Daryl Montgomery

Investing Themes for the Next Decade

Well stated. Is there a Plan C?

On Dec 28 11:26 PM Plan B Economics wrote:

> Welcome to the 1970s. It will take a while before inflation translates
> from commodity prices to producer prices to consumer prices. Of course,
> the Fed targets consumer prices, and by the time consumer prices
> are rising at a fast pace it be very difficult to tame.
>
> Like during the 1970s, the government will create half-a$$ed politically-appealing
> initiatives to control inflation. But it won't be until another crash
> that prices come down.
>
> We are in for a stagflationary period - partly because global resource
> constraints are being hit. Anytime the recovery starts gaining real
> traction, commodity prices will put a lid on real growth.
>
> Oil. Mexico is in decline, Iran is in shambles, North Sea production
> fell by 10% last year. The world gets excited when it finds 30 days
> worth of oil 7 miles beneath the ocean surface. We are 'recovering'
> from the worst recession since the 1930s and oil is at $78/bbl.
>
>
> This is it folks.
>
> www.planbeconomics.com.../

Investing Themes for the Next Decade

Thanks for clarifying that.

On Dec 28 05:13 PM Davewmart wrote:

> Daryl,
> Actually, the argument I presented here was not to say you were wrong,
> but to introduce the caveats you had not given in your article.<br/>For
> any given time period, intelligent charts can give good results.

Investing Themes for the Next Decade

The argument in this article is not about chart patterns, but that human beings behave the same way over and over again and governments make the same mistakes over and over again. Another repeating theme of history is that commentators deny that this is the case. Their arguments always come down to some version of 'things are different this time'.

As for chart patterns being random, I do indeed use technical analysis along with a number of other tools. I am a full-time independent trader and run the largest independent investing group in the world - the New York Investing meetup. Dutch Radio came to interview us last year because we were the only investing group they found that was consistently profitable during the Credit Crisis.
We also accurately predicted the Credit Crisis itself (in July 2007), the Bear Market was coming (in September 2007) and the Recession was beginning (in December 2007), as well as the failure of a number of banks and Fannie Mae and Freddie Mac. We were also the first to predict that Bear Stearns would fail (in August 2007, it went under in March 2008). As for the market, we predicted the exact day of the low in oil last February. Previously, we had predicted it would oil would peak at $150 (it got to $147).

As for seeing patterns that don't exist, there are also many people who don't see patterns that do exist because they lack this ability. This objection is essentially egotistically based and comes down to, if I can't do something, no one can. When people say to me that it is not possible to see patterns, I always agree that indeed it is not possible for them to do so.

On Dec 28 05:32 AM Davewmart wrote:

> 'Repeating cycles and the historically oft repeated government responses
> to them provide us with a lot of information about what can happen
> in the markets during the next ten years. Just like everything else,
> the cycles will behave as they have in the past because the fundamental
> driving forces behind them are the same as they always have been.
>
>
> Before the decade even begins, we can clearly see three major factors
> that will impact the market until at least 2012. These are: the lag
> between monetary stimulus and inflation, the steep yield curve, and
> price cycles in certain commodities. Repeating cycles and the historically
> oft repeated government responses to them provide us with a lot of
> information about what can happen in the markets during the next
> ten years. Just like everything else, the cycles will behave as they
> have in the past because the fundamental driving forces behind them
> are the same as they always have been.
>
> Before the decade even begins, we can clearly see three major factors
> that will impact the market until at least 2012. These are: the lag
> between monetary stimulus and inflation, the steep yield curve, and
> price cycles in certain commodities. These predict that a peak in
> the inflation rate, long-term interest rates and commodities prices
> is probable between December 2012 and July 2013. a peak in the inflation
> rate, long-term interest rates and commodities prices is probable
> between December 2012 and July 2013.'
>
> The problem I have with chartists is what seems to me to be some
> confusion between perception and interpretation and reality.
>
> There may indeed be as is argued here cycles, although there is also
> the possibility that some of these apparent cycles are random fluctuations,
> but the difficulty then is whether those wishing to predict the future
> by using them has correctly identified them, whether their effects
> will be countered by other, longer or shorter wave, cycles and whether
> the starting and ending points have been rightly identified.
>
> The difficulty is shown by the phrase: 'These predict that...' -
> no, they just 'are', they do not predict anything, that is a function
> of the the human interpreter.
>
> Is this just being picky or pedantic? Not really. For hundreds of
> years we have had problems with the phrase: 'It is God's will that...'
> when what is meant is that the speaker assumes a more absolute knowledge
> and relationship than the case admits - they are stating an interpretation.
>
> Sure, there are cycles, in stocking and destocking etc.
> Some of these we can have more confidence in than others.
> We can't justifiably have the same confidence that we can put all
> of these cycles, fluctuations and so on together to get a correct
> overall picture.
> People see patterns. It is a natural function of the human mind,
> from those who look at clouds to the ancient astrologers who interpreted
> the heavens.
> It is not simple to work out which have some reality, and which are
> products of the imagination.

