Collateral Damage
'It is the proof of a bad cause when it is applauded by the mob.' - Seneca
'The boom, not the slump, is the right time for austerity at the Treasury.' - John Maynard Keynes
'Moral codes adjust themselves to environmental conditions.' - Will Durant
___________
Commercial business [Merchant Banking] conglomerates in global financial system use the 10 year U.S. Treasury Note as collateral.
On August 15th, 1971 the U.S. Dollar was no longer convertible to gold at the fixed rate due to market forces [unsustainable price of $35/ounce]. The actions of the U.S. Treasury ended the Bretton Woods agreement.
Changes create winners and losers in any market. A 'Petrodollar' system was established in 1973 requiring all transactions for crude oil to be conducted in the worlds reserve currency - The Federal Reserve Note [U.S. Dollar].
The 10 year U.S. Treasury yield went from 2% to over 15% in 1981 as debts of the United States [as well as other Western Governments] sold off resulting in lower bond prices while he prices of commodities adjusted to the mean and gold moved from $35 to a high of over $800.
If you recognized the changes in the late 1960's with the unsustainable 'Guns & Butter' policies and moved from financial assets to hard assets you did very well. It was illegal to own gold in the 'Home of the Brave' [United States Corporation] at that time with the execution of President Kennedy [top of the pyramid in Dallas, TX at the 32nd parallel] in partial result to Executive Order 11110 [silver]. One with creativity could make plans outside the system. You could have watched 'Goldfinger' at the top of the Dow Jones in 1964 slowing buying illegal gold - smile [Thanks to John Foster Dulles moving capital for the formerly hyper-inflated 'Enemy' in WWII].
If you recognized the changes in the late 1960's with the unsustainable 'Guns & Butter' policies and moved from financial assets to hard assets you did very well. It was illegal to own gold in the 'Home of the Brave' [United States Corporation] at that time with the execution of President Kennedy [top of the pyramid in Dallas, TX at the 32nd parallel] in partial result to Executive Order 11110 [silver]. One with creativity could make plans outside the system. You could have watched 'Goldfinger' at the top of the Dow Jones in 1964 slowing buying illegal gold - smile [Thanks to John Foster Dulles moving capital for the formerly hyper-inflated 'Enemy' in WWII].
The cost of capital in western financial centers was extremely high in the early 1980's and many felt the system was going to collapse along with the destruction of the now completely fiat U.S. Dollar / Federal Reserve Note.
Mass psychology comprehended collateral in terms of tangible assets as well as debt. The system rewarded savers in cash & debt securities in 1981/2 which started the largest bull market in financial assets in world history.
Mature allocation of capital considers movements in all markets as well as political risks. The 35 year bull market in bonds has been successful for western financial centers beyond most expectations of any logical [conservative] analysis. The debts of European governments last year resulted in $14T of debt with negative yields forcing capital to look for safety of principal in other asset classes.
It's becoming clear to most the 'melt up' in equities and real estate in 1st world nations has more to do with the unsustainable debts and currency devaluation. The denominator has accelerated in depreciation as designed by central banks.
We share an Austrian School of Economics and see things in line with 'Human Action' [Ludwig von Mises]. While the past mania in US Information Tech securities was taking place some interesting moves in currency, debt and commodity markets were taking place 'beneath the surface' ...
1997 - 1998 - Berkshire Hathaway acquired 129.7M ounces of silver warning of financial derivatives.
1998 - Long Term Capital Management collapsed from leveraged foreign debt losses [Asia / Russia].
1999 - Glass Steagall Repeal [1933 Banking Act].
2000 - 2001 - Secular bull market in precious metals commenced.
Volatility in the past 20 years has been incredible. Lesson learned in the resource markets and life:
The 'scientific devaluation' of the 10 year U.S. Treasury by the central banks is better visualized by who see life through more than one country or prices in fiat currencies. [1] As a former broker with a large N.Y. firm I focused on Graham Dodd [2] securities analysis and learned of Austrian School Economics. [3]
The flow of funds back into equities and real estate since the great crash of 2008 is not surprising as the world has experienced a great reflation of the western financial system. [4]
Summary & Opportunity
There is no true free market or capitalism in today's environment. Having said this we may act to best 'ride the wave of change' with our capital and principled lifestyle... It is still possible to be a calculated and efficient contrarian.
The proliferation of credit expansion in the system has resulted in continual changes in aggressive trading in addition to the evolution of what is perceived as 'safety' ..
The ownership of real assets and comprehension of the effects of the size and scope of the fixed income markets is incredible.
Best Guess
World bond markets may never sell off like the 1970's. The melt up may continue as new currency continues to be created by the trillions to buy western nation bonds. This great devaluation can be see with new schemes like cyber currencies and numerous IPO's where capital is not required rather sold to the market for wealth transfer [Snap].
The set up for a speculator's dream [Doug Casey] may be here. Many of the new players in financial assets are so detached from decades of low rates they have no concept of interest rate or credit risk.
Numerous technical analysis websites and even 'cyber currency trading cafe's' appeared in 2005/6 during the last bear market in the U.S. Dollar [one near me now gone in Solana Beach]. A preponderance of new prognosticators are a good sign with little interest in capital flow to real assets.
