Recently I have posted some strategic thoughts about changing relative investment merits given the huge move down recently in bond rates.
On a more tactical basis, I have been commenting for many months about the technical deterioration in the financials. This continues and is worsening. In addition, the general stock market as judged by the SPY looks terrible based on moving averages, with the SPY now below a down-sloping 50-day simple moving average (SMA) and a down-sloping 150 day sma about to drop below a flat 200 day sma. Ugly, to the point of being fugly.
One of my favorite relatively unknown financials, UMBF, has moved below its 2009 low despite rising earnings estimates. NTRS (banker to young Barack Obama back in Chicago when a crook named Rezko helped enlarge Mr. Obama's backyard) also is one of the non-Big 5 (or whatever the number is) financial firms I have followed to see what the real world is doing, and its chart is definitely fugly. And NTRS's earnings estimates have been declining, and it still sells for over 13X projected 2011 earnings; and who knows what they will really be?
The bigger bellwethers of JPM and WFC have ugly and fugly charts, respectively. Uh-oh.
In the meantime, though, if the American consumer is so badly off, why is DLTR going to new highs and Tractor Supply (TSCO) holding up so well?
Other stocks holding up well so far in this decline are CB and RE, which are an insurer and a reinsurer; and McDonald's, which has a picture-perfect chart.
So there are lots of cross-currents now.
Meanwhile, gold has an even more picture-perfect chart than MCD or CB, and silver looks OK as well.
The dean of stock analysts in America is probably Richard Russell, and he is uber-bearish on stocks. His view deserves respect; I do not look at him as someone to be contrary against.
Putting matters together with seasonality, matters are setting up as I projected in May when I stated that stock rallies should be sold. I am concerned about the tw0-year pattern in stocks.
Two years after the 1987 stock collapse, a mini-collapse occurred in fall 1989; that did not take the averages to the 1987 lows, as in retrospect the stock market was only partly through its structural multi-year bull market. Stocks are certainly acting as if they could reprise 2008, just as 1989 reprised 1987. Now, however, stocks are mired in what I believe to be a structural bear market. Any collapse, I believe, carries with it real risk of new lows, given that the 2008 low fell below the 2002 low in nominal terms (worse in inflation-adjusted terms).
The U. S. and the world are in more unusually uncertain times than usual. Regular readers of my blog know that I have excoriated Ben Bernanke as amongst the worst Fed chairmen of all time, and perhaps the single worst. For all the blame Sir Alan deserves, he left when the leaving was good, and who knows whether what he would have done when the rubber was hitting the road in 2007-8? This is Helicopter Ben's Fed and Barack Obama's government, and IMVHO they are and have been stinking up the joint with ineffective and harmful policies.
Just as I believed at the time that Paul Volcker (a Dem) and Ronald Reagan (a former Dem) were the right men for the problems facing the country, and invested accordingly, I want them back! I think that we have just the wrong men for today's problems in these key offices. If Mr. Obama were to give Tall Paul real authority, wouldn't that make a statement that the President is willing to face up to our very solvable financial and economic problems and overcome them? But he didn't do so, and he won't. So we have a tax fiddler running Treasury (and IRS) and a Wall Street hanger-on sitting by the President advising him to make Big Finance happy as a way to help Main Street (assuming LS really cares about Main Street).
Historically the stock market has gone up more under Dems than Repubs, but the ineffective inflationist with two inflationist Fed chairmen named Jimmy Carter was an exception. Mr. Obama may be following in Mr. Carter's footsteps.
The path of least resistance for the stock averages is down. Fundamentally the S&P 500 can be considered to be a massive 40+% above fair value. The experience of the 1930s and 1940s prove that low Treasury rates can easily coexist with depressed stock market values. Japan for the last many years proves that as well.
America is blessed with a hard-working population and a lot of smart businesspeople who want to make money the old-fashioned way, which unfortunately is neither the Chicago way nor the modern Big Finance way. What the old-fashioned types need is for government and the Fed to be old-fashioned as well. No matter how pure the motives, statism in very large, complicated economies is very different from statism in small Scandinavian countries where "everyone" is related to each other.
