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No, I'm not necessarily talking about here. I interact with people in my community politically. I attend as many GOP meetings as I can, as well as other events. I also try to explain it to my friends and family.
It's tough over the computer. I have talked about inflation here on numerous occasions though.
The simplest "explanation" is that the Fed is adding as much money into the system right now as they can get away with, because it's the only option they have.
One one hand, it's theoretically, and superficially, keeping banks afloat. On the other hand, it's not only devaluing our currency, it's delaying the inevitability of continued loss of Dollar value, thereby making the ultimate end that much worse.
I'd much rather just let the failing businesses fail, and let the recession run its natural course. No economy is recession-proof, so why devalue our currency trying to avoid one?
If you'd like to know the best ways to hedge your cash reserves against inflation, commodities are where to be right now. Gold, silver (I suggest physically owning it), agriculture, oil...
I'd also suggest going out ASAP and stocking up on daily essentials while the prices are still where they are.
Alarmist or not, doom and gloom or not, prices are still going to be rising. There's no possible way that it will not happen considering our current monetary policy, especially the way it's been run of late.
Yeah, I hear ya.
Long gold, Canadian energy income trusts, coal stocks, sugar futures, Canadian nat gas stocks, potash stocks, etc.
Its all good.
Short REITs, though I'm wondering if I should take this position off, at least for the moment.
Commodities are about as good an investment as betting at a casino. They look good now but when this current down turn bottoms, gold, oil, and food are not just going to decline, they are going to outright CRASH. There is NO supply problem for any of these, including oil. In fact, demand is trending DRAMATICALLY down as much of the third world, China and India have parked their mo-peds and are back to bicycles, and Americans are ditching their SUVs at near record rates. Demand for gasoline in Iowa (where I live) alone is DOWN almost 10% from a year ago. Over the coming years hybrids will become the dominant propulsion further lowering oil demand. The only thing keeping oil and gold up is a continuing weak dollar as most of the other speculative pressure has eased as political unrest has past in Nigeria and Venzuela and demand is actually DOWN. As the dollar bottoms out and turns the corner investors are going to FLOCK back to CHEAP equities in droves and the only thing you will hear from commodity brokerages is a huge SUCKING sound of cash leaving out the door....
And see how many ethanol ventures have died in just the past six months? $2.50 corn may not happen this year but it will in 2009.
You are correct when you say that at some point commodities will crash. You are dead wrong when you say there are no supply problems. Have you not been paying attention to the riots around the world because of a shortage of rice? LME inventories for some base metals like zinc were being measured in hours a year or so ago. And where is all this supply in oil? Near as I can tell, we've been producing about 85 million or so barrels a day for the past three or four years, yet oil ticked at $117 today. Where is all this oil that the laws of supply and demand say should be flooding into the market if there is no problem with supply? Commodities will fall hard at some point. But not with China and India running hard and the Fed at 2.25%.
Equities are cheap? Maybe. I ran the numbers on the SP500 this morning. Trailing 12 month profits are $64. The market is trading at 20x earnings. That's not cheap. Analysts are projecting $93 this year, you say? Not likely, considering that profit margins are coming off all time highs and bottoms up analysts have barely budged on their second half estimates. Top down analysts are around $80 for the year, which is a more reasonable estimate. That's still 17x earnings. That ain't cheap.
It sounds like we have similar investments. I have had (and continue to have) a substantial amount of money in commodities. I am long in sugar, corn, wheat, and soy. I am also long in base metals, gold, and silver. Finally, I am long in energy, general agriculture, utilities, and infrastructure. I have investments in the Australian Dollar, New Zealand Dollar, Singapore Dollar, Hong Kong Dollar, Canadian Dollar, and Swiss Franc. I have exposure to the Euro via the Merk Fund.
Brian
My family are all energy people, mostly oil and gas and now....bio-fuel. Nothing about supply "flooding" the market, it's mostly about forecasts for demand being GROSSLY over stated. Long term I am a peak oil theory believer but short term no. Demand has never yet exceeded supply and will not for at least a few more years, especially now the demand probably peaked late last fall or early winter, levelled off, and when the next quarter's number come in will be seen to be in DECLINE for the first time in years. I'm betting demand this summer will be 3M or more barrels a day LESS than was forecast last winter, maybe even more.
These days commodity markets have less to do with market fundamentals than at any time in history. There was a time when supply and demand were about the only thing that drove them, except in rare times of panic of confidence like the late 70's early 80's. Commodities, especially oil and gold, have long since left demand supply fundamentals behind as the primary basis for their behavior. Speculators used to have cool heads but are largely panic driven these day. They are in a perpetual state of panic anymore. Every tiny political incident or natural phenomena is treated as a global crisis in the markets. Add to that the collapsed dollar, in which all commodities are priced, and you have a runnaway FEAR driving the market.
