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Q&A With David Rosenberg: The Bearish Outlook
The WSJ's Greg Zuckerman has published a Q&A with one of the world's biggest deflationists (who nonetheless admits that once QE 2 begins all bets are off): David Rosenberg. Here is how Rosie sees the world of finance over next 2 years, and provdes more color on his currently favorite investment strategy (aside from bonds): SIRP (Safety and Income at a Reasonable Price... and in keeping with acronyms RIP GARP).
Where is the market headed the rest of this year and over the next 12-18 months?
The market, like life and the seasons, moves in cycles — 16 to 18 year cycles, in fact. Sadly, this secular down-phase in the equity market began in 2000 when the major averages hit their peak in real terms, and so the best we can say is that we are probably 60% of the way into it. This by no means suggests that we cannot get periodic rallies along the way, but in a secular bear market, these rallies are to be rented, not owned.
In contrast, corrections in a secular bull market, as we saw in 1987 (as scary as it was) are opportunities to build long-term positions at more attractive pricing. In secular bear markets, the indices do hit new lows during the recessions (ie, 2002, 2009), when they occur; in secular bull markets, you do not make new lows — they are just corrections (ie, 1987, 1990, 1994, 1998).
The market is not as cheap as the pundits, who rely on year-ahead EPS estimates, deem it to be. When one incorporates cyclically-adjusted corporate earnings in ‘real’ terms, equities are still roughly 20% overvalued even after the recent correction.
More fundamentally, it would seem reasonable to expect that the equity market will trade down to a valuation level that is historically commensurate with the end of secular bear markets. This would typically mean no higher than a price-earnings multiple of 10x and at least a 5% dividend yield on the S&P 500. So, we very likely have quite a long way to go on the downside.
But it will not be a straight line and there will be intermittent rallies, as we experienced a year ago April; however, not even that 80% bounce off the lows managed to violate any of the long-term trend lines, which continue to portray a primary bear market, not unlike what we endured from 1966 to 1982. Back then the principal cause was an inflationary spiral; this time it is a deflationary debt deleveraging that is the root cause. Within the next 12 to 18 months, I can see the S&P 500 breaking back below 900, and a substantial test of the March 2009 lows cannot be ruled out.
What about the outlook for the U.S. and global economy?
I strongly believe that the economic recovery phase is behind us. Even if we manage to avert a double-dip recession, the chances of a growth relapse in the second half of the year are higher than the equity market, and to a lesser extent the credit market, have priced in. Treasuries seem to be the asset class that most closely shares my cautious views. Anyone with a pro-cyclical bent has to answer for why it is that the yield at mid-point on the coupon curve is below 2%, a year after a whippy rally in equities and commodities and what appeared to be a sizeable policy-induced GDP jump off the bottom.
Given the unprecedented massive government intervention across the planet, it can hardly come as a surprise that economic activity began to recover exactly a year ago. But when the equity market was hitting its recovery highs in early spring, it reflected a widespread view that the green shoots of 2009 would be extended into a sustainable growth phase into the future. Not a good assumption then; and not one now.
All of the optimism that dominated the marketplace over the past year overlooked a significant fact. While U.S. banks have recapitalized themselves and written off debt, this cycle has been dominated by governments socializing the losses and taking the bad debts from the private sector and transferring the liabilities to the public sector balance sheet. The debt problem was merely shifted from the private sector to the government sector.
The Greek sovereign debt crisis has acted as the proverbial canary in the coal mine, underscoring the view that governments have probed the outer limits of their deficit financing capabilities. This has important implications for the economic outlook since the recovery has really been one part bailout stimulus, to one part fiscal stimulus, to one part monetary stimulus, to one part inventory renewal. Now that the boost to growth from the inventory bounce has run its course, the stimulative effects of fiscal policy will diminish in coming quarters as the public backlash against further increases in the debt-to-income ratio constrains the government’s ability to continue to try and fine-tune the economy.
The dramatic government incursion into the macro landscape and capital markets obscured the fact that the economy is still in the throes of a multi-year credit contraction phase and as such what we can expect is for the pace of activity to weaken substantially during the periods when the stimulus fades. This is what we can expect in the second half of the year and into 2011 when tax rates rise substantially for many Americans.
Even if we don’t get a double-dip recession, and I think at a minimum what we’re going to get is a 2002 style growth relapse when GDP growth converges on final sales somewhere around a 1% rate; the consensus right now is for a 3% second half growth, which is right where it was heading into the second half of 2002.
