Oil and gold are doing what they did in later periods of 2008 as well as last year. Oil is breaking down while gold is moving up. The gold:oil ratio is either about 20:1 (WTI) or about 17:1 (Brent). Either way, gold is not historically cheap to oil. There is clearly more room for oil prices to drop, both fundamentally and based on my reading of net short positioning of the commercials in the crude oil futures market. Thus as in 2008, a deeper low in the gold market is very possible (no guarantee), as people start really fearing deflation (perhaps). More fundamentally, in recessions, people must pay their bills with currency, not gold, plus jewelry purchases decrease. Finally, let's remember that the gold is now about 4X as expensive relative to U.S. residential real estate as it was when the ratio was at its minimum about seven years ago. You can't eat either gold or a home, but you can live in the latter (or rent it out for a profit, or so you hope). Value buyers are looking to homes this cycle for inflation protection, not only gold. I think the financial markets will reflect this relatively high price of gold compared not only to houses but to metals such as platinum.
Thus I am looking at the action in the precious metals today as technical, under cover of the "they will print" POV. But no U.S. recession is baked in the cake, and the current money flows into the Treasury market out of Europe and out of the global stock markets are probably sufficient to take the place of a new QE.
All recessions are deflationary (or disinflationary). As regular readers know, I give ECRI's views more weight than the Street does. Their WLI was down again today, and the multi-year trend is uninspiring.
If their U.S. recession call is correct while Europe works through its various problems, I think we can look forward to demand for commodities sharply diminishing. For example, there is said to be a 2-year supply of platinum in ETFs, for which the public is paying storage costs. LOL! Platinum can go into deficit, plus what do you think happens to the demand for platinum jewelry in a global recession? Platinum "could" fall a lot further from here. Just look at the 2008 lows if you are skeptical. Maybe it can't go so low, but sub-$1200 is quite possible. I just don't see gold as a good value at its current price in that global recession scenario. Message: sometimes markets should be watched and not traded.
As I've been saying since January 2009, the U.S financial structure. has been developing as Japan did during its ZIRP period. The zero bound has been a gravitational force, as it were, pulling the longer maturities toward it, with inflationary spurts during the expansion phase of the economic cycle.
I still consider stocks as a whole to be overpriced. OTOH, buy-and-hold investors are finally getting the chance to purchase a growing number of equities that are likely to outperform Treasuries on a multi-year basis, ignoring the fluctuations in between. Hint: think secure and growing income stream, a la BDX; or high and safe income stream even if it fails to grow ("we" think safe), as in ED.
Showing posts with label money printing. Show all posts
Showing posts with label money printing. Show all posts
Friday, June 1, 2012
Saturday, July 24, 2010
Financial Media Drumbeat for Money-Printing CONtinues
That's not a typo in the title. Because there's a con game going on. It's the con that the threat is imminent deflation.
In his weekly Emailed commentary today, the well-known financial man John Mauldin differentiates between good and bad deflation. In the category of the latter, he quotes insufficient demand.
You know things are loony when an American can look around him, see the obesity epidemic, and with a straight literary face, cite insufficient demand!
Let's also see-- one vehicle per capita; 20 times as much oil used per capita as in India, etc.
Excess commercial real estate and by world standards double or triple as much residential real estate as is really needed.
And so on. Some insufficiency of demand.
What ties many financial people together in their wails that we need to fear collapsing prices is that they benefit from money printing. One reason for this is obvious: more money in the financial system means more assets under management. Another reason is subtler, and relates to Uncle Warren Buffett's parable of the Gotrocks family. In this story, a family with money keeps getting sold on making the management of their savings more and more complicated, with the only winners being the financial community. Thus, if the Government were to start paying off its debts, there would a simpler system, and thus less reason for the great unwashed to pay financial types fees to invest their money.
Mr. Mauldin is on the more conservative side of the spectrum, so his major point is to keep the Bush tax cuts. Presumably he will do well with that personally, and so will his clients. Others such as Nouriel Roubini always pound the drums for eternal depression, and their solution is greater government spending.
Neither of those camps address the overriding problem of creating a stable financial system. If society wants Sweden or wants Hong Kong, it can have either, but it can't have Swedish social benefits (plus war in Eastasia) with a Hong Kong-level of Federal income (14% of GDP at latest count). Continuing the giant deficits is great for financial types and keeps the Roubini Global Economics business thriving as well.
On the other side of the financial sea from debt-based finance and money printing is gold. The media is all over that one. Barron's is out today with the Abelson article titled A Contrarian's View of Gold.
