Tuesday, August 12, 2014

FAME

Moral: Wherein we look at FAME.

In short, Finance and Accounting MEmos. See, fame-jagazine.com.

Nice, like the business model which expends the effort to condense, summarize academic papers in order to present these little overviews in a coherent form. And, on-line access is free. The printed copy requires one to come up with money.

To date, there have been two publications. These will be the source for coming posts.

We will have to give a nod to editors and supporters. Great idea.

Also, we will upgrade our opinions (FEDaereated - the latest, 7oops7, Truth Enginneering).

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As an aside, CALPERS seems to want to downplay equities. Perhaps, they're seeing that the aerated property causes things like the Minsky dump.

Remarks:  Modified: 08/12/2014

08/12/2014 -- 

Monday, August 11, 2014

Savings and savers

Moral: Wherein we use a simple example to start to talk the issues.

Granted that there are several factors involved, but the image shows the reality. That is, the backbone of the economy has been flayed. Backbone? Those who work, live within their means, pay their bills (including mortgages - as in, none of the saving class walked away from their debt: unlike some who, as adults, put on their back, knowingly, debt beyond their means, and then had the gall to just shuck off the burden (the old debtor prison came into vogue for such behavior) and walk away.

So, the likes of Ben, the past decade, and, now, Janet, care little for those backbone types. No, the ca-pital-sino (gambling, essentially - plus, illusory gains so that people can salivate about their 401Ks - which, for the most, will not provide what they think - all explainable) is the focus.

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Let's start with a simple example. A set of savings bonds that was bought in the year of 1980 and cashed out in 2010 would have returned 422% based upon the purchase price of the bond. You see, those terms were the norm back in those days when bonds were still being sold under a patriotic guise. As in, every payday, whether you were already doing a payroll deduction for bonds, you would hear a spiel about the need for people working in the United States to buy and uphold the country.

Too, there had been inflation during that 30-year period (which is coming back, folks, despite the machinations of Janet - some are already feeling this, in many ways - as she fiddles with the definition of the measure). And, interest moved up and down as has become a regular thing until six years ago or so.

Three years of bonds
Note: figures obtained via the Saving Bonds Wizard
provided by the U.S. Department of Treasury
What happened then had all sorts of rationalizations attached none of which considered savers or their usefulness since "debt" seems to have become the preferred mode.

Now, the image shows three tables related to bonds that were bought in three different years. For each year, a bond was bought every month costing $150 which had a denomination of $300. So, the total cost for each of the years was $1,800.

The tables are evaluations of these bonds (using the savings bonds wizard) at five different points from February 2006, which is provided as a base, to August 2014. Now, by the time of the first evaluation - 2006, the value of the earliest set of bonds (top table - 1993) had already increased by 78% over a 23-year period (that is, 6% a year). Similarly, the 1997 and 2002 bonds had increased, 42% and 16%, respectively.

What we can see with the 2011 evaluation (1993 bonds) is a braking such that the returns reduce substantially. This is obvious for the other two years, with 2002 being the most dramatic (due, in part, to changes in the rules - necessary adjustments: some early I-bonds are paying 5% right now even with Ben and Janet trying to reduce that outflow).

The last column shows the difference for the bonds at maturity, that is, after the duration of the thirty years (after that, there is no more increment). For the 1993 bonds, the difference is only $6.00. However, there is a noticeable difference for the later bonds. This difference, folks, denotes unrecoverable losses due to the unfortunate reality that taxpayers had to bail out bankers who did not know how to do their job.

And, then, the fact that those who control the funny (fiat) money (have you heard, of late, about the Forbes guy talking some other method?) decided that they would set the interest rate at an unprecedented level. Why? Because they could; we still have to get this thing unwound with unknown consequences (by the way, will Janet talk coo-coo under the shadow of the Tetons in order to soothe the feathers of the addicts of easy, plentiful money?).

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This is one little example. The other side of the coin needs to be seen. As in, the trappings of power in Washington puts serious blinders, many times. There is no reason to continue to flay the savers. In fact, the adjustments to the model that are necessary must be lifted to view so that we can get them discussed and, perhaps, understood.