The obvious concern with those with significant capital is safety of principal from currency devaluation [inflation].
The opportunity is financial leverage in companies providing the market what is greatly out of favor and needed [batteries require copper, cobalt & zinc].
The stealth bull market for the bohemian nomad may be small towns with historic building [which can't be created out of nothing] in charming historic agrarian areas with little exposure to the recent mania in the credit markets.
The world won't end but the exchange of wealth may move to those prepared. I myself may disappear in 4/5 years like Keyser Soze [picture]. In reality the 1st leg of destruction of financial derivatives was placed strategically with AIG... [5]. It was an impressive act to set these in place for implosion in 2008.
Carpe Diem -
Christopher
1. http://www.ourrepubliconline.com/Quote/710
2. https://www8.gsb.columbia.edu/rtfiles/Heilbrunn/security-analysis-75th-anniversary-edition.pdf
3. https://en.wikipedia.org/wiki/Austrian_School
4. https://www.highviewfin.com/highview-content/uploads/2010/07/Article-Tony-Boeckh-May-4-2010.pdf?x66411
Mass psychology comprehended collateral in terms of tangible assets as well as debt. The system rewarded savers in cash & debt securities in 1981/2 which started the largest bull market in financial assets in world history.
Mature allocation of capital considers movements in all markets as well as political risks. The 35 year bull market in bonds has been successful for western financial centers beyond most expectations of any logical [conservative] analysis. The debts of European governments last year resulted in $14T of debt with negative yields forcing capital to look for safety of principal in other asset classes.
It's becoming clear to most the 'melt up' in equities and real estate in 1st world nations has more to do with the unsustainable debts and currency devaluation. The denominator has accelerated in depreciation as designed by central banks.
We share an Austrian School of Economics and see things in line with 'Human Action' [Ludwig von Mises]. While the past mania in US Information Tech securities was taking place some interesting moves in currency, debt and commodity markets were taking place 'beneath the surface' ...
1997 - 1998 - Berkshire Hathaway acquired 129.7M ounces of silver warning of financial derivatives.
1998 - Long Term Capital Management collapsed from leveraged foreign debt losses [Asia / Russia].
1999 - Glass Steagall Repeal [1933 Banking Act].
2000 - 2001 - Secular bull market in precious metals commenced.
Volatility in the past 20 years has been incredible. Lesson learned in the resource markets and life:
'You are either a contrarian or a victim.' - Rick Rule
The 'scientific devaluation' of the 10 year U.S. Treasury by the central banks is better visualized by who see life through more than one country or prices in fiat currencies. [1] As a former broker with a large N.Y. firm I focused on Graham Dodd [2] securities analysis and learned of Austrian School Economics. [3]
The flow of funds back into equities and real estate since the great crash of 2008 is not surprising as the world has experienced a great reflation of the western financial system. [4]
Summary & Opportunity
There is no true free market or capitalism in today's environment. Having said this we may act to best 'ride the wave of change' with our capital and principled lifestyle... It is still possible to be a calculated and efficient contrarian.
The proliferation of credit expansion in the system has resulted in continual changes in aggressive trading in addition to the evolution of what is perceived as 'safety' ..
The ownership of real assets and comprehension of the effects of the size and scope of the fixed income markets is incredible.
Best Guess
World bond markets may never sell off like the 1970's. The melt up may continue as new currency continues to be created by the trillions to buy western nation bonds. This great devaluation can be see with new schemes like cyber currencies and numerous IPO's where capital is not required rather sold to the market for wealth transfer [Snap].
The set up for a speculator's dream [Doug Casey] may be here. Many of the new players in financial assets are so detached from decades of low rates they have no concept of interest rate or credit risk.
Numerous technical analysis websites and even 'cyber currency trading cafe's' appeared in 2005/6 during the last bear market in the U.S. Dollar [one near me now gone in Solana Beach]. A preponderance of new prognosticators are a good sign with little interest in capital flow to real assets.
The obvious concern with those with significant capital is safety of principal from currency devaluation [inflation].
The opportunity is financial leverage in companies providing the market what is greatly out of favor and needed [batteries require copper, cobalt & zinc].
The stealth bull market for the bohemian nomad may be small towns with historic building [which can't be created out of nothing] in charming historic agrarian areas with little exposure to the recent mania in the credit markets.
The world won't end but the exchange of wealth may move to those prepared. I myself may disappear in 4/5 years like Keyser Soze [picture]. In reality the 1st leg of destruction of financial derivatives was placed strategically with AIG... [5]. It was an impressive act to set these in place for implosion in 2008.
Carpe Diem -
Christopher
1. http://www.ourrepubliconline.com/Quote/710
2. https://www8.gsb.columbia.edu/rtfiles/Heilbrunn/security-analysis-75th-anniversary-edition.pdf
3. https://en.wikipedia.org/wiki/Austrian_School
4. https://www.highviewfin.com/highview-content/uploads/2010/07/Article-Tony-Boeckh-May-4-2010.pdf?x66411
5. http://articles.latimes.com/2000/sep/22/news/mn-25118
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