Money should be treated with respect, not with zero interest rates. And the standard financial principles that failure should not be rewarded with bailouts should be restored post-haste. If Citigroup is still insolvent after all that has been done (unfairly, IMO) to assist it, so be it.
There is no surprise in this observer that the stock market is acting badly. An economy that creates neither jobs nor optimism amongst small businessmen is a very troubled one. "Don't fight the Fed" worked when the Fed could engineer lower rates and the real world extended more and more (imaginary, to be sure) credit.
In this era of all-time record low interest rates, the Japan scenario shows that the next shoe to drop after a credit collapse is equity valuations if prices don't rise. While longer term I vote for stagflation, in the very short term a rerun of 2008 with collapsing commodity prices could occur. There's no way to even guess. And to be sure, I agree once in a while with Keynes: as he said, if the facts change, I do adjust my thinking.
The stock market is voting lately against the policies of appeasing the titans of Wall Street. Where it goes nobody knows, of course; at least I don't know; but I do know what I think about freedom-friendly and economy-friendly governmental and Fed policies.
What ails the economy is not all that complicated. The money-printing has stayed almost hermetically sealed within the Street. The statist and Big Finance-friendly policies of the Bushbama Continuity just aren't allowing the inherent dynamism of the American worker and business community to do what comes naturally.
Money should be treated with respect, not zero return (while lenders charge crazy high rates on credit card debt even to credit-worthy borrowers).
Mr. Bernanke and Mr. Obama, tear down these policies. You have nothing to lose but your failures.
Copyright (C) Long Lake LLC 2010
Showing posts with label Bushbama Continuity. Show all posts
Showing posts with label Bushbama Continuity. Show all posts
Tuesday, August 24, 2010
Thursday, August 5, 2010
The Death Zone
This week's title of the ABC News Consumer Comfort Index is not encouraging: Consumer Confidence: Into the Death Zone. Here are excerpts:
Consumer confidence matched its low for the year this week, with the ABC News Consumer Comfort Index extending a steep 9-point, six-week drop from what had been its 2010 high.
The weekly index, based on Americans’ views of the national economy, the buying climate and their personal finances, stands at -50 on its scale of +100 to -100, just 4 points from its lowest on record in nearly 25 years of weekly polls, set in December 2008 and January 2009.
Underscoring its current deep weakness, the CCI has been -50 or lower just 27 times in 1,284 weekly polls – all but one of them since August 2008. (The other, February 1992.) It's in effect the death zone for consumer sentiment.
The CCI has been this low twice previously this year, in February and April, then advanced through late June before turning back down. Compare -50 to its 24-year average, -13.
It is a commonplace to point to other consumer and small business data that sadly all point to the same result: big company profits are high on the back of cost-cutting and perhaps good demand from other than the U. S. or Western Europe.
With oil prices now above $80 per barrel and housing on its backside, the Ins in Washington have to be sweating, no matter where they are this summer. After all, they stimulated! But it's looking more and more that the public is agreeing with the view consistently held at this blog that is was "stimulus" rather than real stimulus. And the Fed's money-printing stayed too much within the semi-hermetically sealed financial system, pushing up asset prices much more than the real economy.
Unfortunately, this is not 1979-80, where new ideas and policies were afoot. It is certain that the Republicrats will emerge victorious in the November elections. Or perhaps it's not so certain: perhaps it will be the Depublicans. In other words, the Establishment will win again, and the Bushbama Continuity of government-Big Finance working together to prop up asset values rather than focusing on allowing the real economy to work things out with a minimum of government intervention will likely continue. At least until the next major crisis.
In any case, the view here is that since the only bubble is that price to earnings of cash, which the authorities promise will remain in bubble territory indefinitely, the other trends that are extant are likely to stay extant. These include uptrends in gold and meandering in stocks, with risks tilted to the downside for the latter; and a counter-intuitive emerging bubble in increasingly longer-dated Treasuries.
