wabuffo

More GTXMQ.... wabuffo

I personally don't know a lot about Booth. I listened to an interview with her a while ago though. From what I remember she seemed like a gold bug stahleyp - that was my impression too that she was a gold bug/Austrian type. who understands the plumbing the best. Surprisingly, very few do. Monetary policy is talked about by so many people, yet I find so few truly understand the mechanics of it. Someone I learned a lot from is George Selgin. He's a Fed watcher and economist who has written many books on the subject of the Fed. He's also pretty active on twitter so you can give him a follow there. https://www.amazon.com/s?k=george+selgin&i=stripbooks&crid=322T05JTCR395&sprefix=George+Selgin%2Caps%2C173&ref=nb_sb_ss_c_2_13_ts-doa-p "Floored" is a good one. wabuffo

So would something like UBI not cause inflation? I have no opinion on it. I'm generally a libertarian and think the less govt the better - but I don't know that another spending program makes a difference. Why would tax increases cause inflation? Would it just take reduce market valuations and have minimal effects on the real economy? Taxes create a wedge against the real economy. Also higher tax rates encourage evasion (both legal and illegal). The only thing that gives the sovereign currency its value is one needs it to extinguish one's Federal tax obligations. That's why we accept the govt's money. If you weaken tax collection, you start to weaken the currency, IMHO. Low taxes, sound money - its that simple. Empires crumble not because they overspend, but because they overtax and collection falls apart followed by the empire. Good book on the subject that I recommend: https://www.amazon.com/Good-Evil-Impact-Course-Civilization/dp/1568332351/ref=sr_1_1?crid=2REHOBTDPUVDW&dchild=1&keywords=for+good+and+evil&qid=1614655409&sprefix=For+good+and+ev%2Caps%2C186&sr=8-1 Do you have any thoughts on Danelle Dimartino Booth? I haven't really followed her stuff. Should I? What do you think of her economic commentary? wabuffo

Spek - I think there are two factors in my macro thinking (which is worth what you are paying for it -- nothing). 1) The US recovery will be very strong throughout 2021 - remember we are feeling the effects of stimulus plus the low personal and corporate tax regime of the Trump administration (for now until the Biden folks dismantle it) 2) the US monetary authorities have messed up and now have a Treasury account that must hit its 2019 account balance by August 1st of this year when debt ceiling suspension is removed per Congress's 2019 bill (debt ceiling was suspended for two years on Aug 1st, 2019). I'm not sure if that is the July 31st, 2019 amount ($176b) or the August 1st, 2019 amount ($118b) - but the current balance is $1.4t. With the Fed still on auto-pilot buying Treasuries - it will create two problems for the US economy: a) bank reserves will surge to over $5b (vs $21b of total US banking sector assets). Yes the Fed will relax some regulatory measures (ie not counting reserves as part of regulatory leverage/capital ratios) - but it still moves the US banking system closer to Japanese style zombie banks. b) the combination of Fed buying and Treasury spending its TGA without much Treasury bond issuance might actually shrink the supply of o/s Treasury debt. That's actually a bad thing - especially for a rapidly growing US economy that we will see over the next six months. While none of this should affect our stock-picking, I think it will be an interesting monetary experiment to watch in real-time. Cool stuff. wabuffo

On another note, what would be the biggest risk of inflation in your view? 1) defaulting on sovereign debt issued in another currency (oh wait, the US govt has none) 2) massive tax increases (eg, 70% marginal tax rates, wealth taxes, etc) 3) failed political system The reality is that this last stimulus package is probably unnecessary since the economy appears to be in full recovery mode. But its not permanent spending - just a lot of one-timers sprinkled here and there. That'll juice things a bit - but the deficit will roll over back to a more normal % to GDP ratio (especially as the denominator recovers). Hopefully, that'll be it. I think Japan-ification style monetary repression due to the Fed and US Treasury messing things up is the bigger risk here and I've talked about it upthread. I think its even possible we see slight negative yields in the short end of the Treasury curve by May-June. wabuffo

In short - they both (Burry, Alden) don't know what they are talking about. Alden, in particular is constantly misinterpreting the data and in 2019 thought Fed liquidity was inflating the stock market (now she says the Fed's reserves go nowhere, LOL) Gold and Treasury bond yields are heading down. I've explained why in other posts as well as this thread. The dollar will strengthen. There is no inflation - people always assume that a strengthening economy will cause inflation - and it never does. wabuffo

I view the buybacks to be more a testament on the directionality of the economy, and less so on BRK itself being cheap. If I had to guess, I think Buffett (and Munger) realize that the odds of bagging that $100B "elephant" in their remaining lifetimes has probably dropped to zero. That opinion may have been informed by the reaction of the Fed and US Treasury to the financial panic caused last March by the pandemic shutdowns. That crisis lasted about 5 minutes before any company who needed emergency capital suddenly could borrow cheaply and in almost unlimited supply. Buffett's opportunity to deploy large sums during panics has been taken away. I think its no coincidence that the buybacks started coming in size in Q3, Q4 of last year and according to Buffett will continue in 2021. wabuffo

