It's Time to Sell Equities and Look to These 3 Areas 72 comments
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In late August, I wrote a post called “Getting bearish again” in which I said that the bear market rally I had anticipated back in March was long in the tooth. At the time, I mentioned 1026 on the S&P 500 as a sell signal. With the S&P 500 now well over 1060 and gains of well over 50% from those March lows, it’s definitely time to sell.
And when I say sell, I’m not talking about going overweight bonds or commodities by putting additional new money disproportionately in other asset classes – which is what you should have been doing in August. I am talking about lightening up on equities and selling existing positions.
Now, if you missed the rally, I’m sorry but, now is not the time to get in. And if you have been there from the start, remember, bulls make money, bears make money but pigs get slaughtered.
David Rosenberg sums up the logic.
The S&P 500 is now up more than 60% from the lows, which is truly amazing and kudos to those who called it. But the question is whether the fundamentals will ever catch up to this level of valuation — usually after a 60% rally, we are fully entrenched in the next business cycle. Never before have we seen the stock market rise so much off a low over such a short time period, and usually at this state, the economy has already created over one million new jobs — during this extremely flashy move, the U.S. has shed 2.5 million jobs (as may as were lost in the entire 2001 recession).
Do you really think there’s huge upside here? After a 60% run to the upside? Laszlo Birinyi does and sees 1200 before year end. I’d rather sit this one out. The downside is a lot greater at these levels than the upside. I would say lighten up on risk all around. High quality over low quality. Low beta over high. Consumer staples over discretionary.
But, if you are not going to run with the liquidity-seeking-return crowd and chase high beta and low quality stocks or high yield bonds, where do you put funds? After all, Bernanke and company have made sure cash is trash by lowering rates to zero.
Here are three ideas.
Government Bonds
Has anyone noticed the yield on treasuries? It’s falling. For example, a month before Labor Day on 7 Aug the 30-year yielded 4.61, the 10-year was yielding 3.89 and the 5-year got you 2.84 (see 2009 data here). Today, we are looking at 4.18, 3.40 and 2.38 (data here).
Meanwhile the dollar is getting crushed – approaching parity with the Swiss Franc. Everyone is shouting “recovery, recovery,” as if that’s the reason that the U.S. Dollar is falling. So then, why are government bond yields exploding to the downside even while the U.S. government budget deficit spirals upward? It doesn’t sound like the bond market is expecting a very robust recovery. Pimco, the world’s largest bond fund, is already in this trade. They have been loading up on treasuries of late – bringing them to their highest relative weight in 5 years.
Gold (or platinum)
As I see it, the U.S. is likely to use the U.S dollar as an escape hatch for a very intractable debt problem. That is dollar bearish, but not necessarily bearish for U.S.-based treasury investors. A scenario in which the Dollar tanks and there is a flight to safety in Treasuries is also one in which Gold could outperform at the same time. And Gold has also been surging as well, last trading well over $1000 at $1015. If you like precious metals as a hedge against a dollar run, then platinum is a good bet as well as it has outperformed gold.
Out of the money puts
If you think this cyclical bull market (aka bear market rally) has legs like Laszlo Birinyi does, why not do a Taleb Black Swan trade via out of the money puts on Spiders (SPX) or QQQQs or some other broad market ETF? This would be a hedge – and that’s all. The benefit of such a trade is that you don’t have to sell outright. And it is de minimis in cost right now. The VIX, a broader market volatility index, is at a one-year low. So, this insurance bet will cost you less. But, the decrease in the VIX should also be treated as a contrarian indicator.
Sources:
Breakfast with Dave, 17 Sep 2009 – David Rosenberg, Gluskin Sheff
Update: I just noticed that Barry Ritholtz has a post out discussing why he thinks markets can and will go higher. See his comments here. He makes valid points – based more on technicals than fundamentals. On a fundamental basis, the market is overvalued. To the degree you hold Barry’s view that the rally will continue because of liquidity, then you would want to employ the Black Swan strategy I mentioned as a hedge against downside risk.
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This article has 72 comments:
I see where you are coming from, but this is a dangerous illusion. If the dollar declines then the real value of treasuries declines. It's as simple as that. You might not notice it in the short term if you only look at nominal dollar values but it is still a fact. You will certainly find it out in the long term through oil prices, other imports and inflation.
On the other hand, even though I think your reasoning is wrong, bonds might not be such a bad short term bet. The evidence suggests that a sell of in global stocks will result in a rally for the dollar and a flight to government debt. You would gain from both. I don't think that bond yields are such a strong comment on the economy any more because there's too much government money in there (and I certainly wouldn't want to hold them long term) but in the short term they make sense as part of a portfolio.
