Rate hike!
The Federal Reserve should start tightening monetary policy – spelling higher U.S. interest rates – “sooner rather than later,” said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, on Thursday.
[quote]Bill Roberts wrote:
Do you have a differing approach that can actually meet the obligations?[/quote]
Sure, here’s my approach. Introduce Swedish-style labor-pensions, which conceptually is the same scheme. Then realize that you’re still being screwed unless you can retire early. Sell your house and possessions, move to Thailand, live well.
But seriously, there are no guarantees in life. If social security can’t be saved, then so be it. Let them eat cake, and what not.
[quote]archiewhittaker wrote:
[quote]Bill Roberts wrote:
Do you have a differing approach that can actually meet the obligations?[/quote]
Sure, here’s my approach. Introduce Swedish-style labor-pensions, which conceptually is the same scheme. Then realize that you’re still being screwed unless you can retire early. Sell your house and possessions, move to Thailand, live well.
But seriously, there are no guarantees in life. If social security can’t be saved, then so be it. Let them eat cake, and what not.
[/quote]
Admirable speech Bill. I expect that, soon afterward, you’d be impeached.
The only solution that logically follows is a form of National Socialism. Price controls and a command economy are the only possibility. People will be drafted to work and huge squads of the equivalent of the Brownshirts will enforce the rules.
People will do ANYTHING to get their benefits.
Does anyone know some good strategies to buy stocks at a discount with optioning? I don’t want to pay full price for inflated stocks but long term there has to be a way to profit.
Here’s what I am thinking:
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Find a few good undervalued companies for long term investment that pay dividends with a low PE
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Buy long calls on said companies and sell as soon as those options are in the money.
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Use profits to buy stocks of said company (only in quantities of 100 for contract purposes).
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Write covered calls against owned stock and as soon as the contract expires buy more stocks with profits. If bad news breaks on the company I will short puts deep in the money for insurance and buy more stock as it becomes cheaper with the profits from those shorted puts.
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repeat steps 2 - 5
Essentially I will be getting the stocks for free (or at a discount) so long as I am making correct picks but I will not be collecting an income on these stocks in the short term as I build up my portfolio. The only downside is losing the premium on the options or having to sell my stock if I get called out on my covered calls (or maybe having to buy over priced stocks but this is ok once and a while since my goal is to own the stock in the first place).
Now I just need to figure out which companies fit the profile I am looking for for long term investment. Blue Chips? Am I missing anything?
The premium will get you or you will get called out if you are correct.
Sometimes, I think the best strategy is to stay short term neutral and use butterfly spreads. If you have an upward bias, use calendars.
You can also research condors.
Honestly, in fifteen years of playing the markets, the only real money (and real good money) I have ever made was taking a position, having the courage of my convictions, and buying longer term options in order to give my scenarios long enough to play out. There is nothing worse than just knowing something will happen and acting on it, only to have your options expire thirty days before the move. When in doubt, buy longer…
Jan. 8 (Bloomberg) – Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.
The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943."
Man, it is tough to put your chips in, in a depression like this.
[quote]Headhunter wrote:
Jan. 8 (Bloomberg) – Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.
The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943."
Man, it is tough to put your chips in, in a depression like this.
[/quote]
Didn’t someone here say something about deflation?
[quote]JEATON wrote:
The premium will get you or you will get called out if you are correct.
[/quote]
You mean against the covered calls? But if I get called out then I am selling my stock at a profit so I still will profit and I can also sell my options for a profit as long as they don’t expire too quickly. I could repurchase the stock I am called out on if I wanted…?
I am still thinking long term. I am not expecting a free lunch in the least.
On a covered call, you are paid a certain premium to allow someone else the right, but not the obligation, to buy your stock away at the predetermined price. Great if the stock stays still. OK if the stock goes up and you are taken out. Maybe not so great if it goes down, especially if it goes down appreciably. Now you have to cover the call and sell your stock (if you choose). If you have a long term outlook and do not want to put all the money up for the stock, use Leaps.
When I was doing really well, I actually was buying and selling call and put leaps. If I got my move soon, I sold. If not, but I still believed by instinct, I held.
[quote]JEATON wrote:
[quote]Headhunter wrote:
Jan. 8 (Bloomberg) – Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.
The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943."
Man, it is tough to put your chips in, in a depression like this.
