What's Up With Crypto? 3 3

[Henri Charriere]

[Note to viewers:  I haven't the slightest clue as to what these gentlemen are talking about, but can only hope one day I will master their dialect]  😉 

[World Colonial]

On 9/7/2022 at 3:10 AM, GoldFinger1969 said:

The quality of U.S. earnings is very solid.  You can state that earnings will collapse, but the quality is A-1.  

It's predominantly based upon a fake economy, so while it may mean a lot to you, it doesn't mean anything to me.

On 9/7/2022 at 3:10 AM, GoldFinger1969 said:

Leverage in U.S. corporations is very modest compared to past cycles.   Banks, for an example, were levered at about 25:1 before 2008.  Today, they are leveraged about 10x.  Capital ratios across the spectrum are 2-4x HIGHER than 2008's.  It's like comparing a straw house to a brick house with the economy the Big Bad Wolf. 

Check out the JP Morgan Guide Book I listed above for more household and corporate data points.

You can't mix financial with non-financial companies.

For non-financials, leverage is low measured by the earnings coverage ratio because of extended low interest rates. Concurrently, their debt levels are not low but historically high.

I'm working with a company now (which I won't name) whose debt is rated BBB-, barely above a junk credit.  Concurrently, it's debt coverage ratio now is 11:1.  So yes, it's obviously not at imminent risk of default.

This is typical, not an outlier or even close to it.  Like I said in a recent post, this will take a while to change as the credit cycle progresses because companies have extended maturities.  (The converse of which is the buyers will experience huge losses).

This, of course, assumes they can mostly continue to borrow.  Interest rates have barely increased, yet the weakest borrowers (US corporate and international) are already showing signs of duress.  They have been (practically) shut out of the credit markets.

Given current operating and financial leverage, it doesn't take much for supposedly "solid" credits to be gasping for financial air without much if any notice.  

[GoldFinger1969]

On 9/8/2022 at 11:06 AM, World Colonial said:

Not the shareholder.  They never see it unless it's paid out as dividends. As for growth there is no little if any correlation with earnings in the recent past, like much of this century. Earnings are an accounting abstraction to practically every individual, as they have absolutely no ability to monetize it.  They can sell their shares, but any appreciation is mostly or entirely independent or any supposed growth.

You are shortchanging the long-term growth in real earnings per share of USA Inc.

7% real earnings growth over decades is NOT a fiction. 

[World Colonial]

On 9/8/2022 at 12:44 PM, GoldFinger1969 said:

You are shortchanging the long-term growth in real earnings per share of USA Inc.

7% real earnings growth over decades is NOT a fiction. 

I'd agree a lot more with you if I knew it wasn't substantially or mostly the result of the distortions I just described to you.

The US of today isn't the same country it was in the past and the change isn't for the better.  That's one aspect of my disagreement with you and everyone else who disagrees with me.  I also disagree that what is actually a form of socialistic central planning (the Bizarro World 21st century monetary and fiscal policy in most or every developed country) creates permanent long-term prosperity.  This is another aspect of my disagreement with you and presumably practically everyone else.

My difference of opinion with others here isn't actually economic or financial, it's philosophical.

[GoldFinger1969]

On 9/8/2022 at 11:30 AM, World Colonial said:

You are looking in the rear-view mirror, just like everyone who looks at the so-called fundamentals.

No, but you can't simply extrapolate bad news ad infinitum. 

On 9/8/2022 at 11:30 AM, World Colonial said:

Of course, at or near a market peak, the so-called fundamentals look good to most people.  How else do you think we got the combination of the lowest credit quality and lowest credit standards in human history simultaneously with the lowest interest rates in history?  It's also why we have a stock mania and real estate bubble.

But we DON'T have a stock mania or even a real estate bubble.  The stock market may be overvalued but it's not set to collapse.  Valuations are NOWHERE near 2000 or 2007 levels in terms of P/E or leverage.  Not even close.

