My wife tells me you are interested in my take on current events.
Last Thursday the Dow Industrials, the S&P500, and the NASDAQ Composite dropped below their 200 day exponential moving averages (Dow close 10068, 200 EMA 10264; S&P500 closed 1071.6. EMA200 1102.6, NASDAQ closed 2204 EMA200 2223) The Dow and SP500 closed out the week below their EMA200 and the NAS slightly above.
The VIX has been going nuts the last three weeks. Big Boys are hedging downside risk, have been for three weeks. The algorithmic traders should have bolted by now and the markets crashed. Looks like the feds are involved. Note the last thirty minutes of Friday.....
Very bearish for stocks in general. This is a very reliable (as such things go) sell sign. Everybody is waiting for tomorrow, wondering if stocks are going over the cliff. Those that sold last time this happened (me for instance - late 2007) were glad they did.
The Fed printing money and Treasury borrowing recklessly, deficit spending this year larger than both Bush terms, a refusal to deal with Fanny, Freddie, and FHA - who caused this mess, money sent out to shore up friendly politicians and other political supporters instead of Main Street, huge unemployment and getting worse, not better, one tenth of banks not "too big to fail" on the FDIC watch list - makes me wonder if they are really so stupid or are actually malevolent.
Saturday, February 26, 2011
Christmas 2010: Thoughts on the Bond Panic: Pensions: etc: Bear Trader Writes
Notice that Pimco Total Return made a hell of a drop Dec. 8 and has not recovered. Dec.8 took out all the moving averages, including the 400 day SMA, and did so big time. Dec.3 PTTRX was 11.50, Dec. 8 was 10.80, a 6% drop in three trading days. This has never happened before. PTTRX is by far the largest bond fund. Some stability since, see wise crack.
MMT took out the 200 day EMA Dec. 13. Looks to be recovering, maybe. Looks like the FRB (Federal Reserve Board) is buying like a maniac on speed.
10 year Federal bond return was 2.4% Oct. 8, now is 3.346%. This is a 28% drop in price. Some stabilizing the last three days, ditto the "maniac on speed" wise crack.
So. A "real" bond panic? You mean when the lid blows off Japan and Europe Government bonds (sometime in the next two years, sooner rather than later)? Depends on what the USA does in the next weeks. Get Bernanke kenneled, stop monetizing the debt, let USA interest rates rise, (causing a USA bond panic,) run the USA like Cristie does New Jersey, let the Big Boys take their losses in bonds as interest rates return to somewhere more than inflation (say, 4.5% on Fed 90 day notes) and everything will turn out fine in the end. Otherwise the entire world's bonds will crash together simultaneously unless the USD can be the "strong currency of last resort". Otherwise gold and silver will go to the moon. Maybe even a hundred times higher in USD, Yen, and Euros. That would mean gold and silver confiscation, and Weimar - Zimbabwe inflation.
You get your social security check and buy a loaf of bread. Runs on the banks and everyone buying anything at all with it while cash still has some value.
So, "a real bond panic"? One's running now, and the Fed is monetizing like crazy. The dikes are bulging and the Fed is out of fingers.
ON that cheerful note, on to municipalities, states, etc.
The statutes are real hazey, Federaly there is no real way to roll up pension obligations except bankruptcy, Washington DC is talking about some sort of new set of laws to let States, Counties, Municipalities, etc. dump their pension obligations. We shall see.
I don't think that pension law that applies to the private sector applies to government bodies. For sure government entities are not covered by Federal pension reserves requirements applied to the private sector.
The States have sovereign immunity in lawsuits, meaning that if a State does not care to be sued in cannot be forced. Essentially their pension obligations can be terminated by States at will. Then the Feds would probably take it to Federal Court (14th Amendment). California, Illinois, Rhode Island, etc. would plead poverty, and residents of Texas, Wisconsin, and many others would balk at paying amazingly huge out of state government pensions. Also the States can unilaterally de-recognize the public unions, no unions, no contracts, no pensions. The States are not covered by the National Labor Relations Act of 1935, you see. The same is true of the Federal Government - unions are allowed there only because of JFK's Executive Order. A few words on a piece of paper above the President's signature and Federal unions are history.
Have a Merry Christmas!!!
MMT took out the 200 day EMA Dec. 13. Looks to be recovering, maybe. Looks like the FRB (Federal Reserve Board) is buying like a maniac on speed.
10 year Federal bond return was 2.4% Oct. 8, now is 3.346%. This is a 28% drop in price. Some stabilizing the last three days, ditto the "maniac on speed" wise crack.
So. A "real" bond panic? You mean when the lid blows off Japan and Europe Government bonds (sometime in the next two years, sooner rather than later)? Depends on what the USA does in the next weeks. Get Bernanke kenneled, stop monetizing the debt, let USA interest rates rise, (causing a USA bond panic,) run the USA like Cristie does New Jersey, let the Big Boys take their losses in bonds as interest rates return to somewhere more than inflation (say, 4.5% on Fed 90 day notes) and everything will turn out fine in the end. Otherwise the entire world's bonds will crash together simultaneously unless the USD can be the "strong currency of last resort". Otherwise gold and silver will go to the moon. Maybe even a hundred times higher in USD, Yen, and Euros. That would mean gold and silver confiscation, and Weimar - Zimbabwe inflation.
You get your social security check and buy a loaf of bread. Runs on the banks and everyone buying anything at all with it while cash still has some value.
So, "a real bond panic"? One's running now, and the Fed is monetizing like crazy. The dikes are bulging and the Fed is out of fingers.
ON that cheerful note, on to municipalities, states, etc.
The statutes are real hazey, Federaly there is no real way to roll up pension obligations except bankruptcy, Washington DC is talking about some sort of new set of laws to let States, Counties, Municipalities, etc. dump their pension obligations. We shall see.
I don't think that pension law that applies to the private sector applies to government bodies. For sure government entities are not covered by Federal pension reserves requirements applied to the private sector.
The States have sovereign immunity in lawsuits, meaning that if a State does not care to be sued in cannot be forced. Essentially their pension obligations can be terminated by States at will. Then the Feds would probably take it to Federal Court (14th Amendment). California, Illinois, Rhode Island, etc. would plead poverty, and residents of Texas, Wisconsin, and many others would balk at paying amazingly huge out of state government pensions. Also the States can unilaterally de-recognize the public unions, no unions, no contracts, no pensions. The States are not covered by the National Labor Relations Act of 1935, you see. The same is true of the Federal Government - unions are allowed there only because of JFK's Executive Order. A few words on a piece of paper above the President's signature and Federal unions are history.
Have a Merry Christmas!!!
"The Stone Age Did not End because they ran out of Stones";: Bear Trader Writes;
No reason to despair, folks, the tool making sort of humans are setting up to go to REAL 100% renewable energy. Like Sheik Yamani said years ago, "the stone age did not end because we ran out of stones." Yamani was talking about Peak Oil.
Of course, we have to get Washington and Wall Street out of the way. This will be tough. Those people will fight tooth and nail to preserve their wealth and power and influence.
Anyway, folks, "The future's so bright I gotta wear shades". Reach out and grab the opportunity and we will have generations of world wide prosperity. Problems always exist, biosphere needs serious support.
By the way, I am a REAL green, not a watermelon style, "green on the outside, red on the inside" enemy of God's beautiful Earth.
P
Of course, we have to get Washington and Wall Street out of the way. This will be tough. Those people will fight tooth and nail to preserve their wealth and power and influence.
Anyway, folks, "The future's so bright I gotta wear shades". Reach out and grab the opportunity and we will have generations of world wide prosperity. Problems always exist, biosphere needs serious support.
By the way, I am a REAL green, not a watermelon style, "green on the outside, red on the inside" enemy of God's beautiful Earth.
P
Mailbag: A Solution to our Energy Problems: Bear Trader Writes
This take care of petroleum scarcity and reliance on fossil fuels. Let us say that the Government were responsible ("Oh, to dream the impossible dream!"), this could replace most fossil fuels within our lifetime. Also very safe and produces essentially no waste, about the same as pure fusion, see pdf.
There is not enough available uranium to do the job (about a hundred year supply), as most uranium is dissolved in the ocean. Besides, uranium power cycles have well known disadvantages.
Thorium reserves are sufficient for many thousands of years at present energy usage levels. This is being pursued seriously by major actors.
I bet you guys think I am not an optimist. Fah. Realist, yes. Optimist, yes.
The existing "rent seeking" classes are the obstacle, always. Call it the Banker - Government Axis. Corporations are part of this too, but the Banker - Government factions have the real power. Shucks, the Government could pass a law saying "the only persons under law are natural persons" and that would be the end of corporations. So who has the power? Eh?
There is not enough available uranium to do the job (about a hundred year supply), as most uranium is dissolved in the ocean. Besides, uranium power cycles have well known disadvantages.
Thorium reserves are sufficient for many thousands of years at present energy usage levels. This is being pursued seriously by major actors.
I bet you guys think I am not an optimist. Fah. Realist, yes. Optimist, yes.
The existing "rent seeking" classes are the obstacle, always. Call it the Banker - Government Axis. Corporations are part of this too, but the Banker - Government factions have the real power. Shucks, the Government could pass a law saying "the only persons under law are natural persons" and that would be the end of corporations. So who has the power? Eh?
Friday, February 25, 2011
March 2008; Disaster in the Markets
Mailbag; OpEd: "Bear Trader" Writes; On Friday Markets
(Ed.note: The following is an email from last week. It is not intended as investment advice.)
"The Fed has put $1 Trillion into the money center banks and it hasn't been enough to keep them afloat. Bear Stearns went down 47% Friday. The torrent of cash has functionally nationalized the 31 primary dealers, the biggest investment banks. No end in sight. Clinton getting rid of Glass-Steagall and the Greenspan Fed has caused disaster. Barney Frank is pushing for a bill to allow the Big Boys to lie on their balance sheets. The Fed bought $200 Billion of absolute garbage CDOs at full face value last week (there is a fig leaf that these are repos, as if they won't be rolled over "for as long as it takes") and still that is not nearly enough. The Fed has spent over half of it's assets on this so far and their spending has only increased in speed. The Fed will likely have to be recapitalized by summer. "
(Ed.note: The following is an email from last week. It is not intended as investment advice.)
