re Forlorn Hope:
The combination of the end of QE2, China saying they want to decrease dollar holdings, and high oil prices, has moved me to 85% cash (from 100% long stocks last October). Tea Party successes, mean we'll need another crisis before QE3. Between the end of QE2, and the beginning of QE3, will be a chaotic interval, when I'm leery of being long anything, even gold or oil. Nobody really knows what will happen.
The Saudis keep saying they have lots of reserve capacity to keep the market supplied, but they have failed at replacing the lost Libya output. I think they are already pumping at max capacity, which means any further disruption to supply (or incremental increase in demand), will keep pushing oil prices up. In 2007, stocks peaked when oil hit $80.
This earnings season has been bullish so far. But consumer product companies like PG and KMB are saying their raw materials costs are rising, so they have no choice but to increase the price for the diapers, tampons, toilet paper, and everything else they sell. Airlines, too, have no choice but to repeatedly raise prices. There isn't inflation in wages, but there is in everything else. The U.S. Fed is the only central bank that isn't raising rates and tightening credit. Even the Japanese are talking about raising taxes, rather than more government debt, to pay for their rebuilding.
The NY Times has a nice game
nytimes.com
where you make various choices, with the goal of balancing the federal budget. I found it easy to do, by:
1. ending our overseas wars, reducing the military a lot
2. capping medicare growth at GDP growth plus 1%
3. returning the estate tax and capital gains tax to pre-Clinton levels
4. taxing the rich as much as they were pre-Bush
This, or almost any other combination of large spending cuts and/or large tax increases, could avert the impending dollar collapse. |
