What's the password?

PayPal remembers, even if you don't want to...

Here is a common question on the Internet:
"How do I delete old shipping addresses from PayPal?"

Answer: You can't. You can spend hours trying to figure out how.

Then call PayPal, and once you get through to a human being, THEY can delete old addresses, but you can't. Seriously.

You can add addresses. You can't delete them. And every stale address that stays there has a chance to be used by mistake when something gets shipped. Everyone that you have ever sent anything to is listed right there, perhaps to your present dismay or embarrassment.

It gets better, at least, it gets more intense. If you link PayPal with its parent company eBay, all those people and addresses from your past show up as eBay shipping addresses too.

And no, there is no delete button that you can depend on.

Fail.

This might not be a good sign...

The Baltic Dry Index reflects the demand for shipping. Someone just put a hole in it.

Mule Jumping

Who knew?

Lunacy

Inflation? Deflation? Both?

Every great power succumbs to the temptation to debase its currency. The rulers of Rome, China, Persia, Great Britain, Germany, and the US have each, in their time, seen fit to print money at a rate that outstrips the growth of their economy. So has every country whose politicians control its treasury, from Argentina to Zimbabwe in this century alone.

The inevitable result is a loss in the purchasing power of the money of the realm. Inflation.

Every consumer, individual or corporate, would like to have more money at his disposal than he currently possesses. There are three ways to do this besides earning it: beg, borrow or steal. Setting aside begging and stealing, we can focus on borrowing. A wise man once observed that "every loan is paid, usually by the borrower and the rest of the time by the lender." (If that wise man had been cynical he would have added "or the taxpayers of future generations").

When money is loaned into existence, everyone feels richer. The lender expects to get repaid with interest, and counts his loan as an asset. The borrower has the use of more money than before, and spends the money to satisfy his needs.

But when loans can not be repaid, that sense of wealth is replaced by something approaching despair. And the money supply (by many definitions) can be seen has having shrunk. Remaining money rises in purchasing power. Deflation.

Let's look at how this translates to real life in 2012. In the US, home prices have tripled from the mid 1990s to 2007, then dropped to merely double their 1996 levels. The function of housing did not triple in value, just the price.

The US Dollar held its value as measured by the USD index, so in terms of one paper currency vs another, nothing much has happened. But if you had sold your house in 1996 and taken the cash and buried it, you would have lost 2/3 of your purchasing power 11 years later. Inflation. Had you been smart enough to sell your house in 2007 and buried the cash, you would have gained 50% in housing-related purchasing power. Deflation.
Real economists will protest, if they get this far, that I have grossly oversimplified how money works. I agree. The point I am striving to make is that things we borrow money to acquire rise in price if money is easy to borrow, and drop in price if money is hard to borrow. The value (utility) of those things does not change, just the price. From the perspective of money, a dollar is worth more after deflation than after inflation.

What about things that we do NOT beg, borrow or steal to acquire? If you need a loan to put food on your table, you are in trouble (and you are probably not reading this, nor do you need me to tell you that you are in trouble). Things we buy with cash rise in price when currency is debased. "What this country needs is a good 5 cent cigar" is a familiar phrase first heard in the 1870s. Cigars are consumables, and their intrinsic value doesn't change much. But their price does.

What does all this mean in 2012? Deflation AND Inflation.

• Expect a continued drop in the price of things that people borrow money to buy, because credit has had its bubble and is collapsing
  
• Expect a continued rise in the price of things that people pay for with cash, because the value of cash has been debased for decades and is still being debased

Abundance vs Scarcity

Lots of changes these days in the Halfwise household: my wife and I have relocated, she has retired from paid employment, I am cutting back my hours, and we will bring her mother under our roof.

When we examine the trade-off of time for money, we likely come to different conclusions at different stages of our lives. When I was starting out, it was "give me all the work you can." I had lots of time, not much money, and maximizing income was what work was all about.

Since then, life has taken interesting twists and turns, some of which were lucrative and some of which were damned expensive. I have lived lean, I have lived fat. Fat feels more comfortable.

As of a few days ago we have relocated to live on an island, with arcane rules for recycling (milk cartons can go in to a compost bin with dirty kleenex and coffee grounds, but glass jars must be spotless before they go into their recycling stream). I can see how someone living here all their lives would come to believe that scarcity requires rules, imposed by an outside authority. The west coast of North America seems to spawn zealots, more than willing to impose views that nature must be protected from mankind.

To a degree, this viewpoint has merits. People can be cruel, greedy and thoughtless. Free markets do not immediately punish these behaviours (but in the fullness of time what goes around comes around).

Today is the morning after a US decision to kick the can of Keystone Pipeline approval down the road. Opponents of the development, apparently unburdened by reference to any maps of existing pipelines, predicted dire consequences of adding a pipeline to the US landscape. "No big deal" implied Canadian politicians, and turned their attention to an alternative, the Gateway Pipeline that would take oil to the west coast for export.

There is no scarcity of oil. There is a scarcity of common-sense acceptance that oil leads to wealth that is essential to society, to education, health care, highways and arts programs.

There is no scarcity of technology, that makes the transportation of oil by pipeline a manageable risk. There is a scarcity of perspective that enables the general public to recognize that risk accompanies everything we do, including choosing to delay activities that create wealth.

There is an abundance of opinion, including this trivial blog posting. But there seems to be an abundance of entitlement amongst people who are both ill-informed and unelected, that their precious opinions must be respected, not just endured.

Social progress requires the freedom to express strong opinions on all sides of issues. From the resulting debate emerges an alternative that likely would not even have been considered otherwise. This is how we advance.

Pipeline opponents, you don't need Halfwise to tell you be strong in seeking safeguards. But while you are "safeguarding" the rest of us, keep the perspective of our abundantly active society. You are part of it and benefiting every day.

