Rmetzler

The Destruction of the Dollar: It's Nearly Inevitable

Inflation is almost a sure thing. Hyper-inflation? Probably not. As long as the U.S. has the infrastructure that it has, and most importantly, by far the strongest military in the world, the Dollar will have some value. If for any other reason, the fact that the U.S. does have the ability to say "Take these dollars, or be destroyed." Of course, such an outcome would probably only result from the most dire circumstances.

Understanding the Dollar's Reversal: Who Will Feel the Pain?

Totally agree here. The only reason the dollar did so well today was because a perceived favorable jobs report came out. This is no long term indication, and in fact doesn't really indicate anything at all. Companies will put off layoffs during the holiday season if they can.

On Dec 04 05:11 PM Alan Young wrote:

> One day spike, and you're talking about reversing a year-long trend?
> That's a bit premature.

Gold Gets Hammered on Jobs Data

I would have to agree that china is setting a bottom for gold prices near $1000.00. They will essentially be buying up any dip in price. Remember how recently china stated their desire for a non-dollar global reserve currency? Well, they can already have it. It's called gold.

Paulson Makes His Biggest Bet on Gold, Inflation Yet

As a disclaimer, I would like to note that this post is not 100% serious:
Paper gold is fine, contrary to the belief that only physical gold can save you in the world today. Thinking otherwise is not being pessimistic, but just plain paranoid. GLD market value is actually worth their total holdings in gold. It's not a super hyped proxy for gold like some more 'traditional' gold buyers believe it to be. All they do is buy gold and hold on to it. Nothing more. Because shares of GLD are worth nearly their weight in gold, you essentially are owning currency backed by gold. Kind of like when the U.S. was actually on the gold standard. Paper is easier to carry around, so why not let somebody else hold onto your gold for you?
If you really want to go to the trouble to purchase and store physical gold, pay inordinate transaction fees, because you really and truly believe the apocalypse is coming and all paper will be worthless, here is my best piece of advice for you that will open your eyes to reality: Gold is an inert metal with very few actual uses. You cannot eat it, or drink it. If you really believe things will get so bad that even shares of gold companies and gold ETFs will not be honored and become worthless, (which would result from either the gold in your possession becoming worthless, or the collapse of civilization) then you need to take all of the gold in your possession and go to the nearest sporting goods store and trade it in for .22 and .357 magnum rounds, rice, canned food, bottled water, and matches. There is no reason to hold onto physical gold unless it is because you like shiny things. If you don't head my advice, once this coming collapse occurs, you will have a hard time holding onto gold since marauding bandits will have the firearms necessary to rob poor defenseless you of your gold, and possibly even eat you. So stockpile ammunition while you still have the chance!

The Greatest Depression Is Coming

These types of articles are posted every day, without fail. And what's really funny is that they are consistently the most followed articles. They are always the same as well. Not sure if the author thinks they are actually adding something insightful. Foreclosures, unemployment, high household debts... the sky is falling, these opinions are not new. Are people who follow markets so neurotic that they are more interested in noise and sensationalism than they are interested in relevant information? I know not all, but it seems like it some time.
Yes, this is a rant, but everybody else posts their bs opinion. The difference is that my bs opinion will at least not take up space on the front page, it will be burried in a thread where only a few people will have the dis-pleasure of reading it.

Here is an opinion - yes, it is premature to declare the recession is over, and no we are not headed to a 'greatest depression'.

Here is what is arguably a fact: the Great Depression in 1929 had essentially the same causes as the current recession. Easy money was the primary cause, and this lead to excess in peoples' lifestyles, and more importantly, big companies over leveraging themselves. Once margin calls came in, individuals were wiped out. This all lead to the downward spiral.

