If JPM does indeed get their balance sheet blown out, and the recovery never truely takes hold, it will put pressure on the "science" of economics because it will show that the policy that was used was not sound. If it was not sound, then economics is not a science. If economics is not a science, then the whole structure of finance will need to be reorginized. This will cause great instability, and societies around the world will have to change to fit into the picture of a new economic landscape where true economics reigns supreme. The difference between current policy and sound policy has many variables, some of which are - How do we determine value? And what characteristics embody the consumers?
Economic policy dictates that when times are good it is prudent to save, and when times are bad then wealth must be created and spent. The problem with this is that the consumer is not rational (despite the science's theory) and the consumer often spends most during good times, leaving their wallets empty when a depression arrives.
The next factor is that even if the consumer were rational, the crux of the system is based on an instrument of finance that holds no intrinsic value. This instrument is the dollar, and it can be printed and loaned out from a promise to pay into an infinite amount. Since the entire system uses this tool to implement value, value is actually lost before it is ever understood. This creates a great amount of chaos and if, or rather, when, people come to terms that using fiat currency to trade is different from using it to store value, then real wealth will be demanded with sudden force. If someone wants to use paper money that is backed with another item that is one thing, but when one hoardes it as if it has value, it is merely done with poor understanding of the thought investment.
And with these fundamental problems also comes the fact that those in charge of making finance work are crooks and inept at making investments proper. The Central Banks can not really bail them out, because the Central Banks do not create wealth themselves, but just percieved wealth in the form of fiat currency (nevermind the Central Banks are crooks themselves, because they knowingly create and pop bubbles). There will soon be a moment when actual goods can not trade for fiat currency; this will be when supply is constrained and demand moves higher. Because the Major Banking Houses continue to falter, we may be fast approaching this moment when the Fiat Ponzi collapses.
Thursday, May 10, 2012
The Fall of JPM
Oops. JPM's prop desk has a realized reported $2B loss. Oops. They will now need to shore up their book and remain a buyer of UST debt at the same time, or else they will no longer be able to get the cash swap from the Fed to buy Europan debt.
First they will need to liquidate assets. How will they do this? Will they loan dollars? Sell equity? Bonds? Their position is surely leveraged too, and by some estamates the hole will be $20B.
So on the Fiat Ponzi crumbles, and given not only the size of JPM, but the institutional role it plays to mind the gaps, this could trigger the event that will usher out the Fiat Ponzi system. Anyway it goes; it could be a sharp sell off in equity, and bond bubble collapse due to a lack of demand, or a collapse of fiat due to an increase in leverage to maintain price stability; anything is possible, and because we have never had a stable system, and the backbone is based on a metric (the dollar) which has no real value, I would say that whatever happens is going to be something that most people have never dreamed of.
Today, it has begun.
First they will need to liquidate assets. How will they do this? Will they loan dollars? Sell equity? Bonds? Their position is surely leveraged too, and by some estamates the hole will be $20B.
So on the Fiat Ponzi crumbles, and given not only the size of JPM, but the institutional role it plays to mind the gaps, this could trigger the event that will usher out the Fiat Ponzi system. Anyway it goes; it could be a sharp sell off in equity, and bond bubble collapse due to a lack of demand, or a collapse of fiat due to an increase in leverage to maintain price stability; anything is possible, and because we have never had a stable system, and the backbone is based on a metric (the dollar) which has no real value, I would say that whatever happens is going to be something that most people have never dreamed of.
Today, it has begun.
Wednesday, May 2, 2012
Mining Stocks
The drop in price of precious metal mining shares has been one of the most interesting happenings in the markets over the last few years. Not only has precious metal bullion found a comfortable support level, but these miners are providing an important resource for industry, if it is financial by gold or silver by technology. So how has price dropped so?
I have no answer, but I can stipulate; dropping the price of miners can cause a panic that could lead to a mitigation in the price of bullion due to investor sentiment but also by forcing them to sell more product than wanted to keep their balance sheets even. Yet it could also create oppurtunity for those miners who manage their positions, because if they can find support, buyers could come in and invest, and they could also hold back product and cause a supply crunch.
Who is shorting? It is likely that it is institutional investors. Looking at stocks, the PM miners and financials are down in lockstep. It is likely that the proxie Banking Houses are doing the bidding and bleeding their books to mitigate the prices of the gold sector, because if miners stay down sentiment may be kept from buying bullion, and vice versa.
It has been a hard year for miners, but those that managed themselves best should see great upside if bullion prices start to rise soon. The move up in bullion could not only move the mining sector dramatically, but could lead to even more bullion investing. If one moves, the other should respond. The two investments, bullion and shares, could build on each other to create the next leg up for the gold sector.
I have no answer, but I can stipulate; dropping the price of miners can cause a panic that could lead to a mitigation in the price of bullion due to investor sentiment but also by forcing them to sell more product than wanted to keep their balance sheets even. Yet it could also create oppurtunity for those miners who manage their positions, because if they can find support, buyers could come in and invest, and they could also hold back product and cause a supply crunch.
Who is shorting? It is likely that it is institutional investors. Looking at stocks, the PM miners and financials are down in lockstep. It is likely that the proxie Banking Houses are doing the bidding and bleeding their books to mitigate the prices of the gold sector, because if miners stay down sentiment may be kept from buying bullion, and vice versa.
It has been a hard year for miners, but those that managed themselves best should see great upside if bullion prices start to rise soon. The move up in bullion could not only move the mining sector dramatically, but could lead to even more bullion investing. If one moves, the other should respond. The two investments, bullion and shares, could build on each other to create the next leg up for the gold sector.
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