:

[cypherdoc]

Suckers

It's s short-term phenomenon. But if you can't call it in the short term how can you expect to call it in the long term?

petty details...

[miscreanity]

It's s short-term phenomenon. But if you can't call it in the short term how can you expect to call it in the long term?

Simple: I don't play the short game. It's harder to make short-term calls, but harder to stay the course in the long-term. Traders can go about and make a thousand trades per year. I'd rather make a handful of investments during my entire lifetime and have the same result. Gold is one of those.

No agonizing over every squirrelly price move, no desperate attempts to modify theories on each tick, no obsessing with eyeballs glued to charts. Only a driving vision based on unassailable principles. A better question might be: how can you live life when your emotional attachment to the short-term is exhausting?

[cypherdoc]

i have a solution...only analyze yearly bar charts like silverbox.  then you won't have to deal with a noticeable trend change for at least a few years.

[notme]

i have a solution...only analyze yearly bar charts like silverbox.  then you won't have to deal with a noticeable trend change for at least a couple of years.

+1

[miscreanity]

i have a solution...only analyze yearly bar charts like silverbox.  then you won't have to deal with a noticeable trend change for at least a few years.

Looking at real-time data helps to confirm the mechanism that produces long-term patterns. It's like sifting through LHC data and finding correlations with theories in cosmology. The thing is, we don't have a chance of directly operating consistently at such a rapid pace, but it's very easy to front run events that occur far more slowly. Patience is the greatest virtue, after all.

[silverbox]

i have a solution...only analyze yearly bar charts like silverbox.  then you won't have to deal with a noticeable trend change for at least a few years.

Big Ben is saddling up his white horse right now..  Look at all that extra value the dollar has packed on the last year, time to trim the fat..

[cypherdoc]

Looking at real-time data helps to confirm the mechanism that produces long-term patterns. It's like sifting through LHC data and finding correlations with theories in cosmology. The thing is, we don't have a chance of directly operating consistently at such a rapid pace, but it's very easy to front run events that occur far more slowly. Patience is the greatest virtue, after all.

Big Ben is saddling up his white horse right now..  Look at all that extra value the dollar has packed on the last year, time to trim the fat..

The Keynesian's speak!

[notme]

i have a solution...only analyze yearly bar charts like silverbox.  then you won't have to deal with a noticeable trend change for at least a few years.

Big Ben is saddling up his white horse right now..  Look at all that extra value the dollar has packed on the last year, time to trim the fat..

The Keynesian's speak!

But what happens when they use all the dollars to buy future dollars?

[cypherdoc]

i have a solution...only analyze yearly bar charts like silverbox.  then you won't have to deal with a noticeable trend change for at least a few years.

Big Ben is saddling up his white horse right now..  Look at all that extra value the dollar has packed on the last year, time to trim the fat..

The Keynesian's speak!

But what happens when they use all the dollars to buy future dollars?

that's like saying i'm going to use the next QE to short gold.

[cypherdoc]

[cypherdoc]

DXY 83.83

still whistlin'.

[humanitee]

It's only a matter of time! I think it's inevitable at this point.

[humanitee]

I hadn't taken that into account and I think it's a good point.

However, I still believe the FED will eventually decide on QE3 somewhere down the line. I think this recession is just getting started. What are your thoughts? I'd also be interested in reading any articles you would suggest.

Thanks!

[notme]

The Fed didn't ease .

[cypherdoc]

The Fed didn't ease .

There is no reason to. QE is a tool to address problems with liquidity. There are no problems with liquidity.

this is true.  there ARE problems with solvency however.

[notme]

I believe cypherdoc speaks about FRS's solvency. 

Frisch's Restaurants or Family Radio Service?

[molecular]

The Fed didn't ease .

There is no reason to. QE is a tool to address problems with liquidity. There are no problems with liquidity.

this is true.  there ARE problems with solvency however.

QE doesn't address solvency problems.

It doesn't? Please explain.

[miscreanity]

QE doesn't address solvency problems.

It doesn't? Please explain.

It's basically assets vs. liabilities. If your assets (income) are greater than your liabilities (expenses), you're fine. The other way around, though - not so good.

Let's say I run a bank, and my reserve is 10% of total assets. As with any business, I have cyclical expenses including employees, property costs, shareholder dividends, etc. To make things easy, let's say that the annual expenses are equivalent to 10% of total assets.