The difference of course is back then the Fed had had room to cut rates 75 basis points, President Bush had the fiscal flexibility to cut taxes dramatically and we went and started a war, which is always reflationary. We don’t have these outlets today.
outlook, the bloom is off the rose as well. The OECD leading indicator in May turned in its softest pace since the depths of despair in March 2009. China’s massive stimulus program has run out of steam and the government has been tightening policy this year to redress substantial over-investment in real estate and what may well be an unsustainable price bubble. At the very least, China is unlikely to be the engine of global growth to as great an extent as it has been. Much of Europe is in massive fiscal retrenchment mode, and the peaking out in commodity prices will also have dampening effects on the resource-producing countries, particularly in the once-hot Latin American economies.
What keeps you up at night and what worries you most about the investing environment?
Bad government short-term decisions over good long-term solutions are burying the world into a graveyard of debt. People have to understand that 80% or higher debt-to-GDP ratios are a new dynamic and a game changer in Europe and in the United States. The bottom line is that all levels of society, and across most countries in the industrialized world, have far too much debt and far too much debt-servicing costs in relation to income.
For the entire OECD countries, general government debt as a share of GDP alone has ballooned from 73% when the recession started in 2007 and will climb to a record 104% next year. It took 15 years for this ratio to go from 63% to 73% and just four years from 73% to 103%. Total claims in the OECD at all levels of society just broke above 360% of GDP and that is clearly unstable. Suffice it to say, many of these debts will not be serviceable — identifying where the defaults and haircuts take place, across countries and sectors, will require a tremendous level of skill.
The problem of excessive debt leverage got worse in the aftermath of the financial crisis, not better. This is what keeps me up at night — kicking the can down the road in terms of addressing the global debt problem will only end up making the situation worse. Governments seem to believe that the solution to a debt deleveraging cycle is to create even more debt. But delaying the inevitable process of mean-reverting debt and debt-service ratios back to historical norms will be even more painful.
There is simply no quick fix to resolve the massive global imbalances that were allowed to build during the prior credit bubble. Yet, governments continue to adopt policies that do not address problems that are highly structural in nature and will require years of fiscal belt-tightening on the parts of consumers in much of the industrialized world, and in the public sector as well.
What makes you most enthused about the investing environment?
We are entering into a period of stable consumer prices that should last at least for a generation. This will help prevent erosion in real household incomes. There is a strong probability that after years of very solid productivity gains in the industrial sector, the U.S. will experience a manufacturing renaissance of sorts and re-emerge as a global export leader. The move towards frugality and savings will make us less reliant on foreign borrowings and usher in a period of stronger household balance sheets.
Where are you investing right now? Where do you plan to invest in 2011? What should investors do with their portfolios?
My primary strategy theme has been S.I.R.P. (Safety and Income at a Reasonable Price) because yield works in a deleveraging deflationary cycle. Not only is there substantial excess capacity in the global economy, primarily in the U.S. where the “output gap” is close to 6%, the more crucial story is the length of time it will take to absorb the excess capacity. It could easily take five years or longer, depending of course on how far down potential GDP growth goes in the intermediate term given reduced labour mobility, lack of capital deepening and higher future tax rates. This is important because what it means is that disinflationary, even deflationary, pressures will be dominant over the next several years.
Moreover, with the median age of the boomer population turning 55 in the U.S., there is a very strong demographic demand for income and with bonds comprising just 6% of the household asset mix, this appetite for yield will very likely expand even further in coming years. Within the equity market, this implies a focus on squeezing as much income out of the portfolio as possible, so a reliance on reliable dividend yield and dividend growth makes perfect sense.
We are in a period of heightened financial market volatility, which is typical of a post-bubble deleveraging period when the forces of debt deflation are countered by massive doses of government reflationary polices. This to-and-fro is the reason why in the span of a decade we have seen two parabolic peaks in the equity market (September 2000 and October 2007) and two depressed bottoms (October 2002 and March 2009). As I have said before, 80% rallies in a 12-month span, as we saw in the year to April, last happened in the early ‘30s and were followed by gut-wrenching spasms to the downside. So for any investor, return of capital is yet again reemerging as a very important theme, and the need to focus on risk-adjusted returns. This, in turn, means a strategy that minimizes both the volatility of the portfolio and the correlation with the equity market is completely appropriate — the best way to play this is with true long-short hedge fund strategies.
Gold is also a hedge against financial instability and when the world is awash with over $200 trillion of household, corporate and government liabilities, deflation works against debt servicing capabilities and calls into question the integrity of the global financial system. This is why gold has so much allure today. It is a reflection of investor concern over the monetary stability, and Ben Bernanke and other central bankers only have to step on the printing presses whereas gold miners have to drill over two miles into the ground (gold production is lower today than it was a decade ago; hardly the same can be said for fiat currency).
Moreover, gold makes up a mere 0.05% share of global household net worth, so small incremental allocations into bullion or gold-type investments can exert a dramatic impact. Gold cannot be printed by central banks and is a monetary metal that is no government’s liability. It is malleable and its supply curve is inelastic over the intermediate term. And central banks, who were selling during the higher interest rate times of the 1980s and 1990s, are now reallocating their FX reserves towards gold, especially in Asia.
