contraxism

Julian Robertson Bets the Farm on Inflation

I don't buy the inflation story just yet and I am worried that too many wealth managers with people’s savings are acknowledging this inflation story, and investing/speculating accordingly to protect the erosion of savings, artificially driving up the price of commodities and stocks in light of weak fundamentals to support these price levels. This is causing an additional negative drag on the ability of the US consumer in particular to restructure his/her debts. Unfortunately, under the current global economic conditions there really is no safe haven with a better alternative than US Treasuries to park large foreign reserves - China realizes this crystal clear.

China is light years behind opening up free markets that are even remotely capable in reciprocating any sizable consumption to benefit US production and the US is heading down a dangerous social path itself. US production is restructuring, and relocating to be more competitive and US job losses continue at the rate of 600K monthly.

Where is the demand in the US economy going to come from to support sustainable inflation? The only recovery I see possible at the moment is for the trade surplus countries to continue supporting US Treasuries, allowing sufficient time to recapitalize and restructure. The biggest unknown is how much and at what speed will US consumption pull back in light of the inflationary forces that is currently driven by the velocity of the global savings glut instead of the demand for trade.

I also think it is in the best interest of countries holding US Treasuries to engineer and coordinate with the Fed, a suction of liquidity from the commodity and stock markets to shore up their US Treasuries when required to stabilize the USD.

Julian Robertson Bets the Farm on Inflation

I don't buy the inflation story just yet and I am worried that too many wealth managers with people’s savings are acknowledging this inflation story, and investing/speculating accordingly to protect the erosion of savings, artificially driving up the price of commodities and stocks in light of weak fundamentals to support these price levels. This is causing an additional negative drag on the ability of the US consumer in particular to restructure his/her debts. Unfortunately, under the current global economic conditions there really is no safe haven with a better alternative than US Treasuries to park large foreign reserves - China realizes this crystal clear.

China is light years behind opening up free markets that are even remotely capable in reciprocating any sizable consumption to benefit US production and the US is heading down a dangerous social path itself. US production is restructuring, and relocating to be more competitive and US job losses continue at the rate of 600K monthly.

Where is the demand in the US economy going to come from to support sustainable inflation? The only recovery I see possible at the moment is for the trade surplus countries to continue supporting US Treasuries, allowing sufficient time to recapitalize and restructure. The biggest unknown is how much and at what speed will US consumption pull back in light of the inflationary forces that is currently driven by the velocity of the global savings glut instead of the demand for trade.

I also think it is in the best interest of countries holding US Treasuries to engineer and coordinate with the Fed, a suction of liquidity from the commodity and stock markets to shore up their US Treasuries when required to stabilize the USD.

The Market Is Telling Us Something

Print the ETF guide from this site and look under fixed income

www.etfguide.com/etfti...


On Nov 27 12:01 AM Jeff Herman wrote:

> Is there an ETF I can use to short Treasurys, like UND for the dollar?

The Market Is Telling Us Something

There may be considerable upside yet to play out in US Treasuries. The unwinding of US carry-trade is reason enough alone to hold treasuries. At the very least I would wait for the unwinding process of the CDSs market to play out. As long as derivatives are at risk to counter-party defaults, the unwinding of leverage will put upward pressure on the USD. Forget about the yield until the unwinding of borrowed USD subsides. What if the next government cracks down on speculators of derivatives and commodities? There is too much uncertainty to forecast much more than a day.

What Obama Needs to Know about Tim Geithner, the AIG Fiasco and Citigroup

Why are CDSs are not rolled into an exchange yet? Would this not be a prudent methodology to legitimize the interest and save the taxpayer from bailing out speculators as we speak?


On Nov 26 12:50 PM BerkeleyBob wrote:

> Complex issues here, some of the comments are informative, some not.
> Two central points emerge: 1) The damage to US reputation in the
> world financial market is incalculable and grave; 2) AIG appears
> to have been at the fulcrum of making book on leveraged CDO's and
> credit default swaps which were purchased by entities having no
> insurable or legitimate hedge interest in the underlying assets.
> It was not insurance, not regulated, and required apparently no reserve.
> Pure profit for AIG until the Ponzi scheme unraveled. Hank Greenberg
> is as unrepentant as Dennis Kowzlowski or any of the Enron gang.

