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Non-Tech : Companies that BENEFIT from a recession -- Ignore unavailable to you. Want to Upgrade?

To: zebraspot who wrote (29)	4/3/2008 12:13:18 PM
From: zebraspot	Read Replies (1) \| Respond to of 34

I got this from James Turk today: >>Your negative bet on treasuries will work out great if non-US economies stay strong, and the dollar plummets against their currencies. But if their economies follow us down, as they could well, the US dollar could rise against other paper, even as all paper drops against gold, and long term treasuries could be priced to yield 1%, as they did in the 1930s, and in the 1990s and beyond in Japan in the aftermath of its collapsing bubbles.<< I've been thinking about this comment on a number of levels. Comparisons to previous periods of history are always fraught with risk because circumstances are never the same. For example, there are two noteworthy differences between now and the 1930s. First, the dollar back then was linked to gold. Even if US citizens could no longer redeem dollars for gold, everyone else could. This link to gold made the dollar a desirable currency to hold. The second difference between then and now is the financial position of the federal gov't. The federal gov't today is basically insolvent -- it does not have the financial capacity to meet all of its debt obligations (both direct and contingent). That means the federal gov't will never meet all of its the financial commitments, unless it debases the purchasing power of the dollar by inflation and other forms of debasement (one of these for example is allowing the Federal Reserve to monetize all types of bank assets, as the Fed is now doing). Therefore, in that environment a 1% rate on Treasuries is highly improbable. Long-term investors will require a higher interest rate to offset the risks of dollar debasement. Also, a comparison to Japan is fraught with risk for a number of reasons, but most importantly, the dollar is the world's reserve currency, and the yen of course is not. Consequently, few people around the world care what happens to the yen, which is completely opposite to the dollar -- most everybody is concerned about the state of the dollar. People throughout the world have a keen vested interest in the dollar given its reserve currency role. So I continue to believe that a negative bet on US dollar-denominated Treasuries is the right point of view. Regards James