Saturday, February 6, 2016

"The War on Cash" in View of Mises

Short article on Mises Institute blog concerning the "war on cash" which is a real phenomenon in certain western countries, supposedly to clamp down on tax evasion and drug trafficking.

The real nugget from the article though is Mises' view that the literal physical gold coins of a gold standard currency were important for more than mere symbolism or tradition.  This is a distinction from some gold standard proponents who might say that so long as there is proper reserves/backing, banknotes or digital gold are just as good for circulation medium. 

"The weakness of a gold standard without effectual circulation of gold coins consists precisely in the fact that it makes it extremely difficult for the average citizen to discern inflation in its early stages. An effectual gold coin circulation makes the voter the guardian of the gold standard. This is its main function."

Thus the elimination of cash benefits the central banks and politicians in the sense that it makes inflation much harder for the general public to perceive, giving the "powers that be" more flexibility in creation of currency units (in the short term at least).  In Weimar Germany and Zimbabwe - two classic examples of extreme inflation - the inflation was obvious because of the abundance of high-denomination physical banknotes.  In a world without cash, the average citizen has no way to detect the amount of digits flowing in and out of major financial institutions and governments until it shows up in cost increases of their staple consumer goods.

Is Smart Money Bracing for a Recession?

Its no secret than many emerging market economies are currently in disarray due to the collapse in oil and other commodities they export.  The Chinese stock market is in chaos, Argentina Peso crumbling, Venezuelan experiencing shortages of basic goods, Russian Ruble being chopped in half, Brazil iShares MSCI index is at a mere $20 compared to $100 in '08, Baltic Dry index is hitting lows, Middle-East on fire, and any informed person could list additional examples.  Sorry if I belabored the point, but its an important one because - here in the US - the media and politicians tell us everything is OK: "don't worry, citizen, just keep investing in US market index funds because unemployment is only 5% and low oil means more discretionary spending by consumers - happiness and joy!" 

The tale of the tape tells a different story.  Where is Wall Street putting money in reality?  What I have noticed in US stock prices is that non-cyclical "safety" stocks like JNJ, PG, Kellogs, AT&T, Altria, Clorox, Phillip-Morris, General Mills, Waste Management, Coke, and Pepsi are more or less near 52 weeks highs despite an overall decline in the US markets and virtual meltdowns overseas.  Gold is up 7.29% in the last 30 days despite the ongoing slump in commodity prices generally, indicating to me that the buying is to protect capital rather than as a speculative bet or generic hedge against inflation.  Stocks that are down are the big industrial and commodity companies (Alcoa, US Steel, Ford, GM, Deere, Caterpillar, ADM, Freeport-McMoran, etc), discretionary retail stocks such as clothing (several big earning disappointments in that category - The Gap and Nike among others currently getting hammered) and personal electronics including Best Buy & Apple, and of course financial/bank stocks down significantly over the last year as well (BAC, MS, WFC, NY Mellon, etc).  Twitter, Outerwall, and GoPro are getting annihilated. Yes there are many other stocks you could point to that are merely wriggling sideways or inching upward, but the overall picture demonstrates to me - nonprofessional that I am - that smart money is bracing for a recession, possibly even deflationary recession. 

You don't buy Clorox, gold, short-term Treasuries, and cigarette companies because you are expecting record profits in corporate America.  You buy that stuff to make it through to the other side of a depression with hopefully most of your principal intact.   The Silver Squirrel says keep burying shiny acorns for winter!!!!!!

Thursday, February 4, 2016

Feb. 2 Interview with Commodity Trader Jim Comiskey

Great interview with Chicago based commodity trader Jim Comiskey.  The important points here in my opinion are some of the interesting metrics he uses to gauge the global markets, such as scrap metal prices, Baltic Dry Index, brent crude, crude stockpiles, Caterpillar, Boeing, Union Pacific & CSX, and marine tanker locations in general.  Looking at these metrics and others, the global economy is clearly in recession. Interview put out by "Crush the Street"