As for real estate, it's pricey and certain areas are overvalued, but it's not a bubble.  A bubble was 1990 or 2007.  Check out the supply of new homes relative to the population:  it's DOWN by 30-40% while our population is UP by 30%.

On 9/8/2022 at 11:30 AM, World Colonial said:

If you go back to 1981 at the peak of the interest rate cycle, either no one or virtually no one would have foreseen that interest rates would be so low now and recently with such actually awful credit quality.

The extent, no....but the direction, yes.  

On 9/8/2022 at 11:30 AM, World Colonial said:

First, the primary basis of my position isn't on debt.  Current debt is a symptom of extended social and economic decay.  You and practically everyone else miss this entirely.  The actual state of country longer-term is nowhere near as favorable as you imply.  It's poor to very poor. Second, comparing to Greece makes no sense.  I'm aware Greece is in worse shape, but your inference is that the starting point for the US now is favorable when it isn't.  

Predicting that most Americans are going to become poorer or a lot poorer over the indefinite future isn't "doom and gloom", it's completely realistic. A turn in the long-term credit cycle (in 2020) and an end of the asset mania are more than sufficient to result in this outcome. Believing that any society can live above its means as the US has for decades and then expecting more of the same indefinitely is nonsensical.  That's the consensus.

Go look at public data published by FRED.  It's not mine.  Real median household income and net worth has essentially flatlined since the late 90's.  This is an entire generation and probably the worst performance in US history over a comparable time period.  It's also occurred during a mostly expanding economy, except for short periods surrounding 9/11, the GFC, and COVID.  It took a 5X increase in the national debt, an 8X increase in the FRB's balance sheet, the lowest interest rates in history, and the biggest asset mania in history to achieve this pathetic economic performance.  

Unless you can tell us WHEN this collapse is coming, it's useless, WC.  If it happens in 75 years, anybody waiting for Armageddon is a fool.

The U.S. has favorable demographics, private property rights, the rule of law, mobility of capital and labor, etc.  We have dozens of world-class tech, medical, and other companies -- we lead the entire world.  Europe has many continental problems, China is run by a 1-party authoratarian monopoly.  Economies and financial markets just don't collapse, they collapse relative to internal valuations or compared to other countries metrics.  The U.S. is by far the best house in a lousy neighborhood.

FRED data is interesting but doesn't tell the whole picture.  Median figures are just that and don't show the upward mobility of Americans over time.  You are assuming income, net worth, and mobility are all static.

Edited September 8, 2022 by GoldFinger1969

[VKurtB]

On 9/8/2022 at 2:58 PM, GoldFinger1969 said:

No, but you can't simply extrapolate bad news ad infinitum. 

But we DON'T have a stock mania or even a real estate bubble.  The stock market may be overvalued but it's not set to collapse.  Valuations are NOWHERE near 2000 or 2007 levels in terms of P/E or leverage.  Not even close.

As for real estate, it's pricey and certain areas are overvalued, but it's not a bubble.  A bubble was 1990 or 2007.  Check out the supply of new homes relative to the population:  it's DOWN by 30-40% while our population is UP by 30%.

The extent, no....but the direction, yes.  

 

Unless you can tell us WHEN this collapse is coming, it's useless, WC.  If it happens in 75 years, anybody waiting for Armageddon is a fool.

The U.S. has favorable demographics, private property rights, the rule of law, mobility of capital and labor, etc.  We have dozens of world-class tech, medical, and other companies -- we lead the entire world.  Europe has many continental problems, China is run by a 1-party authorataian monopoly.  Economies and financial markets just don't collapse, they collapse relative to internal valuations or compared to other countries metrics.  The U.S. is by far the best house in a lousy neighborhood.

FRED data is interesting but doesn't tell the whole picture.  Median figures are just that and don't show the upward mobility of Americans over time.  You are assuming income, net worth, and mobility are all static.

Agree ESPECIALLY that there is not a general real estate bubble. There are HIGHLY LOCALIZED real estate bubbles, but only that. Just in my area, Huntsville is in a HUGE local bubble, while farther south, real estate is astonishingly cheap. Part of this is demographic. Birmingham is no longer the largest city in Alabama, Huntsville is. It’s the fastest growing city and military base in the Gulf states. 

[World Colonial]

On 9/8/2022 at 3:58 PM, GoldFinger1969 said:

But we DON'T have a stock mania or even a real estate bubble.  The stock market may be overvalued but it's not set to collapse.  Valuations are NOWHERE near 2000 or 2007 levels in terms of P/E or leverage.  Not even close.

The P/E is the one of the worst measures of value.  The only reason the P/E has the correlation it does to stock prices is because the "P" is the market. 

It's a lagging indicator.  When stock prices fall a lot, the P/E ratio is high making the market look more expensive.  you know this as well as I do.

On 9/8/2022 at 3:58 PM, GoldFinger1969 said:

As for real estate, it's pricey and certain areas are overvalued, but it's not a bubble.  A bubble was 1990 or 2007.  Check out the supply of new homes relative to the population:  it's DOWN by 30-40% while our population is UP by 30%.

There wasn't a national real estate bubble in 2006 either.  Are you telling me that wasn't a bubble either?  Look at the Case-Schiller indices for the 20 component cities.  All are not in a bubble, but more are now versus then and the overvaluation is a lot worse.  Housing is less affordable than it's ever been, even according to the NAR or whatever affordability index is used.

On 9/8/2022 at 3:58 PM, GoldFinger1969 said:

Unless you can tell us WHEN this collapse is coming, it's useless, WC.  If it happens in 75 years, anybody waiting for Armageddon is a fool.

Everyone should have to live with the consequences of their financial decisions.  Problem is in today's society, they don't.  Those who take imprudent risks disproportionately immediately look for someone else to bail them out.

Back in 2020, I told you I thought the oil majors were cheap, but I didn't buy it.  Why?  Because I've subsidized my mother and sister to the tune of $150K in the last five years. I have to make sure that regardless of what happens, I can meet my obligations. 

Are you going to write me a check if I am wrong and need the money?  I didn't think so. 

I don't need to participate in the most overpriced markets in history to do what I need to do.  That's one of the main reasons most people are in this market.  I can do what I have been doing to this point and still be better off than most others in the future.

On 9/8/2022 at 3:58 PM, GoldFinger1969 said:

The U.S. has favorable demographics, private property rights, the rule of law, mobility of capital and labor, etc.  We have dozens of world-class tech, medical, and other companies -- we lead the entire world.  Europe has many continental problems, China is run by a 1-party authoratarian monopoly.  Economies and financial markets just don't collapse, they collapse relative to internal valuations or compared to other countries metrics.  The U.S. is by far the best house in a lousy neighborhood.

No "fundamental" event ever bought or sold a single share.  The fundamentals are also worse now than decades ago, yet valuations are much higher.  Interest rates are the primary example.  No one can rationalize away that aggregate credit quality and credit standards are the lowest ever yet interest rates have been the lowest ever with it.

If the US fundamentals are so great, why has what can only be described as emergency fiscal and monetary policy been necessary since at least 2008?  The answer is because the economic fundamentals aren't what you claim.

On 9/8/2022 at 3:58 PM, GoldFinger1969 said:

FRED data is interesting but doesn't tell the whole picture.  Median figures are just that and don't show the upward mobility of Americans over time.  You are assuming income, net worth, and mobility are all static.

I'm not assuming anything.  I'm aware of movement up and down the income and wealth distribution.  The FRED data is the most representative data for the population as a whole.   It doesn't demonstrate the result you like but that's another consideration entirely.

[VKurtB]

On 9/8/2022 at 10:34 AM, World Colonial said:

It's wealth to the individual, not the economy.  This is something else almost everyone misses entirely.

