I Do Think That Like a Dog Returning to its Vomit,
it is nearly unavoidable that an intial Flight to Safety will occur in the US Treasury Market, in the event a serious downturn unfolds. But even this would be dependent, however, on that market not already being in trouble. In my view, we have already seen a flight to safety, in part, in US real estate, and, commodities, as people in the former market intuitively understand the currency is being debased--and people in the latter market understand the present debasement from a more conscious stance. I see the housing bubble as a rational, intutive response by people to the crazy money printing policy. No solution or response is perfect. For many, however, cheap debt was incurred in the last 5+ years at levels that they will indeed be able to handle, while at the same time they took hold of a hard asset. Those loans will be paid off in increasingly worthless dollars, so "bully" for them. Of course, the market got out of control and many others will be junked by the heroin--not mention to the Great Displacement that you have pointed out. (Very good article on the working people of Tuscon).
But my point is the flight to safety response, not Washington policy. Looking ahead, I just see US treasuries as another over-capitalized asset--which in addition keeps expanding in supply. The world cannot decide treasuries are more valuable than previously thought, while at the same time deciding the dollar is less valuable than previously thought. And if that is what the world is deciding, Americans do not have the capital to make it otherwise. Which I guess was my earlier point.
Reluctantly I have concluded that Gold is the only sustainable solution to the problem, going forward, in the face of chronic Washington Policy determined to ruin us. I should mention I got the Bernstein book you recommended: The Power of Gold. I have yet to read it.
I just don't see how much more the EUR and the JPY can shoulder the USD's adjustment--which has a great deal more to go. Either the Yuan has to bust to the upside (lots of issues here too numerouos to mention) or gold has to advance. The other solution is for the USD to stall again, like it did for much of 2004. I really don't see that happening either.
The dollar rally crowd meanwhile is whistling past the graveyard, and is an example of how "contrarianism" too can outsmart itself.
I went long GoldCorp shares and GoldCorp call options in late November, when I confirmed for myself that Bush was going full steam ahead on the SS Reform plan--replete with its doomed borrowing plan.
Is the SS reform plan Stealth Reflationary Policy?
I think so.
Prepare yourself for the bizarre possibility that Greenspan gets behind it, and its 2 trillion dollar borrowing schedule.
Regards,
LP |