If the dollar tanks, no one will be buying Treasuries. A tanking dollar means a dumping of Treasuries.
If author believes in further decline of US dollar then US debt is a horrible investment at current price levels.
You'd want to be in treasuries even if the dollar fell if you expect the deflationary forces to outweigh inflationary forces from the currency depreciation. You'd want to be in gold if you think the inflationary forces of the depreciation would feed through.
Right now, both trades are being put on i.e. gold is rising and so are treasuries. When it becomes more clear which force is winning the deflation-inflation tension, I would expect a reversal in one or the other.
On Sep 18 06:39 AM bkdc wrote:
> "A scenario in which the Dollar tanks and there is a flight to safety
> in Treasuries is also one in which Gold could outperform at the same
> time."
>
> If the dollar tanks, no one will be buying Treasuries. A tanking
> dollar means a dumping of Treasuries.
news.goldseek.com/Mill...
While inflation is generally thought to be an inflationary hedge, it is also a safe haven when there is currency revulsion. During the Depression, gold rose while deflation was everywhere.
BTW, you meant "While GOLD is generally thought to be an inflationary hedge,"
If you are over-weighted in equities you need to lighten up and reduce your exposure. I like cash, conservative bonds and gold. Both cash and bonds are short term only though as there is more than whiff of looming inflation in the air. Gold is in a long term bull market that will continue for the foreseeable future with the caveat that there will of course be occasional dips.
I would not buy any bonds with more than a 2 year maturity. The risk level is too high. And to be frank the bond market is a little pricey right now too. Bond yields are at historic lows along with interest rates. A better move for those seeking some bond security might be to look outside the United States. Adding some foreign debt to your bond holdings can help diversify your portfolio and reduce the risks from inflation. I like Japanese, Australian and Swiss currency denominated government or very high grade private bonds. If you want to add a little speculation you can buy some Brazilian bonds. With the weakening dollar these securities will likely out-perform the US bond market in the intermediate future.
Bottom line though is that I think no one should have more than a third of their aggregate portfolio in equities for a while. To the extent you do own equities stay conservative.
Our country is far deeper in the red than most people realize.
On Sep 18 08:35 AM Alexander_K wrote:
> Exactly what our strategy is - long treasuries+OTM puts on S&P+some
> gold (which is insurance policy for us, we don't do M2M for our gold
> hoard). Also our view is USD is close to its bottom now.
I tend to agree with you regarding gold, but I think it would be a more profitable bet to own gold in currencies other than the US dollar, such as euros or sterling. In my opinion, there's too much dollar-based gold activity to provide meaningful profit opportunities in the short-term.
As a result, gold has been going up because it is bought as an inflationary hedge. If people waited for inflation and then bought gold, then gold and inflation would be correlated. But people don't wait, they buy and sell in anticipation. That's why gold doesn't track inflation in the short term; but in the long term (i.e. historical), gold prices and cumulative inflation equate pretty closely.
On Sep 18 08:56 AM Edward Harrison wrote:
> One other thing. There has been no correlation between inflation
> and gold over the past twenty-five years.
>
> news.goldseek.com/Mill...;br/>
>
> While inflation is generally thought to be an inflationary hedge,
> it is also a safe haven when there is currency revulsion. During
> the Depression, gold rose while deflation was everywhere.
On Sep 18 12:33 PM billddrummer wrote:
> Mr. Harrison,
>
> I tend to agree with you regarding gold, but I think it would be
> a more profitable bet to own gold in currencies other than the US
> dollar, such as euros or sterling. In my opinion, there's too much
> dollar-based gold activity to provide meaningful profit opportunities
> in the short-term.
At some point this will come to a halt. But it will be a very painful halt. The FED will have to do what Paul Volker did to arrest the great inflation of the 1970's- early 80's. We need to raise interest rates sharply. But this would turn the current severe recession into a full blown depression. In short we are between a rock and a hard place.
On Sep 18 12:41 PM Wisdom vs. Information wrote:
> 60% upside?! the market was ridiculously oversold in March, you need
> a baseline that makes sense. the dollar is down b/c everyone sold
> it to buy equities, it does not mean anything else; soon we will
> be overbought and everyone will sell equities and buy dollars, and
> then we will see more silly articles about what THAT means
In the first 8 months of this year they bought $1.07 trillion, according to Inside Mortgage Finance.
During that same time about $1.25 trillion were issued, so that means the Fed bought up about 90 percent.
No question the Fed will reach its pledge limit before the end of this year.