Phychology drives markets today more than any mathematical fundamental, which makes them all scary as hell. As soon as enough speculators loose their fear, REGARDLESS of supply and demand, commodities will crash. And the general psychology of most traders I know, regardless of many of the money supply issues you guys have been debating, is that if we haven't turned the corner yet, we are very close to it, and what is left is "residualness". Basically, the FEAR is beginning to leave and bottom line, commodities are driven up by FEAR more than any fundamental. When the fear leaves, the markets will cave, regardless of what fundamentals say they should do. It happened in the early 80's and it is beginning to happen again.
Sure, I don't necessarily disagree with that, but the commodities boom that peaked in the 1980s had its seeds in the 1960s. You could have made the argument you made in 1972 and would have been wrong for a decade.
There have been several commodity booms over the past century or so. They have ranged from 8 to 21 years, lasting on average 14. And I certainly do not agree that we have turned any corner. It may be that some commodities have peaked - I don't know if you'll see nickel at $25 a pound again, but many commodities are no where near either their all-time highs or their inflation-adjusted all-time highs. And as Jim Rogers has noted, eventually all (or almost all) commodities take out their previous highs in bull markets.
Monetary and development cycles are measured in decades, not months or quarters or even years. We have not entered into some brave new world where commodity prices are going to stay extremely high forever. After all, as they say in the commodities pits, there is no cure for high prices like high prices! But there is no evidence of any sort that this commodity boom is anywhere near over. It feels more like 1971 than 1981 (if, you know, I was trading in 1971 and 1981!)
For example, Citigroup estimates that total investments in commodities are $400 billion. Exxon alone has a market cap of nearly $500 billion. One single solitary stock.
Heck, we've just touched the average ratio of the Dow to gold.
There's much more to come.
Well, we are going to have to disagree. I think you are dead wrong. You also missed a good part of the bull market to date if you just got in a year ago. I also think you will get taken to the cleaners if you get back into general domestic equities now. There is a lot more pain coming in the financials. I think that the only way gold and silver go down in nominal terms is if we have a deflationary collapse (without a preceding hyperinflation). But even then, gold and silver will hold their value.A year or so from now every single one of those is probably going to be viewed as a HORRIBLE investment vehicle. I'm a natural hater of commodiites, in general, but even I have swallowed the bitter pill and made good returns the past year going long in oil, gold and corn.
Well, we are going to have to disagree. I think you are dead wrong. You also missed a good part of the bull market to date if you just got in a year ago. I also think you will get taken to the cleaners if you get back into general domestic equities now. There is a lot more pain coming in the financials. I think that the only way gold and silver go down in nominal terms is if we have a deflationary collapse (without a preceding hyperinflation). But even then, gold and silver will hold their value.
There will be a time to get out of commodities, gold, and silver. And a time to get back into the domestic equity markets. But there are a tremendous amount of excesses that needed to be worked out of the system. We have a long way to go. And the actions by the Fed are making it longer.
Brian
I agree about your position on corn. But that's practically obvious at this point. I don't however, agree with you about commodities in general. You seem like a smart enough guy on economics. You should be able to see the inflationary forces at work. The market hasn't even seen the worst of it yet. The mainstream is trying to keep a bearish attitude towards commodities because otherwise, it provokes panic. I believe this is the eye of the storm we're in right now, and that it's going to get much worse before it ever gets better.I've NEVER understood why governments are so eager to avoid recessions by taking measures that often neuter the latter recoveries and in the end generally make things WORSE than just letting the market do what it is supposed to do.
Recessions are a natural and even HEALTHY part of an economic cycle. They come about mostly as an equilibrium mechanism. Things get too far out of balance and they jerk back. They are healthy in that they CLEANSE the market place of weak and marginal business leaving the strong to move forward.
As for commodities, I personally believe they almost run their course. They are at or near their sustainable peak and as a naturally contrarian investor I am beginning to buy stocks again, and beginning to slowly take profits from my from my Yen and Euro positions and am actually considering betting against Oct Corn as more and more US ethanol ventures are collapsing and demand for corn is going to crash some time in the next two years...
I agree about your position on corn. But that's practically obvious at this point. I don't however, agree with you about commodities in general. You seem like a smart enough guy on economics. You should be able to see the inflationary forces at work. The market hasn't even seen the worst of it yet. The mainstream is trying to keep a bearish attitude towards commodities because otherwise, it provokes panic. I believe this is the eye of the storm we're in right now, and that it's going to get much worse before it ever gets better.
Read Jim Rogers. The man has made a fortune in commodities, and he's about as bullish on them right now as it gets. I know you like to say that Buffet never invested in commodities, so they must be worthless. Everyone has their niche. You certainly don't NEED to invest in commodities to make money, but there are times when it is highly beneficial, and right now is the time. If nothing else, they provide a great place to store your wealth and protect it from inflation.
