Heyer Capital, LLC

I think it was the movie “Demolition Man” with Stallone describing a future dystopic society the prohibited speaking negatively about conditions.  Certainly the movie was more about explosions and Rambo’s positively unVictorian courting of the female lead character than a thorough discussion of why we, as humans, always want to hear the good news affirming that we are right and correct in our decisions, instead of being correctly told we’ve made incorrect decisions.

I think there’s an inverse economy of scale in telling people they’ve screwed up their financial lives.  If I’m talking with a man, one-on-one, over a cup of coffee, we can constructively discuss the errors he’s made and encourage positive actions.  If the man brings his wife (or vice versa) the conversation must include many points of justification as to why mistakes were made, and how it was a good idea at the time, or gulp, my broker told me he sold that to everyone. Emotionally, we don’t want to be wrong in front of a crowd.

How does one warn an entire nation that the path is wrong?  Our government has destroyed the value of our currency by 99% since the Federal Reserve was created by the banking interests. Our future obligations for Social Security and Medi-welfare will require Soviet level tax policies.  Financial asset bubbles have been popped, yet the same failed actions that extended the Great Depression have to be experienced by another generation.

I encourage you, dear reader, to unplug your TV. Stop being told what news means. Start using the internet selectively to read the news yourself and discern meaning yourself.  Broadcast information has to be made happy and unoffensive enough to placate the masses. Narrow-cast information, as in the internet and blogosphere, by the nature of its creation and necessity of avoiding dilution, is direct and poignant.  Stick with the new media.

T-bills are trading at a yield of nearly nothing, the same prices at the depth of the financial crises in the past year. (Perhaps I should add, the crisis has not gone away or been papered over, instead, it is just part of people’s awareness.)  The weak Greeks have screwed something up overnight, and the Dubai petro-princes have discovered that even foolish loans have to be repaid.  The risks of the world haven’t gone away, and the Congress’ Federal Reserve continues its war on savers at a time when we need savings.

Estimates are that global government banks and agencies have shoveled against the bubble upwards of $30 Trillion (that’s a ” T “) in direct aid and indirect guarantees.  Does that mean we’re facing a hyperinflationary hell?

Not necessarily.  If the trillions upon trillions were in the form of currency, then we’d be on a direct path through Thermopylae. Instead, the vast vast majority of the aid is in the form of credit reserves and contingent taxpayer guarantees.  So long as the reserves remain just that — reserves — and are not put into general use, then their effects on the system are limited only to keep zombie banks (and their creditors & establishment owners) above ground.

Behind the curtain — think Wizard of Oz — the central banks are trying to figure out the best way to remove these reserves from the system.  And government/central banks have never been able to time that shift correctly.  Fortunately, the public’s unwillingness to borrow and the bank’s unwillingness to lend keep the reserves out of reach.

(BTW, I facilitate the local Dave Ramsey Financial Peace University course. Believe me, people are increasingly very unwilling to borrow.  I mean not a thin dime  ever, ever again.  And we’re teaching our children that too. There are inter-generational consequences to this extended crisis.)

Cash for Clunkers costs taxpayers $24,000 per car .

CNN breathlessly reports that this “stimulus” program added to GDP.  Why, if it were that simple, we could just borrow and spend our way into prosperity forever.

Uh oh.  What if the world really doesn’t work that way?

From the time of the Declaration of Independence until the establishment of the Federal Reserve in 1913, the value of money actually increased over that century and a half. The money supply was stable and technology improvements and capital accumulation meant that peoples’ savings (even money stuffed in a mattress) effectively increased in value over time because it could buy more for less.

Because the governments adhered to Article I, Sec 10 of the Constitution: “No State shall make any Thing but gold and silver Coin a Tender in Payment of Debt” which reflected the Founder’s respect for Deut 25:13 “Thou shalt not have in thy bag divers weights, a great and a small.”  The founders understood the danger and corruption of paper money, and also the practice of diluting the precious metal content of the coins, which destroyed the Roman money so spectacularly. (The Byzantines had a 1,000 year stable money supply; they are mankind’s best example. No other money supply has been uncorrupted for so long.)  In response, right after the Constitution’s ratification, the Coinage Act of 1792 provided the death penalty for messing with the money.

And now we see the effects of what they were concerned about.  Modern Americans just expect to lose 2-5% per year on the value of their money. Instead of retirees’ nest eggs buying more each year, we expect our money to buy less. Instead of technology improvements and capital accumulation improving productivity over a generation and creating higher standards of living, we have to take more risks with our investment money in order to overcome the headwinds of a deliberately inflationary monetary system.

Surprise surprise.  When we stick with what’s Biblical we prospered. When we abandon it, the people suffer. Our current financial mess is a exact result of this Federal Reserve folly.

Here’s the best summary I could steal and call my own: 

Brian Saint-Paul: The popular media is blaming the economic collapse on the free market and “laissez-faire capitalism.” And yet these same commentators seem largely ignorant of what a laissez-faire economy actually involves. So first things first: What is free market capitalism?

Thomas Woods Jr.: Well, it’s not nearly as scary as people think it is. Free market capitalism simply involves the free exchange of property between individuals. The idea is that you’re free to enter into contracts with other people. These contracts are reached on a voluntary basis; both parties must consent to the terms. The system proceeds along the lines of mutual respect. In other words, the free market is civilized behavior, institutionalized: You can’t initiate physical force against somebody else to make him do something — you have to get his consent. It’s a system based on private property and free exchange. And that’s really it.

Order the book Meltdown by Dr. Tom Woods through this link.

From Mish Shedlock, one of the sharpest tools in the shed, and definitely worth your RSS feed. (Ask your kids and grandkids if you’re not sure what your RSS feed is. No, it’s not a new Monsanto concoction.)

http://globaleconomicanalysis.blogspot.com/2007/08/no-bids-for-corporate-bonds.html

Flight to Safety

Earlier today I noted there was a Flight to Safety as the yield the one-month Treasury bill fell 160 basis points to 1.34 per cent. The yield on three-month Treasury bills tumbled to 2.51 per cent, 123 basis points below Friday’s close – a sharper fall than during the October 1987 stock market crash.

I figured that before this debt and credit addition is all said and done, we’re going to have notable corporate bankruptcies. I just didn’t think we’d get one so quickly.

Is your money market account safe? A large money market provider in Chicago filed for bankruptcy late last Friday after its big bets went awry.

Ask your broker these questions (copy and paste if you want):

“As soon as possible, please reply in writing to my address of record to these questions:

1) Is my sweep settlement account a money market fund or a money market demand account? Is it insured by SIPC or FDIC? What limits apply?

2) Has the investment adviser, investment manager, or principal for my money market fund or sweep settlement account ever defaulted or “broke the buck” on a money market fund?

3) Does the duration of investments within the money market fund match that investment objectives of the fund.

4) Have you heard any information as to the safety of my money market?

5) Is there a course of action you would recommend?

Thank you for your prompt attention to this important matter.”

If your broker doesn’t respond immediately with the answers, he’s either
a) hiding under his desk counting the gold doubloons;
b) ducking your question;
c) doesn’t know;
d) doesn’t WANT to know; or
e) in Vegas at a sales contest victory party.

By the way, your broker’s first inclination will be (because of human nature) to crap his pants and wonder himself, is his own money market safe? When he finds that out that answer, he will gladly let you know.