GDP Revision Indicates Recession Is Not Yet Over

The government is definitely cooking the books. That's the point of this article and a number of other articles I have written.


On Dec 23 01:27 PM HeyNowBill wrote:

> Is the Government cooking the books? When GDP growth was initially
> reported at 3.5%, Obama said this was “welcome news and an affirmation
> that this recession is abating and the steps we’ve taken have made
> a difference.” He got his headline. At 2.2% our real economy is contracting
> and the steps they have taken have not worked. Not a peep from our
> President.
>
> Going from 3.5% to 2.2% is a 40% miss. I can't wait for government-run
> heart surgery.

3 Big Economic Lies of 2009

As far as I know, no government has admitted to the extent of inflation during a hyperinflation at any point in history. Not only have the figures been understated, but in a few cases, postwar China and Brazil, the government was caught out and out making up the numbers. You should assume that this always happens. I also suggest you research the numbers Zimbabwe reported in its recent hyperinflation - they are a complete joke.

If you read the history of the inflation in Weimar Germany in the early 1920s, you will see that their equivalent of the U.S. Treasury Secretary and Fed Chair, plus a number of top economic professors denied that their was any inflation problem almost to the explosive finale. Some of them insisted their was actually deflation instead of inflation. History apparently does repeat itself.


On Dec 21 08:42 AM ggirard wrote:

> While virtually every fiat currency ever created eventually inflated
> out of existence, we know the most about the 28 hyperinflations occuring
> since 1980. Each was a catastrophe in its own right, but some much
> worse than others. As it relates to the excellent summary of economic
> "lies" provided in the article, it would interesting to know in how
> many cases of hyperinflation since 1980 the gov't tracked the degree
> of inflation accurately as the crisis developed, and then reliably
> reported this status information to the public so they could prepare.
> I'm guessing a number like zero, And I'm thinking that each gov't
> was likely telling big fat lies through the whole crisis, even long
> after those lies were painfully obvious.

3 Big Economic Lies of 2009

Thanks Paco, I couldn't agree more.


On Dec 21 10:54 AM Paco Ahlgren wrote:

> There is absolutely no WAY we're better off now than we were two
> or three years ago. The healthcare bill, cash for clunkers, and every
> other form of preposterous stimulus has required the Treasury to
> print more money than ever in history -- at the same time the Fed
> has driven rates as low as possible.
>
> Quantitative easing is going to be the death of the dollar:
>
> seekingalpha.com/artic...

3 Big Economic Lies of 2009

The author responds: I am a full time independent trader and I run an investing group with close to 2500 members (the largest and most successful investing meetup in the world). We have had spectacular returns this year - in commodity ETFs and commodity stocks. We start with the big picture and work our way down. If those ideas were wrong, our investments wouldn't be profitable. What are your credentials?

As for corporate accounting, I suggest you consider that they changed the rules on how banks account for their toxic debt so suddenly instead of losing money, they were making money. GM changed its accounting method a few years before it went bankrupt and its earnings suddenly got better as well. Bear Stearns was planning on announcing good earnings in March of 2008. Unfortunately, it went out of business before it could get the report released. Fantasy can work in the short term in the market, but eventually you'll get your head handed to you if you trade on it.

-Daryl Montgomery


On Dec 21 06:15 AM aarc wrote:

> Follow the money.
>
> Investors listen more to their accountants than to their economists.
>
>
> As long as the fundamentals are not deteriorating.
> Investors are going to follow corporate earnings.
>
> The last quarter was on track for 15 percent loss and that was priced
> accordingly with SnP500 reaching 1,100 before the earnings season
> of Oct 2009. Snp500 has a high side of 1,300 YoY, QxQ basis.
>
> This quarter, we don't know yet what the estimates are but the direction
> is further mitigation of losses and possibly a full recovery with
> corporate earnings. A full recovery will warrant 1300 for SnP500
> on the high side.
>
> That is what Corporate America is for:
>
> For politicians and journalists. It's the economy, stupid .... they
> say. That is their bread and butter.
>
> For us who speculate and/or invest in the stock markets; follow the
> bottom line (and the top line too). Keep It Simple S******.

5 Reasons Gold Is Going to Rise: A Response to Nouriel Roubini

If you think gold is a useless metal, I suggest you throw away your cell phone and computer - they both have gold in them. Please also alert the biotech, nanotechnology and alternative energy industries and tell them they are wasting their time using gold in their products because it's useless. It is only useless if you are living like the Amish (pre-1860). Stop falling for the propaganda published in the mainstream media, do your own research and try thinking for yourself. You should also be glad you are lucky enough to have a smart wife.


