This scenario you've outlined is very plausible - in the speculative short term, but the economy has not yet felt the effects of <b>extensive</b> devaluation of the dollar. And that's just for starters. What happens when the Fed starts accepting other worthless CDOs in exchange for Treasuries down the line? Credit card loans, car loans, student loands, etc., all just as highly leveraged as the MBS become that much more vulnerable with housing prices crashing. Massive devaluation of the dollar to keep big banks operating is highly likely. Also, if the Fed is nearing the bottom of their easing cycle does this mean you think they'll keep interest rates flat? Or even hike them? By the end of April, the market will be begging for another rate cut so this "nearing the bottom of the easing cycle" although may stand true with bailouts will not ring true with lower interest rates, further devaluing the dollar.
This scenario you've outlined is very plausible - in the speculative short term, but the economy has not yet felt the effects of extensive devaluation of the dollar. And that's just for starters. What happens when the Fed starts accepting other worthless CDOs in exchange for Treasuries down the line? Credit card loans, car loans, student loands, etc., all just as highly leveraged as the MBS become that much more vulnerable with housing prices crashing. Massive devaluation of the dollar to keep big banks operating is highly likely. Also, if the Fed is nearing the bottom of their easing cycle does this mean you think they'll keep interest rates flat? Or even hike them? By the end of April, the market will be begging for another rate cut so this "nearing the bottom of the easing cycle" although may stand true with bailouts will not ring true with lower interest rates, further devaluing the dollar. This post from southamerica sums it up. http://www.elitetrader.com/vb/showthread.php?s=&postid=1867472#post1867472 When this ship hits land, Gold will go higher than any of you ever though! It's not a matter of if, but when.
I read his bio however I never heard of him prior to this thread. I know guys who move 100s of miilions thru the metal markets none would consider such a wager. it reflects poorly on mr.sinclair and my first impression is not positive. surf
They won't be able to cut past a certain point. And your hypothetical situation where the Fed starts accepting other CDOs is just that - hypothetical. No, once the market has fully baked in all Fed easing, the forward thinkers will begin to get out of the assets they're in now. Gold is one of them.
This might not seem related but I'm interested to hear your thoughts anyway. From your posts, correct me if I'm wrong, I'm deducing you are a long term USD bull, and see these Fed measures as helping restore strength to the economy. Since the last mini-recession in '02 our overall economy has been driven primarily by housing and consumption. With consumption directly being impacted by erosion of perceived wealth due to the housing bubble, which industry or sector do you see propelling the economy into the future that all these "forward thinkers" will attach their money to?
Your presumption that I am a USD dollar bull is incorrect. Like many folks here, I do not care personally what the dollar does. Give me volatility in a semi-defined trend. That's all I ask for. The mistake that many who claim the USD is on a road to ultimate destruction make is that they point to the multi year decline against the Euro - which in the history of the financial universe is rather amusing. Eight years isn't much. Additionally, gold bugs will point to the 97% devaluation of the US Dollar since the creation of the Fed (just quoting numbers I remember off the top of my head) which is true - but also inconclusive, since the world is now designed to run on fiat money. The Euro, Sterling, Aussie - take your pick - all are backed in the same way as the dollar: with government promises. However, fiat currencies in the electronic world are firmly entrenched with value on a day to day consumer basis. That is, I take my money to the store and I get something for a given amount of it. I cannot take gold to the store to get anything. Not gas, not milk, etc. It is illiquid. It is bought (the majority) by speculators, Central Banks, and a little industrial use. Gold bugs - believers in the all time economic cataclysm - are actually quite small in the scheme of things. Therefore, to trade or invest with their mindset is to invite disaster. I must trade with the mindset of a speculator, using gold as a hedge against dollar weakness. Thus, when it appears we will enter a period of dollar strength, the speculator move is to take profit and wait for the next period of dollar weakness. To make the comment about how the US could go down the road of Zimbabwe with 60,000% inflation is both naive and entertaining. I'm not saying you made this comment, but it's one I hear on the whole hyperinflation argument. But to address your specific question about which industry, I cannot answer you with a definite answer as to which would propel us into the next century, but here are a few that strike me... 1. Consumer Packaged Goods 2. Financials 3. Techs 4. Environmental (ie, recycling tech)
OK - I appreciate you taking the time to outline your point of view... In only one decade. this new quasi-industry of securitized debt, that has grown to amount to 500 trillion dollars is completely new and dangerously huge. One thing that is certain is that it is only a matter of time before the USD will fail. Throughout history no fiat currency has ever lasted, and Keynes himself admitted it would not last. With over 50 trillion in debt obligations and no domestic savings the US government will be hard-pressed to convince foreigners to buy government bonds, especially with the real return on these bonds now being negative. Who will lend us the money to continue our consumption binge? When will the foreigners finally pull the plug and let the US dollar, along with its economy, collapse? Gold , commodities, and hard assets will be the only form of real wealth when this collapse occurs. Whether it is next year or twenty years from now, the USD is doomed to failure. Another point on your economy-driving sectors choices - consumer based anything is not a viable long term economy driver. We must be producers not consumers.
1. Keynes was not God. 2. Again, the USD is not the only currency that is "fiat". They all are. So if you're talking about the failure of fiat currency, then what you mean is the failure of worldwide paper money. If that happens, gold isn't going to save you. I also respect your ability to continue a normalized debate. It's a rarity here, and I enjoy it.
with all due respect, this is a dinosaur mentality. production is just one small part of the supply chain. production will go to the least expensive geographical area, the rest of the supply chain will remain..... great things are in the future, things you can't even imagine and it has little to do with bogus, outdated protectionism and precious metals. surf regards, surf