So what next?
Speculation is going both ways"
mortgage rates would be at least a full percentage point higher without the Fed's purchases.
On Sep 18 12:45 PM chap08 wrote:
> With respect, you sound a bit confused. If you own gold, you don't
> own it "in" some currency, USD, Euro, whatever. That - to a large
> degree - is the whole point of owning it.
On Sep 18 02:13 PM billddrummer wrote:
> No confusion--instead of buying a position in gold in US dollars,
> buy the position in euros or sterling.
Sorry, but this is very misleading. Treasuries may be rising but you will still losing in real terms, because Dollars, like any fiat currency, are not real. Theoretically, gold could go double from here, but Treasuries can't.
If any of my friends said they were thinking of investing in Treasuries, I would go round to their home and restrain them with a combination of ropes and sedatives until they had calmed down.
On Sep 18 12:06 PM Ad Orientem wrote:
> I am an advocate of long term investing and I am inclined to a slightly
> modified form of the late Harry Browne's Permanent Portfolio. (See
> my insta blog.) That said I tend to concur with this assessment.
> If you have made money in the huge rally since March, (or even if
> you haven't) it's time to take some profit and reduce your exposure
> to equities. There is no historical precedent for this kind of a
> rally (without a steep sell off at the end of it). The fundamentals
> simply do not justify a near 60% run up in the equity markets in
> six months. Just as the market was broadly oversold in March, so
> it is overbought now.
>
> If you are over-weighted in equities you need to lighten up and reduce
> your exposure. I like cash, conservative bonds and gold. Both cash
> and bonds are short term only though as there is more than whiff
> of looming inflation in the air. Gold is in a long term bull market
> that will continue for the foreseeable future with the caveat that
> there will of course be occasional dips.
>
> I would not buy any bonds with more than a 2 year maturity. The risk
> level is too high. And to be frank the bond market is a little pricey
> right now too. Bond yields are at historic lows along with interest
> rates. A better move for those seeking some bond security might be
> to look outside the United States. Adding some foreign debt to your
> bond holdings can help diversify your portfolio and reduce the risks
> from inflation. I like Japanese, Australian and Swiss currency denominated
> government or very high grade private bonds. If you want to add a
> little speculation you can buy some Brazilian bonds. With the weakening
> dollar these securities will likely out-perform the US bond market
> in the intermediate future.
>
> Bottom line though is that I think no one should have more than a
> third of their aggregate portfolio in equities for a while. To the
> extent you do own equities stay conservative.
The enigmatic term "unrealized" refers to gains as well as loses for anyone who owns an investment portfolio. A "realized" 60% gain is better than an "unrealized" 70% gain any day of the year. A fact that separates real money from phantom money. This rally is based on "hope" and "rosy economic sentiment" that may never materialize and at this point has entered the dangerous blow-off phase in which investors buy if the market is up and wait if it is down. This is my indication of a major market top, probably near DOW 10K. It smells like October 87. This rally could perhaps prove to be the biggest waste of capital allocation in recent memory. Coupled that with all the unprecedented government stimulus, the capital waste could be epic.
Does it make any sense that bond yields are so low when bond issuance is so high? That stocks are so high when there is nearly no top or bottom line growth? That oil is in the 70s with declining demand?
It only makes sense from the vantage point of stock prices being manipulated up to offset the negative wealth effect of the crash in housing. To facilitate this and save the banks we have 0% interest rates.
The only thing that looks good to me is precious metals, which, some suspect, are being manipulated down, or held down. To which I say good! Keep your over-priced stocks and bonds, I'll keep accumulating bullion.
On Sep 18 10:14 AM Roger Knights wrote:
> Good article and thanks for the link to the BR article.
>
> BTW, you meant "While GOLD is generally thought to be an inflationary
> hedge,"
Foreign bonds carry higher risk levels than US Bonds for a variety of reasons including currency fluctuations and differing regulations in other countries. I would approach that asset class in much the way I approach high yield bonds. Which is to say that unless you really know what your doing in this field you are probably better off investing via a good mutual fund. There are a number of them out there but they tend to have high minimum investments.
On Sep 18 04:45 PM Old Trader wrote:
> One area I haven't really seen mentioned in either the article, nor
> the comments, and that's foreign debt. Despite having run up like
> just about everything else over the last 5-6 months, I think there's
> still some opportunity there, either sovereign, or high quality corporate.
Gold is just volatile commodity and nothing else. It was correctly mentioned that gold correlation to inflation have been quite low over last 100 years, mostly because gold and platium has multiple uses in real economy and gold (platinum) prices in addition to inflation are influenced by real supply/demand situation. Gold is fairly priced at this point and possible upside will not compensate for implied risk.
