Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

The Latest Transfer of Cash to the Rich

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In the Sunday New York Times, I read Gretchen Morgenson's article in the business section providing details of Obama's latest farcical "help" to the middle class. Prepare to have your stomach turned.

According to the article, Obama on November 6th signed the Homeownership and Business Assistance Act of 2009 (sounds nice, doesn't it?) It provides for:

  • Extending unemployment benefits yet again by 20 weeks;
  • Providing first-time home buyers a tax credit

So, in each of the above, we have taxpayers handing over dollars to either those not working, or those who are buying a hope and getting a free multi-thousand dollar gift that you and I never enjoyed. (I imagine most everyone here who owns a house actually paid for it and didn't get any special gimmicks and giveaways in doing so).

But much worse is the following: it provides for homebuilders to use losses in 2008 and 2009 to offset profits booked as far back as 2004, creating a $33 billion windfall for these organizations.

The Obama administration piously spoke of how this bill would help "struggling businesses". Here are some examples of these poor, beleaguered organizations:

  • Pulte Homes, which will receive refunds of $450 million, has $1.5 billion of cash in the bank
  • Hovnanian Enterprises is getting back $275 million and has $550,000,000 in the bank
  • Stanford Pacific will get a $80 million check to deposit into its account that already has $523,000,000

How did the companies pull this off? Lobbying, of course. And what a return on their investment!

How much did Pulte's $450,000,000 refund cost? $210,000 in lobbying. That's about $2,100 returned for every $1 invested in lobbying! The entire industry spent $8.2 million lobbying which yielded the $33 billion extraction of cash from the Treasury (that would be you and me) to the homebuilders. So the overall return is even better – over $4,000 in tax refunds for every $1 of lobbying expense.

So as you gaze at your paycheck, with about 50% of the money extracted by various government organizations, at least you know where it's going. It'll make you feel extra warm and fuzzy next April 15.

VIX Megaphone: ‘NOW HEAR THIS!’ (by Gary)

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Hi, Gary from biiwii posting again at the invitation of Tim, with whom I feel a kindred kind of thing as hope begins to drain from the bull case, little by little.  It is such a pleasure participating in da Slope.

Here is an updated look at the VIX and its megaphone AKA reverse symmetrical triangle (reversal) pattern.

"NOW
HEAR THIS!" blares the VIX… "Greedy bulls have had their fun, held
sway for a good long while, morphed Hope '09 into Full Tout '09, got
Wall Street to bonus season and generally reenacted the wonderful 50%
rally in hope off of the 1929 crash. You know the one, after which the
real depression descended. Happy days are not here again and it is
unfortunate that most casino patrons will come to that realization
after I begin to rise in earnest. I have not decided yet whether to
give the bulls one more run at the highs, but I will decide before too
long. This megaphone through which I give you my warning is a reversal
pattern after all."

Vix

Okay, that is what the VIX says. What
I say is that it feels so much like a false dawn that it is alarming
how people seem to have gone about their business as we head for the
tepid recovery that policy makers, media and Wall Street seem to be
touting. At best we will suffer from the law of diminishing returns
under a new and intense cycle of inflation. At worst, we go down again
and induce yet more panicked inflationary policy.

This is going
to sound overly sensitive in a 'he's giving us more information than we
need to know' sort of way, but we took our kids to see the movie Kit Kittredge
pre-crash and with everything I knew was directly ahead, it was too
much for your blogger who sat there with his eyes welling up through
half of it (I tend to do that over some really corny things too :-)).
How about the depression backdrop in Cinderella Man? Intense, man.

The other night I watched The Crash of 1929
on PBS. It was made in 1990, and indeed was intended to warn of the
possibility back then that it could happen again. Well, how did that
work out for the bears? I have no doubt that with each recession (like
1990), a new round of Great Depression lore gets whooped up, each time
providing the 'lever' for new and heroic inflation policy.

But
still, it feels like another hard down is coming and a lot of the data
I look at supports that idea. It feels like Indian Summer, just like
the one due here in New England imminently. There is a lot of noise out
there right now from the respective touts pitching their respective
wares in their respective sectors and asset classes. I expect it to all
fade away as the VIX trumpets the onset of stage 2, the GSR rampages
higher and Uncle Buck, pissed off like never before, stages a furious
short covering rally.

VIX: "That is all!"

Roubini, Deflation, Inflation & Gold (by Gary)

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Good morning slopers.  Gary from Biiwii here again.