"The Fed has put $1 Trillion into the money center banks and it hasn't been enough to keep them afloat. Bear Stearns went down 47% Friday. The torrent of cash has functionally nationalized the 31 primary dealers, the biggest investment banks. No end in sight. Clinton getting rid of Glass-Steagall and the Greenspan Fed has caused disaster. Barney Frank is pushing for a bill to allow the Big Boys to lie on their balance sheets. The Fed bought $200 Billion of absolute garbage CDOs at full face value last week (there is a fig leaf that these are repos, as if they won't be rolled over "for as long as it takes") and still that is not nearly enough. The Fed has spent over half of it's assets on this so far and their spending has only increased in speed. The Fed will likely have to be recapitalized by summer. "
Sept 2008: On Fannie and Freddie: On Changing the story and much, much more
Mailbag; "Bear Trader Writes": Analysis of Wall Street Journal editing of story re Fanny and Freddie Mac
Interesting that the original story, published in the paper newspaper,
has been re-written on the website to exclude it's most interesting
parts. The foreign bank's influence is a much smaller part of the
current on-line version of the story than I find in yesterday's print
edition, comparatively mentioned only in passing.
What you missed:
Original paragraph #2:
"Meanwhile, new details emerged of the pressures that led up to
Treasury's plan to take the reins o the troubled companies. In the
weeks before the government's intervention, nervous foreign finance
officials barraged Treasury Secretary Henry Paulson and Federal Reserve
officials to find out what was happening with the mortgage giants,
according to people familiar with the matter."
Original paragraph #3:
"Among those making the calls were Asian investors, including the
Chinese, say tow people familiar with the matter. China's four biggest
banks have pared back their holdings in debt of the companies, with Bank
of China Ltd., the largest holder of Fannie and Freddie securities among
Chinese banks, saying earlier this month it sold or allowed to mature
$4.6 Billion of the $17.3 Billion it held as of June 30 - which was down
from more than $20 Billion at the end of last year."
So, Fannie and Freddie suffered a "run on the bank" halted only by the
federal government taking them over. Fannie & Freddie yield spreads
against Treasuries were the highest on record and increasing
exponentially. The American public will pay the bills, a bill of
somewhere between $200 Billion and $1 Trillion. Chris Dodd and Barney
Frank are foaming-at-the-mouth angry because they have lost control of
the goose that has laid them so many personal golden eggs. Political
golden eggs, too, of course. Costs money to "serve the public".
Interesting that the original story, published in the paper newspaper,
has been re-written on the website to exclude it's most interesting
parts. The foreign bank's influence is a much smaller part of the
current on-line version of the story than I find in yesterday's print
edition, comparatively mentioned only in passing.
What you missed:
Original paragraph #2:
"Meanwhile, new details emerged of the pressures that led up to
Treasury's plan to take the reins o the troubled companies. In the
weeks before the government's intervention, nervous foreign finance
officials barraged Treasury Secretary Henry Paulson and Federal Reserve
officials to find out what was happening with the mortgage giants,
according to people familiar with the matter."
Original paragraph #3:
"Among those making the calls were Asian investors, including the
Chinese, say tow people familiar with the matter. China's four biggest
banks have pared back their holdings in debt of the companies, with Bank
of China Ltd., the largest holder of Fannie and Freddie securities among
Chinese banks, saying earlier this month it sold or allowed to mature
$4.6 Billion of the $17.3 Billion it held as of June 30 - which was down
from more than $20 Billion at the end of last year."
So, Fannie and Freddie suffered a "run on the bank" halted only by the
federal government taking them over. Fannie & Freddie yield spreads
against Treasuries were the highest on record and increasing
exponentially. The American public will pay the bills, a bill of
somewhere between $200 Billion and $1 Trillion. Chris Dodd and Barney
Frank are foaming-at-the-mouth angry because they have lost control of
the goose that has laid them so many personal golden eggs. Political
golden eggs, too, of course. Costs money to "serve the public".
2000: Bear Trader writes on the importance of preserving "Capital"
Mailbag: "Bear Trader" Writes:
(Ed.note: "Bear trader" is just a citizen that shares his views with The Observer and his letters in no way consitute investment advice. They do however reflect bearish sentiment. )
The financial website I am most impressed with is Minyanville.com - a
straight shooting bunch.
Major changes in the financial world coming on quickly, and, of course,
the future is impossible to predict (you can sometimes tell what WILL
happen, but not WHEN, and vice versa), but maybe 700 S&P in 2010 - 15. I
think this business will last for decades. There are NO “buy and hold”
investments at the moment; now we have asset deflation with monetary
inflation; the markets are like dancing with drunken elephants.
You might try 5 year Treasuries. Watch the dollar index and exchange
rates especially versus the more stable European currencies (NOT Euros).
Maybe the Yen. The time may come to get out of dollars. I think metals,
over ten years, have not yet hit their lows nor their highs. A tough
market, but the gold divided by silver price is a fairly good indicator
(so far, anyway).
Everything you could do to make money since 1992 in the markets will
loose you money if you don’t know EXACTLY what you are doing. You can
make up lost opportunity a lot easier than lost capital.
(Ed.note: "Bear trader" is just a citizen that shares his views with The Observer and his letters in no way consitute investment advice. They do however reflect bearish sentiment. )
The financial website I am most impressed with is Minyanville.com - a
straight shooting bunch.
Major changes in the financial world coming on quickly, and, of course,
the future is impossible to predict (you can sometimes tell what WILL
happen, but not WHEN, and vice versa), but maybe 700 S&P in 2010 - 15. I
think this business will last for decades. There are NO “buy and hold”
investments at the moment; now we have asset deflation with monetary
inflation; the markets are like dancing with drunken elephants.
You might try 5 year Treasuries. Watch the dollar index and exchange
rates especially versus the more stable European currencies (NOT Euros).
Maybe the Yen. The time may come to get out of dollars. I think metals,
over ten years, have not yet hit their lows nor their highs. A tough
market, but the gold divided by silver price is a fairly good indicator
(so far, anyway).
Everything you could do to make money since 1992 in the markets will
loose you money if you don’t know EXACTLY what you are doing. You can
make up lost opportunity a lot easier than lost capital.
Bear Traders: Tidbit: On the "Little Guy"
Beartrader; tidbit: "The little guy"
Last Sunday I had an opportunity to chat briefly with the "Bear Trader" who has contributed so many articles to the Observer over the last six months, and they have been very prophetic....
He made the comment during our discussion:
"I have to laugh at all the folks that say "I am getting sick and tired of having the little guy pay......"
"That notion is ridiculous"--bear trader said: 'By definition, IF YOU are the one paying....YOU are the little guy. You have been the one paying forever."
Make a note of it.
Last Sunday I had an opportunity to chat briefly with the "Bear Trader" who has contributed so many articles to the Observer over the last six months, and they have been very prophetic....
He made the comment during our discussion:
"I have to laugh at all the folks that say "I am getting sick and tired of having the little guy pay......"
"That notion is ridiculous"--bear trader said: 'By definition, IF YOU are the one paying....YOU are the little guy. You have been the one paying forever."
Make a note of it.
On Thoreau; On Independence; On Whether Thoreau even did his own laundry: Bear Trader
Mailbag: On Thoreau: On Self-Reliance: On Thoreau having his mom do his laundry
(Ed.note: Last Sunday, in conversing with "Bear Trader" he made a comment on the simple life to come if the markets came down this week, and one of the group mentioned Thoreau---and then Bear Trader made a comment about Thoreau having his mom do his laundry--which I disputed. Here is his reply:)
We were talking last Sunday about H. D. Thoreau. I made a reference to
Thoreau, while at Walden Pond, having his mother and sister do his
washing. I remember reading this in an edition of Walden. Here is the
excerpt.
From pages xxii and xxiv of Stephen Fender's introduction to the Oxford
World Classics edition of Walden, available at Amazon.
"The central question is, who is 'Thoreau" There is the man who wrote
Walden and the voice that talks to us out of its pages. The 'Thoreau'
inside Walden 'can do without the post office' and disparages
newspapers. But according to his contemporary, and Walden's first
editor, Frank Sanborn, 'few residents in Concord frequented the post
office more punctually or read the newspapers...more eagerly than
Thoreau'. What looks like a solitary life in the woods was nothing of
the kind. The woods themselves were sparser around Concord and Walden
than at any time before or since in the natural history of the area.
(That is why Emerson wanted Thoreau to plant new trees there.) Walden
Pond was not a wilderness, but a popular resort of the townspeople.
Thoreau did not really 'live' at Walden - more like camp out - and his
life was anything but solitary. He was continually in and out of town,
or receiving visitors at his cabin. Though on p.56 he slyly admits to
having 'dined out occasionally', in fact he ate regularly at other
people's houses in Concord in return for odd jobs. Walter Harding notes
that almost every Sunday dinner was shared with Emerson and his family,
and that on his way back from Concord to the Pond he would call in on
Edmund Hosmer, often staying for supper. Emerson's house was just over
a mile from Walden down Brister's Hill. With equal frequency Thoreau
would call in at the house of his mother and sister on Main St., a walk
of a mile and a half down the railroad tracks to Concord, to eat a meal
and get his washing and mending done, sometimes in return for odd jobs."
ReplyReply All Move...Spam
(Ed.note: Last Sunday, in conversing with "Bear Trader" he made a comment on the simple life to come if the markets came down this week, and one of the group mentioned Thoreau---and then Bear Trader made a comment about Thoreau having his mom do his laundry--which I disputed. Here is his reply:)
We were talking last Sunday about H. D. Thoreau. I made a reference to
Thoreau, while at Walden Pond, having his mother and sister do his
washing. I remember reading this in an edition of Walden. Here is the
excerpt.
From pages xxii and xxiv of Stephen Fender's introduction to the Oxford
World Classics edition of Walden, available at Amazon.
"The central question is, who is 'Thoreau" There is the man who wrote
Walden and the voice that talks to us out of its pages. The 'Thoreau'
inside Walden 'can do without the post office' and disparages
newspapers. But according to his contemporary, and Walden's first
editor, Frank Sanborn, 'few residents in Concord frequented the post
office more punctually or read the newspapers...more eagerly than
Thoreau'. What looks like a solitary life in the woods was nothing of
the kind. The woods themselves were sparser around Concord and Walden
than at any time before or since in the natural history of the area.
