De Graaf

M3 Is Contracting Now

Thank you for your contribution. Very enlightening.

Its early to say, but logic implies that the US is heading towards depression like phenomena.

Private sector deleveraging, M3 declining, U6 unemployment close to historic highs and no jobs available.

The public side: money creation by the FED, GDP based on spending, stimulus for job creation equals temp. job savings with no productivity improvements, simply a GDP boost by increased spending. And last but not least, a gigantic accounting fraud at WallStreet and the government...

This can't go on much longer. Dollar confidence is at its end. Reality will sink in soon with most Americans for a revolution and when that happens, the foreign creditors have long left the dollar playing field.

Dow Breaks 10,000 for 26th Time While Gold Shines

Well Jeff, I couldn't agree more with your writing. In fact, since I follow you, you make more than simple sense. Its valued.

Sound advice and keep it up!

American Austerity Is About to Begin

The political problem (for creditor nations and Central Banks that fund the US deficit) when they stop subsidizing America's exponential growth dream is too disturbing for them.

Remember what happened to France when they didn't suppor the war? There you go.

Those creditor nations just think by themselves...let us just get a low return (or perhaps a moderate loss) on our US dollar investments and keep the friendship going, or we could face a complete isolation in international matters by veto...

1. You fund the deficit and have good international relationship although the US will lose hegemony and power over time, or

2. Stop funding the US deficit and risk protectionist measures against your nation, plus the added effect of serious fiscal reform in America, once again revamping the US as a global power and lose respect for the coming century...for example.

Choice is clear for them, but I understand Shiff's ideology and principle which I fully support by the way, from America's perspective.

No Exit for Bernanke

I agree with Mr. Leftfield above me.

The credibility that the Federal Reserve thinks it has, is just as unjustifiable as this current spending policy. Its time Peter got elected as Senator and get the right sound going in Congress next to Ron Paul.

Time for real change and a more transparant dollar. I didn't want to use the word 'healthy' on purpose ;))

7th of August. Fundraiser for Peter Schiff.
Target: 10,000 donations of $100 each to go into history!

Ron Paul on the Economy

Ron Paul for President !!

Economic Fault Lines Emerge

Love the quotes Peter. Article is as clear as always. Keep em coming.

Will 2009 Bring Ring Three of the Financial Circus?

Perfect piece, giving a plain view on the facts, not wavering predictions.

The stock market valuations are definately not cheap like you said. I hear lots of talk about how cheap stocks are. I don't see them except for one sector. The commodity miners and my favourite sector momentarily; gold and silver (junior) miners. They are dirt cheap if you ask me. Mind you though, they must have cash and no debt (or very very little) on the sheets.
Money on the sidelines will soon enough be flooding into this sector. I must rephrase that; proof of my portfolio shows that money IS flowing into this sector momentarily. Hoping that velocity will increase over time.

I believe that the stock market has seen one of its bottoms, but not thé bottom. 2009 could be worse if you considering the amount of leverage that is involved with commercial real estate, spurred by a 'blown out of proportions' service sector in the US.
When the demand and losses pile up in '09, the service sector has to close offices and departments, thus lowering the demand for commerical property and prime locations. Its already happening.
The late 2008 financial crash was the precursor for writedowns that will surely continue in 2009. I'll bet some of my money on that one if you will. To me thats plain logic. Surely the stock market is ahead of a lot of the doom and gloom, but having said that, we don't know what's on the books of these leveraged financials.
An example would be Goldman Sachs with years of profits without a single writedown while its competition was strapped around the neck with losses.

What I'm trying to say is that there is a lot of covering and invisibility around balance sheets. 2009 tends to be the year of the naked swimmers. The leveraged players who can't cover up the sheets anymore and need to come clean because of the fast declining commercial property valuations. Don't forget that this is another large sector that should be following next when service companies can't afford to keep their (prime) locations with a diminishing stream of revenue.

Deflation is not gone yet. More losses will follow and inflation won't solve it without consumer demand (monetary velocity). The stock market will get beaten again in 2009 is what my logical sense implies.

We will see what happens.

brgds,

The Weight of Money in 2009

Its a pleasure to read from the fine hand of Mr. Hansen. Excellent contributor to Seeking Alpha by the way.

I understand the leery attitude to gold from commenter Constructe. It remains to be seen what gold will do next, although my senses instigate a very prosperous period ahead for the value metals. Due to the fact, that these precious glimmers are the only 'value' in the year ahead.

Mr Hansen has a good point about the weighting of money on the sidelines. Its sparkling to go some place to appreciate and the bond markets isn't that interesting anymore with the low yields (actually negative corrected for inflation). Also, considering the high bond prices and inflationary policy of the FED, I think this bubble is about to collapse as emerging countries sell their bonds at peak to put in use domestically. One way or another, (socialist) countries need money for their expenditures. Commodities are down, so that doesn't supply aggregate revenue to cover balance sheet properly.

Having said that, gold (better; precious metals in general) becomes more popular by the day. The daily price hikes will remain volatile but that is nothing different than its historic behaviour, although somewhat magnified momentarily. This gives opportunities, as I view it.

Diversification of money on the sidelines is going to feed the coming precious glimmer bull ahead. We had all the bubbles you can think of, except for the true value bubble of gold. This one is due.