Of these assets, the only one that I personally have any real confidence in is gold, and this is sad, because I have never been a gold bug. The devil made me do it!
Copyright Long Lake LLC 2010
Consumer confidence matched its low for the year this week, with the ABC News Consumer Comfort Index extending a steep 9-point, six-week drop from what had been its 2010 high.
The weekly index, based on Americans’ views of the national economy, the buying climate and their personal finances, stands at -50 on its scale of +100 to -100, just 4 points from its lowest on record in nearly 25 years of weekly polls, set in December 2008 and January 2009.
Underscoring its current deep weakness, the CCI has been -50 or lower just 27 times in 1,284 weekly polls – all but one of them since August 2008. (The other, February 1992.) It's in effect the death zone for consumer sentiment.
The CCI has been this low twice previously this year, in February and April, then advanced through late June before turning back down. Compare -50 to its 24-year average, -13.
It is a commonplace to point to other consumer and small business data that sadly all point to the same result: big company profits are high on the back of cost-cutting and perhaps good demand from other than the U. S. or Western Europe.
With oil prices now above $80 per barrel and housing on its backside, the Ins in Washington have to be sweating, no matter where they are this summer. After all, they stimulated! But it's looking more and more that the public is agreeing with the view consistently held at this blog that is was "stimulus" rather than real stimulus. And the Fed's money-printing stayed too much within the semi-hermetically sealed financial system, pushing up asset prices much more than the real economy.
Unfortunately, this is not 1979-80, where new ideas and policies were afoot. It is certain that the Republicrats will emerge victorious in the November elections. Or perhaps it's not so certain: perhaps it will be the Depublicans. In other words, the Establishment will win again, and the Bushbama Continuity of government-Big Finance working together to prop up asset values rather than focusing on allowing the real economy to work things out with a minimum of government intervention will likely continue. At least until the next major crisis.
In any case, the view here is that since the only bubble is that price to earnings of cash, which the authorities promise will remain in bubble territory indefinitely, the other trends that are extant are likely to stay extant. These include uptrends in gold and meandering in stocks, with risks tilted to the downside for the latter; and a counter-intuitive emerging bubble in increasingly longer-dated Treasuries.
Of these assets, the only one that I personally have any real confidence in is gold, and this is sad, because I have never been a gold bug. The devil made me do it!
Copyright Long Lake LLC 2010
Saturday, April 24, 2010
Snow Business
Deep in Fantasyland: White House touts GM loan repayment:
. . . the White House is trumpeting the news. Here's a blog post by chief White House economic adviser Larry Summers:
What a difference a year makes. Just about a year ago, the American auto industry was on the brink of collapse. Today, General Motors announced that it has repaid its $6.7 billion loan to the U.S. government in full five years ahead of schedule . . .
However, a more independent opinion comes from the man the Democrats appointed to oversee TARP, Neil Barofsky. A Google search of the topic brought me to Grassley Slams GM, Administration Over Loans Repaid With Bailout Money. Leaving the politics out of it, here is the meat:
But Barofsky told Fox News that while it's "somewhat good news," there's a big catch.
"I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn't from earnings. ... It's actually from another pool of TARP money that they've already received," he said Wednesday. "I don't think we should exaggerate it too much. Remember that the source of this money is just other TARP money."
Barofsky told the Senate Finance Committee the same thing Tuesday, and said the main way for the federal government to earn money out of GM would be through "a liquidation of its ownership interest."
A financial adviser named Nick Massey has a long, more thorough shredding of the Summers point of view in Don’t believe the hype on GM’s loan. repayment.
As with the heroic takeover of the alleged "city" of Marja, Afghanistan (really a collection of mud compounds), the shell game with Fannie/Freddie losses magically being transmuted like lead into gold of economic recovery, and the almost uncountable number of false statements made attendant to health care "reform", so with GM. As Hitler sings in "The Producers", with this administration (and a number of predecessors):
All you need to know is,
Everything is show biz.
