economy

[Script]

Gold

I take gold as a counterindicator.

Other than that I could use some good ideas.

Apart from stock tips, I think we covered it all already, ranging from buying a house with land to start farming (own produce), stocking whisky supply as new currency, brewing own beer, maybe getting a gun with ammunition (for when the rough gets tough), and picking up a robot for house cleaning and caregiving (iRobot, or: Intuitive Surgical, Rockwell, Google etc).

Maybe here are two more:

- Get a fancy BBQ and regularly invite all your neighbours over.
- Spend your stash on extensive travelling (probably what I will do)

Both are good investments. I recommend the second

 

[dmp]

Maybe here are two more:
- Get a fancy BBQ and regularly invite all your neighbours over.
- Spend your stash on extensive travelling (probably what I will do)
Both are good investments. I recommend the second

Too many people are following that advice by jumping in with both feet. Not just with their life/retirement savings but with as much debt as they can get.
I know you were joking, but they are not investments. No more than any other consumable purchase that increases one's happiness (short term). The key to long term happiness is not depending on the next vacation, next purchase, next fill-in-the-blank....

PS: There are new alternatives to bitcoin but I still don't trust them, as I watch my (tiny) gold position hover down at a loss years after I bought it (not everything in the market goes up).

Lot's of talk about bitcoin lately - I'm worried that a lot people are jumping into it without knowing what they are doing. You need a certain level of  computer & cybersecurity know how to not screw up a holding of bitcoin (if you keep it yourself). It's unknown how much bitcoin has been permanently lost by people losing their private key through a computer crash, forgotten password, etc... there are a few notorious cases. An early bitcoin miner accidentally threw away a hard drive with a fortune on it a few years ago.

 

[JohnRoberts]

Too many people are following that advice by jumping in with both feet. Not just with their life/retirement savings but with as much debt as they can get.
I know you were joking, but they are not investments. No more than any other consumable purchase that increases one's happiness (short term). The key to long term happiness is not depending on the next vacation, next purchase, next fill-in-the-blank....
Lot's of talk about bitcoin lately - I'm worried that a lot people are jumping into it without knowing what they are doing. You need a certain level of  computer & cybersecurity know how to not screw up a holding of bitcoin (if you keep it yourself). It's unknown how much bitcoin has been permanently lost by people losing their private key through a computer crash, forgotten password, etc... there are a few notorious cases. An early bitcoin miner accidentally threw away a hard drive with a fortune on it a few years ago.

One perhaps amusing anecdote about bitcoin is that the recent ransomware hack requires a bitcoin payment of $300 to free up the locked files, BUT  the vast majority of hacked systems were still running obsolete (windows XP) systems by people not tech savvy enough to make the bitcoin payments. Reports are that after hacking computer systems in over 100 countries they only raised a couple ten thousand dollars...

For those not paying attention, these exploits were part of the hacking tools leaked from the NSA back a few weeks ago... expect more not less of this nasty business..

JR

 

[dmp]

One perhaps amusing anecdote about bitcoin is that the recent ransomware hack requires a bitcoin payment of $300 to free up the locked files, BUT  the vast majority of hacked systems were still running obsolete (windows XP) systems by people not tech savvy enough to make the bitcoin payments. Reports are that after hacking computer systems in over 100 countries they only raised a couple ten thousand dollars...

For those not paying attention, these exploits were part of the hacking tools leaked from the NSA back a few weeks ago... expect more not less of this nasty business..

And from what I can tell, paying the ransom doesn't unlock the computer. More than likely, the bad guys won't unlock systems that paid. Probably why not many people are paying.

Bitcoin is getting a lot of negative press with this.  But the NSAs role is pretty bad here. They knew about the exploit and had apparently made malware to exploit it already?

Use linux for a secure computing environment - that's what I do.  And back up your data.