There is nothing like the inflation/deflation debate and the misperceptions therein to get as many people off-sides as possible at the exact wrong times.  Case in point:  It was time to be bullish in March because the media were working full Armageddon into the public consciousness and markets were sold out.  We all knew that deflation ruled the day.  

But a funny thing happened on the way to depression; panicked inflationary policy, working 24/7 for months on end, took hold and combined with an extremely bullish sentiment backdrop as Armageddon '08 morphed into Hope '09, which of course became the current late stage phenomenon, Full Tout '09.

Below is an excerpt from this weekend's newsletter.  I personally interpret Nouriel Roubini and what he represents as a signpost I will need in the future when the time comes to position for change once again in the inflation/deflation game of cat and mouse:

Roubini:  “I
don’t believe in gold. Gold can go up for only two reasons. [One is]
inflation, and we are in a world where there are massive amounts of deflation
because of a glut of capacity, and demand is weak, and there’s slack in the
labor markets with unemployment peeking above 10 percent in all the advanced
economies. So there’s no inflation, and there’s not going to be for the time
being.

The only other case in which gold can go
higher with deflation is if you have Armageddon, if you have another depression.
But we’ve avoided that tail risk as well. So all the gold bugs who say gold is
going to go to $1,500, $2,000, they’re just speaking nonsense. Without
inflation, or without a depression, there’s nowhere for gold to go. Yeah, it
can go above $1,000, but it can’t move up 20-30 percent unless we end up in a
world of inflation or another depression. I don’t see either of those being
likely for the time being. Maybe three or four years from now, yes. But not
anytime soon.”

I found the above quote in
an interview titled Big Crash Coming with professor Nouriel
Roubini here http://tinyurl.com/nftrh56a
at something called Index Universe.  The
link is to page 2, where the gold segment is, but I recommend reading the entire
interview.  It is fairly brief.

On gold specifically I have
to disagree with the good professor, just as I do with Prechter and I don’t
know how many other deflationists out there. 
That is of course because Roubini comes at the subject from the
standpoint of ‘price’ as opposed to value. 
In my opinion, there is too much focus on the prices of assets,
what gluts of capacity and slack demand will do to prices and hence, price
inflation or the lack thereof in Roubini’s view.

“So there’s no
inflation.” 
There is inflation.  Over the
last year plus there has been a ton of it and it has been aimed at keeping prices
up.  And it has succeeded thus far
in its task.  But inflation is not
rising prices.  Inflation is what is
promoted in the face of declining asset prices.

I will stick by my stance
that holds the deflationary pressure Roubini sees is the lever by which future
inflationary policy will be pulled into existence. 
Okay, I have been polite thus far.  What
I actually think is that analysis like Roubini’s above, ends up being a tool
for policy makers.  Whether
knowingly or unwittingly, prominent economic talking heads (and the media that
dote on every word) are important to the cause for business as usual by policy
makers.

From last week’s NFTRH55:  “If the current system is to survive, these guys [policy
makers] need an event and they need is soon. 
That is what I thought I saw on the faces and heard in the voices of Tim
[Geithner] and Larry [Summers] last week.”

Roubini’s oncoming crash
would be the event.  The
event’s fallout would be the lever. 
The lever would be pulled and a new round of inflationary policy is all
but a given since the public, hysterical and frightened by the event, will
support it wholeheartedly.  In other
words, confidence, induced by fear though it is (again), would remain intact in
our leaders’ ability and willingness to come to the rescue with more
‘policy’.

We here at NFTRH will wish
to take risk management steps leading up to the event, and then capitalize on
the inflationary results.  Simple,
isn’t it?  Well yes, simple in a twisted kind of way. 
This is how people are systematically disenfranchised, over cycles and
over decades, through misperceptions about inflation and deflation.

Meanwhile, per NFTRH55 last
week, money supply graphs from the Fed show money supply having leveled off.  This is the first step to what may one day evolve into
deflationist hubris, again.  That
will be about the time gold has once again separated itself from the asset pack
as a unique holder of liquidity and long-term value.  It will rise relative to everything even if it
declines temporarily in nominal US dollar terms. 
That would be yet another buying opportunity that the deflationists will
miss the boat on.

But
we get ahead of ourselves, as this is all just theory for the future. 
At the moment we have the inflationists, commodity bulls, peak oil
believers, stock touts and their respective hubris to deal with.