ALL world currencies have it flaws and it will wrong to single out US dollar as the most flawed. Euro zone economical situation is not any better then US and some European countries are in much worth. I would like specifically single out Baltic states, Ireland, Spain and Poland. European Central Bank is in the very difficult situation. On on hand, it wants to maintain conservative monetary policy because Germany, France, Italy, Greece are getting out of recession, but one the other hand Eastern European countries need a loose monetary policy for as long possible. Its really unclear what route will be taken over next 12-24 month, which will impact EUR value.
Japan has significant structural problems in its economy and is in desperate need of reforms. I won't consider yen as safe heaven currency until these reforms are over which may never happen.
As much as I agree with reasons presented for US dollar demise, I don't see viable alternative.
The article was called "It's Time to Sell Equities and Look to These 3 Areas". I strongly disagree with all 3 recommendations. I will not sell equities at this point in long term diversified portfolio. I will not but Treasuries at least until yield on 30 year bond will rise to 6%. I recommend to stay out of gold at these price levels and I will stick with US dollar long term due to absence of any viable alternatives.
I have to go with Wisdom on this:
the 60% reference is simply irrelevant. the march bottom was a random figure, based on desesperation and capitulation just before a true "boost vitamin" plan got injected, commodities and EM economies start to see signs of stabilization.
you may just way, S&P is 16% lower than on Aug 31, 2008, 2 weeks before the Lehman default, which was 30% lower than on Dec 31, 2007. Perspective look different from that angle.
On Sep 18 01:09 PM Ad Orientem wrote:
> Unfortunatly the evidence does not support this. Most of the cash
> flow has been into the bond market not the stock market by a margin
> of nearly of 10:1. The dollar's decline is because the United States
> is essentially bankrupt and we are printing money as fast as the
> paper and ink can be loaded into the machines.
>
> At some point this will come to a halt. But it will be a very painful
> halt. The FED will have to do what Paul Volker did to arrest the
> great inflation of the 1970's- early 80's. We need to raise interest
> rates sharply. But this would turn the current severe recession into
> a full blown depression. In short we are between a rock and a hard
> place.
I agree that there is no single alternative to the Usd as a reference currency.
But still, Central Banks around the world may just stop buying Usd to support it as they have been doing it for the past 10/15 years. At this point, they have accumulated more than $5trillion usd reserve. How much more can they afford buying? This is not a free option, someone has to print money to buy these reserves and every game has a limit. and one can smoke whatever he wants, but at the end of the day, this is inflationnary long term.
Where would be the Eur/usd without central banks defending the Usd since 1995? 1.60? 1.70?
Chinese exporters are starting to require to be paid in different currencies than the USd... Usd is everyday becoming more the currency in which foreigners do fund (replacing the Yen).... FDIs? Tell me what kind of US asset can be attractive for international investors...?
Give me just one reason why Usd should appreciate and who needs to buy some.
Period.
On Sep 18 06:07 PM sst381106 wrote:
> I am a believer that coherent strategy is key to successful long
> term investments. Moderate inflation correlated with expected GDP
> growth is necessity for long term growth and job creation. By moderate,
> I mean 2-3% for developed economies as they are expected to grow
> 2-4% annually and as high 8-10% for emerging markets. Danger of deflation
> are well know to Federal Reserve, Mr. Bernanke being a student of
> Great Depression and it was consistently increasing liquidity in
> the system to avoid deflation at all costs. I won't recommend Treasuries
> at these prices, because at the first sign of even POTENTIAL return
> to long term normal inflation levels of 2-3%, Treasuries will go
> down. Very likely, that markets at certain point in the future will
> start pricing a possibility of mid term inflation levels above long
> term normal which will put further down pressure on Treasuries.
>
>
> Gold is just volatile commodity and nothing else. It was correctly
> mentioned that gold correlation to inflation have been quite low
> over last 100 years, mostly because gold and platium has multiple
> uses in real economy and gold (platinum) prices in addition to inflation
> are influenced by real supply/demand situation. Gold is fairly priced
> at this point and possible upside will not compensate for implied
> risk.
>
> ALL world currencies have it flaws and it will wrong to single out
> US dollar as the most flawed. Euro zone economical situation is not
> any better then US and some European countries are in much worth.
> I would like specifically single out Baltic states, Ireland, Spain
> and Poland. European Central Bank is in the very difficult situation.
