Greenspan Dept of Inflation: where next bubble ???
update accidentally repeating last message with new elements
despite claims that inflation is nonexistent, it has surged in almost every asset class since 1972
that is the birthdate of Modernday Inflation
Nixon abandoned the Bretton Woods Accord, whereby the US$ was linked to gold
cash was redeemable into gold coins or gold bullion until then
since 1972 the US Federal Reserve has become a printing press
this was a new phenomenon in history at first
originally the excess money supply (defining inflation) went to finance the federal debts followed OPEC-inspired rising costs and economic recession
that was the mid and late 1970's
with spendthrift advent of Carter and Democrat leadership came the next phase of inflation
this was the early 1980's
rising prices polluted the entire goods & services sectors
we saw price inflation of 10-13% annually
gold and silver enjoyed a brief HUGE run, rising 20-fold
most wages kept pace
I remember being upset that I had a banner year (saved Digital $30M on a single project) but received only the "usual 12% raise" that everyone got in 1982
it is noteworth that the stock market did not participate at all in the 1980's inflation
in fact, a 15-yr period ensued with no S&P or Dow gains at all
the inflation spread quickly in the late 1980's into real estate
I remember owning a two-family suburban Boston property that rose in value from 1982 at $130k to 1986 at $230k
that is 75% price inflation
but that bubble burst quickly
a key event happened in 1990 that changed the landscape
we had the famed Gulf War in 1991
crude oil spiked, then relaxed
but not before $600 billion was spent on the war
1/3 USA, 1/3 Japan, 1/3 Saudi -- cost split
then inflation began to hit the US Stock & Bond markets
prevailing interest rates were 8-10% for Bonds and Mortgages
as rates fell from 1994 to 1999, stocks zoomed and bonds zoomed
also, most real estate property jumped 100% in value
stocks, bonds, property all doubled in value
this was the supposed great economic miracle of prosperity
but the US MZM Money Supply doubled from 1990 to 2001
what economic miracle?
it was a Fed-led stock and bond bubble, with property following
NO INFLATION? WHAT? ARE WE STUPID?
yes, most are stupid, illiterate, uneducated, gullible
in 2000 the Naz bubble burst, and the S&P/Dow crept along
Old Econ stocks are muddling along
they might break down and see Dow retrace to 7000
who knows? if it does, then Dow 13000 is attainable later this decade
if it does not revisit 7000, I dont think Dow 13000 will happen until late this decade
like 2007 or 2009
in 2001, the Fed led by GreenJeans panicked
real estate was next to collapse
so the Fed in panicky style cut rates sharply
real estate not only was rescued, it rose another 15%
the bubble moved over to real estate
then an incredible event happened
the 30-yr TBond just would NOT budge down in yield
GreenSheiss wanted it to come down, to fortify and confirm his game
but the 30-yr would NOT budge
so he killed it, with TreasurySecy ONeill's cooperation
it did not work, since the 10-yr TNote yield would NOT budge down
instead, GreenScrotum was greeted with a large yield spread
the difference between the 10-yr and 3-month bond is about 3.5%
not only that, but the difference between the 3-mo yield and CPI inflation measure is near zero
here we are in 2002, with shorterm rates really low
this has maintained the bond market bubble, and the real estate bubble
but the stock market will NOT budge and re-inflate
this is the cause of great frustration to GreenMan
the Fed is spiking the bond market with low rates,
just like they spikes the stock market with high 1999-2000 rates
NOW WE HAVE GREENY IN A CORNER
THE STOCK MARKET AND REAL ESTATE MARKET HAVE THE FED AS HOSTAGE
HE CANNOT RAISE RATES FOR A WHILE, OR ELSE KILL STOCKS & PROPERTY
OR AT LEAST SERIOUSLY UNDERMINES THEM
AND IF THEY ARE UNDERMINED, THEN SO IS THE USDOLLAR
AND GOLD IS RESPONDING
as long as real rates (3-mo TBill yield minus CPI) are near zero, bond holders will be encouraged to exit bonds
GreenStooge is urging them quietly with rate coercion to return to stocks
he and his governors are signalling "ALL IS WELL" again
they are wrong
their deceptions are not yet seen as naked lies