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Gold is also a hedge against financial instability and when the world is awash with over $200 trillion of household, corporate and government liabilities, deflation works against debt servicing capabilities and calls into question the integrity of the global financial system. This is why gold has so much allure today. It is a reflection of investor concern over the monetary stability, and Ben Bernanke and other central bankers only have to step on the printing presses whereas gold miners have to drill over two miles into the ground (gold production is lower today than it was a decade ago; hardly the same can be said for fiat currency).
Moreover, gold makes up a mere 0.05% share of global household net worth, so small incremental allocations into bullion or gold-type investments can exert a dramatic impact. Gold cannot be printed by central banks and is a monetary metal that is no government’s liability. It is malleable and its supply curve is inelastic over the intermediate term. And central banks, who were selling during the higher interest rate times of the 1980s and 1990s, are now reallocating their FX reserves towards gold, especially in Asia.
Which is why, JohnnyBravo et al, gold has not topped, nor is it even close to topping. Believe what you want. Buy all the government bonds and cash you want. Follow the other lemmings. It is going to prove costly to you but don't say you weren't warned.
+a shit load MoFo
I'm not buying government bonds and cash. I don't even know where you get that from. I never once said that I buy those things.
Also, the "investor concern" that is mentioned is speculative. I'm concerned that leprechauns will steal me lucky charms, but that doesn't make it so...
Gold will not rise above 1300. This is merely a function of the charts.
Also, Turd Ferguson, did you ever post at a site called FFYR? I've asked this many times, but I don't think you see it. If you did post there, you'd know the site I'm talking about. Your name seems too unique for it to not be you...
Johnny, I didn't mean to pre-suppose your portfolio. You're just such an ardent believer in DEflation that I ass-umed you'd be in govies and cash.
If you don't mind, I'll make this point again: The world is nearly overwhelmed in debt, both public and private. There are only two ways to manage this debt:
1) Default
2) QE to the point where you pay off yesterday's debt with the devalued currency of tomorrow.
Obviously, the only acceptable solution is #2. In that case, the devaluation of the currency, not just dollars but pounds, euros, yen etc will force gold higher and higher.
I'm with you on the short-term top in gold. The chart has been sufficiently painted as to keep it in a range of 1170-1240 for the remainder of the summer. The breakout to the upside may even come sooner if you believe the cycles that Toby Connor mentioned yesterday.
http://www.zerohedge.com/article/guest-post-carpe-aurum-seize-gold
To answer your other question, I am not familiar with FFYR. I chose the name "Turd Ferguson" because, as I was registering for ZH, I had just watched the classic "Jeopardy" skit on Hulu and it was on my mind at the time.
http://www.hulu.com/watch/12203/saturday-night-live-celebrity-jeopardy--...
Lastly, thank you for not seeming to take personal offense to my naming you above. Too much of that silliness already exists on this site.
Hey, there's nothing wrong with using my name to talk about a position that I support. As long as you're not offensive, I will not take offense.
I just used to know a guy named Turd Ferguson on another site before, which is why I asked. No big if it's not you.
I disagree with the aspect that the currency will be devalued by another round of QE. Sure I understand the basic economic argument that more of something reduces its value, but my argument is that there is a shortage of dollars when compared to asset prices and the number of assets. This is why asset prices have to fall. There simply aren't enough dollars to create demand at the current levels of prices.
So my point is that you can print more dollars to sustain the current level of asset prices without causing inflation, and without the prices of goods going higher.
I think that is the fundamental disagreement that I have with so many.
I don't see a breakout to the upside occurring before we retrace the last move up from the 2009 lows. (which would have a target in the 900s, according to a 50% fib level) At that time, we may break to the upside if the economy is still weak, or we may break down if the economy is showing signs of improvement.
Anyway, I'm glad to finally know whether you're that other Turd or not. Also, have a good day and thanks for not being an ass even though we disagree.
One last thing Johnny: I understand your position. It's logical in the traditional sense. However, I believe we are in a brave new world; the endgame of the Great Keynesian Experiment. We'll see.
Regarding inflation. Please consider the wisdom below from Jim Sinclair.
Explained Time and Time Again: Currency Induced Cost Push Hyperinflation
Posted: Jul 19 2010 By: Jim Sinclair Post Edited: July 19, 2010 at 8:41 pm
Filed under: General Editorial
Dear CIGAs,
If gold market participants were all tank drivers their machine would have but one gear – reverse. The smallest book in the world is the book of confirmed gold price visionaries.
Someone says deflation and the long gold positions hit the fan. Gold banks make their short covers even though the fuel in Bernanke’s Helicopter Money Drop is founded in the dreaded use of the “D” word.
