If buy and hold isn't dead, it is certainly hibernating with very low respirations. My grandfather was on of the best investors that I have ever seen and these markets would be driving him absolutely crazy if he were still alive. He made a lot of money by finding brand name companies paying good dividends and loading up on them. I have done a study on expanding and contracting multiples---historical multiples for certain industries etc and have found the results of my work to be useless BECAUSE IN THIS MARKET WE CAN'T DEFINE THE E. Earnings are very difficult to predict in this market and that has many investors at a loss as to how to act on a daily basis. No doubt I have lost more money on the positions that I considered to be "investments" than I ever have on those I classified as "trades". In this market, it is tough to find dividends in which you can have confidence. If I heard him say it once, I heard my grandfather say a thousand times "You own good stocks and they are paying dividends---just forget about their closing price--it'll come back" He WAS RIGHT. But he would NOT BE RIGHT in this environment. Even in today's action, while the market was going up---so were the treasuries. That tells me that this rally is fishy as investors are still seeking the safety of the treasuries.
We have been preparing for our upcoming interview with Walter "John" Williams of shadowstats.com For those of you that don't know of John, he is an economist that has predicted an upcoming period of hyperinflation and has even talked of a hyperinflationary depression. John's views are seen as radical, but he makes excellent points and always has statistics to support his forecasts. While we are not calling for a hyperinflationary depression, we respect John's views and he has been a very good friend of our show. At the end of this blog, we will post our last interview with John and you can listen and submit questions for the upcoming show. Of course we want John to answer the question as to whether he feels that the government injections are going to rebuild the balance sheets of the banks and if so why does he still see inflation. We will also want him to tell us what factors have held inflation at bay since our last visit with him--as he was forecasting hyperinflation last April.
While I am not personally looking for a hyperinflationary depression, I am looking for inflation. I am looking for a weaker dollar in 2009. I also look for gold to push higher in 2009. I want to be able to identify the catalysts that will start the inflation fire---as I am convinced that once the inflationary period begins---it will be difficult for the government to act to curb inflation once it is out of the gate.
I am hearing more and more "pundits" with sentiment for the weak dollar. On CNBC tonight even Donald Luskin was calling for a much weaker dollar. I was shocked that Luskin was taking that position. I still like a short UUP position---will be a slow mover but should produce some gains.
For those morons that have made comments and sent us emails telling us that we were wrong on some of our calls---Of course we were you mental midgets. Who in this game has not made mistakes---especially since last fall. We have been very clear as to who we are and what we are trying to accomplish. We are not registered investment advisors---we are just individual investors risking our own money trying to learn this game. And yes we have made mistakes---traders call it tuition and we have payed plenty of it this year. But every time we are wrong, we analyze it and try to make it a learning experience. We have learned over the last six months that in this environment that buy-and-hold is a dangerous game and the best way to play is to be nimble and willing to admit your mistakes and take small losses.
I am considering adding to my SRS especially if we get a move up in the morning. I believe that the current rally is very weak and I am convinced that we have more pain to be felt in the real estate arena. Our TBT call took a hit today, but I think the treasuries are the next bubble and I still like the play. Again, you have to use smart position sizing to make sure that you can stay solvent longer than the market can remain irrational.
The Fed is planning to buy $500 Billion in mortgage securities to boost the housing market. To those that are making the argument that we are just rebuilding the banks balance sheets---this could really be an effective move that begins to get some money flowing through the system again. I keep maintaining that once money begins to flow---you are going to need to open the floodgates. I have been wrong to this point, but still stand firm in my belief that we are going to see inflation by the end of this year.
We will continue to bring you as many different perspectives as we can. The last John Williams interview is posted below. Send us your questions--we are looking forward to hearing John's ideas.
I found a video that presents the exact opposite case from John Williams. This guy was on CNBC and is saying that China was the biggest beneficiary of the excess credit and is headed for a very hard landing. We will be contacting him to see if he will be willing to appear on our show. We want to get as many facts from all sides and will do our best to bring this interview to you as well.
http://www.cnbc.com/id/15840232?video=980010850
Tuesday, December 30, 2008
Monday, December 29, 2008
NO YOU CAN'T FIGHT THE FED!!!!
The old saying "You can't fight the Fed" has never been more true than it is today. It may have just taken on a little different meaning. You can't fight the Fed in this environment because their relentless printing of money will cause the value of the dollar to decline. Maybe it really had to be done to save the banking system (but right or wrong printing money will have the same effect--it will decrease the value of the dollar). I hate to continually make the weak dollar argument as it almost seems unpatriotic, but you cannot deny the effects of the Fed's recent actions. I have gotten many responses arguing that the dollar is still the world's reserve currency and will remain so as we pull out of this crisis. But is this time different? I would argue that it is. Let me say one more time that China is still growing (growth is declining, but growth is still growth). Is China poised to gain some of the market share of the "reserve currency"? They are positioning themselves to do just that.
First lets examine why we have been the world's reserve currency. First and foremost we have had a system that was characterized by stability and TRUST. Yes our system was the most trustworthy in the world. Have we compromised that lately? I would argue that these scandals are not helping our image ( and are thus weakening our credibility) and would accept the argument that the U.S Government has never and will never default and that strengthens credibility. So while our government debt will still be a safe haven, some of our corporate bonds may not be as attractive to foreign investors. China is doing a nice job of developing their own financial markets and at some point may give us a run for our money competing for the corporate debt financing. We don't have to lose our position as the world's reserve currency---but could still see a lower dollar as we lose "market share". When China runs a deficit, they have had surpluses for many years so I would argue that periods of deficit spending may actually bode well for their economy and ultimately their currency. We, on the other hand, do not have a surplus fund to fall back on, so when we run deficits, they have to be financed. Now I think that deficit spending can be healthy for an economy for short periods of time (I understand that this is not conventional wisdom and I will write more on this subject at a later time) but we look to be in the deficit mode for quite some time. Like it or not the dollar will get weaker.
Natural Gas made a nice move today and I look for that trend to be headed up. I also like the agriculture commodities right here. I like the DBA and think that while this might not be the sexiest trade on the board---it will be a very profitable one. I try to boil things down to make common sense judgements and this is one almost a no brainer. When we talk about developing countries one argument that we always hear when prices decline is that "they will never develop to our level as consumers". Ok, I will buy that argument---but they are going to eat. As they develop and have better healthcare and longer life spans, they will need more food. I think the DBA could gain 20% this year.
Since our Presidential Election we have almost had a honeymoon period where we factored zero for geopolitical risk. The images from the latest Middle East conflict are changing that and I think we are going to see a huge gain in oil. Look at the facts, we have a Russian economy that was totally being held up by high oil prices. Do you think that the Russian leaders are desperate? Putin's party remained in power for one reason and one reason only---the economy had done well under their rule. They have lost the economy over the past 6 months and if they don't get oil up soon, they will risk losing everything. Believe me, any saber that they can be rattle will be rattled over the next 6 months. Rising oil will have a negative effect on the dollar and it just starts a vicious cycle.
My favorite currency is the Swiss Franc and I like the FXF. Again, this is not a sexy trade, but slow and steady will win the race and I think this one will give steady gains.
My SRS trade worked out nicely and I took half of my position off of the table today. You can't not take profits from quick gains like this one.
Again, I wish I were sitting here with a dollar bullish story to tell, but I just can't see it. From the increasing political risk to the relentless printing of money to the fiscal stimulus to come---I see the dollar getting weaker. I don't expect it to move in a straight line, I expect volatility in everything that I have called. While I am a commodities bull, I know that we will see some sharp pullbacks in these trades. I just plan to be disciplined enough to profit from rather than get shaken out by these pullbacks.
I have said several times that I think there is a lot of money on the sidelines. Use smart money management techniques because volatility is the only certainty in these markets.
We are pleased to announce that we will be bringing you an interview with Walter "John" Williams of shadowstats.com on the week of January the 12th. John makes a compelling case for hyperinflation and always produces a very interesting and informative interview.
First lets examine why we have been the world's reserve currency. First and foremost we have had a system that was characterized by stability and TRUST. Yes our system was the most trustworthy in the world. Have we compromised that lately? I would argue that these scandals are not helping our image ( and are thus weakening our credibility) and would accept the argument that the U.S Government has never and will never default and that strengthens credibility. So while our government debt will still be a safe haven, some of our corporate bonds may not be as attractive to foreign investors. China is doing a nice job of developing their own financial markets and at some point may give us a run for our money competing for the corporate debt financing. We don't have to lose our position as the world's reserve currency---but could still see a lower dollar as we lose "market share". When China runs a deficit, they have had surpluses for many years so I would argue that periods of deficit spending may actually bode well for their economy and ultimately their currency. We, on the other hand, do not have a surplus fund to fall back on, so when we run deficits, they have to be financed. Now I think that deficit spending can be healthy for an economy for short periods of time (I understand that this is not conventional wisdom and I will write more on this subject at a later time) but we look to be in the deficit mode for quite some time. Like it or not the dollar will get weaker.
Natural Gas made a nice move today and I look for that trend to be headed up. I also like the agriculture commodities right here. I like the DBA and think that while this might not be the sexiest trade on the board---it will be a very profitable one. I try to boil things down to make common sense judgements and this is one almost a no brainer. When we talk about developing countries one argument that we always hear when prices decline is that "they will never develop to our level as consumers". Ok, I will buy that argument---but they are going to eat. As they develop and have better healthcare and longer life spans, they will need more food. I think the DBA could gain 20% this year.
Since our Presidential Election we have almost had a honeymoon period where we factored zero for geopolitical risk. The images from the latest Middle East conflict are changing that and I think we are going to see a huge gain in oil. Look at the facts, we have a Russian economy that was totally being held up by high oil prices. Do you think that the Russian leaders are desperate? Putin's party remained in power for one reason and one reason only---the economy had done well under their rule. They have lost the economy over the past 6 months and if they don't get oil up soon, they will risk losing everything. Believe me, any saber that they can be rattle will be rattled over the next 6 months. Rising oil will have a negative effect on the dollar and it just starts a vicious cycle.
My favorite currency is the Swiss Franc and I like the FXF. Again, this is not a sexy trade, but slow and steady will win the race and I think this one will give steady gains.
My SRS trade worked out nicely and I took half of my position off of the table today. You can't not take profits from quick gains like this one.
Again, I wish I were sitting here with a dollar bullish story to tell, but I just can't see it. From the increasing political risk to the relentless printing of money to the fiscal stimulus to come---I see the dollar getting weaker. I don't expect it to move in a straight line, I expect volatility in everything that I have called. While I am a commodities bull, I know that we will see some sharp pullbacks in these trades. I just plan to be disciplined enough to profit from rather than get shaken out by these pullbacks.
I have said several times that I think there is a lot of money on the sidelines. Use smart money management techniques because volatility is the only certainty in these markets.
We are pleased to announce that we will be bringing you an interview with Walter "John" Williams of shadowstats.com on the week of January the 12th. John makes a compelling case for hyperinflation and always produces a very interesting and informative interview.
