Financial Safety Reports from Financial Safety Services:
Exploring and exposing common economic, investment and speculation philosophies and myths that will endanger your long term savings, your short term speculations, your financial safety and your financial privacy.
What follows is a short generalized examination of the Federal Reserves overall monetary policy during Chairwoman Janet Yellen's tenure, which is apparently due to end in February 2018.
What I did was to visit the Federal Reserve online site and download two graphs showing the monetary base [MB] figures for the periods 2006 -14,[when Yellen's predecessor Ben Bernanke, was chairman, and from 2014 through Oct. 2017 [the most recent figures], the period for which Janet Yellen has been Chairwoman .
Fed chair 2014-18 Janet Yellen
What Is the Monetary Base?
The monetary base is the narrowest measure of the money supply which is manipulated by the Federal Reserve. It is therefor regarded as being the most liquid.
Here's what one financial site says :
"The monetary base is part of the overall money supply. The monetary base refers to that part of the money supply which is highly liquid (i.e. easy to use). The monetary base includes:
~ Notes and coins
~ Commercial bank deposits with the Central Bank
~ The monetary base is also referred to as ‘narrow money’ because it is a narrow definition and doesn’t include more illiquid types of the money supply."
Why Bother With Federal Reserve Monetary Base Figures?
When I first became interested in investing, speculation, and economic theory [over 30 years ago], a lot of the people I looked to for advice watched, amongst other things, the Federal Reserve's monetary base figures in order to try to predict what was going to happen next.
The notion amongst most of them and others was [and for some apparently still is], that monetary supply inflation inevitably led to the dreaded price inflation that nobody wanted and that last came to pass in the late 1970's and early 1980's.
Bernanke's "Reign" Versus Yellen's "Reign"- A Dramatic Difference
I think you can see a dramatic difference in overall Fed policy between the two "reigns" of Bernanke and Yellen................
1]: Monetary Base Expansion Under Fed Chair Ben Bernanke [ 2006-14]
Lets first take a look at what happened to the monetary base under Mr Bernanke. The graph below shows monetary base figures for 2006-14, and the shaded area [ 2008 - 2009] represents when the last severe recession "officially" started and "officially" ended :-) :
Fig. 2: Federal Reserve Monetary Base, monthly, not seasonally adjusted, Log. Scale, period 2006 - 2014[Fed Chair B. Bernanke]
The Fed's "Quantative Easing" and Price Inflation- 2008- 14
As some of you might know, "Quantitive Easing" was the Federal Reserves new-fangled, fancy term [first used in Japan, apparently] for the large scale "emergency" purchase by it ofspecified amounts of financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply, during "the great recession" [ or whatever you want to call it]
As can be seen from the above chart, the increase ["inflation"] of the monetary base via the Fed's"quantitive easing" was enormous, in fact, under Mr Bernanke, the monetary base had an approximate 250 -300 % increase over the 6 years 2008-14]. [See my related article: "Ben Bernanke the Great[est] Inflator?"].
Quantitive Easing To Cause Price Inflation?
At the time, many people [ including various famous "investment advisors" ] assumed that this massive, unprecedented inflation of the monetary base supply [let alone the broader measures of M1, M2, M3 and MZM], was bound to cause massive price inflation in the market place, sooner, rather than later.
No Price Inflation [2008 -18]?
However, obviously, at this time of writing it appears to have not have been the case. Either the assumed inflation is late getting here [historically it is assumed to show up within 3-5 years after the money supply has been initially "over- inflated"], or there was/is something else going on.
Here's what one site says:
"Quantitative easing led to a big increase in the monetary base.The Federal Reserve created money to buy bonds from commercial banks. Banks saw a rise in their reserves.
However, commercial banks didn’t really lend this money out. Therefore the growth of the broader money supply didn’t change much.
What happened is that commercial banks merely oversaw a rise in their reserves.
The US inflation rate was largely unaffected by this increase in the monetary base. Stripping out volatile cost push factors (food and fuel), core inflation remained below 2% inflation target.
If the economy had been booming, and banks were confident to lend, then this increase in the monetary base may have caused an increase in the broader money and inflation..." Source
So, little overall inflation to date apparently, as we head into 2018, for various reasons. [Although some will argue that inflation has occurred in select areas, food for example].
2] The Monetary Base 2014-18 [ Fed Chair J. Yellen]:
Now lets take a look at the monetary base growth under Fed Chair Janet Yellen [2014-18] :
Fig.3: Federal Reserve Monetary Base [MB] 2014- Oct. 2017, [Fed. chair J. Yellen], none-seasonally adjusted, log. scale
A Radical Difference Under Yellen?