but they might be sooner or later
stocks are a fool's game now
profits will be tough to return, beyond stage #1 of recovery
what I mean is that a healthy return of profit growth is not gonna happen
some profits will return, but only temporarily because the debts are financing the entire recovery so far
sure, some gains will be seen with some return of earnings
but how clear are earnings
the recent General Motors and IBM earnings were full of proforma deception and Enron-like feces
instead, the bond holders are not following GreenTree's lead
BOND GUYS ARE 10X SMARTER THAN STOCK GUYS
they are not emotional momentum speculator types
they are rational, educated in accounting and economics
they dont follow the herd
Gross of Pimco is defying Genl Electric now
these guys in bonds are champions, much to learn from them
of course, within their ranks are goldbug extremists
but a rational solid argument can be made for gold now
with zero real rates of return in bonds, with expected higher nominal interest rates to come by next year, with poor pricing power for US corporations (except with productive use of excess equipmt), bondholders are moving slowly into GOLD
not only gold, but natural resources, which have been neglected
this sector will be subjected to price rises that at first will not be owing to inflation
meaning, shortage of supply will ENCOURAGE greater supply with higher incentive prices
but the solid return on investment will attract speculative capital
for 10 years, the inefficient utilization of precious capital has been wasted on telecom, computerdom, dotcom bullshit, and internet
NOT ALL WASTED, but waste lies in the excess that it experienced
the next bubble is natural resources, CLEARLY
it will start off as a calm movement of capital into areas with strong prospects of pricing power, where demand outstrips depleting supply
but later, like in a couple years, we are likely to see some speculative excess enter oil, gas, gold, silver, copper, electricity, water, lumber, and more
movement of money is akin to fluodynamics
we talk of money flow, liquidity
even velocity of money
it seeks a path of least resistance
with the Dept of Inflation led by GreenBubble, the avenue of least resistance and greatest return on investment is now NATURAL RESOURCES
and the kings of natural resources are two
financial: GOLD
commercial: OIL
any holes in my thoughts, please advise
I remain a jackass, just a better educated jackass
while many revert to lapping up the vomit of the past, I have instead tried to learn with a longer time perspective than the 6 weeks or 6 months commonly seen
the perspective MUST begin at the Birthdate of Inflation, 1972
and yes, meanwhile, during all this, the USDollar has evolved into the world store of value, the safe haven asset
but the flipside of the USdollar is a USTBond, a debt instrument
from 1994 to the present, the US$ has itself become subject to a bubble
it is overvalued by perhaps 8-10% versus the Euro
the Euro has gained 4% versus the US$ since January
forget the JYen, a basket case monument to economic mgmt stupidity and ineptitude
the dollar has been the beneficiary of gold suppression by central banks during this past decade
inflation is alive and not well
it never rests in the same place for long
because by nature, it is unstable when recognized
it is heading into gold and oil
(natural gas is the brother of oil)
we have historically come full circle
to goods & services
to real estate
to stocks and bonds and real estate
to real estate again
to the dollar
now back to the final proper place: gold & silver
full circle from 1972 abandonment of Bretton Woods Accord
their are no viable bubble opportunities left
EXCEPT GOLD AND OIL
these are the avenues of least resistance now
the Gold Cartel has run low on gold, run low on interest rates, and seen gold now at/below/near the price of production costs
we are seeing pockets of DEFLATION, for God's sake
when in 1999 GreenDork complained of imminent INFLATION
the magic of gold is that it retains value in deflationary times and inflationary times
because it is real capital ballast and store of value
I expect to see both deflation and inflation simultaneously
and gold will be hurried into by young and old investors alike
/ jim willie silverback gorilla |