 

[JohnRoberts]

I take gold as a counterindicator.
Apart from stock tips, I think we covered it all already, ranging from buying a house with land to start farming (own produce), stocking whisky supply as new currency, brewing own beer, maybe getting a gun with ammunition (for when the rough gets tough), and picking up a robot for house cleaning and caregiving (iRobot, or: Intuitive Surgical, Rockwell, Google etc).

Gold is (was) a hedge against currency and inflation, I don't own enough to benefit or lose from large moves.

I have been brewing my own beer for decades but I do not consider it an investment, just a hobby with almost immediate gratification.

An old friend of mine has been accumulating .22 cal ammunition as a store of wealth and exchange come the revolution. I truly hope he is wrong.

Maybe here are two more:

- Get a fancy BBQ and regularly invite all your neighbours over.

I am not big on burning meat... while it tastes good there are reportedly carcinogens developed by the high heat... Since cancer has already taken too many close relatives I watch what I eat and how I cook it. I attached a picture of my DIY smoker conversion. I was given the old charcoal smoker/grill by a neighbor (actually gave me two of them). I added an electric hot plate, and electronic temp controller to make it cybernetic. I had to add insulation to the outside to help it reach higher temperatures. While I cold smoked salmon at easily reached more modest temps. In fact it was hard keeping the temps low enough for cold smoking since the wood chips making the smoke gave off extra heat.

I have been thinking about a neighborhood party...  Decades ago while still working at Peavey I would set up a live band in my living room and share gallons of home brew beer (a huge batch of chili, and barbecued chicken)...  One of best parties had the chili run out mid afternoon. My parties didn't officially start until saturday evening, but my friends who were working musicians with paying night time gigs, would show up early for beer and chili before going off to work.  ;D My old house band is long gone, dispersed around the country but i wouldn't mind an excuse to get together with several of my neighbors for a more conventional gathering.

- Spend your stash on extensive travelling (probably what I will do)

I have already spent time in a number of countries in connection with my previous job (China, Germany, UK, Mexico, HK, Canada...). About the only place I wanted to visit but hadn't (yet) was Australia so after I quit Peavey, I spent a week in Sydney visiting with an old friend. While everybody else was working the winter NAMM show, I was on Bondi beach getting a sun burn.  8)

Both are good investments. I recommend the second

Travel is not an investment.... Several years ago when a young friend of mine got married in a distant state, i decided to not attend. It would be a major expense for a few minutes of quality time with a friend in the middle of an awkward weekend with strangers I didn't know. Instead I estimated how much the trip and hotel lodging would cost me, then gave him a wedding gift of the equivalent in Berkshire Hathaway stock.  I told him to hold it and use it as a down payment on a house later. He bought a house years later, but never cashed in the stock... He still enjoys watching it go up.  8)
-------
I actually reduced my personal cash horde this week and bought some more stock... I worry that I am buying near a top, but long term I like the companies I bought, so i can ride through a correction or two. I still have dry powder should new opportunities present.

JR

PS: To talk about economics again... has anybody been watching PR debt default? Apparently in a "too big to let them fail" situation because over 20% of US bond funds hold PR debt, some kind of US government bailout is in the works.

PPS: I have been watching the Venezuela situation wrt Citgo.  As Venezuela continues to spiral in and the chance of a debt default increases, the bond buzzards are circling the US based Citgo assets. There are > $10B of claims against the Venezuela government (mostly for seized corporate assets) while declining oil prices make Citgo worth only $6-8B. Not only are there not enough assets to go around, but the Citgo asset is conflicted with Venezuela govt loans from Gazprom for $1B (+?) secured by Citgo collateral. US government will not look favorably on Russia taking US based Citgo assets claiming national security.

 

[dmp]

News today that Ford is planning to layoff 10% of it's workforce. I read 20,000 job cuts of salaried employees.
The auto industry has a rough outlook with car sales dropping and interest rates rising. 

 

[JohnRoberts]

News today that Ford is planning to layoff 10% of it's workforce. I read 20,000 job cuts of salaried employees.
The auto industry has a rough outlook with car sales dropping and interest rates rising.

