Archive - 2010 - Blog entry

Can you say "Massive Debt Overhang", Kids?

Pension reform advocates are warning that federal and provincial governments will pay a political price if they fail to turn a vague commitment made in December to pursue pension reform into a concrete plan to bolster Canadians' retirement savings.

In continuing the rant on the possibility of the US entering a stagflationary environment, as was hinted by Alcoa's quarterly report (see "Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?"), I have decided to graphically illustrate the historically most successful inflation hedges as well as demonstrate where North America and Western Europe currently stand.

Markets will end the year lower. Technology, REIT’s, and retailers are looking ripe. Companies with poor balance sheets will get clubbed. Shorting Treasuries is a home run staring you in the face.

Is it time to head for the hills, stockpile food and ammo, and wait in the bunkers? I get a number of e-mails from readers seeking advice, usually investment advice. Last year I received messages of a theme that can be described as folks who felt The Great Collapse was happening. Armageddon and that type of thing. Here's my advice. Do you agree?

A year ago I stated that if I had to pick a scenario, the most likely would be stagflation wherein high input costs would co-exist with a deflationary drop in asset values, creating a "worst of both worlds" style environment. Well, Alcoa has given us some anecdotal evidence of the likelihood of such an occurrence approaching.

Change?

Not much ...

Mom and Pop investors aren't buying stocks ...

Chavez threatens speculators with military force, currency crises will go global, Af-Pak war for control of Central Asian energy, Secret negotiations on health care anti-democratic, China is #1 exporter, 'domestic extremism' (wtf!) team investigates Climategate, California request bailout.

Following the empirical evidence that banks share price moves are outstripping their fundamental performance, I have decided to run the same analysis with REITs that have beat the S&P 500.

Going from a “V” Market to an inverted "V", or lambda market. Keep an itchy trigger finger on your mouse. The third in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation Review. (SPX), (EEM),(EWZ), (RSX), (PIN), (FXI), (EWY), (EWT), (IDX)

While some China Bears are busy publicizing prediciton of an utter Dubai or Enron-like collapse in China, Beijing is actually in the process of rebalancing its economy and an overheated real estate market. And gold is poised to benefit the most from this shift.

Big devaluation in Venezuela over the weekend. The locals knew about it in advance. The Black Market was trading at 3X's the official rate.

Does it matter? I think it might. It is just more of that 'sovereign risk" story that keeps popping up.

excerpted from The Stamford Review, 2009: Volume Two, "Mortgages, Finance Markets, and the Imperative of Growth" by Hugh Kelly

Rising interest rates, stubbornly high unemployment, no credit, and large chunks of the economy dead in the water are not what economic booms are made of. The second in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation Review.