As can be seen from the above graph, since Ms. Yellen took office , overall, the Federal Reserve has embarked on a radically different policy from that implemented in mid 2008, and continuing through 2014. What might be called a "tightening" policy, if you will.
In fact, as of October 2017 after steady decline to a low point reached in the last quarter of 2016, and a subsequent increase back to a point where , in Oct. 2017, monetary base figures now seem to be about where they were when Ms Yellen first took office as Fed chair in early 2014.
Summary: What Does It All Mean?
Many will argue that the huge increases in the monetary base under B. Bernanke "must" still cause monetary inflation [ i.e. a decrease in the per unit value of each $], sooner or later, despite the fact that this has still not occurred to date, [ for various reasons].
Others will claim that the "tightening" of the monetary base evident under the Yellen "regime" ensures a recession in the near future [2018 onwards].
I Claim:I will claim that either side might get it right, but that if they do, that it is not a sign of their own ability to predict the economic future, as many might believe, but only that the party concerned got lucky, nothing more.
Fig.4: Gold bullion prices, daily, 2008-17
Fig. 5: 30 year U.S.Treasury Bond Interest Rates, Monthly, 1975- 2017[Nov.]
Fig. 6: Aaa U.S. Corporate Bond Yields, Monthly, 1920- 2017 [Nov.]
Human Action Versus Predicting The Economic Future
For many fundamental reasons to do with human action that I will not get into here, the precise economic and financial future must remain unknown. Which means that although inflation might be next, continued "disinflation", or even deflation has just as just much chance of occurring, as does a return to economic "good times" .
Bottom Line: Serious Risk For You and Your Precious Savings:
If your savings and investments in any way rely on your supposed ability, [or somebody else's supposed "professional" ability], to accurately predict future economic and financial scenarios via charts like those above, or via "fundamental" or "technical analysis", or via tea-leave readings, astrology or whatever else [!], then unless you/they are extremely lucky individuals, your entire savings portfolio is at serious risk of decimation.
"John McAfee, founder of McAfee Associates a well-known software company has always been Bullish on Bitcoin, in fact, he has even been confrontational on the fact.
In July, with a lot of fear and uncertainty surrounding Bitcoin ahead of its Aug. 1 chain split, McAfee came forward and stated boldly that he was willing to stake his name and up to $10 mln on a bet that the Bitcoin price will move above $500,000 within three years or he would "eat my d**k on national television."
That prediction was seen as ludacris at the time, and many were left wondering how his on-screen promise would play out - however, now that Bitcoin has crossed $11,000, McAfee is not sitting back smugly, but rather raising the bar.
The outspoken tech mogul has now said:
“When I predicted Bitcoin at $500,000 by the end of 2020, it used a model that predicted $5,000 at the end of 2017. BTC has accelerated much faster than my model assumptions. I now predict Bitcoin at $1 mln by the end of 2020. I will still eat my dick if wrong.”
[ obf sez: Too funny! Mr McAfee used some sort of supposedly "predictive" model of his to predict a future price, but he got it wrong, and so now, of course [:-) ], he has a new model to use! Whodathunkit? What could be simpler ? This "techno-narcissist" knows all! [because his latest model is infallible].
The underlying psychology of this person is no different from any other person using an economic model, be they an "investment advisor", an economist or something else. Just another know-it-all [great for entertainment value :-) ].
Summary: "Houston , You Have a Problem"
And so, dear reader, if you really believe that Mr McAfee [or any other "techno-geek", let alone any regular "investment expert"] can successfully, consistently predict the financial/economic future, via the implementation of some secret [ no doubt algorithm- rich] formula, then I would suggest that you, like Mr McAfee himself, have a serious problem and should seek help.
Fig 1: Bitcoin's performance record - 2010- 17 Image Source
[Click on image to enlarge].
Do Not"Invest"In Bitcoin![Or:How To Safely Profit With Bitcoin and Other Crypto-Currencies].
Bitcoin and other similar alternative, "internet currencies", or "crypto-currencies", have made remarkable gains since its/their appearance on the market a few years ago, which means that many people will now be tempted to "invest" in these relatively new market phenomena in the hopes of making large profits [nothing wrong with that :-) ]. Many "early bird" adopters have already made large profits [mostly "on paper", I'm guessing], and some of these persons now spend considerable time and effort in exhorting others to buy Bitcoin, " now, before its too late", so that they too can enjoy similarly large profits.
