Q&A – Weekend Edition

I know it’s the weekend so most of you are probably out doing more important things than reading this website, but maybe there are at least a few of you wandering around hopelessly seeking answers to life’s most important questions.  Things like:

  • When is Cullen to going write his first romance novel?
  • Where can I find the best fish taco in San Diego?
  • Why don’t women like me?
  • Why are the Washington Redskins going to beat the Seattle Seahawks this weekend?
  • Why are you reading this website?

I’ll leave this one up for a few extra days assuming the questions will be light, but feel free to fire away….


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. Have you ever shorted treasuries (and not as a bond vigilante but as a trade)?

    Are you surprised that equities have rallied while gold and commodities have sold off with QE3/QE4 announcements? Also why don’t you poke fun at the many gold bugs who promised the dollar would roll over and gold would surely rally after QEn?

    What do you see as the biggest risk for the markets going forward?

    Who is the most annoying poster on your site (note I try really hard but I’m not sure I’ve convinced you just yet)?

  2. How did the USA become the greatest hockey nation in the world? Congrats on the big win today.

  3. In an economy with a large amount of private sector debt, like Japan or the US, is there a relationship between falling asset prices and collateral values that creates a shortage of dollars, thus putting deflationary pressures on an economy?

  4. In contrast to our friendly neighbors to the north, we do not put that much pressure on our kids to win a game. Well, at least not a hockey game.

  5. I didn’t start “investing” (really “saving,” as you wisely point out) until I had my first real job in 1990. Back then I read John Bogle’s “Bogle on Mutual Funds” (gift from Dad) and was convinced that the efficient markets hypothesis (EMH) would virtually guarantee that low cost index mutual funds would be superior to all the hype I was reading about by active managers. My company used Vanguard for their 401k, so it was easy… and it worked great! I even had non-retirement “investments” that did wonderful and allowed me to buy my first house in Santa Barbara (no easy task… given that housing was really starting to skyrocket in the late 90s).

    I stuck w/ John’s approach w/o feeling like I had to learn any more up until the Summer of 2011, and the fight over the debt ceiling. I’d recovered all my funds from both the tech bubble and housing bubble crash by then. But then I started watching more recent interviews w/ John on youtube… and the pessimism was more palpable. A year before I’d heard an interview with William K. Black about the astoundingly massive levels of fraud that were going unpunished and how completely different the situation was than back in the early 90s when the S&L fraudsters were significantly punished.

    That’s what started me on my quest to figure out “What really happened?” … and what ultimately attracted me to this website, as a level headed evaluation of how the system works and what’s really going on. I’ve learned MUCH more in the last two and a half years about our economy, the banking system, the Federal Reserve system, and what money actually is than I did in all my preceding years (personally, I think this stuff should be MANDATORY subject matter starting in High School, if not Jr. High, … if not with a revised version of “Monopoly”).

    I guess what scares me still though is the feeling that the same people who I believe are largely to blame for 2008 are still out there doing their thing (not to say that a LARGE chunk of the population didn’t contribute in some way too… attempting to get rich flipping houses… but lets be honest, we were ENCOURAGED to think like that by the likes of Alan Greenspan, among other so-called “experts”)… there were no re-evaluations of the system… very little national debate… and very little legislation or prosecutions like there were in the 1930s. I thought we’d perhaps re-learn the lessons of the 1930s and the S&L crisis of the late 80s and early 90s… but it seems like we, as a nation, have learned NOTHING! … which makes me think we are absolutely headed for another disaster down the road. How could we not be when the same people are in charge… still leading the same banks and financial institutions… and the same non-regulating regulators, and non-prosecuting prosecutors are still sitting on their hands at the top of the agencies they are supposed to be leading, beholden to the financial services industry which ultimately gave the nod for them to sit their doing nothing in the first place. If anything, with the “Citizen’s United” ruling, the situation seems much worse. Just look at what happened this week with the “Club for Growth” vowing to “punish” GOP lawmakers who voted for Hurricane Sandy relief (apparently some 67 GOP congressman… some of whom petitioned the government for disaster relief in their own districts after prior disasters… were frightened of that!).

    This just destroys my confidence. Not only that, but we’ve got the same neo-classical and neo-liberal academics dominating the journals and econ schools and central banks… you’d have thought that their ideas would have LONG since been severely discredited (e.g. the famous “The state of the macro is good” uttered by Oliver J Blanchard … 8 months into the worst recession of most of our lifetimes).

