As the Dollar Continues to Collapse, Where Will You Put Your Money? 118 comments
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This piece follows a previous article, in which I warned against shorting equities -- despite the fact that I believe the stock market is going to fall dramatically, at least in real terms (which I'll again expand upon later). As usual, my cautious outlook prompted a flurry of emails from readers asking what they should be doing with their money in order to prepare for the impending firestorm of rising prices that will derive from the inflationary printing and unprecedented credit-easing governments worldwide are foisting on their citizens.
It's important to note that, although I refer to "the" collapse of the dollar and Treasuries, these events are not going to happen in one minute, or one day, or even one week. Indeed, since I started writing about this scenario in December, the government has done so much to try to reverse the course of this trend, and yet the cracks have widened, and the dollar and Treasuries continue their inexorable march downward. Even though I don't believe, however, there will be any particular event that will trigger the collapse, I do believe it will accelerate with time -- ultimately exploding in a quick, catastrophic climax.
I am forever an analyst, but I am no longer an adviser or manager, and I want to encourage anyone investing money to do a prodigious amount of research before committing funds to anything – especially in this environment. Having said that, the best and safest place to start discussing my own opinions about capital allocation is to reiterate what you shouldn't be investing in: stocks, Treasuries, and dollars. As I said in my last article, although the stock market may trade sideways or even go higher from here, once the consequences of the unparalleled governmental printing spree and credit-easing of the last few years finally do hit the economy, earnings and dividends growth -- which are the main drivers of stocks – will never be able to keep pace with the inevitable and substantial inflationary price increases in the general economy.
This highlights what I consider to be the most dangerous part of this environment: your portfolio will appear to be going higher, but in real terms, you'll be losing money – on a scale greater than, I believe, even that of the 1929 to 1932 collapse. The only thing I can imagine worse than watching the market fall the 90% or so that it did 80 years ago is watching a stock market rise in a period in which it is vastly underperforming inflationary price explosions. The drop from 1929 to 1932 may have been painful, but at least it was an honest market.
So where do you go to survive, or even to outperform?
SHORTING THE DOLLAR INDEX?
The dollar index is merely a gauge of the dollar against a handful of the rest of the world's major currencies – leading to a general misperception that I call "currency relativity." Unfortunately, the fact is that every other central bank on earth is employing the same quantitative easing principles as the U.S., and so their currencies are equally doomed. If you short the dollar index, you are merely taking a position that the dollar is going to be weak relative to other major currencies, and that probably isn't going to be the case; they're all trapped in the same burning house.
On a related note, you may want to pay attention to the fact that Treasuries and gold seem to be decoupling from their heretofore nearly direct inverse relationship with equities. What does this mean? Mainly, in my eyes, it decries the old notion that, just because the stock market goes down, people will run to Treasuries as a safe haven; apparently the so-called "risk-free" rate of return isn't so risk-free anymore. Likewise, it would seem that, just because the stock market is going up, people aren't necessarily dumping gold. And this lends credence to my theory that investors not only expect inflationary pressures to drive stocks higher in nominal terms (but not real terms), but also that, in order to really survive rising prices, gold is one of the best places to be.
REAL ESTATE?
Have we hit the bottom, and are prices going to rebound from here? My best guess is that, again in nominal terms, we are near a "bottom," but as with the stock market, what does that mean? Yes, housing prices might rebound, but will those prices outperform inflationary pressure in the entire economy? Probably not. I will say this, however: when rates and prices are shooting skyward, having a personal residence with a relatively low interest-rate fixed-rate mortgage is a great position to be in – assuming you have a job, and you are going to be able to keep it. First, there's the tax deduction on the mortgage interest. But more importantly, a fixed-rate is just that: fixed. Even as all other prices and rates move higher, the mortgage payment doesn't – making it a progressively smaller part of a household budget.
To illustrate the way fixed-rate mortgages work with inflationary trends, think about the house your parents or grandparents bought for $20,000 several decades ago. Their monthly payment remained fixed at around $200 per month for thirty years, and yet their wages undoubtedly increased dramatically in that time. At the beginning, $200 was likely a hefty part of their budget, but toward the end, it was probably insignificant. Now, imagine how much that effect would be amplified by a hyper-inflationary economy – which, unfortunately, our government has all but guaranteed in the coming years. Remember, we all have to live somewhere, and if part of your cost of domicile is going toward equity, and the interest you're paying is fixed -- in an environment of rising rates and prices -- well, I guess it doesn't get much better than that. The alternative is to rent -- and leases escalate with inflationary surges.
In general, however, the reason I believe housing won't outperform inflation is that credit is all but gone; no matter what any of the pundits say on CNBC, the stark reality is that people can't get loans. It doesn't take much to recognize that if the consumer can't borrow, then he can't buy a house. And if that condition has become the status quo – and I believe it has – then what will drive the housing market?
COMMODITIES?
People call me a gold bug. I'm going on the record here -- I am not a gold bug. I am, however, a huge fan of commodities right now -- and gold is hovering near the top of my list. Gold has almost no industrial value, but I follow it anyway, because it is nearly a perfect metric for the anticipation of future inflationary price-increases. Why? Gold has a psychological component that it shares with almost no other thing on earth -- it literally packs eons of historical consistency and value; people have always been passionate about gold, and it has unfailingly been the ultimate measure of economic and financial stability. As such, when people are frightened, they fly to the one thing that embodies that stability in order to protect wealth, and this means that gold will react to inflation faster and more accurately than just about anything else.
Further, its overall popularity means it is more liquid than other scarce metals and stones. All of these variables come together to convince me that, when the bottom falls out of the dollar and Treasuries, not only will gold keep up with prices, but it will outperform as people flock to its empirical safety. Remember: during a panic, everything tends to overshoot intrinsic value, to the upside and to the downside. Gold's universal nature will undoubtedly put it at the head of the pack, all but guaranteeing an above-average rate of return – at least until everything stabilizes. Unfortunately, however, I think we are sitting on the cusp of a colossal crisis, the likes of which we've never seen. At this point, economic stabilization seems like little more than a distant dream.
For many of the same reasons I like gold, I also like oil and agriculture. Let's face it -- getting a loan these days is almost impossible for anyone, and farmers and oil-producers are no exceptions to this troubling rule. Yes, I understand a slowing economy means slowing demand for commodities. But demand for food and oil will not simply cease; 2 billion Chinese and Indians may not be buying at the Gap (GPS) this season, but they aren't about to stop driving and eating. So -- unlike gold -- oil and agriculture do have practical aspects to their demand that ensure more than a mere "safe store of wealth." As currencies falter, prices of oil and agriculture will keep pace; the fact that producers in these industries can't borrow should limit supply in a world in which demand probably won't fall all that significantly – relative to everything else. All this will almost certainly equate to better-than-average performance.
SHORTING TREASURIES?
Shorting long-term Treasuries at this moment may be my favorite investment of all time. I love how the Fed commits to buying $300 billion worth of 10- to 30-year Treasuries in order to keep down the long end of the yield curve, and yet those rates go up anyway. This is just more evidence that the United States government is rapidly losing its ability to manipulate the economy, as well as further testimony that now is the time to bet against the Fed, and to bet against it big. I know, I know, I'm a doomsday prophet and a conspiracy theorist. Believe me, I've heard it all. Try to remember, though -- if you can see through that fog of skepticism and doubt -- that people were also ridiculed for predicting the failures of the Roman, British, and Soviet empires. And yes, you are correct -- anyone can make a general prediction, but timing is everything.
Let me be clear on this point, however: I am not making a vague prediction; I am predicting, specifically, that the dollar is going to weaken to the point of collapse – along with many other global currencies, and that it's going to happen sometime in the next two years (probably sooner). Try to bear in mind that the U.S. has committed itself to almost $13 trillion just to battle this financial crisis alone, and that figure is 50% more than the government has spent on every single project, war, or undertaking since the country's inception, in real dollars -- combined.
Despite what you may or may not believe about my prediction, shorting long-end Treasuries continues to be a no-lose proposition. If by some miracle, the Fed manages to pull some proverbial rabbit out of its hat and fix this incomprehensible mess, then part of its solution, ipso facto, will necessarily be raising rates to maintain the integrity of the dollar. On the other hand, if my prediction is correct and the dollar fails, well, Treasuries are going to follow it all the way down. Yields have been hovering near all-time lows for months. There's no place to go but up.
HOW DO YOU GET INVOLVED?
The obvious and inevitable question is: what vehicles offer the easiest and most practical way to participate in some of these moves? Until recently, the only way the average investor could profit from such events was to use futures contracts or to take physical positions, both of which are cumbersome, complicated, and involve a great deal of maintenance. Fortunately, however, times have changed. In recent years, many companies have introduced exchange traded funds (ETFs), some of which even offer two- or three-times leverage. There are a lot of them out there, and I again encourage you to do thorough research before diving headfirst into any investment vehicle. In my own portfolio, I am using some of these ETFs, which I have disclosed below.
Disclosures: Paco is long TBT, UGL, and DXO. He also holds U.S. dollars by necessity, pending the advent of private gold-backed currencies.
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This article has 118 comments:
the false value of paper got us here. i don't think it will get us out. i have to agree with christletoe to an extent. be ready to help. the very wealthy will probably stay ahead of the curve and end up very powerful. in the end that is their goal.
But having much of my money in GDX, DAG, PBW, HL and CCJ, I found your article very comforting.
A good honest article....The only thing I would question and disagree with is your advice investing in such things as paper gold through EFTs. I see absolutely no point at all in investing in dollar denominated EFTs since, as you say, the dollar is going to fall -- so even if gold does goes up in value , you will lose all your gain through dollar devaluation when you cash out into dollars.
Secondly, not many people are aware that, about three weeks ago, the NYSE-Liffre futures exchange defaulted on its deliveries of 1Kg gold bars. Read it here:
www.marketskeptics.com...
www.marketskeptics.com...
www.marketskeptics.com...
Stay well away from dollar denominated stocks, the dollar and all EFTs.
Buy gold that you can hold.
But lets not hit the panic button on the US Dollar too hard just yet. The whole globe is invested in it in a very big way. Worries that creditors will start pulling out the rug from under us and forcing a major sell-off of all things American and debt related are truly overblown. A true dollar failure would have extreme and devastating global implications. I do not think for a moment that the biggest creditors are all about to shoot themselves in the feet on this one. They may be dismayed by what they are seeing with QE but at the end of the day most Governments want stability in financial markets and they will cooperate with the dollar devaluation because it is actually in everyones best interest (the lesser evil).
Every Government will take a loss on this one but it is better than the alternative of a total dollar failure. I follow the dire warnings being issued by Peter Schiff and others and while the message is convincing it is still a prediction and for him and others, a simple marketing tool to build business through fear. I listen, I take it with a grain of salt, and then I do my own thinking.
Let's not lose all faith and write the US off so quickly. Caution is the byword of the day but "it ain't over till the fat lady sings".
Cam
PS. I disagree with chistletoe. The problem being that if things do get that bad, law and order will break down and someone will come along and steal any hard assets and land you possess.
> and who have hard assets stockpiled. People who enjoy working and
>
> taking care of the people around them.
> The rich are all doomed. Which is no less and no more than what
> they deserve.
Personally, I am thinking more of a Jimmy Carter scenario, in which case almost anything that would cost more in dollars, but less in other currencies would be good. That would include most commodities, real estate (selective), and foreign currencies or foreign currency demoniated stocks/bonds.
The FED is clearly counting on refi's by our large middle class to put real money back into the hands of enough people to mitigate the current mess and prevent a depression from occurring. The cash equivalent makes the idiotic bush tax refund look like small ripple in the pond.
-Matt
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By Ye Xie
May 22 (Bloomberg) -- The dollar may rebound after the currency’s 3.7 percent plunge this week against the euro created a “lose-lose situation” for the U.S., Europe and other countries, according to Barclays Capital Inc.
The greenback tumbled this week against all of the 16 most actively traded currencies on concern U.S. creditworthiness deteriorated and near-zero borrowing costs made the nation’s assets less attractive to investors.
“While sentiment has become very negative toward U.S. bonds and the U.S. dollar, this sell-off does not seem to have benefited anyone,” wrote Steven Englander, chief U.S. currency strategist at Barclays, and Aroop Chatterjee, a colleague, in a research note today. “Appreciating regions such as the commodity currencies and euro zone have experienced a backup in bond yields in conjunction with effective monetary policy tightening. This is a lose-lose situation.”
The dollar slid today beyond $1.40 per euro for the first time since January, and its weekly drop was the biggest since the five days ended March 20, the week the Federal Reserve announced its plan to buy up to $300 billion in Treasuries to keep borrowing costs low.
Investors should buy one-week call options on the dollar versus the Swiss franc, which is “vulnerable on any pullback in global fiscal concern,” the New York-based analysts wrote. A call option gives investors the right to buy a currency at an agreed-upon price. The dollar dropped 3.3 percent to 1.0840 francs this week.
This in conjunction with the falling stock markets, should drop commodities and together act to magnify each other creating the sell off we need to go long again. Just my theory.
I don't think that is going to happen - but I don't think the people I know are ready for a man vs. man, woman vs. woman, man vs. child etc. internal warring for an extended period of time. Even if I have to eat the grass in my yard, I probably won't shoot my neighbor for his pinto beans he's been storing in the basement.
Refinancing helps, but not at the cost of monetary stability. Just Like Greenspan the wall street bankers have gotten Bernanke so afraid of deflation he is going to blow it. I will point out only bankers hate deflation (and those in debt) for everyone else it increase spending power. Uncontrolled deflation like in the great depression is bad. It is an absolute myth that deflation is so bad, and the fact that people can't see that easily amazes me. But then again people believed in efficient market theory.
For a people loosing real incomes for over thirty years, on social security, and living on savings through hard times deflation is a godsend that allows them to stretch their dollars and gives them increased discretionary spending power. Since consumer spending makes up 70% GDP how can this be bad. It can't. Does paying less for gas allow you to spend on other things and help the economy (it does). does paying more for gas do the same thing (no). The decrease in energy prices via the strong dollar and recession is a bigger stimulus than the handout our government is wasting. It goes directly to the people, unlike the money we are wasting on banks who are using it to buy securities and manipulate the stock markets.
On May 25 01:09 PM MattZN wrote:
> For any country with a large middle-class (like us), inflation is
> not fun but it also works quite well as a relief valve precisely
> because of the large number of fixed-rate mortgages out there. During
> the late 70's and early 80's my parents got squeezed like everyone
> else, but their mortgage payments also went down considerably relative
> to their wages and we squeaked through.
>
> The FED is clearly counting on refi's by our large middle class to
> put real money back into the hands of enough people to mitigate the
> current mess and prevent a depression from occurring. The cash equivalent
> makes the idiotic bush tax refund look like small ripple in the pond.
>
>
> -Matt
* Faux Demand for Foreclosed Homes Quick Read May 25, 2009
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Let's talk about what I was able to learn form those articles in the times, and how our government continues to rip us off. the following is a direct quite from the article.
In January, Mr. Jarvis began working as director of investor relations for Brewer Caldwell, a property management firm that had been approached by the CBI Group, a real estate fund based in Calgary, Alberta. In its first foray into the American market, CBI is buying 175 rental houses in Phoenix.
One of them belonged to Mary Lou and Jorge Aguilar, who purchased it new for $111,000 in 1999. Three years ago, after a series of financial difficulties, they refinanced for $185,000 for reasons they no longer understand. “Our lender talked a pretty picture,” Mrs. Aguilar said bitterly.
When the couple’s mortgage payment adjusted to $1,242 a month, they fell behind and ended up in foreclosure. They now pay $1,014 in rent, which they say is bearable.
Still, their feelings are mixed. “It’s not our house anymore; it’s someone else’s,” said Mrs. Aguilar, who works for the state welfare department.
This guy bought a house at 50dents on the dollar because the bank wouldn't cut them a break of 200 dollars a month to allow them to stay in a house. From todays 5/25/09 times it costs a bank 50 grand to go into foreclosure, and our government is giving banks 75 billion dollars to modify mortgages.