> On on hand, it wants to maintain conservative monetary policy because
> Germany, France, Italy, Greece are getting out of recession, but
> one the other hand Eastern European countries need a loose monetary
> policy for as long possible. Its really unclear what route will be
> taken over next 12-24 month, which will impact EUR value.
>
> Japan has significant structural problems in its economy and is in
> desperate need of reforms. I won't consider yen as safe heaven currency
> until these reforms are over which may never happen.
>
> As much as I agree with reasons presented for US dollar demise, I
> don't see viable alternative.
>
> The article was called "It's Time to Sell Equities and Look to These
> 3 Areas". I strongly disagree with all 3 recommendations. I will
> not sell equities at this point in long term diversified portfolio.
> I will not but Treasuries at least until yield on 30 year bond will
> rise to 6%. I recommend to stay out of gold at these price levels
> and I will stick with US dollar long term due to absence of any viable
> alternatives.
On Sep 19 06:50 AM TheFounder wrote:
> Agree with gold and the "black swan" option stategy but not with
> bonds. Why purchase bonds at these levels? the only rason I can come
> up with is expecttions for severe deflation and/or a depression.
Canada is coming out of the recession nicely and has a stable, smaller-deficit federal govt. It has a strong banking system and is rich in commodities, which are only real assets in times like these.
I see no reason for anyone to be holding US dollars when the US govt is so intent on devaluing them with their money printing policies. The USD is a sinking ship and everyone should be heading for the lifeboats!!
On Sep 18 06:07 PM sst381106 wrote:
> I am a believer that coherent strategy is key to successful long
> term investments. Moderate inflation correlated with expected GDP
> growth is necessity for long term growth and job creation. By moderate,
> I mean 2-3% for developed economies as they are expected to grow
> 2-4% annually and as high 8-10% for emerging markets. Danger of deflation
> are well know to Federal Reserve, Mr. Bernanke being a student of
> Great Depression and it was consistently increasing liquidity in
> the system to avoid deflation at all costs. I won't recommend Treasuries
> at these prices, because at the first sign of even POTENTIAL return
> to long term normal inflation levels of 2-3%, Treasuries will go
> down. Very likely, that markets at certain point in the future will
> start pricing a possibility of mid term inflation levels above long
> term normal which will put further down pressure on Treasuries.
>
>
> Gold is just volatile commodity and nothing else. It was correctly
> mentioned that gold correlation to inflation have been quite low
> over last 100 years, mostly because gold and platium has multiple
> uses in real economy and gold (platinum) prices in addition to inflation
> are influenced by real supply/demand situation. Gold is fairly priced
> at this point and possible upside will not compensate for implied
> risk.
>
> ALL world currencies have it flaws and it will wrong to single out
> US dollar as the most flawed. Euro zone economical situation is not
> any better then US and some European countries are in much worth.
> I would like specifically single out Baltic states, Ireland, Spain
> and Poland. European Central Bank is in the very difficult situation.
> On on hand, it wants to maintain conservative monetary policy because
> Germany, France, Italy, Greece are getting out of recession, but
> one the other hand Eastern European countries need a loose monetary
> policy for as long possible. Its really unclear what route will be
> taken over next 12-24 month, which will impact EUR value.
>
> Japan has significant structural problems in its economy and is in
> desperate need of reforms. I won't consider yen as safe heaven currency
> until these reforms are over which may never happen.
>
> As much as I agree with reasons presented for US dollar demise, I
> don't see viable alternative.
>
> The article was called "It's Time to Sell Equities and Look to These
> 3 Areas". I strongly disagree with all 3 recommendations. I will
> not sell equities at this point in long term diversified portfolio.
> I will not but Treasuries at least until yield on 30 year bond will
> rise to 6%. I recommend to stay out of gold at these price levels
> and I will stick with US dollar long term due to absence of any viable
> alternatives.
Yes, all fiat currencies are flawed.
BUT the US probably owes more money to the rest of the world than any other country.
Note while the Japanese government has budget deficit, the deficit is funded by borrowings from its own citizens, who are one of the biggest savers in the world. And Japan also has one of the biggest foreign reserves per capita in the world. China also has huge savings and reserves. So do some other countries with flawed currencies.
On Sep 18 06:07 PM sst381106 wrote:
> ALL world currencies have it flaws and it will wrong to single out
> US dollar as the most flawed.
Also, look at how high above the 50 and 200 day SMA all the markets are, on low volume over the entire stretch since March.
This is identical to bear market rally of 1930. Employment, housing values, lack of true liquidity in banks, government intervention, irrational belief that the markets "must get better" are perfect conditions for another collapse come October/November.
