gabe borenstein

Today in Commodities: Inflation or Deflation?

Inflation is the least of the threats to the economies . The spike in some commodity prices especially gold ,is predicated on the past cyclical economic/commodity prices behavior. Until the current cycle ,every recovery was accompanied by excessive demand pull "forces" which had led to a cost push inflation.
The global implosion of 2008 has decimated global and consumer liquidity . Global focus at every level will and should be to restore this catalytic component of stability(liquidity).
In the U.S carefully applied "jolts" both monetary and fiscal will contribute to impressive and non inflationary economic expansion.
Gold?- is reflective of a global leveraged speculation based on the old notions.Other commodity prices will not go very far.
Inflation is not in the cards in the current cycle.

Thursday Outlook: Commodities, Global Markets

I have listened to this implied perpetual nonsense about the bearish stock market (from David Fry) for quite some time .I won't waste my time repeating his predicted lows .
It suffices to say that the stimuli in place are impressive .They will trigger a more visible rebound shortly .
An average investor needs to understand that it had taken years to create the current economic turbulance (I have discussed the current risks as early as June 3,2005 in an interview with Mark Gilbert (Bloomberg)-another three months or so of waiting for the recovery is insignificant at this point in time.
Major,noninflationary recovery is on the way .
The stock market indices will attain unprecedented highs.
The increase in the tax revenue due to the economic boom on the way ,will reduce projected deficit to acceptable level.
Major economic surprise lies ahead.
...

Wednesday Outlook: Commodities, Emerging Markets

My final response on the topic.
There is a"mother" of the rally in the period ahead.
It will redefine the concept and notions of the bull market.
It will dwarf in magnitude of what transpired yesterday(I have called this rally at 4 A.M).
Yes ,the Dow will hit 20,000 within two years.
We are the witnesses to a market history in making.
The only thing that we should fear is the fear itself.

Wednesday Outlook: Commodities, Emerging Markets

It suffices to say ,that prior to yesterday's rally we have heard the most bearish market perspectives.The word Depression has been used non stop.
What we have seen yesterday is not a part of the market correction in the bear market but rather a beginning of unprecedented rally.
The market volatiolity will continue but ahead lies another spike that will dwarf what transpired yesterday.
Investment community/investors need to understand that all of the approved measures were not fully implemented yet.Then there is a lag (monetary and fiscal).
By the second half of 2009 the U.S GDP will be expanding at 5% .
This will be as difficult to comprehend as my warnings on September 18 of 2007 when I have issued a warnig (one out on many) during the Bloomberg TV interview -Brian Sullivan).
I believe that the author of the current article was still somewhat bullish.
In the next two years,the Dow will reach the 20,000 level- period.
But the fear mongers certainly are contributing to a mass paranoia and psychosis.
One more thing,the synonym for the mega rally will be Gabe.

Thursday Outlook: Commodities, Emerging Markets

To JJC
Your concerns do deserve a response .
The issue of foreclosures is a serious problem.Looking at the data it appears to me that forclosures have peaked.The housing sector is consolidating and very well may be the recipient of foreign investment(as the stock market is and will be).
Consumer credit is of concern ,but the relief is on the way.
Speculative forces(hedge funds and others) have pushed the price of crude oil into the stratosphere.The result was higher gasoline (and with a lag) food prices.Thus consumers disposable income had been decimated.As the crude continues imploding ,the lower gasoline/food prices will increase dramatically the net disposable income allowing greater consumer spending latitude(please allow for some lag).
Unemployment is an issue but it is a lagging economic indicator it reflects the past trends but not the future.WE have seen worse unemployment data in the past.
The stronger dollar will attract foreign capital especially as Europe and Emerging market economies are heading for a contraction.
This foreign investment will enhance our economic rebound and will contribute to the unprecedented stock market rally.
Stronger dollar will initially increase exports as the importers of our goods try to beat the price increases (in real terms).Our exports will not suffer for quite a while.There is something called a J -curve .This curve reflects an impact of a shift of a relative value of a currency(ie dollar) on trade (Exports ).The Curve implies that a lag of up to 18 months exist.Meanig that a major shift favoring dollar will not affect exports for up to 18 months.
One more time,I am very optimistc on the U.S economy.
The economy /market are on the verge of a major rebound.
The problerms in the financial sector have existed for years and are being addressed while their magnitude is distorted by the media and the market bears .
Why? take a look at the record short open interest in the equity market -that is why.
In the period ahead you will see Dow at 20,000 and the NASDAQ over 5000.
Hard to believe? So were my warnings about the current turmoil,issued over the period of more than two years.