Not only private institutions and investors will participate above $1000 but also the emerging country SWF and governments authorities will boost their reserves by diversifying into gold and silver (two of the precious glimmers) but also don't forget palladium and platina.

There is money to be made in 2009 and everyone is willing to participate as recent losses are eating the investors soul out of his/her body.
What was is that drives people? Greed or competition? You name it. One way or another, we will see the flock of sheep (or birds) jump the fence to reap the rewards.

Have a good one all.

The Great Depression vs. Today's Economic Crisis

I see a lot of interesting comments but I didn't see this one passing by;

The situation now in relation with Japan is the fact that Japan had the wrong policies with a positive Rest Of World economy available for exports.
This time, the whole world is on its butt in recession. That gives a different recovery curve. Instead of a V-curve, you can expect an L or U-curve for the United States at this point in time.

Japan has got 'healthy' reserves and a better policy today. America is worst off this time because there just is no demand from other countries. The outcome looks awful, but so is the entire world economy in the coming years.

This, is a tough one to battle. Whatever the outcome, I expect to see a devaluation of the dollar currency or a severe deflationary period for the US. Either way, gold and silver assets will flourish to new highs.

Global Stock Market Performance in 2008

I was hoping to see the stock market performance of the worlds major markets. I always prefer to see the major markets in contrast with the upcummers.

Anyway, Vietnam is my pick for investing your excess money for some fine results in the future. Booming business, as soon as the recovery picks up again.

Preventing the Depression of 2009

Simply said; The proposed index target of +8% YoY is insane.

You don't want another index number out there that can be easily manipulated.
The best way to regulate the new financial system, is with low leverage and real organic growth! Abandon leverage higher than 10:1.

Appoint a SEC type organisation (private or government, even both) to ensure the market functions with integrity and responsibility.
Foremost, the US government should again publish the M3 numbers and integrate the oil and food prices into the core CPI numbers.

High volatility in oil and food prices will make sure that money expansion is controlled in an appropriate manner, offcourse with the right policies being enforced.

Wall Street Boys Cautiously Bullish - Barron's

Wallstreet boys!? Who are those guys! I lost confidence in them last August.

Never trust a Wallstreet pundit, is my 2009 credo.

Merry Christmas people.

Why I See Long-Term Deflation

John,

You set out a very good article today, in which I agree fully except a remark on the following statement. You said;

"The third mistake is psychological in nature. It is what caught many people up in the Madoff thing. People simply believe what they want to believe. One example: one person noted that a devalued dollar = inflation. If this is a law instead of a congruency, then if the dollar is tanking as it is (it went from 1.22CHF to 1.06CHF in three days); then why is the price of oil not skyrocketing? Because this idea stated above in the equation is a fallacy. It is not a fallacy because it is strictly untrue. It is fallacious because it is overridden by the law of supply and demand."

In above quotation, you make the same mistake the 'static' economists make and that is; demand is falling, that includes oil.
So when you consider the dollar weakening against the Swiss Franc (despite the economic factors in Switzerland driving the SFranc) you abondon the possibility of inflation by concluding that oil didn't rise in effect. I think this is to short around the corner.
Oil is falling because of oversupply, in effect caused by overconsumption with bad credit, which is (fortunately) halted. Oil isn't static either! And due to the fact that oil still trades around $40 a barrel, instigates a reasonable amount of inflation, as it could be trading around 20 - 25 dollars a barrel by now.

FED policies have minor effect battling deflation out of the economy, although causing some inflation as part of the equation. Look at the money supply. It only increased a min. 10 percent. Deflation is among us, I agree.

I fully agree with your analysis that this is going to be a very large period of contracting prices, just by the fact that the American consumer is stopped. The're probably waking up and saving until 2020 until they head along another path of spending.

Good article.

ps; Commenter 'Prudentinvestor' above has the same vision as me. Good comment. Nominal (FED) dollars cause inflation while demand is falling, so prices drop slightly or remain the same, but demand is gone. In real terms, whe are facing monetary deflation.

brgds.

Deflation Is Just Around the Corner

Jack K,

The hugely inflated balance sheet of the FED is soon being used to flood the markets with liquidity to counter the deflation force that is appearing just around the corner, like Mr. Harrison titles it appropriately.
The Federal debt in itself is not necessarily an inflation trigger. The money being gathered on top of that deficit/debt most certainly is inflationary.

FED, free your horses..., deflation is coming to town.

Low Rates, Big Problems

Perfectly said, as usual Peter.

I would like to add something to Peter Schiff's article with this;

The actions the US government, FED are doing, shows signs, as Peter just informed you, of a new inflated mortgage bubble waiting to happen.
As you all know, we have never seen a bubble repeat itself just after the other. After the worldwide oil crisis in the '70s, a mortgage crisis in the '80s, a financial crisis in Asia during the 90's. A tech bubble at the start of the era. And now again a mortgage crisis.
So the obvious thing to happen would be another crisis other than mortgage. People do learn something now and then, so the next bubble, will probably be in commodities and gold. (overspeculation by chasing the money)

Watch it happen.
(ps: this is not a prediction, just a mere sense of stimulus)

brgds.