The short-lived commodity inflation was caused by speculators who had access to very inexpensive money - courtesy of the Federal Reserve. It was predictable (lots was written about it), but short-lived because the deflating asset bubble, caused by extraordinary debt burden, was inevitable. Lots was written about this, before it happened. It was our incompetent government that kept feeding greed with loose money that perpetuated the problem. It appears that commodities are bottoming out for the time being, because of the extraordinary measures, taken by governments all around the world, to prevent deflation. Going forward, it is highly unlikely that we will experience anything similar to the Great Depression, where banks were failing because of runs on banks, and government was putting a tourniquet on the money supply. What will happen - since this is all unprecedented, is anyone's guess. But I am thinking that the government capital spending will swell certain sectors of our economy, that will somewhat offset weak consumer spending. But we need to turn around lots of industries in the process and make them whole again - including heavy manufacturing and auto. It will take time, and is doable. I am thinking that there will be a substantial rebound, once it is clear that unemployment will not go over 10%, but then equities will reach a relatively fair market value and bump around there for several years, as the economy repairs itself.
It comes down to this IMO. Can the Fed/government actually reverse a true deflation? History says no. Every deflation in history was unable to be overcome by fiscal policy, each one had to run its natural course before coming to an end. Will this time be different? Who knows, but my gut feeling is to not bet against history. This means that cash in the long run will continue to be king, and all assets across the board will continue to decline in real terms. That's not to say that we won't experience pockets of reversals. For instance, if the 1929/2008 parallel continues, and we experience a monster bear market rally over the next several months, the dollar and treasuries could well pull back hard from their recent highs, and metals and commodities rally well. But if form holds, the trend would once again reverse by mid 2009 as deflationary forces continue to grow stronger. Make no mistake, this is hands down one of the most confounding economic environments ever seen. Which is why IMO being nimble with your positions and investments is the order of the day, and you must be willing to flip and reverse positions as events unfold.
Rich Thanks for your comments. The swelling of certain sectors...would that be infrastructure, perhaps home loans and housing, industry, things like this? verses consumer spending towards retail? If Obama puts a government plan to work to rebuild bridges, roads, schools, wont businesses related to this prosper? construction, steel, building materials, etc.... Thanks Jhershierra
I C.... Can you tell me what you think about this man and his website. I am reading about him now..... http://www.smartknowledgeu.com/index.php J. S. Kim I am trying to find ' some mentor' to follow. I have literally been to LOTS of places on the internet, every ' system , lots of newsletters, advisory letters, IBD, Zachs, magazines, investorsintelligence.com, tradethenews.com, Cramer, CNBC, trying to find someone who knows what is going on. Thanks
A brief look suggests that Kim's outlook has been very good so far. Of course, that's no guarantee of future accuracy. My suggestion is to read as many different sources as you can that have called the current environment accurately and make up your own mind. For instance, some that I read regularly include Bob Prechter, James Shepherd, Peter Schiff, Nouriel Roubini, etc. The issue is that even amongst the guys who have correctly called much of what we've seen, there is still some disagreement regarding the inflation/deflation scenario, at least with regard to the timing of each. My feeling after all the reading and studying I've done is that deflation will prevail longer than many think, but when it finally runs its course we will see all the inflationary efforts by the Fed and government finally take hold and then we'll see breathtaking inflation. But I think that eventuality is further out than many think. At least that's my .02.
Yes, I agree. And I believe that the market is already anticipating much of this, which is why it appears to be bottoming with a huge run up over the last few days. Here is a good economist to watch for insightful information going forward: Nouriel Roubini
Thanks for the suggestions zboy, Rich I had read some of Peter's website and seen him on TV. Hes darn scary!. I even called and talked to one of his investment counselors in New York. They want you to put a lot of your money in gold down in Australia and then invest in Brazilian Bonds. They feel the dollar is going to be totally destroyed and that China will become ' our Momma". He paints a pretty scary picture. I found it hard to ' day trade' on his advise. Gold stocks like GLD are down..I cant make money there at least not yet. I am buying a few stocks weekly and riding on momentum right now and selling, except my ' screw-up" that I am still holding MTR,CRT, SJT. which on advise to buy high dividend monthly stocks I bought them. They were doing great till a week or so ago. I need some way to ' keep trading the market' NOW....with knowledge that will help me decide what's best to do. I guess that is everyone's goal. I am reviewing the RGE Monitor now Roubini's site Thanks
Personally, I am not daytrading. I am hypothesizing an overall asset expansion over the next couple of years, fueled by huge government fiscal and monetary expansion. Therefore, I am accumulating leveraged EFTs (Powershares Ultra QLDs, and SSOs) to take advantage of my hypothesis. For day trading, I would expect extremely choppy trading for the next several months, as the Bears and Bulls trade opinions and as a result form a bottom. Extremely difficult to day trade in my opinion because of upward/downward volatility. You can be whipsawed to death. After that, I would expect an overall bias toward a rising market, which can be day traded in the usual ways, depending upon your own style. Daytrading is too stressful for me, so I stay away from it.
I read a little more of J.S. Kim's writings, and it is an example of what I was talking about with regard to getting several different points of view. While some of his predictions were correct, others were either off or premature (depending on how you look at it). For instance, in his April 2008 article, he was pooh poohing the idea of the dollar rallying, which it went on to move to 2 year highs since then. He's also predicted the collapse of bonds, which are also at new highs currently. That's not to say the dollar and bonds won't eventually collapse, but the point is that it's all a matter of timing, being right too soon can look a lot like being wrong, especially if you don't have the money to hold as a position moves strongly against you in the meantime. :eek: