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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (6799)	2/3/2004 8:34:01 AM
From: russwinter	Read Replies (2) \| Respond to of 110194

<I don't think the Fed will do the right thing they will talk at higher rates, not impose them> Then they will let the crack up boom unfold. It's going to happen quickly IMO. This is NOT some "after the election" event, it's going to happen in the year of the monkey. Given that I'm an active speculator/trader (consider myself a pro) what to do?. Despite my normal confidence in my skills at this game, to me this is a very scary environment to have to trade in, and especially to dodge bullets in. Following the Misean logic one just piles into assets of "real value". That certainly isn't the USD, bonds, or most stocks. I think it would be short the stock market regardless of if the CBs mount a defense. Note the ECB lowering rates is not a defense, it's more crack up boom fuel. In fact if you felt that was unfolding, you would short the Euro (the currency), and go long gold. Short financials would seem to be top the list, except you have this roaring generation of fees, late charges, and nickel and diming (in a major way) the enormous morass of debt out there. That means on the surface these stocks look marvelous, but we all know better, so short those. I'd be interested in what the deflation funk believers think about that sector? Retail would be good short whether you were on the deflation funk or crack up boom side of the equation. Tech is just getting to be a game again, so for high risk money short those. That brings us to the whole spectrum of commodities. They are already going nuts. They've already attracted purchases and hoarding, speculative (and otherwise) seeking "real value" in the Mises sense. The wall of worry they are climbing to me seems to be the fear (which I have) that the CBs will start up a defense, not talk, but rate increases. That will cool the asset class IMO, but it depends on how aggressive they are. But if you think there will be no defense then commodities will just scream higher until the global economy collapses in an inflationary and shortage inferno. People will transfer funds to nickel, copper, gold, food stuffs, PGMs, energy, and out of any currency not mounting a defense. As they move higher and higher, they will keep getting bids from those running carry trade of sorts. That strategy is to borrow and dump USD at cheap rates, and buy any "shortage" commodity you can get a hold of. I think the best prospect is energy. The problem today is that, crude oil is loaded to the gills with speculators. Natural gas isn't though. Commercials are actually long NG, and I think there are two big draws coming. We could be facing a shortage afterall, if there is a cold February. I almost perfectly timed my exit from energy stocks two weeks ago, and they've corrected. The stock charts and money flows still look poor right now, stockcharts.com[l,a]daclniay[pd20,2!b50][vc60][iUb14!Lc20]&pref=G stockcharts.com[l,a]daclniay[pd20,2!b50][vc60][iUb14!Lc20]&pref=G but if you believed the fiddle while Rome burned theory, there is nothing to stop crack up boom money seeking things of real value from taking another shot at this sector. Gold fits the same parameters. The disadvantage of gold is that the same sycophants who run the world's monetary policy also own this stuff. So games get played with it. However, in the crack up boom (without a real defense) people will be glad to clean out all the vaults of the CBs in exchange for worthless currencies. I actually think the fact that Europe has been more responsible so far, has kept gold in check. On the other side of the coin, if the Cbs mount a defense (not talk, higher rates). then the large spec crowd will get flushed out on occasion. In a defense scenario, gold will have a lot of hiccups. In your Rome burns/fiddle scenario, gold will start screaming. If Europe loosens, that a green light for all the aggressive specs and hege funds on the planet to pile into real value (in the Mises sense). Bonds: goes without saying. Everybody will sell the BOJ all the bonds they can. If the Fed mounted a defense, I actually think longer dated US bonds could still be saved, although at a higher rate. If Al fiddles and we get my expected crack up boom, you will see a panic and double digit rates before the year is out. Obviously another crack up boom strategy right now is to sell USD assets (treasuries) to the BOJ as fast as they will take them. Another variation is to try and figure out countries on the planet who will actually try and mount a defense. Europe is up in the air. I think the yen craters with the USD in the crack-up, they are too linked. Canada is getting easy, so stay away. That leaves what, New Zealand, don't know? Is there any country on that planet that's not hyper easy? So thoughts on the crack up boom with Al fiddling. One caveat though, if there is a defense, it won't be so easy.

To: Jim Willie CB who wrote (6799)	2/3/2004 9:30:48 AM
From: mishedlo	Read Replies (1) \| Respond to of 110194

From Plunger on my board on the FOOL. Here is someone looking at the entire picture for what it is, not what he wants it to be IMO. ======================================================= Apologies to everyone already bored wih the themes in here ... but I think they're still the themes. The general populace appears to hope and believe that all is well, though well paying jobs are frustratingly scarce. This is all priced in to stocks and bonds. However I really don't see, as Greenspan claims to, that the imbalances from the bubble have had time to subside. Since he's been keeping them topped up, the big trade from here seems to be to bet on deflation as that topping up becomes ever more difficult. Weak wage inflation and declining GDP deflators seem to confirm the story. Right now the US has a huge output gap exerting deflationary pressure. Economists are looking for a slowdown in the second half of the year when the tax rebates cease. And surely in 2005 after the small business capex incentives dry up too, and with no political imperative to sustain them or indeed any special fiscal measures, 2005 must be expected to be extremely soft. Thus there is no way we are going to see rate hikes in the US – or Europe with its strong Euro - until 2006 – and indeed if the US private sector debtor runs out of willpower to load up on debt ever faster, the inevitable downturn could happen sooner rather than later, with rate cuts in prospect. Canada leads the way. In fact, I find a contradiction in the concensus forecasting rate hikes in H2 yet also a gathering concensus that more fiscal stimulus may be needed to sustain growth in 2004 H2 … surely fiscal stimulus should be the policy tool that is eased before monetary accommodation recedes. Translating this to markets, clearly US stocks are very vulnerable. Whilst I continue to see the wealthy looking to “invest” as a backdrop, it is largely a mindless allocation / momentum trade here with no intrinsic returns, and the market could head in either direction for a long time. But from now, perhaps down is more likely for a while, as the “up” trade must be getting a little crowded and uncomfortable. Thus Treasuries, Eurodollars, Bunds, Aus 3 year bonds etc ... all look a screaming buy, because they price in rate hikes, just when everything must be expected to slow. Far from the rest of the world going on a bond buyers' strike and forcing up yields, I see the US private sector debtor, from lack of wage growth, going on a debt supply strike and yields falling. The Dollar is still structurally and fundamentally awful, with both the Fed and the fiscal authorities making it undesirable, and there are many folks like me, not a US citizen, not living in the US, but who have over the years gently acquired many USD based assets. I think we would all rather repatriate, or at least redistribute our capital away from the USD, leaving lots of now unwanted US assets out there and so the price pressure on the currency has to be relentlessly downwards in the big picture. I remain convinced that China has an incipient overcapacity problem, both internally and in goods for delivery into the world. A China capex reversal would be awful for Japan and might well cause recent speculation in commodity prices to unwind. However I' m holding gold and silver for the long haul and oil for the backwardation and because China's real economy is unlikely to go into recession. Plunger.