Respirate

If You Missed the Rally, Don't Get Trapped Now

Thanks to the author - it's nice to hear a contributor admit to mistakes that "regular guys" make . Mr Pierce, I agree that investors who jump in now at the urging of the CNBC blind cheerleading squad will be trapped underwater.

Just an individual point of view, and I'm no chartist, just a long time investor. In my view the recent rally has been a correction of a grossly oversold condition driven by fear, coupled with a little news that supports the many of us who want to believe the economic recovery's underway. I look for another significant drop in the next 4-8 months as more bad news filters out and the reality of the recovery disappoints. The dip should stay just above the March lows as investors who missed this rally will jump in to avoid missing the next, lending price support.

There are still many fabulous buys out there whenever the economy makes even a slow recovery and the employment numbers slow their stone-like fall. I agree with William Cowie in that the federal government has a lot at stake in propping up the economy until it becomes self sustaining. Another reason for longer term optimism.

Not trying to make predictions - just sharing some thoughts.

--R

Peak Oil: China vs. USA

Michael, thanks once again for an interesting and important article. Thanks also for treating SA readers with a modicum of respect. There are contributors whose weak egos can’t tolerate disagreement or criticism. Your restraint earns you credibility in my book.

You said, “thought Obama would be a bigger man than to support something like coal simply because his home state of Illinois is a major producer of coal.” Reality bites. Coal causes more problems than it solves. I too had high hopes for more change than we’ve seen, but hey, given the system politicians now work under, they can’t offend any big lobbies (coal, coal states) and expect to gain reelection. He would be politically crucified if he took a harder line.

The Chinese leaders appear to be brilliant, forward-looking people. They seem to be able to see through the fog of the moment and strategically plan for the future according to the facts at hand.

Fixated on the energy topic? Yeah, you might be OCD, but somehow the fire must be lit under enough people to make noise and effect change. The people who fought for this country’s independence aren’t around to make sure we keep it. We as a people seem determined to give it up. Spending ourselves into oblivion is one way. Energy dependence is certainly another.

I personally don’t like the term “peak oil”. It’s so easy for some folks to stop thinking and start arguing about the concept. Whether or not “peak oil” is the central cause of our energy problem isn’t an important argument. Peak or no peak, supply and demand or price speculation, all we have to do is look at the recent price turmoil in energy markets to realize that we’re not now in control of our destiny. And remembering where so much of the energy wealth flows should make us all shudder.

On the personal investment front we agree. I’ve owned ConocoPhillips shares for a long time, and Burlington Resources before the COP buyout. Fully a third of my portfolio is dedicated to energy related companies, Noble (NE) and Ensco International (ESV) among them. Why a natural gas giant like ConocoPhillips doesn’t generate more interest in expanding NG use is beyond me. I do believe that natural gas, and oil for that matter, won’t remain at give-away prices indefinitely. The long term outlook is clear.

-- R.

ATP Oil & Gas: Both Value and Momentum

Price is up 50% in less than 5 trading days since the news. Given recent market volatility do you think there may be a better entry point?

We're in Danger of Being Blinded by Market Bottom Predictions

Doug, thanks for the thought provoking article on a topic that gets far too little attention, especially in more "prosperous" times.

You say, "... it was a consumer society where the most important activity was to buy: buy newer, bigger, better, more expensive, higher tech, but buy even if it is with money you do not have. That lifestyle may be replicated again at some point in the future, but it will probably take a generation or two."

The cultural aspect of personal economic behavior was a topic my wife and I discussed just last week. The two of us come from different spending cultures due to geographic background and family beliefs. I'm a product of grandparents whose family life coincided with the start of the Great Depression. Not surprisingly, they bought only what they saved for in advance and they valued relationships and religion above the trappings of the material world. They passed on to their children and grandkids the values of delayed gratification and living below one's means.

My wife's family, also immigrants, seemed to put more emphasis on proudly announcing their success in visible ways; her middle-class dad liked new Caddys and boats, and nothing was too good for his family. His unfortunate financial legacy was a large debt load for his family when he died at a fairly young age. My grandparents’ legacy, on the other hand, helped their family with lasting benefits such as college funding or technical training. I was not yet born when the Great Depression came along, but through the hard lessons it taught my family I continue to benefit to this day.