But to paraphrase an even greater American than Melvin Kaminsky (AKA Mel Brooks), you can't snow all of the people all of the time.
After the disgraceful misdeeds and non-deeds of the Bush administration and the Fed attendant to the Great Financial Crisis, the public expected that the sober-sounding Barack Obama would immediately institute sound financial policies and make the perps pay. Instead we got the Bushbama Continuity of bailouts and money-printing and over a year after inauguration, a speculative stock market fueled by zero interest rates to savers, the return of leverage and omigosh, a sop to the peasants- a civil action against the whipping boy du jour by the Sex and Exchange Commission. Said civil action coincidentally announced on an options expiration Friday at the same time the news that the SEC under Presidents Clinton and Bush had ignored the Allen Stanford matter until post-Madoff it could ignore it no longer.
Don't believe anything anymore unless you read it in an independent blog.
Copyright (C) Long Lake LLC 2010
. . . the White House is trumpeting the news. Here's a blog post by chief White House economic adviser Larry Summers:
What a difference a year makes. Just about a year ago, the American auto industry was on the brink of collapse. Today, General Motors announced that it has repaid its $6.7 billion loan to the U.S. government in full five years ahead of schedule . . .
However, a more independent opinion comes from the man the Democrats appointed to oversee TARP, Neil Barofsky. A Google search of the topic brought me to Grassley Slams GM, Administration Over Loans Repaid With Bailout Money. Leaving the politics out of it, here is the meat:
But Barofsky told Fox News that while it's "somewhat good news," there's a big catch.
"I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn't from earnings. ... It's actually from another pool of TARP money that they've already received," he said Wednesday. "I don't think we should exaggerate it too much. Remember that the source of this money is just other TARP money."
Barofsky told the Senate Finance Committee the same thing Tuesday, and said the main way for the federal government to earn money out of GM would be through "a liquidation of its ownership interest."
A financial adviser named Nick Massey has a long, more thorough shredding of the Summers point of view in Don’t believe the hype on GM’s loan. repayment.
As with the heroic takeover of the alleged "city" of Marja, Afghanistan (really a collection of mud compounds), the shell game with Fannie/Freddie losses magically being transmuted like lead into gold of economic recovery, and the almost uncountable number of false statements made attendant to health care "reform", so with GM. As Hitler sings in "The Producers", with this administration (and a number of predecessors):
All you need to know is,
Everything is show biz.
But to paraphrase an even greater American than Melvin Kaminsky (AKA Mel Brooks), you can't snow all of the people all of the time.
After the disgraceful misdeeds and non-deeds of the Bush administration and the Fed attendant to the Great Financial Crisis, the public expected that the sober-sounding Barack Obama would immediately institute sound financial policies and make the perps pay. Instead we got the Bushbama Continuity of bailouts and money-printing and over a year after inauguration, a speculative stock market fueled by zero interest rates to savers, the return of leverage and omigosh, a sop to the peasants- a civil action against the whipping boy du jour by the Sex and Exchange Commission. Said civil action coincidentally announced on an options expiration Friday at the same time the news that the SEC under Presidents Clinton and Bush had ignored the Allen Stanford matter until post-Madoff it could ignore it no longer.
Don't believe anything anymore unless you read it in an independent blog.
Copyright (C) Long Lake LLC 2010
Sunday, April 18, 2010
Too Much Debt, Too Much Trading
Transitory matters such as an SEC wrist-slap civil action against a bank or a volcanic explosion in Iceland can lead to reflection on larger matters. The Goldman Sachs complaint by the SEC involves a credit default swap (CDS) on mortgage-related products. As Paul Volcker has opined, this sort of "innovation" or "technology" may be useless.
I am thinking that we would all be better off with the financial products equivalent of the FDA. Let a product be demonstrated to be both safe and effective before being marketed interstate or internationally. The simplest solution is to ban CDS and let insurance companies prepare such a product as an insurance product per se, with identical regulation and reserve requirements as any other insurance product.