I don't think there is near as much upside left in most commodities or better said that by this time anyone has largely missed the boat. Mainly because the dollar is about as low as its going to go. There might be a few more months of upside pressure but as get through the summer I think that will be about it for most of them.
What do you base all this on? Hope?
I'm not sure how you see the dollar coming back up anytime soon. Hyperinflation seems to be the most likely outcome in all of this. It's probably why M3 publishing has been discontinued. I mean, why else? There are more major banks that will fail. You say who cares. I say the same thing. However, the Fed does not, and they seem quite willing to devalue the dollar as much as needed to keep the banks afloat.
Economist Walter Williams
Sees Hyperinflation As Early As 2010
Jay Taylor
Economist Walter (John) Williams issued a special report on the evolving hyperinflation that he sees coming into the U.S. as early as 2010. Such a claim may seem incredible to most of us who have never lived in such an environment and have enjoyed the benefits of economic and political stability all our lives. To be sure, we have experienced some uncomfortable times like the deep but short-lived recession of 1981-82 and the double-digit inflation ofthe 1970 Carter Presidency. But I believe Williams makes a very, very strong case for hyperinflation with the dynamics driving it very much like that of theGerman Weimar Republic. Williams shows how it will be absolutelyimpossible for the U.S., as a massive debtor nation, to meet its trillions ofdollars of obligations going forward, given: (a) foreign savers bailing out ofthe U.S. dollar, and (b) the obligations of the U.S. now exceeding even a100% tax rate imposed on Americans!
We would much rather not believe what Williams is telling us. It would bemuch more pleasant to stick our heads in the sand and enjoy the summer atthe beach and next winter to live a luxurious life on the ski slopes or vacationin the Mediterranean or Caribbean. Ignorance is indeed bliss, but bliss for themoment cannot change longer-term realities. And quite frankly, when wespeak of long-term, 2010 isnt far away. Now, if a mere 2+ years seemsmuch too soon for any kind of catastrophic inflation to develop, take a look atthe chart on your left that pictures the hyperinflationary event in Germany inthe 1920s that led to the rise to power of one of the most evil fascist dictatorsin modern history, Adolph Hitler. Note how dramatically and rapidly pricesrose. From a base of 100 in 1921 they rose by more than 22,000% by themiddle of 1923!
Ludwig von Mises has stated that policy makers can continue to inflate the system as long as the population believes inflationary problems will end. Our policy makers (and quite frankly liars) have been distorting our real cost of living for quite some time now and the constant talk about deflationary forces as well as real deflationary forces in process (such as theimplosion in the housing markets) have also served to retard fear of inflation. Those of us who have for years looked at government with suspicious eyes have seen this coming for some time. Our willingness to think outside the box the establishment tries to imprison us in has served us well. As can be seen in the next section, we have benefited very nicelythrough the sectors we have been invested in. Indeed, our Model Portfolio has more than tripled since January 2000 because of our Austrian views of economics, which allowed us to think differently than through the lenses of the Keynesians and monetarists who dominate modern economic thought.
While I have become increasingly confident that we are heading for a major inflationary event, I do not ask that you believe and trust me without doing your own homework. In fact, I highly recommend you subscribe to the work of Walter John Williams. His newsletter, Shadow Government Statistics, is a good starting point. You can subscribe from Johns Web site, which is www.shadowstats.com. I do personally subscribe to Johns work. His charge is reasonable. I think it is under $200 per year or thereabouts. Also, you might want to review an interview I did with John in the July 16, 2007, monthly issue of J Taylors Gold & Technology Stocks newsletter. Nearly nine months have passed since we last spoke to John, and unfortunately, his predictions have been right on track. That is not good news, to be sure. But eventually, even worse news will come to those who stick their heads in the sand and ignore the impending economic doom that will most certainly befall a nation that hasbought into the wishful thinking of Keynesian and monetarist economics, both of which suggest we can have our cake and eat it too. Life just isnt like that and for the first time in a couple of generations, I believe, Americans are about to learn that lesson.
Quotes from John Williamss Special Hyperinflation Report
Following are some quotes from John Williamss special report on hyperinflation as published in the April 8 issue of Shadow
Government Statistics:
* Inflationary Recession Is in Place
* Banking Solvency Crisis Has Opened First Phase of Monetary Inflation
* Hyperinflationary Depression Remains Likely As Early As 2010
__________
Overview
The U.S. economy is in an intensifying inflationary recession that eventually will evolve into a hyperinflationary great depression. Hyperinflation could be experienced as early as 2010, if not before, and likely no more than a decade down the road. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, and gross mismanagement.
