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Here Come the Seventies Again
Better drag your leisure suits, bell bottoms, and Bee Gee’s records out of the attic. The seventies are about to enjoy a comeback.
The near universal run all commodities are enjoying now takes me back to that time in my youth when making money was as simple as buying an ounce of gold, a barrel of oil, or a bushel of corn.
Cotton hit its highest price since the Civil War yesterday, when a Union blockade of the South sent prices skyrocketing (see Gone With the Wind). (Smart Alecs out there please don’t bother to ask if I fought in the Civil War. That was my older brother).
QEII is truly lifting all boats, even the leaky ones, like the US stock market. The debasement of the dollar this policy assures will keep money pouring into virtually every tradable asset in the world, including stocks, bonds, currencies, commodities, precious metals, and yes, even real estate.
The great thing about QEII is that Ben Bernanke doesn’t have to do it, he only needs to think it, or to hint about it, and the private sector will execute it for him. Has anyone noticed that is exactly what’s happening now, with all asset prices rising in lockstep globally?
I have a feeling that this love fest is going to end the same way it did in the eighties too. The Fed knows it is creating a monster with the enormous amounts of money it is now creating, and that someday, it will have to drive a giant steak through its heart in the form of huge and cathartic interest rate rises. That will not happen this year, or next. But when it does my prediction that the short Treasury bond ETF, the (TBT) will roar from $30 to $200 could look conservative.
Until then, party away as if you are an extra in John Travolta’s Saturday Night Fever. The Japanese have a wonderful expression that applies here which I constantly heard throughout the eighties: “When the fools are dancing, the greater fools are watching.”
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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Careful. This fucking moron gets a boner anytime he smells freedoms demise to be more likely.
Peice of shit.
He ought to be on the docket. (but 'cause Tyler gives him a pass, I will too).
A giant steak? There's a place in Amarillo that serves a 32 ounce steak. If you can eat the whole thing, it's free. I think you meant stake, Hedgie, but guys that drive electric cars probably don't know the difference.
I'm not so sure we are in the situation of the 70's.. Here are a few profound differences:
1. Much less foreign owned national debt.
2. Much smaller deficit (% of GDP)
3. Much smaller trade deficit.
4. Much larger manufacturing base at that time.
5. Medical costs about 1/3 of what they are now.
6. About 100 million more idiot zombies now.
7. About 1/10 of the common sense floating around than there was back then.
I could go on.. but most of you get the picture..
Stock up.. May not be an event soon (Chinese dumping bonds) but do you really want to roll those dice for your family right now?
We are driving 150 mph.. We could go until we run out of gas, or ... well... use your imagination.
Kalum I believe the markets are minipulated but always nature has its way which is a balance to the mean, The wages in the US are around average $22.70 and Asia less than $1.00 see my previous blog, PMs offer protection as this imbalace must correct by a longway so short US and long Asia or PMs are good, Some US paper is good like food farmers if wages stagnate and prices of food go higher profits shoot up, US food producers look good, An ETF called MOO I think is in this area,
At somepoint which I dont know The Fed will hike rates short longterm treasuries at this point is a must and get out of PMs
Food looks good and US food producers looks good even now although I dont know how overvalued they are,
The imbalance in wages US/Asia is so high I cant see rates going up because of this but The bond market could blow up at anytime so for now PMs look good and keep reading ZH to keep on the pulse because one day PMs will be tomorrows losers
Going to Costco today to load the boat with toilet paper....WHEN the SHTF, I'll have some soft cotton squares to wipe it with. The Alpha Strategy in full effect!
Been going there every saturday for a couple months spending between 150-300 a trip on essentials.. You're a smart man..
Avoid the cheese.
Gouda thinking! :)
If and when I sell my PMs, where do I go? Surely not US Govt paper, then what? No one can answer me. Im open to suggestions.
Sell it for land...like in Weimar, you could've block city blocks for a couple ounces.
Hmmm... the 70's you say? Didn't that also include the then-fashionable 'wife swapping'? Then again i do miss great games like Lawn Darts (Jarys with the big/heavy sharpened metal tips), so perhaps Bernanke would like to join me in a game?
In The early 80s when the fed held rates way over the top I assume the Fed wasnt liked much during this period, Decades after these actions shows the Fed against popular will was very correct stopping the 70s inflation,
The 70s is a long time ago and since then the US has offshored so much of its wealth producing parts to Asia which in the 70s wasnt much, Today things are very different as Asia is very real as is the effects of Free Trade Globalist progress is massive and continuing,
The problem in the US is wages in China are about $0.80 per hour and less in India and allowing big business to offshore for a 95% or more wage reduction by offshoring I am suprised their are any jobs left in the US except for government posts etc.
