Economic Stupidity Increasing ...

I see a headline on Babblevision [aka CNBC] that the Federal Reserve is thinking of "selling its own version of government debt". Hello Mr. Booboise ! Open your wallet and look at that cash - it says, "Federal Reserve Note" above Andrew Jackson's portrait on the $20 bill. Well, the article does mention this fact. But aren't bank reserves held on deposit at the Fed really a form of debt of the Federal Reserve, too ? The Fed pays interest on those reserves now. So that is electronic debt of the Federal Reserve in electronic form. The reporter seems clueless.

Cash is zero percent government debt. I suppose the Gen X/Y/Z-ers have an excuse, since they probably don't use cash, being addicted to using a debit card for that cheeseburger. Baby boomers have no excuse.

And then I see a Wall Street Journal; article about the "asset class" of commodities having problems due to the recurring losses on the commodity futures' contract rolls. Golly, I guess those consultants and pension fund advisors never really looked at exactly what they were buying. Almost none of them "invested" in true commodities. They took long positions in futures contracts and derivatives, not actual commodities. Those contracts aren't real assets. For every long, there is a short. The net value in those is zero. How much does one doing "asset allocation" allocate to a "class" with zero net value ? Zero is what Fischer Black taught me at MIT about 30 years ago.

So now they see they are just speculating perpetually in commodity futures, paying large costs in the roll. Sigh ....

Buying timberland is investing in a true commodity asset. So is buying a cattle ranch or farmland growing corn or investing in farms in Brazil growing soybeans. And buying oil in storage is also truly buying an asset. Buying gold in physical form or through the GLD ETF is buying a true asset. But buying a derivative or a commodity future or a commodity ETF fund that uses derivatives or futures is not investing in an asset. It's just speculating in a net zero value, paper market.

Markets

Down yesterday. The dry bulk shippers were very strong. I can find no news except a report that a Tier 1 firm found increased shipping activity coming out of China. If true, it's bullish.

I read AIG has lost $10 billion "insuring" the value of some derivatives for the Street. This isn't insuring defaults on actual mortgages, but just "insuring" the value of paper. This is just outrageous. That firm should just be liquidated, letting its existing business run off and selling the true insurance subsidiaries. Management is completely without credibility. And obviously they have been defrauding investors in disclosing the nature of their business.

This is one more example of the need to eliminate the "credit default swap" from financial markets. That whole market is a fraud and no more than an electronic betting parlor.

Actions

I flipped a bit of DRYS over 10 - part of the shares I added to my position under 4. I'd sell some more [some more shares I added around 4] IF it gets to 12.5 or so. At that point my position would be well sized for a long term hold.

I spent some time researching stocks yesterday and, like Santa Claus, I'm working on my list.

Word of the Day

"Nescience" - noun [$10]; and "nescient" - adjective [$10]
Nescience means lack of knowledge or awareness, ignorance.
Nescient means lacking knowledge, ignorant.
Sentence: Without a doubt, both the writers of most newspapers and the writers and faces of financial TV suffer from acute and chronic nescience of the topics on which they write.