We are probably past peak auto  sales for now... (perhaps last year was max for new car sales).

Used car market is soft, just about perfect time for me to start shopping.  8)

Hertz rental cars is also hurt by declining value of their used car inventory.  Used car dealers hurting too... Lots of cars coming off lease . Tightening sub prime loan availability just adds to the malaise.

JR

 

[Script]

Too many people are following that advice by jumping in with both feet. Not just with their life/retirement savings but with as much debt as they can get.

Well, such behaviour sounds a bit lacking in self-responsibility, or maybe just plain dumb...

I know you were joking, but they are not investments. No more than any other consumable purchase that increases one's happiness (short term)

Well, I meant it half-jokingly. I was thinking more in terms of "happiness economics".  From Wikipedia:

Leisure activities that are physical, relational, and performed outdoors are correlated with greater feelings of satisfaction with free time [...] Spending time on the internet or watching TV is not associated with higher levels of happiness as compared to these other activities.

Reminds me that I should seriously limit my time spent in front of computers and on the Internet.

Gold is (was) a hedge against currency and inflation

It still seems to some. While central banks have contributed to squash gold as an alternative, several (if not most) EU countries have been hoarding it.

 

[dmp]

One of the fallacies of the modern economic (Capitalist) systems is everyone can share the prosperity.
But what if everyone was wealthy?
Since inflation has always been strongly correlated with people's income and wealth, inflation would skyrocket.
This is a serious, thought provoking question about our world and something I've been thinking about lately.
The current norm depends on the majority of people having relatively stagnant wages, to keep inflation in check.

 

[JohnRoberts]

One of the fallacies of the modern economic (Capitalist) systems is everyone can share the prosperity.

A rising tide lifts all boats, but the promise of capitalism is opportunity for all, not some same result for all, since we all vary in our individual ability and work effort.

But what if everyone was wealthy?

We kind of all are, but it's relative. Poor in the US are wealthy for some other world regions.

Since inflation has always been strongly correlated with people's income and wealth, inflation would skyrocket.

Inflation just changes the value (buying power) of currency. If anything deflation makes our currency worth more, but it postpones purchase decisions and thwarts economic growth. Inflation OTOH lubricates the economy for better and worse while making us all poorer. Inflation makes people feel like they are getting paid more than they are if they get raises in inflated dollars, while they may just be standing still.  It also allows debtor to pay back loans with less valuable currency. Since governments are major debt holders sellers, they get huge benefit from inflation. Inflation targets are intended to keep money supply in sync with economic growth  to maintain relative price stability.

This is a serious, thought provoking question about our world and something I've been thinking about lately.
The current norm depends on the majority of people having relatively stagnant wages, to keep inflation in check.

If anything we are seeing skilled labor shortages in US that will put upward pressure on wages. While you need a skill that people need. Home builders reportedly use a major percentage of illegal immigrants to fill positions, they can't with American workers.

I may sound like a broken record but IMO the real storm on the future horizon, is robotics and automation... Many decent paying jobs we take for granted will disappear sooner than we expect. This is going to be far more disruptive that old school class warfare, that has been with us pretty much forever.

JR

 

[madswitcher]

Having a bit of a lazy day, I came accross a programme on Netflix by Noam Chomsky called "A Requiem for the American Dream". 

I am only part way through but it is a very interesting point of view stating that it is not inequality that is a danger in America, but the extreme inequality, and that in fact, American is not a democracy and never has been since its inception by the founding fathers.  This is because American society is deliberatly based on the vicious circle between wealth and power.  Wealth is used to create power, which, in turn, is used by the wealthy to make them more so.  His premise being that this spiral is far out of control today 

If you haven't seen it yet, I reccommend it.

An interesting watch so far.

Mike

 

[benb]

A rising tide lifts all boats, but the promise of capitalism is opportunity for all, not some same result for all, since we all vary in our individual ability and work effort. We kind of all are, but it's relative.

