Cannabis Prices & The Coming Devaluation of the Dollar

[UpInTheCut]

I have learned so much from John in the past 7 years that I have known him...
He truly worries about the good, decent, ordinary folks... A truly humble man...
He can explain things better than I ever could
Here's a little Q and A about the derivatives market.

John’s last post talks about how if $1 quadrillion worth of credit derivatives loses just 10% of their value, the world loses $100 trillion and there isn’t enough money in the world to fill that gap, so deflation is pretty much inevitable no matter how much money Bernanke prints.
But I don’t see how these credit derivatives are in any way a form of money that could have some effect on inflation or deflation. These things are just bets on something happening or not happening. If you and I bet $1 million on the outcome of a horse race, that doesn’t put $1 million more into the world’s currency. Even when one of us loses and has to come up with $1 million, that won’t create a new $1 million of currency. A bank would have to create a new loan to one of us before new money was created. If I lose the bet but refuse to pay you, that doesn’t create or destroy money either - it’s as if we had never made the bet then.
Perhaps someone could explain how these credit derivatives could have any effect on inflation or deflation.

Suppose you and I bet $1 million on the outcome of a horse race, and
we've written everything down in the form of a contract. Then I can
sell that contract to someone else for $10,000, and then that person
will win or lose the $1 million. But don't focus on the $1 million
-- that's irrelevant. Focus on the $10,000, because that's the
notional value of the bet (or contract).

These credit derivatives have intrinsic notional value, and they're
being carried on the books of financial institutions and investors at
that value.

Suppose you have a $500,000 home, and there's a 30-year fire
insurance policy on which you pay monthly premiums. Then you can
apply discounted cash flow computations to the flow of monthly
premiums, and discover that the value of the policy to the issuer is
$1 million, after accounting for the risk of an actual fire. The
insurance company could sell that policy to someone else for $1
million.

In other words, when you think of the value of an insurance policy,
don't focus on the value of the house; focus on the discounted cash
flow value of the premiums.

That's what's happened with the credit derivatives. Their $1+
quadrillion notional value is based on the value of the premium
payments and expected payouts, not on the value of the things being
insured.

It's true that you can't go to the grocery store and use a credit
derivative to purchase groceries with, but you CAN sell the credit
derivative just like a stock certificate, or you can use it as
security as collateral for a loan of money that you can then use to
buy groceries. So credit derivatives really are a form of money.

However, you can't take out a fire insurance policy on someone else's
house. But anyone can buy or sell a credit derivative on anything.
Thus, what's happened is that the $1+ quadrillion notional value of
these securities is based on probably about $10 trillion of
underlying value, with most credit derivatives insuring the same
things.

Thus, we have various different kinds of possible systemic
risk:


Concurrent risk. It's possible that, say, $100 trillion in
credit derivatives are making an insurance bet on the same $1
trillion event. That means that if the event occurs, it's not a $1
trillion event, but a $100 trillion event.
Counterparty risk. The credit derivatives are highly
interlocked, with one company assuming perhaps $100 trillion in
possible insurance payouts, but protecting itself with credit
derivatives that will pay them $100 trillion if an event occurs.
That creates a chain of counterparties, and if one company fails,
then the entire chain might fail.
Loss of market value. If someone hold $100 trillion in credit
derivatives, and the company's rating is lowered (as is happening
very frequently these days), then the values of those credit
derivatives are automatically devalued, since it's possible that the
company won't be able to pay off its insurance bets in the event of a
default. In a "mark to market" world, this might require other
companies to reduce the claimed market value of the credit
derivatives in their own portfolios.


None of this would matter much if there were only a few trillion
dollars of credit derivatives outstanding. But when you're talking
an astronomical number like $1 quadrillion ($1,000 trillion or $1,000
thousand billion) then an event with even a tiny probability can
result in tens of trillions of dollars of dislocation and
instability.

 

[SpasticGramps]

more the gambling on the home loans (CDS) that drove the stock boom and subsequent bust.

I contend that it didn't really bust. The government stepped in and propped everything up. None of the fundamentals have changed. The casino goes on, but the systemic risk is beginning to rot it. The biggest bubble is being blown up right now, but there is no backstop for when it bursts. We all absorbed the losses. The moral hazard of socialized loses and privatized gains will come full circle.

20 Trillion wasn't enough in '08. They want it all IMHO.

“I believe that banking institutions are more dangerous to our liberties than standing armies....If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them, will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”

Thomas Jefferson

Kind of like these CDS? Ireland and Portugal are sinking.