People are so fixed in present time that they cannot picture a euro back towards its high and the dollar back towards its low because the financial condition of the USA dwarfs the problems of Europe.
Hyperinflation is always the product of a loss of confidence in currency resulting in a “Currency Produced Cost-Push Hyperinflation.”
No one with a synapse talking to another synapse expects a “Demand-Pull Inflation.”
All hyperinflation in modern history has occurred for one reason, and one reason only. That is loss of confidence in currency.
Loss of confidence in a currency can be brought about by many reasons, but there is one constant factor. When hyperinflation has occurred in modern history EVERY economy involved was decimated as and when it occurred.
It has never been caused by “Demand-Pull,” but always and without exception caused by “Currency Induced Cost Push Hyperinflation.”
The nonsense being spread by the F-TV taking heads is that the Fed is out of ammunition to fight deflation. That is raving BS. The Fed can and will do QE to infinity which is restricted as a tool by nothing whatsoever. The ECB will not be far behind the Fed.
Argue all you want, but this is exactly what is going to happen starting now. Stop being glib. Study hyperinflation in modern times listed below before you ask me to explain it one more time.
What is out there today QE wise is enough to result in hyperinflation as confidence falls in currencies due to two characteristics, QE and volatility.
Try meditating on the concept of “Currency Induced Cost Push Hyperinflation,” rather than loading your pants over gold banks manipulation full of sound and fury, but meaningless in the great scheme of things.
Examples of hyperinflation in modern times:
Angola, Argentina, Belarus, Bolivia, Bosnia-Herzegovina, Brazil, Bulgaria, Chile, China, Congo, Free City of Danzig, Georgia, Germany, Greece, Hungary, Israel, Japan, Madagascar, Mozambique, Nicaragua, Peru, Philippines, Poland, Russia, Taiwan, Turkey, Ukraine, United States, Yugoslavia
I can see the argument, but I simply do not agree.
Also, it says that the United States had hyperinflation in modern times? When?
Germany did like 100 years ago... (with gobs of extenutating circumstances)
The rest of the other countries are pretty much banana republics.
"Modern" is from 1850 forward. Confederate dollars come to mind, although I suppose they wouldn't technically be considered US currency.
This is a decent summation:
http://en.wikipedia.org/wiki/Inflation_in_the_Weimar_Republic
But what happens when the world's resever currency gets debased? Can hyperinflation actually occur? Are we really going to ship VLCC's full of freshly printed $US to China and the Middle East in payment for our debts?
I agree, in today's dollars, the debts being incurred CANNOT be repaid so there seems no alternative but to print the dollars and pay it off. Actually, issue dbeit cards to creditor nations, call it paid off and therefore, no more interrest is due. lol.
Of course, currency controls could make those dollars spendable ONLY on US exports. What a boon that would be to expanding the US manufacturing base. One price for the goods in America and another price for the export market. Kind'a keep things balanced.
China never really thought they were going to be able to spend all that money anyway did they? Certainly not with the inherent value the dollar has today?
Who knows what the end result will be except MAJOR changes are coming our way.
That is the important question - will the Fed destroy itself by destroying its own "magic", the dollar? Additionally, the Fed represents the banks and the NY banks in particular. Inflating the problem away destroys the holdings of those banks in favor of the politicians in Washington.
Given the above, I am not so sure that hyperinflation is even in the cards. To believe that you must believe that the Fed is answerable to the US Congress, and while the black and white print says one thing, the actions we have seen with our very eyes suggest the opposite. Otherwise why wouldn't Congress have chosen to audit the Fed or even threaten to dissolve it if they failed to comply with Congressional directives? Yet instead we see Congress cowed by the Fed, and infiltrated by politicians who have deliberately chosen to be bought off by the Fed.
Finally, deflation ultimately empowers the banks whereas inflation ultimately harms them greatly.
Finally, deflation ultimately empowers the banks whereas inflation ultimately harms them greatly.
Now that I hadn't thought of. That may be the key to whole deal right there. Gotta give that some consideration.
Excellent, excellent point.
So you are calling for a new all time high, and triple digits. That about right?
Absolutely. If you want to put me on the record and save it for posterity, go right ahead.
Gold will trade significantly higher, to at least 1350 before 12/31/10. On from there through 1500 and up to 1650 in 2011.
Of course, I could be wrong and I'll be the first to admit it if I'm proven that way.
I was replying to Johnny Bravo, who likes to cover all the bases.
Sorry, ITG. My mistake. To make up for it, I offer you this for your lunchtime enjoyment:
http://www.youtube.com/watch?v=B-Wd-Q3F8KM
I don't "cover all the bases".
I've long said that the target of the reverse H&S pattern we saw earlier in the year is at 1304. I've always said that we could get there before we break down in earnest.
