The Trade is Easy

JulieW

JulieW

Well-Known Member
Silver Stacker
From the Mauldin newsletter:


Seriously. If it were 1996 and I told you we were considering just handing out free money in 2016, you would have taken a swing at me. But here we are, talking about it.

There are a couple of reasons why this absolute lunacy is being considered a serious possibility:

Central banks and governments can no longer tolerate a recession. It used to be, you get a downturn in the economy, you tough it out, and it will come back eventually. I graduated high school in 1992. Right at the end of the recession. People called it the "jobless recovery" and said youngsters wouldn't be able to get jobs. They did, eventually. The free market has a way of doing that.

We've gone far, far to the left politically in the last 30 years.

Keynesianism and interventionist policy have become very much in vogue. Hard to believe that Hayek and Friedman once won Nobel Prizes, back when neoliberal economics was in fashion.

There are worries about political instability in the case of a downturn, but I'd argue that we are getting political instability in the upturn, because of monetary policy.

Groupthink. Get any unaccountable committee together, and they will come up with stupid ideas.

If you asked a second-grader what would happen if you suddenly printed money and put it in people's bank accounts, they would be able to give you the correct answer: Prices are going up. Duh. Yet a bunch of PhDs think it's a brilliant idea.

Don't let a bunch of PhDs ever run anything. Ever. Let alone the global economy.

So yes, I predict that this is going to happen. I think it is going to happen in Japan first, then elsewhere. Will it happen in the United States? I think it would take a lot. We still have a Fed that is reasonably hawkish on inflation. I'm sure Evans and maybe Rosengren would think it were a good idea, but I'd say the FOMC is far from having consensus on this particular issue.

Look, quantitative easing was considered to be nuts in 2008. I said back then that we would have quantitative easing. It happened.

We are going to have OMT. Probably in the next year, it is going to happen somewhere in the world.
The Trade

The trade is easy. Gold!

Some people are already starting to think about downside in the bond market, putting on steepeners, etc. When inflation strikes, it will hit the long end of the yield curve. I think that might be premature. Don't get me wrongOMT will probably result in the bond market going down in flames, but I would be surprised if that happened in 2016.

You probably have noticed that newsletter writers are seldom this explicit when it comes to trade ideas. I will cop to that. I am usually unwilling to really stick my neck out on a marginal idea.

I am more sure about this one. We spent five years contemplating tighter monetary policy (but not actually doing it, except for 25 bps at the end). Notice all the rate hike talk is pretty much over.

Two-thirds of investing is getting ahead of dumb policy. Free stuffthis is the easiest one in the world
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Underlined by this article in The Telegraph:

If Nirp doesn't work, they will simply move on to the next gimmick. The most likely option? Helicopter money.
5 10 20 50

Despite the name, it doesn't have anything to do with the cost of buying a new chopper. Instead the phrase, coined by Milton Friedman, refers to spraying the economy with cash, as if dropping banknotes out of the back of a Chinook.

Lord Turner, the former CBI director-general, who can be reliably depended upon to support any really bad economic idea, has been one of its leading proponents in this country. In the US last week, Ray Dalio, the founder of the world's biggest hedge fund, Bridgewater Associates, called for helicopter money as the next move.

But what form will that take? The most likely option is probably a direct monetisation of government debt some version of the People's QE that has already been proposed by the Labour leader Jeremy Corbyn.

The state could create infrastructure bonds to finance a public works programme and those could be bought directly by its central bank and then cancelled. Instead of adding to the national debt, the bonds would simply be written off.

A more radical idea would be directly putting money into people's pockets. Technically, the Bank of England would simply credit everyone's account with 1,000, or whatever sum it chose. A more subtle way of doing that might be through a basic citizen's income, a proposal already being discussed in Finland and Switzerland, two countries either in or close to recession. Everyone could be paid 5,000 a year, and the central bank would pick up the tab.

Another option could be an incomes policy, which some economists are now advocating for Japan, with the government simply mandating a pay rise. Here in Britain, with our traditional reliance on the property market to boost the economy, don't be surprised if it takes the form of a more generous "Help To Buy" scheme.
Real estate signs are seen in east London, in this June 7, 2005 file photo. Britain's housing boom may be a blessing for homeowners, but with prices trebling in a decade, first-time buyers are being forced to come up with increasingly complex arrangements to get a foot on the property ladder. Britain's Labour government is set to bring in a new low-cost scheme in October, allowing borrowers to combine a mortgage and a loan linked to the value of the property.
In Britain, we rely on the property market to boost the economy

If any of those policies were implemented, expect retail sales to soar, along with car sales and house prices.

