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
Showing posts with label Bill Fleckenstein. Show all posts
Showing posts with label Bill Fleckenstein. Show all posts
Saturday, July 24, 2010
Friday, November 13, 2009
Bernanke's Lever
How is it possible for 3 often negatively-correlated asset classes to rise simultaneously when neither has been oversold via a selling crisis?
The answer, my friends, is blowing in the Fed.
Leverage is back. Stocks and the long Treasury each rose 1/2% in price today, while gold made up for a one-day "correction" and rose will over 1%. Platinum was very strong, and silver was strong. Metals buyers know that with labor in oversupply, commodities prices can rise without having much effect on "inflation".
Richard Russell, dean of technicians, has a writeup on gold out (h/t Credit Writedowns and Prieur du Plessis). In an excerpt of his Dow theory Letters, he lists 6 reasons to buy gold and for those who would like a concise rundown of the major themes amongst longer-term gold investors and speculators (such as yours truly), his is a good writeup. Interestingly, at the end of the excerpt he quotes from another technician who, as I did last week, questioned whether the gap up following the news that India was buying was a short-term sign of too much froth. It's welcome to see that I was in good company in smelling a setback that never came.
When almost every asset class is going up, then in at least a Zen sense, nothing is going up. There is too much speculation based on cheap printed or electronically-created money, much of it then lent and relent to drive prices higher.
In the meantime, the financials have been notable underperformers. Citi and BofA stocks are below downward-sloping 50 day moving averages. JPM is close. Worse, two smaller (but large) financial services companies I use as canaries in the coal mine are UMB Financial and Northern Trust (UMBF and NTRS). Each has thoroughly broken down judged by moving averages. While Northern Trust provided the mortgage on Barack Obama's home, my sense is that it is cleaner as an institution than the megabanks; it repaid its TARP money quickly. Everyone knows the financials have troubles; we will find out if that it in the stocks.
So far as new leadership, it's hard to say. I'd be very cautious about tech. It presaged the stock recovery via superior relative strength and the former successful bear Bill Fleckenstein (now a precious metals bull) has said recently that he's seeing double ordering in the tech sector and is preparing to short stocks when they are technically ready. Aside from gold, old stalwarts such as MCD and IBM are the belles of this ball. Leadership has changed, as it should, from speculative stuff to giants with large international presences and no problem accessing credit whenever they want.
Dr. Bernanke may be like Archimedes, who would have moved the world but for want of a lever. The Fed can provide an "elastic currency", but that does not guarantee sustainable economic growth. Even bigger and better levers come for the people themselves.
For now, the Street is partying as if it were 2000 and something. Are we already close to October 2007 and another economic and stock market peak? I hope not but would go with quality first and foremost.
Copyright (C) Long Lake LLC 2009
The answer, my friends, is blowing in the Fed.
Leverage is back. Stocks and the long Treasury each rose 1/2% in price today, while gold made up for a one-day "correction" and rose will over 1%. Platinum was very strong, and silver was strong. Metals buyers know that with labor in oversupply, commodities prices can rise without having much effect on "inflation".
Richard Russell, dean of technicians, has a writeup on gold out (h/t Credit Writedowns and Prieur du Plessis). In an excerpt of his Dow theory Letters, he lists 6 reasons to buy gold and for those who would like a concise rundown of the major themes amongst longer-term gold investors and speculators (such as yours truly), his is a good writeup. Interestingly, at the end of the excerpt he quotes from another technician who, as I did last week, questioned whether the gap up following the news that India was buying was a short-term sign of too much froth. It's welcome to see that I was in good company in smelling a setback that never came.
When almost every asset class is going up, then in at least a Zen sense, nothing is going up. There is too much speculation based on cheap printed or electronically-created money, much of it then lent and relent to drive prices higher.