Insider selling has ramped up the past two weeks, as have shorts. If you are a gambler, leave your chips on the craps table. If you are investing for retirement or dependent on returns for paying bills time to cash in.
The FED and the banks would like nothing more than for the average investor and fund manager to buy in to the market here to supply the cash they need to make the banks solvent again and take their profits. Don't be their sucker.
People are waking up to the fact that the markets are rigged in favor of banks and politicians and FED policy rather than ethical markets that serve as an engine for capitalism and companies that create real jobs and careers for hard working citizens.
The markets have become milking machines for opportunists, equivocators, and criminals in suits. The middle class, and a number of the hapless wealthy, have been fleeced by the malfeasance from Wall Street and Washington. Yes, this is human nature, but at some point the gig will be up and Great Depression II will ensue.
This is the eye of the hurricane, not 1974 or 1982 or 1987 or 2001. The socio-economic climate, the political climate, the division amongst moral and immoral, ethical and unethical, responsible and lazy, and the dreamers and the awake, rhymes with 1930 but is unique in a dangerous way.
We are all dependent upon a system that is failing.
We have all heard and felt the rumbling of the earthquake of last year.
We have yet to weather the tsunami.
On Sep 18 06:07 PM sst381106 wrote:
> I am a believer that coherent strategy is key to successful long
> term investments. Moderate inflation correlated with expected GDP
> growth is necessity for long term growth and job creation. By moderate,
> I mean 2-3% for developed economies as they are expected to grow
> 2-4% annually and as high 8-10% for emerging markets. Danger of deflation
> are well know to Federal Reserve, Mr. Bernanke being a student of
> Great Depression and it was consistently increasing liquidity in
> the system to avoid deflation at all costs. I won't recommend Treasuries
> at these prices, because at the first sign of even POTENTIAL return
> to long term normal inflation levels of 2-3%, Treasuries will go
> down. Very likely, that markets at certain point in the future will
> start pricing a possibility of mid term inflation levels above long
> term normal which will put further down pressure on Treasuries.
>
>
> Gold is just volatile commodity and nothing else. It was correctly
> mentioned that gold correlation to inflation have been quite low
> over last 100 years, mostly because gold and platium has multiple
> uses in real economy and gold (platinum) prices in addition to inflation
> are influenced by real supply/demand situation. Gold is fairly priced
> at this point and possible upside will not compensate for implied
> risk.
>
> ALL world currencies have it flaws and it will wrong to single out
> US dollar as the most flawed. Euro zone economical situation is not
> any better then US and some European countries are in much worth.
> I would like specifically single out Baltic states, Ireland, Spain
> and Poland. European Central Bank is in the very difficult situation.
> On on hand, it wants to maintain conservative monetary policy because
> Germany, France, Italy, Greece are getting out of recession, but
> one the other hand Eastern European countries need a loose monetary
> policy for as long possible. Its really unclear what route will be
> taken over next 12-24 month, which will impact EUR value.
>
> Japan has significant structural problems in its economy and is in
> desperate need of reforms. I won't consider yen as safe heaven currency
> until these reforms are over which may never happen.
>
> As much as I agree with reasons presented for US dollar demise, I
> don't see viable alternative.
>
> The article was called "It's Time to Sell Equities and Look to These
> 3 Areas". I strongly disagree with all 3 recommendations. I will
> not sell equities at this point in long term diversified portfolio.
> I will not but Treasuries at least until yield on 30 year bond will
> rise to 6%. I recommend to stay out of gold at these price levels
> and I will stick with US dollar long term due to absence of any viable
> alternatives.
On Sep 18 07:51 AM Edward Harrison wrote:
> A tanking dollar does not mean treasuries get crushed. Right now
> the dollar is falling, treasuries are rising as is gold.
>
> You'd want to be in treasuries even if the dollar fell if you expect
> the deflationary forces to outweigh inflationary forces from the
> currency depreciation. You'd want to be in gold if you think the
> inflationary forces of the depreciation would feed through.
>
> Right now, both trades are being put on i.e. gold is rising and so
> are treasuries. When it becomes more clear which force is winning
> the deflation-inflation tension, I would expect a reversal in one
> or the other.
>
> On Sep 18 06:39 AM bkdc wrote:
On Sep 19 04:13 PM ebworthen wrote:
> The only problem with the old staid advice of long term investing
> in equities is that it relies on a free market that is not manipulated
> by banking oligarchs in collusion with corrupt government and a whole
> lot of sheeple to feed the system.
>
> People are waking up to the fact that the markets are rigged in favor
> of banks and politicians and FED policy rather than ethical markets
> that serve as an engine for capitalism and companies that create
> real jobs and careers for hard working citizens.