Not everyone can afford iPhones, though it seems many "poor" people have them. If you seriously can't afford Apple's products, Walmart sells basic Android smartphones starting at $19, with service starting at $40/month. I can't remember when landline service was $40/month, but for over a half century phone service has been considered an essential service. Now it also includes email, Twitter, Facebook, Pokemon Go and lots of other "essential" services.

Since governments are major debt holders sellers, they get huge benefit from inflation.

There's also the progressive income tax system (people with higher income pay a higher percentage of their income in taxes). With inflation, more people move into the higher income tax brackets (even though their real buying power doesn't increase), thus the government gets more tax income. Since (assuming other things are the same) they're paying higher taxes, their real buying power has actually decreased.

As far as I know the tax brackets don't change with inflation, so just inflation itself causes an increase in taxes.

I may sound like a broken record but IMO the real storm on the future horizon, is robotics and automation...

Haven't I been beating that drum in this thread? #riseoftherobots

 

[dmp]

If anything we are seeing skilled labor shortages in US that will put upward pressure on wages. While you need a skill that people need. Home builders reportedly use a major percentage of illegal immigrants to fill positions, they can't with American workers.
I may sound like a broken record but IMO the real storm on the future horizon, is robotics and automation... Many decent paying jobs we take for granted will disappear sooner than we expect.

Home builders have been paying appx the same for 30-40 years. They hire illegal immigrants to reduce payroll expense and increase profit. Look at one of the largest home builders DH Horton trades as NYSEHI
Went from $2 a share in the '90s to $30 today. While capital appreciation has been incredible.
Curious about executive pay while worker's pay stagnated? The chairman made $17 million last year.

Working in technology with an adv engineering degree, I definitely don't feel that "skilled" employees have much power in our economic system. The power is held by the Capital holders. As I've said before, there is an imbalance of power between labor (i.e. the 99%) and capital (i.e. the 1%).

Scarcity is necessary for the 1% to maintain the status quo - of power over the rest.

In a better functioning system, automation and robotics would be a fantastic benefit to humanity - raising the standard of living for all. But in the current system, where a small minority holds most of the wealth and power and must enforce scarcity on the masses,  it is a destabilizing risk on the horizon.

Instead of a capital controlled, profit-driven competitive system, imagine a COOPERATIVE system.
More and more as I've been able to switch to cooperative entities (credit union, co-op grocery store, etc...) I've been very pleased with the results and see it as a better alternative.

 

[JohnRoberts]

Home builders have been paying appx the same for 30-40 years. They hire illegal immigrants to reduce payroll expense and increase profit. Look at one of the largest home builders DH Horton trades as NYSEHI
Went from $2 a share in the '90s to $30 today. While capital appreciation has been incredible.
Curious about executive pay while worker's pay stagnated? The chairman made $17 million last year.

Executive pay depends on how much value was created for the company owners (the stock holders).

Home building is a capital intensive business involving land purchases (often years in advance) and raw materials purchases not to mention a lot of labor. Recently the trade dispute about Canada dumping wood products will raise that material cost too.

I mentioned the percentage of illegal workers as an overt example of law breaking that business and government apparently wink at (surely pervasive in many industries).. I already have a house so I am OK with shutting down all illegal workers and let the chips fall where they may. This cost increase will not come out of the executives share, but increase the cost of new homes. Depending on price sensitivity of the market, the executive may even see increased gross sales on lower volume. Only the new homebuyers (and illegals) get hurt. 

Working in technology with an adv engineering degree, I definitely don't feel that "skilled" employees have much power in our economic system. The power is held by the Capital holders. As I've said before, there is an imbalance of power between labor (i.e. the 99%) and capital (i.e. the 1%).

I have the power of one man one vote...  I do not even have a basic engineering degree (I dropped out sophomore year). I made a living from businesses I started, and was compensated well (very well for living in nowhere MS), at my last real day job... while there over a 15 year period I won several patents, and created a number of very successful products. I was in my judgement compensated for value that i created for my boss (whose name was on all the buildings, while he made a profit off my work effort, it was his capital and risk).

