rates, they have been successful without lowering them, and in fact by raising them, because the expectation of lower rates was so stimulative that it caused rates to rise, so that the higher rates can be taken as evidence that lowering rates without lowering them was a success. Oh, brother.

And this is the hard part - basically if you have managed money avoiding the ugly you have gotten killed. You needed to to own trash.

The performance of these 133 factor portfolios over the past 13 weeks offers tremendous insight into the extent to which the Federal Reserve has encouraged speculative risk. Investors are chasing stocks with the greatest exposure to market fluctuations, commodities, credit risk, small-cap risk and volatility. Conversely, securities demonstrating reasonable valuation, stability, quality, or payout have been virtually abandoned by investors. Here is a sampling:

FACTOR
FACTOR GROUPING
13-WEEK RETURN

Market Beta
Risk
17.80%

Raw Materials Beta
Commodity Sensitivity
17.47%

Credit Spread Beta
Macro Economic Sensitivity
14.66%

Small vs. Large Beta
Style Sensitivity
12.54%

Silver Beta
Commodity Sensitivity
10.87%

Sigma Risk (Volatility)
Risk
10.73%

Operating Cash Flow Yield
Valuation
-4.02%

EPS Stability
Quality
-5.56%

Value vs. Growth Beta
Style Sensitivity
-5.87%

Return on Invested Capital
Profitability
-6.61%

Dividend Yield
Valuation
-9.34%

10-Year T-Note Beta
Macro Economic Sensitivity
-9.55%

High vs. Low Quality Beta
Style Sensitivity
-15.70%

He writes at length on valuation of the market.

Even if we assume a future dividend growth rate of 6.7%, which is the fastest growth rate observed over any 25-year span during the past century (and again, includes the impact of share repurchases), the S&P 500 would currently have to stand at 748 in order to be priced to achieve long-term total returns of 10% annually. Of course, with the S&P 500 at about 1256 despite a contraction in dividends over the past few years, this analysis would imply that fair value is again about 40% below present levels. It would be nice to be able to rule that conclusion out.

United Kingdom Prepares for Massive Job Cuts

As riots and protests were occurring across Europe today (incredible the lack of coverage by the U.S. media) the Guardian is reporting that Brits are preparing for massive job cuts.

From the Guardian:

At least 100,000 public servants will receive grim news over the Christmas holidays or soon after as councils, police forces and other public services race to meet a deadline of 1 January to formally announce job cuts.

An analysis of local authority documents reveals that the number of council redundancies directly resulting from the coalition's austerity measures is expected to break the 100,000 mark by early in the new year, fuelled by the swingeing cuts announced this week to councils' budgets and the pressure to start cutting before the new financial year in April.

This comes on top of the 33,000 drop in public sector jobs over the three months to October that was detailed yesterday in official unemployment data and is likely to lead to a torrent of "at risk" warning letters hitting doormats across the country in the next few weeks.

100,000 may not sound like a huge number (or maybe it does) when you first hear it but lets compare apples to applies. The population of the United Kingdom is 61.8 million. The population of the United States is 307 million or 4.96x bigger. So that is the equivalent to the United States government announcing 496,000 job losses in basically one day. Throw in the 33,000 government jobs already lost in the last couple of months which is the equivalent of 164,000 U.S. jobs and the United Kingdom is announcing the equivalent of 660,000 United States jobs losses in just a couple of months. That is a massive number and is akin to the United States losing 600k jobs a month at the depth of the Great Recession.

No wonder there were riots all over Europe today. If you did not see this video it is worth the watch. It is from Greece today.



This is the beginning, not the end. Why? Simply nothing at the foundational level has yet to be fixed in the United States or in Europe.

Guest Post From Llano Llama

Was posted in the comments by Llano Llama and I agree so much with it that I thought I would make it its own post. Thanks

There are so many angles on this.

I think Prechter is making the better case because he is taking into consideration more of reality. Unfortunately, to explain things clearly, laying out the arguments and counter-arguments requires multiple book length treatise that few would ever read. Our ability to process complexity is limited so we prefer simple answers and simple models. But alas, the economic world is not a simple linear predictable beast. It is a non-linear, non-equilibrium, path dependent, complex interaction of systems and sub-systems.

If anyone asks, I push the path dependent idea first. People seem to understand that we will get a different result if we raise taxes in 2011 rather than leave them at current rates. If they are more economically inclined, they will understand that Europe moving to a tighter monetary union and sharing the pain is very different than breaking up the EU/EMU.

