Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: ild who wrote (25863)	2/4/2005 2:36:43 PM
From: ild	Read Replies (1) \| Respond to of 110194

Date: Fri Feb 04 2005 14:19 trotsky (Alberich) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved you forgot one scenario: short term and long term rates both go lower, but ST rates go lower faster. that is very likely to happen once the current Fed rate hike cycle ends and reverses. why am i so sure they will go lower? for one thing, i'm convinced we're in the winter period of the K-cycle - i.e. the deflationary era, which tends to follow on the heels of the disinflation cycle ( autumn ) that lasted from 1980 to 2000. if one looks at the current K-wave from its starting point in 1949, it has so far behaved EXACTLY as theory predicted it would, and thus there's no reason to expect that the winter period won't play out according to script as well ( there are in fact many very strong fundamental arguments in favor of this outcome ) . regarding the near to medium term, as i have kept pointing out here for a very long time, the bond market is infested with bears, in spite of being only a hair below fresh all time highs. this all but guaranteed the rally we have seen over the past few months. once the highs are broken, short covering alone could propel the market quite a bit higher ( not sure if it will happen now, or a few months hence, but i'm confident it will ) . being a bond bull has been the best contrarian play out there, and continues to be so. Date: Fri Feb 04 2005 14:08 trotsky (art@curve) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved no, that's not what i meant. only, that once it does invert, the new cycle begins - major lows in the gold sector tend to roughly coincide with such inversions. Date: Fri Feb 04 2005 14:05 trotsky (Romanov@DROOY) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved you are right that DROOY's current price puts a value of zero on its SA properties, and may not even properly reflect the value of its overseas investments ( note that the Porgera investment was a very shrewd one. it paid for itself in record time ) . but the 110m. oz deposit ( potential - i don't think it has been entirely drill tested ) requires either a Rand PoG of R. 3,500/oz. or more, or a huge advance in technology that lowers the costs of mining a deposit at depths of 4.5 to 5 kilometers below surface enormously. so this is really pie in the sky and doesn't deserve to be included in the valuation metrics. Date: Fri Feb 04 2005 13:53 trotsky (Hambone@Japan) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved there's one major, and decisive difference: everybody owns the dollar, while no-one owned the Yen. as a result, the deflationary bust in Japan actually strengthened the Yen initially, on account of massive repatriation of funds. all those banks and insurance companies that were driven to the brink of insolvency brought a lot of money back home via selling overseas investments to shore up their crumbling balance sheets. it's different with the dollar, due to the previously mentioned elephant in the room. Japan's real rates were positive most of the time, since their CPI measured price inflation actually did fall precipitously for a long period of time ( there may have been some leads and lags while the cycle played out ) . note though that there hasn't really been a classical deflation in terms of a declining money stock in Japan. but that's only because the money printed by the BoJ kept sitting around unattended in the money market. at one stage, aggregate bank credit had fallen for 60 months in a row, and money velocity kept declining as well. as an aside, Japanese land prices have been falling for 13 years in a row ( 5.4% last year alone ) , which gives one a rough idea what is in store when the US real estate bubble pops. Date: Fri Feb 04 2005 13:40 trotsky (strat) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "Good traders...live by Black-Scholes..." the last ones who did that headed a hedge fund that was very successful for the first three years of its existence. its name was Long Term Capital Management, a.k.a. LTCM. in fact, its board included one of the INVENTORS of the options pricing model you refer to ( Scholes ) . one hears the fund ran into some minor trouble in its fourth year. Date: Fri Feb 04 2005 13:35 trotsky (morbius) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "please explain to me how locking your money into a 30 year bond at 4% is a smart idea." that should be obvious. it's very smart if rates are going to 3% for instance. the longer the bond maturity, the bigger the effect of falling rates on your capital gain. for instance, if you buy the 30 year bond at 4% yield to maturity and the yield falls to 3% within a year's time, your total return ( capital gain plus interest ) will be over 17%. Date: Fri Feb 04 2005 13:30 trotsky (strat) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved no, rates are NOT going higher. again, it is only the FF rate, that is artificially jacked up by the Fed - those rates subject to the market keep going lower, and will go lower still. the only thing that's up for debate w.r.t. interest rates imo is when the Fed will follow suit and get back to lowering its FF and discount rates back toward the zero boundary. note that historically, every post bubble recovery rate hike cycle had to be abandoned in a very short time, and in every case rates plumbed fresh lows subsequently. the pertinent examples are Japan's first few timid rate hikes into the first post bubble recovery, and the Fed's early 30's hikes which were enacted to 'defend' the currency as well ( designed to staunch the outflow of gold back then ) . these rate hike cycles didn't go anywhere because they happened in the middle of a deflationary era - just as the recent rate hikes by the Fed have. Date: Fri Feb 04 2005 13:18 trotsky (Mr. Baltimore) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "It gets me when they get all this attention when the FOMC meets to determine policy. The world is glued to their policy statements. All that I know is that they're going to screw it up." well said. central economic planning simply doesn't work, and that's that. but then, the purpose of the CB system isn't all that altruistic anyway, as historical and economic scholars are well aware. for further information consult Murray Rothbard's "the case against the Fed". Date: Fri Feb 04 2005 12:55 trotsky (goldfish@unemployment) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved what callous remarks to make. you seem to think that people inhabiting lower social strata somehow don't count, because they're invisible to you, personally ( just as they are apparently invisible to the bureaucracy ) . but they are actually the majority, like it or not. besides, there's every reason to look at the government's statistics with great skepticism. the issue has been almost debated to death here already, but the fact remains that most of those statistics seem tailored to deceive rather than illuminate.