Other, older "innovations" are harmful. Most oil should be marketed under long-term fixed-price contracts, though shipping costs would be subject to the free market, and of course inflation/deflation clauses could be involved. After all, pumping costs of discovered oil fields are known and stable. Instead we saw in 2008 the price of oil soaring to $145 per bbl and in half a year plunging below $35. How can it be a good thing that this could occur? How is it even possible, absent supply disruptions such as from war that would send the price skyrocketing? There was no force majeure, though. Year after year, the oil traders in essence take a vigorish that belongs in the pockets of producers and consumers alike.
Who has benefited from the debt explosion the past decades? The first and greatest beneficiaries are the purveyors and traders/repackagers of the debt. Thus Japan keeps selling more and more government bonds, beyond any comprehension given that doing so has not led to any obvious benefit for their economy. Yet it keeps doing so. The US public is suggested that it does so to "fight deflation". As if lower prices are not good things for a trading country.
In the US post-Civil War, the advent of industrial processes applied to farming and manufacturing, plus cheap rail access to the mineral and other wealth of the West, deflation was the order of the day, as was a general trend toward much higher living standards.
As went Japan, so went the US and the UK. It is the bankers who benefit from all the government debt. And if the debt ultimately needs restructuring, they benefit from that as well. Those who purchase the debt may or may not benefit. If the purchaser is an insurance company, it purchases the debt simply so that it can sell an insurance product at a spread profit. If the purchaser is a central bank, then the purchase may well be for political reasons. But those who sell and endlessly resell the swelling amount of debt-- whether it be on houses (mortgages) or direct claims on the Treasury-- continue to benefit from the Bushbama Continuity on bailouts and the like.
We need more equity and less debt in society. Ultimately, traders' pricing and mispricing of securities notwithstanding, investors should be in honest situations where those who price securities actually own them for real rather than acting as middlemen or, even worse, "analysts" who cleverly are forced to disclose they have no ownership of what they recommend. Far better that a bullish analyst own the security recommended and be prohibited from selling for the time frame of the recommendation. And the opposite for a bear.
Fundamentally, the allure of alternative investments ranging from precious metals to lumber is that they are what they are. You don't need an analyst to evaluate whether Oracle is going to make money from the Sun Microsystems purchase. Thus the sell-off in gold on Friday concomitant with the Goldman news appears misplaced. Was the Friday announcement on options expiration day part of market manipulation on the SEC's part, the same SEC that is now known to have sat on the Allen Stanford scam for many, many years? (Not to mention Madoff.) Considering that the pros very recently added numerous short positions in gold futures recently, one has to take this possibility seriously. It is becoming less and less of a fringe position, I believe, considering the growing evidence of governmental involvement in the bubble and cover-up.
Copyright (C) Long Lake LLC 2010
I am thinking that we would all be better off with the financial products equivalent of the FDA. Let a product be demonstrated to be both safe and effective before being marketed interstate or internationally. The simplest solution is to ban CDS and let insurance companies prepare such a product as an insurance product per se, with identical regulation and reserve requirements as any other insurance product.
Other, older "innovations" are harmful. Most oil should be marketed under long-term fixed-price contracts, though shipping costs would be subject to the free market, and of course inflation/deflation clauses could be involved. After all, pumping costs of discovered oil fields are known and stable. Instead we saw in 2008 the price of oil soaring to $145 per bbl and in half a year plunging below $35. How can it be a good thing that this could occur? How is it even possible, absent supply disruptions such as from war that would send the price skyrocketing? There was no force majeure, though. Year after year, the oil traders in essence take a vigorish that belongs in the pockets of producers and consumers alike.
Who has benefited from the debt explosion the past decades? The first and greatest beneficiaries are the purveyors and traders/repackagers of the debt. Thus Japan keeps selling more and more government bonds, beyond any comprehension given that doing so has not led to any obvious benefit for their economy. Yet it keeps doing so. The US public is suggested that it does so to "fight deflation". As if lower prices are not good things for a trading country.
