I subscribe, and he comments on it almost every day. Essentially, he just says we keep moving farther along in the process.
Here is part of wednesday's rap:
Oil as Oracle
The summation of today's activities: Trends in motion were exacerbated. Exactly what it means or how long it lasts, I don't know, but in essence, everything has become commoditized, even stocks. So, down the road, the stock market will almost certainly have a day just like crude had today. When, however, is what we don't know.
Away from stocks, the dollar was back to doing what it does best, i.e., trading down. As mentioned, precious metals were green, with silver ripping 4% and gold up 0.75%. Fixed income was slightly lower.
A Window into Metal-Stock Weakness
I'd like to take a moment to clarify my position on the currencies and gold-related ideas, as I've gotten so many emails on the subject. First of all, I keep getting asked if I notice that the metal stocks continue to underperform the metals. Yes, I have noticed, but I don't know exactly what it means. Many folks are concerned that it's a harbinger of an imminent puke in the metals market. While that could be the case, I don't quite see it that way.
I think it's more likely a combination of gold bulls being generally scared and not wanting to aggressively buy these stocks, and a belief that the ETF is going to siphon off demand. As I've said before, I'm sure some demand has been siphoned off to some extent.
Yellow-Dog Dumping
I also believe there's likely a fair amount of short-selling in these stocks. Lots of people love to hate gold stocks, and now that they're acting poorly, they're probably being shorted. Guys may even be putting on the short-gold-stocks-long-ETF trade. There's no shortage of cross-currents as to why the metal stocks may be dogging it here, but I do not believe it's a precursor to a huge break in the metals market.
If gold were to trade off, I would welcome that, actually, as I would like to buy more to reposition the money I recently took out of my foreign currency positions. Thus far, I am not sure whether I will redeploy the money back into foreign currencies or gold. But as I've said, it's a very large position for me, and I'm just trying to figure out what to do next.
In the long run, gold is going to outperform all these currencies dramatically, in my opinion. But the long run is a series of short runs. My reason for owning them in the first place was because I felt that initially, they would outperform gold, which for the most part has been the case.
To sum up, there are many different ways to protect yourself from the collapse of the dollar that's on its way. There's no one right way because everyone is different. Also, everyone has different time horizons and entry points. So, I can't tell anyone what they should do. I can only say what I am doing and hope it's useful as food for thought.
Addressing Dollar-Bear Fears
On the subject of being a dollar bear, it seems to me that the No. 1 battle cry is not "I'm bearish on the dollar" (though lots of people are bearish) but "There are too many dollar bears, and therefore the dollar is going to bounce." I think that is the consensus, not that the dollar will be weak. Certainly in America that is the consensus.
Another question I get continually: "Isn't the dollar's decline going to be bullish because so many people tout it as such?" As I have stated in the past, that always happens in the early stages of a currency decline. It's always deemed to be bullish, just like every slowdown in a business cycle is at first always deemed to be a soft landing. The dollar going down is unequivocally not bullish, even though its ugly ramifications often have a long gestation period.
Debasement: No Antidote to a Deficit
Many folks seem to think that the dollar going down will magically solve our trade deficit. I disagree. We don't export enough to solve our trade deficit. What we need to do is stop consuming beyond our means and start saving, which is what will be forced upon us eventually.
As for the alleged benefits of currency debasement, Joanie stepped up this morning and nicely debunked the thought process that we can depreciate the currency as a cure-all for our problems, so I'd like to turn the microphone over to her:
"It is generally accepted these days that the continued debasement of the U.S. dollar is a positive. It is also generally accepted to expect that as the buck declines, the U.S. trade deficit will correct itself, like a self-cleaning oven, we have been led to suppose. But upon pondering this 2004 rule of thumb, a question came to mind. Perhaps you can answer it. Here goes:
"At what dollar/yuan (or dollar/won or dollar/anything) level will overseas manufacturers lose the cost-competitive edge to where, say, a WMT (or any other U.S. entity that's contributing to our gaping trade imbalance) will eschew Asia and opt for domestically produced goods? Simply put, how low do we have to push the buck before a 42" screen TV is cheaper from Sheboygan than from Shenzhen?
"Right off the bat, I'd have to surmise that we won't ever experience that phenomenon, because long before it came anywhere even close to that, the inflation would have eaten us all alive. . . . You still wanna' argue about the benefits of a weaker dollar because this will lower our imports and raise our exports with a view to meaningfully closing the trade gap? This of course would encompass the glitch of how to market a U.S.-made $2200 Maytag Neptune washer/dryer combo to that guy in Nanjing who is pullin' down a cool 76 cents per hour. . . .
"Chew on this: The Department of Commerce has a spreadsheet showing U.S./Japan Goods Trade Deficit going back to 1986. . . . The rate back about 30 years ago was 360 yen to the buck. In the '80s, as I recall, it ran with a 2 handle. At the moment, dollar/yen is 102. (In 1994, the buck made the record low of 79, as I recall. '93 Goods Trade deficit with Japan: $59.4 bil; '94: $65.7 bil; '95: $59.1 bil.) Hello? Right.
"And of course, we still run a sizeable deficit with Japan, noting that as the Japanese yen appreciated over time, they experienced wage growth. That's when local Japanese companies started outsourcing their manufacturing to places like S Korea. As I also recall, rejected parts from Kyoto Ceramics (Japan), for example, ended up in Gold Star appliances (S Korea). That was how this all got started, a long time ago.
"But before we wrap up this diatribe, how about this eye-opener: There is apparently a leading manufacturer of large kitchen appliances I read about somewhere (which was not named, though I continue to dig) that has stopped using conveyor belts in its Chinese factories. Is that right? Yep. So what have they determined is a cheaper option? They hired Chinese laborers to manually lug the stuff around."
Chicago Makes Mockery of DC Data
As long as I'm letting Joanie pipe up, she also pointed out a huge dichotomy in yesterday's data releases. The government would have us believe that the "core" PCE deflator (the Fed's favorite measure of inflation) was 0.7%. Joanie noted that the last time the number came in this low was when it was 0.5% back in 1962. What makes it a particularly unbelievable number is that in yesterday's Chicago PMI poll, the "prices paid" component hit a 25-year high. Now, one of those two numbers doesn't quite fit. I'll let the reader decide which that might be.
Finally on the subject of inflation, OFHEO (the Office of Federal Housing Enterprise Oversight) noted today that home prices in the last quarter rose at the fastest pace in 25 years. (Of course, the government doesn't count house prices in the inflation calculations.) I believe that the move in house prices is part of why people are so willing to believe the government's numbers -- with the attitude being yeah, there might be some inflation, but it's not hurting me too much and it's really helping me, therefore I don't care. So, for the time being, problems are just theories, and high prices for stocks and bonds are believed to be permanent.
Positions in stocks mentioned: Short Intel. Long Intel puts. Short Microchip. Short Novellus. |
