carey_jim

Inflation vs. Deflation: What Are Investors Facing?

That is:

I agree that we have to try but we don't have to pretend that our
> predictions are more THAN educated guesses forced on us by our financial
> needs.


On Jun 20 01:51 PM carey_jim wrote:

> Unfortunately, world history demonstrates that the future can neither
> be predicted reliably nor, even less, can it be controlled by private
> or public elites.
>
> Human beings can't even define the terms of their conversations honestly.
> Instead, they speak with the vocabulary of various dogmas, from Catholicism
> and Islam to Marxism, Keynsianism and Austrian School economics.
>
>
> Also, if we can't even predict the weather reliably, how can we predict
> the fluctuations of things that are far more complicated, such as
> the health and prosperity of companies and countries?
>
> I agree that we have to try but we don't have to pretend that our
> predictions are more educated guesses forced on us by our financial
> needs.
>
> Yelling and insulting each other is also inevitable but it usually
> makes everything worse.

Inflation vs. Deflation: What Are Investors Facing?

Unfortunately, world history demonstrates that the future can neither be predicted reliably nor, even less, can it be controlled by private or public elites.

Human beings can't even define the terms of their conversations honestly. Instead, they speak with the vocabulary of various dogmas, from Catholicism and Islam to Marxism, Keynsianism and Austrian School economics.

Also, if we can't even predict the weather reliably, how can we predict the fluctuations of things that are far more complicated, such as the health and prosperity of companies and countries?

I agree that we have to try but we don't have to pretend that our predictions are more educated guesses forced on us by our financial needs.

Yelling and insulting each other is also inevitable but it usually makes everything worse.

Un-American Government Intervention

Peter Schiff, broker who specializes in foreign investments:

"The fear of having contracts abrogated or property rights violated when doing so serves some contrived greater good will substantially raise our cost of capital and further reduce our competitiveness."

Friedrich Hayek, from The Road to Surfdom:

Economic security is often represented as an indispensable condition of real liberty. In a sense this is both true and important.

Independence of mind or strength of character is rarely found among those who cannot be confident that they will make their way by their own effort.

But there are two kinds of security:

1) the certainty of a given minimum of sustenance for all and

2) the security of a given standard of life, of the relative position which one person or group enjoys compared with others.

There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health.

Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.

It is planning for security of the second kind which has such an insidious effect on liberty.

It is planning designed to protect individuals or groups against the diminutions of their incomes."

The medical, dental, legal, financial and political professions are all closed shop union based professions.

Well?

Un-American Government Intervention

The South got the Dred Scott decision from the Supreme Court in 1857 and then, three years later the South got the American Civil War.

Rules change.


On Jun 14 09:56 AM ebschor wrote:

> "Without absolute faith that deals will be honored, it will be extremely
> difficult for U.S. companies to borrow money."
>
> We know that for a marketplace, economy, environment, institution,
> etc. to function properly the "rules of the game" must be clearly
> stated at the beginning and those rules cannot be arbitrarily changed
> once the market mechanism is set into motion.
>
> Our current administration is changing the rules of the game as they
> see fit. Just like your statement above, without full faith that
> the rules of the game will be followed and protected "players" will
> no longer want to participate.

The Inflation / Deflation Debate Continues

I think America will either crank itself up for another period of frenetic economic activity or become depressed and hungover, and save its money and resources for another day.

I don't think there will be an in between "sane" period.

And if all, or most, of the following occur, we will probably see deflation instead of inflation:

Real estate prices continue to fall.
Stock prices resume their downward trend or even just stop gaining value.
Governments are forced to raise taxes.
Unemployment stays high or gets worse.
Commodity prices, and especially oil, start to fall again.
Interest rates are forced upwards by a declining dollar.

Also, it's arguable that, for the last twenty years at least, America has been in an overactive period of buying and selling and there could be an emotional, psychological and cultural correction back to the mean which no amount of advertising can prevent.

In addition, as a result of currency instability, we could see the world move towards a tendency to trade within three or more trading zones and become more isolationist. It is generally agreed that less world trade is deflationary.

As I've argued before, we are in a period of technological transformation which is similar to that of the 1920's and 1930's and which is causing similar problems with unemployment. It's a complicated topic and I won't even give any examples because it would require a large comparative study to do it justice and be convincing. Anyway, most people can provide their own examples with a little thought.