Gaming the system for personal gain but international pain

I am a free market kind of guy, but games that threaten the global financial system worry the heck out of me. I am not suggesting more regulation; I am publishing this to highlight some risks that are baked right into the Euro-cookie.

Everyone knows that Greece is in trouble financially. In many ways, the Greeks no longer rule their own country; a troika unelected by any Greek is in charge. The International Monetary Fund, the European Commission and the European Central Bank now hold the purse strings for the birthplace of democracy. Greece is not alone, of course, it just happens to be in the news. Italy's situation is similar.

Any rational investor would want to protect his capital during difficult times. You know, maybe buy some insurance (a credit default swap, or CDS). Naturally, every insurance policy has its fine print. Credit default swaps only pay off under certain forms of financial failure. You are insured only for certain hazards.

Here is where the cookie starts to crumble. According to the Institute for Individual Investors, there is a total of approximately €355 billion in outstanding Greek debt, with €100-140 billion held by the ECB, IMF, and EU (the Troika). This includes the €35-40 billion purchased by the ECB during 2011. The remaining €200 billion plus is held by banks, pension funds, and, increasingly, hedge funds. It all comes to a head in the next few weeks.

Those private holders are expected to take a €100 billion and change loss; the Troika’s holdings would be unaffected by the plans to resolve the debt crisis. That alone should raise eyebrows, but let's look more closely.

If certain Greek debt was expected to take a 50% write-down, it would be priced at 50% of face value. Instead, it is selling at a bit over 30% of face value. What gives? Let's quote directly from the IFII's free subscription Tycoon Report for January 13th:

...magnanimous private holders are expected to voluntarily take a 50% haircut. The plan under consideration is that for each €100 of debt tendered, €15 in cash would be received and €35 in long dated (as much as 30 or 40 years), low-interest Greek debt.

Now if this plan was anywhere close to a reality, Greek debt would be trading near that 50% of face value mark, but it is not. It is trading around 32% of face value.

Additionally, if this voluntary plan goes into effect, it would not be a “credit event”. It is a non-event according to the determiner of such things (the International Swaps and Derivatives Association), because it is “voluntary” and not everyone is affected; remember the Troika would be exempt. That is important, because it would not trigger the insurance contracts on the bonds, known as credit default swaps (CDS). Without the insurance to make up the 50% of value that goes poof, losses will be very real.

However, if not enough private holders volunteer, then the deal falls apart and Greece will default for real. The CDS holders will be made whole because a default is a “credit event” and will affect everyone.

So hedge funds have been accumulating Greek debt with the specific intention of not volunteering their holdings. They are also buying CDS, which cost 8% of face value.

In other words, funds are paying €32 for Greek bonds that have a face value of €100, and paying €8 for insurance, resulting in a total cost of €40. When they withhold their bonds from the voluntary swap, Greece will be unable to roll its debt and will default. Then the CDS will trigger and they will receive €100 on an average investment of little more than €40. A tidy 150% profit before the end of March!

I bolded the part that is the most dangerous part of the game. The report goes on to say:

A Greek default will have huge ripple effects. It doesn’t even matter if Greece is forced to leave the Euro or it is allowed to stay -- a run on Italian and Spanish sovereign debt is sure to follow.

The big money manipulation of the markets is going to cause a serious monetary and economic dislocation that could move Europe rapidly from mild recession to full on depression. The US stock market and economy are not on an insulated island; there will be a deleterious effect on both when the tsunami effect hits these shores.

So let's sum this up in layman's language.

1. Greece owes money it won't pay back, to banks and countries that should never have lent it in the first place.
   
2. Those banks and countries have replaced Greece's leadership to try to make sure they get their money back.
   
3. Some private parties are buying the parts of the debt that are not controlled by the troika of replacement leaders.
4. The private parties will try to arrange things to maximize their profit on the questionable debt.
5. The way they are going about this threatens the global financial system.
   

Got gold? Cash? This could turn out badly.

Using the Kindle with Calibre e-Books

I travel a lot on business (>150,000 air miles last year, without ever checking a bag) and a Kindle is a great way to carry reading material without getting weighed down. My newspaper subscription, for instance, is on the Kindle, and other than some funky formatting issues, I prefer it to the tree-and-ink version.

The free books available electronically are another great feature. And a free software called Calibre works as an essential middle-man between the source of the book and the Kindle. Go to Calibre and download the version that works on your computer or portable device.

Now you can work with anything published in standard epub format.

Say you want one of the hundreds of excellent books and articles from the Ludwig von Mises Institute. Go to their site and track down what you want to read. Let's say it is Leonard Read's classic article I, Pencil, which is free of charge.

Click on it and download it into wherever your downloads go. Open Calibre, and click on the Add Books button. Browse to your Downloads folder, highlight the I, Pencil file and click the Open button. Calibre brings the article and its cover illustration into the Calibre Library on your computer. Then plug in your Kindle and click on the Send to Device button. Keep an eye on the little wheel at the bottom right of your screen...it takes a bit of time to squeeze the book through the wire.

Done. Now you can read the article for free. Plus you can use Calibre to manage the books on your device.

Technivorm

Coffee is an interesting beverage to brew. There are only a handful of variables:

• What kind of beans are we using?
• How coarsely are the beans ground?
• How consistent is the particle size of the ground beans?
  
• How pure is the water?
• What temperature is the water?
• Are we using a filter?
  
• If so, what kind? Paper or metal?
  
• How fast does the water flow through the beans into the pot?

Okay, maybe there are more variables than you might imagine.

Technivorm is a Dutch company specializing in coffee makers that (a) heat water to the right temperature (195 - 200F) and (b) have adjustments to restrict the flow of water through the filter. Most drip coffee makers fail at both of these.

We have one. It makes better coffee than our old drip maker. Better flavour, better to drink.

And now there's a Kindle in my briefcase

I am a new and curious Kindle owner, thanks to my lovely wife.