Remarks:  Modified: 08/12/2014

08/12/2014 -- Leverage is balm for the banking, and finance, folks (but, then, the whole system seems to want to defy physical limits, say thermodynamics). They think that 22-1 is normal (whereas, in the olden days 12-1 was thought the upper limit).

22-1 means what? If someone came to you and offered you 4.5 cents for a dollar, would you not laugh? In essence, there are 22 demands upon the same dollar (so to speak).

Now, bankers make their money as they will take a dollar and give you paper that is supposed to be worth a dollar but is actually backed up with 4.5 cents. At the same time, though, they siphon off their take from the "real" and not their phony money.

Finally, for the economic wags, who will say that "real" money gets eroded by inflation. Yes, that is true; but, inflation denotes "real" pressure (meaning, something behind the phenomenon) on money. What we are talking with leverage (and, for the most part, the markets - that are behind everyone's 401K mania) is "aeration" pure and simple, Modigliani, notwithstanding. The equivalence is not there, as will be shown.

08/12/2014 -- Need to look at FAME.


Sunday, July 27, 2014

Data-driven purgatory

Moral: Wherein we pipe up, just to show the interest is still there.

So, what is going on? Well, we're waiting to see Janet's influence emerge. Right now, it's still a sampling stage, it seems.
Janet's dashboard

The latest thing that motivated something here was Janet's talking about data-driven approaches (see the recent Bloomberg Businessweek interview, for example). As in, the data that she is looking at now won't get her to stop flaying the savers. Well, Janet, change your data goggles, for one thing.

Too, we all know that Economics is dismal. All of that data has so many faults (approach, viewpoint, ...) that any strict adherence to whatever comes from economic data can be categorized, at best, as irrational, especially if the exuberance at the data's wonderfulness is demonstrably obvious.

Savers are barely holding on to life. Who are they? Let's look at the other side. What rational society would indebted its future generations so heavily as we seem to expect now? Crazy. Of course, people needs jobs to spend and to save and to pay their debts. 

But, the gaming that is evident now, with the ballooning pockets, does not an economy make. Janet, have you looked at the infrastructural issues, of late -- say, the uncountable failing bridges, highways falling apart - and, those with the biggest pockets want to step away, taking their gains, which do not take into account the totality of costs? Near zero is the thing to bring forward in the discussion in this case.  

Look, debt even at a low interest is still that. Debt is something to manage and control. Too, the whole model of thinking that the consumer drives things, requiring debt thereby, is suspect. 

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Aside. Alan was king while Ben was a real nice prince (the 17K+ can be mostly attributed to his largess). What can we say about Janet? Too early to tell. But, however this all unfolds, she will be bringing several unknowns to the table that we have not seen before. 

By the way, data driven implies computational system (which is so full of holes that we ought to be quaking in our boots) and many unresolved issues. Methinks that "data driven" brings along with it some type of blinders that are comforting to some folks.  

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And, none of this ought to misconstrued as anti-science. Janet is right on one thing (perhaps, more). Rule-driven is chasing after silver bullets and is especially troublesome due to its reliance upon the computational. But, then her data-driven mindset is as problematic. 

Remarks:  Modified: 08/05/2014

07/31/2014 -- Added in Yellen's dashboard. Why is it that flaying the savers is the key action? She could have delayed the tapering and taken the rate up a notch or two. ... With the DOW sagging, as it is today, what will Janet do? More coo-coo as we saw from Ben all of these past years? 

08/05/2014 -- Will Janet talk goo-goo, coo-coo to the addicts? Actually, now might be a good time, in the confusion, to raise the interest rate to 1.25% or so. And, establish 1.0% as a lower bound.


Tuesday, July 8, 2014

Rules for the Fed (Yellen)

Moral: Wherein we let John Taylor, et al, do some talking.

Yellen, and her ways and means, is under scrutiny. What that might foretell is something that we will have to watch and, perhaps, learn from.

John Taylor says that the Fed ought to follow its rules. WSJ: The Fed Needs to Return to Monetary Rules (there have been other articles the past few months). That raises a question: whose rules? Well, Taylor's, for example?