Here are undesputable facts: In 1929, there was zero social safety net. Social Security Benefit = 0. Unemployment Benefit = 0. This would mean that back in the Great Depression, (Remember? The one this recession will supposedly surpass?) you did not fall off the unemployment payroll. You were never on it in the first place. If you lost your job you would be pennyless and destitute.
Also, most people didn't own a house back then. To grumble on about a forclosure problem is meaningless since there are too many home owners in the U.S. to begin with.

Paying for News: Let's Get On with It

Yes, let's get on with it.

I think this has been coming for a while now, and I for one would be relieved to see the newspaper industry return to a more traditional model where people actually need to pay for content. Giving it away for free isn't helping anyone and is making the news industry progressively worse. All it does is remove all liability from those that publish the content since the only customers they need to answer to are the ones providing add revenue, not the reader since the reader is no longer technically a customer.

If people feel that journalism is not a useful resource in our society, then they are free to stop paying for it. This, however, will result in no more news networks or newspapers in the long run. Actually, news will still be around, but only in the very largest and entertaining news sources. The ones average people like to watch, and advertisers will subsidize. Unfortunately, these seem to be the ones that only report on sensationalized media and are rife with opinion pieces and editorials. It will be hard in the future to encourage anyone with half a brain to go into the field of journalism when they know they cannot make any decent living at it whatsoever. Instead, journalism of the future will recruit more entertainers. Reople like Bill O'Rielly, Bill Mahr, Sean Hannity and Anne Coulter. These people are supposedly experts and are very opinionated. People like watching people that agree with their own opinions. Make no mistake, opinions and prophecies about the future are not news, but if you dress it up right people will believe it is. As long as this type of news prevades our society, people on average will choose to watch it rather than read subjective journalism. For this reason, advertisers will gladly pay these media outlets to hock their products. The already diminishing readership of traditional journalism will continue to dwindle, as they price themselves out of the market since their competitors can give it away for free.

It really boils down to this: Entertainment news, or opinion news, which is basically every major news network now, bringsin more viewers than traditional subjective journalism. This means advertisers use entertainment news as their forum. Other newspapers lose this add revenue and are forced to charge fees for their reporting which is typically of a higer caliber. This is not even to mention the effect corporate sponsors can have on the content presented. Thus, it all goes back to the old idiom: You get what you pay for.

Equity Markets Appear Overbought

Don't be surprised if this rally continues. Yes, it may defy logic. That's because the best hope you have of uderstanding markets right now is to apply behavioral economic models, not classic economic models. People are fearful right now. Fear leads to irrational behavior. Hence, DJIA at 14,000 by mid next year is not out of the question.

People only act rationally, on average, mid-cycle, so bassically, 2/3 or the time investors, again on average, act like idiots (at the beggining and end of a cycle.) Right now it is anybody's guess what will happen in the next few months.

I will predict, and you can take this to the bank, that by November 21st, 2009 the DJIA will be between 2000 and 20,000.

The Risks of Rising Unemployment

We are going to need to reform our labor system in a few ways to get out of this. As I see it, some of the issues in our labor market can be addressed through government intervention, and some will be handled by the market, some will be handled in tandem, and others are going to be addressed through broader social movements. Here is how the government can help:

Give tax incentives/subsidize wages to employers to hire and train new employees. The U.S. used to have a policy like this, but it has been gone for a while now. The result is astronomically high unemployment among 18-24 year olds, sky rocketing cost of ineffectual higher education, and an ossifying of our labor market. Throughout the late 20th century, the U.S. took advantage of a dynamic labor force. If you didn't like your career path, you had the opportunity to learn a new skill set and switch occupations. This also applied to people whose skill set became obsolete. However, todays labor market favors those with years of on the job experience in very specific skill sets. This encourages a more rigid labor market, and people to take on less diverse skill sets, and makes it almost impossible to enter a new industry.

This leads to another serious problem. If employers cannot afford to train new people, we will have severe shortage of skilled workers in the near future once baby boomers retire or are unable to work any more. This will, of course, result in the U.S. no longer being competitive. It is in the best interest of the U.S. government to subsidize the wages of employees that work for firms producing tradeable goods that contribute to the overall GDP and competitiveness of the U.S.