What is Bitcoin? - here is a short , basic introduction for "newbies".
Also see this site, specially created for Bitcoin "newbies". [p.s. I count myself in the "newbie"category].
Fig.2 : Gold bullion prices 2012-17, log. scale
[Click on image to enlarge]
A Bitcoin Reality Check Fact For You :
Fact: The Financial/Economic Future Always Remains Unknown and Unknowable!
.............which means that nobody, not you, me, your favorite investment advisor, fund manager, economist [of any "stripe"] or banker, or anyone else, can definitively know where Bitcoin is headed from here. The same applies to any other "investment", be it stocks, bonds, precious metals, real estate, or whatever.
Therefor, in light of that stark reality, I would humbly suggest that if you seriously want to try to profit from Bitcoin etc., that instead of "investing" in it, that you only "speculate" in it, or in any of the other 100's [ if not 1000's] of new digital "crypto-currencies", assuming you realistically have the spare cash to risk[see below].
"Investing, Or Speculating"? - What's The Diff.?
What's the difference between "investing" in Bitcoin etc. and "speculating" in it?-you might well ask.
The difference is actually very important, and can mean the difference between losing most of everything you've managed to save for the future to date [e.g. precious long term savings/retirement money] if everything goes wrong, and, on the other hand, only losing a little "gambling", or betting/speculation money ["play" money if you like] if everything went wrong, while your precious long term savings remain safe and unaffected.
Fig.3:Standard & Poors 500 Stock Index 2012-17,log. scale.
[click on image to enlarge]
Fig.4: NASDAQ Composite Stock Index, 2012-17, log. scale
[Click on image to enlarge]
How To Safely Speculate In Bitcoin and Other "Crypto Currencies":
Step : Divide your savings into two distinct, separate categories:
i] Money/savings you cannot afford to lose under any circumstance [e.g. saving for retirement money]. This money should be kept in a balanced long term savings plan that you believe to be safe, maybe similar to this one.
ii] Money you can realistically afford to lose [ play money, gambling/betting money].
N.B. If you have no money you can afford to lose then you have no money to speculate/gamble/bet with, which means that you have no business making dangerous bets on Bitcoin, or on anything else [gold, or stocks, or bonds, or whatever] with any part of the money you cannot afford to lose .
Accumulating Money You Can Afford To Lose [If You Don't Have Any Right Now]
If you have no money you could afford to risk losing that you can speculate with, and if you still wish to speculate on Bitcoin or whatever at some time in the near future, you'll first have to accumulate/save enough extra savings over and above your estimated long term savings needs; extra savings which you would not miss if your Bitcoin bet did not make a profit, as your gambling losses would still be safely insulated from all of your long term savings and would therefor not damage them in any way.
Do You Already Have Money You Could Afford To Lose on a Bitcoin Bet?
Even though we are talking about money you can afford to lose, do you really want to lose all of it on a bad bet on Bitcoin [ or whatever]? Of course not. On the other hand, if you don't really care if you lose it all, then by all means, "go ahead, make my day", as the saying goes :) , and just barrel on into Bitcoin, blind, right now. [I sincerely wish you good luck].
Bitcoin Reality Check :
Assuming that you'd rather make money on your bet[s] than lose it all in "one fell swoop", then there are many factors that you will need to take into consideration before placing your bet, in order to maximize profits and at the same time protect yourself against undue losses.
"Off the top of my head", I know of at least a dozen facts about speculating and speculations that you need to be fully aware of if you wish to be a successful speculator and do not just want to just rely on blind "lady luck" and "barrel on" in there.
Here are three [A,B & C] that might be worth considering:
A]: Speculation Is Largely an Intuitive "Art"- Not a "Science":
Successful speculation is intuitive, to a far greater degree than most successful speculators are even willing to admit.
B]: Successful,Professional Speculators Actually Lose Bets More Often Than They Win Them:
......however, their winning bets are large enough in the long run to more than offset their many losses by a considerable amount. This is often accomplished via the use of strategies similar to the ones I hint at at the end of this post, plus others.
C]:There Will Always Be Other Opportunities:
There will always be other opportunities to speculate coming up in the future - so do not feel pressured into "having to" speculate in Bitcoin and related. Don't listen to people who try to influence/pressure you via "once in a lifetime opportunity" type arguments for Bitcoin, nor for anything else.
So, Do You Seriously Want To Safely Make Money In Bitcoin?