So how will the current downturn affect today's consumption-oriented society? That probably depends on how long and deep it turns out to be. Discomfort is a powerful motivator and teacher, a concept reinforced during my military service years, BTW. If the current downturn is prolonged and causes personal losses approaching the Depression experience, the change could be quite dramatic and enduring. On the other hand, if the economic blow is softened by the institutional actions underway, the lessons will be lost and unbridled consumerism will return in less than a decade.

WSJ: Kansas Furthers Already Atrocious Market Myths

Thanks for the good article, Mr Munson.

The article you mention is from WSJ, which is going to be largely pro-stock market no matter what. It often ignores alternatives you mention.

It's a general purpose article intended for those who get their investing advice from the Sunday paper. Presumably many of these folks are not going to be day traders or nimble, "tactical" market players. The advice the article gave for them, to hold a portion in equities, may not be as bad as it appears.

An alternative rationale for upping the 'rule of 100' upped by 10 may reflect the steadily increasing life spans of retirees.

Thanks again for the interesting article ... it's good to see someone take issue with the often weak information disseminated by WSJ.

The Dollar Is Dead

3/23/2009

"US Treasury bonds will remain central to China's plans for investing its massive foreign exchange holdings, a deputy governor of the Chinese central bank said Monday.

"Investing in US Treasury bonds is an important element in China's investment strategy and we will continue this practice," Hu Xiaolian told reporters."

Chinese media reported last week that the forex reserves had fallen by about 30 billion dollars in January, partially due to a drop in the value of non-dollar assets."

The Dollar Is Dead

Texaser: exceptional, level-headed comments to Mr Agarkhedkar's interesting article. It's always good to hear reasoned and thoughtful points. Especially pertainent is your reminder to ignore the noise.

Calling the USD 'dead' sounds both permanent and alarmist ... but maybe it takes eye-cateching headlines to entice readers to open up a link.

Conventional wisdom holds that the Federal Reserve did this without much regard "for its impact on the value of China’s holdings." No, that would be a knee-jerk assumption, wouldn't it? 'Wisdom' would reason, as the author did, that "the move by the Federal Reserve to monetize its own debt was carefully discussed with the Chinese government."

The USD will very likely devalue, but as texaser correctly points out, " ... every nation on earth also wants to devalue" to support their trade exports. There's some relative value to be considered, as well as the underlying creditworthiness of the US.

And again texaser wisely says, "this a game that requires you to look several moves ahead." Amen. Let's not try to call the game over in the opening minutes.

In the race to the currency bottom, the US will ultimately preserve the USD's desirability by coordinating monetary moves, and by assuring creditors of its ability to weather the coming financial turmoil over months and years, rather than days or weeks.

During that longer period nations that can contain the resulting inflationary spirals will do well.

The Escalator of Life Is Going Down (Part 2)

The sky is falling! Well, according to you. Fortunately, most of us aren't giving up quite so easily.

The writer's inciteful little Op Ed piece presents and embellishes with inaccuaracies some very real problems facing this generation of Americans. It's introduced with a very weak 'shoelaces caught in the escalator of life and ripped off your foot' analogy. Such drama. Picture of the Hindenburg? Is that supposed to support your thesis in some meaningful way? Are graphic words and pictures supposed to arouse our anger, as if we need more help with that? C'mon, give SeekingAlpha readers a little credit.

Unfortunately, you present no solutions to the myriad problems our nation faces, except to conclude that throwing out Democrats so as to presumably elect more Republicans, will fix them. As if there's not plenty of blame to go around. Pretty shallow.

Answers are apparently very simple in your world; real world solutions are more complex, harder to implement, and don't rest on partisan politics as a cornerstone of success.

As Mortgage Rates Plunge, 30 Year Fixed Rate of 3.5% Seems Likely

Thanks for the excellent article.

I like your comment, "The question of whether the Fed is manipulating mortgage pricing at this point or how long such price support can last is somewhat irrelevant. If the Fed can stabilize the MBS market we may be looking at mortgages rates in a range we never thought possible a short time ago."