Also, I see a retracement of gold's move from 2009 to the present as necessary. This has a 50% fib level in the low 900s.
These aren't two different positions. They're the same. We could potentially go higher in the very short term because of technical patterns, and we must go lower over the intermediate term because of longer term technical patterns.
It's two different calls based on two different time frames.
Short term.... 1300 is the absolute top.
Intermediate term... low 900s due to a 50% fib retracement
Long term... nobody knows, and it depends on the macroeconomic picture.
These positions are not inconsistent with anything I've ever said if you've followed my calls.
And put me on the record and save it for posterity that the "precious" will be at least at $2700 on 12/31/11 or at the most $600 on 12/31/11
Fair enough. Sounds like a straddle you could put on pretty cheap, too.
"A function of the charts"
bwahahahahahaha.
Gold will not break 1300 decisively before it has a substantial correction at the very least.
You can quote me.
This is the point I don't understand from the inflationistas.... There is far more counterparty liabilities than dollars, therefore, deflation is present. Unfunded liabilities put a huge strain on the system, as there aren't enough dollars to fulfill prior obligations. Again, deflationary. Is that good for Gold?
I fully agree that gold is a good investment to maintain wealth when confidence is low. However, I also feel that Gold could seriously correct to the downside due to the current deflationary fix we are in.
I believe that Gold's run from 1998 to the present occurred because we had monetary inflation during that period due to the rapid supply of credit, not lack of confidence in a currency or fiscal policy. The two arguments seem mutually exclusive to me, so throwing Gold into a future scenario of $5K per ounce when inflation isn't here seems counter intuitive.
Just my $.02
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So, I see, because you have it on the highest authority that deflation is an impossibility.
Muir, you seem to be an intelligent person and I absolutely love your avatar.
However, please explain to me how the accumulated public and private debt can be serviced absent the unlimited printing of new money.
I'll try.
I really will.
Please.
You try also.
I'm not going to continue with this.
For the last time (today), the debt can't be serviced in a deflationary environment. Period. It would lead, inevitably to default and collapse. Now, if you think that default and collapse are the ultimate endgame, then fine, the deflation you see now is permanent and society, as we know it, is over. Get your guns and canned food ready. I, however, based upon past experience, do not expect TPTB to go so quietly into the night. In increasingly desperate attempts to retain their power, they will print money like crazy.
Printing allows them to service the debts. Again, you can pay off yesterday's debt easily with the devalued currency of tomorrow.
Gold has risen since 2001 because currency devaluation has accelerated since 2001. Currency devaluation will continue for the reason stated above. Gold will continue rising.
The only thing that I would add is that printing money doesn't necessarily devalue the currency.
We've printed trillions of dollars since the mid 1980s, and the DXY is higher today than it was under Reagan.
Currency valuation is all relative.
Yes it is relative but how many major currencies are printed by entities that are buried in debt? Just about every one.
Man, I could type a missive on this one but I won't. Time for lunch. Suffice it to say, in the near future (2-5 years), the creditor nations will demand a new global reserve currency, one that can't be devalued by a single issuing country (the U.S.). It will be demanded that the currency be at least partially backed by hard assets, be it gold, silver, platinum, real estate, you name it. Shit...now I'm getting started. Stopping. Lunch. Out.
It won't happen. If it does, there will be an outright horrific war. There's a reason that the U.S. spends more on "defense" than the rest of the world combined...
Especially when all that newly printed cash is in a closed loop between the Fed and the banks.
Paying off the debt with devalued dollars screws the lender, aka, the banks. Is it really logical to think that the banks themselves want to be screwed over by their very own Federal Reserve system? This is why I have trouble accepting any sort of hyperinflation scenario. The counterpressure against massive printing has to be extremely large as well.
Again, excellent point. +++
"However, please explain to me how the accumulated public and private debt can be serviced absent the unlimited printing of new money."
You have your answer in the question (happens often)
Underfunded pension funds, States withour sufficient money for operating expenses, massive Government deficits and future promises that can not be paid.
What happens when they start to default?
(I know your answer but still want to hear it)
I'm sorry, Muir, but you've lost me. Are we agreeing?
The U.S. government, to avoid default on everything from pensions to Social Security to current interest, MUST print additional new money. They simply cannot service these issues through new borrowing alone.
Muir
And put me on the record and save it for posterity that the "precious" will be at least at $2700 on 12/31/11 or at the most $600 on 12/31/11
Turd Ferguson
"Fair enough. Sounds like a straddle you could put on pretty cheap, too."
--
We agree at that point (the posts became confused)
__
"The U.S. government, to avoid default on everything from pensions to Social Security to current interest, MUST print additional new money. They simply cannot service these issues through new borrowing alone."
Agreed.
I do not agree with your follow up premise which is that they will print.