Rules? Who runs their life this way? Oh, I know, many. But, free people have fewer rules than do those under someone else's thumb. We just celebrated our supposed freedom a few days ago. But, look closely at all of the ties that bind (some very insidious - yes, thanks to Zuck and that ilk).

But, you have to wonder if Ben (little Timmy) and that whole crowd loved playing cowboy and rescuing the economy from those that were let loose by largess to begin with. The solution? More largess. Cowboy (apologies to the real cattle handlers)? Yes, that has been used to denote those who shoot from the hip (which suggests running amok, so to speak, versus being methodical) as Ben seemed to be doing as he, creatively, went deeper into manipulating in new ways.

Wait! The Fed does claim to be data-driven. So, pending discussion lurks here.

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There is nothing cynical to the viewpoint. Rather, we are in a mess for several reasons. For one, who knows what is what? Even if we did not have the fact of disinformation, there are all sorts of human foibles that we face. One of those is our real lack of insight, purported evidence otherwise notwithstanding. Secondly, we have a century-plus of mish-mash mathematics (ah, how to get this discussed) to contend with. Thirdly, the computer exacerbated, and spread the influence of, the second (just prior) note. Yes, several genies are out of the bottle. ... The litany is long.

Out of control, essentially.

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We knew that unwinding's effects would be something to observe. Yellen's delaying this is only going to make things worse. But, then, however she and her kind unfold the future will result in the unexpected. So, we will have a show to watch no matter.

It is just that the savers were de-skinned as a result of Ben's ways and means. Anyone care? The consumption side would only work if debt is constrained. But, how? We can get to that. Consider, what kind of sustainable economy would impoverish future generations by loading them up with debt that is now being accumulated?

Say what? Yes, we'll get back to that, too.

However, there are many examples of debt being used to fill the pockets of some. As in, equity-biased folks stacking debt on a company (that debt allowing big payouts to the participants - to wit, if you doubt this, Hawker - 2008 post, want to discuss what ensured in the following period?) with the hope that an IPO would spread this amongst supposed investors.

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We ought not envy Yellen (her limousine, big office, etc.) as she has (and will continue to have) to deal with Ben's gifting of the monied.

Remarks:  Modified: 07/09/2014

07/09/2014 -- Markets were down yesterday. Lots of talk of heated values. Then, Yellen talks goo-goo, or the markets think. So, we have an up day. Goo-goo? Actually a release of notes from an earlier meeting. Insanity? There is no way that all in markets can get their bucks when needed. That story needs to be told more clearly. Why? The cheshire multiple, for one. 


Tuesday, July 1, 2014

Startling news?

Moral: Wherein we commiserate with Ben that he is not at the Fed desk as the results of his largess come to fore. Well, Janet can claim some credit; too, she'll have to handle the downside that is coming.

What results? Well, the DOW running sky high.

The headline says it all: Dow flirts with 17,000, but most people missed the ride. (emphasis mine)

It ought to read: Dow flirts, but most people cannot ride. (why not? to where does an illusion take one?)

---- This was brought from a Facebook post, dated 7/2/2014 ----

Most people missed the ride? Even those who got on that "train" will lose out. That is by definition how the system works. Its main purpose is to lure the hapless. 

Even under the best of situations, the "most" cannot get out of this type of market what they have put in. That message is never given. Rather, the talking heads say that people did not get on and missed the "train." It would be comical if it were not so sad. Ah, let's count our hypothetical wealth (and, arguing that the cash equivalents are as flaky is not proper - to be discussed).

Again, all of those on the train cannot get their booty (the Zucks of the world have and will). Why? The cheshire multiple, the chimera, and such.

Early sellers get the goodies. At some point, which is a lot closer to the top than you might expect, the majority of the rest become losers since they must sell below their cost. Oh, wait it out, is the adage? Not if you need your money (and a whole lot of other reasoned responses - these issues have always been known, but the gaming fills the pockets of those who run the system).

http://finance.yahoo.com/news/dow-flirts-with-17-000--but-most-people-missed-the-ride-202459906.html

So, one big disservice, of many, of the FED, of late, has been not allowing a rationally sufficient return to those who want to preserve principal. No, they would rather push gaming (as if that is the proper mindset for a sustainable economy - to be discussed). 


