[quote]hedo wrote:
Economists and analysts are almost always wrong. I’ve always been a contrarian and made plenty of good money being that way.[/quote]
Yeah, but stocks in general got crushed after reaching those lofty PE ratios. Note: I like stocks with low PE, no debt, and increased earnings the last 10 years. Any pointers?
[quote]hedo wrote:
Economists and analysts are almost always wrong. I’ve always been a contrarian and made plenty of good money being that way.[/quote]
This is one of the reasons I am long the dollar and short gold. We are currently in a retracement, but I believe the overall trend in the coming year is a rising dollar and falling gold.
Why?
Is the dollar going to become more scarce?
Or is it that more are going to demand to hold dollars instead of other currencies? If so, why?
[quote]Bill Roberts wrote:
Why?
Is the dollar going to become more scarce?
Or is it that more are going to demand to hold dollars instead of other currencies? If so, why?[/quote]
Bill, I will be very glad to answer your question. You always answer mine, but it will have to be in the morning for a better version. My Ambian is starting to kick in and the screen starts to look 3D.
Short version for now, DEFLATION.
Everyone wants to talk about all the money the fed has injected in the economy. They have really just parked in in banks. It isn’t circulating. No one is, borrowing or lending. Until it circulates, it doesn’t inflate.
Second, when the second shoes of commercial real estate and Sovereign funds start to crack, people will rush back to the dollar. People forget that most dept is denominated in dollars. When the rest of the foundation starts to crack, you will see fire sales to raise dollars.
Dollar will be king again. At least for a little while. Strong dollar and deflationary economy, gold is going down.
Or, as they say, I could be full of shit…
I’m no expert on the subject but it would seem to me that deflation is easily enough avoided, particularly with a love-to-spend President and Congress, just as it was avoided (to say the least) in the Carter years. Is there a change as to where that is now impossible, or – at least as a low inflation scenario – definitely not seen as more desirable than deflation by the powers that be?
It would seem to me that the last thing that would be wanted would be for unfunded future obligations to become worth even more than they will be worth at a constant dollar, let alone an inflated dollar. Why compound the already-horrible problem by allowing deflation?
[quote]JEATON wrote:
[quote]Bill Roberts wrote:
Why?
Is the dollar going to become more scarce?
Or is it that more are going to demand to hold dollars instead of other currencies? If so, why?[/quote]
Bill, I will be very glad to answer your question. You always answer mine, but it will have to be in the morning for a better version. My Ambian is starting to kick in and the screen starts to look 3D.
Short version for now, DEFLATION.
Everyone wants to talk about all the money the fed has injected in the economy. They have really just parked in in banks. It isn’t circulating. No one is, borrowing or lending. Until it circulates, it doesn’t inflate.
Second, when the second shoes of commercial real estate and Sovereign funds start to crack, people will rush back to the dollar. People forget that most dept is denominated in dollars. When the rest of the foundation starts to crack, you will see fire sales to raise dollars.
Dollar will be king again. At least for a little while. Strong dollar and deflationary economy, gold is going down.
Or, as they say, I could be full of shit…[/quote]
The velocity of money is extremely low. A good analogy for what we have is soaring Testosterone (increase in $$$ supply) but very low BIOAVAILABLE testosterone – it doesn’t matter how much T we inject, its the bioavailabilty that counts. And deflation may be in the cards afterall.
Combine that with the collapsing Euro (looks bad now) and people just might flee into the dollar.
My guess is that some of that fleeing capital will flee into both dollars and gold.
[quote]Bill Roberts wrote:
I’m no expert on the subject but it would seem to me that deflation is easily enough avoided, particularly with a love-to-spend President and Congress, just as it was avoided (to say the least) in the Carter years. Is there a change as to where that is now impossible, or – at least as a low inflation scenario – definitely not seen as more desirable than deflation by the powers that be?
It would seem to me that the last thing that would be wanted would be for unfunded future obligations to become worth even more than they will be worth at a constant dollar, let alone an inflated dollar. Why compound the already-horrible problem by allowing deflation?[/quote]
I make no claims of being an expert, but I have put more time into it than the average. If inflation and deflation were that easy to control, then our economy would always hum along with small tweaks from time to time. I imagine a sound equalizer with twenty or so slides. Small adjustments and everything sings.
The problem is that the set up for deflation occurs over an extended time frame, and the knee jerk reactions by congress and the fed slap it into high gear. I was trying to find a source that said it better than myself. Did not find a perfect one, but the following info comes from Robert Prechter.
"Many commentators talk about inflationary forces running rampant. We all know that the Fed created $1.4 trillion new dollars in 2008. It has told the world that it will inflate to save the monetary system. So that is the news post people hears.