The structual high unemployment can only get worse while this wage imbalace continues and China knows this hence the peg,
The globalist elite own the US government and the Fed so a trade embargo stopping global free trade is out of the question so wages in China and India need to rise to US levels which wont happen as the elite want low wages so to balance this wage gap to a level playing field and turn the structualy high and getting higher US unemployment down wages need to compete on a global market place,
If the US Dollar devalues by 90% over several years that will do it hence 10% to 20% a year inflation rate expected with a structually high unemployment rate to keep wage rises down price which must be payed to compete on a global scale and job growth in the wealth creating areas,
Not easy investing in this enviroment but its coming and has arrived and will last for a long time before the heart is staked so to speak,
This is the way i see things and investing the best I can in such an environment
Don't let the media do their worst on you. Yes the wage disparity is great but few if any American companies actually experience 80 cents an hour workers. That labor is resold to the US companies at many times the actual rate.That 's why China is having a similar problem as the US between the Haves and the really have-nots. But lets also remember somehow Chinese people save 33% on average of their take home pay. How they do that is a mystery to me, but China officials have a rational fear of the "mattress money".
In Taiwan in the 80s when the pay rates were similar to China's pay rate now, they developed foreign reserves equal to Japans at around 80 Billion US. The pressure was put on them to develop a domestic market. So they made some changes like 0% on savings and since they had just come out of martial law, the demand to spend money was taken seriously. Prices went through the roof as that 33% came out. The stock market tripled in value as it forced people to put their money is risk assets. They bought Mercedes with Cash even with a 100% duty.
It was instant social transformation and one of the primary drivers of Taiwan businessman going to China because factory workers were quitting in droves and day trading at the Saunas with full release. China is very vulnerable to same social and economic dislocations of the domestic market opening way up which ultimately will drive manufacturing down to Vietnam and finally back to here as 6 weeks lead time and large lines of credit are required to import.
As far as the outsourcing of jobs, Interestingly enough the best-managed companies can expect at most a 20% cost savings on skilled IT jobs. Factory workers (how much impact that has on the bottom line is negligible is IT is just a dividon in the company) are only expressed as the final cost of goods that they import.
Some companies have no savings at all but like the fact of buying and selling at a fixed price . Wall Street and Venture capitalists demand companies outsource. The only ones excused are the ones that have proprietary technology. This is because the analysts have no clear idea what they are talking about. All they see is 0.80 cents a hour and $25.00 a hour.
Even if companies could get the benefit of 80 cents, the full benefit, how much difference is it if labor is 5-10% of the Cost of good sold when freight, lead-time, large inventory carrying costs and duties are factored in. The problem is, corporations run in herds , so if the leader of a sector starts, everyone follows.
They also won't admit that many of their products are sold out the back door and if the product is hot the plant manager hands all the info to his cousin who sets up a factory across the street. Their marketing prowess is not that good but it will get there eventually. American companies thought the same of Taiwanese companies , but they don't now.
Raise the duty a bit, add on a duty for outsourced labor contracts as a import. Take away the tax deduction and then you would see a boom in hiring here. Wall Street will quickly fall in line becuase they are the true bosses of the CEOs as they deterime how much those pay packages are worth.
The most important thing the 70's gave us was a S&L crisis, because banks had lent morgages at low rates (like 5% for 30 years) and were the money was costing them 7-8-9-10% on fed funds rates, Bank America and Citi can look forward to that. What a future!!! Thanks Ben, somehow I don't think any building in the US will be named Bernanke Hall--ever.
More likely the Allenwood facility in PA for white collar criminals will be renamed "Bernanke." What a great idea.
A common feature in the journey to hyperinflation is that in the face of food price inflation, governments try to introduce price controls. This then leads to a bigger problem, as producers cut back and there is a lack of supply. Government then realizes this doesn't work, so starts printing money so that people can afford to buy. Producers realize they are being conned, so withhold output or raise prices to get ahead of the curve and workers demand wage rises to meet this.
However, at least the banks will not be sitting on paper loses on their real estate portfolios. The fucking idiots at the Fed have no clue what they are on the verge of unleashing, and worse, think that they will be able to control it.
And here's another mechanism...
Money velocity tanks, Fed prints to make up for the slack.
then Foreign creditors dump Dollars as it is devaluing too fast for them to tolerate.
