Monday, February 16, 2009

Japan Contracts Fastest in 35 Years

Will we ever quit reading headlines talking of record rates of contraction? Yes, but not any time soon. Many have sent emails asking if I am backing off of my weak dollar call. The answer is no, but as Jim Rogers said in our interview last month now may not be time to short the dollar. While I am personally short the dollar through the UDN, it may be some time before that investment finally pays off. For those baffled at the dollar's strength after the passage of the stimulus package---Remember that the European Banks are in seemingly worse shape than our banks and the slowdown in our economy has caused the slowdown worldwide. Many have asked "If we lead the downturn, will we lead the rebound" I think the answer to that question will be where the rubber meets the road and separates the winners from the losers. I think China recovers first and I think we are seeing signs of their recovery already. The "leg" that has not yet started the recovery is a big one---the part of their economy that is dependent on exports to the U.S. I do not see us having to lead the globe out of this recession. I see other areas recovering first and that is the basis of my worries about hyperinflation and stagflation.

I try to break things down in an effort to simplify. The world population grew by approximately 80 million people in 2008. 80 million more individuals that need to eat and will be consumers of some kind. Yes, consumption has contracted worldwide, but all countries have added to their monetary bases. I believe that we are destined to see rapid inflation. You can call the process that we are going through now whatever you like (deflation, disinflation, reflation, etc.) but in the end the question is how long the current process will last---because the next phase will be INFLATION. Opec is making drastic cuts to their production levels and I don't think the first announcements of production cuts have ever had an impact on prices because by the time they decide to cut---the deceleration of demad always outpaces their initial cuts. They will eventually cut enough to make a difference and increasing prices will have an impact on the dollar. And then the inflation cycle will be kicked off---and there will be no stopping it. The strong dollar crushed commodities price and who knows how long the dollar will be able to stay strong. Given the awful numbers out of the Euro Zone and Japan, it could be quite some time before we hear news from our neighbors that would prove their currencies a more viable reserve than the dollar. There is no way to tell when it will turn, but I believe that it most certainly will and that is why I am sticking with my dollar negative investments.

One of the best pieces of advice I have heard in a long time came from Jonathan Hoening when he told me that he lets the price action of stocks tell him what stocks to buy. I have found a couple of risky stocks---but I think there price action looks interesting. First is Teradata TDC. I like the fact that they don't have much debt and I like where they are from a technical stand point. Please read my disclaimer. I am not an investment adviser and this is not investment advice. VNUS medical also looks interesting from a technical perspective.

I had expected the markets to bounce tomorrow, but given the overseas averages----I don't know what happens tomorrow. I will most likely have an update in the morning when I get a feel for the futures tomorrow morning.

James Turk of GOLD MONEY will be our guest on THURSDAY!

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