So in summary a thing that was sold as being good to us (mortgage relief bill), is a subsidy to banks of 75 billion dollars to do something that would have saved them money in the first. place.
Why do we have to pay a bank to cut somebody a break of 200 dollars a month when not cutting them that break costs the bank on average 50 grand. Once more another program shown to be a fraud.
On May 25 01:09 PM MattZN wrote:
> For any country with a large middle-class (like us), inflation is
> not fun but it also works quite well as a relief valve precisely
> because of the large number of fixed-rate mortgages out there. During
> the late 70's and early 80's my parents got squeezed like everyone
> else, but their mortgage payments also went down considerably relative
> to their wages and we squeaked through.
>
> The FED is clearly counting on refi's by our large middle class to
> put real money back into the hands of enough people to mitigate the
> current mess and prevent a depression from occurring. The cash equivalent
> makes the idiotic bush tax refund look like small ripple in the pond.
>
>
> -Matt
On May 25 01:21 PM MMMPARSLEY1 wrote:
> Even if I have
> to eat the grass in my yard, I probably won't shoot my neighbor for
> his pinto beans he's been storing in the basement.
> Some possibiilties:
> TAXABLE municipals which offer greater current yield or zero coupon
> municipals of states which are too big to fail - i.e. California.
> Walter Zweifler, ASA www.zweifler.com
Mr. Zweifler, I must heartily disagree with your conclusion that California is "too big to fail." California's budget is far out of control, and the federal government has too many other bailout candidates in line in front of California.
If you want to invest in municipal bonds, why would you invest in TAXABLE municipals (your term) in California rather than a muni bond fund in a safer state like Pennsylvania (such as SBPAX)?
A market downturn can happen suddenly and unpredictably, and if you're not shorting or using negative ETFs, it's very easy to miss it.
Each author is stuck with their cognitive process; people who see terrible things are going to happen are most often very black and white thinkers. So, their ability to analyze is responsive to their either/or way of seeing reality, and is suspect.
They may very well be correct. But, their ability to truly analyze, which requires cognitively managing and balancing and rebalancing a LOT of data is suspect.
I know this will get me a lot of thumbs down. But, there are no other Psychologists who have spent their life studying decision making and cognitive processes responding to SA.
Investing is nothing if not decision making. Most here do not understand their cognitive processes and cognitive strengths and weaknesses. I sugget that the more you know about you cognitive biases in decision making, teh more money you will potentially make.
G
On May 25 12:18 PM Sunnsea wrote:
> Funny. This morning the dollar is at $1.40 to the Euro. Back in
> June '08 it was trading at $1.60. Where was the panic then? Only
> complaints were about gasoline over $4.00 a gallon. Could it be
> because we have Obama as President that suddenly we use words like
> "collapse", "panic." It was the Bush policies that made sure that
> we a) did not even know we were in a recession since late 2007, (I
> knew we were in one but my right-wing friends kept telling me were
> not) and b) that the dollar should remain weak and we should not
> even discuss it. Then July 15 everything changed again with speculators
> out of the oil markets, trying to shore up a Republican victory (obviously
> that didn't work) to bring back the price of gasoline in America
> to "reasonable" levels the dollar strengthed against the Euro. By
> September 15, well, you know the story. Now all of the choice propaganda
> words are in every article to set the stage for an attempted Repblican
> coup in 2010. That is the point of all the dire forecasts that you
> read now.
100% agree with your sentiments Missing_Link. Going further though, in this environment I would not touch any Municipal bond with a 10 foot pole. What I have has to be liquid, certain, transportable and free to sell on a moments notice. We're getting a curve ball a week thrown at us now and the last thing I want is to have money tied up on term (any term). Plenty of municipals defaulted in the Great depression and too many investors got wiped out believing in the security of those "investments".
I already feel like I'm dodging bullets out there without having to worry about the City or State I invested in bankrupting on me. Yikes!
On May 25 Missing_Link wrote:
>Mr. Zweifler, I must heartily disagree with your conclusion that >California is "too big to fail." California's budget is far out of control, >and the federal government has too many other bailout candidates >in line in front of California.
>If you want to invest in municipal bonds, why would you invest in >TAXABLE municipals (your term) in California rather than a muni >bond fund in a safer state like Pennsylvania (such as SBPAX)?
There is a game of chicken going on right now. Buy US bonds at a loss or we (US) will buy them and destroy your investments in USD and increase inflation in all other countries with high commodities prices. This will cause the powers to be in other countries to lose elections. In the end the others will buy bonds or they will exchange their currency for USD to save their economies
On May 25 09:50 AM cameroni wrote:
> Nice article,
>
> But lets not hit the panic button on the US Dollar too hard just
> yet. The whole globe is invested in it in a very big way. Worries
> that creditors will start pulling out the rug from under us and forcing
> a major sell-off of all things American and debt related are truly
> overblown. A true dollar failure would have extreme and devastating
> global implications. I do not think for a moment that the biggest
> creditors are all about to shoot themselves in the feet on this one.
> They may be dismayed by what they are seeing with QE but at the end
> of the day most Governments want stability in financial markets and
> they will cooperate with the dollar devaluation because it is actually
> in everyones best interest (the lesser evil).
>
> Every Government will take a loss on this one but it is better than
> the alternative of a total dollar failure. I follow the dire warnings
> being issued by Peter Schiff and others and while the message is
> convincing it is still a prediction and for him and others, a simple
> marketing tool to build business through fear. I listen, I take it
> with a grain of salt, and then I do my own thinking.
>
> Let's not lose all faith and write the US off so quickly. Caution
> is the byword of the day but "it ain't over till the fat lady sings".
>
>
> Cam
On May 25 02:09 PM Missing_Link wrote:
> Mr. Ahlgren, I must disagree with your conclusion that shorting equities
> is a bad idea in the near term. There's no reason to believe the
> rally will continue or that any significant uptrend is likely before
> the next round of earnings announcements in July.
>
> A market downturn can happen suddenly and unpredictably, and if you're
> not shorting or using negative ETFs, it's very easy to miss it.
Dollar slide could be investment "game changer"
Thu May 21, 2009 12:48pm EDT
By Mike Dolan - Analysis
LONDON (Reuters) - This week's accelerated U.S. dollar slide may mark a key moment in the world's financial stabilization and economic recovery, indicating a return of stress-free investment patterns that could be self-perpetuating.
Although many false dawns and premature "all-clear" signals have come and gone over the past two years of market turmoil, investors are watching the dollar's drop with great interest.
Its decline -- the first in almost a year -- appears independent of broader movements in equity or bond markets.
After months in which the dollar did the exact opposite of the stock market -- partly on the argument that falling stocks meant greater stress and hence more demand for liquid, safe cash and Treasuries in the United States -- the link has broken down.
On Thursday, for example, the S&P 500 index of leading U.S. stocks was down for the third session in a row and off more than two percent from Monday's close. But the dollar's index .DXY against a basket of major currencies was also down 1.7 percent over the same period.
This breakdown of the high correlations and proxy trading that were characteristic of the most intense moments of the credit crisis may reveal a greater healing of the system.
What is more, if this gradual weakening of the dollar develops into a steady trend, the knock-on benefit for the likes of hard-hit emerging markets are significant.
"The big surprise for people is the declining correlation between equity markets and currency markets -- this is where the breakdown is going to happen," said Momtchil Pojarliev, Head of Currencies at Hermes Fund Managers.
"During the most turbulent periods, markets became very correlated as people were looking for proxies," said Pojarliev. "But now that markets are back to normal there's no need for proxy trades. And with deleveraging now completed from the hedge fund side, correlations are going back down."
CORRELATIONS AND JUBILATIONS
Rising correlations between different asset classes and groups -- most of which sold off in lock-step as the credit crunch raged -- has been disastrous for pension funds and endowment funds who had benefited from highly diversified investment portfolios over the past 20 years.
For hedge funds, it has required re-engineering of trading strategies. As malfunctioning and illiquid credit and derivative markets were often impossible to play, many used still-liquid currency markets as proxy trades to bet on the unfolding crisis.
First of those proxies was to buy Japan's yen whenever stocks and risk appetite fell. The argument was that rising risk and volatility would see an unwinding of huge interest rate carry trades in which the yen was used as a cheap funding currency.