The "contrarian" works not for some small contrarian enterprise in Nowheresville, but rather for the globe-girdling Bank Credit Analyst. No evidence in the article indicates why this gentleman is called a contrarian at all. The article goes so far as to point out that the negative view on gold that Mr. Berezin espouses is not contrarian at all. To wit:
. . .he gets some support from Barclays Capital's latest commodity forecasts, which sees gold averaging $1,195 an ounce this year, $1,180 next year, $1,010 in 2012 and $850 for "the long-term."
Oh, those wild-eyed crazies at Barclays! Always taking the non-consensus point of view (NOT).
Why is Mr. Berezin negative on gold? Because he expects:
1) An increase in real interest rates, which he feels are bound to rise as the global economy continues to recover.
2) A decline in inflation expectations. Disinflation, he notes, is "gold's archenemy" and, he believes, over the next few years, deflation is the biggest risk.
We should stop right here. What actually happened to real interest rates in the U. S. at least in the Ponzi boom of 2005-7/8 was that real interest rates dropped to zero as inflation surged to at least 5%. In fact, a sign that the boom was built on sand was in fact that the economy could not even tolerate truly restrictive interest rates, unlike the economy of 1980-2. So his idea that real interest rates will rise with a boom is unlikely, given tattered balance sheets all over. Re inflation expectations, well he's a better man than anyone else if he is suggesting you invest on what expectations will be. Predicting facts is hard enough; expectations are second derivative stuff.
He also sees:
. . . the greenback as "among the best houses in a bad neighborhood" that, over time, will strengthen against the euro and the yen, sparking a reassertion of the negative trend between bullion and the trade-weighted dollar index.
My view is different. It is in line with Bill Fleckenstein, and certain bloggers such as Econophile, who see money printing and stagflation as reasonably likely.
The powers that run America financially are great powers. They say that they will do everything they can to make sure that deflation does not take root here. With the lowest short term rates in America and globally in history and 3% Treasury rates despite massive supply, you can expect either a strong economy to put all the monetary stimulus waiting in reserve to start stimulating pricing power and/or more money printing to purchase more financial assets, some of which new money will filter out to the real economy.
What would really be bad for gold, as it was 30 years ago, would be true tight money policies, plus a revival of pro-entrepreneurial policies. Since these are not likely to be forthcoming from Washington any time soon, it makes sense to resist the growing media pressure from multiple sides of the economic-political spectrum that deflation is a serious threat and prepare for a resumption of something like 2003-7.
And to be aware that as in that era, the defining characteristic was a crash.
I suspect that another crash is coming. I just don't know when.
Copyright (C) Long Lake LLC 2010
In his weekly Emailed commentary today, the well-known financial man John Mauldin differentiates between good and bad deflation. In the category of the latter, he quotes insufficient demand.
You know things are loony when an American can look around him, see the obesity epidemic, and with a straight literary face, cite insufficient demand!
Let's also see-- one vehicle per capita; 20 times as much oil used per capita as in India, etc.
Excess commercial real estate and by world standards double or triple as much residential real estate as is really needed.
And so on. Some insufficiency of demand.
What ties many financial people together in their wails that we need to fear collapsing prices is that they benefit from money printing. One reason for this is obvious: more money in the financial system means more assets under management. Another reason is subtler, and relates to Uncle Warren Buffett's parable of the Gotrocks family. In this story, a family with money keeps getting sold on making the management of their savings more and more complicated, with the only winners being the financial community. Thus, if the Government were to start paying off its debts, there would a simpler system, and thus less reason for the great unwashed to pay financial types fees to invest their money.
Mr. Mauldin is on the more conservative side of the spectrum, so his major point is to keep the Bush tax cuts. Presumably he will do well with that personally, and so will his clients. Others such as Nouriel Roubini always pound the drums for eternal depression, and their solution is greater government spending.
Neither of those camps address the overriding problem of creating a stable financial system. If society wants Sweden or wants Hong Kong, it can have either, but it can't have Swedish social benefits (plus war in Eastasia) with a Hong Kong-level of Federal income (14% of GDP at latest count). Continuing the giant deficits is great for financial types and keeps the Roubini Global Economics business thriving as well.
On the other side of the financial sea from debt-based finance and money printing is gold. The media is all over that one. Barron's is out today with the Abelson article titled A Contrarian's View of Gold.
The "contrarian" works not for some small contrarian enterprise in Nowheresville, but rather for the globe-girdling Bank Credit Analyst. No evidence in the article indicates why this gentleman is called a contrarian at all. The article goes so far as to point out that the negative view on gold that Mr. Berezin espouses is not contrarian at all. To wit:
. . .he gets some support from Barclays Capital's latest commodity forecasts, which sees gold averaging $1,195 an ounce this year, $1,180 next year, $1,010 in 2012 and $850 for "the long-term."
Oh, those wild-eyed crazies at Barclays! Always taking the non-consensus point of view (NOT).