Scarcity is necessary for the 1% to maintain the status quo - of power over the rest.

more divisive rhetoric...  wooden nickels are scarce but not valuable.

In a better functioning system, automation and robotics would be a fantastic benefit to humanity - raising the standard of living for all. But in the current system, where a small minority holds most of the wealth and power and must enforce scarcity on the masses,  it is a destabilizing risk on the horizon.

You are preaching a very old argument,,, what do you use after you take all the wealth from the wealth holders and redistribute it? You can only bleed them so much before you harm the host organism.

Instead of a capital controlled, profit-driven competitive system, imagine a COOPERATIVE system.
More and more as I've been able to switch to cooperative entities (credit union, co-op grocery store, etc...) I've been very pleased with the results and see it as a better alternative.

History is littered with many such "good" ideas... and there are nations that if they can't prosper at least they can serve as bad examples (Venezuela, Cuba, etc).

I think we really do have long term stability issues surrounding how we deal with increased automation and robotics (PCB assembly automation killed my kit business back in the '80s but I survived) . In the short term we also have political issues while I hope we are stable and adult enough to survive the hyperbolic level of whining.

JR

 

[Script]

Bank / Wall Street deregulation under way. Yet still has to pass senate, which is reported as unlikely in this form.

Not sure about every single detail in the bill, but it strikes me as being a bit naive should they really allow US banks fully back to the gambling tables. Dodd-Frank-Act mostly to be undone plus clipping of Consumer Financial Protection Bureau. What do they think are the upsides?

 

[JohnRoberts]

Bank / Wall Street deregulation under way. Yet still has to pass senate, which is reported as unlikely in this form.

A great deal is already underway since past legislation didn't literally write the regulations but tasked the agencies with fleshing out regulations, so they can just undo lots of the small ones.

One interesting tidbit from the new attorney general is that he stopped the prior practice of using fines extracted from large institutions as a slush fund to promote one side's political agenda by funding politically motivated  groups with this revenue. Reportedly $3B of bank penalties over mortgage abuses went to non-victim affiliated political groups. In the future all such fines will be used to either directly support the victims harmed by the offense, or returned to the treasury.

Not sure about every single detail in the bill, but it strikes me as being a bit naive should they really allow US banks fully back to the gambling tables. Dodd-Frank-Act mostly to be undone plus clipping of Consumer Financial Protection Bureau. What do they think are the upsides?

Be cautious about over simplifications and generalizations... The too-big to fail bailout after 2007-2008 financial collapse just institutionalized organizations as too big to fail.

I don't recall the Volker rule ever being completely written. And opinions vary about merits of Dodd-Frank.. We seem to always be passing laws about the last crisis, not the next one (like sarbanes -oxley did after Worldcon and Enron meltdowns). 

Pretty important (IMO) is to reform the CFPB which is set up using an unconstitutional funding structure. All government activity requires congressional funding oversight CFPB is funded directly avoiding that oversight. 

The house version of that reform bill now goes to the senate where they will mark up and make changes. The senate is the more deliberative body of the two.  They can't change it too much without 60 votes, so I expect mostly budgetary tweaks that can be treated as reconciliation that only requires simple majority.*** 

To be honest I haven't been paying close attention to this, but it is good to see that congress can walk and chew gum at the same time. The opposition effort is to block all legislative activity.

JR

*** There have been some calls for the senate change the 60 vote threshold "rule" (not law) to prevent filibuster, making it simpler to pass major legislation. Changing rules like this to favor a simple majority now can come back to bite you later when you lose that simple majority. The pendulum of political power regularly oscillates back and forth, so rules that moderate against simple majority power have value longer term (IMO). 

 

[Script]

Didn't know about CFPB. Sounds a bit scandalous. Thanks for pointing that out.