Although there can be no absolute guarantees in speculating, in order to try to maximize your chances of safely making some serious moolah by speculations in Bitcoin etc. instead of losing some/all of that moolah, you will probably need far more specific facts/information about the art of speculation than I have chosen to give away for free, here.[ Hint, hint]
For example: how to establish reasonable risk/reward ratios; where/how to set "stop-losses" and "trailing stop-losses; establishing a risk/reward ratio,how to buy into a rising [or falling] trend; what to do if a better [non-Bitcoin] opportunity presents itself in the future, etc. etc.
Because, after all, even works of art such as financial speculations need some clearly defined borders/parameters, in order to maximize the chances for significant profits, while at the same time minimizing the risks of losing significant sums that would hurt the speculator.
Blind Luck Anyone?
Failing all that, I wish you [blind] good luck with all your blind speculations in Bitcoin, or whatever. [Maybe you naturally have "the feel":-) ] .
"The US bond market trades at a quite high valuation. For instance,
the 10-year US Treasury bond presents a price earnings (PE) ratio of 43.
In other words: It takes 43 years for the investor to recoup the bond’s
purchase price through coupon payments; the bond market’s PE ratio even
went up to 68 in June 2012 and July 2016, respectively.
same time, the PE ratio of the stock market is at 23, significantly
higher than its long-term average of close to 17 for the period from
1973 to 2017. That said, the 10-year Treasury bond has become more
hazardous compared to stocks. This is exactly what the PE ratio tells
us: The higher (lower) the PE ratio, the higher (lower) the investor’s
current bond and stock market valuations, investors seem to be fairly
confident that the Fed will succeed in keeping the boom going, that the
central bank will not overdo it in terms of raising interest rates. And
yes, perhaps central bankers have learned a great deal in recent years,
having become true maestros in holding up the make believe world of fiat
The investor should be aware of the damages caused by
fiat money — for instance, boom and bust. At the same time, he should
not run for the exit prematurely: The fiat money system might be held up
for longer than some may fear and others might hope............"[ my emphasis]
What is next: Recession? Inflation? Deflation? Stock market boom?
Fact: nobody knows.
worrying about what the Fed, the president, congress etc. etc. may, or
may not do, [ or about what it/they have already done], or where "the market" will be 6 months, a year or more from today, is an
unnecessary waste of your precious time! Danger Sign
However, if you are
personally worried about what might be coming next, then that is a sure
sign that you are dangerously overexposed in [either] stocks, bonds,
cash, gold, real estate, or whatever.
2 hard -learned lessons of investment/speculation reality:
: nobody, but nobody can reliably, consistently predict future economic conditions.
: It's wholly unnecessary for the individual tohave to try to predict future economic conditions, or
to utilize the services of someone who claims to be able to do that, in
order to secure one's precious savings against inflation, deflation,
Obviously, the Fed under Janet Yellen has been gradually decreasing the Monetary Base [MB], that is, the most narrow, generally considered most liquid, money supply figure, since at least the 3rd quarter of 2016:
Fig. 1: Federal Reserve Monetary Base, Non-Seasonally Adjusted, [Fed Chair J. Yellen],
January 2014 - December 2016, Millions of $'s, Log scale
Financial Safety Services Commentary:
Exactly What Does The Fed's Monetary Tightening Mean?:
It could mean that a recession, at the very least, is on the way during the new presidents [Donald Trump] first term. [ Basically, a recession within an ongoing recession/depression].
It is impossible to know for certain, and the picture becomes ever more cloudy if we go back and look at the enormous monetary base manipulations that have occurred since 2008 [ via Ms. Yellen's predecessor, Ben Bernanke]:
Fig. 2: Monetary Base [MB] , Millions of $'s, Non-Seasonally Adjusted, Federal Reserve, '07- Dec.2016, Log. Scale
Will this more recent tightening under Yellen have any effect on dampening the effects of the massive Fed monetary base injections of the recent past? Maybe, maybe not. The longer the tightening continues, the more likely it is to actually have an effect and initiate a "Trump recession", in theory at least.
However, here is some good news: it is entirely unnecessary for you to have to try to predict/forecast future economic events from graphs [or similar], or to have to rely on [and pay] someone else to do that for you.
A real world fact: the economic future cannot be accurately predicted via any graph, no matter who constructed it, or what it claims to show. If you need to know why that is so, then for a very large fee, I can explain to you exactly why all graphs are useless for predicting future economic events. :-)