inflation

Model Portfolio Change, Watch CPI Numbers Today

rafifarber Gold and Silver, Stock Trading, The Jewish Libertarian Blog , , , ,

The Fed is holding off on another rate hike, and that could be very embarrassing if the consumer price index rises faster than anticipated. The numbers will be released at 8:30am eastern, 3;30pm here. Analysts are anticipating a 0.2% rise in core CPI which is the index minus food and energy. If it rises by 0.4% or more, gold is going to go much higher quickly. I wrote about this at 247 Wall St. yesterday.

Here is the article.

I have always maintained that once inflation gets obvious, the Fed will have to start chasing inflation with higher and higher interest rates regardless of economic conditions. This is what happened in 1980 when Volcker jacked up the effective fed funds rate to 22%. That is impossible today because it would force a hard default on US Treasuries. That would be a bona fide bankruptcy. So instead the Fed will simply let inflation run away into hyperinflation because there is no other choice.

That is when gold will move higher than anyone has ever seen, faster than it did in 1980.

This will happen, guaranteed. Eventually. I don’t know if it will start tomorrow or 5 years from now, but I’m willing to risk 10% of the model portfolio on it. It’s time to use some leverage.

I’m adding a $5,000 position in the 3x leveraged gold miners fund NUGT, and $5,000 position in the 3x silver fund USLV.

I’m also adding another $500 on shorting the bond market with puts on TLT.

This is risky and could make me look like an idiot. We’ll see what happens. For legal reasons because Congress has made a law imposing on the freedom of speech, this is a game and I am not a financial adviser, and I am making no recommendations to anyone.

Check the model portfolio page at the menu bar for updated positions.

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What if Government Reported Bad Earnings and Investors Could Dump the Stock?

rafifarber Economics, The Jewish Libertarian Blog ,

It’s earnings season on Wall Street. Companies report how much money they made and lost and every nook and cranny of the business, and then traders trade the stock and prices change. Sometimes dividends have to be cut or people laid off or pay raises frozen or capital equipment sold in order to stay liquid. And the stock price will always reflect the reality at any given moment.

If government reported earnings it would be negative every quarter. The combined earnings of a company over its history is its retained earnings. The United States Government has retained earnings of negative $19,000,000,000,000. Its equity would be below zero. Its stock would have no value.

But government cutting expenses? HA! All the whiners will whine. Sequestration! Sounds so violent! The whole economy will collapse! The bureaucrats will all be unemployed and we’ll all be doomed! Cutting government spending is immoral! The last time there were any serious cuts was after War War II. Since then there have been no cuts. Government is never cut until it collapses. Like a cancer that can’t stop growing, eventually it kills its host, thereby killing itself. The rest of the body stays in equilibrium with itself. Cells live, cells die, conditions change, body adapts, growth and shrinkage keeps it in balance.

Cancer keeps growing until everything dies. So does government. Cells don’t die. They keep multiplying.

The “economists” who say the economy depends on government spending? Whose money do they think the government is spending? Do they think that once the government spends money, that money becomes infinite? Are we in some jack and the beanstalk fairytale here? Is government money an everlasting gobstopper? Is it manna from heaven? Why are all resources finite but people have to think about whether government resources are finite?

The “economists” who say that consumption comes before production, how do you respond to such nonsense?

Shares in the US Government would have a market value of zero. The only thing that gives government, any government, any value at all is its ability to borrow, tax, and inflate. Once it cannot borrow or inflate, due to a debt default (which ends your ability to borrow) and hyperinflation (which ends your ability to inflate), it will only be able to tax. At that point, the people will not be confused by economic myths like the economy depends on government spending. They will know the spending comes from them, their work, because borrowing and inflation will be impossible. They they will understand that the economy depends not on government spending, but on their efficient use of their own money and resources.

People only believe economic myths when the costs of those myths are hidden through borrowing or inflation.

Whip Inflation Now: As Stupid Then as It Was When It Was Written

rafifarber Economics, The Jewish Libertarian Blog , , ,

Found this on EPJ today. It’s Gerald Ford, blathering about literally nothing, using as many words as possible to convey the least amount of information he can manage.

The solution to inflation is very simple. It is to stop inflating. That means stop printing more money. That’s it. That’s the entire solution, and the only solution. There is nothing else to say. The end.

But here’s Gerald Ford on stopping inflation. Notice that he doesn’t actually ever say anything.

Bob also notes what Alan Greenspan said about the Whip Inflation Now campaign, which basically consisted of summits of politicians all over the country meeting and coming up with asinine suggestions like voluntary price freezes to stop inflation. And a bunch of buttons.

As it turns out, I actually own the book where Greenspan talks about this. He says it was “unbelievable stupidity” and almost had him running back to New York to get out of the White House. He should have run, but he became a central planner anyway and threw out his libertarian beliefs entirely.

I own the book, Greenspan’s memoirs called the Age of Turbulence. My brother suggested I buy it because it was interesting. (He’s not great on economics.) So I found it for $1.50 on Amazon or something and what-the-helled. I could never bring myself to read the trash though or touch the book fearing the evil would burn my skin, but I guess it does have nuggets of Greenspan’s long-ago neglected conscience in it.

The US Monetary Base Crosses $4 TRILLION, my latest article for TheStreet

rafifarber Gold and Silver, The Jewish Libertarian Blog , ,

In this article I explain why the ultimate inflation hedge is not gold, silver, gold miners, silver miners, commodities, silver options, or options in miners.

It’s actually 2016 GLD $225 call options, with a risk/return of a whopping 1379:1. That means for every $1,000 you put in, the risk is $1000, but the return is $1,379,000.

Talk about the ultimate inflation hedge.

Here’s an excerpt:

Go to the GLD 2016 calls and the farthest strike out is $225. Assuming a quintupling of gold in a two-year time frame (either from January 2014 or January 2015, as 2017 LEAPS in GLD will also be available come November) that puts GLD at roughly $625. $225 LEAPS on GLD are currently available for 29 cents, and only 6,688 contracts have been traded. Compare that with SLV’s 55,000 and this trade seems extremely neglected.

If GLD quintuples in two years, that puts the options at $400 a contract, for a return of 1,379-times, or an astronomical 137,800%. Meaning, for every $1,000 you put into 2016 or 2017 $225 GLD LEAP options, you will have $1,379,300. That is nearly twice the return on SLV LEAPS, putting the risk/return ratio at 1379:1, and that already takes into account that gold is generally half as fast in rising as silver.