Sunday, December 28, 2008
Money---Supply, Velocity, and Loss of
We all know that the money supply has been increasing, and many have been surprised at the decline in prices that has accompanied the recent "growth" of the money supply. We all know that inflation is a monetary phenomenon, Right? Yes that is right, but lets take a closer look at what is happening with the money supply and the velocity of money. If inflation is a monetary phenomenon and money supply is increasing, why aren't we already seeing inflation? During the time that the money supply has been growing the velocity of money has been declining---at an alarming rate. Why has the velocity declined. Financial innovations---such as those nasty Collateralized Debt Obligations (CDO's) increased the velocity of money. These innovations were "productively" increasing the velocity of money when they were created and when all was well with their value. As the credit crisis evolved--we had to unwind all of the "productivity" that was gained through the use of these "darling turned ugly duckling instruments". This unwind took its toll on the velocity of money and the real damage will be the unseen damage that is yet to come. What unseen damage? The damage that will be done as the velocity of money declines as these instruments are "cleaned up". The decline in velocity caused by the unwind of these instruments has contributed to the false sense of "deflation" that has gotten so much attention from many "talking heads" lately. We know, through both common sense and historical numbers that the velocity of money declines during recessions---sometimes sharply. During a NORMAL economic cycle, the decrease in velocity would be normal as central banks would increase the money supply, get the economy going again and then the velocity would again rise.
This credit crisis was anything but normal---in fact I would argue that we have not seen a normal cycle since the Greenspan era began. So why is this time different? Because we are going to overshoot to the downside of velocity? Does consumer confidence contribute to the velocity? You bet it does. If consumers are afraid they will spend less which have a contraction effect. Now stay with me---I know I sound like I am contradicting myself. You may say, Ok if velocity goes down more than normal this time--SO WHAT? Well the more it goes down, the more we will increase the money supply without seeing the effect of inflation. BUT VELOCITY WILL RETURN TO ITS MEAN. IT WILL NORMALIZE---AND THEN IT WILL BE IMPACTING A MUCH LARGER SUPPLY OF MONEY.
What is worse, we are going to see an unprecedented combination of the concurrently falling dollar and falling velocity. Let me give a simplified example to show why I think this phenomenon is going to cause our markets turmoil in the near future. We know that when the money supply is increased more dollars are chasing finite numbers of goods and hence we have inflation. Assuming the exact same numbers of goods, you can create more money supply and not have inflation if the velocity of money decreases. As a matter of fact, the decrease in velocity is EXACTLY what has caused the recent decline in prices. It is just not that simple. The money supply has increased and as our dollar falls in value, we are going to see demand for our goods and services increase. Right now this is not the case as all we can hear about are layoffs and the next impending manufacturing crisis. But it is going to be the case as our exports increase.
So as we increase our exports, we will increase the velocity of money. Balance sheets of companies will improve and the banks will begin to lend money. And then those CDO's---you know the ones that have been virtually written down to zero on most of the banks balance sheets--might wind up having value again. Say it ain't so--you mean WRITE UPS after all we have heard about since the sub-prime debacle began has been write downs. Yes, it is entirely possible. And what happens at that juncture? Further increase in velocity of money. MORE INFLATION.
We definitely have a false sense that inflation is going to be contained. We don't have inflation right now---but just as fast as we paid the price for living in excess during the past decades--we will pay for the inflation that is to come. During the summer when oil prices were increasing so rapidly, I had an interesting conversation with a friend that owns an oil distributorship and convenience stores. I asked him if he was rolling in the dough with high gas prices and seemingly endless demand. He was so disturbed as he explained that gasoline prices were increasing so fast that by the time he could sell one "load" it was costing him the profits on that load just to put another load in the ground. I see many U.S. corporation getting caught in this trap in the future. Sales might be great, but if you have to keep pumping all or more of your profits in to your next round of inventory, it is very very hard to make a profit.
I bought SRS on Friday as I just can't see anything good in the future for commercial real estate. Retailers are in trouble and rental rates are most certainly going lower---if not going away for many of the commercial real estate companies. At the time of this writing, the futures are down and I expect light volumes through the week and perhaps even into the new year. Gold is up in overseas trade and I expect it to hit $1000 in the very near future.
This credit crisis was anything but normal---in fact I would argue that we have not seen a normal cycle since the Greenspan era began. So why is this time different? Because we are going to overshoot to the downside of velocity? Does consumer confidence contribute to the velocity? You bet it does. If consumers are afraid they will spend less which have a contraction effect. Now stay with me---I know I sound like I am contradicting myself. You may say, Ok if velocity goes down more than normal this time--SO WHAT? Well the more it goes down, the more we will increase the money supply without seeing the effect of inflation. BUT VELOCITY WILL RETURN TO ITS MEAN. IT WILL NORMALIZE---AND THEN IT WILL BE IMPACTING A MUCH LARGER SUPPLY OF MONEY.
What is worse, we are going to see an unprecedented combination of the concurrently falling dollar and falling velocity. Let me give a simplified example to show why I think this phenomenon is going to cause our markets turmoil in the near future. We know that when the money supply is increased more dollars are chasing finite numbers of goods and hence we have inflation. Assuming the exact same numbers of goods, you can create more money supply and not have inflation if the velocity of money decreases. As a matter of fact, the decrease in velocity is EXACTLY what has caused the recent decline in prices. It is just not that simple. The money supply has increased and as our dollar falls in value, we are going to see demand for our goods and services increase. Right now this is not the case as all we can hear about are layoffs and the next impending manufacturing crisis. But it is going to be the case as our exports increase.
So as we increase our exports, we will increase the velocity of money. Balance sheets of companies will improve and the banks will begin to lend money. And then those CDO's---you know the ones that have been virtually written down to zero on most of the banks balance sheets--might wind up having value again. Say it ain't so--you mean WRITE UPS after all we have heard about since the sub-prime debacle began has been write downs. Yes, it is entirely possible. And what happens at that juncture? Further increase in velocity of money. MORE INFLATION.
We definitely have a false sense that inflation is going to be contained. We don't have inflation right now---but just as fast as we paid the price for living in excess during the past decades--we will pay for the inflation that is to come. During the summer when oil prices were increasing so rapidly, I had an interesting conversation with a friend that owns an oil distributorship and convenience stores. I asked him if he was rolling in the dough with high gas prices and seemingly endless demand. He was so disturbed as he explained that gasoline prices were increasing so fast that by the time he could sell one "load" it was costing him the profits on that load just to put another load in the ground. I see many U.S. corporation getting caught in this trap in the future. Sales might be great, but if you have to keep pumping all or more of your profits in to your next round of inventory, it is very very hard to make a profit.
I bought SRS on Friday as I just can't see anything good in the future for commercial real estate. Retailers are in trouble and rental rates are most certainly going lower---if not going away for many of the commercial real estate companies. At the time of this writing, the futures are down and I expect light volumes through the week and perhaps even into the new year. Gold is up in overseas trade and I expect it to hit $1000 in the very near future.
Saturday, December 27, 2008
Gold and Oil in 2009
So many are saying that it will be great to end 08 and begin 2009 as if the fundamental were going to drastically change as the ball drops on December 31st. Sadly enough many investors will refuse to look at the truth and will happily find data points to interpret their "wishes". The simple fact is that gold is headed up and the dollar is headed down. I wish that I were sitting here stating the facts that we were headed into a bull market because of the fundamentals---but I AM NOT. I often draw criticism in the form of comments and emails from people who simply state things such as "You are wrong" "You are going to lose tons" and other petty comments that offer no argument as to what is really happening in the markets. I find that these comments come from those who are already frustrated with their investments and simply don't like where I see things headed. They fire back because they are not hearing what they WANT TO HEAR. Wanting does not make money---holding and wishing tends to cause more losses.
I believe that Gold broke out on Friday. I expect gold to break the $1000 mark in the first quarter of 2009. The fundamentals for gold are painstakingly obvious. Our government has been printing paper money and is weakening the value of the dollar. Seriously, if you were an outside investor and you looked at the fundamentals of our economy---would you really call the dollar a wise investment. Would you really purchase the common stock of a company that had just made a huge secondary offering? One that would be very dilutive and utilized the funds for past ills, rather than for future growth? I certainly would not, and this is a very good analogy as to the fundamentals of the dollar. One may argue that it holds certain inherent value "goodwill" so to speak as the worlds reserve currency. Do investors hold the best "brand" stocks as the fundamentals deteriorate? Perhaps they hold on to the best brand "longer" than the rest, but not forever. The dollar will decline, it may see pockets of strength that serve as headfakes, but the overall trend for the dollar is definitely down. This is creating the fundamental basis for perhaps the greatest bull run in commodities in history with gold leading the way.
The Bernie Madoff scandal only strengthens my already solid basis for believing in gold. Gold is a store of value in every country throughout the world and with scandals such as the recent one with Madoff, more investors are looking for that safe place to store their value.
Many people ask me if my views are extremely bearish for all U.S. stocks because of my views on the dollar. Overall, I am bearish on equities even though I think we are going to see a strong bear market rally in the near future. Many equities are going to continue to see multiple contraction and get cheaper. I like FCX as I believe that gold is going to make a run and I expect copper rebound during the year. The company is well run and got ahead of their game by cutting their dividend. They have a strong balance sheet and will see a vastly improved economic environment through 2009 as compared to the latter half of 2008. I am counting on this one as a double for 2009.
Energy equities are another excellent place to be in a declining dollar environment. Make no mistake, the oil trade will be tricky---especially in the short run. The spot market is lower than the front month futures and most experts will tell you that this is bearish in the near term. I am more concerned with the intermediate to long term with respect to oil. When oil made its run from $115 up to its peak of over $140, the equities such as Exxon, Chevron, etc did not make a corresponding run and those stock were telling us that oil was overvalued. Similarly right now those equities are not getting hit when oil makes wild swings to the downside. Are they telling us that prices are unrealistically low? Yes they are. If you can weather the short-term volatility--the USO is a good investment right here. Just as the declining dollar will have its certain long term effect on gold---it will on oil as well. I like several of the exploration companies and will detail the specific stocks in upcoming posts.
My views may not be popular and again, I wish I were sitting here forecasting the great bull market run of 2009. We will continually monitor inflation and the multiple factors that contribute to how fast it will grow. Many will be fooled by short term factors and they will wishfully label them with terms such as disinflation, deflation and other inaccurate terms. To make money in this market--you must call it what it is---INFLATION. Accept it and trade with it!!
I believe that Gold broke out on Friday. I expect gold to break the $1000 mark in the first quarter of 2009. The fundamentals for gold are painstakingly obvious. Our government has been printing paper money and is weakening the value of the dollar. Seriously, if you were an outside investor and you looked at the fundamentals of our economy---would you really call the dollar a wise investment. Would you really purchase the common stock of a company that had just made a huge secondary offering? One that would be very dilutive and utilized the funds for past ills, rather than for future growth? I certainly would not, and this is a very good analogy as to the fundamentals of the dollar. One may argue that it holds certain inherent value "goodwill" so to speak as the worlds reserve currency. Do investors hold the best "brand" stocks as the fundamentals deteriorate? Perhaps they hold on to the best brand "longer" than the rest, but not forever. The dollar will decline, it may see pockets of strength that serve as headfakes, but the overall trend for the dollar is definitely down. This is creating the fundamental basis for perhaps the greatest bull run in commodities in history with gold leading the way.
The Bernie Madoff scandal only strengthens my already solid basis for believing in gold. Gold is a store of value in every country throughout the world and with scandals such as the recent one with Madoff, more investors are looking for that safe place to store their value.