But that correlation broke down in January and February when the yen plummeted even as equity losses mounted.
The second negative correlation trade -- to buy U.S. dollars on equity losses -- coagulated in the middle of last year and intensified in the first quarter. Negative monthly correlations -- where a perfect one-for-one negative correlation would give a reading of -1.0 -- were as high as -0.9 for the first four months of this year.
But as tensions have eased hopes for economic stabilization have lifted equities, emerging markets and commodities and credit and money markets have normalized. This correlation is now being undermined.
"The dollar in the last 24 hours is potentially doing something more interesting here," said Paul Lambert, head of macro strategies at hedge fund managers Polar Capital.
"It's early days, but there is a world going forward where you might have a weaker dollar that could be independent from the behavior of risk."
Lambert said that's a world where the U.S. Federal Reserve adopts an aggressively easy monetary stance and retains that stance longer into the recovery than the market is currently expecting. "In that world, the dollar continues weakening."
The sharp steady decline in implied volatility, which has almost halved from early 2009 peaks for both Wall St stocks and currencies, has been critical freeing up money parked in money market funds and Treasuries.
With many risk management models requiring a decline in volatility before allowing funds to pick up riskier assets, the decline in vol has been profound in drawing out hunkered down U.S. cash back out to work in emerging markets and elsewhere.
Emerging market equities .MSCIEF have outperformed Wall St benchmarks .SPX by almost 30 percent this year.
A falling dollar is an added boon for emerging markets for several reasons -- it enhances the return on dollar-based US investments, stabilizes fixed exchange rate regimes, rebuilds foreign exchange reserves and lifts oil and commodity prices for the big commodity exporters.
RBS strategist Alan Ruskin reckons it is too early to say the link between the dollar and risk appetite for equities and other securities has broken down, but he says there are many arguments for a independently weaker dollar developing.
"The decline of the dollar has developed a life of its own," Ruskin said in a note to clients.
Negatives include the fact that near-zero yields will encourage traders to use the dollar to fund any return to riskier interest-rate carry trades, he said. And second is need for the conservative money parked in U.S. Treasury bills to find a new, more productive home.
Ruskin estimated that between September and March some $150 billion of private money and $297 billion of public money found its way into U.S. T-bills.
"Even modest reallocations can have an outsized impact."
(Editing by Ron Askew)
The next trade would be TBT, although I'm quite concerned about short term pull back of 10 year yield as it has made a big run from 3.0% to 3.5% in very short time. Perhaps a good entry point is if we get lucky and 10 year trades closer to 3.0% temporarily.
Finally, GLD will work as well, but I want to make sure the correlation of GLD to VIX (fear trade) dies away completely, before getting too bullish on GLD. According to my model, GLD is mostly trading on reflation / dollar weakness concerns, but sometimes still trades with rest of "fear trade" (FXY, VIX).
to as one who has travelled around the world as performer, learned
several languages; and helped my family buy their first home as a
young public school teacher, experiencing some days when times
were lean before that and had to recieve food from former tennants
because we had nothing to eat for dinner that night! They were the
good folks and their actions had nothing to do with being poor or rich, but had to do with their character!
I firmly believe from my own experience (and my background was not a rich one) that Napoleon was correct in saying that mind and
imagination rule the world and that even Adloph Hitler spouted
words of wisdom when he said that it is wonderful for governments that people don't think!
Those who work from the waist down will always be dominated by
those who work from the neck up! To feed a man for a day does
not teach him to live independtly for life, he must be taught to fish
or plant on his own! Unfortunately, much of what passess for
education in this country is a waste of time, lives, and money and does not encourage financial and personal skills in developing the
necessary ability for independent living. By the time they are six
the average person has been brainwashed into believing that their ideas and uniquenes have no value and someone else must be in
charge and supply them a sense of direction! This leads to masses
seeking poster boy leaders who indulge their fantacies and cater to
their desires! This is madness and leads to "soul selling" and the
compromise of personal integrity and impossilbe conditions that
have resulted in the economic mess this country and the world
finds itself mired in! Sex objects and elected tokens will do nothing
to circumvent the world's historical challenges. (Especially those
who apparently understand nothing about the history of currency
or have even a vague idea of the historical economic cycles that
have caused the fall of every empire since the Romans fiasco)
The rich are entitled to what everyone else is entitiled to, exactly what they have earned with their beliefs and their minds and their discipline and their work, and no one has a right to question that because others are poor!
Those who are so concerned about unfairness and the need for
the rich to be doomed need to check out the "republicrat' criminals
who retire with lifetime pension in the millions, with exorbitantly high
salaries payed for by the american taxpayer, the majority of the
voting population of whom have no more sense than to continue to
elect and re-elect them ignoring many fine third party candidates
running for office as independents, a term that apparently causes
some strange fear in the mass psychology of the american mind!
If anyone deserves what they get it is they! Unfortunately, the few
who have the decency and courage to support independents are
in the minority in the country, and unless that pattern changes the
future will insure that the innocent will suffer with the brainwashed
majority!
And as for the "poor" how many spend their minds and abilities
plotting and planning against the progress of others even their own!
Like crabs in a barrel, you don't need to put a top on it! They don't need anyone else taking care of them (often a disguised need to feel superior to them) but someone to teach them how to think in the ways of prosperity and self esteem! Even thus a famous man once said , "the poor ye shall always have among you".
EDT
Chicago, Illinois
Oh, there was no mention of silver in your article. To ignore silver as a driving force going forward would be a serious mis-step!
Buy physical gold and silver, and do it NOW!
On May 25 08:25 PM 5142152-337 wrote:
> While your article has solid information, IMHO to suggest that an
> ETF is the "BEST" vehicle for an investor, and that physical gold
> is CUMBERSOME is just plain ridiculous. The investor who lays his
> money down and receives a piece of paper in return--in today's financial
> world--is a FOOL! Or, is incredibly short sighted, and has little
> regard for his/her family's future!
>
> Oh, there was no mention of silver in your article. To ignore silver
> as a driving force going forward would be a serious mis-step! <br/>
>
> Buy physical gold and silver, and do it NOW!
This is where the guns and ammo crowd say this and that (and although I agree, to a degree), I don't see people shooting each other for a sandwich in Sacramento, and there are thousands of people living there in tents. When people are truly hungry, they ask for help, and guess what...people help. If you have a movie version of life stuck in your head, you're either Dick Cheney or watched the DVD set of "24", way too often....
Frankly, it reminds me of the people in the real estate industry in 2005 and 2006 who assumed that house prices could only go up.
There is also something to be said about equilibrium.
Yes, endless printing of fiat/monopoly money is not a good idea. Yes, US$ must fall. So far, I agree with the author. But what will follow? Remember that the last world depression led to the WWII.
The important questions we must ask regarding to the US$ fall are:
- What will happen with economic & political environment?
- Degree & scale of political instability and social unrest?
Obviously, Asian countries will survive with minor political changes.
My strategy is 15% gold, rest cash – bide your time – much better opportunities will come in the next few months.
I think a modest allocation of your portfolio in physical gold and silver of say 15% minimum and 25% maximum is a good strategy. Keep the rest in cash and wait and see what happens in the next six months. Too much uncertainty right now in the markets and government decisions. The manipulation of every market thinkable is rampant. The politicians are totally corrupted by greed and power.
This whole country, from the politicians to the American sheeple themselves, has become a complete disaster.
Good luck to all!
In other words, they have new money chasing additional products, we have new money chasing the same goods AND worthless services. Other countries (like China) get strength in their currency, we get inflation, or worse, hyper-inflation.
With that said, I think investing in an bearish dollar ETF would be a wise investment, as the dollar is sure to continue losing value relative to other currencies.
Worth a bookmark, along with this post and comment thread.
On May 26 12:50 AM Amish Rake Fighter wrote:
>
> I'm long on the ACME Top Hat & Monocle Emporium.
www.bloomberg.com/apps...
Which is why I'm not buying commodities I can't eat, right NOW.
> gold and silver look best. farm land seems a decent > prospect. at least when you awake in the morning those things are still there.