>
> The markets have become milking machines for opportunists, equivocators,
> and criminals in suits. The middle class, and a number of the hapless
> wealthy, have been fleeced by the malfeasance from Wall Street and
> Washington. Yes, this is human nature, but at some point the gig
> will be up and Great Depression II will ensue.
>
> This is the eye of the hurricane, not 1974 or 1982 or 1987 or 2001.
> The socio-economic climate, the political climate, the division amongst
> moral and immoral, ethical and unethical, responsible and lazy, and
> the dreamers and the awake, rhymes with 1930 but is unique in a dangerous
> way.
>
> We are all dependent upon a system that is failing.
>
> We have all heard and felt the rumbling of the earthquake of last
> year.
>
> We have yet to weather the tsunami.
On Sep 18 10:03 PM The Geoffster wrote:
> Great stuff Harrison, as always. People keep confusing the market
> with the economy. Economic indicators are up say the bulls. No shite
> say I. Trillions in borrowed money and guarantees has to go somewhere
> and the money market is nowhere to party. The economy still sucks.
> Gold is up because gold is money and the dolar is junk. Treasuries
> yields are a joke because the Fed owns most of the long end of the
> yield curve, mostly through swaps I gather. Stimulus spending is
> fine if you're in the black, but borrowing your way out of debt only
> works if you hit the Powerball. I own palladium because it's used
> in Cold Fusion. Palladium is up but only because the dollar is down.
> I figure the chance of Keynesian deficit spending getting us out
> of this mess is about as good as Cold Fusion
...Gold is only worth buying at all time lows NOT all time highs...
You might need to remember the relationship Au has with US$ when considering the term "all time highs". The author may have a point if the US$ can hold its current status for a couple years before the Fed needs to remove much of its supply if and when velocity increases and (hyper)inflation risks make longer Tbill holdings absurd. IMO
As did Joseph Stiglitz and Peter Schiff (quite opposite really) and no one listened to them either.
On Sep 18 08:30 AM Grand Supercycle wrote:
> I began to warn people of the impending crash back in *February 2007*
>
>
> My Market Trends:
>
> www.zerohedge.com/foru...
I think the price is low. I can say more "Very low"
On Sep 20 10:43 PM Clint007 wrote:
> Concerning the price of Gold today, it is low or high now?
>
> I think the price is low. I can say more "Very low"
On Sep 20 10:43 PM Clint007 wrote:
> Concerning the price of Gold today, it is low or high now?
>
> I think the price is low. I can say more "Very low"
The long and short is I don’t think we are near bottom. We should see more downside before this bear market is over.
On Sep 21 11:30 AM Andrew Butter wrote:
> What you actually said on 5th March was:
>
> The long and short is I don’t think we are near bottom. We should
> see more downside before this bear market is over.
Those who are genuinely in the know (the directors of those banks who make up the Fed and their friends) must be making the killing of the Millenium.
On Sep 21 12:53 PM Value Added wrote:
> Edward, fine article. Apparently many readers misunderstand the purpose
> of owning gold, in my estimation. I consider gold to be insurance,
> not an investment. It may also be considered a gamble, as well -
> probably as many people have lost money betting on gold as have made
> money. Since I'm a value investor, I think of gold as just another
> currency, and I don't tend to bet on currencies (although, if I did,
> I would bet against the dollar now!). Yet I have about 10% of my
> portfolio in gold. Why? Because I believe many major dollar holders
> (petro-countries, China, Japan) are trying to get rid of dollars,
> hopefully without collapsing the world's reserve currency. The end
> effect of this remains to be seen, but such a revolution in the international
> economic system makes me want a little insurance. Gold works for
> that. If it simply maintains its purchasing power, then it has done
> its job. Investments, on the other hand, I expect to see grow because
> of human effort and ingenuity.
If market was down 50%, and recovered 60% from there, you would be up about 30% from your original 50% decline.
You would still be down 20% of that original 50% decline.
On Sep 18 12:41 PM Wisdom vs. Information wrote:
> 60% upside?! the market was ridiculously oversold in March, you need
> a baseline that makes sense. the dollar is down b/c everyone sold
> it to buy equities, it does not mean anything else; soon we will
> be overbought and everyone will sell equities and buy dollars, and
> then we will see more silly articles about what THAT means
And youre a pro?oh boy.
On Sep 18 08:35 AM Alexander_K wrote:
> Exactly what our strategy is - long treasuries+OTM puts on S&P+some
> gold (which is insurance policy for us, we don't do M2M for our gold
> hoard). Also our view is USD is close to its bottom now.