What Obama Needs to Know about Tim Geithner, the AIG Fiasco and Citigroup

Hypothetically, I borrow $1K to buy $1M in fire insurance on my house that would actually cost $100K to replace. My house burns down and the insurer can't make good because too many houses burned down in such a short period of time with such exorbitant coverage . Should the government fund the insurer with taxpayers money to make good hoping that not many more houses will burn down?

What Obama Needs to Know about Tim Geithner, the AIG Fiasco and Citigroup

Why fund a leveraged wager of CDSs with taxpayers money?


On Nov 26 10:04 AM Steve Pluvia wrote:

> You, lost me early in this overly-long soap-box stint.
>
> Are you *seriously* suggesting the U.S. let AIG blow-up?
>
> So let me see if I get your point...
>
> Let AIG fail; All foreign held debt insured by AIG blows up...
>
> -- US treasury and corporate debt immediately has zero credibility;
>
> -- US corporations and have zero borrowing power for short term trade
> and expansion.
> -- Trade grinds to a halt as foreign partners no longer honor purchase
> orders from US corporations.
> -- Run on all banks;
> -- The dollar gets crushed; and,
> -- The US have very little ability to jump start the US economy with
> spending
>
> Oy freakin vey. Your idea is ridiculous. Clearly you don't understand
> the implications of what you propose.
>

Risk of Long Term Deflation Is Low but Growing

very well explained jlounsbury59

In this case, is the inflationary consequence of printing too much money resulting in a loss of faith in the US dollar relative to its debt more than the result of looser bank lending?

Leverage has a profound impact on inflation in such a short time when the masses of investors sell dollars to buy commodities and vice-versa as we have seen.

I wonder how effective regulating leverage to regulate inflation would really be?






On Nov 26 01:23 AM jlounsbury59 wrote:

> ktchnsnk - - -
>
> You are correct in the long run if "money is printed like crazy"
> in enough quantity. However, in the short run money may not be printed
> fast enough to prevent deflation.
>
> Over the past decade, a lot of money has been printed. It was not
> printed by the U.S. Treasury but in the form of debt instruments
> by investment banks and others. These debt instruments (which were
> not subject to any regulation or oversight) became currency which
> was spent on commodities, stocks, bonds and real estate, including
> houses. Because this new currency was so plentiful, all of these
> things had their prices inflated to bubble levels. When a few of
> the debt instruments became subject to default, a wide range of debt
> came into doubt and the liquidity of this manufactured currency dried
> up - financial institutions became reluctant to recognize that it
> had the value that had been previously assumed. The fact that the
> new currency was not working the way it had been caused demand for
> the inflated items (commodities, houses, etc) to fall. When demand
> falls, and the supply remains constant (or increasing), prices fall.
> Falling prices produces additional default and we end up in a deflationary
> spiral.
>
> The magnitude of the debt pyramid is in the tens of trillions of
> dollars. With the deflationary spiral, the notional value of the
> debt instruments is still at the high level, but the exchange value
> is falling as the underlying assets decline in value. The result
> is that, based on the exchange value, balance sheets of financial
> institutions go negative. They are forced to raise more capital
> or go bankrupt. Only a national government is able to continue in
> business with a negative net worth, although many will question for
> how long.
>
> So the action that national governments take (with the aid of their
> central banks) is to take on more sovereign debt and print additional
> currency to provide liquidity to the otherwise bankrupt financial
> institutions. To do otherwise would put the entire financial system
> out of business via bankruptcy. The effect of the newly minted money
> is initially to supply capital to the reserve assets of the otherwise
> failing institutions. This money replaces the assets formerly on
> the books which have been diminished as described above. The money
> does not go into general circulation; it simply replaces money already
> spent on the inflated bubble assets. Since these assets are now
> worth less than before, the new money simply disappears into a "black
> hole" - it replaces the money represented by the lost value.

>
>
> Through lack of regulation, people were allowed to spend money that
> didn't really exist. Now we are printing that money and it can not
> be spent again.
>
> If not enough money is printed to replace the trillions of lost value
> in the debt instrument "currency" that was used to create the bubble
> valuations, the deflationary spiral continues. If more money is
> printed than is necessary, inflation will result from the excess
> money. Big problem: No one has a clue how much money will be enough.