Citi Recommends Buying Irish CDS In Advance Of "Nightmare On Kildare Street" ZeroHedge

Earlier today, JPMorgan made waves by claiming, some would say rather uncouthly, that Portugal's government is about to keel over and die (even if it is undisputed- after all, on Wall Street no one can hear you speak the truth). Never one to be left wanting, here comes Citi with some charts of "parabolic" moves in the Irish 2 Year bond, and some even scarier claims. As expected any research report that starts with the words: "Oh dear...The picture on Irish interest rate markets is taking a very grim turn" - well, it is clear where it is going from there. In summary, Citi now believes that Ireland is essentially done for, or as Tom Fitzpatrick ever so more diplomatically puts it "things are about to get ugly", and recommends going long CDS since the entire short end of the curve has gone parabolic, now that Europe seems set to watch the island country explode, 2s10s has inverted in the past few days, and overall the Emerald Isle is now a dead man walking in the dumbest game of chicken since the creation of the euro. Too bad neither side is willing to back out, which will ultimately end with the eventual destruction of the eurozone and the euro.

 

[dagnabit]

we have one more 10 year bubble to go IMO
it's going to be in "bio tech" and "nano tech"

get in now

parlay the "earnings" from the bubble into durables cuz when this next one pops/gets popped.....

 

[SpasticGramps]

I'm saying that the bubble is right now. Almost all indices are correlated 1:1 to the Federal Reserve's balance sheet since it exploded in '08.



What happens when they have to unwind this? Their balance sheet will eventually have to be reduced. Everything else will have to be "reduced" or eliminated all together. Or do we print money to keep everything going up? Keep the music going. The markets are addicted to free liquidity now. They may try to stop QEII, but things will get shitty after a couple months and in comes QEIII. They may not even wait with how bad things are right now. We'll see. Then QE to infinity?? How long are we going to try and pass this down? Eventually one generation will have to pay the interest on the debt and it's going to be a whole lot of everything.

 

[Madrus Rose]

Here's a fun game , the Fed has been ordered by the Supreme Court
just the other day to reveal & release all information on the $9 trillion in overnight loans to banks during the initial months of the financial crisis.
http://www.newser.com/story/114618/supreme-court-to-the-fed-release-dirt-on-08-crisis-loans.html

Now that their transparency is blown , how will it effect emergency lending from here on out ....but that's $9trillion in Monopoly money they already doled out peeps
http://www.theatlantic.com/business...-fed-secrecy-cripple-emergency-lending/72791/

Where do we sign up ?

 

[UpInTheCut]

Principal of Maximum Ruin

quote from John Kenneth Galbraith's 1954 book The Great Crash - 1929:
"A common feature of all these earlier troubles [previous panics] was that having happened they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune." (p. 108)
Like the generational panic and crash of 1929-32, the current crash will financially ruin the maximum number of people as possible, to the maximum extent possible.

Mean Reversion
1. The theory that a given value will continue to return to an average value over time, despite fluctuations above and below the average value. This theory can be applied to any measurable value,including P/E ratio's, interest rates, and the return on a certain investment.

 

[Rednick]

more the gambling on the home loans (CDS) that drove the stock boom and subsequent bust.

Same thing happened in Japan. It was just commercial real estate.
It wasn't the gambling. The gambling actually creates liquidity for the market (within reason).
It was the systemic (er, structural) use of real estate pricing in all sorts of valuations, from REITs to Derivatives to Bonds and the lack of checks and balances in the system that correct for these fallacies.
The market was going to correct itself. The way markets do in a Free Market economy... The weak and foolish fail.
Good thing Bush and BoBama decided to run up the debt a few trillion to save home prices in Cali, FL, and NY.

No difference just different words.
Japanese banks lend out more, upon more to cover their NPLs, thus creating the illusion of the loans being paid as the new loan covered the first...Sound familiar?
Second Mortgage?
Home Equity Line of Credit?
T.A.R.P??? W.T.F.? The taxpayers get to bail out the bankers who still get a bonus that year....:scratchhead:

At least in Japan 'honor' forced them to prosecute the SOBs in their gov that facilitated it.

 

[draztik]

Wow silver just broke a 30 year high it's $38.17 a troy ounce. Gold just broke an all time record high. The general public has no idea what is happening. The world is being dragged into chaos by the globalists get some precious metals before it's too late.