Looks like 4Q buyback was more aggressive them people thought! Not only that but Buffett kept buying in 2021. Through Feb 16, 2021, it looks like he repurchased another $4-$4.5b in BRK stock (depending on prices paid). Very impressive. wabuffo

thank wabuffo, we are on the same page that the Fed is more than just a Recorder. I had added more functions beyond Recording with the analogy This short paper might help - its a good overview of modern central bank operations. It was written before the Fed significantly expanded its balance sheet but the principles still hold. I think you will find it informative even if you just scan the ten principles only. https://core.ac.uk/download/pdf/207650683.pdf wabuffo

...the Federal Reserve is like a Recorder's office where money is locked up and all that can happen is money can move around but you can't take money out of the Federal Reserve. part of this statement is ok, but a lot of it is incorrect. The Federal Reserve is a bank -- the US Treasury's bank. The US Treasury 'owns' the equity of the Federal Reserve. It exists to manage payments between banks and other banks and also between banks and the US Treasury. The Fed has a simple mission -- make sure every payment in the United States financial system clears without failure. To do this the banks and the US Treasury have "checking accounts" at the Fed. Yes - these are electronic deposits and its an electronic ledger. The amount that banks must keep in these accounts is determined by Fed policy (ie, the Fed used to allow 'daylight' overdrafts so banks used to keep very little at the Fed; now they are not allowed so banks must keep more on deposit) -- just like a private sector bank account. Lately (well for over a decade now) -- the Fed has also given itself another mission: buy Treasury assets and credit the banks' "checking accounts" when it purchases them. Finally, you and I don't get accounts at the Fed. Only banks do. But if the US Treasury needs to send us a stimulus direct deposit - it manages the payment by asking the Fed to move electronic deposits to our bank which means our banks' reserve account. This creates the deposit for us (and a reserve balance for our bank). - so reserves circulate in the Federal Reserve accounts but never leave the Federal Reserve. - the Fed through its policies and its purchases controls the total amount of reserves in the system (in aggregate banks do not control this). The Fed does this because it believes it is lowering long-term interest rates. - US Treasury spending, taxing and issuance of debt also moves reserves between the banks and the US Treasury's general account. There may be a few other things I may have forgotten - but that's the gist of it. The Fed is more than a "recorder" -- it is a bank. A special bank set up by the US Federal Government but a bank nonetheless. wabuffo

They will invent all kinds of complex arguments around money being locked up in the Federal Reserve, even though all Federal Reserve is doing is recording the transactions. This is similar to saying all real estate is locked up inside the County Recorder's office and no real estate can leave the county recorder's office. All you can do is move real estate around within the County Recorder's office, but that doesn't prevent it from being recorded at higher and higher valuations. wabuffo

It is not too big of a stretch of the imagination to think asteroid mining, while somewhat fanciful at this very moment, has the potential to impact precious metals' values in a big way over the next 50 years. wabuffo

Isn't that partially (mostly?) explained by completely removing the gold standard? It's entirely explained by Nixon severing the USD peg to gold in 1971. That also severed the pegging of world currencies to the USD (and gold). Stuff went sideways after that. For example, Middle East wanted to continue to be paid in real terms for their oil at old gold price - so OPEC started raising oil prices. Price controls were instituted in the US - which always lead to shortages (since market isn't allowed to clear) which led to the famous gas lines at the service stations which had any gasoline to sell, etc... It was a fun decade where no govt knew what to do. The 1970s were a very messy transition from one monetary regime to another (which took until Reagan/Greenspan to figure out). 1970s are nothing like today. wabuffo

Well said :-). Just look at what happened in 1970s despite the Fed obviously not desiring it. History repeats. Nope - not the same at all. Why is gold falling if the currency is being debased? wabuffo

Bill Dudley is the only Fed (or former Fed) talking head worth listening to, IMHO. He talks about some important plumbing issues that are coming this spring/summer for the US monetary system. https://www.bloomberg.com/opinion/articles/2021-02-25/negative-interest-rates-could-be-trouble-unless-fed-acts? Dudley goes on to talk about the potential crack-up this may cause at the banks due to regulatory ratios (which will be much worse at the asset-capped WFC, by the way). But he doesn't talk at all about the implications for Treasury bonds and the long end of the yield curve. Why is this also important? These moves to get the TGA balance down to $120b also have ramifications for Treasury debt availability. What's the fastest way for the US Treasury to draw down its balance? That would be to not roll-over its Treasury debt over the next few months as it redeems those securities that come due. This will shrink US Treasury debt outstanding by $1.5t. But the Fed will continue to buy US Treasuries at ~$100b per month. So that's a further removal of ~$500b of US Treasury debt. Combined, the Fed and the US Treasury will shrink Treasury debt o/s by ~$2t over the next five months. Current US Treasury debt held by the public is $21.76t. From that one must also subtract the portion held by the Federal Reserve which stands at $4.82t - making the amount held by the private sector $16.94t currently. So what will happen to rates (even at the long-end) if the supply of Treasuries held by the private sector shrinks by 12% ($2t/$16.94t) over a five month period? Do we think rates will continue to go up? Now as I look at the US Treasury Daily Statements, I don't see any sudden changes happening. The Treasury appears to be largely rolling over its debt. But some people may say - well there's a $1.9t stimulus program about to be approved - that could be another way the US Treasury could shrink its balance without shrinking the supply of US Treasuries. But that's a lot of cash that will hit the US private sector that will be hunting for yield. If the supply of US Treasuries stays the same (ie the US Treasury doesn't issue more debt due to its go-to TGA target), I think rates should also fall as almost $2t of cash sloshes around the system unabsorbed by US Treasury issuance. Something to keep an eye on. Of course, Congress could come in and revise all the goals (including the date of putting the debt limit back on). wabuffo