You or I as individuals are wealthier when our bank balance or asset portfolio increases in price.  The economy in the aggregate isn't.  

Interest is the price of borrowed liquidity, nothing more. Assigning debt a negative connotation is itself a bizarre ideology, one to which very few trained in economics adhere. You @World Colonial, are far and away the ideological outlier in this matter. 

Edited September 8, 2022 by VKurtB

[World Colonial]

On 9/8/2022 at 5:18 PM, VKurtB said:

Interest is the price of borrowed liquidity, nothing more. Assigning debt a negative connotation is itself a bizarre ideology, one to which very few trained in economics adhere. You @World Colonial, are far and away the ideological outlier in this matter. 

Debt is a tool, that's all.  No tool is good or bad in and of itself.  You disagree with me that ANY amount of debt poses a problem for a society.  That's my disagreement with you and nothing else.

If I believed as you claimed, I'd be in favor of usury laws.  I'm not.  I'm against any interest rate caps of any sort.  I do believe disclosures should be understandable to consumer borrowers but otherwise, anyone should be able to charge any rate they want.

I'm also against bailouts of any sort.  That's what governments and central banks have been doing lately, over and over.

[VKurtB]

On 9/8/2022 at 4:27 PM, World Colonial said:

Debt is a tool, that's all.  No tool is good or bad in and of itself.  You disagree with me that ANY amount of debt poses a problem for a society.  That's my disagreement with you and nothing else.

If I believed as you claimed, I'd be in favor of usury laws.  I'm not.  I'm against any interest rate caps of any sort.  I do believe disclosures should be understandable to consumer borrowers but otherwise, anyone should be able to charge any rate they want.

I'm also against bailouts of any sort.  That's what governments and central banks have been doing lately, over and over.

Right now, interest rate caps are no worry. Interest rate FLOORS are. Other developed countries HAVE dabbled with negative interest rates, and not just in the case of real interest rates either. Negative cash rates. What is that? Obviously it is a societal/governmental “bribe” to create new enterprises. Under normal circumstances, that would be crazy. But in the regulatory/environmental/social obligation environment that accompanies creating a business today, I submit to you it is efficient pricing. 

[Henri Charriere]

[I still don't understand a word of what anyone is saying. As it is said, "ignorance is bliss." Maybe some day but not to day.]  😉  

[World Colonial]

On 9/8/2022 at 10:01 PM, VKurtB said:

Right now, interest rate caps are no worry. Interest rate FLOORS are. Other developed countries HAVE dabbled with negative interest rates, and not just in the case of real interest rates either. Negative cash rates. What is that? Obviously it is a societal/governmental “bribe” to create new enterprises. Under normal circumstances, that would be crazy. 

What you are describing is a form of price fixing. That's what monetary policy represents.  It "works" now for the reasons I have given you.

On 9/8/2022 at 10:01 PM, VKurtB said:

But in the regulatory/environmental/social obligation environment that accompanies creating a business today, I submit to you it is efficient pricing. 

Your statement is a contradiction.  Negative interest rates are a contradiction, as no one would voluntarily pay anyone to borrow.

[VKurtB]

On 9/10/2022 at 2:37 PM, World Colonial said:

What you are describing is a form of price fixing. That's what monetary policy represents.  It "works" now for the reasons I have given you.

Your statement is a contradiction.  Negative interest rates are a contradiction, as no one would voluntarily pay anyone to borrow.

Except for one VERY important piece of data. European sovereign debt with negative interest rates DID SELL. In fact, they were fully sold out. People literally paid 1,000 euros to get 900 and something back later. Amazing what can be done when the physical currency can be and is demonetized from time to time. Can’t even stuff it under the mattress. 
 

All 19 euro nations have had negative interest rates, with Sweden, Switzerland, and Japan thrown in for good measure. But then again, these are the same Einsteins who thought being dependent on Russia for energy products was just fine. “What could possibly go wrong?”