    This just makes me think that this is going to happen again, and that the crony financial capitalists still have a stranglehold on the politicians, “think tanks,” educational institutions, central banks, “regulators” and law enforcement. I’m not talking conspiracy theory here… I’m sure there are some well meaning nice folks, who nonetheless are contributing to the problem, if nothing else through their passivity, and counter productive “privatization” is always good and regulation is always bad attitude. It seems that non-productive financial manipulators are still ruling the roost to the detriment of industrial capitalists and ultimately workers (and thus the majority of people).

    Why shouldn’t I be worried about all this? Why should I have confidence in a game that seems like it’s more rigged than ever… perhaps more so now than even in the famous “Gilded Age” of the late 19th century?

    Every time I read about the government assessing a fine (usually a paltry one) on some bank or other company for wrongdoing (which the stockholders ultimately are responsible for paying) rather than pursing criminal prosecutions of the management, it just makes my blood boil! Putting people in prison ultimately is the way to get some attention! Why do we even bother going after liquor store robbers when some of the worst robbers in history have gotten away with it … in plain view, for all to see, keeping not only their freedom, but their jobs and bonuses, and their public image largely intact! (BTW, what is John Corzine up to these days? … has he started another investment firm yet like he was talking about?).

    Anyway, sorry for the rant, but there is a question in there… Aren’t you worried that the same people seem to be in charge as if 2008 never happened? That and the handful of powerful crazies in congress, who seem to resent the very existence of the Federal government which more often than not ironically serves as a net BENEFICIARY to the very states and districts from which they come? This just really shakes my confidence in this “investing” game and the “experts” and lawmakers at the top who supposedly understand our economy better than we do… and makes me want to seek out the safest place I can park my money… while hopefully not being too devastated by even our (still) modest inflation rate. Capital preservation is the name of the game I play now!

  6. You need to wreck this guy’s misconceptions:

    The main thesis in Aftershock is that these bubbles – this dollar bubble and this government debt bubble – will burst. It is not as if it will not burst for 15 or 20 years. We say it is somewhere in two to four years. You need to be prepared for it.

    The debt will always be funded as long as the Federal Reserve stands willing to buy all the bonds that the government sells. At some point, that creates inflation: that pushes up interest rates. The Fed will fight those interest rates going up. At first, they can do it. They just print more money. That keeps interest rates down, but ultimately that inflation will force them up. We cannot just pull the money out and raise interest rates now; it’s going to pop the real estate and stock bubbles.

    What is going to happen is the Fed is going to lose control of those interest rates. When you print too much money, it gets you control short-term, but it is a recipe for losing control long-term. With those interest rates going up, what is going to pop? The stock market and real estate bubbles. All of that is what kicks off the big problem going forward. Normally you would say the bond market is going to be the problem, but I would tell you that it is actually going to be more stocks and eventually even real estate combined. Then ultimately, the bond market starts to go down, and down quickly once it starts.

    When the dam finally breaks, it will break quickly. Literally, it is in a matter of months or certainly no more than a year once it really starts to go.

    You get very, very high inflation. We could have stock market holidays and things like that.

    The big difference between now and the depression is that the government is also in trouble at this point. We are really not going to have a huge failure until the government kind of comes to its wits’ end. It will, but it comes as a last massive orgy of money printing to try to save everything – unlike anything you have seen yet. QE1, QE2, QE3 is nothing like what the Fed has to do when this thing starts to fall. They have to print, buy, and buy, and buy, and try to keep up the falling house. They will not be able to do it, but that will be the reaction.

    Then at some point, it is not going to work and the whole thing goes

  7. I want to know why there are always really hot women on those “Google banned this video” ads I see on your site from time to time, and if you have actually seen the banned videos in question

  8. I think it may have been the same guy who out the ram in the rama lama ding dong

  9. Word. As a Canadian I can safely say we take the world juniors 1000% more serious than any other country.

    It’s not just because it’s hockey and that we love all things hockey. It goes beyond that. For whatever reason Canadians just fucking love the world juniors.

  10. I want to know how is that as soon as I moved from MD to upstate NY the Redskins acquired RG3 and they are now a team to root for? Waah.

  11. You cannot have a debt problem and a high inflation problem simultaneously, they nullify each other. If inflation suddenly were to surge, NGDP would surge, nominal revenue would surge and the real value of debt would be hugely diminished, there would be absolutely no need for the Fed to print money.