Many people ask me if my views are extremely bearish for all U.S. stocks because of my views on the dollar. Overall, I am bearish on equities even though I think we are going to see a strong bear market rally in the near future. Many equities are going to continue to see multiple contraction and get cheaper. I like FCX as I believe that gold is going to make a run and I expect copper rebound during the year. The company is well run and got ahead of their game by cutting their dividend. They have a strong balance sheet and will see a vastly improved economic environment through 2009 as compared to the latter half of 2008. I am counting on this one as a double for 2009.
Energy equities are another excellent place to be in a declining dollar environment. Make no mistake, the oil trade will be tricky---especially in the short run. The spot market is lower than the front month futures and most experts will tell you that this is bearish in the near term. I am more concerned with the intermediate to long term with respect to oil. When oil made its run from $115 up to its peak of over $140, the equities such as Exxon, Chevron, etc did not make a corresponding run and those stock were telling us that oil was overvalued. Similarly right now those equities are not getting hit when oil makes wild swings to the downside. Are they telling us that prices are unrealistically low? Yes they are. If you can weather the short-term volatility--the USO is a good investment right here. Just as the declining dollar will have its certain long term effect on gold---it will on oil as well. I like several of the exploration companies and will detail the specific stocks in upcoming posts.
My views may not be popular and again, I wish I were sitting here forecasting the great bull market run of 2009. We will continually monitor inflation and the multiple factors that contribute to how fast it will grow. Many will be fooled by short term factors and they will wishfully label them with terms such as disinflation, deflation and other inaccurate terms. To make money in this market--you must call it what it is---INFLATION. Accept it and trade with it!!
Thursday, December 25, 2008
Friday's Trade
Certainly we can expect light trade tomorrow. I will be looking to take advantage of anything the market gives. I think the after-hours trade in the USO on Wednesday was laughable. Sometimes the herd mentality is so hilarious. Back in the summer--everyone was calling for $200 barrel oil. Now that the tide has turned, many want to talk about $20 oil. It has overshot to the downside, but I have been very clear--that does not mean that it can't go lower in the short run.
Lets talk about unemployment and the inflation rate. I keep getting comments and emails saying that my theories are wrong because we can't have rising unemployment and inflation at the same time. WRONG. This global economy and the inflation that it is certain to produce is going to fool a lot of people--and they are going to lose a lot of money. Sectors and regions are going to act differently during the course of this cycle. We are going to see unemployment in the auto related sectors for sure--and yes I know that it will produce some other negative effects. But China and the rest of the world are going to grow. India is going to continue to grow and become more industrialized. Our companies are going to have to become more efficient to compete---and the falling dollar will produce some of that needed efficiency in the short term. Simply put, you can't look at our domestic short term unemployment rate (when you know we are participating in a truly global economy) and declare inflation an non-issue. To do so would be ridiculous.
For those of you that ask how we can have rising unemployment and inflation---I would ask you how we can have an expanding money supply and deflation? You have to realize that the rising money supply will have its effects---it just takes time. Think of this over the past three months the M-1 Money Supply has grown at a 37% annualized rate and M2 has grown by 14%. The M2 which is a broader measure is 10% greater than it was at this time last year. That is a huge statement 10% greater than it was it this time last year. We will have stimulus and other things to get the economy growing and you have your 10% increase sitting there like gasoline on wood just waiting for a spark. We will get the spark and those of you arguing deflation will be SHOCKED at how quickly inflation will rise.
This time things are different because the entire world was in recession. And for the first time in history, the entire world is printing money at rates never before seen. We have witnessed the greatest kick start of the global economy in history. How long it takes to see the effects are the only unknown. We will see inflation. Yes we have pockets of unemployment, yes the domestic consumer has been hurt by the credit crisis, yes it will take months for things to normalize, and yes we may see price declines in the short run. I am not worried about these things because I know that in the near future the global economy will grow and commodities will soar.
Many are getting fooled by the headline personal consumption numbers. Everyone was so happy to see declines in the headline number and was so quick to declare inflation dead. But when you drill down you see that November personal consumption was up on an inflation adjusted basis for the first time in six months. Falling gasoline prices are leading many to wishfully misinterpret the headline number. Don't stick your head in the sand. You can't hide from the printing presses that are causing inflation.
Lets talk about unemployment and the inflation rate. I keep getting comments and emails saying that my theories are wrong because we can't have rising unemployment and inflation at the same time. WRONG. This global economy and the inflation that it is certain to produce is going to fool a lot of people--and they are going to lose a lot of money. Sectors and regions are going to act differently during the course of this cycle. We are going to see unemployment in the auto related sectors for sure--and yes I know that it will produce some other negative effects. But China and the rest of the world are going to grow. India is going to continue to grow and become more industrialized. Our companies are going to have to become more efficient to compete---and the falling dollar will produce some of that needed efficiency in the short term. Simply put, you can't look at our domestic short term unemployment rate (when you know we are participating in a truly global economy) and declare inflation an non-issue. To do so would be ridiculous.
For those of you that ask how we can have rising unemployment and inflation---I would ask you how we can have an expanding money supply and deflation? You have to realize that the rising money supply will have its effects---it just takes time. Think of this over the past three months the M-1 Money Supply has grown at a 37% annualized rate and M2 has grown by 14%. The M2 which is a broader measure is 10% greater than it was at this time last year. That is a huge statement 10% greater than it was it this time last year. We will have stimulus and other things to get the economy growing and you have your 10% increase sitting there like gasoline on wood just waiting for a spark. We will get the spark and those of you arguing deflation will be SHOCKED at how quickly inflation will rise.
This time things are different because the entire world was in recession. And for the first time in history, the entire world is printing money at rates never before seen. We have witnessed the greatest kick start of the global economy in history. How long it takes to see the effects are the only unknown. We will see inflation. Yes we have pockets of unemployment, yes the domestic consumer has been hurt by the credit crisis, yes it will take months for things to normalize, and yes we may see price declines in the short run. I am not worried about these things because I know that in the near future the global economy will grow and commodities will soar.
Many are getting fooled by the headline personal consumption numbers. Everyone was so happy to see declines in the headline number and was so quick to declare inflation dead. But when you drill down you see that November personal consumption was up on an inflation adjusted basis for the first time in six months. Falling gasoline prices are leading many to wishfully misinterpret the headline number. Don't stick your head in the sand. You can't hide from the printing presses that are causing inflation.
Tuesday, December 23, 2008
Deflation, Reflation, and INFLATION
We are hearing so many talking heads screaming about how deflation is the phenomenon that we are least able to control. Others refer to the current increase in the money supply as given by the Federal Reserve, the so called bailouts, and the stimulus--both past and forthcoming as simple REflation. They argue that we are reflating because of the "wealth effect" whereby much wealth has recently been destroyed through losses in the equity markets and commodities markets alike. You can call it whatever you like, but we are creating money and that will lead to inflation. Yes we have seen a decline in prices---on the upside we blamed speculators and on the downside we are calling it deflation. The commodities markets simply overshot on the upside and have since over-corrected. With gasoline at $1.50 per gallon are we going to see increased consumption? I am not even going to answer that question.
So here is my thesis on where we are in the FLATION cycle. We have seen the rapid decline in prices as described the preceding paragraph. Investors have been scared senseless and money is waiting on the sidelines---some have even referred to it as a CASH BUBBLE. Some are afraid for their jobs and are consuming less, some are scared of the markets and are investing less, and some are probably just stuffing cash in the mattress. All of this leads to less rational financial markets. The banks are afraid to lend at the current time. Toxic has become a word that no-one upon no-one wants to have describe anything on their balance sheet---especially any new entry. So we have cheap money--but perhaps the most limited access that we have ever seen. We know that more government intervention is on the way. We are going to see a huge stimulus, help for the homeowner, and a huge investment in infrastructure. The question is not whether the economy will get going again---it is a matter of when and how fast.
It is impossible to know everything in this game--so I try to trade what I do know. I have no idea WHEN money will begin to multiply normally again. But I know that it WILL. And I know that when it DOES, I can make money in commodities and certain equities. My natural gas play got a nice boost today and I expect more. I have always heard that the markets can stay irrational longer than you can stay solvent, so I took a small position in natural gas and have been adding to it. Careful position sizing makes good sense and keeps me in the game. I believe that we are going to see money flow again in the summer of 09. As I said last night, China is still growing. We have financed by far the most of any country and as the dollar falls, we will gain some boost from exports, just as we did last summer. I believe that it may not be one thing that gets us going again. My fear is that we are going to see many factors such as a rise in exports, increased demand out of China for commodities, and decrease in unemployment domestically from the stimulus contribute to economic growth---all at the same time and light the flame of HYPERINFLATION.
Many are making the argument that banks are taking the government money and just rebuilding their balance sheets. Lets assume that these pundits are right and the bloodletting and subsequent government injections wind up to a zero sum game (they don't but we will assume it for this example). If it was a zero sum game AND you had a stimulus, an auto bailout, a huge investment in infrastructure investment--you would still be creating inflation. Now add in the money that is on the sidelines (and I will point to the speculation that we saw in the summer as it related to oil) you are going to drive prices through the roof again. People are going to be pulling money out of the mattress and buying commodities. And this was our zero sum game example. The reality is that it is not a zero sum game. Many investors that have normally invested in stocks have been scared into the T-Bills and Certificates of Deposit. When you see that money return to equities and commodities---I will now use the "wealth effect" argument. The wealth will be recreated faster than ever in our history and it is going to be virtually impossible to control.
Just for the sake of argument, assume that I am right and we see things start to grow economically in the summer of 2009 and we see speculators return to bullish mode. Which political party is going to start screaming for CONTRACTION? Just as people are getting their jobs back are we going to use the necessary tools to fight inflation at the right time? NO WAY. Just as we see the light at the end of the tunnel out of the greatest economic fear in our lifetimes are we going to call for CONTRACTION?
My summary on the FLATIONS is simply this. Prices are DEflating (short-term), banks balance sheets are REflating (short term and with no multiplier effect--YET), AND INFLATION IS ON THE WAY AS DE AND RE WILL CAUSE IN!!!!!!
So here is my thesis on where we are in the FLATION cycle. We have seen the rapid decline in prices as described the preceding paragraph. Investors have been scared senseless and money is waiting on the sidelines---some have even referred to it as a CASH BUBBLE. Some are afraid for their jobs and are consuming less, some are scared of the markets and are investing less, and some are probably just stuffing cash in the mattress. All of this leads to less rational financial markets. The banks are afraid to lend at the current time. Toxic has become a word that no-one upon no-one wants to have describe anything on their balance sheet---especially any new entry. So we have cheap money--but perhaps the most limited access that we have ever seen. We know that more government intervention is on the way. We are going to see a huge stimulus, help for the homeowner, and a huge investment in infrastructure. The question is not whether the economy will get going again---it is a matter of when and how fast.