In the US post-Civil War, the advent of industrial processes applied to farming and manufacturing, plus cheap rail access to the mineral and other wealth of the West, deflation was the order of the day, as was a general trend toward much higher living standards.
As went Japan, so went the US and the UK. It is the bankers who benefit from all the government debt. And if the debt ultimately needs restructuring, they benefit from that as well. Those who purchase the debt may or may not benefit. If the purchaser is an insurance company, it purchases the debt simply so that it can sell an insurance product at a spread profit. If the purchaser is a central bank, then the purchase may well be for political reasons. But those who sell and endlessly resell the swelling amount of debt-- whether it be on houses (mortgages) or direct claims on the Treasury-- continue to benefit from the Bushbama Continuity on bailouts and the like.
We need more equity and less debt in society. Ultimately, traders' pricing and mispricing of securities notwithstanding, investors should be in honest situations where those who price securities actually own them for real rather than acting as middlemen or, even worse, "analysts" who cleverly are forced to disclose they have no ownership of what they recommend. Far better that a bullish analyst own the security recommended and be prohibited from selling for the time frame of the recommendation. And the opposite for a bear.
Fundamentally, the allure of alternative investments ranging from precious metals to lumber is that they are what they are. You don't need an analyst to evaluate whether Oracle is going to make money from the Sun Microsystems purchase. Thus the sell-off in gold on Friday concomitant with the Goldman news appears misplaced. Was the Friday announcement on options expiration day part of market manipulation on the SEC's part, the same SEC that is now known to have sat on the Allen Stanford scam for many, many years? (Not to mention Madoff.) Considering that the pros very recently added numerous short positions in gold futures recently, one has to take this possibility seriously. It is becoming less and less of a fringe position, I believe, considering the growing evidence of governmental involvement in the bubble and cover-up.
Copyright (C) Long Lake LLC 2010
Thursday, January 21, 2010
Bad Things Happening; Better Things Coming?
Barack Obama has been punched in the face several times lately. His poll numbers are following the labor force participation rate downward, as everyone living in the real world knows that the real national economy is poor, whether or not inventory restocking and other pro-cyclical forces mean that the depression aka Great Recession is technically over. He has overpromised and underdelivered. If he were a stock, he might be a contrarian "buy", at least for a bounce. The truth is that his poll numbers are tracking the economy and are their path is roughly superimposable over the track that Ronald Reagan's poll numbers took during his first year, when the economy also truly stank. It's the economy, stupid and all that.
The good news is that the president is signaling flexibility given the national mood. Even better is the following, as reported by Bloomberg.com in Obama to Propose New Rules on Banks’ Size, Trading:
President Barack Obama will offer proposals to limit financial institutions’ size and trading activities as a way to reduce risk-taking, an administration official said.
Obama will announce the rules today after meeting with former Federal Reserve Chairman Paul Volcker at the White House. The proposals will be part of an overhaul of regulations and will specifically address firms’ proprietary trading, the official said yesterday on the condition of anonymity.
It would be great news if (it would appear) that Mr. Volcker has growing influence within the White House.
Up Volcker means down Summers/Geithner.
We shall see whether the Bushbama Continuity on favoring Big Finance over the people is, at least at the margins, evolving away from the extreme pro-Big Finance stand that the Establishment imposed on the country and that has strangled the real economy for about the past 2 years.
A return to more centrist politics and toward sensible regulation of the financial parasites--which will free them to get back to where they once belonged (facilitators of the real economy rather than pretenders)--will have short-term benefits to the national mood and the economy.
In that context, yesterday's sell-off in stocks means little. The downside action in precious metals relates to a more fundamental problem, which is the possible cooling off of the wild economic action in China, and thus a possible correction in commodities such as platinum and copper. This correction would, however, be good for many companies that EBR has commented favorably on. Two-way markets can be fun in normal or quasi-normal times.