All I would add is that everything you can hold, which is tangible, can easily be stolen from you. And the criminals that will do this include the Government, with its powers of confiscation and taxation--examples of which hardly need belaboring here.
However, I agree that tangibles are worth having. So, note that the very smartest and wealthiest people throughout history have been good at *hiding* a large part of their wealth. Best of luck to everyone.
but go ahead. a sucker's born every minute, after all.
On May 25 11:15 AM secmaven wrote:
> Bank of America stock is the place to go with your capital. The smart
> money just put 8billion into 800 million newly created shares. If
> 20% of that had be put in the silver market we would be looking at
> a double overnight. But the smart money knows where to go, right.
> So onward and upward with B of A!
During
> the late 70's and early 80's my parents got squeezed like everyone
> else, but their mortgage payments also went down considerably relative
> to their wages and we squeaked through.
I do not doubt that the Fed is attempting to inflate away debts (particularly the debt of the U.S. government). However, your post makes a very big assumption: that wage increases will keep pace with rising prices. We have less production now than we did during the 70s and 80s and more consumption-driven industries. Moreover, the government CPI--on which many employers base their COLAs--has been massaged using hedonic adjustments and substitutions. All in all, I agree that inflation will eat away at the load of many families' fixed rate debt, but I think that the bulk of America will still suffer.
I'm bullish on the dollar going forward. Of the G7 countries,the US looks to be the first to recover. We can't pull other countries out of their economic malaise without a strong dollar. Central banks will take concerted action if neccessary. Also,the Fed will be draining liquidity and raising rates long before Europe and Japan can afford to do the same.
> Also,the Fed will be draining
> liquidity and raising rates long before Europe and Japan can afford
> to do the same.
Wow! You seem to have a lot of confidence in Chmn. Bernanke. I do not. The Fed has jettisoned any semblance of independence during this crisis by working hand-in-glove with the U.S. Treasury: TARP, TALF, monetizing the debt, etc. Moreover, it is clear that Chmn. Bernanke's dreams are haunted by the deflation boogieman, and he will be loath to raise rates lest the economy return to negative growth. Additionally, Chmn. Bernanke has been incorrect before (remember how problems were "contained" within the sub-prime sector?), so his track record doesn't really give me confidence. Finally, Chmn. Bernanke's term ends in January 2010; do you really think that he's going to increase rates before then, given the natural desire to "earn" re-appointment from Pres. Obama?
However, I think someone needs to point out the obvious, since in most things, the obvoius escapes us. We seem to thrive on complexity, I think for the most part because it provides an avenue of displaying our smarts and awareness of complex issues. The naggin question in my mind is, is this really a complex issue. We connect complexity with confusion. Obviously if we are confused it only can be because it is too complex.
I posit that we are faced with a complex issue at all. What we are confronted with is a new paradigm. The old yardsticks are no longer so serviceable. The greatest human failing of all is being forced to beleive something that we know from previouis experience just can't be so.
I would submit that our new financial existence has no precedent. And thus, we are literally forced, in our malaise to adopt postures unthinkable in recent past. Confusion. The author of this article is spot on. We may twidget and fidget, but the the truth now is not all that palatable. Gold and ammunition? Well, they do seem to be going up in price and "availabilty" ?
Perhaps this is a fad market, it certainly looks like one, but then and then perhaps we are looking at the very large teeth of some kind of prehistoric monster...we just really don't know, and not knowing is painful in the extreme.
If you inverst on ETF´s (which are dollar denominated), what difference would it make if the dollar collapses? Timing is everything?
Thanks for your great article.
From Brazil perspective you are absolutely right in your forecast to america capital markets, but despite our currency (Real $) have had rising on dollar at record pace, ou stock market have funding two us dollar bilions last month and another two in this month two first weeks.
Our indexes are rising since last October.
Take a look to Brazil markets, my friend.
Well if that's the case, you had better be stockpiling food, gold smelting equipment and scales, water, guns, and all the other survival stuff that gold alone won't get you. And I'll be back in two years when you're wrong.
On May 26 06:34 AM Perry1961 wrote:
> I would liken the stimulus spending to a light drizzle after two
> years of drought. World equity markets dropped 40 or 50 trillion
> in '07 and '08. Hard assets like housing and real estate lost another
> 40 or 50 trillion. Quick,decisive action by central banks and world
> leaders may have averted a depression. We don't know yet. A "declining
> rate of decline" in economic activity is where we currently stand.
> As world GDP continues to decline,demand for commodities will continue
> to shrink.
>
> I'm bullish on the dollar going forward. Of the G7 countries,the
> US looks to be the first to recover. We can't pull other countries
> out of their economic malaise without a strong dollar. Central banks
> will take concerted action if neccessary. Also,the Fed will be draining
> liquidity and raising rates long before Europe and Japan can afford
> to do the same.
>
On May 26 10:10 AM raytayzmd wrote:
> ...all I want to see is the bottom line...SHOW ME the brokerage statements
> that demonstrate how your perspicacity translates into REAL dollars...if
> you can't do that then there are several websites that allow you
> to construct and manage hypothetical portfolios..."Paco has been
> a financial analyst and a portfolio manager for 18 years."...and
> the fact that you're now putzing around posting articles on seekingalpha
> trying to pump that worthless novel of yours is quite telling...by
> the way, I would like to thank seekingalpha for editing out the self-promotional
> part of the original article.
On May 26 10:25 AM SebastianGE wrote:
> PACO, already someone asked this, but i´ll repeat the question:<br/>
>
> If you inverst on ETF´s (which are dollar denominated), what difference
> would it make if the dollar collapses? Timing is everything?
>
> Thanks for your great article.
Are we ready to compete, or will we dump our milk and complain to our congressman that the price has dropped too much (wah, wah)?
Our government and media won't do much for us, but there are still innovative companies working on solutions to looming issues that will arise as billions of people gain more equal access to the world's resources.
So I like CAT, EMKR, MSFT, and PG- I look for them to more than make up their losses in the next 3 years.
Please people stop fueling the "sky is falling" Chicken Little prognosticators and start looking at how YOU will help drive the economy.
1) Bush and his regime were destroying the USA in every way possible, including the massive debt it was piling up, the immoral war and its related costs, destroying our image and stature around the world etc., etc., etc.
2) Invoked tax cuts to help his rich cronies...less revenues and more debt, a very dangerous combination.
3) President Obama has inherited the worst mess since FDR, and it is probably a worse mess than FDR inherited.
4) Wall Street's greed is of paramount importance as it relates to the mess we find ourselves in, all those hot-shot, Ivy League MBA's are bringing us to our knees.
5) Corporate America's greed, driven by Wall Street's greed is destroying us.
6) 1% of the population contolling 90% of the wealth is very scary to say the least.
7) As I walked out of the bank, I told my boss, the bank's president, the Sub-prime's would be our demise...guess what, National City is history. One more example of greed and stupidity.
8) Tax those that earn millions and or billions 60%-70%, they still will not starve.
9) Quit spending more then we take in, reduce our debt and the currency will recover. This will take time, but it is the only solution.
10) A very undisciplined population that, like the Government, spends more than it takes in, stupid, very stupid!
So there you have it from a person who has been through three bad economic cycles, but none like this one. And I continue to marvel at the markets recovery in spite of the massive debt we are continuing to pile up, the massive amounts of money we are printing, the currency issues, 16% unemployment (not the 9% the Government reports), a real estate market that dropped an additional 20% in value and a banking industry that we have no clue regarding its REAL condition.
We are registered Independents.
GES
Lexington.KY
On May 25 12:18 PM Sunnsea wrote:
> Funny. This morning the dollar is at $1.40 to the Euro. Back in June
> '08 it was trading at $1.60. Where was the panic then? Only complaints
> were about gasoline over $4.00 a gallon. Could it be because we have
> Obama as President that suddenly we use words like "collapse", "panic."
> It was the Bush policies that made sure that we a) did not even know
> we were in a recession since late 2007, (I knew we were in one but
> my right-wing friends kept telling me were not) and b) that the dollar
> should remain weak and we should not even discuss it. Then July 15
> everything changed again with speculators out of the oil markets,
> trying to shore up a Republican victory (obviously that didn't work)
> to bring back the price of gasoline in America to "reasonable" levels
> the dollar strengthed against the Euro. By September 15, well, you
> know the story. Now all of the choice propaganda words are in every
> article to set the stage for an attempted Repblican coup in 2010.