>
>
> I keep suggesting that the tipping point between not enough new money
> and too much new money is like a knife edge, rather than a balance
> beam or some other broader platform. A major challenge is to keep
> from falling off the knife edge. It may not be possible.
>
>
>
>
> On Nov 25 08:13 PM ktchnsnk wrote:

Buffett's Gamble: $40 Billion Bet on Volatility

Good point Roger,

Buffett and Nassim are on a much different wave length. Buffett believes that America will bounce back, his generation of rewarding experience has taught him to trust in the system.

Nassim simply understands it is impossible to predict this. The problem is just too complex to forecast the outcome.

I would prefer Simmons over Buffett when it comes to risk management.


On Nov 21 07:27 PM Roger Knights wrote:


> But he sold puts near the peak, apparently, so the "stock" has been
> <b>falling</b... And there's no guarantee that it will get back up
> either, any more than the Nikkei has since its peak. Buffet was doing
> what Taleb Nassim warned against in his two books: collecting what
> he thought was risk-free "free money."
>
> He had better hope inflation will save him. So far he's had to "write
> down" his balance sheet considerably. That counts as "taking a bath."

Buffett's Gamble: $40 Billion Bet on Volatility

BRK shareholders better hope a decade is enough time, it may not be. I think too much money betting on too few places with counter party risk. Wasn't it Warren who said derivatives were weapons of mass destruction? Why not sit tight and wait for the end of the credit crises before acting? Is Warren being influenced by all the recent media attention?

The End of the Economy As We Know It?

On Nov 11 12:49 PM mdmrjsds wrote:

“Let everyone make as much money as they can during their life”

I say that one mans wealth shall be no greater than 10 times that of the average man.

My God! I have reached my limit, what shall I do now?

Every man, woman and child is not without food, shelter, health care and education.

The End of the Economy As We Know It?

Until a society is willing to except a limitation on individual wealth, the boom bust cycle will continue to repeat itself. Trust cannot be achieved in a society that worships its wealthy class.

News Flash: Major Market Turns Aren't Announced In Advance

The market is turning bullish one sector at a time.

The 9 sector SPDR’s consists of 4 bull market sectors and 5 bear market sectors.

Materials, Energy, Utilities and Consumer Staples are the 4 sectors which have held a gradual upward sloping support line from Aug 2007 lows on the 1 year chart.

Financials, Industrials and Consumer Discretionary are the 3 sectors which have set new 52 week lows on their downward sloping support line in July 2008. The Technology sector downtrend bottomed in Jan 2008 and the Health Care sector bottomed in March 2008.

The Jan 2008 correction was easier to identify an interim bottom as all 9 sectors corrected simultaneously with a 37 reading on the VIX. The Mar 2008 correction was reminiscent of Jan 2008, but to a lesser degree with a VIX reading of 35. The July 2008 correction is more confusing because it was a staggered one due to the fact that Technology and Health Care have joined the Bull camp, adding 2 more sectors. Therefore the Bear market has matured with 6 Bull market sectors versus 3 Bear market sectors.

If you are looking for leadership, it is happening in stages. The next sector to join the Bull camp will be the Industrials as the July 2008 lows were in line with Jan 2008, marking a double bottom support line on the chart. Financials and Consumer Discretionary sectors are getting much closer to the worst of their losses and will gradually be pulled along by the leading sectors and emerging market strength. Don't look to Financials for leadership, look to the leading markets for leadership.

Will the Fed Really Cut Rates Twice in One Week?

www.marketoracle.co.uk...

We're Now Putting In a Short-Term Bottom

VERY SHORT TERM IS MY BET
I give it less than a week before this rally fizzles out. This classic bear market rally will loose steam much quicker than the last, I peg about 12400 for the dow, then buyers will sober up quickly and realize we have more down side to come. There seems to be a shifting of funds from the late cycle stocks of tech and commodity winners to the early cycle stocks of financial and retail losers, also short sellers are covering these losers for better shorting opportunities. Why hold a short in financial's when you can short higher valuations in tech and commodities. Who is buying these high valuations today, is it program induced from the index?