That money ends up coming back home.
A vast bubble of cash builds up, that at first is hardly moving at all.
Until it does.
Then velocity starts to REALLY spike, as people try and spend it before it loses more value.
The huge pool of Gas is just sitting there waiting for a match...
Whoompff....
And then even more clownbucks flood back to the States from offshore and V-squared.
In the seventies we were at the start of decline in interest rates, and after the Voleker's final rate hikes, we had falling rates for 30 years. Bubble Ben is marking the end to that cycle and we will have rising rates for the rest of our lifetime. So high rates, high inflation, is that wonderful life or what?
Stock up items for urbanites: Canned meats, canned veggies, canned fruit, pasta & sauce. Fresh meats and fish already up 20%. Load up on coffee, toilet paper; use rags, sponges instead of paper towels. Buy extra underwear now as cotton going through the roof. Not quite bunker time yet, but I'd be extra careful shopping at night; increased incidence of robberies happening now.
I spent the seventies in High School, then entered in to the worst jobs market since world war two. I remember quite clearly the gas lines, and prices that changed every week. Nixon thought he had it on lock down, when he instituted a price freeze......we all know how that worked out.
I foresee some particularly dark times for folks who are just scraping by on what they make, and even harder times for those on benefits. For those without a job, now would be a good time to spend 16 hours a day looking for a job, because when TSHTF, those unemployment benefits won't come close to paying the bills.
To those who do have a job, and extra resources, I would lay in some food at todays prices, and if you can afford it, get some silver [poor mans gold] to protect the value of your savings.
The PTB are working overtime to insure those Christmas bonuses for GS traders, which means we are all about to be treated to a monumental ass fucking by our esteemed federal reserve snakes.
Thanks Bennie!
Is the end game so much inflation that only electronic money valuation keeps up with inflation?
European nations have been pushing for this so they can track every transaction and catch those who try to avoid the VAT tax. They even want to tax barters.. sick leaches these governments.
http://www.irs.gov/taxtopics/tc420.html
Some typos are funnier than others. I think he meant to write: "stake."
But his analysis is spot-on. This is the simpleist, most straightforward trade ever: long precious metals till the 20-year bond is at 12%. Then sell the metais and put every dollar you have into long governments. Then retire.
Another boo boo. It's simplest not simpleist.
Say it again, Sam.
Another boo boo. It's simplest not simpleist.
>>and that someday, it will have to drive a giant steak through its heart<<
I hope its a T-bone
We will have to call him the "Mad Cow Trader" from here on in...
Well, as long as it's not well done
Then sell the metais and put every dollar you have into long governments. Then retire.
Here's another Typo, LOL(metais)I think you meant to write;Metals.
Government?.What government..............country, what country.We have a ruling class of thieves and whores.
Think those crazy like a fox bstds are going to PAY OFF @ 12%?.
Send me some of whatever your smoking brother.
This is an excellent question that I would love for someone smarter than me to answer: what is the best way to capitalize on the inevitable rise in interest rates?
The bubble in treasuries seems as obvious to me now as the housing bubble did back in '06. Back in 06 I lacked the courage, resources and knowledge to short real estate and my prescience went completely to waste.
I feel that precious metals are safe but not sure how much more I can expect to gain after getting a triple off GDX and a quadruple off HL over the last couple years. Do I really just stick to this? Am I crazy for having no physical?
Is there no better way to short treasuries than TBT? My understanding is that because these ETFs are valued based on the daily price change in treasuries there can be a lot of 'value leakage' as prices fluctuate.
I would love to know how others are playing this.
Yes you are crazy for having no physical. Take some of those profits and buy physical. When the music stops some people are going to be left without a chair for sure. The paper market is many times bigger than the physical. This is just common sense at this point.
Eliminate the $27.5 billion per week of upcoming POMOs part of QEII and see what effect that has on rising prices - last round was at $10 billion per week.
Next POMO schedule release for 2PM Nov 10.
Distortion is its daddy.
TBT up, *and* real estate up?
Aren't they like...opposites??
TBT would be expected to be an inverse of real estate, since real estate is nearly perfectly correlated with the inverse of TBT, actually TLT.
Inflation destroys the value of real estate, just like the past few decades of deflation made real estate so valuable.
Can't have it both ways!
An excellent article from Doug Noland in a similar vein, though maybe not quite so optimistic.
www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10458
they need to keep interest rate expectations non existent, so when they simply imply a tightening, the market will react as if they raised rates 5% in one day.