The pubic is depressed over the economy and is spending minimally per numerous polls; there are numerous fundamental negatives in the economy. Ten years ago the public was ebullient; there were no obvious negatives in the economy. No one can time it, and I think we remain in a secular bear market for stocks and the economy, but if this secular bear (if that is indeed what it is) is similar to the inflationary bear of the 1970s, then we must remember that there were huge investment opportunities for those who went with the trend for periods of time but did not buy and hold. The classic time to truly beware of owning risky assets is when times are too good for too long and the Fed is making money tighter. Times are dangerous now and there is lots of downside risk all over the place. But one precondition of good investment returns is present: the fundamentals appear to stink. What is lacking is low prices. Whether these low prices occur in nominal terms or in real terms (adjusted for price inflation that may or may not be coming soon) is one of the key questions of the day.
This remains one of the few times in my 30 years in the investment field when my best idea is diversification across many asset classes. Quality is the watchword.
Copyright (C) Long Lake LLC 2010
The good news is that the president is signaling flexibility given the national mood. Even better is the following, as reported by Bloomberg.com in Obama to Propose New Rules on Banks’ Size, Trading:
President Barack Obama will offer proposals to limit financial institutions’ size and trading activities as a way to reduce risk-taking, an administration official said.
Obama will announce the rules today after meeting with former Federal Reserve Chairman Paul Volcker at the White House. The proposals will be part of an overhaul of regulations and will specifically address firms’ proprietary trading, the official said yesterday on the condition of anonymity.
It would be great news if (it would appear) that Mr. Volcker has growing influence within the White House.
Up Volcker means down Summers/Geithner.
We shall see whether the Bushbama Continuity on favoring Big Finance over the people is, at least at the margins, evolving away from the extreme pro-Big Finance stand that the Establishment imposed on the country and that has strangled the real economy for about the past 2 years.
A return to more centrist politics and toward sensible regulation of the financial parasites--which will free them to get back to where they once belonged (facilitators of the real economy rather than pretenders)--will have short-term benefits to the national mood and the economy.
In that context, yesterday's sell-off in stocks means little. The downside action in precious metals relates to a more fundamental problem, which is the possible cooling off of the wild economic action in China, and thus a possible correction in commodities such as platinum and copper. This correction would, however, be good for many companies that EBR has commented favorably on. Two-way markets can be fun in normal or quasi-normal times.
The pubic is depressed over the economy and is spending minimally per numerous polls; there are numerous fundamental negatives in the economy. Ten years ago the public was ebullient; there were no obvious negatives in the economy. No one can time it, and I think we remain in a secular bear market for stocks and the economy, but if this secular bear (if that is indeed what it is) is similar to the inflationary bear of the 1970s, then we must remember that there were huge investment opportunities for those who went with the trend for periods of time but did not buy and hold. The classic time to truly beware of owning risky assets is when times are too good for too long and the Fed is making money tighter. Times are dangerous now and there is lots of downside risk all over the place. But one precondition of good investment returns is present: the fundamentals appear to stink. What is lacking is low prices. Whether these low prices occur in nominal terms or in real terms (adjusted for price inflation that may or may not be coming soon) is one of the key questions of the day.
This remains one of the few times in my 30 years in the investment field when my best idea is diversification across many asset classes. Quality is the watchword.
Copyright (C) Long Lake LLC 2010
Sunday, June 14, 2009
Too Many Loud Voices of Support for the Dollar for Comfort
Skeptical minds are questioning the implications inherent in the Bloomberg.com article, Russia’s Kudrin Signals No Alternative to Dollar Global Status. Please consider all the following from the article:
Russian Finance Minister Alexei Kudrin said the dollar is in “good shape,” further affirming that there’s no substitute for the world’s reserve currency.
Kudrin rushed to reassure investors of Russia’s confidence in the dollar just days after his boss, President Dmitry Medvedev, questioned its global status, joining China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.
“It’s too early to speak of an alternative,” Kudrin said in an interview two days ago in Lecce, Italy after meeting officials from the Group of Eight nations. . .