Of course, helicopter money won't work any better than Zirp and Nirp did. It will just further undermine faith in the soundness of currency and reduce incentives to work and save. Worse, unless people can be convinced it is permanent, they may not spend it anyway many of us might just use the "helicopter money" to reduce debts, which will defeat its purpose. It could backfire as badly as negative rates.

In reality, the major problem for our economy is that we have too much debt, the state is too big, productivity is not growing quickly enough, and technology is no longer delivering sufficient innovation to create new industries in the way it once did. None of those problems will be fixed by printing more money. But that doesn't mean a central bank won't try it out, possibly very soon.


http://www.telegraph.co.uk/business/2016/02/22/get-ready-to-be-showered-by-helicopter-money/
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So the solution to cheap money is... free money.

I think we have officially reached the state known to academics as 'ass-backwardation'
 
It's madness.

But Australia has already flirted with helicopter money once already. Does anyone know if any serious (credible) post-mortem analysis has been done on K.Rudds handout of the previous GFC? Did it work?
 
^^ Sure, it saved us from financial ruin! Just ask anyone in the Labor Party.

I used my Rudd money to go to Thailand so it went into the economy, just not ours ;)

But here's a thought: what if they dropped silver out of those helicopters?

Pros? Cons?
 
BuggedOut said:
It's madness.

But Australia has already flirted with helicopter money once already. Does anyone know if any serious (credible) post-mortem analysis has been done on K.Rudds handout of the previous GFC? Did it work?
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Last I read, the consensus is that almost all of it was used to pay down debt. That's where mine went.
 
JulieW said:
BuggedOut said:
It's madness.

But Australia has already flirted with helicopter money once already. Does anyone know if any serious (credible) post-mortem analysis has been done on K.Rudds handout of the previous GFC? Did it work?
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Last I read, the consensus is that almost all of it was used to pay down debt. That's where mine went.
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Sample size might be a bit small but fairly representative of what I heard. That Friday was one hell of a night :D

9cMy4Kd.jpg

Leigh
 
Sheeit were there two payments? Can I still claim the other one???

There might be hope for the economy yet
 
HoldMeTender said:
^^ Sure, it saved us from financial ruin! Just ask anyone in the Labor Party.

I used my Rudd money to go to Thailand so it went into the economy, just not ours ;)

But here's a thought: what if they dropped silver out of those helicopters?

Pros? Cons?
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If you are trying to kill people and damage homes, cars, etc., it would be a great idea.
 
dccpa said:
If you are trying to kill people and damage homes, cars, etc., it would be a great idea.
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Suppose they'd have to use little parachutes. At least it wouldn't blow away like greenbacks would :)
 
HoldMeTender said:
......what if they dropped silver out of those helicopters?

Pros? Cons?
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Assuming a silver drop is feasible ;) ......how likely would this end up as a 'bank donation' (ie debt repayment').
That is - would people be converting silver to currency to satisfy banks ?
Or, following long historical precedent - use silver for purchases....or stack the silver ?
This goes back to Julie's topic about paper asset vs precious metal value outlook (ie, choosing between them).
 
Just get a loan of Packer....he seems in a good enough mood to waive $7 million in loans to Russell Crowe recently.
 
HoldMeTender said:
dccpa said:
If you are trying to kill people and damage homes, cars, etc., it would be a great idea.
Click to expand...

Suppose they'd have to use little parachutes. At least it wouldn't blow away like greenbacks would :)
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I'm going full-on opposite with a suggestion.

Encapsulate large rods of silver in a tungsten sheath and drop them from orbit, preferably over Canberra and parts of Sydney.

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pew pew
 
"Helicopter money may be the next big thing, as policymakers reach the limits of standard unconventional practices"

http://www.japantimes.co.jp/news/20...dropping-money-spur-economy-not-crazy-sounds/

um, standard unconventional practices? Can anyone explain the meaning of that, besides 'we ran out of ideas that make any sense years ago so now we'll try literally anything rather than admit it'?

And at what point does helicopter money stop qualifying as 'money' if it is completely divorced from economic reality?
 
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