> That is the point of all the dire forecasts that you read now. <br/>
Are we ready to compete, or will we dump our milk and complain to our congressman that the price has dropped too much (wah, wah)?
Our government and media won't do much for us, but there are still innovative companies working on solutions to looming issues that will arise as billions of people gain more equal access to the world's resources.
So I like CAT, EMKR, MSFT, and PG- I look for them to more than make up their losses in the next 2-3 years. I don't think gold will perform this well.
People seem to forget that the 30-year mortgage which is responsible for the expansion of our middle class from WW2 on would not exist without government help. Nobody in their right mind would take on that level of interest rate risk at a mere 4-6%. As much as it might be fun to bash the government's support of the banking system the plain fact of the matter is that NOT supporting the banking system would lead to a collapse on a scale never before imagined. So only a complete idiot would decide not to support the banks out of spite and let everything go to hell on purpose. Fortunately our new government is, finally, not made up of complete idiots.
Also I don't think some of the posters here realize just what kind of boon refinancing has on the economy. It can put several hundred dollars A MONTH of additional cash into the pockets of millions of people. It is about 20x as effective as the idiotic Bush tax rebate on a 1-year basis and bears fruit well beyond that. It is precisely this scenario that Bernanke is betting on to prevent the recession from turning into a depression and kick-starting the economy again. Bernanke is properly putting a higher priority on cleaning up the housing mess as much as possible before the inevitable inflation rears its ugly head, because if both occurred together we would be in much worse shape then we are now. I'm sure glad he's in charge and not the idiots who post absurdities on this site!
Nobody wants to return to the insane excesses of the last decade but neither do we want a deflationary environment that is so bad it puts half the country out of work and destroys the progress we've made in our standard of living over the last 40 years.
As far as the opinion of some people that Deflation is not as bad as all that... well, it's quite possible that it isn't, but that isn't the problem. The problem is that nobody knows how to manage a deflationary environment. The Japanese tried and failed, I'll remind you. On the otherhand, we have a lot of history with inflationary environments and know what knobs we can turn to manage them. Again, only a complete idiot would DESIRE a deflationary environment over an inflationary one when the deflationary environment has a much higher potential of creating a disaster.
In anycase, I don't measure the progress of our society by the value of the dollar. The dollar is just another commodity in my view. Everything is relative, including the dollar. What matters the most is the standard of living we are able to attain through modest work ethic, education, saving, and frugality (or at least, not partaking in the excesses of the last decade). Anyone can do it.
-Matt
> People seem to forget that the 30-year mortgage which is responsible
> for the expansion of our middle class from WW2 on would not exist
> without government help.
Without government "help," perhaps we'd have a stronger currency and people would be able to purchase their homes from savings as they do in many Asian countries. And maybe if we didn't have tax benefits for home ownership, we wouldn't be in such a mess as we are in now. That's the problem with government intervention: the unintended consequences are severe but the opportunity costs "given up" when government intervened are invisible. Examples: if we had let Chrysler go bankrupt 30 years ago, maybe our auto industry would've gotten the message and cleaned itself up. If we had let LTCM go under in the late 1990s, maybe Wall Street wouldn't have convinced itself that the Treasury and Fed would ride to its rescue and--as a result--wouldn't have become overleveraged.
> So only
> a complete idiot would decide not to support the banks out of spite
> and let everything go to hell on purpose.
Refusing to force productive Americans to bail out irresponsible behavior is now viewed as idiocy? No wonder we're in trouble!
> Fortunately our new government
> is, finally, not made up of complete idiots.
Maybe not idiots but certainly people who have some sort of deficiency in calculating their taxes (i.e. Tim "TurboTax" Geithner).
> The problem is that nobody knows how to manage
> a deflationary environment. The Japanese tried and failed, I'll
> remind you.
The Keynesian-enthralled Japanese government borrowed and spent money, its central bank cut rates to zero, and -- as you point out -- nothing happened. Why are we -- and we're trying the same thing -- any different?
> In anycase, I don't measure the progress of our society by the value
> of the dollar. The dollar is just another commodity in my view.
> Everything is relative, including the dollar. What matters the most
> is the standard of living we are able to attain through modest work
> ethic, education, saving, and frugality (or at least, not partaking
> in the excesses of the last decade). Anyone can do it.
Your last paragraph leaves me in a conundrum. You say that you value saving, but -- earlier in your post -- you seem to support Chmn. Bernanke, who is trying to stoke inflationary fires so that we'll spend, not save. Chmn. Greenspan did just as much to kill saving: he left interest rates so low that money went into a real estate bubble in search of higher returns. You can't have it both ways: either you believe that saving is good and allow money to earn a true rate of interest or you (like Chmn. Bernanke) believe that inflation is good and artificially lower the interest rate.
The market rate for long term debt was at an historical low, Chmns. Greenspan and Bernanke artificially elevated interest rates at the short end, inverting the yield curve.
The killed the housing bubble, for sure. And almost the rest of the economy.
If we want to keep the Fed out of the business of lowering rates and quantitative easing, fine. But while they're in the business, I'd prefer some transparency and stability in their decisions, and certainly hope they never invert the yield curve again.
The market rate for long term debt was at an historical low, Chmns. Greenspan and Bernanke artificially elevated interest rates at the short end, inverting the yield curve.
The killed the housing bubble, for sure. And almost the rest of the economy.
If we want to keep the Fed out of the business of lowering rates and quantitative easing, fine. But while they're in the business, I'd prefer some transparency and stability in their decisions, and certainly hope they never invert the yield curve again.
Oil futures will run faster than inflation as long as demand continues to outpace supply. With more suppliers have to shut down operations during this credit crisis, that seems certain for the next few yrs at least.
I do not believe gold can run to $1500/oz before oil runs to $150/bbl.
As long as oil is traded in dollars, it will remain the currency of choice in the international market. i.e. Saudi Arabia holds the key to the fate of Dollar!!
With all the monetary manipulations indulged by the Fed, everybody agrees that we are in unchartered territory. Fed's game is going to come to an end. Its just a matter of time.
To worry about the fall of the US Dollar is nonsense.
Let's just assume you're right, the USD collapses....who is going to assure security for US coastal waters, NATO, Canada, Mexico, the Caribbean, most international trade routes, the Panama canal, etc?
Or better yet, can your gold stop an Abrams?
"Before, I launch into this article, I want to thank Seeking Alpha and The Money Show for allowing me to present my workshop not long ago at Mandalay Bay in Las Vegas. I'm always nervous when I speak to crowds about the inevitable failure of the dollar and Treasuries – I never know how safe I am, playing the role of messenger. The response, however, has been overwhelmingly positive; it seems the most astute investors are beginning to accept – and even prepare for – the advancing collapse.
I also want to make a quick point about my intentions: I have very little to gain, financially, by convincing any of you that I'm "right." I do have a novel on store shelves that subtly incorporates many of the epistemological constructs that have gone into my research, but these articles are by no means part of a massive campaign to sell copies of Discipline; my objective is to disseminate these theories to as large an audience as possible in order to generate debate and criticism. More than anything, if I am right, I want people to prepare for what's coming, so we can all minimize the shock and pain that will ensue. As a species, we will have to find a new way of doing things, because the consequences of the old ways are descending upon us like a maelstrom. And if I'm wrong, well, I'd just like to know it as soon as possible. But I obviously don't think I am."
..."subtly incorporates the epistemological constructs"???...oh, lordy!!!
On May 26 11:00 AM Paco Ahlgren wrote:
> So... writing for Seeking Alpha somehow disqualifies me as an analyst?
> And... my analysis is means to "pump my worthless novel?" I just
> want to make sure I interpreted your abject bitterness correctly
> before I move on...
And thanks for volunteering me to pay 70% taxes. I noticed that you didn't volunteer yourself for that, but you're happy to volunteer me.
How about this instead? You and I both pay 70% taxes. If you get to volunteer me, then I get to volunteer you. How do you like the idea now?