Thursday Outlook: Commodities, Emerging Markets

To ROwns
I think that instead of panicking ,the investment community must sit back and evaluate objectively the current status quo.Please remember that untill recently experts have stated that we are in recession but have alluded to hyper inflation as well (stagflation),while the real estate prices were imploding(70% of Americans were/are home owners ).
The reality is that the U.S is not in recession but is experiencing the sub average growth.In fact the reported GDP growth for the second qtr,was 3.2% .Many try to negate that number but it is real.Exports do create jobs,revenue ,growth and disposable income.
In addition the foreign investments in the U.S are and will continue to grow almost geometrically.
Clearly ,the U.S economy/markets are in the process of consolidation.
The negative distortions and gloomy dissemination of analysis, you need to take within the context of record short open interest-mega shorts continue to distort issues and the problems which we were identified and are being addressed.
Which brings me to the question pertaining to my time span on the market/economic recovery.
The data shows consolidation.Major market /economic rebound will be indisputable by October mid November.
At the risk of being repetitive ,I have been warning the investment community about the current problemsfor more than two years .
I have issued a very explicit warning about the suprime related issues which may derail economy on Sepember18,2007 (Bloomberg TV -Brian Sullivan -FED Time).
Now that the problems have been identified and are being addressed in unprecedented effort by the FED ,Treasury ,Congressand the Administration,I am very bullish if sometimes surprised by the volatility caused by the negative rumors and discussions which have no bearing to reality.
Unbelievable ,but market/and economy are in the process of the trend reversal( going up).
Two things would neutralize the negativity
a) The FED should contemplate additional easing.
b) CNBC should stop practicing "Yellow Journalism"
ROwns ,better days are ahead shortly.

Thursday Outlook: Commodities, Emerging Markets

The U.S economy is the process of consolidation on the way to a major rebound.
Some additional easing (FED) may be necessary to allieviate market/investors fears.
It is amazing how consensus had changed from blindly bullish to bearish.
The problems we are facing today were more than two years in making I have warned investors about pending" turmoil" more than two years ago, reiterated the issuesas late as September18,2007.
If only the issues were addressed then.
In the meantime the problems have been identified an are being addressed.Little more time may bee needed to see the economic response to fiscal and the monetary measures(Lag).
We did see a 3.2% GDP growth in the previous quarter ,quickly dismissed by the economic "charlatans".
Economy looks always best on top of the cycle and the worst on the bottom of the cycle.
Yes ,there are some problems that are being addressed but we are on the way to a major market/economic rebound.
Hard to believe.

Tuesday Outlook: Commodities, Emerging Markets

Let's set the record straight.The Primary beneficiary of the Treasury's "rescue " plan was and is the "little guy".
It is because of the existance of the FRE and the FNM ,the little guy was able to obtain competitive mortgage rates.
In the current turmoil both agencies are responsible for up to 80% of the mortgage market acitivity.
The direct take over of the agencies has neutralized self serving and distorted rumors about the financial viability of both agencies clearly disseminated by the record shorts (including hedge funds).
The distortions had a turbulent effect on the rest of the financial sector as well.
With the Treasury's action both agencies have gained an implicit AAA rating .Th e speculators were put on notice that the U.S will not allow a sequential systemic failure which could result in the global economic implosion.All of this becausesome mega shorts had an ability to ferment market disturbances based on the myths and distortions.
With this action ,"bears" will have to move on and will likely try to victimize another sector.
In the period ahead the existance of the "new" agencies will inject stability into financial sector and broader economy as well.
We are in the process of consolidation on the way to a major rebound.
The Treasury's message is loud and clear- it will accomodate the necessary "tranquility".
Some will claim that the share holders are the real victims -at this price level not so.
The share holders have a one dollar call option on the success of the restructured agencies(without expiration date).
It had taken years to create this upheaval(I have warned against it as early as June of 2005).To allow another month or so to resolve the issues is not a crime .
Rebounding econmy will take care of the housing and the market issues.
I think we had enough of the paranoia.
The Treasury is wrong when it intervenes and is wrong when it does not-enough of this nonsense.

Friday Outlook: Commodities, Emerging Markets

Yesterday's sell off is just a reflection of a psychological inestment"dissarray".T... great and unexpected GDP data was ignored some weaker data was utilized as an excuse for a sell off .Untill month ago we have heard that the U.S was in recession and the market had adjusted accordingly.The reality isthat the U.S is in the moderate expansion mode on the way to a major rebound.The volatility will continue as a part of a bottoming process as the both weaker and stronger data is digested by the diversity of investors.One thing for sure ,the market bears are always looking for the excuse..
If it is not the crude then it is the agencies or......?
Let's just relax,the August is the universal vacation month .
It is curious that for all of the negative hysteria the FED appears relatively comfortable with the current status quo.
The market had discounted the worst economic scenario
and the major rebound lies ahead.