Likely? Maybe.
Very likely? Don't know
Therefore gold at $2700 or $600 seems likely in the future.
What seems impossible is equilibrium.
OK. I'll go along with that.
what he said above
Can you please post a link to the original article ?
http://online.wsj.com/article/SB127939762798918181.html
Edited to add: That's a portion, at least.
Thank you, Michelle !
you can sign up for Rosie's daily here
https://ems.gluskinsheff.net/index.ncl.html
and Rosie's complete text is at:
https://ems.gluskinsheff.net/articles.aspx
might need to register (free).
- Ned
BTW, I was telling people to buy VXX on Wednesday night last week! Did anybody follow my trade? You'd be up a lot if you did!
You could have made more on that trade since then than gold bugs have made all year...
Or did anyone take my advice last summer and buy physical gold at $950? Did anybody follow my trade? You'd be up a lot if you did!
You could have made more on holding gold than holding stocks all year...
You could have bet it all on red 00 and made 1400% in five seconds. That's what I want to leave my kids; a roulette mentality.
Only the VXX bet was pretty much a sure thing. Betting on roulette is not...
Johnny, I think its funny that we were both junked twice above.
I think that it's lame. Junking people should be reserved for like spammers selling their ebay goods and such...
I hear you. Suddenly its become way overused. I try to only junk the blatantly racist, anti-semitic or spam shit I see here every once in a while.
Maybe TD should install "thumbs-up" and "thumbs-down" buttons to give posters a simple way to voice their approval or disapproval of any post?
"There is simply no quick fix to resolve the massive global imbalances that were allowed to build during the prior credit bubble. Yet, governments continue to adopt policies that do not address problems that are highly structural in nature.."
-precisely. ..we need to not focus on growth, because there is no pool of surplus from which to extract profits; self-evident in a global downturn. We need to work towards..
We are entering into a period of stable consumer prices that should last at least for a generation. This will help prevent erosion in real household incomes."
The thing holding us back from achieving this -is banks being thought of as businesses- which was great for the banks and for regulatory capture, but thoroughly useless from the perspective of encouraging sane economic behaviour. ..banks trying to generate profits not avaliable in the economy was what got us into this recession, they're simply too big to chase skirts that young.
Rosie says:
We are entering into a period of stable consumer prices that should last at least for a generation.
This is one of the few points he makes that sound "off" to me. IMO the cost of living continues to rise and will likely continue to do so.
Agree. Taxes, insurance, food, gas at $3, health care, education, entertainment, all costs are going up.
Except that gas was at 4 dollars a gallon two years ago.
A lot of food has come down in price as well. Like milk, for example.
Thanks a lot Dave.
Now you've got the baby crying.
Largely agree...however #2 is only palatable if debts are external. Were it internal, we'd see the torches and pitchforks.
RIP GARP
That is simply fantastic... LMAO!
Anyone interested in Intellectual Property and recognizing that a Failed State begins with the demise of Enforcement? Gold is a metric on a fiat currency, it fails as a quotidien medium of exchange (tweezers, everyone?) and an invitation to personal security issues other than as an insurance policy.What positive change there is can only come from the smart monkeys among us is Enforcement and refinements of detection and control of piracy and counterfeiting. There exists today SCMS (Secure Copy Management System) and unbreakable methods to invisibly (to the consumer) methods to dial up approved copies and the same methodology to mark physically trademarked goods. Why these trillions are being poisoned in the crush for street corner bargains is a question that ought be asked among those who do the ostrich with gold. When the TA police ignore a crime telling you "don't tell us how to do our job" to Harry Markopolis banging on the door to the SEC about Bernie Madoff to stop the crime, the problem resides with enforcement favoring the crime du jour as the empire erodes. Twent-three hundred pages of FinRegulation, hold the police. Get a grip; it's going to be a bumpy ride.
I know I will get hammered for this post but what the heck, do any of the people following these cycles and doing technical charting realize they are actually practicing astrology? For example, Fibonacci retracement ratios 0.382, 0.500 and 0.618 for calculating retracement levels are just close approximations of the main planetary motion cycles (time to revolve around the sun relative to other planets).
Unless governments embrace gold as the standard for their money, gold is simply undergoing irrational exhuberance caused by its devotees mentally embracing gold as thier saviour.
You know it's the case when every tom, dick and harry is advertising in every medium extolling gold's virtues.
I don't buy that QE2 is going to be inflationary/hyperinflationary at all. It is not "proven" in the least. Government will be forced to spend to provide basic sustenance and government will go through the motions required to convince people their borrowings will actually be repaid. Therefore government is going to raise taxes on those with money.
Basically, I think we are going to see general standards of living decline significantly over the next 10 years.
All these "assets" that everyone thinks they own (from PE firms to pensions to mutual funds to the average joe investor)...well, these "assets" are nothing more than someone else's "promise to pay."