On Dec 15 02:57 PM Uppai Mappla wrote:

> Of late I have been thinking that Roubini is a stopped clock. Good
> article.
>
> But don't share your ultra bullishness about gold which I bitterly
> consider the ultimate useless metal. ("Bitterly" because I own physical
> gold and if I sold my Indian wife will kill me.) Far better investment
> would be platinum which is both a precious metal and an industrial
> metal and will perform well whether the economy goes up or down.
>
>
>

5 Reasons Gold Is Going to Rise: A Response to Nouriel Roubini

Sorry, but I disagree with that definition, although that is how many economists define inflation and deflation. If this definition is correct in the real world then you can make money off investing with it. I base all of my predictions on the assumption that it is wrong and I have made dozens of correct predictions about the Credit Crisis at the New York Investing meetup and in my blog. Bernanke agrees with that definition. How often has he been correct?


On Dec 15 11:37 AM JLarkin wrote:

> Daryl talks about money supply without talking about credit supply.
> Yes, the Fed is printing a trillion dollars, but how much credit
> was destroyed when the derivatives market collapsed? Maybe $10 trillion?
> Inflation means the supply of money and credit is increasing, not
> just money. We aren't there yet.

Silver Prices Are About to Fall

Silver at $11??? This reminds me of the Elliot Wave people who predicted late in the spring that gold would fall to $600. Instead it turned around and went to $1100. There are a lot of, "I believes" in this article, without specific date ranges or hard numbers. People can believe anything (and they do). What are the probabilities of each of these beliefs happening at the relevant points in time? Once you multiply all those probabilities together is the overall number much greater than zero? Where are the hard facts to back up the predictions? Charts? Numbers? The contents of this article appear to be nothing but a bunch of baseless suppostions.

Profit from Weak U.S. Balance Sheet: Short Government Debt

While I am not optimistic, your Doomsday scenario isn't necessary to get the commodity prices you predict. Simply printing too many dollars and supply issues will do it. As for raising interest rates to Volcker levels, if the U.S. did so, the interest payments on the national debt would absorb all federal tax payments and there would be no money left to run the U.S. government. So we would have to print the money to do so, which would lead to more inflation and still higher interest rates. That would be the end game.


On Nov 05 09:42 AM Mad Hedge Fund Trader wrote:

> ndu I know what keeps Obama awake at night. Let’s say we spend our
> $2 trillion in stimulus and get a couple of quarters of weak growth.
> Then once the effects of the stimulus wear off, we slip back into
> a deep recession, setting up a classic “W.” Unemployment never does
> stop climbing. This happened to Roosevelt in the thirties. So congress
> passes another $2 trillion reflationary budget. Everybody gets wonderful
> new mass transit upgrades, alternative energy infrastructure, and
> bridges to nowhere. But with $4 trillion in spending packed into
> two years, inflation really takes off. The bond market collapses,
> the dollar tanks big time, gold goes ballistic to $5,000, and silver
> explodes to $50. Ben Bernanke has no choice but to engineer an interest
> rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing,
> having never recovered, drops by half again. This all happens in
> the 2012 election year. Obama is burned in effigy, a Mormon is elected
> president, and the Republicans, reinvigorated by new leadership,
> retake both houses of congress. We invade Iran. Crude hits $500.
> This is not exactly a low probability scenario. Remember Jimmy Carter?
> This is why junk bond yields are still stubbornly high at 12.5%,
> and credit default swaps live at lofty levels. Are the equity markets
> pricing in this possibility? No chance. The risk of Armageddon is
> still out there. Personally, I give it a one in three chance. Pass
> the Xanax.

Is the U.S. Banking System Safe?

Almost every point in this article was covered in the fall of 2007
by the New York Investing meetup, up to and including our predicting the insolvency of Fannie Mae and Freddie Mac. We agree that the U.S. authorities are attempting to copy the 1990s disastrous Japanese policy decisions for the U.S.banking system. However, we disagree with other analysts in that we are predicting the U.S. will experience a major inflation episode instead of the deflation experienced in Japan.
- Organizer, New York Investing meetup

The Current Market Atmosphere: Easy Money Hard to Come by

The most important statement in this article is: "The "experts" made available to the public have and will never alert you in a timely manner". This is why the average investor can never make money in the market. The people who do make money understand this concept well and pay no attention to the investment advice offered through the media.

Nasdaq vs. Homebuilders vs. Oil

This article is comparing apples to oranges and is ridiculous. While a Nasdaq comparison is reasonable, the Nasdaq rally began in 1982, not 1994, with the beginning of a secular bull market that lasted 18 years. There is no reason the oil rally can't last 18 years as well and that commodities are in an 18 year secular bull market. The oil rally actually began at the low in 1998, so that would give it a potential 8 more years (if you wish to date the beginning of the secular bull in 2001, then 11 more years) based on the reasoning of this article. As for comparing homebuilders, the factors that affect their prices are not the same as those that woudl affect the price of a commodity. That comparison is completely invalid.

The Fed is Deflating: 10 Reasons Why

This is quite possibly the stupidest thing I've ever read online. Deflation as described in this article is actually a key component of hyperinfllation, which takes places when the monetary base doesn't expand nearly as fast as prices increases. In Weimar Germany, the monetary authorities and top economists constantly made the same argument made in this article, claiming deflation was really taking place just as inflation was beginning to skyrocket, just as is happening in the U.S right now. The fools that listened to such idiocy were wiped out.