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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (108891)	12/10/2014 12:24:03 PM
From: Elroy Jetson	Respond to of 218543

Markets were broken in 2008 when John Templeton died. The banking system was hugely over-leveraged and pushing prices of all assets, real estate and stocks to absurd levels relative to interest rates. I'm sure we all recall the investment manager who correctly called GE a hedge fund in drag. This system of huge leverage funded massive amounts of uneconomic malinvestments. Investments which had no economic purpose like speculative homes to be bought by investors, whose value could not be supported by rents, which had no other purpose than to be resold at a higher price to another speculator. While others were investments designed to meet the false demand created by the excess debt-funded investments. But the banking system was also on the verge of collapse and GE was no exception. The worst of the bunch was Citibank which had only 0.8% to back their lending and trading operations, which soon incurred losses of many times that amount of capital. Banks like this should have failed and have been sold off or liquidated by the FDIC. But the Bush administration, like any government, was opposed to free-market forces being allowed to work in the banking industry with massive bank closures and panic. So they provided taxpayer capital to most of the largest banks inn order to give them an opportunity to sell shares and raise the levels of capital they should have had in the first place. The implementation of Basel III by the Fed and other central banks brings us back to a safer system where banks are required to have at leas 4.5% capital with 6% capital levels required to back all Tier 1 risk operations with similar requirements. This has greatly reduced leverage in the banking system which is tremendous. But in the process of the banking system collapsing, we entered an economic depression. An economic depression is nothing other than the sudden realization that the value of the malinvestments made earlier were worth only a tiny fraction of what their owners believed them to be worth. Let this natural panic and liquidation take place and asset prices would have declined 90% or more and unemployment would have exceeded 35% nearly everywhere. But the central banks and various governments believe we had learned certain cheats from the Great Depression which could minimize this damage to the productive economy while at the same time liquidating bad investments. All of the money value which had vaporized in the sudden realization had to be largely replaced with new money. This cheated savers because we did not have the opportunity to buy homes and other assets at 90% to 95% discounts to former prices. Instead the central banks indirectly offered credit to hedge funds which bought homes at only 30% to 50% discounts to former asset prices. What sort of return these hedge funds see eventually is open to question, but this action supported asset prices which backed other loans which had not yet failed Central banks also bought nearly all risk-free assets such as Treasury bonds, leaving investors to either sit on their cash without return or take on riskier projects. This will work out just fine for central banks as they take afford to take the loss of no income for the life of the bonds they purchased at a premium. So far it has worked out well for investors as they all push up asset prices like stocks, gold, oil and bonds. But the price of gold and oil are slipping, revealing the true nature of the destruction created by earlier bad investments. Gold mines and oil drillers will become bankrupt revealing they too were based on false demand created by too much debt before the banking system collapsed. And this process will go on from industry to industry, from one class of investment to another, until the delayed liquidation has fully taken place. Because in the 1930s we learned we could keep the economy moving by spreading the pain of the economic depression over a longer period of time, rather than taking it all at once in a catastrophic collapse. So be certain there are more losses to come offsetting economic growth in other areas. The net result will be what appears to be slow-growth or no-growth economies. But the reality will be some industries like gold and oil collapsing to their true size while other new industries grow remarkably. If you can move your capital into growth businesses you'll prosper. If your capital is invested in sectors which have not yet been liquidated fully, you'll take losses. Or you can sit on your capital and take only small annual value losses. It's all up to you, but many sectors still have losses yet to be realized.

To: Tommaso who wrote (108891)	12/10/2014 3:17:44 PM
From: Joan Osland Graffius	2 Recommendations Recommended By elmatador Julius Wong Read Replies (3) \| Respond to of 218543

Owning productive farm land has in the past been a successful investment since this country was founded. My family has owned and added to farm land since the early 1880's and we now have 5 generations of farmers and land holder. None of this land was purchased using debt, just the profits from the land.

To: Tommaso who wrote (108891)	12/10/2014 10:18:35 PM
From: Riskmgmt	Read Replies (2) \| Respond to of 218543

Excellent post. I think you hit the nail on the head, reading your way through is not an option these days. May I suggest that you start a board with this theme and invite others to contribute. As with Joan Graffius, as an example of an excellent post from a specific and specialised point of view, there are many forward thinkers on SI with an array of locations and expertise in various areas. There are so many changers occurring at such a rapid pace world wide, that it is both exciting and challenging to comprehend. Your message touched on some of them. A few more would be, the future of transportation. Consider the changes fracking and other technical advances in energy are making, Tesla cars, battery powered, LGP powered, hydrogen powered etc,. Then there is the idea that the family car being an expensive piece of machinery, sits idle for 90% of its life and takes up a lot of real estate. Real estate which is becoming increasingly more scarce and expensive in major cities across the globe. Predictions are less ownership of cars and the blossoming of a new idea the pod-cars, driverless fully automated, on call 24 hours. Banking, changes already underway, ATMs for deposit and money withdrawal, most banks now allow you to take a photo of the checks you want to deposit and send over mobile devices. The same with transfers, wires etc. We have the start of branch less banking or e-banking. Then there is bit-coins and copy cat systems and their future impact. Getting input from others who are in these fields and others like them that are undergoing revolutionary changes could be very helpful in putting together an idea of the big picture. Please excuse any grammatical or spelling errors I had limited amount of time but wanted to get this out while it was pertinent.

To: Tommaso who wrote (108891)	12/10/2014 11:06:31 PM
From: elmatador	Read Replies (1) \| Respond to of 218543

Austrian school Mises " Without a reliable measuring stick of value, one of the functions of money, it is impossible to judge what something is truly worth. That is why USSR communist economy collapsed. Once you start thinking about price formation and value things take a totally new dimension. Thus always approach everything in terms of pricing. Message 29807081 oil formation

To: Tommaso who wrote (108891)	12/11/2014 11:37:15 AM
From: carranza2	Read Replies (1) \| Respond to of 218543

Productivity beyond anything we've ever experienced is indeed driving a deflationary trend everywhere. Deflation generally leads to lower interest rates. Lower interest rates lead to stock market gains. But stock market gains cannot go on forever. These gains are probably self-limiting because they are based on finance, not on fundamentals (though obviously increased productivity does create cost-reductions and therefore increased profits). Because they are not driven by fundamentals, except increases in productivity, stock market gains caused by low interest rates are in my estimation subject to substantial volatility as the spectre of increased rates appear in the horizon. This is where I think we are now. A good example of things seems to be what is happening in Japan.