If they are still listening, I try to lay out some cases where the expected simplistic story didn't occur. For example, in 2008 we heard that oil going over $140/bbl was a sign of runaway inflation or Peak Oil. And yet a few months later oil traded to the $30s. Similarly, you will hear that "A central bank in a country with debt denominated in their own currency can force as much inflation as they want." And yet Japan has gone about 20 years in some form of economic stagnation. Apparently, there are more forces at work than mentioned in the simplistic story.

At that point the discussion is either about human nature, the limits of Capitalism, or "should I buy gold?"

The Must Watch Videos of the Year - Peter Schiff and Bob Prechter

There has been no bigger debate over the last two years than that over deflation and inflation. Perhaps the biggest deflationist Bob Prechter debates one of the biggest hyperinflationist Peter Schiff in the two videos below. They both believe the same thing, a complete collapse is coming in the next few years. They couldn't be more different in how that collapse will occur. Schiff believes we are heading towards a hyperinflation and Prechter believes deflation will come with a vengence and that banks will fail and people will lose deposits etc. (hyperinflation comes on the back end)

Unfortunately they both are just throwing out scenarios. There is little to go off of to conduct fundamental analysis. Collapse is coming, that can be fundamentally analyzed, how it occurs can't because it is based on social mood and political decisions. For my two cents, I think Prechter will be proven right but not to the extent that he is predicting. Deflation will lead to inflation. Dow will never get to 1,000 like Prechter is predicting. Hyperinflation is a political event and Dow well above 1,000 will cause collapse to jump start massive inflation.

I really think one of the more important things to listen to in 2010.

Part 1



Part 2

Money Printing?? - Hasn't Happened

Maybe I am being naive but I think I figured out the technical way the Fed worked before almost anyone on Wall St. (Hoisington had it figured out) The knowledge and my efforts have cost me dearly as the perceived truth is much more powerful than actual truth. (i.e. David Teppers comments become gospel though completely 100% wrong in how the whole thing actually works) In other words it is a puzzle I wish I never would have solved. Sunday on 60 minutes Bernanke said the Fed wasn't printing money after saying in 2009 and 2002 he could. Now all of a sudden several Wall St firms analysts are echoing him. No one thinks!!! If the Fed says it must be gospel so when Bernank said he was printing money everyone assumed he was without actually looking. I have about determined Wall St. never thinks. It is 100% about gaming others, not fundamentals.

Below are a few excerpts by Morgan Stanleys David Greenlaw. (who also had it figured out earlier than most) The entire thing I can be found here. It is the best description I have read explaining a very complicated topic.

QE2 departs from the textbook. The issue is confusing because all of us who took a basic undergraduate Money & Banking class learned that a central bank's open market purchase of securities was effectively the same thing as printing money.[My comment - no one actually challenges the textbook. No one challenges perceived truth!!!] But the experience of the last few years has taught us that this logic is not always correct. In fact, Fed officials have been reluctant to adopt the QE terminology because the impact of asset purchases is all about rates - not quantities.

and

Fed will respond to inflation as needed. Interestingly, the market moves that we are seeing in currencies, commodities, inflation expectations, etc., appear to reflect a belief that the Fed has been printing money - or will do so at some point down the road as the money multiplier normalizes. Bernanke tried to address this point in the 60 Minutes interview. He indicated that the Fed could raise rates in "15 minutes" if necessary and that he is "100%" certain of the Fed's ability to respond to an inflation threat. Of course, it remains to be seen whether the Fed will follow through on this pledge - and it remains to be seen what the FOMC will consider to be a legitimate inflation threat. But the market moves that appeared to coincide with the reintroduction of Fed asset purchases reflect speculation - as opposed to a fundamental supply/demand shift - because there hasn't been any money creation to date. Ultimately, the success or failure of the Fed's asset purchase policy will depend on an interest rate transmission mechanism, not a quantity channel.

A Day to Take Note Of

Very very interesting day today. I thought so during the day today and was reading some commentators tonight who thought so as well. The first prints of the day I covered some shorts and towards the end of the day I put half of it back on. Yes, that was a bad short term trade but the reversal today was amazing in ALMOST ALL asset classes. In technical terms hammers in the NASDAQ, S&P, gold, silver, copper, VIX etc.

Tomorrow will tell you alot. If we don't follow through to the downside it is ignorable but if we start selling off confirming today's price action it could get really interesting.