 

[SpasticGramps]

I've been long silver and WWIII for a last couple of years. I'm short US dollars and the US government.

At least in Japan 'honor' forced them to prosecute the SOBs in their gov that facilitated it.

Not one single real or serious player from the '08 (robbery) financial crisis has been prosecuted. Honor is still a big part of Japanese culture. It doesn't exist here. In fact we beg the crooks to rob us some more.

A nation of citizens with Stockholm Syndrome.

 

[Madrus Rose]

well , the market got happy today as Gold/silver reached new highs ...Fed's going to continue injecting the $600Bil into june (what else) slight improvement in Job creation but soft numbers in Durable goods & concerns are still great that the worst housing market & rising costs curtailing consumer spending & hiring could really take hold this round into spring . (duh).

Eurpeans meeting today to discuss their dept crisis & this debt fueld economic "recovery" here is a constant in every economist's mind . Employment numbers are misleading less people filing for benefits , but many who have exhausted benefits have just given up looking . Oil hovers at $106/barrel
.


Durable goods orders fall, job market healing
http://finance.yahoo.com/news/Durable-goods-orders-fall-job-rb-3626150815.html?x=0

The Commerce Department said durable goods orders fell 0.9 percent after a 3.6 percent increase in January. Economists polled by Reuters had expected a 1.1 percent increase. Excluding transportation, orders fell 0.6 percent after dropping 3.0 percent in January.

"Durables were extremely disappointing ... it is not a very good sign for what is happening in the first quarter," said Rudy Narvas, a senior economist at Societe Generale in New York.

The durable goods report conflicted with other data on manufacturing, which have underscored the strength in factory activity.

A second report from the Labor Department showed initial claims for state unemployment benefits slipped 5,000 to a seasonally adjusted 382,000, a touch below economists' expectations for a fall to 383,000.

The four-week moving average of unemployment claims -- a better measure of underlying trends - dropped 1,500 to 385,250, the lowest since mid-July 2008 and holding below the 400,000 level for a fourth straight week.

A reading below 400,000 is generally associated with steady job growth, which until recently had eluded the economic recovery. Employers created 192,000 jobs in February, the most in nine months, after adding a paltry 63,000 new workers in January.

The Federal Reserve has acknowledged the improvement in labor market conditions and is generally expected to conclude its $600 billion government bond buying program at the end of June.

Analysts believe the economy is now on course to create at least 150,000 jobs a month over a sustained period, which should prevent the unemployment rate from rising much, even as Americans who had given up looking for work re-enter the job market.

But some caution the devastating earthquake and tsunami in Japan, and rising gasoline prices could dent business confidence and cause companies to delay hiring.

There are signs that businesses are starting to tread cautiously.

The Commerce Department report showed non-defense capital goods order excluding aircraft, a closely watched proxy for business spending, fell 1.3 percent in February after a 6.0 percent fall the prior month. Economists had predicted a 4.5 percent improvement in this category.

"We all know that housing and consumption will be weak, lagging sectors. So if the business sector's expansion momentum stalls, this is bad news, creating a risk of disappointing employment gains in coming months," said Dan Dorrow, head of research at Faros Trading in Stamford, Connecticut.

 

[Madrus Rose]

Warren Buffett says collapse of euro not unthinkable:

Enough of a “strain” on the euro could cause its collapse, although “huge, powerful” interests want to keep that from happening, Warren Buffett said today.

In an interview with CNBC, Buffett, asked about the potential aftermath of Portugal lawmakers late Wednesday rejecting austerity measures, said a disintegration of the euro was not “unthinkable.”

“There are huge, powerful interests that want to keep that (disintegration) from happening.

“But enough of a strain could cause (the euro) to fall apart,” Buffett said while on a visit to New Delhi.

“I know some people think it’s unthinkable. I don’t think it’s unthinkable. I think there will be huge efforts put forth to keep that from happening.”

Buffett said the euro zone can’t have some members “that are in effect free-riding on the other countries.”

“They have to get their fiscal houses in reasonable harmony” with the other member countries, he said.


Weekly chart of our dollar still taking a dive ,
not all the way to recession levels but looming

 

[Rednick]

Wow silver just broke a 30 year high it's $38.17 a troy ounce. Gold just broke an all time record high. The general public has no idea what is happening. The world is being dragged into chaos by the globalists get some precious metals before it's too late.