Interesting device: it can hold 1500 books at a time, adding a new one is instantaneous, you can search for text, highlight and annotate, hell you can even check Facebook, which by the way looks better using the texty version of touch.facebook.com.

If I had bought the books on Kindle that I bought in paper, I would typically have saved a buck or 5 on them, plus delivery charges for the online purchases, if any. So there may be a cost savings over time.

But here's the thing: I can get thousands of books for free, books that I have always figured I should get around to reading...EM Forester, Joseph Conrad, Dickens...that are off copyright and there for the download. And since we have a house full of books with no shelf space for new ones, it's got some practical value in terms of clutter control, no small feature I must say.

I downloaded the complete works of Winston Churchill for free, only to find that it was not THAT Winston Churchill but a US author who writes of the days of Davey Crockett. So it turns out you can easily delete books from your device...just push the left side of the Kindle's square mouse device once inside the book in question. Easy peasy.

For the broader web experience, count me impressed in a Windows 2 for DOS sort of way. For the book experience, count me impressed period.

It's amazing, this device, for its stated purpose of enabling the acquisition of books from a huge list, for little or no money, from pretty much anywhere, and allowing the owner to read them on the run, in places where the brighter the light the better the experience, unlike my Panasonic Toughbook on which this is being typed.

The typing and web interfaces are not even Blackberry-simple, but the book buying and reading functionality and interfaces are completely streamlined and easy.

Buy one for what they are good for, and look past the clunkiness in what it wasn't really designed for. No regrets, and two thumbs up.

How to remove stuck spikes from your golf shoes

The shoes that have to carry me around the course need new soft spikes. Of course, when your shoes are new, removing the old spikes is easy. But two years later, the rubber things are worn down, the tiny holes for the wrench are full of something impenetrable and mere mortals can't get the old spikes out no matter what they try.

So my first attempt involved a claw-like spike wrench at the pro shop. This tool dispenses with the two little tips and substitutes a medieval device that grabs the outside edges of your spikes. No luck.
My second attempt involved the pro shop's industrial strength spike remover. All I managed was to shred some rubber.

My third attempt involved some physics. I put my shoes into the freezer overnight in the hopes that the lower temperatures would both harden the rubber and loosen the grip of the threads.

As if.

So tonight I hauled out the electric drill and deepened the wrench holes, right into the plastic of the old spikes.
Finally the regular spike wrench had something to grip on, and after I wrapped its non-ergonomic handle in the finest of old golf towels and leaned on it, the shoes released their beloved spikes.

Kind of makes you wonder how the darn things fall out, given how hard it is to get them out when you want them out.

That damned Squeak!

It started about 4 weeks ago, a squeak from somewhere in my basement. At first I thought it was a smoke detector with a low battery. So I took the battery out of my lower level detector, but the squeak continued.



After reinstalling the battery I started going through the basement. The squeak was only every 5 minutes or so, so there was nothing that I could follow to the source. Every time I heard the squeak I tried to zero in on where it was, but it seemed to move around.

There's an old alarm system from a previous owner, which we have never fully decommissioned. I figured it must have been this thing, beginning to act up. So I removed the backup battery (the squeak still occurred), I disconnected the power supply (the squeak still occurred); I bypassed every zone in the alarm system (the squeak still occurred) and I put it all back together. The squeak still occurred.

Examine the various modems and routers. Nothing.

Up into the ceiling...listening. Sometimes it felt as if I was getting closer but it was never as if I was next to the source.

Turn off the power supply to every basement room. The squeak still occurred.

What did it turn out to be? Someone had given me a smoke detector that I did not feel the need to mount, so I put it in a bucket that also held a cleaning brush and other basement randomness, on the floor behind a door. Eventually the installed battery began to fail, causing a chirp (my first instinct was right!) The sound went straight up from the bucket, so you couldn't really pinpoint where it was coming from.

Now I miss the damn thing.

TurboTax, Quick Tax and Stock Trade Tracker

I have been a user of QuickTax for years, and for 2010 taxes it is now called TurboTax.

If you buy the Platinum version it allows you to record all your stock buys and sells in a separate program called Stock Trade Tracker, or STT.

Every year I struggle to remember how to import the info from STT up into QuickTax, and I have just struggled to get it into TurboTax. But now I remember. I will write it here so I can find it next year...

It looks like it should be easy, but it is not.

First, if you are on the EasyStep screen that asks you for T5 information, don't try to use Stock Trade Tracker to provide it. STT does not produce T5 forms. Move along. The chance to enter Capital Gains and Losses comes later. Why does Turbotax even hint that STT is useful for T5s?

When you do eventually come to the Easy Step that looks for Capital Gains and losses, it will give you a screen that looks almost the same as the one asking for T5 info. But now, click on the link that opens STT. Then go to Reports and select Capital Gains. Then pick Last Year. Make sure it is what you want. For example, if you have TFSA trades in there, take them out. If you have RRSP trades in there, take them out.

Assuming it is the right info, go back to TurboTax and follow the instructions. It works fine.

What DOESN'T work fine is the glib assurance in the TurboTax help screens that the process is as easy as clicking one button. No, you have to work through several steps of opening STT and picking your report. Judging from the frustrated and unanswered comments in the margins, TurboTax has an opportunity, shall we say, for an improvement in customer service.

This is where statistics can let you down

*

Cynicism vs Observation

The power of accurate observation is commonly called cynicism, by those who haven't got it.

Bertrand Russel

Climatologist explains "Hide the Decline"

Gold:Silver ratio below 40!

Historically over the centuries, the Gold:Silver ratio was 15:1. Gold was worth 15 times what silver was worth. Fifteen ounces of silver would buy one ounce of gold. The ratio broke out of this pattern in the late 1800s and was recently over 65.

Silver is seen as the more speculative of the two metals, and a rising appetite for silver has been interpreted as a greater appetite for risk. When markets fail, silver usually falls faster than gold, driving the ratio higher.

Monday morning in Asia, the ratio dropped below 40, with Gold at $1436 and Silver climbing over $36.25.