[/quote]
Didn’t someone here say something about deflation?[/quote]
I still trying to figure out why this is deflation? If I choose not to borrow money, am I deflating the money supply? If a bank decides not to lend money at low interest rates, is it deflating the money supply? What if they are investing that money in other areas?
I am just not able to square reduced consumer credit or lending to delflation.
[quote]dhickey wrote:
[quote]JEATON wrote:
[quote]Headhunter wrote:
Jan. 8 (Bloomberg) – Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.
The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943."
Man, it is tough to put your chips in, in a depression like this.
[/quote]
Didn’t someone here say something about deflation?[/quote]
I still trying to figure out why this is deflation? If I choose not to borrow money, am I deflating the money supply? If a bank decides not to lend money at low interest rates, is it deflating the money supply? What if they are investing that money in other areas?
I am just not able to square reduced consumer credit or lending to delflation.
[/quote]
HH actually gave a good example (at least for this forum) when he talked of free and total testosterone in ones blood. If it is not circulating free to work, it might as well not exist.
Again, people talk of all the money the Fed as injected into the system as though they started up the printing presses (without retiring any old bills) and started dumping dollars out of helicopters. What they have done is facilitate credit, by lowering the Fed funds rate and making funds available to banks for lending (especially on mortgages and to a lesser degree cars).
The have also made a lot of money available to hedge funds at virtually 0%, that is limited for the purchase of certain financial stocks like credit card companies and lenders.
So, until they start printing money with abandon, not retiring old banknotes, stop auctioning treasuries and just start paying all their bills with this basically bogus money, you will not see the hyper inflationary forces that so many talk of here and elsewhere.
In conclusion, the Fed has made money available in the form of cheap credit. Joe Plumber and Susie Homemaker aren’t having anything to do with it. They are paying down dept and spending less money. In the meanwhile, the largest component of dollar debt is still mortgages. These keep imploding and ever eroding the value of the remaining mortgages in the pool.
When consumers don’t buy, what do producers do to entice them? Lower prices.
When mortgages are imploding and banks have an overabundance of them on their balance sheets, what do they do to get rid of them? Fire sale! What does this do to the values of the other homes in the surrounding area? Timber…
These are all deflationary forces.
Let me remind you that I have said repeatedly that I hope I am wrong. Deflation is a mother. But there is very solid evidence that this is occurring and therefore I am keeping an eye on it.
Deflation can’t happen because the government will always just spend money to try and solve the problem. What we need is deflation but unfortunately the government realises it can’t live through deflation so being the good Keynesians that they are they are going the inflation route.
We saw the damage the 300 billion last year did the dollar, now we are talking about injecting close to 800 billion this year.
Eventually the government will force the banks to loan the money out and eventually people are going to need to take out money to live. Our economy is completely based on borrowing and lending. If worse comes to worse the government will just spend the money the banks are holding after all we have seen from government how anyone can believe the money will just sit there.
[quote]JEATON wrote:
Again, people talk of all the money the Fed as injected into the system as though they started up the printing presses (without retiring any old bills) and started dumping dollars out of helicopters. What they have done is facilitate credit, by lowering the Fed funds rate and making funds available to banks for lending (especially on mortgages and to a lesser degree cars.
[/quote]
Maybe this is where I am not getting you. If they are making funds available, where are those funds coming from. Eventually the borrower is spending cash on goods. All of this credit is cash at some point. They are either printing currency or they are not. If someone gives me a $50k credit line and I don’t use it, the money supply has not changed. That $50k exists somewhere or it doesn’t. They may decide offer that credit to 10 people against the same reserve, but the reserve is the same regardless. Not all credit holders can spend that $50k. The availble money supply is not $500k
if no one takes the available money, it was never in the money supply. reducing availablity of new money is not deflation. It may slow inflation, but it is not deflation.
Agreed…bogus money that does not count. Hyper inflation can happen in couple of differnt ways. One would be to print currency and equivilents at an absurd rate. This, to me, is the real definition of hyper inflation. You can also have hyper inflationary effects without hyper inflation.
If our currency has effectively being inflated at 15% per year, but inflationary effects only reflect 8%, there are obviously forces at work keeping the dollar stronger than it should be. If speculators are keeping dollar or dollar equivilents out of circulation, they are lessening inflationary effects. If they stop holding additional dollar or dollar equivilents, inflationary effects will more accurately reflect actual inflation. If they dump the dollars they had been holding into the market, inflationary effects will accelerate.