(That is why Emerson wanted Thoreau to plant new trees there.) Walden
Pond was not a wilderness, but a popular resort of the townspeople.
Thoreau did not really 'live' at Walden - more like camp out - and his
life was anything but solitary. He was continually in and out of town,
or receiving visitors at his cabin. Though on p.56 he slyly admits to
having 'dined out occasionally', in fact he ate regularly at other
people's houses in Concord in return for odd jobs. Walter Harding notes
that almost every Sunday dinner was shared with Emerson and his family,
and that on his way back from Concord to the Pond he would call in on
Edmund Hosmer, often staying for supper. Emerson's house was just over
a mile from Walden down Brister's Hill. With equal frequency Thoreau
would call in at the house of his mother and sister on Main St., a walk
of a mile and a half down the railroad tracks to Concord, to eat a meal
and get his washing and mending done, sometimes in return for odd jobs."
ReplyReply All Move...Spam
Bear Trader Writes on "Global Warming"
One of the formal rules of science is that one must choose the least hypothesis. As Einstein put it, an hypothesis must however fully model the observations. ("An hypothesis must be as simple as possible, but no simpler.") A simpler hypothesis that does not model (describe, explain) the data must be rejected in favor of an hypothesis which does. In other words, a scientific hypothesis is the least hypothesis that encompasses the observational data.
A climatological model, hypothesis, must encompass all the observed data as well. The atmospheric greenhouse gas climatological hypothesis attempts to model global warming and cooling as a function of carbon dioxide, methane, etc. concentrations in the atmosphere. Over the last decade a new paradigm, a new hypothesis, has evolved showing that the "greenhouse gas" model is inadequate.
Attached pdf is aimed at the public. Very simple really. Very, very convincing.
The recently trumpeted Antarctic ice shelf melting events are explained by the new hypothesis also.
Modern industrial life is not the cause of "global warming".
Anthropogenic Global Warming has gone the way of Lamarck, of the Ptolemaic Earth centered universe, into the dustbin of history. The politicians, business, and media are simply trying to get as much mileage from it as they can irrespective of the truth,as usual. Carbon dioxide "cap and trade" is expected to run trillions of dollars per year making some vastly rich and powerful at the expense of the little guy.
A climatological model, hypothesis, must encompass all the observed data as well. The atmospheric greenhouse gas climatological hypothesis attempts to model global warming and cooling as a function of carbon dioxide, methane, etc. concentrations in the atmosphere. Over the last decade a new paradigm, a new hypothesis, has evolved showing that the "greenhouse gas" model is inadequate.
Attached pdf is aimed at the public. Very simple really. Very, very convincing.
The recently trumpeted Antarctic ice shelf melting events are explained by the new hypothesis also.
Modern industrial life is not the cause of "global warming".
Anthropogenic Global Warming has gone the way of Lamarck, of the Ptolemaic Earth centered universe, into the dustbin of history. The politicians, business, and media are simply trying to get as much mileage from it as they can irrespective of the truth,as usual. Carbon dioxide "cap and trade" is expected to run trillions of dollars per year making some vastly rich and powerful at the expense of the little guy.
2008: Bear Traders writes on the Law or "Large Numbers"
Wednesday, December 17, 2008
Point-Counterpoint: Bear Trader talks on Risk; Hedging: The "Law" of Large Numbers
The Observer wrote to Bear Trader:
> (Insurance folks, option traders, and "hedge folks") describe with some reverence, the "law of numbers" that insurance, or the passing of risk, depends on.
> In reflecting on this, I have looked up the law in wikipedia:
> http://en.wikipedia.org/wiki/Law_of_large_numbers
> and have thought back to the Oct 1986 plunge when a broker asked a technical guru in New York what the charts looked like--to which th eguru replied: In a time of panic, the chartes are meaningless and do not apply....
> the Law of number thus, it seems to me, says that risk can be determined in a large set, if one assumes that only a few items of the set are losses and the pool can effectively distribute the loss among everyone-----the law of numbers does not say that in a time of generalized depression and deflation, that the total risk can be hedged---it cannot be---Indeed the history of mutual funds in bear markets has shown that distributing money around many of plunging funds results in plunging results.,.,,,,,,
> Indeed, when one considers that the Life insurance industry uses commerical real estate investments matched to the life expectancy of their life pool, one would surmise that all the reporting of A Best etc, etc, is simply bogus at this time.
> So---does the, did the, will the....law of numbers bail us out if simple faith and proper ratios of indebtedness does not?
> Talk to me.
> The Observer
>----------------------------
Dear Observer.
Yeah, this "law of numbers" you are getting pushed at you is an argument used by insurance companies to show that they are cool. It seems they claim an algorithmic model, computer model, mathematical model, same things, based on this "rule of large numbers". And, of course, as in so much computer modeling people are use the model wrongly, or don't understand anything about it, or the model has been hopelessly screwed up at it's foundation. I think what we are seeing is a wrong understanding of the idea of "random number".
I have had really very frustrating exchanges with people who have way more than enough math to know better on the web about the nature of "random numbers". They are just wildly screwed up.
My interest in random numbers arose in cryptography, and in the idea that a cryptographic system can be shown to be harder to attack by analysis than with a brute force exhaustive password search. Essentially, if this is true, a large bulk of encrypted materials when examined as elements an array, (that is, value #1, value #2, value #3, value#5.....,value the last), where, say, there are a million new values coming into your analysis system every day and maybe a billion values in your database, so "value the last" is some "value the trillionth", have to be indistinguishable from an array of random numbers.
(A brute force attack on the password can be a chore. Let's say that the password is less than 501 qwerty characters, then the total possibilities are about one followed by 1204 zeros. At one million attacks per second then the attack will exhaust the possibilities in about one followed by 1196 zeros years. If you started at the beginning of time with a trillion processors making a trillion attacks every second then you would still have one followed by 1181 zeros years left to go. Numbers this big are most easily dealt with with logarithms.)
So, back to random numbers. The "law of large numbers" is the (looks to me to be unprovable) idea that a string, an array, a series, of random numbers existing within an upper and lower value bound will tend toward a constant median value, and as the array gains more elements with time the median of ALL the elements will tend to be "closer" to a constant median value.
The problem, of course, is whether the data values in the array are random. If they are not random then the law of large numbers does not apply. Further, if the data values "cluster" around the median in a bell curve sort of way, then the series is and never has been random.
Proving a number series is random, by the way, is impossible. Sometimes it is possible to prove that a number series is not random though.. Google "tests of randomness". It is therefore bogus to use the "law of large numbers" in writing insurance. More accurate, and more like what actuaries use, are trend following curve fitted models. You take the birth, death, astrology charts, interest rates, whatever-you-like-time-series, as data and force a curve fit using matrix algebra, and hope that you have found the independent variables (which you won't have). Independent variables are hard to find. Even when variables correlate over some time interval, or don't, is not a very good clue. Sometimes when you find good independent variables "The Brass" don't like the models built on them (like what caused the recent credit crash). My own experience is that people fear, and therefore hate, the truth generally. After all, reality is just so darn INTRUSIV
Point-Counterpoint: Bear Trader talks on Risk; Hedging: The "Law" of Large Numbers
The Observer wrote to Bear Trader:
> (Insurance folks, option traders, and "hedge folks") describe with some reverence, the "law of numbers" that insurance, or the passing of risk, depends on.
> In reflecting on this, I have looked up the law in wikipedia:
> http://en.wikipedia.org/wiki/Law_of_large_numbers
> and have thought back to the Oct 1986 plunge when a broker asked a technical guru in New York what the charts looked like--to which th eguru replied: In a time of panic, the chartes are meaningless and do not apply....
> the Law of number thus, it seems to me, says that risk can be determined in a large set, if one assumes that only a few items of the set are losses and the pool can effectively distribute the loss among everyone-----the law of numbers does not say that in a time of generalized depression and deflation, that the total risk can be hedged---it cannot be---Indeed the history of mutual funds in bear markets has shown that distributing money around many of plunging funds results in plunging results.,.,,,,,,
> Indeed, when one considers that the Life insurance industry uses commerical real estate investments matched to the life expectancy of their life pool, one would surmise that all the reporting of A Best etc, etc, is simply bogus at this time.
> So---does the, did the, will the....law of numbers bail us out if simple faith and proper ratios of indebtedness does not?
> Talk to me.
> The Observer
>----------------------------
Dear Observer.
Yeah, this "law of numbers" you are getting pushed at you is an argument used by insurance companies to show that they are cool. It seems they claim an algorithmic model, computer model, mathematical model, same things, based on this "rule of large numbers". And, of course, as in so much computer modeling people are use the model wrongly, or don't understand anything about it, or the model has been hopelessly screwed up at it's foundation. I think what we are seeing is a wrong understanding of the idea of "random number".
I have had really very frustrating exchanges with people who have way more than enough math to know better on the web about the nature of "random numbers". They are just wildly screwed up.
My interest in random numbers arose in cryptography, and in the idea that a cryptographic system can be shown to be harder to attack by analysis than with a brute force exhaustive password search. Essentially, if this is true, a large bulk of encrypted materials when examined as elements an array, (that is, value #1, value #2, value #3, value#5.....,value the last), where, say, there are a million new values coming into your analysis system every day and maybe a billion values in your database, so "value the last" is some "value the trillionth", have to be indistinguishable from an array of random numbers.
(A brute force attack on the password can be a chore. Let's say that the password is less than 501 qwerty characters, then the total possibilities are about one followed by 1204 zeros. At one million attacks per second then the attack will exhaust the possibilities in about one followed by 1196 zeros years. If you started at the beginning of time with a trillion processors making a trillion attacks every second then you would still have one followed by 1181 zeros years left to go. Numbers this big are most easily dealt with with logarithms.)
So, back to random numbers. The "law of large numbers" is the (looks to me to be unprovable) idea that a string, an array, a series, of random numbers existing within an upper and lower value bound will tend toward a constant median value, and as the array gains more elements with time the median of ALL the elements will tend to be "closer" to a constant median value.