Remarks:  Modified: 07/03/2014

07/01/2014 -- Euphoric territory? How do images and illusions attract so strongly?


Monday, June 23, 2014

Asset rich, income poor

Moral: Wherein we look at savings and savers, a little more (no reason to think that we are complete, at this point).

The WSJ (June 20, 2014) article, The Asset-Rich, Income-Poor Economy, was a welcomed change due to its reasonableness and to the obvious proper insight of the authors (for example, they note the problem of retirees straining to enjoy their golden years under the current regimen). Actually, I'm running into articles that remind me of 2006/2007 when I was first reading analysis about the state of the economy. Many analysts were seeing problems mounting up way  before the downturn occurred. And, I don't need to list those who kept up their headstrong rush all the way to their crash.

Must we have these silly crashes? No. Is Yellen helping? Not like she thinks. Is it good for her to continue to flay savers? We'll see, they are a hearty lot.

Back to the article which is worth a read. The authors provide a chain of relationships that support a sustainable economy. It is termed in the sense of "wealth" in the following way:
    A proper mix of labor, capital, and know now goes into productivity; productivity provides labor income; income goes, in part, to savings; savings becomes capital; capital supports investment, ... and so forth, recurrent-ly. (emphasis mine)
One can think of this as cyclic or even with a mechanical sense. But, if you want to get relative, that works, to boot. The thing is that we have never balanced these things in the manner to which they ought to be handled.

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Notice, savings goes to capital (not the ca-pital-sino, per se) in a real sense. And, there are better ways to handle savings than with the chimera and its train. So, we will be describing further the chimeric aspect of the proverbial train (at the same time, debt's role needs to be considered - as in, pure debtors (that is, those with no capital) create an inner & inter generational drag on the economy).

Remarks:  Modified: 06/23/2014

06/23/2014 -- Yellen behind the curve

Friday, June 20, 2014

Sucker money

Moral: Wherein we consider how the Fed is setting up for losses by those who cannot afford such.

In other words, sucker money will (may) be flowing in. May? Perhaps, people are smarter this time around. The "sucker" post was from 2010. That was before Ben did some of his trickery.

In the meantime, savers were flayed to within an inch of their lives. Perhaps, they'll be like cats and have nine of these to give up.

You see, several things needs to be explained. We'll get to that. In the meantime, it will be interesting to watch how all of this unfolds. Except, the victims will be those who were pulled late due to all of the hype that has inflated as much as have the markets.

Those late buyers will buy from the early entrants (or even those who stayed in last time, getting what they expected Ben to do (and now Yellen), in hopes that the punch bowl would be kept full) who will have massive gains. Then, as things tumble, those late buyers are guaranteed losers (assuming they sell, if they do not sell, what type of trickery will be required for the next load of dope for the addicts?).

Minsky's notions, of course, will come into play as we look at this matter, again.

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But, we can talk moral hazard, too. Lots to talk about there.

Then, we will look at how savers have been hurt, using numbers. Perhaps, it's time to re-evaluate the model that has consumer spending weighted so heavily. Near-zero's reality is lurking.

You see, our infrastructure is decaying all around us. The fat cats don't usually bother with such things (as we will show). Why? Their position (as in, they're the best, deserve everything they can obtain via exploitation, and a whole litany) leads them to believe in perpetual motion (we'll do a post on this - something from nothing, if you must ask - as we see with the chimera). Yes, idiotic, isn't it?

Remarks:  Modified: 06/20/2014

06/20/2014 -- Last fall, there was a flurry of activity, looking at Yellen's approach. Two examples: Folly of the Fed, P/E Multiples. That was last fall, who is looking now? Well, Smithers is still at it. Also, quote from the Economist (May 10, 2014) -- emphasis mine: Janet Yellen, the Fed’s head, rather bizarrely used the prospective price-earnings ratio, one of the weakest of all measures, to justify a statement that Wall Street was not overvalued. (This was doubly strange since her husband, George Akerlof, co-wrote a book with Robert Shiller, who has championed a much better measure, the cyclically adjusted price-earnings ratio.). ... From my analysis, we'll see something else: the earnings are less than expected just by definition (such that allows book cooking in order to reduce the influence of costs - see infrastructure allusion earlier).