Unfortunately, when you understand that, you should also understand the weakness in those someone else's "promise to pay."
Those "promises" are much, much bigger than their "ability."
OK. So you're argument then is austerity or default? Really? You don't think austerity or default would cause uncontrollable civil unrest that might cause TPTB to be removed from office?
Of course, that may be the plan all along. Overwhelm the system to inspire revolution. Read the works of Cloward & Piven. It's certainly a plausible scenario.
I'm certain it is NOT anybody's plan to cause uncontrollable civil unrest. But my thinking is along the lines that the number and percentage of unemployed/underemployed is going to be very bad for years to come. The government will (and must) provide a safety net.
The facade of increasing taxes because the "debts will be repaid" is going to cause those with money to tax to have LESS money.
In a society driven 70% by consumer spending, I see an overall slowing down and a shift towards less expensive prices for commodity items (generic goods if you will) consumed by ever-increasing numbers of Americans. Basically a down cycle continuing for a very long time because government entitlement programs and accumulated debt have reached the point in our society where the burden drags everrything down.
Overwhelm the system by the use of your invincible weapon: the dollar you have in your pocket to spend. Choose wisely and be sure to not feed what you don't crave.
Standard of living has been in decline for years. Also, your statement about counterparty risk would be gold positive, not gold negative.
Why not buy matchsticks instead of gold?
Gold is only having a run because people believe there will be a return to some monetary standard tied to gold.
If there isn't, how much is your gold going to be worth?
I don't know what the answer is. But I see people doing what people always do...grasping for security in a manner that comforts them.
Because central banks don't hold matchsticks.
Fair enough, but it's really just a legacy that it's there, not because they intend to tie it to some currency.
That's the only drawback I see. Without tieng it officially to a currency, I think it's just investors bidding it up for no "real" reason.
I'm not trying to argue and I don't need a history lesson. I'm just pointing out that what seems so obvious and certain to some investors is not necessarily the way the chips will fall.
why sooo negative??
hooo hooo its xmas in july..
Stores push summertime 'Christmas' saleshttp://www.msnbc.msn.com/id/38311964/ns/business-retail/
whats next shop now for xmas 2011. 2012?
brings new meaning to "Pay it Forward", no?
"We are entering into a period of stable consumer prices that should last at least for a generation. This will help prevent erosion in real household incomes. There is a strong probability that after years of very solid productivity gains in the industrial sector, the U.S. will experience a manufacturing renaissance of sorts and re-emerge as a global export leader. The move towards frugality and savings will make us less reliant on foreign borrowings and usher in a period of stronger household balance sheets."
Wha?
Financing a real recovery is classically done through savings. The FED is preventing this from happening by denying personal choice savings by front-running cash through the banks. They don't need your money and won't reward your directed choice by allowing you bupkus return on your savings. Mama FED kills free choice to direct savings energy in favor of free money to the banks for their spread.
Bingo! There will be no manufacturing revival in the US because corporations and the government cannot borrow much more than they already have and there is no way personal savings can grow when people in the US are living from paycheck to paycheck, if they have a paycheck. Where could the investment come from? Abroad, as direct foreign investment. Even if foreign investors come to the US's rescue that means the US wont own the new manufacturing base; the profits will be repatriated. Frankly speaking, what foreigner would invest in the US and risk their investment being trapped by the legal system, taxes, Obama's disdain for rule of law, the crime, the societal upheaval, etc when there are some many other better places to invest? i think the US is doomed to the scenario the Prision Planet people present. The Russians say the US will break up into six countries. I used to laugh at this as unthinkable but lately I am beginning to see that the chessmasters may actually be right.
No, one doesn't go out and spend gold. One keeps Gold in a reputable bank, the bank lends it's credit against your gold, you spend the credit. ..the banks have less credit currently than they used to, hence people are turning their wealth into gold.. for the day when there will be a bank which is trustworthy.
There are more debts extant than dollars - therefore printing dollars will be non-significant from an inflationary perspective -- effectively, the rate of interest is supposed to reflect the rate of return, but the actual return was less than forecast. In other words, the economy did not produce wealth at that rate. ..so money is created to pay those debts, yet the money base now reflects an economy which has not grown -in fact, shrunk- this is an increase in money supply, by very definition 'inflation'. ..someone thinks that this money is neutral, it isn't. Look, if I'm Citi, and I expand my loans by 400%, and most of those default - but I get paid back by the FED- then at the end of the day I've made 400%. It's the same with currency swaps.
..the banks own the Fed, the banks own the Legislature, they're not writing down losses - the accountancy four - curse their hearts for promulgating tyranny- allow those losses to be written as fractional profits... so there is no constraint on the banks to cause them to reign-in 'inflation'.