On May 26 01:27 PM angryindependent wrote:
> I was a Commercial/Corporate banker for 30-years. I walked away from
> a lucrative position in August 2004
...
> 8) Tax those that earn millions and or billions 60%-70%, they still
> will not starve.
> GES
> Lexington.KY
I'm stimulating the economy one single mom dancing on the stage at a time. But, the bad news is I'm paying in US$.
This plainly shows the author does not know what he is talking about.
Looks to me like you hit a sensitive nerve with your article Paco. The topic is clearly being hotly debated. I still don't agree for a second that the US Dollar is at any real risk of collapse but the discussion is a good one so it should keep going. I think you don't have any choice but to do a follow-up now. Looking forward to it.
Cam
> EFTs since, as you say, the dollar is going to fall -- so even if
> gold does goes up in value , you will lose all your gain through
> dollar devaluation when you cash out into dollars.
This makes no sense whatsoever. If you buy a gold ETF when you cash back into dollars you will get an equivalent amount of dollars to the gain in the value of gold. So if gold goes up to $2,000 then you will more than double your money at today's gold price if you cash out at that point. So, you will not have 'lost' your gain at all -- your gain is reflected in the increased number of dollars that you receive.
New technologies are in the works that could cheapen production of even Chinese goods by 50%. Think about that. The problem is that they are about 5-10 years out, and other problems like Peak Oil could destabilize the financial environment that they need to succeed.
I'm pessimistic, but only for 4 years. After that, it's a new revolution. These are multiple disruptive technologies in play that will change how people decide where to live, lifestyle, quality of life, number of children, etc. It's so good it could end poverty, thereby ending the chaotic leftist governments and the spread of radical Islam throughout Europe (especially France). It could reverse trends that have been centuries in the making, including global warming.
My engineer friends and colleagues have been putting the latest and fastest CPUs to good use. We will all soon see what happens when the scientific community has a few quintillion spare CPU cycles to apply to research and development.
People should also buy companies that people need like: - water companies, electrical utilities, and food companies
US Dollar will fall . US bankers are China (holds approx 3 trillion US treasuries) , Japan and Saudis . Sooner or later these countries will be slowing or stop purchasing US treasuries because of massive deficit spending by the US gov't. I see within 10 years, US won't be the world's reserve currency. The question who will replace US currency as the world's reserve currency? the euro? chinese currency? or a mixture of currencies???
However, the only shiny positive aspect about this is downfall of the US dollar will make US manufacteurs more cost competitive. Lower dollar = more exports = more jobs
In my opinion for that to happen, we need to see clear signs of recovery. If the recent optimism in the markets etc is misplaced then those who have moved into commodities will find themselves in a most precarious position. They in essence have caused prices of certain commodities to surge when the underlying demand had not increased. That is like what is occurring in China - factories are increasing stocks for the possibility of a economic recovery but IF that does not transpire then they in essence have exasperated the problem.
Anyways - I agree most of what is written in the article but the entire foundation of the argument is based on the US being IN recovery mode.
On May 28 10:47 PM Worldisflat wrote:
>
>
> The fact that the 'pros' come out in force in the last hour is not
> news, just as the fact the the first hour of the day has always been
> amature hour. And the TICK is of some use but, like many other indicators
> of prior value, it too has become full of statistical noice to the
> point of becoming only marginally valuable.
>
> i found this interesting site of xrl.us/stocksrf lots of links
> to finance and economics articles
To write a topic like this is nonsense and to a point crazy.
Find something else better to write about, please !!
To write a topic like this is nonsense and to a point crazy.
Find something else better to write about, please !!
>If you short them, you'll still do fine in real terms, but you'll have to watch your shorts lose money in nominal terms, and that's just hard, psychologically.<
I don't understand how you short a stock, lose on it and still come out ahead.
On May 25 06:48 PM Paco Ahlgren wrote:
> You are certainly entitled to disagree! If prices explode, however,
> stocks will probably stay flat or move slightly higher. If you short
> them, you'll still do fine in real terms, but you'll have to watch
> your shorts lose money in nominal terms, and that's just hard, psychologically.
> A far better way play it is to go after inflation itself -- through
> commodities and/or short Treasuries.
www.youtube.com/watch?...
She's obviously incompetent and ill-prepared. Why isn't she working as the CEO of an American car company?
Joking apart, currency is pretty much a zero sum game. If the dollar goes down everything else goes up, unless of course you are pegged to the dollar, which for the time being also includes China. It is likely that arrangement would no longer be tenable which would further increase dollar weakness.
As for commodity prices, well they probably wouldn't be in dollars anymore, but the cost in Euros would likely drop as America could not afford to continue to gorge and it would take time for others to take up the slack.
Me personally. I am in non-Latin script dot coms, whose revenue would soar, but whose cost is locked into the dollar in a long-term contract. So for me it would be win-win, unless Google went bust. Things might get tough but they are not bad as Google has considerable global spread. I would think for the average American Google stock would be a good bet.
On May 25 09:50 AM cameroni wrote:
> Nice article,
>
> But lets not hit the panic button on the US Dollar too hard just
> yet. The whole globe is invested in it in a very big way. Worries
> that creditors will start pulling out the rug from under us and forcing
> a major sell-off of all things American and debt related are truly
> overblown. A true dollar failure would have extreme and devastating
> global implications. I do not think for a moment that the biggest
> creditors are all about to shoot themselves in the feet on this one.
> They may be dismayed by what they are seeing with QE but at the end
> of the day most Governments want stability in financial markets and
> they will cooperate with the dollar devaluation because it is actually
> in everyones best interest (the lesser evil).
>
> Every Government will take a loss on this one but it is better than
> the alternative of a total dollar failure. I follow the dire warnings
> being issued by Peter Schiff and others and while the message is
> convincing it is still a prediction and for him and others, a simple
> marketing tool to build business through fear. I listen, I take it
> with a grain of salt, and then I do my own thinking.
>
> Let's not lose all faith and write the US off so quickly. Caution
> is the byword of the day but "it ain't over till the fat lady sings".
>
>
> Cam
On May 27 12:08 PM tuj wrote:
> Did any of you ever think that the *US Military* has something (or
> perhaps will have) to do with the value of the dollar? As far as
> spending goes, its by far the biggest and most technological in the
> world.
>
> Let's just assume you're right, the USD collapses....who is going
> to assure security for US coastal waters, NATO, Canada, Mexico, the
> Caribbean, most international trade routes, the Panama canal, etc?
>
>
> Or better yet, can your gold stop an Abrams?
On May 29 06:49 AM Alan Brochstein wrote:
>
> I don't understand how you short a stock, lose on it and still come
> out ahead.
>
> On May 25 06:48 PM Paco Ahlgren wrote:
On May 28 11:07 PM CJJ wrote:
> I have a simple proposition for people like Paco who are 100% sure
> of the outcomes of the world:
>
> 1.Lets give you your 2 years for the collapse of the dollar and other
> currencies to a point where money becomes worthless and commodities
> which you say people should own in ETFs...basically own commodities
> which can only be redeemed in dollars...
>
> If you are right everyone will laud you as some great person AND
> THEN THEY WILL KEEP ON LIVING.
>
> If you are wrong, I suggest you shut up and stop blogging AND THEN
> EVERYONE WILL KEEP ON LIVING.
>
> You are a waste of time. Kind of like planning for the future when
> the FUTURE IS UNKNOWN.
>
> Your Crystal Ball has SH** in it.
Example: Borrow 1 share FrobozzCo priced at $1.00.
Some later date cover with stock at $1.80. I am now -$.80.
Inflation in this period is 100%. I have still lost -.80 unless I also have some other capital invested elsewhere that has gained $1.00 in value.
On May 29 10:02 AM Paco Ahlgren wrote:
> If inflationary price increases outpace your losses, then you actually
> gain, in real terms.