Check this link for the latest chart.

Never seen anything like this before

Why you're not married

There is more truth in this article than you will find in the entire self-help section of your book megastore. You, young lady, are not married for one or more of the following reasons:

• You're a bitch
• You're shallow
• You're a slut
• You're a liar
• You're selfish
• You're not good enough (in your own mind)

Read the whole thing. Thanks, Captain Capitalism, for the original link.

When you are burning the candle at both ends...

You have no one but yourself to blame.
*

Lots of contributors to temperature

This posting at Watt's Up With That enumerates a dozen contributors to temperatures, and temperature trends.

After mentioning a handful of mechanisms that would not be noticeable on human time scales (eg the sun is slowly brightening) the author rolls up his sleeves and gets into solar cycles, ocean oscillations and atmospheric and weather phenomena, along with descriptions of whether their feedback is positive (eg surface ice) or negative (eg clouds).

The comments are also excellent, serving to clarify and expand on Dr. Glickstein's posting.

When someone wrings his hands over CO2, one might hope that perspective such as this would be of comfort.

But have you noticed that news that implies disaster is not imminent, is not received with joy by the AGW community? A cynic might wonder whether the agenda is more important than the underlying reality.

Nah. Couldn't be.

Let the game come to you...

*Title widely attributed to Larry Bird, also some capable stock market advisors.

Besides seeing the wisdom in it, I really like the pun.

A useful response to CO2 Hand-wringing

I saw a friend's post on Facebook the other day that quoted a regional government website from BC:

"Climate change is a complex, multi-year challenge for our region. It is a wake-up call to a system in decline"

All I can say is

"I am enjoying the current interglacial period, which is overdue to end. Don't you think we are going to need all the warming we can get?"

(By the way, note the effortless slide into Marxism implied in the BC position. If the science is settled, for something that hasn't actually happened yet, why is the policy response based on a philosophy which has been proven an utter failure?")

Christmas

My Blackberry isn't Working...

Guys, it doesn't get any better than this.... Oh yes it does!

Big trends

If you spend some time learning the lessons of markets, you begin to appreciate the simple wisdom of well-worn phrases like "The Trend is Your Friend."

Whether your approach is technical (what is everyone else doing?) or fundamental (what should this investment be worth if people came to their senses?), there is value in identifying trends and following them until evidence comes in that they have reversed themselves.

Trading out of a stock on its way up, or selling it at the same price on its way down, will make you the same amount of money. Imagining that you can call the turning point consistently is mostly self-delusion. Get on board with the big trends, and ride them until after they turn.

So what are we to make of this trend? The ratio between the price of gold and the value of bonds has been trending relentlessly in favor of gold since before the beginning of this century. The fine print, which is readable at the link but perhaps not on my embedded chart, says the market is anticipating inflation, as evidenced by the steeply rising trend.

A social network Christmas

Brightman & Bocelli: "Time to say Goodbye"

How to groom a dog, if you actually wanted a cat

*

The trend is your friend

Howard S. Katz
Jun 7, 2010

Playing the markets is not an easy occupation. One normally thinks that it involves buying at the bottom and selling at the top. But in fact, one must make a new decision every trading day. We had a good illustration of this on Friday, June 4 when gold plunged sharply in the morning, and at the same time the dollar broke out of a small triangle to the upside. Since the dollar often moves opposite to gold, this was a bearish signal for gold. A year’s trading, then requires 250 decisions. A decade’s trading requires 2,500 decisions. Fortunately, to make money we do not need to get all of them right. A good majority will suffice.

(Click on images to enlarge)

Above is a daily basis chart of the U.S. dollar (candlestick) showing Friday’s breakout to the upside confirmed by a high volume day. With gold plunging Friday morning and the dollar breaking out upside, it was a scary moment for gold bugs. Fortunately, gold rallied strongly in the afternoon. It made up all the morning’s losses and put on a solid gain. Indeed, GLD (the gold trading instrument which has the latest close) completed a bullish engulfing pattern, a candlestick signal predicting higher prices.

It seems that the markets are saying that the old scenario of gold moving opposite to the dollar (and with the euro), which dominated much of the last decade, has changed. Now the scenario is that all paper money is collapsing against gold. And for the past 4 months, the dollar’s rise against the euro (and other currencies) has been accompanied by a nice gain in gold.

This illustrates the importance of perspective in trading the markets. All of a sudden, as soon as your own money is at risk, everything looks different. When you were paper trading, you were calm and rational. But now your perspective has collapsed. “Honey, could I have the paper? I need to see what my stock did today.” An hour now feels like a week, and waiting for the end of the day seems like eternity. With your perspective out of whack, your judgement follows, and soon your paper trading profits turn to real losses. (This, by the way, is why I do not recommend paper trading. Instead I recommend trading with modest amounts of money. That will give you the sense of what speculation is really like, and you will learn to make sound judgements in difficult circumstances.)

And yet, the long term trend is so much easier to play than the short. Look at the trend in this gold bull market. Surely this trend has been our friend. All commodity markets, by the way, are not like this. Each has its own peculiarities, which must be learned by experience. But gold is a good chart commodity. It is produced all over the world, and it is purchased all over the world. Many people, each day, are buying it and selling it. That, of course, is what technical patterns are intended to comprehend, how the average person thinks and what he will do.

The average person, as I have noted, commits the fallacy of the fair price. He believes the teaching of Thomas Aquinas that there is a fair price for every good and that a good ought to sell for its fair price. He does not understand the teaching of Adam Smith that any price agreed upon between buyer and seller is fair, and therefore the crucial determinant of price is supply and demand.

Let us say that our average fellow makes the mistake of selling gold on Feb. 5, at $1,050. “Oh, did that hurt.” He wishes he had not made that move. Well, the answer seems simple enough. If you regret selling, then go in and buy it back. “Oh, no, I couldn’t do that.”