The problem, of course, is whether the data values in the array are random. If they are not random then the law of large numbers does not apply. Further, if the data values "cluster" around the median in a bell curve sort of way, then the series is and never has been random.
Proving a number series is random, by the way, is impossible. Sometimes it is possible to prove that a number series is not random though.. Google "tests of randomness". It is therefore bogus to use the "law of large numbers" in writing insurance. More accurate, and more like what actuaries use, are trend following curve fitted models. You take the birth, death, astrology charts, interest rates, whatever-you-like-time-series, as data and force a curve fit using matrix algebra, and hope that you have found the independent variables (which you won't have). Independent variables are hard to find. Even when variables correlate over some time interval, or don't, is not a very good clue. Sometimes when you find good independent variables "The Brass" don't like the models built on them (like what caused the recent credit crash). My own experience is that people fear, and therefore hate, the truth generally. After all, reality is just so darn INTRUSIV
10/09: On Low Frequency Sound from Turbines etc.;: Bear Trader remembers experiments of youth
Mailbag; Bear Trader writes on "Low Frequencey Sound and Wind Turbines"
Wednesday October 21, 2009
What effect does low frequency sound generated by wind turbines have on people’s living within range of the effects?
This is a difficult question to answer scientifically. The issue is intensely political in nature.
Myself, from curiosity, years ago I set up low frequency loudspeaker driven resonators in my home. There are interesting effects. I expect that at least some of the criticism aimed at wind turbines’ low frequency effects is valid. As a result of my earlier experiments I would sell real estate before it was so affected.
Aerodynamic effects caused by the blades generate wind turbine low frequency noise. The air pressure very close to the blades in the “upstream” or “upwind” direction is higher than the air pressure very close to the blades in the “downstream” or “downwind” direction. The higher pressure on the “front” of the blades combined with the lower pressure on the “back” are what causes the blades to turn. What is happening is exactly the same as an airplane’s wing; the difference in pressure is what makes the wing “lift”. In the wind turbine’s case the blade is so built as to have “lift” in the direction needed to cause the turbine to turn (even though loaded with a power generator) instead of causing flight. As the air spills over and then off of the wing, or over and off the wind turbine blade, the higher pressure air flows into the lower pressure air, causing a rapid increase in air velocity, which is what causes sound. An “eddy” of spinning air is formed, which is continuously being “pulled off” by the moving wing or turning turbine blade, forming downstream vortices. In the case of wind turbine blades (and airplane wings) every effort is taken to reduce waste energy contained in these vortices. The vortices cannot be eliminated but can be made to contain less energy, meaning that the vortices will be relatively less abruptly curved and with less rotational velocity. A decrease in rotational velocity and vortex curvature means a decrease in the frequency of sound emission. We see this in the sound spectra emitted by wind turbines.
So this is where the low frequency sound is coming from. Those who have heard tornadoes note the great intensity of their low frequency sound; same thing is happening here on a much smaller scale.
I suspect many folks are not comfortable with decibels, abbreviated dB. Human hearing has a great range of sensitivity to sound pressure. The least sound pressure detectable by most young ears is 0.00002 newtons per square meter (called a “pascal”). This is 0.000000029 pounds per square inch. It is defined as zero dB sound pressure level. This is a pressure. The power of a sound is proportional the square of the pressure.
The decibel is a logarithmic function. A 10 dB increase means an increase in sound pressure of ten times. Another 10 dB increase means another increase of ten times in sound pressure (and 100 times sound power). One can see that a 20 dB increase is an increase of 10 times 10 times, or an increase of 100 times in sound pressure, and 10,000 times in sound power. Similarly an increase of 30 dB means a sound pressure increase of 1000 times. A sound pressure of 100 dB is then 10x10x10x10x10x10x10x10x10x10, or 10,000,000,000 times. In terms of pounds per square inch, this is 290 pounds per square inch. A loud rock concert (or ear buds maxed out) can measure 110 dB. This is a sound pressure level of 1.5 tons per square inch. Hearing damage ensues. Many car audio installs can hit 120 dB (15 tons per square inch). Shock waves start at 180 dB and work up.
Back to wind turbines, finally!
From the graph I sent you earlier, the representative wind turbine producing a 55 dB(A) noise sound pressure level would produce very low frequency sound of about 100 dB.
This means that the sound pressure caused by very low frequency sound is 45 dB more intense than what is measured using the dB(A) curve. This is the same thing as saying that the sound pressure at very low frequencies is about 40,000 times greater, and therefore 1,600,000,000 more sound power, than what the decibel meter reads when using the dB(A) scale. This means that there is a lot, a lot, of very low frequency sound emitted.
All of this assumes that the measurements were taken correctly so as to allow correction of the measurements to the standard point source at one meter. I am very skeptical about that.
What are the effects of this much very low frequency sound on neighboring human beings? Well, this is a matter of intense political debate; with the pro wind energy people saying such sound is “inaudible”, amongst other things. Certainly I found, in my decades ago experiments, that twenty cycles per second (“Hertz”, hz) at about 80 dB couldn’t be “heard” very well with the ears but had a strong effect on me. Instead of “hearing” with my ears I was “hearing” with my whole body; I remember a deep shaking in the gut and spiders crawling on my skin.
Very low frequency sound goes through house walls like they weren’t there. Even eight inches of concrete isn’t much of a barrier (1 or 2 dB).
Low frequency sound propagation is just now being studied seriously (mostly in Europe, anyone trying this in the USA would never get funding). One thing is well known is that during atmospheric temperature inversions, that is, during times when the air temperature is higher as you go upwards, low frequency sound will be bent, refracted, back toward the ground instead of escaping into the higher atmosphere. In our area we have frequent temperature inversions at night during the winter there is little wind. The ground fog we are so used to is a sign of temperature inversion as the fog is caused by lower air temperatures near the ground than higher up. During these times the homeowner should experience higher very low frequency sound levels and the effects would be noticed over greater distances and a wider area.
Am thinking about buying the tools to do a bit of measurement work in this field. Should be possible to get started with $10,000 maybe.
Wednesday October 21, 2009
What effect does low frequency sound generated by wind turbines have on people’s living within range of the effects?
This is a difficult question to answer scientifically. The issue is intensely political in nature.
Myself, from curiosity, years ago I set up low frequency loudspeaker driven resonators in my home. There are interesting effects. I expect that at least some of the criticism aimed at wind turbines’ low frequency effects is valid. As a result of my earlier experiments I would sell real estate before it was so affected.
Aerodynamic effects caused by the blades generate wind turbine low frequency noise. The air pressure very close to the blades in the “upstream” or “upwind” direction is higher than the air pressure very close to the blades in the “downstream” or “downwind” direction. The higher pressure on the “front” of the blades combined with the lower pressure on the “back” are what causes the blades to turn. What is happening is exactly the same as an airplane’s wing; the difference in pressure is what makes the wing “lift”. In the wind turbine’s case the blade is so built as to have “lift” in the direction needed to cause the turbine to turn (even though loaded with a power generator) instead of causing flight. As the air spills over and then off of the wing, or over and off the wind turbine blade, the higher pressure air flows into the lower pressure air, causing a rapid increase in air velocity, which is what causes sound. An “eddy” of spinning air is formed, which is continuously being “pulled off” by the moving wing or turning turbine blade, forming downstream vortices. In the case of wind turbine blades (and airplane wings) every effort is taken to reduce waste energy contained in these vortices. The vortices cannot be eliminated but can be made to contain less energy, meaning that the vortices will be relatively less abruptly curved and with less rotational velocity. A decrease in rotational velocity and vortex curvature means a decrease in the frequency of sound emission. We see this in the sound spectra emitted by wind turbines.
So this is where the low frequency sound is coming from. Those who have heard tornadoes note the great intensity of their low frequency sound; same thing is happening here on a much smaller scale.
I suspect many folks are not comfortable with decibels, abbreviated dB. Human hearing has a great range of sensitivity to sound pressure. The least sound pressure detectable by most young ears is 0.00002 newtons per square meter (called a “pascal”). This is 0.000000029 pounds per square inch. It is defined as zero dB sound pressure level. This is a pressure. The power of a sound is proportional the square of the pressure.
The decibel is a logarithmic function. A 10 dB increase means an increase in sound pressure of ten times. Another 10 dB increase means another increase of ten times in sound pressure (and 100 times sound power). One can see that a 20 dB increase is an increase of 10 times 10 times, or an increase of 100 times in sound pressure, and 10,000 times in sound power. Similarly an increase of 30 dB means a sound pressure increase of 1000 times. A sound pressure of 100 dB is then 10x10x10x10x10x10x10x10x10x10, or 10,000,000,000 times. In terms of pounds per square inch, this is 290 pounds per square inch. A loud rock concert (or ear buds maxed out) can measure 110 dB. This is a sound pressure level of 1.5 tons per square inch. Hearing damage ensues. Many car audio installs can hit 120 dB (15 tons per square inch). Shock waves start at 180 dB and work up.
Back to wind turbines, finally!
From the graph I sent you earlier, the representative wind turbine producing a 55 dB(A) noise sound pressure level would produce very low frequency sound of about 100 dB.
This means that the sound pressure caused by very low frequency sound is 45 dB more intense than what is measured using the dB(A) curve. This is the same thing as saying that the sound pressure at very low frequencies is about 40,000 times greater, and therefore 1,600,000,000 more sound power, than what the decibel meter reads when using the dB(A) scale. This means that there is a lot, a lot, of very low frequency sound emitted.
All of this assumes that the measurements were taken correctly so as to allow correction of the measurements to the standard point source at one meter. I am very skeptical about that.
What are the effects of this much very low frequency sound on neighboring human beings? Well, this is a matter of intense political debate; with the pro wind energy people saying such sound is “inaudible”, amongst other things. Certainly I found, in my decades ago experiments, that twenty cycles per second (“Hertz”, hz) at about 80 dB couldn’t be “heard” very well with the ears but had a strong effect on me. Instead of “hearing” with my ears I was “hearing” with my whole body; I remember a deep shaking in the gut and spiders crawling on my skin.
Very low frequency sound goes through house walls like they weren’t there. Even eight inches of concrete isn’t much of a barrier (1 or 2 dB).
