APR
19
2006

No Inflation? – You too can make a 2.2 Million% Percent return in the stock market!


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No Inflation? – So what’s up with the Exploding Money Supply! The fed inflates our money, reduces our buying power, but at least they can let us know the current level of M3!
Also, learn how you too can make a 2,210,369% return in the stock market!


No inflation here – no inflation there – no inflation anywhere – why can’t people just believe it – well, maybe because prices seem to be spiraling higher day after day for general necessities? but corporate profits are up – the markets are booming – well, actually, I guess commodity prices are soaring too – but thank goodness there’s no inflation here…

In fact, there’s so little inflation, why should we (the Fed) bother telling anyone how much new money we keep printing – gosh – imagine how rich I could be if I could do that and NOT go to jail! [Note 1]

But hey, the stock market keeps roaring ahead! well, yeah – keep dumping more cheap money into the economy (ie. otherwise known as “adding liquidity”) and hopefully a good chunk of it will end up in right stock indices. companies are making more money – yes, they are – BUT remember it’s CHEAPER money – which of course we’re still taxed on all the same. [Note 2]

Now just think – if the fed is actually printing money at closer to a 7.5% annualized rate, well, even a 10% annual return on your investment doesn’t seem quite so amazing – and forget about the 4% you’re maybe getting now. [and don't forget these are PRE-TAX returns!]

In fact, I wonder how all the long-term track records would look if there was no inflation all these past years – because in fact the exponential expansion of the money supply seems to have been the greatest stock market booster of all – i mean, where do you think all these new dollars – created out of thin air – end up at least the government is still willing to tell us the small numbers – M1 – how much cash is in circulation, and M2 – adding in savings and CDs of less than 100K, along with money market funds.

So why DON’T we need to know about M3? Well, maybe because that’s the number that shows our money supply growing closer to a 7.5% annualized rate. It also shows what the BIG BOYS – BIG GOVERNMENT – and BIG INSTITUTIONS are doing. For all the excuses made by the fed for no longer publishing these figures, the old adage is if you want to know “what’s up” – just follow the money. If you want to see how deep it goes – you better follow the big money. Hmmm. You mean M3? For anyone who’s been dissappointed with the rediculous way that inflation rates are currently calculated (not including housing, food, energy), and the incredible growth of our money supply already, I can only imagine what’s in store.

For those ready to blame Bush, don’t bother – this is really a bipartisan issue – which has continually gotten worse since Nixon completely took us off the gold standard back in 1971. It didn’t actually start here, Roosevelt in fact outlawed private gold ownership in 1933 – imagine being able to go to jail because you owned gold! The real start of all our woes, however, is in fact, that fateful day on December 23rd, 1913, when the democrats passed the Federal Reserve Act – but more on that another time…

On a good note, we do know that turning on the dollar printing presses will make all of us millionaires even sooner (if it’ll be worth anything by then). Just look at Turkey’s stock market. With annual inflation rates periodically in excess of 90%, the Istambul Stock Market is up over 2,000,000% in the last 19 years – yes – that’s 2 MILLION PERCENT. So don’t let anyone tell you inflation’s not good for us! yeah.. [Note 3]

Everyone wants to be a millionaire these days, and it will happen soon enough. Unfortunately, I think it would mean a lot more if we weren’t all paying $100 for a cup of coffee. Don’t worry though, the price of coffee isn’t considered for inflation purposes so it really doesn’t count. And don’t worry about your inflation-adjusted social security checks down the road. You’ll hopefully get at least $1000 or so a month – just try not buying your coffee at Starbucks and maybe you’ll be okay!

Note 1: Actually, very little of this newly created money is actually printed. It’s more like an additional entry in the Fed’s “bank ledger”. The Federal Reserve creates these reserves just as a bank creates checkbook money. By various devices, either loans or other means, the Federal Reserve credits a bank with bankers deposits (ie. “reserves”).

Note 2: Much of this cheap money (helped by cheap credit) also ends up in the real estate market as well, and at this rate the fed is likely hoping to inflate their way out of a real estate bubble burst – Ben Bernake believes if only they had flooded the market with cheap money back in 1929 the Great Depression may have been avoided – like most things, it all catches up with us eventually… if only we had gotten similar two-year technological boosts in “miles per gallon” as we have in PC processing power… The real “problem” with oil is that it’s finally begin to reflect its true value versus all the additional global demand. In fact, if we inflation-adjust oil’s 1979 peak of $38/barrel (intraday was much higher), we need a $100+/barrel to compete, which we may unfortunately see soon enough.

Note 3: In US dollar terms it’s not quite as huge a return – closer to a still respectable “only” 800%. As a comparison, Japan’s market did nothing but go down since 1990 and only began rebounding in the last three years once Japan began adopting a “loose” monetary policy (another way of saying “adding liquidity” by printing more money). Japan has recently ended this Loose-Money Policy.

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4 Comments »

  • Seth:

    You rule dewd, I just sent a link to one of your video blog entries about
    inflation to my 22 year old brother who is planning on making a career in
    finance. We got into an argument over whether or not the CPI was an
    accurate measure of inflation last month at my other bro’s college
    graduation. I told him the CPI was highly manipulated to begin with, plus
    it doesnt reflect asset prices, etc etc. And that he was a SUCKER if he
    believed the CPI inflation level of approx 3% a year. I tried to explain
    that M3 was a much more accurate measure of inflation. He got all pissed
    off and accused me of being a conspiracy nut. Hopefully your video will
    set him straight, keep up the good work.

  • alexander:

    thanks wd! appreciate the comments and tips – we’ve actually been tweaking along the way and with each episode our process is constantly improving and refining. people may think it’s “just a vlog” but when dealing with video, there are so many things to consider! also tried to make it clearer that more links are available by clicking for “links, notes, etc”. some videos have links in the main body section but there were just too many to include on this one. keep writing and keep watching!

  • wdscott:

    I love your vlog. Surfer gave me the heads up.

    Couple of suggestions:

    1. “Related links” under No Inflation?, get lost in the transcript. These links are really good. Could you make another section to archive these links so they don’t get lost.

    2. The wriiten transcripts are a great idea.

    3. I like Michelles’ topic on boobs. I live in Encino about 11 miles from Beverly Hills, and I’m pretty sure more 17 y.o. boob jobs are done in the San Fernando Valley than in Beverly Hills :) It’s pretty ridiculous! Michelle, your 32C’s are perfect…. no need to mess with perfection ;)

    4. BTW you both are good looking and photograph (video) well. May I make a suggestion when shooting Michelle. Shoot her at the angles of straight ahead or at an angle a little above her head. This angle is more flattering to her. On alot of people, shooting from a low angle can sometimes make the nose and nostrils appear unflattering.
    Just a thought.

    Good Luck with the Vlog. I enjoy it.

    WDScott

  • Billy:

    great stuff .. and so true .. it’s really freightening. makes you wonder if things are finally starting to unravel with gold hitting above $640/ounce today.

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