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Tales From The Future (tftf). I picked my nickname because many advisors and investors claim they can predict the future of the (stock) markets and somehow pick the winners. I don't. I usually do not engage in short-term trading and myopic analysis (quarter by quarter, without looking at the big... More
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  • FED Policy: Unwinding Or QE Infinity Coming? From Bernanke To Yellen 1 comment
    Oct 22, 2013 7:31 AM | about stocks: GLD, IAU, NFLX

    Ben Bernanke, November 2010:

    We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time.

    Source: www.washingtonpost.com/wp-dyn/content/ar....html

    Ben Bernanke, November 2013:

    What do I care now? Let Yellen unwind this mess...or not. I'm out.

    Source: He didn't actually say that, at least not publicly :-)

    To get serious again, Bernanke didn't lie in that first quote. He never promised that he will actually put the "tools" to use himself. From all we know successor Yellen is even less eager to put them to use soon once she becomes FED chair in early 2014.

    Author Peter Schiff has the following opinion on the future of the USD vs gold prices in this context:

    The common wisdom on Wall Street is that gold has seen the moment of its greatness flicker. This confidence has been fueled by three beliefs: A) the Fed will soon begin trimming its monthly purchases of Treasury and Mortgage Backed Securities (commonly called the "taper"), B) the growing strength of the U.S. economy is creating investment opportunities that will cause people to dump defensive assets like gold, and C) the renewed confidence in the U.S. economy will shore up the dollar and severely diminish gold's allure as a safe haven. All three of these assumptions are false. (Our new edition of the Global Investor Newsletter explores how the attraction never dimmed in India).

    Recent developments suggest the opposite, that:

    A) the Fed has no exit strategy and is more likely to expand its QE program than diminish it,

    B) the U. S. economy is stuck in below-trend growth and possibly headed for another recession

    C) America's refusal to deal with its fiscal problems will undermine international faith in the dollar.

    Source: www.zerohedge.com/news/2013-10-21/peter-...-gold

    Needless to say Peter Schiff is in the minority with his views (as he points out himself) - but I do agree with him long-term.

    Short-term, gold may still slump or go sideways in my opinion - if only because the (stock market) party is still on and people don't like to think about the ramifications. This could change, for example, when the largest foreign creditors (currently Japan and China) get nervous about the USD:

    In fact, the Chinese may finally be getting the message. Late last week, as the debt ceiling farce gathered steam in Washington, China's state-run news agency issued perhaps its most dire warning to date on the subject: "it is perhaps a good time for the befuddled world to start considering building a de-Americanized world." Sometimes maps can be very easy to read. If the dollar is doomed, gold should rise.

    Source: continued from above

    I will let that sink in because the implications are enormous.

    PS: Meanwhile, a second tech stock just made it into my personal 2013 bubble list (the first one was TSLA): "Congratulations", NFLX. More details here:


    Stocks: GLD, IAU, NFLX
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  • Tales From The Future
    , contributor
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    Author’s reply » Krugman, of course, reiterates this debt level talk is irrelevant and inflation and rising rates not around the corner:


    "Meanwhile, about that oft-prophesied, never-arriving debt crisis: In Senate testimony more than two and half years ago, Mr. Bowles warned that we were likely to face a fiscal crisis within around two years, and he urged his listeners to “just stop for a minute and think about what happens” if “our bankers in Asia” stop buying our debt. But has he, or anyone in his camp, actually tried to think through what would happen? No, not really. They just assume that it would cause soaring interest rates and economic collapse, when both theory and evidence suggest otherwise.


    Don’t believe me? Look at Japan, a country that, like America, has its own currency and borrows in that currency, and has much higher debt relative to G.D.P. than we do. Since taking office, Prime Minister Shinzo Abe has, in effect, engineered exactly the kind of loss of confidence the debt worriers fear — that is, he has persuaded investors that deflation is over and inflation lies ahead, which reduces the attractiveness of Japanese bonds. And the effects on the Japanese economy have been entirely positive! Interest rates are still low, because people expect the Bank of Japan (the equivalent of our Federal Reserve) to keep them low; the yen has fallen, which is a good thing, because it make Japanese exports more competitive. And Japanese economic growth has actually accelerated.


    Why, then, should we fear a debt apocalypse here? Surely, you may think, someone in the debt-apocalypse community has offered a clear explanation. But nobody has.


    So the next time you see some serious-looking man in a suit declaring that we’re teetering on the precipice of fiscal doom, don’t be afraid. He and his friends have been wrong about everything so far, and they literally have no idea what they’re talking about."




    My answer is it all depends on timing, either rates rise (making the public debt in JGBs and Treasuries apparent again on page 1) or the sluggish recovery results in more kicking the can down the road (resulting in more debt).


    What Krugman doesn't discuss is the fact that the debt is not going away, the problem gets worse in all major companies (US, Japan and Europe).


    Just because the bubble didn't pop in 2013 doesn't mean it's going away, I doubt Japan can make it beyond this decade given the current Debt/GDP levels in the current monetary system.
    27 Oct 2013, 11:59 AM Reply Like
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