Deflation, as a function of diminishing demand, exists in a separate money-base... as in the revenues of Citi are in the untold billions, this doesn't leave the financial markets. A small part leaves as wages and salaries, this is - when living standars are declining - inflationary. And it has been inflationary for some years now. ..huh,.
With deflationary forces so huge (in most of the developed world), and inflationary policies so tempting (to politicians) which tendency will win out?
A loss of confidence in the currency is certainly possible, but what will replace the dollar as a medium of exhange? Gold? Rosie says only 0.05% of household wealth is in gold. How do the people without gold survive?
My take: If the dollar is discarded by the average American, it is Mad Max time. No other outcome is possible. Therefore, it would be wise to remember that having bullets can get you gold in a situation where having gold will only get you lots of bullets (fired at you).
Mild deflation is currently ongoing (over all, if you include housing). The Fed would prefer mild inflation (recently raised their inflation target to 4%). The politicians need real growth + inflation (i.e. nominal growth) to exceed the annual deficit. My guess is that stagflation is coming, assuming that the geniuses running the show can engineer it (not a very likely outcome). I would expect to see real growth stay around zero to -2% and inflation gradually go to about 10-15% while the official CPI stay around 2%. This will allow the entitlements to gradually become less of an issue, national debt to stay roughly same (vs. GDP) and growth to apparently accelerate.
However, for this to succeed, there needs to be a very serious clampdown on alternate sources of information. The MSM is already in the pocket of government (at least Democrat government). They will need to censor the internet and control international sources of info (unless other governments eliminate the free press also).
This will allow the standard of living to fall back to something we can support, on top of huge government. This would be a semi-stable situation for decades (look at the Soviet Union) and would allow the current ruling elite (Demo's and Repub's) to stay in power and tell us everything is fine. Even if many know that it is not, the majority can be convinced, and the rest controlled. Elections would continue (results faked if necessary), and all the trappings of our Constitution retained and honored in words (if not in fact). We are part way there already.
Will it happen? Maybe not, but an orderly transition to a hard money economy, govt fiscal discipline, paying back the national debt, and reduction of "entitlements" to what is possible seems a bigger stretch to me.
First I want to say this is one of the most realistic intelligent blogs on the net and it's good to escape from my political and geopolitical world and their comments searching for trends, hell I'm a news junkie because of my family background. since my dad died 10 years ago I've been teaching my mom economics and having her buy gold since he dies much to the fight from our money manager who handles what's left from our family business broken up because of the death tax.
I have learned much from this site and the good people who leave comments so I thank yall.
Anyway, if there were not outside variables in the world I would see Gold having a correction, but there are several world altering risks that cannot be ignored. I stopped trying to give advice to my friends who have kids because they enjoy keeping their head in the sand. The major risks I see are the dangers in the gulf from oil, chemicals, and methane, and geologic factors. Israel's surgical strike come soon against Iran. The debt. the hyper printing of money. The Coming Insurrection. the nudging towards a civil/race war. Bank holidays. Tax increases in 2012. Another 9-11-2008 (financial). Another 9-11 whether its a false flag arranged by Global Marxofascists Revolutionaries or Pakistanis pissed off from drone attacks. Way too much power in the executive branch and that branch waging war on Americans and America herself. A paper released where Kissinger is siding with the Arabs and says a another Isreal-Arab war would be a very beneficial thing.
i wish i could list more but Because I have RSD in my left arm and have had a ulnar nerve rerouted which made it worse and spread from my hand to my shoulder, I was forced to be general and I know yall are smart enough that some of the variables will cause the other ones to materialized. Plus the fucking strong pain meds I have to take don't help and but kill my writing.
I hope to post here as often as my pain level will allow and add some info if i don't see it spoken about. When you had a dad who was involved in some black op type stuff. He once counted 70,000 chicoms marching down an unknown trail, and he reports it to Westmoreland and a suit only to have Westmoreland almost attack a suit during the debriefing because the suit told him that he did not see what he saw.... Nixon then normalized relations with China.
Exit question: is the golden Rabbit dildo visible next to Erin head on my avatar bc every time i see her she look like she just got off.??? Yall keep up the good info enchange and thanks you tyler for creating this site that shine some light where darkness once reigned on the casino, skynet, and the dirt bag enablers.
I also enjoy reading reports from shadowstats.com which is worth the money. And floridiaoilspilllaw.com is the best site for the rumors on the gulf hitting the Gov't owned media.
They're not borrowing from the banks! They're borrowing from *us*! Why do you think the transfer of debt from private to public sector has taken place?
The equity global uptrend since March 2009 was a bear market rally contained within a much larger downtrend that started in 2000.
As mentioned since last year - the March 2009 lows will not hold. Other global equity indexes are similar.
http://stockmarket618.wordpress.com