Religious convictions about the rosy future of God's own country are in cases impossible to dent. Back in my brainwashing days, we banked on vast swaths of consumerdom believing whatever they wished to believe. That is the ADVERTISING method — Tell people what they want to hear, and they eat out of your hand. It is nothing new. (Goebbels, Limbaugh, et al) HALF of the population of the US believes the world was created in 7 days about 6000 years ago by a giant magic trick. You cannot convince these folks that the currency with IN GOD WE TRUST printed on its face is likely kaput. This simply cannot be! When readers lash out at your opinions, it is often because their beliefs (manufactured, perfected and installed by professionals) have been deeply offended. And I think you're right: such vacuousness should bolster your convictions that we're in deep trouble.
We are entering some very strange and uncertain times.
On another note, I would convert any IRA account into a regular account ASAP. Pay the penalty, pay your taxes and escape while you can. That is real money that I would wager will not be "yours" much longer.
Therefore, the currencies most in demand in the future will be that of the cheapest global suppliers. In order for America to have any significant exports the dollar must decline so that the real cost of American goods balances against real costs from more competitive countries.
There are few options.... deflation and depression, or inflation and a pseudo-recovery.... oh yes, and magic.
arabianmoney.net/2009/.../
Titled "Preparing for a Dollar Collapse" I was mentally talking myself through how we arrived at this point, and some of the ways to protect my cash, including UDN, FXA, FXE, GLD, SLV, DBO, etc.
I have found that UDN has been under performing FXA, for example, and discuss why.
I've got some in a bank deposit box, a few at home, but if I really wanted to convert paper assets to hard physical metal whats the safest way to do that?
That the stimulus packs are nothing more than debt that will never be paid when each day new steps are taken to enter a new age of prosperity.
Today's investment strategies are incrementally different than the value of currency.
In today's climate we have a newly rewound watch in a wireless society allowing global market change through the transference of more efficient means to accomplish similar tasks.
I make measure to any currencies value given to the level of technological breakthroughs and not as a competing value to agricultural resource. In that manner technology as the automation of energy markets or that a lesser footprint is made conserves the means of an agriculturally rich nation.
After all, it's the nations without water creating the most instability.
Exactly. I have progressively less confidence in government. Less confidence in currency. Gold and silver have had intrinsic value as stores of wealth for thousands of years. Paper currency, not so much.
But stuff only has value due to value we assign to it. If you think about, the essential stores of value are things we need to live: food, clothing, shelter, and water. Only shelter has been a reliable investment over the years (not so much lately, lol).
Our government is making decisions based on politic's and re-election not based on what is best for the economy or the people. There strategy is only delaying the inevitable not preventing it. Capitalism got us to be the greatest place on earth and greed got us to this point, capitalism will get us out, anything else will only be complicit in our demise.
On May 27 01:01 AM User 420268 wrote:
> While I am following Peter Schiff, lewrockwell.com, and Celente's
> prediction and taking it seriously, I still do have my positions
> in stock. Apart from the stocks, I have holdings in gold and foreign
> currency.
>
> As long as oil is traded in dollars, it will remain the currency
> of choice in the international market. i.e. Saudi Arabia holds the
> key to the fate of Dollar!!
>
> With all the monetary manipulations indulged by the Fed, everybody
> agrees that we are in unchartered territory. Fed's game is going
> to come to an end. Its just a matter of time.
The other thing I like about this article is all the commenting, some very good viewpoints, I wish the feds and treasury would read this albiet with an open mind instead of the egotistical know it all know whats best for you pompus attitude.
Because the US is seen as a safe place for foreigners to park their excess cash, and the Dollar’s reserve currency status, government borrowing costs are comparatively low. Additionally, foreign governments (mostly China and Japan) have been buying US Bonds in order to absorb excess cash caused by the huge trade deficit. They do this in order to keep their currency cheaper and thus the prices of their goods competitive. Due to dollar devaluation, over the past decade, the US Government has had a negative real rate of interest. Given these generous terms, the U.S. government will borrow as much as it can as long as it can.
There is another motivation to devalue the dollar: Making the U.S. Dollar cheaper makes American exports more competitive and helps raise employment in export industries.
Our creditors are no dummies. The first step is to cut off new credit. This is already happening: Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.
As the Federal Reserve expands the money supply, it puts pressure on other currencies to devalue. To keep THEIR exports competitive, other central banks are forced to expand their own money supplies to devalue their currencies. The end result is inflation and negative real interest rates everywhere. Central banks are punishing savers to redeem the sins of debtors and speculators.
When creditors start demanding higher interest rates, it signals the beginning of the end. The interest on the debt becomes unmanageable and the government has no choice but to monetize the debt by printing money. This devalues the currency and inflation erodes the real debt.
arabianmoney.net/2009/.../
On May 25 08:21 AM chistletoe wrote:
> Where to put one's capital, in this scenario,
> really, is not the right question.
> I started my planning by considering that all investment and capital
> assets are going to zero.
> Those people who rely on money for their well-being -- are going
> to die.
> The people who survive will be people who have skills, who have tools,
> and who have hard assets stockpiled. People who enjoy working and
>
> taking care of the people around them.
> The rich are all doomed. Which is no less and no more than what they
> deserve.
On May 26 08:36 AM Spartacuss wrote:
> Wow. A lot of commentary. I wonder why I am writing this in the sense
> that no one will get this far to read it.
>
> However, I think someone needs to point out the obvious, since in
> most things, the obvoius escapes us. We seem to thrive on complexity,
> I think for the most part because it provides an avenue of displaying
> our smarts and awareness of complex issues. The naggin question in
> my mind is, is this really a complex issue. We connect complexity
> with confusion. Obviously if we are confused it only can be because
> it is too complex.
>
> I posit that we are faced with a complex issue at all. What we are
> confronted with is a new paradigm. The old yardsticks are no longer
> so serviceable. The greatest human failing of all is being forced
> to beleive something that we know from previouis experience just
> can't be so.
>
> I would submit that our new financial existence has no precedent.
> And thus, we are literally forced, in our malaise to adopt postures
> unthinkable in recent past. Confusion. The author of this article
> is spot on. We may twidget and fidget, but the the truth now is not
> all that palatable. Gold and ammunition? Well, they do seem to be
> going up in price and "availabilty" ?
>
> Perhaps this is a fad market, it certainly looks like one, but then
> and then perhaps we are looking at the very large teeth of some kind
> of prehistoric monster...we just really don't know, and not knowing
> is painful in the extreme.
On May 26 08:36 AM Spartacuss wrote:
> Wow. A lot of commentary. I wonder why I am writing this in the sense
> that no one will get this far to read it.
>
> However, I think someone needs to point out the obvious, since in
> most things, the obvoius escapes us. We seem to thrive on complexity,
> I think for the most part because it provides an avenue of displaying
> our smarts and awareness of complex issues. The naggin question in
> my mind is, is this really a complex issue. We connect complexity
> with confusion. Obviously if we are confused it only can be because
> it is too complex.
>
> I posit that we are faced with a complex issue at all. What we are
> confronted with is a new paradigm. The old yardsticks are no longer
> so serviceable. The greatest human failing of all is being forced
> to beleive something that we know from previouis experience just
> can't be so.
>
> I would submit that our new financial existence has no precedent.
> And thus, we are literally forced, in our malaise to adopt postures
> unthinkable in recent past. Confusion. The author of this article
> is spot on. We may twidget and fidget, but the the truth now is not
> all that palatable. Gold and ammunition? Well, they do seem to be
> going up in price and "availabilty" ?
>
> Perhaps this is a fad market, it certainly looks like one, but then
> and then perhaps we are looking at the very large teeth of some kind
> of prehistoric monster...we just really don't know, and not knowing
> is painful in the extreme.
This is probably one of the best, most realistic, outlooks I have read yet. I know alot of people don' t want to face the reality and enormity of what is occurring right now and are lost between knowing what should be happening in the market and what is actually happening (ie..market continues up as the sh@t hits the fan)...I think your suggestions to buy up commodities, gold/silver, and shorting treasuries are directly targeting the violations of basic econonmic principles that our gov't is now engaged and are the best investment advice available today....Thanks for your post.
really, is not the right question.
I started my planning by considering that all investment and capital assets are going to zero.
Those people who rely on money for their well-being -- are going to die.
The people who survive will be people who have skills, who have tools, and who have hard assets stockpiled. People who enjoy working and
taking care of the people around them.
The rich are all doomed. Which is no less and no more than what they deserve.