Thursday Outlook: Commodities, Emerging Markets

The financial sector of the market is comprised of many segments,some with a greater degree of the risk than the others.It is the sellers (shorts) that had gotten away with impunity by disseminating the rumors or distorting the existing status quo.Untill recently recession was the economic consensus of the U.S status quo(I have always stated that we have decelerated but are not in recession).Now all of the sudden,the consensus had tilted to my opinion.The stock market however had adjusted for a recession.
That consensus miscalculation has created a relative investment value out of the equities(housing sector as well).
Since the financials were "punished " the most, they do offer a significant relative investment value.
In addition we have learned that the FED and the Treasury will "deflect" potentially broader and severe issue by providing more acceptable solutions to the specifific "problems"
In fact in the eighties the example was set as the FED had to address the S&L issues.
In the current cycle we have seen an attempt to subterfuge entities such as MBIA and AMBAC by distorting their status quo.
We have heard distortions about the FRE's and the FNM's ability to fund themselves .In the meantime both agencies have excess capital(above the required margins).
The banking institutions had writtent off "risky assets"quite aggressively and had raised additional capital.
Clearly then the various components of the financial sector had and are addressing the issues with the help of the FED ,Treasury and the Administration.
Selectively this decimated sector offers significant relative value.
I will say this again ......I just wish that the risks in that sector were noted two years ago (I did in the news media) ,if they were, the current debacle would have been avoided.
The market risks always exist,bu the U.S is on the way to a major economic/stock market rebound.

Wednesday Outlook: Commodities, Emerging Markets

The market volatility is not driven by the investors but rather prop desks and hedge funds.The problems ? -they have been identified and are being addressed.
For all of the nonsense ,FRE was able to raise (yesterday)1 billion dollars via reference note ,without any problemsw.In fact it had raised 43 billion dollars in 2008 via this vehicle. The FNM is doing fine .Both agencies have reserves abouve the requirement level, but the "bears " continue to distort the issues .MBIA had managed to write some relevant business and the AMBAC had "restructured" to be in a position to write new business.
The oil speculators have managed to spike the price of crude by spreading fear in the market by comparing every hurricane to Katrina.
Hurricane came and went ,the damage is insignificant and the oil prices have tumbled.
Now I suppose we will have to listen to the "experts" ,telling us about the upcoming OPEC meeting implying that the OPEC will cut the output.In the meantime Libya had already stated that it will not reduce its crude production.
The housing sector is showing signs of consolidation/stabilit... and the mega dollar inflows in the period ahead ,will cause a major price rebound.As it is ,we have seen foreign interests buying some "interesting" commercial properties in the U.S.The economic/political risks outside U.S will enhance dramatically demand for the dollar assets specifically the equities and the real estate (relative value assets).
What we need is more time(lag) to allow the fiscal and the monetary implemented measures to add to the economic jolt.
The time for concern was at least two years ago when the "financial" and the economic risks were becoming evident.
One more time .In June of 2005 ,in an interview with Mark Gilbert (Bloomberg- London) I have expressed my concerns about the issues we have faced to date.On September 18 ,2007 I have reiterated concerns during an interview with Brian Sulliovan (Bloomberg -TV) .
Now that all of the problems have been identified and are being addressed ,I am quite confident that the worst is behind us.
Europe and the Emerging markets are the areas of concern.
In fact I believe that we are in the process of market /economic consolidation which will lead to unprecedented economic rebound and the stock market rally.

Thursday Outlook: Commodities, Emerging Markets

It is about time we shed the light on the FRE and the FNM. First of all it is important to comprehend that both agencies have reserves way above the minimum.Their "default" rate on the mortgages is less than 1%-much more impressive than most of the banking insitutions.The bailout issue is predicated on Armageddon like financial calamity ,merits of which appear to be disseminated by the record "shorts" in the financial sector.The facts are that the issues which should have been addressed at least year ago ,are being addressed by the FED,the Treasury ,the Congress and the Administration quite competently now,while the mega shorts are tryng to negate the success of the measures applied to rectify the "financial " issues.As the U.S economy gains momentum in the period ahead ,all of the negative financial fiction will dissappear.
Now let us address the key issue of the taxpayers responsibility vs the FRE and the FNM fictitious need of the rescue package.
The FRE and the FNM were created by the act of Congress to provide competive financing (mortgages) to the average American taxpayer.
Thse two agencies have provided the affordable rates to an average American and are responsible for about 80% of the mortgage related activity today.
When the agencies have needed the capital ,they have decided to issue common stock.Not too many investors would consider that a speculative investment-not exactly to Enron.
Now that the distortions of the economic and financial facts (influenced by the record short positionsin the shares of both agencies) are creating calls for the restructure of the agencies,common share holders (your average taxpayers)are being asked for a supreme sacrifice after investing in what many considered conservative institutions implicitly guarnteed by the U.S. Once again ,this is a wishful event thought up by the mega shorts.
Second of all the housing sector is in the process of a major consolidation leading shortly to a major rebound .and providing stability in the financial sector.This housing segment of the market has the most relative value and "investment" funds are being set up (disseminated in the media) to take advantage of this opportunity.
Paranoia and the mass hysteria aside,both agencie swill survive in the current form without any necessity for the rescue.
They will provide the average tax payer with the competitive mortgage rates and will provide market stability/liquidity whenever skewered and biased interests will try to implode the market.
The housing market is heading for a major rebound as is the stock market .FRE and the FNM will do just fine.

