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 (29227)	3/23/2005 1:06:16 PM
From: ild	Read Replies (2) \| Respond to of 110194

Heinz is back online at Kitco Date: Wed Mar 23 2005 12:33 trotsky (Pyrite @ housing and stocks) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved very unlikely to see a 1990 repeat this time around, for two reasons: 1. stocks are far more expensive than they were then, and the size of the money stock compared to the capitalization of the stock market is far smaller. and 2. financials now represent the by far biggest slice of the SnP index - in short , the one sector likely to suffer most from falling RE prices represents the biggest part of the market's capitalization - which is by the way very much like Japan anno 1989 ( anyone still remember the frantic "Japan's banks are taking over the world" articles of the time? ) Date: Wed Mar 23 2005 12:28 trotsky (frustrated) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved ".in 2003 we did start to see POG and the USD rally somewhat with each other...could we not see that happen again ... " yes, as soon as the market becomes convinced that the dollar rally is destined to fail. so it'll probably only happen in the later stages of the rally. Date: Wed Mar 23 2005 12:23 trotsky (Hambone@housing) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved you make an important point there - namely the connection between the housing malinvestment bubble and the phony demand for labor it has produced. this is generally underestimated, but if you think about it, the housing industry isn't just homebuilders after all. a swathe of real estate brokers, appraisers, lawyers, financial institutions ( i.e. lenders of all stripes ) and so on depend on it. the usually perma-bullish American REaltors Association has recently published a report in which it was estimated that a full 34% of all residential RE transactions over the past year have NOT been for the purpose of acquiring a primary residence ( their words...translated it means that one third of the demand is speculative and based on the greater fool theory ) . these speculators will likely crowd the exit door one of these days in a 'no bid' scenario, since when they go into panic sell mode, banks will concurrently be forced to tighten lending standards for housing related loans ( since many of the existing loans will sport negative equity all of a sudden on account of the deteriorating value of the collateral ) - so an unexpected big increase in supply will meet with a simultaneous decline in demand. lots of jobs will become redundant in the process. Date: Wed Mar 23 2005 12:02 trotsky (@pm stocks) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved a near term bounce actually seems likely from my read of things. but medium term we're not yet out of the woods imo. Date: Wed Mar 23 2005 12:00 trotsky (Hambone) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "Seems to me under that scenario the safe haven status of bullion comes to the fore - or are you just assuming that cash ( ie the US dollar ) becomes king again as it ignores both budget and trade deficit woes?" no , no, i fully agree with that. that's why i said 'gold is the one item in the CRB that's likely to hold up best' - because gold becomes LESS of a commodity and MORE of a form of money when systemic confidence declines. i even agree that EVENTUALLY, gold WILL rise against all fiat currencies. but the time hasn't come yet imo - thus i would expect for the time being that the inverse relationship between gold and the dollar will hold up. note also, there can be little doubt that the dollar is mired in a long term, secular bear market ( as you say, the problem of the current account deficit remains to be resolved ) - but it has declined for 3 years running and everybody down to the cabbies is calling for more of the same, and that tells me it's going to see a period of consolidation, a.k.a. retracement rally. that such a rally is unlikely to go very far is another matter...the elephant in the room ( i.e. the huge foreign held dollar claims position ) is as intact as ever after all. but note that the dollar's main competitor, the Euro, has just suffered a blow the ramifications of wehich have yet to dawn on currency traders - the Maastricht treaty's budget deficit cap is about to be rescinded, to allow Keynesian deficit spending and all the ills it brings to return. this is VERY bad for the Euro. Date: Wed Mar 23 2005 11:51 trotsky (Earl@Hulbert) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved what Hulbert mentions here is more then confirmed by other positioning data ( like e.g. the CoTs and the Rydex funds dedicated to the sectors in question ) . Date: Wed Mar 23 2005 11:05 trotsky (@outlook ) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved liquidity is tightening globally; hedge funds meanwhile hold near record net long exposure in commodity futures, while the recent new highs in the CRB index were not confirmed by gold ( no-one has remarked on it, so i will ) . commodity/emerging market currencies have begun to weaken noticeably against the dollar ( which has only moved very little vs. the majors so far ) . at the same time, the popular press is chock-full with stories hailing the commodities and the China boom. in short, the party is either over already, or soon will be. next on the menu: a bust in China, a global property bubble bust, and eventully a renewed deflationary debt contraction ( GM is just the first warning shot - it's to sub-prime lending and manufacturing what PG&E was to utilities ) . with everybody sitting on the same side of the boat ( risk has been completely ignored in everything from emerging market debt/equities to junk bonds, with the Fed's implicit 'promise' of unending liquidity provision ) things could happen very fast indeed. every quarter point rate hike ( it may be yesterday's, it may be the next one... ) could be a bridge too far. and no, we haven't regressed magically to the 1970's...this is a completely different ball game. the Fed worries about the return of 'pricing power'? LOL! The bond market is prepping to throw them yet another ‘conundrum’ curveball. we’ll get to see the unique spectacle of new lows in yields while everybody’s still scared of inflation. there’s a huge herd of bond bears out there waiting to be squeezed ( this herd has now incredibly grown even larger as all positioning and poll data reveal ) . the upcoming cyclical bear market in commodities will probably pressure gold as well, or to be more precise, HAS already pressured it ( since it usually leads the CRB at important junctures, such as the recent non-confirmation ) . now, this is not to say that I’ve suddenly resolved that the SECULAR bull is over…far from it, since the central banks can be relied upon to crank the presses again once the global property speculation bubble turns into what promises to become a truly historic bust. gold is the one item in the CRB index that will probably hold up best because it will sniff out these developments well before they happen – and gold stocks should rise with conviction again once the yield curve widens later this year. however, from here to there more bumps in the road are to be expected. for instance, a recent Newsweek cover bemoaning the dollar’s demise , which follows on the heels of an Economist cover to the same effect late last year is as close to ringing a bell as you’ll ever come w.r.t. imminent end of the dollar’s intermediate term down trend. many people who are sensing that dollar bearishness has become too fashionable to expect anything but a good-sized intermediate term rally now resort to asserting that gold will rise anyway. this is a delusion. it reminds me of the tech bulls who asserted in early ’00 that rising interest rates couldn’t possibly hurt tech stocks ( it was a very popular argument back then ) . all that said, I wouldn’t go as far as expecting any MAJOR moves – a trading range for gold, while the dollar retraces a percentage of its losses during ’05, with the likely resumption of the primary trends late in ’05, or early in ’06. and yes, the oil bulls are in for a good whacking also. the blow-off stage of the XOI’s recent rally will probably be given back in its entirety ( i.e. we’ll likely get a 50% price correction in the index ) . so oil will also turn into a stock pickers market , just as the gold sector has ( meaning, you’ll do well with SELECTED issues, but it will become very difficult to make the right selections ) . the time of throwing darts at the stocks of commodity producers is definitely over for now. Bbml.