Stop enforcing a strong dollar policy. It has been de facto logic that a strong dollar is good for the U.S. There is some truth to that, especially for those living off of fixed incomes. However, the only way to sustain an economy is to manufacture! A service based economy is a leveraged economy. We currently have nearly a quarter of GDP in the U.S. based on services. Only a fraction of these services may be exported. By letting the value of the dollar drop a little bit will push us back to a less leveraged economy by both pushing and pulling us back to a manufacturing economy. The push: Foreign investors will see treasuries and lending to the U.S. less attractive due to a weaker dollar = less leverage. The pull: A cheaper dollar will provide a more attractive export market for U.S. manufacturers, cheaper labor, and will encourage consumption of U.S. made goods domestically since they will be comparitively cheaper. This will lead to a rise in employment in the manufacturing sector which is what the U.S. needs most. Monetary policy should follow the most basic rule of the universe: modration. As in, not too strong of a dollar, but not too weak, just as money should not be too easy or too hard. Where the sweet spot is is anyones guess.

Discourage the illusion that a college degree is a guarantee of a middle class life. Not only is this putting the poor and lower middle class in debt, 4-year universities do not teach valuable skill sets. Many people that go to college for 4-years obtain little to no benefit, and would be better off developing employable skill by either working, or going to trade/technical school. We need to educate the public what higher-education is and is not. Removing the debt burden from younger people will create a larger market for goods. It is good to see Obama making a push towards community college rather than 4-year universities. Make vocational training more integrated in our higher education system. Hold engineering degrees to a higher standard, possibly a standard similar to what medical doctors are held to in school. This will constrict the supply of engineers, which will in turn increase labor costs for companies, but companies will be more willing to hire newly minted engineers since they know they will have a pre-determined skill set.

BP Reports Earnings, Expects Soft Demand for Oil

This is a great stock to hold onto long term. I bought cheap (around $40). As it was stated in the article, the low price to cash earnings is very appealing, but 7% dividend? I don't think there is any other company out there right now that is this stable, with the possibility of long term share appreciation that is paying this high of a yield.

Oil will be back up soon enough. And even though oil is what pays the bills for now, it is not unreasonable to think that BP will be well positioned to be profitable far into the future by diversifying their portfolio in other types of energy. I look forward to seeing the energy sector outperform in the coming year and watching this stock hit near $70.

There are very few growth sectors right now. Medical technology is looking like the only one to me. For this reason, It's time for companies to follow BP's example and start paying out the fat yields. Dividends are really the only safe bet for the next 5-10 years until growth re-emerges midway through the cycle we are just about to begin.

Bill Gross: Dividend Stocks and Bonds Make Most Sense Now

Makes perfect sense. From a historical perspective, after the great depression, fixed incomes and high yield dividend paying blue chips were the only things sane investors, (or at least sane general public investors) would be willing to buy for the 20-30 years after. My guess is that it will be a LONG time before asset bubbles return in terms of equities and U.S./western europe real estate. I would even be hesitant to buy U.S. bonds at this point for 2 reasons:

1) Inflation to some degree is inevitable meaning interest rates will be raised soon enough. However, if asset values decline continues due to downward pressure on wages from rising labor costs in the developing world and an equalizing of wages in the rich world to be on par with the emerging economies, bonds are a slam dunk. The asset value deflation is, of course, going to be most prominent in the real estate market.

2) Dividend yields are at an all time high. Take BP plc (BP) which is paying %7.09 at the time of this writing, a PE of 9.03 which is still relatively low for energy companies, and plenty of cash. Yields this high can only last so long, so buy these companies while you can.

Because of the uncertainty in the future of interest rates and asset values, and the high yields on very stable companies, this is an unprecedented time of low risk/high return on dividend paying stocks which can not possibly last to much longer.