In the meantime, the financials have been notable underperformers. Citi and BofA stocks are below downward-sloping 50 day moving averages. JPM is close. Worse, two smaller (but large) financial services companies I use as canaries in the coal mine are UMB Financial and Northern Trust (UMBF and NTRS). Each has thoroughly broken down judged by moving averages. While Northern Trust provided the mortgage on Barack Obama's home, my sense is that it is cleaner as an institution than the megabanks; it repaid its TARP money quickly. Everyone knows the financials have troubles; we will find out if that it in the stocks.
So far as new leadership, it's hard to say. I'd be very cautious about tech. It presaged the stock recovery via superior relative strength and the former successful bear Bill Fleckenstein (now a precious metals bull) has said recently that he's seeing double ordering in the tech sector and is preparing to short stocks when they are technically ready. Aside from gold, old stalwarts such as MCD and IBM are the belles of this ball. Leadership has changed, as it should, from speculative stuff to giants with large international presences and no problem accessing credit whenever they want.
Dr. Bernanke may be like Archimedes, who would have moved the world but for want of a lever. The Fed can provide an "elastic currency", but that does not guarantee sustainable economic growth. Even bigger and better levers come for the people themselves.
For now, the Street is partying as if it were 2000 and something. Are we already close to October 2007 and another economic and stock market peak? I hope not but would go with quality first and foremost.
Copyright (C) Long Lake LLC 2009
Monday, October 12, 2009
The Message of the Markets and a Master of the Markets on How to Allocate Assets
Skeptical minds are wondering why Bloomberg.com is running Rallying S&P 500 Never Cheaper in Europe on Dollar. I don't recommend that you read all of it. That would IMO be a waste of time. Its point can be summarized as follows: The U. S. stock market has been going nowhere in international units of money. The article is dangerous because it suggests that despite the massive inflation in asset prices of stocks, the media continues to flog them. What are we to make of the prominence given to an obscure financial researcher, as follows?
“The valuation for the market is still below normal levels,” said Jason Pride, director of research at Haverford Investments, which oversees $6 billion in Radnor, Pennsylvania. “We still believe there’s a fairly good, positive bias in the direction of the market.”
What is that valuation?
The MSCI World was valued at 27.7 times the earnings of its 1,659 companies in September, exceeding the S&P 500’s ratio by 7.75 points, according to monthly data compiled by Bloomberg.
In other words, global stock markets are at bubble valuations. The U. S., the epicenter of the latest global financial crisis, is merely at fully-priced valuations that were sustained for a while in the 1950s but still has emergency zero short rates in place because . . . supposedly there's a crisis.
Meanwhile, as I complete this post, GLD is up 0.80% and SPY is up 0.6%. Quietly, gold continues its outperformance. Someone is accumulating it and has been doing so ever since the U. S. began a guns and butter-type economy following the 9/11 attacks. In general, the collective accumulator is to some degree the public via exchange traded funds, but the signs of a peak in public enthusiasm for gold are not very visible. Check out the small ETF with the symbol GTU to see that it is only today even beginning to emerge from a bearish chart pattern of several months duration, despite the bullish configuration from the better known ETF GLD for quite some time. If the public were fully engaged, GTU should have been flying.
Technically, gold has no overhead resistance. Think stocks, circa late 1982 or early-mid Clinton years. Fundamentally vs. other asset prices, gold is neither overvalued nor undervalued. More fundamentally, the massive Federal deficit is a gift that keeps on giving. So, it is not hard to see gold moving toward a richer valuation, and possibly an over-rich one (think NASDAQ late 1990s). IF that happens, then it would be a "don't buy" or "sell". But that has not happened yet and may not.
To conclude with a quote from John Paulson (from Your dollars are just Monopoly money by Bill Fleckenstein), the hedge fund manager who made billions in 2007-8 largely from shorting subprime at the right time:
"What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where is gold going to be vis-à-vis the dollar one year from now, three years from now, five years from now. And I think, with a high probability at each of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go. So when I look at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point."
