I didn't quite understand the first sentence of your reply, but I can certainly agree with this:
"And if the economy fails to turn around all of that 401K and IRA money will go into money market accounts raising the level of MZM drawing market interest rates."
When you look at the money supply figures, it appears that the Fed is doing everything it can to encourage banks to continue to extend credit and to make sure that the banks themselves, and other financial institutions such as insurance companies and brokerages, don't gte caught in any kind of liqduidity squeeze. I was very dismayed when the Fed did this for the LTCM/ Russian default crisis, and especially for the Y2K "crisis" that never was, but I think they may be doing the best thing right now.
All I am arguing is that if the Fed keeps the present rates of monetary growth (over 25%) up, or allow them to persist, there will be so much spendable cash that inflation will accelerate. Indeed, at this point, the only way to reduce the debt load on indviduals and corporations probably is to devalue the dollar through inflation.
As an investor, I am trying to see how I can best preserve my own capital in this situation, and to me it looks like oil and gas might be the best hedge. Energy is essential for our economy and I think people will pay a lot more for energy if they have to. And I don't think the government is likely to intervene with price controls, which would tend to discourage new investment in energy.
I think that a lot of stock market equity is simply being wiped out. The lower the markets go, the higher margin debt is as a percentage of remaining equity. There is not much money left after an initial 50% equity shrinks to 30%, generating a margin call, which itself may result in a forced sale at 20% equity, leaving the "investor" with a real loss of 60%, and owing the small amount that's left for mortgage and credit card debt.
If we were on a hard money system, there would be a catastrophe. I think the Fed is trying to give everyone time to work their way into greater solvency, but the only way to do it may be to allow inflation to rise so that it devalues the dollar against goods and services by 25% or more over a period of two or three years.
Americans have switched from borrowing to saving before, and they can do it again.
The only thing I am truly certain of, however, is that it is impossible to be certain of what will happen. I do think that equity values are going to deflate a lot more, no matter what the Fed does. Looking ahead two or three years, I do think that inflation of commodity prices and a fall in the dollar is possible. I am therefore betting against the equity markets and betting on natural gas and oil, as the most useful commodities. I am also betting in a smaller way against the dollar. |