I don't buy into the Gold thing, because it has very little utility besides being an alternate form of currency.j
But, alas, throughout history and to this day, wars are fought over it.
So it's real value is that it is universally accepted.

Warren Buffet writes a good piece about how aliens would think our species crazy the way we hoard/mine gold, as it has little utility.

 

[whodare]

I don't buy into the Gold thing, because it has very little utility besides being an alternate form of currency.j
But, alas, throughout history and to this day, wars are fought over it.
So it's real value is that it is universally accepted.

Warren Buffet writes a good piece about how aliens would think our species crazy the way we hoard/mine gold, as it has little utility.

maybe the aliens made us believe gold was valuable so we could mine it for their advanced electronic devices...

 

[decarboxylator]

maybe the aliens made us believe gold was valuable so we could mine it for their advanced electronic devices...

here we go... lol.

I have a buddy who won't bank, he just stacks gold bricks, no joke. Folks are crazy.

 

[Madrus Rose]

Have to give mother Nature credit for --->Gold Symbol: Au Atomic Number: 79. Atomic Mass: 196.96655

Just think of the amount of energy given off when 2 atoms of Hydrogen are fused together into Helium which illuminates our world . The combination of inconcievable pressure & heat within some massive star 100's of times greater than ours it took to come close to being able to fuse together 79 protons & 79 neutrons together to form Gold . Billions of degrees and a long time ago ...its the best conductor of electricity naturally occurring ....nice & shiny, never tarnishes & infinitely mallable ....and RARE!

Silver.... its the most reflective substance in the universe & just has 1000's of industrial uses more than gold with the amount of demand expected by China's production in next 7yrs staggering ...and silver is getting harder to mine .

Aluminum would be the one metal all civilization prolly could not live without , but thankfully there's plenty ...but going up too.

Warren Buffett

* Wonder who these huge powerful interests he mentions are that would prevent the Euro from failing ...think he won't make a buck if it does >?>?

"Enough of a “strain” on the euro could cause its collapse, although “huge, powerful” interests want to keep that from happening, Warren Buffett said today.
.
.
.

 

[afungi]

galactic federation of light *cough*

 

[draztik]

Like I've stated earlier in this thread, once gold is monetized the price is going to explode. Buy as much gold and silver as you can. Silver and gold. GET OUT OF PAPER US DOLLARS!

 

[Madrus Rose]

Factoid

The Center for Retirement Research at Boston College estimates that 70% of baby boomer households will receive inheritances. These will total $8.4 trillion — an average of nearly $300,000 per inheriting household, with the wealthiest 10% receiving an average of $1.5 million.

 

[UpInTheCut]

This is a great article
New Civil War erupts, led by super rich, GOP
Commentary: ‘Shock Doctrine,’ Reaganomics trigger explosive class war

Yes, “there’s class warfare, all right,” warns Warren Buffett. “But it’s my class, the rich class, that’s making war, and we’re winning.” Yes, the rich are making war against us. And yes, they are winning. Why? Because so many are fighting this new American Civil War between the rich and the rest.

http://www.marketwatch.com/story/new-civil-war-erupts-led-by-super-rich-gop-2011-03-22

These 6 Trends Are About To Reverse
http://www.businessinsider.com/robert-prechter-6-trend-reversals-2011-3

Any individual can be wrong about markets. In the past when I have been wrong I realized in retrospect that either I was a member of a herd or I bet too early against one. But the fact remains that when representatives across an entire profession of exogenous-cause thinkers agree on the future trend of a market, it’s a signal.
The lessons are: (1) Any passionate consensus among economists is a terrific market timing signal, because it means that there is no one left to convince and therefore the market in question should have extreme difficulty continuing in the predicted direction; and (2) an alert analyst can learn to recognize these times and use them to advantage.

The dollar - everyone is bearish.

Interest rates - everyone thinks they're going to rise.

The stock market - everyone is bullish but corporate insiders.

Inflation expectations - everyone thinks it is going to go higher.

Economy - everyone is confident in 2011.

Oil - everyone thinks it is heading higher.

 

[medicalgreen]

Inflation happens slow and steady. last month, a lb of organic coffee was $10.99. Today, it was $13.50 for that same coffee. I barely noticed, but I only had a $20 on me at the time, so it struck me when I realized it, because I planned to buy a couple more items, but realized I didn't have enough on me.

That's how it happens. That's how it's always happened, and that's how it will continue to happen.