If by 2012 it is Springtime in America again and Barack Obama is headed for a 49 state electoral sweep because the economy is growing and adding lots of jobs and he has justified winning the Nobel Peace Prize, and therefore my gold holdings have underperformed inflation, I will be so happy for my children and for the majority of my assets that are not gold that I will be a happier person than if times stay unsettled and I own gold that continues to outperform cash and stocks.
In other words, one does not have to be a "gold bug" to own gold. One simply has to ignore the spin from the MSM and focus on facts and preservation of purchasing power of one's mostly electronic assets we call money.
Copyright (C) Long Lake LLC 2009
“The valuation for the market is still below normal levels,” said Jason Pride, director of research at Haverford Investments, which oversees $6 billion in Radnor, Pennsylvania. “We still believe there’s a fairly good, positive bias in the direction of the market.”
What is that valuation?
The MSCI World was valued at 27.7 times the earnings of its 1,659 companies in September, exceeding the S&P 500’s ratio by 7.75 points, according to monthly data compiled by Bloomberg.
In other words, global stock markets are at bubble valuations. The U. S., the epicenter of the latest global financial crisis, is merely at fully-priced valuations that were sustained for a while in the 1950s but still has emergency zero short rates in place because . . . supposedly there's a crisis.
Meanwhile, as I complete this post, GLD is up 0.80% and SPY is up 0.6%. Quietly, gold continues its outperformance. Someone is accumulating it and has been doing so ever since the U. S. began a guns and butter-type economy following the 9/11 attacks. In general, the collective accumulator is to some degree the public via exchange traded funds, but the signs of a peak in public enthusiasm for gold are not very visible. Check out the small ETF with the symbol GTU to see that it is only today even beginning to emerge from a bearish chart pattern of several months duration, despite the bullish configuration from the better known ETF GLD for quite some time. If the public were fully engaged, GTU should have been flying.
Technically, gold has no overhead resistance. Think stocks, circa late 1982 or early-mid Clinton years. Fundamentally vs. other asset prices, gold is neither overvalued nor undervalued. More fundamentally, the massive Federal deficit is a gift that keeps on giving. So, it is not hard to see gold moving toward a richer valuation, and possibly an over-rich one (think NASDAQ late 1990s). IF that happens, then it would be a "don't buy" or "sell". But that has not happened yet and may not.
To conclude with a quote from John Paulson (from Your dollars are just Monopoly money by Bill Fleckenstein), the hedge fund manager who made billions in 2007-8 largely from shorting subprime at the right time:
"What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where is gold going to be vis-à-vis the dollar one year from now, three years from now, five years from now. And I think, with a high probability at each of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go. So when I look at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point."
If by 2012 it is Springtime in America again and Barack Obama is headed for a 49 state electoral sweep because the economy is growing and adding lots of jobs and he has justified winning the Nobel Peace Prize, and therefore my gold holdings have underperformed inflation, I will be so happy for my children and for the majority of my assets that are not gold that I will be a happier person than if times stay unsettled and I own gold that continues to outperform cash and stocks.
In other words, one does not have to be a "gold bug" to own gold. One simply has to ignore the spin from the MSM and focus on facts and preservation of purchasing power of one's mostly electronic assets we call money.
Copyright (C) Long Lake LLC 2009
Thursday, October 8, 2009
In Tangibles
A nice, concise bullish post on gold by Bill Fleckenstein. The ending quote is from one of the obvious financial geniuses of our time, John Paulson, who made himself and his investors billions by shorting subprime residential real estate at the right time.
The more that New York publications such as The New Yorker lionize Wall Street's great friend Larry Summers, the more you should fear for the financial future of this country. (For a HuffPo critique of that article, click HERE.) And the more you should consider owning tangible things rather than derivatives of those things, including publicly owned stocks.
Copyright (C) Long Lake LLC 2009
The more that New York publications such as The New Yorker lionize Wall Street's great friend Larry Summers, the more you should fear for the financial future of this country. (For a HuffPo critique of that article, click HERE.) And the more you should consider owning tangible things rather than derivatives of those things, including publicly owned stocks.
Copyright (C) Long Lake LLC 2009
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