Tag Archive: falling interest

When Is a Capital Gain Capital Consumption? Market Report, 25 May

2020-05-26

Silver Basis and Co-basis and the Dollar Price

The price of gold dropped a few bucks this week, but the price of silver jumped about half a buck. The drumbeat for the gold bull market is well underway, and it is beginning now for silver. So let’s do a quick update on the supply and demand fundamentals.

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Socialism and Gold

2020-03-04

by Keith Weiner

2020-03-04

Most people assume that the central bank prints money when it buys bonds. They further assume that this increase in the quantity of money causes an increase in the general price level. And, this leads them to assume that the value of the money is 1 / P (P is the general price level). Therefore, when the central bank prints money to buy bonds, it is diluting the value of the money held by everyone—in proportion to the amount printed divided by the...

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Money and Prices Are a Dynamic System, Report 1 Dec

2019-12-03

by Keith Weiner

2019-12-03

The basic idea behind the Quantity Theory of Money could be stated as: too much money supply is chasing too little goods supply, so prices rise. We have debunked this from several angles. For example, we can use a technique that every first year student in physics is expected to know. Dimensional analysis looks at the units on both sides of an equation.

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Wealth Accumulation Is Becoming Impossible, Report 20 Oct

2019-10-22

by Keith Weiner

2019-10-22

We talk a lot about the falling interest rate, the too-low interest rate, the near-zero interest rate, the zero interest rate, and the negative interest rate. Hat Tip to Switzerland, where Credit Suisse is now going to pay depositors -0.85%. That is, if you lend your francs to this bank, they take some of them every year. Almost 1% of them.

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A Wealth Tax Consumes Capital, Report 6 Oct

2019-10-07

by Keith Weiner

2019-10-07

It seems one cannot make a name for one’s self on the Left, unless one has a proposal to tax wealth. Academics like Tomas Piketty have proposed it. And now the Democratic candidates for president in the US propose it too, while Jeremy Corbyn proposes it in the UK. Venezuela finally added a wealth tax in July.

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Dollar Supply Creates Dollar Demand, Report 2 June

2019-06-03

by Keith Weiner

2019-06-03

We have been discussing the impossibility of China nuking the Treasury bond market. We covered a list of challenges China would face. Then last week we showed that there cannot be such a thing as a bond vigilante in an irredeemable currency. Now we want to explore a different path to the same conclusion that China cannot nuke the Treasury bond market.

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The Monetary Cause of Lower Prices, Report 12 May

2019-05-14

by Keith Weiner

2019-05-14

We have deviated, these past several weeks, from matters monetary. We have written a lot about a nonmonetary driver of higher prices—mandatory useless ingredients. The government forces businesses to put ingredients into their products that consumers don’t know about, and don’t want. These useless ingredients, such as ADA-compliant bathrooms and supply chain tracking, add a lot to the price of every good.

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Debt and Profit in Russell 2000 Firms

2019-04-12

by Keith Weiner

2019-04-12

This week, the Supply and Demand Report featured a graph of debt vs profitability in the Russell 2000. Here’s the graph again: This graph shows a theme that we, and practically no one else(!) have been discussing for years. It is the diminishing marginal utility of debt. In this case, more and more debt is required to add what looks like less and less profit (we don’t have the raw data, only the graphic).

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Keynes Was a Vicious Bastard, Report 17 Mar

2019-03-18

by Keith Weiner

2019-03-18

My goal is to make you mad. Not at me (though I expect to ruffle a few feathers with this one). At the evil being wrought in the name of fighting inflation and maximizing employment. And at the aggressive indifference to this evil, exhibited by the capitalists, the gold bugs, and the otherwise-free-marketers.

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Are Stocks Overvalued, Report 24 Dec 2018

2018-12-27

by Keith Weiner

2018-12-27

We could also have entitled this essay How to Measure Your Own Capital Destruction. But this headline would not have set expectations correctly. As always, when looking at the phenomenon of a credit-fueled boom, the destruction does not occur when prices crash. It occurs while they’re rising.

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The Prodigal Parent, Report 9 Dec 2018

2018-12-10

by Keith Weiner

2018-12-10

The Baby Boom generation may be the first generation to leave less to their children than they inherited. Or to leave nothing at all. We hear lots—often from Baby Boomers—about the propensities of their children’s generation. The millennials don’t have good jobs, don’t save, don’t buy houses in the same proportions as their parents, etc.

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The Toxic Stew, Report 7 Oct 2018

2018-10-08

by Keith Weiner

2018-10-08

Last week, we shined a spotlight on a crack in the monetary system that few people outside of Switzerland (and not many inside either) were aware of. There is permanent gold backwardation measured in Swiss francs. Everyone knows that the Swiss franc has a negative interest rate, but so far as we know, Keith is the only one who predicted this would lead to its collapse (and he was quite early, having written that in January 2015).

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Textbook Falling Interest Behavior

2018-10-04

by Keith Weiner

2018-10-04

This is a textbook case. Well, it would be if there was a textbook that presented the dynamics of the rising and falling interest rate cycles. Costco is spending over a quarter billion dollars, to make a capital investment in chicken processing. This is not the typical entrepreneurial investment, which seeks to increase margins by serving an unserved or underserved demand.

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Why Are Wages So Low, Report 23 Sep 2018

2018-09-25

by Keith Weiner

2018-09-25

Income Inequality Infographic Workers Middle Class and CEOS get Compared

Last week, we talked about the capital consumed by Netflix—$8 billion to produce 700 shows. They’re spending more than two thirds of their gross revenue generating content. And this content has so little value, that a quarter of their audience would stop watching if Netflix adds ads (sorry, we couldn’t resist a little fun with the English language).

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Never Mind the Bollocks, Here’s the Avocado Toast, Report 16 Sep 2018

2018-09-17

by Keith Weiner

2018-09-17

For about ten bucks a month, Netflix will give you all the movies you can watch, plus tons of TV show series and other programs, such as one-off science documentaries. They don’t offer all movies, merely more than you can watch. Oh, and there are no commercials. They don’t just give you old BBC reruns, which you know they can get for a pittance.

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Illicit Arbitrage Cut by Tax Cuts and Jobs Act, Report 3 Sep 2018

2018-09-04

by Keith Weiner

2018-09-04

This week, we are back to our ongoing series on capital destruction. Let’s consider the simple transaction of issuing a bond. Party X sells a bond to Party Y. We will first offer something entirely uncontroversial. If the interest rate rises after Y buys the bond, then Y takes a loss. Or if the interest rate falls, then Y makes a capital gain. This is simply saying that the bond price moves inverse to the interest rate.

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Monetary Paradigm Reset, Report 5 August 2018

2018-08-07

by Keith Weiner

2018-08-07

Keith Weiner’s weekly look on Gold. Gold and silver prices, Gold-Silver Price Ratio, Gold basis and co-basis and the dollar price, Silver basis and co-basis and the dollar price.

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Janet Yellen Fights the Tide of Falling Interest

The Fed is going to have to take back this interest rate hike (Dec 16). The process that sets the interest rate is complex. I have written many words on its terminal decline. However, there are two simple reasons why the trend remains downward.

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Falling Interest Causes Falling Profits

Most people assume that prices move as a result of changes in the money supply. Instead, let’s look at the effect of falling interest. To start, consider a hamburger restaurant. Suppose that the average profit in the burger business is ten percent of invested capital. If MacDowell’s is thinking about expanding, it has to consider the interest rate. Why?

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