It is impossible to know everything in this game--so I try to trade what I do know. I have no idea WHEN money will begin to multiply normally again. But I know that it WILL. And I know that when it DOES, I can make money in commodities and certain equities. My natural gas play got a nice boost today and I expect more. I have always heard that the markets can stay irrational longer than you can stay solvent, so I took a small position in natural gas and have been adding to it. Careful position sizing makes good sense and keeps me in the game. I believe that we are going to see money flow again in the summer of 09. As I said last night, China is still growing. We have financed by far the most of any country and as the dollar falls, we will gain some boost from exports, just as we did last summer. I believe that it may not be one thing that gets us going again. My fear is that we are going to see many factors such as a rise in exports, increased demand out of China for commodities, and decrease in unemployment domestically from the stimulus contribute to economic growth---all at the same time and light the flame of HYPERINFLATION.
Many are making the argument that banks are taking the government money and just rebuilding their balance sheets. Lets assume that these pundits are right and the bloodletting and subsequent government injections wind up to a zero sum game (they don't but we will assume it for this example). If it was a zero sum game AND you had a stimulus, an auto bailout, a huge investment in infrastructure investment--you would still be creating inflation. Now add in the money that is on the sidelines (and I will point to the speculation that we saw in the summer as it related to oil) you are going to drive prices through the roof again. People are going to be pulling money out of the mattress and buying commodities. And this was our zero sum game example. The reality is that it is not a zero sum game. Many investors that have normally invested in stocks have been scared into the T-Bills and Certificates of Deposit. When you see that money return to equities and commodities---I will now use the "wealth effect" argument. The wealth will be recreated faster than ever in our history and it is going to be virtually impossible to control.
Just for the sake of argument, assume that I am right and we see things start to grow economically in the summer of 2009 and we see speculators return to bullish mode. Which political party is going to start screaming for CONTRACTION? Just as people are getting their jobs back are we going to use the necessary tools to fight inflation at the right time? NO WAY. Just as we see the light at the end of the tunnel out of the greatest economic fear in our lifetimes are we going to call for CONTRACTION?
My summary on the FLATIONS is simply this. Prices are DEflating (short-term), banks balance sheets are REflating (short term and with no multiplier effect--YET), AND INFLATION IS ON THE WAY AS DE AND RE WILL CAUSE IN!!!!!!
Monday, December 22, 2008
IS BETTER GOOD ENOUGH??
I have heard many argue that the dollar is not in trouble simply because other countries were late to the rate cutting party and still have lower to go with their central bank rates. I don't disagree, but my inflation thesis is a long term perspective, so I ask is the fact that we are currently positioned to possible do better in the short run (as compared to the Euro) is that good enough or will it last? We are the country that is using DEBT to finance the party, more than any of our counterparts. Have you seen the Peter Schiff was right video? Schiff was calling for the housing bubble to burst before it did, just as he has been predicting a falling dollar for quite some time. The dollar will fall over the long run and commodities are the play. I am doubling my natural gas position here because I think we are going to see a run. People out of work might not be driving as much, but they are still going to heat their homes and the prices of natural gas have been overdone---even given some of the decreased demand as of late.
I have said several times that I think we have a bubble in treasuries--hence my position in TBT, and I think the other bubble that we have going right now is a CASH BUBBLE. Is there such a thing? You bet there is. Many people have put money in the bank to avoid the risk of equities. As we see signs of stabilization, we are going to see the cash bubble burst and money will pour into equities and commodities. I think the cash bubble has given the DEFLATIONERS a sense of security---which I might add has been valid in the short run---BUT IT IS GETTING OVERDONE. No doubt we have seen demand destruction, but as these government programs begin to work, we will see a resurgence of demand.
I heard a prediction of $600 gold for 2009 made today. Back in late 2007 many of the pundits were calling the bottom in the financials and make predictions to buy the investment banks based on their "valuation". See talking head Ben Stein talk about how cheap Merrill Lynch was at $76. I will embed the youtube video at the end of this post. I have tried many times to have Mr. Stein on our show, but he will not respond. Of course if I were him I probably wouldn't respond either. The fact is many people are refusing to face the realities of what have happened this year and what is going to happen. We keep attaching to theories such as "we are still the world's reserve currency" and others. Things are changing and like it or not, the dollar is going to fall and commodities are going to rise.
I have asked before "What happens if China rebounds first?" I believe that they will and I think it will have a devastating effect on our economy? They will rebound first for a couple of reasons. First, they have less banking problems than we do. They are also using a very smart plan to improve their infrastructure and best of all--THEY ARE PAYING FOR IT WITH A SURPLUS. Don't forget that growth is just slowing in China--domestically we are declining. So as they rebound and cause price pressures, we are going to still be slowing and faced with rising prices. The Chinese are going to continue to consume oil and natural gas---more and more every year. This demand will get inflation going again soon--whether we are ready or not.
Do I think gold can fall in the short run? Yes, I think we are so scared of deflation that anything is possible in the short run. These markets are definitely not rational and I am trying to position size to make sure that I can stay solvent until they return to a rational state. Over the long haul--and I don't know exactly when--Schiff will be right about the price of gold and the dollar.
I am not a gloom and doomer, but I think we are talking reality here. Again, I had many comments to yesterday's post saying that being early is equivalent to being wrong. Not when investing. Schiff was early---BUT WAS HE WRONG??? WATCH THE VIDEO AND DECIDE.
I have said several times that I think we have a bubble in treasuries--hence my position in TBT, and I think the other bubble that we have going right now is a CASH BUBBLE. Is there such a thing? You bet there is. Many people have put money in the bank to avoid the risk of equities. As we see signs of stabilization, we are going to see the cash bubble burst and money will pour into equities and commodities. I think the cash bubble has given the DEFLATIONERS a sense of security---which I might add has been valid in the short run---BUT IT IS GETTING OVERDONE. No doubt we have seen demand destruction, but as these government programs begin to work, we will see a resurgence of demand.
I heard a prediction of $600 gold for 2009 made today. Back in late 2007 many of the pundits were calling the bottom in the financials and make predictions to buy the investment banks based on their "valuation". See talking head Ben Stein talk about how cheap Merrill Lynch was at $76. I will embed the youtube video at the end of this post. I have tried many times to have Mr. Stein on our show, but he will not respond. Of course if I were him I probably wouldn't respond either. The fact is many people are refusing to face the realities of what have happened this year and what is going to happen. We keep attaching to theories such as "we are still the world's reserve currency" and others. Things are changing and like it or not, the dollar is going to fall and commodities are going to rise.
I have asked before "What happens if China rebounds first?" I believe that they will and I think it will have a devastating effect on our economy? They will rebound first for a couple of reasons. First, they have less banking problems than we do. They are also using a very smart plan to improve their infrastructure and best of all--THEY ARE PAYING FOR IT WITH A SURPLUS. Don't forget that growth is just slowing in China--domestically we are declining. So as they rebound and cause price pressures, we are going to still be slowing and faced with rising prices. The Chinese are going to continue to consume oil and natural gas---more and more every year. This demand will get inflation going again soon--whether we are ready or not.
Do I think gold can fall in the short run? Yes, I think we are so scared of deflation that anything is possible in the short run. These markets are definitely not rational and I am trying to position size to make sure that I can stay solvent until they return to a rational state. Over the long haul--and I don't know exactly when--Schiff will be right about the price of gold and the dollar.
I am not a gloom and doomer, but I think we are talking reality here. Again, I had many comments to yesterday's post saying that being early is equivalent to being wrong. Not when investing. Schiff was early---BUT WAS HE WRONG??? WATCH THE VIDEO AND DECIDE.
Saturday, December 20, 2008
IS BEING EARLY EQUIVALENT TO BEING WRONG??
I have gotten a lot of emails/comments telling me that I am way early on my inflation thesis and that means that I AM WRONG. That is simply not true. Being early means being wrong when you are TRADING. Being early when investing means you admit THAT YOU CAN'T CALL THE EXACT BOTTOM. I both trade and invest. I have gotten my butt hammered investing lately. Buy and hold has had a rough year---even been considered DEAD. But as a 40 year old, I have plenty of time to let my investing and inflation theory to play out.
I am invested in natural gas and have an investment position in Freeport McMoran (FCX) which I also trade around. We are hearing a lot of talking heads (most notably Dennis Gartman) saying that the gold bugs have had everything they wanted this year and gold is still making lower highs and lower lows. In the short run, I do not disagree that gold may see some downside. However over the long haul, I cannot see how we are going to see anything but inflation and I think this is a great time to position myself (with money that can afford to wait). It may be the best opportunity of my lifetime and I am hoping to cash in.
Many are arguing that we are heading for a great depression. I can't argue that things don't look bad from an economic standpoint, but we are seeing the world's governments stand ready to take unprecedented actions to get global growth going again. Why am I so convinced that natural gas is getting close to the bottom? Because it is getting close to the price where it is selling for less than the cost of extracting it from the ground. I understand the counter arguments---that these companies must have the cash flows to continue operations so they will sell at a loss. I agree---again over the short term. Production will slow and exploration will dry up. When global growth gets going again, we will see demand outpace supply. It is much quicker to take supply offline than it is to put it back online.
Many keep arguing that we are seeing a vast amount of wealth evaporate and that will keep inflation at bay for a very long time. Madoff didn't help things as this most recent scandal will further the "less wealth" idea. Many are also arguing that the dollar is still the world's reserve currency and the Euro is going to get hit hard in the near future. My focus is on China. China is going to keep growing has more power than ever to cause inflation. I did an interview this summer with Dr. Reed Holden author of the book PRICING WITH CONFIDENCE. Dr. Holden talked about how "Amercian Goods" are really perceived as having "value" abroad. When our high quality products become cheaper---those abroad will consume more of them. It sounds really simple, but we saw Europe help our economy when the dollar initially fell against the Euro. Many referred to that as the last "leg" holding up our earnings here at home. How does all of this tie back to my China focus? I think that we will see China buy more of our goods than ever before as the dollar falls. That will give our economy a bigger kick start than most are expecting.
I have a new theory about trading and investing. I am calling it my BUM TRADING THEORY. Quite simply we know that our economy is driven 70% by the consumer. We have been overwhelmed by information from the mainstream media talking about the "bums". The bums that aren't paying their mortgages, the bums that aren't out buying all of their consumer goods on credit, the bums that can't finance their new car before they pay off the old one. The message that the mainstream media would have you believe is that we are all bums. All of us are going belly up and deflation is going to consume us all!!!!!!! IT IS JUST NOT SO!! There are many that have lived within their means and are still paying their mortgages, still buying Christmas gifts for their friends and family, still dining out and much more. So while we have seen the "bums" definitely impact the economy on the downside recently, the productive are still out there and will benefit when the tide turns. So I may TRADE THE BUMS--AND INVEST WITH THE PRODUCTIVE. I am investing in natural gas because I believe that the productive are going to keep heating their homes and using electricity. I don't believe that the productive will allow us to be consumed by deflation. This theory may sound very silly, but it is why I believe that oil, natural gas, and gold are good plays for the long term. I am INVESTING THAT THESIS.
MORE LATER
I am invested in natural gas and have an investment position in Freeport McMoran (FCX) which I also trade around. We are hearing a lot of talking heads (most notably Dennis Gartman) saying that the gold bugs have had everything they wanted this year and gold is still making lower highs and lower lows. In the short run, I do not disagree that gold may see some downside. However over the long haul, I cannot see how we are going to see anything but inflation and I think this is a great time to position myself (with money that can afford to wait). It may be the best opportunity of my lifetime and I am hoping to cash in.