Today's news of course was the president became Republican showing there really isn't much difference between two parties. Republicans won today, Democrats won today, and America got screwed. You have to cut spending on the other side of it and the bond market noticed that didn't happen. Maybe that is when this all finally blows to bits, when the bond market sells off hard causing interest rates to spike. Typically bonds and stocks move inversely. That hasn't really happened this year. Bonds went way down looking like the economy was going to crunch while stocks continued to climb. However, when the game is up, both can go down. Look at Spain. Bonds go way down and stocks go down with it. There is some differences since Spain can't print its own money.

Anyway, today was a day to take notice of. Very interesting and tomorrow will tell you alot.

More of the Same

Strong day on Wall St. I wasn't surprised that we were up (was expecting it yesterday with the start of a new month and Europe being sold hard the last few days), but as usual I was surprised how fercious the up move was. Because it was so strong it puts the odds that the market has higher to go. First watch 1227ish and than 1250. That is if the market doesn't reverse tomorrow, which could still happen. The reason we were up so strong is very suspect. Many are credited the "strong" China number last night which doesn't make alot of sense because the futures yawned at the number and the Chinese markets finshed flat. It started with Europe and unlike when Europe sells off hard and the U.S. markets shrug it off, when Europe surges it gives an excuse for the U.S. to surge. So up up and away we went. ADP employment numbers were strong but annouced layoffs were the highest they have been in 8 months. There was also a rumor that the U.S. would bail out Europe which was quickly denied.

I think the market continues to rest on Europe first and China second. If the problem spreads to where Spain has to be bailed out - game is up. The question is which game. Will Germany buckle and allow the ECB to start its own version of QE or will haircuts be taken on debt, losses taken, and we revert back to some sort of capitalism? More and more thoughts on some sort of QE in Europe.

Tomorrow the ECB meets and it is likely the bears only hope for the remaining of this year. The market seems to be indicating that it is expecting some form of signal that the ECB will loosen up buy more government debt. It is entirely unclear that will indeed happen. If it doesnt and the Euro starts heading down again, than todays rally should reverse tomorrow somewhat. Not really expecting it will but we will see. Someone was out there today buying European debt today and it almost had to be the ECB.

Gotten a few comments that I havent been blogging as much lately, and I haven't. I have been really busy but it is getting really old talking about the same thing over and over again. This is bad but it doesn't matter because the government will print more money. The last couple of weeks the market should have been down really strong with Europe falling apart but it wasn't. Probably bullish in the near term. The market won't start going down strong until something happens outside of Bernankes control. That will come from politicias, the populace, or an oustide nation (i.e. China). Like I said - if tomorrow the market doesn't reverse, the odds are strong that the market heads higher between now and year end.

David Einhorn on Consuelo WealthTrack

David Einhorn was on Conseulo WealthTrack. Very good interview as one would suspect from Einhorn. I encourage reading or listening to the entire thing. Below are some highlights.

On what has changed (this is my big thing, the market can go up every day until it doesn't but absolutely nothing has changed fundamentally that caused this whole mess. It is worse)

CONSUELO MACK: Has anything changed? Are any of the watch dogs doing their job better?

DAVID EINHORN: Well, the truth actually is, what we’ve seen is, even in the bigger financial crisis, the same watch dogs have just repeated the same behavior, just in a much bigger way. So what we’ve seen, the same kind of sort of forbearance towards Allied Capital has been granted to the big banks, the big investment banks, and so forth.

and

CONSUELO MACK: So even with what we’ve seen, with the banks being more prescribed in what they are able to do, I mean, using much less leverage, being more scrutinized, you don’t think that that’s enough?

DAVID EINHORN: It’s just not enough. If you look at the big banks, they’ve gone from maybe 25 or 30 times leverage to 15 or 16 times leverage, or something like that. That’s still a lot of leverage. And it doesn’t count the derivatives books. And you have these huge notional derivatives books that, they’re just sort of tail risks that are sort of out there, and nobody really knows what’s in them, and nobody knows what risk they pose, and you certainly know that if any of the big four or five books that have the massive derivatives books was going to be on the cusp of failing; you would need to bail them out, the same way, in the future, that you would in the past. Notwithstanding whatever the new rules supposedly say.
on gold

CONUSLEO MACK: Now, one of the things you just mentioned is inflation. And we are seeing inflation in hard assets. And one of the hard assets that you own at Greenlight Capital is gold. It’s your largest position. So what does gold represent to you, in your portfolio?