Why, having regretted his sale, can he not go back in and buy? This puts him long of gold again and corrects his mistake. But he cannot buy here at $1,220 because the fair price for gold is $1,050, and he would be overpaying by $170 (he thinks). In short, because Thomas Aquinas did not tell him how to calculate the fair price, he confuses the fair price with the price that is in his mind. It could be the price he is used to because the good has been trading there for a long time. It could be a high or low point on a chart that stands out and comes to people’s attention. It could be a price with a great deal of volume. And, very frequently, it is the price at which he sold (or bought).

Therefore, if the price of gold did get back down to $1,050, our average fellow would rush to buy it because it was now back down to its fair price. And since $1,050 stands out on the charts, many other people would rush to buy at the same time. This buying is called support, and $1,050 is a support level. The corresponding level at which many people will come in to sell is called resistance.

Once we understand the support and resistance levels, by inference we can figure out the larger trend. In the chart above, gold continues to go to new highs, breaking resistance to do so. Every time resistance is broken the bullish trend is reconfirmed. Look at how many times this has happened over the past 10 years.

The old timers noted this phenomenon many years ago. Most market trends are caused by large-scale forces too big for most traders to comprehend. They wind up assuming that current prices are near the fair price, and they are reluctant to pay more. This reluctance slows down the bull trend, but the fundamental, large scale force keeps tilting the balance to the upside. In effect, the idea of a fair price keeps the market undervalued for a long, long time. The old timers expressed this by saying, “the trend is your friend,” and this is as true today as it was in the early 20th century.

Eventually every trend does reverse. But it continues much more often than it reverses. Gold has continued to new highs 8 times since 2001. It has not reversed to a relative low once. In case after case, in good after good we see these giant bull (or sometimes bear) markets that continue for year after year. As we look back from the vantage point of the future and think back to what we were saying at the beginning of the trend, we are amazed. “I was so certain that gold could never get above $70 in 1974.” “I laughed at Robert Prechter for predicting DJI 3500 in 1982.” “I was absolutely certain that T-bill rates could never get to zero.” But in all of these cases, the trend progressed far beyond almost anyone’s ability to predict. All you could say was, “The trend is my friend.” And this kept you long as the market went up and up.

It is undoubtedly the same with the current bull market in gold. This trend will probably go on much longer than anyone now thinks. Indeed, the best prediction of the grand cycle bull move in gold of the 1970s was made by Jim Dines. When asked, early in the decade, how high gold would go, Dines replied that he did not know how high gold would go or how far stocks would fall, but the two numbers would cross. At the time he made that statement, gold was only a little above $35/oz., and the DJI was close to 1,000. It seemed a fantastic prediction. But on Jan. 21, 1980, gold hit an interday high (on the Comex) of $875/oz., and the DJI closed at 872. That $875, by the way, represented a 25-fold multiple for gold in nominal terms and a 12½ multiple in real terms. Between 1966 and 1982, the DJI fell by about 75% in real terms.

It is, of course, tempting to make the same prediction for this grand cycle trend – that gold and the DJI will cross. I am too much of a scaredy cat to make that prediction here, and I think that I will follow the same policy I followed through the 1970s. Turn bullish as the trend broke to the upside and then follow the trend until it had a clear reversal (which turned out to be the giant one-day reversal of Jan. 21, 1980). At that time, the trend was my friend. Today the trend is still my friend. And the trend can be your friend also.

As the trend in gold was nearing its end, circa 1978-79, the speculative end of the precious metals group (silver, the exploration stocks) came to life and made tremendous gains. I look for that to happen as the present bull trend in gold nears its end. That will be a warning sign. Before it happens, we are safe on the bull side. After it begins, we still have a little time.

Now there are a few people who espouse fundamentals and do not look at the trend. These people are called brokers. They make their money on commissions, not profits. For this they need a lot of customers, and so they follow the policy of telling the average person what he wants to hear and what is useful to them (the paper money theories of Foster and Catchings and Keynes and the fair price theory of Thomas Aquinas). Brokers are friendly, but I do not advise listening to them if you want to make money because they are not even trying to discover economic truth. Furthermore the fundamentals being taught in academia and published in newspapers and magazines are a collection of trash. (Keynes was a deliberate fraud and did not believe Keynesian economics.) To make sense of the markets with this false information is almost impossible.

Key Indicators of a New Depression

Neeraj Chaudhary
Euro Pacific Capital, Inc.

With the mainstream media focusing on the country's leveling unemployment rate, improving retail sales, and nascent housing recovery, one might think that the US government has successfully navigated the economy through recession and growth has returned. But I will argue that a look under the proverbial hood reveals a very different picture. I believe the data shows that the US economy is badly damaged, and a modern-day depression has begun. In fact, just as World War I was originally called The Great War (and was retroactively renamed after World War II), Peter Schiff has said that one day the world will refer to the 1929-41 era as Great Depression I, and the current period as Great Depression II.

For starters, look at unemployment. During Great Depression I, unemployment broke 25%. If government statistics are taken at face value, the current unemployment rate is 9.9%, but a closer look reveals that the broadest measure of unemployment is currently at 20% - and rising. So, today's numbers are in the same ballpark as the '30s even though the federal government is using unprecedented measures to keep the economy afloat. Remember, in Great Depression I, FDR never ran a deficit nearly as large as President Obama's. Moreover, the Federal Reserve of the 1930s still had a gold standard with which to contend, while today's Fed has increased the monetary base with impunity. Yet even with all that intervention, unemployment figures still indicate that we have entered depression territory.

What is demoralizing to an unemployed person is not simply being let go, it is being unable to find a new job for an extended period of time. And this is where Great Depression II really rears its ugly head. According to the US federal government's own data, the median duration of unemployment is now over five months - and rising. This is the highest it's been since the BLS started compiling this statistic in 1965. As workers start to go this long without jobs, they eat into their savings. Eventually - and especially in a country with a savings rate as low as ours and debt as high as ours - they run out of cushion and hit the street. Formerly middle-class people have to make decisions never thought possible: do I eat in a shelter or go hungry in my home?