Edited September 11, 2022 by VKurtB

[zadok]

On 9/10/2022 at 11:54 PM, VKurtB said:

Except for one VERY important piece of data. European sovereign debt with negative interest rates DID SELL. In fact, they were fully sold out. People literally paid 1,000 euros to get 900 and something back later. Amazing what can be done when the physical currency can be and is demonetized from time to time. Can’t even stuff it under the mattress. 
 

All 19 euro nations have had negative interest rates, with Sweden, Switzerland, and Japan thrown in for good measure. But then again, these are the same Einsteins who thought being dependent on Russia for energy products was just fine. “What could possibly go wrong?”

...i think u can still stuff gold under ur mattress...n u mite actually sleep better....

[VKurtB]

On 9/10/2022 at 11:18 PM, zadok said:

...i think u can still stuff gold under ur mattress...n u mite actually sleep better....

Well, my gold holdings have recently almost doubled, so there is that. The attractiveness of them has far more than doubled.  

[VKurtB]

On 9/10/2022 at 11:18 PM, zadok said:

...i think u can still stuff gold under ur mattress...n u mite actually sleep better....

Here’s the problem with that. The value of gold has fallen 15% over the last six months, while my dirty dollars have fallen in value far less. But yes, the euro is now below dollar par, and Sterling seems headed there. 

Edited September 11, 2022 by VKurtB

[GoldFinger1969]

On 9/10/2022 at 3:37 PM, World Colonial said:

Your statement is a contradiction.  Negative interest rates are a contradiction, as no one would voluntarily pay anyone to borrow.

Various mortgages in Europe did just that. 

[GoldFinger1969]

On 9/11/2022 at 12:35 AM, VKurtB said:

Well, my gold holdings have recently almost doubled, so there is that. The attractiveness of them has far more than doubled.  

You ?????  

GOLD ????? 

Edited September 11, 2022 by GoldFinger1969

[World Colonial]

On 9/11/2022 at 1:12 AM, GoldFinger1969 said:

Various mortgages in Europe did just that. 

Yes, I read about that. 

It's absolutely insane.  It's obvious that when the mortgage contract was written, the underwriter never conceived that they would find themselves doing that.

[World Colonial]

On 9/10/2022 at 11:54 PM, VKurtB said:

Except for one VERY important piece of data. European sovereign debt with negative interest rates DID SELL. In fact, they were fully sold out. People literally paid 1,000 euros to get 900 and something back later. Amazing what can be done when the physical currency can be and is demonetized from time to time. Can’t even stuff it under the mattress. 

You are correct.

But I can infer that those who did the buying weren't actually doing it with their own money hardly at all if ever.  Aside from the ECB with its deranged monetary policy, it must have been institutional buyers 99+% of the time.  And the only reason they did it was believing rates would go even more negative as an interest rate speculation.

As one example, I recall Austria selling a 1000YR bond at 1.2%.  Not negative but even worse than a ST negative coupon bond.  Serial defaulter Argentina sold 100YR USD debt within the last 10 years or so.  This was a "reach for yield" by the buyers and yes, it's already in default now.

[Henri Charriere]

On 9/11/2022 at 12:38 AM, VKurtB said:

Here’s the problem with that. The value of gold has fallen 15% over the last six months, while my dirty dollars have fallen in value far less. But yes, the euro is now below dollar par, and Sterling seems headed there. 

Do you recall that time, in an on-site report posted from Rosemont--not this year, but last, you inexplicably blurted out, in two posts, in substance, I hope gold drops and I hope silver drops?

Your wish appears to have been accommodated.

The upside is, what goes down, Down, DOWN, must come back up--and may even exceed the most optimistic of expectations!

[VKurtB]

On 9/11/2022 at 12:13 AM, GoldFinger1969 said:

You ?????  

GOLD ????? 

Unbelievably enough, a gift from a dear friend. 

[VKurtB]

On 9/11/2022 at 11:36 AM, Quintus Arrius said:

Do you recall that time, in an on-site report posted from Rosemont--not this year, but last, you inexplicably blurted out, in two posts, in substance, I hope gold drops and I hope silver drops?