A thumbs up for "The Head" -- a series on HBOMax. Its short - just six episodes. I'm through four episodes and its very good if you like suspense/mysteries. When one is two-thirds through a show that is thoroughly engaging, one wonders if the show will "stick the landing" at the end. Well, this show really does! But you have to watch the show right to the end of the last episode until the closing credits. ;) As an aside, the hunger for shows to feed the streaming services is really showcasing the quality of international tv shows. The cast for this one is very international. But I love the way that characters interact in their own language (with subtitles of course). When the summer crew arrives, I believe they are mostly Danes. Of course they speak English to some of the characters who speak only English, but when two Danes interact with each other, they switch to Danish. I don't know why, but I really approve of this approach. This is just realistic and reflects what I would imagine would actually happen. If this was an American show, everyone would speak English all the time. Anyway - this TV reviewer gives this one a big thumbs up! wabuffo

if you want to worry about something macro negatively affecting stock prices, I'd worry about what kind of investment taxes are coming down the pike in both the US and Canada in late 2021, early 2022.... wabuffo

gold to the moon have been (temporarily?) I doubt it - gold trades in one day the entire value of Bitcoin (last I checked - perhaps it two days now at the current price of bitcoin) wabuffo

(public, corporate and households). you can't mix corporate/household debt with federal debt -- its mixing apples and rutabagas. US Federal govt debt (ie, Treasuries) is a reserve maintenance mechanism. It soaks up the reserves created by the deficit spending that has already been deposited it in the US banking system. Otherwise - all rates would go to zero and the private sector would be short zero credit risk collateral for borrrowing. ...and if you're going to talk about corporate debt - its bad form to present it without a comparison to corporate equity. Yep - like I thought - touching all-time lows in corporate debt to equity! Cue ominous macro bear music! I'm afraid Druckenmiller is a trader. He is very good at it - but because he is good at one field doesn't make him an expert in another. wabuffo

This research paper claims in the Weimar Republic Hyperinflation started with a huge runup in stocks and increase in speculation. Might I recommend more reading about the end of World War I.... This is a good read: https://www.amazon.com/When-Money-Dies-Devaluation-Hyperinflation/dp/1586489941/ref=sr_1_1?crid=27Q49J0PE9LSP&dchild=1&keywords=when+money+dies&qid=1614199756&sprefix=When+money+dies%2Caps%2C176&sr=8-1 In my view, there are three reasons why hyperinflation might happen: 1) losing monetary sovereignty (ie, central govt must float debt in foreign currency that it cannot issue by fiat) 2) war - or - a government overthrow 3) the collapse of domestic industrial production. After WWI, Weimar Germany suffered all three. Next - do the United States Federal government.... I don't know anything about Bitcoin, so I can't comment - though I fail to understand why a supposed monetary polaris would be so unstable in value. wabuffo

What indicators should one pay attention to instead? real-time indicator: gold price in USD longer-term indicator: US Treasury net cash deficit (per US Tsy Daily Statements)/US GDP. That's because US Treasury cash spending creates new financial assets and the gold price (due to gold's stability in annual production/above ground inventory) is very sensitive to the demand/supply characteristics of the US dollar. (note its not just supply of dollars, its also the demand for dollars - which is high right now due to the recovery forecasts for the US economy). Just my 2-cents. wabuffo

Munger said that he wouldn't buy DJCO at current prices for the stock if he was starting out now looking to buy some. (or something like that). wabuffo

if they keep the fed funds rate low but say the 10 year still goes back to the level of a year ago, isn't that a warning sign that things are not well? Why - isn't that a normal yield curve shape? wabuffo

Do you think we'll keep low rates and low inflation yes. long rates are going back to where they were before the pandemic. Nature is healing. If hyperinflation was truly here or on its way, stocks would go down, gold would go up. The opposite is happening. If you are reading anything about inflation coming and the author is quoting M2, velocity of money, Fed 'printing money', etc.. -- ignore them, they've given away that they don't know what they are talking about. Could we go too far? I guess anything is possible. wabuffo

But he did sell some BYD during the summer of 2020 (approx 13% of the position at much, much lower prices). FWIW. wabuffo