Why is Mr. Berezin negative on gold? Because he expects:
1) An increase in real interest rates, which he feels are bound to rise as the global economy continues to recover.
2) A decline in inflation expectations. Disinflation, he notes, is "gold's archenemy" and, he believes, over the next few years, deflation is the biggest risk.
We should stop right here. What actually happened to real interest rates in the U. S. at least in the Ponzi boom of 2005-7/8 was that real interest rates dropped to zero as inflation surged to at least 5%. In fact, a sign that the boom was built on sand was in fact that the economy could not even tolerate truly restrictive interest rates, unlike the economy of 1980-2. So his idea that real interest rates will rise with a boom is unlikely, given tattered balance sheets all over. Re inflation expectations, well he's a better man than anyone else if he is suggesting you invest on what expectations will be. Predicting facts is hard enough; expectations are second derivative stuff.
He also sees:
. . . the greenback as "among the best houses in a bad neighborhood" that, over time, will strengthen against the euro and the yen, sparking a reassertion of the negative trend between bullion and the trade-weighted dollar index.
My view is different. It is in line with Bill Fleckenstein, and certain bloggers such as Econophile, who see money printing and stagflation as reasonably likely.
The powers that run America financially are great powers. They say that they will do everything they can to make sure that deflation does not take root here. With the lowest short term rates in America and globally in history and 3% Treasury rates despite massive supply, you can expect either a strong economy to put all the monetary stimulus waiting in reserve to start stimulating pricing power and/or more money printing to purchase more financial assets, some of which new money will filter out to the real economy.
What would really be bad for gold, as it was 30 years ago, would be true tight money policies, plus a revival of pro-entrepreneurial policies. Since these are not likely to be forthcoming from Washington any time soon, it makes sense to resist the growing media pressure from multiple sides of the economic-political spectrum that deflation is a serious threat and prepare for a resumption of something like 2003-7.
And to be aware that as in that era, the defining characteristic was a crash.
I suspect that another crash is coming. I just don't know when.
Copyright (C) Long Lake LLC 2010
Tuesday, May 19, 2009
Cash is Trash When You Can Make 8% in One Day As Your Company Lowers Its Sales Guidance
Lowe's, a well-regarded chain of home improvement items, reported Monday. Earnings c/w last year were down from $0.42 to 0.32/share. SG&A rose a substantial 219 basis points. The company lowered its sales estimate for the year ending Jan. 2010 marginally, still about no sales growth projected, but for some reason the company insists on opening lots of new stores, even though same store sales growth has been and is projected to be sharply down.
In keeping with the times, readers will not be surprised to learn that about 16 years of interest on 2-year Treasury bills were "earned" in one day by holders of Lowe's stock, which rose 8% in one day.
Markets are moving divorced from fundamentals.
To demonstrate how hard it is to predict the future, Zero Hedge reported Monday in The Japanese don't think the crisis is THAT bad that at least for the past 27 years, consumer confidence in Japan has been virtually continuously below the neutral 50 mark.
What we know about the present is that in order for PPIP to be implemented, the Government must certify that an emergency exists to allow the FDIC to backstop the giveaways to the hedge funds. The markets are acting as if there is no emergency. Yet the Federal Reserve, which is either a public institution when it is convenient to be that and a private institution when that is convenient, and which for some reason has been granted the right to print Federal Reserve notes that are used as "money", is printing money to help finance the Federal debt and the mortgage markets, while Federal revenues plummet and Federal expenditures skyrocket.
On a mark-to-market basis, what is the Fed's net worth? How leveraged is it?
We may not want to learn this answer that the Fed will in any case not willingly tell us.
Copyright (C) Long Lake LLC 2009
In keeping with the times, readers will not be surprised to learn that about 16 years of interest on 2-year Treasury bills were "earned" in one day by holders of Lowe's stock, which rose 8% in one day.
Markets are moving divorced from fundamentals.
To demonstrate how hard it is to predict the future, Zero Hedge reported Monday in The Japanese don't think the crisis is THAT bad that at least for the past 27 years, consumer confidence in Japan has been virtually continuously below the neutral 50 mark.
What we know about the present is that in order for PPIP to be implemented, the Government must certify that an emergency exists to allow the FDIC to backstop the giveaways to the hedge funds. The markets are acting as if there is no emergency. Yet the Federal Reserve, which is either a public institution when it is convenient to be that and a private institution when that is convenient, and which for some reason has been granted the right to print Federal Reserve notes that are used as "money", is printing money to help finance the Federal debt and the mortgage markets, while Federal revenues plummet and Federal expenditures skyrocket.
On a mark-to-market basis, what is the Fed's net worth? How leveraged is it?
We may not want to learn this answer that the Fed will in any case not willingly tell us.
Copyright (C) Long Lake LLC 2009
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