Many are arguing that we are heading for a great depression. I can't argue that things don't look bad from an economic standpoint, but we are seeing the world's governments stand ready to take unprecedented actions to get global growth going again. Why am I so convinced that natural gas is getting close to the bottom? Because it is getting close to the price where it is selling for less than the cost of extracting it from the ground. I understand the counter arguments---that these companies must have the cash flows to continue operations so they will sell at a loss. I agree---again over the short term. Production will slow and exploration will dry up. When global growth gets going again, we will see demand outpace supply. It is much quicker to take supply offline than it is to put it back online.
Many keep arguing that we are seeing a vast amount of wealth evaporate and that will keep inflation at bay for a very long time. Madoff didn't help things as this most recent scandal will further the "less wealth" idea. Many are also arguing that the dollar is still the world's reserve currency and the Euro is going to get hit hard in the near future. My focus is on China. China is going to keep growing has more power than ever to cause inflation. I did an interview this summer with Dr. Reed Holden author of the book PRICING WITH CONFIDENCE. Dr. Holden talked about how "Amercian Goods" are really perceived as having "value" abroad. When our high quality products become cheaper---those abroad will consume more of them. It sounds really simple, but we saw Europe help our economy when the dollar initially fell against the Euro. Many referred to that as the last "leg" holding up our earnings here at home. How does all of this tie back to my China focus? I think that we will see China buy more of our goods than ever before as the dollar falls. That will give our economy a bigger kick start than most are expecting.
I have a new theory about trading and investing. I am calling it my BUM TRADING THEORY. Quite simply we know that our economy is driven 70% by the consumer. We have been overwhelmed by information from the mainstream media talking about the "bums". The bums that aren't paying their mortgages, the bums that aren't out buying all of their consumer goods on credit, the bums that can't finance their new car before they pay off the old one. The message that the mainstream media would have you believe is that we are all bums. All of us are going belly up and deflation is going to consume us all!!!!!!! IT IS JUST NOT SO!! There are many that have lived within their means and are still paying their mortgages, still buying Christmas gifts for their friends and family, still dining out and much more. So while we have seen the "bums" definitely impact the economy on the downside recently, the productive are still out there and will benefit when the tide turns. So I may TRADE THE BUMS--AND INVEST WITH THE PRODUCTIVE. I am investing in natural gas because I believe that the productive are going to keep heating their homes and using electricity. I don't believe that the productive will allow us to be consumed by deflation. This theory may sound very silly, but it is why I believe that oil, natural gas, and gold are good plays for the long term. I am INVESTING THAT THESIS.
MORE LATER
Thursday, December 11, 2008
DOLLAR DOLLAR DOLLAR
I have been saying for a while that it is about the dollar and that rang true today. I think that we saw some profit taking today and I am not looking for another huge downward move. Negative comments from J.P. Morgan CEO Jamie Dimon accelerated things to the downside late in the day and the Bank of American job cuts announcement didn't seem to help things in the after hours. The futures are down significantly at the time of this writing, as are the overseas markets. It looks to have all of the makings of a doom day tomorrow---but I am playing for the longer term. I bought FCX today. I am already upside down in the trade. I bought it on my inflation thesis and plan (although plans do change) to hold it for a while. I am going to write an article on emotion this weekend---but my entry point was based on emotion--even though my fundamental research was leading me to purchase the stock.
I am convinced that the dollar is headed lower. Today was a prime example of what will happen as the dollar weakens---oil will head higher. This inflation story is may begin slowly, but the impact is going to be very dramatic. I am beginning to turn from a bear to a bull because of inflation. I think money is beginning to trickle through the system, and I don't want to be late on this trade. I still have UNG and think that trade is going to be a good one---even though I am down over 40% thus far. Today, as oil rose we did not see it pull Natural Gas up with it. Will that last forever? No! Think about it from a common sense perspective. We are reaching a point with natural gas where the producers are going to cut back on exploration. Supply will dwindle and demand will increase as we put more natural gas fired electric plants online. Boone Pickens slogan about natural gas is "Its Cleaner, Its Cheaper, and ITS OURS" All of those things are true and it just makes sense that we will use more of that commodity in the coming years. I believe we will see increasing demand about the time that we notice the supply declines and that will cause gas to spike. Also, at some point---rising oil prices will "pull" natural gas upward as well.
If you are watching the mainstream media you are seeing the headlines about the fight over the automaker bailout. Does anyone really believe that this deal is not going to get done? OF COURSE THE BAILOUT WILL GET DONE. MORE INFLATION. Jim Rogers talked about how Alan Greenspan created bubbles by not allowing the economy to go through its normal recessionary cycle by lowering interest rates. I am not a fan of Greenspan and I totally understand Mr. Rogers points on the subject. BUT ALL OF THESE BAILOUTS MAKE GREENSPAN'S ACTIONS LOOK TINY. I am still looking for gold $1500 in 2009. I think the flame of inflation was officially lit this week. Unless the dollar surprisingly rallies, I believe that oil could end the year at $55.
Just a couple of weeks ago, every talking head on television was talking about deflation. I got sick of hearing the word. I just don't think it is realistic to worry about deflation in this environment. If this were a normal cycle that might be on my radar screen. BUT THIS IS NOT NORMAL. Look at the money that has been pumped into the system already. Yes we have horrible jobs numbers, yes they are going to get worse, but we have patched and patched with these bailouts. I keep stressing that the liquidity is ALREADY IN THE SYSTEM.
During the time of this writing the futures have gone down much further--just checked and they seem do have dipped as the Senate failed to reach an agreement on the automaker bailout. They are not going to let these guys fail. No way no how. If the market falls on this news tomorrow---I will be buying more of my inflation picks. Oil and Gold are getting hammered with the futures and lawmakers are talking about Wall Street's reaction tomorrow. AND ACCORDING TO BLOOMBERG THE DOLLAR HIT A 13 YEAR LOW AGAINST THE YEN. WEAKER DOLLAR WEAKER DOLLAR.
The market may vote tomorrow just like it did during the banking crisis and it may send lawmakers back to the drawing board. They may just sell everything tomorrow. Oil, Gold, and Stocks. I hope oil and gold drop--I will be looking to be a buyer because the weak dollar is the main story here.
THE WEAK DOLLAR HAS LIT THE INFLATION FIRE!!!!!!!!!!!!!!!!!!!!!!
I am convinced that the dollar is headed lower. Today was a prime example of what will happen as the dollar weakens---oil will head higher. This inflation story is may begin slowly, but the impact is going to be very dramatic. I am beginning to turn from a bear to a bull because of inflation. I think money is beginning to trickle through the system, and I don't want to be late on this trade. I still have UNG and think that trade is going to be a good one---even though I am down over 40% thus far. Today, as oil rose we did not see it pull Natural Gas up with it. Will that last forever? No! Think about it from a common sense perspective. We are reaching a point with natural gas where the producers are going to cut back on exploration. Supply will dwindle and demand will increase as we put more natural gas fired electric plants online. Boone Pickens slogan about natural gas is "Its Cleaner, Its Cheaper, and ITS OURS" All of those things are true and it just makes sense that we will use more of that commodity in the coming years. I believe we will see increasing demand about the time that we notice the supply declines and that will cause gas to spike. Also, at some point---rising oil prices will "pull" natural gas upward as well.
If you are watching the mainstream media you are seeing the headlines about the fight over the automaker bailout. Does anyone really believe that this deal is not going to get done? OF COURSE THE BAILOUT WILL GET DONE. MORE INFLATION. Jim Rogers talked about how Alan Greenspan created bubbles by not allowing the economy to go through its normal recessionary cycle by lowering interest rates. I am not a fan of Greenspan and I totally understand Mr. Rogers points on the subject. BUT ALL OF THESE BAILOUTS MAKE GREENSPAN'S ACTIONS LOOK TINY. I am still looking for gold $1500 in 2009. I think the flame of inflation was officially lit this week. Unless the dollar surprisingly rallies, I believe that oil could end the year at $55.
Just a couple of weeks ago, every talking head on television was talking about deflation. I got sick of hearing the word. I just don't think it is realistic to worry about deflation in this environment. If this were a normal cycle that might be on my radar screen. BUT THIS IS NOT NORMAL. Look at the money that has been pumped into the system already. Yes we have horrible jobs numbers, yes they are going to get worse, but we have patched and patched with these bailouts. I keep stressing that the liquidity is ALREADY IN THE SYSTEM.
During the time of this writing the futures have gone down much further--just checked and they seem do have dipped as the Senate failed to reach an agreement on the automaker bailout. They are not going to let these guys fail. No way no how. If the market falls on this news tomorrow---I will be buying more of my inflation picks. Oil and Gold are getting hammered with the futures and lawmakers are talking about Wall Street's reaction tomorrow. AND ACCORDING TO BLOOMBERG THE DOLLAR HIT A 13 YEAR LOW AGAINST THE YEN. WEAKER DOLLAR WEAKER DOLLAR.
The market may vote tomorrow just like it did during the banking crisis and it may send lawmakers back to the drawing board. They may just sell everything tomorrow. Oil, Gold, and Stocks. I hope oil and gold drop--I will be looking to be a buyer because the weak dollar is the main story here.
THE WEAK DOLLAR HAS LIT THE INFLATION FIRE!!!!!!!!!!!!!!!!!!!!!!
Wednesday, December 10, 2008
Stability?? Say It Ain't So
I sold my SDS today (at about the low of the day) but I just felt like things are calming down and I decided to allocate my capital elsewhere. If you look at some of the oil sector stocks RIG, DO, NOV they are beginning to get some bounce. That tells me that people have started to believe that oil has overshot to the downside. I think it has and I am looking at buying some USO. I said in a post last week that the dollar was really really important. The dollar rally looks tired. As the dollar declines, I believe that we could see some real upside in crude. I think the dollar rally had a lot to do with ending the bullish momentum that we saw in crude and I think we are going to see the dollar cause the end of this bearish trend. We have mortgaged the dollar beyond belief and all of this debt is going to come home to roost.
I am preparing to play inflation full force and I go back to something Jim Rogers said in one of my conversations with him. Stocks can go up during times when inflation is rampant. His point was that you could invest in stocks and see nice gains, but lose value if those stocks are all dollar denominated. I am going to fully analyze the Rogers theory vs the Bernanke theory (referring to when Bernanke told Congress that the falling dollar wouldn't hurt anyone as long as they were buying domestically--that was paraphrased of course)this weekend.
I favor a UUP short here. Again I think the dollar rally is very tired and ready to reverse. One of my other favorites that has held in very well is CMP. Compass Minerals got hammered along with many of the other fertilizer producers. They are one of the best run companies in my opinion and I think they can get back to $65.
Need I talk about the jump in gold today?
What you have to be careful about right here is financing. My grandfather was a great investor and he would have been drooling as some of his favorite stocks dropped at the pace that they have over the last few months. The issue that bears watching is whether or not these "great names" can obtain the financing that they need for growth. The credit landscape has changed and before I buy any individual stock---I want to know how able they are going to be to get the right financing in the next 3 years. Its not just about getting credit, it is about getting credit at the right rates.
WATCH NATURAL GAS!!!!