DAVID EINHORN: To me, gold represents money. And there’s different types of money. Some people think gold is a commodity, and they want to think about jewelry demand, and how many weddings there are in India, and so forth. And how much is coming out of the ground. I think of gold as money. And you can have dollars, or you can have Yen, or you can Euros, or you can have Pounds, or you can have gold. And there’s other currencies in other countries, but those are the sort of the major currencies as I see it, and I think that the merit of gold is, given our current monetary policy and our fiscal policy, as well as the problems in the other major currencies, gold is the money, I think, of choice, that we would like to have a meaningful amount of our assets denominated in.

and

CONSUELO MACK: For individual investors, who don’t have the kind of flexibility that you do to trade and, nor the sophistication, I mean, how should we view gold, as individuals? I mean, should it be in all of our portfolios? And should we, too, view it as a substitute for paper currency?

DAVID EINHORN: I think so. I think it makes sense as a diversifier, and to have this sort of money, particularly because this is the kind of money that Chairman Bernanke can’t print more of.

On owning banks

CONSUELO MACK: So as an investor listening to you, would you touch a bank with a ten foot pole? At this point, would you invest in one of the major money center banks?

DAVID EINHORN: No. We wouldn’t invest in the major money center banks.

QE Explained - Cartoon Style

Below is a video that has been featured on many blogs and has gone viral (over 1.3 million hits). It was so good decided to post it here also. Don't endorse all of what is said but it isn't to far off.

Catch Up

Wow it has been a long time. I have been traveling some and been busy with other things. It also gets tiring writing about the same story. If you look at the headlines over the last two years, little has changed. Why the market decides to care now or care 6 months ago and not care a month ago is beyond me. We have been here 3 or 4 times over the last two years. Are we on the precipice of this thing falling apart or does the governments still have some wiggle room to keep this going? Europe is again falling apart, U.S. muni bonds are blowing out like they haven't been since 2008, an anti move against the ponzi perpetrator - the Fed - is growing in momentum, obvious spending cuts going into next year, China pulling back- are we done or is this another false break and there is yet another move up? If we are done going up why now versus last August? Logic need not apply.

The chart below was on zero hedge. It is the most amazing chart you will ever see. It shows domestic equity outflows. It has been 28 weeks in a row with domestic mutual equity fund outflows. All time record. That is over 80 billion dollars. Somehow the market goes up. Who is buying? I don't know. The government? Investment banks? I don't know.



There are three really interesting things going on right now. China seems to be slowing, Europe is cracking, and U.S. muni bonds have sold off hard. All three are very dangerous going forward. I just don't know if there is another push higher or not. Europe is more dangerous than Wall St. gives it credit for. The bickering among European leaders is what will topple the Euro.

The NY fed manufacturing index was horrid. Worst drop since 2001 I think. Components that make up the number were also really bad. Tomorrow is Philly Fed. I think that number has more importance than normal. Will be interesting if it diverges or confirms NY.

QE Impact on Japan's Stock Market in 2001

I had been wondering about this. From David Rosenburg:

Let’s learn from the Japanese lesson with its QE experiment. The day the Bank of Japan launched the program on March 19, 2001, the Nikkei surged 7.5%, from 12,190 to 13,103. It went on to make a fresh high on May 7, at 14,529 (just under two months after the announcement) — rallying another 11%. Fully three-quarters of the post-QE rally to the May highs occurred in the first four days. And that is all she wrote.

Three months later, as it became painfully obvious that the real economy was not responding well to the shock therapy, the Nikkei index slid 16% to just over 12,000. Moreover, the day before 9/11 it had already tumbled all the way down to 10,500 (down 27% from the nearby post-announcement high and 14% lower than the day of the announcement itself!).

That is a huge move higher in a short amount of time on the QE announcement. My follow up question would be how much the QE was telegraphed. In otherwords did the market know QE was coming for sure like it was in the U.S. How much was the rally priced in here and how much do we still have to go?

Ron Paul Is About to Totally Revolutionize the House Monetary Policy Panel

From CNBC

Odds are you haven’t heard of the monetary policy subcommittee. Officially known as the House Subcommittee for Domestic Monetary Policy and Technology, it’s a subdivision of the House Financial Services Committee that has mostly occupied itself with pressing questions of issuing commemorative coins and whether or not to eliminate the penny.

That’s about to change. Ron Paul, the Republican Congressman from Texas, is the ranking member of the monetary policy subcommittee, and when the next Congress takes over he’ll likely be the chairman of the subcommittee.

And Congressman Paul has some big plans.

“I will approach that committee like no one has ever approached it because we’re living in times like no one has ever seen,” Paul said in an interview with NetNet Thursday.

Paul said his first priority will be to open up the books of the Federal Reserve to the American people.

Time will tell how much power he will really have and how much he can really do. I have a feeling at some point this will be a big 2011 story.