Low frequency sound propagation is just now being studied seriously (mostly in Europe, anyone trying this in the USA would never get funding). One thing is well known is that during atmospheric temperature inversions, that is, during times when the air temperature is higher as you go upwards, low frequency sound will be bent, refracted, back toward the ground instead of escaping into the higher atmosphere. In our area we have frequent temperature inversions at night during the winter there is little wind. The ground fog we are so used to is a sign of temperature inversion as the fog is caused by lower air temperatures near the ground than higher up. During these times the homeowner should experience higher very low frequency sound levels and the effects would be noticed over greater distances and a wider area.
Am thinking about buying the tools to do a bit of measurement work in this field. Should be possible to get started with $10,000 maybe.
2009: Why Reinsurers all have little post boxes in the Burmuda, and much, much more: Bear Trader
Mailbag: Bear Trader: Answers the question why all the ReInsurers are in the Bahamas and Bermuda?
Certainly the credit worthiness of reinsurers generally has been a subject of much comment and speculation recently. The basic issue is what insurance industry people call the "solvency margin" of the various counterparties. In other words, push come to shove, will the reinsurers be willing and able to pay their contractual obligations?
Generally the reinsurer picks up more, or most, of the liability for "unlikely", "black swan" events. One can see that the original insurer is trading exposure to credit risk for insurance risk.
The reinsurer then reinsures his insurance risk, and the reinsurer's reinsurer reinsures his insurance risk, and often the original insurer ends up selling reinsurance to reinsurers that contain insurance risk written by the original insurer. This stuff goes around in circles, like a tangle of spaghetti, ending up in very much as seen in the interlocking derivatives markets. As in CDOs, CDSs, CMBSs, etc. one has the risk of companies becoming "too big to fail" as in dominoes falling creating a market collapse. A single reinsurer failure could easily result in insurance risk returning to an undercapitalized issuer, causing this insurer to collapse, returning insurance risk to other insurers causing them to collapse, etc.
Could a sufficient "black swan" event cause a collapse of the entire insurance industry? The question answers itself. Of course it can. Asbestos exposure claims nearly did the job. Only government intervention stopped collapse of the insurance industry.
Warren Buffett's GenRe has become such a power because people think Buffet creditworthy compared to alternatives. Buffett bought General Re at a Buffett like price because General Re was engaged in various financial hanky panky; in fact, former General Re chief executive Robert Ferguson just got sentenced to two years hard time for his part in an AIG accounting scam along with Christian Milton, Elizabeth A. Monrad, Robert D. Graham and Christopher P. Garand, all former General Reinsurance Corp. executive officers. Hank Greenberg, the now ex-Gen Re dictator, is considered an unindicted co-conspirator. Just the tip of the iceberg, this.
An entertaining and educational reinsurance blog is:
http://www.sexyre.com/
Many reinsurers, reaching for the "gold ring", got involved in the recently collapsed "investment banking" craze. One of the oldest and most respected reinsurance firms, Swiss Re, has been much in the news of late and is scrambling for capital. Swiss Re says it is not seeking government funds.
Lots of uproar about the insurance, reinsurance and banking firm Fortis in the news. Essentially the Belgian government tried to sell the profitable part of Fortis to PNB Paribas to avoid having to make bank depositors whole but didn't figure on the Chinese insurance firm Ping An, the largest Fortis shareholder, out manuevering them. (you are going to see a LOT more of this sort of thing). The Belgian government is going to have to pony up a lot more taxpayer money to get out of it's obligations. Need I point out that the insurance side is heavy into reinsurance. In the end the public always pays, or, more accurately, the "little guy" always pays, because that is what "little guy" means. Whover gets stuck with the bill, is, by definition, the little guy.
Of course, their is AIG. The taxpayer is out about $200 Billion so far on this "too big to fail" reinsurer and $ Many Hundreds of Billions at risk in guarantees.
We have covered the travails of the reinsurance industry as has been reported in the mass media. To keep the insurance industry from going belly up has taken a lot of money so far.
About Bermuda.
Bermuda domiciles fourteen of the largest twenty five reinsurance firms in the world based on gross premiums written. This has come from zero in fifteen years. These are "class one" firms. There are five "classes" of Bermudan reinsurance companies, one through five, with five being the lowest. Most of the "five" rated firms are post-Katrina.
After a lot of digging I find the Bermudan reinsurance business fully opaque. The two year end statements I could find are useless. My judgment is that a lot of them function as SIVs, Special Investment Vehicles (remember Enron?) for various enterprises. I have no evidence that any of the torrent of money coming into the reinsurance business there is laundered. Need I say more?
It does appear that legitimate reinsurance can be purchased there however. Reinsurer's reserves were sufficient to weather Katrina. Somebody has deep pockets.
Certainly the credit worthiness of reinsurers generally has been a subject of much comment and speculation recently. The basic issue is what insurance industry people call the "solvency margin" of the various counterparties. In other words, push come to shove, will the reinsurers be willing and able to pay their contractual obligations?
Generally the reinsurer picks up more, or most, of the liability for "unlikely", "black swan" events. One can see that the original insurer is trading exposure to credit risk for insurance risk.
The reinsurer then reinsures his insurance risk, and the reinsurer's reinsurer reinsures his insurance risk, and often the original insurer ends up selling reinsurance to reinsurers that contain insurance risk written by the original insurer. This stuff goes around in circles, like a tangle of spaghetti, ending up in very much as seen in the interlocking derivatives markets. As in CDOs, CDSs, CMBSs, etc. one has the risk of companies becoming "too big to fail" as in dominoes falling creating a market collapse. A single reinsurer failure could easily result in insurance risk returning to an undercapitalized issuer, causing this insurer to collapse, returning insurance risk to other insurers causing them to collapse, etc.
Could a sufficient "black swan" event cause a collapse of the entire insurance industry? The question answers itself. Of course it can. Asbestos exposure claims nearly did the job. Only government intervention stopped collapse of the insurance industry.
Warren Buffett's GenRe has become such a power because people think Buffet creditworthy compared to alternatives. Buffett bought General Re at a Buffett like price because General Re was engaged in various financial hanky panky; in fact, former General Re chief executive Robert Ferguson just got sentenced to two years hard time for his part in an AIG accounting scam along with Christian Milton, Elizabeth A. Monrad, Robert D. Graham and Christopher P. Garand, all former General Reinsurance Corp. executive officers. Hank Greenberg, the now ex-Gen Re dictator, is considered an unindicted co-conspirator. Just the tip of the iceberg, this.
An entertaining and educational reinsurance blog is:
http://www.sexyre.com/
Many reinsurers, reaching for the "gold ring", got involved in the recently collapsed "investment banking" craze. One of the oldest and most respected reinsurance firms, Swiss Re, has been much in the news of late and is scrambling for capital. Swiss Re says it is not seeking government funds.
Lots of uproar about the insurance, reinsurance and banking firm Fortis in the news. Essentially the Belgian government tried to sell the profitable part of Fortis to PNB Paribas to avoid having to make bank depositors whole but didn't figure on the Chinese insurance firm Ping An, the largest Fortis shareholder, out manuevering them. (you are going to see a LOT more of this sort of thing). The Belgian government is going to have to pony up a lot more taxpayer money to get out of it's obligations. Need I point out that the insurance side is heavy into reinsurance. In the end the public always pays, or, more accurately, the "little guy" always pays, because that is what "little guy" means. Whover gets stuck with the bill, is, by definition, the little guy.
Of course, their is AIG. The taxpayer is out about $200 Billion so far on this "too big to fail" reinsurer and $ Many Hundreds of Billions at risk in guarantees.
We have covered the travails of the reinsurance industry as has been reported in the mass media. To keep the insurance industry from going belly up has taken a lot of money so far.
About Bermuda.
Bermuda domiciles fourteen of the largest twenty five reinsurance firms in the world based on gross premiums written. This has come from zero in fifteen years. These are "class one" firms. There are five "classes" of Bermudan reinsurance companies, one through five, with five being the lowest. Most of the "five" rated firms are post-Katrina.
After a lot of digging I find the Bermudan reinsurance business fully opaque. The two year end statements I could find are useless. My judgment is that a lot of them function as SIVs, Special Investment Vehicles (remember Enron?) for various enterprises. I have no evidence that any of the torrent of money coming into the reinsurance business there is laundered. Need I say more?
It does appear that legitimate reinsurance can be purchased there however. Reinsurer's reserves were sufficient to weather Katrina. Somebody has deep pockets.
On Coal Gasification: Bear Trader does the analysis
Mailbag: Bear Trader: Energy: Coal Gassification clarified
Observer wrote to Bear Trader:
Recently I came upon an article about the gassification of oil, and it appears there is a new plant that can do this. I wonder about how this would stack up in your analysis of energy efficiency. Warren Buffett is betting big bucks on the Great Northern Railway, and there has been strong movement or support in coal stocks or MLP in coal and natural resources---I wonder if coal is moving to the forefront, as corn, wind, and sun appear not to have the numbers come out for a decent return. What is your analysis??
Bear Trader Wrote:
Coal gasification, natural gas, oil, coal, coal derived liquids, nuclear, and all of the green "renewable" delusions have to be individually analyzed because over time they are all fungible.
"Fungible?" you ask. Indeed. The chemistry of "synthetic" production of hydrocarbons has been well understood for a hundred years. No real improvement can be expected over the Fischer-Tropsch synthesis used by the Third Reich seventy years ago and by Sasol today (Sasol makes gas and oil from coal and at other locations makes liquid hydrocarbons from natural gas. The process used is the same, differing only in details related to feedstocks.) So, you can make gas, oil, and coal interchangeably from gas, oil, or coal.
Current state of natural gas:
Gas well output in relatively impermeable geologic strata (the gas has to flow through the pores in the rock to get to the well bottom; there is a lot of gas in rock that doesn't flow enough gas to pay for the drilling) has been improved by forcing extreme pressure oil down the well (20 to 100 Tons per square inch). The rock breaks along sedimentary layers, oil creeps along these cracks, forcing them further open. This is an expensive process.