It's no surprise, then, that about 40 million people - or one out of every eight Americans - are receiving food stamps in Great Depression II. During the height of Great Depression I, the rate was just one out of thirty-five Americans. Even with the stimulus programs, Great Depression II is actually worse on this measure than Great Depression I - and the USDA estimates that the program could grow by another 50%. Soon, out of ten people you know, one may depend on federal assistance for daily survival.

Despite tax credits that have created a rush of purchases this spring, housing is in just as bad shape. During Great Depression I, home prices dropped some 15% from their pre-depression peak (achieved in 1925). In Great Depression II, housing is down at least 30% from the pre-depression peak (achieved in 2005), with some markets down more than 50%.

So, many of the people expected to keep making mortgage payments as they eat tuna fish to stay alive will be paying double their home's resale value. This is a tremendous incentive to walk away, with disastrous consequences for the country's social fabric in these trying times. Empty homes breed crime and vandalism, encouraging more to flee in a negative feedback loop. Moreover, the many 'walkaways' may create a class of Americans with ruined credit - right when many employers have started checking credit scores before hiring.

Even more worrisome, the present drop in home prices is against a backdrop of price inflation. In Great Depression I, our grandparents may have lost value in their home, but everyday goods (milk, diapers, automobiles, etc.) got cheaper at the same time. That made their savings 'cushion' deeper when they needed it most. Today, as home equity (now our main store of savings) declines, prices for consumer goods are rising. It's a tight squeeze indeed.

From jobs to food to the roofs over our heads, the current period of economic turmoil is at least as bad as the First Great Depression, whether or not the financial media wishes to acknowledge it. The main difference is that unlike in the '30s, the US dollar is now the world's fiat reserve currency, so we are able to push our problems overseas for awhile. The plight of the rural Chinese is really our plight - we are living lavishly on the wealth they create. Were they to quit this dastardly arrangement, the full effects of Great Depression II would be felt in America.

By contrast, in Great Depression I, the US was on the gold standard like everyone else, which forced us to live within our means. This, in turn, made it easier to recognize that the economy was in decline and changes had to be made.

Unfortunately, because of the responses of the Administration and the Federal Reserve, which I believe to be deeply misguided, I remain concerned that Great Depression II could develop into something far more devastating than its predecessor, something that other countries in the world have experienced but was thought impossible in the United States: a hyperinflationary depression. As bad as the current downturn has been, inflation would make it immeasurably worse. It would require an honest accounting of the problems we face today to avert the disaster we see coming tomorrow.

10 years worth of bank failures in 4 months

This is real, it is bad and it is getting worse.

So far in 2010 the FDIC has announced the closure of 64 banks, with seven more being stacked on the pile on April 30.
Last year at this time the toll was 32, which in itself was a disturbing number. How disturbing? Banks don't usually fail en masse, and when the economy was enjoying better days it took 5 years to rack up 32 bank failures, from the end of 2003 to the end of 2008.

The acceleration of failures, and the swelling burden on the US taxpayer to bail out the depositors, ought to be disturbing the general populace. One would think that evidence of real hardship that affects everybody in the USA, relentlessly creeping like an oil slick in the Gulf of Mexico, would make it onto the nightly news or a large-circulation daily front page or two. Nope.

At least the LA Times covered it in the business section with the almost-comical closing comment that "depositors' money is not at risk, with the FDIC backed by the government." Hello? This opinion might reassure a failed bank's depositor but surely it should trouble a taxpayer. Billions of dollars are being lost.

There are still two possible outcomes at the macro-economic level. Debt which is not repaid is deflationary. But if the government response to widespread failure of debt is to increase its money supply, debasing its currency, this is inflationary.

The markets are saying "Inflation". The price of gold has set new records, the stock market is maintaining its Zimbabwe-like levels and the public mood in North America is nothing at all like it is in, say, Greece. For now.

Gotterdamerrung, small scale

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Ya Think?

Isn't this where milk comes from?

Thanks Simon!

A Wunch

English has these unusual group names:

• A pride of lions
• A gaggle of geese
• A covey of partridges

What do you call a group of bankers, especially if you are from either Britain or Australia? Why, a "wunch of bankers," naturally...

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Congress shoots self in foot, lacks medical coverage for wound

According to the New York Times, it appears that members of Congress and their staff are suddenly without medical insurance, directly as a result of the Health Care bill that was rushed through in March.

"The law apparently bars members of Congress from the federal employees health program, on the assumption that lawmakers should join many of their constituents in getting coverage through new state-based markets known as insurance exchanges."

But the research service found that this provision was written in an imprecise, confusing way, so it is not clear when it takes effect. Tradition says that the bill took effect when President Obama signed it three weeks ago, while new insurance does not have to be available until 2014.

No beer other than at lunch? Down tools, lads!

According to the Daily Mail, Carlsberg Breweries staff in Copenhagen have walked off the job because management has taken away privileges which included the right of delivery drivers to drink three beers a day outside lunch hour.

Shipments of Carlsberg have been suspended, and the Confederation of Danish Industry has agreed to look into the dispute, along with Trade Union 3F.

Wikipedia reports the following about allowable Blood Alcohol Concentration (BAC) in Denmark:
0.05%, imprisonment if over 0.08%, zero if involved in an accident

The biggest obstacle is wishful thinking

I always enjoy the research, opinions and insights of Maxed Out Mama.

She appears to have a background in banking at a level that requires facility with facts, trends, details and analysis. In today's (April 9 2010) post she guides us through an assessment of China's effect on oil prices, Walmart's sales trends, and the likelihood that whatever is happening in Greece will repeat on a grander scale in (much much bigger) Italy within two years.