  12. Now that is a useful question! … especially for me, since I foresee traveling there several times this year on business. So what is the answer Cullen?

  13. Will Warka Bank Exit the CBI (Central Bank of Iraq) Guardian Ship in- tacked as a Financial Institution with it’s Stock being re-listed on the ISX (Iraqi Stock Exchange)?

    Or is the Sunni family (AlBunia) ran bank bank really being destroyed due to Shia Islamic prejudice of past Saddam/Sunni control of Iraqi fiances so it really is Payback time using politics instead of guns?

  14. Magic C-Ball, Should I take the 3 points on the Redskins tomorrow Or play the over under?

  15. Oh man. You got my attention with this one. I think the 46 point O/U is a no-brainer on the over. There’s a good chance these two teams will just march up and down the field as if the defenses aren’t on the field. I am less confident picking the winner, but if you twisted my arm I’d go Seattle. As a Skins fan it hurts to say that, but that’s the betting man in me speaking and not the biased man….

  16. The Over Scares me with Seattle’s Defense, a couple young QB’s in a Big game and D-Fence wins Championships.
    I duno.
    Sorry for yore Skins but I think the money will be on the Hawks.

    I would hope for your skins cuz their in the pokes division but until Romeo and J Jones are gone the Boys will go no where.

  17. Here’s a perfect example of one of those stories about the banks from today’s news that makes my blood boil and makes me think that nothing has changed in this rigged game:


    I don’t know the author, Gretchen Morgenson, but anybody that follows Matt Taibbi, William K. Black, or Yves Smith (or lately even Republican ex-FDIC head, Sheila Baire), knows exactly what I’m talking about… weak ass regulators, prosecutors and a Justice Department absent and nowhere to be found, legislators and congressman actively working to sabotage regulators and regulations, regulator agency heads that are dedicated to de-regulation and always deferring to the banks, and shills for the finance services industry or dedicated neo-classical anti-government types running the show (Ben Bernanke, Tim Geithner, Eric Holder, Hank Paulson, Robert Rubin, Larry Summers, etc. etc. etc.)

    What’s next? The financial services industry already largely got everything they wanted in the 1999 bill killing Glass-Steagall, the 2000 bill permanently deregulating derivatives, and the 2005 bill re-writing the bankruptcy laws in the banks’ favor (everything is always in favor of creditors these days… they want to make sure to remove ALL risk from the process of lending (lending money they didn’t have in the first place)… look what happened to Argentina recently (in our courts)… and to Greece, Spain, Ireland, Iceland, Portugal, and Italy… fascists running wild in the streets with unemployment above 25%… F’em! What’s important is that the creditors HAVE to get their pound of flesh!). My prediction: another re-write of the bankruptcy laws to favor creditors. After all in “progressive” European countries like Latvia (a model of obsequious behavior to “sound money,” bond holders, bank lobbyists, and “austerity” obsessed neo-liberal central bankers) they don’t allow for bankruptcy or walking away from a loan… you buy a house and your life circumstances change such that you can’t afford to make payments on it… Too F-ing bad! Now not only you, but your children and grandchildren and all your relatives that you had to get to co-sign the loan with you to get it in the first place are all permanently on the hook for it… their only escape is emigration. Those are the kind of neo-liberal “reforms” I see coming to this country next… and who’s going to fight them on this stuff? Both parties seem to be in a competition to sell out the little guys to the big creditors and undo centuries of laws meant to protect borrowers from crushing debt. Another prediction: slavery won’t be re-legalized, outright anyway, but perhaps selling internal organs will be… anything to let those in debt “sell off assets” to pay their creditors (or more precisely, pay down the interest, … the balance will still be there collecting more fines and penalties and interest for future organ sales). The irony here is that the banks didn’t have the money to make the loans in the first place! They just had a special government charter to create the money out of thin air by making the loan… that’s something they have parlayed into crushing political power to make sure they stay on top and eliminate any threats to their crony capitalist position… that’s why I think it’s ABSOLUTELY NUTS not to treat banks like utilities… in fact they should be MORE regulated than utilities… they have unprecedented power to create money out of thin air, and they should be feeling the squeeze of the boot heel of dedicated and empowered regulators on their necks every second because of it…. something they haven’t felt for DECADES now!

