DougM

The Case for Depression, Part 4: Dollar Collapse

Old Trader: "You can take coal and grain off the list, as the US is doing ok with those....of course, not so much with oil and copper."

Yep, but there's a world market for 'em, and we'll end up paying the world market price as consumers, since producers have the option of sending production abroad should prices be insufficient here. The only good news is, at least price rises there don't add to the current accounts deficit.

The Shedlock-Schiff Affair: A Chronicle

The fact is, Shedlock is one of the few who not only correctly called the implosion, but called for a deflationary implosion. Shedlock stuck to his guns even when everyone was wringing their hands a year ago about hyperinflation. The fact that a lot of perma-bears also called the implosion isn't very helpful since, like stopped clocks, they were bound to be right (about the direction of the market) eventually. Schiff's inflationary scenario may ultimately be proved right, but the time frame matters, and the fact is, he's been wrong about inflation and wrong about decoupling. If and when inflation becomes a credible threat, Shedlock may call that turn too, and the information would be of much greater value to his readers than a call that goes horribly wrong for years before eventually coming true.

Let's Just Say It: Print More Money

Dirk, on the other side of those loans are millions of savers who did not recklessly overleverage themselves. Your plan to wipe away the debts of the imprudent through inflation will come at their expense. What's your plan then, take them all on as wards of the state, printing yet more money for that? And what do you think will happen in the long run if you prop up the over-consumers at the expense of the savers? Google Warren Buffett's 2003 article in Fortune where he talks about Squanderville and Thriftville.

Gold: Not an Effective Hedge Against Inflation

aitvaras, I believe you're mistaken about the CPI - it does include food and energy costs, and this year social security recipients got almost 5% as a COLA resulting largely from these factors. CNBC often quotes the so-called "core" rate that excludes these items, which, as Bill Fleckenstein likes to say, is "inflation excluding inflation". That number can be very misleading, but it's not the number used for COLAs etc. Now, you could make the argument that the CPI used for COLAs is also inaccurate due to hedonic adjustments, improper weighting, owner-equivalent rent, etc., but that is a different argument.

Does Buffett Still Stand by His 1999 Sun Valley Prediction?

There's nothing contradictory here. In past secular bears (1930s, 1970s) they lasted about 17 years with a lot of zigs and zags in between, but in the end with no returns for someone who bought in at the beginning. However, the time to buy wasn't right at the end of the bear, but somewhere in the middle during one of the big legs down. You didn't have to get the best downdraft to do well, you just had to get a good enough drop. Or better yet, stagger your buys across them to hedge your bets.

Letting the Reinflation Genie Out of the Bottle

55065, here is why inflation is bad. It devalues the savings of people while also devaluing debt. So it discourages savings and encourages debt. We already have too little savings and too much debt. Who will keep lending us the money? If the dollar goes into free fall, trading partners that sell stuff we need to import will demand to be paid in something other than dollars - gold, trade goods, or ownership of our land, buildings, and other assets. That won't end well. Another problem is, it screws anyone on a fixed income or with fixed savings to retire on. What's supposed to happen to all those people? Another problem is, once expectations get built in that inflation is high, people will start demanding very high interest rates to loan money, even to the US government. That also won't end well for a government that has massive borrowing needs in the future.

Wednesday Outlook: Commodities, Emerging Markets

Dave, love your column. Some possibilities re. the utilities decline:
1. Possible repeal of dividend tax rate under new president.
2. If long interest rates rise, bond-like equities could go lower.
3. Expensive renewable mandates - paid for by who?
4. Expensive grid upgrades needed - paid for by who?
And of course as you know
5. In a downtrend since last year - trend continues until it doesn't.
6. Just more stocks in the sell basket.

The Nuttiness of This Market

More and more of the market is likely being treated like a gambling casino by hedge funds. Eventually their well-heeled investors will wise up to the fact that the only ones really making money are the managers, who have every incentive to take big gambles to juice the returns, and no skin in the game if the bets go wrong. The fact that they can do all this and still pay the "long term capital gains" tax rate is an outrage.

The Strange Case of Dr. GLD & Mr. Bullion

If there was a sudden outflow, it would be hard for the fund's managers to actually move that much bullion on the spot market. I'm not sure how it would work if put under extreme pressure. I suppose they, or one of numerous actors authorized to create and destroy share units, could take ownership of the gold and simultaneously hedge it by selling futures, then take their time selling off the physical while closing out the short futures contracts (or simply delivering against those contracts).

Is the Commodities Bull Market Over?

FWIW I think you're right, but as we've seen this year, there are limits to how far prices can rise before they choke off the very economic expansion that fuels the boom in the first place. The market needs to find a balance between continued world-wide GDP growth and rising commodity prices. Ultimately, it will have to find substitutes for the most constrained resources or the growth simply can't continue.

Gold Bubble May Be Coming to an End

Should have been 65% jewelry - sorry for the typo.

Gold Bubble May Be Coming to an End

www.research.gold.org/.../

2007 stats:
2426 tonnes jewelry
466 tonnes industrial/dental
656 tonnes investment (including ETFs)
3547 tonnes total

So it looks like 15% of the demand is essential commercial uses, 20% is hoarded by investors, and 75% goes to jewelry. Sorry, that's not as persuasive as something like food or energy that people can't easily do without.

Gold Bubble May Be Coming to an End

For everyone saying gold's price is justified by supply/demand imbalance, how much of the "demand" is commercial and how much is just going into the hands of investors?

For everyone saying gold's price is being driven by inflation, has there really been 50% inflation in the past 6 months?

Fed Rate Cuts May Have Been Counter-Productive

"At some point in the months ahead, these funds will begin to move back into the stock market as investors grow tired of earning a negative real return on their savings."

That may be true, although today a good number of them are throwing their money into commodities.

"Viewing today's markets, a strong case can be made that aggressive Fed rate cuts have been counter-productive; Fed easing has exacerbated inflationary trends in the commodity and currency markets, while doing little to prevent the repercussions of the bursting of the credit and real estate bubbles."

Depends on what you think the real goal is. IMO the Fed's real goal is to prevent a collapse of the banking system. Banks borrow short and lend long, hence the stickiness of long-term rates (or the prospect of even higher rates if inflation expectations build) combined with negative real returns on bank deposits have the effect of slowly recapitalising the banks at the expense of savers. The Fed can't come right out and say they're trying to bail out the bankers that made all these bad loans because the FDIC can't possibly make good on the deposits if even one large bank goes under.

Commodities Gone Wild

How is it that the same bears that were trotting out charts of parabolic house prices during that bubble are apparently blind to the exact same thing happening in an asset class they like (commodities generally, gold particularly)?