There are also various wild cards whose effects are less certain. For example, it isn't clear what the effects of various possible political reforms will be, such as:

Single payer medical insurance
Saving of the Social Security system
Replacing most coal burning electrical power with nuclear plants
Replacing a large percentage of gasoline cars with natural gas cars

In other words, what effect will an active "socialist" government have on prices?

Inflation vs. Deflation: What Are Investors Facing?

Hyperinflation: An extremely high rate of inflation, often exceeding several hundred or several thousand percent, that causes a country's money to become practically worthless.

www.google.com/search?...=

CBL's Brief and Painful Stay on Goldman Sachs' Conviction Buy List

All you have to do is pick up ten of the best books describing the financial shenanigans and fiascoes of the last thirty years to know exactly what's going on today. The only thing that changes is the style of clothes and the hairpieces.

We wont know about these spectacular financial heists for another five or ten years of course and sometimes the actors will die in their beds and their secrets will be buried with them. But they are as perennial as the love of money.

Do Markets Really Need to Price In Government Failure?

How do you define government failure?

Wealthy people, who can afford to buy anything they want, except military protection against powerful people from other countries who want to take their stuff by force, don't need or want government to do anything at all except get out of their way.

Most poor people in American inner cities think school busing, rent control and affirmative action are a very good thing.

So what?

One man's failure is another man's success.

Morgan Stanley Can't Seem to Call It Right

Louis Rukeyser noticed that most professional financial analysts consistently under perform market averages. This observation made them very unhappy.

The emperor has never had any clothes but we are not supposed to notice. Haven't you noticed that yet?

If markets had an underlying rationality then most intelligent professional financial analysts would be able to outperform the averages.

All we investors would have to do to would be to administer our analyst an I.Q. test, verify his finance degrees and the accuracy of his past predictions and give him our money.

Is is any surprise that regulators are sharpening their knives and salivating over the irrationality of our 'free' markets?

After all, regulators want to have the right to make a good living by doing nothing also.

Market Outlook: Have Markets Ignored Reality?

I hate to be pithy again but markets don't ignore reality, markets ARE reality.

Still Bullish on This 'Bear Market Rally'

Trying to beat the market by noticing that the best analysts in the business consistently under perform market averages, is called contrarian investing.

It doesn't work either.

Regulation Week: Is Regulation a Good Thing for Investors?

In baseball a pitcher can gain an enormous advantage if he throws the ball at batters' heads now and then. Umpires are sensitive to this strategy which, in itself, is no worse than throwing a curve ball that looks like it might hit the batter but then curves across the plate. Curve balls are allowed but fastballs directed at the head are not.

In the past, basketball teams of shorter but more agile and skilled basketball players managed to beat teams of bigger players by using a strategy of passing and ball control. But the fans wanted higher scoring games so basketball 'regulators' made up the 24 second rule where each team was forced to shoot the 24 seconds after they crossed the half court line.

Basketball and baseball could have evolved in many different directions and could change into many different games in the future. For instance, if the regulators wanted to maximize basketball skill and ball handling and minimize the advantage of size, the basket could be raised by two feet.

In a similar manner, regulators decide what aspects of human nature to allow free play in the game of finance.

The biggest danger of living in a democracy is that the majority might decide on to pass regulations which make are good for the majority of little players but make the big, powerful players unhappy.

But who decides whether Big Time Wrestling is an better or worse than Cage fighting?

Comparing Bond Patterns in 1987 and 2009

When the Russians say the dollar is in good shape and the Chinese hold most of America's debt .....

Will Reality Trump Perception in New Market Downswing?

The perception-reality gap is due, of course, to business/government advertising and public relations efforts.

If you yell 'fire' in a crowded building, people will trample over each other running for the exists, whether the building is burning or not. Governments and corporations are trying to prevent a stampede.

They have been so reassuring that markets are starting to recover, as the rise in new housing starts demonstrates. But the worst thing to do in a housing market where prices are falling and inventory is growing, is to build new homes.

Speculators have made 40% and more and are looking at the exits. But it's anyone's guess as to when 'reality' will reassert itself over manufactured optimism. That's what makes speculation so much fun.

However, don't forget to smell the tulips.

Historical P/E Ratios and the Stock Market

Here is an interesting statistic, cited by Bert Dohmen in an article for RealMoney:

"corporate insider selling vs. buying, by the people who know how their business is likely to be over the next year, is at one of the highest levels on record. The sell/buy ratio is over 8, meaning that for every share purchased, they have sold eight."

Probably doesn't mean a thing, of course.