Date: Wed Sep 03 2003 14:51
trotsky (Pendragon) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
funny enough, i see this exactly the other way around. it's true that the mortgage credit bubble has created housing inflation, and thus this credit creation HAS spurred inflation. but this bubble is a huge deflationary time bomb, a deflationary risk for the future. this is because at some point the inflation in home prices will stop - either because the market exhausts ( a la Nasdaq March 2000 ) or because un unforeseen rate rise or a further rise in delinquencies ( already at an all time high btw. ) lowers credit availability. then you'd be left with a huge mountain of debt and decreasing prices in the assets supporting that debt - deflation via defaults would follow. remember Japan? when real estate prices soared in the late 80's it was conventional wisdom that they could NEVER deflate - after all, Japan is small...so there would be forever a supply shortage, pre-ordained by nature. since then prices have collapsed by 70-90%, and the banking system has spent a decade in front of death's door.
a similar thing holds for commodity prices. first you have to ask why they are going up - the answer is the boom in China. Chinese commodity imports rise in high double digits with unwavering regularity, and after a 20 year bear market, very little capital investment in resources has taken place, so increasing demand from an unexpected customer meets relatively tight supply. but is this inflationary? not in a deflationary era saddled with vast manufacturing overcapacities. since manufacturers have no pricing power, all that happens is that their margins are squeezed. the same holds for the consumer...soaring energy costs do nothing for consumer purchasing power, since wages don't keep pace. thus, less money is left over to spend on other items. all of this is ultimately deflationary. quite different from the inflationary bust of the 70's, when monetary and commodity price inflation and a wage/price spiral egged each other on to produce the inflationary K summer.
Date: Wed Sep 03 2003 14:20
trotsky (Hambone, 13:54) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
well, historical examples would suggest that inflation, or hyperinflation, is more threatening to the social fabric than deflation. remember, the Fed HAS survived a deeply deflationary period in the 30's unscathed ( which took place despite frantic efforts to 'reflate' btw. ) .
to the above point, when the value of money itself is destroyed rapidly, the resulting upheavals bring forth types like Hitler...whose appearance on the political scene is imo closely linked to the destructive hyper-inflation period of the Weimar Republic. as Lew Rockwell has pointed out, in a recession/depression, if one is out of a job, or otherwise faced with hard times, does one wish for what money one has left to be able to buy more or less? this is the essential difference between inflationary and deflationary recessions...in the fomer, those losing their livelihoods then even see their rainy day savings destroyed, while in the latter, those savings might tide them over. that's why inflationary recessions harbor much more socially destructive energy.
Date: Wed Sep 03 2003 13:59
trotsky (P.Yorkie, 13:36) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"It's like the 1920's except economic theory has come along a bit since then, lessons learnt, and the same mistakes unlikely to be repeated."
NOTHING could be further from the truth. exactly the same Keynesian recipe that was used to combat the post 20's bubble bust is used nowadays, only more so. no lessons have been learned at all. the 90's bubble by itself was already a vivid demonstration of this ongoing failure to heed history's lessons. one only has to listen to mainstream economists on the financial news networks to realize they haven't even the foggiest idea about the most basic economic and monetary concepts. a good example would be for instance the constant re-iteration of the 'broken window fallacy', most recently on occasion of the black-out. to my utter amazement, several economists actually stooped to stating that it was somehow a good thing that x number of perishable good actually perished before they could be used, on account of them having to be 're-ordered'. with that bunch of maroons it is no wonder that we're looking into the abyss.
Date: Wed Sep 03 2003 13:48
trotsky (Hambone, 13:29) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i've addressed this issue before...it's true, they could 'inflate all out', by e.g. dropping 'money' from helicopters. but they won't be able to do it with the traditional modus operandi ( i.e. increasing free bank reserves and lowering rates ) . and there's a good reason to believe they WON'T go for the 'helicopter option' - it would bring about the Misesian crack-up boom and subsequently the total collapse of the paper currency system. thereafter, the CB's would be out of a job and thus out of power. they're NEVER going to print themselves out of power is my prediction...a fairly rational position imo.
