I wondered if anyone here was watching Denninger or his threads.
tickerforum.org
Most of the posters on the threads are mortgage specialists living in the LA or San Diego markets.
The general consensus on Denninger's thread is we are headed into deflation and not inflation. Denninger says to get rid of gold, stocks, houses, cars, loans and horde dollars.
Opposite side of Sliders argument.
Sounds just like the CNBC analysts.
One on each side of the argument.
Selling their shares to each other.
About two thirds of the way through the post Denninger states:
<<<<<<<<"I do not expect the central banks to “hyperinflate” anything. Metals, in a protracted, serious deflationary selloff will get smashed. (If you're a "Gold Bug", read below for why I think you're nutty to hold metals - there's a better play if you believe in hyperinflation.)">>>>>>>>
He explains why he thinks gold will crater here:
<<<<<<<< There are also a number of people who believe, despite all the evidence above, that the government (or "The Fed") will "hyperinflate" to "save the economy" (or at least try.) Typically these people also believe that the rest of the world will fare better than we will, and will come in to snap up assets in America that are "dirt cheap" as our dollar is debased.
This is the central thesis of the "Gold Bug" paradigm; these folks all believe Gold is going to go to $1500 (or more) in the next year, and they urge you to buy some as a result.
The problem is that if their thesis is correct they're total idiots to buy Gold!
Here's why.
Let's say that the dollar is debased by 50% from here and Gold doubles in price (in dollars.) You make 100%, right? Wrong - you are subject to a 28% collectables tax on the appreciation, so you in fact lose compared to inflation. Congratulations - you lost real purchasing power!
That isn't so good.
Well, what could you do if you believe that the government will "hyperinflate" that would stay ahead of it?
In a hyperinflation paradigm where the rest of the world "does better than we do" stock markets will do a moonshot as foreign money comes in to buy all the "cheap" assets. The Dow will likely double if the dollar gets cut in half. But let's say it doesn't double - it only goes up by 30%, to 20,000 by the end of the year in 2008.
Why would you not buy Index CALLs instead of Gold?
A LEAP January 2009 DIA $160 CALL was selling for $2.00 Friday (Bid x Ask at $1.94/$2.10).
Let's say you buy 100 of those contracts for $20,000 (each contract is 100 shares, so 100 x 100 x $2.00 = $20,000, plus commission of course)
If the Dow goes to 20,000 by the end of next year, your CALLs are worth $40 each! That is a 20x profit on your original investment; that $20,000 turns into $400,000!
Further, if the DOW DID double (ala China's Shanghai Market) your little $20,000 wager would turn into a staggering $1,400,000 in one year's time!
So tell me again - if you believe in "hyperinflation" - why do you want to buy the clear LOSER of an asset that metals represent, when you can buy index CALLs and, if your thesis is correct, you will make an absolute stinking FORTUNE!
(Of course if you're wrong and the DOW is under 16,000 by the end of the year, that $20,000 is totally flushed. That's the price of poker - but again - just how sure are you that "The Fed" is going to "hyperinflate"? And by the way, no, I don't think they are - in fact, I don't think they CAN.)
To those who go even further and are in “It’s the end of the world as we know it” camp, I will humbly suggest that you remove the tin from your hat. It not only isn’t now but also won’t be tomorrow.
America has faced Depressions in the past, and our nation has survived. Yes, I used the plural form of the word. Most think the 1930s was “Our Time”. Wrong. There is a long cycle in credit (typically 50-80 years) that is well-understood among those who study this stuff called the “Kondratiev Wave.” This economic theory posits that credit moves in long cycles, with the evils of “overexpansion” being repeated once the previous generation that experienced its effects are all (or mostly all) dead. America has gone through three of these cycles previously, and we are likely in “winter” of the fourth now.
The “winter” periods tend to be deflationary credit collapses.
Alan Greenspan is rumored to have been aware of the impending implosion of the current cycle in the 2000/01 timeframe, and he allegedly knew that what he was doing at the time with his “willful blindness” was an attempt to stave it off by looking the other way – that is, change a long-cycle behavior that had played out three times previously in American history.
The problem with tampering with things like this, of course, is that the odds of success are not high, and the damage if you fail tends to be quite severe.
Nonetheless, we, along with the rest of the world, will get through this. There will be opportunity for those who are prudent and not leveraged in their personal and corporate life.
And for those who are over-leveraged?
They will get their comeuppance.
It’s about time. >>>>>>>>>>>>>>>>>>>>>>>
Slider,
I have also wanted to know what you think about Denniger's ideas.
He releases his market analysis daily with charting. Here is his ticker video released the day before Christmas.
tickervideo.org
you may have to load it twice to watch his chart progressions.
Bill |