I am preparing to play inflation full force and I go back to something Jim Rogers said in one of my conversations with him. Stocks can go up during times when inflation is rampant. His point was that you could invest in stocks and see nice gains, but lose value if those stocks are all dollar denominated. I am going to fully analyze the Rogers theory vs the Bernanke theory (referring to when Bernanke told Congress that the falling dollar wouldn't hurt anyone as long as they were buying domestically--that was paraphrased of course)this weekend.
I favor a UUP short here. Again I think the dollar rally is very tired and ready to reverse. One of my other favorites that has held in very well is CMP. Compass Minerals got hammered along with many of the other fertilizer producers. They are one of the best run companies in my opinion and I think they can get back to $65.
Need I talk about the jump in gold today?
What you have to be careful about right here is financing. My grandfather was a great investor and he would have been drooling as some of his favorite stocks dropped at the pace that they have over the last few months. The issue that bears watching is whether or not these "great names" can obtain the financing that they need for growth. The credit landscape has changed and before I buy any individual stock---I want to know how able they are going to be to get the right financing in the next 3 years. Its not just about getting credit, it is about getting credit at the right rates.
WATCH NATURAL GAS!!!!
Tuesday, December 9, 2008
SUPPORT---BUT WHY??
It looks like these markets are finding support. Today was one of those days that could have really gone south during the last hour of trading, but it held in there. Did you notice gold today? It was moving up as I think it will. I really like FCX right here under $20. It may be volatile for a while, but it will be a long term winner.
Dennis Gartman was on Fast Money tonight talking about how some of the foreign nations are so economically strapped that they have to just keep pumping crude--even at these low prices. Inflation Factor? Yes, it will be great for us to see continued lower oil prices, but it will continue to heat the economy. Gartman was talking about natural gas as well!!
I try to continually revise my theories to help my timing be as accurate as possible. So let me play devils advocate on my own position. Lets say that the foreign nations are really in a jam and have to keep crude flowing faster than ever. What happens if this situation were to last for a couple of years? Consumption and more consumption. Look back at how much of a surprise it was when we saw the demand destruction with gasoline over $4 per gallon. Remember how fast it happened and what a shock it seemed to be at the time that we would actually change our consumption habits? If oil stays low for that period of time, we will see a rebound in consumption that will make the demand destruction seem slow and small. By the time we notice--inflation will be out of the bag.
I try to ask my self obvious questions to see how the market may not be acting rational. I have been asking the question, How have the natural gas companies rallied over the past few sessions while the commodity itself continues to struggle? Will UNG catch up? I think so.
I have had a couple of emails saying that I sound like a broken record with my inflation theory. I have consistently issued the challenge for anyone to make comments on our site if you have a decent argument against my theory. The reason why I sound like a broken record is because I believe that the dollar will fall when the arteries of the credit market become unclogged. It is the story---day in and day out. Slowly but surely the arteries will be opened and inflation will begin. The question in my mind is not whether or not it will happen, but rather WHEN IT WILL HAPPEN. This is certainly not a single day even---it is a PROCESS. You can make money with momentum and never let it be said that I have said anything to the contrary. However, I believe that this story is clear and I am trying to position myself to take advantage of the entire process. Are my trades on this theory down right now? You bet!!! Do I think I will ultimately make money? YEP
INFLATION IS ON THE WAY!!!!
Dennis Gartman was on Fast Money tonight talking about how some of the foreign nations are so economically strapped that they have to just keep pumping crude--even at these low prices. Inflation Factor? Yes, it will be great for us to see continued lower oil prices, but it will continue to heat the economy. Gartman was talking about natural gas as well!!
I try to continually revise my theories to help my timing be as accurate as possible. So let me play devils advocate on my own position. Lets say that the foreign nations are really in a jam and have to keep crude flowing faster than ever. What happens if this situation were to last for a couple of years? Consumption and more consumption. Look back at how much of a surprise it was when we saw the demand destruction with gasoline over $4 per gallon. Remember how fast it happened and what a shock it seemed to be at the time that we would actually change our consumption habits? If oil stays low for that period of time, we will see a rebound in consumption that will make the demand destruction seem slow and small. By the time we notice--inflation will be out of the bag.
I try to ask my self obvious questions to see how the market may not be acting rational. I have been asking the question, How have the natural gas companies rallied over the past few sessions while the commodity itself continues to struggle? Will UNG catch up? I think so.
I have had a couple of emails saying that I sound like a broken record with my inflation theory. I have consistently issued the challenge for anyone to make comments on our site if you have a decent argument against my theory. The reason why I sound like a broken record is because I believe that the dollar will fall when the arteries of the credit market become unclogged. It is the story---day in and day out. Slowly but surely the arteries will be opened and inflation will begin. The question in my mind is not whether or not it will happen, but rather WHEN IT WILL HAPPEN. This is certainly not a single day even---it is a PROCESS. You can make money with momentum and never let it be said that I have said anything to the contrary. However, I believe that this story is clear and I am trying to position myself to take advantage of the entire process. Are my trades on this theory down right now? You bet!!! Do I think I will ultimately make money? YEP
INFLATION IS ON THE WAY!!!!
Monday, December 8, 2008
Commodities Rally!!!!
Well everything except my natural gas. When I listened to the markets today, it seemed that they were telling me that if we see a rally in equities, we will see a rally in commodities. We are not in the place where rising oil prices hurt the equities markets.
Lets really examine where we are at this point in the cycle. This started as a banking crisis and LIBOR rates were soaring with banks seemingly not trusting each other. Credit contracted so fast--really really fast. That contraction slammed the economy and now we are seeing the effect that it has had on unemployment. At the same time we had the credit crisis, we had extremely high oil/gasoline prices that were serving as a tax on not only our economy, but foreign economies as well. The effect? MORE CONTRACTION. The markets were heading down during this time---seemingly scared by any bit of news. The mainstream media kept running shows about the CRISIS, asking if your money was safe. Some at retirement age were watching their 401k plans shrink so fast that they put off retirement plans. During all of this panic the government started not just injection, but FORCING money into the system. There were stimulus plans, bailouts, and many other types of things that all resulted in INCREASED LIQUIDITY. Now you might ask why I appear to be giving a lesson on recent history. The answer is to prove my point that we have been pumping money into this economy and it is going to cause inflation. Banks around the world have been adding liquidity so incredibly fast. So now LIBOR rates are down to very comfortable levels and we are seeing so many talk about how the financial stocks are going to lead us out of this mess.
SO WHAT DO I SEE AS THE PROBLEM? The speed at which these liquidity injections begin to cure the economy---coupled with the tax break given to consumers when everyone panicked and got sold their commodities. Everyone---and it was reasonable--seemed to think that companies such as Federal Express would benefit as oil prices came down so rapidly. So what happened? Did the economy slow so fast that it hit their revenue harder than declining fuel prices helped their bottom line? I think so. And I think the same could be true as we turn around.
All the technical traders seem as happy as fat pigs in the sunshine. They think we have great support and that we should just bolt up another 100 points on the S&P. I know that I can't fight the momentum---but I will tell you that I can't fundamentally see what all of the euphoria is about. Are the smart investors going to pour their money into equities in this environment--especially if we run another 100? Or are they going to choose to put their money in "real" assets such as gold, oil, and agricultural commodities? What percentage gain did we see in equities today? What was the percentage move in oil today? I am being cautious here and am just trying to point out that we will see inflation and I plan to invest accordingly. I am still holding my natural gas even though I have been hammered in the trade. I am going to watch gold here. If I had to bet, I would say that the Federal Express news in the after hours is not going to be well received tomorrow.
Make no mistake more people have gotten long in the last few days, but are they going to get scared if things turn sour? I will guarantee you that I will take some off the table if this thing starts to pull back.
Sometimes you have to sit back and be non-emotional. I would love to put on my rally cap and start putting money into this market. But that would be emotional. My rational side tells me that we are in completely uncharted territory with this credit crisis and the measures that have been taken to fix it. So my rational side tells me to play what I believe that I know. I believe that at some point as these measures take full steam---we will see INFLATION. SHOW ME A TIME IN HISTORY WHERE THIS MUCH LIQUIDITY HAS BEEN CREATED AND WE HAVEN'T SEEN INFLATION.
COME ON YOU DEFLATION CHEERLEADERS---PROVE ME WRONG.....
Lets really examine where we are at this point in the cycle. This started as a banking crisis and LIBOR rates were soaring with banks seemingly not trusting each other. Credit contracted so fast--really really fast. That contraction slammed the economy and now we are seeing the effect that it has had on unemployment. At the same time we had the credit crisis, we had extremely high oil/gasoline prices that were serving as a tax on not only our economy, but foreign economies as well. The effect? MORE CONTRACTION. The markets were heading down during this time---seemingly scared by any bit of news. The mainstream media kept running shows about the CRISIS, asking if your money was safe. Some at retirement age were watching their 401k plans shrink so fast that they put off retirement plans. During all of this panic the government started not just injection, but FORCING money into the system. There were stimulus plans, bailouts, and many other types of things that all resulted in INCREASED LIQUIDITY. Now you might ask why I appear to be giving a lesson on recent history. The answer is to prove my point that we have been pumping money into this economy and it is going to cause inflation. Banks around the world have been adding liquidity so incredibly fast. So now LIBOR rates are down to very comfortable levels and we are seeing so many talk about how the financial stocks are going to lead us out of this mess.
SO WHAT DO I SEE AS THE PROBLEM? The speed at which these liquidity injections begin to cure the economy---coupled with the tax break given to consumers when everyone panicked and got sold their commodities. Everyone---and it was reasonable--seemed to think that companies such as Federal Express would benefit as oil prices came down so rapidly. So what happened? Did the economy slow so fast that it hit their revenue harder than declining fuel prices helped their bottom line? I think so. And I think the same could be true as we turn around.
All the technical traders seem as happy as fat pigs in the sunshine. They think we have great support and that we should just bolt up another 100 points on the S&P. I know that I can't fight the momentum---but I will tell you that I can't fundamentally see what all of the euphoria is about. Are the smart investors going to pour their money into equities in this environment--especially if we run another 100? Or are they going to choose to put their money in "real" assets such as gold, oil, and agricultural commodities? What percentage gain did we see in equities today? What was the percentage move in oil today? I am being cautious here and am just trying to point out that we will see inflation and I plan to invest accordingly. I am still holding my natural gas even though I have been hammered in the trade. I am going to watch gold here. If I had to bet, I would say that the Federal Express news in the after hours is not going to be well received tomorrow.
Make no mistake more people have gotten long in the last few days, but are they going to get scared if things turn sour? I will guarantee you that I will take some off the table if this thing starts to pull back.
Sometimes you have to sit back and be non-emotional. I would love to put on my rally cap and start putting money into this market. But that would be emotional. My rational side tells me that we are in completely uncharted territory with this credit crisis and the measures that have been taken to fix it. So my rational side tells me to play what I believe that I know. I believe that at some point as these measures take full steam---we will see INFLATION. SHOW ME A TIME IN HISTORY WHERE THIS MUCH LIQUIDITY HAS BEEN CREATED AND WE HAVEN'T SEEN INFLATION.
COME ON YOU DEFLATION CHEERLEADERS---PROVE ME WRONG.....
Sunday, December 7, 2008
Determined to RALLY!!!