Lots of natural gas drillers put this brand new, just available tech into effect in 2008 as natural gas rose to $13.50. This resulted in massive increase in natural gas supply as these new wells came on line at nearly all the same time. The well drillers had to sell the gas for whatever they could get to keep the banks from taking everything, and now the natural gas price is about $5.75. The thing to remember here is that this deep rock hydraulic fracturing technology cannot break even with $5.75 gas; more like $10.00. One must realize that these wells won't flow for very long without a lot more hydraulic fracturing being done on them, and that won't last all that long either, since these wells simply have less natural gas per unit of ground area than we are used to. New wells will have to be drilled more often and over a larger area to maintain a constant output. Expensive.
So, I think Wall Street is wrong, and will be surprised by a sooner than expected rise in natural gas prices. Perhaps the equilibrium price is double the present price. Perhaps the peak will be three times. This assumes a continuation of the present U-6 unemployment rate of 18%. If times are better demand will be higher and so will peak prices.
Current situation of oil:
The most important factor is East Asia and other emerging markets. They have been exporting increasingly heavily in recent years, have more dollars, and more dollars to spend as a result, so being "more wealthy" in dollars means they find oil less expensive over time compared to us here in the USA. As a result their increase in oil consumption as a percentage over time is something like two or three times the USA - and I am including Uganda, Somalia, et al., in my calculations. Remember that China buys more cars every year than does the USA, and that China and India combined buy more than the G-7. Oil consumption is rising inevitably. Reserves coming on line are increasingly difficult to produce, under miles of ocean and rock, in the Arctic, and in the most extravagantly politically unstable places (notice how the Chinese deal with this in the Sudan).
The USA will have less and less influence over oil prices as both pricing and political power wane. The next upswing in oil prices will simply have to be lived with. Currently oil is about $80, Coby-Lamson thinks there will be a downswing followed by $100 / barrel next year. Could easily be. That's about $3.40 / gallon.
Nuclear: Cannot be increased rapidly. Lots of political opposition, rather mindless, Yahoo sort. (Swift, of course.)
Renewables: When output, initial cost, and maintenance cost are figured in, including grid improvements, (the necessary "smart grid" will become obsolete about every five - seven years due to technological change) simply cost more in fossil and nuclear energy (and human) than they replace. The only exception is properly done satellite solar power (which both Japan and China are working on seriously. Nero fiddles while Rome burns.)
Getting into Warren Buffet's head:
The purchase of the Burlington Northern - Sante Fe Railroad is a much bigger deal than just controlling northern tier coal. It means Buffet combined with the Union Pacific, controls trans-continental shipping. Chew on that one for a while. Not likely you will see price wars from those two.
The Word on the Street is that Buffet is going to take Goldman-Sachs private in 2010. See
http://blogs.barrons.com/stockstowatchtoday/2009/12/21/doug-kass-2010-predictions-goldman-goes-private-buffett-steps-down-and-tigers-back/
(Kass sees Israel making attack on Iranian nuclear weapon project sites by summer, causing heavy shock to USA economy; in this case I personally expect Iran to try to block Straits of Hormuz, that the US Navy gets involved with a large chance of loss of major US Navy ships. Certainly Ahmadinejad is figuring to try, and has had decades to put multiple plans in place. Real war. Maybe a few nuked cities here in the USA, certainly threats thereof.)
Remember that Enron and Goldman are/were big fans of "cap and trade", figuring to make hundreds and hundreds of billions profit a year trading CO2 rights. Now Goldman should emerge the game-controlling player in cap-and-trade. Buffet figures to make money on coal and coal cap-and-trade financial operations at the same time. After all, the use of coal is going to increase over time, and sizably, unless the politicians are willing to go to rotating blackouts. Electricity, because of cap-and-trade more than any other factor, will increase in price two to four times (in constant dollars) in the next five to ten years. Buffet will make an absolute fortune, just immense, maybe the first trillionaire if he lives so long.
Posted by Evansville Observer at 12:01 PM
Observer wrote to Bear Trader:
Recently I came upon an article about the gassification of oil, and it appears there is a new plant that can do this. I wonder about how this would stack up in your analysis of energy efficiency. Warren Buffett is betting big bucks on the Great Northern Railway, and there has been strong movement or support in coal stocks or MLP in coal and natural resources---I wonder if coal is moving to the forefront, as corn, wind, and sun appear not to have the numbers come out for a decent return. What is your analysis??
Bear Trader Wrote:
Coal gasification, natural gas, oil, coal, coal derived liquids, nuclear, and all of the green "renewable" delusions have to be individually analyzed because over time they are all fungible.
"Fungible?" you ask. Indeed. The chemistry of "synthetic" production of hydrocarbons has been well understood for a hundred years. No real improvement can be expected over the Fischer-Tropsch synthesis used by the Third Reich seventy years ago and by Sasol today (Sasol makes gas and oil from coal and at other locations makes liquid hydrocarbons from natural gas. The process used is the same, differing only in details related to feedstocks.) So, you can make gas, oil, and coal interchangeably from gas, oil, or coal.
Current state of natural gas:
Gas well output in relatively impermeable geologic strata (the gas has to flow through the pores in the rock to get to the well bottom; there is a lot of gas in rock that doesn't flow enough gas to pay for the drilling) has been improved by forcing extreme pressure oil down the well (20 to 100 Tons per square inch). The rock breaks along sedimentary layers, oil creeps along these cracks, forcing them further open. This is an expensive process.
Lots of natural gas drillers put this brand new, just available tech into effect in 2008 as natural gas rose to $13.50. This resulted in massive increase in natural gas supply as these new wells came on line at nearly all the same time. The well drillers had to sell the gas for whatever they could get to keep the banks from taking everything, and now the natural gas price is about $5.75. The thing to remember here is that this deep rock hydraulic fracturing technology cannot break even with $5.75 gas; more like $10.00. One must realize that these wells won't flow for very long without a lot more hydraulic fracturing being done on them, and that won't last all that long either, since these wells simply have less natural gas per unit of ground area than we are used to. New wells will have to be drilled more often and over a larger area to maintain a constant output. Expensive.
So, I think Wall Street is wrong, and will be surprised by a sooner than expected rise in natural gas prices. Perhaps the equilibrium price is double the present price. Perhaps the peak will be three times. This assumes a continuation of the present U-6 unemployment rate of 18%. If times are better demand will be higher and so will peak prices.
Current situation of oil:
The most important factor is East Asia and other emerging markets. They have been exporting increasingly heavily in recent years, have more dollars, and more dollars to spend as a result, so being "more wealthy" in dollars means they find oil less expensive over time compared to us here in the USA. As a result their increase in oil consumption as a percentage over time is something like two or three times the USA - and I am including Uganda, Somalia, et al., in my calculations. Remember that China buys more cars every year than does the USA, and that China and India combined buy more than the G-7. Oil consumption is rising inevitably. Reserves coming on line are increasingly difficult to produce, under miles of ocean and rock, in the Arctic, and in the most extravagantly politically unstable places (notice how the Chinese deal with this in the Sudan).
The USA will have less and less influence over oil prices as both pricing and political power wane. The next upswing in oil prices will simply have to be lived with. Currently oil is about $80, Coby-Lamson thinks there will be a downswing followed by $100 / barrel next year. Could easily be. That's about $3.40 / gallon.
Nuclear: Cannot be increased rapidly. Lots of political opposition, rather mindless, Yahoo sort. (Swift, of course.)
Renewables: When output, initial cost, and maintenance cost are figured in, including grid improvements, (the necessary "smart grid" will become obsolete about every five - seven years due to technological change) simply cost more in fossil and nuclear energy (and human) than they replace. The only exception is properly done satellite solar power (which both Japan and China are working on seriously. Nero fiddles while Rome burns.)
Getting into Warren Buffet's head:
The purchase of the Burlington Northern - Sante Fe Railroad is a much bigger deal than just controlling northern tier coal. It means Buffet combined with the Union Pacific, controls trans-continental shipping. Chew on that one for a while. Not likely you will see price wars from those two.
The Word on the Street is that Buffet is going to take Goldman-Sachs private in 2010. See
http://blogs.barrons.com/stockstowatchtoday/2009/12/21/doug-kass-2010-predictions-goldman-goes-private-buffett-steps-down-and-tigers-back/
(Kass sees Israel making attack on Iranian nuclear weapon project sites by summer, causing heavy shock to USA economy; in this case I personally expect Iran to try to block Straits of Hormuz, that the US Navy gets involved with a large chance of loss of major US Navy ships. Certainly Ahmadinejad is figuring to try, and has had decades to put multiple plans in place. Real war. Maybe a few nuked cities here in the USA, certainly threats thereof.)
Remember that Enron and Goldman are/were big fans of "cap and trade", figuring to make hundreds and hundreds of billions profit a year trading CO2 rights. Now Goldman should emerge the game-controlling player in cap-and-trade. Buffet figures to make money on coal and coal cap-and-trade financial operations at the same time. After all, the use of coal is going to increase over time, and sizably, unless the politicians are willing to go to rotating blackouts. Electricity, because of cap-and-trade more than any other factor, will increase in price two to four times (in constant dollars) in the next five to ten years. Buffet will make an absolute fortune, just immense, maybe the first trillionaire if he lives so long.
Posted by Evansville Observer at 12:01 PM
The Notion of "Equitable Taxes": Bear Traders Meditates: Mailbag
Mailbag: Bear Trader Writes; "Some Thoughts on Equitable Taxes"
Warren Buffet has said that he pays taxes at a lower rate than does his secretary. This is so.
The truly rich make almost all of their income from their investments. When the value of an investment goes up, this is called "capital gains", that is, as return on capital, that is, on money.
Interestingly, from my viewpoint as one of the "little people", capital gains are taxed at a much lower rate than "regular" income from wages, salaries, and the savings I have (taxed as "interest" at my regular rate). So it is for all but a very small portion of the population.
I cannot see why "capital gains" should be taxed as other than regular income. There a bogus arguments based on the idea that a low capital gains rate is merely to recompense for any "capital losses" - hey, I have capital losses, and certainly get no "recompense".
So, how about just abolishing "capital gains" from the tax laws? Income is income, right? Tax "capital gains" as regular income, WHICH IT IS.
Now my point.
Politicians are always laying on the B.S. that they are "for the little guy" and always pushing "the rich should pay their fair share". Well, then, why not get rid of this ridiculous "capital gains" tax treatment? Maybe the Big Boys wouldn't like it, eh? Maybe those Senators with net worth in the hundreds of millions of dollars would have to pay taxes on their incomes? Maybe the Billionairs would be pissed?