But the Fed’s dramatic money creation in 2008 only seenms to force inflation because people focus on the one side of the Fed action. Even though the Fed created a lot of new money, it did not affect the total amount of money-plus-credit one bit, because the other side of the action is equally deflationary. When the Fed buys a Treasury bond, net inflation occurs, because it simply monetizes the gov’s brand new IOU. But in 2008, in order for the Fed to add $1.4 trillion new dollars to the monetary system, it removed exactly the same value of IOU dollars from the market. It has since retired some of this money, leaving a net of about $1.3 trillion. So investors, who previously held $1.3 t. worth of IOU’s for dollars now hold $1.3 t. worth of dollars. They are no longer debt investors but money holders. The net change in the money plus credit supply is zero. The Fed simply retired (temporarily, it hopes) a certain amount of debt and replaced it with money. In fact, if the Fed is to be believed, it desperately wants to sell the rest of these securities and retire the money. I doubt it will happen, but it doesn’t much matter to inflation either way.
In currency based monetary systems, the creation of new banknotes causes, indeed forces, inflation. Likewise, the monetization of new government debt creates permanent inflation practically speaking. (Theoretically, the gov could retire its debt, but it never does.) But when the Fed simply swaps money for previously existing debt, there is not net change in the amount of dollar-based “purchasing power” on the planet.
The theory among monetarists is that these new dollars are hot money that creditors can now re-lend. Thus, it will multiply throughout the banking system. At first it might seem that new money in banks’ hands should be
I will for one remain optimistic. 2010 will be a great Year! The beginning of an economic recovery lasting through 2012 to be back humming along.
This is a decent article on deflationary factors in the economy.
Gregus, I hope you are right. It is not my nature to be overly pessimistic. I guess I know just enough to be nervous and not enough to know what to do about it.
[quote]Gregus wrote:
I will for one remain optimistic. 2010 will be a great Year! The beginning of an economic recovery lasting through 2012 to be back humming along. [/quote]
“During the year, the Dallas FED estimated the financial obligations of the US government at 99 trillion dollars. The head of the TARP program estimated the bailout cost at 24 trillion dollars. Totaled together the US has in the neighborhood of 120 trillion dollars of current and future obligations on an annual revenue of around 2 trillion dollars which is falling due to high unemployment, higher state and local taxes and fees and lower wages.”
http://www.marketoracle.co.uk/Article16189.html#comment87929
[quote]Headhunter wrote:
“During the year, the Dallas FED estimated the financial obligations of the US government at 99 trillion dollars. The head of the TARP program estimated the bailout cost at 24 trillion dollars. Totaled together the US has in the neighborhood of 120 trillion dollars of current and future obligations on an annual revenue of around 2 trillion dollars which is falling due to high unemployment, higher state and local taxes and fees and lower wages.”
http://www.marketoracle.co.uk/Article16189.html#comment87929[/quote]
This right here is why we are going to see inflation. They are going to print the money to pay for all of this.
We got what almost 600 billion guaranteed to be injected into the market this year, and maybe an additional 200 billion from the left over tarp.
We are going to see the Commercial real estate bubble pop(it started in Dubai). When that happens expect more of the same of them trying to re-inflate bubble/bail out with printed money.
We already have inflation in the market, that is why food prices are stable/going up when it should be falling like a rock in water.
How do I protect myself against a dollar run amok vs the swedish krona?
I get a fixed amount from Sweden every quarter, and I use it for daily life (groceries, gas, insurance)
Should I withdraw now, when the Sw.krona is relatively strong, or do you guys expect the dollar to fall more, before it rebounds?
Funny question, I know, just thought I would throw it out there!
I’d say ride that horse as long as it is working for you. When it stops, change.
The dollar may have a few days to weeks of retracement before it resumes an upper climb (if I’m right).
[quote]Headhunter wrote:
[quote]hedo wrote:
Economists and analysts are almost always wrong. I’ve always been a contrarian and made plenty of good money being that way.[/quote]
Yeah, but stocks in general got crushed after reaching those lofty PE ratios. Note: I like stocks with low PE, no debt, and increased earnings the last 10 years. Any pointers?
[/quote]
Buy the ones that have been really beat up. Banks were good, real estate, even oil. The more bad news the better, it puts good companies on sale and sets them up for a rebound.
IMO I see the market moving up now maybe 5-10%, but when and if the government starts to remove the money from the system we will see a little hang over and the market will correct 15-20% but then move higher from there. Start triming positions, but not all just in case I am wrong. I see a 10-15% gain for the entire year 2010. Gold will go sideways, silver is the play for metals. Dump all Bond investments unless it is denominated in other currencies because the dollar will continue to slide and inflation will take off. Interest rates have no where to go but up. Lock in you mortgage rate at these lows. When interest rates hit the top, 10-12% interest rates, in say the 2012 then it will be the time to buy bonds, and hard assets like real estate.
These are my opinions and please do your own home work before buying any investments. Investments assume risk so please check propestuses for fees and other charges. If I am missing any other restrictions please insert here.
[quote]Headhunter wrote:
[quote]hedo wrote:
Economists and analysts are almost always wrong. I’ve always been a contrarian and made plenty of good money being that way.[/quote]
Yeah, but stocks in general got crushed after reaching those lofty PE ratios. Note: I like stocks with low PE, no debt, and increased earnings the last 10 years. Any pointers?
[/quote]
Yeah, rethink how you calculate PE.