I have 90% of total assets to work with, so I make 9 loans at 10% each. Every one of the loans returns 2% annually for an 18% total return. This means that the bank will be running at break-even if 4 of the loans default and cannot make payments. There may be costs involved with recovering the principal capital which could turn a defaulted loan into a net loss, but let's just assume 5 of the loans have defaulted. In that situation, there is now an annual shortfall of 20% (the 2% out of 10% total asset value necessary to keep the lights on). The reserve now has to be dipped into in order to make up the difference.

What liquidity injections attempt to do is recapitalize the banks to a point where the assets are greater than the liabilities again. However, liquidity cannot make defaulted loans profitable again. Instead of helping directly, liquidity can simply flood the banks and allow them to stay afloat until there are worthwhile loan applicants that aren't likely to fail in repayment. The problem is that there's a very large percentage of defaults, like a swimming pool with dozens of big cracks - pouring water in like liquidity injections just winds up flowing out almost as quickly.

The really dangerous part for the banks comes from any shift away from them as a primary source of business. If the banks start losing potential customers (to Bitcoin!), the solvency problem gets even worse, requiring bigger liquidity injections than before. Since most governments are highly dependent upon the banks, there's an extreme incentive to keep them alive. Without the ability to create productive clients for the banks and fix the solvency issue, and no money or insufficient cashflow (tax revenue) to pump into the banks, let alone keep the government itself going, the only option is to generate funny money and distribute that until nobody wants it anymore.

You can think of buggy whip makers for an easier analogy. If everyone has switched to using horseless carriages and no longer need whips, it doesn't matter how many whips you make - you're going out of business. Economists can be a mind-boggling contradiction with their ability at being intelligently stupid.

That went a little further than solvency, but the cascading effect is important too. And this highlights the especially dangerous nature of Bitcoin and gold for the banks in the current situation

[notme]

I believe cypherdoc speaks about FRS's solvency. 

Frisch's Restaurants or Family Radio Service?

No,
http://en.wikipedia.org/wiki/Federal_Reserve_System 

Okay... Haven't heard that acronym before and google was no help.

[molecular]

QE doesn't address solvency problems.

It doesn't? Please explain.

It's basically assets vs. liabilities. If your assets (income) are greater than your liabilities (expenses), you're fine. The other way around, though - not so good.

Let's say I run a bank, and my reserve is 10% of total assets. As with any business, I have cyclical expenses including employees, property costs, shareholder dividends, etc. To make things easy, let's say that the annual expenses are equivalent to 10% of total assets.

I have 90% of total assets to work with, so I make 9 loans at 10% each. Every one of the loans returns 2% annually for an 18% total return. This means that the bank will be running at break-even if 4 of the loans default and cannot make payments. There may be costs involved with recovering the principal capital which could turn a defaulted loan into a net loss, but let's just assume 5 of the loans have defaulted. In that situation, there is now an annual shortfall of 20% (the 2% out of 10% total asset value necessary to keep the lights on). The reserve now has to be dipped into in order to make up the difference.

What liquidity injections attempt to do is recapitalize the banks to a point where the assets are greater than the liabilities again. However, liquidity cannot make defaulted loans profitable again. Instead of helping directly, liquidity can simply flood the banks and allow them to stay afloat until there are worthwhile loan applicants that aren't likely to fail in repayment. The problem is that there's a very large percentage of defaults, like a swimming pool with dozens of big cracks - pouring water in like liquidity injections just winds up flowing out almost as quickly.

The really dangerous part for the banks comes from any shift away from them as a primary source of business. If the banks start losing potential customers (to Bitcoin!), the solvency problem gets even worse, requiring bigger liquidity injections than before. Since most governments are highly dependent upon the banks, there's an extreme incentive to keep them alive. Without the ability to create productive clients for the banks and fix the solvency issue, and no money or insufficient cashflow (tax revenue) to pump into the banks, let alone keep the government itself going, the only option is to generate funny money and distribute that until nobody wants it anymore.

You can think of buggy whip makers for an easier analogy. If everyone has switched to using horseless carriages and no longer need whips, it doesn't matter how many whips you make - you're going out of business. Economists can be a mind-boggling contradiction with their ability at being intelligently stupid.

That went a little further than solvency, but the cascading effect is important too. And this highlights the especially dangerous nature of Bitcoin and gold for the banks in the current situation

Thanks for your explanation, miscreanity.

Why doesn't the fed give the money to the people unable to repay their loans instead of propping up their balance sheets with it? Would that fix the solvency problem? Probably not, right, because you can't borrow yourself out of a debt problem.