“At this point there’s no alternative to the U.S. dollar in terms of deep liquid markets and trading 24-7 globally,” Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, said yesterday in a telephone interview. “Nothing even comes close to the dollar in terms of reserve status.” . . .
The dollar got some support last week when Japanese Finance Minister Kaoru Yosano said his country’s confidence in U.S. Treasury securities is “unshakeable,” signaling the second- biggest foreign holder of the securities will keep buying them.
“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano, 70, said in an interview in Tokyo on June 10 before attending the G-8 meeting of finance ministers in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”
Over the past two years, it has become clear that the United States has committed a fraud upon the rest of the world by creating securities tied to loans on the value of housing in the U. S. These loans, called mortgages, were "packaged" in inscrutable ways and are defaulting at ridiculous levels despite allegedly high-class U. S. rating agencies having blessed these securities as "AAA". Other AAA and less highly-rated U. S. loans have proven unsound, as well.
Furthermore, the Bushbama Continuity has perpetuated the malinvestment here in homes, rather than directing investment to export-oriented industries in which the U. S. actually has a competitive advantage.
These industries include medical technology, information technology, agricultural know-how, and even- somewhat oddly- financial services knowhow.
The more the U. S. continues to bail out homeowners and especially the holders of the mortgages, the weaker the dollar will trend.
All the above expressions of support for the dollar only serve to demonstrate its weakness. It's obvious who Charles Atlas is when lined up against the 97-pound weakling. Right now, the U. S. is Charles Atlas in the advancing stages of a wasting disease, and the former weaklings are continuing to bulk up.
The only safe way to make money from a continuation of this trend is to own the once and possible future currency known as gold, though only with a very long-term horizon. Owning BZF (the Brazilian real) on pullbacks continues to make sense.
Copyright (C) Long Lake LLC 2009
Russian Finance Minister Alexei Kudrin said the dollar is in “good shape,” further affirming that there’s no substitute for the world’s reserve currency.
Kudrin rushed to reassure investors of Russia’s confidence in the dollar just days after his boss, President Dmitry Medvedev, questioned its global status, joining China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.
“It’s too early to speak of an alternative,” Kudrin said in an interview two days ago in Lecce, Italy after meeting officials from the Group of Eight nations. . .
“At this point there’s no alternative to the U.S. dollar in terms of deep liquid markets and trading 24-7 globally,” Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, said yesterday in a telephone interview. “Nothing even comes close to the dollar in terms of reserve status.” . . .
The dollar got some support last week when Japanese Finance Minister Kaoru Yosano said his country’s confidence in U.S. Treasury securities is “unshakeable,” signaling the second- biggest foreign holder of the securities will keep buying them.
“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano, 70, said in an interview in Tokyo on June 10 before attending the G-8 meeting of finance ministers in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”
Over the past two years, it has become clear that the United States has committed a fraud upon the rest of the world by creating securities tied to loans on the value of housing in the U. S. These loans, called mortgages, were "packaged" in inscrutable ways and are defaulting at ridiculous levels despite allegedly high-class U. S. rating agencies having blessed these securities as "AAA". Other AAA and less highly-rated U. S. loans have proven unsound, as well.
Furthermore, the Bushbama Continuity has perpetuated the malinvestment here in homes, rather than directing investment to export-oriented industries in which the U. S. actually has a competitive advantage.
These industries include medical technology, information technology, agricultural know-how, and even- somewhat oddly- financial services knowhow.
The more the U. S. continues to bail out homeowners and especially the holders of the mortgages, the weaker the dollar will trend.
All the above expressions of support for the dollar only serve to demonstrate its weakness. It's obvious who Charles Atlas is when lined up against the 97-pound weakling. Right now, the U. S. is Charles Atlas in the advancing stages of a wasting disease, and the former weaklings are continuing to bulk up.
The only safe way to make money from a continuation of this trend is to own the once and possible future currency known as gold, though only with a very long-term horizon. Owning BZF (the Brazilian real) on pullbacks continues to make sense.
Copyright (C) Long Lake LLC 2009
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