Tuesday, December 3, 2013

A little post on the madness of the economy...

I was a stockbroker before I got into academia, and while I've basically outlived my clients from the 80s, I still follow the markets and try to figure out what to do with my money.

I lost darn near every penny any client was stupid enough to give me, for the first six months of being a stockbroker...I got so tired of reading all the "official" stuff passed to me and having things go the opposite of what all the numbers said would happen, that I started doing the exact opposite of what I was told to do.

When the highly paid financial analysts said to buy...I sold (well, I told my clients to buy "put options", but I don't want to get too technical here). My manager didn't really care, as long as I churned (and options trading is the ultimate churn), it was ok with him.

I made money.

So, I kept doing the exact opposite of whatever the back office said to do. I made lots of money for my clients. My office, even my previously supportive manager, didn't like it much, but it funded graduate school, and I left the business with many happy clients. My last check was addressed to "Mickey Mouse" (a bad play on my real name)--unprofessionalism isn't limited to higher education, I assure you.

Back to the point: once I made the decision that every word was a lie and based every buy/sale recommendation to my clients on the assumption that I was being lied to, I made money. Now, maybe not every word was a lie, but I was much better off assuming it was all lies. The next six months was, at the very least, a ridiculously good run of luck.

And thus started my somewhat contrarian investing strategies, that have mostly (not always by any means) paid off. I know that "assume everything is a lie" is a bit cynical...but mathematically, if you know most of what you're told is lies, your best course of action is to assume it's all lies.

Looking at the news and economic reports of mainstream media, it really seems like we're approaching 100% lies. The Fed is printing money maniacally...and precious metals, shiny rocks, the paper prices for shiny rocks anyway, don't move. Heck, even the government shutdown didn't cause a move. Weird stuff.

The numbers from the job reports are terrible once you factor in the people that simply disappear off the job rolls...most corporate earnings are bad...housing sales off...food stamp enrollments way up (whole towns revolve around the day the gummint checks come in) and yet nobody on the big channels seems to think there's any issue with the economy.

I guess ultimately the issue for me is the national debt. If it's what the government says, 15 trillion-ish, it'll never be paid off. If it's what the "fringe" economists say, 150 trillion-ish, it'll never be paid off.

That part doesn't matter, because we're in a death spiral either way. The Fed has to keep printing maniacally, and will do so because the economy is bad no matter how you jigger the numbers.

If the economy improves, interest rates will rise...the government can't pay the interest on the debt in that case, so the printing of paper money will become even more maniacal.

If the economy doesn't improve, then the Fed has to keep printing maniacally...the interest payments still rise, so the printing of more paper will become even more maniacal.

"They" say there's a conspiracy to keep precious metals down, and "they" are often angry about it...quite possible, but I'm not angry about it. I'll keep buying rocks. Paper only beats rock in children's games, after all.

I fear for the interesting times ahead.


  1. At some stage the machinery of deceit and manipulation breaks down. The manic printing of paper and deficit financing can't continue indefinitely. Ten years ago I used to wonder how long the twin current account and fiscal deficits were going to continue: it was clear foreigners would eventually grow reluctant to buy the paper of a hollowed-out nation. Those foreigners did become reluctant and the USA started to buy its own paper -- i.e., it started printing and buying its own fiat money to fund its deficits. The next phase will be when foreigners refuse to accept US dollars for payment and the dollar loses its reserve status. This is happening slowly but inexorably. When that reserve status is gone, the matrix of illusion and deceit will dissolve. Right now, bad as things are (real unemployment well over 20%), there's still a long way down to go and Americans continue live in a fairytale world of illusion, of fake unemployment and inflation statistics, and of unsustainably high consumption.

  2. Weird, thought I'd responded days ago. I really thought the "matrix" would dissolve a few years ago. I grant that America is/was fabulously wealthy, but when you double the money base, double it again, and double it again, which is what has happened...there should be some serious effects, and yet there's very little evidence of the effects.

    It's like stepping into the ring with Mike Tyson, getting pummeled for 4 rounds, and not even having a black eye to show for it...only extraordinary cosmetics could accomplish it, either way.

  3. " ...but when you double the money base, double it again, and double it again, which is what has happened...there should be some serious effects, and yet there's very little evidence of the effects."

    There seem to be two different things at play. What you're referring to above is the "monetisation" of bank losses -- newly-created money that has been used to buy bad bank debt. The debt has been added as an "asset" on the government ledgers, and the newly created money the banks have is now part of their capital base (but not used to actually purchase anything). That is the reason why there's been no inflationary impact from that.

    The second -- which is a different kettle of fish altogether -- is the US government creating money to fund its own deficits. This will have an impact, slowly yet inexorably, as foreigners become ever more distrustful of these watered-down dollars and T-bills and because of the inflationary impact of such deficit financing in the US itself (the inflation numbers, incidentally, are deliberately understated).