    Back in the 1930s the public was understandably angry with the banks and something was done about their behavior. Now, however, we’ve got a muddled political element that hears on AM radio over and over again that “government and regulation is always bad, and rich people are awesome and ‘privatization’ is always better” … and they believe it… and they throw up road blocks. They don’t understand how the system works, so they don’t understand the dangers of an unregulated banking system. As we’ve seen, it only takes a handful of extremist legislators from thoroughly propagandized districts to throw a monkey wrench into the workings of government… and “Citizen’s United” is there to make sure that it keeps happening.

  18. Cullen, try online dating.
    Maybe you are going to the wrong places!
    Many add psychology into the process and it works.

  19. The number 1 BIGGEST story of the year that Cullen has to touch upon (unless I missed it) is WHY has the market rebounded, corporate profits are surging above the 2007-2008 levels and yet the most underrated historic phenom occuring in the market right now is the unemployment level. Congrats to McClellan for touching upon this. http://www.mcoscillator.com/

    Is Cullen still parlaying his bets on the game and missing out on the story of the century? Me think so.

  20. Are you familiar with any period in U.S. or other country economic history that is similar in terms of economic and market performance to what we are living through today? If so, what are the investing lessons that we can learn from that period?

  21. Does MR hold that the base case for the national deficit is about equal to the balance of trade deficit? Seems to me the projected deficits are a little weak once that is factored out. Good luck with the romance novels,is there no limit to your talents?

  22. If it would have changed it to “outed”, it would have been even funnier!

  23. Tom, I too have experienced this site as a life-changing revelation, and I share your deep concerns about financialization, regulatory capture, and corruption.

    I don’t have anything substantive to add – I just want to offer kudos for the excellent posts.

  24. Do you think the Japanese central bank will be successful setting a target inflation rate of 2%, there seems strong polticial will now to seriously reflate? Also the recent Fed minutes indicate the possibility that they may stop bond purchases in 2013 i.e. growing number of disenters, do you think this would be quite negative for bond prices and eventually for equities?

    Tks Ray

  25. People keep on arguing with me that the government forced banks to provide mortgages to people during the period 2000 – 2008. The banks accepted this coercion because the government agreed to cover any losses the banks might incur. What is your view on this point…?

  26. If the U.S. Debt continues to grow at more than 1 trillion per year for at least the next 10 years with no meaningful year over year aggregate inflation, then what, if any, concerns would you have for the sustainability of the U.S. Economy?

  27. Am I the only one who thinks the seahawks jerseys are horrendous?
    They should loose based on bad taste.

  28. 2 questions:

    1) Why would a bank prefer to swap Tbonds for reserves( hold more reserves)? Is it because they expect an increase in customers demand for cash/loans?

    2) Do you own a piggy bank? I’ve always wonder what investment managers do with their pennies.

  29. You promote the macro view, which I agree is essential today and in to the future. To me macro means global. What does it mean to you, since you seem to be US centric……………..? America is no longer independent of what happens elsewhere in the world.

  30. @Will, you hyperinflationists have been totally wrong for the last 4 years and you continue to get it wrong. Have you even attempted to read what Cullen has said on this topic? One year from now the inflation rate will be no higher than 3% and probably less than that. Get an understanding of MR.

  31. Why didn’t the Redskins put in Cousins for RD3 tonight when it was clear he was hurt?

  32. Ditto… and Add, why was he even in to begin with and YES I am viewing this through hindsight.

  33. He was just copying and pasting from Wiedemer and asking Cullen to critique it, he was not advocating it himself.

  34. In a similar vein to Tim’s question earlier, could you perhaps clarify what you see as the constraints that a government faces both in the current environment and going forward. I understand there is no solvency constraint but this feels counterintuitive… For instance, I read somewhere that there is a move to provide some kind of student loan bailout in the offing – in the current environment what would be the argument against this as it is highly unlikely so cause any inflationary pressure, and couldn’t one argue that “moral hazard” would be counteracted by the current tight lending standards? Moving on from this, at what point would overly exuberant spending in this fashion during the downcycle become a problem for US govn’t assuming that fresh deficit spending (i.e. not to pay interest) as curbed, if ever? Thanks,

  35. Do Canadians love Ice Hockey so much, so they can truly have something of their own?

  36. When is Cullen to going write his first romance novel?

    Working title, “50 shades of grey bankers, and other money sluts”?

  37. The government deficit spending is factored in to GDP. Reduce government spending and GDP falls. Isn’t this a negative signal to those that follow GDP………….?