Wednesday Outlook: Commodities, Emerging Markets

Clearly ,the PPI is an abberation and it did not pick up the recent minor commodity price implosion.More important,at the CPI level the data may be overstating the rate of inflation.Almost 70% of Americans are (were),the home owners .The CPI includes changes in rents ,not the home prices.If home prices were substituted for the rent component ,the drop in the rate of inflation would be noticeable.In addition it is clear that other than gasoline ,just about every consumer item is on sale.The CPI is not picking this up..As the global deceleration becomes more pronounced,the crude prices will likely sharply decline.Tell Detriot about the inflation ,they are not likely to understand the word given the economic state of the automobile business.In fact I would argue that over the longer period of time,the high energy prices are deflationary as the decimate the real disposable income causing implosion of the consumer demand for the other goods.
In the meantime we are on the way to recovery .The problems have been identified and addressed .The investors and economists should review the word monetary lag which would then eliminate the investment hysteria.
On the other hand if the FED,the investors and some of the financial institutions had behaved more responsibly 18 months ,we would not have to experience the current" trauma". One more time ,it is not the U.S that will be the economic issue in the period ahead,it is Europe and Emerging market economies (includes many Asian countries),that are about to feel the unprecedented economic pain.
As long as there are radically different opinions,the market volatility will continue.Market is consolidating and poised for a major rally in the period ahead .

Tuesday Outlook: Commodities, Emerging Markets

Yesterday was simply another outburst of the mass hysteria.
Any problems that the FRE and the FNM may have , have been discussed for months.Both agencies have been addressing the market concerns.They will continue to provide liquidity to the mortgage markets as originally defined by the Congress.
Time for concern was at least two years ago ,and I have expressed those concerns then-now it is a matter of a bit more time.
Commodity prices will continue the downward spiral as the evidence of the global deceleration become increasingly pronounced.
The decline in the commodity prices (fuelled by the record speculation not the final demand),will allow the FED to continue(accelerate?) with more accomodative monetary policy.
The U.S economy/marketsare consolidating .Even the questionable housing market is receiving an investment focus from some "mega funds".
It is the ECB that is behind the curve with its high rates policy ignoring the signs of a major deceleration in Europe which is heading for recession.This will enhance the flows into dollar denominated assets.
The events in Georgia which show that being too close to Russia(geographically) may not be good for your health will further increase demand for the dollar assets(flight to quality).The ultimate beneficiaries of these inflows will be housing sector and the stock market(two assets with the most relative value).
The dollar spike will continue,the stock will move sharply higher ,the real estate market will stabilize shortly and the home prices should be higher by the early 2009(10% higher mean aaverage price).In the meantime the volatily and the paranoia willcontinue.

Friday Outlook: Commodities, Global Markets

Yesterday was not a pocket picking day. It was a rude awakening by the market bears that the reality is more optimistic than their doom self serving prognosis. The recession frequently discussed ,had been avoided but is priced in to the market prices. The stock market in the process of consolidation is ready for a major rebound,perhaps enhanced by the major short covering.There should be no doubt amongst objective investors that the key issueshave been and are being addressed. Major banking insitutions had written off the "questionable assets and exposure "although some marginal adjustments may be necessary. Some of these "write offs "will come back as the profits in the period ahead. Bond insurers denegrated by one particular short ,have shown substantial profits but were ignored by the market.Hopefully today'saction by the rating agencies reiterating the AA rating for MBIA and Ambac will bring the sense of investment reality into the pricing structure .Eventually the other segmernts of the financial sector will strenghten.
Housing sector while unnerving ,is consolidating as well with some pick up n sales.
Basically the U.S economy/market are in a maqjor phase of consolidation.
Europe and Emerging market economies are heading for a major decompression ,leading to record capital flows into dollar assets(flight to quality).These capital flows will cement the U.S economic/market record rebound.