Then she sums up her concerns like this:

The US has a hard economic - and thus social and political - adaptation ahead of us, and almost all the interests that should have been trying to plan for it have instead been trying to fool people into thinking that we don't.

This, I think, is my deepest concern with Western Civilization. We expect our leaders to tell the truth, our journalists to seek the truth, and our advisors to create strategies for us based on truth. Instead we get global warming alarmism and blandishments as to the state of the economy, to name just two of our current pathologies.

The green movement requires little of its adherents, but it expects the targets of its hostility to remain in business locally paying taxes and attempting appeasement. It slides away from any attempts to connect it with consequences such as malaria deaths from the banning of DDT.

The financial system runs on faith. The whole fractional-reserve banking system requires people to not show up en masse asking for the cash that they left at the bank. Ever.

On this blog I have attempted to point out simple facts, such as the relentless debasement of our currency. One would think that our economic advisors would have information like this to inform their strategies for managing our wealth.

I support Maxed Out Mama's viewpoint. There are destructive trends afoot, and we are not made healthier by our ignorance of them.

Protect yourself, by living within your means, by hedging against financial losses caused by either inflation or deflation, by recognizing that our health care system will increasingly fall short of our collective needs and figuring out how to improve your personal odds, by arming yourself with facts against alarmists of all sorts (even me!), and by figuring out how to be of greater service, however you fit into the world.

Chances are that the average westerner has seen the peak of civilization as we know it. From here, debts become due, unsustainable systems fail, and reality intrudes.

God, I hope I am wrong. Dear reader, tell me that I am, and why.

Government of its employees, by its employees, for its employees

It seems to me that Maggie Thatcher's comment that 'the trouble with socialism is that sooner or later you run out of other people's money' is coming true before our eyes.

Arnold Schwartzenegger's economic advisor David Crane writes in the LA Times "Today's unfunded liability is next year's budget cut to important programs."

California sits on a $500 billion pension liability with huge political consequences and, beyond those, fundamental challenges to the viability of the state of California. The mess is worse because California has done what we could imagine every government is doing, hiding the truth of its financial situation so as not to have to take the unpopular steps of actually dealing with it.

Don't think this is just California's problem. From sovereign countries (Iceland, Greece) to average little counties (eg Jefferson in Alabama) and municipalities the schemes of easy money and complex financing are unraveling.

Whether the pipers that lent the money are actually paid or not is an interesting new theme. Iceland won't pay what it owes, China has declared many of its debts inoperative because of the unregulated derivatives behind them and Greece is mulling over its options. So the all-powerful Goldman Sachs of the world are suddenly dependent on government money, the printing of which makes everyone poorer so that GS can be made whole.

When your local firehall closes, and your child's teacher loses her job, and your father-in-law's pension check stops coming, and your income tax refund does not reach you, you may feel a bit grumpy watching your tax money go to bailing out a well-connected financial institution that pays billions in bonuses to the managers that sold all this unmanageable debt in the first place.

This is the reality of US politics: the system is not sustainable and the powers behind it are trying to keep themselves whole financially with other people's money. Depriving individuals of their entitlements creates front page stories of misery with a very short individual half-life but with daily examples. In the back pages and the business sections there are vague allusions to keeping the banking system afloat because it is the lifeblood of the day to day economy, and "too big to fail" has implications for whether there will be food on the grocery store shelves in your neighborhood next week.

What a mess. I still think that restoring the system to some form of balance will bring discomfort and misery on the scale of the 1930s.

Live within your means, and expect to be taxed beyond them.

Good Friday 2010

Somehow, one instance of this routine public act of Roman torture led to events that changed the world.

Argue theology all you want (preferably not here, but go ahead if you must...) History, Architecture and Music remind us that others have been profoundly moved, for reasons that even cynics like me can not explain.

Global Warming: New Records Set by Copenhagen

Deutsche Bank reports that the Copenhagen talks resulted in "the highest number of new government initiatives ever recorded . . . in a four-month period", according to the LA Times.

The Times article went on to say that this gives the planet a fighting chance to keep predicted warming under 2 Celsius degrees.

In news which refers to actual cold temperatures as opposed to predicted warm temperatures, parts of Britain have been battered by a deadly late winter storm.

Clearly these new government initiatives are working already.

US Bank Closings Continue Record Pace

So far in 2010, the FDIC reports that 41 US banks have closed, vs 21 banks in the same period last year. Wow, twice the rate of failure...remind me please of the meaning of "green shoots."

The Federal Deposit Insurance Corporation has already burned through the funds that it collects through a levy on bank deposits, so the US taxpayer is on the hook to give the depositors back their money.

The Federal Accounting Standards Board is responsible to ensure that the rules of accounting properly value the assets and liabilities of businesses, including banks. Their institutionalized version of wishful thinking has led to a gross overstatement of the value of bank loans, delaying the inevitable and adding to the final reckoning. How gross? 59% was the average across the four most recent failures, according to this source.

In the US, when your unemployment benefits run out, you are no longer officially unemployed. The real level of unemployment is 22% not 10%, according to Shadowstats. The stock market may be at cheerful levels, buoyed by government money and CNBC spin, but the real economy is not.

Why is the stock market at cheerful levels? Well, the Zimbabwe market managed some pretty impressive numbers too. Here is the chart from 2007, when it was the best performing stock market in the world. No one got rich in real terms, but the numbers look impressive...

If it can't go on forever, it won't go on forever.

What if it was all just a big bubble?

Not the bear market rally of the past 12 months.

Not the post tech-stock recovery of 2000-2008.

I'm talking about the whole of your investing life, the last 30-40 years of asset price inflation that started with Great Society spending in the 1960s, augmented by the baby boomer effect on consumption, the effect of technologies like cars and mass production and telecommunications, all strapped to a booster rocket of Nixon abandoning the gold standard in 1971.

When, in your life, has your government sustained a surplus? When has your currency increased in purchasing power? These provocative questions were prompted by this provocative article is from a provocative blog by Tim Iacono called The Mess that Greenspan Made. Check it out.