This market just looks like it is determined to rally even in the face of worsening economic news. I have held on to my SDS, but will dump it tomorrow if this rally continues. So many people are calling for a rally that you would think it was a trap. I still don't understand why we would rally overall. Every day we hear of more layoffs and declining sales. What is usually a recipe for disaster can't get the market down and many will tell you that is the classic sign of a bottom.
At the time of this writing, the futures are up as are the overseas markets. There appears to be a lot of confidence in President-Elect Obama's pledge of a public works stimulus. I agree that this will be the best stimulus that we have seen thus far. We must get jobs growing again.
I look for oil prices to get going again. OPEC is in an area where they really stand to lose if they don't get prices up soon. Back in the 80's it got so low they could not do much with it and I think they will act before they get caught in that situation again. I think natural gas will go up as does oil. I am almost certain that the dollar is going to fall at some point in the near future. I just don't see how it can hold up as we continue to borrow all of this money.
Sometimes you just can't fight the market---even when it seem irrational. I know that there has been a lot of smart money on the sidelines for quite some time now and the volume on the up days has been leading me to believe that some of that money is quietly beginning to creep into the market. The world is printing money at never before seen levels. Inflation is headed our way and I am still holding FLR as my stock of the year. These guys will get hurt if oil and gas continue their decline, but if they reverse, this company has everything else going in the right direction and they will be clicking on all cylinders.
I mentioned last week that we were in a dangerous area if the dollar continued to strengthen. Many of you argue that we will not be in a bad area because we are not importing so much (in terms of dollars) oil. The danger of oil causing the dollar to fall is very much alive and everyone has discounted it. The market always amazes me with how quickly it can forget. INFLATION AND THE WEAK DOLLAR ARE ON THE WAY.
STAY TUNED
At the time of this writing, the futures are up as are the overseas markets. There appears to be a lot of confidence in President-Elect Obama's pledge of a public works stimulus. I agree that this will be the best stimulus that we have seen thus far. We must get jobs growing again.
I look for oil prices to get going again. OPEC is in an area where they really stand to lose if they don't get prices up soon. Back in the 80's it got so low they could not do much with it and I think they will act before they get caught in that situation again. I think natural gas will go up as does oil. I am almost certain that the dollar is going to fall at some point in the near future. I just don't see how it can hold up as we continue to borrow all of this money.
Sometimes you just can't fight the market---even when it seem irrational. I know that there has been a lot of smart money on the sidelines for quite some time now and the volume on the up days has been leading me to believe that some of that money is quietly beginning to creep into the market. The world is printing money at never before seen levels. Inflation is headed our way and I am still holding FLR as my stock of the year. These guys will get hurt if oil and gas continue their decline, but if they reverse, this company has everything else going in the right direction and they will be clicking on all cylinders.
I mentioned last week that we were in a dangerous area if the dollar continued to strengthen. Many of you argue that we will not be in a bad area because we are not importing so much (in terms of dollars) oil. The danger of oil causing the dollar to fall is very much alive and everyone has discounted it. The market always amazes me with how quickly it can forget. INFLATION AND THE WEAK DOLLAR ARE ON THE WAY.
STAY TUNED
Wednesday, December 3, 2008
ARE THEY ALL BULLISH?
If you are watching the mainstream media then you must be hearing all of the bulls rattling around about how great the market has been acting and how we "MUST BE HEADED HIGHER". As I said in an earlier post, a lot of the smart money is one the sidelines. I am considering selling my SDS, even though I believe that the market will ultimately head lower. One of the things that I have learned (and have paid the tuition) is that you MUST follow money management principles. I will watch carefully tomorrow, but won't take much more pain with the SDS.
I am certainly not in the camp that says "stocks are cheap" as many of them are going to get cheaper. I am hearing more people make mention of the fact that liquidity is increasing. I believe that when the realization hits we are going to see a much weaker dollar and inflation. For those of you that email me the closing price of oil everyday that it falls---understand that I have acknowledged that we are seeing SHORT TERM PRICE DEFLATION. I have further said that I KNOW that I cannot call the bottom. I am trying to slowly scale into positions that I believe are going to work. I have been open about the hammering that I have taken in UNG. Is natural gas going to turn soon? I do not know for sure, but given what I have learned about inflation, liquidity, currencies, and commodities---I believe that it will in fact turn at some point. It will ultimately revert to a supply and demand equilibrium and I believe that demand will outgrow supply. I have put a small part of the position that I intend to play (about 25% to this point) and will add as it picks up momentum. Until then I just have to grin and bear the downturn.
Another point for you DEFLATIONERS--Did you see that we saw increased productivity and wage pressure today? How did that happen. You deflationers believe that we can't have inflation if unemployment is rising at such rapid rates. So make the comment below and tell me why we are under wage pressure if deflation is the main problem right now. You cannot tell me that we are in any type of long term deflationary scenario.
I always wanted to be a perfect market timer and it caused me to lose a lot of money. The first time I spoke to Jim Rogers he said he was a terrible market timer. As I listened to other interviews of him and other successful investors, I realized that I needed to match my risk tolerance and my ability to preserve the capital that I had. It sounds so simple, but I made many a mistake holding a stock because I was looking my break even point or my account balance instead of valuing the stock. I have learned (and am still learning) to adjust my position size according to how much pain I believe that I could tolerate and still own that particular security. I love to buy a bunch and watch it run. But what is fun and what is smart money management are not often the same. I have learned that THE MOST FUN is to be smart and MAKE THE MONEY. Not swing for the fences and miss on 3 out of 4.
Enough rambling--back to this economy. Someone please explain to me how this talk of lowering mortgage rates at 4.5% is going to do anything but cause inflation. I said last night that the dollar is of utmost importance, and I stick by that statement. For those of you that have not heard my interview with Michael Panzner from back in the summer, I will post it again. He said that he thought gold was the place to be, but that he thought it was going lower (AGAIN THIS INTERVIEW WAS DONE BACK IN THE SUMMER). The point is that a lot of the people, such as Schiff, Panzner, and Rogers that have been right---have not tried to call the exact top. They have seen the factors and called the right outcome. That is exactly what I am trying to do here. I am not rushing out to buy all of the gold and oil that I can get my hands on TODAY. But I am prepared to invest around my long term thesis.
I AM ATTACHING THE PANZNER INTERVIEW AGAIN. REMEMBER IT WAS DONE BACK THIS SUMMER. FOR THOSE OF YOU THAT HAVE SEEN IT POSTED MORE THAN ONCE, I APOLOGIZE---I JUST THINK IT HELPS MAKE MY POINT!!!!
I am certainly not in the camp that says "stocks are cheap" as many of them are going to get cheaper. I am hearing more people make mention of the fact that liquidity is increasing. I believe that when the realization hits we are going to see a much weaker dollar and inflation. For those of you that email me the closing price of oil everyday that it falls---understand that I have acknowledged that we are seeing SHORT TERM PRICE DEFLATION. I have further said that I KNOW that I cannot call the bottom. I am trying to slowly scale into positions that I believe are going to work. I have been open about the hammering that I have taken in UNG. Is natural gas going to turn soon? I do not know for sure, but given what I have learned about inflation, liquidity, currencies, and commodities---I believe that it will in fact turn at some point. It will ultimately revert to a supply and demand equilibrium and I believe that demand will outgrow supply. I have put a small part of the position that I intend to play (about 25% to this point) and will add as it picks up momentum. Until then I just have to grin and bear the downturn.
Another point for you DEFLATIONERS--Did you see that we saw increased productivity and wage pressure today? How did that happen. You deflationers believe that we can't have inflation if unemployment is rising at such rapid rates. So make the comment below and tell me why we are under wage pressure if deflation is the main problem right now. You cannot tell me that we are in any type of long term deflationary scenario.
I always wanted to be a perfect market timer and it caused me to lose a lot of money. The first time I spoke to Jim Rogers he said he was a terrible market timer. As I listened to other interviews of him and other successful investors, I realized that I needed to match my risk tolerance and my ability to preserve the capital that I had. It sounds so simple, but I made many a mistake holding a stock because I was looking my break even point or my account balance instead of valuing the stock. I have learned (and am still learning) to adjust my position size according to how much pain I believe that I could tolerate and still own that particular security. I love to buy a bunch and watch it run. But what is fun and what is smart money management are not often the same. I have learned that THE MOST FUN is to be smart and MAKE THE MONEY. Not swing for the fences and miss on 3 out of 4.
Enough rambling--back to this economy. Someone please explain to me how this talk of lowering mortgage rates at 4.5% is going to do anything but cause inflation. I said last night that the dollar is of utmost importance, and I stick by that statement. For those of you that have not heard my interview with Michael Panzner from back in the summer, I will post it again. He said that he thought gold was the place to be, but that he thought it was going lower (AGAIN THIS INTERVIEW WAS DONE BACK IN THE SUMMER). The point is that a lot of the people, such as Schiff, Panzner, and Rogers that have been right---have not tried to call the exact top. They have seen the factors and called the right outcome. That is exactly what I am trying to do here. I am not rushing out to buy all of the gold and oil that I can get my hands on TODAY. But I am prepared to invest around my long term thesis.
I AM ATTACHING THE PANZNER INTERVIEW AGAIN. REMEMBER IT WAS DONE BACK THIS SUMMER. FOR THOSE OF YOU THAT HAVE SEEN IT POSTED MORE THAN ONCE, I APOLOGIZE---I JUST THINK IT HELPS MAKE MY POINT!!!!
Tuesday, December 2, 2008
Fall Dollar Fall!!!--But Slowly Please
Is the title of this post Un-American or insane? It is neither. It is actually what needs to happen in the short term. During the summer, we were in this vicious cycle where the falling dollar was causing the price of oil to increase. The dollar/oil correlation got all of the HEADLINES. But quietly, the falling dollar was helping our corporations as their exports were increasing. With this recent dollar rally, I think we are going to see some companies report worse than expected numbers as that "leg" that was propping us up in the summer is gone. So will the final quarter of the year show awful domestic results combined with potentially worse than expected export results? I believe that it is quite possible. Now given today's action one might argue that we have factored in the worst possible numbers through the end of the year. I am just not convinced that we are immune to all bad news between now and the first quarter of next year.
I am convinced that the recent deflationary action is going to be much shorter than most expect. You can list a plethora of excuses as to why this time is different---that the banks needed the TARP to reflate...and the list can go on. But I don't buy any argument for the long term. The simple fact is that anytime (and I challenge anyone to post a comment proving me wrong) we have seen massive liquidity injection----inflation follows. HERE I WILL ARGUE THAT THIS TIME IS DIFFERENT---DIFFERENT BECAUSE WE HAVE NEVER--EVER SEEN THE ENTIRE WORLD PARTICIPATE IN ADDING LIQUIDITY.
I believe that we are in a technical trading market. I have been open that I have gotten hammered on my SDS. Why haven't I closed the position? Because I have not seen anything that has fundamentally changed. Are some stocks cheap? Yes, but there always some undervalued equities around. The question is are stocks as a whole undervalued? Not in my book. Just as I believe wholeheartedly that liquidity injections will cause inflation, I believe that the market will rally BEFORE THE ECONOMY SHOWS IMPROVEMENT. But that doesn't mean that I think we are to that point right here. We have so many obstacles to overcome in this economy and market. I am very concerned that if the dollar continues to rally and the credit markets unclog---we could see inflation start to really take hold before our economy begins to recover. I know all of the counter arguments 1)that you can't have inflation if jobs are declining 2)that it takes growth to spur inflation 3) this time is different because we have all learned our lesson and are going to forget about buying on credit and all open savings accounts 4)this latest cycle proved that when we sneeze the rest of the world gets a cold. 5)and so on and so forth. BUT WHAT IF THIS TIME IS DIFFERENT?