Expected inflation should be calculated into both P and E, compared to stocks pegged to other currencies. An inflated currency will cut into dividends and profit from sale without you even knowing it.
So factor in how you think the dollar will do compared to other currencies. If you think Canadian currency will gain on the dollar, then stocks pegged to that currency will be a better bet, even if the spot PE seems a little less attractive.
This is somewhat moot if you don’t mind buying and selling on a regular basis to keep the best PE. I prefer to do as little moving as possible. For this reason, stocks that pay dividends in a stable currency will always be preferred, even if the spot PE is a little less attractive.
[quote]JEATON wrote:
[quote]Bill Roberts wrote:
Why?
Is the dollar going to become more scarce?
Or is it that more are going to demand to hold dollars instead of other currencies? If so, why?[/quote]
Bill, I will be very glad to answer your question. You always answer mine, but it will have to be in the morning for a better version. My Ambian is starting to kick in and the screen starts to look 3D.
Short version for now, DEFLATION.
Everyone wants to talk about all the money the fed has injected in the economy. They have really just parked in in banks. It isn’t circulating. No one is, borrowing or lending. Until it circulates, it doesn’t inflate.
[/quote]
The only way we hit deflation is if money is permanently taken our circulation. Temporary hording of currency may temporarily induce deflationary effects, but it not deflation. It won’t last long either.
Banks must lend to make money. At least that used to be the case. With the fed fixing interest rates at zero nobody in there right mind would put anything into savings and banks can’t make much lending it anyway. Instead they are forced to make speculative investments, riding from bubble to bubble.
[quote]
Second, when the second shoes of commercial real estate and Sovereign funds start to crack, people will rush back to the dollar. People forget that most dept is denominated in dollars. When the rest of the foundation starts to crack, you will see fire sales to raise dollars.
Dollar will be king again. At least for a little while. Strong dollar and deflationary economy, gold is going down.
Or, as they say, I could be full of shit…[/quote]
I really don’t have an opinion on gold one way or the other, nor do I really care. What I would be concerned about is the dollar being king and people rushing back to it.
Why would I choose to lend in dollars at an interest rate much less than the rate the fed is inflating dollars? Even if interest rates are allowed to float, how on earth do I really calculate how much the fed has inflated the currency and predict future inflation?
If the printing presses keep humming, I can’t imagine the dollar keeping it’s % of debt denomination. I would expect the opposite. People will look to unload dollars, bidding up prices and showing us the real effects of the long standing inflationary policies. Those forced to lend in dollars will lend less and those that have an option not to lend in dollars, will not. Not at current rates or with some sort of gold clause. Why would they?
If interest rates are allowed to float and we stop increasing the unfunded liabilities that will undoubtedly keep the printing presses working overtime, the dollar might have a chance. What do you think the chances are of this happening anytime soon?
I could be full of shit as well. It’s been quite awhile since I have really put much thought into currency, but incalculable and unpredictable inflation can’t bode well for the dollar as the worldâ??s reserve currency. There has to be a breaking point somewhere.
[quote]dmaddox wrote:
IMO I see the market moving up now maybe 5-10%, but when and if the government starts to remove the money from the system we will see a little hang over and the market will correct 15-20% but then move higher from there. Start triming positions, but not all just in case I am wrong. I see a 10-15% gain for the entire year 2010. Gold will go sideways, silver is the play for metals. Dump all Bond investments unless it is denominated in other currencies because the dollar will continue to slide and inflation will take off. Interest rates have no where to go but up. Lock in you mortgage rate at these lows. When interest rates hit the top, 10-12% interest rates, in say the 2012 then it will be the time to buy bonds, and hard assets like real estate.
These are my opinions and please do your own home work before buying any investments. Investments assume risk so please check propestuses for fees and other charges. If I am missing any other restrictions please insert here. [/quote]
What happens when interest rates come back up? The stock market has to have benefited from near 0% interest rates. Who in there right mind would have money in a savings account? Why would a bank lend what little they do have in deposits at such a low interest rate when investments in the market pay better? That money is bidding up stock prices.
If interest rates were allowed to float, the stock market would get killed. Just look at historical savings rates compared to current savings rates. Even a 10% increase in savings rate would have a pretty significant effect on the stock market.
As long as interest rates are kept artificially low, we are in a stock market bubble. Looks even worse to me when you consider we can’t possibly continue to consume more than we make. You normalize consumer spending and savings rates and stocks will dive big time. This is precisely why interest rates are kept low and policy will continue to encourage spending vs. savings. It can’t last forever.
Currencies are difficult to get your head wrapped around. Especially when you factor in fiat bases, fractional lending, a central bank, taxes and treasury issues.
My original response was to Hedo’s statement that a contrarian stance had always served him well. Economist are always predicting the future by looking through the rear view mirror. The least expected thing at the moment is deflation, and the least expected thing is what we often get.
In truth, I hope not. Deflation is a bitch. Given the choice high inflation is the way better between two evils.
By Elliot wave theory, we haven’t completed a three-wave (A-B-C) correction yet. Expect a lot lower level later this year; maybe as low as March '09 or lower.