What is considered an average return in the stock market took a jump up after money was decoupled from gold. Few people factor in the effect of inflation on stock indices. Look at the chart above, and eyeball an average for the period from 1880 to 1970. Then do the same from 1970 to now.

Real returns probably should be calculated in terms of something timeless, for example the Dow/Gold ratio. The Dow Jones Industrial Average has its weaknesses, but it is easily recognizable. Right now it takes about 10 ounces of gold to buy one unit of the DJIA.
The chart shows the craziness of the gold mania in the late 1970s, and the equal but opposite craziness of the tech bubble in 2000. Those who disparage gold point to its poor performance from its 1979 peak through the subsequent two decades. Those who admire gold simply pick a different time period.

The message of Tim Iacono's article is that the housing bubble and accompanying credit bubble that goosed the financial system from 2000 to 2008 was just the most recent example. Who knows...maybe gold is the next bubble, just as it was in the late 1970s. You will know a bubble is happening when TV shows feature ordinary people buying gold or taking Grandma's old jewelry and flipping it for a huge profit, like the home reno shows that were everywhere three years ago.

Until then, it is probably safe to buy some gold or silver and put it away. When the TV shows start, take a bit of a profit by selling it to the latecomers.

Turning a buck into 5 cents in 97 short years

Courtesy Federal Reserve Bank of St. Louis

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Cheers

Farewell to the Era of Panic

Australian newspaper columnist Andrew Bolt is, I think, the Antipodean equivalent of Rex Murphy.

In a recent column "Farewell to the Era of Panic" he uses the tsunami warnings that arose from the earthquake in Chile to remind us that "Once again the experts and the politicians had ramped up the booga-booga" but this time people rebelled against the panic-mongering, reclaimed their senses, and actually came to the beach to watch what turned out to be a non-event rather than obediently fleeing for the hills.

His column continues:

We're on to them now, you see, these backside-coverers who'd rather be blamed for predicting an all-shrieking Armageddon than for being no-worries relaxed among a crowd of look-at-me urgers.

We're on to the kind of people who last July "leaked" a warning from Victoria's Department of Sustainability and Environment, claiming that the fire season now just ended would probably be worse than last year's Black Saturday one, and had the "greatest potential loss to life and property"?

Yeah, right. Not one big fire came. Not one person died. Plenty freaked, though.

And last week, very quietly, came yet another muffled admission of a terror that had been similarly oversold.

The good news, federal Health Minister Nicola Roxon brightly announced, was that this nice Government was donating 10 per cent of our swine flu vaccines to Laos and other poor neighbours.

The even better news, which Roxon somehow failed to add, was that we could give away so many vaccines because very few people actually caught the swine flu that one of her own advisers, Prof Raina MacIntyre, last year swore could kill between 10,000 and 20,000 of us.

I'm sure you remember that mega-fear campaign - one of the Big Three that made 2009 so infamous in the already sordid history of the Age of Panic.

Swine flu was hyped as a virus so deadly that cruise ships had to be quarantined, schools closed and families with the sniffles locked in their homes.

"All of humanity is under threat," screamed the World Health Organisation, another United Nations bureaucracy (like the Intergovernmental Panel on Climate Change) that feeds on fear.

Britain's National Institute of Medical Research helpfully put the likely death toll at up to 120 million.

The reality? Swine flu turned out to be one of the mildest forms of flu yet seen. We didn't have 20,000 Australians die, but just 191, most of them people already desperately ill with other serious ailments.

To put that in context, about 3000 Australians die each year with normal flu.

Worldwide, it was the same shamefaced story - not 120 million deaths, but 16,226, according to WHO's own figures.

That's less than half the people who die in a normal flu season in the United States alone.

And what of that global financial crisis that last year was going to wipe out the few of us lucky enough to survive swine flu?

What Prime Minister Kevin Rudd gleefully warned was "the worst financial crisis in our lifetime" turned out to be one of our mildest. In fact, "probably our smallest", as Reserve Bank Governor Glenn Stevens conceded last week.

Which means that what will hurt us most is not the financial crisis, but the insane spending Rudd unleashed to stop it, leaving us not just with electrified ceilings, mountains of useless insulation, overpriced school halls and blown-already cash handouts, but now a deep sink of debt as well.

But let's not forget the third leg of last year's great trifecta of panics: the global warming that was going to dry out the dams of Sydney, Melbourne and Adelaide, turn the Great Barrier Reef white and drown half of Bangladesh.

Instead, as rain returns, the globe refuses to keep warming, the Arctic ice rebuilds, great snows bury North America and Tuvalu refuses to sink into the sea, the only thing rising now is the public's scepticism.

Yes, we're finally coming to our senses. We're finally seeing through the spivs who grow rich and mighty by playing on our fears. We're calling time on this Age of Panic.

Well said, Mr. Bolt. In these times of Single-Issue Fanatics, Sound Bites and Political Correctness, it has been difficult to be a dissenting voice against the hurricane of fear-mongering. But sooner or later the average man in the street will tire of hearing cries of "Wolf! Wolf!" and do exactly the opposite of what his betters are suggesting for him. In Australia, perhaps it is already happening.

Los Angeles on the Financial Brink

Grim news from Los Angeles: The Chief Administrative Officer's report begins with

"The city is facing a budget crisis unlike any it has ever experienced … The enormity of our current fiscal crisis forces the City to take swift action now and lay out a financial plan for the future."

Government-as-normal has become impossible to run in LA. Double-digit declines in revenues, untouchable commitments to pensions and policing, 11% unemployment with the attendant municipal services required to carry people through, all these and more combine to provide a premonition of troubles to come in cities that were just trying to keep people happy and well-served even if it meant spending a bit extra to do it.

You probably don't want to own any municipal bonds for US cities. More fundamentally, you may want to think twice about what it will be like to live in one in a few years.