The U.S. has no way of avoiding a financial Armageddon. Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to meet their obligations. The alternative would be for the U.S. to renege on its existing debt and obligations, a solution for modern sovereign states rarely seen outside of governments overthrown in revolution, and a solution with no happier ending than simply printing the needed money. With the creation of massive amounts of new fiat (not backed by gold) dollars will come the eventual complete collapse of the value of the U.S. dollar andrelated dollar-denominated paper assets.
What lies ahead will be extremely difficult and unhappy times for many. Ralph T. Foster, in his "Fiat Paper Money" (see recommended further reading at the end of this issue), closes his books preface with a particularly poignant quote from a 1993 interview of Friedrich Kessler, a law professor at Harvard and University of California Berkeley, who experienced the Weimar Republic hyperinflation: "It was horrible. Horrible! Like lightning it struck. No one was prepared. You cannot imagine the rapidity with which the whole thing happened. The shelves in the grocery stores were empty. You could buy nothing with your paper money."
This Special Report updates and expands upon the three-part Hyperinflation Series that began with the December 2006 SGS Newsletter, exploring: (1) the causes and background of the evolving hyperinflation and great depression; (2) why circumstances will differ from the deflationary Great Depression of the 1930s; (3) implications for politics and the financial markets; (4) considerations for individuals and businesses.
The broad outlook has not changed during the last year. More generally, though, developments in the economy and the financial markets have been in line with projections and have tended to confirm the unfolding disaster. Specifically, the current inflationary recession has gained much broader recognition, while the still-unfolding banking solvency crisis has confirmed the Feds and the U.S. governments willingness to spend whatever money they have to create in order to keep the financial system from imploding. While the dollar has taken a heavy hit down roughly 20% against key currencies from last year selling of the U.S. currency still has been far short of the outright dollar dumping that eventually will lead to flight to safety outside of the U.S. dollar. That event is important to the shorter-term timing of the pending hyperinflation.
Regular readers may recognize text from last years Series, as well as material from various SGS newsletters, but such is the nature of revisions to prior material. Points that may be repeated from earlier newsletters are done so in sequence to help build the arguments explaining the unfolding crisis. Great thanks are extended to the numerous subscribers who offered ideas, questions and materials that have been incorporated in this report.
Defining the Components of a Hyperinflationary Great DepressionDeflation, Inflation and Hyperinflation.
Inflation generally is defined in terms of a rise in general prices due to an increase inthe amount of money in circulation. The inflation/deflation issues defined and discussed here are as applied to goods and services, not to the pricing of financial assets.
In terms of hyperinflation, there have been a variety of definitions used over time. The circumstance envisioned ahead is not one of double- or triple-digit annual inflation, but more along the lines of seven- to 10-digit inflation seen in other circumstances during the last century. Under such circumstances, the currency in question becomes worthless, as seen inGermany (Weimar Republic) in the early 1920s, in Hungary after World War II and in the dismembered Yugoslavia of the early 1990s.
The historical culprit generally has been the use of fiat currencies currencies with no asset backing such as gold and the resulting massive printing of currency that the issuing authority needed to support its system, when it did not have the ability, otherwise, to raise enough money for its perceived needs, through taxes or other means.
Foster (see recommended further reading at the end of this issue) details the history of fiat paper currencies from 11th century Szechwan, China, to date, and their consistent collapses, time-after-time, due to what appears to be the inevitable, irresistible urge of issuing authorities to print too much of a good thing. The United States is no exception, already having obligated itself to liabilities well beyond its ability ever to pay off.
I don't think there is near as much upside left in most commodities or better said that by this time anyone has largely missed the boat. Mainly because the dollar is about as low as its going to go. There might be a few more months of upside pressure but as get through the summer I think that will be about it for most of them.
M3 reconstructed.
http://www.nowandfutures.com/key_stats.html
Considering the 3% decline in the fed funds target and all the liquidity facilities offered, this makes sense to me.
I follow Gary North (have for some time) and I really like him. But I think he is wrong here to use M1 as the indicator for consumer price inflation and as evidence that the Fed has an overall policy of actually deflating (as he has been claiming). Regulatory changes made in the early 90's caused M1 to become much less useful as a general monetary indicator. These rule changes allow banks to reduce the amount of reserves required on deposit to the Fed by sweeping money held (for example) in checking deposits to savings accounts (on the books). The difference here is that money held in checking deposits are counted as part of the M1 money supply. But savings accounts are counted as the non-M1 part of the M2 money supply. Thus, due to the shifting of money by the banks, you do not get an accurate representation of the real M1.Gary North is a big goldbug, but he says that M1 has been flat or shrinking slightly, even while M2 and MZM have been growing. He says M1 is the one to watch for consumer price inflation.
http://www.lewrockwell.com/north/north615.html
http://www.garynorth.com/public/3328.cfm
I am still confused as to how they hold M1 steady while pumping up other measures, or really what the implications of that are.