So, anyway, you can tell if a politician is lying easily. Are his lips moving?
At least the Pubs don't lie as much as the Dems. "I'm for the little guy" is a lie. Maybe someday a Pol will push for getting rid of special tax treatment for "capital gains" and tax the really rich guy's income the same way as "the little guy's". Nobody since Huey Long has tried it and he died in a hail of bullets - from his own bodyguard. Oh, well, maybe Hell will freeze over.
Warren Buffet has said that he pays taxes at a lower rate than does his secretary. This is so.
The truly rich make almost all of their income from their investments. When the value of an investment goes up, this is called "capital gains", that is, as return on capital, that is, on money.
Interestingly, from my viewpoint as one of the "little people", capital gains are taxed at a much lower rate than "regular" income from wages, salaries, and the savings I have (taxed as "interest" at my regular rate). So it is for all but a very small portion of the population.
I cannot see why "capital gains" should be taxed as other than regular income. There a bogus arguments based on the idea that a low capital gains rate is merely to recompense for any "capital losses" - hey, I have capital losses, and certainly get no "recompense".
So, how about just abolishing "capital gains" from the tax laws? Income is income, right? Tax "capital gains" as regular income, WHICH IT IS.
Now my point.
Politicians are always laying on the B.S. that they are "for the little guy" and always pushing "the rich should pay their fair share". Well, then, why not get rid of this ridiculous "capital gains" tax treatment? Maybe the Big Boys wouldn't like it, eh? Maybe those Senators with net worth in the hundreds of millions of dollars would have to pay taxes on their incomes? Maybe the Billionairs would be pissed?
So, anyway, you can tell if a politician is lying easily. Are his lips moving?
At least the Pubs don't lie as much as the Dems. "I'm for the little guy" is a lie. Maybe someday a Pol will push for getting rid of special tax treatment for "capital gains" and tax the really rich guy's income the same way as "the little guy's". Nobody since Huey Long has tried it and he died in a hail of bullets - from his own bodyguard. Oh, well, maybe Hell will freeze over.
Relections on a Bond Panic: Bear Traders' Special Christmas Message
Mailbag: Bear Trader reflects on a bond panic; on renouncing pensions etc; and holiday wishes
(Ed.note: The Bear Trader is a regular contributor to the Evansville Observer, and his comments are bearish even when giving Holiday Wishes. His bearish views are never to be considered investment advice.)
Notice that Pimco Total Return made a hell of a drop Dec. 8 and has not recovered. Dec.8 took out all the moving averages, including the 400 day SMA, and did so big time. Dec.3 PTTRX was 11.50, Dec. 8 was 10.80, a 6% drop in three trading days. This has never happened before. PTTRX is by far the largest bond fund. Some stability since, see wise crack.
MMT took out the 200 day EMA Dec. 13. Looks to be recovering, maybe. Looks like the FRB (Federal Reserve Board) is buying like a maniac on speed.
10 year Federal bond return was 2.4% Oct. 8, now is 3.346%. This is a 28% drop in price. Some stabilizing the last three days, ditto the "maniac on speed" wise crack.
So. A "real" bond panic? You mean when the lid blows off Japan and Europe Government bonds (sometime in the next two years, sooner rather than later)? Depends on what the USA does in the next weeks. Get Bernanke kenneled, stop monetizing the debt, let USA interest rates rise, (causing a USA bond panic,) run the USA like Cristie does New Jersey, let the Big Boys take their losses in bonds as interest rates return to somewhere more than inflation (say, 4.5% on Fed 90 day notes) and everything will turn out fine in the end. Otherwise the entire world's bonds will crash together simultaneously unless the USD can be the "strong currency of last resort". Otherwise gold and silver will go to the moon. Maybe even a hundred times higher in USD, Yen, and Euros. That would mean gold and silver confiscation, and Weimar - Zimbabwe inflation.
You get your social security check and buy a loaf of bread. Runs on the banks and everyone buying anything at all with it while cash still has some value.
So, "a real bond panic"? One's running now, and the Fed is monetizing like crazy. The dikes are bulging and the Fed is out of fingers.
ON that cheerful note, on to municipalities, states, etc.
The statutes are real hazey, Federaly there is no real way to roll up pension obligations except bankruptcy, Washington DC is talking about some sort of new set of laws to let States, Counties, Municipalities, etc. dump their pension obligations. We shall see.
I don't think that pension law that applies to the private sector applies to government bodies. For sure government entities are not covered by Federal pension reserves requirements applied to the private sector.
The States have sovereign immunity in lawsuits, meaning that if a State does not care to be sued in cannot be forced. Essentially their pension obligations can be terminated by States at will. Then the Feds would probably take it to Federal Court (14th Amendment). California, Illinois, Rhode Island, etc. would plead poverty, and residents of Texas, Wisconsin, and many others would balk at paying amazingly huge out of state government pensions. Also the States can unilaterally de-recognize the public unions, no unions, no contracts, no pensions. The States are not covered by the National Labor Relations Act of 1935, you see. The same is true of the Federal Government - unions are allowed there only because of JFK's Executive Order. A few words on a piece of paper above the President's signature and Federal unions are history.
Have a Merry Christmas!!!
(Ed.note: The Bear Trader is a regular contributor to the Evansville Observer, and his comments are bearish even when giving Holiday Wishes. His bearish views are never to be considered investment advice.)
Notice that Pimco Total Return made a hell of a drop Dec. 8 and has not recovered. Dec.8 took out all the moving averages, including the 400 day SMA, and did so big time. Dec.3 PTTRX was 11.50, Dec. 8 was 10.80, a 6% drop in three trading days. This has never happened before. PTTRX is by far the largest bond fund. Some stability since, see wise crack.
MMT took out the 200 day EMA Dec. 13. Looks to be recovering, maybe. Looks like the FRB (Federal Reserve Board) is buying like a maniac on speed.
10 year Federal bond return was 2.4% Oct. 8, now is 3.346%. This is a 28% drop in price. Some stabilizing the last three days, ditto the "maniac on speed" wise crack.
So. A "real" bond panic? You mean when the lid blows off Japan and Europe Government bonds (sometime in the next two years, sooner rather than later)? Depends on what the USA does in the next weeks. Get Bernanke kenneled, stop monetizing the debt, let USA interest rates rise, (causing a USA bond panic,) run the USA like Cristie does New Jersey, let the Big Boys take their losses in bonds as interest rates return to somewhere more than inflation (say, 4.5% on Fed 90 day notes) and everything will turn out fine in the end. Otherwise the entire world's bonds will crash together simultaneously unless the USD can be the "strong currency of last resort". Otherwise gold and silver will go to the moon. Maybe even a hundred times higher in USD, Yen, and Euros. That would mean gold and silver confiscation, and Weimar - Zimbabwe inflation.
You get your social security check and buy a loaf of bread. Runs on the banks and everyone buying anything at all with it while cash still has some value.
So, "a real bond panic"? One's running now, and the Fed is monetizing like crazy. The dikes are bulging and the Fed is out of fingers.
ON that cheerful note, on to municipalities, states, etc.
The statutes are real hazey, Federaly there is no real way to roll up pension obligations except bankruptcy, Washington DC is talking about some sort of new set of laws to let States, Counties, Municipalities, etc. dump their pension obligations. We shall see.
I don't think that pension law that applies to the private sector applies to government bodies. For sure government entities are not covered by Federal pension reserves requirements applied to the private sector.
The States have sovereign immunity in lawsuits, meaning that if a State does not care to be sued in cannot be forced. Essentially their pension obligations can be terminated by States at will. Then the Feds would probably take it to Federal Court (14th Amendment). California, Illinois, Rhode Island, etc. would plead poverty, and residents of Texas, Wisconsin, and many others would balk at paying amazingly huge out of state government pensions. Also the States can unilaterally de-recognize the public unions, no unions, no contracts, no pensions. The States are not covered by the National Labor Relations Act of 1935, you see. The same is true of the Federal Government - unions are allowed there only because of JFK's Executive Order. A few words on a piece of paper above the President's signature and Federal unions are history.
Have a Merry Christmas!!!
Turning Natural Gas Into Fuel Liquids: Bear Trader Reviews
Mailbag: "Bear Trader" comments on Turning Natural Gas into Fuel Liquids
My belief is that the NYT overestimates the cost and difficulty of producing fuel liquids from natural gas.
SASOL uses what is known as Fischer - Tropsch synthesis to make fuel liquids from coal in South Africa. Fischer - Tropsch synthesis is expensive. The Third Reich had little petroleum available, essentially only from Romania, and produced synthesized coal derived fuel liquids to the max. The official cost of synthetics was about twice the cost of fuel liquids made from Romanian oil, and Germany was paying through the nose for for that stuff. I suspect Fischer -Tropsch from coal in the USA would deliver gasoline at over $10 per gallon.
The American Army Air Force finally bit the bullet and systematically bombed the hell out of the Reich's synthetic fuel plants. The Germans defended them with all their might. It cost the lives of many of our youngsters and maybe a thousand or two of our bombers. Albert Speer (Third Reich Minister of Production) said, after the war, that the English bombing was like terrible body blows but that the American 90%+ destruction of synthetic fuel plants was like having their throats cut.
Anyway. The chemistry of making fuel liquids from a combination of natural gas and coal is way different than what is needed to produce fuel liquids from coal alone. The natural gas can supply the hydrogen needed for what is known as the "solvent refined coal" process, cutting energy waste and initial investment substantially. Not "off the shelf" technology, though, needs some R&D.
Maybe, not including the cost of designing and building the plants, putting in pipelines and railroads (to handle coal) and going for economies of scale - say, replacing one half of oil imports - you could make gasoline that would sell for $4 - $5 a gallon in today's money. The reason I use this relatively high price range is that using this much natural gas on a continuous basis would mean natural gas prices in the order of $10 - $15 per million Btu instead of under $4.
My belief is that the NYT overestimates the cost and difficulty of producing fuel liquids from natural gas.
