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

To: Wyätt Gwyön who wrote (13103)	5/3/2004 7:27:19 AM
From: russwinter	Respond to of 110194

Fleckenstein on James Grant essay about inflation: Since I couldn't possibly do justice to Jim's comments by paraphrasing them, I'd just like to reprise a couple of points that I especially like: Create too much money and bad things will happen -- somewhere. When the Fed embarks on a policy of excess liquidity creation, it's not possible to know exactly where that liquidity will go. I like to picture a tube of toothpaste with its top screwed on and with holes in various places. If you squeeze it, you can’t predict from which holes the toothpaste will squirt. Jim, however, says it much more eloquently: "By definition, there's no predicting through which set of channels the surplus money will enter the economic bloodstream. The point of contact might be consumer prices, asset prices or . . . taxicab medallion prices." The Fed is trying to manage too many things. Jim puts into perspective how the Fed sees its role: "Emboldened by its experiments in interest-rate fixing and crisis management, the Fed is trying to manage the unemployment rate, the inflation rate and the GDP growth rate all at the same time." Of course, we all know what happened to centrally planned economies, but somehow, folks seem to believe that Easy Al, with his liquidity jets, knows how to handle all matters economic and financial. Folks even listen to him opine on natural gas and other such subjects, of which he knows nothing. More inflation lies ahead. After reviewing the past 40 years of financial history, Grant concludes that more inflation lies in our future. (I'm sure he would not disagree that after inflation is tried, if it fails and the system breaks -- i.e., if down the road, stock prices collapse, real estate collapses, and the currency collapses -- then maybe we could see deflation.) But anyone having read this article would be hard-pressed to conclude that we're headed for deflation imminently. I always get lathered up whenever some group of items goes down in price and folks in the deflation camp say, “See? There we have it. That's the signal deflation is about to commence.” Nothing could be further from the truth. At any moment in time, any asset class or any group of asset classes may go down in price. That does not signal deflation. Deflation is when the dollar appreciates against a basket of goods and services. Or, to put it another way, in deflation, your dollar goes further -- a lot further. Easy money deflects deflation We have not experienced deflation in this country since the 1930s. At the time, we were on the gold standard. Were this system in place now, deflation would be a likelier event, in that dollar bills could not be dropped from Fed Governor Ben Bernanke's helicopter. Further, from the government's perspective, it's the fear of deflation -- witness what the Fed boys spewed about an inflation rate deemed too low -- that drives us toward inflation. As I said, I am fully cognizant of the possibility that we might eventually experience deflation -- if debt accumulation, asset-price declines, and a dollar decline become severe enough to force the Fed to abandon its easy-money standards. But to repeat, that does not look like the imminent outcome.

To: Wyätt Gwyön who wrote (13103)	5/3/2004 12:51:37 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

How to stage a bond market rally when the BOJ is MIA. I'm definitely all out of my Eurodollar shorts now, and oozed into a long Sept copper position at average 119.40 to play the MoP Pinocchio effect. Also loaded up on NTO, average cost $2.20. With stock trading at $2.08, adjusted enterprise value is now $270m, cash flow from Alumbrera is $75m at 1.20/375 (3.6X), and you get the nearby fifth largest copper-gold deposit in the world Aqua Rica for free. Message 20023536 Take advantage of the lull in new Treasury financings to: Signal the leveraged highwaymen, by doing two permanent injections with one week: bullandbearwise.com Monetize a little "extra": 753m versus one year weekly average of 548m. Put out a statement the wild men want to hear tomorrow, and blow out the specs?