More on Speculative Money

ZH just released this article on margin debt, it's worth a read to understand a little more about a speculative money unwind.

My speculation (which is speculation) is that Bernanke is trying to wiggle free from the Chinese Finger Trap without making policy adjustments. Bernanke is producing a true dichotomy,  in official FOMC decisions, they feel inflation is too low and they want it at the long term target of 2%, however commodities which we'll define as pretty much anything that is used to produce something else, are out of control. I think part of the problem is that the Fed considers food and fuel to be "volatile" or in Bernanke vernacular, "transient". However, this is the Fed's historic way of viewing inflation; I think we can safely say that the entire world is at a historic turning point that requires the Fed (if they want to be in the reality loop instead of the dogma ditch) to adjust their historic view on "volatile" food and fuel. There's probably several other inflation guides they use that could use an overhaul as well at least for the time being.

If we are real about the jobs market, we can probably safely assume that 20% of Americans are either unemployed or severely underemployed-the U6 number isn't that far off and private polling puts it a bit above that. We can safely assume that for those who are employed, they are earning less, they don't have access to the kind of credit available to them 3-4 years ago, they have a heavy debt load and their buying power (the dollar) is severely diminished.

Some examples from my experience and perspective: I've been in several lines of work, as a production manager for a high-end custom interiors manufacturer, I made $48 an hour 7 years ago! These same jobs, when available are now paying between $12 and $15 dollars an hour. The national average use to be $18 an hour, but we are in an affluent area and even the people who worked under me made $25 an hour as moderately skilled laborers and had no management capacity.

Gas is off the chart in my young experience, I wasn't driving in the 70's so I don't have that longer perspective, but I know what it costs to fill up my truck vs. what it cost a few years ago, even when oil was in that 5 year uptrend under the Bush/Greenspan "weak dollar" policy period.

From our family cafe, I know that food prices and surcharges shot up very quickly. Applicants for minimum wage jobs are hugely over qualified, I'm talking about architects making sandwiches and smoothies. A job opening ad on CraigsList would produce about 100 emails a day for at least a week straight.

So Bernanke I assume is trying to get commodity inflation under control and keep rates low. We assume the Fed has a few policy tools and none of them are good choices. We also know the Fed and Federal government have enormous influence.

So my speculation at this point, what if their using that influence to try to effect a change without moving policy? For instance, why are brokers coming out with silver margin hikes that are much larger then the CME's enormous hikes?  If you ever read Jesse Livermore, World's Greatest Stock Operator, you'd realize the government has had the power to sway Wall St. when it needs to. "We need you to hike margin rates on silver oh and about that SEC investigation, it'll probably disappear". Or "We need you to reign in your speculative positions, we'd rather you do it then force us to hike reserve requirement ratios on your bank". Sure it could be a lot more friendly then that, but until/unless we hear FOMC policy changes, I am assuming some back door influence is being wielded.

Look at Pimco and Bill Gross's prophetic Fed musings? He clears out his bond portfolio and all of the sudden it seems like he's on the outside as he almost overnight becomes one of the Fed's biggest critics.

Sound a little paranoid? Good. Usually the truth is way further out then our paranoid imaginations can carry us.