However, lower core capital quotas and less 'stress tests' don't sound very convincing to my ears when it comes to preventing banksters from champaign tap dancing again with private investment and tax payer money.

I know I'm generalizing big time. It's just that I don't trust that branch of industry a single inch (never really did and that's all I can say), and even less so when looking at the mix of trading technology and financial products that we have  -- both rather recent inventions. Look at charts, let's say starting 1996 until end of 2011, cos after that it's mainly fuelled by QE (without inflation)...

 

[JohnRoberts]

Didn't know about CFPB. Sounds a bit scandalous. Thanks for pointing that out.

That is one of Elizabeth Warrens pet projects... She designed it to not be answerable to congress, then when she tried to put herself in charge she got gonged.  : Even congress could see how wrong that was.

However, lower core capital quotas and less 'stress tests' don't sound very convincing to my ears when it comes to preventing banksters from champaign tap dancing again with private investment and tax payer money.

The US banks are in relatively good shape... one issue is that all the monetary easing around the world is fungible so support in Europe and elsewhere helps US banks too.  The US is finally going to raise interest rate again (next week I hope)...  The economy and market seems to be ignoring the recent kabuki theater in DC.

I know I'm generalizing big time. It's just that I don't trust that branch of industry a single inch (never really did and that's all I can say), and even less so when looking at the mix of trading technology and financial products that we have  -- both rather recent inventions. Look at charts, let's say starting 1996 until end of 2011, cos after that it's mainly fuelled by QE (without inflation)...

Yes, but that is a larger issue than just the banks... Stock market has become highly correlated because of all the quant trading. If they all decide to zag at the same time the markets will lock up..  Why is the volatility so low..? something doesn't feel right. But I am still long and it is still going up.

Plenty to worry about besides US bank capitalization  (maybe by banks you are talking about new investment vehicles and the like).

JR

 

[Script]

Am thinking about US banks and regulations because of beacon characteristic for EU banks, which still seem in a less than ideal state still, simply because there are still way too many banks across the EU, with each single nation having a handful or two.

Why is the volatility so low..? something doesn't feel right. But I am still long and it is still going up.

Maybe you just answered it yourself. Read backwards? Yeah, one all-time high after another but no signs of euphoria. No popping of champaign bottles to be heard or read about anywhere. Could it be that many are expecting strong inflation (has been dormant for years) to finally kick in? And what would happen when it does?

The US is finally going to raise interest rate again (next week I hope)

Buy on rumour sell on fact?
Could be when exactly?

Also, races for round numbers like 1000 or any other are usually detached from other market developments.

 

[JohnRoberts]

Am thinking about US banks and regulations because of beacon characteristic for EU banks, which still seem in a less than ideal state still, simply because there are still way too many banks across the EU, with each single nation having a handful or two.
Maybe you just answered it yourself. Read backwards? Yeah, one all-time high after another but no signs of euphoria. No popping of champaign bottles to be heard or read about anywhere. Could it be that many are expecting strong inflation (has been dormant for years) to finally kick in? And what would happen when it does?
Buy on rumour sell on fact?
Could be when exactly?

Next meeting is June 13/14  They are expected to raise the rate unless something contradictory to that move happens in the next few days.  While I don't plan to sell on the news (yet)  I bought a couple bank stocks to benefit from the rising interest rate environment. Another industry who benefits from rising interest rates is the payroll processors like ADP and Paychex that earn interest on the cash (float) of payrolls they distribute for small companies.

Also, races for round numbers like 1000 or any other are usually detached from other market developments.

Yup, both alphabet and Amazon closed above 1,000 per share before retreating a couple percent... back in the day, stocks like that would have split by now... even Berkshire hathaway split the B shares.  I think more people are buying indexes than individual stocks these days so share prices don't have the same negative psychological impact.

JR

PS: Speaking of banks Banco Santander (spain) just bought Banco Popular for 1 Euro.... Bank capitalization remains an issue in the EU IMO.