On Sep 20 10:43 PM Clint007 wrote:
> Concerning the price of Gold today, it is low or high now?
>
> I think the price is low. I can say more "Very low"
On Sep 20 01:30 AM aussiereader4 wrote:
>
> As did Joseph Stiglitz and Peter Schiff (quite opposite really) and
> no one listened to them either.
>
> On Sep 18 08:30 AM Grand Supercycle wrote:
On Sep 19 06:18 PM bobbybutte wrote:
> Author makes some good points but he is DEAD wrong that many large
> cap stocks are selling at attracive prices and should cause the market
> to continue to climb.I do agree certain sectors are overvalued and
> they should underperform.Gold is only worth buying at all time lows
> NOT all time highs.if gold didnt crack record rates during the last
> 12 months why would it start now?
The good thing you can say about it is that there is a long term bias towards increased value relative to other currencies; the inflation hedge aspect is real. If you are in a position where you can devote some money to insurance that doesn't necessarily appreciate in real value, that's great. But I think most investors need to get some real appreciation in their investment.
Gold only rose during the "great" depression because governments had gold propped at a fixed rate. If governments didn't have the gold standard then the price would have fallen like all other commodities.
This also explains why gold fell from $1000 to $850 in 2008 and gold stocks fell, as reflected in the XAU index, from the level of 200 to 63 in 2008.
Although this fact may seem like blasphemy to gold bugs the reality should be acknowledge. I say this despite that fact that I have owned gold and silver bullion since 1996.
On Sep 18 08:56 AM Edward Harrison wrote:
> One other thing. There has been no correlation between inflation
> and gold over the past twenty-five years.
>
> news.goldseek.com/Mill...;br/>
>
> While inflation is generally thought to be an inflationary hedge,
> it is also a safe haven when there is currency revulsion. During
> the Depression, gold rose while deflation was everywhere.
Now if it tanks, I've made money in the time since I was first advised to sell.
If you don't have the courage to get in now, at least "pretend" to buy at this level and see where you'll be 2 months from now. Remember, you can sell at any time between now and two months.
My guess is you'll make money.
I'll sit here and watch the dollar tank while watching for a meaningful pull back in gold. When and if it ever comes.
I just don't have the "courage" to be in equities right now.
Bob
Inflation depends not only on the money supply (assuming you can determine the appropriate aggregate), but also the velocity.
Inflation is not compatible with the economic weakness we see today.
And remember, what really drove the 70s inflation were COLA (cost of living adjustment) labor contracts. Those don't exist any more.
On Sep 18 01:09 PM Ad Orientem wrote:
> Unfortunatly the evidence does not support this. Most of the cash
> flow has been into the bond market not the stock market by a margin
> of nearly of 10:1. The dollar's decline is because the United States
> is essentially bankrupt and we are printing money as fast as the
> paper and ink can be loaded into the machines.
>
> At some point this will come to a halt. But it will be a very painful
> halt. The FED will have to do what Paul Volker did to arrest the
> great inflation of the 1970's- early 80's. We need to raise interest
> rates sharply. But this would turn the current severe recession
> into a full blown depression. In short we are between a rock and
> a hard place.
Bernanke is learning a hard lesson about pushing on a string. I haven't seen a paper on the topic but I wouldn't be surprised if "The velocity of money" is 10x more important then "The absolute amount of M2 in the economy". Bernanke is having to learn that even if you print up a trillion dollars, all that might happen is the banks will take it at 0% interest and buy treasuries, and consumers will use it to buy stocks, and the real economy will suffer - indefinitely - as a result.
I was a gold bull until my gold fund (VGPMX) decided to go 100% into platinum and commodities and I got really, really hosed in late 1998, losing 66% of my investments. I now believe that deflation ahead is absolutely, positively, and without a doubt, unavoidable so I'm mostly in bonds right now.
- A Canadian
On Sep 19 11:49 AM comox wrote:
> Regarding foreign currencies, I would recommend the CANADIAN DOLLAR.
> It has been rising versus the US dollar recently (due to commodities
> rising), currently at 93.5 cents, and is projected to reach parity
> with the USD by the end of the year.
> Canada is coming out of the recession nicely and has a stable, smaller-deficit
> federal govt. It has a strong banking system and is rich in commodities,
> which are only real assets in times like these.
> I see no reason for anyone to be holding US dollars when the US govt
> is so intent on devaluing them with their money printing policies.
> The USD is a sinking ship and everyone should be heading for the
> lifeboats!!