Your wish appears to have been accommodated.

The upside is, what goes down, Down, DOWN, must come back up--and may even exceed the most optimistic of expectations!

Gold has an irrefutable pattern that I expect to continue. It gradually falls in value over large expanses of time, and then when a crisis occurs, it zooms up for a short period of time. To profit, it requires selling into an overheated bubble, which I did in August 2011. I gave a talk at the 2011 ANA show telling everyone gold was in danger of a collapse. People laughed. By the time I got home from Chicago, the collapse had begun. Immediately after my talk, literally within an hour, I had sold every gold coin I had, aside from two sentimental pieces. Now, 11 years later, I have three sentimental pieces. 

[numisport]

On 9/8/2022 at 10:26 PM, Quintus Arrius said:

[I still don't understand a word of what anyone is saying. As it is said, "ignorance is bliss." Maybe some day but not to day.]  😉  

Dont't worry I'm not sure they get it either. 

[VKurtB]

On 9/11/2022 at 1:03 PM, numisport said:

Dont't worry I'm not sure they get it either. 

You wound me, sir. My B.A. was in economics. 

[Henri Charriere]

On 9/11/2022 at 7:08 PM, VKurtB said:

You wound me, sir. My B.A. was in economics. 

Well, at the risk of being made a laughingstock on this Forum, my B.A  was in criminal justice. Any known connection to numismysticism? Not that I am aware of. [I believe I can withstand the "slings and arrows of outrageous Fortune," as William put it, in Hamlet, Act 3, Scene 1 - "to be or not to be."]

Edited September 12, 2022 by Quintus Arrius
Closing bracket; gratuitous addition of quote from Shakespeare.

[VKurtB]

On 9/11/2022 at 8:24 PM, Quintus Arrius said:

Well, at the risk of being made a laughingstock on this Forum, my B.A  was in criminal justice. Any known connection to numismysticism? Not that I am aware of. [I believe I can withstand the "slings and arrows of outrageous Fortune," as William put it, in Hamlet, Act 3, Scene 1 - "to be or not to be."]

Well, the state of our Justice system is criminal, so it must be working. 

[GoldFinger1969]

On 9/11/2022 at 1:39 PM, VKurtB said:

Gold has an irrefutable pattern that I expect to continue. It gradually falls in value over large expanses of time, and then when a crisis occurs, it zooms up for a short period of time. To profit, it requires selling into an overheated bubble, which I did in August 2011. I gave a talk at the 2011 ANA show telling everyone gold was in danger of a collapse. People laughed. By the time I got home from Chicago, the collapse had begun. Immediately after my talk, literally within an hour, I had sold every gold coin I had, aside from two sentimental pieces. Now, 11 years later, I have three sentimental pieces. 

Gold was up 6-fold at the time and had SPIKED on the European Debt Crisis and the U.S. (bogus) downgrade by S&P.

Today, gold has been basing and the rise is much less than 6-fold in 10-years.  The next $500 and $1,000 are UP !! 

[World Colonial]

On 9/13/2022 at 12:58 AM, GoldFinger1969 said:

Gold was up 6-fold at the time and had SPIKED on the European Debt Crisis and the U.S. (bogus) downgrade by S&P.

Why was the US downgrade bogus?  Because the US can print?

If that's your reason, I don't know why the rating agencies even rate any sovereign debt denominated in the local currency, since they can always "pay it back", even if it's steeply devalued.

The entire credit rating system is bogus.  Look at the history of bond rating upgrades and downgrades.  It's practically worthless as a decision making tool.  Bond raters invariably downgrade after prices have crashed.  That's completely useless.

[numisport]

On 9/11/2022 at 7:08 PM, VKurtB said:

You wound me, sir. My B.A. was in economics. 

After you fully recover from your wounds maybe explain how Crypto is related to Numismatics ?