Showing posts from June, 2009

Soccer: Spain 0-USA 2

I like big games. We are looking into going to SA for the world cup next year. To watch Spain win.

And then USA comes along in the cup of confederacies (a warm up to the WC) and wins in semi-finals.

I have seen one of the best defenses in a long time. Mid-field is non-existent, attack is opportunistic and works. Defense in WORLD CLASS.

It reminds me of France in 2008. This is how they defeated Brazil. To be fair, Spain dominated the game in terms of how well they play but it didn't matter. They just couldn't get a single thing through. Well done USA!

Loose monetary policy equals growth

From a bank of Japan official apparently

We intended first to boost the stock and property markets. Supported by this safety net – rising markets – export-oriented industries were supposed to reshape themselves so they could adapt to a domestic-led economy. This step was supposed to bring about an enormous growth of assets over every economic sector. The wealth effect would in turn touch off personal consumption and residential investment, followed by an increase in investment in plant and equipment. In the end, loosened monetary policy would boost real economic growth.

This is the post I did below, but from the mouth of an official. All that this guys says is true, the downside is that "it is true for awhile", namely until the debt repayments come due or the debt burden is too much. Then the same dynamic kicks in reverse. As a politician, who can resist the above logic? The last sentence can be expanded in "In the end, loosened monetary policy would boost real economi…

Crisis for dummies: Consumer inflation vs Asset inflation

The point I will make is quite trivial to understand yet devilishly hard to implement.

When people talk about "inflation" they usually talk of the Consumer Price Index. The CPI includes things such as the price of eggs, milk, clothing etc. It used to include gas but since that number varies too much it has been taken out. CPI is inflation ex-inflation.

Very funny, but CPI is more than misleading, it believe it does not capture real monetary inflation. For a simple reason, a lot of the money created goes to blow asset bubbles. Asset bubbles are not captured in CPI. They masquerade as growth.

Let me ask you, have you ever wondered why the increase in the price of buying a house is not reported as inflation but as economic growth? It is because it is an asset, not an expense. If the price of the asset rises, you rise with it. So saying "the price of housing has risen 10% a year for the past 10 years" does not translate to "the cost of living has risen 10% a y…

Crisis for dummies: Regulation/Deregulation

Markets exist in a regulated medium. Regulation is necessary for markets to function. The question is how much regulation. Lately regulation has lagged innovation. For a bit of perspective there is this interesting chart from the NYT, describing the different agencies and what they oversee.

The Great Depression saw a rash of new regulation coming out. Most importantly, money levels were regulated by the Glass-Steagal act. Besides the separation of investment banks and commercial banks, the fact that debt holding were a regulated multiple of reserves set money levels in the economy. "innovation" such as securitization was developed to bypass said regulation. By selling the debt in the form of MBS and CDO thereof, banks were able to recycle cash, keeping regulatory levels in line but blowing up the credit bubble in the greater economy.

Deregulation takes a big part in the narrative of the financial breakdown. It starts in earnest with Reagan and the whole "laissez fai…

Bad Debt is QE-light

QE is a program that creates and distributes money. It roughly works this way: the FED presses a button and creates $1T worth of 'money' in a computer. They give those 'money bits' to people holding US treasuries, they buy their own debt. They replace UST by USD. USD is redeemable at any time on any good anywhere in the economy. USD is "money". USD floods the market. Note that the economic output has not changed (at least not yet), you just have a larger portion of 'money' making claims on it. So the share we all get is lower and, equivalently, the numerical price on goods goes up, that is monetary driven asset inflation. That is the stated purpose of the FED QE program.

Then think about bad debt. Debt that goes bad. I give you 100, you give me back 20. That's bad debt of 80. Ultimately the 80 just isn't there. But the money is gone, it is in circulation. In the case of QE, there ARE NO assets at all, it is just a claim that is not j…

I am a bear

I am not talking about my short term view on the markets, just my predisposition. In learning about financial markets and the current crisis, I have developed a monetarist view. The biggest factor in driving this crisis and many others has been monetary mass. Monetary mass has grown mainly driven by an ever expanding private debt supply. Securitization enabled by mortgage backed products to flood the market. Money as we know it is nothing but an IOU. If the debt supply increased, so did the money supply.

When that dissapeared the FED stepped in with QE, forgoing any illusion of value creation and just stated its mission: asset and consumer price uplifting in the name of systemic stability. We have the FED QE program to thank for the rally in commodities and the markets. We also have the FED QE program to thank for a VIX that has gone back down (volume on futures, indicating volatility as a proxy for panic or calm) because you can drown any noise by just lifting the base. In rela…

The deleveraging trap and QE

From MacroMan an interesting coverage of household debt ratios from the FED flow of funds report.

The good news from the report, at least if you are a member of the Church of the Second Derivative, is that the pace of decline in household wealth and home equity slowed in Q1. Net wealth fell by "only" $1.3 trillion last quarter, while home equity declined by $450 billion. That compares favourably with losses of $4.8 trillion and $673 billion, respectively, in Q4 of last year. Hey, even the y/y chart has started turning up....good news, right?
Maybe, but when looked at in absolute dollar terms the chart is less encouraging. The wealth destruction in the household sector is breathtaking and providesd an obvious explanation as to why savings have incerased (and, in Macro Man's view, will continue to do so.)

Of course, net wealth may well stabilize in the current quarter courtesy of the stock market rally. Of course, what Mr. Market giveth, he can also taketh away. Meanwhile, a…

OpenRemote is one year old

I just came back from OpenRemote's one year old birthday party, a community meet-up arranged by Jean-Luc Vanhulst from Holland. We were staying outside of Amsterdam in a hotel called citizenM.

CitizenM seems to be a kind of research ground in hotel technology and business models. Affordable luxury is a good slogan. I got frustrated at its pronto remote in the rooms. It is not kosher for a device to wait 15 seconds while "connecting to room" before you can actually get anything done. The iPhone is so quick to reconnect. We were pitching a iPhone replacement. Within a day we had a meeting with Phillips corporate in Eindhoven.

It was good fun, the community has a great make-up. It reminded me of the early days of JBoss. Getting together as an open source community is a fairly rare event by definition of online. Probably because of the JBoss past, the community this time is very professional early on. This is an industry where programmers are making a big splash inte…

Krugman rips Reagan a new one

Paul Krugman must be reading this blog. Fresh from his Nobel he decides the next worthy target is Reagan. So he assaults him in his NYT column. Money shot:

There’s plenty of blame to go around these days. But the prime villains behind the mess we’re in were Reagan and his circle of advisers — men who forgot the lessons of America’s last great financial crisis, and condemned the rest of us to repeat it.

I think I shed a tear. I love the way Krugman writes! so clear, so pedagogical. He rules. Better to attack Reagan than Obama, that's for sure.