But when they were, that credit was turned into dollars to purchase things. Those dollars came from somewhere.
Agreed, but not sure what this has to do with currency.
Supply and demand. This is why looking at prices and calling it inflation or deflation is dangerous. Prices are only indicators and can indicate more than inflation or deflation.
No. The are deflationary indicators. Unfortunately, they are also susceptable to supply and demand and other market forces that set prices. Changes in prices do not always indicate inflation or deflation.
There are many reasons something may be more or less expensive that have nothing to do with the money supply. Prices often fall in strong economies due to competition from new products, efficiency, shift from spending to savings, etc. None of these are deflation.
Inflation and deflation have the same effect on the market. They cloud market signals. Signals the entire market relies on to make spending, lending, investment, and savings decisions. If they can’t be calculated, or planned for easily, they a both just as harmful.
[quote]John S. wrote:
Deflation can’t happen because the government will always just spend money to try and solve the problem. What we need is deflation but unfortunately the government realises it can’t live through deflation so being the good Keynesians that they are they are going the inflation route.
We saw the damage the 300 billion last year did the dollar, now we are talking about injecting close to 800 billion this year.
Eventually the government will force the banks to loan the money out and eventually people are going to need to take out money to live. Our economy is completely based on borrowing and lending. If worse comes to worse the government will just spend the money the banks are holding after all we have seen from government how anyone can believe the money will just sit there.[/quote]
As the government uses more and more fiat money, there will be less and less inclination to see paper as a store of value. This is a big reason why the dollar price of gold is over $1100. When I was a youngster, it was $35 per ounce. Oil was $2 per barrel.
We may get deflation in the odd sense that eventually NO ONE will accept paper money. No one will sell you anything in exchange for paper money. So, a tube of toothpaste might be 2 cents, but it’ll be in coins containing a speck of gold.
[quote]JEATON wrote:
[quote]dhickey wrote:
[quote]JEATON wrote:
[quote]Headhunter wrote:
Jan. 8 (Bloomberg) – Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.
The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943."
Man, it is tough to put your chips in, in a depression like this.
[/quote]
Didn’t someone here say something about deflation?[/quote]
I still trying to figure out why this is deflation? If I choose not to borrow money, am I deflating the money supply? If a bank decides not to lend money at low interest rates, is it deflating the money supply? What if they are investing that money in other areas?
I am just not able to square reduced consumer credit or lending to delflation.
[/quote]
HH actually gave a good example (at least for this forum) when he talked of free and total testosterone in ones blood. If it is not circulating free to work, it might as well not exist.
Again, people talk of all the money the Fed as injected into the system as though they started up the printing presses (without retiring any old bills) and started dumping dollars out of helicopters. What they have done is facilitate credit, by lowering the Fed funds rate and making funds available to banks for lending (especially on mortgages and to a lesser degree cars).
The have also made a lot of money available to hedge funds at virtually 0%, that is limited for the purchase of certain financial stocks like credit card companies and lenders.
So, until they start printing money with abandon, not retiring old banknotes, stop auctioning treasuries and just start paying all their bills with this basically bogus money, you will not see the hyper inflationary forces that so many talk of here and elsewhere.
In conclusion, the Fed has made money available in the form of cheap credit. Joe Plumber and Susie Homemaker aren’t having anything to do with it. They are paying down dept and spending less money. In the meanwhile, the largest component of dollar debt is still mortgages. These keep imploding and ever eroding the value of the remaining mortgages in the pool.
When consumers don’t buy, what do producers do to entice them? Lower prices.
When mortgages are imploding and banks have an overabundance of them on their balance sheets, what do they do to get rid of them? Fire sale! What does this do to the values of the other homes in the surrounding area? Timber…
These are all deflationary forces.
Let me remind you that I have said repeatedly that I hope I am wrong. Deflation is a mother. But there is very solid evidence that this is occurring and therefore I am keeping an eye on it. [/quote]
Hyperinflation has little to do with the amount of money in the system put an extremely increased velocity.
Insofar once a hyperinflatrion starts there is very little anyone can do to stop it.
[quote]orion wrote:
Hyperinflation has little to do with the amount of money in the system put an extremely increased velocity.[/quote]
I know there was a discussion of this before, but unfortunately I can’t recall with whom.