SASOL uses what is known as Fischer - Tropsch synthesis to make fuel liquids from coal in South Africa. Fischer - Tropsch synthesis is expensive. The Third Reich had little petroleum available, essentially only from Romania, and produced synthesized coal derived fuel liquids to the max. The official cost of synthetics was about twice the cost of fuel liquids made from Romanian oil, and Germany was paying through the nose for for that stuff. I suspect Fischer -Tropsch from coal in the USA would deliver gasoline at over $10 per gallon.
The American Army Air Force finally bit the bullet and systematically bombed the hell out of the Reich's synthetic fuel plants. The Germans defended them with all their might. It cost the lives of many of our youngsters and maybe a thousand or two of our bombers. Albert Speer (Third Reich Minister of Production) said, after the war, that the English bombing was like terrible body blows but that the American 90%+ destruction of synthetic fuel plants was like having their throats cut.
Anyway. The chemistry of making fuel liquids from a combination of natural gas and coal is way different than what is needed to produce fuel liquids from coal alone. The natural gas can supply the hydrogen needed for what is known as the "solvent refined coal" process, cutting energy waste and initial investment substantially. Not "off the shelf" technology, though, needs some R&D.
Maybe, not including the cost of designing and building the plants, putting in pipelines and railroads (to handle coal) and going for economies of scale - say, replacing one half of oil imports - you could make gasoline that would sell for $4 - $5 a gallon in today's money. The reason I use this relatively high price range is that using this much natural gas on a continuous basis would mean natural gas prices in the order of $10 - $15 per million Btu instead of under $4.
"Why the Chinese Want to buy Spanish Debt": Bear Trader Explains
Mailbag: Bear Trader: Why the Chinese want to buy Spanish Debt Explained
Part of the deal with Spain is that the Spanish oil exploration - drilling - production company Repsol gets chunked up some and China gets to buy majority stakes in various pieces. That is, the Spanish Government and Repsol are negotiating with China and Sinopec, the Chinese entity functionally similar to Repsol, to sell China the pieces of Repsol China is interested in. So, China buys Spanish Government bonds and then is allowed to buy the latest deep water drilling technology as well as a lot of other fully modern oil technology from Repsol.
Repsol and Sinopec have already set up a joint venture in Brazil, including the very deep very large under open ocean "pre-salt" deposits off the north shore. Sinopec gets all the technology it wants to copy, naturally.
The East Asian continental shelf appears to be loaded with oil. China is setting up to monopolize any off shore oil production from the Sakhalin Islands south to the Bay of Thailand. This is why they are developing/making new aircraft carriers, stealth fighter - bombers, anti - ship (anti US Navy aircraft carrier, actually) highly sophisticated terminally guided ballistic missiles, etc. China at this time launches more military payloads into earth orbit than does the USA. Japan, Korea, Taiwan, the Philippines, and Viet Nam are very alarmed. Looking at what China is doing militarily it looks like China plans to control the Pacific west of Guam.
And that is why China buys Spanish bonds. Besides showing the European Central Bank and the Bundesbank who is the top dog, that
Part of the deal with Spain is that the Spanish oil exploration - drilling - production company Repsol gets chunked up some and China gets to buy majority stakes in various pieces. That is, the Spanish Government and Repsol are negotiating with China and Sinopec, the Chinese entity functionally similar to Repsol, to sell China the pieces of Repsol China is interested in. So, China buys Spanish Government bonds and then is allowed to buy the latest deep water drilling technology as well as a lot of other fully modern oil technology from Repsol.
Repsol and Sinopec have already set up a joint venture in Brazil, including the very deep very large under open ocean "pre-salt" deposits off the north shore. Sinopec gets all the technology it wants to copy, naturally.
The East Asian continental shelf appears to be loaded with oil. China is setting up to monopolize any off shore oil production from the Sakhalin Islands south to the Bay of Thailand. This is why they are developing/making new aircraft carriers, stealth fighter - bombers, anti - ship (anti US Navy aircraft carrier, actually) highly sophisticated terminally guided ballistic missiles, etc. China at this time launches more military payloads into earth orbit than does the USA. Japan, Korea, Taiwan, the Philippines, and Viet Nam are very alarmed. Looking at what China is doing militarily it looks like China plans to control the Pacific west of Guam.
And that is why China buys Spanish bonds. Besides showing the European Central Bank and the Bundesbank who is the top dog, that
1/9/2011: Bear Trader writes on QE2, QE3 and much, much more
Mailbag: "Bear Trader" writes on QE2, QE3, QE4 and much more:
I sent you my thoughts on China buying Spanish Sovereign bonds.
Those buying bond funds are buying into leverage, as you point out. There are few bond funds operating without it. I could be interested in a bond fund that uses only futures for leverage if they were used prudently. Ah, "prudently", that is the rub.
Comparing the Carter era with the present, I think the Bond Vigilantes nowadays are, on the one hand, benefiting greatly from QE2, and are making money for nothing hand over fist with it, and don't want to be cut off; on the other, nobody in USG bonds wants to cross the FED because the FED just swamps the market with QE2. There is no telling how many Treasuries the FED has bought, but it is in the $Trillions - some think that the FED has bought well over half of the Treasuries coming to market on occasion. I am sure they are targeting 30 years at 4.5% and 10 years at about 3.4% with an absolute upper limit of 4.0%.
The Primary Dealers buy the Federal paper and then immediately sell it to the FED. For some profit, of course.
This is why those in the know sometimes talk about QE3, QE4, QE5, etc., because how do you stop? Unless Happy Days Are Here Again?
This is what is known as "monetizing the debt". Historically this has always lead to massive inflation, not the Carter era variety, but the money killing kind. Bernanke is sure he can handle it, of course. Hubris. A very, very destructive guy.
I sent you my thoughts on China buying Spanish Sovereign bonds.
Those buying bond funds are buying into leverage, as you point out. There are few bond funds operating without it. I could be interested in a bond fund that uses only futures for leverage if they were used prudently. Ah, "prudently", that is the rub.
Comparing the Carter era with the present, I think the Bond Vigilantes nowadays are, on the one hand, benefiting greatly from QE2, and are making money for nothing hand over fist with it, and don't want to be cut off; on the other, nobody in USG bonds wants to cross the FED because the FED just swamps the market with QE2. There is no telling how many Treasuries the FED has bought, but it is in the $Trillions - some think that the FED has bought well over half of the Treasuries coming to market on occasion. I am sure they are targeting 30 years at 4.5% and 10 years at about 3.4% with an absolute upper limit of 4.0%.
The Primary Dealers buy the Federal paper and then immediately sell it to the FED. For some profit, of course.
This is why those in the know sometimes talk about QE3, QE4, QE5, etc., because how do you stop? Unless Happy Days Are Here Again?
This is what is known as "monetizing the debt". Historically this has always lead to massive inflation, not the Carter era variety, but the money killing kind. Bernanke is sure he can handle it, of course. Hubris. A very, very destructive guy.
Bear Trader Reviews Unemployment
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota, who will vote on the interest- rate setting Federal Open Market Committee this year, has said (I can't remember where I read this) that he thinks that "structural" unemployment is about 6% to 8% at this time and will be for the unforeseeable future. When we add in frictional unemployment of 3% we get the unemployment rates we see now. If he is correct then the unemployment we have now will continue for a period of years or decades, who knows? Could be better, could be worse.
Kocherlakota is talking about U-3 unemployment here, that is, presently 9.4% (Apparently 500,000 people dropped out of the job market last month.!!??) I prefer the same technique for measuring unemployment as was used during the Great Depression, though, guess what, unemployment using that metric is worse now than then. Heh.
Discussion of structural unemployment from Wikipedia, which is OK:
http://en.wikipedia.org/wiki/Structural_unemployment
Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labor market and the skills and locations of the workers seeking employment. Even though the number of vacancies may be equal to, or greater than, the number of the unemployed, the unemployed workers may lack the skills needed for the jobs; or they may not live in the part of the country or world where the jobs are available.
Structural unemployment is a result of the dynamics of the labor market and the fact that these can never be as flexible as, e.g., financial markets. Workers are "left behind" due to costs of training and moving (e.g., the cost of selling one's house in a depressed local economy), plus inefficiencies in the labor markets, such as discrimination or monopoly power.
Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.
Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while their skills (including job-searching skills) become "rusty" and obsolete. Problems with debt may lead to homelessness and a fall into the vicious circle of poverty. This means that they may not fit the job vacancies that are created when the economy recovers.
****
The fellow doesn't mention the fellow with thirty or forty years of job experience whose industry just ain't comin' back. The new jobs don't just require retraining, they require a whole different sort of person, smart, willing, capable - and young. Older folks want their experience to count for something. When it doesn't then they join the line to apply for a Wal-Mart greeter job.
Kocherlakota is talking about U-3 unemployment here, that is, presently 9.4% (Apparently 500,000 people dropped out of the job market last month.!!??) I prefer the same technique for measuring unemployment as was used during the Great Depression, though, guess what, unemployment using that metric is worse now than then. Heh.
Discussion of structural unemployment from Wikipedia, which is OK:
http://en.wikipedia.org/wiki/Structural_unemployment
Structural unemployment is a form of unemployment resulting from a mismatch between demand in the labor market and the skills and locations of the workers seeking employment. Even though the number of vacancies may be equal to, or greater than, the number of the unemployed, the unemployed workers may lack the skills needed for the jobs; or they may not live in the part of the country or world where the jobs are available.
Structural unemployment is a result of the dynamics of the labor market and the fact that these can never be as flexible as, e.g., financial markets. Workers are "left behind" due to costs of training and moving (e.g., the cost of selling one's house in a depressed local economy), plus inefficiencies in the labor markets, such as discrimination or monopoly power.
Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.
Structural unemployment may also be encouraged to rise by persistent cyclical unemployment: if an economy suffers from long-lasting low aggregate demand, it means that many of the unemployed become disheartened, while their skills (including job-searching skills) become "rusty" and obsolete. Problems with debt may lead to homelessness and a fall into the vicious circle of poverty. This means that they may not fit the job vacancies that are created when the economy recovers.
****
The fellow doesn't mention the fellow with thirty or forty years of job experience whose industry just ain't comin' back. The new jobs don't just require retraining, they require a whole different sort of person, smart, willing, capable - and young. Older folks want their experience to count for something. When it doesn't then they join the line to apply for a Wal-Mart greeter job.
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