What if because China is paying for their infrastructure stimulus (better than a hand it to the consumer stimulus) with reserves and not debt (which they are) and they recover faster than we do? Will that lead to higher prices? And then will the dollar fall? Fall Rapidly? And we know from this summer that a rapidly falling dollar can lead to an even more rapid oil price increase. (No problem, we will just get our OPEC friends to increase production and drop the price right?) WE NEED THE DOLLAR TO SLOWLY DECLINE NOW!!!! Right now while Chinese growth is not a problem. Right now where it will show up in exports and save some jobs. The government should sell dollars immediately. That would be better than the TARP, certainly better than a automaker bailout, and even better than a good ole stimulus check arriving in your mailbox. We need our companies to be able to sell things we make abroad. Why would this be better than an automaker bailout? Because it would not reward inefficient past behavior that simply cannot be bailed out. I would never want to see one single individual lose their job, but the legacy costs that are facing the automakers are simply UNSUSTAINABLE.
Yes we are better than the rest of the world and I am proud that our dollar showed so much strength through this recent global economic downturn. Further I believe that we need a strong dollar over the long term to maintain our prosperity. BUT OVER THE SHORT RUN WE NEED A PULLBACK. A RETRACEMENT. WHATEVER YOU WANT TO CALL IT THE DOLLAR NEEDS TO DECLINE. BUT ONLY FOR THE SHORT RUN.
I submit to you that the DOLLAR is much more important right now that are the technicals of the market. The fundamentals of this market depend on it. Watch the dollar, there has never been a point in history where it has been this critical.
I am convinced that the recent deflationary action is going to be much shorter than most expect. You can list a plethora of excuses as to why this time is different---that the banks needed the TARP to reflate...and the list can go on. But I don't buy any argument for the long term. The simple fact is that anytime (and I challenge anyone to post a comment proving me wrong) we have seen massive liquidity injection----inflation follows. HERE I WILL ARGUE THAT THIS TIME IS DIFFERENT---DIFFERENT BECAUSE WE HAVE NEVER--EVER SEEN THE ENTIRE WORLD PARTICIPATE IN ADDING LIQUIDITY.
I believe that we are in a technical trading market. I have been open that I have gotten hammered on my SDS. Why haven't I closed the position? Because I have not seen anything that has fundamentally changed. Are some stocks cheap? Yes, but there always some undervalued equities around. The question is are stocks as a whole undervalued? Not in my book. Just as I believe wholeheartedly that liquidity injections will cause inflation, I believe that the market will rally BEFORE THE ECONOMY SHOWS IMPROVEMENT. But that doesn't mean that I think we are to that point right here. We have so many obstacles to overcome in this economy and market. I am very concerned that if the dollar continues to rally and the credit markets unclog---we could see inflation start to really take hold before our economy begins to recover. I know all of the counter arguments 1)that you can't have inflation if jobs are declining 2)that it takes growth to spur inflation 3) this time is different because we have all learned our lesson and are going to forget about buying on credit and all open savings accounts 4)this latest cycle proved that when we sneeze the rest of the world gets a cold. 5)and so on and so forth. BUT WHAT IF THIS TIME IS DIFFERENT?
What if because China is paying for their infrastructure stimulus (better than a hand it to the consumer stimulus) with reserves and not debt (which they are) and they recover faster than we do? Will that lead to higher prices? And then will the dollar fall? Fall Rapidly? And we know from this summer that a rapidly falling dollar can lead to an even more rapid oil price increase. (No problem, we will just get our OPEC friends to increase production and drop the price right?) WE NEED THE DOLLAR TO SLOWLY DECLINE NOW!!!! Right now while Chinese growth is not a problem. Right now where it will show up in exports and save some jobs. The government should sell dollars immediately. That would be better than the TARP, certainly better than a automaker bailout, and even better than a good ole stimulus check arriving in your mailbox. We need our companies to be able to sell things we make abroad. Why would this be better than an automaker bailout? Because it would not reward inefficient past behavior that simply cannot be bailed out. I would never want to see one single individual lose their job, but the legacy costs that are facing the automakers are simply UNSUSTAINABLE.
Yes we are better than the rest of the world and I am proud that our dollar showed so much strength through this recent global economic downturn. Further I believe that we need a strong dollar over the long term to maintain our prosperity. BUT OVER THE SHORT RUN WE NEED A PULLBACK. A RETRACEMENT. WHATEVER YOU WANT TO CALL IT THE DOLLAR NEEDS TO DECLINE. BUT ONLY FOR THE SHORT RUN.
I submit to you that the DOLLAR is much more important right now that are the technicals of the market. The fundamentals of this market depend on it. Watch the dollar, there has never been a point in history where it has been this critical.
Monday, December 1, 2008
CONFIDENCE??
What happened to all of the confidence that we were seeing last week? I wrote about the endless parade of bottom callers that the mainstream media had for us last week. I was not convinced that last weeks rally was the bottom. When you analyze what is going on in the global economy---you see that we could be in for more pain. I am working fast and furiously to figure out how to really make some serious money in this environment.
I believe that we are getting close to the bottom of the commodities decline. I acknowledge that I can't call the exact bottom, so I am going to slowly start buying the commodities that I see rebounding. I posted a portion of Jim Rogers Bloomberg interview in my post last night and will again say that I did not hear him say anything about any issue that he saw that would deter inflation in the long term. We are seeing the government pour money into the system at never before seen rates and unless I am totally wrong, we will see them throw some money at the automakers tomorrow. While Chairman Bernanke did acknowledge that he can still lower interest rates---he now is talking about buying treasuries. Hmmm--more money being injected into the economy. Did I mention that Australia cut by a full point? Their biggest move since 1991. INFLATION IS ON THE WAY.
I have been short the market through the SDS and it had a nice gain today. We ultimately believe that the massive liquidity injections are going to weaken the dollar. I will go back to the second conversation I had with Jim Rogers. I was short the SPY at the time and I asked him if things were so dire why my shorts were getting hammered. He made the point that during an inflationary period the indices might very well be moving up, but you would ultimately have less money because of the inflation and the destruction of the value of the dollar. Lets keep that point in mind as we analyze where we are right now. Now we are in a situation where the dollar has rallied. This is a huge negative for stocks over the short term as I see it because when the dollar had weakened---we were seeing growth come from exports. So now we have a double whammy---worldwide demand has slowed and the dollar has fallen and is making our goods more expensive in a declining demand environment. So over the very short term, I see extremely weak numbers for our corporations. I am holding my SDS and will do so based on the TECHNICALS. I am looking to position myself for the longer term move based on the FUNDAMENTALS. That is why I am looking toward the commodities.
So to begin our portfolio we will start with the following
200 shares UNG (we will use the opening price tomorrow)
200 shares TBT (open price tomorrow)
100 shares SDS (open price tomorrow not to exceed 104)
100 shares DBA
Please note that our portfolio is for entertainment purposes only and you should consult your investment adviser before making any trades.
At the time of this writing, the futures are in positive territory. I believe that the TBT which is a way to short the Treasuries---is a good investment as I believe that the next bubble being created is the Treasuries bubble. We may well see them go higher and that is why I am starting slow. What factors do I think could cause the treasuries to fall? First I think that when the markets are convinced that deflation is under control (I am not saying that I see deflation---I am simply saying that many market participants have been worried about deflation as of late) they will move out of the treasuries. Obviously I believe that it will be crystal clear that deflation is not the problem within the next 6 months to a year. If we take retest the lows and successfully bounce---we will see investors gain a little more confidence. Increasing confidence will translate into lower treasuries. I think we are headed to retest the lows.
I am keeping my eye on the dollar. As I said, for the time being a stronger dollar is bad for stocks (I know Larry Kudlow would argue that---but you know what I think about the mainstream media). We need that export component to help our economy grow. The interesting period will be (and many will argue against me) when the dollar begins to fall and the economy shows signs of stability. I think that is when I will be able to ramp up my strategy of commodities.
I am posting the PART ONE of Jim Rogers' Bloomberg Interview Below:
I believe that we are getting close to the bottom of the commodities decline. I acknowledge that I can't call the exact bottom, so I am going to slowly start buying the commodities that I see rebounding. I posted a portion of Jim Rogers Bloomberg interview in my post last night and will again say that I did not hear him say anything about any issue that he saw that would deter inflation in the long term. We are seeing the government pour money into the system at never before seen rates and unless I am totally wrong, we will see them throw some money at the automakers tomorrow. While Chairman Bernanke did acknowledge that he can still lower interest rates---he now is talking about buying treasuries. Hmmm--more money being injected into the economy. Did I mention that Australia cut by a full point? Their biggest move since 1991. INFLATION IS ON THE WAY.
I have been short the market through the SDS and it had a nice gain today. We ultimately believe that the massive liquidity injections are going to weaken the dollar. I will go back to the second conversation I had with Jim Rogers. I was short the SPY at the time and I asked him if things were so dire why my shorts were getting hammered. He made the point that during an inflationary period the indices might very well be moving up, but you would ultimately have less money because of the inflation and the destruction of the value of the dollar. Lets keep that point in mind as we analyze where we are right now. Now we are in a situation where the dollar has rallied. This is a huge negative for stocks over the short term as I see it because when the dollar had weakened---we were seeing growth come from exports. So now we have a double whammy---worldwide demand has slowed and the dollar has fallen and is making our goods more expensive in a declining demand environment. So over the very short term, I see extremely weak numbers for our corporations. I am holding my SDS and will do so based on the TECHNICALS. I am looking to position myself for the longer term move based on the FUNDAMENTALS. That is why I am looking toward the commodities.
So to begin our portfolio we will start with the following
200 shares UNG (we will use the opening price tomorrow)
200 shares TBT (open price tomorrow)
100 shares SDS (open price tomorrow not to exceed 104)
100 shares DBA
Please note that our portfolio is for entertainment purposes only and you should consult your investment adviser before making any trades.
At the time of this writing, the futures are in positive territory. I believe that the TBT which is a way to short the Treasuries---is a good investment as I believe that the next bubble being created is the Treasuries bubble. We may well see them go higher and that is why I am starting slow. What factors do I think could cause the treasuries to fall? First I think that when the markets are convinced that deflation is under control (I am not saying that I see deflation---I am simply saying that many market participants have been worried about deflation as of late) they will move out of the treasuries. Obviously I believe that it will be crystal clear that deflation is not the problem within the next 6 months to a year. If we take retest the lows and successfully bounce---we will see investors gain a little more confidence. Increasing confidence will translate into lower treasuries. I think we are headed to retest the lows.
I am keeping my eye on the dollar. As I said, for the time being a stronger dollar is bad for stocks (I know Larry Kudlow would argue that---but you know what I think about the mainstream media). We need that export component to help our economy grow. The interesting period will be (and many will argue against me) when the dollar begins to fall and the economy shows signs of stability. I think that is when I will be able to ramp up my strategy of commodities.
I am posting the PART ONE of Jim Rogers' Bloomberg Interview Below:
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