Date: Wed Sep 03 2003 13:42
trotsky (Big Bob) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i agree the HUI break-out was more significant. and we did get a big rally out of it, likely not yet done. nevertheless, the SnP break-out is also meaningful, at least for the short term. like i said, the positioning data clearly reveal that there is lots of pessimism that continues to be unwound - via higher prices.
Date: Wed Sep 03 2003 13:30
trotsky (kapex) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i agree with you that physical silver is a good deal at this price. but the buyers of silver stocks have a lot more to show for their efforts so far ( the difference in returns runs in the 1,000% + magnitude in some cases ) , and i predict confidently that that will continue to be the case should silver prices take off.
Date: Wed Sep 03 2003 11:22
trotsky (Apollo@deficit) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
another thing: i believe that in spite of the burgeoning deficit, the next downleg in the stock market will once again coincide with a rally in bonds - we are still in the first third of the Kondratiyev winter, a deflationary longwave contraction. it is a period that entails a long term downtrending stock market and a long term uptrending bond market ( these days it's btw. even harder to find a bond bull than a gold bear ) . this happens regardless of budget deficits as long as the government's creditworthiness remains unquestioned. this latter point might prove an achilles heel, but imo again not until far later into the cycle.
Date: Wed Sep 03 2003 11:03
trotsky (Apollo) ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
well, there's more to the SM strength than the anecdotal evidence from the financial news networks ( where by the way not everybody is a raging bull...this recent rally has met with more skepticism than usual. lots of worrying about 'valuations' for instance ) . as i've pointed out previously, if one looks at the options data , all the leading sectors sport huge put/call OI ratios, and some have extraordinarily high short interest to boot. so there's no shortage of SM bears at all. as for the 1987 reference, everybody from Fleckenstein to Hamilton has written an article on it...they all insist that the break in bonds makes this a replica. i don't buy that. also, the seasonal weakness of September/October is being talked about all the time. i don't recall ever having heard more handwringing about seasonals...this year it's all the rage.
re. the CoTs, you misunderstand - i'm not worrying about the commercial short positions. after all, they're at least partly offset by physical long positions ( btw., i don't think the miners are shorting much - they're all busy dehedging ) . i'm worried about the corresponding long position by the speculators. once your long/short net position goes to 11:1, bullishness can be quantified as being over 90%. expanding on that seems like a tough job to me. i admit though that buying interest in gold shares still persists - but the same is true for the rest of the stock market, only more so. the deficit? i agree it's an important fundamental issue that will become a source of worry one of these days. maybe sometime next year...at the moment, nobody gives a hoot.
re. gold bullishness, another warning sign: the non-financial press in Europe has now picked up on it and confidently predicts $400/oz. - these guys were printing only bearish articles all the way up - until now. it's almost like a guarantee that 400 will remain out of reach for quite some time.
Date: Wed Sep 03 2003 10:19
trotsky (Apollo@'current SM strength') ID#377387:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
looks to me rather like it will continue - the SnP has broken out of a multi-week consolidation zone yesterday. so technically there's no reason for it to go anywhere but up. and the fundamentals keep running into a wall of liquidity apparently. note that i'm not 'talking my book' here... i went into this positioned for 'no break-out'. i guess though it could still turn into a 'fake' break-out, a low probability event, but i wouldn't rule it out entirely. it becomes progressively less likely with every new article proclaiming it's 1987 all over again.
the stretched speculator long position in COMEX gold futures still worries me a lot more by comparison. gold also profits from the liquidity surge, but i'm no fan of the 'the CoTs don't matter' theory. it should be modified to 'they matter less in a trending market, but matter greatly at turns'. at this point i'm also worried that there seem to be no gold bears left. to be expected after a technical break-out i guess, but still... |