The Federal Reserve's bold move yesterday, buying Treasuries on the open market, will reduce all rates and maturities to some degree. I agree that how and why it's being done is irrelevant -- it's an opportunity for current home owners and prospective buyers to lock in once in a lifetime rates.

The Fed's action will also help to stabilize home prices, but the degree to which this happens depends on factors such as the overall economy and employment.

What's Another $1.15 Trillion?

wiking, unfortunately the United States lost some of its reputation in many areas long, long before today.

I agree with you that "making things" is what we need to do. Like you, I'm not a big believer in the financial service economy that we've been so enamored with in recent years.

The theoretical "risk-free" rate (theoretical because a true risk free rate never has and never will exist) was only affected indirectly today. The Fed funds rate was left unchanged. Also, lowering rates is not directly or necessarily inflationary. There is no 1:1 cause/effect.

You asked: How does lowering the rate today help spur economic activity?

Business and consumer credit rates will follow Treasury rates incrementally lower. Debt capital availability is not the problem. Borrowing for purchases and capital expansion (the "making things" that we agree on) will be more favorable.

That applies to home mortgage rates as well. Expect to see many refinancings to occur, lowering monthly payments and giving individuals additional purchasing power. Additionally, lower mortgage rates won't hurt, and should help sagging home sales.

Banks will benefit from a wider spread. Bank profitability could improve, definitely a good thing for our damaged financial sector.

There are many other examples, but you get the idea.

Respectfully,

-- R

What's Another $1.15 Trillion?

Fed Chairman Bernanke voiced concerns regarding inflation last week, but conceded that the number one priority is still economic growth. That's always a given. Having a high rate of employment and economic activity with a small measure of inflation is always preferable to zero inflation (or even deflation) with an 8% rate of unemployment and stagnant growth.

“I’m mostly worried about the economy,” Bernanke said. “We do think inflation will be quite low over the next couple of years. At the same time, we have to be very careful to make sure we are prepared to withdraw monetary stimulus at the appropriate time to make sure that down the road we don’t have inflation.”

The Fed Must Be Crazy

Steve in Greensboro :

The Chinese enjoyed a windfall today.
-- R

The Fed's Bold Measures Are Worth the Risk of Future Problems

CautiousInvestor: "I think the action was driven by very, very dim economic prospects."

Agreed! The Fed didn't make bold moves today just because they were bored on a Wednesday afternoon. It sounds like they were serious about bumping the credit markets and sending a strong message.

It's also potentially inflationary down the road ...

The immediate problem is not inflation, but tumbling housing values and declining economic activity. Despite recent buzz about inflation, the far greater risk is still of further economic deterioration and deflation.

I applaud the Fed's bold move, and believe that it will help spur economic activity over the coming months.

Respectfully,
-- R

What's Another $1.15 Trillion?

Mr. Big wrote: "Somebody help me out here..... It's counter-intuitive, isn't it?"

In the twisted world of bonds and the bond market, Fed purchases of Treasuries on the open market three times a week raises the value of the bonds, thereby sending yields in the opposite direction.

"This is a totally inflationary ..." Yup, it is ... Except the problem immediately at hand is not inflation, but tumbling housing values and declining economic activity. Despite recent buzz about inflation, the far greater risk is still of further economic deterioration and deflation.

"This is insane." Maybe. I applaud the Fed's bold move, and believe that it will help spur economic activity over the coming months. Just don't look at the stock market's reactions as a measure of gauging sanity or effectiveness -- at least over the short run.

Best,
R

What's Another $1.15 Trillion?

That rates have been kept "freakishly low" speaks for the Fed's perception of the unprecedented circumstances that make this more than a run-of-the-mill recession. No one is better qualified than Mr Bernanke to recognize that.

The bold stroke of the Fed is as important as the actual financial impact. The unexpected move sends a strong message that it is serious and still potent.

It's a matter of balancing risks, as always.

The risk of a continued decline in the present economy is far worse than the risk of inflation, which is currently well in check. The Fed can gradually replace the funds with debt when the economy improves, and markets (primarily housing) improve.