Name a country that had hyperinflation where individuals did not, for the most part, each have on hand millions, billions, or even trillions of units of currency, whether as paper or electronically.
Or where – which so far as I know is every case – individuals in general did possess such vast numbers of units of currency, how can you say that the amount of money in the system isn’t drastically changed but rather it’s a velocity problem?
[quote]Headhunter wrote:
As the government uses more and more fiat money, there will be less and less inclination to see paper as a store of value. This is a big reason why the dollar price of gold is over $1100. When I was a youngster, it was $35 per ounce. Oil was $2 per barrel.
We may get deflation in the odd sense that eventually NO ONE will accept paper money. No one will sell you anything in exchange for paper money. So, a tube of toothpaste might be 2 cents, but it’ll be in coins containing a speck of gold.
[/quote]
That is my thought, I think in terms of Gold/Silver deflation will be huge. And like you said eventually people won’t accept the dollar anymore.
[quote]Bill Roberts wrote:
[quote]orion wrote:
Hyperinflation has little to do with the amount of money in the system put an extremely increased velocity.[/quote]
I know there was a discussion of this before, but unfortunately I can’t recall with whom.
Name a country that had hyperinflation where individuals did not, for the most part, each have on hand millions, billions, or even trillions of units of currency, whether as paper or electronically.
Or where – which so far as I know is every case – individuals in general did possess such vast numbers of units of currency, how can you say that the amount of money in the system isn’t drastically changed but rather it’s a velocity problem?[/quote]
Because its not that any government suddenly decides to print billion dollar bills.
People decide that they do not trust the currency any more and try to get rid of it as fast as possible and then those bills are printed.
But I assume it would work both ways.
The point I was trsing to make though that you do not necessarily need a central bank to create a hyperinflatrion, a total breakdown of peoples trust in the monetary system would work as well, no matter what causes it.
dhickey,
I will continue to make my point as clear as my abilities allow. In the end, we may have to agree to disagree, which is good. How boring would the world be if we all held the same opinions.
Part of the problem may lie here:
I think of deflation as a phenomenon encompassing a vast array of human actions, most of them stemming from a very large scale change in social mood, in this case the transition from a manic highs of the bubble years to the accompanying crash and the “depression” of social mood. We are in the down side of a massive “manic/depressive” mood swing.
You seem to think of deflation as a specific action defined by the shrinking of a fixed monetary pool.
I would loosely compare it to the AGW (global warming) debate. The hard core AGW supporters boil it all down to one and only one cause and variable, humans and their introduction of large scale amounts of CO2 to the atmosphere.
The other side believes that there is a natural cycle of global warming and cooling that is governed by such a massive amount of inputs that it is ludicrous to assume mankind could help or hinder the overall process to any appreciable degree.
Going back to the social mood issue. We have seen the results of the manic highs. People buying McMansions, driving BMW’s and taking pricey vacations on credit and servicing them with incomes that could scarcely afford it. They were so confident that the ride would continue that they spent every cent and then some.
I am concerned that we have not yet come full cycle to the pessimistic, miserly, live well beneath your means stage. Far from it.
As to John’s statement of what we need and want is deflation, nonsense. Deflation is horrible. Imagine the house that you own and owe $300,000.00 on depreciating to $50,000.00. Imagine loosing your job and, if your lucky, finding a new one at less than half of what you were making. Imagine a resurgence of home gardens, canning and freezing, making your own clothes and bartering for a great deal of your common services. Imagine your neighbor loosing their home and you being in fear as squatters take up residence as they no longer have any other place to live.
And as always, I am not calling for a depression/deflation. I sincerely hope we never see this. However, I do recognize certain warning signs and just want to make others a least aware. What can you do? Pay down debt and refuse to take on more. Save. Work hard and learn everything of value you can. The unfortunate thing is that if enough people do start doing this (as it appears many are) it is almost as though it becomes a self fulfilling prophecy.
I will come back to your other questions in a bit.
As deflation happens the dollar is worth more, so those with savings will be able to purchase more, they will use their savings to create jobs. We want prices to go down, prices going down is a good thing. The only problem is America can’t go through deflation. If we do deflate we won’t be able to pay off our debt, when that happens the dollar will lose much of its purchasing power. The dollar is screwed either way here.